**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

----

 

**FORM 10-Q**

 

**ý****                                ****QuarterlyReport Under Section 13 or 15(d) of the Securities Exchange Act of 1934**

**forthe quarterly period ended June 30, 2003**

 

**or**

 

**o****                                ****TransitionReport pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**forthe transition period from        to      **

 

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**CommissionFile Number 0-7282**

 

**COMPUTER HORIZONS CORP.**

(Exact name ofregistrant as specified in its charter)

 

| **New  York**                                                                                                                                                                                                                            |   | **13-2638902**                           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                                                                                                                                                                         |   | (I.R.S. Employer  Identification Number) |
|                                                                                                                                                                                                                                     |   |                                     |
| **49  Old Bloomfield Avenue, Mountain Lakes, New Jersey  07046-1495**                                                                                                                                                          |
| (Address of  principal executive offices)                               (Zip code) |
|                                                                                                                                                                                                                                     |   |                                     |
| Registrant’s  telephone number, including area code**(973)  299-4000**                                                                                                                                                              |

 

**NotApplicable**

(Former name,former address and former fiscal year, ifchanged since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirements for thepast 90 days.

 

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

 

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

 

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

 

As of August 11, 2003 theissuer had 30,472,840 shares of common stock outstanding.

 

 

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**COMPUTER HORIZONS CORP. ANDSUBSIDIARIES**

 

 

Index

 

 
| Part I    Financial Information |
|------------------------------------------------|
|                                           |   |   |
| Item 1                                         | Consolidated Balance Sheets  June 30, 2003 (unaudited) and December 31, 2002 | 3 |
|                                           |   |   |
|                                           | Consolidated  Statements of Operations  Three and Six Months Ended June 30, 2003  and June 30, 2002 (unaudited) | 4 |
|                                           |   |   |
|                                           | Consolidated  Statements of Cash Flows  Six Months Ended June 30, 2003  and June 30, 2002 (unaudited) | 5 |
|                                           |   |   |
|                                           | Notes to  Consolidated Financial Statements | 6 |
|                                           |   |   |
| Item  2                                        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 19 |
|                                           |   |   |
| Item  4                                        | Controls  and Procedures | 26 |
|                                           |   |   |
| Part II                                        | Other Information |   |
|                                           |   |   |
| Item 1                                         | Legal Proceedings | 27 |
|                                           |   |   |
| Item 4                                         | Submission of Matters to a Vote of Security Holders | 28 |
|                                           |   |   |
| Item 6                                         | Exhibits and Reports on Form 8-K | 29 |
|                                           |   |   |
|                                           | Signatures | 30 |

 

2

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 
|                                                                                                                                    |   | **June 30,  2003** |    | **December 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|------------------------|--------|
|                                                                                                                                    |   | **(unaudited)**    |    |                   |   |
| ASSETS                                                                                                                                  |   |               |    |                   |   |
| CURRENT ASSETS:                                                                                                                         |   |               |    |                   |   |
| Cash and cash equivalents                                                                                                               |   | $                  | 71,057  |                   | $      | 59,769 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $8,320 and $7,696 at June 30, 2003 and December 31,  2002, respectively |   | 48,976             |    | 56,616                 |   |
| Deferred income taxes                                                                                                                   |   | 5,867              |    | 4,557                  |   |
| Refundable income taxes                                                                                                                 |   | —             |    | 19,051                 |   |
| Other                                                                                                                                   |   | 5,588              |    | 7,219                  |   |
| TOTAL CURRENT ASSETS                                                                                                                    |   | 131,488            |    | 147,212                |   |
|                                                                                                                                    |   |               |    |                   |   |
| PROPERTY AND EQUIPMENT                                                                                                                  |   | 38,522             |    | 37,643                 |   |
| Less accumulated depreciation                                                                                                           |   | (29,101            | )       | (26,626                | )      |
|                                                                                                                                    |   | 9,421              |    | 11,017                 |   |
|                                                                                                                                    |   |               |    |                   |   |
| OTHER ASSETS - NET:                                                                                                                     |   |               |    |                   |   |
| Goodwill                                                                                                                                |   | 19,590             |    | 19,203                 |   |
| Deferred income taxes                                                                                                                   |   | 10,969             |    | 8,020                  |   |
| Other                                                                                                                                   |   | 10,509             |    | 8,279                  |   |
| TOTAL OTHER ASSETS                                                                                                                      |   | 41,068             |    | 35,502                 |   |
|                                                                                                                                    |   |               |    |                   |   |
| TOTAL ASSETS                                                                                                                            |   | $                  | 181,977 |                   | $      | 193,731 |   |
|                                                                                                                                    |   |               |    |                   |   |
|                                                                                                                                    |   |               |    |                   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                               |   |               |    |                   |   |
| CURRENT LIABILITIES:                                                                                                                    |   |               |    |                   |   |   |   |
| Accounts payable                                                                                                                        |   | $                  | 7,722   |                   | $      | 10,830 |   |
| Accrued payroll, payroll taxes and benefits                                                                                             |   | 4,748              |    | 4,529                  |   |
| Restructuring reserve                                                                                                                   |   | 3,877              |    | 3,266                  |   |
| Income taxes payable                                                                                                                    |   | 706                |    | —                 |   |
| Tax benefit reserve                                                                                                                     |   | 19,600             |    | 19,600                 |   |
| Other accrued expenses                                                                                                                  |   | 3,621              |    | 3,408                  |   |
| TOTAL CURRENT LIABILITIES                                                                                                               |   | 40,274             |    | 41,633                 |   |
|                                                                                                                                    |   |               |    |                   |   |
| OTHER LIABILITIES                                                                                                                       |   | 5,993              |    | 6,243                  |   |
|                                                                                                                                    |   |               |    |                   |   |
| SHAREHOLDERS’ EQUITY:                                                                                                              |   |               |    |                   |   |
| Preferred stock, $.10 par; authorized and  unissued 200,000 shares, including 50,000 Series A                                           |   |               |    |                   |   |
| Common stock, $.10 par, authorized 100,000,000  shares; issued 33,153,107 shares at June 30, 2003 and December 31, 2002  respectively   |   | 3,315              |    | 3,315                  |   |
| Additional paid-in capital                                                                                                              |   | 133,354            |    | 133,518                |   |
| Accumulated comprehensive loss                                                                                                          |   | (3,452             | )       | (4,306                 | )      |
| Retained earnings                                                                                                                       |   | 17,446             |    | 28,255                 |   |
|                                                                                                                                    |   | 150,663            |    | 160,782                |   |
| Less shares held in treasury, at cost; 2,696,434  shares and 2,660,667 shares at June 30, 2003 and December 31, 2002,  respectively     |   | (14,953            | )       | (14,927                | )      |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                                         |   | 135,710            |    | 145,855                |   |
|                                                                                                                                    |   |               |    |                   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                         |   | $                  | 181,977 |                   | $      | 193,731 |   |

