**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, 2006**                                                               |
| ** **                                                                                                          | ** ** | ** **                                                                                              |
| **OR**                                                                                                              |
| ** **                                                                                                          | ** ** | ** **                                                                                              |
| **o**                                                                                                               | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                          | ** ** | ** **                                                                                              |
| **For the  transition period from             to** |

 

**Commission file number 0-7282**

**COMPUTER HORIZONS CORP.**

(Exactname of registrant as specified in its charter)

| **New York**                                                                        |   | **13-2638902**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
| ** **                                                                          |   | ** **                            |
| **49 Old  Bloomfield Avenue**                                                       |   | **07046-1495**                        |
| **Mountain  Lakes, New Jersey**                                                     |   | (Zip Code)                            |
| (Address of principal  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** |
|-------------------------|--------|----------------------------|
| None                    |   | **on  which registered**   |
|                    |   | None                       |

 

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

**Common Stock(Par value $.10 per share)**

(Title of class) 

**Series APreferred 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 whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large acceleratedfiler  o            Acceleratedfiler  x            Non-acceleratedfiler  o

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes   x   No   o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K. o

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

The aggregate market value of the voting stock heldby non-affiliates of the registrant as of March 1, 2007 was approximately$158,358,000.  The number of shares outstandingof each of the registrant’s classes of common stock as of March 1, 2007 were33,837,284 shares.

 

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**COMPUTERHORIZONS CORP.December 31, 2006Form 10-K**

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

 

 

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**Disclosure Regarding Forward Looking Statements**

Statementsincluded in this Report that do not relate to present or historical conditionsare “forward-looking statements” within the meaning of that term inSection 27A of the Securities Act of 1933, as amended, and inSection 21F of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”). Additional oral or written forward-looking statements may be made by theCompany from time to time, and such statements may be included in documentsthat are filed with the Securities and Exchange Commission (“SEC”). Suchforward-looking statements involve risks and uncertainties that could causeresults or outcomes to differ materially from those expressed in suchforward-looking statements. Forward-looking statements may include, withoutlimitation, statements relating to the Company’s plans, strategies, objectives,expectations and intentions and are intended to be made pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act of 1995.Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,”“anticipates,” or “plans” and similar expressions are intended to identifyforward-looking statements. Among the important factors on which suchstatements are based are assumptions concerning the anticipated growth of theinformation technology industry, the continued need of current and prospectiveclients for the Company’s services, the availability of qualified professionalstaff, and price and wage inflation.

 

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**PART I**

**Item 1.                    *Business***

*General*

At a SpecialMeeting held on February 14, 2007, the shareholders of Computer Horizons Corp.(the “Company”) approved the sales of the Company’s Chimes, Inc. subsidiary toan affiliate of Axium International and the Company’s Commercial Division toAllegis Group (the “Asset Sales”).  At the Special Meeting, theshareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company. The Company began implementing the complete liquidation and dissolutionof the company after both Chimes and Commercial Asset Sales were completedFebruary 16, 2007. On March 5, 2007, the Company announced that its Board ofDirectors declared an initial liquidating distribution of $4.00 per share toits common stockholders.  Thisdistribution will be payable March 27, 2007 to shareholders of record as of theclose of business on March 16, 2007. This initial liquidating distribution is the first in what is expectedto be a series of liquidating distributions pursuant to the plan of liquidationand dissolution approved by the Company’s shareholders on February 14,2007.  The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.68 to$4.81 per share of Common Stock.

Foundedin 1969, the Company provided professional information technology (IT) servicesto multi-national companies throughout North America, and to the United Statesgovernment. The Company incorporated in 1972 under the laws of the State of NewYork. The Company provided a broad range of IT staffing and project-basedsolution services using a global delivery model that allows the Company toperform work at client sites or at Company development centers in the U.S.,Montreal, Canada, and Chennai, India. The Company 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. The Company’s market-leading Chimes, Inc. (“Chimes”)subsidiary offered a comprehensive business process outsourcing (BPO) solutionfor vendor management services (VMS), enabled by its proprietary technology,ChimesTM. Chimes managed more than $1.6 billion in contingent labor spent forits global client base.

TheCompany’s clients are generally very large, Global 2000 companies in manyindustries and with wide geographic dispersion. For the years endedDecember 31, 2006, 2005 and 2004, the Company’s ten largest clientsaccounted for approximately 35%, 35% and 40% of its revenues, respectively. In2006, the Company provided information technology services to 323 clients. ** ** During 2006, the Company’s largestclient accounted for approximately 7% of the Company’s consolidated revenues.

During 2006, the Company was restructured to addresslines of accountability, sharpen the focus of service offerings, setperformance standards and goals and to eliminate inefficiencies. The Company’sCommercial Services business was decentralized, and the business was split intofour consolidated geographic regions for domestic Staffing sales and Solutions,with recruiting and operations for each region being segregated.  Closer collaboration was encouraged betweensales and delivery at the customer level, which had a direct impact on thefinancial results of the division by facilitating the development of a moreaccurate and efficient delivery process. In Solutions delivery, the Company concentrated its focus on theOutsourcing business model, and promoted growth in CHC-controlled developmentsites. The Company was effective in reducing corporate overhead by $2.1 millionduring 2006. The Company Commercial Services experienced an improved grossprofit margin by 2.2% over 2005. In an effort to maximize shareholder value,the Federal business unit was sold during 2006 for a purchase price of $15.3million in cash, less an estimated net asset adjustment of approximately $1.2million, which is subject to further adjustment.  Thesale of RGII resulted in a loss of $4.8 million.

*Financial Information about IndustrySegments*

Theinformation required by this item is incorporated herein by reference to Note10 of the Notes to Consolidated Financial Statements included under Item 8 ofthis Report.

*Employees*

As ofDecember 3l, 2006, the Company had a staff of 3,061, includingapproximately 1,864 IT professionals. None of the Company’s employees aresubject to a collective bargaining arrangement. The Company devotes significantresources to recruitment of qualified professionals and provides continuingin-house training and education, and a career path management developmentprogram within the Company.

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

*Available Information*

TheCompany’s internet website address is www.computerhorizons.com. Each of thecompany’s subsidiaries maintains its own website. The Chimes, Inc. websiteaddress is www.chimesnet.com. The Company’s Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K andamendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Exchange Act are available free ofcharge through our website as soon as reasonably practicable after they areelectronically filed with, or furnished to, the SEC.

4

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

*Ouroperating results have varied and are subject to continued variability. Thismay result in volatility in the market price of our common stock.*

Ourrevenues and operating results have varied in the past.  Given the sale of all operating units of theCompany, our disclosure of risk factors has changed significantly.  Things that may affect distribution toshareholders include:

·                  net wind downcost, if cost are higher then expected it will have an adverse effect

·                  contingentliabilities from sale for a maximum of $8 million for Chimes and $10 millionfor Commercial indemnities

5

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**Item 2.                    *Properties***

TheCompany’s Corporate and Financial Headquarters (the “Headquarters”), as well asits Eastern Regional Office, comprising approximately 31,764 square feet, arelocated at 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey. The MountainLakes lease, which expires June 30, 2007, carries a current monthly rentalof approximately $83,000. Upon lease expiration, the Company may extend thecurrent lease.  As of December 3l,2006, the Company also maintained leased operating facilities, some of which areshared between Commercial and Chimes business segments, in Colorado,Connecticut, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota,Missouri, New Jersey, New York, Ohio, and Washington, as well as internationaloperations located in India, Canada, and Europe with an aggregate ofapproximately 155,400  square feet.Chimes maintains facilities in California, Illinois, Michigan, Minnesota, NewYork, and New Jersey, and international locations in London and Canada. Theleases for all of these facilities are at a current annual aggregate rental ofapproximately $3.9 million. These leases expire at various times with no leasecommitment longer than April 30, 2013. The Company believes that the facilitiesare adequate for the current level of operations.

**Item 3.                    *LegalProceedings***

TheCompany is involved in various routine litigation matters, which arise throughthe normal course of business. Although the outcome of such matters isunpredictable with assurance, management does not expect that the ultimate outcomeof any of these matters, individually or in aggregate, will have a materialadverse effect on the Company’s financial position or results of operations.However, depending on the amount and timing of any unfavorable outcome of anysuch matters, such outcome could possibly materially and adversely affect ourfuture cash flows in any particular period.

6

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

The annualshareholders meeting took place on December 20, 2006 to re-elect the fivedirector nominees that were selected at the special meeting of shareholdersthat took place on October 11, 2005, as well as to ratify the appointmentof Amper, Politziner & Mattia, P.C. (“APM”) as independent auditors of theCompany for the year ending December 31, 2006. The results of the voting are as follows:

(1)  Thefollowing directors were re-elected to serve on the Company’s Board ofDirectors:

|                    | ** ** | **For**    | ** ** | **Withhold** | ** ** |
|--------------------|------------|------------|------------|--------------|------------|
| Eric Rosenfeld     |       | 28,767,509 |       | 1,939,594    |       |
| Karl L. Meyer      |       | 29,615,520 |       | 1,091,583    |       |
| Robert F.  Walters |       | 29,657,899 |       | 1,049,204    |       |
| Frank J. Tanki     |       | 29,656,392 |       | 1,050,711    |       |
| Willem van Rijn    |       | 29,659,410 |       | 1,047,693    |       |

 

(2)The appointment of Amper, Politziner & Mattia, P.C. (“APM”) as independentauditors of the Company for the year ending December 31, 2006 was ratified atthe meeting.

| For:     |   | 30,532,248 |   |
|----------|--------|------------|--------|
| Against: |   | 119,788    |   |
| Abstain: |   | 54,947     |   |

 

At a Special Meeting held on February 14, 2007, theshareholders of the Company approved the sales of the Company’s Chimes, Inc.subsidiary to an affiliate of Axium International and the Company’s CommercialDivision to Allegis Group (the “Asset Sales”).  At the Special Meeting,the shareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company. The results of the voting are as follows:

(1)          ProposalNo. 1:  A proposal to approve the sale bythe Company of substantially all of the assets of its Chimes, Inc. subsidiaryto an affiliate of Axium International, Inc. pursuant to the Asset PurchaseAgreement dated as of October 18, 2006 by and among Axium International, Inc.,Diversity MSP, INC., Chimes, Inc., and the Company.  

| For        | ** ** | **%** | ** ** | **Against** | ** ** | **%** | ** ** | **Abstain** | ** ** | **%** | ** ** |
|------------|------------|-------|------------|-------------|------------|-------|------------|-------------|------------|-------|------------|
| 24,624,078 |       | 73.1  |       | 449,580     |       | 1.3   |       | 42,672      |       | 0.1   |       |

(2)          ProposalNo. 2: A proposal to approve the sale by the Company of substantially all theassets of its Commercial Services business to an affiliate of AllegisGroup, Inc. pursuant to an Asset Purchase Agreement dated as of November 7,2006 by and among TEKsystems, Inc., Allegis Group, Inc., TEKsystemsEF&I Solutions, LLC, Allegis Group Canada Corporation, GBS Holdings PrivateLimited, CHC Healthcare Solutions, LLC and the Company.

| For        | ** ** | **%** | ** ** | **Against** | ** ** | **%** | ** ** | **Abstain** | ** ** | **%** | ** ** |
|------------|------------|-------|------------|-------------|------------|-------|------------|-------------|------------|-------|------------|
| 24,634,144 |       | 73.1  |       | 434,959     |       | 1.3   |       | 47,227      |       | 0.1   |       |

(3)          ProposalNo. 3: A proposal to approve a proposed plan of complete liquidation anddissolution of the Company and to approve the transactions contemplated therebypursuant to which the Company. will be dissolved.

| For        | ** ** | **%** | ** ** | **Against** | ** ** | **%** | ** ** | **Abstain** | ** ** | **%** | ** ** |
|------------|------------|-------|------------|-------------|------------|-------|------------|-------------|------------|-------|------------|
| 24,612,925 |       | 73.0  |       | 459,227     |       | 1.4   |       | 44,178      |       | 0.1   |       |

(4)          ProposalNo. 4: A proposal to approve one or more adjournments of the Special Meeting ifdeemed necessary to facilitate the approval of any of Proposal Nos. 1, 2, and3, including to permit the solicitation of additional proxies if there are notsufficient votes at the time of the Special Meeting to establish a quorum or toapprove Proposal Nos. 1, 2, and 3.

| For        | ** ** | **%** | ** ** | **Against** | ** ** | **%** | ** ** | **Abstain** | ** ** | **%** | ** ** |
|------------|------------|-------|------------|-------------|------------|-------|------------|-------------|------------|-------|------------|
| 23,026,798 |       | 68.3  |       | 2,017,754   |       | 6.0   |       | 71,778      |       | 0.2   |       |

 

7

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**PART II**

**Item 5.****                                                        *Market for Registrant’s Common Equity, RelatedShareholder Matters and Issuer 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 endedDecember 31, 2006 and 2005 is as follows:

 

|            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------|------------|------------|------------|------------|------------|
| ** ** | ** ** | **High**   | ** ** | **Low**    | ** ** | **High** | ** ** | **Low** | ** ** |
| Quarter    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| First      |       | $          | 5.00       |       | $          | 4.15 |   | $ | 4.40 |   | $ | 3.48 |   |
| Second     |       | 5.50       |       | 4.20       |       | 3.96 |   | 2.62 |   |
| Third      |       | 4.73       |       | 3.61       |       | 4.48 |   | 3.04 |   |
| Fourth     |       | 4.80       |       | 3.49       |       | 4.56 |   | 3.96 |   |
|            |            |            |            |            |            |  |  |  |  |  |  |  |  |

 

During 2006, theCompany did not repurchase shares of its common stock. As treasury shares weredepleted the company issued 575,547 shares of its common stock.  As of March 1, 2007, there were approximately757 registered holders of common stock, according to the Company’s transferagent.

8

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**Item 6.      * SelectedFinancial Data***

**Consolidated Statement of Operations Data:**

(in thousands except per share data)

 
| ** **                                                                                                                                     | ** ** | **December 31,** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
| ** **                                                                                                                                     | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                                                                                           |       |                  |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                                                                                      |       | $                     | 211,990 |   | $ | 223,856 |   | $ | 214,188 |   | $ | 226,990 |   | $ | 297,115 |   |
| **Costs and expenses:**                                                                                                                        | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct costs                                                                                                                                   |       | 141,191               |   | 159,587 |   | 154,488 |   | 162,880 |   | 216,181 |   |
| Selling, general  and administrative                                                                                                           |       | 68,295                |   | 71,902 |   | 69,077 |   | 74,434 |   | 91,343 |   |
| Amortization of  intangibles                                                                                                                   |       | —                |   | 79 |   | 189 |   | 63 |   | — |   |
| Restructuring  charges                                                                                                                         |       | (41                   | ) | 2,150 |   | 2,859 |   | 3,278 |   | 2,515 |   |
| SERP/Change of Control                                                                                                                         |       | —                |   | 13,247 |   | — |   | — |   | — |   |
| Special charges                                                                                                                                |       | 367                   |   | 5,135 |   | (939 | ) | 10,113 |   | — |   |
| Goodwill  impairment                                                                                                                           |       | —                |   | — |   | 20,306 |   | — |   | — |   |
| Write off of  assets                                                                                                                           |       | —                |   | — |   | 910 |   | — |   | — |   |
| Income(loss)  from continuing operations                                                                                                       |       | 2,178                 |   | (28,244 | ) | (32,702 | ) | (23,778 | ) | (12,924 | ) |
| Other  income/(expense):                                                                                                                       |       |                  |   |   |   |   |   |   |   |   |   |
| Gain/(loss) on  sale of assets                                                                                                                 |       | 394                   |   | — |   | — |   | (424 | ) | 5,890 |   |
| Net (loss)/gain  on investments                                                                                                                |       | —                |   | (1,180 | ) | — |   | (432 | ) | (61 | ) |
| Interest income                                                                                                                                |       | 2,213                 |   | 811 |   | 321 |   | 517 |   | 928 |   |
| Interest expense                                                                                                                               |       | —                |   | (6 | ) | (82 | ) | (40 | ) | (174 | ) |
|                                                                                                                                           |       |                  |   |   |   |   |   |   |   |   |   |
| Income/(loss) from  continuing operations before income taxes and cumulative effect of a change  in accounting principle and minority interest |       | 4,785                 |   | (28,619 | ) | (32,463 | ) | (24,157 | ) | (6,341 | ) |
| Income taxes/(benefit)                                                                                                                         |       | 201                   |   | 17,130 |   | (3,478 | ) | (6,702 | ) | 1,869 |   |
| Income /(loss) from  continuing operations before cumulative effect of a change in accounting principle  and minority interest                 |       | 4,584                 |   | (45,749 | ) | (28,985 | ) | (17,455 | ) | (8,210 | ) |
| Minority Interest                                                                                                                              |       | —                |   | — |   | (45 | ) | (89 | ) | 35 |   |
| Cumulative  effect of change in  accounting principle                                                                                          |       |                  |   |   |   |   |   |   |   | (29,861 | ) |
| Net income/(loss)  Continuing Operations                                                                                                       |       | $                     | 4,584 |   | $ | (45,749 | ) | $ | (29,030 | ) | $ | (17,544 | ) | $ | (38,036 | ) |
|                                                                                                                                           |       |                  |   |   |   |   |   |   |   |   |   |
| Income/ (loss) from  discontinued operations                                                                                                   |       | (13,243               | ) | (671 | ) | 3,858 |   | 389 |   | — |   |
| Loss on sale of  discontinued operations                                                                                                       |       | (4,779                | ) | — |   | — |   | — |   | — |   |
| Income/ (loss)  from discontinued operations net of tax*                                                                                       |       | (18,022               | ) | (671 | ) | 3,858 |   | 389 |   | — |   |
| Net loss                                                                                                                                       |       | $                     | (13,438 | ) | $ | (46,420 | ) | $ | (25,172 | ) | $ | (17,155 | ) | $ | (38,036 | ) |
| ** **                                                                                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Earnings/(loss) per  share from continuing operations-basic                                                                                    |       | $                     | 0.14 |   | $ | (1.46 | ) | $ | (0.94 | ) | $ | (0.58 | ) | $ | (1.22 | ) |
| Earnings/(loss) per  share from discontinued operations-basic                                                                                  |       | $                     | (0.56 | ) | $ | (0.02 | ) | $ | 0.12 |   | $ | 0.01 |   | $ | — |   |
| Loss per share-basic                                                                                                                           |       | $                     | (0.41 | ) | $ | (1.48 | ) | $ | (0.82 | ) | $ | (0.56 | ) | $ | (1.22 | ) |
| Earnings/(loss) per  share from continuing operations-diluted                                                                                  |       | $                     | 0.14 |   | $ | (1.46 | ) | $ | (0.94 | ) | $ | (0.58 | ) | $ | (1.22 | ) |
| Earnings/(loss) per  share from discontinued operations-diluted                                                                                |       | $                     | (0.55 | ) | $ | (0.02 | ) | $ | 0.12 |   | $ | 0.01 |   | $ | — |   |
| Loss per share-diluted                                                                                                                         |       | $                     | (0.41 | ) | $ | (1.48 | ) | $ | (0.82 | ) | $ | (0.56 | ) | $ | (1.22 | ) |
| Weighted average number  of shares of outstanding-basic                                                                                        |       | 32,444,000            |   | 31,399,000 |   | 30,870,000 |   | 30,455,000 |   | 31,243,000 |   |
| Weighted Average number  shares outstanding-diluted                                                                                            |       | 32,614,000            |   | 31,399,000 |   | 30,870,000 |   | 30,455,000 |   | 31,243,000 |   |

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* This includes tax (expense)/benefit of $0 in2006, $(3,038) in 2005, ($788) in 2004 and $293 in 2003 (000’s omitted).

9

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**Item 7.                    *Management’sDiscussion and Analysis of Financial Condition and Results of Operation***

**FORWARD-LOOKING STATEMENTS**

Thisreport contains forward-looking statements within the meaning of the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Insome cases, forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions.Forward-looking statements also include the assumptions underlying or relatingto any of the foregoing statements. Such forward-looking statements are basedupon current expectations and beliefs and are subject to a number of factorsand uncertainties that could cause actual results to differ materially fromthose described in the forward-looking statements including, but not limitedto, risks 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.

** **The Management’s Discussionand Analysis of Financial Condition and Results of Operations set forth in thisPart II has been changed to reflect RGII in discontinued operations.

At a SpecialMeeting held on February 14, 2007, the shareholders of the Company approved thesales of the Company’s Chimes, Inc. subsidiary to an affiliate of AxiumInternational and the Company’s Commercial Division to Allegis Group (the “AssetSales”).  At the Special Meeting, the shareholders of the Company alsoapproved a proposed plan of complete liquidation and dissolution of theCompany.  The Company began implementingthe complete liquidation and dissolution of the company after both Chimes andCommercial Asset Sales were completed February 16, 2007.  On March 5, 2007, the Company announced thatits Board of Directors declared an initial liquidating distribution of $4.00per share to its common stockholders. This distribution will be payable March 27, 2007 to shareholders ofrecord as of the close of business on March 16, 2007.  This initial liquidating distribution is thefirst in what is expected to be a series of liquidating distributions pursuantto the plan of liquidation and dissolution approved by the Company’sshareholders on February 14, 2007.   Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.68 to $4.81 per share of Common Stock.

Thefollowing detailed discussion and analysis of the Company’s financial conditionand results of operations should be read in conjunction with theDecember 31, 2005 financial statements and related notes included inseparate sections of this Form 10-K.

** Overview**

TheCompany, founded in 1969 provided professional information technology (IT)services to multi-national companies throughout North America, and to theUnited States government. The Company was incorporated in 1972 under the lawsof the State of New York. The Company provided 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.

TheCompany had revenues for the full year ending December 31, 2006 in continuingoperations of $212 million, compared to $223.9 million for 2005. The decreaseof 5.3% in revenue in 2006 was primarily attributable to the companydeemphasizing certain underperforming parts of the Commercial Group business,and heightening its focus on more profitable services, geographies andrelationships.

TheCompany’s net income for the year ended December 31, 2006 from continuingoperations totaled $4.6 million, or $0.14 per share, compared with a net lossof $45.7 million or $(1.46) per share in the comparable period 2005.  The loss from discontinued operations in 2006was $18 million, compared to $.7 million in 2005.  This was primarily comprised of theimpairment charge for RGII goodwill of $15 million, and the loss on sale ofRGII of $4.8 million.  During 2006,restructuring and other special charges consist primarily of:

·                  $41,000reduction in restructuring expense based on the settlement of a lawsuit.

·                  The Companyrecorded special charges totaling $367,000 approximately $87,000 relating toexpenses in connection with the review of strategic alternatives and $280,000of special charges related to tax services.

·                  The Company solda condominium in Sunny Isles Beach Florida for $450,000.  A gain on saleof $394,000 was recorded.

TheCompany had approximately $72.8 million in cash and cash equivalents atDecember 31, 2006 (including $23.3 million of cash to be disbursed toChimes vendors in accordance with the client payment terms).  Working capital was $72.0 with no debtoutstanding.

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**Recent Developments**

*Sale of RGII (Discontinued Operations)*

The sale of RGII resulted in a net book loss ondisposal of $4.8 million, including approximately $969,000 in transactioncosts. The Company sold this operating segment as part of a plan to maximizethe value of the Company. RGII had net revenues of for $29.6 million for thenine months ended September 29, 2006.

