Table of Contents

 

 

** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

 

**FORM 10-Q**

 

| x | **QUARTERLY REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|--------------------------------------------------------------------------------------------------|

 

**For the quarterly period endedJune 30, 2008**

** **

**or**

** **

| o | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|---------------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom            to**

 

**Commission File Number 0-7282**

 

**COMPUTER HORIZONS CORP.**(Exact name of registrant as specified in its charter)

 

| **New York**  (State or other jurisdiction of   incorporation or organization) | ** ** | **13-2638902**  (I.R.S. Employer   Identification Number) |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------------------|

 

**2001 Route 46 East, Suite 310,Parsippany, NJ 07054**(Address of principal executiveoffices)            (Zipcode)

 

Registrant’s telephone number, including area code **(973) 257-5030**

 

**Not Applicable**(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding twelve months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.    Yes  x        No o

 

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company. See definitions of “ large accelerated filer”, “acceleratedfiler” and “smaller reporting company” in Rule 126-2 of the Exchange Act.

 

Large accelerated filer  o        Acceleratedfiler  o        Non-acceleratedfiler  o        SmallerReporting Company  x

                                                                            (Donot check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the ExchangeAct).    Yes x        No o

 

As of August 1, 2008 the issuer had 33,837,284 sharesof common stock outstanding.

 

 

 

----

Table of Contents

 

**COMPUTER HORIZONS CORP. AND SUBSIDIARIES**

 

**Index**

 
| Part I  Financial Information |   | 3                                                                                                                                    |
|------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                                 |   |   |
| Item 1                             |   | Financial Statements:                                                                                                                |   | 3 |
|                               |   |                                                                                                                                 |   |   |
|                               |   | Consolidated  Condensed Statement of Net Assets as of June 30, 2008 (unaudited) and  December 31, 2007 (Liquidation Basis) |   | 3 |
|                               |   |                                                                                                                                 |   |   |
|                               |   | Consolidated  Condensed Statement of Changes in Net Assets in Liquidation as of  June 30, 2008 (Liquidation Basis) (unaudited)  |   | 4 |
|                               |   |                                                                                                                                 |   |   |
|                               |   | Consolidated  Condensed Statements of Operations—Period from January 1, 2007 through  February 16, 2007               |   | 5 |
|                               |   |                                                                                                                                 |   |   |
|                               |   | Consolidated  Condensed Statements of Cash Flows Period from January 1, 2007 through  February 16, 2007                    |   | 6 |
|                               |   |                                                                                                                                 |   |   |
|                               |   | Notes  to Consolidated Condensed Financial Statements                                                                                |   | 7 |
|                               |   |                                                                                                                                 |   |   |
| Item 2                             |   | Management’s Discussion and Analysis  of Financial Condition and Results of Operations                                          |   | 19 |
|                               |   |                                                                                                                                 |   |   |
| Item 3                             |   | Quantitative  and Qualitative Disclosures about Market Risk                                                                          |   | 27 |
|                               |   |                                                                                                                                 |   |   |
| Item 4                             |   | Controls and  Procedures                                                                                                             |   | 28 |
|                               |   |                                                                                                                                 |   |   |
| Part II  Other Information    |   | 29                                                                                                                                   |
|                               |   |                                                                                                                                 |   |   |
| Item  1                            |   | Legal  Proceedings                                                                                                                   |   | 29 |
|                               |   |                                                                                                                                 |   |   |
| Item  1A                           |   | Risk  Factors                                                                                                                        |   | 32 |
|                               |   |                                                                                                                                 |   |   |
| Item 6                             |   | Exhibits                                                                                                                             |   | 33 |
|                               |   |                                                                                                                                 |   |   |
| Signatures                         |   | 34                                                                                                                                   |
|                               |   |                                                                                                                                 |   |   |
| EX-31.1                            |   |                                                                                                                                 |   |   |
| EX-31.2                            |   |                                                                                                                                 |   |   |
| EX-32.1                            |   |                                                                                                                                 |   |   |
| EX-32.2                            |   |                                                                                                                                 |   |   |

 

2

----

Table of Contents

 

**PART I. Financial Information**

 

**Item 1.**

 

**Computer Horizons Corp and Subsidiaries Consolidated Condensed Statements of Net Assets as of June 30, 2008**

**and December 31, 2007 (LiquidationBasis)**

**($ in thousands)**

 
| ** **                                                     | ** ** | **June 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **(Unaudited)**         | ** ** | **(Audited)***              | ** ** |
| **ASSETS**                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **CURRENT ASSETS:**                                            | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Cash and cash equivalents                                      |       | $                       | 15,758     |                        | $          | 25,182 |   |
| Refundable tax credit                                          |       | 9,627                   |       | 9,627                       |       |
| Prepaid expenses and other                                     |       | 25                      |       | 24                          |       |
|                                                           |       |                    |       |                        |       |
| **TOTAL CURRENT ASSETS**                                       |       | 25,410                  |       | 34,833                      |       |
|                                                           |       |                    |       |                        |       |
| **TOTAL PROPERTY AND EQUIPMENT,  NET**                         |       | 4                       |       | 4                           |       |
|                                                           |       |                    |       |                        |       |
| **TOTAL ASSETS**                                               |       | $                       | 25,414     |                        | $          | 34,837 |   |
|                                                           |       |                    |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS  EQUITY**                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **CURRENT LIABILITIES:**                                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Accounts payable, accrued payroll, payroll taxes and  benefits |       | $                       | 11         |                        | $          | 142 |   |
|                                                           |       |                    |       |                        |       |
| Net working capital adjustment                                 |       | 1,904                   |       | 1,904                       |       |
| Income taxes payable                                           |       | 1,687                   |       | 1,695                       |       |
| Other accrued expenses                                         |       | 2,470                   |       | 4,432                       |       |
| Deferred Cash Receipts                                         |       | 4,583                   |       | 957                         |       |
|                                                           |       |                    |       |                        |       |
| **TOTAL CURRENT LIABILITIES**                                  |       | 10,655                  |       | 9,131                       |       |
|                                                           |       |                    |       |                        |       |
| **TOTAL LIABILITIES**                                          |       | $                       | 10,655     |                        | $          | 9,131 |   |
|                                                           |       |                    |       |                        |       |
| **NET ASSETS IN LIQUIDATION**                                  |       | $                       | 14,759     |                        | $          | 25,706 |   |

----

*              Derived from audited information

 

The accompanying notes are an integral part of thesestatements.

 

3

----

Table of Contents

 

**Computer Horizons Corp and Subsidiaries Consolidated Condensed Statement of Changes in Net Assets in Liquidation**

** asof June 30, 2008 (Liquidation Basis)**($ in thousands) (Unaudited)

 
| **Shareholder’ Equity at  December 31, 2007**            | ** ** | **$**   | **25,706** | ** ** |
|--------------------------------------------------------------------|------------|---------|------------|------------|
| Investment Income from January 1 through March 31,  2008 |       | 163     |       |
| Surrender program payment - stock options                          |       | (250    | )          |
| Second Liquidation Distribution                                    |       | (10,150 | )          |
| Adjustment to Liquidation Accruals                                 |       | (200    | )          |
| **Net Assets in Liquidation  March 31, 2008**                 | ** ** | **$**   | **15,269** | ** ** |
| Investment Income from March 1 through June 30,  2008    |       | 98      |       |
| Adjustment to Liquidation Accruals                                 |       | (608    | )          |
| **Net Assets  in Liquidation June 30, 2008**                  | ** ** | **$**   | **14,759** | ** ** |

 

4

----

Table of Contents

 

**Computer Horizons Corp and Subsidiaries**Consolidated Condensed Statement of Operations and Comprehensive Income (GoingConcern Basis) ($ in thousands except per share data)

 
| ** **                                                               | ** ** | **For the period    from January 1 to   February 16, 2007** | ** **   |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|--------------|
| **REVENUES:**                                                            | ** ** | ** **                                                            | ** **   |
| Commercial                                                               |       | $                                                                     | 24,995       |   |
| Chimes                                                                   |       | 4,671                                                                 |         |
|                                                                     |       |                                                                  |         |
| **Total**                                                                |       | 29,666                                                                |         |
|                                                                     |       |                                                                  |         |
| **COSTS AND EXPENSES:**                                                  | ** ** | ** **                                                            | ** **   |
| Direct costs                                                             |       | 23,086                                                                |         |
| Selling, general & administrative                               |       | 10,761                                                                |         |
| Restructuring charges                                                    |       | 14                                                                    |         |
|                                                                     |       |                                                                  |         |
| Total Costs                                                              |       | 33,861                                                                |         |
|                                                                     |       |                                                                  |         |
| **INCOME/(LOSS) FROM OPERATIONS**                                        |       | (4,195                                                                | )            |
|                                                                     |       |                                                                  |         |
| **OTHER INCOME/(EXPENSE):**                                              | ** ** | ** **                                                            | ** **   |
| Interest income                                                          |       | 881                                                                   |         |
| Interest expense                                                         |       | (1                                                                    | )            |
|                                                                     |       |                                                                  |         |
|                                                                     |       | 880                                                                   |         |
|                                                                     |       |                                                                  |         |
| **INCOME/(LOSS) FROM CONTINUING  OPERATIONS BEFORE INCOME TAXES**        |       | (3,315                                                                | )            |
| **GAIN/(LOSS) ON SALE**                                                  |       | 102,686                                                               |         |
|                                                                     |       |                                                                  |         |
| **INCOME FROM EXTRAORDINARY ITEMS**                                      |       | 102,686                                                               |         |
|                                                                     |       |                                                                  |         |
| **INCOME (TAXES)/BENEFIT:**                                              |       | —                                                                |         |
|                                                                     |       |                                                                  |         |
| **NET INCOME/(LOSS) FROM  CONTINUING OPERATIONS**                        |       | $                                                                     | 99,371       |   |
|                                                                     |       |                                                                  |         |
| **INCOME/(LOSS) FROM DISCONTINUED  OPERATIONS**                          |       | $                                                                     |    |   |
|                                                                     |       |                                                                  |         |
| **NET INCOME/(LOSS)**                                                    |       | $                                                                     | 99,371       |   |
|                                                                     |       |                                                                  |         |
| **EARNINGS/(LOSS) PER SHARE FROM  CONTINUING OPERATIONS—BASIC**     |       | $                                                                     | 2.94         |   |
|                                                                     |       |                                                                  |         |
| **EARNINGS/(LOSS) PER SHARE FROM  DISCONTINUED OPERATIONS—BASIC**   |       | $                                                                     | —       |   |
|                                                                     |       |                                                                  |         |
| **EARNINGS/(LOSS) PER SHARE—BASIC**                                 |       | $                                                                     | —       |   |
| **EARNINGS/(LOSS) PER SHARE FROM  CONTINUING OPERATIONS—DILUTED**   |       | $                                                                     | 2.94         |   |
|                                                                     |       |                                                                  |         |
| **EARNINGS/(LOSS) PER SHARE FROM  DISCONTINUED OPERATIONS—DILUTED** |       | $                                                                     | —       |   |
|                                                                     |       |                                                                  |         |
| **EARNINGS/(LOSS) PER  SHARE—DILUTED**                              |       | $                                                                     | 2.94         |   |
| **WEIGHTED AVERAGE NUMBER OF  SHARES OUTSTANDING—BASIC**            |       | 33,837,284                                                            |         |
|                                                                     |       |                                                                  |         |
| **WEIGHTED AVERAGE NUMBER OF  SHARES OUTSTANDING—DILUTED**          |       | 33,837,284                                                            |         |

 

The accompanying notes are an integral part of thesestatements.

