**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION****Washington,D.C. 20549**

 

**FORM 10-Q**

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

 

**For thequarterly period ended March 31, 2008**

 

**or**

 

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

 

**For thetransition periodfrom            to             **

 

**CommissionFile Number 0-7282**

 

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

 

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

 

**2001 Route46 East, Suite 310, Parsippany, NJ 07054**(Address of principal executiveoffices)            (Zipcode)

 

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

 

**NotApplicable**(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.    Yes  x        No o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer, or a smaller reporting company. See definitionsof “large accelerated filer,” “accelerated filer,” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do  not check if a smaller reporting company) |   |                              |

 

 

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

 

As of May 1, 2008 the issuerhad 33,837,284 shares of common stock outstanding.

 

 

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**COMPUTERHORIZONS CORP. AND SUBSIDIARIES**

 

**Index**

 
| Part I Financial Information |                                                                                                                                  | 3      |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|                              |                                                                                                                                  |   |
| Item 1                            | Financial  Statements:                                                                                                                | 3      |
|                              |                                                                                                                                  |   |
|                              | Consolidated Condensed Statement  of Net Assets as of March 31, 2008 (unaudited) and December 31,  2007 (Liquidation Basis) | 3      |
|                              |                                                                                                                                  |   |
|                              | Consolidated Condensed  Statement of Changes in Net Assets in Liquidation as of March 31, 2008  (Liquidation Basis) (unaudited)  | 4      |
|                              |                                                                                                                                  |   |
|                              | Consolidated Condensed  Statements of Operations—Period from January 1, 2007 through  February 16, 2007                | 5      |
|                              |                                                                                                                                  |   |
|                              | Consolidated Condensed  Statements of Cash Flows Period from January 1, 2007 through  February 16, 2007                     | 6      |
|                              |                                                                                                                                  |   |
|                              | Notes to  Consolidated Condensed Financial Statements                                                                                 | 7      |
|                              |                                                                                                                                  |   |
| Item 2                            | Management’s Discussion and Analysis  of Financial Condition and Results of Operations                                           | 16     |
|                              |                                                                                                                                  |   |
| Item 3                            | Quantitative  and Qualitative Disclosures about Market Risk                                                                           | 24     |
|                              |                                                                                                                                  |   |
| Item 4                            | Controls and Procedures                                                                                                               | 25     |
|                              |                                                                                                                                  |   |
| Part II Other Information    |                                                                                                                                  | 26     |
|                              |                                                                                                                                  |   |
| Item  1                           | Legal Proceedings                                                                                                                     | 26     |
|                              |                                                                                                                                  |   |
| Item  1A                          | Risk Factors                                                                                                                          | 29     |
|                              |                                                                                                                                  |   |
| Item 6                            | Exhibits                                                                                                                              | 30     |
|                              |                                                                                                                                  |   |
| Signatures                        |                                                                                                                                  | 31     |
|                              |                                                                                                                                  |   |
| EX-31.1                           |                                                                                                                                  |   |
|                              |                                                                                                                                  |   |
| EX-31.2                           |                                                                                                                                  |   |
|                              |                                                                                                                                  |   |
| EX-32.1                           |                                                                                                                                  |   |
|                              |                                                                                                                                  |   |
| EX-32.2                           |                                                                                                                                  |   |
|                                   |                                                                                                                                       |        |  |

 

2

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**PART I. Financial Information**

 

**Item 1.**

 

**Computer Horizons Corp and Subsidiaries Consolidated Condensed Statement of Net Assets as of March 31, 2008**

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

**($ inthousands)**

 
| ** **                                                     | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                     |       | **(Unaudited)**              |       | **(Audited)***                  |       |
| **ASSETS**                                                     |       |                         |       |                            |       |
| **CURRENT ASSETS:**                                            |       |                         |       |                            |       |
| Cash and cash equivalents                                      |       | $                            | 13,095     |                            | $          | 25,182 |   |
| Refundable tax credit                                          |       | 9,627                        |       | 9,627                           |       |
| Prepaid expenses and other                                     |       | 24                           |       | 24                              |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL CURRENT ASSETS**                                       |       | 22,746                       |       | 34,833                          |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL PROPERTY AND EQUIPMENT, NET**                          |       | 4                            |       | 4                               |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL ASSETS**                                               |       | $                            | 22,750     |                            | $          | 34,837 |   |
|                                                           |       |                         |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS EQUITY**                        |       |                         |       |                            |       |
| **CURRENT LIABILITIES:**                                       |       |                         |       |                            |       |
| Accounts payable, accrued payroll, payroll  taxes and benefits |       | $                            | 9          |                            | $          | 142 |   |
| Net working capital adjustment                                 |       | 1,904                        |       | 1,904                           |       |
| Income taxes payable                                           |       | 1,698                        |       | 1,695                           |       |
| Other accrued expenses                                         |       | 2,913                        |       | 4,432                           |       |
| Deferred Cash Receipts                                         |       | 957                          |       | 957                             |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL CURRENT LIABILITIES**                                  |       | 7,481                        |       | 9,131                           |       |
|                                                           |       |                         |       |                            |       |
| **TOTAL LIABILITIES**                                          |       | $                            | 7,481      |                            | $          | 9,131 |   |
|                                                           |       |                         |       |                            |       |
| **NET ASSETS IN LIQUIDATION**                                  |       | $                            | 15,269     |                            | $          | 25,706 |   |

 

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*              Derivedfrom audited information

 

The accompanying notes are anintegral part of these statements.

 

3

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

** as of March 31, 2008 (Liquidation Basis)**($ in thousands) (Unaudited)

 

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

 

4

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** **

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

 

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

 

The accompanying notes are anintegral part of these statements.

 

5

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

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

 

The accompanying notes are anintegral part of these statements.

 

6

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** **

**COMPUTER HORIZONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

 

**1. Basis ofPresentation**

 

At a Special Meeting held onFebruary 14, 2007, the shareholders of the Company approved the sales ofthe Company’s Chimes, Inc. subsidiary to an affiliate of AxiumInternational and the Company’s Commercial Division to an affiliate of AllegisGroup (the “Asset Sales”). At the Special Meeting, the shareholders of theCompany also approved a proposed plan of complete liquidation and dissolutionof the Company. The Company began implementing the complete liquidation anddissolution of the Company after both the Chimes and Commercial Asset Saleswere completed on February 16, 2007. On March 5, 2007, the Companyannounced that its Board of Directors declared an initial liquidatingdistribution of $4.00 per share to its common shareholders. This distributionwas paid March 27, 2007 to shareholders of record as of the close ofbusiness on March 16, 2007. This initial liquidating distribution was thefirst in what is expected to be a series of liquidating distributions pursuantto the plan of complete liquidation and dissolution approved by the Company’sshareholders on February 14, 2007. On December 19, 2007, the Board ofDirectors announced a second liquidating distribution of $.30 per share to itscommon shareholders. This distribution was paid on February 11, 2008 toshareholders of record as of the close of business on January 15, 2008.The aggregate amount of distributions to our shareholders is expected to be inthe range of $4.68 to $4.78 per share of Common Stock. The actual amount andtiming of future liquidating distributions cannot be predicted at this time andwill depend upon a variety of factors, including, but not limited to, theultimate settlement amounts of the Company’s liabilities and obligations, andactual costs incurred in connection with carrying out the Company’s plan ofcomplete liquidation and dissolution, including administrative costs during theliquidation period.

