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 THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2008**

 

**or**

** **

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom            to            **

 

**Commission File Number 0-7282**

 

**COMPUTER HORIZONS CORP.**

(Exactname 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’stelephone number, including area code **(973) 257-5030**

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.   Yes x     No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “ large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 126-2 of the Exchange Act.

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer o |   | Smaller Reporting Company x |
|--------------------------------|--------|--------------------------|--------|------------------------------|--------|----------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).   Yes x     No o

 

As of November 1,2008 the issuer had 33,837,284 shares of common stock outstanding.

 

 

 

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**COMPUTER HORIZONS CORP. AND SUBSIDIARIES**

 

**Index**

 
| Part I  Financial Information | 3                                                                                                                                                        |
|------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                                                     |   |
| Item 1                             | Financial Statements:                                                                                                                                    | 3 |
|                               |                                                                                                                                                     |   |
|                               | Consolidated Condensed Statement of Net  Assets in Liquidation as of September 30, 2008 (unaudited) and  December 31, 2007 (Liquidation Basis) | 3 |
|                               |                                                                                                                                                     |   |
|                               | Consolidated Condensed Statement of Changes  in Net Assets in Liquidation as of September 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                                                              | 14 |
|                               |                                                                                                                                                     |   |
| Item 3                             | Quantitative and Qualitative Disclosures  about Market Risk                                                                                              | 21 |
|                               |                                                                                                                                                     |   |
| Item 4                             | Controls and Procedures                                                                                                                                  | 22 |
|                               |                                                                                                                                                     |   |
| Part II  Other Information    | 23                                                                                                                                                       |
|                               |                                                                                                                                                     |   |
| Item 1                             | Legal Proceedings                                                                                                                                        | 23 |
|                               |                                                                                                                                                     |   |
| Item 1A                            | Risk Factors                                                                                                                                             | 25 |
|                               |                                                                                                                                                     |   |
| Item 6                             | Exhibits                                                                                                                                                 | 26 |
|                               |                                                                                                                                                     |   |
| Signatures                         |                                                                                                                                                     | 27 |
|                               |                                                                                                                                                     |   |
| EX-31.1                            |                                                                                                                                                     |   |
| EX-31.2                            |                                                                                                                                                     |   |
| EX-32.1                            |                                                                                                                                                     |   |
| EX-32.2                            |                                                                                                                                                     |   |

 

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**PART I. Financial Information**

 

**Item 1.**

 

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

**and December 31, 2007 (Liquidation Basis)**

**($ in thousands)**

 
| ** **                                                     | ** ** | **September 30,  2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                     | ** ** | **(Unaudited)**              | ** ** | **(Audited)***                  | ** ** |
| **ASSETS**                                                     |       |                         |       |                            |       |
| **CURRENT  ASSETS:**                                           |       |                         |       |                            |       |
| Cash and cash equivalents                                      |       | $                            | 14,971     |                            | $          | 25,182 |   |
| Refundable tax credit                                          |       | —                       |       | 9,627                           |       |
|                                                           |       |                         |       |                            |       |
| Due from Teksystems                                            |       | 481                          |       |                            |       |
| Federal tax receivable                                         |       | 508                          |       |                            |       |
| State tax receivable                                           |       | 909                          |       |                            |       |
|                                                           |       |                         |       |                            |       |
| Prepaid expenses and other                                     |       | 24                           |       | 24                              |       |
| **TOTAL  CURRENT ASSETS**                                      |       | 16,893                       |       | 34,833                          |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL  PROPERTY AND EQUIPMENT, NET**                         |       | 4                            |       | 4                               |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL ASSETS**                                               |       | $                            | 16,897     |                            | $          | 34,837 |   |
|                                                           |       |                         |       |                            |       |
| **LIABILITIES  AND SHAREHOLDERS EQUITY**                       |       |                         |       |                            |       |
| **CURRENT  LIABILITIES:**                                      |       |                         |       |                            |       |
| Accounts payable, accrued  payroll, payroll taxes and benefits |       | $                            | 23         |                            | $          | 142 |   |
|                                                           |       |                         |       |                            |       |
| Net working capital  adjustment                                |       | —                       |       | 1,904                           |       |
| Income taxes payable                                           |       | 1,859                        |       | 1,695                           |       |
| Other accrued expenses                                         |       | 1,925                        |       | 4,432                           |       |
| Deferred cash receipts                                         |       | —                       |       | 957                             |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL CURRENT  LIABILITIES**                                 |       | 3,807                        |       | 9,131                           |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL  LIABILITIES**                                         |       | $                            | 3,807      |                            | $          | 9,131 |   |
|                                                           |       |                         |       |                            |       |
| **NET ASSETS  IN LIQUIDATION**                                 |       | $                            | 13,090     |                            | $          | 25,706 |   |

 

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*                                         Derivedfrom audited information

 

Theaccompanying notes are an integral part of these statements.

 

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

** as of September 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**                             | ** ** | **$**      | **14,759** |   |
| ** **                                                                    | ** ** | ** ** | ** ** |
| Investment Income from  July 1 through September 30, 2008           |       | 66         | ** ** |
| Settlement of TEKSystems  litigation                                          |       | (2,660     | )          |
| Adjustment to Tax Accruals  for over/under accrual of federal and state taxes |       | 1,244      |       |
| Adjustment to Liquidation  Accruals                                           |       | (319       | )          |
| **Net Assets  in Liquidation September 30, 2008**                        | ** ** | **$**      | **13,090** |   |

 

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**Computer Horizons Corp and Subsidiaries**Consolidated Condensed Statement of Operations andComprehensive Income (Going Concern 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                                                                                        |       |
|                                                                          |            |                                                                                                   |            |  |  |

 

Theaccompanying notes are an integral part of these statements.

 

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**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: 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    |   |

 

Theaccompanying notes are an integral part of these statements.

 

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**COMPUTERHORIZONS CORP.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1. Basis ofPresentation**

 

At aSpecial Meeting held on February 14, 2007, the shareholders of ComputerHorizons Corp (“CHC” or the “Company”) approved the sales of the Company’sChimes, Inc. subsidiary to an affiliate of Axium International and theCompany’s Commercial Division to an affiliate of Allegis Group (the “AssetSales”). At the Special Meeting, the shareholders of the Company also approveda proposed plan of complete liquidation and dissolution of the Company. TheCompany began implementing the complete liquidation and dissolution of theCompany after both the Chimes and Commercial Asset Sales were completed on February 16,2007. On March 5, 2007, the Company announced that its Board of Directorsdeclared an initial liquidating distribution of $4.00 per share to its commonshareholders. This distribution was paid March 27, 2007 to shareholders ofrecord as of the close of business on March 16, 2007. This initialliquidating distribution was the first in what is expected to be a series ofliquidating distributions pursuant to the plan of complete liquidation anddissolution approved by the Company’s shareholders on February 14, 2007.On December 19, 2007, the Board of Directors announced a secondliquidating distribution of $.30 per share to its common shareholders. Thisdistribution was paid on February 11, 2008 to shareholders of record as ofthe close of business on January 15, 2008. The aggregate amount ofdistributions to our shareholders is now expected to be in the range of $4.63to $4.70 per share of Common Stock. The actual amount and timing of futureliquidating distributions cannot be predicted at this time and will depend upona variety of factors, including, but not limited to, the ultimate settlementamounts of the Company’s liabilities and obligations, and actual costs incurredin connection with carrying out the Company’s plan of complete liquidation anddissolution, including administrative costs during the liquidation 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        |   |
|                                               |            |                                |            |  |

 

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Data forthe statement of operations is not presented for 2008, because using theliquidation basis of accounting, net income/(loss) is no longer reported.