 

3

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFOPERATIONS

(Unaudited)

(dollars in thousands, except per share data)

 
|                                                                                   |   | **THREE MONTHS ENDED** |   | **SIX MONTHS ENDED** |   |
|----------------------------------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                                                   |   | **June 30, 2003**      |   | **June 30, 2002**    |   | **June 30, 2003** |   | **June 30, 2002** |   |
|                                                                                   |   |                   |   | **%****of  revenue** |   |   |   | **%****of  revenue** |   |   |   | **%****of  revenue** |   |   |   | **%****of  revenue** |   |
| REVENUES:                                                                              |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| IT Services                                                                            |   | $                      | 35,320 |                 | 60.0   | % | $ | 54,023 |   | 69.9 | % | $ | 71,503 |   | 60.0 | % | $ | 108,673 |   | 69.4 | % |
| Solutions Group                                                                        |   | 18,691                 |   | 31.8                 | %      | 19,472 |   | 25.2 | % | 38,292 |   | 32.2 | % | 40,143 |   | 25.6 | % |
| Chimes                                                                                 |   | 4,822                  |   | 8.2                  | %      | 3,823 |   | 4.9 | % | 9,291 |   | 7.8 | % | 7,721 |   | 4.9 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   | 58,833                 |   | 100.0                | %      | 77,318 |   | 100.0 | % | 119,086 |   | 100.0 | % | 156,537 |   | 100.0 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES:                                                                    |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct costs                                                                           |   | 41,511                 |   | 70.6                 | %      | 56,570 |   | 73.2 | % | 84,284 |   | 70.8 | % | 114,762 |   | 73.3 | % |
| Selling, general and  administrative                                                   |   | 17,238                 |   | 29.3                 | %      | 21,724 |   | 28.1 | % | 35,779 |   | 30.0 | % | 47,521 |   | 30.3 | % |
| Bad Debt Expense                                                                       |   | 3,478                  |   | 5.9                  | %      | 728 |   | 0.9 | % | 3,863 |   | 3.2 | % | 1,390 |   | 0.9 | % |
| Restructuring charge                                                                   |   | 1,949                  |   | 3.3                  | %      | — |   | 0.0 | % | 2,198 |   | 1.8 | % | — |   | 0.0 | % |
| Special charges                                                                        |   | 7,978                  |   | 13.6                 | %      | — |   | 0.0 | % | 7,978 |   | 6.7 | % | — |   | 0.0 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   | 72,154                 |   | 122.7                | %      | 79,022 |   | 102.2 | % | 134,102 |   | 112.5 | % | 163,673 |   | 104.5 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                                   |   | (13,321                | )      | -22.7                | %      | (1,704 | ) | -2.2 | % | (15,016 | ) | -12.5 | % | (7,136 | ) | -4.5 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME /  (EXPENSE):                                                             |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain/(loss) on sale of  assets                                                         |   | —                 |   | 0.0                  | %      | — |   | 0.0 | % | (273 | ) | -0.2 | % | 3,570 |   | 2.3 | % |
| Loss on investments                                                                    |   | —                 |   | 0.0                  | %      | — |   | 0.0 | % | — |   | 0.0 | % | (61 | ) | 0.0 | % |
| Interest income                                                                        |   | 102                    |   | 0.2                  | %      | 259 |   | 0.3 | % | 276 |   | 0.2 | % | 473 |   | 0.3 | % |
| Interest expense                                                                       |   | (12                    | )      | 0.0                  | %      | (4 | ) | 0.0 | % | (18 | ) | 0.0 | % | (163 | ) | -0.1 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   | 90                     |   | 0.2                  | %      | 255 |   | 0.3 | % | (15 | ) | 0.0 | % | 3,819 |   | 2.5 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE INCOME  TAXES                                                              |   | (13,231                | )      | -22.5                | %      | (1,449 | ) | -1.9 | % | (15,031 | ) | -12.5 | % | (3,317 | ) | -2.0 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME TAX BENEFIT:                                                                    |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred                                                                               |   | (3,719                 | )      | -6.3                 | %      | (493 | ) | -0.6 | % | (4,259 | ) | -3.6 | % | (1,128 | ) | -0.7 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE CUMULATIVE  EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE AND MINORITY INTEREST |   | (9,512                 | )      | -16.2                | %      | (956 | ) | -1.3 | % | (10,772 | ) | -9.0 | % | (2,189 | ) | -1.3 | % |
| Minority Interest                                                                      |   | (18                    | )      | 0.0                  | %      | — |   | 0.0 | % | (37 | ) | 0.0 | % | — |   | 0.0 | % |
| Cumulative effect of  change in accounting principle (Note 3)                          |   | —                 |   | 0.0                  | %      | — |   | 0.0 | % | — |   | 0.0 | % | (29,861 | ) | -19.1 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                                               |   | $                      | (9,530 | )                    | -16.2  | % | $ | (956 | ) | -1.3 | % | $ | (10,809 | ) | -9.0 | % | $ | (32,050 | ) | -20.4 | % |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS PER SHARE (BASIC  & DILUTED):                                                 |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Before Cumulative  Effect of Change in Accounting Principle                            |   | $                      | (0.31  | )                    |   |   | $ | (0.03 | ) |   |   | $ | (0.36 | ) |   |   | $ | (0.07 | ) |   |   |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative Effect of  Change in Accounting Principle                                   |   | $                      | — |                 |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | (0.95 | ) |   |   |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                                               |   | $                      | (0.31  | )                    |   |   | $ | (0.03 | ) |   |   | $ | (0.36 | ) |   |   | $ | (1.02 | ) |   |   |
|                                                                                   |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED AVERAGE NUMBER  OF SHARES OUTSTANDING:                                        |   |                   |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic & Diluted                                                                    |   | 30,292,000             |   |                 |   | 31,446,000 |   |   |   | 30,331,000 |   |   |   | 31,474,000 |   |   |   |

 

4

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OFCASH FLOWS

(Unaudited)