 

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

 

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

 

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

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

 

7

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

 

*Accrued Cost ofLiquidation*

 

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

 

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

 
| **($ in thousands) **   | ** ** | **As Booked  2/17/2007 ** | ** ** | **Recorded  prior to  2/17/2007* ** | ** ** | **Adjustments  to reserves ** | ** ** | **Activity  to date ** | ** ** | **Balance at  3/31/08 ** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------|------------|----------------------------------|------------|------------------------------------|------------|
| Lease Obligation                       |       | $                                   | 1,324      |                                          |       |                                    | 248        |                             | (1,545     | )                                  | 27         |   |
| Legal Fees                             |       | 450                                 |       |                                          |       | 2,000                                   |       | (615                             | )          | 1,835                              |       |
| Professional Fees, including insurance |       | 2,037                               |       |                                          |       | 3,080                                   |       | (4,566                           | )          | 551                                |       |
| Human Resources                        |       | 3,480                               |       | 1,188                                         |       | 1,388                                   |       | (5,701                           | )          | 355                                |       |
| Systems-related                        |       | 819                                 |       |                                          |       | (269                                    | )          | (500                             | )          | 50                                 |       |
| Misc.                                  |       | 900                                 |       | 295                                           |       | (310                                    | )          | (790                             | )          | 95                                 |       |
|                                   |       |                                |       |                                          |       |                                    |       |                             |       |                               |       |
| Total                                  |       | $                                   | 9,010      |                                          | 1,483      |                                    | 6,137      | **                          | (13,717    | )                                  | 2,913      |   |

 

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*      Accrualscarry forward from operating period.

**    Adjustments to reserves totaled $6.1 million,and were primarily the result of revised estimates relating to the cost ofprofessional services and human resource costs. (See “Sale of Commercial” and “Saleof Chimes” below, for a discussion of current legal proceedings.)

 

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

 

*Sale of RGII*

 

On September 29, 2006, theCompany sold its subsidiary, RGII Technologies, Inc., to Netstar-1, Inc.for $15.3 million in cash, less an estimated net asset adjustment of$1.2 million. In addition, CHC retained all cash and cash equivalents ofRGII, in the amount of $6.3 million. The amount of the estimated net assetadjustment was subject to a final review. To the extent that the final netasset amount sold to NetStar-1 was greater than the estimated asset amount at closing,the Stock Purchase Agreement provided that the excess would be paid to CHCtogether with interest thereon at the prime rate from the closing date to thedate of payment. If the final net asset amount sold to NetStar-1 was less thanthe estimated asset amount at closing, the Stock Purchase Agreement providedthat the deficiency would be paid by CHC to NetStar-1, together with interestthereon at the prime rate from the closing date to the date of payment. Duringthe second quarter 2007, the parties reached agreement on the final net assetamount, resulting in a payment to the Buyer in the amount of$215 thousand. The remainder of the amount in escrow of $785 thousandwas released from escrow to CHC. The sale of RGII resulted in a net book loss

 

8

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on disposal of $4.8 million,including approximately $969 thousand in transaction costs as reported September 30,2006.

 

*Sale of Commercial*

 

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

 

On April 17, 2007,TEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems. The Companycontinues to believe that its estimate of approximately $1.9 million isaccurate, and has disputed this claim. While some differences were resolved,there still remains a difference of $3.3 million between the Company’s estimateand that of TEKsystems. The principal item in dispute relates to the Company’sbelief that Computer Horizons (Canada) Corp. (“Canada Sub”) has sufficient NOL’sto offset any income tax due on the Quebec tax receivable discussed below. Underthe terms of the Commercial Services Asset Purchase Agreement, such disputeditems are to be determined by an independent accounting firm and, on September 19,2007 the Company, and on September 28, 2007 TEKsystems, submitted thedisputed items to such independent accounting firm for determination. To date,TEKsystems has refused to proceed with such process to resolve these disputeditems and this is now the subject of litigation between CHC and TEKsystems. Fora more detailed description of this litigation, see Item 1 of Part II ofthis Quarterly Report on Form 10-Q (Legal Proceedings).

 

The Commercial ServicesAsset Sale included all of the capital stock of Computer Horizons (Canada)Corp. (“Canada Sub”) but, as noted above, specifically excluded a refundableincome tax credit payable to Canada Sub by Revenu Quebec for the tax years 2005and 2006 (the “Quebec Tax Receivable”). During the third quarter of 2007,TEKsystems advised the Company that Canada Sub had received approximatelyCanadian $4.3 million with respect to the Quebec Tax Receivable for 2005(representing approximately Canadian $4.4 million in tax credit and interestless a deduction for associated capital taxes of approximately Canadian $114thousand). Using the exchange rate between the Canadian and United Statesdollars as of the day before the date of TEKsystem’s notice to the Company, thereceipt by TEKsystems amounted to approximately US $4.4 million. TEKsystemsremitted to the Company approximately $958 thousand, after deductingapproximately $1.49 million for Canadian income taxes, $1.89 million as apurchase price adjustment under the Commercial Services Asset PurchaseAgreement, and $114 thousand for capital taxes. Under the terms of theCommercial Services Asset Purchase Agreement, TEKsystems has no right to offsetany amounts due the Company and the aforementioned amount of $1.49 million issubject to dispute and has been submitted to an independent accounting firm fordetermination, although TEKsystems has refused to proceed with such process asmentioned above. The Company has recorded the $958 thousand as a deferred cashcredit in the balance sheet. After demands to remit the $4.3 million wereignored, the Company, on October 19, 2007, filed a lawsuit againstTEKsystems seeking damages for the failure of TEKsystems to remit the balanceof the funds received by it with respect to the 2005 Quebec Tax Receivable anda declaration that TEKsystems must promptly remit to the Company upon receiptall funds received by it in the future in payment of the 2006 Quebec TaxReceivable. For a more detailed description of this litigation, see Item 1 of Part IIof this Quarterly Report on Form 10-Q (Legal Proceedings).

 

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

 

By answer filed January 14,2008, TEK denied any liability under the three claims in the Company’s amendedcomplaint and alleged four counterclaims against the Company for its purportedbreaches of warranties

 

9

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and representations in theAPA, including two counterclaims demanding a declaration that the Company mustindemnify TEK for legal fees and any judgment against TEK should it be sued asa successor to the Company by plaintiffs that have brought actions against theCompany, a counterclaim for a declaration that the Company must indemnify TEKin the event it is held to owe any taxes by reason of a notice sent by anemployee of the Company to taxing authorities, and a counterclaim for thepurported legal fees incurred by TEK and the amount by which it allegedlyreduced a receivable in settling a dispute with the Iowa Health Systems, Inc.(“IHS”) over the receivable that IHS owed. The counterclaims seek to have thecourt impose a constructive trust over the Company’s assets to remedy thealleged breaches of the APA by the Company. By reply filed February 27,2008, the Company denied the substantive allegations contained in thecounterclaims.