 

*AccruedCost of Liquidation*

 

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

 
| **($ in thousands)**               | ** ** | **As Booked  2/17/2007** | ** ** | **Recorded  prior to  2/17/2007*** | ** ** | **Adjustments  to reserves** | ** ** | **Activity  to date** | ** ** | **Balance at  9/30/2008** |   |
|-----------------------------------------|------------|-------------------------------|------------|------------------------------------|------------|------------------------------|------------|-----------------------|------------|--------------------------------|--------|
| Lease Obligation                        |       | $                             | 1,324      |                               |       |                         | 290        |                  | (1,569     | )                              | 45     |   |
| Legal Fees                              |       | 450                           |       |                               |       | 2,593                        |       | (1,882                | )          | 1,161                          |   |
| Professional Fees, including  insurance |       | 2,037                         |       |                               |       | 3,012                        |       | (4,609                | )          | 440                            |   |
| Human Resources                         |       | 3,480                         |       | 1,188                              |       | 1,763                        |       | (6,216                | )          | 215                            |   |
| Systems-related                         |       | 819                           |       |                               |       | (285                         | )          | (511                  | )          | 23                             |   |
| Misc.                                   |       | 900                           |       | 295                                |       | (310                         | )          | (844                  | )          | 41                             |   |
|                                    |       |                          |       |                               |       |                         |       |                  |       |                           |   |
| Total                                   |       | $                             | 9,010      |                               | 1,483      |                         | 7,063      | **                    | (15,631    | )**                            | 1,925  |   |

 

----

*                 Accrualscarry forward from operating period.

**          Adjustments to reservestotaled $7.1 million, and were primarily the result of revised estimatesrelating to the cost of professional services and human resource costs. (See “Saleof Commercial” and “Sale of Chimes” below, for a discussion of current legalproceedings.)  Activity to daterepresents actual costs incurred from February 17, 2007 to the presentperiod.

 

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

 

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

 

*Sale ofRGII*

 

OnSeptember 29, 2006, the Company sold its subsidiary, RGII Technologies, Inc.,to Netstar-1, Inc. for $15.3 million in cash less a net asset adjustment of$215 thousand.  In connection with thesale, CHC retained all cash and cash equivalents of RGII, in the amount of $6.3million.  The sale of RGII resulted in anet book loss on disposal of $4.8 million, including approximately $969thousand in transaction costs as reported September 30, 2006.

 

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*Sale ofCommercial*

 

OnFebruary 16, 2007, the Company sold to TEKsystems, Inc. (“TEKsystems”), anaffiliate of Allegis Group, Inc., all of the assets of its Commercial ServicesBusiness (as defined in the asset purchase agreement for the sale (the“Commercial Services APA”)), for a purchase price of $57 million in cashsubject to a potential post-closing working capital adjustment to be based onthe Final Net Working Capital of the Company as of the date of sale as finallydetermined (the “Commercial Services Asset Sale”).  Among the assets not included in theCommercial Services Asset Sale were refundable Province of Quebec tax credits(the “Quebec Tax Receivables”) for 2005 and 2006, owing to the Canadiansubsidiary of the Company the stock of which was included in the sale,estimated at approximately $9.6 million, and the unit’s operating cash as ofthe date of the sale.

 

Subsequentto closing of the Commercial Services Asset Sale, disputes arose between theCompany and TEKsystems over the amount of the Final Net Working Capital andrelated purchase price adjustment, and the actions of TEKsystems in failing toremit to the Company the full amount of the Quebec Tax Receivables that werereceived by the Canadian subsidiary and, instead, deducting Canadian taxesasserted to relate to receipt of the Quebec Tax Receivables and remitting onlythe balance.  TEKsystems also assertedclaims for indemnification against the Company under the Commercial ServicesAPA.  As previously reported anddescribed in more detail in Item 1 of Part II of this Quarterly Report on Form10-Q (Legal Proceedings), litigation commenced between the parties and wasstayed pending determination of the amount of Final Net Working Capital by anindependent accounting firm pursuant provisions of the Commercial Services APA.

 

*Dispositionof TEKsystems Matters*

 

By letter datedSeptember 30, 2008, the independent accounting firm (1) rendered its decisionon the disputed matters submitted to it as described above, determining thatthe amount of Final Net Working Capital is approximately $23,114,000 orapproximately $1,886,000 less than the targeted amount, and (2) also expressedits opinion that TEKsystems was entitled to deduct from the Quebec TaxReceivables for 2005 and 2006 received by it approximately $3,054,000 of whatthe independent accounting firm deemed to be Canadian taxes attributable to thereceipt of that refund by TEKsystems and that, after taking into account thededuction of those Canadian taxes and the amount of the Final Net WorkingCapital as determined by the independent accounting firm and the prior paymentsmade by TEKsystems to the Company, TEKsystems owed the Company a total ofapproximately $481,000.  TEKsystems paidthe approximately $481,000 to the Company on October 7, 2008.

 

Based onthe independent accounting firm’s determination and opinion and the payment byTEKsystems of the $481,000 referred to above, the Company and TEKsystems haveagreed in principle to settle the litigation referred to above for noadditional payment by either party to the other, the agreement by TEKsystems tobear the expense of certain charges by the independent accounting firm in theamount of approximately $10,000 and each party’s release of the other from anyand all liability, obligations and claims either party may have against theother (including the indemnification claims asserted by TEKsystems against theCompany) arising out of the Commercial Services APA.

 

As aresult of the settlement described above, in the third quarter of 2008, theCompany recorded the disposition of the refundable income tax credit, the deferredcash receipts, and the Net Working Capital adjustment.  The net result was a $2.7 million dollarreduction in Net Assets in Liquidation. Based on this reduction in Net Assets the aggregate amount ofdistributions to the Company’s shareholders is now expected to be in the rangeof $4.63 to $4.70 per share of Common Stock. As noted elsewhere in this Quarterly Report on Form 10-Q, the actualamount and timing of future liquidating distributions cannot be predicted atthis time and will depend upon a variety of factors, including, but not limitedto, the ultimate settlement amounts of the Company’s liabilities andobligations, and actual costs incurred in connection with carrying out theCompany’s plan of complete liquidation and dissolution, including administrativecosts during the liquidation period.

 

TheCompany recorded an estimated gain of $29.1 million as a result of the sale ofthe Commercial Services Business. The Commercial Services Asset Sale is ataxable transaction with respect to the Company to the extent of the gain thatwas realized.  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 Companyand/or its affiliates may be subject to state income taxes to the extent thatgains exceed losses for state tax law purposes, but the Company does notanticipate that such taxes, if any, will be significant.