(dollars in thousands)

 
|                                                                             |   | **Six Months Ended** |       |
|----------------------------------------------------------------------------------|--------|----------------------|------------|
|                                                                             |   | **June 30,  2003**   |       | **June 30,  2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                             |   |                 |       |   |   |
| Net loss                                                                         |   | $                    | (10,809    | ) | $ | (32,050 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities: |   |                 |       |   |   |
| Deferred taxes                                                                   |   | (4,259               | )          | 3,626 |   |
| Depreciation                                                                     |   | 2,575                |       | 2,333 |   |
| Provision for bad debts                                                          |   | 3,863                |       | 1,390 |   |
| Loss/(Gain) on sale of assets                                                    |   | 273                  |       | (3,570 | ) |
| Write off of goodwill                                                            |   | —               |       | 29,861 |   |
| Change in assets and liabilities, net of  acquisitions:                          |   |                 |       |   |   |
| Accounts receivable                                                              |   | 4,677                |       | 13,078 |   |
| Other current assets                                                             |   | 1,631                |       | (2,153 | ) |
| Assets held for sale                                                             |   | —               |       | (1,929 | ) |
| Other assets                                                                     |   | (3,130               | )          | 1,201 |   |
| Refundable income taxes                                                          |   | 19,051               |       | 8,525 |   |
| Accrued payroll, payroll taxes and benefits                                      |   | 219                  |       | (1,601 | ) |
| Accounts payable                                                                 |   | (3,108               | )          | (2,737 | ) |
| Income taxes payable                                                             |   | 706                  |       | — |   |
| Other accrued expenses                                                           |   | 1,135                |       | 621 |   |
| Other liabilities                                                                |   | (250                 | )          | 1,519 |   |
|                                                                             |   |                 |       |   |   |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                        |   | 12,574               |       | 18,114 |   |
|                                                                             |   |                 |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                             |   |                 | ** ** |   | ** ** |
| Purchases of furniture and equipment                                             |   | (979                 | )          | (2,089 | ) |
| Proceeds received from the sale of assets                                        |   | 149                  |       | 15,880 |   |
| Acquisition of assets                                                            |   | (387                 | )          | — |   |
| NET CASH PROVIDED BY / (USED IN) INVESTING  ACTIVITIES                           |   | (1,217               | )          | 13,791 |   |
|                                                                             |   |                 |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                             |   |                 |       |   |   |
| Notes payable - banks, net                                                       |   | —               |       | (10,000 | ) |
| Stock options exercised                                                          |   | 847                  |       | 336 |   |
| Purchase of treasury shares                                                      |   | (1,230               | )          | (2,389 | ) |
| Stock issued on employee stock purchase plan                                     |   | 193                  |       | 743 |   |
| NET CASH USED IN FINANCING ACTIVITIES                                            |   | (190                 | )          | (11,310 | ) |
|                                                                             |   |                 |       |   |   |
| Foreign currency losses                                                          |   | 121                  |       | (321 | ) |
|                                                                             |   |                 |       |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                        |   | 11,288               |       | 20,274 |   |
|                                                                             |   |                 |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                   |   | 59,769               |       | 41,033 |   |
|                                                                             |   |                 |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       |   | $                    | 71,057     |   | $ | 61,307 |   |

 

5

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**COMPUTER HORIZONS CORP.**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

For the PeriodsJune 30, 2003 and June 30, 2002

(unaudited)

 

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

 

The consolidated balancesheet as of June 30, 2003, the consolidated statements of operations for thethree and six months ended June 30, 2003 and June 30, 2002, respectively andthe statement of cash flows for the six months ended June 30, 2003 and 2002have been prepared by the Company without audit.  In the opinion of management, all adjustments (which includenormal recurring adjustments) necessary to present fairly the financialposition, results of operations and cash flows at June 30, 2003 (and for allperiods presented) have been made.

 

Certain information andnote disclosures, normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America, which are not required for interim purpose, have been condensed oromitted.  It is suggested that theseconsolidated financial statements be read in conjunction with the financialstatements and notes thereto included in the Annual Report on Form 10-K for theyear ended December 31, 2002 filed by the Company.  The results of operations for the periods ended June 30, 2003 and2002 are not necessarily indicative of the operating results for the respectivefull years.

 

*Reclassifications*

 

Certain reclassificationshave been made to the 2002 comparative financial statements to conform to the2003 presentation.

 

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

 

In June 2001, theFinancial Accounting Standards Board approved the issuance of SFAS No. 141,“Business Combinations” and in July 2001, SFAS 142, “Goodwill and OtherIntangible Assets.”  The new standardsrequire that all business combinations initiated after June 30, 2001 must beaccounted for under the purchase method. In addition, all intangible assets acquired that are obtained throughcontractual or legal right, or are capable of being separately sold,transferred, licensed, rented or exchanged shall be recognized as an assetapart from goodwill.  Goodwill andintangibles with indefinite lives will no longer be subject to amortization,but will be subject to at least an annual assessment for impairment by applyinga fair value based test.  The Companyadopted SFAS 142 as of January 1, 2002 and in compliance with this newregulation has discontinued the amortization of goodwill.  For the effect of this statement on theCompany see Note 3.

 

6

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In November 2002, theEITF reached a consensus on Issue No. 00-21, “ Accounting for RevenueArrangements with Multiple Deliverables.” This Issue provides guidance on when and how to separate elements of anarrangement that may involve the delivery or performance of multiple products,services and rights to use assets into separate units of accounting.  The guidance in the consensus is effectivefor revenue arrangements entered into in fiscal periods beginning after June15, 2003.  The transition provisionallows either prospective application or a cumulative effect adjustment uponadoption.  The Company is currentlyevaluating the impact of this statement to the Company.

 

In December 2002, theFinancial Accounting Standards Board approved the issuance of SFAS No. 148,“Accounting for Stock-Based Compensation – Translation and Disclosure.”  This statement amends FASB Statement No.123, “Accounting for Stock-Based Compensation,” to provide alternative methodsof transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  In addition, this Statement amended the disclosure requirementsof Statement 123 to require prominent disclosures in both annual and interimfinancial statements about the method of accounting for stock-based employeecompensation and the effect of the methods used on reported results.  The Company adopted the disclosureprovisions as of December 31, 2002.