Results of the RGII subsidiary for all periods arepresented as results from discontinued operations. Assets and liabilities ofRGII are shown on the Balance Sheet as assets of discontinued operations andliabilities of discontinued operations respectively. To provide a comparablepresentation period over period, the prior period financial statementscontained herein have also been restated to reflect RGII as assets held fordisposal.  RGII had net revenues for theyears ended December 31, 2006 of $29.6 million, $45.0 million for December 31,2005 and $48.3 million for December 31, 2004.

|                                                             | ** ** | **Year ended December 31** |
|-------------------------------------------------------------|------------|-------------------------------------------|
| **(dollars in thousands)**                        | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** |
| Revenue                                                     |       | 29,582                                    |   | 44,980 |   | 48,339 |
| Income/(Loss) on  Discontinued Operations Before Income Tax |       | (13,161                                   | )* | 2,367 |   | 4,646 |

 

* primarily relating to acharge of $15 million of goodwill impairment taken second quarter of 2006

Thecarrying amounts of major classes of related assets and liabilities were asfollows:

| Assets & Liabilites from Discontinued Operations | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                    | ** ** | **2006**   | ** ** | **2005**   | ** ** |
| **Current  Assets**                                                           |       |       |       |       |       |
| Account  Receivable                                                           |       |       |       | 8,423      |       |
| Refund Income  Tax                                                            |       |       |       | 136        |       |
| Other Current                                                                 |       |       |       | 80         |       |
| **Subtotal**                                                                  |       | —     |       | 8,639      |       |
|                                                                          |       |       |       |       |       |
| **Long  Term Assets**                                                         |       |       |       |       |       |
| PP&E-Gross                                                                |       |       |       | 2,766      |       |
| Depreciation                                                                  |       |       |       | (1,539     | )          |
| PP&E Net                                                                  |       | —     |       | 1,227      |       |
| Goodwill                                                                      |       |       |       | 27,624     |       |
| Intangibles                                                                   |       |       |       | 1,939      |       |
| Investments                                                                   |       |       |       | —     |       |
| Deferred Income  Tax                                                          |       |       |       | —     |       |
| Other Assets                                                                  |       |       |       | 947        |       |
| **Subtotal**                                                                  | ** ** | **—** | ** ** | **31,737** | ** ** |
|                                                                          |       |       |       |       |       |
| **Current  Liabilities**                                                      |       |       |       |       |       |
| Accrued Payroll                                                               |       |       |       | 2,434      |       |
| Accounts Payable                                                              |       |       |       | 637        |       |
| Restructure  Reserve                                                          |       |       |       | 12         |       |
| Other Accrued  Expenses                                                       |       |       |       | 566        |       |
| **Subtotal**                                                                  | ** ** | **—** | ** ** | **3,649**  | ** ** |
|                                                                          |       |       |       |       |       |
| **Long  Term Liabilities**                                                    |       |       |       |       |       |
| Deferred Comp                                                                 |       |       |       | 880        |       |
| Other  Liabilities                                                            |       |       |       | 90         |       |
| **Subtotal**                                                                  | ** ** | **—** | ** ** | **970**    | ** ** |

 

*Sale ofChimes*

On October 18, 2006, the Company signed a definitiveasset purchase agreement by and among Axium International, Inc., a Delawarecorporation, Diversity MSP, Inc., a California corporation (“Diversity MSP”),Chimes, Inc., a Delaware corporation and wholly-owned subsidiary of the Company(now known as Chimes, LLC; a Delaware limited liability company).  Pursuant to the Chimes Asset PurchaseAgreement, on February 16, 2007, the Company sold to Diversity MSPsubstantially all of the assets of Chimes, LLC, excluding cash and marketablesecurities, for a purchase price of $80.0 million in cash (the “Chimes AssetSale”), with an estimated 

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gain of $75 million. The maximum liability to theCompany is $8 million and is contingent upon assertion of a claim for theindemnity within 6 months after the closing date.

The sale of Chimes was a disposal of a major line ofbusiness for which shareholder approval was required. As of December 31, 2006,all conditions of the sale, including the shareholder vote, had not been met,and therefore Chimes did not meet the criteria of an asset group to be sold atthat time.  Assets that meet thesecriteria are met after the balance sheet date but before the issuance offinancial statements, must continue to be classified as held and used in thosefinancial statements when issued.  Forthis reason, as of December 31, 2006, Chimes continues to be shown in theresults from operations of the Company, and not as assets held for disposal.

The sale of the Company’s and its affiliate’s assetspursuant to the Chimes Asset Purchase Agreement will be a taxable transactionwith respect to the Company to the extent that any gain or loss is realized.The Company will realize gain measured by the difference between the proceedsreceived by it and its affiliates on such sale and the Company’s (or anaffiliate’s) tax basis in the assets. For purposes of calculating the gain, theproceeds received by the Company and its affiliates will include the cash  received by them, the amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain expected to berealized from the Chimes Transaction for regular Federal income tax purposesand otherwise incur approximately $1.3 million in alternative minimum taxes.

The Company and/or its affiliates may be subject tostate income taxes to the extent that gains exceed losses for state tax lawpurposes, but does not anticipate that such taxes, if any, will be significant.Based upon current projections, such state taxes are estimated to beapproximately $1 million after taking into account the availability of statelosses to offset the gain.

*Sale of Commercial*

On November 7, 2006, the Company entered into an assetpurchase agreement (the “Commercial Services Asset Purchase Agreement”) by andamong TEKsystems, Inc., a Maryland corporation (“TEKsystems”), TEKsystemsEF&I Solutions, LLC, a Maryland limited liability company, Allegis GroupCanada Corporation, a Nova Scotia unlimited liability corporation, the Company,GBS Holdings Private Limited, a corporation organized under the laws ofMauritius, CHC Healthcare Solutions, LLC, a Delaware limited liability company,and Allegis Group, Inc., a Maryland corporation.  Pursuant to the Commercial Services AssetPurchase Agreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(601,000) using data as of the end of the thirdquarter of 2006 (the “Commercial Services Asset Sale”).  Assets not included in the sale of theCommercial Services Business include a refundable tax credit of $8.5 million,and the unit’s operating cash as of the date of the sale.  The Company currently expects to record anestimated gain of $29 million as a result of the sale of the CommercialServices Business. The maximum liability of the Company is $10 million and iscontingent upon assertion of a claim for indemnity within nine months after theclosing date.

The sale of the Commercial Services Business was adisposal of a major line of business for which shareholder approval wasrequired. As of December 31, 2006, all conditions of the sale, including theshareholder vote, had not been met, and therefore the Commercial ServicesBusiness did not meet the criteria of an asset group to be sold at thattime.  Assets that meet these criteriaafter the balance sheet date but before the issuance of financial statements,must continue to be classified as held and used in those financial statementswhen issued.  For this reason, as ofDecember 31, 2006, the Commercial Services Business continues to be shown inthe results from operations of the Company, and not as assets held fordisposal.

The sale of the Commercial Services Business Unit,pursuant to the Commercial Services Asset Purchase Agreement, will be a taxabletransaction with respect to the Company to the extent that any gain isrealized. The Company will realize gain or loss measured by the differencebetween the proceeds received by it and its affiliates on such sale and theCompany’s (or an affiliate’s) tax basis in the assets. For purposes ofcalculating gain or loss, the proceeds received by the Company and itsaffiliates will include the cash received by them, the amount of their indebtedness that is cancelled orassumed, and any other consideration received by them for their assets. It isanticipated that the Company will have sufficient current losses to offset mostof the gain expected to be realized from the Commercial Services Business assetsale for regular Federal income tax purposes and otherwise incur approximately$134,000 in alternative minimum taxes. The Company and/or its affiliates may be subject to state income taxesto the extent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant.

*AnnualShareholders Meeting*

At a Special Meeting held on February 14, 2007, theshareholders of the Company approved the sales of the Company’s Chimes, Inc.subsidiary to an affiliate of Axium International and the Company’s CommercialDivision to Allegis Group (the “Asset Sales”).  At the Special Meeting,the shareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company.

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The annual shareholders meeting took place on December20, 2006. Shareholders re-elected the five director nominees.  In addition shareholders ratified theappointment of Amper, Politziner & Mattia, P.C. (“APM”) as independentauditors of the Company for the year ending December 31, 2006.

*Changeof Control Charges and Special Charges*

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

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

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

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

*Reservesfor issuance of authorized but unissued shares*

As Treasury Shares have been depleted through issuanceupon stock option exercises and to the Employee Stock Purchase Plan (the “ESPP”),on October 2, 2006, The Company created common stock reserves for issuance ofauthorized but unissued shares.  The initial reserve for stock optionexercise was 3,500,000 and the reserve for the ESPP was 250,000 shares.  As of December 31, 2006, 2,924,453 reserveshares remain for stock option exercise and 250,000 reserve shares remain forESPP.

The company has discontinued the ESPP as of the end offourth quarter 2006.  The lastcontributions were accepted thru December 31, 2006 and the final purchase forESPP was January 3, 2007.  As of January2007 all Treasury Shares were fully depleted with the final purchase of ESPPfor the Company.

**Revenue Generating Activities(Results from Continuing Operations)**

TheCommercial business consists of providing technology consultants to largeorganizations on a temporary hire basis and is classified in two generalcategories, staff augmentation and solutions work. For the year endedDecember 31, 2006, this segment represented approximately 85% of totalrevenues, including $123.7 million of staff augmentation revenue and $56.8million of commercial solutions revenue.

Chimes, Inc.,or Chimes, 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, 2006,Chimes accounted for approximately 15% of total revenues.

** Critical Accounting Policies**

Themost critical accounting policies used in the preparation of the Company’sfinancial statements are related to revenue recognition, the evaluation of thebad debt reserve, the valuation of goodwill, and the valuation of deferred taxassets.

*Revenue Recognition*

TheCompany recognizes revenues either on a time-and-materials basis or on a fixedfee basis. Under a typical time-and-materials billing arrangement, ourcustomers are billed on a regularly scheduled basis, such as biweekly ormonthly. At the end of each accounting period, revenue is estimated and accruedfor services performed since the last billing cycle. These unbilled amounts arebilled the following month. Approximately 96% and 94% of consolidated revenue in 2006 and 2005,respectively, was derived from time-and-material contracts

Forfixed fee contracts, revenue is recognized on the basis of the estimatedpercentage of completion. Each fixed fee contract has different terms,milestones and deliverables. The milestones and deliverables primarily relateto the work to be performed and the timing of the billing. At the end of eachreporting period an assessment of revenue recognized on the percentage ofcompletion and milestones achieved criteria is made. If it becomes apparentthat estimated cost will be exceeded, an adjustment to revenue and/or costswill be made. The cumulative effect of revisions in estimated revenues and costsare recognized in the period in which the facts that give rise to the impact ofany revisions become known.

Unbilledaccounts receivable represent amounts recognized as revenue based on servicesperformed in advance of customer billings principally on a time-and-materialsbasis. At the end of each accounting period, revenue is accrued for servicesperformed since the last billing cycle. These unbilled amounts are billed thefollowing month. Costs and estimated earnings in excess of billings on fixedfee contracts arise when percentage of completion accounting is used. Suchamounts are billed at specific dates or at contract completion.

TheCompany’s Chimes subsidiary recognizes revenue on a transaction fee basis. TheChimes service offering aggregates the suppliers of temporary workers to thecustomer and renders one invoice to the customer. Upon payment from thecustomer, Chimes 

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deducts a transaction feeand remits the balance of the client payment to the applicable vendor. Chimesrecognizes only their fee for the service, not the aggregate billing to thecustomer. The gross amount of the customer invoicing is not considered revenueor a receivable to Chimes because there is no earnings process for the grossamount and by contract terms, Chimes is not obligated to pay the vendor untilpaid by the customer.

*Evaluation of Bad Debt Reserve*

TheCompany determines its allowance by considering a number of factors, includingthe length of time trade accounts receivable are past due, the Company’sprevious loss history, the customer’s current ability to pay its obligation tothe Company and the condition of the general economy and the industry as awhole. The Company writes off accounts receivable when they becomeuncollectible, and payments subsequently received on such receivables arecredited to income or to the allowance for doubtful accounts.

*Goodwill*

Forthe year ended December 31, 2004, the Company reassessed the carryingvalue of goodwill associated with its Commercial Solutions Group. Because of areduction in projected future cash flows in the Commercial Solutions businessunit, primarily resulting from significant revenue declines in 2004, theCompany determined that goodwill was impaired and recorded a non-cash charge of$20.3 million, related to the write-off of the Commercial Solutionsgoodwill. There was no income tax effect on the impairment charge as therelated goodwill was primarily attributable to acquisitions which yielded notax basis for the Company.

In2006, a $15 million charge was taken for goodwill impairment included indiscontinued operations for RGII.

*Valuation of the Deferred Tax Asset*

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

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net operating losses, and most state net operating losses. The Companybelieves that the valuation allowance is appropriate because these deferred taxassets have relatively short carryforward periods or relate to taxingjurisdictions which do not allow the filing of consolidated tax returns. TheCompany expects to continue to maintain a valuation allowance on these deferredtax assets until an appropriate level of profitability has been achieved in theapplicable taxing jurisdictions, or strategies are developed that would enablethe Company to conclude that it is more likely than not that a portion of thesedeferred tax assets will be realized.

Inyears prior to 2005,  management reliedprimarily on future projected income in assessing the realizability of deferredtax assets resulting from federal net operating loss carryforwards and otherdeductible 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. During 2006 the company hasmaintained this position regarding the realization of deferred tax assets andaccordingly it has continued to record a valuation allowance against netdeferred tax assets including those originating in 2006.

Pleaserefer to Note 8 of the Notes to Consolidated Financial Statements containedelsewhere in this Form 10-K, for further information regarding deferredincome taxes.

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**RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

**Year Ended December 31, 2006 Compared to Year EndedDecember 31, 2005**

*Revenues:* Consolidated revenue decreasedto $212 million in the year ended December 31, 2006 from $223.9 million inthe year ended December 31, 2005, a decrease of $11.9 million or5.3%.  Commercial revenues decreased to$180.5 million in the year ended December 31, 2006 from$195.5 million in the year ended December 31 2005, a decrease of$14.9 million or 7.6%.  Chimes revenueincreased to $31.5 million in the year ended December 31, 2006, from $28.4million in the year ended December 31, 2005, an increase of $3.1 millionor 10.9%.  The decrease of 5.3% in totalrevenue in 2006 was primarily attributable to the company deemphasizing certainunderperforming parts of the Commercial Group business, and heightening itsfocus on more profitable services, geographies and relationships partiallyoffset by the addition of new customers and the increase in sales to existingcustomers in Chimes.

*Direct Costs and Gross Margins:* Directcosts decreased to $141.2 million in the year ended December 31, 2006from $159.6 million in the year ended December 31, 2005. Consolidatedgross margin, revenue less direct costs, increased to 33.3% for the year endedDecember 31, 2006 from 28.7% in the same period of 2005. This increase inprofitability is primarily attributable to an emphasis on improved gross profitmargins including the shifting of work to the Montreal Operations Center.  Commercial gross margin for 2006 were $40.0million, or 22.2%, compared to $36.8 million, or 18.8% for 2005. In 2006,Chimes represented approximately 14.8% of consolidated revenue, compared toapproximately 12.7% in 2005.

*Selling, general and administrativeexpenses:  * Selling, general and administrative (“SG&A”)expenses decreased to $68.3 million in the year ended December 31, 2006from $71.9 million for the comparable period of 2005. As a percentage ofrevenue, the Company’s SG&A expenses for year ended December 31, 2006 was32.2% and 32.1% at 2005.  The decrease inselling, general and administrative expense in 2006 is primarily attributableto closer attention to spending, renegotiation of certain contractualarrangements and process re-engineering, partially offset by the adoption ofFAS 123R, combined with a decrease in revenue in 2006.

*Special charges/(credits).*   For fiscal year 2006, the Company recorded $367,000 of special charges of whichapproximately $87,000 is related to expenses in connection with the review ofstrategic alternatives and $280,000 in connection with tax services. For theyear ended 2005 the company had recorded special charges/(credits) $5.1 millionprimarily pertaining to expenses associated with two proxy contests andmerger-related charges for the proposed merger with Analysts InternationalCorp. which was  not approved by theCompany’s shareholders at the September 2, 2005 special meeting.

In2006, the Company sold a condominium in Sunny Isles Beach, Florida for$450,000.  A gain on sale of $394,000 wasrecorded.

*Restructuring charges.*   In the third quarter of 2006, the Companyhad a reduction in restructuring expense of $41,000 associated with thesettlement of a law suit for less than the amount expected when therestructuring reserve was recorded.

Forthe year ended December 31, 2005, the Company recorded restructuringcharges of $2.2 million, primarily comprised of severance costs. During 2005,the Company conducted a review of the Company’s strategic and operationalstrengths and weaknesses and formulated a plan for improvement. The planincluded restructuring the Company to address lines of accountability,eliminating several service offerings, setting performance standards andeliminating inefficiencies.

*Income/Lossfrom Operations.  *The Company’s income from continuingoperations totaled $2.5 million in the year ended December 31, 2006, comparedto a loss of $28.2 million in 2005.  The2006 income before income taxes, excluding special items noted above and netinterest, totaled $2.5 million and was comprised of: a profit of $13,000 in theCommercial business and a profit of $2.5 million in Chimes.  This compares to a loss of $8.9 million inthe Commercial business partially offset by a profit of $3.1 million in Chimesin 2005.

OtherIncome/(Expense).   Other income in 2006 is comprised of net interestincome of $2.2 million.  In 2005, otherexpense was $0.4 million, comprised of a loss on the sale of SERP investmentsof $1.2 million partially offset by net interest income of $0.8 million.

*Provision for Income Taxes.*   The effective tax rate for Federal, state and local income taxes fromcontinuing operations was a tax expense of 4.2% for the year endedDecember 31, 2006 compared with 59.9% expense for the year endedDecember 31, 2005. The primary reasons for the change in the effective taxrate were for increase in valuation allowance on deferred tax assets primarilyrelated to the recognition of the capital loss related to the sale of stock of RGII during 2006.  In years prior to 2005,management relied primarily on future projected income in assessing thereliability of deferred tax assets resulting from federal net operating losscarryforwards and other 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. In 2006, management still believesit is appropriate to maintain a valuation allowance on net deferred tax assetsand as such has recorded additional valuation allowance of $18.5 million. (seeNote 8 of the Notes to Consolidated Financial Statements containedelsewhere in this Form 10-K).

*NetLoss:***For the yearended December 31, 2006 the net income from continuing operations was $4.6million, or $0.14 earnings per share, compared to a net loss of $45.7 million,or $1.46 loss per share for the year ended December 31, 2005.  For the year ended December 31, 2006 thetotal net loss including discontinued operations was $13.4 million, or $0.41loss per share, compared to a net loss of $46.4 million, or $1.48 loss pershare for the year ended December 31, 2005. The net loss for year ended December, 31, 2006, consisted primarily ofthe loss on sale of RGII of $4.8 million and the $13.2 million loss fromdiscontinued operations,  partiallyoffset by income of $4.5 million from continuing operation.  The $13.2 million loss from discontinuedoperations was primarily comprised of the impairment charge for RGII goodwillof $15 million.  The loss in 2005primarily is attributable to change of control charges of $13.2 million,special charges of $5.1 million, restructuring charges of $2.1 million, and anincrease in deferred tax valuation of $16.7 million.   

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

*Revenues.*    Consolidatedrevenue increased to $223.9 million in the year ended December 31, 2005from $214.2 million in the year ended December 31, 2004, an increase of$9.8 million or 4.6%.

Commercialrevenues increased to $195.4 million in the year ended December 31, 2005from $191.1 million in the year ended December 31 2004, an increaseof $4.3 million or 2%.

Chimesrevenue increased to $28.4 million in the year ended December 31, 2005,from $23.1 million in the year ended December 31, 2004, an increase of$5.3 million or 23%. This increase was primarily due to an expansion of managedspend at existing clients of approximately $3.6 million, with a $1.7 millionincrease attributable to new clients started in 2005.

*Direct Costs and Gross Margins.*   Direct costs increased to $159.6 million in the year endedDecember 31, 2005 from $154.5 million in the year endedDecember 31, 2004. Consolidated gross margin, revenue less direct costs,increased to 28.7% for the year ended December 31, 2005 from 27.9% in thesame period of 2004. Commercial gross margin for 2005 was $36.8 million, or18.8%, compared to $38 million, or 19.9% for 2004. This decrease isprimarily attributable to the increase in Commercial revenue being transactedthrough Vendor Managed Service providers (23% of Commercial revenue in 2005 vs.18% 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.

Theslight improvement in the Company’s consolidated gross margin is primarilyattributable to the increase in revenue from the higher-margin Chimes businessunit. In 2005, Chimes represented approximately 12.7% of consolidated revenue,compared to approximately 10.8% in 2004.

*Selling, general and administrative expenses.**  * Selling, general andadministrative (“SG&A”) expenses increased to $71.9 million in the yearended December 31, 2005 from $69.1 million for the comparable period of2004. As a percentage of revenue, the Company’s SG&A expenses decreased to32.1% in the year ended December 31, 2005 from 32.3% in the year endedDecember 31, 2004.

*Change of Control charges.**  * In the fourth quarter of2005, the Company recorded a charge of approximately $13.2 million related tothe change of control resulting from the removal of the Company’s then existingBoard of Directors. The $13.2 million charge is comprised of the following:

·       $9.7 million charge for change of controlpayments resulting from provisions defined in the Company’s supplementalexecutive retirement plan (SERP);

·       $3.5 million charge pertaining to employmentagreements which contain change of control provisions requiring future paymentsof specified amounts;

*Special charges/ (credits).*   For fiscal year 2005, the Company recorded specialcharges/(credits) of $5.1 million primarily pertaining to expensesassociated with two proxy contests and merger-related charges pertaining to theproposed merger with Analysts International Corp., which was not approved bythe Company’s shareholders at the September 2, 2005 special meeting. Forthe year ended December 31, 2004, the Company recorded a special credit of$0.9 million related to an insurance refund.

*Restructuring charges.**  * For the year endedDecember 31, 2005, the Company recorded restructuring charges of $2.2million, primarily comprised of severance costs. During 2005, the Companyconducted a review of the Company’s strategic and operational strengths andweaknesses and formulated a plan for improvement. The plan includedrestructuring the Company to address lines of accountability, eliminatingseveral service offerings, setting performance standards and eliminatinginefficiencies.

Forthe year ended December 31, 2004, the Company recorded restructuringcharges of $2.9 million comprised of approximately $2.8 million inseverance costs and $0.1 million in lease obligation costs.  During the fourth quarter of 2004, theCompany completed its realignment initiatives whereby the Company’s businessmodel has been realigned, effective January 1, 2005, around its threedistinct segments of clients:  Federal Government (RGII), Commercial andVendor Management Services (Chimes).

*Loss from Operations.*    TheCompany’s loss from operations totaled $28.2 million in the year endedDecember 31, 2005, compared to a loss of $32.7 million in 2004. The 2005loss before income taxes, excluding the special items noted above, net interestand the loss on investments, totaled $7.7 million.   This compares to a loss before income taxes,excluding the special items noted above and net interest income, of $9.4million in 2004.

*Other Income/ (Expense).*   Other expense 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 Income Taxes.*   The effective tax rate for Federal, state and local income taxes fromcontinuing operations was a tax expense of 59.9% for the year endedDecember 31, 2005 compared with 10.7% benefit for the year endedDecember 31, 2004. The primary reasons for the change in the effective taxrate were charges for change of control payments which did not give rise to taxbenefits and an increase in the valuation allowance on deferred tax assets. Inprior years management relied primarily on future projected income in assessingthe realizability of deferred tax assets resulting from federal net operatingloss carryforwards and other deductible temporary differences. As ofDecember 31, 2005 it was determined that because of continued lossesthrough the fourth quarter of the current year, it was no longer appropriate torely on future projected income until sustained profitability has beenachieved. Accordingly, the Company recorded a full valuation allowance on itsremaining net deferred tax assets of $19.5 million in the fourth quarter of2005. (See Note 7 of the Notes to Consolidated Financial Statementscontained elsewhere in this Form 10-K).

*Net Loss.**  *For the year ended December 31, 2005, the net loss from continuingoperations was $45.7 million, or $1.46 loss per share, compared to a net lossof $29.0 million, or $0.94 loss per share for the year ended December 31,2004.  For the year ended December 31,2005, the total net loss including discontinued operations was $46.4 million or$1.48 loss per share, compared to a net loss of $25.2 million or a loss pershare of $0.82 in December 31, 2004.

16

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**Liquidity and Capital Resources**

TheCompany has historically financed its operations through cash generated fromoperations, borrowings against bank lines of credit and the public sale of itscommon stock. At December 31, 2006, the Company had approximately $72.0million in working capital, of which $72.8 million was cash and cashequivalents. Cash and cash equivalents at December 31, 2006 and 2005includes approximately $23.3 million and $29.4 million of cash, respectively,to be disbursed to Chimes vendors in accordance with the client paymentterms.  Vendor cash varies quarter toquarter based on the relationship of the final billing cycle to the end of thequarter, and does not represent a change in the level of operations.