 

5

----

Table of Contents

 

**Computer Horizons Corp. and Subsidiaries Consolidated Condensed Statement of Cash Flows**(GoingConcern Basis)****($ in thousands) (Unaudited)

 
| ** **                                                                                              | ** ** | **For the period    from January 1 to   February 16, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **CASH FLOWS FROM OPERATING  ACTIVITIES**                                                               | ** ** | ** **                                                            | ** ** |
| Net Income/(Loss)                                                                                       |       | $99,371                                                               |       |
|                                                                                                    |       |                                                                  |       |
| Less: Income/(Loss) from discontinued operations                                                        |       | —                                                                |       |
|                                                                                                    |       |                                                                  |       |
| Less: Gain on sale of Chimes and Commercial                                                             |       | 102,625                                                               |       |
| Income/(Loss) from continuing operations                                                                |       | (3,254                                                                | )          |
|                                                                                                    |       |                                                                  |       |
| **Adjustments to reconcile net  income/(loss) to net cash provided by/(used in) operating activities:** | ** ** | ** **                                                            | ** ** |
| Deferred taxes                                                                                          |       | (1                                                                    | )          |
| Depreciation                                                                                            |       | 234                                                                   |       |
| Provision for bad debts                                                                                 |       | 1,452                                                                 |       |
| Restructure expense                                                                                     |       | 14                                                                    |       |
| FAS 123R Option Expense                                                                                 |       | (15                                                                   | )          |
|                                                                                                    |       |                                                                  |       |
| Changes in assets and liabilities, net of acquisitions                                                  |       | (5,124                                                                | )          |
| **NET CASH USED IN OPERATING  ACTIVITIES**                                                              |       | (6,692                                                                | )          |
| **NET CASH PROVIDED BY  DISCONTINUED OPERATIONS**                                                       |       | 104,657                                                               |       |
| **NET CASH PROVIDED BY OPERATING  ACTIVITIES**                                                          |       | 97,965                                                                |       |
| **CASH FLOWS FROM INVESTING  ACTIVITIES**                                                               | ** ** | ** **                                                            | ** ** |
| Sale/Purchase of furniture and equipment                                                                |       | 1,527                                                                 |       |
| **NET CASH PROVIDED BY INVESTING  ACTIVITIES**                                                          |       | 1,527                                                                 |       |
| **NET CASH PROVIDED BY/(USED IN)  DISCONTINUED OPERATIONS**                                             |       | —                                                                |       |
| **NET CASH PROVIDED BY/(USED IN)  INVESTING ACTIVITIES**                                                |       | 1,527                                                                 |       |
| **CASH FLOWS FROM FINANCING  ACTIVITIES**                                                               | ** ** | ** **                                                            | ** ** |
| Stock options exercised                                                                                 |       | 334                                                                   |       |
|                                                                                                    |       |                                                                  |       |
| Stock issued on employee stock purchase plan                                                            |       | 97                                                                    |       |
| **NET CASH PROVIDED BY FINANCING  ACTIVITIES**                                                          |       | 431                                                                   |       |
| **NET INCREASE IN CASH AND CASH  EQUIVALENTS**                                                          |       | 99,923                                                                |       |
| **CASH AND CASH EQUIVALENTS AT  BEGINNING OF YEAR**                                                     |       | 72,790                                                                |       |
| **CASH AND CASH EQUIVALENTS AT  END OF PERIOD**                                                         |       | $172,713                                                              |       |

 

The accompanying notes are an integral part of thesestatements.

 

6

----

Table of Contents

 

**COMPUTER HORIZONS CORP.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1. Basis of Presentation**

 

At a Special Meeting held on February 14, 2007,the shareholders of Computer Horizons Corp (“CHC” or the “Company”) approvedthe sales of the Company’s Chimes, Inc. subsidiary to an affiliate ofAxium International and the Company’s Commercial Division to an affiliate ofAllegis Group (the “Asset Sales”). At the Special Meeting, the shareholders ofthe Company also approved a proposed plan of complete liquidation anddissolution of the Company. The Company began implementing the completeliquidation and dissolution of the Company after both the Chimes and CommercialAsset Sales were completed on February 16, 2007. On March 5, 2007,the Company announced that its Board of Directors declared an initialliquidating distribution of $4.00 per share to its common shareholders. Thisdistribution was paid March 27, 2007 to shareholders of record as of theclose of business on March 16, 2007. This initial liquidating distributionwas the first in what is expected to be a series of liquidating distributionspursuant to the plan of complete liquidation and dissolution approved by theCompany’s shareholders on February 14, 2007. On December 19, 2007,the Board of Directors announced a second liquidating distribution of $.30 pershare to its common shareholders. This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008. The aggregate amount of distributions to our shareholders is expected tobe in the range of $4.68 to $4.78 per share of Common Stock. The actual amountand timing of future liquidating distributions cannot be predicted at this timeand will depend upon a variety of factors, including, but not limited to, theultimate settlement amounts of the Company’s liabilities and obligations, andactual costs incurred in connection with carrying out the Company’s plan ofcomplete liquidation and dissolution, including administrative costs during theliquidation period.

 

Theconsolidated financial statements have been prepared by the Company withoutaudit in accordance with the rules and regulations of the Securities andExchange Commission, and should be read in conjunction with the auditedConsolidated Financial Statements previously filed on the Company’s Form 10-Kfor the year ended December 31, 2007. In the opinion of management, thestatements reflect all adjustments necessary for a fair presentation of theresults of interim periods. Certain information and note disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America, which are notrequired for interim purposes, have been condensed or omitted. The results forany interim period are not necessarily indicative of the results to be expectedfor a full year.

 

Theconsolidated financial statements for the period January 1, 2007 to February 16,2007 were prepared on the going concern basis of accounting, which contemplatesrealization of assets and satisfaction of liabilities in the normal course ofbusiness. As a result of the shareholders’ approval of the Plan of Liquidation,the Company adopted the liquidation basis of accounting effective February 17,2007. This basis of accounting is considered appropriate when, among otherthings, liquidation of a company is probable and the net realizable values ofassets are reasonably determinable. Under this basis of accounting, assets arevalued at their net realizable values and liabilities are stated at theirestimated settlement amounts.

 

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

 

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

 

Data for the statement of operations is not presented for2008, because using the liquidation basis of accounting, net income/(loss) isno longer reported.

 

7

----

Table of Contents

 

*Accrued Cost of Liquidation*

* *

Upon conversion to the liquidation basis ofaccounting, the Company accrued for the known costs to be incurred inliquidation, and has made subsequent adjustments and payments against theseaccounts, as follows:

* *

 
| **($ in thousands)**              | ** ** | **As Booked  2/17/2007** | ** ** | **Recorded  prior to  2/17/2007*** | ** ** | **Adjustments  to reserves** | ** ** | **Activity  to date** | ** ** | **Balance at  6/30/08** | ** ** |
|----------------------------------------|------------|--------------------------|------------|------------------------------------|------------|------------------------------|------------|-----------------------|------------|-------------------------|------------|
| Lease Obligation                       |       | $                        | 1,324      |                               |       |                         | 248        |                  | (1,560     | )                       | 12         |   |
| Legal Fees                             |       | 450                      |       |                               |       | 2,429                        |       | (1,208                | )          | 1,671                   |       |
| Professional Fees, including insurance |       | 2,037                    |       |                               |       | 3,080                        |       | (4,663                | )          | 454                     |       |
| Human Resources                        |       | 3,480                    |       | 1,188                              |       | 1,567                        |       | (6,004                | )          | 231                     |       |
| Systems-related                        |       | 819                      |       |                               |       | (269                         | )          | (507                  | )          | 43                      |       |
| Misc.                                  |       | 900                      |       | 295                                |       | (310                         | )          | (826                  | )          | 59                      |       |
|                                   |       |                     |       |                               |       |                         |       |                  |       |                    |       |
| Total                                  |       | $                        | 9,010      |                               | 1,483      |                         | 6,745      | **                    | (14,768    | )                       | 2,470      |   |

----

*       Accruals carry forward from operatingperiod.

**     Adjustments to reserves totaled $6.7 million, and wereprimarily the result of revised estimates relating to the cost of professionalservices and human resource costs. (See “Sale of Commercial” and “Sale ofChimes” below, for a discussion of current legal proceedings.)

 

The Companywill continue to incur operating costs and receive income on its investmentsthroughout the liquidation period. On a regular basis, we evaluate ourassumptions, judgments and estimates that can have a significant impact on ourreported net assets in liquidation based on the most recent informationavailable to us, and when necessary make changes accordingly. Actual costs andincome may differ from our estimates, which might reduce net assets availablein liquidation to be distributed to shareholders.

