**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**Quarterly Report Under Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

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| **For  Quarter Ended September 30, 2002** |   | **Commission  File Number 0-7282** |
|-------------------------------------------|--------|------------------------------------|

 

**COMPUTER HORIZONS CORP.**

(Exact name of registrantas specified in its charter)

 

| **New  York**                                                                       |   | **13-2638902**                           |
|-------------------------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer  Identification Number) |
|                                                                                |   |                                     |
| **49 Old  Bloomfield Avenue, Mountain Lakes, New Jersey**                           |   | **07046-1495**                           |
| (Address of principal  executive offices)                                           |   | (Zip code)                               |
|                                                                                |   |                                     |
| Registrant’s telephone  number, including area code **(973) 299-4000**         |
|                                                                                |   |                                     |
| **Not  Applicable**                                                                 |
| (Former name, former  address and former fiscal year, if changed since last report) |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be 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 to suchfiling requirements for the past 90 days.

 
|   | ý |   |   |
|--------|--------|--------|--------|
|   | Yes    |   | No     |

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 
|   | ý |   |   |
|--------|--------|--------|--------|
|   | Yes    |   | No     |

 

As of November 8, 2002 the issuer had 30,933,633 shares of common stockoutstanding.

 

 

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**COMPUTER HORIZONS CORP. AND SUBSIDIARIES**

 

Index

 

 
| Part I     Financial Information |                                                                                                                       |
|-------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                                       |   |
| Item 1                                          | Consolidated Financial Statements                                                                                          |   |
|                                            |                                                                                                                       |   |
|                                            | Consolidated Balance Sheets  September 30, 2002 (unaudited) and December 31, 2001                                          |   |
|                                            | 3                                                                                                                          |
|                                            |                                                                                                                       |   |
|                                            | Consolidated  Statements of Operations  Three and Nine Months Ended September 30, 2002 and September 30, 2001  (unaudited) | 4 |
|                                            |                                                                                                                       |   |
|                                            | Consolidated  Statements of Cash Flows  Nine Months Ended September 30, 2002 and September 30, 2001 (unaudited)            | 5 |
|                                            |                                                                                                                       |   |
|                                            | Notes to  Consolidated Financial Statements                                                                                | 6 |
|                                            |                                                                                                                       |   |
| Item 2                                          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                | 16 |
|                                            |                                                                                                                       |   |
| Item 4                                          | Controls and Procedures                                                                                                    | 22 |
|                                            |                                                                                                                       |   |
| Part II                                         | Other Information                                                                                                          | 23 |
|                                            |                                                                                                                       |   |
| Item  1                                         | Legal Proceedings                                                                                                          | 23 |
|                                            |                                                                                                                       |   |
| Item 6                                          | Exhibits and  Reports on Form 8-K                                                                                          | 23 |
|                                            |                                                                                                                       |   |
|                                            | Signatures                                                                                                                 | 23 |
|                                            |                                                                                                                       |   |
|                                            | Certifications                                                                                                             | 24 |

 

2

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 
|                                                                                                                                        |   | **September 30,  2002** |    | **December 31,  2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|------------------------|--------|
|                                                                                                                                        |   | **(unaudited)**         |    |                   |   |
| ASSETS                                                                                                                                      |   |                    |    |                   |   |
| CURRENT ASSETS:                                                                                                                             |   |                    |    |                   |   |
| Cash and cash equivalents                                                                                                                   |   | $                       | 62,047  |                   | $      | 41,033 |   |
| Accounts receivable, net of allowance for doubtful accounts of $8,242  and $7,542 at September 30, 2002 and December 31, 2001, respectively |   | 64,329                  |    | 83,564                 |   |
| Net assets held for sale                                                                                                                    |   | —                  |    | 10,381                 |   |
| Deferred income tax benefit                                                                                                                 |   | 9,506                   |    | 13,030                 |   |
| Refundable income taxes (Note 12)                                                                                                           |   | 19,231                  |    | 7,992                  |   |
| Other                                                                                                                                       |   | 7,060                   |    | 5,238                  |   |
| TOTAL CURRENT ASSETS                                                                                                                        |   | 162,173                 |    | 161,238                |   |
|                                                                                                                                        |   |                    |    |                   |   |
| PROPERTY AND EQUIPMENT                                                                                                                      |   | 36,872                  |    | 34,354                 |   |
| Less accumulated depreciation                                                                                                               |   | (25,423                 | )       | (21,881                | )      |
|                                                                                                                                        |   | 11,449                  |    | 12,473                 |   |
|                                                                                                                                        |   |                    |    |                   |   |
| OTHER ASSETS - NET:                                                                                                                         |   |                    |    |                   |   |
| Goodwill                                                                                                                                    |   | 18,864                  |    | 48,725                 |   |
| Deferred income tax benefit                                                                                                                 |   | 6,079                   |    | 5,708                  |   |
| Other                                                                                                                                       |   | 8,184                   |    | 9,577                  |   |
| TOTAL OTHER ASSETS                                                                                                                          |   | 33,127                  |    | 64,010                 |   |
|                                                                                                                                        |   |                    |    |                   |   |
| TOTAL ASSETS                                                                                                                                |   | $                       | 206,749 |                   | $      | 237,721 |   |
|                                                                                                                                        |   |                    |    |                   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                   |   |                    |    |                   |   |
| CURRENT LIABILITIES:                                                                                                                        |   |                    |    |                   |   |
| Notes payable, current                                                                                                                      |   | $                       | —  |                   | $      | 10,000 |   |
| Accrued payroll, payroll taxes and benefits                                                                                                 |   | 10,661                  |    | 12,782                 |   |
| Accounts payable                                                                                                                            |   | 14,337                  |    | 15,196                 |   |
| Restructuring reserve (Note 6)                                                                                                              |   | 1,359                   |    | 2,090                  |   |
| Tax benefit reserve (Note 12)                                                                                                               |   | 19,600                  |    | —                 |   |
| Other accrued expenses                                                                                                                      |   | 5,641                   |    | 5,423                  |   |
| TOTAL CURRENT LIABILITIES                                                                                                                   |   | 51,598                  |    | 45,491                 |   |
|                                                                                                                                        |   |                    |    |                   |   |
| OTHER LIABILITIES                                                                                                                           |   | 1,600                   |    | 2,375                  |   |
|                                                                                                                                        |   |                    |    |                   |   |
| SHAREHOLDERS’ EQUITY:                                                                                                                  |   |                    |    |                   |   |
| Preferred stock, $.10 par; authorized and unissued 200,000 shares,  including 50,000 Series A                                               |   |                    |    |                   |   |
| Common stock, $.10 par, authorized 100,000,000 shares; issued  33,153,107 shares at September 30, 2002 and December 31, 2001 respectively   |   | 3,315                   |    | 3,315                  |   |
| Additional paid-in capital                                                                                                                  |   | 133,740                 |    | 135,230                |   |
| Accumulated comprehensive loss                                                                                                              |   | (3,302                  | )       | (2,932                 | )      |
| Retained earnings                                                                                                                           |   | 33,323                  |    | 66,291                 |   |
|                                                                                                                                        |   | 167,076                 |    | 201,904                |   |
| Less shares held in treasury, at cost; 2,174,141 shares and 1,720,191  shares at September 30, 2002 and December 31, 2001, respectively     |   | (13,525                 | )       | (12,049                | )      |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                                             |   | 153,551                 |    | 189,855                |   |
|                                                                                                                                        |   |                    |    |                   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                             |   | $                       | 206,749 |                   | $      | 237,721 |   |

 