Netcash provided/(used) by operating activities from continuing operations for theyears ended December 31, 2006, 2005 and 2004 totaled $3.8 million, $0.7million and $(2.6) million, respectively. For the year ended December 31, 2006, cash provided by operatingactivities is primarily attributed to a $4.5 million decrease in accountsreceivable, $1.8 million decrease in other assets and a $1.3 million increasein accrued payroll partially offset by a $0.7 million increase in prepaidexpense, receipt of $2.3 million of the refundable tax credit, a $7.5 millionreduction of accounts payable and a $1.4 million reduction of change of controlliability.  For the year endedDecember 31, 2005, the cash provided by operating activities is primarilyattributable to a net loss of $47.4 million net of deferred taxed $17.8 millionand the increase in accounts payable of $29.1 million. For the year endedDecember 31, 2004, the cash used in operating activities of $14.4 millionwas primarily attributable to the net loss of $25.2 million partially offset bya non-cash goodwill write off of $20.3 million, an increase in refundableincome taxes of $4.3 million, increase in accounts receivable of $3.6 million,increase in other assets of $1.9 million, partially offset by $1.7 millionincrease in accrued payroll.

Netaccounts receivable decreased $5.2 million to $34.5 million atDecember 31, 2006 from $39.7 million at December 31, 2005.Accounts receivable days sales outstanding (“DSO”) were 59 days atDecember 31, 2006 compared to 66 days at December 31, 2005.  All client receivable collectibility andbilling issues identified by management have been adequately reserved. For theperiod ended December 31, 2006, there were no significant changes incredit terms, credit policies or collection efforts.

Netcash used in investing activities for the year ended December 31, 2006 was$(0.1) million, consisting of purchases of furniture and equipment. Netcash provided by investing activities for 2005 consisted primarily of proceedsfrom sale of assets of $0.6 million and proceeds from the sale ofSERP investments of $4.7 million, partially offset by capitalexpenditures totaling $4.2 million. In 2004 net cash used in investingactivities was $19.2 million. This was primarily attributable to the purchaseof AIM by RGII in April 2004.

Forthe year ended December 31, 2006, net cash provided by financing activities was$5.8 million, consisting primarily of proceeds from shares issued pursuant tothe employee stock option plan of $5.3 million and $0.5 million from theemployee stock purchase plan. For the year ended December 31, 2005, netcash provided by financing activities was $3.1 million, consisting primarily ofproceeds 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.

OnJune 16, 2006 the Company amended the line of credit facility.  The line was reduced to $20 million from $40million, reflecting management’s belief that there was no need for the higherlevel of funding, thereby reducing associated costs.  The amendment extended the termination of theFinancing Agreement from July 31, 2006 to July 31, 2007.  The Administrative Management Fee, the EarlyTermination Fee and the Line of Credit Fee have all been eliminated.  Since November 2, 2005, the interest rate hasbeen calculated using the lesser of Prime +.50% or LIBOR plus 2.75% based onunpaid principal.  The minimum borrowingbase threshold has been eliminated as of November 4, 2005.  As of December 31, 2006, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances,$3.8 million was available for borrowing as of December 31, 2006.  The unused line fee has been eliminatedbeginning June 1, 2006.  The unused linefee and other associated fees, including the float and wire fees, wereapproximately $77,000 and $136,000 for the years ended December 31, 2006 and2005, respectively.  This line of creditinvolves covenants relating to the maintenance of cash balances and providingfor limitations on incurring obligations of operating leases exceeding $9million annually and spending limits on capital expenditures exceeding $8million annually.  As of December 31,2006, the Company was in compliance with the covenants.  This credit facility was cancelled effectiveFebruary 12, 2007.  CIT will hold$100,000 in escrow for 90 days after the effective date.

Changeof control charges of $2.9 million were recorded as a long term liability in2005. As a result of the upcoming dissolution of the Company the remainingbalance of $2.3 million has been re-classed to a short term liability accountin 2006.

Pursuantto the terms of the Company’s acquisition of RGII, the seller of RGII wasentitled to contingent payments based on RGII’s performance againstprofitability objectives over three years.  The contingent payments wereevidenced by a contingent note with a face value of $10 million that waspayable over three years, only if certain financial performance objectives weremet.  In February 2004, a payment was made for the first nine-monthinstallment of approximately $631,000, pertaining to this contingentnote.  In February 2005, a payment of approximately $1.8 million wasmade representing the next installment of the contingent note.  Since thetargeted EBITs were not achieved, the seller of RGII was required to repayamounts previously paid, plus interest.  This amount of $2.6 million was repaidon July 31, 2006.

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Duringthe first quarter of 2004, the Company recorded a non-cash reduction in taxbenefit reserves and an increase in additional paid-in capital of $19.9million.

At a SpecialMeeting held on February 14, 2007, the shareholders of the Company approved thesales of the Company’s Chimes, Inc. subsidiary to an affiliate of AxiumInternational and the Company’s Commercial Division to Allegis Group (the “AssetSales”).  At the Special Meeting, the shareholders of the Company alsoapproved a proposed plan of complete liquidation and dissolution of theCompany.  The Company began implementingthe complete liquidation and dissolution of the company after both Chimes andCommercial Asset Sales were completed February 16, 2007.  In estimating the potential distribution, theCompany has considered winddown and transition expenses and the exposure forcontingent claims under the asset purchase agreements.  On March 5, 2007, the Company announced thatits Board of Directors declared an initial liquidating distribution of $4.00per share to its common stockholders. This distribution will be payable March 27, 2007 to shareholders ofrecord as of the close of business on March 16, 2007.  This initial liquidating distribution is thefirst in what is expected to be a series of liquidating distributions pursuantto the plan of liquidation and dissolution approved by the Company’sshareholders on February 14, 2007.  Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.68 to $4.81 per share of Common Stock.

** 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 ofDecember 31, 2006:

|                                      | ** ** | **Obligation Due** | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| **(dollars in thousands)** | ** ** | **Total Amount**   | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over  5 Years** | ** ** |
| Operating Leases                     |       | $                       | 4,137      |   | $ | 2,549 |   | $ | 948 |   | $ | 346 |   | $ | 294 |   |
| Deferred  Compensation               |       | 1,847                   |       | 1,847 |   | — |   | — |   | — |   |
| Retention Bonus                      |       | 79                      |       | 79 |   | — |   | — |   | — |   |
| Change of  Control                   |       | 2,316                   |       | 2,316 |   | — |   | — |   | — |   |
| Other                                |       | 1,124                   |       | 1,124 |   | — |   | — |   | — |   |
| **Total  Cash Obligations**          |       | $                       | 9,503      |   | $ | 7,915 |   | $ | 948 |   | $ | 346 |   | $ | 294 |   |

As aresult of the recent sales of the Company’s Commercial division and ChimesSubsidiary on February 16, 2007 the Company is no longer responsible forcertain property lease obligations. After that date CHC continues to be responsible for the followingproperty locations:  New Jersey,Minnesota, Connecticut, Ohio, Washington, Georgia, Indianapolis, New York,Colorado, Michigan, Florida, Illinois, Alberta Canada, and London England withaggregate space of approximately 42,450 square feet.  After that date, operating leases are asfollows:
| ** **                 | ** ** | **Obligation Due** | ** ** |
|----------------------------|------------|--------------------|------------|
| **(**dollars in thousands) | ** ** | **Total Amount**   | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over 5 Years** | ** ** |
| Operating Leases           |       | $1,331             |       | $803 |   | $268 |   | $223 |   | $37 |   |

 

** Recent AccountingPronouncements**

InDecember 2004, the FASB issued Statement of Financial Accounting StandardNo. 123 (revised 2004), “Share-Based Payment” (FAS 123R).FAS 123R requires that compensation cost be recognized for all new awardsand awards that are modified, repurchased or cancelled after the adoptiondate.  Statement 123R requirescompensation cost to be recognized for new awards of equity instruments andunvested awards on adoption date.  TheSEC amended the effective dates of FAS 123R for public companies inApril 2005, which allows registrants to implement FAS 123R at thebeginning of their next fiscal year, instead of the next interim period, thatbegins 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. The provisions of this statement are effectivefor the Company, January 1, 2006.

On November 2005, the FASB issued FASB Staff PositionNo. FAS 123R-3—”Transition Election Related to Accounting for the Tax Effectsof Share-Based Payment Awards.”  The Company has elected to adopt thealternative transition method provided in this FASB Staff Position forcalculating the tax effects of share-based compensation pursuant to FAS 123R.The alternative transition method includes a simplified method to establish thebeginning balance of the additional paid-in capital pool (APIC pool) related tothe tax effects of employee share-based compensation, which is available toabsorb tax deficiencies recognized subsequent to the adoption of FAS 123R.

 

18

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FAS 123R allows for two alternative transitionmethods. The first method is the modified prospective application wherebycompensation cost for the portion of awards for which the requisite service hasnot yet been rendered that are outstanding as of the adoption date will berecognized over the remaining service period. The compensation cost for thatportion of awards will be based on the grant-date fair value of those awards ascalculated 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 FAS 123(R). The second method is themodified retrospective application, which requires that the Company restatesprior period financial statements. The modified retrospective application maybe applied either to all prior periods or only to prior interim periods in theyear of adoption of this statement. The Company has elected to apply themodified prospective method.

InMay 2005, the FASB issued Statement of Financial Accounting StandardNo. 154, “Accounting Changes and Error Corrections” (FAS 154) , whichchanges the accounting and reporting requirements for the change in anaccounting principle. Accounting Principles Board Opinion 20, “AccountingChanges” (Opinion 20), which is superseded by FAS 154, required that mostvoluntary changes in accounting principle be recognized by including thecumulative effect of changing to the new accounting principle as a component ofnet income in the period of the change. FAS 154 instead requires retrospectiveapplication to prior periods’ financial statements of changes in an accountingprinciple, unless it is impracticable to do so. FAS 154 differentiates between “retrospectiveapplication” and “restatement”.  ”Retrospective application” is defined asthe application of a different accounting principle to prior accounting periodsas if that principle had always been used or as the adjustment of previouslyissued financial statements to reflect a change in the reporting entity. Incontrast, restatement is defined as the revising of previously issued financialstatements to reflect the correction of an error. FAS 154 also requires that a changein depreciation, amortization, or depletion method for long-lived, nonfinancialassets be accounted for as a change in accounting estimate effected by a changein accounting principle. The guidance contained in Opinion 20 for reporting thecorrections of errors in previously issued financial statements, and changes inaccounting estimates is carried forward to FAS 154 without change.Additionally, FAS 154 carries forward the guidance in Opinion 20 requiringjustification of a change in accounting principle on the basis ofpreferability. FAS 154 is effective for accounting changes and corrections oferrors made in fiscal years beginning after December 15, 2005.

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

On January 1,2007, we will adopt the provisions of recently issued FASB Interpretation 48,Accounting for Uncertainty in Income Taxes, in regards to our accounting anddisclosure of uncertain tax positions. We have reviewed our accounting for income taxes in light of theprovisions of FIN 48 and do not expect that adoption will materially affect ourconsolidated financial statements.  TheCompany believes upon the adoption of FIN 48, a tax contingency reserve ofapproximately $150,000 will be established related to various Federal, Foreignand State income tax matters.

In September, 2006 the FASB issued Statement 158, Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans : an amendment of FASB StatementsNo. 87,88, 106, and 132®.  Statement 158 requires employers withsingle-employer defined benefit plans or postretirement plans to recognize thefunded status of all such plans in the employer’s statement of financialposition, recognize the changes in a plan’s funded status in comprehensiveincome of a business entity or as changes in unrestricted net assets of anot-for-profit organization in the year of change, and measure a plan’s fundedstatus as of the date of the employer’s fiscal year-end statement of financialcondition.  The provisions of Statement 158 are effective for entitieswith publicly traded equity securities as of the end of fiscal years endingafter December 15, 2006.  There will not be a material impact from theadoption of Statement 158.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin “SAB” 108 regarding the process ofquantifying financial statement misstatements.  The provisions of thisstatement will be effective for the year ended December 31, 2006.  The impact on the financial statements for2006 is immaterial.

** Savings Plan and OtherRetirement Plans**

UntilDecember 2006, the Company maintained a Deferred Compensation Plan for keyexecutives that permit the individuals to defer a portion of their annualsalary or bonus for a period of at least five years. There is no effect on theCompany’s operating results since any amounts deferred under the plan areexpensed in the period incurred. Amounts deferred amounted to $1.8 million and$1.6 million as of December 31, 2006 and 2005, respectively.  As of December 31, 2006 the assets of thedeferred compensation plan has been liquidated and payments will be made toindividuals on January 31, 2007.  Thisliability is presented on the balance sheet as $1.8 million in Short TermDeferred Compensation.

UntilOctober 2005, the Company maintained a defined contribution savings plancovering eligible employees. The Company made contributions up to a specificpercentage of the participants’ contributions.

**Foreign Currency Exposure**

TheCompany’s international operations expose it to translation risk when the localcurrency financial statements are translated to U.S. dollars. As currencyexchange rates fluctuate, translation of the financial statements ofinternational businesses into U.S. dollars will affect the comparability ofrevenues and expenses between years. None of the components of the Company’sconsolidated statements of income was materially affected by exchange ratefluctuations in 2006, 2005 or 2004. At December 31, 2006 the Company hadapproximately $1.9 million in cash maintained in foreign financialinstitutions.

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**Item 7A.****               *Quantitative and Qualitative Disclosuresabout Market Risk***

**Market Risk Exposure**

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

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

** REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors andShareholdersComputer Horizons Corp.

We have audited theaccompanying consolidated balance sheet of Computer Horizons Corp. andSubsidiaries as of December 31, 2006, and the related consolidatedstatements of operations, shareholders’ equity and cash flows for the yearended December 31, 2006. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audit.

We conducted ouraudit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provide areasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Computer Horizons Corp. andSubsidiaries as of December 31, 2006 and the consolidated results of theiroperations and their consolidated cash flows for the year endedDecember 31, 2006, in conformity with accounting principles generallyaccepted in the United States of America.

As discussed in Note1 tothe accompanying consolidated financial statements, the shareholders ofComputer Horizons Corp. approved a plan of liquidation and dissolutioneffective February 14, 2007 and the Company commenced liquidation shortlythereafter.  As a result of this, theCompany will change its basis of accounting for the periods subsequent toFebruary 14, 2007 from the going concern basis to the liquidation basis.  As discussed in note 2 to the consolidatedfinancial statements, the Company changed its method of accounting forstock-based compensation upon the adoption of Statement of Financial AccountingStandard, No. 123(R), “Share-Based Payment”.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Computer Horizons Corp. and Subsidiaries’internal control over financial reporting as of December 31, 2006, basedon criteria established in Internal Control — Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (the “COSOcriteria”), and our report dated March 9, 2007 expressed an unqualifiedopinion thereon.

 
| /s/ AMPER, POLITZINER &  MATTIA, P.C. |   |
|-------------------------------------------|--------|
| Edison, New  Jersey                       |
| March 9,  2007                       |

 

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directorsand ShareholdersComputer Horizons Corp.

We have audited the accompanying consolidated balance sheet of ComputerHorizons Corp. and Subsidiaries as of December 31, 2005, and the relatedconsolidated statements of operations, shareholders’ equity and cash flows foreach of the two years in the period ended December 31, 2005. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofComputer Horizons Corp. and Subsidiaries as of December 31, 2005 and theconsolidated results of their operations and their consolidated cash flows foreach of the two years in the period ended December 31, 2005, in conformitywith accounting principles generally accepted in the United States of America.

 
| /s/ Grant  Thornton LLP                                                                                                                      |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Grant Thornton  LLP                                                                                                                          |   |   |
|                                                                                                                                         |   |   |
| Edison, New  Jersey                                                                                                                          |   |   |
| March 14,  2006 (except for Note 1 as it relates  to the sale of RGII Technologies, Inc., as  to which the date is March 14, 2007) |   |   |

 

 

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** REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

Board of Directors andShareholdersComputer Horizons Corp.

We have auditedmanagement’s assessment, included in the accompanying Management Report onInternal Control Over Financial Reporting, that Computer Horizons Corp. andSubsidiaries maintained effective internal control over financial reporting asof December 31, 2006, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (the “COSO criteria”). The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting.Our responsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company’s internal controlover financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with accountingprinciples generally accepted in the United States of America. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositionsof the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion,management’s assessment that Computer Horizons Corp. and Subsidiariesmaintained effective internal control over financial reporting as ofDecember 31, 2006, is fairly stated, in all material respects, based onthe COSO criteria. Also, in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as ofDecember 31, 2006, 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 as of December 31, 2006, and the related consolidatedstatements of operations, shareholders’ equity and cash flows, for the yearended December 31, 2006, and our report dated March 9, 2007 expressedan unqualified opinion on those financial statements.

 
| /s/ AMPER, POLITZINER &  MATTIA, P.C. |   |
|-------------------------------------------|--------|
| Edison, New  Jersey                       |
| March 9,  2007                       |

 

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

Board of Directors andShareholdersComputer Horizons Corp.

We have audited in accordance with the standards of the Public CompanyAccounting Oversight Board (United States) the consolidated financialstatements of Computer Horizons Corp. and Subsidiaries referred to in ourreport dated March 14, 2006 (except for Note 1 as it relates to thesale of RGII Technologies, Inc., as to which the date is March 14, 2007),which is included in the 2006 Annual Report on Form 10-K. Our audit wasconducted for the purpose of forming an opinion on the basic financialstatements taken as a whole. Schedule II is presented for purposes ofadditional analysis and is not a required part of the basic financialstatements. This schedule has been subjected to the auditing procedures appliedin the audit of the basic financial statements and, in our opinion, is fairlystated in all material respects in relation to the basic financial statementtaken as a whole.

 
| /s/ Grant  Thornton LLP                                                                                                                      |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Grant Thornton  LLP                                                                                                                          |   |   |
|                                                                                                                                         |   |   |
| Edison, New  Jersey                                                                                                                          |   |   |
| March 14,  2006 (except for Note 1 as it relates  to the sale of RGII Technologies, Inc., as  to which the date is March 14, 2007) |   |   |

 

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**ComputerHorizons Corp. and Subsidiaries**

**CONSOLIDATEDBALANCE SHEETS**

(in thousands except pershare data)

 
| ** **                                                                                                                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                 | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                                                                                                                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
| **CURRENT ASSETS:**                                                                                                                                        | ** ** | ** **            | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                                                                                 |       | $                     | 71,790     |   | $ | 46,365 |   |
| Cash held in escrow                                                                                                                                        |       | 1,000                 |       | — |   |
| Accounts receivable,  less allowance for doubtful accounts of $4,599 and $4,654 at December 31,  2006 and December 31, 2005, respectively                  |       | 34,517                |       | 39,701 |   |
| Quebec refundable tax  credit                                                                                                                              |       | 8,547                 |       | 6,294 |   |
| Prepaid expenses and  other                                                                                                                                |       | 4,741                 |       | 4,028 |   |
| Current Assets from  Discontinued operations                                                                                                               |       | —                |       | 8,639 |   |
| **TOTAL CURRENT ASSETS**                                                                                                                                   |       | 120,595               |       | 105,027 |   |
|                                                                                                                                                       |       |                  |       |   |   |
| **PROPERTY AND EQUIPMENT**                                                                                                                                 |       | 44,267                |       | 43,350 |   |
| Less accumulated  depreciation                                                                                                                             |       | 41,521                |       | 39,512 |   |
| **TOTAL PROPERTY AND EQUIPMENT,  NET**                                                                                                                     |       | 2,746                 |       | 3,838 |   |
| ** **                                                                                                                                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
| **OTHER ASSETS—NET:**                                                                                                                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
| Deferred income taxes                                                                                                                                      |       | 1,491                 |       | — |   |
| Other                                                                                                                                                      |       | 940                   |       | 2,740 |   |
| Long Term Assets from  Discontinued operations                                                                                                             |       | —                |       | 31,737 |   |
| **TOTAL OTHER ASSETS**                                                                                                                                     |       | 2,431                 |       | 34,477 |   |
| **TOTAL ASSETS**                                                                                                                                           |       | $                     | 125,772    |   | $ | 143,342 |   |
|                                                                                                                                                       |       |                  |       |   |   |
| **LIABILITIES AND SHAREHOLDERS  EQUITY**                                                                                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| **CURRENT LIABILITIES:**                                                                                                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Accounts payable                                                                                                                                           |       | $                     | 28,126     |   | $ | 35,615 |   |
| Accrued payroll,  payroll taxes and benefits                                                                                                               |       | 9,431                 |       | 8,113 |   |
| Income taxes payable                                                                                                                                       |       | 1,150                 |       | 1,150 |   |
| Restructuring reserve                                                                                                                                      |       | 61                    |       | 1,656 |   |
| Other accrued expenses                                                                                                                                     |       | 4,212                 |       | 3,440 |   |
| Deferred income taxes                                                                                                                                      |       | 1,491                 |       | — |   |
| Current Liabilities  from Discontinued operations                                                                                                          |       | —                |       | 3,649 |   |
| Change of control  payable                                                                                                                                 |       | 2,316                 |       | — |   |
| Deferred compensation                                                                                                                                      |       | 1,847                 |       | — |   |
| **TOTAL CURRENT LIABILITIES**                                                                                                                              |       | 48,634                |       | 53,623 |   |
|                                                                                                                                                       |       |                  |       |   |   |
| **OTHER LIABILITIES:**                                                                                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Deferred compensation                                                                                                                                      |       | —                |       | 1,588 |   |
| Change of control  payable                                                                                                                                 |       | —                |       | 2,938 |   |
| Other                                                                                                                                                      |       | 441                   |       | 196 |   |
| Long Term Liabilities  from Discontinued operations                                                                                                        |       | —                |       | 970 |   |
| **TOTAL OTHER LIABILITIES**                                                                                                                                |       | 441                   |       | 5,692 |   |
|                                                                                                                                                       |       |                  |       |   |   |
| **TOTAL LIABILITIES**                                                                                                                                      |       | $                     | 49,075     |   | $ | 59,315 |   |
|                                                                                                                                                       |       |                  |       |   |   |
| **SHAREHOLDERS EQUITY:**                                                                                                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Preferred stock, $.10  par; authorized and unissued 200,000 shares, including 50,000 Series A                                                              |       |                  |       |   |   |
| Common stock, $.10 par;  authorized 100,000,000 shares; issued 33,733,652 and 33,158,105 shares at  December 31, 2006, and December 31, 2005, respectively |       | 3,373                 |       | 3,315 |   |
| Additional paid in capital                                                                                                                                 |       | 148,046               |       | 148,083 |   |
| Accumulated other  comprehensive loss                                                                                                                      |       | (652                  | )          | (643 | ) |
| Retained earnings/  (Accumulated deficit)                                                                                                                  |       | (73,930               | )          | (60,492 | ) |
|                                                                                                                                                       |       | 76,837                |       | 90,263 |   |
| Less shares held in  treasury, at cost; 25,000 and 1,118,014 shares at December 31, 2006 and December  31, 2005, respectively                              |       | (140                  | )          | (6,236 | ) |
| **TOTAL SHAREHOLDERS EQUITY**                                                                                                                              |       | 76,697                |       | 84,027 |   |
| **TOTAL LIABILITIES AND SHAREHOLDERS EQUITY**                                                                                                              |       | $                     | 125,772    |   | 143,342 |   |

 

The accompanying notesare an integral part of these statements.