 

*Sale ofChimes*

 

On February 16, 2007, the Company sold toDiversity MSP, Inc. (“Diversity”), an affiliate of Axium International, Inc.(“Axium”), substantially all of the assets of the Company’s subsidiary, Chimes,Inc., excluding cash and marketable securities, for a purchase price of $80million in cash (the “Chimes Asset Sale”). Subsequent to the sale, Diversityand Axium commenced litigation against the Company which was settled inDecember 2007, with the Company making a payment to Diversity of $175,000, theparties exchanging mutual releases and the lawsuit being discontinued withprejudice.   The foregoing litigation andsettlement are described in more detail in Item 1 of Part II of this QuarterlyReport on Form 10-Q (Legal Proceedings).

 

The Company realized a gain of $73.6 millionon the Chimes Asset Sale.  The ChimesAsset Sale is a taxable transaction with respect to the Company to the extentof the gain realized.  It is anticipatedthat the Company will have sufficient NOL carry-forwards to offset most of thegain realized from the Chimes Asset Sale for regular Federal income taxpurposes and otherwise incur approximately $1.3 million in alternative minimumtaxes.

 

The Company and/or its affiliates may be subjectto state income taxes to the extent that gains exceed losses for state tax lawpurposes, but does not anticipate that such taxes, if any, will besignificant.  Based upon currentprojections, such state taxes are estimated to be approximately $627 thousandafter taking into account the availability of state losses to offset the gain,and have been accrued.

 

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**2.Contingencies and Estimates**

 

TheCompany will continue to incur costs through the liquidation. Note 1 setsforth the current 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     |   |
|                                                                                                                                                                                              |            |                                |            |  |

 

Based on the independent accounting firm’sdetermination and opinion (described in Note 1 above) and the payment byTEKsystems of the $481,000 referred to above, the Company and TEKsystems haveagreed in principle to settle the litigation referred to above for noadditional payment by either party to the other, the agreement by TEKsystems tobear the expense of certain charges by the independent accounting firm in theamount of approximately $10,000 and each party’s release of the other from anyand all liability, obligations and claims either party may have against theother (including the indemnification claims asserted by TEKsystems against theCompany) arising out of the Commercial Services APA.

 

The details of the above are described morefully elsewhere in this Quarterly Report on Form 10-Q.

 

 

*LegalMatters*

 

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

 

In addition, the Company has been involved inlitigation with TEKsystems the disposition of which is described in Note 1above and 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 its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to its commonshareholders (and certain former option holders under the provisions of thesurrender plan described below). The initial liquidating distributionrepresented a partial distribution to shareholders of the proceeds received bythe Company from the sales of RGII, Chimes and the Commercial Services BusinessUnit. In determining the amount of the initial distribution, the Companyconsidered wind-down and transition expenses and the exposure for contingentclaims under the asset purchase agreements. The distribution was paid on March 27,2007 to shareholders of record as of the close of business on March 16,2007. The initial liquidating distribution was the first of what is expected tobe a series of liquidating distributions pursuant to the Plan of Liquidation.On December 19, 2007, the Board of Directors announced a secondliquidating distribution of $.30 per share, or $10.2 million, to its commonshareholders and certain former option holders under the provisions of thesurrender program described below. This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008.

 

Theaggregate amount of distributions to our shareholders is expected to be in therange of $4.63 to $4.70 per share of Common Stock. However, uncertainties as tothe ultimate amount of our liabilities make it impossible to predict withcertainty the actual aggregate net amounts that will ultimately be availablefor distribution to shareholders or the timing of any such distribution. Suchamount and timing will depend on a number of factors, several of which cannotbe determined at this time, including:

 

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

 

*Election toSurrender Options*

 

In orderto facilitate the participation in any liquidating distributions by the holdersof Company options, the board of directors granted to each option holder theright to surrender their options in exchange for the right to receive theamount(s) that such option holder would have been entitled to receive ineach distribution as if they held the number of shares of Common Stock issuableupon exercise of the surrendered options. The amount so distributed to eachoption holder will be reduced by the exercise price of his or her options,which will be applied to reduce the amounts that would otherwise be payable tothe option holder until the exercise price has 

 

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been applied in full. A total of1,162,820 options were surrendered under the plan. The average exercise pricefor such options was $2.97 per share. The initial distribution to holders ofsurrendered options was $394,569.   The second distribution toholders of surrendered options on February 11, 2008 was $250,846.

 

**4. Voluntarywithdrawal 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. RecentAccounting 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 does not change existing guidanceregarding whether or not an instrument is carried at fair value.  SFAS No. 157is effective for financial statements issued for fiscal years beginning after November 15,2007.  The Company does not expect a significant impact on ourconsolidated financial statements of adopting SFAS No. 157.

 

In February 2007,the FASB issued Statement No. 159, The Fair Value Option for FinancialAssets and Financial Liabilities (“FAS 159”). FAS 159 permits the measurementof many financial instruments and certain other items at fair value. Entitiesmay choose to measure eligible items at fair value at specified election dates,reporting unrealized gains and losses on such items at each subsequentreporting period. The objective of FAS 159 is to provide entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It is intended to expand the use of fair valuemeasurement. FAS 159 is effective for fiscal years beginning after November 15,2007. The Company does not expect a significant impact on our consolidatedfinancial statements of adopting SFAS No. 159.

 

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

 

*Accountingfor Stock-Based Compensation*

 

TheCompany accounts for Stock Based Compensation in accordance with FinancialAccounting Standards Board Statement No. 123 (revised 2004) (“FAS 123R”)—“Share-BasedPayments”.

 

No changesoccurred to the company’s outstanding stock options during the third quarter2008.

 

**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 

 

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under the provisions of thesurrender 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 secondliquidating distribution of $.30 per share to its common shareholders. Thisdistribution was paid on February 11, 2008 to shareholders of record as ofthe close of business on January 15, 2008.  The liquidatingdistributions represent partial distributions to shareholders of the proceedsreceived by the Company from the sale of its RGII Technologies subsidiary andsubstantially all of the non-cash assets of its Chimes, Inc. subsidiaryand its Commercial division.

 

**8.Asset-Based Lending Facility**

 

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

 

**9. IncomeTaxes**

 

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 third quarter 2008, the Company did notaccrue any additional tax liability due to the results from operations. However, the Company did record $508 thousand in federal tax receivables and$909 thousand for various state tax receivables for refunds due to the filingof its December 31, 2007 tax returns and the resulting accrual-to-returnadjustment.  The accrual-to-returnadjustment was primarily attributable to deductible transaction costs.  The liability recorded on the balance sheetas of the third quarter 2008 primarily reflects the Company’s FIN 48 reserveoffset by other tax amounts.

 

*DeferredTax Asset and Valuation Allowance*

 

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

 

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

 

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

 

TheCompany adopted FASB Interpretation 48, Accounting for Uncertainty in IncomeTaxes (“FIN 48”), at the beginning of fiscal year 2007. Including thecumulative effect for the adoption of FIN 48, at the beginning of 2007, theCompany had approximately $1.3 million of total gross unrecognized taxbenefits for federal and state purposes. The Income Taxes Payable balance at September30, 2008 primarily represents the total federal and state gross unrecognizedtax benefits of $1.3 million plus applicable interest and penalties of $500thousand.