3

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COMPUTER HORIZONS CORP.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(dollars in thousands,except per share data)

 
|                                                            |   | **THREE  MONTHS ENDED** |   | **NINE  MONTHS ENDED**  |   |
|-----------------------------------------------------------------|--------|-------------------------|--------|-------------------------|--------|
|                                                            |   | **September  30, 2002** |   | **September  30, 2001** |   | **September  30, 2002** |   | **September  30, 2001** |   |
|                                                            |   |                    |   | **%****of  revenue**    |   |   |   | **%****of  revenue** |   |   |   | **%****of  revenue** |   |   |   | **%****of  revenue** |   |
| REVENUES:                                                       |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| IT Services                                                     |   | $                       | 49,127 |                    | 66.8   | % | $ | 65,242 |   | 69.3 | % | $ | 157,800 |   | 68.6 | % | $ | 212,659 |   | 69.6 | % |
| Solutions Group                                                 |   | 24,447                  |   | 33.2                    | %      | 28,970 |   | 30.7 | % | 72,311 |   | 31.4 | % | 93,029 |   | 30.4 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   | 73,574                  |   | 100.0                   | %      | 94,212 |   | 100.0 | % | 230,111 |   | 100.0 | % | 305,688 |   | 100.0 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES:                                             |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct costs                                                    |   | 52,865                  |   | 71.9                    | %      | 67,672 |   | 71.8 | % | 167,627 |   | 72.8 | % | 215,515 |   | 70.5 | % |
| Selling, general and administrative                             |   | 22,347                  |   | 30.4                    | %      | 30,404 |   | 32.3 | % | 71,258 |   | 31.0 | % | 97,626 |   | 31.9 | % |
| Restructuring charge                                            |   | —                  |   | 0.0                     | %      | — |   | 0.0 | % | — |   | 0.0 | % | 5,473 |   | 1.8 | % |
| Amortization of intangibles                                     |   | —                  |   | 0.0                     | %      | 650 |   | 0.7 | % | — |   | 0.0 | % | 2,080 |   | 0.7 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   | 75,212                  |   | 102.3                   | %      | 98,726 |   | 104.8 | % | 238,885 |   | 103.8 | % | 320,694 |   | 104.9 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                            |   | (1,638                  | )      | -2.3                    | %      | (4,514 | ) | -4.8 | % | (8,774 | ) | -3.8 | % | (15,006 | ) | -4.9 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME / (EXPENSE):                                       |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) / Gain on sale of assets                                 |   | —                  |   | 0.0                     | %      | (2,833 | ) | -3.0 | % | 3,570 |   | 1.6 | % | (2,395 | ) | -0.8 | % |
| Loss on investments                                             |   | —                  |   | 0.0                     | %      | — |   | 0.0 | % | (61 | ) | 0.0 | % | — |   | 0.0 | % |
| Interest income                                                 |   | 252                     |   | 0.3                     | %      | 537 |   | 0.6 | % | 725 |   | 0.3 | % | 1,761 |   | 0.6 | % |
| Interest expense                                                |   | (5                      | )      | 0.0                     | %      | (494 | ) | -0.5 | % | (168 | ) | -0.1 | % | (1,637 | ) | -0.5 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   | 247                     |   | 0.3                     | %      | (2,790 | ) | -2.9 | % | 4,066 |   | 1.8 | % | (2,271 | ) | -0.7 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE INCOME TAXES                                        |   | (1,391                  | )      | -2.0                    | %      | (7,304 | ) | -7.7 | % | (4,708 | ) | -2.0 | % | (17,277 | ) | -5.6 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME (BENEFIT) / TAXES:                                       |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                         |   | —                  |   | 0.0                     | %      | (2,483 | ) | -2.6 | % | — |   | 0.0 | % | (7,074 | ) | -2.3 | % |
| Deferred                                                        |   | (473                    | )      | -0.6                    | %      | — |   | 0.0 | % | (1,601 | ) | -0.7 | % | 1,200 |   | 0.4 | % |
|                                                            |   | (473                    | )      | -0.6                    | %      | (2,483 | ) | -2.6 | % | (1,601 | ) | -0.7 | % | (5,874 | ) | -1.9 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |   | (918                    | )      | -1.4                    | %      | (4,821 | ) | -5.1 | % | (3,107 | ) | -1.3 | % | (11,403 | ) | -3.7 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative effect of Change (Note 3)                            |   | —                  |   | 0.0                     | %      | — |   | 0.0 | % | (29,861 | ) | -13.0 | % | — |   | 0.0 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                        |   | $                       | (918   | )                       | -1.4   | % | $ | (4,821 | ) | -5.1 | % | $ | (32,968 | ) | -14.3 | % | $ | (11,403 | ) | -3.7 | % |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS PER SHARE (BASIC & DILUTED):                           |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Before Cumulative Effect of Change in Accounting Principle      |   | $                       | (0.03  | )                       |   |   | $ | (0.15 | ) |   |   | $ | (0.10 | ) |   |   | $ | (0.36 | ) |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative Effect of Change in Accounting Principle             |   | $                       | — |                    |   |   | $ | — |   |   |   | $ | (0.95 | ) |   |   | $ | — |   |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                        |   | $                       | (0.03  | )                       |   |   | $ | (0.15 | ) |   |   | $ | (1.05 | ) |   |   | $ | (0.36 | ) |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:                  |   |                    |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic & Diluted                                             |   | 31,218,000              |   |                    |   | 31,964,000 |   |   |   | 31,388,000 |   |   |   | 31,953,000 |   |   |   |
|                                                                 |        |                         |        |                         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

4

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)

 
|                                                                                                   |   | **Nine  Months Ended**   |    |
|--------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                                                   |   | **September  30,  2002** |    | **September  30,  2001** |   |
|                                                                                                   |   |                     |    |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                                  |   |                     |    |   |   |
| Net loss                                                                                               |   | $                        | (32,968 | ) | $ | (11,403 | ) |
| Adjustments to  reconcile net income/(loss) to net cash provided by / (used in) operating  activities: |   |                     |    |   |   |
| Deferred taxes                                                                                         |   | 3,153                    |    | (925 | ) |
| Depreciation                                                                                           |   | 3,479                    |    | 4,003 |   |
| Amortization of  intangibles                                                                           |   | —                   |    | 2,097 |   |
| Provision for  bad debts                                                                               |   | 2,050                    |    | 1,453 |   |
| Write-down of  assets held for sale                                                                    |   | —                   |    | 5,473 |   |
| Loss / (Gain) on  sale of assets                                                                       |   | (3,570                   | )       | 2,395 |   |
| Write off of  goodwill                                                                                 |   | 29,861                   |    | — |   |
| Change in assets  and liabilities, net of acquisitions                                                 |   |                     |    |   |   |
| Accounts  receivable                                                                                   |   | 17,185                   |    | 2,438 |   |
| Other current  assets                                                                                  |   | (1,822                   | )       | (4,340 | ) |
| Assets held for  sale                                                                                  |   | (1,929                   | )       | (1,317 | ) |
| Other assets                                                                                           |   | 1,393                    |    | 21 |   |
| Refundable  income taxes                                                                               |   | 8,361                    |    | 19,829 |   |
| Accrued payroll,  payroll taxes and benefits                                                           |   | (2,121                   | )       | 3,782 |   |
| Accounts payable                                                                                       |   | (859                     | )       | 6,607 |   |
| Other accrued  expenses                                                                                |   | (513                     | )       | (197 | ) |
| Other  liabilities                                                                                     |   | (775                     | )       | 109 |   |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                             |   | 20,925                   |    | 30,025 |   |
|                                                                                                   |   |                     |    |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                                  |   |                     |    |   |   |
| Purchases of  furniture and equipment                                                                  |   | (2,455                   | )       | (4,160 | ) |
| Proceeds  received from the sale of assets                                                             |   | 15,880                   |    | 10,027 |   |
| Changes in  goodwill                                                                                   |   | —                   |    | (173 | ) |
| NET CASH  PROVIDED BY INVESTING ACTIVITIES                                                             |   | 13,425                   |    | 5,694 |   |
|                                                                                                   |   |                     |    |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                                  |   |                     |    |   |   |
| Notes payable -  bank, net                                                                             |   | (10,000                  | )       | (6,607 | ) |
| Stock options  exercised                                                                               |   | 443                      |    | 303 |   |
| Purchase of  treasury shares                                                                           |   | (4,357                   | )       | (1,842 | ) |
| Stock issued on  employee stock purchase plan                                                          |   | 948                      |    | 1,445 |   |
| Net cash used in  financing activities                                                                 |   | (12,966                  | )       | (6,701 | ) |
|                                                                                                   |   |                     |    |   |   |
| Foreign currency  losses                                                                               |   | (370                     | )       | (2,051 | ) |
|                                                                                                   |   |                     |    |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                             |   | 21,014                   |    | 26,967 |   |
|                                                                                                   |   |                     |    |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                                        |   | 41,033                   |    | 17,559 |   |
|                                                                                                   |   |                     |    |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                            |   | $                        | 62,047  |   | $ | 44,526 |   |