 

25

----

 

**ComputerHorizons Corp. and Subsidiaries**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(in thousands except pershare data)

 
| ** **                                                               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **REVENUES:**                                                            | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commercial                                                               |       | $                                          | 180,471    |   | $ | 195,435 |   | $ | 191,096 |   |
| Chimes                                                                   |       | 31,519                                     |       | 28,421 |   | 23,092 |   |
| **Total**                                                                |       | 211,990                                    |       | 223,856 |   | 214,188 |   |
|                                                                     |       |                                       |       |   |   |   |   |
| **COSTS  AND EXPENSES:**                                                 | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct costs                                                             |       | 141,191                                    |       | 159,587 |   | 154,488 |   |
| Selling, general  & administrative                                   |       | 68,295                                     |       | 71,902 |   | 69,077 |   |
| Amortization of  intangibles                                             |       | —                                     |       | 79 |   | 189 |   |
| Restructuring  charges                                                   |       | (41                                        | )          | 2,150 |   | 2,859 |   |
| SERP/Change of  Control                                                  |       | —                                     |       | 13,247 |   | — |   |
| Special charges/(credits)                                                |       | 367                                        |       | 5,135 |   | (939 | ) |
| Gain on sale of  assets                                                  |       | (394                                       | )          | — |   | — |   |
| Goodwill  impairment                                                     |       | —                                     |       | — |   | 20,306 |   |
| Write off of  assets                                                     |       | —                                     |       | — |   | 910 |   |
| Total Costs                                                              |       | 209,418                                    |       | 252,100 |   | 246,890 |   |
| **Income/(Loss)  from continuing operations**                            |       | 2,572                                      |       | (28,244 | ) | (32,702 | ) |
| ** **                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **OTHER  INCOME/(EXPENSE):**                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss)/gain  on investments                                          |       | —                                     |       | (1,180 | ) | — |   |
| Interest income                                                          |       | 2,213                                      |       | 811 |   | 321 |   |
| Interest expense                                                         |       | —                                     |       | (6 | ) | (82 | ) |
|                                                                     |       | 2,213                                      |       | (375 | ) | 239 |   |
| **Income/(Loss)  from continuing operations before income taxes**        |       | 4,785                                      |       | (28,619 | ) | (32,463 | ) |
|                                                                     |       |                                       |       |   |   |   |   |
| **INCOME  TAXES/(BENEFIT):**                                             | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current                                                                  |       | 201                                        |       | 432 |   | (1,493 | ) |
| Deferred                                                                 |       | —                                     |       | 16,698 |   | (1,985 | ) |
|                                                                     |       | 201                                        |       | 17,130 |   | (3,478 | ) |
| Loss before minority  interest                                           |       | 4,584                                      |       | (45,749 | ) | (28,985 | ) |
|                                                                     |       |                                       |       |   |   |   |   |
| Minority  interest                                                       |       | —                                     |       | — |   | (45 | ) |
|                                                                     |       |                                       |       |   |   |   |   |
| **Net  income/(loss) from continuing operations**                        |       | $                                          | 4,584      |   | $ | (45,749 | ) | $ | (29,030 | ) |
| ** **                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income/  (loss) from discontinued operations**                         |       | (13,243                                    | )          | (671 | ) | 3,858 |   |
| **Loss on  sale of discontinued operations**                             |       | (4,779                                     | )          | — |   | — |   |
| **Income/(Loss)  from discontinued operations net of tax***              |       | (18,022                                    | )          | (671 | ) | 3,858 |   |
| **Net  Loss**                                                            |       | $                                          | (13,438    | ) | $ | (46,420 | ) | $ | (25,172 | ) |
| ** **                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Earnings/(Loss)  per share from continuing operations—basic**     |       | $                                          | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) |
| **Earnings/(Loss)  per share from discontinued operations—basic**   |       | $                                          | (0.56      | ) | $ | (0.02 | ) | $ | 0.12 |   |
| **Loss  per share- basic**                                               |       | $                                          | (0.41      | ) | $ | (1.48 | ) | $ | (0.82 | ) |
| **Earnings/(Loss)  per share from continuing operations—diluted**   |       | $                                          | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) |
| **Earnings/(Loss)  per share from discontinued operations—diluted** |       | $                                          | (0.55      | ) | $ | (0.02 | ) | $ | 0.12 |   |
| **Loss  per share—diluted**                                         |       | $                                          | (0.41      | ) | $ | (1.48 | ) | $ | (0.82 | ) |
| **Weighted  average number of shares outstanding—basic**            |       | 32,444,000                                 |       | 31,399,000 |   | 30,870,000 |   |
| **Weighted average number of  shares outstanding—diluted**          |       | 32,614,000                                 |       | 31,399,000 |   | 30,870,000 |   |

 

The accompanyingnotes are an integral part of these statements.

----

* This includes tax (expense)/benefit of $0 in2006, $(3,038) in 2005 and ($788) in 2004 (000’s omitted).

26

----

** **

**CONSOLIDATEDSTATEMENT OF SHAREHOLDERS’ EQUITYYears ended December 31, 2006, 2005 and 2004(in thousands)**
| ** **                                      | ** ** | ** **            | ** ** | ** **     | ** ** | **Accumulated**   | ** ** | ** **        | ** ** | ** **              | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|----------------|------------|-------------------|------------|-------------------|------------|-------------------------|------------|------------|------------|
| ** **                                      | ** ** | ** **            | ** ** | **Additional** | ** ** | **other**         | ** ** | **Retained**      | ** ** | ** **              | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Common Stock** | ** ** | **Paid-in**    | ** ** | **Comprehensive** | ** ** | **Earnings/**     | ** ** | **Treasury Stock** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Capital**       | ** ** | **Income/(Loss)** | ** ** | **(Deficit)**           | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Total** | ** ** |
| *Balance, December 31, 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                 |       | 4,300                 |       |           |       |              |       |              |       |                    |       |       |       |   |   |   |   |
| Stock  options exercised                        |       |                  |       |           |       |              |       |              |       |                    |       | (741,895   | )          | 2,441 |   | 2,441 |   |
| Treasury  stock reclassification (Note 6)       |       |                  |       |           |       | (2,657            | )          |              |       |                    |       |       |       | 2,657 |   | 0 |   |
| 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 |   |
| Net Loss for the year                           |       |                  |       |           |       |              |       |              |       | (13,438                 | )          |       |       |   |   | (13,438 | ) |
| Other comprehensive  Loss:                      |       |                  |       |           |       |              |       |              |       |                    |       |       |       |   |   |   |   |
| Foreign  currency translation adjustments       |       |                  |       |           |       |              |       | (9                | )          |                    |       |       |       |   |   | (9 | ) |
| Total  comprehensive loss                       |       |                  |       |           |       |              |       |              |       |                    |       |       |       |   |   | (13,447 | ) |
| Other issuance of common  stock                 |       |                  |       |           |       |              |       |              |       |                    |       |       |       |   |   |   |   |
| Stock  options exercised                        |       | 425,546               |       | 43             |       | (646              | )          |              |       |                    |       | (967,571   | )          | 5,392 |   | 4,789 |   |
| Warrant  Issue                                  |       | 150,001               |       | 15             |       | 569               |       |              |       |                    |       |       |       |   |   | 584 |   |
| Employee  stock purchase program                |       |                  |       |           |       | (246              | )          |              |       |                    |       | (125,443   | )          | 704 |   | 458 |   |
| FAS123R  Expense                                |       |                  |       |           |       | 286               |       |              |       |                    |       |       |       |   |   | 286 |   |
| *Balance, December 31, 2006*                    |       | 33,733,652            |       | 3,373          |       | 148,046           |       | (652              | )          | (73,930                 | )          | 25,000     |       | (140 | ) | 76,697 |   |

 

The accompanying notesare an integral part of this statement.

27

----

 

**Computer Horizons Corp. and Subsidiaries**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands) 
| ** **                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                                            |       | $                                          | (13,438    | ) | $ | (46,420 | ) | $ | (25,172 | ) |
| Less:  Income/(Loss) from discontinued operations                                   |       | (13,243                                    | )          | (671 | ) | 3,858 |   |
| Less: Loss on  sale of discontinued operations                                      |       | (4,779                                     | )          | — |   | — |   |
| Income/(Loss)  from continuing operations                                           |       | 4,584                                      |       | (45,749 | ) | (29,030 | ) |
| Deferred taxes                                                                      |       | (137                                       | )          | 17,829 |   | 484 |   |
| Depreciation                                                                        |       | 2,055                                      |       | 3,253 |   | 5,436 |   |
| Amortization of  intangibles                                                        |       | —                                     |       | 79 |   | 2,729 |   |
| Provision for bad  debts                                                            |       | 694                                        |       | 1,632 |   | 969 |   |
| FAS 123R Option  Expense                                                            |       | 286                                        |       | — |   | — |   |
| **Changes  in assets and liabilities, net of acquisitions:**                        | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                |       | 4,490                                      |       | (84 | ) | 2,179 |   |
| Prepaid expenses  and other current assets                                          |       | (713                                       | )          | 79 |   | 254 |   |
| Other receivables                                                                   |       | —                                     |       | 1,443 |   | (1,040 | ) |
| Other assets                                                                        |       | 1,800                                      |       | (1,700 | ) | 1,366 |   |
| Goodwill  impairment                                                                |       | —                                     |       | — |   | 20,306 |   |
| Refundable tax  credit                                                              |       | (2,253                                     | )          | (2,356 | ) | (3,918 | ) |
| Accrued payroll,  payroll taxes and benefits                                        |       | 1,318                                      |       | 1,387 |   | (1,811 | ) |
| Accounts payable                                                                    |       | (7,489                                     | )          | 29,082 |   | (1379 | ) |
| Income taxes  payable                                                               |       | —                                     |       | (227 | ) | 134 |   |
| Loss or gain from  sale of assets                                                   |       | —                                     |       | (327 | ) | — |   |
| Write off of  assets                                                                |       | —                                     |       | — |   | 910 |   |
| Other accrued  expenses /change of control/restructure reserve                      |       | (1,444                                     | )          | 1,635 |   | 1,180 |   |
| Deferred  compensation                                                              |       | 259                                        |       | (400 | ) | 352 |   |
| RGII contingency  payment                                                           |       | —                                     |       | (1,851 | ) | 1,221 |   |
| Loss on  Investment                                                                 |       | —                                     |       | 1,264 |   | — |   |
| Supplemental  executive retirement plan                                             |       | —                                     |       | (2,162 | ) | 480 |   |
| Other liabilities                                                                   |       | 381                                        |       | (546 | ) | 346 |   |
| **NET CASH  PROVIDED BY/(USED IN) OPERATING ACTIVITIES FROM CONTINUING OPERATIONS** |       | 3,831                                      |       | 2,281 |   | 1,168 |   |
| **NET CASH  PROVIDED BY DISCONTINUED OPERATIONS**                                   |       | 17,735                                     |       | 5,018 |   | (2,565 | ) |
| **NET CASH  PROVIDED BY/ (USED IN) OPERATING ACTIVITIES**                           |       | 21,566                                     |       | 7,299 |   | (1,397 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                           |       |                                       |       |   |   |   |   |
| Proceeds from  sale of assets                                                       |       | —                                     |       | 562 |   | — |   |
| Acquisitions net  of cash received                                                  |       | —                                     |       | — |   | (14,714 | ) |
| Acquisitions of  Goodwill                                                           |       | —                                     |       | — |   | (2,461 | ) |
| Proceeds from  sale of investments                                                  |       | —                                     |       | 4,705 |   | — |   |
| Purchases of  furniture and equipment                                               |       | (963                                       | )          | (2,317 | ) | (2,671 | ) |
| **NET CASH  PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM CONTINUING OPERATIONS** |       | (963                                       | )          | 2,950 |   | (19,846 | ) |
| **NET CASH  PROVIDED BY/(USED IN) DISCONTINUED OPERATIONS**                         |       | —                                     |       | (935 | ) | 621 |   |
| **NET CASH  PROVIDED BY/ (USED IN) INVESTING ACTIVITIES**                           |       | (963                                       | )          | 2,015 |   | (19,225 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock options  exercised                                                            |       | 5,372                                      |       | 2,441 |   | 774 |   |
| Stock issued on  employee stock purchase plan                                       |       | 459                                        |       | 668 |   | 623 |   |
| **NET CASH  PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS**           |       | 5,831                                      |       | 3,109 |   | 1,397 |   |
| **NET CASH  USED IN DISCONTINUED OPERATIONS**                                       |       | —                                     |       | — |   | — |   |
| **NET CASH  PROVIDED BY FINANCING ACTIVITIES**                                      |       | 5,831                                      |       | 3,109 |   | 1,397 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Foreign currency  gains/(losses)                                                    |       | (9                                         | )          | 293 |   | 264 |   |
| **NET INCREASE/(DECREASE)  IN CASH AND CASH EQUIVALENTS**                           |       | 26,425                                     |       | 12,716 |   | (18,961 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| **CASH AND  CASH EQUIVALENTS AT BEGINNING OF YEAR**                                 |       | 46,365                                     |       | 33,649 |   | 52,610 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| **CASH AND  CASH EQUIVALENTS AT END OF PERIOD**                                     |       | $                                          | 72,790     |   | $ | 46,365 |   | $ | 33,649 |   |
|                                                                                |       |                                       |       |   |   |   |   |

The accompanying notes are an integral part ofthese statements.

 

28

----

 

***Non Cash Activities:***

Duringthe first quarter of 2004, the Company recorded a reduction in tax benefitreserves and an increase in additional paid-in capital of $19.9 million. Duringthe third quarter of 2004, the Company recorded a reduction in other assets anda reduction in additional paid-in capital of $1.2 million.

 

29

----

**ComputerHorizons Corp. and SubsidiariesNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006, 2005 and 2004**

**NOTE 1—BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS**

*Description of Business*

Computer Horizons Corp. (“the Company”) is a strategicInformation Technology solutions and professional services company which doesbusiness principally in the United States and Canada. The Company enables itsGlobal 2000 (which Forbes magazine defines as the biggest and most importantcompanies as measured by sales, profits, assets and market value) client baseto realize competitive advantages through two business segments: Commercial andVendor Management Services (Chimes). The Company’s Commercial Servicesbusiness unit is organized into two lines of services: IT Services (ITstaffing) and Solutions (project-based IT work). The IT Services practiceprovides skilled technology personnel to meet clients’ temporary needs(including support personnel, programmers, architects and project managers).The Solutions practice offers a very broad range of technical knowledge,focusing on application management and support, application development andsoftware quality management. Chimes, Inc., a wholly-owned subsidiary ofthe Company (“Chimes”), provides workforce procurement and management servicesto Global 2000 companies.

*Sale of RGII (Discontinued Operations)*

On September 29, 2006, Computer Horizons Corp. soldits Federal Government subsidiary, RGII Technologies, Inc., to Netstar-1, Inc.for $15.3 million in cash, less an estimated net asset adjustment of $1.2million. This amount may be further adjusted subject to a final net asset valueadjustment, to be completed no later than 90 days after the closing date. Tothe extent that the final net asset amount sold to NetStar-1 is greater thanthe estimated asset amount at closing, the excess will be paid to CHC togetherwith interest thereon at the prime rate from the closing date to the date ofpayment. If the final net asset amount sold to NetStar-1 is less than the estimatedasset amount at closing, the deficiency will be paid by CHC to NetStar-1,together with interest thereon at the prime rate from the closing date to thedate of payment. The company currently estimates that the net asset valueadjustment will be favorable to CHC. In addition, CHC retained all cash andcash equivalents of RGII, in the amount of $6.3 million. The sale of RGIIresulted in a net book loss on disposal of $4.8 million, includingapproximately $969,000 in transaction costs. The Company sold this operatingsegment as part of a plan to maximize the value of the company. RGII had netrevenues of $29.6 million for the nine months ended September 29, 2006.

Results of theRGII subsidiary for all periods are presented as results from discontinued operations.Assets and liabilities of RGII are shown on the Balance Sheet as assets fromdiscontinued operations and liabilities from discontinued operationsrespectively. To provide a comparable presentation period over period, theprior period financial statements contained herein have also been restated toreflect RGII as assets held for disposal. RGII had net revenues for the years ended December 31, 2006 of $29.6million, $45.0 million for December 31, 2005, and $48.3 million for December 31,2004.

 
| ** **                                                  | ** ** | **Year ended December 31** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(dollars in thousands)**                        | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                                     |       | 29,582                                    |       | 44,980 |   | 48,339 |   |
| Income/(Loss) on  Discontinued Operations Before Income Tax |       | (13,161                                   | )*         | 2,367 |   | 4,646 |   |

 

*                 primarilyrelating to a charge of $15 million of goodwill impairment taken second quarterof 2006

The carrying amounts of major classes of relatedassets and Liabilities were as follows:

 

|                           | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------|------------|------------|------------|------------|------------|
| **Current Assets**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Account Receivable        |       |       |       | 8,423      |       |
| Refund Income Tax         |       |       |       | 136        |       |
| Other Current             |       |       |       | 80         |       |
| **Subtotal**              |       | —     |       | 8,639      |       |
|                      |       |       |       |       |       |
| **Long Term Assets**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| PP&E-Gross            |       |       |       | 2,766      |       |
| Depreciation              |       |       |       | (1,539     | )          |
| PP&E Net              |       | —     |       | 1,227      |       |
| Goodwill                  |       |       |       | 27,624     |       |
| Intangibles               |       |       |       | 1,939      |       |
| Investments               |       |       |       | —     |       |
| Deferred Income Tax       |       |       |       | —     |       |
| Other Assets              |       |       |       | 947        |       |
| **Subtotal**              | ** ** | **—** | ** ** | **31,737** | ** ** |
|                      |       |       |       |       |       |
| **Current Liabilities**   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accrued Payroll           |       |       |       | 2,434      |       |
| Accounts Payable          |       |       |       | 637        |       |
| Restructure Reserve       |       |       |       | 12         |       |
| Other Accrued Expenses    |       |       |       | 566        |       |
| **Subtotal**              | ** ** | **—** | ** ** | **3,649**  | ** ** |
|                      |       |       |       |       |       |
| **Long Term Liabilities** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred Comp             |       |       |       | 880        |       |
| Other Liabilities         |       |       |       | 90         |       |
| **Subtotal**              | ** ** | **—** | ** ** | **970**    | ** ** |

 

30

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*Sale of Chimes*

On October 18, 2006, the Company signed a definitiveasset purchase agreement by and among Axium International, Inc., a Delawarecorporation, Diversity MSP, Inc., a California corporation (“Diversity MSP”),Chimes, Inc., a Delaware corporation and wholly-owned subsidiary of the Company(now known as Chimes, LLC; a Delaware limited liability company) and theCompany.  Pursuant to the Chimes AssetPurchase Agreement, on February 16, 2007, the Company sold to Diversity MSPsubstantially all of the assets of Chimes, LLC, excluding cash and marketablesecurities, for a purchase price of $80.0 million in cash (the “Chimes AssetSale”), with an estimated gain of $75 million. The maximum liability to theCompany is $8 million and is contingent upon assertion of a claim for theindemnity within 6 months after the closing date.

The sale of Chimes was a disposal of a major line ofbusiness for which shareholder approval was required. As of December 31, 2006,all conditions of the sale, including the shareholder vote, had not been met,and therefore Chimes did not meet the criteria of an asset group to be sold atthat time.  Assets that meet thesecriteria after the balance sheet date but before the issuance of financialstatements, must continue to be classified as held and used in those financialstatements when issued.  For this reason,as of December 31, 2006, Chimes continues to be shown in the results fromoperations of the Company, and not as assets held for disposal.

The sale of the Company’s and its affiliate’s assetspursuant to the Chimes Asset Purchase Agreement will be a taxable transactionwith respect to the Company to the extent that any gain or loss is realized.The Company will realize gain measured by the difference between the proceedsreceived by it and its affiliates on such sale and the Company’s (or anaffiliate’s) tax basis in the assets. For purposes of calculating the gain, theproceeds received by the Company and its affiliates will include the cash  received by them, the amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain expected to berealized from the Chimes Transaction for regular Federal income tax purposesand otherwise incur approximately $1.3 million in alternative minimumtaxes.  The Company and/or its affiliatesmay be subject to state income taxes to the extent that gains exceed losses forstate tax law purposes, but does not anticipate that such taxes, if any, willbe significant. Based upon current projections, such state taxes are estimatedto be approximately $1 million after taking into account the availability ofstate losses to offset the gain.

*Sale of Commercial*

On November 7, 2006, the Company entered into an assetpurchase agreement (the “Commercial Services Asset Purchase Agreement”) by andamong TEKsystems, Inc., a Maryland corporation (“TEKsystems”), TEKsystemsEF&I Solutions, LLC, a Maryland limited liability company, Allegis GroupCanada Corporation, a Nova Scotia unlimited liability corporation, the Company,GBS Holdings Private Limited, a corporation organized under the laws ofMauritius, CHC Healthcare Solutions, LLC, a Delaware limited liability company,and Allegis Group, Inc., a Maryland corporation.  Pursuant to the Commercial Services AssetPurchase Agreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(601,000) using data as of the end of the thirdquarter of 2006 (the “Commercial Services Asset Sale”).  Assets not included in the sale of theCommercial Services Business include a refundable tax credit of $8.2 million,and the unit’s operating cash as of the date of the sale.  Computer Horizons Corp. currently expects torecord an estimated gain of $29 million as a result of the sale of theCommercial Services Business. The maximum liability of Computer Horizons Corp.is $10 million and is contingent upon assertion of a claim for indemnity within9 months after the closing date.

The sale of the Commercial Services Business was adisposal of a major line of business for which shareholder approval wasrequired. As of December 31, 2006, all conditions of the sale, including theshareholder vote, had not been met, and therefore the Commercial ServicesBusiness did not meet the criteria of an asset group to be sold at thattime.  Assets that meet these criteriaafter the balance sheet date but before the issuance of financial statements,must continue to be classified as held and used in those financial statementswhen issued.  For this reason, as ofDecember 31, 2006, the Commercial Services Business continues to be shown in theresults from operations of the Company, and not as assets held for disposal.

The sale of the Commercial Services Business Unitpursuant to the Chimes Asset Purchase Agreement will be a taxable transactionwith respect to the Company to the extent that any gain is realized. TheCompany will realize gain measured by the difference between the proceedsreceived by it and its affiliates on such sale and the Company’s (or anaffiliate’s) tax basis in the assets. For purposes of calculating gain or loss,the proceeds received by the Company and its affiliates will include thecash  received by them, the amount oftheir indebtedness that is cancelled or assumed, and any other considerationreceived by them for their assets. It is anticipated that the Company will havesufficient current losses to offset most of the gain expected to be realizedfrom the Commercial Services Business asset sale for regular Federal income taxpurposes and otherwise incur approximately $134,000 in alternative minimumtaxes.  The Company and/or its affiliatesmay be subject to state income taxes to the extent that gains exceed losses forstate tax law purposes, but does not anticipate that such taxes, if any, willbe significant.

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*Sale of Assets and Liquidation*

On December 11, 2006, the board of directors approvedthe proposed plan of complete liquidation and dissolution of the Company,subject to the approval of the shareholders. The plan of complete liquidation and dissolution includes dissolving thecompany, liquidating assets, paying or providing for the payment of anyremaining legally enforceable obligations and distributing any remaining assetsto the shareholders.

At the February14th Special Meeting, the shareholders of the Company also approved a proposedplan of complete liquidation and dissolution of the Company.  Computer Horizons began implementing thecomplete liquidation and dissolution of the company after both Chimes andCommercial Asset Sales were completed February 16, 2007. On March 5, 2007, theCompany announced that its Board of Directors declared an initial liquidatingdistribution of $4.00 per share to its common stockholders.  This distribution will be payable March 27,2007 to shareholders of record as of the close of business on March 16, 2007.  This initial liquidating distribution is thefirst in what is expected to be a series of liquidating distributions pursuantto the plan of liquidation and dissolution approved by the Company’sshareholders on February 14, 2007.  Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.68 to $4.81 per share of Common Stock. In estimating the potentialdistribution, the Company has considered wind down and transition expenses andthe exposure for contingent claims under the asset purchase agreements.

**NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

*Principles of Consolidation*

The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiaries. All subsidiaries ofthe Company have been consolidated into these financial statements. ISG -Canada reports their financials on a one-month lag. All materialintercompany accounts and transactions have been eliminated.

*Revenue Recognition*

Approximately 96% and 94% of consolidated revenue in2006 and 2005, 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 or required milestones ordeliverables will not have been obtained, an adjustment to revenue and/or costswill be made. The cumulative effect of revisions in estimated revenues andcosts are recognized in the period in which the facts that give rise to theimpact 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 billed the following month. Costs andestimated earnings in excess of billings on fixed fee contracts arise whenpercentage of completion accounting is used. Such amounts are billed atspecific dates or at contract completion.

The Company’s Chimes subsidiary recognizes revenue ona transaction fee basis. The Chimes service offering aggregates the suppliersof temporary workers to the customer and renders one invoice to the customer.Upon payment from the customer, Chimes deducts a transaction fee and remits thebalance of the client payment to the applicable vendor. Chimes recognizes onlytheir fee for the service, not the aggregate billing to the customer. The grossamount of the customer invoicing is not considered revenue or a receivable toChimes because there is no earnings process for the gross amount and bycontract terms, Chimes is not obligated to pay the vendor until paid by thecustomer.

*Recruitment Costs*

Recruitment costs are charged to operations asincurred.

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*Advertising Costs*

The Company expenses all advertising costs as incurredand classifies these costs under selling, general and administrative expenses.Advertising costs for the years ended December 31, 2006, 2005 and 2004were $127,000, $200,000 and $200,000 respectively.

*Research and Development Costs*

The Company charges all costs incurred to establishthe technological feasibility of software products or product enhancements toresearch and development costs, which are included in selling, general andadministrative expenses and are primarily attributable to the Company’s Chimessubsidiary. Research and development costs for the years endedDecember 31, 2006, 2005 and 2004 were approximately $2.9 million, $2.1million and $3.3 million, respectively.