 

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

 

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TheCompany’s continuing practice is to recognize interest and/or penalties relatedto income tax matters in income tax expense. The Company has accrued interestof approximately $90 thousand as of the third quarter 2008 for FIN48related items.

 

**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 Receivables”). 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 theCompany that Canada Sub had received a payment from Revenu Quebec with respectto the 2006 Quebec Tax Receivable of approximately Canadian $5.6 million(representing approximately C$5.6 million in tax credit and interest less adeduction for associated capital taxes of approximately C$55 thousand). Using the noon buying rate published by the Federal Reserve Bank of New York onApril 28, 2008 (1.0158 Canadian $ per U.S. $), the 2006 credit equates toapproximately US $5.5 million. See “Sale of Commercial” above and Item 1 ofPart II of this Quarterly Report on Form 10-Q (Legal Proceedings) for anadditional discussion of recent events surrounding the Quebec Tax Receivables.

 

 

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**Item 2.**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

**For the PeriodEnded September 30, 2008**

 

The following detailed discussionand analysis of the financial condition and results of operations of ComputerHorizons Corp. (the “Company”) should be read in conjunction with the financialstatements and related notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2007, and the financial statements andnotes included elsewhere in this Quarterly Report on Form 10-Q.

 

**FORWARD-LOOKING STATEMENTS**

 

This report contains forward-lookingstatements within the meaning of the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. In some cases, forward-lookingstatements can be identified by words such as “believe,” “expect,” “anticipate,”“plan,” “potential,” “continue” or similar expressions. Such forward-lookingstatements are subject to a number of risks and uncertainties, and there can beno assurance that the expectation reflected in those statements will berealized or achieved. Such risks and uncertainties include, without limitation,possible contingent liabilities and post-closing indemnification and otherobligations arising from the sale of the Company’s businesses; and risksassociated with the liquidation and dissolution of the Company, includingwithout limitation, settlement of the Company’s liabilities and obligations,costs incurred in connection with the carrying out of the plan of liquidationand dissolution, the amount of income earned on the Company’s cash and cashequivalents and short-term investments during the liquidation period, and theactual timing of liquidating distributions. All forward-looking statementsincluded in this report are based on information available to the Company onthe date hereof. The Company undertakes no obligation (and expressly disclaimsany such obligation) to update forward-looking statements made in this reportto reflect events or circumstances after the date of this report or to updatereasons why actual results would differ from those anticipated in suchforward-looking statements.

 

**Overview**

 

At a Special Meeting held on February 14,2007, the shareholders of the Company approved the sales of the Company’sChimes, Inc. subsidiary to an affiliate of Axium International and theCompany’s Commercial Division to Allegis Group (collectively, the “Asset Sales”).At the Special Meeting, the shareholders of the Company also approved aproposed plan of complete liquidation and dissolution of the Company (the “Planof Liquidation”). The Company began implementing the Plan of Liquidation afterthe Asset Sales were completed on February 16, 2007. Prior to the AssetSales, the Company provided information technology staffing and project-basedservices to private companies and the United States government.

 

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

 

As of September 30, 2008, theCompany had approximately $15.0 million in cash and cash equivalents and$13.0 million in working capital and no debt outstanding.

 

**Background of Liquidation**

 

*Sale of RGII*

 

On September 29, 2006, the Company sold its subsidiary, RGIITechnologies, Inc., to Netstar-1, Inc. for $15.3 million in cash lessa net asset adjustment of $215 thousand. In connection with the sale, CHC retained all cash and cash equivalentsof RGII, in the amount of $6.3 million. The sale of RGII resulted in a net book loss on disposal of $4.8million, including approximately $969 thousand in transaction costs as reportedSeptember 30, 2006.

 

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*Sale of Commercial*

* *

On February 16, 2007, the Company sold toTEKsystems, Inc. (“TEKsystems”), an affiliate of Allegis Group, Inc.,all of the assets of its Commercial Services Business (as defined in the assetpurchase agreement for the sale (the “Commercial Services APA”)), for apurchase price of $57 million in cash subject to a potential post-closingworking capital adjustment to be based on the Final Net Working Capital of theCompany as of the date of sale as finally determined (the “Commercial ServicesAsset Sale”).  Among the assets notincluded in the Commercial Services Asset Sale were refundable Province of Quebectax credits (the “Quebec Tax Receivables”) for 2005 and 2006, owing to theCanadian subsidiary of the Company the stock of which was included in the sale,estimated at approximately $9.6 million, and the unit’s operating cash as ofthe date of the sale.

 

Subsequent to closing of the Commercial Services AssetSale, disputes arose between the Company and TEKsystems over the amount of theFinal Net Working Capital and related purchase price adjustment, and theactions of TEKsystems in failing to remit to the Company the full amount of theQuebec Tax Receivables that were received by the Canadian subsidiary and,instead, deducting Canadian taxes asserted to relate to receipt of the QuebecTax Receivables and remitting only the balance. TEKsystems also asserted claims for indemnification against the Companyunder the Commercial Services APA.  Aspreviously reported and described in more detail in Item 1 of Part II ofthis Quarterly Report on Form 10-Q (Legal Proceedings), litigationcommenced between the parties and was stayed pending determination of theamount of Final Net Working Capital by an independent accounting firm pursuantprovisions of the Commercial Services APA.

 

*Disposition of TEKsystems Matters*

 

By letter dated September 30, 2008, the independentaccounting firm (1) rendered its decision on the disputed matterssubmitted to it as described above, determining that the amount of Final NetWorking Capital is approximately $23,114,000 or approximately $1,886,000 lessthan the targeted amount, and (2) also expressed its opinion thatTEKsystems was entitled to deduct from the Quebec Tax Receivables for 2005 and2006 received by it approximately $3,054,000 of what the independent accountingfirm deemed to be Canadian taxes attributable to the receipt of that refund byTEKsystems and that, after taking into account the deduction of those Canadiantaxes and the amount of the Final Net Working Capital as determined by theindependent accounting firm and the prior payments made by TEKsystems to theCompany, TEKsystems owed the Company a total of approximately $481,000.  TEKsystems paid the approximately $481,000 tothe Company on October 7, 2008.

 

Based on the independent accounting firm’sdetermination and opinion and the payment by TEKsystems of the $481,000referred to above, the Company and TEKsystems have agreed in principle tosettle the litigation referred to above for no additional payment by eitherparty to the other, the agreement by TEKsystems to bear the expense of certaincharges by the independent accounting firm in the amount of approximately$10,000 and each party’s release of the other from any and all liability,obligations and claims either party may have against the other (including theindemnification claims asserted by TEKsystems against the Company) arising outof the Commercial Services APA.