 

5

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**COMPUTER HORIZONS CORP. AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**1.****              Basisof Presentation**

 

The consolidated balance sheets as of September 30, 2002, theconsolidated statements of operations for the three and nine months endedSeptember 30, 2002 and September 30, 2001, respectively, and the statement ofcash flows for the nine months ended September 30, 2002 and 2001 have beenprepared by the Company without audit. In the opinion of management, all adjustments (which include normalrecurring adjustments) necessary to present fairly the financial position,results of operations and cash flows at September 30, 2002 (and for all periodspresented) have been made.

 

Certain information and note disclosures, normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America, which are not required forinterim purpose, have been condensed or omitted.  It is suggested that these consolidated financial statements beread in conjunction with the financial statements and notes thereto included inthe Annual Report on Form 10-K for the year ended December 31, 2001 filed bythe Company.  The results of operationsfor the periods ended September 30, 2002 and 2001 are not necessarilyindicative of the operating results for the respective full years.

 

**2.****              RecentAccounting Pronouncements**

 

In June 2001, the Financial Accounting Standards Board approved theissuance of SFAS No. 141, “Business Combinations” and in July 2001, SFAS 142,“Goodwill and Other Intangible Assets.” The new standards require that all business combinations initiated afterJune 30, 2001 must be accounted for under the purchase method.  In addition, all intangible assets acquiredthat are obtained through contractual or legal right, or are capable of beingseparately sold, transferred, licensed, rented or exchanged shall be recognizedas an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subjectto amortization, but will be subject to at least an annual assessment forimpairment by applying a fair value based test.  The Company adopted SFAS 142 as of January 1, 2002 and incompliance with this new regulation has discontinued the amortization ofgoodwill.  For the effect of thisstatement on the Company see Note 3.

 

Effective on January 1, 2002, the Company adopted Financial AccountingStandard No. 144 “Accounting for the Impairment or Disposal of Long LivedAssets,” (“SFAS 144”).  This supercedesSFAS 121, while retaining many of the requirements of such statement. Theeffect of this statement is immaterial to the Company.

 

6

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**Recent Accounting Pronouncements(continued)**

 

In June 2002, the Financial Accounting Standards Board approved theissuance of SFAS No. 146, “Accounting for Exit or Disposal Activities,” (“SFAS146”), which supersedes Emerging Issues Task Force Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  The new standards require that a liabilityfor a cost associated with an exit or disposal activity, including costsrelated to terminating a contract that is not a capital lease and thetermination benefits that employees who are involuntarily terminated receiveunder the terms of a one-time benefit arrangement that is not ongoing or anindividual deferred-compensation contract, be recognized when the liability isincurred.  Previously, under Issue No.94-3, a liability for an exit cost was recognized at the date of an entity’scommitment to an exit plan, which may not necessarily meet the definition of aliability.  SFAS 146 is effective forexit or disposal activities of the Company that are initiated after December31, 2002.  The Company is currentlyevaluating the impact of this statement to the Company.

 

**3.****              Adoption of FAS 142**

 

During the quarter ended June 30, 2002, the Company completed theinitial valuation of the carrying value of goodwill existing at January 1,2002.  As a result, a non-cash charge of$29.9 million, or $(0.95) per share was retroactively recorded as thecumulative effect of an accounting change in the six months ended June 30, 2002statement of operations.  The changes inthe carrying amount of goodwill for the nine months ended September 30, 2002,are as follows:

 
| **Reporting  Units**              |   | **Solutions**       |   | **IT  Services** |   | **Education** |   | **Chimes** |   | **Consolidated** |   |
|-----------------------------------|--------|---------------------|--------|------------------|--------|---------------|--------|------------|--------|------------------|--------|
|                              |   | **(in 000’s)** |   |
| Balance as of  December 31, 2001  |   | 18,864              |   | 29,422           |   | 439           |   | —     |   | 48,725           |   |
| Impairment  Losses                |   | —              |   | (29,422          | )      | (439          | )      | —     |   | (29,861          | )      |
| Balance as of  September 30, 2002 |   | 18,864              |   | —           |   | —        |   | —     |   | 18,864           |   |

 

The reporting units are equal to, or one level below, reportablesegments.  The Company engagedindependent valuation consultants to assist with the transitional goodwillimpairment tests.

 

The fair value of each of the reporting units was calculated using thefollowing approaches:  (i) marketapproach and (ii) income approach. Under the market approach, value is estimated by comparing theperformance fundamentals relating to similar public companies’ stockprices.  Multiples are then developed ofthe value of the publicly traded stock to various measures and are then appliedto each reporting unit to estimate the value of its equity.  Under the income approach, value wasdetermined using the present value of the projected future cash flows to begenerated by the reporting unit.

 

7

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**Adoptionof FAS 142 (continued)**

 

The fair value conclusion of the reporting units reflects an equallyblended value of the market multiple approach and the income approach discussedabove.  As a result of performing stepsone and two of the goodwill impairment test, a loss of $29.9 million wasrecognized and recorded as a cumulative effect of change in accountingprinciple in the accompanying Consolidated Statements of Operations.  There was no income tax effect on theimpairment charge as approximately $19 million of the charge related togoodwill in foreign tax jurisdictions where the Company believes it is morelikely than not that future taxable income in these jurisdictions will not besufficient to realize the related income tax benefits associated with thecharge.  The remaining $11 million ofthe charge was related primarily to goodwill that was acquired prior to theability to deduct goodwill for tax purposes.

 

The following pro forma table shows the effect of amortization expenseand the cumulative effect of change in accounting principle on the Company’snet loss as follows:

 

|                                                                 |   | **Three  Months Ended**  |   | **Nine  Months Ended**   |   |
|----------------------------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|
|                                                                 |   | **September  30,  2002** |   | **September  30,  2001** |   | **September  30,  2002** |   | **September  30,  2001** |   |
| Reported Net Loss                                                    |   | $                        | (918   | )                        | $      | (4,821 | ) | $ | (32,968 | ) | $ | (11,403 | ) |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Cumulative Effect of Change in Accounting Principle                  |   | —                   |   | —                   |   | 29,861 |   | — |   |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Amortization of Intangibles                                          |   | —                   |   | 650                      |   | — |   | 2,080 |   |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Adjusted Net  Loss                                                   |   | $                        | (918   | )                        | $      | (4,171 | ) | $ | (3,107 | ) | $ | (9,323 | ) |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Reported Loss  per Share:                                            |   |                     |   |                     |   |   |   |   |   |
| Basic &  Diluted                                                 |   | $                        | (0.03  | )                        | $      | (0.15 | ) | $ | (1.05 | ) | $ | (0.36 | ) |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Adjustment for  Amortization of Intangibles:                         |   |                     |   |                     |   |   |   |   |   |
| Basic &  Diluted                                                 |   | —                   |   | 0.02                     |   | — |   | 0.05 |   |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Adjustment for  Cumulative Effect of Change in Accounting Principle: |   |                     |   |                     |   |   |   |   |   |
| Basic &  Diluted                                                 |   | —                   |   | —                   |   | 0.95 |   | — |   |
|                                                                 |   |                     |   |                     |   |   |   |   |   |
| Adjusted Loss  per Share:                                            |   |                     |   |                     |   |   |   |   |   |
| Basic &  Diluted                                                 |   | $                        | (0.03  | )                        | $      | (0.13 | ) | $ | (0.10 | ) | $ | (0.29 | ) |

 

8

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**4.****              EarningsPer Share**

 

Basic Earnings Per Share (“EPS”) is based on the weighted averagenumber of common shares outstanding without consideration of common stock equivalents.  Diluted earnings per share is based on theweighted average number of common and common equivalent shares outstanding,except where the effect would have been antidilutive.  The calculation takes into account the shares that may be issuedupon exercise of stock options, reduced by the shares that may be repurchasedwith the funds received from the exercise, based on the average price duringthe year.