 

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

 

*Sale of RGII*

 

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

 

8

----

Table of Contents

 

*Sale of Commercial*

 

On November 7, 2006, the Company entered into anasset purchase agreement (the “Commercial Services Asset Purchase Agreement”)by and among TEKsystems, Inc., a Maryland corporation (“TEKsystems”),TEKsystems EF&I Solutions, LLC, a Maryland limited liability company,Allegis Group Canada Corporation, a Nova Scotia unlimited liabilitycorporation, the Company, GBS Holdings Private Limited, a corporation organizedunder the laws of Mauritius, CHC Healthcare Solutions, LLC, a Delaware limitedliability company, and Allegis Group, Inc., a Maryland corporation.Pursuant to the Commercial Services Asset Purchase Agreement, on February 16,2007, the Company sold to TEKsystems substantially all of the assets of itsCommercial Services Business (as defined in the Commercial Services AssetPurchase Agreement), for a purchase price of $57 million in cash subject to apotential post-closing working capital adjustment, estimated at $(1.9) millionusing data as of the date of sale (the “Commercial Services Asset Sale”). Thesale was also subject to an escrow of $1.7 million of the purchase pricepending receipt of tax certificates in connection with the Taxation Act—Quebec;the certificates were subsequently received and the escrow released on April 24,2007.  Assets not included in theCommercial Services Asset Sale included a refundable Quebec tax credit for 2005and 2006 currently estimated at approximately $9.6 million (described below)and the unit’s operating cash as of the date of the sale. The Company recordedan estimated gain of $29.1 million as a result of the sale of the CommercialServices Business.

 

On April 17, 2007, TEKsystems submitted theirrevised calculation of the net working capital adjustment, asserting a claimfor $6 million payable to TEKsystems. The Company continues to believe that itsestimate of approximately $1.9 million is accurate, and has disputed thisclaim. While some differences were resolved, there still remains a differenceof $3.3 million between the Company’s estimate and that of TEKsystems. Theprincipal item in dispute relates to the Company’s belief that ComputerHorizons (Canada) Corp. (“Canada Sub”) has sufficient NOL’s to offset anyincome tax due on the Quebec tax receivable discussed below.  Under the terms of the Commercial ServicesAsset Purchase Agreement, such disputed items are to be determined by anindependent accounting firm and, on September 19, 2007 the Company, and onSeptember 28, 2007 TEKsystems, submitted the disputed items to suchindependent accounting firm for determination. However, TEKsystems refused toproceed with such process to resolve these disputed items and, as noted below,in a litigation between CHC and TEKsystems the court ordered TEKsystems toarbitrate the disputed items before the independent accounting firm. For a moredetailed description of this litigation, see Item 1 of Part II of thisQuarterly Report on Form 10-Q (Legal Proceedings).

 

The Commercial Services Asset Sale included all of thecapital stock of Computer Horizons (Canada) Corp. (“Canada Sub”) but, as notedabove, specifically excluded a refundable income tax credit payable to CanadaSub by Revenu Quebec for the tax years 2005 and 2006 (the “Quebec TaxReceivable”). During the third quarter of 2007, TEKsystems advised the Companythat Canada Sub had received approximately Canadian $4.3 million with respectto the Quebec Tax Receivable for 2005 (representing approximately Canadian $4.4million in tax credit and interest less a deduction for associated capitaltaxes of approximately Canadian $114 thousand). Using the exchange rate betweenthe Canadian and United States dollars as of the day before the date ofTEKsystem’s notice to the Company, the receipt by TEKsystems amounted toapproximately US $4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million for Canadian incometaxes, $1.89 million as a purchase price adjustment under the CommercialServices Asset Purchase Agreement, and $114 thousand for capital taxes. Underthe terms of the Commercial Services Asset Purchase Agreement, TEKsystems hasno right to offset any amounts due the Company and the aforementioned amount of$1.49 million is subject to dispute and has been submitted to an independentaccounting firm for determination as mentioned above. The Company has recordedthe $958 thousand as a deferred cash credit in the balance sheet. After demandsto remit the $4.3 million were ignored, the Company, on October 19, 2007,filed a lawsuit against TEKsystems seeking damages for the failure ofTEKsystems to remit the balance of the funds received by it with respect to the2005 Quebec Tax Receivable and a declaration that  TEKsystems must promptly remit to the Companyupon receipt all funds received by it in the future in payment of the 2006Quebec Tax Receivable. For a more detailed description of this litigation, seeItem 1 of Part II of this Quarterly Report on Form 10-Q (LegalProceedings).

 

On December 29, 2007, the Company filed anamended complaint in this action, adding a third claim, i.e., for judgmentordering TEK to cooperate promptly with the independent accounting firm in itsdetermination of the disputed items in the calculation of Final Net WorkingCapital.

 

By answer filed January 14, 2008, TEK denied anyliability under the three claims in the Company’s amended complaint and allegedfour counterclaims against the Company for its purported breaches of warrantiesand representations in the Asset Purchase Agreement (“APA”), including twocounterclaims demanding a declaration that the Company must indemnify TEK forlegal fees and any judgment against TEK should it be sued as 

 

9

----

Table of Contents

 

a successor to theCompany by plaintiffs that have brought actions against the Company, acounterclaim for a declaration that the Company must indemnify TEK in the eventit is held to owe any taxes by reason of a notice sent by an employee of theCompany to taxing authorities, and a counterclaim for the purported legal feesincurred by TEK and the amount by which it allegedly reduced a receivable insettling a dispute with the Iowa Health Systems, Inc. (“IHS”) over thereceivable that IHS owed.  Thecounterclaims seek to have the court impose a constructive trust over theCompany’s assets to remedy the alleged breaches of the APA by the Company. Byreply filed February 27, 2008, the Company denied the substantiveallegations contained in the counterclaims.

 

On February 27, 2008, the Company served a motionin this action to compel TEK to arbitrate the disputed matters in thecalculation of Final Net Working Capital before the independent accounting firmand to compel TEK to cooperate promptly with the firm in its determination ofthe disputed matters. This motion was granted by the court’s order entered April 24,2008, and such order also stayed the action, “pending the issuance of a writtendetermination of Net Working Capital” by the independent accounting firm.

 

No discovery has yet been taken in this action.

 

The Company intends to prosecute its claims and defendagainst the counterclaims of TEK vigorously in this action.

 

On April 28, 2008, TEKsystems notified theCompany that Canada Sub has received a payment from Revenu Quebec with respectto the 2006 Quebec Tax Receivable (See Note 11) of Canadian $5.6 millionconsisting of a calendar year 2006 credit of Canadian $5.6 million less acalendar year 2006 capital tax of Canadian $55 thousand (which was withheld byRevenu Quebec from the payment).  Inaddition to the above payment, Canada Sub received a payment of interest on the2006 credit of Canadian $7 thousand. Using the noon buying rate published by the Federal Reserve Bank of NewYork on April 28, 2008 (1.0158 Canadian $ per U.S. $), the 2006 creditequates to US $5.5 million.  TEKsystemsremitted to the Company US $3.6 million, representing the 2006 credit plus US$7 thousand of interest received on the 2006 credit after conversion at theexchange rate, minus US $54 thousand for capital taxes assessed by RevenuQuebec with respect to 2006 after conversion at the exchange rate, and minus US$1.9 million for income taxes payable on the 2006 credit and on the relatedinterest calculated utilizing the above-referenced exchange rate.  Under the terms of the APA, TEKsystems has noright to offset any amounts due the Company. The Company has recorded the $3.6 million as a deferred cash credit inthe balance sheet.

 

For a more detailed description of this litigation,see Item 1 of Part II of this Quarterly Report on Form 10-Q (LegalProceedings).

 

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

 

The Commercial Services Asset Sale is a taxabletransaction with respect to the Company to the extent of the gain that wasrealized. 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 theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will have sufficientcurrent losses to offset most of the gain expected to be realized from theCommercial Services Asset Sale for regular Federal income tax purposes and willotherwise incur approximately $300 thousand in alternative minimum taxes. TheCompany and/or its affiliates may

 

10

----

Table of Contents

 

be subject tostate income taxes to the extent that gains exceed losses for state tax lawpurposes, but the Company does not anticipate that such taxes, if any, will besignificant.

 

*Sale of Chimes*

 

On October 18, 2006, the Company signed adefinitive asset purchase agreement (the “Chimes Asset Purchase Agreement”) byand among Axium International, Inc., a Delaware corporation, Diversity MSP, Inc.,a California corporation (“Diversity MSP”) and Chimes, Inc., a Delawarecorporation and wholly-owned subsidiary of the Company (now known as Forgone,LLC, a Delaware limited liability company, and referred to herein as “Chimes”).Pursuant to the Chimes Asset Purchase Agreement, on February 16, 2007, theCompany sold to Diversity MSP substantially all of the assets of Chimes,excluding cash and marketable securities, for a purchase price of $80.0 millionin cash (the “Chimes Asset Sale”), with a gain of $73.6 million.

 

The Chimes Asset Purchase Agreement also grants theparties indemnification rights against each other with respect to certainmatters. The maximum liability of the Company for indemnification claims underthe Chimes Asset Purchase Agreement is $8 million and is contingent uponassertion of a claim for indemnity within six months after the closing date.

 

On July 23, 2007, counsel for Axium International, Inc.and Diversity MSP (collectively, “Axium”) submitted a letter to the Company onAxium’s behalf purporting to be a claim notice under the indemnificationprovisions of the Chimes Asset Purchase Agreement asserting losses and damages,including punitive damages, in unspecified amount as a result of allegedly “fraudulentconduct, intentional and willful and/or negligent misrepresentations,concealment and breach of representations, warranty, covenants and agreementscontained in the Chimes Asset Purchase Agreement by the Company, Chimes andcertain of their officers and directors. Thereafter, on August 15, 2007,the Company received a summons and complaint in a lawsuit making similarallegations.  On October 2, 2007,the Company and Chimes filed an answer denying the material allegations in thecomplaint and asserting certain affirmative defenses and the other defendantsfiled a motion to dismiss the complaint as to them. See Item 1 of Part IIof this Quarterly Report on Form 10-Q (Legal Proceedings) for adescription of that lawsuit and the Company’s response thereto.   On December 19, 2007, the Companyannounced that it had settled the litigation pending between it and AxiumInternational. The lawsuit was discontinued without prejudice, the partiesexchanged releases, and Computer Horizons made a payment to Diversity of$175,000.

 

The Chimes Asset Sale is a taxable transaction withrespect to the Company to the extent of the gain that was realized. The Companywill realize a gain measured by the difference between the proceeds received byit and its affiliates on such sale and the Company’s (or an affiliate’s) taxbasis in the assets. For purposes of calculating the gain, the proceedsreceived by the Company and its affiliates will include the cash received bythem, the amount of their indebtedness that is cancelled or assumed, and anyother consideration received by them for their assets. It is anticipated thatthe Company will have sufficient NOL carry-forwards to offset most of the gainrealized 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 $627 thousand after taking into account the availability of statelosses to offset the gain, and have been accrued.