*Cash and Cash Equivalents*

Cash and cash equivalents include highly liquidinstruments with an original maturity of three months or less at the time ofpurchase and consist of the following at December 31:

|                  | ** ** | **2006**                | ** ** | **2005** | ** ** |
|------------------|------------|-------------------------|------------|----------|------------|
| ** **       | ** ** | **(in thousands)** | ** ** |
| Cash             |       | $                       | 63,972     |     | $          | 45,094 |   |
| Commercial paper |       | 7,661                   |       | 1,052    |       |
| Restricted cash  |       | 1,157                   |       | 219      |       |
|             |       | $                       | 72,790     |     | $          | 46,365 |   |

 

Restricted cash represents $157,000 in funds receivedby Chimes and held in client-specific bank accounts, to be used to makepayments to vendors of the applicable client, and $1,000,000 cash held inescrow from the sale of RGII.  Cash andAccounts Payable at December 31, 2006 and December 31, 2005 also includeapproximately $23.3 million and $29.4 million, respectively, of cash to bedisbursed to Chimes vendors in accordance with the client payment terms.

*Investments*

The Company’s marketable securities are categorized asavailable-for-sale securities, as defined by the Statement of FinancialAccounting Standards No. 115, “Accounting for Certain Investments in Debtand Equity Securities.”  Unrealized gains and losses are reflected as anet amount under the caption of accumulated other comprehensive loss within thestatement of shareholders’ equity. Realized gains and  losses are recorded within the statement ofincome under the caption other income or expenses. For the purposes ofcomputing realized gains and losses, cost is identified on a specificidentification basis.

*Concentrations of Credit Risk*

Financial instruments, which potentially subject theCompany to concentrations of credit risk, regardless of the degree of suchrisk, consist principally of cash and cash equivalents and trade accountsreceivable.  The Company invests themajority of its excess cash in overnight commercial paper of high-credit, highquality, short-term money market instruments, high quality financialinstitutions or companies.

The Company maintains its cash balances principally inten financial institutions located in the United States, Canada, India, PuertoRico, and the United Kingdom.  Thebalances in U.S banks are insured by the Federal Deposit Insurance Corporationup to $100,000 for each entity at each institution. The balance in the Canadianbank is insured by the Canadian Deposit Insurance Corporation up to $100,000Canadian (approximately $85,820 U.S.) per account.  Of the balance held in HSBC Bank in India,$10,000 is held in U.S. dollars and is fully insured in (Export Earners ForeignCurrency Account) “EEFC”.  The remainingbalance is insured by the Deposit Insurance and Credit Guarantee Corporation upto 100,000 Rupees (approximately $2,267 U.S.). There is no depository insurance in the United Kingdom.  Uninsured cash as of December 31, 2006 was$92.1 million.  This exceeds the cash onthe Balance Sheet due to outstanding checks and other timing differences.  At December 31, 2006, the Company hadapproximately $1.9 million in cash maintained in overseas financialinstitutions.

The Company’s clients are generally very large, Global2000 companies in many industries and with wide geographic dispersion.  For the years ended December 31, 2006,2005, 2004, the Company’s ten largest clients accounted for approximately 35%,35%, and 40% of its revenues, respectively, and no single client representsmore than 7% of annual revenues.

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*Fair Value of Financial Instruments*

The carrying value of financial instruments(principally consisting of cash and cash equivalents, accounts receivable andpayable) approximates fair value because of their short maturities.

*Property and Equipment and Depreciation*

Property and equipment are stated at cost.Depreciation is computed using the straight-line method over the estimateduseful lives of the assets which range from three to seven years.

*Impairment of Long-Lived Assets and Long-Lived Assets to beDisposed Of*

Effective on January 1, 2002, the Company adoptedStatement of Financial Accounting Standard No. 144 “Accounting for theImpairment or Disposal of Long Lived Assets,” (“FAS 144”). This supersedesStatement of Financial Accounting Standard No. 121 “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“FAS121”), while retaining many of the requirements of such statement. The effectof the adoption of this statement was immaterial to the Company.

*Income Taxes*

The Company and its domestic subsidiaries file aconsolidated Federal income tax return. The foreign subsidiaries file in eachof their local jurisdictions.

The Company follows the liability method of accountingfor income taxes. Income taxes are provided for the tax effects of transactionsreported in the financial statements and consist of taxes currently due plusdeferred taxes. Deferred income taxes are recognized for temporary differencesbetween the financial statement carrying amounts and the tax bases of certainassets and liabilities. Temporary differences result primarily from netoperating loss carryovers, amortization of goodwill, allowance for doubtfulaccounts and certain accrued liabilities which are deductible, for taxpurposes, only when paid. The Company records deferred tax assets for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and their respective tax bases,and operating loss carryforwards. Deferred tax assets are reduced by avaluation allowance if, based on available evidence, it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Inassessing the realizability of deferred tax assets, management considers thescheduled reversal periods of the deferred tax assets, whether sustainedprofitability has been achieved and tax planning strategies.

Tax benefits from early disposition of the stock byoptionees under incentive stock options and from exercise of non-qualifiedoptions are credited to additional paid-in capital.

The Company provides United States income taxes on theearnings of foreign subsidiaries, unless they are considered permanentlyinvested outside the United States. As of December 31, 2006, cumulativeamount of foreign earnings on which United States income taxes have not beenprovided is approximately $5.1 million.

*Earnings/(Loss) Per Share*

Basic loss per share is based on the weighted averagenumber of common shares outstanding without consideration of common stockequivalents. Diluted loss per share is based on the weighted average number ofcommon and common equivalent shares outstanding, except when the effect isanti-dilutive. The calculation takes into account when dilutive, the sharesthat may be issued upon exercise of stock options, reduced by the shares thatmay be repurchased with the funds received from the exercise, based on theaverage price during the year.  For the year ended December 31, 2006 therewere 40,000 options excluded with an exercise price of $4.70.

During 2005, there were 1,903,000 excluded optionsoutstanding with a weighted average exercise price of $2.45 per share atDecember 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.  (See Note 9)

*Use of Estimates in FinancialStatements*

In preparing financial statements in conformity withaccounting principles generally accepted in the United States of America,management makes estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosures of contingent assets and liabilities atthe date of the financial statements, as well as the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

*Foreign Currency Translation*

For operations outside the United States that preparefinancial statements in currencies other than the United States dollar(Canadian dollar, British pound, and Indian Rupee), results of operations andcash flows are translated at the average exchange rates during the period, andassets and liabilities are translated at end of period exchange rates. Exchangeamounts included in operations are income/(loss) of $(133,000), $(23,000), and$392,000 for December 31, 2006, 2005 and 2004, respectively. Translationadjustments are included as a separate component of comprehensive income/(loss)within the statement of shareholders’ equity.

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*Accounts Receivable*

Accounts receivable are generally due within 30 daysand are stated at amounts due from clients net of an allowance for doubtfulaccounts. Accounts outstanding longer than the contractual payment terms areconsidered past due. The Company determines its allowance by considering anumber of factors, including the length of time trade accounts receivable arepast due, the Company’s previous loss history, the client’s current ability topay its obligation to the Company and the condition of the general economy andthe industry as a whole. The Company writes off accounts receivable when theybecome uncollectible, and payments subsequently received on such receivablesare credited to income or the allowance for doubtful accounts.

*Goodwill*

As of December 31, 2004, the fair value of eachof the reporting units was calculated using the following approaches(i) market approach and (ii) income approach. The reporting units areequal to, or one level below, reportable segments. Under the market approach,value is estimated by comparing the performance fundamentals relating tosimilar public companies’ stock prices. Multiples are then developed of thevalue of the publicly traded stock to various measures and are then applied toeach reporting unit to estimate the value of its equity. Under the incomeapproach, value is determined using the present value of the projected futurecash flows to be generated by the reporting unit.

For the year ended December 31, 2004, the Companyreassessed the carrying value of goodwill associated with its CommercialSolutions Group. 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 ofthe Commercial Solutions goodwill. There was no income tax effect on theimpairment charge as the related goodwill was primarily attributable toacquisitions which yielded no tax basis for the Company.

In 2006, a $15 million charge was taken for goodwillimpairment included in discontinued operations for RG II.

*Recent Accounting Pronouncements*

In December 2004, the FASB issued Statement ofFinancial Accounting Standard No. 123 (revised 2004), “Share-Based Payment”(FAS 123R). FAS 123R requires that compensation cost be recognizedfor all new awards and awards that are modified, repurchased or cancelled afterthe adoption date.  Statement 123Rrequires compensation cost to be recognized for new awards of equityinstruments and unvested awards on adoption date.  The SEC amended the effective dates ofFAS 123R for public companies in April 2005, which allows registrantsto implement FAS 123R at the beginning of their next fiscal year, insteadof the next interim period, that begins after June 15, 2005. The SEC alsoissued Staff Accounting Bulletin 107, “Share-Based Payment”(SAB 107), in April 2005, which provides the views of the SEC staffregarding certain aspects of the application of FAS 123R. SAB 107assists issuers in their initial implementation of FAS 123R. Theprovisions of this statement are effective for the Company, January 1, 2006.

On November 2005, the FASB issued FASB Staff PositionNo. FAS 123R-3—”Transition Election Related to Accounting for the Tax Effectsof Share-Based Payment Awards.”  The Company has elected to adopt thealternative transition method provided in this FASB Staff Position forcalculating the tax effects of share-based compensation pursuant to FAS 123R.The alternative transition method includes a simplified method to establish thebeginning balance of the additional paid-in capital pool (APIC pool) related tothe tax effects of employee share-based compensation, which is available to absorbtax deficiencies recognized subsequent to the adoption of FAS 123R.

FAS 123R allows for two alternative transitionmethods. The first method is the modified prospective application wherebycompensation cost for the portion of awards for which the requisite service hasnot yet been rendered that are outstanding as of the adoption date will berecognized over the remaining service period. The compensation cost for thatportion of awards will be based on the grant-date fair value of those awards ascalculated 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 FAS 123(R). The second method is themodified retrospective application, which requires that the Company restatesprior period financial statements. The modified retrospective application maybe applied either to all prior periods or only to prior interim periods in theyear of adoption of this statement. The Company has elected to apply themodified prospective method.

Prior to the adoption of FAS 123R, the Company appliedAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees” (APB 25), as modified by FIN 44, “Accounting for CertainTransactions Involving Stock Compensation,” in accounting for stock-basedemployee compensation, whereby no compensation cost had been recognized for theplans. Had compensation cost for the plans been determined based on thefair value of the options at the grant dates and been consistent with themethod of FAS 123, the Company’s net income and earnings per share for thecomparable periods would have been decreased to the pro forma amounts indicatedbelow:

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

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes options pricing model with thefollowing weighted-average assumptions used for grants in 2005 and 2004 ,respectively:  expected volatility of 41% and 36% ;  risk-freeinterest rates of 4.39% and 4.24%; and expected lives of 8.8 and 6.1 years

In May 2005, the FASB issued Statement ofFinancial Accounting Standard No. 154, “Accounting Changes and ErrorCorrections” (FAS 154) , which changes the accounting and reportingrequirements for the change in an accounting principle. Accounting PrinciplesBoard Opinion 20, “Accounting Changes” (Opinion 20), which is superseded by FAS154, required that most voluntary changes in accounting principle be recognizedby including the cumulative effect of changing to the new accounting principleas a component of net income in the period of the change. FAS 154 insteadrequires retrospective application to prior periods’ financial statements ofchanges in an accounting principle, unless it is impracticable to do so. FAS154 differentiates between “retrospective application” and “restatement”. ”Retrospective application” is defined as the application of a differentaccounting principle to prior accounting periods as if that principle hadalways been used or as the adjustment of previously issued financial statementsto reflect a change in the reporting entity. In contrast, restatement isdefined as the revising of previously issued financial statements to reflectthe correction of an error. FAS 154 also requires that a change indepreciation, amortization, or depletion method for long-lived, nonfinancialassets be accounted for as a change in accounting estimate effected by a changein accounting principle. The guidance contained in Opinion 20 for reporting thecorrections of errors in previously issued financial statements, and changes inaccounting estimates is carried forward to FAS 154 without change.Additionally, FAS 154 carries forward the guidance in Opinion 20 requiringjustification of a change in accounting principle on the basis ofpreferability. FAS 154 is effective for accounting changes and corrections oferrors made in fiscal years beginning after December 15, 2005.

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation  No. 48, Accounting for Uncertainty in IncomeTaxes-an interpretation of FASB Statement No. 109 (FIN 48), which clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements.  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This interpretation also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosureand transition.

On January 1,2007, we will adopt the provisions of recently issued FASB Interpretation 48,Accounting for Uncertainty in Income Taxes, in regards to our accounting anddisclosure of uncertain tax positions. We have reviewed our accounting for income taxes in light of theprovisions of FIN 48 and do not expect that adoption will materially affect ourconsolidated financial statements.  TheCompany believes upon the adoption of FIN 48, a tax contingency reserve ofapproximately $150,000 will be established related to various Federal, Foreignand State income tax matters.

In September, 2006 the FASB issued Statement 158, Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans : an amendment of FASB StatementsNo. 87,88, 106, and 132(R).  Statement 158 requires employers withsingle-employer defined benefit plans or postretirement plans to recognize thefunded status of all such plans in the employer’s statement of financialposition, recognize the changes in a plan’s funded status in comprehensiveincome of a business entity or as changes in unrestricted net assets of anot-for-profit organization in the year of change, and measure a plan’s fundedstatus as of the date of the employer’s fiscal year-end statement of financialcondition.  The provisions of Statement 158 are effective for entitieswith publicly traded equity securities as of the end of fiscal years endingafter December 15, 2006.  There will not be a material impact from theadoption of Statement 158.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin “SAB” 108 regarding the process ofquantifying financial statement misstatements.  The provisions of thisstatement will be effective for the year end.

*Reclassifications*

Certain reclassifications have been made to the 2005and 2004 comparative financial statements to conform to the 2006 presentation.

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** NOTE 3—ACCOUNTSRECEIVABLE**

Accounts receivableconsist of the following at December 31:

|                                             | ** ** | **2006**                | ** ** | **2005** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                  | ** ** | **(in thousands)** | ** ** |
| Billed                                      |       | $                       | 32,315     |     | $          | 38,554 |   |
| Unbilled—primarily  scheduled billings |       | 6,801                   |       | 5,801    |       |
|                                        |       | 39,116                  |       | 44,355   |       |
| Less allowance  for doubtful accounts       |       | 4,599                   |       | 4,654    |       |
|                                        |       | $                       | 34,517     |     | $          | 39,701 |   |

 

Included in unbilled accounts receivable at December 31,2006 and 2005 are amounts not yet billable to customers of approximately $0 and$447,000, respectively.

**NOTE 4—PROPERTY AND EQUIPMENT**

Property and equipment consist of the following:

|                                    | ** ** | **2006**                | ** ** | **2005**   | ** ** |
|------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                         | ** ** | **(in thousands)** | ** ** |
|                               | ** ** | ** **              | ** ** | ** ** | ** ** |
| Furniture,  Fixtures and Equipment |       | $                       | 37,190     |       | $          | 36,647 |   |
| Software                           |       | 3,811                   |       | 3,580      |       |
| Leasehold  Improvements            |       | 3,266                   |       | 3,123      |       |
|                               |       | 44,267                  |       | 43,350     |       |
| Less:  accumulated depreciation    |       | 41,521                  |       | 39,512     |       |
|                               |       | $                       | 2,746      |       | $          | 3,838 |   |

 

Property and equipment are stated at cost.Depreciation is computed using the straight-line method over the estimateduseful lives of the assets which range from three to seven years. Depreciationexpense was $2.0 million, $3.3 million and $4.4 million for the years endedDecember 31, 2006, 2005 and 2004, respectively.

** NOTE 5—ASSET-BASEDLENDING FACILITY**

On June 16, 2006 the Company amended the line ofcredit facility.  The line was reduced to$20 million from $40 million, reflecting management’s belief that there was noneed for the higher level of funding, thereby reducing associated costs.  The amendment extended the termination of theFinancing Agreement from July 31, 2006 to July 31, 2007.  The Administrative Management Fee, the EarlyTermination Fee and the Line of Credit Fee have all been eliminated.  Since November 2, 2005, the interest rate hasbeen calculated using the lesser of Prime +.50% or LIBOR plus 2.75% based onunpaid principal.  The minimum borrowingbase threshold has been eliminated as of November 4, 2005.  As of December 31, 2006, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances,$3.8 million was available for borrowing as of December 31, 2006.  The unused line fee has been eliminatedbeginning June 1, 2006.  The unused linefee and other associated fees, including the float and wire fees, wereapproximately $77,000 and $136,000 for the years ended December 31, 2006 andDecember 31, 2005, respectively.  Thisline of credit involves covenants relating to the maintenance of cash balancesand providing for limitations on incurring obligations of operating leasesexceeding $9 million annually and spending limits on capital expendituresexceeding $8 million annually.  As ofDecember 31, 2006, the Company was in compliance with the covenants.  This credit facility was cancelled effectiveFebruary 12, 2007.  The CIT will hold$100,000 in escrow for 90 days after the effective date.

37

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** NOTE 6—PURCHASE OFTREASURY STOCK**

In April of 2001, the Board of Directors approvedthe repurchase in the open market of up to 10% of its common stock outstanding,or approximately 3.2 million shares. The Company did not repurchase shares ofits common stock during the years ended December 31, 2006 or 2005. For theyear ended December 31, 2003, the Company had repurchased, in the openmarket, 392,200 shares of its common stock at an average price of $3.08 pershare for an aggregate purchase amount of $1.2 million. For the year endedDecember 31, 2002, the Company had repurchased, in the open market,1,611,700 shares of its common stock at an average price of $3.81 per share foran aggregate purchase amount of $6.1 million. As of December 31, 2006authorization for repurchase relates to approximately 93,000 shares of common stock.

As Treasury Shares have been depleted through issuanceupon stock option exercises and to the Employee Stock Purchase Plan (the “ESPP”),on October 2, 2006, the Company created common stock reserves for issuance ofauthorized but unissued shares.  The initial reserve for stock optionexercise was 3,500,000 and the reserve for the ESPP is 250,000 shares.

As of December 31, 2006, 2,924,453 reserve sharesremain for stock option exercise and 250,000 reserve shares remain for ESPPshares. As of January 2007 all Treasury Shares were fully depleted.

** NOTE 7—SHAREHOLDERS’EQUITY**

*Stock Option Plans*

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 31,2006. There were no shares available as of December 31, 2005 or 2004 forthe 1994 stock option plan.

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, 2006 and 2005, there were2,711,500 and 2,976,500 shares, respectively, available for awards under theOmnibus Plan, respectively.

TheCompany also has a non-qualified Directors’ stock option plan (the “Directors’Plan”). In 1998, the Company amended the Directors’ Plan, providing that eachnew director of the Company who is not an employee of the Company(i) shall immediately receive options to purchase 10,000 shares of theCompany’s common stock and (ii) shall receive annual grants to purchase anadditional 10,000 shares of its common stock. The Directors’ Plan originallywas to expire on March 4, 2001 and was extended by the Board of Directorsand Shareholders through March 6, 2007. There were 24,000, 74,000, and184,000 shares of common stock available for grant at December 31, 2006,2005 and 2004, respectively, under the Directors’ Plan.

A summary of the status of all the Company’s stockoption plans as of December 31, 2006, 2005 and 2004, and changes duringthe years ending on those dates is presented below:

 
| ** **                                                                                 | ** ** | **2006**                 | ** ** | **2005**                               | ** ** | **2004**                 | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------|------------|--------------------------|------------|
| **Options (Twelve Months)**                                                      | ** ** | **Shares  (000’s)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares  (000’s)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares  (000’s)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                                                                                       |       |                     |       |                                   |       |                     |       |   |   |   |   |   |   |
| Outstanding  January                                                                       |       | 2,675                    |       | $                                      | 3.69       |                     | 3,656      |   | $ | 4.23 |   | 3,845 |   | $ | 4.08 |   |
| Granted                                                                                    |       | 315                      |       | $                                      | 4.39       |                     | 473        |   | $ | 3.88 |   | 276 |   | $ | 3.88 |   |
| Exercised                                                                                  |       | (1,393                   | )          | $                                      | 3.53       |                     | (729       | ) | $ | 3.17 |   | (321 | ) | $ | 2.40 |   |
| Canceled/forfeited/expired                                                                 |       | (310                     | )          | $                                      | 5.09       |                     | (725       | ) | $ | 4.40 |   | (144 | ) | $ | 3.68 |   |
| Outstanding  December 31                                                                   |       | 1,287                    |       | $                                      | 3.72       |                     | 2,675      |   | $ | 3.69 |   | 3,656 |   | $ | 4.23 |   |
| Options  exercisable December 31                                                           |       | 1,074                    |       | $                                      | 3.61       |                     | 2,500      |   | $ | 3.66 |   | 2,326 |   | $ | 4.49 |   |
| Weighted average  fair value of options granted during the twelve months ended December 31 |       |                     |       | $                                      | 2.47       |                     |       |   | $ | 1.75 |   |   |   | $ | 1.68 |   |

 

38

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The following informationapplies to options outstanding at December 31, 2006:
| **Range of exercise prices** | ** ** | **Outstanding as of  December 31, 2006  (000’s)** | ** ** | **Weighted Average  remaining  contractual life** | ** ** | **Weighted  average  exercise price** | ** ** | **Exercisable as of  December 31, 2006  (000”s)** | ** ** | **Weighted  average  exercise price** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------|------------|
|                                        |       |                                                                       |       |                                                        |       |                                       |       |                                                                       |       |                                       |       |
| 0.00-4.55                                   |       | 1,247                                                                      |       | 5.5                                                         |       | $                                          | 3.69       |                                                                       | 1,074      |                                       | $          | 3.61 |   |
| 4.55-9.10                                   |       | 40                                                                         |       | 4.2                                                         |       | 4.70                                       |       | 0                                                                          |       | 0.00                                       |       |
|                                        |       | 1,287                                                                      |       | 5.5                                                         |       | $                                          | 3.72       |                                                                       | 1,074      |                                       | $          | 3.61 |   |

 

The fair value of each option grant is estimated onthe date of the grant using the Black-Scholes options pricing model. Thefollowing weighted-average assumptions were used for grants in the nine monthsended December 31, 2006: expected volatility of 37%; a risk-free interest rateof 5.00%; and an expected life of 1.20 years. The expected term of the optionsis based on evaluations of historical and expected future employee exercisebehavior. The risk-free rate is based on the US Treasury rates at the close ofthe quarter with maturity dates approximately equal to the expected life at thegrant date. The expected volatility is based on the historical volatility ofthe Company’s stock.

Cash received from option exercise under allshare-based payment arrangements for the year ended December 31, 2006 was$5,241,000. The actual tax benefit realized for the tax deductions from optionexercise of the share-based payment arrangements totaled $357,436 for the sameperiod. As the Company currently has a full valuation allowance with respect toits deferred tax assets, no tax benefit from the options are recognized at thistime. If the Company determines that it is more likely than not that it willrecognize a tax benefit from the exercise of the options, then this amountwould generally reflect the overall tax benefit.

*Warrants*

The Company issued150,001 warrants in 2003 to one major shareholder to purchase shares of itscommon stock. The exercise price of such warrants is $3.89, representing thefair value of the Company’s common stock at the date of grant. As ofDecember 31, 2006, 150,001 warrants were exercised and cash received was$584,000.

*Adoption of FAS 123R*

Prior to the adoption of SFAS 123R, the Companypresented all tax benefits of deductions resulting from the exercise of share-basedawards as operating cash flows in the consolidated statement of cash flows.SFAS 123R requires the cash flows resulting from the tax benefits generatedfrom tax deductions in excess of the compensation costs recognized for theshare-based awards (excess tax benefits) be classified as financing cash flows.SFAS 123R requires the cash flows resulting from the tax benefits for the taxdeductions in excess of the compensation expense recorded for those options tobe classified as financing cash flows. As the Company currently has a netoperating loss carryforward and a full valuation allowance, no excess taxdeductions are recognized at this time.