 

In accordance with SFAS No.128 (“Earnings per Share”), the table belowpresents both basic and diluted loss per share:

 
|                                                                                                          |   | **Three  Months Ended**  |   | **Nine  Months Ended**   |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|
|                                                                                                          |   | **September  30,  2002** |   | **September  30,  2001** |   | **September  30,  2002** |   | **September  30,  2001** |   |
| Numerator:                                                                                                    |   |                     |   |                     |   |   |   |   |   |
| Net loss before  the cumulative change in accounting principle (in thousands)                                 |   | $                        | (918   | )                        | $      | (4,821 | ) | $ | (3,107 | ) | $ | (11,403 | ) |
| Denominator:                                                                                                  |   |                     |   |                     |   |   |   |   |   |
| Denominator for  basic loss per share Weighted average shares outstanding                                     |   | 31,218,000               |   | 31,964,000               |   | 31,388,000 |   | 31,953,000 |   |
|                                                                                                          |   |                     |   |                     |   |   |   |   |   |
| Effect of stock  options                                                                                      |   | —                   |   | —                   |   | — |   | — |   |
|                                                                                                          |   |                     |   |                     |   |   |   |   |   |
| Diluted  potential loss per share:                                                                            |   |                     |   |                     |   |   |   |   |   |
| Denominator for  diluted loss per share Adjusted weighted average shares outstanding and  assumed conversions |   | 31,218,000               |   | 31,964,000               |   | 31,388,000 |   | 31,953,000 |   |
|                                                                                                          |   |                     |   |                     |   |   |   |   |   |
| Basic loss per  share                                                                                         |   | $                        | (0.03  | )                        | $      | (0.15 | ) | $ | (0.10 | ) | $ | (0.36 | ) |
|                                                                                                          |   |                     |   |                     |   |   |   |   |   |
| Diluted loss per  share                                                                                       |   | $                        | (0.03  | )                        | $      | (0.15 | ) | $ | (0.10 | ) | $ | (0.36 | ) |

 

The computation of diluted loss per share excludes all options as theireffect would have been antidilutive. During 2002, there were 5,743,813 excluded options with exercise pricesbetween $2.02 to $26.63 per share at September 30.  During 2001, there were 3,880,100 excluded options outstanding atSeptember 30, 2001 with exercise prices of $3.65 to $26.63 per share.

 

9

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**5.****              SegmentInformation**

 

The Company has identified two segments: IT Services and the SolutionsGroup.  The IT Services divisionprovides highly skilled software professionals to augment the internalinformation management staffs of major corporations.  IT Services is primarily Staffing Augmentation.  The Solutions division provides enterpriseapplication services, e-business solutions, customized Web development and Webenablement of strategic applications, Customer Relationship Management (CRM),network services, e-procurement solutions for Human Resource acquisition and management(Chimes), strategic outsourcing and managed resourcing as well as software andrelational database products, up to the time of sale, March 25, 2002, ofPrinceton Softech Inc.  Operatingincome/(loss) consists of income/(loss) before income taxes, excluding interestincome, interest expense, gain/(loss) on the sale of assets, restructuringcharge, net loss on investments and amortization of intangibles.  These exclusions total income of $0.2million and expense of  $3.4 million inthe third quarter of 2002 and 2001, respectively and income of $4.0 million andexpense of $9.8 million in the first nine months of 2002 and 2001,respectively.  Corporate services,consisting of general and administrative services are provided to the segmentsfrom a centralized location.  Such costsare allocated to the segments based on either revenue or headcount.

 
|                         |   | **Three  Months Ended**  |    | **Nine  Months Ended**   |   |
|------------------------------|--------|--------------------------|---------|--------------------------|--------|
|                         |   | **September  30,  2002** |    | **September  30,  2001** |   | **September  30,  2002** |   | **September  30,  2001** |   |
| *Revenue:*                   |   |                     |    |                     |   |   |   |   |   |
| IT Services                  |   | $                        | 49,127  |                     | $      | 65,242 |   | $ | 157,800 |   | $ | 212,659 |   |
| Solutions Group              |   | 24,447                   |    | 28,970                   |   | 72,311 |   | 93,029 |   |
| TOTAL                        |   | $                        | 73,574  |                     | $      | 94,212 |   | $ | 230,111 |   | $ | 305,688 |   |
|                         |   |                     |    |                     |   |   |   |   |   |
| *Operating income / (loss):* |   |                     |    |                     |   |   |   |   |   |
| IT Services                  |   | $                        | (109    | )                        | $      | 2,069 |   | $ | (1,360 | ) | $ | 7,122 |   |
| Solutions Group              |   | (1,529                   | )       | (5,933                   | )      | (7,415 | ) | (14,575 | ) |
| TOTAL                        |   | $                        | (1,638  | )                        | $      | (3,864 | ) | $ | (8,775 | ) | $ | (7,453 | ) |
|                         |   |                     |    |                     |   |   |   |   |   |
| *Assets:*                    |   |                     |    |                     |   |   |   |   |   |
| IT Services                  |   | $                        | 43,579  |                     | $      | 105,261 |   | $ | 43,579 |   | $ | 105,261 |   |
| Solutions Group              |   | 63,655                   |    | 78,550                   |   | 63,655 |   | 78,550 |   |
| Corporate and  other         |   | 99,515                   |    | 75,733                   |   | 99,515 |   | 75,733 |   |
| TOTAL                        |   | $                        | 206,749 |                     | $      | 259,544 |   | $ | 206,749 |   | $ | 259,544 |   |

 

10

----

 

**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**6.****              RestructuringCharges**

 

During the fourth quarter of 2001, theCompany recorded a restructuring charge of $410,000 pertaining to 2001 officeclosings.  In addition, during thesecond quarter of 2001, the Company recorded an additional $5.5 million inrestructuring expense to reduce the carrying amount of eB Networks to theestimated net realizable value.

 

During the fourth quarter of 2000, the Company recorded restructuringcharges of $43.9 million.  The Company’srestructuring plan included the offering for sale of four businesses acquiredbetween 1998 and 1999, including Princeton Softech, Inc., SELECT Software Toolsdivision (“Select”), eB Networks and CHC International, Ltd (formerly SpargoConsulting PLC).  In addition,restructuring charges included the shutdown of Enterprise Solutions Group(“ESG”) which was acquired in 1998, the closing of seven offices and the sitereduction of two other IT Services offices.