 

**2. Contingencies and Estimates**

 

The Companywill continue to incur costs through the liquidation. Note 1 sets forththe current (initial) estimate of these costs. The Company will evaluate theassumptions, judgments and estimates that can have a significant impact duringliquidation and make changes accordingly. In addition, the followingcontingencies should be noted:

 

| ** **                                                                                                                                                                                                                                                                                                 | ** ** | **($ in  thousands)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| Sale of the Commercial Services Business Unit, maximum  contingent liability under asset purchase agreement, upon assertion of a claim  within nine months after the date of the agreement.                                                                                                                |       | $                          | 10,000     |   |
| Sale of the Commercial Services Business Unit, claim filed  for Net Working Capital Adjustment as provided in asset purchase agreement,  as adjusted, less $1.9 million accrual. (See the discussion regarding the  claim notice sent by TEKsystems under “Sale of Commercial” in Note 1 above.) |       | $                          | 3,300      |   |

 

11

----

Table of Contents

 

The detailsof the above are described more fully elsewhere in this filing.

 

*Legal Matters*

 

The Company is involved in various routine litigationmatters that arose in the normal course of business. Management believes thatthe resolution of these matters will not have a material adverse effect on thefinal liquidation of the Company. While the Company firmly maintains that allclaims against the Company in such matters are without merit, it will continueto incur costs as it vigorously defends against these claims.

 

In addition, the Company is involved in litigationwith TEKsystems, as described in Note 1 aboveand in Item 1 of Part II of this Quarterly Report on Form 10-Q (LegalProceedings).

 

**3. Liquidating Distributions**

 

On March 5, 2007, the Company announced that itsBoard of Directors had declared an initial liquidating distribution of $4.00per share, or $135.3 million, to its common shareholders (and certain formeroption holders under the provisions of the surrender plan described below). Theinitial liquidating distribution represented a partial distribution toshareholders of the proceeds received by the Company from the sales of RGII,Chimes and the Commercial Services Business Unit. In determining the amount ofthe initial distribution, the Company considered wind-down and transitionexpenses and the exposure for contingent claims under the asset purchaseagreements. The distribution was paid on March 27, 2007 to shareholders ofrecord as of the close of business on March 16, 2007. The initial liquidatingdistribution was the first of what is expected to be a series of liquidatingdistributions pursuant to the Plan of Liquidation. On December 19, 2007,the Board of Directors announced a second liquidating  distribution of $.30 per share, or $10.2 million,to its common shareholders and certain former option holders under theprovisions of the surrender program described below. This distribution was paidon February 11, 2008 to shareholders of record as of the close of businesson January 15, 2008.

 

The aggregate amount of distributions to ourshareholders is expected to be in the range of $4.68 to $4.78 per share ofCommon Stock. However, uncertainties as to the ultimate amount of ourliabilities make it impossible to predict with certainty the actual aggregatenet amounts that will ultimately be available for distribution to shareholdersor the timing of any such distribution. Such amount and timing will depend on anumber of factors, several of which cannot be determined at this time,including:

 

·                  The ultimate amount of our known, unknown andcontingent debts and liabilities; and

·                  The fees and expenses incurred by us in theliquidation of our assets and the dissolution of the Company.

 

As a result, the amount of cash remaining followingcompletion of our liquidation and dissolution could vary significantly from ourcurrent estimates.

 

*Election to Surrender Options*

 

In order tofacilitate the participation in any liquidating distributions by the holders ofCompany options, the board of directors granted to each option holder the rightto surrender their options in exchange for the right to receive the amount(s) thatsuch option holder would have been entitled to receive in each distribution asif they held the number of shares of Common Stock issuable upon exercise of thesurrendered options. The amount so distributed to each option holder will bereduced by the exercise price of his or her options, which will be applied toreduce the amounts that would otherwise be payable to the option holder until theexercise price has been applied in full. A total of 1,162,820 options weresurrendered under the plan. The average exercise price for such options was$2.97 per share. The initial distribution to holders of surrendered options was$394,569.   The second distribution to holders of surrenderedoptions on February 11, 2008 was $250,846.

 

12

----

Tableof Contents

 

**4. Voluntary withdrawal from NASDAQ**

 

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

 

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

 

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

 

**5. Recent Accounting Pronouncements**

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement No. 157,Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principles,and expands disclosures about fair value measurements required under otheraccounting pronouncements.  FAS 157 doesnot change existing guidance regarding whether or not an instrument is carriedat fair value.  SFAS No. 157 iseffective for financial statements issued for fiscal years beginning after November 15,2007.  The Company does not expect asignificant impact on our consolidated financial statements of adopting SFAS No. 157.

 

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”).FAS 159 permits the measurement of many financial instruments and certain otheritems at fair value. Entities may choose to measure eligible items at fairvalue at specified election dates, reporting unrealized gains and losses onsuch items at each subsequent reporting period. The objective of FAS 159 is toprovide entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex hedge accounting provisions. It is intended to expandthe use of fair value measurement. FAS 159 is effective for fiscal yearsbeginning after November 15, 2007. The Company does not expect asignificant impact on our consolidated financial statements of adopting SFAS No. 159.

 

**6. Accounting for Stock-Based Compensation**

 

*Accounting for Stock-Based Compensation*

 

The Companyaccounts for Stock Based Compensation in accordance with Financial AccountingStandards Board Statement No. 123 (revised 2004) (“FAS 123R”)—“Share-BasedPayments”.

 

No changesoccurred to the company’s outstanding stock options during the second quarter2008. A summary of the status of all the Company’s stock option plans as of June 30,2008 is presented below:

 

13

----

Table of Contents

 

| ** **                                                                                       | ** ** | **Three months ended    June 30, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Options (Three Months)**                                                                       | ** ** | **Shares   (000’s)**                                   | ** ** | **Weighted   Average   Exercise   Price** | ** ** |
| Outstanding January 1, 2008                                                                 |       | 25                                                          |       | $ | 3.31 |   |
| Granted                                                                                          |       | 0                                                           |       | $ | 0.00 |   |
| Exercised                                                                                        |       | 0                                                           |       | $ | 0.00 |   |
| Canceled/forfeited/expired                                                                       |       | 0                                                           |       | $ | 0.00 |   |
| Outstanding June 30, 2008                                                                   |       | 25                                                          |       | $ | 3.31 |   |
|                                                                                             |       |                                                        |       |   |   |
| Options exercisable June 30, 2008                                                           |       | 25                                                          |       | $ | 3.31 |   |
|                                                                                             |       |                                                        |       |   |   |
| Weighted average fair value of options granted during the  three months ended June 30, 2008 |       |                                                        |       | $ | 0.00 |   |

 

**7.  Cash**

 

On March 5,2007, the Company announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to itscommon shareholders and certain former option holders under the provisions ofthe surrender plan described in Note 3. The distribution was payable March 27,2007 to shareholders of record as of the close of business on March 16,2007. The initial liquidating distribution was the first of what is expected tobe a series of liquidating distributions pursuant to the plan of liquidationand dissolution approved by the Company’s shareholders on February 14,2007. On December 19,2007, the Board of Directors announced a second liquidating distribution of$.30 per share to its common shareholders. This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008.  Theliquidating distributions represent partial distributions to shareholders ofthe proceeds received by the Company from the sale of its RGII Technologiessubsidiary and substantially all of the non-cash assets of its Chimes, Inc.subsidiary and its Commercial division.

 

**8. Asset-Based Lending Facility**

 

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

 

**9. Income Taxes**

 

Similar tothe prior year, the Company is not in a position to determine its projectedannual effective tax rate. For the year ended December 31, 2008, theCompany cannot estimate the rate due to the large net operating losscarryforward and corresponding valuation allowance.

 

Asmentioned, liquidation accounting was adopted as of February 17, 2007, andas the result of operational losses, there is no provision from continuingoperations for 2007.  As of the secondquarter 2008, the Company did not accrue any tax due to the results fromoperations.  The liability recorded on the balance sheet as of thesecond quarter 2008 primarily reflects the Company’s FIN 48 reserve offset byother tax amounts.

 

14

----

Table of Contents

 

*Deferred Tax Asset and Valuation Allowance*

 

The Companyrecords deferred tax assets for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand 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.

 

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

 

*Financial Accounting Standard 48—Accounting for Uncertainty in IncomeTaxes*

 

The Companyadopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”),at the beginning of fiscal year 2007. Including the cumulative effect for theadoption of FIN 48, at the beginning of 2007, the Company had approximately$1.3 million of total gross unrecognized tax benefits for federal andstate purposes. The Income Taxes Payable balance at 6/30/08 primarilyrepresents the total federal and state gross unrecognized tax benefits of $1.3million plus applicable interest and penalties of $500 thousand.

 

The Companyand its subsidiaries are subject to U.S. federal income tax as well as incometax of multiple state jurisdictions. The Company has substantially concludedall U.S. federal income tax matters for years through 2002. Substantially allmaterial state, local and foreign income tax matters have been concluded foryears through 2001. There are no material audits in process at this time.

 

The Company’scontinuing practice is to recognize interest and/or penalties related to incometax matters in income tax expense. The Company has accrued interest ofapproximately $60 thousand as of the second quarter 2008 for FIN48 relateditems.

 

**10. Refundable Income Tax**

 

The QuebecGovernment through Invest Quebec granted the Company’s Montreal OutsourcingCentre (“MOC”) a refundable tax credit on certain qualifying job positions inInformation Technology. The outstanding receivables as of September 30,2007 and 2006 include credits relating to 2005 and 2006. The CommercialServices Asset Sale included all of the capital stock of Computer Horizons(Canada) Corp. (“Canada Sub”) but, as noted above, specifically excluded therefundable income tax credit payable to Canada Sub by Revenu Quebec for the taxyears 2005 and 2006 (the “Quebec Tax Receivable”). During the third quarter of2007, TEKsystems advised the Company that Canada Sub had received approximatelyC$4.3 million with respect to the Quebec Tax Receivable for 2005,(representing approximately C$4.4 million in tax credit and interest lessa deduction for associated capital taxes of approximately C$114 thousand).Using the exchange rate between the Canadian and United States dollars as ofthe day before the date of TEKsystem’s notice to the Company, the receipt byTEKsystems amounted to approximatelyUS$4.4 million.    An additional US$665 thousandwas booked during the third quarter of 2007 to recognize the increase in valueof the 2005 tax credit due to the change in exchange rate since the Company’slast estimate of such value. On April 28, 2008, TEKsystems notified the Company that Canada Subhas received a payment from Revenu Quebec with respect to the 2006 Quebec TaxReceivable of approximately Canadian $5.6 million (representing approximatelyC$5.6 million in tax credit and interest less a deduction for associatedcapital taxes of approximately C $55 thousand). Using the noon buying rate published by the Federal Reserve Bank of NewYork on April 28, 2008 (1.0158 Canadian $ per U.S. $), the 2006 creditequates to approximately US $5.5 million. (See “Sale of Commercial” in Note 1 above for anadditional discussion of recent events surrounding the Quebec Tax Receivablefor 2005 and 2006.).