 

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

 

No discovery has yet beentaken in this action.

 

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

 

 

On April 28, 2008,TEKsystems notified the Company that Canada Sub has received a payment fromRevenu Quebec with respect to the 2006 Quebec Tax Receivable (See Note 11) ofCanadian $5.6 million consisting of a calendar year 2006 credit of Canadian$5.6 million less a calendar year 2006 capital tax of Canadian $55 thousand(which was withheld by Revenu Quebec from the payment). In addition to theabove payment, Canada Sub received a payment of interest on the 2006 credit ofCanadian $7 thousand. Using the noon buying rate published by the FederalReserve Bank of New York on April 28, 2008 (1.0158 Canadian $per U.S. $),the 2006 credit equates to US $5.5 million. TEKsystems remitted to the CompanyUS $3.6 million, representing the 2006 credit plus US $7 thousand of interestreceived on the 2006 credit after conversion at the exchange rate, minus US $54thousand for capital taxes assessed by Revenu Quebec with respect to 2006 afterconversion at the exchange rate, and minus US $1.9 million for income taxespayable on the 2006 credit and on the related interest calculated utilizing theabove-referenced exchange rate. Under the terms of the APA, TEKsystems has noright to offset any amounts due the Company.

 

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

 

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

 

The Commercial ServicesAsset Sale is a taxable transaction with respect to the Company to the extentof the gain that was realized. The Company will realize gain or loss measuredby the difference between the proceeds received by it and its affiliates onsuch sale and the Company’s (or an affiliate’s) tax basis in the assets. Forpurposes of calculating gain or loss, the proceeds received by the Company andits affiliates will include the cash received by them, the amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets. It is anticipated that the Company will havesufficient current losses to offset most of the gain expected to be realizedfrom the Commercial Services Asset Sale for regular Federal income tax purposesand will otherwise incur approximately $300 thousand in alternative minimumtaxes. The Company and/or its affiliates may

 

10

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be subject to state incometaxes to the extent that gains exceed losses for state tax law purposes, butthe Company does not anticipate that such taxes, if any, will be significant.

 

*Sale of Chimes*

 

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

 

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

 

On July 23, 2007,counsel for Axium International, Inc. and Diversity MSP (collectively, “Axium”)submitted a letter to the Company on Axium’s behalf purporting to be a claimnotice under the indemnification provisions of the Chimes Asset PurchaseAgreement asserting losses and damages, including punitive damages, inunspecified amount as a result of allegedly “fraudulent conduct, intentionaland willful and/or negligent misrepresentations, concealment and breach ofrepresentations, warranty, covenants and agreements contained in the [ChimesAsset Purchase] Agreement” by the Company, Chimes and certain of their officersand directors. Thereafter, on August 15, 2007, the Company received asummons and complaint in a lawsuit making similar allegations. On October 2,2007, the Company and Chimes filed an answer denying the material allegationsin the complaint and asserting certain affirmative defenses and the otherdefendants filed a motion to dismiss the complaint as to them. See Item 1 of Part IIof this Quarterly Report on Form 10-Q (Legal Proceedings) for adescription of that lawsuit and the Company’s response thereto.  On December 19, 2007, the Companyannounced that it had settled the litigation pending between it and AxiumInternational. The lawsuit was discontinued without prejudice, the partiesexchanged releases, and Computer Horizons made a payment to Diversity of$175,000.

 

The Chimes Asset Sale is ataxable transaction with respect to the Company to the extent of the gain thatwas realized. The Company will realize a gain measured by the differencebetween the proceeds received by it and its affiliates on such sale and theCompany’s (or an affiliate’s) tax basis in the assets. For purposes ofcalculating the gain, the proceeds received by the Company and its affiliateswill include the cash received by them, the amount of their indebtedness thatis cancelled or assumed, and any other consideration received by them for theirassets. It is anticipated that the Company will have sufficient NOLcarry-forwards to offset most of the gain realized from the Chimes Transactionfor regular Federal income tax purposes and otherwise incur approximately $1.3million in alternative minimum taxes.

 

The Company and/or itsaffiliates may be subject to state income taxes to the extent that gains exceedlosses for state tax law purposes, but does not anticipate that such taxes, ifany, will be significant. Based upon current projections, such state taxes areestimated to be approximately $627 thousand after taking into account theavailability of state losses to offset the gain, and have been accrued.

 

**2. Contingenciesand Estimates**

 

The Company will continue to incurcosts through the liquidation. Note 1 sets forth the current (initial) estimateof these costs. The Company will evaluate the assumptions, judgments andestimates that can have a significant impact during liquidation and makechanges accordingly. In addition, the following contingencies should be noted:

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

 

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        Thedetails of the above are described more fully elsewhere in this filing.

 

*Legal Matters*

 

        The Company is involved in various routinelitigation matters that arose in the normal course of business. Managementbelieves that the resolution of these matters will not have a material adverseeffect on the final liquidation of the Company. While the Company firmlymaintains that all claims against the Company in such matters are withoutmerit, it will continue to incur costs as it vigorously defends against theseclaims.

 

Inaddition, the Company is involved in litigation with TEKsystems,as described in Note 1 above and in Item 1 of Part II of thisQuarterly Report on Form 10-Q (Legal Proceedings).

 

**3. LiquidatingDistributions**

 

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

 

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

 

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

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

 

As a result, the amount ofcash remaining following completion of our liquidation and dissolution couldvary significantly from our current estimates.

 

*Election toSurrender Options*

 

        Inorder to facilitate the participation in any liquidating distributions by theholders of Company options, the board of directors granted to each optionholder the right to surrender their options in exchange for the right toreceive the amount(s) that such option holder would have been entitled toreceive in each distribution as if they held the number of shares of CommonStock issuable upon exercise of the surrendered options. The amount sodistributed to each option holder will be reduced by the exercise price of hisor her options, which will be applied to reduce the amounts that wouldotherwise be payable to the option holder until the exercise price has beenapplied in full. A total of 1,162,820 options were surrendered under the plan.The average exercise price for such options was $2.97 per share. The initial distributionto holders of surrendered options was $394,569.  The second distribution to holders of surrendered options on February 11,2008 was $250,846.

 

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**4. Voluntarywithdrawal from NASDAQ**

 

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

 

        OnMarch 12, 2007, the Company received a letter from NASDAQ stating that,based on the NASDAQ staff’s review of the Company’s public announcementsconcerning its shareholders’ approval of a plan of complete liquidation anddissolution of the Company and the declaration of an initial distribution (andanticipated subsequent distributions) in connection therewith and pursuant toMarketplace Rule 4300, the NASDAQ staff believes that the Company is a “publicshell” and as such no longer meets NASDAQ’s continued listing requirements, butthat in view of the Company’s plan to voluntarily withdraw its common stockfrom listing on NASDAQ and pursuant to Marketplace Rule 4450(f) thestaff has determined to grant an extension of time permitting the Company’scommon stock to continue to trade on NASDAQ through March 30, 2007.