FAS123R attemptsto estimate employee compensation by forecasting the future stock price at anestimated point in time. Given the sale of Chimes and Commercial, the Companycan more accurately estimate the ending share price based on the aggregateamount of distribution range per share as well as the expected term (seeDefinitive Proxy Statement Form DEFM14A filed 1/5/2007).  Using the midpoint of the liquidatingdistribution range, we determined that FAS123R estimated compensation expensefor stock option plans in 2006 should be $207,000.  Therefore the expense booked for the firstthree quarters of 2006 was reduced by approximately $186,000 in the fourthquarter.

On December 31, 2006, the Company has threeshare-based compensation plans and an Employee Stock Purchase Plan (“ESPP”)which are described below. The compensation cost that has been charged againstincome for the three months and year ended December 31, 2006 was $(186,000) and$286,000 respectively, comprised of $0 and $79,000 ESPP and $(186,000) and$207,000 for stock option plans. This reduced earnings from continuingoperations before and after taxes and net earnings.  Basic and diluted netearnings per common share for the three months ended December 31, 2006increased $.01 and for year ended December 2006 were decreased by $.01respectively as a result of adopting this pronouncement. As the Company has anet operating loss carryforward and has established a full valuation allowanceon its deferred tax assets, there is no current tax benefit associated with theaccrued compensation expense for this quarter

As of December 31, 2006, there was $31,000 of totalunrecognized compensation cost related to nonvested share-based compensationarrangements granted under these plans; that cost is expected to be recognizedin the first quarter of 2007.

The Company’s ESPP purchases shares quarterly at a 15%discount from the lower of the opening and closing stock prices for the period.The shares are purchased at a fixed discount and therefore give rise to aliability under FAS 123R.  The FAS 123Rexpense for fourth quarter ESPP withholdings to be purchased in the firstquarter 2007 will be $38,000.  Shares arepurchased the first business day after the end of each quarter. There were1,916,332 shares of common stock available for purchase after January 3, 2007under the ESPP Plan.

39

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The company has discontinued the ESPP as of the end offourth quarter 2006.  The lastcontributions were accepted thru December 31, 2006 and the final purchase forESPP was made on  January 3, 2007.

*Loans to Officers*

Prior to the adoption of FIN 44 and the Sarbanes-OxleyAct of 2002, certain officers had the right to borrow from the Company againstthe exercise price of options exercised. As of December 31, 2005 and 2004,total outstanding borrowings, pertaining to one officer, amounted to $100,000 whichborrowings occurred in 1999.  Thisbalance was repaid in 2006.

*Shareholder Rights Plan*

In July 1989, the Board of Directors declared adividend distribution of .131 preferred stock purchase right on eachoutstanding share of common stock of the Company. The rights were amended onFebruary 13, 1990. Each right will, under certain circumstances, entitlethe holder to buy one one-thousandth (1/1000) of a share of Series Apreferred stock at an exercise price of $90.00 per one one-thousandth (1/1000)share, subject to adjustment. Each one one-thousandth (1/1000) of a share ofSeries A preferred stock has voting, dividend and liquidation rights andpreferences substantively equivalent to one share of common stock.

The rights will be exercisable and transferable separatelyfrom the common stock only if a person or group acquires 20% or more, subjectto certain exceptions, of the Company’s outstanding common stock or announces atender offer that would result in the ownership of 20% or more of the commonstock. If a person becomes the owner of at least 20% of the Company’s commonshares (an “Acquiring Person”), each holder of a right other than the AcquiringPerson is entitled, upon payment of the then current exercise price per right(the “Exercise Price”), to receive shares of common stock (or common stockequivalents) having a market value equal to twice the Exercise Price.

Additionally, if the Company subsequently engages in amerger or other business combination with the Acquiring Person in which theCompany is not the surviving corporation, or in which the outstanding shares ofthe Company’s common stock are changed or exchanged, or if more than 50% of theCompany’s assets or earning power is sold or transferred, a right would entitlea Computer Horizon Corp. shareholder, other than the Acquiring Person and itsaffiliates, to purchase upon payment of the Exercise Price, shares of theAcquiring Person having a market value of twice the Exercise Price. Prior to aperson becoming an Acquiring Person, the rights may be redeemed at a redemptionprice of one cent per right, subject to adjustment. The rights are subject toamendment by the Board. No shareholder rights have become exercisable. Therights originally would have expired on July 16, 1999, however, the Boardof Directors approved the adoption of a new Shareholder Rights Plan to replacethe existing plan. The terms of the new Rights Plan are substantially the sameas the original plan.

*Treasury Stock Reclassification*

The Company utilizes the cost method in the recordingof treasury stock. During the fourth quarter of 2005, the Company determinedthat the recording of the issuance of treasury stock pertaining to stock optionexercises was not in accordance with GAAP. As a result, the Company recorded areclassification  within Shareholders’Equity of approximately $2.7 million, which decreased treasury stock anddecreased additional paid-in capital. Due to the amount and nature of thisreclassification within Shareholders’ Equity, the Company deemed thiscorrection to be immaterial.

40

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**NOTE 8—INCOME TAXES**

The following is a geographical breakdown of theCompany’s loss before taxes:

|                                         | ** ** | **Year ended December 31** | ** **  |
|-----------------------------------------|------------|-------------------------------------------|-------------|
| ** **                              | ** ** | **2006**                                  | ** **  | **2005** | ** ** | **2004** | ** ** |
| ** **                              | ** ** | **(in thousands)**                   | ** **  |
| Domestic from  Continuing Operations    |       | $                                         | 678         |   | $ | (29,552 | ) | $ | (31,576 | ) |
| Domestic from  Discontinuing Operations |       | $                                         | (18,022     | ) | $ | 2,365 |   | $ | 4,647 |   |
| Foreign from  Continuing Operations     |       | $                                         | 4,110       |   | $ | 935 |   | $ | (888 | ) |
| **Net Income Before Tax**               | ** ** | **$**                                     | **(13,234** | **)** | **$** | **(26,252** | **)** | **$** | **(27,817** | **)** |

 

The provision for income taxes/(benefit) consists ofthe following for the years ended December 31:

|                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Current**                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal Tax  Continuing Operations   |       | —     |       | (7         | )          | (1,179     | )          |
| Federal Tax  Discontinued Operations |       | —     |       | —     |       | (2         | )          |
| State Tax Continuing  Operations     |       | —     |       | 400        |       | (314       | )          |
| State Tax  Discontinued Operations   |       | 129        |       | 170        |       | 59         |       |
| Foreign Tax Continuing  Operations   |       | 72         |       | 39         |       | —     |       |
| **Total  Current**                   | ** ** | **201**    | ** ** | **602**    | ** ** | **(1,436** | **)**      |
|                                 |       |       |       |       |       |       |       |
| **Deferred**                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal Tax  Continuing Operations   |       | —     |       | 16,698     |       | (3,985     | )          |
| Federal Tax  Discontinued Operations |       | —     |       | 2,068      |       | 1,666      |       |
| State Tax  Continuing Operations     |       | —     |       | —     |       | 2,000      |       |
| State Tax  Discontinued Operations   |       | —     |       | 800        |       | (935       | )          |
| **Total  Deferred**                  |       | —     | ** ** | **19,566** | ** ** | **(1,254** | **)**      |
| **Total Income Tax Expense**         | ** ** | **201**    | ** ** | **20,168** | ** ** | **(2,690** | **)**      |

 

41

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Deferred tax assets and liabilities consist of thefollowing at December 31:

|                                                    | ** ** | **2006**                | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                         | ** ** | **(in thousands)** | ** ** |
| Deferred tax  liabilities                          |       |                    |       |     |       |
| Payroll credit receivable, Foreign                 |       | (2,869                  | )          | (1,997   | )          |
| Amortization of intangibles                        |       | —                  |       | (764     | )          |
| Prepaid insurance                                  |       | (9                      | )          | (506     | )          |
| Total deferred tax liabilities                     |       | $                       | (2,878     | )        | $          | (3,267 | ) |
| Deferred tax  assets                               |       |                    |       |     |       |
| Federal and state net operating losses             |       | 41,065                  |       | 32,474   |       |
| Foreign net operating losses                       |       | 1,689                   |       | 2,767    |       |
| Capital losses                                     |       | 11,978                  |       | 1,315    |       |
| Depreciation                                       |       | 1,618                   |       | 1,621    |       |
| Amortization of intangibles, Foreign               |       | 5,880                   |       | 5,915    |       |
| Accrued payroll and benefits                       |       | 2,159                   |       | 2,409    |       |
| Allowance for doubtful accounts                    |       | 1,446                   |       | 1,081    |       |
| Restructuring charges                              |       | —                  |       | 257      |       |
| Other                                              |       | 613                     |       | 529      |       |
| Net deferred tax assets before valuation allowance |       | 63,570                  |       | 45,101   |       |
| Valuation  allowance                               |       | (63,570                 | )          | (45,101  | )          |
| Net deferred tax assets                            |       | $                       | —     |     | $          | — |   |

 

In accordance with paragraph 41 of FASB 109, theCompany has allocated the valuation allowance, on a pro rata basis, betweencurrent and non current deferred tax assets.

A reconciliation of income taxes/(benefit), asreflected in the accompanying statements, with the statutory Federal income taxrate of 35% for the years ended December 31, 2006, 2005 and 2004 is asfollows:
| ** **                                                         | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                         | ** ** | **(in thousands)** | ** ** |
| Statutory  Federal income taxes                                    |       | $                       | (4,894     | )        | $          | (10,016  | )          | $ | (11,362 | ) |
| State and local  income taxes/(benefit), net of Federal tax effect |       | 85                      |       | (260     | )          | (1,096   | )          |
| Sale of stock — RGII and AIM                                  |       | (14,019                 | )          |     |       |     |       |
| Goodwill impairment                                                |       | 2,360                   |       | —   |       | 5,391    |       |
| Foreign rate differential  Change of control expenses              |       | (1.366  —          | )          | 3,579    |       | —   |       |
| Adjustment of deferred taxes  Change in valuation allowance        |       | 18,469                  |       | 23,965   |       | 4,635    |       |
| Other, net                                                         |       | (434                    | )          | (138     | )          | (1,046   | )          |
|                                                               |       | $                       | 201        |     | $          | 17,130   |       | $ | (3,478 | ) |

 

42

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The following table summarizes the changes in thehistorical valuation allowance for the years ended December 31, 2006, 2005and 2004:
| ** **                                                            | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                            | ** ** | **(in thousands)** | ** ** |
| Valuation Allowance at beginning of year                              |       | 45,101                  |       | 13,793   |       | 11,612   |       |
| Reclassification to conform to 2005 presentation of foreign tax items |       | —                  |       | 5,186    |       | —   |       |
| Adjusted valuation allowance at beginning of year                     |       | 45,101                  |       | 18,979   |       | 11,612   |       |
| Reserve on current year tax assets charged to expense                 |       | 18,469                  |       | 7,272    |       | 2,852    |       |
| Reserve on prior year tax assets charged to expense                   |       |                    |       | 19,566   |       | 780      |       |
| Changes in fully reserved assets and other                            |       |                    |       | (716     | )          | (1,451   | )          |
| Valuation Allowance at end of year                                    |       | 63,570                  |       | 45,101   |       | 13,793   |       |

 

The Companyhas significant deferred tax assets from federal, state, and foreign netoperating loss carryforwards and capital loss carryforwards. AtDecember 31, 2006 and December 31, 2005 the Company had a Federal netoperating loss carryforward of approximately $106 million and $81 millionrespectively; $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 net operating loss carryforwards includestock option deductions.  The tax benefitrelated to the stock option deductions will be a credit to additional paid-incapital when realized once the amount reduces current taxes payable.

Full valuation allowances were provided on the futuretax benefits related to capital losses, foreign net operating losses, and moststate net operating losses as of December 31, 2002. These valuationallowances are appropriate because these deferred tax assets have relativelyshort carryforward periods and relate to taxing jurisdictions which do notallow the filing of consolidated tax returns.

At December 31, 2006, certain foreignsubsidiaries of the Company had net operating loss carryforwards totalingapproximately $6.1 million (including $4.6 million in Canada, $1.4 million inthe United Kingdom and $0.1 million in other countries); $1.6 million expiresin 2006, $1.1 million expires in 2007, $1.8 million expires in 2008, $1.6million expires in 2011, $0.6 million expires in 2012, and the remainder has noexpiration. A full valuation allowance has been recorded on the foreign taxesdue to the uncertainty of the realization of certain tax benefits from thesenet operating loss carryforwards.

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.

The Company assesses the likelihood of the ultimatedetermination of various contingent tax liabilities that arise in manydifferent taxing jurisdictions. These tax matters can be complex in nature anduncertain as to the ultimate outcome. The Company establishes reserves for taxcontingencies when it believes that an unfavorable outcome is likely to occurand the liability can be reasonably estimated. Although the Company believesthese positions are fully supportable, the likelihood of potential challengesand sustainability of such challenges upon examination are considered. TheCompany had reserves for tax contingencies at December 31, 2006 andDecember 31, 2005 of approximately $1.2 million. Changes in the Company’stax reserves have occurred and are likely to continue to occur as changes occurin the current facts and circumstances.

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation  No. 48, Accounting for Uncertainty in IncomeTaxes-an interpretation of FASB Statement No. 109 (FIN 48).  This Interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  This interpretation alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. On January 1, 2007,the Company will adopt the provisions of recently issued FASB Interpretation48.  The Company does not expect thatadoption will materially affect our consolidated financial statements.  The Company believes upon the adoption of FIN48, a tax contingency reserve of approximately $150,000 will be establishedrelated to various Federal, Foreign and State income tax matters.

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**NOTE 9—EARNINGS/(LOSS) PER SHARE DISCLOSURES**
| ** **                                                                                                          | ** ** | **Twelve Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                          | ** ** | **December 31 ,  2006** | ** ** | **December 31 ,  2005** | ** ** | **December 31,   2004** | ** ** |
| Numerator:                                                                                                          |       |                              |       |   |   |   |   |
| Net  income/(loss) from operations - (000)                                                                          |       | $                                 | 4,584      |   | $ | (45,749 | ) | $ | (29,030 | ) |
| Net  income/(loss) from discontinued operations - (000)                                                             |       | $                                 | (18,022    |   | $ | (671 | ) | $ | 3858 |   |
| Net  income/(loss) - (000)                                                                                          |       | $                                 | (13,438    | ) | $ | (46,420 | ) | $ | (25,172 | ) |
| Denominator:                                                                                                        |       |                              |       |   |   |   |   |
| Denominator for  basic earnings per share - weighted average shares outstanding                                     |       | 32,444,000                        |       | 31,399,000 |   | 30,870,000 |   |
| Effect of stock  options                                                                                            |       | 170,000                           |       |   |   |   |   |
| Diluted  earnings/(loss) per share:                                                                                 |       |                              |       |   |   |   |   |
| Denominator for  diluted earnings per share - adjusted weighted average shares outstanding and  assumed conversions |       | 32,614,000                        |       | 31,399,000 |   | 30,870,000 |   |
| Basic  earnings/(loss) per share from continuing operations                                                         |       | $                                 | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) |
| Basic loss per  share from discontinued operations                                                                  |       | $                                 | (0.56      | ) | $ | (0.02 | ) | $ | 0.12 |   |
| Basic  earnings/(loss) per share                                                                                    |       | $                                 | (0.41      | ) | $ | (1.48 | ) | $ | (0.82 | ) |
| Diluted  earnings/(loss) per share from continuing operations                                                       |       | $                                 | 0.14       |   | $ | (1.46 | ) | $ | (0.94 | ) |
| Diluted loss per  share from discontinued operations                                                                |       | $                                 | (0.55      | ) | $ | (0.02 | ) | $ | 0.12 |   |
| Diluted earnings/(loss)  per share                                                                                  |       | $                                 | (0.41      | ) | $ | (1.48 | ) | $ | (0.82 | ) |

 

The computation ofdiluted loss per share excludes all options because they areantidilutive.  For the year ended December 31, 2006 there were 40,000options excluded with an average exercise price of $4.70.  During 2005,there were 1,903,000 excluded options outstanding with a weighted averageexercise price of $2.45 per share at December 31, 2005.  At December31, 2004, there were 3,656,000 excluded options outstanding with a weightedaverage exercise price of $4.23 per share.

**NOTE 10—SEGMENT INFORMATION**

During the fourth quarter of 2004, the Companycompleted a restructuring initiative whereby the Company’s business model wasrealigned, effective January 1, 2005, around its three distinct segmentsof clients: Commercial, Federal Government and Vendor Management services(Chimes).  This realigned business model was designed to deliver improvedoperational performance for the Company and reduce annual operating costs. OnSeptember 29, 2006 upon the sale of RGII, the Federal Government sector wasremoved from this disclosure.  All prioryear amounts reported in this footnote have been changed to reflect this.

Income/(loss) before income tax benefit consists ofincome/(loss) before income taxes, excluding interest income, interest expense,gain/(loss) on the sale of assets/investments, change of control charges,restructuring charges, special charges/(credits), the write-off of  assetsand a terminated project, amortization of intangibles and goodwill impairment.These exclusions total expense of $15.7 million, $23.4 million and $21.0million for the years ended December 31, 2006, 2005 and 2004,respectively.  Long-term assets include goodwill, intangibles andproperty, plant and equipment. Corporate services, consisting of general andadministrative services are provided to the segments from a centralizedlocation. Such costs are allocated to the applicable segments receivingCorporate services based on revenue.

44

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| **BY LINE OF BUSINESS**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
| (dollars in thousands)                                       |       |       |       |       |       |       |       |
| Revenues :                                                   |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 180,471    |       | $          | 195,435    |       | $ | 191,096 |   |
| Chimes                                                       |       | 31,519     |       | 28,421     |       | 23,092     |       |
| **Total Revenues**                                           |       | $          | 211,990    |       | $          | 223,856    |       | $ | 214,188 |   |
|                                                         |       |       |       |       |       |       |       |
| Gross Profit :                                               |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 40,019     |       | $          | 36,786     |       | $ | 38,004 |   |
| Chimes                                                       |       | 30,780     |       | 27,483     |       | 21,696     |       |
| **Total Gross Profit**                                       |       | $          | 70,799     |       | $          | 64,269     |       | $ | 59,700 |   |
| %                                                            |       | 33.4       | %          | 28.7       | %          | 27.9       | %          |
|                                                         |       |       |       |       |       |       |       |
| Operating Income :                                           |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 16,956     |       | $          | 8,155      |       | $ | 8,350 |   |
| Chimes                                                       |       | 5,458      |       | 5,801      |       | 1,420      |       |
| **Total Operating Income**                                   |       | $          | 22,414     |       | $          | 13,956     |       | $ | 9,770 |   |
| %                                                            |       | 10.6       | %          | 6.2        | %          | 4.6        | %          |
|                                                         |       |       |       |       |       |       |       |
| Corporate Allocation :                                       |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 16,943     |       | $          | 17,026     |       | $ | 15,371 |   |
| Chimes                                                       |       | 2,967      |       | 2,791      |       | 2,035      |       |
| **Total Corporate Allocation**                               |       | $          | 19,910     |       | $          | 19,817     |       | $ | 17,406 |   |
| %                                                            |       | 9.4        | %          | 8.9        | %          | 8.1        | %          |
|                                                         |       |       |       |       |       |       |       |
| **Total Income / (Loss) before  Income Taxes / (Benefit) :** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commercial                                                   |       | $          | 13         |       | $          | (8,871     | )          | $ | (7,021 | ) |
| Chimes                                                       |       | 2,491      |       | 3,010      |       | (615       | )          |
| **Total Income / (Loss) before  Income Taxes/(Benefit)**     |       | $          | 2,504      |       | $          | (5,861     | )          | $ | (7,636 | ) |
| %                                                            |       | 1.2        | %          | -2.6       | %          | -3.6       | %          |
|                                                         |       |       |       |       |       |       |       |
| Assets:                                                      |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 105,686    |       | $          | 59,758     |       | $ | 93,158 |   |
| Chimes                                                       |       | 20,086     |       | 37,745     |       | 12,747     |       |
| **Total Assets**                                             |       | $          | 125,772    |       | $          | 97,503     |       | $ | 105,905 |   |
|                                                         |       |       |       |       |       |       |       |
| Depreciation Expense:                                        |       |       |       |       |       |       |       |
| Commercial                                                   |       | $          | 1,378      |       | $          | 2,339      |       | $ | 2,858 |   |
| Chimes                                                       |       | 677        |       | 933        |       | 1,532      |       |
| **Total Depreciation**                                       |       | $          | 2,055      |       | $          | 3,272      |       | $ | 4,390 |   |

 

45

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*Reconciliationof Segments Loss before Income Tax Benefit to Consolidated Loss Before IncomeTax Benefit:*
| ** **                                                   | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                                   | ** ** | **(in thousands)** | ** ** |
|                                                         |       |                    |       |     |       |     |       |
| Total segment  income/(loss) before income taxes/(benefit) : |       | $                       | 2,504      |     | $          | (5,861   | )          | (7,636 | ) |
| Adjustments :                                                |       |                    |       |     |       |     |       |
| Corporate  allocation to Discontinued Operations             |       | —                  |       | (1,809   | )          | (1,767   | )          |
| Restructuring  charges                                       |       | 41                      |       | (2,150   | )          | (2,859   | )          |
| SERP/Change of  Control                                      |       | —                  |       | (13,247  | )          | —   |       |
| Special charges                                              |       | (367                    | )          | (5,135   | )          | 939      |       |
| Amortization of  intangibles                                 |       | —                  |       | (79      | )          | (189     | )          |
| Net/gain(loss)  on investments                               |       | —                  |       | (1,180   | )          | —   |       |
| Sale of Assets                                               |       | 394                     |       | —   |       | —   |       |
| Net interest  income                                         |       | 2,213                   |       | 811      |       | 321      |       |
| interest expense                                             |       | —                  |       | (6       | )          | (82      | )          |
| Goodwill  impairment                                         |       | —                  |       | —   |       | (20,306  | )          |
| Write-off of  assets                                         |       | —                  |       | —   |       | (910     | )          |
| Loss from Disc  Ops                                          |       | (18,022                 | )          | (634     | )          | 3,884    |       |
| Minority  interest                                           |       | —                  |       | —   |       | (45      | )          |
| Total  adjustments                                           |       | (15,741                 | )          | (23,429  | )          | (21,014  | )          |
| Consolidated  income/(loss) before income taxes/(benefit)    |       | $                       | (13,237    | )        | $          | (29,290  | )          | (28,650 | ) |

 
| **BY GEOGRAPHIC AREA *** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(in thousands)**                 | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|                                    |       |       |       |       |       |       |       |
| REVENUE                                 |       |       |       |       |       |       |       |
| United States                           |       | $          | 178,174    |       | $          | 187,640    |       | $ | 186,186 |   |
| Canada                                  |       | 33,585     |       | 35,614     |       | 27,592     |       |
| Europe                                  |       | —     |       | 262        |       | 272        |       |
| India                                   |       | 30         |       | 236        |       | 138        |       |
| Puerto Rico                             |       | 201        |       | 104        |       | —     |       |
| Total Revenue                           |       | $          | 211,990    |       | $          | 223,856    |       | $ | 214,188 |   |
|                                    |       |       |       |       |       |       |       |
| LONG-TERM ASSETS                        |       |       |       |       |       |       |       |
| United States                           |       | $          | 1,168      |       | $          | 3,887      |       | $ | 20,627 |   |
| Canada                                  |       | 1,550      |       | 1,915      |       | 1,211      |       |
| India                                   |       | 28         |       | 46         |       | 41         |       |
| Total Long-Term  Assets                 |       | $          | 2,746      |       | $          | 5,848      |       | $ | 21,879 |   |

----

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

46

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**NOTE11—SAVINGS PLAN AND OTHER RETIREMENT PLANS**

UntilOctober 2005, the Company maintained a defined contribution savings plancovering eligible employees. The Company made contributions up to a specificpercentage of participants’ contributions. The Company contributedapproximately $0.5 million, $1.4 million, $1.4 million in 2006,2005 and 2004, respectively.

In2004, the Company maintained a Supplemental Executive Retirement Plan (SERP),whereby key executives were entitled to receive payments upon reaching the ageof 65 and being in the employment of the Company. Benefits accrue and vestbased on a formula which includes total years with the Company and total yearsuntil age 65. In the event of a change of control, as defined in the SERPPlan, this event would result in an immediate vesting of the retirementbenefit. The Plan is nonqualified and not formally funded. Life insurancepolicies on the members are purchased to assist in funding the cost. Thecumulative accrued liability for the SERP is determined based on the UnitCredit Method by using a discount rate of 9% until age 65 for each participant.This plan was terminated as a result of the change of control of the Company inOctober 2005, and the related payment of all existing SERP assets toparticipants in the fourth quarter of 2005. The sale of the SERP investmentsgenerated approximately $4.7 million of proceeds and resulted in a loss onsale of approximately $1.2 million in the fourth quarter of 2005. The SERPexpense was charged to operations during the remaining service lives of themembers and was $79,000 in 2005, and $480,000 in 2004.