 

At December 31, 2000, the Company recorded a write-down of goodwill of$7.2 million for the shutdown of ESG. In addition, a non-cash charge writingdown goodwill of $26 million and purchased software of $6.9 million wasrecorded, in the fourth quarter of 2000, in connection with the write-down ofassets held for sale to realizable value. The closing of IT Services’ and Solutions’ offices resulted in thetermination of 90 employees with a severance charge of $1.3 million.  As of September 30, 2002, $1,104,000 hadbeen paid in severance to the terminated employees.  The balance remaining at September 30, 2002 includes continuingrent on five properties terminating in 2003, 2004 and 2005 and severance forone individual with payments through January of 2003.

 
|                |   | **Remaining  at  Dec. 31, 2001** |   | **Paid** |   | **Remaining  at  September 30,  2002** |   |
|---------------------|--------|----------------------------------|--------|----------|--------|----------------------------------------|--------|
| Severance:          |   |                             |   |     |   |                                   |   |
| United States       |   | $                                | 243    |     | $      | (80                                    | )      | $ | 163 |   |
|                |   |                             |   |     |   |                                   |   |
| Lease  Obligations: |   |                             |   |     |   |                                   |   |
| United States       |   | $                                | 1,221  |     | $      | (495                                   | )      | $ | 726 |   |
|                |   |                             |   |     |   |                                   |   |
| Total               |   | $                                | 1,464  |     | $      | (575                                   | )      | $ | 889 |   |

 

11

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**RestructuringCharges (continued)**

 

During the fourth quarter of 2001, the Company recorded a restructuringcharge adjustment of $638,000 pertaining to the termination, by the sublessee,of the sublease contracts for closed offices included in the 1999 restructurecharge.

 

During the third quarter of 1999, the Company recorded a restructuringcharge of $6.4 million primarily related to the consolidating and closing ofcertain facilities, generally used for Year 2000 and other legacy relatedservices, as well as attendant reduction of related staff levels.

 

During the second quarter of 2000, the Company recorded a restructuringcredit of $2.4 million.  This creditresulted primarily from the earlier than expected occupancy of two abandonedproperties that were part of the 1999 restructuring reserve and the reversal ofan over accrual of employee severance benefits due to terminated employees inthe UK and Canada.  The remainingbalance at September 30, 2002 includes continuing rent on one property with thelease terminating in 2005.

 

 
|                |   | **Remaining at  Dec. 31, 2001** |   | **Paid** |   | **Remaining  at  September 30,  2002** |   |
|---------------------|--------|---------------------------------|--------|----------|--------|----------------------------------------|--------|
| Lease  Obligations: |   |                            |   |     |   |                                   |   |
| United States       |   | $                               | 626    |     | $      | (156                                   | )      | $ | 470 |   |
|                |   |                            |   |     |   |                                   |   |
| Total               |   | $                               | 626    |     | $      | (156                                   | )      | $ | 470 |   |

 

12

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**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**7.****              ComprehensiveIncome / (Loss)**

 

Statement of Financial Accounting Standards No. 130, ReportingComprehensive Income (“SFAS No.130”), requires that items defined as othercomprehensive income/(loss), such as foreign currency translation adjustments,be separately classified in the financial statements and that the accumulatedbalance of other comprehensive income/(loss) be reported separately fromretained earnings and additional paid-in capital in the equity section of thebalance sheet. The components of comprehensive loss for the three and ninemonths ended September 30, 2002 and September 30, 2001 are as follows:

 
|                                                         |   | **Three Months  Ended**  |   | **Nine  Months Ended**   |   |
|--------------------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|
|                                                         |   | **September  30,  2002** |   | **September  30,  2001** |   | **September  30,  2002** |   | **September  30,  2001** |   |
|                                                         |   |                     |   |                     |   |   |   |   |   |
| Comprehensive  Loss:                                         |   |                     |   |                     |   |   |   |   |   |
|                                                         |   |                     |   |                     |   |   |   |   |   |
| Net Loss                                                     |   | $                        | (918   | )                        | $      | (4,821 | ) | $ | (32,968 | ) | $ | (11,403 | ) |
| Other  comprehensive loss – foreign currency adjustment |   | (48                      | )      | (7                       | )      | (370 | ) | (2,051 | ) |
| Comprehensive  Loss                                          |   | $                        | (966   | )                        | $      | (4,828 | ) | $ | (33,338 | ) | $ | (13,454 | ) |

 

13

----

**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**8.****              Majority-OwnedSubsidiary**

 

On September 30, 2002, the Company announced that it has joined itsexisting HIPAA compliance, healthcare information technology and othercompliance business practices with ZA Consulting LLC (ZAC) to form CHCHealthcare Solutions, LLC.  Under theterms of the agreement, CHC has an 80% interest in the newly formed company.

 

**9.****              Saleof Subsidiaries**

 

On March 25, 2002, the Company sold the netassets of Princeton Softech to Apax Partners, Inc. and LLR Partners, for cashof $16 million, including amounts held in escrow of $1.5 million. The gain fromthe transaction was $3.6 million.  Theresults of operations are included in the consolidated financial statementsthrough February 28, 2002 within the Solutions group.

 

On September 10, 2001, the Company sold the assets of eB Networks toInrange Technologies, a storage networking company, for cash of $5.4 million,including amounts held in escrow of $540,000. The loss from the transaction was $3.2 million, which included the finalwrite-down of related goodwill of $2.1 million. The results of operations areincluded in the consolidated financial statements through September 10, 2001within the Solutions group.

 

On August 30, 2001, the Company sold the ICM Education name to AlphaNetSolutions, Inc., an IT professional services firm, for $0.5 million. The gainfrom the transaction was $332,000.  Theresults of operations are included in the consolidated financial statementsthrough August 30, 2001 within the Solutions group.

 

On April 17, 2001, the Company sold the SELECT Software Tools division“Select” of Princeton Softech to Aonix, a member of the Gores Technology Group,for approximately $895,000 including $545,000 of cash received and a notereceivable of $350,000.  This saleincluded all the software assets and intellectual property rights of Select andwas sold at book value.  The results ofoperations are included in the consolidated financial statements through April17, 2001 within the Solutions group.

 

On January 31, 2001, the Company sold the stock of CHC InternationalLimited, (“Spargo”), to an information technology consultancy service providerfor cash of $3.2 million.  The gain fromthe transaction was $438,000.  Theresults of operations for January 2001 were not material to the consolidatedfinancial statements.

 

**10.****       Purchaseof Treasury Stock**

 

In April 2001, the Board of Directors approved the repurchase in theopen market of up to 10% of its common shares outstanding, or approximately 3.3million shares.  As of the filing ofthis report, the Company had repurchased, in the open market, 2,252,900 sharesof its stock at an average price of $3.54 per share for an aggregate purchaseamount of $8.0 million.

 

14

----

**COMPUTER HORIZONS CORP AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the Periods EndedSeptember 30, 2002 and September 30, 2001

(unaudited)

 

**11.****       Asset-BasedLending Facility**

 

On July 31, 2001 the Company entered into an agreement with a securedasset-based lending facility that replaced its two unsecured discretionarylines of credit.  This new line ofcredit is a three-year, $40 million facility with availability based primarilyon eligible customer receivables.  Theinterest rate for the first ninety days from closing was Prime plus 0.5%,thereafter the rate was LIBOR plus 2.75% based on the unpaid principal. Theborrowing base less outstanding loans must equal or exceed $15 million. At thetime of closing there was a $170,000 commitment fee paid to the agent.  As of September 30, 2002, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible customer receivables and cash balancethe entire $40 million was available for borrowing as of September 30,2002.  The fee for the unused portion ofthe line of credit is 0.375% per annum charged to the Company monthly.  This charge was approximately $104,000 and$16,000 for the nine-month periods ended September 30, 2002 and September 30,2001, respectively with an interest rate of Prime plus 0.25%, or 5.0%.

 

**12.****       TaxBenefit Reserve**

 

During 1998, the Company completed a businesscombination which, for financial statement reporting purposes, was accountedfor as a pooling of interests.  Forincome tax purposes, the Company believes the transaction qualified as ataxable purchase that gives rise to future tax deductions.  Upon the sale of the acquired business in2001, the balance of these deductions was recognized for tax purposes.  The tax benefit of $19.6 million relating tothese deductions was included in refundable income taxes in the first half of2002.  Since the tax structure of thetransaction is ultimately subject to determination by the tax authorities, theCompany has recorded a reserve for these tax benefits.  When resolved, the net benefit will bereflected as an increase in additional paid-in capital.