 

        OnMarch 13, 2007, the Company announced that it had notified NASDAQ of itsintention to voluntarily withdraw its common stock from listing on NASDAQeffective immediately prior to the opening of trading on April 2, 2007,with the effect that the last day of trading on NASDAQ would be March 30,2007. The company’s stock began trading in the Pink Sheets effective at theopening of trading on Monday, April 2, 2007.

 

**5. RecentAccounting Pronouncements**

 

        InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 157, Fair Value Measurements (“FAS 157”). FAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements required under other accounting pronouncements. FAS 157 does notchange existing guidance regarding whether or not an instrument is carried atfair value. SFAS No. 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007. The Company does not expect asignificant impact on our consolidated financial statements of adopting SFAS No. 157.

 

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

 

**6. Accounting forStock-Based Compensation**

 

*Accounting forStock-Based Compensation*

 

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

 

        Nochanges occurred to the company’s outstanding stock options during the firstquarter 2008. A summary of the status of all the Company’s stock option plansas of March 31, 2008 is presented below:

 
| ** **                                                                                        | ** ** | **Three months ended  March 31, 2008 ** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| **Options (Three Months) **                                                        | ** ** | **Shares  (000’s) **                                   | ** ** | **Weighted  Average  Exercise  Price ** | ** ** |
| Outstanding January 1, 2008                                                                  |       | 25                                                               |       | $ | 3.31 |   |
| Granted                                                                                           |       | 0                                                                |       | $ | 0.00 |   |
| Exercised                                                                                         |       | 0                                                                |       | $ | 0.00 |   |
| Canceled/forfeited/expired                                                                        |       | 0                                                                |       | $ | 0.00 |   |
| Outstanding March 31, 2008                                                                   |       | 25                                                               |       | $ | 3.31 |   |
|                                                                                              |       |                                                             |       |   |   |
| Options exercisable March 31, 2008                                                           |       | 25                                                               |       | $ | 3.31 |   |
|                                                                                              |       |                                                             |       |   |   |
| Weighted average fair value of options  granted during the three months ended March 31, 2008 |       |                                                             |       | $ | 0.00 |   |

 

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**7. Cash**

 

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

 

**8. Asset-BasedLending Facility**

 

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

 

**9. Income Taxes**

 

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

 

        Asmentioned, liquidation accounting was adopted as of February 17, 2007, andas the result of operational losses, there is no provision from continuingoperations for 2007. TheCompany has accrued $627 thousand for state and local taxes and $1.3 millionfor federal alternative minimum taxes associated with the sale of operations asof December 31, 2007. As of the first quarter 2008, theCompany did not accrue any tax due to the current period operations.

 

*Deferred Tax Assetand Valuation Allowance*

 

        TheCompany records deferred tax assets for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and their respective tax bases, and operating loss carryforwards.Deferred tax assets are reduced by a valuation allowance if, based on availableevidence, it is more likely than not that some portion or all of the deferredtax assets will not be realized. In assessing the realizability of deferred taxassets, management considers the scheduled reversal periods of the deferred taxassets, whether sustained profitability has been achieved and tax planningstrategies.

 

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

 

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

 

        TheCompany adopted FASB Interpretation 48, Accounting for Uncertainty in IncomeTaxes (“FIN 48”), at the beginning of fiscal year 2007. As a result of theimplementation the Company recognized a $150 thousand net increase toreserves for uncertain tax positions. This change has two components of whichamounts related to a re-class to a non income tax reserve balance of$200 thousand for sales and use tax and a $350 thousand increase tothe income tax reserve. The $350 thousand increase was accounted for as anadjustment to the beginning balance of retained earnings on the Balance Sheet.Including the cumulative effect for the adoption of FIN 48, at the beginning of2007, the Company had approximately $1.3 million of total grossunrecognized tax benefits. Of this total, $845 thousand (net of thefederal benefit on state issues) represents the amount of unrecognized taxbenefits that, if recognized, would favorably affect the effective income taxrate in any future periods.

 

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

 

        TheCompany’s continuing practice is to recognize interest and/or penalties relatedto income tax matters in income tax expense. The Company has accrued interestof approximately $30 thousand as of the first quarter 2008 for FIN48related items.

 

**10. Change ofControl and other Special Charges and Contingency Payments**

 

        Thebalance of the $2.3 million in change of control payments to employees wasre-classed to the short-term liability section of the 2006 balance sheet due tothe future liquidation of the Company. These liabilities were paid in full asof the end of the second quarter of 2007.

 

**11. RefundableIncome Tax**

 

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

 

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** **

**Item 2.**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Period Ended March 31, 2008 and March 31, 2007**

 

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

 

**FORWARD-LOOKINGSTATEMENTS**

 

        Thisreport contains forward-looking statements within the meaning of the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Insome cases, forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions.Such forward-looking statements are subject to a number of risks anduncertainties, and there can be no assurance that the expectation reflected inthose statements will be realized or achieved. Such risks and uncertaintiesinclude, without limitation, possible contingent liabilities and post-closingindemnification and other obligations arising from the sale of the Company’sbusinesses; and risks associated with the liquidation and dissolution of theCompany, including without limitation, settlement of the Company’s liabilitiesand obligations, costs incurred in connection with the carrying out of the planof liquidation and dissolution, the amount of income earned on the Company’scash and cash equivalents and short-term investments during the liquidationperiod, and the actual timing of liquidating distributions. All forward-lookingstatements included in this report are based on information available to theCompany on the date hereof. The Company undertakes no obligation (and expresslydisclaims any such obligation) to update forward-looking statements made inthis report to reflect events or circumstances after the date of this report orto update reasons why actual results would differ from those anticipated insuch forward-looking statements.

 

**Overview**

 

        Ata Special Meeting held on February 14, 2007, the shareholders of theCompany approved the sales of the Company’s Chimes, Inc. subsidiary to anaffiliate of Axium International and the Company’s Commercial Division toAllegis Group (collectively, the “Asset Sales”). At the Special Meeting, theshareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company (the “Plan of Liquidation”). TheCompany began implementing the Plan of Liquidation after the Asset Sales werecompleted on February 16, 2007. Prior to the Asset Sales, the Companyprovided information technology staffing and project-based services to privatecompanies and the United States government.

 

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

 

        Asof March 31, 2008, the Company had approximately $13.1 million incash and cash equivalents and $15.3 million in working capital and no debtoutstanding.

 

**Background ofLiquidation**

 

*Sale of RGII*

 

        OnSeptember 29, 2006, the Company sold its subsidiary, RGII Technologies, Inc.,to Netstar-1, Inc. for $15.3 million in cash, less an estimated netasset adjustment of $1.2 million. In addition, CHC retained all cash andcash equivalents of RGII, in the amount of $6.3 million. The amount of theestimated net asset adjustment was subject to a final review. To the extentthat the final net asset amount sold to NetStar-1 was greater than theestimated net asset amount at closing, the Stock Purchase Agreement providedthat the excess would be paid to CHC together with interest thereon at theprime rate from the closing date to the date of payment. If the final net assetamount sold to NetStar-1 was less than the estimated net asset amount at closing,the Stock Purchase Agreement

 

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provided that the deficiency wouldbe paid by CHC to NetStar-1, together with interest thereon at the prime ratefrom the closing date to the date of payment. During the second quarter 2007,the parties reached agreement on the final net asset amount, resulting in apayment to the Buyer in the amount of $215 thousand. The remainder of theamount in escrow of $785 thousand was released from escrow to CHC. Thesale of RGII resulted in a net book loss on disposal of $4.8 million,including approximately $969 thousand in transaction costs as reported September 30,2006.