 

The exercise price pershare on all options granted may not be less than the fair value at the date ofthe option grant.  The Company appliesAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” as modified by FIN 44, “Accounting for Certain TransactionsInvolving Stock Compensation,” in accounting for stock-based employeecompensation, whereby no compensation cost had been recognized for theplans.  The Company expects to continue followingthe guidance under APB 25 for stock based compensation to employees.  Had compensation cost for the plans beendetermined based on the fair value of the options at the grant dates and beenconsistent with the method of SFAS No. 123, the Company’s net loss and loss pershare would have been increased to the pro forma amounts indicated below:

 

7

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|               |   |                                                                                                                                                |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|--------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|               |   |                                                                                                                                                |   | **June 30,  2003**      |   | **June 30,  2002**    |   | **June 30,  2003** |   | **June 30,  2002** |   |
|               |   |                                                                                                                                                |   |                    |   |                  |   |   |   |   |   |
| Net  loss          |   | As reported                                                                                                                                         |   | $                       | (9,530 | )                     | $      | (956 | ) | $ | (10,809 | ) | $ | (32,050 | ) |
|               |   | Deduct:  Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |   | (403                    | )      | (1,066                | )      | (1,387 | ) | (2,985 | ) |
|               |   |                                                                                                                                                |   |                    |   |                  |   |   |   |   |   |
|               |   | Pro forma                                                                                                                                           |   | $                       | (9,933 | )                     | $      | (2,022 | ) | $ | (12,196 | ) | $ | (35,035 | ) |
| Earnings per share |   |                                                                                                                                                |   |                    |   |                  |   |   |   |   |   |
| Basic              |   | As reported                                                                                                                                         |   | $                       | (0.31  | )                     | $      | (0.03 | ) | $ | (0.36 | ) | $ | (1.02 | ) |
|               |   | Pro forma                                                                                                                                           |   | (0.33                   | )      | (0.06                 | )      | (0.40 | ) | (1.11 | ) |
|               |   |                                                                                                                                                |   |                    |   |                  |   |   |   |   |   |
| Diluted            |   | As reported                                                                                                                                         |   | $                       | (0.31  | )                     | $      | (0.03 | ) | $ | (0.36 | ) | $ | (1.02 | ) |
|               |   | Pro forma                                                                                                                                           |   | (0.33                   | )      | (0.06                 | )      | (0.40 | ) | (1.11 | ) |

 

Effective on January 1,2003 the Company adopted Financial Accounting Standards Board No. 146,“Accounting for Exit or Disposal Activities,” (“SFAS 146”), which supersedesEmerging Issues Task Force Issue No. 94-3, “Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (includingCertain Costs Incurred in a Restructuring).” The new standards require that a liability for a cost associated with anexit or disposal activity, including costs related to terminating a contractthat is not a capital lease and the termination benefits that employees who areinvoluntarily terminated receive under the terms of a one-time benefitarrangement that is not ongoing or an individual deferred-compensationcontract, be recognized when the liability is incurred.  Previously, under Issue No. 94-3, aliability for an exit cost was recognized at the date of an entity’s commitmentto an exit plan, which may not necessarily meet the definition of aliability.  SFAS 146 is effective forexit or disposal activities of the Company that are initiated after December31, 2002.  The Company adopted SFAS 146as of January 1, 2003 (See Note 6).

 

In January 2003, the FASBissued Financial Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46”), which addresses consolidation by business enterprises ofvariable interest entities (VIEs).  Theaccounting provisions and disclosure requirements of FIN 46 are effective immediatelyfor VIEs created after January 31, 2003, and are effective for reportingperiods beginning after June 15, 2003, for VIEs created prior to February 1,2003.  The Company is currentlyevaluating the impact of this statement to the Company.

 

8

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

 

During the quarter endedJune 30, 2002, the Company completed the initial valuation of the carryingvalue of goodwill existing at January 1, 2002. As a result a non-cash charge of $29.9 million, or $(0.95) per share wasretroactively recorded as the cumulative effect of an accounting change in thesix months ended June 30, 2002 statement of operations. For the year endedDecember 31, 2002 the Company completed a second valuation of the carryingvalue of the remaining goodwill and it was determined that no furtherimpairment had occurred. The changes in the carrying amount of goodwill for thesix months ended June 30, 2003, are as follows:

 
| **Reporting Units**              |   | **Solutions**       |   | **IT  Services** |   | **Education** |   | **Chimes** |   | **Consolidated** |   |
|----------------------------------|--------|---------------------|--------|------------------|--------|---------------|--------|------------|--------|------------------|--------|
|                             |   | **(in 000’s)** |   |
| Balance  as of December 31, 2002 |   | $                   | 19,203 |             | $      | —        |   | $          | — |             | $      | — |   | $ | 19,203 |   |
| Additions  to goodwill           |   | 387                 |   | —           |   | —        |   | —     |   | 387              |   |
|                             |   |                |   |             |   |          |   |       |   |             |   |
| Balance  as of June 30, 2003     |   | $                   | 19,590 |             | $      | —        |   | $          | — |             | $      | — |   | $ | 19,590 |   |

 

The reporting units areequal to, or one level below, reportable segments.  The Company engaged independent valuation consultants to assistwith the transitional goodwill and annual impairment tests.

 

The fair value of each ofthe reporting units was calculated using the following approaches:  (i) market approach and (ii) incomeapproach.  Under the market approach,value is estimated by comparing the performance fundamentals relating tosimilar public companies’ stock prices. Multiples are then developed of the value of the publicly traded stockto various measures and are then applied to each reporting unit to estimate thevalue of its equity.  Under the incomeapproach, value was determined using the present value of the projected futurecash flows to be generated by the reporting unit.

 

The fair value conclusionof the reporting units reflects an appropriately weighted value of the marketmultiple approach and the income approach discussed above.  As a result of performing steps one and twoof the goodwill impairment test, a loss of $29.9 million was recognized in June2002 and recorded as a cumulative effect of change in accounting principle inthe accompanying Consolidated Statements of Operations.  There was no income tax effect on theimpairment charge as approximately $19 million of the charge related togoodwill in foreign tax jurisdictions where the Company believes it is morelikely than not that future taxable income in these jurisdictions will not besufficient to realize the related income tax benefits associated with thecharge.  The remaining $11 million ofthe charge was related primarily to goodwill that was acquired prior to theability to deduct goodwill for tax purposes.

 

9

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**Adoptionof FAS 142 (continued)**

 

The following pro formatable shows the effect of the cumulative effect of change in accountingprinciple on the Company’s net loss as follows (in 000’s, except per sharedata):

 
|                                                                 |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|----------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                                 |   | **June 30,  2003**      |   | **June 30,  2002**    |   | **June 30,  2003** |   | **June 30,  2002** |   |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Reported  Net Loss                                                   |   | $                       | (9,530 | )                     | $      | (956 | ) | $ | (10,809 | ) | $ | (32,050 | ) |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Cumulative Effect of Change in Accounting  Principle                 |   | —                  |   | —                |   | — |   | 29,861 |   |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Adjusted  Net Loss                                                   |   | $                       | (9,530 | )                     | $      | (956 | ) | $ | (10,809 | ) | $ | (2,189 | ) |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Reported  Loss per Share:                                            |   |                    |   |                  |   |   |   |   |   |
| Basic  & Diluted                                                 |   | $                       | (0.31  | )                     | $      | (0.03 | ) | $ | (0.36 | ) | $ | (1.02 | ) |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Adjustment  for Cumulative Effect of Change in Accounting Principle: |   |                    |   |                  |   |   |   |   |   |
| Basic  & Diluted                                                 |   | —                  |   | —                |   | — |   | 0.95 |   |
|                                                                 |   |                    |   |                  |   |   |   |   |   |
| Adjusted  Loss per Share:                                            |   |                    |   |                  |   |   |   |   |   |
| Basic  & Diluted                                                 |   | $                       | (0.31  | )                     | $      | (0.03 | ) | $ | (0.36 | ) | $ | (0.07 | ) |

 

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

 

The computation ofdiluted earnings per share excludes options with exercise prices greater thanthe average market price.  During 2003,there were 268,246 excluded options with exercise prices between $4.00 and$26.63 per share at June 30.  During2002, there were 5,742,048 excluded options outstanding at June 30, 2002 withexercise prices between $2.02 and $26.63 per share.