Thefollowing represents the fair value (included in Other Non-current Assets) andunrealized gain/ (loss) for the deferred compensation plan as ofDecember 31, 2006 and 2005 (amounts in thousands):
| ** **                                | ** ** | **For the years ended** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|
| ** **                                | ** ** | **December 31, 2006 *** | ** ** | **December 31, 2005** | ** ** |
| ** **                                | ** ** | **Fair Value**                    | ** ** |
| Money market  funds                       |       | -                                      |       | 365 |   |
| Debt securities  issed by the US Treasury |       | -                                      |       | 260 |   |
| Mortgage-backed  securities               |       | -                                      |       | 270 |   |
| Equity  securities                        |       | -                                      |       | 685 |   |
| Other                                     |       | -                                      |       | 9 |   |
| Total                                     |       | $                                      | -          |   | $ | 1,589 |   |
|                                           |            |                                        |            |  |  |  |  |

 

*                    UntilDecember 2006, the Company maintained a Deferred Compensation Plan for keyexecutives that permit the individuals to defer a portion of their annualsalary or bonus for a period of at least five years. There is no effect on theCompany’s operating results since any amounts deferred under the plan areexpensed in the period incurred. Amounts deferred amounted to $1.8 millionand $1.6 million as of December 31, 2006 and 2005, respectively.  As of December 31, 2006 the assets ofthe deferred compensation plan has been liquidated and payments will be made toindividuals on January 31, 2007. This liability is presented on the balance sheet as $1.8 million inShort Term Deferred Compensation.

During 1999, the Company adopted an Employee StockPurchase Plan to provide substantially all employees who have completed sixmonths of service an opportunity to purchase shares of its common stock throughpayroll deductions, up to 10 percent of eligible compensation. Quarterly,participant account balances are used to purchase shares of stock at 85 percentof its fair market value on either the first or last trading day of eachcalendar quarter. A total of 4 million shares were approved, withapproximately 2.0 million available for purchase under the plan atDecember 31, 2006. There were 125,443, 200,102, and 171,222 sharespurchased under the plan in 2006, 2005 and 2004, respectively.

47

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**NOTE12—COMMITMENTS**

** Leases**

TheCompany leases office space and equipment under long-term operating leasesexpiring through 2012. As of December 31, 2005, approximate minimum rentalcommitments were as follows:

 

| Year ending | ** ** | **(in thousands)** | ** ** |
|------------------|------------|-------------------------|------------|
| 2007             |       | $                       | 2,549      |   |
| 2008             |       | 523                     |       |
| 2009             |       | 425                     |       |
| 2010             |       | 346                     |       |
| Thereafter       |       | 294                     |       |
|             | ** ** | **$**                   | **4,137**  | ** ** |

 

Office rentals are subject to escalations based onincreases in real estate taxes and operating expenses. Rent expense, net ofsublease income of approximately $ 0.00, $16,000 and $131,000 forDecember 31, 2006, 2005 and 2004, respectively, for operating leasesapproximated $3.9 million, $7.5 million and $5.7 million in the years endedDecember 31, 2006, 2005 and 2004, respectively..

As aresult of the recent sales of the Company’s Commercial division and ChimesSubsidiary on February 16th 2007 the Company is no longer responsible forcertain property lease obligations. After that date the Company continues to be responsible for thefollowing property locations:  NewJersey, Minnesota, Connecticut, Ohio, Washington, Georgia, Indianapolis, NewYork, Colorado, Michigan, Florida, Illinois, Alberta Canada, and London, Englandwith aggregate of approximately 42,450 square feet.  After that date operating leases are asfollows:

|                            | ** ** | **Obligation Due** | ** ** |
|----------------------------|------------|--------------------|------------|
| **(dollars in thousands)** | ** ** | **Total Amount**   | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over 5 Years** | ** ** |
| Operating Leases           |       | $1,331             |       | $803 |   | $268 |   | $223 |   | $37 |   |

**Other**

In2003, the Company entered into a separation package with the Company’s formerCEO which contained a commitment for the Company to provide continued medicalcoverage until age 75, with remaining payments totaling approximately $38,000at December 31, 2006.

 

48

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**NOTE 13—SELECTED QUARTERLY FINANCIALDATA (UNAUDITED)**

Forthe years ended December 31, 2006 and 2005, selected quarterly financialdata is as follows:

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

 
| ** **                                   | ** ** | **Quarters** | ** ** | **YTD**    | ** ** |
|----------------------------------------------|------------|--------------|------------|------------|------------|
| ** **                                   | ** ** | **First**    | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Total** | ** ** |
|                                         |       |         |       |       |       |   |   |   |   |   |   |
| **2005**                                     | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                     |       | $            | 55,034     |       | $          | 57,660 |   | $ | 56,557 |   | $ | 54,605 |   | $ | 223,856 |   |
| Direct Cost                                  |       | 39,463       |       | 41,646     |       | 39,799 |   | 38,679 |   | 159,587 |   |
| Gross Profit                                 |       | 15,571       |       | 16,014     |       | 16,758 |   | 15,926 |   | 64,269 |   |
| Selling, general and  administrative         |       | 16,885       |       | 16,843     |       | 18,858 |   | 19,316 |   | 71,902 |   |
| Restructuring charges                        |       | —       |       | 142        |       | 574 |   | 1,434 |   | 2,150 |   |
| SERP/Change of Control                       |       | —       |       | —     |       | — |   | 13,247 |   | 13,247 |   |
| Special  charges/(credits)                   |       | (675         | )          | (257       | )          | 5,414 |   | 653 |   | 5,135 |   |
| Amortization of  intangibles                 |       | 47           |       | 31         |       | — |   | 1 |   | 79 |   |
| Income/(Loss) from  operations               |       | (686         | )          | (745       | )          | (8,088 | ) | (18,725 | ) | (28,244 | ) |
| Loss on Investments                          |       | —       |       | —     |       | — |   | (1,180 | ) | (1,180 | ) |
| Interest  income/(expense)—Net          |       | 146          |       | 131        |       | 260 |   | 268 |   | 805 |   |
| (Loss)/profits before  income taxes          |       | (540         | )          | (614       | )          | (7,828 | ) | (19,637 | ) | (28,619 | ) |
| Income taxes/(benefit)                       |       | 171          |       | (455       | )          | 128 |   | 17,286 |   | 17,130 |   |
| Loss from Discontiuned  Ops*                 |       | 1,043        |       | 411        |       | 617 |   | (2,742 | ) | (671 | ) |
| Net Income/(Loss)                            | ** ** | **$**        | **332**    | ** ** | **$**      | **252** | ** ** | **$** | **(7,339** | **)** | **$** | **(39,665** | **)** | **(46,420** | **)** |
| Earning/(Loss) per share(basic and diluted): |       | $            | 0.01       |       | $          | 0.00 |   | $ | (0.23 | ) | $ | (1.24 | ) | $ | (1.48 | ) |

----

* This includes tax (expense)/benefit of $0 in2006 and $(3,038) in 2005 (000’s omitted).

49

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 **NOTE14—RESTRUCTURING CHARGES**

During2005, in connection with the reorganization of the Commercial ServicesDivision, the Company recorded restructuring charges of approximately $2.2million, comprised of $1.2 million in severance costs and $1.0 millionpertaining to the closing/consolidation of office space in the United States.The lease obligation is calculated based on current rent commitments, less anestimated sublease amount.

 

|                                      | ** ** | **Remaining at**           | ** ** | ** ** | ** ** | **Remaining at**           | ** ** |
|--------------------------------------|------------|---------------------------------|------------|------------|------------|---------------------------------|------------|
| **(dollars in thousands)** | ** ** | **December 31, 2005** | ** ** | **Paid**   | ** ** | **December 31, 2006** | ** ** |
|                                 |       |                            |       |       |       |                            |       |
| Severance:                           |       |                            |       |       |       |                            |       |
| Canada                               |       | $                               | 401        |       | $          | (401                            | )          | $ | — |   |
| United States                        |       | 9                               |       | (9         | )          | —                          |       |
| Total Severance                      |       | $                               | 410        |       | $          | (410                            | )          | $ | — |   |
| Lease Obligations :                  |       |                            |       |       |       |                            |       |
| United States                        |       | $                               | 530        |       | $          | (530                            | )          | $ | — |   |
| Total                                |       | $                               | 940        |       | $          | (940                            | )          | $ | — |   |

 

During 2004, in connection with the Company’s businessmodel realignment, the Company recorded a restructuring charge of approximately$2.9 million comprised of approximately $2.8 million in severance costs and$0.1 million in lease obligation costs. The lease obligation of $110,000 iscalculated based on current rent commitments less a calculated sublease amountbased on current market conditions.

 

|                                      | ** ** | **Remaining at**           | ** ** | **Paid**   | ** ** | **Remaining at**           | ** ** |
|--------------------------------------|------------|---------------------------------|------------|------------|------------|---------------------------------|------------|
| **(dollars in thousands)** | ** ** | **December 31, 2005** | ** ** | ** ** | ** ** | **December 31, 2006** | ** ** |
|                                 |       |                            |       |       |       |                            |       |
| Severance :                          |       |                            |       |       |       |                            |       |
| Canada                               |       | $                               | 383        |       | $          | (383                            | )          | $ | — |   |
| United States                        |       | 107                             |       | (107       | )          | —                          |       |
| Total Severance                      |       | $                               | 490        |       | $          | (490                            | )          | $ | — |   |
|                                 |       |                            |       |       |       |                            |       |
| Lease  Obligations :                 |       |                            |       |       |       |                            |       |
| United States                        |       | $                               | 12         |       | $          | (12                             | )          | $ | — |   |
| United Kingdom                       |       | 85                              |       | (24        | )          | 61                              | *          |
| Canada                               |       | 141                             |       | (141       | )          | —                          |       |
| Total Lease  Obligations             |       | $                               | 238        |       | $          | (177                            | )          | $ | 61 |   |
|                                 |       |                            |       |       |       |                            |       |
| Total                                |       | $                               | 728        |       | $          | (667                            | )          | $ | 61 |   |

----

 * To be paid inFebruary 2007.

50

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** NOTE 15—ACQUISITIONSAND SALE OF SUBSIDIARIES**

OnApril 1, 2004, RGII acquired Automated Information Management, Inc. (“AIM”).The cash transaction was valued at approximately $13.8 million plus anadjustment to purchase price for excess working capital of approximately $2.0million.  AIM was included in sale ofRGII.

OnJune 22, 2005, the Company sold their Xpress Software Solution to RedtailSolutions Inc. for approximately $400,000 in cash. The gain from thistransaction was approximately $327,000 and was recorded by the Company in thesecond quarter of 2005.

**NOTE 16—CHANGE OF CONTROL AND OTHERSPECIAL CHARGES**

Forthe fiscal year 2006, the company recorded a total of $367,000 specialcharges.   In connection with the reviewof strategic alternatives the company recorded $87,000 and $280,000 of specialcharges related to the sale of Chimes.

   For fiscal year 2005, In the fourth quarterof 2005, the Company recorded a charge of approximately $13.2 million relatedto the change of control resulting from the removal of the Company’s thenexisting Board of Directors. The Company recorded special charges/(credits) of$5.1 million primarily pertaining to expenses associated with two proxycontests (including approximately $0.5 million paid to reimburseparticipants 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.

Forthe year ended December 31, 2004, the Company recorded a special credit of$939,000 consisting of an insurance refund. In addition, as ofDecember 31, 2004, the Company determined that goodwill pertaining toCommercial Solutions business unit was impaired and recorded a non-cashimpairment charge of $20.3 million.  The Company also recorded a write-offof assets 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.

51

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**NOTE 17—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, 2006 and 2005 are as follows:

 
| ** **                                                      | ** ** | **Year Ended**  | ** ** |
|-----------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                      | ** ** | **December 31** | ** ** | **December 31** | ** ** | **December 31,** | ** ** |
| **(dollars in thousands)**                            | ** ** | **2006**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Comprehensive  income/(loss) :                                  |       |                 |       |   |   |   |   |
| Net  income/(loss)                                              |       | $                    | (13,438    | ) | $ | (46,420 | ) | $ | (25,172 | ) |
| Other  comperhensive income/(loss)- foreign currency adjustment |       | (9                   | )          | 293 |   | 264 |   |
| Realized loss on  SERP investments                              |       | —               |       | 1,180 |   | — |   |
| Unrealized gain/(loss)  on SERP investments                     |       | —               |       | 84 |   | 325 |   |
| Comprehensive  income/(loss)                                    |       | $                    | (13,447    | ) | $ | (44,863 | ) | $ | (24,583 | ) |

The accumulatedbalances related to each component of other comprehensive income (loss) were asfollows:
| **(dollars in thousands)** | ** ** | **Foreign  Currency  Translation** | ** ** | **Unrealized   Gain/(Loss)  on  Investments** | ** ** | **Accumulated Other  Comprehensive Loss** | ** ** |
|--------------------------------------|------------|------------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| 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                                                | )          |
| Other comprehensive  income/(loss)   |       | (9                                 | )          | —                                             |       | (9                                                  | )          |
| Balance at December 31,  2006        |       | (652                               | )          | —                                             |       | (652                                                | )          |

 

** NOTE 18—SALE OF ASSETS**

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

**NOTE 19—LEGAL MATTERS**

TheCompany is involved in various and routine litigation matters, which arisethrough the normal course of business. Management believes that the resolutionof these matters will not have a material adverse effect on the Company’sfinancial position.

**NOTE 20— REFUNDABLE TAX CREDIT**

The Quebec Government (“Revenu Quebec”) through InvestQuebec has granted the Company’s Montreal Outsourcing Centre (“MOC”) arefundable tax credit (“The Program”) on certain qualifying job positions inInformation Technology.  This Program has been available to the MOC since2002.  The outstanding receivable as of December 31, 2006 and 2005includes credits relating to 2005 and 2006, and 2004 and 2005, respectively.

**NOTE 21— SUBSEQUENT EVENTS**

On February 14, 2007, theplan of liquidation and dissolution was approved by the shareholders.  Computer Horizons began implementing thecomplete liquidation and dissolution of the company after both Chimes andCommercial Asset Sales were completed February 16, 2007.  As a result of this, the Company will changeits basis of accounting for the period subsequent to February 16, 2007 from thegoing concern basis to the liquidation basis.

52

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

Notapplicable.

** Item 9A.****                         *Controlsand Procedures***

DisclosureControls and Procedures

** Evaluation of Disclosure Controls andProcedures**

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

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

Themanagement of the Company is responsible for establishing and maintainingadequate internal control over financial reporting. Internal control overfinancial reporting is defined in Rule 13a-15 (f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a processdesigned by, or under the supervision of, the Company’s Principal ExecutiveOfficer and Principal Financial Officer and effected by the Company’s board ofdirectors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally acceptedaccounting principles and includes those policies and procedures that:

1.                     Pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of assets of the Company;

2.                     Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof 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.

The Company’s management assessed the effectiveness ofthe Company’s internal control over financial reporting as of December 31,2006. 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 Principal Executive Officer and PrincipalFinancial Officer concluded that the Company’s internal control over financialreporting is effective.

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

TheCompany’s independent auditors have attested to, and reported on, management’sevaluation of our internal control over financial reporting. This report iscontained in this Annual Report on Form 10-K.

** Changes in Internal Controls**

Therewere no changes in our internal control over financial reporting that occurredduring our most recently completed fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

** Item 9B.****                         *OtherInformation***

Notapplicable.

 

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**PART III**

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

Thenames and ages of each director of the Company, each of their principaloccupations at present and for the past five (5) years and certain otherinformation about each of the directors are set forth below:
|        | ** ** | Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Age** | ** ** | **Director  Since** |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------|------------|---------------------|
|        |       | ERIC ROSENFELD has served as the general partner of  Crescendo Partners, L.P., a New York-based investment firm, since  November 1998. Mr. Rosenfeld also currently serves as Chairman of  the Board, Chief Executive Officer and President of Arpeggio Acquisition  Corporation. In addition, he serves on the Boards of CPI  Aerostructures, Inc., as Chairman; and as Director at Sierra Systems  Inc. and Emergis Inc. Prior, Mr. Rosenfeld was a Managing Director at  CIBC Oppenheimer, a financial services firm, and its predecessor company  Oppenheimer & Co., Inc.                                                                                                                   |       | 49      |       | 2005                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |    |       |                |
|        |       | KARL L. MEYER recently retired as Chairman of the  board and president of Ermis Maritime Holdings Limited, an owner and operator  of ocean going tankers. Previously, he held similar positions with Homeport  Bancorp, Inc. (1991—2000), a single bank holding company, and Marine  Transport Lines, Inc., the owner and operator of 58 vessels, from  April 1986 to December 1989. Prior to that, Mr. Meyer was  Managing Director of Diogenes Management Company, an investment advisory  company, from July 1995 to 2004. He served as a director of Stelmar  Shipping Inc., BT Shipping Limited from May 2003 to May 2004, and  Computer Horizons from October 2005 to present. |       | 68      |       | 2005                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |    |       |                |
|        |       | FRANK J. TANKI served as a director of Acceris  Communications Inc., a broad based telecommunications company, from  May 2004 to March 2005. Prior to Mr. Tanki’s retirement in  2000, he spent 36 years with Coopers & Lybrand (now Price Waterhouse  Coopers) and retired in 1998 as a Senior Partner in the Business Assurance  practice. Mr. Tanki is presently on the board of directors of MonoSol RX and  Media Sciences International, Inc. During his career, he was a member of the  firm’s Executive Committee, Director of Accounting and SEC Technical Services  and Partner-In-Charge of the New York practice group.                                                             |       | 66      |       | 2005                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |    |       |                |
|        |       | WILLEM VAN RIJN has served as Senior Advisor to the  founder and management committee of Capco, an operations and technology  consulting and solutions firm since 2002. Prior to joining Capco,  Mr. van Rijn was a Senior Partner with Price Waterhouse Coopers, and its  predecessor Coopers & Lybrand, where he served as the Managing Partner  of the Japanese financial services consulting practice from 1998 to 2002, and  the global strategy and financial risk management consulting practice from  1995 to 1998. Mr. van Rijn is also a member of the Board of Directors of  Media Sciences International Inc. (Nasdaq “MSII”)                                                                 |       | 57      |       | 2005                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |    |       |                |
|        |       | ROBERT F. WALTERS was an Executive Vice President  and Chief Information Officer of John Hancock Financial Services (1995—2004),  when it was acquired by ManuLife of Toronto, Canada. Prior to joining John  Hancock, Mr. Walters held a variety of senior information technology  positions at Citicorp, in the US, London and Brussels. He was the Chief  Information Officer of European technology, managing the technology  operations of businesses in 14 countries in Western Europe.                                                                                                                                                                                                                           |       | 56      |       | 2005                |
|        |            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |         |            |                     |  |  |

 

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**AdditionalExecutive Officers of the Company Who Are Not Directors:**
| Name                              | ** ** | **Age** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------------------------|------------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    Dennis J. Conroy     |       | 61      |       | Mr. Conroy has been President and Chief  Executive Officer of the Company since October 2005. He served in various  leadership roles at management consulting firms, bringing 30 years of  management and leadership experience to the Company. From 2003 to 2004,  Mr. Conroy served as a Managing Director at BearingPoint, Inc. From  1998 through 2003, Mr. Conroy held various leadership positions,  including membership in Price Waterhouse Coopers’ North American Executive  Leadership Team, and CEO of Price Waterhouse Cooper’s West Business Unit.  Prior to joining Price Waterhouse Coopers, Mr. Conroy served as vice  president of Booz/Allen/Hamilton, Inc.’s communications and technology  practice, as well as managing partner of the National Information—Communications  Industry Practice at Coopers & Lybrand. |
|                              |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    Brian A. Delle Donne |       | 50      |       | Mr. Delle Donne has been Executive Vice  President and Chief Operating Officer of the Company since October 2005. He  brings significant turnaround and mergers and acquisitions experience to the  Company. From 1998 into 2005, Mr. Delle Donne served as Chief Operating  Officer of RCM Technologies, Inc., a professional services company  delivering IT and engineering solutions to solve client business challenges.  Mr. Delle Donne was also president of Knight Facilities Management, a  subsidiary of a privately held global engineering and management consulting  firm and a senior vice president at Ogden Projects Inc., where he was also  President and Chief Operating Officer of its environmental services  subsidiary.                                                                                                                                  |
|                              |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    Barbara Moss         |       | 54      |       | Barbara Moss has been Chief Financial Officer of the  company since April 2006. Prior to joining CHC, Ms. Moss served as: Vice  President of Client Services at i2 Technologies; Chief Operating Officer at  NextGenMarkets, Inc, and Senior Vice President, Information Technology and  Chief Information Officer at Alliant Exchange Corporation; and Vice  President, Controller and Chief Compliance Officer at Compaq  Corporation.  Ms. Moss has a MBA in finance from Bernard Baruch College  and a B.S. in Business Administration from Geneva College.                                                                                                                                                                                                                                                                                                                            |
|                              |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    Marci Braunstein     |       | 40      |       | Ms. Braunstein has been Corporate Controller of  the Company since November 2005. She brings approximately 15 years of  financial experience to Computer Horizons. Ms. Braunstein has served as  Controller for MediaBay, Inc., a public media, marketing and publishing  company, since 1999. Prior to that she served in several finance and audit  related roles at Prudential Financial, PNC Bank and Ernst & Young.                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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**Item 11.                 *Executive Compensation***

Thefollowing table sets forth the compensation paid by the Company for the fiscalyears indicated, to the Chief Executive Officer and to each of the Company’sother executive officers, whose combined salary and bonus exceeded $100,000,(together, the “named executive officers”), as of December 31, 2006.

**Summary Compensation Table**

**Asof December 31, 2006**

 
|                               | ** ** | ** **                   | ** ** | ** **          | ** ** | ** **   | ** ** | ** **                         | ** ** | **Long-Term Compensation**          | ** ** | ** **        | ** ** |
|-------------------------------|------------|------------------------------|------------|---------------------|------------|--------------|------------|------------------------------------|------------|------------------------------------------|------------|-------------------|------------|
| ** **                    | ** ** | **Annual Compensation** | ** ** | **Awards**          | ** ** | **Payouts**  | ** ** | ** **                         | ** ** |
| ** **                    | ** ** | **Year**                     | ** ** | **Salary (3)** | ** ** | **Bonus(1)** | ** ** | **Other  Annual  Compen-  sation** | ** ** | **Securities  Underlying  Options/SARs** | ** ** | **LTIP  Payouts** | ** ** | **All Other  Compen-  sations  (2)** | ** ** |
| Dennis Controy                |       | 2006                         |       | $                   | 365,000    |         | —     |                               | —     |                                     | —     |              | —     |   | $ | 14,201 |   |
| President and                 |       | 2005                         |       | 74,658              |       | —       |       | —                             |       | 100,000                                  |       | —            |       | 3,500 |   |
| Chief Executive Officer       |       |                         |       |                |       |         |       |                               |       |                                     |       |              |       |   |   |
| Brian A. Delle Donne          |       | 2006                         |       | $                   | 275,000    |         | —     |                               | —     |                                     | —     |              | —     |   | $ | 14,234 |   |
| Executive  Vice President and |       | 2005                         |       | 56,249              |       | $            | 7,673      |                               | —     |                                     | 75,000     |              | —     |   | 3,500 |   |
| Chief  Executive Officer      |       |                         |       |                |       |         |       |                               |       |                                     |       |              |       |   |   |
| Barbara Moss                  |       | 2006                         |       | $                   | 198,019    |         | $          | 100,000                            |       | —                                   |       | —            |       | — |   | $ | 37,726 |   |
| Chief Financial Officer       |       | —                       |       |                |       |         |       |                               |       |                                     |       |              |       |   |   |
| Marci Braunstein              |       | 2006                         |       | $                   | 151,250    |         | $          | 72,337                             |       | —                                   |       | —            |       | — |   | $ | 1,967 |   |
| Corporate Controller          |       | 2005                         |       | 11,818              |       |         |       |                               |       |                                     |       |              |       |   |   |

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(1)                Barbara Moss was awarded a retention bonus of$100,000 in 2006 which was paid on December 31, 2006 in one lump sumpayment.  Marci Braunstein was awarded aretention bonus of $70,000 in 2006 which was paid on December 31, 2006 inone lump sum payment.  Mrs. Braunsteinalso received a one-time Standing Ovation bonus in the amount of $2,337.  In connection with his appointment of ChiefOperating Officer, Brain Delle Donne was awarded a one-time bonus in 2005in the amount of $7,673.