 

15

----

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 

**FORWARD-LOOKING STATEMENTS**

 

Statements included in this Management's Discussion and Analysis ofFinancial Condition and Results of Operations and elsewhere in this documentthat do not relate to present or historical conditions are"forward-looking statements" within the meaning of that term inSection 27A of the Securities Act of 1933, as amended, and in Section 21F of theSecurities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by theCompany from time to time, and such statements may be included in documentsthat are filed with the Securities and Exchange Commission (SEC).  Such forward-looking statements involverisks and uncertainties that could cause results or outcomes to differmaterially from those expressed in such forward-looking statements.  Forward-looking statements may include,without limitation, statements relating to the Company's plans, strategies,objectives, expectations and intentions and are intended to be made pursuant tothe safe harbor provisions of the Private Securities Litigation Reform Act of1995.  Words such as"believes," "forecasts," "intends," "possible,""expects," "estimates," "anticipates," or"plans" and similar expressions are intended to identifyforward-looking statements.  Among theimportant factors on which such statements are based are assumptions concerningthe anticipated growth of the information technology industry, the continuedneed of current and prospective customers for the Company's services, theavailability of qualified professional staff, and price and wage inflation.

 

**RESULTSOF OPERATIONS**

 

*Revenues*.  Revenues decreased to $73.6 million in thethird quarter of 2002 from $94.2 million in the third quarter of 2001, adecrease of $20.6 million or 21.9%. Solutions Group revenues decreased to $24.4million in the third quarter of 2002 from $29.0 million in the third quarter of2001, a decrease of $4.6 million or 15.9%. IT Services revenues decreased to $49.1 million in the third quarter of2002 from $65.2 million in the third quarter of 2001, a decrease of $16.1million or 24.7%.  The decrease inSolutions Group revenue is entirely attributable to the revenue declineexperienced by the business units held for sale.  Solutions Group revenue, excluding the operations of units heldfor sale in the prior year period, actually increased by $2.0 million in thethird quarter of 2002 to $24.4 million. The decrease in IT Services revenue is primarily attributable to thecontinued decrease in demand for temporary technology workers and the impact ofpricing decreases on revenue.

 

Revenues decreased to $230.1 million in the first nine months of 2002from $305.7 million in the first nine months of 2001, a decrease of $75.6million or 24.7%.  Solutions Grouprevenues decreased to $72.3 million in the first nine months of 2002 from $93.0million in the first nine months of 2001, a decrease of $20.7 million or 22.3%,primarily attributable to the sale of business units held for sale.  Excluding the operations of the businessunits held for sale, Solutions Group revenues increased by $7.4 million or11.9% for the first nine months of 2002. IT Services revenues decreased to $157.8 million in the first ninemonths of 2002 from $212.7 million in the first nine months of 2001, a decreaseof $54.9 million or 25.8% which is primarily attributable to decreasingconsultant payroll expense which is a result of continued softness in the ITStaffing business.

 

*DirectCosts*.  Direct costs,primarily consisting of consultant payroll expense, decreased to $52.9 millionand $167.6 million in the third quarter and first nine months of 2002,respectively, from $67.7 million and $215.5 million in the comparable periodsof 2001, this was primarily attributable to the sale of business units, and toa lesser extent a reduction in the number of consultants.  Gross margin, revenues less direct costs,was flat at 28.2% in the third quarter of 2002 and 2001.  Gross margin decreased to 27.2% in the firstnine months of 2002 from 29.5% in the same period of 2001.  Excluding the operations of units held forsale in both periods, the gross margins were 26.4% and 25.7% for the first ninemonths of 2002 and 2001, respectively. The Company’s margins are subject to fluctuations due to a number offactors, including the demand for temporary technology workers and its relatedeffect on pricing, along with the level of salary and other compensationnecessary to attract and retain qualified technical personnel.

 

*Selling,General and Administrative*. Selling, general and administrative expenses (excluding therestructuring charge in 2001) decreased to $22.3 million and $71.3 million inthe third quarter and first nine months of 2002, respectively, from $30.4million and $97.6 million in the comparable periods of 2001.  The decrease in selling, general andadministrative expenses was primarily attributable to personnel andinfrastructure cost reductions in the IT Services Group and Corporate Services,offset by increases in the Solutions Group as the Company continues to investin its Chimes subsidiary. As a percentage of revenues, selling, general andadministrative expenses decreased to 30.4% and 31.0% of revenues in the thirdquarter and first nine months of 2002 from 32.3% and 31.9% of revenues in thecomparable periods of 2001.

 

16

----

 

**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

* *

*Lossfrom Operations*. Operating margins, excluding the restructuring charge in 2001, decreasedto a loss of 2.3% in the third quarter of 2002 from a loss of 4.8% in thirdquarter of 2001.  Operating margins werea loss of 3.8% in the first nine months of 2002 compared to a loss of 3.1% inthe comparable 2001 period.  Thecomposition of the current quarter’s operating loss of $1.6 million by line ofbusiness is basically a breakeven for IT Services and a loss of $1.6 millionfor Solutions.  The Solutions loss isentirely attributable to the continued investment in Chimes.  The Company’s business is labor-intensiveand, as such, is sensitive to inflationary trends.  This sensitivity applies to client billing rates, as well as topayroll costs.

 

*OtherIncome/(Expense)*. Other income increased to $0.2 million and $4.1 million in the thirdquarter and first nine months of 2002, respectively, compared to other expenseof $2.8 million and $2.3 million in the same periods of 2001.  This increase in other income/(expense) wasprimarily the result of the gain on the sale of Princeton Softech in 2002,compared to a loss on the sale of assets in 2001.

 

*Provisionfor Income Taxes*.  Theeffective tax rates for Federal, state and local income taxes were 34.0% forall periods reported.

 

*NetLoss*.  Net loss forthe third quarter of 2002 was $918,000, or $0.03 loss per diluted share,compared to net loss of $4.8 million, or $0.15 loss per diluted share for thethird quarter of 2001, an increase of $3.9 million.  For the first nine months of 2002, the net loss before thecumulative effect of change in accounting principle was $3.1 million, or $0.10loss per diluted share, compared to net loss of $11.4 million, or $0.36 lossper diluted share for the first nine months of 2001.  Excluding the operations of assets held for sale, the Companyreported a net loss for the nine-month period ended September 30, before thecumulative effect of change in accounting principle in 2002, and beforerestructuring charges and amortization expense in 2001, of $4.1 million or$0.13 loss per diluted share and a net loss of $532,000, or $0.02 loss perdiluted share, respectively.

 

**Liquidityand Capital Resources**

 

At September 30, 2002, the Company had $110.6 million in workingcapital, of which $62.0 million was cash and cash equivalents.

 

Net cash provided by operating activities in the first nine months of2002 was $20.9 million, consisting primarily of a decrease in accountsreceivable and refundable income taxes, partially offset by increases in assetsheld for sale, other current assets and accrued payroll.

 

Net cash provided by investing activities in the first nine months of2002 was $13.4 million, consisting primarily of cash received from the sale ofPrinceton Softech, partially offset by capital expenditures of approximately$2.5 million. No significant capital expenditures are expected by the Companyfor the remainder of 2002.

 

Net cash used in financing activities in the first nine months of 2002was $13.0 million primarily consisting of the payback of the outstandingbalance of the Company’s line of credit totaling $10 million and the repurchaseof treasury shares.  In April 2001, theBoard of Directors approved the repurchase in the open market of up to 10% ofits common shares outstanding, or approximately 3.3 million shares.  As of the filing of this report, the Companyhad repurchased, in the open market, 2,252,900 shares of its stock at anaverage price of $3.54 per share for an aggregate purchase amount of $8.0million.

 

During the second quarter of 2002, the Company completed its initialvaluation of the carrying value of goodwill existing at January 1, 2002.  As a result, a non-cash charge of $29.9million, or $(0.95) per share was retroactively recorded as the cumulativeeffect of an accounting change in the six months ended June 30, 2002 statementof operations.  Virtually all of thechange was associated with goodwill relating to the Company's IT Services lineof business.