 

As a result of the settlement described above, in thethird quarter of 2008, the Company recorded the disposition of the refundableincome tax credit, the deferred cash receipts, and the Net Working Capitaladjustment.  The net result was a $2.7million dollar reduction in Net Assets in Liquidation.  Based on this reduction in Net Assets theaggregate amount of distributions to the Company’s shareholders is now expectedto be in the range of $4.63 to $4.70 per share of Common Stock.  As noted elsewhere in this Quarterly Reporton Form 10-Q, the actual amount and timing of future liquidatingdistributions cannot be predicted at this time and will depend upon a varietyof factors, including, but not limited to, the ultimate settlement amounts ofthe Company’s liabilities and obligations, and actual costs incurred inconnection with carrying out the Company’s plan of complete liquidation anddissolution, including administrative costs during the liquidation period.

 

The Company recorded an estimated gain of $29.1****million as a result of the sale of theCommercial Services Business.****TheCommercial Services Asset Sale is a taxable transaction with respect to theCompany to the extent of the gain that was realized. 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 Companyand/or its affiliates may be subject to state income taxes to the extent thatgains exceed losses for state tax law purposes, but the Company does notanticipate that such taxes, if any, will be significant.

 

*Sale of Chimes*

 

On February 16, 2007, the Company sold toDiversity MSP, Inc. (“Diversity”), an affiliate of Axium International, Inc.(“Axium”), substantially all of the assets of the Company’s subsidiary, Chimes, Inc.,excluding cash and marketable securities, for a purchase price of $80 millionin cash (the “Chimes Asset Sale”). Subsequent to the sale, Diversity and Axiumcommenced litigation against the Company which was settled in December 2007,with the Company making a payment to Diversity of $175,000, the partiesexchanging mutual releases and the lawsuit being discontinued withprejudice.   The foregoing litigation andsettlement are described in more detail in Item 1 of Part II of thisQuarterly Report on Form 10-Q (Legal Proceedings),

 

The Company realized a gain of $73.6 million on theChimes Asset Sale.  The Chimes Asset Saleis a taxable transaction with respect to the Company to the extent of the gainrealized.  It is anticipated****that the Company will have sufficient NOLcarry-forwards to offset most of the gain realized from the Chimes Asset Salefor regular Federal income tax purposes and otherwise incur approximately $1.3million in alternative minimum taxes.

 

The Company and/or its affiliates may be subject to state income taxesto the extent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant.  Based upon current projections, such statetaxes are estimated to be approximately $627 thousand after taking into accountthe availability of state losses to offset the gain, and have been accrued.

 

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***Liquidation Basis of Accounting***

 

The consolidated financialstatements for the period January 1, 2007 to February 16, 2007 wereprepared 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, theCompany adopted the liquidation basis of accounting effective February 17,2007.  This basis of accounting is considered appropriate when, amongother things, liquidation of a company is probable and the net realizablevalues of assets are reasonably determinable. Under this basis of accounting,assets are valued at their net realizable values and liabilities are stated attheir estimated settlement amounts. The conversion from the going concern toliquidation basis of accounting required management to make significantestimates and judgments to record assets at estimated net realizable value andliabilities at estimated settlement amounts.

 

***Critical Accounting Policies and Estimates***

 

Our discussion and analysis offinancial condition and results of operations are based upon our consolidatedfinancial statements, which have been prepared by the Company without audit inaccordance with the rules and regulations of the Securities and ExchangeCommission. The preparation of our financial statements requires us to makeestimates that affect the reported amounts of assets, liabilities, revenue andexpense, and related disclosure of contingent assets and liabilities.Accounting estimates are based on historical experience and other factors thatare believed to be reasonable under the circumstances. However, actual resultsmay vary from these estimates under different assumptions or conditions.

 

Pursuant to the Plan of Liquidation,since February 16, 2007, our operations have been limited to wind down ofour business and affairs, selling our remaining assets and discharging ourknown liabilities. We plan to distribute our remaining assets to ourstockholders, in accordance with the Plan of Liquidation.

 

***Accrued Costs of Liquidation***

 

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

 
| ** **                              | ** ** | ** **    | ** ** | **Recorded**   | ** ** | ** **      | ** ** | ** **   | ** ** | ** **     | ** ** |
|-----------------------------------------|------------|---------------|------------|----------------|------------|-----------------|------------|--------------|------------|----------------|------------|
| ** **                              | ** ** | **As Booked** | ** ** | **prior to**   | ** ** | **Adjustments** | ** ** | **Activity** | ** ** | **Balance at** | ** ** |
| **($ in thousands)**               | ** ** | **2/17/2007** | ** ** | **2/17/2007*** | ** ** | **to reserves** | ** ** | **to date**  | ** ** | **9/30/2008**  | ** ** |
| Lease Obligation                        |       | $             | 1,324      |           |       |            | 290        |         | (1,569     | )              | 45         |   |
| Legal Fees                              |       | 450           |       |           |       | 2,593           |       | (1,882       | )          | 1,161          |       |
| Professional  Fees, including insurance |       | 2,037         |       |           |       | 3,012           |       | (4,609       | )          | 440            |       |
| Human Resources                         |       | 3,480         |       | 1,188          |       | 1,763           |       | (6,216       | )          | 215            |       |
| Systems-related                         |       | 819           |       |           |       | (285            | )          | (511         | )          | 23             |       |
| Misc.                                   |       | 900           |       | 295            |       | (310            | )          | (844         | )          | 41             |       |
|                                    |       |          |       |           |       |            |       |         |       |           |       |
| Total                                   |       | $             | 9,010      |           | 1,483      |            | 7,063      | **           | (15,631    | )**            | 1,925      |   |

 

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*        Accrualscarry forward from operating period.

**      Adjustmentsto reserves totaled $7.1 million, and were primarily the result of revisedestimates relating to the cost of professional services and human resourcecosts. (See “Sale of Commercial” and “Sale of Chimes” above, for a discussionof current legal proceedings.)  Activityto date represents actual costs incurred from February 17, 2007 to thepresent period.

 

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The Company will continue to incuroperating costs and receive income on its investments throughout theliquidation period. On a regular basis, we evaluate our assumptions, judgmentsand estimates that can have a significant impact on our reported net assets inliquidation based on the most recent information available to us, and 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 furtherdistributions to its shareholders of its remaining cash, less any amountapplied to or reserved for actual or contingent liabilities (which will bedeposited in a liquidating trust). The amounts reserved will be based on adetermination by the board of directors, derived from consultation withmanagement and outside experts, if the board of directors determines that it isadvisable to retain such experts, and a review of, among other things, ourestimated contingent liabilities and our estimated ongoing expenses, including,but not limited to, payroll, legal expenses, regulatory filings and othermiscellaneous expenses. To the extent that assets deposited in the liquidatingtrust are not applied to or reserved for payment of the Company’s liabilities,these assets will be distributed to holders of beneficial interests in theliquidating trust at one or more later dates. Each shareholder will receive hisor her pro rata share of each distribution based on the number of shares heldat the time of the record date for such distribution.