 

*Sale of Commercial*

 

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

 

On April 17, 2007,TEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems. The Companycontinues to believe that its estimate of approximately $1.9 million isaccurate, and has disputed this claim. While some differences were resolved,there still remains a difference of $3.3 million between the Company’s estimateand that of TEKsystems. The principal item in dispute relates to the Company’sbelief that Computer Horizons (Canada) Corp. (“Canada Sub”) has sufficient NOL’sto offset any income tax due on the Quebec tax receivable discussed below. Underthe terms of the Commercial Services Asset Purchase Agreement, such disputeditems are to be determined by an independent accounting firm and, on September 19,2007 the Company, and on September 28, 2007 TEKsystems, submitted thedisputed items to such independent accounting firm for determination. To date,TEKsystems has refused to proceed with such process to resolve these disputeditems and this is now the subject of litigation between CHC and TEKsystems. Fora more detailed description of this litigation, see Item 1 of Part II ofthis Quarterly Report on Form 10-Q (Legal Proceedings).

 

The Commercial ServicesAsset Sale included all of the capital stock of Computer Horizons (Canada)Corp. (“Canada Sub”) but, as noted above, specifically excluded a refundableincome tax credit payable to Canada Sub by Revenu Quebec for the tax years 2005and 2006 (the “Quebec Tax Receivable”). During the third quarter of 2007,TEKsystems advised the Company that Canada Sub had received approximatelyCanadian $4.3 million with respect to the Quebec Tax Receivable for 2005(representing approximately Canadian $4.4 million in tax credit and interestless a deduction for associated capital taxes of approximately Canadian $114thousand). Using the exchange rate between the Canadian and United Statesdollars as of the day before the date of TEKsystem’s notice to the Company, thereceipt by TEKsystems amounted to approximately US $4.4 million. TEKsystemsremitted to the Company approximately $958 thousand, after deductingapproximately $1.49 million for Canadian income taxes, $1.89 million as apurchase price adjustment under the Commercial Services Asset PurchaseAgreement, and $114 thousand for capital taxes. Under the terms of theCommercial Services Asset Purchase Agreement, TEKsystems has no right to offsetany amounts due the Company and the aforementioned amount of $1.49 million issubject to dispute and has been submitted to an independent accounting firm fordetermination, although TEKsystems has refused to proceed with such process asmentioned above. The Company has recorded the $958 thousand as a deferred cashcredit in the balance sheet. After demands to remit the $4.3 million wereignored, the Company, onOctober 19,2007, filed a lawsuit against TEKsystems seeking damages for the failure ofTEKsystems to remit the balance of the funds received by it with respect to the2005 Quebec Tax Receivable and a declaration that TEKsystems must promptlyremit to the Company upon receipt all funds received by it in the future inpayment of the 2006 Quebec Tax Receivable. For a more detailed description ofthis litigation, see Item 1 of Part II of this Quarterly Report on Form 10-Q(Legal Proceedings).

 

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

 

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

 

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

 

No discovery has yet beentaken in this action.

 

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

 

On April 28, 2008,TEKsystems notified the Company that Canada Sub has received a payment fromRevenu Quebec with respect to the 2006 Quebec Tax Receivable (See Note 11) ofCanadian $5.6 million consisting of a calendar year 2006 credit of Canadian$5.6 million less a calendar year 2006 capital tax of Canadian $55 thousand(which was withheld by Revenu Quebec from the payment). In addition to theabove payment, Canada Sub received a payment of interest on the 2006 credit ofCanadian $7 thousand. Using the noon buying rate published by the FederalReserve Bank of New York on April 28, 2008 (1.0158 Canadian $per U.S. $),the 2006 credit equates to US $5.5 million. TEKsystems remitted to the CompanyUS $3.6 million, representing the 2006 credit plus US $7 thousand of interestreceived on the 2006 credit after conversion at the exchange rate, minus US $54thousand for capital taxes assessed by Revenu Quebec with respect to 2006 afterconversion at the exchange rate, and minus US $1.9 million for income taxespayable on the 2006 credit and on the related interest calculated utilizing theabove-referenced exchange rate. Under the terms of the APA, TEKsystems has noright to offset any amounts due the Company.

 

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

 

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

 

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

 

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received by it and itsaffiliates on such sale and the Company’s (or an affiliate’s) tax basis in theassets. For purposes of calculating gain or loss, the proceeds received by theCompany and its affiliates will include the cash received by them, the amountof their indebtedness that is cancelled or assumed, and any other considerationreceived by them for their assets. It is anticipated that the Company will havesufficient current losses to offset most of the gain expected to be realizedfrom the Commercial Services Asset Sale for regular Federal income tax purposesand will otherwise incur approximately $300 thousand in alternative minimumtaxes. The Company and/or its affiliates may be subject to state income taxesto the extent that gains exceed losses for state tax law purposes, but theCompany does not anticipate that such taxes, if any, will be significant.

 

*Sale of Chimes*

 

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

 

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

 

On July 23, 2007,counsel for Axium International, Inc. and Diversity MSP (collectively, “Axium”)submitted a letter to the Company on Axium’s behalf purporting to be a claimnotice under the indemnification provisions of the Chimes Asset PurchaseAgreement asserting losses and damages, including punitive damages, inunspecified amount as a result of allegedly “fraudulent conduct, intentionaland willful and/or negligent misrepresentations, concealment and breach of representations,warranty, covenants and agreements contained in the [Chimes Asset Purchase]Agreement” by the Company, Chimes and certain of their officers and directors.Thereafter, on August 15, 2007, the Company received a summons andcomplaint in a lawsuit making similar allegations. On October 2, 2007, theCompany and Chimes filed an answer denying the material allegations in thecomplaint and asserting certain affirmative defenses and the other defendantsfiled a motion to dismiss the complaint as to them. See Item 1 of Part IIof this Quartterly Report on Form 10-Q (Legal Proceedings) for adescription of that lawsuit and the Company’s response thereto. On December 19,2007, the Company announced that it had settled the litigation pending betweenit and Axium International. The lawsuit was discontinued without prejudice, theparties exchanged releases, and Computer Horizons made a payment to Diversityof $175,000.

 

The Chimes Asset Sale is ataxable transaction with respect to the Company to the extent of the gain thatwas realized. The Company will realize a gain measured by the differencebetween the proceeds received by it and its affiliates on such sale and theCompany’s (or an affiliate’s) tax basis in the assets. For purposes ofcalculating the gain, the proceeds received by the Company and its affiliateswill include the cash received by them, the amount of their indebtedness thatis cancelled or assumed, and any other consideration received by them for theirassets. It is anticipated that the Company will have sufficient NOLcarry-forwards to offset most of the gain realized from the Chimes Transactionfor regular Federal income tax purposes and otherwise incur approximately $1.3million in alternative minimum taxes.