 

10

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**5.****              SegmentInformation**

 

The Company hasidentified three business segments: IT Services, the Solutions Group andChimes, Inc.  The IT Services divisionprovides highly skilled software professionals to augment the internalinformation management staffs of major corporations.  IT Services is primarily staffing augmentation.  The Solutions division provides enterpriseapplication services, e-business solutions, customized Web development and Webenablement of strategic applications, Customer Relationship Management (CRM),network services, strategic outsourcing and managed resourcing as well assoftware and relational database products, up to the time of sale, March 25,2002, of Princeton Softech Inc.  In thesegment information chart below, amounts pertaining to Princeton Softech Inc.for the six months ended June 30, 2002, are included and total: revenues of$2.9 million, gross profit of $2.4 million and an operating loss of $1.9 million.  Chimes, Inc., a wholly-owned subsidiary ofCHC, provides workforce procurement and management services to Global 2000companies which, according to Forbes magazine, represent the biggest and mostimportant companies, as measured by sales, profits, assets and marketvalue.  Operating loss consists of lossbefore income taxes, excluding interest income, interest expense, gain/(loss)on the sale of assets, restructuring charges, special charges, the write-off ofa terminated project and net loss on investments.  These exclusions total expense of $12.9 million and income of$255,000 for the second quarter of 2003 and 2002, respectively and expense of$13.3 million and income of $3.8 million for the first six months of June 30,2003 and 2002**,**respectively (seereconciliation of segments operating loss to consolidated loss before incometaxes). Corporate services, consisting of general and administrative servicesare provided to the segments from a centralized location.  Such costs are allocated to the segmentsbased on revenue.

 
|                          |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|-------------------------------|--------|-------------------------|--------|-----------------------|--------|
| **(in 000’s)**           |   | **June 30,  2003**      |   | **June 30,  2002**    |   | **June 30,  2003** |   | **June 30,  2002** |   |
|                          |   |                    |   |                  |   |   |   |   |   |
| *Revenue:*                    |   |                    |   |                  |   |   |   |   |   |
| IT  Services                  |   | $                       | 35,320 |                  | $      | 54,023 |   | $ | 71,503 |   | $ | 108,673 |   |
| Solutions  Group              |   | 18,691                  |   | 19,472                |   | 38,292 |   | 40,143 |   |
| Chimes                        |   | 4,822                   |   | 3,823                 |   | 9,291 |   | 7,721 |   |
| TOTAL                         |   | $                       | 58,833 |                  | $      | 77,318 |   | $ | 119,086 |   | $ | 156,537 |   |
|                          |   |                    |   |                  |   |   |   |   |   |
| *Gross Margin:*               |   |                    |   |                  |   |   |   |   |   |
| IT Services                   |   | $                       | 7,079  |                  | $      | 10,992 |   | $ | 14,249 |   | $ | 21,556 |   |
| Solutions Group               |   | 5,793                   |   | 6,197                 |   | 11,999 |   | 13,604 |   |
| Chimes                        |   | 4,450                   |   | 3,559                 |   | 8,554 |   | 6,615 |   |
| TOTAL                         |   | $                       | 17,322 |                  | $      | 20,748 |   | $ | 34,802 |   | $ | 41,775 |   |
|                          |   |                    |   |                  |   |   |   |   |   |
| *Operating  income / (loss):* |   |                    |   |                  |   |   |   |   |   |
| IT  Services                  |   | $                       | (672   | )                     | $      | (215 | ) | $ | (1,861 | ) | $ | (1,250 | ) |
| Solutions  Group              |   | 1,443                   |   | 1,043                 |   | 3,133 |   | (862 | ) |
| Chimes                        |   | (1,101                  | )      | (2,532                | )      | (3,048 | ) | (5,024 | ) |
| TOTAL                         |   | $                       | (330   | )                     | $      | (1,704 | ) | $ | (1,776 | ) | $ | (7,136 | ) |
|                          |   |                    |   |                  |   |   |   |   |   |
| *Assets:*                     |   |                    |   |                  |   |   |   |   |   |
| IT  Services                  |   |                    |   |                  |   | $ | 32,304 |   | $ | 48,197 |   |
| Solutions  Group              |   |                    |   |                  |   | 39,108 |   | 43,449 |   |
| Chimes                        |   |                    |   |                  |   | 12,703 |   | 12,235 |   |
| Corporate  and other          |   |                    |   |                  |   | 97,862 |   | 107,560 |   |
| TOTAL                         |   |                    |   |                  |   | $ | 181,977 |   | $ | 211,441 |   |

 

11

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*Reconciliation of Segments Operating Loss to ConsolidatedLoss Before Income Taxes:*

 
|                                   |   | **Three Months Ended** |    | **Six Months Ended** |   |
|----------------------------------------|--------|------------------------|---------|----------------------|--------|
|                                   |   | **June 30, 2003**      |    | **June 30, 2002**    |   | **June 30, 2003** |   | **June 30, 2002** |   |
| Total Segments Operating Loss          |   | $                      | (330    | )                    | $      | (1,704 | ) | $ | (1,776 | ) | $ | (7,136 | ) |
| Adjustments:                           |   |                   |    |                 |   |   |   |   |   |
| Interest Income                        |   | 90                     |    | 255                  |   | 258 |   | 310 |   |
| Gain/(loss) on sale of assets          |   | —                 |    | —               |   | (273 | ) | 3,570 |   |
| Restructuring charges                  |   | (1,949                 | )       | —               |   | (2,198 | ) | — |   |
| Special charges                        |   | (7,978                 | )       | —               |   | (7,978 | ) | — |   |
| Write-off of terminated project        |   | (3,064                 | )       | —               |   | (3,064 | ) | — |   |
| Net loss on investments                |   | —                 |    | —               |   | — |   | (61 | ) |
| Total Adjustments:                     |   | (12,901                | )       | 255                  |   | (13,255 | ) | 3,819 |   |
| Consolidated Loss Before Income Taxes: |   | $                      | (13,231 | )                    | $      | (1,449 | ) | $ | (15,031 | ) | $ | (3,317 | ) |