(2)             The Company sponsors and pays in full basiclife and accidental death & dismemberment insurance policies for allbenefit eligible employees in the amount of one times base salary up to amaximum of $150,000. The premiums remitted for these policies in 2006 were $234for Messrs Conroy, Delle Donne and Mrs. Braunstein, and an additional $176 forMs. Moss. Under each such insurance policy, the insured has the right todesignate the beneficiaries.

The Company maintains a defined contribution (401K) savings plan.Full-time salaried employees are eligible to participate in the Plan followingthe completion of six months of continued service. The Company contributes $.50for every dollar contributed by all participating salaried employees up to 4%of each employee’s semi-monthly salary deferral. The maximum match allowable bythe Plan in 2005 was $4,200. In 2006, Mr. Conroy received a company matchin the amount of $1,967.  Mr. Delle Donnereceived a company match in the amount of $2,000.  Mrs. Braunstein received a company match inthe amount of $1,733.

Dennis Conroy received $1,000 monthly in 2006 for an auto lease allowance,for a combined total of $12,000 during 2006. Brian Delle Donne received $1,000monthly in 2006 for an auto lease allowance, for a combined total of $12,000during 2006.  Barbara Moss received$4,000 in compensation for an auto lease allowance during 2006.

(3)             Barbara Moss began employment in April 2006.The agreement provides for an annual salary at a rate of $200,000.  Included in Ms. Moss’s 2006 salary iscompensation in the amount of $47,250 in total compensation during 2006 as anindependent contractor prior to becoming Chief Financial Officer in April2006.  Marci Braunstein received a salaryincrease of $30,000 in April 2006, making her new annual salary $160,000.

56

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There were no stock options granted to the namedexecutive officers in 2006. Therefore there are no hypothetical gains or optionspreads that would exist for the options.

Thefollowing table sets forth certain information concerning stock optionsexercised in 2006 or held as of the end of the year, by the named executiveofficers. Such options were granted under the Company’s 1994 Incentive StockOption and Appreciation Plans, and 2004 Omnibus Incentive Compensation Plan. Nostock appreciation rights have been granted under either Plan.

**AGGREGATED OPTION EXERCISES IN LASTFISCAL YEARAND DECEMBER 31, 2006 OPTION VALUES**

----

 
| ** **           | ** ** | **Shares  Acquired** | ** ** | **Value**             | ** ** | **Number of Securities Underlying  Unexercised Options at 12/31/06** | ** ** | **Value of Unexercised In-the  Money Options at 12/31/06** | ** ** |
|----------------------|------------|----------------------|------------|-----------------------|------------|----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Name**             | ** ** | **on Exercise** | ** ** | **Realized (1)** | ** ** | **Exercisable**                                                                                    | ** ** | **Unexercisable**                                                                        | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| Dennis Conroy        |       | —               |       | —                |       | 75,962                                                                                             |       | 24,038                                                                                   |       | $ | 27,346 |   | $ | 8,654 |   |
| Brian A. Delle Donne |       | —               |       | —                |       | 50,962                                                                                             |       | 24,038                                                                                   |       | $ | 18,346 |   | $ | 8,654 |   |
| Barbara Moss         |       | —               |       | —                |       | —                                                                                             |       | —                                                                                   |       | $ | — |   | $ | — |   |
| Marci Braunstein     |       | —               |       | —                |       | —                                                                                             |       | —                                                                                   |       | $ | — |   | $ | — |   |

----

*                    No optionswere exercised during 2006 by named executive officers.

**Employment Agreements**

February7, 2007 Barbara Moss accepted an employment agreement to continue employmentthrough December 31, 2007.  She willcontinue to receive her regular wages and other compensation determined in herretention bonus agreement.  She will alsoreceive relocation expenses no greater than $5,000 to relocate back to Florida,Ms. Moss has agreed to travel to New Jersey for short-term stays as business needsdictate.   Ms. Moss will also receive payout for current period accrued but unused vacation not to exceed two weeks basesalary post-employment per company policy, and severance pay in the amount of$75,000.

Marci Braunsteinwas party to an amended employment agreement made effective on April 17, 2006whereas, Mrs. Braunstein shall be employed by the Company for a one-year periodbeginning on November 29, 2005. In the event that the Company does not intendto renew Mrs. Braunstein’s employment at the end of this term, the Companyshall notify Mrs. Braunstein in writing at least one month prior to theexpiration of the Employment Term.  TheAgreement provided, among other things, for an annual salary at the rate of$160,000, with such increases and bonuses, if any, as the Board of Directorsmay determine, together with participation in all benefit plans in whichmembers of the Company’s senior management generally are entitled toparticipate. Mrs Braunstein was also awarded a $70,000 retention bonus in 2006.The Agreement also provided that, should the Agreement be terminated by theCompany on or prior to the expiration of the Employment Term other than forCause, that Mrs. Braunstein would receive a lump sum payment equal to theremainder of the Employment Term or six months, whichever is greater.

OnOctober 20, 2005, in connection with appointment of Dennis J. Conroy asChief Executive Officer and President of Computer Horizons Corp. (the “Company”),the Company entered into an employment letter (the “Conroy Letter”) withMr. Conroy, which sets forth terms and provisions governingMr. Conroy’s employment as Chief Executive Officer and President of theCompany.  The Conroy Letter provides for an annual salary of $365,000. Inconnection with his employment, Mr. Conroy received an option grant topurchase 100,000 shares of the Company’s common stock, $.10 par value, at anexercise price of $4.16 per share pursuant to and in accordance with theCompany’s 2004 Omnibus Incentive Compensation Plan (the “2004 Plan”). Suchstock option shall vest and become exercisable as to one-third of such shareson each of October 19, 2006, October 19, 2007 and October 19,2008. The 2008 vesting was accelerated by the Board of Directors so that alloptions will be vested as of January 31, 2007. Mr. Conroy will be providedwith a car allowance of $1,000 per month and will be eligible for twenty-fivepaid vacation days per year.

In addition, in connection with appointment of BrianA. Delle Donne as Executive Vice President and Chief Operating Officer of theCompany, on October 20, 2005, the Company entered into an employment letter(the “Delle Donne Letter”) with Mr. Delle Donne, which sets forth terms andprovisions governing Mr. Delle Donne’s employment as Executive Vice Presidentand Chief Operating Officer of the Company.  The Delle Donne Letterprovides for an annual salary of $275,000.  In connection with hisemployment, Mr. Delle Donne received an option grant to purchase 75,000 sharesof the Company’s common stock, $.10 par value, at an exercise price of $4.16per share pursuant to and in accordance with the Company’s 2004 OmnibusIncentive Compensation Plan (the “2004 Plan”).  Such stock option shallvest and become exercisable as to one-third of such shares on each of October19, 2006, October 19, 2007 and

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October 19, 2008.The 2008 vesting was accelerated by the Board of Directors so that all optionswill be vested as of January 31, 2006.   Such stock option shall vest andbecome exercisable with respect to all of such shares upon a “Change of Control”as such term is defined in the 2004 Plan.  Mr. Delle Donne will beprovided with a car allowance of $1,000 per month and will be eligible fortwenty-five paid vacation days per year.

OnApril 28 2006, Michael Shea voluntarily resigned from the Company effectiveApril 28, 2006, foregoing his entitlement to receive a lump sum equal totwo times his current base salary and highest bonus (subject to reduction toavoid excise or other taxes) earned during his employment with the Company, aswell as continued benefits under the Company’s benefit plans.

**Compensation Committee Interlocks and Insider Participation**

TheCompensation Committee consists of Chairman, Robert Walters; Eric Rosenfeld andWillem van Rijn. None of these individuals was at any time during the fiscalyear ended December 31, 2006 or at any other time one of our officers oremployees.

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

**Director Compensation**

In2006, the Company engaged Hewitt Associates to conduct an independent review ofOutside Director Compensation. Based upon this study, effectiveOctober 18, 2005, the compensation for non-employee Directors has beenmodified as follows:

·       Per meeting fee for non-employee Directorsadjusted from $1,000 to $2,000 which is the median among companies paying Boardmeeting fees.

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

·       Initial up-front stock option award moved from10,000 to 15,000 bringing stock option award in line with standard marketapproach.

Thefollowing summarizes non-employee Director compensation:

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

·       Each non-employee director will receive anannual retainer of $20,000;

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

·       Each non-employee director of each standingcommittee will receive a fee of $1,000 per each full length committee meetingattended;

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

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

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**Item 12.****                *Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters***

The following table summarizes information about theCompany’s equity compensation plans as of December 31, 2006.

**EQUITYCOMPENSATION PLAN INFORMATION**
| **Plan Category**                                      | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights  (a)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights  (b)** | ** ** | **Number of securities  remaining available  for future  issuance under  equity compensation  plans (excluding securities  reflected in Column(a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by security  holders (2) |       | 1,287,000                                                                                                                                             |       | $                                                                                                                | 3.72       |                                                                                                                                                                                                        | 2,735,500  | (1) |
|                                                             |            |                                                                                                                                                       |            |                                                                                                                  |            |                                                                                                                                                                                                             |            |  |

 

(1)             Consistsof 2,711,500 shares of the Company’s common stock reserved under the 2004Omnibus Incentive Compensation Plan and 24,000 shares of the Company’s commonstock reserved under the Company’s 1991 Directors’ Stock Option Plan.

(2)             Therewere no equity compensation plans not approved by security holders.

59

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**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS**

        Thefollowing table presents certain information with respect to the beneficialownership of shares of the Company’s common stock (its only class of votingsecurities) on December 31, 2006 (except as noted otherwise), by (a) personsowning more than 5% of such shares, (b) each director and person nominatedfor election as a director (see “Election of Directors”), (c) the namedexecutive officers identified in the Summary Compensation Table, and(d) all directors and executive officers as a group. Unless otherwiseindicated, each person has sole voting and dispositive power over the sharesshown as being owned by such person.
| Name and Address of  Beneficial Owner                                     | ** ** | ** ** | ** ** | **Amount Beneficially  Owned as of December   31, 2006 (1)** | ** ** | **Percent of  Class** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| Eric Rosenfeld                                                                                |       | (1)        |       | 2,426,600                                                                                       |       | 7.2                        | %          |
| 49 Old Bloomfield Avenue                                                                      |       | (2)        |       |                                                                                            |       |                       |       |
| Mountain Lakes, NJ  07046-1495                                                                |       |       |       |                                                                                            |       |                       |       |
| Karl L. Meyer   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                      |       | (1         | )          | 25,000                                                                                          |       | (4                         | )          |
| Frank J. Tanki   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                     |       | (1         | )          | 25,000                                                                                          |       | (4                         | )          |
| Willem Van Rijn   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                    |       | (1         | )          | 25,000                                                                                          |       | (4                         | )          |
| Robert F. Walters   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                  |       | (1         | )          | 25,000                                                                                          |       | (4                         | )          |
| Dennis Conroy   49 Old Bloomfield Avenue  Mountain Lakes, NJ 07046-1495                       |       | (1         | )          | 75,962                                                                                          |       | (4                         | )          |
| Brian Delle Donne   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                  |       | (1         | )          | 50,962                                                                                          |       | (4                         | )          |
| Barbara Moss   49 Old Bloomfield Avenue  Mountain Lakes, NJ 07046-1495                        |       |       |       | 0                                                                                               |       | (4                         | )          |
| Marci Braunstein   49 Old Bloomfield Avenue   Mountain Lakes, NJ 07046-1495                   |       |       |       | 250                                                                                             |       | (4                         | )          |
|                                                                                          |       |       |       |                                                                                            |       |                       |       |
|                                                                                          |
| All directors and executive  officers as a group (eight persons)                              |       | (3         | )          | 2,653,774                                                                                       |       | 7.9                        | %          |
|                                                                                          |       |       |       |                                                                                            |       |                       |       |
| Dimensional Fund  Advisors, Inc   1299 Ocean Avenue, 11th Floor   Santa Monica, CA 90401 |       |       |       | 2,684,068(5                                                                                     | )          | 8.0                        | %          |
| Boston Avenue Capital   415 South Boston, 9th Floor   Tulsa, OK 74103                    |       |       |       | 767,587(6                                                                                       | )          | 2.3                        | %          |
| Regan Partners  L.P.   32 E. 57th St.; 20th Floor   New York, NY 10022              |       |       |       | 3,903,274(7                                                                                     | )          | 11.6                       | %          |
| Royce & Associates, LLC   1414 Avenue of the Americas   New York, NY 10019                |       |       |       | 1,577,200(8                                                                                     | )          | 4.7                        | %          |
| Emancipation Capital  LLC   1120 Avenue of the Americas, Suite 1504   New York, NY 10036      |       |       |       | 2,664,748(9                                                                                     | )          | 7.9                        | %          |

 

*(1)*Includes sharesissuable upon exercise of options granted under the Company’s 2004 OmnibusIncentive Compensation Plan , as follows: Rosenfeld, 5,000; Meyer, 5,000;Tanki, 5,000; Van Rijn, 5,000; Walters, 5,000; Conroy, 75,962; Delle Donne,50,962.  Includes shares issuable uponexercise of options granted under the 1991 Directors’ Stock Option Plan, asfollows: Rosenfeld, 20,000; Meyer, 20,000; Tanki, 20,000; Van Rijn, 20,000;Walters, 20,000

*(2)*Includes 2,401,600shares owned by Crescendo Partners L.P . Crescendo Partners L.P. filed aSchedule 13G Statement with the Securities and Exchange Commission statingthat as of October 21, 2005, it may be deemed to have sole voting power andsole dispositive power with respect to 2,401,600 shares of the Company’s commonstock with no shared voting power or shared dispositive power.

*(3)*Includes all sharesissuable upon exercise of options granted under the Company’s 1994 IncentiveStock Option and Appreciation Plan and the Company’s 1991 Directors’ StockOption Plan, as amended, included in Note 2.

60

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*(4)*Less than 1%

*(5)*Dimensional FundAdvisors, Inc. filed a Schedule 13G/A Statement with the Securitiesand Exchange Commission stating that as of December 31, 2006, it may be deemedto have sole voting power and sole dispositive power with respect to 2,684,068shares of the Company’s common stock with no shared voting power or shareddispositive power.

*(6)*Boston Avenue Capitalfiled a Schedule 13D Statement with the Securities and Exchange Commissionstating that as of May 11, 2006 it may be deemed to have sole voting power andsole dispositive power with respect to 2,755,320 shares of the Company’s commonstock with no shared voting power or shared dispositive power.

*(7)*Regan Partners L.P.and Basil P. Regan filed a Schedule 13G/A Statement with the Securitiesand Exchange Commission stating that as of December 31, 2006 it may be deemedto have no sole voting power or sole dispositive power and shared voting andshared dispositive power with respect to 767,587 shares of the Company’s commonstock.

*(8)*Royce &Associates, LLC filed a Schedule 13G/A Statement with the Securities andExchange Commission stating that as of February 8, 2006, it may be deemed tohave sole voting power and sole dispositive power with respect to 1,577,200shares of the Company’s common stock with no shared voting power or shareddispositive power.

*(9)*Emancipation CapitalLP, Emancipation Capital LLC, Emancipation Capital Master LTD, CharlesFrumberg, and Hurley Capital LLC filed a Schedule 13G/A Statement with theSecurities and Exchange Commission stating that as of December, 31, 2006, itmay be deemed to have no sole voting power or sole dispositive power and sharedvoting and shared dispositive power with respect to 2,664,748 shares of theCompany’s common stock.

**Item 13.****                *Certain Relationships and RelatedTransactions***

*Therewere no related-party transactions during 2006.

**Item 14.****                *Principal Accountant Fees and Services***

**Audit Fees**

Fees for audit servicestotaled $1,332,000 and $1,046,000 in 2006 and 2005, respectively, includingfees for the audit of the Company’s annual financial statements included in theCompany’s Form 10-K, review of the Company’s quarterly financial statementsincluded in the Company’s Form 10-Q, Sarbanes Oxley Section 404 auditprocedures, consents and accounting consultations, and other such services thatgenerally only an independent accountant can provide.

**Audit Related Fees**

Fees for audit-relatedservices totaled $164,000 and $757,000 in 2006 and 2005, respectively,including acquisition of due diligence, review of the Company’s S-8 filing, ChimesSAS 70 review, and other services traditionally performed by independentaccountants.

**Tax Fees**

Fee for tax services,including tax preparation, compliance and tax planning, totaled $29,000 and$136,000 in 2006 and 2005, respectively. These amounts include tax preparation and compliance fees of $8,000 and$92,000 in 2006 and 2005, respectively.

**Other Fees**

None in 2006 and 2005

Grant Thornton LLP (“GT”)previously served as the principal accountants for Computer Horizons Corp. (“theRegistrant”).  On November 10, 2006 GTwas dismissed by the Registrant.  Thedismissal was recommended by the Audit Committee of the Registrant’s Board ofDirectors.

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

The Audit Committee’spolicy is to pre-approve services to be performed by the Company’s independentpublic accountants in the categories of audit services, audit-related services,tax services and other services. Additionally, the Audit Committee will consider on a case-by-case basisand, if appropriate, approve specific engagements that are not otherwisepre-approved.  All services have beenapproved by the Audit Committee, and all audit services performed by GT and APMwere performed by permanent, full-time employees of GT and APM.

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**PART IV**

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

(a)     Financial Statementsand Financial Statement Schedules
|        | 1.     |   | Consolidated financial statements                                                                                           |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                        |
|   |   | · | Reports of independent registered public accounting  firm on the consolidated financial statements                          |
|   |   |   |                                                                                                                        |
|   |   | · | Report of independent registered public accounting  firm on internal controls                                               |
|   |   |   |                                                                                                                        |
|   |   | · | Consolidated balance sheets as of December 3l,  2006 and 2005                                                          |
|   |   |   |                                                                                                                        |
|   |   | · | Consolidated statements of operations for each of  the three years in the period ended December 31, 2006               |
|   |   |   |                                                                                                                        |
|   |   | · | Consolidated statement of shareholders’ equity for  each of the three years in the period ended December 31, 2006 |
|   |   |   |                                                                                                                        |
|   |   | · | Consolidated statements of cash flows for each of  the three years in the period ended December 31, 2006               |
|   |   |   |                                                                                                                        |
|   |   | · | Notes to consolidated financial statements                                                                                  |

 

62

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| **Schedule II  Valuation and qualifying accounts for the  years ended December 31, 2006, 2005, and 2004.** |
|-----------------------------------------------------------------------------------------------------------------|

 
| **Description**                  | ** ** | **Balance at  beginning   of period** | ** ** | **Charged  to cost  and   expenses** | ** ** | **Reductions** | ** ** | **Balance at end  of period** | ** ** |
|----------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|----------------|------------|----------------------------------------------|------------|
| Year ended December  31,2006     |       |                                                 |       |                                           |       |           |       |                                         |       |
| Allowance for  doubtful accounts |       | $                                                    | 4,654      |                                           | 694        |           | 749        | (1)                                          | $          | 4,599 |   |
| Deferred tax  asset valuation    |       | $                                                    | 45,101     |                                           | 18,469     |           | —     |                                         | $          | 63,570 |   |
| 2005 Restructure  Reserve        |       | $                                                    | 940        |                                           | —     |           | 940        | (2)                                          | $          | — |   |
| 2004 Restructure  Reserve        |       | $                                                    | 107        |                                           | —     |           | 107        | (2)                                          | $          | — |   |
| 2003 Restructure  Reserve        |       | $                                                    | 621        |                                           | —     |           | 560        | (2) (3)                                      | $          | 61 |   |
| 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        |       | $                                                    | 804        |                                           | —     |           | 183        | (2) (3)                                      | $          | 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 |   |

----

Notes

(1)                    Uncollectible accounts written off, netof recoveries.

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

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

63

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 **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM ON SCHEDULE II**

Board of Directors andShareholdersComputer 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 datedMarch 9, 2007, which is included in the 2006 Annual Report onForm 10-K. Our audit was conducted for the purpose of forming an opinionon the basic financial statements taken as a whole. Schedule II ispresented for purposes of additional analysis and is not a required part of thebasic financial statements. This schedule has been subjected to theauditing procedures applied in the audit of the basic financial statements and,in our opinion, is fairly stated in all material respects in relation to thebasic financial statement taken as a whole.
| /s/ AMPER, POLITZINER & MATTIA,  P.C. |   |
|-------------------------------------------|--------|
| Edison, New  Jersey                       |
| March 9,  2007                       |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|        |                                 |   | COMPUTER HORIZONS CORP.       |
|--------|--------------------------------------|--------|-------------------------------|
|   | Date:   March 9, 2007 |   |   By:                    | /s/ DENNIS J. CONROY |
|   |                                 |   |                          | Dennis J. Conroy, President, CEO |
|   |                                 |   |                          |   |
|   |                                 |   | (Principal Executive Officer) |
|   | Date:   March 9, 2007 |   |   By:                    | /s/ BARBARA MOSS |
|   |                                 |   |                          | Barbara Moss, |
|   |                                 |   |                          | Vice President and CFO |
|   |                                 |   |                          | (Principal Financial Officer) |
|   |                                 |   |                          |   |
|   | Date   March 9, 2007  |   |   By:                    | /s/ MARCI BRAUNSTEIN |
|   |                                 |   |                          | Marci Braunstein |
|   |                                 |   |                          | Corporate Controller |
|   |                                 |   |                          | (Principal Accounting Officer) |

 

Pursuant to the requirements of the SecuritiesExchange Act of 934, this report has been signed below by the following personson behalf of the registrant and in the capacities and on the dates indicated.
|        |                                       |   | COMPUTER HORIZONS CORP.                            |
|--------|--------------------------------------------|--------|----------------------------------------------------|
|   |  Date:   March 9, 2007 |   |   By:                                         | /s/ ERIC ROSENFELD |
|   |                                       |   | Eric Rosenfeld, Chairman of the Board and Director |
|   |                                       |   |                                               |   |
|   | Date:   March 9, 2007       |   |   By:                                         | /s/ KARL L. MEYER |
|   |                                       |   | Karl L. Meyer, Director                            |
|   |                                       |   |                                               |   |
|   | Date:   March 9, 2007       |   |   By:                                         | /s/ FRANK J. TANKI |
|   |                                       |   | Frank J. Tanki, Director                           |
|   |                                       |   |                                               |   |
|   | Date:   March 9, 2007       |   |   By:                                         | /s/ WILLEM VAN RIJN |
|   |                                       |   | Willem van Rijn, Director                          |
|   |                                       |   |                                               |   |
|   | Date:   March 9, 2007       |   |   By:                                         |   |
|   |                                       |   | Robert F. Walters, Director                        |

 

65

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

 

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11
| 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. |

 

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| 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  |

 

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** **
| 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                                 |
| 10 (hh) |       | Asset Purchase Agreement by and among Teksystems,  Inc.Allegis Group, Inc., Teksystems EF&I Solutions, LLC and Allegis Group  Canada Corporation and Computer Horizons Corp. GBS Holdings Private Limited  and CHC Healthcare Solutions, LLC, dated as of November 7, 2006 |       | Exhibit 10.1 to the Company’s Current Report on Form  8-K filed on November 8, 2006     |
| 16      |       | Letter regarding change in certifying accountants,  dated November 14, 2006                                                                                                                                                                                                    |       | Exhibit 16.01 to the Company’s Current Report on  Form 8-K filed on November 15, 2006   |
| 16(a)   |       | Letter regarding change in certifying accountants,  dated November 21, 2006                                                                                                                                                                                                    |       | Exhibit 16.01 to the Company’s Current Report on  Form 8-K/A filed on November 21, 2006 |
| 21      |       | List of Subsidiaries.                                                                                                                                                                                                                                                          |       | Filed herewith                                                                               |
| 23      |       | Consent of Grant Thornton LLP, Independent  Registered Public Accounting Firm.                                                                                                                                                                                                 |       | Exhibit 23 to The Company’s Form 11-K filed on  June 27, 2006                      |
| 23.1    |       | Consent of Amper Politzner & Mattia, P.C.,  Independent Registered Public Accounting Firm.                                                                                                                                                                                 |       | Filed herewith                                                                               |
| 23.2    |       | 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                                                                               |

 

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