 

The Company and/or its affiliatesmay be subject to state income taxes to the extent that gains exceed losses forstate tax law purposes, but does not anticipate that such taxes, if any, willbe significant. Based upon current projections, such state taxes are estimatedto be approximately $627 thousand after taking into account the availability ofstate losses to offset the gain, and have been accrued.

 

***LiquidationBasis of Accounting***

 

        Theconsolidated financial statements for the period January 1, 2007 to February 16,2007 were prepared on the going concern basis of accounting, which contemplatesrealization of assets and satisfaction of liabilities in the normal course ofbusiness. As a result of the shareholders’ approval of the Plan, the Companyadopted the liquidation basis of accounting effective February 17, 2007.This basis of accounting is considered appropriate when, among other things,liquidation of a company is probable and the net realizable values of assetsare

 

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reasonably determinable. Under thisbasis of accounting, assets are valued at their net realizable values andliabilities are stated at their estimated settlement amounts. The conversionfrom the going concern to liquidation basis of accounting required managementto make significant estimates and judgments to record assets at estimated netrealizable value and liabilities at estimated settlement amounts.

 

***CriticalAccounting Policies and Estimates***

 

        Ourdiscussion and analysis of financial condition and results of operations arebased upon our consolidated financial statements, which have been prepared bythe Company without audit in accordance with the rules and regulations ofthe Securities and Exchange Commission. The preparation of our financialstatements requires us to make estimates that affect the reported amounts ofassets, liabilities, revenue and expense, and related disclosure of contingentassets and liabilities. Accounting estimates are based on historical experienceand other factors that are believed to be reasonable under the circumstances.However, actual results may vary from these estimates under differentassumptions or conditions.

 

        Pursuantto the Plan of Liquidation, since February 16, 2007, our operations havebeen limited to wind down of our business and affairs, selling our remainingassets and discharging our known liabilities. We plan to distribute ourremaining assets to our stockholders, in accordance with the Plan ofLiquidation.

 

***AccruedCosts of Liquidation***

 

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

 
| **($ in thousands)**         | ** ** | **As Booked  2/17/2007** | ** ** | **Recorded  prior to  2/17/2007*** | ** ** | **Adjustments  to reserves** | ** ** | **Activity  to date** | ** ** | **Balance at  3/31/08** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|----------------------------|------------|------------------------------|------------|
| Lease Obligation                       |       | $                             | 1,324      |                                    |       |                              | 248        |                       | (1,545     | )                            | 27         |   |
| Legal Fees                             |       | 450                           |       |                                    |       | 2,000                             |       | (615                       | )          | 1,835                        |       |
| Professional Fees, including insurance |       | 2,037                         |       |                                    |       | 3,080                             |       | (4,566                     | )          | 551                          |       |
| Human Resources                        |       | 3,480                         |       | 1,188                                   |       | 1,388                             |       | (5,701                     | )          | 355                          |       |
| Systems-related                        |       | 819                           |       |                                    |       | (269                              | )          | (500                       | )          | 50                           |       |
| Misc.                                  |       | 900                           |       | 295                                     |       | (310                              | )          | (790                       | )          | 95                           |       |
|                                   |       |                          |       |                                    |       |                              |       |                       |       |                         |       |
| Total                                  |       | $                             | 9,010      |                                    | 1,483      |                              | 6,137      | **                         | (13,717    | )                            | 2,913      |   |

 

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*     Accrualscarry forward from operating period.

**   Adjustments to reserves totaled $6.1 million,and were primarily the result of revised estimates relating to the cost ofprofessional services and human resource costs. (See “Sale of Commercial” and“Sale of Chimes” above, for a discussion of current legal proceedings.)

 

 

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

 

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

 

**Recent Developments**

 

*SpecialShareholders Meeting*

 

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

 

*Change of ControlCharges and Special Charges*

 

        Thebalance of the $2.3 million in change of control payments to employees wasre-classed to the short-term liability section of the 2006 balance sheet due tothe liquidation of the Company. These liabilities were paid in full as of theend of the second quarter of 2007.

 

**Evaluation of BadDebt Reserve**

 

        Historically,the Company determined its allowance for doubtful accounts by considering anumber of factors, including the length of time trade accounts receivable arepast due, the Company’s previous loss history, the customer’s current abilityto pay its obligations to the Company and the condition of the general economyand the industry as a whole. The Company wrote off accounts receivable whenthey became uncollectible, and payments subsequently received on suchreceivables were credited to the allowance for doubtful accounts.

 

        Inconnection with the sale of the Commercial Services Business Unit, theallowance for doubtful accounts was increased by $1.3 million as of February 16,2007. This recalculation was done utilizing the formula prescribed in theCommercial Services Asset Purchase Agreement, and not as a result of anydeterioration in the Commercial accounts receivable.

 

**Valuation ofDeferred Tax Assets**

 

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

 

        TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net 

 

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operating losses, and all state netoperating losses. The Company believes that the valuation allowance isappropriate because these deferred tax assets have relatively shortcarryforward periods or relate to taxing jurisdictions which do not allow thefiling of consolidated tax returns. Also, as a result of adopting liquidationaccounting, the Company does not expect to utilize its deferred tax asset dueto the sale of the remaining operations.

 

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

 

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

 

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

 

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

 

*        Income/ (Loss) from Continuing Operations.*    TheCompany’s net loss from continuing operations totaled $(4.2) million inthe period from January 1, 2007 to February 16, 2007. Due to theadoption of the liquidation basis of accounting effective February 17,2007, these numbers are no longer reported.

 

*        OtherIncome/(Expense).*    Other income(primarily net interest income) totaled approximately $880 thousand in theperiod from January 1, 2007 to February 16, 2007. Due to the adoptionof the liquidation basis of accounting effective February 17, 2007, thesenumbers are no longer reported.

 

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

 

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

 

*        Provisionfor Income Taxes:*    Taxes havebeen provided as a result of the sale of the business operations. The Companyhas accrued $627 thousand for state and local taxes and $1.3 million forfederal alternative minimum taxes.

 

        Asmentioned, for the quarter ended March 31, 2007, liquidation accountingwas adopted and as the result of operational losses, there is no provision fromcontinuing operations. Taxes have been provided as a result of the sale of thebusiness operations. TheCompany has accrued $627 thousand for state and local taxes and $1.3 millionfor federal alternative minimum taxes.

 

*        NetIncome.*    The net income for the period from January 1,2007 to February 16, 2007 was $99.4 million, or $2.94 per basic anddiluted share.

 

**Liquidity andCapital Resources**

 

        OnFebruary 16, 2007, cash was received in the amount of $80 million forthe sale of Chimes and $57 million for the sale of the Commercial BusinessServices Unit. On March 5,2007, the Company announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to its commonshareholders (and certain former option holders under the provisions of thesurrender plan described above). The 

 

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initial liquidatingdistribution represented a partial distribution to shareholders of the proceedsreceived by the Company from the sales of RGII, Chimes and the CommercialServices Business Unit. In determining the amount of the initial distribution,the Company considered wind-down and transition expenses and the exposure forcontingent claims under the asset purchase agreements. The distribution waspaid on March 27, 2007 to shareholders of record as of the close ofbusiness on March 16, 2007. The initial liquidating distribution was thefirst of what is expected to be a series of liquidating distributions pursuantto the Plan of Liquidation. On December 19, 2007, the Board of Directorsannounced a second liquidating distribution of $.30 per share, or $10.2 million,to its common shareholders and certain option holders under the provisions ofthe surrender plan described above. This distribution was paid on February 11,2008 to shareholders of record as of the close of business on January 15,2008.