 

15

----

Table of Contents

 

**Item 2.**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

**For the Period Ended June 30, 2008 andJune 30, 2007**

 

The following detailed discussion and analysis of thefinancial condition and results of operations of Computer Horizons Corp. (the “Company”)should be read in conjunction with the financial statements and related notesincluded in the Company’s Annual Report on Form 10-K for the year ended December 31,2007, and the financial statements and notes included elsewhere in thisQuarterly Report on Form 10-Q.

 

**FORWARD-LOOKING STATEMENTS**

 

This report contains forward-looking statements within themeaning of the safe harbor provisions of the Private Securities LitigationReform Act of 1995. In some cases, forward-looking statements can be identifiedby words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue”or similar expressions. Such forward-looking statements are subject to a numberof risks and uncertainties, and there can be no assurance that the expectationreflected in those statements will be realized or achieved. Such risks anduncertainties include, without limitation, possible contingent liabilities andpost-closing indemnification and other obligations arising from the sale of theCompany’s businesses; and risks associated with the liquidation and dissolutionof the Company, including without limitation, settlement of the Company’sliabilities and obligations, costs incurred in connection with the carrying outof the plan of liquidation and dissolution, the amount of income earned on theCompany’s cash and cash equivalents and short-term investments during theliquidation period, and the actual timing of liquidating distributions. Allforward-looking statements included in this report are based on informationavailable to the Company on the date hereof. The Company undertakes noobligation (and expressly disclaims any such obligation) to updateforward-looking statements made in this report to reflect events orcircumstances after the date of this report or to update reasons why actualresults would differ from those anticipated in such forward-looking statements.

 

**Overview**

 

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 (collectively, the “Asset Sales”). At the SpecialMeeting, the shareholders of the Company also approved a proposed plan ofcomplete liquidation and dissolution of the Company (the “Plan of Liquidation”).The Company began implementing the Plan of Liquidation after the Asset Saleswere completed on February 16, 2007. Prior to the Asset Sales, the Companyprovided information technology staffing and project-based services to privatecompanies and the United States government.

 

The Company had revenues for the period from January 1,2007 through February 16, 2007 of $29.7 million. Using theliquidation basis of accounting, net income/(loss) is no longer reported.

 

As of June 30, 2008, the Company had approximately$15.8 million in cash and cash equivalents and $14.8 million inworking capital and no debt outstanding.

 

**Background of Liquidation**

 

*Sale of RGII*

 

On September 29, 2006, the Company sold its subsidiary,RGII Technologies, Inc., to Netstar-1, Inc. for $15.3 million incash, less an estimated net asset adjustment of $1.2 million. In addition,CHC retained all cash and cash equivalents of RGII, in the amount of$6.3 million. The amount of the estimated net asset adjustment was subjectto a final review. To the extent that the final net asset amount sold toNetStar-1 was greater than the estimated net asset amount at closing, the StockPurchase Agreement provided that the excess would be paid to CHC together withinterest thereon at the prime rate from the closing date to the date ofpayment. If the final net asset amount sold to NetStar-1 was less than theestimated net asset amount at closing, the Stock Purchase Agreement 

 

16

----

Table of Contents

 

providedthat the deficiency would be paid by CHC to NetStar-1, together with interestthereon at the prime rate from the closing date to the date of payment. Duringthe second quarter 2007, the parties reached agreement on the final net assetamount, resulting in a payment to the Buyer in the amount of$215 thousand. The remainder of the amount in escrow of $785 thousandwas released from escrow to CHC. The sale of RGII resulted in a net book losson disposal of $4.8 million, including approximately $969 thousand intransaction costs as reported September 30, 2006.

 

*Sale of Commercial*

 

On November 7, 2006,the Company entered into an asset purchase agreement (the “Commercial ServicesAsset Purchase Agreement”) by and among TEKsystems, Inc., a Marylandcorporation (“TEKsystems”), TEKsystems EF&I Solutions, LLC, a Marylandlimited liability company, Allegis Group Canada Corporation, a Nova Scotiaunlimited liability corporation, the Company, GBS Holdings Private Limited, acorporation organized under the laws of Mauritius, CHC Healthcare Solutions,LLC, a Delaware limited liability company, and Allegis Group, Inc., aMaryland corporation. Pursuant to the Commercial Services Asset PurchaseAgreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(1.9) million using data as of the date of sale (the “CommercialServices Asset Sale”). The sale was also subject to an escrow of $1.7 millionof the purchase price pending receipt of tax certificates in connection withthe Taxation Act—Quebec; the certificates were subsequently received and theescrow released on April 24, 2007. Assets not included in the Commercial Services Asset Sale included arefundable Quebec tax credit for 2005 and 2006 currently estimated atapproximately $9.6 million (described below) and the unit’s operating cash asof the date of the sale. The Company recorded an estimated gain of $29.1million as a result of the sale of the Commercial Services Business.

 

On April 17, 2007,TEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems. The Companycontinues to believe that its estimate of approximately $1.9 million isaccurate, and has disputed this claim. While some differences were resolved,there still remains a difference of $3.3 million between the Company’s estimateand that of TEKsystems. The principal item in dispute relates to the Company’sbelief that Computer Horizons (Canada) Corp. (“Canada Sub”) has sufficient NOL’sto offset any income tax due on the Quebec tax receivable discussed below.  Under the terms of the Commercial ServicesAsset Purchase Agreement, such disputed items are to be determined by anindependent accounting firm and, on September 19, 2007 the Company, and onSeptember 28, 2007 TEKsystems, submitted the disputed items to suchindependent accounting firm for determination. However, TEKsystems refused toproceed with such process to resolve these disputed items, asnoted below, in a litigation between CHC and TEKsystems the court orderedTEKsystems to arbitrate the disputed items before the independent accountingfirm. For a moredetailed description of this litigation, see Item 1 of Part II of thisQuarterly Report on Form 10-Q (Legal Proceedings).

 

The Commercial Services Asset Sale included all of thecapital stock of Computer Horizons (Canada) Corp. (“Canada Sub”) but, as notedabove, specifically excluded a refundable income tax credit payable to CanadaSub by Revenu Quebec for the tax years 2005 and 2006 (the “Quebec TaxReceivable”). During the third quarter of 2007, TEKsystems advised the Companythat Canada Sub had received approximately Canadian $4.3 million with respectto the Quebec Tax Receivable for 2005 (representing approximately Canadian $4.4million in tax credit and interest less a deduction for associated capitaltaxes of approximately Canadian $114 thousand). Using the exchange rate betweenthe Canadian and United States dollars as of the day before the date ofTEKsystem’s notice to the Company, the receipt by TEKsystems amounted toapproximately US $4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million for Canadian incometaxes, $1.89 million as a purchase price adjustment under the CommercialServices Asset Purchase Agreement, and $114 thousand for capital taxes. Underthe terms of the Commercial Services Asset Purchase Agreement, TEKsystems hasno right to offset any amounts due the Company and the aforementioned amount of$1.49 million is subject to dispute and has been submitted to an independentaccounting firm for determination, although TEKsystems has refused to proceedwith such process as mentioned above. The Company has recorded the $958thousand as a deferred cash credit in the balance sheet. After demands to remitthe $4.3 million were ignored, the Company, on October 19, 2007, filed alawsuit against TEKsystems seeking damages for the failure of TEKsystems toremit the balance of the funds received by it with respect to the 2005 QuebecTax Receivable and a declaration that TEKsystems must promptly remit to the Company upon receipt all fundsreceived by it in the future in payment of the 2006 Quebec Tax Receivable. Fora more detailed description of this litigation, see Item 1 of Part II ofthis Quarterly Report on Form 10-Q (Legal Proceedings).

 

17

----

Tableof Contents

 

On December 29,2007, the Company filed an amended complaint in this action, adding a thirdclaim, i.e., for judgment ordering TEK to cooperate promptly with theindependent accounting firm in its determination of the disputed items in thecalculation of Final Net Working Capital.

 

By answer filed January 14,2008, TEK denied any liability under the three claims in the Company’s amendedcomplaint and alleged four counterclaims against the Company for its purportedbreaches of warranties and representations in the APA, including twocounterclaims demanding a declaration that the Company must indemnify TEK forlegal fees and any judgment against TEK should it be sued as a successor to theCompany by plaintiffs that have brought actions against the Company, acounterclaim for a declaration that the Company must indemnify TEK in the eventit is held to owe any taxes by reason of a notice sent by an employee of theCompany to taxing authorities, and a counterclaim for the purported legal feesincurred by TEK and the amount by which it allegedly reduced a receivable insettling a dispute with the Iowa Health Systems, Inc. (“IHS”) over thereceivable that IHS owed.  Thecounterclaims seek to have the court impose a constructive trust over theCompany’s assets to remedy the alleged breaches of the APA by the Company. Byreply filed February 27, 2008, the Company denied the substantiveallegations contained in the counterclaims.

 

On February 27,2008, the Company served a motion in this action to compel TEK to arbitrate thedisputed matters in the calculation of Final Net Working Capital before the independentaccounting firm and to compel TEK to cooperate promptly with the firm in itsdetermination of the disputed matters. This motion was granted by the court’sorder entered April 24, 2008, and such order also stayed the action, “pendingthe issuance of a written determination of Net Working Capital” by theindependent accounting firm.

 

No discovery has yet beentaken in this action.