 

**Recent Developments**

 

*Disposition of TEKsystems Matters*

 

As described above under “Sale of Commercial” and inItem 1 of Part II of this Quarterly Report on Form 10-Q (LegalProceedings), the Company and TEKsystems, Inc. have been involved inlitigation over the amount of a potential net working capital adjustment to thepurchase price of the assets sold to TEKsystems in the Commercial ServicesAsset Sale, and the actions of TEKsystems in failing to remit to the Companythe full amount of certain Quebec Tax Receivables received by it that wereexcluded from such sale and, instead, deducting Canadian taxes asserted torelate to the Quebec Tax Receivables and remitting only the balance to theCompany, and TEKsystems has asserted certain indemnification claims against theCompany.  The disputed matters related tothe Final Net Working Capital adjustment were submitted to an independentaccounting firm for determination in accordance with the asset purchaseagreement governing the sale (the “Commercial Services APA”).  By letter dated September 30, 2008, theindependent accounting firm (1) rendered its decision on the disputedmatters submitted to it as described above, determining that the amount ofFinal Net Working Capital is approximately $23,114,000 or approximately$1,886,000 less than the targeted amount, and (2) also expressed itsopinion that TEKsystems was entitled to deduct from the Quebec Tax Receivablesfor 2005 and 2006 received by it approximately $3,054,000 of what theindependent accounting firm deemed to be Canadian taxes attributable to thereceipt by TEKsystems of that refund and that, after taking into account thededuction of those Canadian taxes and the amount of the Final Net WorkingCapital as determined by the independent accounting firm and the prior paymentsmade by TEKsystems to the Company, TEKsystems owed the Company a total ofapproximately $481,000.  TEKsystems paidthe approximately $481,000 to the Company on October 7, 2008.

 

Based on the independent accounting firm’sdetermination and opinion and the payment by TEKsystems of the $481,000referred to above, the Company and TEKsystems have agreed in principle to settlethe litigation referred to above for no additional payment by either party tothe other, the agreement by TEKsystems to bear the expense of certain chargesby the independent accounting firm in the amount of approximately $10,000 andeach party’s release of the other from any and all liability, obligations andclaims either party may have against the other (including the indemnificationclaims asserted by TEKsystems against the Company) arising out of theCommercial Services APA.

 

As a result of the settlement described above, in thethird quarter of 2008, the Company recorded the disposition of the refundableincome tax credit, the deferred cash receipts, and the Net Working Capitaladjustment.  The net result was a $2.7million dollar reduction in Net Assets in Liquidation.  Based on this reduction in Net Assets, theaggregate amount of distributions to the Company’s shareholders is now expectedto be in the range of $4.63 to $4.70 per share of Common Stock.  As noted elsewhere in this Quarterly Reporton Form 10-Q, the actual amount and timing of future liquidatingdistributions cannot be predicted at this time and will depend upon a varietyof factors, including, but not limited to, the ultimate settlement amounts ofthe Company’s liabilities and obligations, and actual costs incurred inconnection with carrying out the Company’s plan of complete liquidation anddissolution, including administrative costs during the liquidation period.

 

*Company Plans to “Go Dark”*

 

The Company plans to ask its shareholders to approve a proposal toeffect a reverse stock split of the Company’s outstanding Common Stock which,if approved, would reduce the number of record holders of the Company’s CommonStock to a number that would enable the Company to remove its Common Stock fromregistration under the Securities Exchange Act of 1934 (the “ExchangeAct”).  If the reverse stock splitproposal is approved by its shareholders, the Company intends to terminate itsstatus as a reporting Company under the Exchange Act, thereby eliminating therequirement that the Company file periodic reports with the Securities andExchange Commission (the “SEC”) and eliminating the expenses of being areporting company.  On August 26,2008, the Company filed a preliminary proxy statement with the SEC with respectto its next annual meeting of shareholders setting forth this and relatedproposals.  Shareholders of the Companyare advised to read the Company’s preliminary proxy statement, including anyamendments thereto, and definitive proxy statement, when available, inconnection with the Company’s solicitation of proxies for the Company’s annualmeeting at which these proposals will be voted upon because the proxystatements will contain important information about the Company and theproposals.  The definitive proxystatement will be mailed to shareholders of record as of a record date to beestablished for voting at the annual meeting. Shareholders will also be able to obtain a copy of the proxy statementwithout charge, once available, at the SEC’s Internet site athttp://www.sec.gov or by directing a request to Computer Horizons Corp., 2001Route 46, Suite 310, Parsippany, New Jersey 07054, Attention: shareholderservices.

 

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In connection with the sale of theCommercial Services Business Unit, the allowance for doubtful accounts wasincreased by $1.3 million as of February 16, 2007. This recalculationwas done utilizing the formula prescribed in the Commercial Services AssetPurchase Agreement, and not as a result of any deterioration in the Commercialaccounts receivable.

 

**Valuation of Deferred Tax Assets**

 

The Company records deferred taxassets for the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and their respectivetax bases, and operating loss carryforwards. Deferred tax assets are reduced bya valuation allowance if, based on available evidence, it is more likely thannot that some portion or all of the deferred tax assets will not be realized.In assessing 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 Company has significant deferredtax assets resulting from net operating loss carryforwards, capital losscarryforwards, and deductible temporary differences that may reduce taxableincome in future periods. The Company has provided full valuation allowances onthe future tax benefits related to capital losses, foreign net operatinglosses, and all state net operating losses. The Company believes that thevaluation allowance is appropriate because these deferred tax assets haverelatively short carryforward periods or relate to taxing jurisdictions whichdo not allow the filing of consolidated tax returns. Also, as a result ofadopting liquidation accounting, the Company does not expect to utilize itsdeferred tax asset due to 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.

 

*Direct Costs andGross Margins.*    Direct costswere $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 andExpenses.*    Selling, general and administrativeexpenses were $10.8 million in the period from January 1, 2007 to February 16,2007. As a percentage of revenue, the Company’s SG&A expenses were 36.3% inthe period from January 1, 2007 to February 16, 2007.  Due tothe adoption of the liquidation basis of accounting effective February 17,2007, these numbers are no longer reported.

 

*Income / (Loss)from Continuing Operations.*    TheCompany’s net loss from continuing operations totaled $(4.2) million inthe 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.

 

*OtherIncome/(Expense).*    Other income(primarily net interest income) totaled approximately $880 thousand in theperiod 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.

 

*Gain on Sale ofCommercial Services Business Unit:*    Pursuantto 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 $57 million in cash subjectto a potential post-closing working capital adjustment, estimated at$(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 ofChimes:*    Pursuant to the Chimes AssetPurchase Agreement, on February 16, 2007, the Company sold to DiversityMSP substantially all of the assets of Chimes, excluding cash and marketablesecurities, for a purchase price of $80.0 million in cash, with an estimatedgain of $73.6 million.

 

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*Provision forIncome Taxes:*    Taxes havebeen provided as a result of the sale of the business operations.  TheCompany has accrued $627 thousand for state and local taxes and $1.3 millionfor federal alternative minimum taxes.