 

12

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**6.****              RestructuringCharges**

 

Duringthe second quarter of 2003, the Company recorded a restructuring charge ofapproximately $1.9 million relating to the consolidating and closing of certainfacilities in the Canadian subsidiary and the closing of an IT Services’ officein the United States where the Company has decided to go virtual.  The provision includes an accrual relatingto the future costs associated with continuing rent on six properties, five ofwhich are in Canada, with rents continuing through 2004, 2006 and 2007.  The closing of these offices resulted in thetermination of 20 employees with a severance charge of $697,000.  As of June 30, 2003, $372,000 had been paidin severance to the terminated employees.

 
|                     |   | **Recorded** |   | **Paid** |   | **Remaining  at  June 30,  2003** |   |
|--------------------------|--------|--------------|--------|----------|--------|-----------------------------------|--------|
| Lease  Obligations:      |   |         |   |     |   |                              |   |
| Canada                   |   | $            | 1,100  |     | $      | (24                               | )      | $ | 1,076 |   |
| United  States           |   | 36           |   | (16      | )      | 20                                |   |
| Total  Lease Obligations |   | $            | 1,136  |     | $      | (40                               | )      | $ | 1,096 |   |
|                     |   |         |   |     |   |                              |   |
| Severance:               |   |         |   |     |   |                              |   |
| Canada                   |   | $            | 358    |     | $      | (33                               | )      | $ | 325 |   |
| United  States           |   | 197          |   | (197     | )      | —                            |   |
| United  Kingdom          |   | 142          |   | (142     | )      | —                            |   |
| Total  Severance:        |   | $            | 697    |     | $      | (372                              | )      | $ | 325 |   |
|                     |   |         |   |     |   |                              |   |
| General  Office Closure: |   |         |   |     |   |                              |   |
| Canada                   |   | $            | 116    |     | $      | (2                                | )      | $ | 114 |   |
|                     |   |         |   |     |   |                              |   |
| Total                    |   | $            | 1,949  |     | $      | (414                              | )      | $ | 1,535 |   |

 

Duringthe fourth quarter of 2002, the Company recorded a restructuring charge of $2.8million pertaining to 2002 office closings. During the second quarter of 2003, half of the rent for one officeclosing was reversed after the rent was negotiated at a lower rate for half thebuilding.

 
|                |   | **Remaining  at  December 31,  2002** |   | **Paid** |   | **Reversed** |   | **Remaining  at  June 30,  2003** |   |
|---------------------|--------|---------------------------------------|--------|----------|--------|--------------|--------|-----------------------------------|--------|
| Lease  Obligations: |   |                                  |   |     |   |         |   |                              |   |
| United  States      |   | $                                     | 2,483  |     | $      | (695         | )      | $                                 | (25    | ) | $ | 1,763 |   |
|                     |        |                                       |        |          |        |              |        |                                   |        |  |  |  |  |

 

Duringthe fourth quarter of 2001, the Company recorded a restructuring charge of$410,000 pertaining to 2001 office closings. In addition, during the second quarter of 2001, the Company recorded anadditional $5.5 million in restructuring expense to reduce the carrying amountof eB Networks to the estimated net realizable value.

 

13

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During the fourth quarterof 2000, the Company recorded restructuring charges of $43.9 million.  The Company’s restructuring plan includedthe offering for sale of four businesses acquired between 1998 and 1999,including Princeton Softech, Inc., SELECT Software Tools division (“Select”),eB Networks and CHC International, Ltd (formerly Spargo Consulting PLC).  In addition, restructuring charges includedthe shutdown of Enterprise Solutions Group (“ESG”) which was acquired in 1998,the closing of seven offices and the site reduction of two other IT Servicesoffices.

 

At December 31, 2000, theCompany recorded a write-down of goodwill of $7.2 million for the shutdown ofESG. In addition, a non-cash charge writing down goodwill of $26 million andpurchased software of $6.9 million was recorded, in the fourth quarter of 2000,in connection with the write-down of assets held for sale to realizablevalue.  The closing of IT Services’ andSolutions’ offices resulted in the termination of 90 employees with a severancecharge of $1.3 million.  As of June 30,2003, $1,164,000 had been paid in severance to the terminated employees.  The balance remaining at June 30, 2003includes continuing rent on six properties terminating in 2003, 2004 and 2005.

 

** **
|                |   | **Remaining  at  Dec. 31, 2002** |   | **Paid** |   | **Remaining  at  June 30,  2003** |   |
|---------------------|--------|----------------------------------|--------|----------|--------|-----------------------------------|--------|
| Severance:          |   |                             |   |     |   |                              |   |
| United  States      |   | $                                | 1      |     | $      | (1                                | )      | $ | — |   |
|                |   |                             |   |     |   |                              |   |
| Lease  Obligations: |   |                             |   |     |   |                              |   |
| United  States      |   | $                                | 294    |     | $      | (114                              | )      | $ | 180 |   |
|                |   |                             |   |     |   |                              |   |
| Total               |   | $                                | 295    |     | $      | (115                              | )      | $ | 180 |   |

 

During the fourth quarterof 2001, the Company recorded a restructuring charge adjustment of $638,000pertaining to the termination, by the sublessee, of the sublease contracts forclosed offices included in the 1999 restructure charge.

 

During the third quarterof 1999, the Company recorded a restructuring charge of $6.4 million primarilyrelated to the consolidating and closing of certain facilities, generally usedfor Year 2000 and other legacy related services, as well as attendant reductionof related staff levels.