 

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

 

On April 28, 2008,TEKsystems notified the Company that Canada Sub has received a payment fromRevenu Quebec with respect to the 2006 Quebec Tax Receivable (See Note 11) ofCanadian $5.6 million consisting of a calendar year 2006 credit of Canadian$5.6 million less a calendar year 2006 capital tax of Canadian $55 thousand(which was withheld by Revenu Quebec from the payment).  In addition to the above payment, Canada Subreceived a payment of interest on the 2006 credit of Canadian $7 thousand.  Using the noon buying rate published by theFederal Reserve Bank of New York on April 28, 2008 (1.0158 Canadian $ perU.S. $), the 2006 credit equates to US $5.5 million.  TEKsystems remitted to the Company US $3.6million, representing the 2006 credit plus US $7 thousand of interest receivedon the 2006 credit after conversion at the exchange rate, minus US $54 thousandfor capital taxes assessed by Revenu Quebec with respect to 2006 afterconversion at the exchange rate, and minus US $1.9 million for income taxes payableon the 2006 credit and on the related interest calculated utilizing theabove-referenced exchange rate.  Underthe terms of the APA, TEKsystems has no right to offset any amounts due theCompany. The Company has recorded the $3.6 million as a deferred cash credit inthe balance sheet.

 

For a more detaileddescription of this litigation, see Item 1 of Part II of this QuarterlyReport on Form 10-Q (Legal Proceedings).

 

The Commercial ServicesAsset Purchase Agreement also grants the parties indemnification rights againsteach other with respect to certain matters. The maximum liability of theCompany for indemnification claims under the Commercial Services Asset PurchaseAgreement is $10 million and is contingent upon assertion of a claim forindemnity within nine months after the date of the Commercial Services AssetAgreement. On August 6, 2007, TEKsystems submitted a letter to theCompany, on behalf of itself, the other purchaser parties to the CommercialServices Asset Purchase Agreement and their affiliates, purporting to be aclaim notice under the indemnification provisions of the Commercial ServicesAsset Purchase Agreement asserting purported indemnification claims based,variously, on the proposition that TEKsystems and the other purchaser partiesare or may be subject to claims that are Excluded Liabilities under theCommercial Services Asset Purchase Agreement or arise out of alleged breachesof representations, warranties and/or covenants made by the Company in thatagreement. The Company believes that many of the claims set forth in the letterrelate to the working capital adjustment referred to above and overlap with orare repetitious of the issues between the parties with respect to the correctamount of that adjustment. The Company strongly disagrees with the assertionsin the letter from TEKsystems and believes such assertions are without meritand, if TEKsystems brings suit based on any of the matters stated therein, theCompany intends to vigorously defend against it.

 

The Commercial ServicesAsset Sale is a taxable transaction with respect to the Company to the extentof the gain that was realized. The Company will realize gain or loss measuredby the difference between the proceeds 

 

18

----

Tableof Contents

 

received by it andits affiliates on such sale and the Company’s (or an affiliate’s) tax basis inthe assets. For purposes of calculating gain or loss, the proceeds received bythe Company and its affiliates will include the cash received by them, theamount of their indebtedness that is cancelled or assumed, and any otherconsideration received by them for their assets. It is anticipated that theCompany will have sufficient current losses to offset most of the gain expectedto be realized from the Commercial Services Asset Sale for regular Federalincome tax purposes and will otherwise incur approximately $300 thousand inalternative 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 the Company does not anticipate that such taxes, if any, will besignificant.

 

*Sale of Chimes*

 

On October 18, 2006,the Company signed a definitive asset purchase agreement (the “Chimes AssetPurchase Agreement”) by and among Axium International, Inc., a Delawarecorporation, Diversity MSP, Inc., a California corporation (“Diversity MSP”)and Chimes, Inc., a Delaware corporation and wholly-owned subsidiary ofthe Company (now known as Forgone, LLC, a Delaware limited liability company,and referred to herein as “Chimes”). Pursuant to the Chimes Asset PurchaseAgreement, on February 16, 2007, the Company sold to Diversity MSPsubstantially all of the assets of Chimes, excluding cash and marketablesecurities, for a purchase price of $80.0 million in cash (the “Chimes AssetSale”), with a gain of $73.6 million.

 

The Chimes Asset PurchaseAgreement also grants the parties indemnification rights against each otherwith respect to certain matters. The maximum liability of the Company forindemnification claims under the Chimes Asset Purchase Agreement is $8 millionand is contingent upon assertion of a claim for indemnity within six months afterthe closing date.

 

On July 23, 2007, counsel for Axium International, Inc.and Diversity MSP (collectively, “Axium”) submitted a letter to the Company onAxium’s behalf purporting to be a claim notice under the indemnificationprovisions of the Chimes Asset Purchase Agreement asserting losses and damages,including punitive damages, in unspecified amount as a result of allegedly “fraudulentconduct, intentional and willful and/or negligent misrepresentations,concealment and breach of representations, warranty, covenants and agreementscontained in the [Chimes Asset Purchase] Agreement” by the Company, Chimes andcertain of their officers and directors. Thereafter, on August 15, 2007,the Company received a summons and complaint in a lawsuit making similarallegations.  On October 2, 2007,the Company and Chimes filed an answer denying the material allegations in thecomplaint and asserting certain affirmative defenses and the other defendantsfiled a motion to dismiss the complaint as to them. See Item 1 of Part IIof this Quarterly Report on Form 10-Q (Legal Proceedings) for adescription of that lawsuit and the Company’s response thereto.   On December 19, 2007, the Companyannounced that it had settled the litigation pending between it and AxiumInternational. The lawsuit was discontinued without prejudice, the partiesexchanged releases, and Computer Horizons made a payment to Diversity of$175,000.

 

The Chimes Asset Sale is a taxable transaction withrespect to the Company to the extent of the gain that was realized. The Companywill realize a gain measured by the difference between the proceeds received byit and its affiliates on such sale and the Company’s (or an affiliate’s) taxbasis in the assets. For purposes of calculating the gain, the proceedsreceived by the Company and its affiliates will include the cash received bythem, the amount of their indebtedness that is cancelled or assumed, and anyother consideration received by them for their assets. It is anticipated thatthe Company will have sufficient NOL carry-forwards to offset most of the gainrealized 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 $627 thousand after taking into account the availability of statelosses to offset the gain, and have been accrued.

 

***Liquidation Basis of Accounting***

 

The consolidated financial statements for the period January 1,2007 to February 16, 2007 were prepared on the going concern basis ofaccounting, which contemplates realization of assets and satisfaction ofliabilities in the normal course of business. As a result of the shareholders’ approval of the Plan, the Companyadopted the liquidation basis of accounting effective February 17,2007.  This basis of accounting isconsidered appropriate when, among other things, liquidation of a company isprobable and the net realizable values of assets are reasonably determinable.Under this basis of accounting, assets are valued at their net realizablevalues and liabilities are stated at their estimated settlement amounts. Theconversion from the going concern to liquidation 

 

19

----

Table of Contents

 

basis ofaccounting required management to make significant estimates and judgments torecord assets at estimated net realizable value and liabilities at estimatedsettlement amounts.

 

***Critical Accounting Policies and Estimates***

 

Our discussion and analysis of financial condition andresults of operations are based upon our consolidated financial statements,which have been prepared by the Company without audit in accordance with the rules andregulations of the Securities and Exchange Commission. The preparation of ourfinancial statements requires us to make estimates that affect the reportedamounts of assets, liabilities, revenue and expense, and related disclosure ofcontingent assets and liabilities. Accounting estimates are based on historicalexperience and other factors that are believed to be reasonable under thecircumstances. However, actual results may vary from these estimates underdifferent assumptions or conditions.

 

Pursuant to the Plan of Liquidation, since February 16,2007, our operations have been limited to wind down of our business andaffairs, selling our remaining assets and discharging our known liabilities. Weplan to distribute our remaining assets to our stockholders, in accordance withthe Plan of Liquidation.

 

***Accrued Costs of Liquidation***

 

Upon conversion to the liquidation basis of accounting, theCompany accrued for the known costs to be incurred in liquidation, and has madesubsequent adjustments and payments against these accounts, as follows:

 
| **($ in thousands)**              | ** ** | **As Booked   2/17/2007** | ** ** | **Recorded   prior to   2/17/2007*** | ** ** | **Adjustments   to reserves** | ** ** | **Activity   to date** | ** ** | **Balance at   6/30/08** | ** ** |
|----------------------------------------|------------|---------------------------|------------|--------------------------------------|------------|-------------------------------|------------|------------------------|------------|--------------------------|------------|
| Lease Obligation                       |       | $                         | 1,324      |                                 |       |                          | 248        |                   | (1,560     | )                        | 12         |   |
| Legal Fees                             |       | 450                       |       |                                 |       | 2,429                         |       | (1,208                 | )          | 1,671                    |       |
| Professional Fees, including insurance |       | 2,037                     |       |                                 |       | 3,080                         |       | (4,663                 | )          | 454                      |       |
| Human Resources                        |       | 3,480                     |       | 1,188                                |       | 1,567                         |       | (6,004                 | )          | 231                      |       |
| Systems-related                        |       | 819                       |       |                                 |       | (269                          | )          | (507                   | )          | 43                       |       |
| Misc.                                  |       | 900                       |       | 295                                  |       | (310                          | )          | (826                   | )          | 59                       |       |
|                                   |       |                      |       |                                 |       |                          |       |                   |       |                     |       |
| Total                                  |       | $                         | 9,010      |                                 | 1,483      |                          | 6,745      | **                     | (14,768    | )                        | 2,470      |   |

----

*       Accruals carry forward from operatingperiod.

**     Adjustments to reserves totaled $6.7 million, and wereprimarily the result of revised estimates relating to the cost of professionalservices and human resource costs. (See “Sale of Commercial” and “Sale ofChimes” above, for a discussion of current legal proceedings.)

 

The Company will continue to incur operating costs andreceive income on its investments throughout the liquidation period. On aregular basis, we evaluate our assumptions, judgments and estimates that canhave a significant impact on our reported net assets in liquidation based onthe most recent information available to us, and 

 

20

----

Table of Contents

 

whennecessary make changes accordingly. Actual costs and income may differ from ourestimates, which might reduce net assets available in liquidation to bedistributed to shareholders.

 

The Company expects to make further distributions to itsshareholders of its remaining cash, less any amount applied to or reserved foractual or contingent liabilities (which will be deposited in a liquidatingtrust). The amounts reserved will be based on a determination by the board ofdirectors, derived from consultation with management and outside experts, ifthe board of directors determines that it is advisable to retain such experts,and a review of, among other things, our estimated contingent liabilities andour estimated ongoing expenses, including, but not limited to, payroll, legalexpenses, regulatory filings and other miscellaneous expenses. To the extentthat assets deposited in the liquidating trust are not applied to or reservedfor payment of the Company’s liabilities, these assets will be distributed toholders of beneficial interests in the liquidating trust at one or more laterdates. Each shareholder will receive his or her pro rata share of eachdistribution based on the number of shares held at the time of the record datefor such distribution.