 

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

 

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

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

 

As a result, the amount ofcash remaining following completion of our liquidation and dissolution couldvary significantly from our current estimates.

 

        Asof March 31, 2008, the Company had approximately $15.3 million inworking capital, of which $13.1 million was cash and cash equivalents.

 

         Netcash provided by operating activities for the period from January 1through February 16, 2007 was $98 million consisting primarily of netloss of $(3.2) million offset by the gain on sale of Chimes and theCommercial Services Business Unit of $102.6 million.

 

        Netcash provided by investing activities for the period from January 1through February 16, 2007 was $1.5 million, consisting primarily ofthe sale of fixed assets as a part of the sale of Chimes and the CommercialServices Business Unit.

 

        Netcash provided by financing activities for the period from January 1through February 16, 2007 was $.4 million, primarily consisting ofshares issued pursuant to the employee stock option plan and employee stockpurchase plan.

 

**Recent AccountingPronouncements**

 

        InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 157, Fair Value Measurements (“FAS 157”). FAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements required under other accounting pronouncements. FAS 157 does notchange existing guidance regarding whether or not an instrument is carried atfair value. SFAS No. 157 is effective for financial statements issued forfiscal years beginning after November 15, 2007. The Company does notexpect a significant impact on our consolidated financial statements ofadopting SFAS No. 157.

 

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

 

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** **

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

 

        TheCompany does not ordinarily hold market risk sensitive instruments for tradingpurposes. However, the Company does recognize market risk from interest ratechanges. The Company has financial instruments that are subject to interestrate risk. However, at March 31, 2008, the Company was debt-free.Historically, the Company has not experienced material gains or losses due tointerest rate changes. However, a reduction in interest rates would reduce theinterest income received by the Company on the cash and cash equivalents itholds.

 

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**Item 4.    Controls andProcedures**

 

**Disclosure Controls and Procedures**

 

The Company’sCEO and CFO have evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) underthe Securities Exchange Act of 1934, as amended, referred to herein as the “ExchangeAct”) as of the end of the period covered by this report. Based upon suchevaluation, the Company’s Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of such period, the Company’s disclosurecontrols and procedures are effective in recording, processing, summarizing andreporting, information required to be disclosed by the Company in the reportsthat it files or submits under the Exchange Act.

 

**Internal Controls over Financial Reporting**

 

There havenot been any changes in the Company’s internal controls over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15eunder the Exchange Act) during the period to which this report relates that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within a company have been detected.

 

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**PART II—Other Information**

 

**Item 1. Legal Proceedings.**

 

The Company is, orwas, a party to the following lawsuits, each arising out of the Asset Sales.

 

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

 

AxiumInternational, Inc. (“Axium”) and Diversity MSP, Inc. (“Diversity”)commenced this action in August 2007 against the Company, Chimes, Inc.(now known as Forgone, LLC), and certain of their officers, alleging that thedefendants engaged in fraudulent conduct, including making representationsallegedly known by them to be false, and active concealment and thereby inducedthe plaintiffs into entering into the contract with the Company and Chimeswhereby Diversity purchased substantially all of the assets of Chimes, and thatthe Company and Chimes breached representations, warranties, covenants andagreements contained in that agreement. The complaint asked for damages in anunspecified amount and attorney’s fees. On October 2, 2007, the Companyand Chimes filed an answer denying the material allegations in the complaintand asserting certain affirmative defenses, and the other defendants filed amotion to dismiss the complaint as to them. Subsequently, the action wassettled in December 2007, without any admission of liability by theCompany or any of the other defendants, with the payment by the Company of$175,000 to Axium and with discontinuance of all of the claims asserted byAxium and Diversity in the action with prejudice.

 

Computer HorizonsCorp.v. TEKsystems, Inc. (United States District Court, District ofMaryland, Case No.: 1:07-CV- 02849 WMN)

 

This action relatesto the Asset Purchase Agreement entered into as of November 7, 2006 by andamong TEKsystems, Inc.(“TEK”), Allegis Group, Inc., the Company(referred to therein as “Seller”), and others (the “APA”) under which theCompany agreed to sell and TEK agreed to purchase substantially all of theassets of the business of the Company’s Commercial Services Business Unit.Included among the assets was all of the capital stock of the Company’sCanadian subsidiary, Computer Horizons (Canada) Corp. (“Canada Sub”). Specificallyexcluded from the sale of assets and retained by the Company is a refundableincome tax credit payable to Canada Sub by Revenu Quebec for the tax years 2005and 2006 (the “Quebec Tax Receivable”). The closing of the sale of the assetsunder the APA occurred on February 16, 2007 (the “Closing Date”). Underthe APA, TEK agreed to promptly remit to the Company all amounts collected byTEK after the closing in payment of the Quebec Tax Receivable.

 

During the thirdquarter of 2007, TEKsystems advised the Company that Canada Sub had receivedapproximately Canadian $4.3 million with respect to the Quebec Tax Receivablefor 2005 (representing approximately Canadian $4.4 million in tax credit andinterest less a deduction for capital taxes of approximately Canadian $114thousand). Using the exchange rate between theCanadian and United Statesdollars as of the day before the date of TEKsystem’s notice to the Company, thereceipt by TEKsystems amounted to approximately US $4.4 million. TEKsystemsremitted to the Company approximately $958 thousand, after deductingapproximately $1.49 million for Canadian income taxes, $1.89 million as apurchase price adjustment under the APA, and $114 thousand for capital taxes.Under the terms of the APA, TEKsystems has no right to offset any amounts duethe Company. The Company has recorded the $958 thousand as a deferred cashcredit in the balance sheet as of September 30,  2007. After demands to remit the $4.3 millionwere ignored, on October 19, 2007, the Company commenced this actionagainst TEK, seeking damages for the failure of TEK to remit the full amount ofthe Quebec Tax Receivable for 2005 to the Company, and a declaration that TEKmust remit to the Company the full amount of the Quebec Tax Receivable for 2006to be received by Canada Sub from Revenu Quebec promptly upon such receipt.

 

On April 28,2008, TEKsystems notified the Company that Canada Sub has received a paymentfrom Revenu Quebec with respect to the 2006 Quebec Tax Receivable of Canadian$5,578,733 consisting of a calendar year 2006 credit of Canadian $5,633,706less a calendar year 2006 capital tax of Canadian $54,973 (which was withheldby Revenu Quebec from the payment).  Inaddition to the above payment, Canada Sub received a payment of interest on the2006 credit of Canadian $7,112.67.  Usingthe noon buying rate published by the Federal Reserve Bank of New York on April 28,2008 (1.0158 Canadian $ per U.S. $), the 2006 credit equates to US$5,546,077.97.  TEKsystems remitted tothe Company US $3,624,908.63, representing the 2006 credit plus US $7,002.04 ofinterest

 

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received on the2006 credit after conversion at the exchange rate, minus US $54,117.94 forcapital taxes assessed by Revenu Quebec with respect to 2006 after conversionat the exchange rate, and minus US $1,874,053.44 for income taxes payable onthe 2006 credit and on the related interest calculated utilizing theabove-referenced exchange rate.  Underthe terms of the APA, TEKsystems has no right to offset any amounts due theCompany.