 

As mentioned, for the quarter ended March 31,2007, liquidation accounting was adopted and as the result of operationallosses, there is no provision from continuing operations. Taxes have beenprovided as a result of the sale of the business operations. The Company hasaccrued $627 thousand for state and local taxes and $1.3 million for federalalternative 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 wasreceived in the amount of $80 million for the sale of Chimes and$57 million for the sale of the Commercial Business Services Unit. 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 its commonshareholders (and certain former option holders under the provisions of thesurrender plan described above). The initial liquidating distributionrepresented a partial distribution to shareholders of the proceeds received bythe Company from the sales of RGII, Chimes and the Commercial Services BusinessUnit. In determining the amount of the initial distribution, the Companyconsidered wind-down and transition expenses and the exposure for contingentclaims under the asset purchase agreements. The distribution was paid on March 27,2007 to shareholders of record as of the close of business on March 16,2007. The initial liquidating distribution was the first of what is expected tobe a series of liquidating distributions pursuant to the Plan of Liquidation.On December 19, 2007, the Board of Directors announced a secondliquidating distribution of $.30 per share, or $10.2 million, to its commonshareholders and certain option holders under the provisions of the surrenderplan described above. This distribution was paid on February 11, 2008 toshareholders of record as of the close of business on January 15, 2008.

 

The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.63 to$4.70 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 cashremaining following completion of our liquidation and dissolution could varysignificantly from our current estimates.

 

As of September 30, 2008, theCompany had approximately $13.0 million in working capital, of which$15.0 million was cash and cash equivalents.

 

Net cash provided by operatingactivities for the period from January 1 through February 16, 2007was $98 million consisting primarily of net loss of $(3.2) millionoffset by the gain on sale of Chimes and the Commercial Services Business Unitof $102.6 million.

 

Net cash provided by investingactivities for the period from January 1 through February 16, 2007was $1.5 million, consisting primarily of the sale of fixed assets as apart of the sale of Chimes and the Commercial Services Business Unit.

 

Net cash provided by financingactivities for the period from January 1 through February 16, 2007was $.4 million, primarily consisting of shares issued pursuant to theemployee stock option plan and employee stock purchase plan.

 

**Recent Accounting Pronouncements**

 

In September 2006, theFinancial 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

 

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generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements required under other accounting pronouncements.  FAS 157 doesnot change existing guidance regarding whether or not an instrument is carriedat fair value.  SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007.  TheCompany does not expect a significant impact on our consolidated financialstatements of adopting SFAS No. 157.

 

In February 2007, the FASBissued Statement No. 159, The Fair Value Option for Financial Assets andFinancial Liabilities (“FAS 159”). FAS 159 permits the measurement of manyfinancial instruments and certain other items at fair value. Entities maychoose to measure eligible items at fair value at specified election dates,reporting unrealized gains and losses on such items at each subsequentreporting period. The objective of FAS 159 is to provide entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently without having to apply complexhedge accounting provisions. It is intended to expand the use of fair valuemeasurement. FAS 159 is effective for fiscal years beginning after November 15,2007. The Company does not expect a significant impact on our consolidatedfinancial statements of adopting SFAS No. 159.

 

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**Item3.    Quantitative and Qualitative Disclosures about MarketRisk**

 

The Company does not ordinarily holdmarket risk sensitive instruments for trading purposes. However, the Companydoes recognize market risk from interest rate changes. The Company hasfinancial instruments that are subject to interest rate risk. However, at September 30,2008, the Company was debt-free. Historically, the Company has not experiencedmaterial gains or losses due to interest rate changes. However, a reduction ininterest rates would reduce the interest income received by the Company on thecash and cash equivalents it holds.

 

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**Item4.   Controls and Procedures**

 

**Disclosure Controls and Procedures**

 

The Company’s CEO and CFO haveevaluated the effectiveness of the Company’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as amended, referred to herein as the “Exchange Act”) asof the end of the period covered by this report. Based upon such evaluation,the Company’s Chief Executive Officer and Chief Financial Officer haveconcluded that, as of the end of such period, the Company’s disclosure controlsand procedures are effective in recording, processing, summarizing andreporting, information required to be disclosed by the Company in the reportsthat it files or submits under the Exchange Act.

 

**Internal Controls over Financial Reporting**

 

There have not been any changes inthe Company’s internal controls over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15e under the Exchange Act) duringthe period to which this report relates that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting. A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Because of the inherent limitationsin all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within acompany have been detected.

 

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**PART II—OtherInformation**

 

**Item 1. LegalProceedings.**

 

The Company is, or was, a party to the followinglawsuits, 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 of theirofficers, alleging that the defendants engaged in fraudulent conduct, includingmaking representations allegedly known by them to be false, and activeconcealment and thereby induced the plaintiffs into entering into the contractwith the Company and Chimes whereby Diversity purchased substantially all ofthe 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, Districtof Maryland, Case No.: 1:07-CV- 02849 WMN)

 

This action relates to the Asset Purchase Agreemententered into as of November 7, 2006 by and among TEKsystems, Inc.(“TEKsystems”),Allegis Group, Inc., the Company (referred to therein as “Seller”), andothers (the “Commercial Services APA”) under which the Company agreed to selland TEKsystems agreed to purchase substantially all of the assets of thebusiness of the Company’s Commercial Services Business Unit. Included among theassets was all of the capital stock of the Company’s Canadian subsidiary,Computer Horizons (Canada) Corp. (“Canada Sub”). Specifically excluded from thesale of assets and retained by the Company was a refundable income tax creditpayable to Canada Sub by Revenu Quebec for the tax years 2005 and 2006 (the“Quebec Tax Receivables”). The closing of the sale of the assets under theCommercial Services APA occurred on February 16, 2007 (the “ClosingDate”). Under the Commercial Services APA, TEKsystems agreed to promptly remitto the Company all amounts collected by TEKsystems after the closing in paymentof the Quebec Tax Receivables.

 

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 capital taxesof approximately Canadian $114 thousand). Using the exchange rate between theCanadian and United States dollars as of the day before the date of the noticefrom TEKsystems 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 APA, and $114 thousand for capital taxes. The Company recorded the$958 thousand 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 TEKsystems, seeking damages for the failure of TEKsystems to remit thefull amount of the Quebec Tax Receivable for 2005 to the Company, and adeclaration that TEKsystems must remit to the Company the full amount of theQuebec Tax Receivable for 2006 to be received by Canada Sub from Revenu Quebecpromptly upon such receipt.

 

On April 28, 2008, TEKsystems notified theCompany that Canada Sub had 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 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.

 

The Commercial Services APA provides for a potentialpurchase price adjustment based on the Final Net Working Capital of thebusiness sold thereunder as of the Closing Date. There were disputes betweenthe Company and TEKsystems concerning certain items involved in thedetermination of Final Net Working Capital (and any purchase price adjustment).Under the Commercial Services APA, all such disputed items were to bedetermined by an independent accounting firm. The Company and TEKsystemssubmitted the disputed items to such independent accounting firm fordetermination, but TEKsystems failed to cooperate with the independentaccounting firm and prevented it from determining the disputed items incalculating Final Net Working Capital. Accordingly, the Company filed anamended complaint on December 29, 2007 in this action, adding a thirdclaim, i.e., for judgment ordering TEKsystems 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, TEKsystemsdenied any liability under the three claims in the Company’s amended complaintand alleged four counterclaims against the Company for its purported breachesof warranties and representations in the Commercial Services APA, including twocounterclaims demanding a declaration that the Company must indemnifyTEKsystems for legal fees and any judgment against TEKsystems should it be suedas a successor to the Company by plaintiffs that have brought actions againstthe Company, a counterclaim for a declaration that the Company must indemnifyTEKsystems in the event it is held to owe any taxes by reason of a notice sentby an employee of the Company to taxing authorities, and a counterclaim for thepurported legal fees incurred by TEKsystems and the amount by which itallegedly reduced a receivable in settling a dispute with the Iowa HealthSystems, Inc. (“IHS”) over the receivable that IHS owed.  The counterclaims sought to have the courtimpose a constructive trust over the Company’s assets to remedy the allegedbreaches of the Commercial Services APA by the Company. By reply filed February 27,2008, the Company denied the substantive allegations contained in thecounterclaims.