 

**Recent Developments**

 

*Special Shareholders Meeting*

 

As noted above, at a Special Meeting held on February 14,2007, the shareholders of the Company approved the Asset Sales and the Plan ofLiquidation. The Company began implementing the Plan of Liquidation after theAsset Sales were completed on February 16, 2007.

 

**Evaluation of Bad Debt Reserve**

 

Historically, the Company determined its allowance fordoubtful accounts by considering a number of factors, including the length oftime trade accounts receivable are past due, the Company’s previous losshistory, the customer’s current ability to pay its obligations to the Companyand the condition of the general economy and the industry as a whole. TheCompany wrote off accounts receivable when they became uncollectible, andpayments subsequently received on such receivables were credited to theallowance for doubtful accounts.

 

In connection with the sale of the Commercial ServicesBusiness Unit, the allowance for doubtful accounts was increased by$1.3 million as of February 16, 2007. This recalculation was doneutilizing the formula prescribed in the Commercial Services Asset PurchaseAgreement, and not as a result of any deterioration in the Commercial accountsreceivable.

 

**Valuation of Deferred Tax Assets**

 

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

 

The Company has significant deferred tax assets resultingfrom net operating loss carryforwards, capital loss carryforwards, anddeductible temporary differences that may reduce taxable income in futureperiods. The Company has provided full valuation allowances on the future taxbenefits related to capital losses, foreign net operating losses, and all statenet operating losses. The Company believes that the valuation allowance isappropriate because these deferred tax assets have relatively shortcarryforward periods or relate to taxing jurisdictions which do not allow thefiling of consolidated tax returns. Also, as a result of adopting liquidationaccounting, the Company does not expect to utilize its deferred tax asset dueto the sale of the remaining operations.

 

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

 

*Revenues.*    Consolidatedrevenues were $29.7 million in the period from January 1, 2007 to February 16,2007. Revenue data is not presented for 2008, because using the liquidationbasis of accounting, it is no longer reported.

 

21

----

Table of Contents

 

*Direct Costs and Gross Margins.*    Directcosts were $23.1 million in the period from January 1, 2007 to February 16,2007. Gross margin, revenues less direct costs, was $6.6 million, or 22.2%in the period from January 1, 2007 to February 16, 2007. Due to theadoption of the liquidation basis of accounting effective February 17,2007, these numbers are no longer reported.

 

*Costs and Expenses.*    Selling,general and administrative expenses were $10.8 million in the period from January 1,2007 to February 16, 2007. As a percentage of revenue, the Company’sSG&A expenses were 36.3% in the period from January 1, 2007 to February 16,2007.  Due to the adoption of theliquidation basis of accounting effective February 17, 2007, these numbersare no longer reported.

 

*Income / (Loss) from ContinuingOperations.*    The Company’snet loss from continuing operations totaled $(4.2) million in the periodfrom January 1, 2007 to February 16, 2007. Due to the adoption of theliquidation basis of accounting effective February 17, 2007, these numbersare no longer reported.

 

*Other Income/(Expense).*    Otherincome (primarily net interest income) totaled approximately $880 thousandin the period from January 1, 2007 to February 16, 2007.  Due to the adoption of the liquidation basisof accounting effective February 17, 2007, these numbers are no longerreported.

 

*Gain on Sale of Commercial ServicesBusiness Unit:*    Pursuant tothe Commercial Services Asset Purchase Agreement, on February 16, 2007,the Company sold to TEKsystems substantially all of the assets of itsCommercial Services Business (as defined in the Commercial Services AssetPurchase Agreement), for a purchase price of $57 million in cash subjectto a potential post-closing working capital adjustment, estimated at$(1.9) million using data as of the date of sale. Assets not included inthe sale of the Commercial Services Business included a refundable tax creditof $8.9 million, and the unit’s operating cash as of the date of the sale.The Company recorded an estimated gain of $29.1 million as a result of thesale of the Commercial Services Business.

 

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

 

*Provision for Income Taxes:*    Taxeshave been provided as a result of the sale of the business operations.  The Company has accrued $627 thousand forstate and local taxes and $1.3 million for federal alternative minimum taxes.

 

As mentioned, for the quarter ended March 31, 2007,liquidation accounting was adopted and as the result of operational losses,there is no provision from continuing operations. Taxes have been provided as aresult of the sale of the business operations. The Company has accrued $627 thousand for state andlocal taxes and $1.3 million for federal alternative minimum taxes.

 

*Net Income.*    Thenet income for the period from January 1, 2007 to February 16, 2007was $99.4 million, or $2.94 per basic and diluted share.

 

**Liquidity and Capital Resources**

 

On February 16, 2007, cash was received in the amountof $80 million for the sale of Chimes and $57 million for the sale ofthe Commercial Business Services Unit. On March 5, 2007, the Company announced that itsBoard of Directors had declared an initial liquidating distribution of $4.00per share, or $135.3 million, to its common shareholders (and certain formeroption holders under the provisions of the surrender plan described above). Theinitial liquidating distribution represented a partial distribution toshareholders of the proceeds received by the Company from the sales of RGII,Chimes and the Commercial Services Business Unit. In determining the amount ofthe initial distribution, the Company considered wind-down and transitionexpenses and the exposure for contingent claims under the asset purchaseagreements. The distribution was paid on March 27, 2007 to shareholders ofrecord as of the close of business on March 16, 2007. The initialliquidating distribution was the first of what is expected to be a series ofliquidating distributions pursuant to the Plan of Liquidation. On December 19,2007, the Board of Directors announced a second liquidating distribution of$.30 per share, or $10.2 million, to its common shareholders and certain optionholders under the provisions of the surrender plan described above. Thisdistribution was paid on February 11, 2008 to shareholders of record as ofthe close of business on January 15, 2008.

 

22

----

Tableof Contents

 

The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.68 to$4.78 per share of Common Stock. However, uncertainties as to the ultimateamount of our liabilities make it impossible to predict with certainty theactual aggregate net amounts that will ultimately be available for distributionto shareholders or the timing of any such distribution. Such amount and timingwill depend on a number of factors, several of which cannot be determined atthis time, including:

 

·            Theultimate amount of our known, unknown and contingent debts and liabilities; and

·            Thefees and expenses incurred by us in the liquidation of our assets and thedissolution of the Company.

 

As a result, the amount of cash remaining followingcompletion of our liquidation and dissolution could vary significantly from ourcurrent estimates.

 

As of June 30, 2008, the Company had approximately$14.8 million in working capital, of which $15.8 million was cash andcash equivalents.

 

Net cash provided by operating activities for the periodfrom January 1 through February 16, 2007 was $98 millionconsisting primarily of net loss of $(3.2) million offset by the gain onsale of Chimes and the Commercial Services Business Unit of$102.6 million.

 

Net cash provided by investing activities for the periodfrom January 1 through February 16, 2007 was $1.5 million,consisting primarily of the sale of fixed assets as a part of the sale of Chimesand the Commercial Services Business Unit.

 

Net cash provided by financing activities for the periodfrom January 1 through February 16, 2007 was $.4 million,primarily consisting of shares issued pursuant to the employee stock optionplan and employee stock purchase plan.

 

**Recent Accounting Pronouncements**

 

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued Statement No. 157, Fair Value Measurements (“FAS 157”).FAS 157 defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles, and expands disclosures about fairvalue measurements required under other accounting pronouncements.  FAS 157 does not change existing guidanceregarding whether or not an instrument is carried at fair value.  SFAS No. 157 is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  The Company does not expect a significantimpact on our consolidated financial statements of adopting SFAS No. 157.

 

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”).FAS 159 permits the measurement of many financial instruments and certain otheritems at fair value. Entities may choose to measure eligible items at fairvalue at specified election dates, reporting unrealized gains and losses onsuch items at each subsequent reporting period. The objective of FAS 159 is toprovide entities with the opportunity to mitigate volatility in reportedearnings caused by measuring related assets and liabilities differently withouthaving to apply complex hedge accounting provisions. It is intended to expandthe use of fair value measurement. FAS 159 is effective for fiscal yearsbeginning after November 15, 2007. The Company does not expect asignificant impact on our consolidated financial statements of adopting SFAS No. 159.

 

23

----

Table of Contents

 

**Item 3.    Quantitativeand Qualitative Disclosures about Market Risk**

 

The Company does not ordinarily hold market risk sensitiveinstruments for trading purposes. However, the Company does recognize marketrisk from interest rate changes. The Company has financial instruments that aresubject to interest rate risk. However, at June 30, 2008, the Company wasdebt-free. Historically, the Company has not experienced material gains orlosses due to interest rate changes. However, a reduction in interest rateswould reduce the interest income received by the Company on the cash and cashequivalents it holds.

 

24

----

Table of Contents

 

**Item 4.    Controls andProcedures**

 

**Disclosure Controls and Procedures**

 

The Company’s CEO and CFO have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) under the Securities Exchange Act of 1934, asamended, referred to herein as the “Exchange Act”) as of the end of the periodcovered by this report. Based upon such evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that, as of theend of such period, the Company’s disclosure controls and procedures areeffective in recording, processing, summarizing and reporting, informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Exchange Act.

 

**Internal Controls over Financial Reporting**

 

There have not been any changes in the Company’s internalcontrols over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15e under the Exchange Act) during the period to which this report relatesthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting. A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Becauseof the inherent limitations in all control systems, no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within a company have been detected.

 

25

----

Table of Contents

 

**PART II—Other Information**

 

**Item 1. Legal Proceedings.**

 

        The Company is, or was, a party to thefollowing lawsuits, each arising out of the Asset Sales.

 

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

 

Axium International, Inc. (“Axium”) and DiversityMSP, Inc. (“Diversity”) commenced this action in August 2007 againstthe Company, Chimes, Inc. (now known as Forgone, LLC), and certain oftheir officers, alleging that the defendants engaged in fraudulent conduct,including making representations allegedly known by them to be false, andactive concealment and thereby induced the plaintiffs into entering into thecontract with the Company and Chimes whereby Diversity purchased substantiallyall of the assets of Chimes, and that the Company and Chimes breached representations,warranties, covenants and agreements contained in that agreement. The complaintasked for damages in an unspecified amount and attorney’s fees. On October 2,2007, the Company and Chimes filed an answer denying the material allegationsin the complaint and asserting certain affirmative defenses, and the otherdefendants filed a motion to dismiss the complaint as to them. Subsequently,the action was settled in December 2007, without any admission ofliability by the Company or any of the other defendants, with the payment bythe Company of $175,000 to Axium and with discontinuance of all of the claimsasserted by Axium and Diversity in the action with prejudice.