 

The APA providesfor a potential purchase price adjustment based on the Final Net WorkingCapital of the business sold thereunder as of the Closing Date. There aredisputes between the Company and TEK concerning certain items involved in thedetermination of Final Net Working Capital (and any purchase price adjustment).Under the APA, all such disputed items are to be determined by an independentaccounting firm. The Company and TEK submitted the disputed items to suchindependent accounting firm for determination, but TEK has failed to cooperatewith the independent accounting firm and has prevented it from determining thedisputed items in calculating Final Net Working Capital. Accordingly, theCompany filed an amended complaint on December 29, 2007 in this action,adding a third claim, i.e., for judgment ordering TEK to cooperate promptlywith the independent accounting firm in its determination of the disputed itemsin the calculation of Final Net Working Capital.

 

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

 

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

 

No discovery hasyet been taken in this action.

 

The Companyintends to prosecute its claims and defend against the counterclaims of TEKvigorously in this action.

 

TEKsystems Canada , Inc.v. Computer Horizons Corp. (United States District Court, District of Maryland,Case No.: 1:08-CV-00209 WMN)

 

On January 24,2008. Canada Sub, now known as TEKsystems Canada, Inc., filed this actionagainst the Company, alleging four claims: (1) for judgment in the amountof Canadian income taxes that Canada Sub claims is owed for its receipt of theQuebec Tax Receivable for 2005, i.e., Canadian$1,495,139, and a declarationthat the Company will be liable for the amount of Canadian income taxes thatwill allegedly be owed upon and for Canada Sub’s future receipt of the QuebecTax Receivable for 2006, i.e., Canadian$1,890,559, (2) for judgment in theamount of Canadian$113,854, and a declaration that the Company will be liablefor at least Canadian$54,973, and Canadian$25,062 in Canadian provincialcapital taxes, penalties, and interest that Canada Sub alleges it owes or willowe for, respectively, 2005, 2006, and the period January 1, 2007 through February 16,2007, (3) for a judgment for Canada Sub’s alleged loss of tax attributesin the amount of Canadian$12,889,974 by the method by which an intercompanynote made payable by Canada Sub to the Company was allegedly contributed, and (4) fora declaration that the Company will be liable for the amount that Canada Submay allegedly owe under a purported payroll tax audit. The complaint seek tohave the court impose a constructive trust over the assets of the Company toremedy its purportedly “inequitable conduct.”

 

On February 27,2008, the Company filed its answer to the complaint in this action, denying thesubstantive allegations of the complaint.

 

On February 27,2008, the Company filed a motion in this action to stay proceedings on CanadaSub’s first two claims in its complaint, i.e., (1) for the amounts of thetaxes allegedly owed for the receipt of the Quebec Tax 

 

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Receivable for2005 and allegedly will be owed upon and for Canada Sub’s future receipt of theQuebec Tax Receivable for 2006 and (2) for the amounts of the purportedCanadian provincial capital taxes owed for 2005, 2006, and the period January 1,2007 through February 16, 2007, pending completion of the arbitrationbetween TEK and the Company before the independent accounting firm. This motionwas in substance granted by the order entered April 24, 2008, mentionedabove, in which the court stayed the consolidated action (i.e., the actionbrought by Canada Sub against the Company in the United States District Courtfor the District of Maryland), “pending the issuance of a written determinationof “Net Working Capital” by the independent accounting firm.

 

By stipulationsbetween counsel for the parties in this action and the above described actioncommenced by the Company in the District of Maryland and order of the Courtdated February 27, 2008, the two actions in the District of Maryland wereconsolidated.

 

No discovery hasyet been taken in this action.

 

The Companyintends to defend itself vigorously against the claims of Canada Sub in theconsolidated lawsuit.

 

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**Item 1a.    RiskFactors**

 

*Forward looking statements are subject to various uncertainties.*

 

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

 

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

 

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

 

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

 

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

 

The Company’sBoard of Directors will be required to make adequate provision to satisfy theCompany’s liabilities, including known and unknown claims against the Company,before authorizing any further distribution to shareholders. The process ofaccounting for the Company’s liabilities, including those that are presentlyunknown, may involve difficult valuation decisions, which could adverselyimpact the Company’s ability to make distribution in full in a timely manner.Substantial time may be required for the Company to determine the extent of itsliabilities to known third party creditors and claimants and for the Company tosettle or judicially resolve any claims that are contested. Furthermore,pursuant to the New York Business Corporation Law, the Company may be subjectto claims being commenced against it for liabilities unknown to it for a periodof time after dissolution. Assuming the Company has sufficient remaining cash,a period of time must elapse after dissolution before the Company would be ableto make any distribution in full to shareholders of its assets remaining aftersatisfying or providing for all its liabilities and obligations, and suchdistribution may likely be made in more than one installment over an extendedperiod of time.

 

If the Company’s contingent reserves are insufficient to satisfy its liabilities,creditors could assert claims against the Company seeking to preventdistributions or against the Company’s shareholders to the extent ofdistributions received.

 

If a courtholds at any time that the Company has failed to make adequate provision forits expenses and liabilities or if the amount ultimately required to be paid inrespect of such liabilities exceeds the amount available from the contingencyreserve, the Company’s creditors could seek an injunction against the making ofdistributions on the grounds that the amounts to be distributed are needed toprovide for the payment of the Company’s expenses and liabilities. Any suchaction could delay or substantially diminish the amount of any cashdistributions to shareholders.

 

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

 

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** **

**Item 6.    Exhibits**

 
| **Exhibits** | ** ** | ** **                                                                                                                                        |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| *31.1 — |       | CEO  Certification required by Rule 13a-15(e)/15d-15(e) under the  Securities Exchange Act of 1934.                                |
| *31.2 — |       | CFO Certification  required by Rule 13a-15(e)/15d-15(e) under the Securities Exchange  Act of 1934.                                |
| *32.1 — |       | CEO  Certification pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.2 — |       | CFO  Certification pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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*  Filed herewith.

 

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**Signatures**

 

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

 
|                    | COMPUTER  HORIZONS CORP.                       |   |
|-------------------------|------------------------------------------------|--------|
|                    | (Registrant)                              |   |
|                    |                                           |
| DATE:  May 9, 2008 | /s/    DENNIS CONROY                 |
|                    | Dennis  Conroy,                                |
|                    | *President and CEO*                            |
|                    | *(Principal Executive Officer)*                |
|                    |                                           |
| DATE:  May 9, 2008 | /s/    BARBARA RODRIGUEZ             |
|                    | Barbara  Rodriguez,                            |
|                    | *Chief Financial Officer*                      |
|                    | *(Principal Financial and Accounting Officer)* |

 

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