 

On February 27, 2008, the Company served a motionin this action to compel TEKsystems to arbitrate the disputed matters in thecalculation of Final Net Working Capital before the independent accounting firmand to compel TEKsystems 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,“pending the issuance of a written determination of Net Working Capital” by theindependent accounting firm.

 

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See below for a description of the disposition of thismatter.

 

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 sought 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.

 

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 TEKsystems and the Company beforethe independent accounting firm. This motion was in substance granted by theorder entered April 24, 2008, mentioned above, in which the court stayedthe consolidated action (i.e., the action brought by Canada Sub against theCompany in the United States District Court for the District of Maryland),“pending the issuance of a written determination of Net Working Capital” by theindependent accounting 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.

 

*Disposition of TEKsystems Matters.*

* *

By letter dated September 30, 2008, theindependent accounting firm (1) rendered its decision on the disputedmatters submitted to it as described above, determining that the amount ofFinal Net Working Capital is approximately $23,114,000 or approximately$1,886,000 less than the targeted amount, and (2) also expressed itsopinion that TEKsystems was entitled to deduct from the Quebec Tax Receivablesfor 2005 and 2006 received by it approximately $3,054,000 of what theindependent accounting firm deemed to be Canadian taxes attributable to thereceipt by TEKsystems of that refund and that, after taking into account thededuction of those Canadian taxes and the amount of the Final Net WorkingCapital as determined by the independent accounting firm and the prior paymentsmade by TEKsystems to the Company, TEKsystems owed the Company a total ofapproximately $481,000.  TEKsystems paidthe approximately $481,000 to the Company on October 7, 2008.

 

Based on the independent accounting firm’s determination and opinionand the payment by TEKsystems of the $481,000 referred to above, the Companyand TEKsystems have agreed in principle to settle the litigation referred toabove for no additional payment by either party to the other, the agreement byTEKsystems to bear the expense of certain charges by the independent accountingfirm in the amount of approximately $10,000 and each party’s release of theother from any and all liability, obligations and claims either party may haveagainst the other (including the indemnification claims asserted by TEKsystemsagainst the Company) arising out of the Commercial Services APA.

 

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**Item1a.   Risk Factors**

 

*Forward looking statements are subject to variousuncertainties.*

 

Statements made in this Reportregarding the payment of additional liquidating distributions areforward-looking statements. Such forward- looking statements are subject to anumber of risks and uncertainties, and there can be no assurance that theexpectations reflected in those statements will be realized or achieved. Suchrisks and uncertainties include, without limitation, possible contingentliabilities and post-closing indemnification and other obligations arising fromthe sale of the Company’s businesses; and risks associated with the liquidationand dissolution of the Company, including, without limitation, settlement ofthe Company’s liabilities and obligations, costs incurred in connection withthe carrying out of the plan of liquidation and dissolution, the amount ofincome earned on the Company’s cash and cash equivalents and short-terminvestments during the liquidation period, and the actual timing of liquidatingdistributions.

 

*The Company’s Board of Directors will need to make provisionfor the satisfaction of all of the Company’s known and unknown liabilities,which could substantially delay or limit the Company’s ability to makedistribution in full to shareholders.*

 

The Company’s Board of Directorswill be required to make adequate provision to satisfy the Company’sliabilities, including known and unknown claims against the Company, beforeauthorizing any further distribution to shareholders. The process of accountingfor the Company’s liabilities, including those that are presently unknown, mayinvolve difficult valuation decisions, which could adversely impact the Company’sability to make distribution in full in a timely manner. Substantial time maybe required for the Company to determine the extent of its liabilities to knownthird party creditors and claimants and for the Company to settle or judiciallyresolve any claims that are contested. Furthermore, pursuant to the New YorkBusiness Corporation Law, the Company may be subject to claims being commencedagainst it for liabilities unknown to it for a period of time afterdissolution. Assuming the Company has sufficient remaining cash, a period oftime must elapse after dissolution before the Company would be able to make anydistribution in full to shareholders of its assets remaining after satisfyingor providing for all its liabilities and obligations, and such distribution maylikely be made in more than one installment over an extended period of time.

 

*If the Company’s contingent reserves are insufficient tosatisfy its liabilities, creditors could assert claims against the Companyseeking to prevent distributions or against the Company’s shareholders to theextent of distributions received.*

 

If a court holds at any time thatthe Company has failed to make adequate provision for its expenses andliabilities or if the amount ultimately required to be paid in respect of suchliabilities exceeds the amount available from the contingency reserve, theCompany’s creditors could seek an injunction against the making ofdistributions on the grounds that the amounts to be distributed are needed toprovide for the payment of the Company’s expenses and liabilities. Any suchaction could delay or substantially diminish the amount of any cash distributionsto shareholders.

 

If the Company fails to create anadequate contingency reserve for payment of its expenses and liabilities,creditors could assert claims against each shareholder receiving a distributionfor the payment of any shortfall, up to the amounts previously received by theshareholder in distributions from the Company.

 

*The Companyplans to terminate its obligation to file periodic reports with the SEC.*

 

The Company plans to ask its shareholders to approve a proposal toeffect a reverse stock split of the Company’s outstanding Common Stock which,if approved, would reduce the number of record holders of the Company’s CommonStock to a number that would enable the Company to remove its Common Stock fromregistration under the Exchange Act. If the reverse stock split proposal isapproved by its shareholders, the Company intends to terminate its status as areporting Company under the Exchange Act, thereby eliminating the requirementthat the Company file periodic reports with the SEC.

 

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**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. |

 

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* Filed herewith.

 

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**Signatures**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                    | COMPUTER HORIZONS CORP.                                                                        |
|-------------------------|------------------------------------------------------------------------------------------------|
|                    |                                                                                           | (Registrant) |
|                    |                                                                                           |
|                    |                                                                                           |
| DATE: November 13, 2008 | /s/   DENNIS CONROY                                                                  |
|                    | Dennis Conroy,

*President and CEO*

*(Principal Executive Officer)*                           |
|                    |                                                                                           |
|                    |                                                                                           |
| DATE: November 13, 2008 | /s/   BARBARA RODRIGUEZ                                                              |
|                    | Barbara Rodriguez,

*Chief Financial Officer*

*(Principal Financial and Accounting  Officer)* |

 

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