 

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

 

This action relates to the Asset Purchase Agreemententered into as of November 7, 2006 by and among TEKsystems, Inc.(“TEK”),Allegis Group, Inc., the Company (referred to therein as “Seller”), andothers (the “APA”) under which the Company agreed to sell and TEK agreed topurchase substantially all of the assets of the business of the Company’sCommercial Services Business Unit. Included among the assets was all of thecapital stock of the Company’s Canadian subsidiary, Computer Horizons (Canada)Corp. (“Canada Sub”). Specifically excluded from the sale of assets andretained by the Company is a refundable income tax credit payable to Canada Subby Revenu Quebec for the tax years 2005 and 2006 (the “Quebec Tax Receivable”).The closing of the sale of the assets under the APA occurred on February 16,2007 (the “Closing Date”). Under the APA, TEK agreed to promptly remit to theCompany all amounts collected by TEK after the closing in payment of the QuebecTax Receivable.

 

During the third quarter of 2007, TEKsystems advisedthe Company that Canada Sub had received approximately Canadian $4.3 millionwith respect to the Quebec Tax Receivable for 2005 (representing approximatelyCanadian $4.4 million in tax credit and interest less a deduction for capitaltaxes of approximately Canadian $114 thousand). Using the exchange rate betweenthe Canadian and United States dollars as of the day before the date ofTEKsystem’s notice to the Company, the receipt by TEKsystems amounted toapproximately US $4.4 million. TEKsystems remitted to the Company approximately$958 thousand, after deducting approximately $1.49 million for Canadian incometaxes, $1.89 million as a purchase price adjustment under the APA, and $114thousand for capital taxes. Under the terms of the APA, TEKsystems has no rightto offset any amounts due the Company. The Company has recorded the $958thousand as a deferred cash credit in the balance sheet as of September 30,  2007. After demands to remit the $4.3 millionwere ignored, on October 19, 2007, the Company commenced this actionagainst TEK, seeking damages for the failure of TEK to remit the full amount ofthe Quebec Tax Receivable for 2005 to the Company, and a declaration that TEKmust remit to the Company the full amount of the Quebec Tax Receivable for 2006to be received by Canada Sub from Revenu Quebec promptly upon such receipt.

 

On April 28, 2008, TEKsystems notified theCompany that Canada Sub has received a payment from Revenu Quebec with respectto the 2006 Quebec Tax Receivable of Canadian $5.6 million consisting of acalendar year 2006 credit of Canadian $5.6 million less a calendar year 2006capital tax of Canadian $55 thousand (which was withheld by Revenu Quebec fromthe payment).  In addition to the abovepayment, Canada Sub received a payment of interest on the 2006 credit ofCanadian $7 thousand.  Using the noonbuying rate published by the Federal Reserve Bank of New York on April 28,2008 (1.0158 Canadian $ per U.S. $), the 2006 credit equates to US$5.5million.  TEKsystems remitted to theCompany US $3.6 million representing the 2006 credit plus US $7 

 

26

----

Tableof Contents

 

thousand ofinterest received on the 2006 credit after conversion at the exchange rate,minus US $55 thousand for capital taxes assessed by Revenu Quebec with respectto 2006 after conversion at the exchange rate, and minus US $1.9 million forincome taxes payable on the 2006 credit and on the related interest calculatedutilizing the above-referenced exchange rate. Under the terms of the APA, TEKsystems has no right to offset anyamounts due the Company.

 

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

 

By answer filed January 14, 2008, TEK denied anyliability under the three claims in the Company’s amended complaint and allegedfour counterclaims against the Company for its purported breaches of warrantiesand representations in the APA, including two counterclaims demanding adeclaration that the Company must indemnify TEK for legal fees and any judgmentagainst TEK should it be sued as a successor to the Company by plaintiffs thathave brought actions against the Company, a counterclaim for a declaration thatthe Company must indemnify TEK in the event it is held to owe any taxes byreason of a notice sent by an employee of the Company to taxing authorities,and a counterclaim for the purported legal fees incurred by TEK and the amountby which itallegedlyreduced a receivable in settling a dispute with the Iowa Health Systems, Inc.(“IHS”) over the receivable that IHS owed. The counterclaims seek to have the court impose a constructive trustover the Company’s assets to remedy the alleged breaches of the APA by theCompany. By reply filed February 27, 2008, the Company denied the substantiveallegations contained in the counterclaims.

 

On February 27, 2008, the Company served a motionin this action to compel TEK to arbitrate the disputed matters in thecalculation of Final Net Working Capital before the independent accounting firmand to compel TEK to cooperate promptly with the firm in its determination ofthe disputed matters. This motion was granted by the court’s order entered April 24,2008, and such order also stayed the action, “pending the issuance of a writtendetermination of Net Working Capital” by the independent accounting firm.

 

No discovery has yet been taken in this action.

 

The Company intends to prosecute its claims and defendagainst the counterclaims of TEK vigorously in this action.

 

TEKsystems Canada , Inc. v. Computer HorizonsCorp. (UnitedStates District Court, District of Maryland, Case No.: 1:08-CV-00209 WMN)

 

On January 24, 2008. Canada Sub, now known asTEKsystems Canada, Inc., filed this action against the Company, allegingfour claims: (1) for judgment in the amount of Canadian income taxes thatCanada Sub claims is owed for its receipt of the Quebec Tax Receivable for2005, i.e., Canadian$1,495,139, and a declaration that the Company will beliable for the amount of Canadian income taxes that will allegedly be owed uponand for Canada Sub’s future receipt of the Quebec Tax Receivable for 2006,i.e., Canadian$1,890,559, (2) for judgment in the amount ofCanadian$113,854, and a declaration that the Company will be liable for atleast Canadian$54,973, and Canadian$25,062 in Canadian provincial capitaltaxes, penalties, and interest that Canada Sub alleges it owes or will owe for,respectively, 2005, 2006, and the period January 1, 2007 through February 16,2007, (3) for a judgment for Canada Sub’s alleged loss of tax attributesin the amount of Canadian$12,889,974 by the method by which an intercompanynote made payable by Canada Sub to the Company was allegedly contributed, and (4) fora declaration that the Company will be liable for the amount that Canada Submay allegedly owe under a purported payroll tax audit. The complaint seek tohave the court impose a constructive trust over the assets of the Company toremedy its purportedly “inequitable conduct.”

 

On February 27, 2008, the Company filed itsanswer to the complaint in this action, denying the substantive allegations ofthe complaint.

 

27

----

Tableof Contents

 

On February 27, 2008, the Company filed a motionin this action to stay proceedings on Canada Sub’s first two claims in itscomplaint, i.e., (1) for the amounts of the taxes allegedly owed for thereceipt of the Quebec Tax Receivable for 2005 and allegedly will be owed uponand for Canada Sub’s future receipt of the Quebec Tax Receivable for 2006 and (2) forthe amounts of the purported Canadian provincial capital taxes owed for 2005,2006, and the period January 1, 2007 through February 16, 2007,pending completion of the arbitration between TEK and the Company before theindependent accounting firm. This motion was in substance granted by the orderentered April 24, 2008, mentioned above, in which the court stayed theconsolidated action (i.e., the action brought by Canada Sub against the Companyin the United States District Court for the District of Maryland), “pending theissuance of a written determination of “Net Working Capital” by the independentaccounting firm.

 

By stipulations between counsel for the parties inthis action and the above described action commenced by the Company in theDistrict of Maryland and order of the Court dated February 27, 2008, thetwo actions in the District of Maryland were consolidated.

 

No discovery has yet been taken in this action.

 

The Company intends to defend itself vigorouslyagainst the claims of Canada Sub in the consolidated lawsuit.

 

28

----

Tableof Contents

 

**Item 1a.    RiskFactors**

 

*Forward looking statements are subject to various uncertainties.*

 

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

 

*The Company has indemnification obligations under each of the ChimesAsset Purchase Agreement and the Commercial Services Asset Purchase Agreement*

 

        Underthe Chimes Asset Purchase Agreement, the Company has agreed to indemnify Axium,Diversity MSP and their affiliates and other related parties for, among otherthings, any losses incurred by them arising out of the Company’s breach of theChimes Asset Purchase Agreement, subject to certain dollar and timelimitations.

 

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

 

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

 

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

 

*If the Company’s contingent reserves are insufficient to satisfy itsliabilities, creditors could assert claims against the Company seeking toprevent distributions or against the Company’s shareholders to the extent ofdistributions received.*

 

        Ifa court holds at any time that the Company has failed to make adequateprovision for its expenses and liabilities or if the amount ultimately requiredto be paid in respect of such liabilities exceeds the amount available from thecontingency reserve, the Company’s creditors could seek an injunction againstthe making of distributions on the grounds that the amounts to be distributedare needed to provide for the payment of the Company’s expenses and liabilities.Any such action could delay or substantially diminish the amount of any cashdistributions to shareholders.

 

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

 

29

----

Table of Contents

 

**Item 6.    Exhibits**

 
| **Exhibits** | ** ** | ** **                                                                                                                                        |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| *31.1 — |       | CEO  Certification required by Rule 13a-15(e)/15d-15(e) under the  Securities Exchange Act of 1934.                                |
| *31.2 — |       | CFO  Certification required by Rule 13a-15(e)/15d-15(e) under the  Securities Exchange Act of 1934.                                |
| *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. |
| *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.

 

30

----

Table of Contents

** **

**Signatures**

 

        Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                             |   | COMPUTER  HORIZONS CORP.                                                                   |
|----------------------------------|--------|--------------------------------------------------------------------------------------------|
|                             |   | (Registrant)                                                                               |
|                             |   |                                                                                       |
|                             |   |                                                                                       |
|  DATE: August 14, 2008 |   | /s/    DENNIS CONROY                                                             |
|                             |   |  Dennis  Conroy,*President and CEO  (Principal Executive Officer)*                    |
|                             |   |                                                                                       |
|                             |   |                                                                                       |
|  DATE: August 14, 2008 |   | /s/    BARBARA RODRIGUEZ                                                         |
|                             |   | Barbara  Rodriguez,*Chief Financial Officer  (Principal Financial and Accounting Officer)* |

 

31

----