 

At September 30, 2002, the Company had a current ratio position of 3.1to 1. The Company believes that its cash and cash equivalents, availableborrowings and internally generated funds will be sufficient to meet itsworking capital needs through 2003.

 

17

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 

On July 31, 2001 the Company entered into an agreement with a securedasset-based lending facility which replaced its two unsecured discretionarylines of credit.  This new line ofcredit is a three-year, $40 million facility with availability based primarilyon eligible customer receivables.  Theinterest rate for the first ninety days from closing was Prime plus 0.5%,thereafter the rate was LIBOR plus 2.75% based on the unpaid principal. Theborrowing base less outstanding loans must equal or exceed $15 million. At thetime of closing there was a $170,000 commitment fee paid to the agent.  As of September 30, 2002, the Company had nooutstanding loan balance against this facility.

 

18

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 

**Contractual Obligations andCommercial Commitments**

 

The Company does not utilize off balance sheet financing other thanoperating lease arrangements for office premises and related equipment.  Leases are short term in nature andnon-capital.  The following tablesummarizes all commitments under contractual obligations as of September 30,2002:

 
|                    |   | **Obligation  Due** |   |
|-------------------------|--------|---------------------|--------|
|                    |   | **Total  Amount**   |   | **1 Year** |   | **2-3 Years** |   | **4-5 Years** |   | **Over 5  Years** |   |
|                    |   | **(in 000’s)** |   |
| Operating leases        |   | $                   | 17,288 |   | $ | 6,713 |   | $ | 7,765 |   | $ | 2,799 |   | $ | 11 |   |
| Other long-term         |   | 1,600               |   | 1,600 |   | — |   | — |   | — |   |
| Total Cash  Obligations |   | $                   | 18,888 |   | $ | 8,313 |   | $ | 7,765 |   | $ | 2,799 |   | $ | 11 |   |

 

**Recent Accounting Pronouncements**

** **

In June 2001, the Financial Accounting Standards Board approved theissuance of SFAS No. 141, "Business Combinations" and in July 2001,SFAS 142, "Goodwill and Other Intangible Assets."  The new standards require that all businesscombinations initiated after June 30, 2001 must be accounted for under thepurchase method.  In addition, allintangible assets acquired that are obtained through contractual or legalright, or are capable of being separately sold, transferred, licensed, rentedor exchanged shall be recognized as an asset apart from goodwill.  Goodwill and intangibles with indefinitelives will no longer be subject to amortization, but will be subject to atleast an annual assessment for impairment by applying a fair value basedtest.  The Company adopted SFAS 142 asof January 1, 2002 and in compliance with this new regulation has discontinuedthe amortization of goodwill.  For theeffect of this statement on the Company, see Note 3 of the notes to the consolidatedfinancial statements.

 

Effective on January 1, 2002, the Company adopted Financial AccountingStandard No. 144 "Accounting for the Impairment or Disposal of Long LivedAssets," ("SFAS 144"). This supercedes SFAS 121, while retaining many of the requirements ofsuch statement.  The effect of thisstatement is immaterial to the Company.

 

In June 2002, the Financial Accounting Standards Board approved theissuance of SFAS No. 146, "Accounting for Exit or DisposalActivities," ("SFAS 146"), which supersedes Emerging Issues TaskForce Issue No. 94-3, "Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring)." The new standards require that a liability for a cost associated with anexit or disposal activity, including costs related to terminating a contractthat is not a capital lease and the termination benefits that employees who areinvoluntarily terminated receive under the terms of a one-time benefitarrangement that is not ongoing or an individual deferred-compensationcontract, be recognized when the liability is incurred.  Previously, under Issue No. 94-3, aliability for an exit cost was recognized at the date of an entity's commitmentto an exit plan, which may not necessarily meet the definition of aliability.  SFAS 146 is effective forexit or disposal activities of the Company that are initiated after December31, 2002.

 

**Pro forma Financial Informationexcluding Assets held for Sale**

 

The accompanying unaudited pro forma condensed consolidated statementof operations as of the quarters ended March 31, 2002, December 31, 2001,September 30, 2001, June 30, 2001 and March 31, 2001 have been prepared to giveeffect of the consolidated operations excluding net assets held for sale and isintended for informational purposes only. For the quarters ended September 30, 2002 and June 30, 2002, there is noimpact on operating results from assets held for sale.

 

All adjustments necessary to fairly present this pro forma condensedconsolidated financial information have been made based on availableinformation and assumptions, which, in the opinion of management, arereasonable.  The unaudited pro formacondensed consolidated financial information is based upon and should be readin conjunction with, the historical consolidated financial statements of theCompany and the notes thereto.

 

19

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 
|                        |   | **Quarter  Ended March 31, 2002** |   |
|-----------------------------|--------|-----------------------------------|--------|
|                        |   | **Consolidated  CHC**             |   | **Assets  held  for Sale** |   | **Pro forma  CHC** |   |
| Revenues                    |   | $                                 | 79,219 |   | $ | 2,891 |   | $ | 76,328 |   |
| Direct Costs                |   | 58,192                            |   | 494 |   | 57,698 |   |
| Gross Profit                |   | 21,027                            |   | 2,397 |   | 18,630 |   |
| SG&A                    |   | 25,797                            |   | 4,344 |   | 21,453 |   |
| Bad Debt Expense            |   | 662                               |   | — |   | 662 |   |
| Operating Loss              |   | (5,432                            | )      | (1,947 | ) | (3,485 | ) |
| Gain on Sale of  Assets     |   | (3,570                            | )      | (3,570 | ) | — |   |
| Loss on  Investments        |   | 61                                |   | — |   | 61 |   |
| Interest Income             |   | (55                               | )      | — |   | (55 | ) |
| (Loss)/Income  before taxes |   | (1,868                            | )      | 1,623 |   | (3,491 | ) |
| Income  taxes/(benefit)     |   | (635                              | )      | 552 |   | (1,187 | ) |
| Net  (Loss)/Income          |   | $                                 | (1,233 | ) | $ | 1,071 |   | $ | (2,304 | ) |

 
|                         |   | **Quarter  Ended December 31, 2001** |   |
|------------------------------|--------|--------------------------------------|--------|
|                         |   | **Consolidated  CHC**                |   | **Assets  held  for Sale** |   | **Pro forma  CHC** |   |
| Revenues                     |   | $                                    | 95,096 |   | $ | 9,488 |   | $ | 85,608 |   |
| Direct Costs                 |   | 66,061                               |   | 2,113 |   | 63,948 |   |
| Gross Profit                 |   | 29,035                               |   | 7,375 |   | 21,660 |   |
| SG&A                     |   | 29,262                               |   | 7,745 |   | 21,517 |   |
| Bad Debt Expense             |   | 1,944                                |   | — |   | 1,944 |   |
| Operating Loss               |   | (2,171                               | )      | (370 | ) | (1,801 | ) |
| Restructuring  Charge        |   | 1,048                                |   | — |   | 1,048 |   |
| Interest Income              |   | (225                                 | )      | — |   | (225 | ) |
| Loss on Sale of  Assets      |   | 802                                  |   | 802 |   | — |   |
| Net Gain on  Investment      |   | (90                                  | )      | — |   | (90 | ) |
| Amortization of  Intangibles |   | 615                                  |   | — |   | 615 |   |
| Loss before  taxes           |   | (4,321                               | )      | (1,172 | ) | (3,149 | ) |
| Income  taxes/(benefit)      |   | (1,274                               | )      | (345 | ) | (929 | ) |
| Net Loss                     |   | $                                    | (3,047 | ) | $ | (827 | ) | $ | (2,220 | ) |

 