 

14

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During the second quarterof 2000, the Company recorded a restructuring credit of $2.4 million.  This credit resulted primarily from theearlier than expected occupancy of two abandoned properties that were part ofthe 1999 restructuring reserve and the reversal of an over accrual of employeeseverance benefits due to terminated employees in the United Kingdom andCanada.  The remaining balance at June30, 2003 includes continuing rent on one property with the lease terminating in2005.

 
|                |   | **Remaining  at  Dec. 31, 2002** |   | **Paid** |   | **Remaining  at  June 30,  2003** |   |
|---------------------|--------|----------------------------------|--------|----------|--------|-----------------------------------|--------|
| Lease  Obligations: |   |                             |   |     |   |                              |   |
| United  States      |   | $                                | 488    |     | $      | (89                               | )      | $ | 399 |   |
|                     |        |                                  |        |          |        |                                   |        |  |  |  |

 

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

 

Statement of FinancialAccounting Standards No. 130, Reporting Comprehensive Income (“SFAS No.130”),requires that items defined as other comprehensive income/(loss), such asforeign currency translation adjustments, be separately classified in thefinancial statements and that the accumulated balance of other comprehensiveincome/(loss) be reported separately from retained earnings and additionalpaid-in capital in the equity section of the balance sheet. The components ofcomprehensive loss for the three and six months ended June 30, 2003 and June30, 2002 are as follows:

 
|                                                                  |   | **Three  Months Ended** |   | **Six Months  Ended** |   |
|-----------------------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|
|                                                                  |   | **June 30,  2003**      |   | **June 30,  2002**    |   | **June 30,  2003** |   | **June 30,  2002** |   |
|                                                                  |   |                    |   |                  |   |   |   |   |   |
| Comprehensive  Loss:                                                  |   |                    |   |                  |   |   |   |   |   |
|                                                                  |   |                    |   |                  |   |   |   |   |   |
| Net Loss                                                              |   | $                       | (9,530 | )                     | $      | (956 | ) | $ | (10,809 | ) | $ | (32,050 | ) |
| Other comprehensive income/(loss) – foreign  currency adjustment |   | 135                     |   | 80                    |   | 120 |   | (322 | ) |
| Unrealized  gain on SERP investments                                  |   | 943                     |   | —                |   | 733 |   | — |   |
| Comprehensive  Loss                                                   |   | $                       | (8,452 | )                     | $      | (876 | ) | $ | (9,956 | ) | $ | (32,372 | ) |

 

**8.****              Purchaseof Westfield-India**

 

On January 31, 2003, theCompany acquired the IT Solutions operations of Global Business TechnologySolutions (GBTS), from Alea (Bermuda) Limited, a member of the Alea Group ofcompanies and Westfield Services, Inc., a subsidiary of Westfield FinancialCorporation for $400,000.  Theoutsourcing facility and its IT professionals are located in Chenni (Madras),India.  This transaction was accountedfor as a purchase.

 

15

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

 

OnFebruary 14, 2003, the Company sold the business and net assets of ComputerHorizons e-Solutions (Europe) Limited, (“Solutions UK”) to Systems AssociatesLimited for 92,822 British Sterling Pounds (approximately US$ 145,500).  Theloss from the transaction was $273,000.

 

OnMarch 25, 2002, the Company sold the net assets of Princeton Softech to ApaxPartners, Inc. and LLR Partners, for cash of $16 million, including amountsheld in escrow of $1.5 million. The gain from the transaction was initiallyestimated as $3.6 million and was adjusted in the fourth quarter of 2002 to$3.2 million due to a purchase price adjustment.  During the second quarter of 2003, the Company received approximately$748,000 of the escrow.  The results ofoperations are included in the consolidated financial statements throughFebruary 28, 2002 within the Solutions group.

 

On April 17, 2001, theCompany sold the SELECT Software Tools division “Select” of Princeton Softechto Aonix, a member of the Gores Technology Group, for approximately $895,000including $545,000 of cash received and a note receivable of $350,000,subsequently written off with the sale of Princeton Softech on March 25, 2002.  This sale included all the software assetsand intellectual property rights of Select and was sold at book value.  The results of operations are included inthe consolidated financial statements through April 17, 2001 within the Solutionsgroup.

 

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

 

In April of 2001, theBoard of Directors approved the repurchase in the open market of up to 10% ofits common shares outstanding, or approximately 3.2 million shares.  As of the filing of this report, the Companyhad repurchased, in the open market, 3,114,900 shares of its stock at anaverage price of $3.47 per share for an aggregate purchase amount of $10.8million.  As of June 30, 2003 theremaining authorization for repurchase is approximately 93,000 shares.

 

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

 

On July 31, 2001, amendedFebruary 14, 2003, the Company entered into a secured asset-based lendingfacility that replaced its two unsecured discretionary lines of credit.  This new line of credit is a three-year, $40million facility with availability based primarily on eligible customerreceivables.  The interest rate for thefirst ninety days from closing was Prime plus 0.5%, thereafter the rate wasLIBOR plus 2.75% based on the unpaid principal. The borrowing base lessoutstanding loans must equal or exceed $17.5 million. At the time of closingthere was a $170,000 commitment fee paid to the agent.  As of June 30, 2003, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible customer receivables and cash balances,$15.9 million was available for borrowing as of June 30, 2003.  The fee for the unused portion of the lineof credit is 0.375% per annum charged to the Company monthly.  This charge was approximately $62,000 and$68,000 for the six-month periods ended June 30, 2003 and 2002,respectively.  This line of creditincludes covenants relating to the maintenance of cash balances and providingfor limitations on incurring obligations and spending limits on capitalexpenditures.

 

16

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

 

OnMarch 9, 2002, the Job Creation and Worker Assistance Act of 2002 (the “Act”)was enacted into law.

ThisAct contained many economic and tax incentives, including the extension of thecarryback period for losses arising in years ending during 2001 and 2002 tofive years from the previous two year carryback rule.  As a result, the Company’s tax refund claim of approximately $10million at December 31, 2001 was increased to approximately $30 million.  The additional refund amount of $20 millionwas received in January 2003.

 

During 1998, the Companycompleted a business combination which, for financial statement purposes, hasbeen accounted for as a pooling-of-interests. For income tax purposes the Company believes the transaction qualifiesas a taxable purchase that gives rise to future tax deductions.  Upon the sale of the acquired business in2001, these deductions were recognized for tax purposes.  The tax benefit of $19.6 million relating tothe part of these deductions that was carried back to prior years was includedin refundable income taxes in 2002. Since the tax structure of the transaction is subject to determinationby the tax authorities, the Company has recorded a reserve for the tax benefitsresulting from the carryback and has not recorded deferred tax assets for thetax benefits being carried forward. When resolved, the Company will record a deferred tax asset for the partof the tax benefits being carried forward and a tax benefit for the portion thatwas carried back, net of an appropriate valuation allowance. The tax benefitwill be reflected as an increase in additional paid-in capital.  Any adjustments to the valuation allowancewill be charged or credited to income.

 

The Internal RevenueService is currently examining the Company’s federal income tax returns for theyears ended December 31, 2001 and 2000, along with its federal refund claimsfor the calendar years 1996 through 1999. The additional refund amount received in January 2003 is shown as aliability until the audit is completed.

 

**13.****       SpecialItems**

 

Duringthe second quarter of 2003, the Company incurred special charges of $8.0million consisting of $3.7 million for the separation package of the former CEOand $4.3 million pertaining to expenses related to the unilateral proposal andactivities of Aquent.  The Company alsoincurred a restructuring expense of $1.9 million relating primarily to theclosing of facilities in Canada.  Inaddition, the Company terminated a contract with a customer for financialreasons and recorded a write-off of approximately $3.1 million.