20

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 
|                         |   | **Quarter  Ended September 30, 2001** |   |
|------------------------------|--------|---------------------------------------|--------|
|                         |   | **Consolidated  CHC**                 |   | **Assets  held  for Sale** |   | **Pro forma  CHC** |   |
| Revenues                     |   | $                                     | 94,212 |   | $ | 6,597 |   | $ | 87,615 |   |
| Direct Costs                 |   | 67,672                                |   | 2,409 |   | 65,263 |   |
| Gross Profit                 |   | 26,540                                |   | 4,188 |   | 22,352 |   |
| SG&A                     |   | 29,790                                |   | 6,321 |   | 23,469 |   |
| Bad Debt Expense             |   | 614                                   |   | 89 |   | 525 |   |
| Operating Loss               |   | (3,864                                | )      | (2,222 | ) | (1,642 | ) |
| Interest Income              |   | (43                                   | )      | — |   | (43 | ) |
| Loss on Sale of  Assets      |   | 2,833                                 |   | 2,833 |   | — |   |
| Amortization of  Intangibles |   | 650                                   |   | — |   | 650 |   |
| Loss before  taxes           |   | (7,304                                | )      | (5,055 | ) | (2,249 | ) |
| Income  taxes/(benefit)      |   | (2,483                                | )      | (1,718 | ) | (765 | ) |
| Net Loss                     |   | $                                     | (4,821 | ) | $ | (3,337 | ) | $ | (1,484 | ) |

 
|                         |   | **Quarter  Ended June 30, 2001** |    |
|------------------------------|--------|----------------------------------|---------|
|                         |   | **Consolidated  CHC**            |    | **Assets  held  for Sale** |   | **Pro forma  CHC** |   |
| Revenues                     |   | $                                | 104,995 |   | $ | 11,140 |   | $ | 93,855 |   |
| Direct Costs                 |   | 74,927                           |    | 4,057 |   | 70,870 |   |
| Gross Profit                 |   | 30,068                           |    | 7,083 |   | 22,985 |   |
| SG&A                     |   | 32,162                           |    | 9,614 |   | 22,548 |   |
| Bad Debt Expense             |   | 396                              |    | 37 |   | 359 |   |
| Operating  Income/(loss)     |   | (2,490                           | )       | (2,568 | ) | 78 |   |
| Restructuring  Charge        |   | 5,473                            |    | — |   | 5,473 |   |
| Interest Income              |   | (256                             | )       | — |   | (256 | ) |
| Amortization of  Intangibles |   | 723                              |    | — |   | 723 |   |
| Loss before  taxes           |   | (8,430                           | )       | (2,568 | ) | (5,862 | ) |
| Income  taxes/(benefit)      |   | (2,866                           | )       | (873 | ) | (1,993 | ) |
| Net Loss                     |   | $                                | (5,564  | ) | $ | (1,695 | ) | $ | (3,869 | ) |

 

21

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF**

**FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

For the Periods EndedSeptember 30, 2002 and September 30, 2001

 
|                         |   | **Quarter  Ended March 31, 2001** |    |
|------------------------------|--------|-----------------------------------|---------|
|                         |   | **Consolidated  CHC**             |    | **Assets  held  for Sale** |   | **Pro forma  CHC** |   |
| Revenues                     |   | $                                 | 106,481 |   | $ | 13,265 |   | $ | 93,216 |   |
| Direct Costs                 |   | 72,916                            |    | 4,997 |   | 67,919 |   |
| Gross Profit                 |   | 33,565                            |    | 8,268 |   | 25,297 |   |
| SG&A                     |   | 34,221                            |    | 9,793 |   | 24,428 |   |
| Bad Debt Expense             |   | 443                               |    | 48 |   | 395 |   |
| Operating  Income/(loss)     |   | (1,099                            | )       | (1,573 | ) | 474 |   |
| Gain on sale of  Spargo      |   | (438                              | )       | (438 | ) | — |   |
| Interest Expense             |   | 175                               |    | — |   | 175 |   |
| Amortization of  Intangibles |   | 707                               |    | — |   | 707 |   |
| Loss before  taxes           |   | (1,543                            | )       | (1,135 | ) | (408 | ) |
| Income  taxes/(benefit)      |   | (525                              | )       | (386 | ) | (139 | ) |
| Net Loss                     |   | $                                 | (1,018  | ) | $ | (749 | ) | $ | (269 | ) |

 

Item 4.    Controlsand Procedures

 

*Evaluation of Disclosure Controlsand Procedures*

* *

Within 90 days prior to the filing of this Quarterly Report on Form10-Q, the Company's President and CFO evaluated the effectiveness of the designand operation of the Company's disclosure controls and procedures and concludedthat the Company's disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in reports that itfiles or submits under the Exchange Act is accumulated and communicated toRegistrant's management, including its officers, as appropriate to allow timelydecisions regarding required disclosure, and are effective to ensure that suchinformation is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission's rules and forms.

 

*Changes in Internal Controls*

* *

The Company's President and CFO have also concluded there were nosignificant changes in the Company's internal controls or in other factors thatcould significantly affect these controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

* *

 

22

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PART II   OtherInformation

 

Item 1.    Legal Proceedings

 

                There are nomaterial pending legal proceedings.

 

Item 6.    Exhibitsand Reports on Form 8-K

 

                a)                                      Exhibits

 

99.1—CEO Certification pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

99.2—CFO Certification pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

b) A report on Form 8-K was filed on September 30,2002 reporting the issuance of a press release stating that the U.S. Attorney’soffice in the Southern District of New York is conducting an inquiry into theJune 1999 purchase and sale of an unrelated company’s shares by Mr. John J.Cassese, Computer Horizons’ Chairman and President.

 

Signatures

 

Pursuant to the requirements of the Securities and Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|   |              | COMPUTER HORIZONS CORP.           |
|--------|-------------------|-----------------------------------|
|   |              | (Registrant)                      |
|   |              |                              |
|   |              |                              |
| DATE:  | November 14, 2002 | /s/  John J.  Cassese        |   |
|   |              | John J. Cassese                   |
|   |              | Chairman of the Board and         |
|   |              | President                         |
|   |              |                              |
| DATE:  | November 14, 2002 | /s/ William J. Murphy             |   |
|   |              | William J. Murphy                 |
|   |              | Executive Vice President,         |
|   |              | Chief Financial Officer           |
|   |              | (Principal Financial Officer) and |
|   |              | Director                          |
|   |              |                              |
| DATE:  | November 14, 2002 | /s/ Michael J. Shea               |   |
|   |              | Michael J. Shea,                  |
|   |              | Vice President and Controller     |
|   |              | (Principal Accounting Officer)    |
|        |                   |                                   |  |  |  |

 

23

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CERTIFICATIONS

 

I, JOHN J. CASSESE, certify that:

 

1.  Ihave reviewed this quarterly report on Form 10-Q of COMPUTER HORIZONS;

 

2. Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects, the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)  designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b)  evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

 

(c)  presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed, basedon our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

(a)  all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

(b)  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s othercertifying officers and I have indicated in this quarterly report whether therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:                  | November 14, 2002 |   |
|------------------------|-------------------|--------|
|                   |
| /s/ John J. Cassese    |              |
| JOHN J. CASSESE        |
| Chairman and President |
|                        |                   |        |  |

 

 

24

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CERTIFICATIONS

 

 

I, WILLIAM J. MURPHY, certify that:

 

1.  Ihave reviewed this quarterly report on Form 10-Q of COMPUTER HORIZONS;

 

2. Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects, the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a)  designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b)  evaluated the effectiveness of the registrant’s disclosurecontrols and procedures as of a date within 90 days prior to the filing date ofthis quarterly report (the “Evaluation Date”); and

 

(c)  presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed, based onour most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

(a)  all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

(b)  any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.  The registrant’s othercertifying officers and I have indicated in this quarterly report whether therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:                   |  November 14,  2002 |   |
|-------------------------|--------------------------|--------|
|                    |
| /s/ William J. Murphy   |                     |
| WILLIAM J. MURPHY       |
| Chief Financial Officer |
|                         |                          |        |  |

 

 

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