 

17

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**14.****       SubsequentEvents**

 

OnJuly 8, 2003, the Company acquired all of the stock of privately-held RGIITechnologies, Inc. (“RGII”).  Thepurchase price included an up-front cash payment of approximately $19 millionincluding the $18 million purchase price and $913,000 working capitaladjustment along with an adjustable note with a face value of $10 million thatis payable over three years.  Theultimate value of the note will be based on RGII’s performance againstprofitability objectives.  Additionally,the Company paid two note payables of $1.5 million and $644,000 and a line ofcredit payment of $2.0 million.  TheCompany also entered into employment agreements with the former shareholder andemployees of RGII and has agreed to issue over a three-year period an aggregateof 600,000 options to purchase shares of Computer Horizons stock.  The Company is in process of finalizing theallocation of the purchase price to assets and liabilities acquired and hasengaged valuation consultants to assist in this process.  Audited historical financial statements ofRGII together with applicable pro forma financial information will be filedwith the SEC by mid-September 2003.

 

**15.****      ****Aquent/Legal Matters**

 

On April 15, 2003, theCompany received an unsolicited proposal from Aquent, LLC, a privately heldprofessional services firm, to acquire all of the outstanding common stock ofthe Company for $5.00 per share in cash, subject to a number ofconditions.  On May 2, 2003, the Boardof Directors announced that after a thorough review, the Aquent purported offerwas inadequate and not in the best interest of all of its shareholders.

 

These matters arecontinuing and the ultimate outcome is uncertain.  For a more complete description of these activities, please seePart II, Item 1 – Legal Proceedings of this Form 10-Q filing.

 

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**MANAGEMENT’S DISCUSSION AND ANALYSISOFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

For the PeriodsEnded June 30, 2003 and June 30, 2002

 

**FORWARD-LOOKING STATEMENTS**

 

Statementsincluded in this Management’s Discussion and Analysis of Financial Conditionand Results of Operations and elsewhere in this document that do not relate topresent or historical conditions are “forward-looking statements” within themeaning of that term in Section 27A of the Securities Act of 1933, as amended,and in Section 21F of the Securities Exchange Act of 1934, as amended.  Additional oral or written forward-lookingstatements may be made by the Company from time to time, and such statementsmay be included in documents that are filed with the Securities and ExchangeCommission (SEC).  Such forward-lookingstatements involve risks and uncertainties that could cause results or outcomesto differ materially from those expressed in such forward-lookingstatements.  Forward-looking statementsmay include, without limitation, statements relating to the Company’s plans,strategies, objectives, expectations and intentions and are intended to be madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Words such as “believes,”“forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or“plans” and similar expressions are intended to identify forward-lookingstatements.  Among the important factorson which such statements are based are assumptions concerning the anticipatedgrowth of the information technology industry, the continued need of currentand prospective customers for the Company’s services, the availability ofqualified professional staff, and price and wage inflation.

 

**RESULTS OF OPERATIONS**

 

*Revenues*. Revenues decreased to $58.8 million in the second quarter of 2003 from$77.3 million in the second quarter of 2002, a decrease of $18.5 million or23.9%.  Revenues decreased to $119.1million in the first six months of 2003 from $156.5 million in the first sixmonths of 2002, a decrease of $37.4 million or 23.9%.

 

Solutions Group revenuesdecreased to $18.7 million in the second quarter of 2003 from $19.5 million inthe second quarter of 2002, a decrease of $800,000 or 4.1%.  The decrease in Solutions Group revenues isthe net result of a reduction in average bill rates of approximately 18%,offset by an increase of 17% in consultant headcount.  Solutions Group revenues decreased to $38.3 million in the firstsix months of 2003 from $40.1 million in the first six months of 2002, a decreaseof $1.8 million or 4.5%.  The decreasein Solutions Group revenues is primarily attributable to the revenue declineexperienced by a business unit held for sale, Princeton Softech, Inc., whichwas sold by the Company on March 25, 2002. For the first six months of 2002, Princeton Softech, Inc. revenuestotaled $2.9 million, with a gross profit of $2.4 million, SG&A expenses of$4.3 million, totaling a $1.9 million operating loss.  Solutions Group revenues, excluding the operations of thebusiness units held for sale, increased by $1.1 million or 3.0% for the firstsix months of 2003.  This increase isattributable to a 17% increase in consultant headcount, offset by a 16%reduction in average bill rates.

 

IT Services revenuesdecreased to $35.3 million in the second quarter of 2003 from $54.0 million inthe second quarter of 2002, a decrease of $18.7 million or 34.6%.  IT Services revenues decreased to $71.5million in the first half of 2003 from $108.7 million in the first half of2002, a decrease of $37.2 million or 34.2% which is attributable to thesoftness in the IT Staffing business. The decrease in IT Services revenue for the quarter and the first sixmonths, is the result of continued decreases in the demand for temporary

 

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technology workers, thetrend of companies to outsource technology jobs offshore, the impact of pricingdecreases by customers and the lagging economy.  For the first six months, IT Services consultant average headcountdecreased by 22%.  The balance of thedecrease in revenue is attributable to a reduction in average bill rates. TheCompany does not anticipate any growth during the remainder of 2003 in ITServices headcount levels unless IT spending increases.

 

Chimes revenue increasedto $4.8 million in the second quarter of 2003 from $3.8 million in the secondquarter of 2002, an increase of $1.0 million, or 26.3%.  Chimes revenue, for the first six months of2003, increased to $9.3 million from $7.7 million, an increase of $1.6 millionor 20.8% for the comparable period of 2002. This increase in Chimes revenue is primarily due to the addition of newcustomers in this segment.

 

*Direct Costs*.  Direct costs decreased to $41.5 million and $84.3 million in thesecond quarter and first half of 2003, respectively, from $56.6 million and$114.8 million in the comparable periods of 2002.  Gross margin, revenues less direct costs, increased to 29.4% inthe second quarter of 2003 from 26.8% in the same period of 2002.  Gross margin increased to 29.2% in the firstsix months of 2003 from 26.7% in the same period of 2002.

 

Excluding the asset heldfor sale, Princeton Softech, Inc., in the first six months of 2002, directcosts decreased to $84.3 million in the first half of 2003 from $114.3 millionin the same period of 2002.  Grossmargin increased to 29.2% in the first six months of 2003 from 25.2% in thecomparable period of 2002.

 

The Company’s grossmargin improvement is primarily attributable to the  change in the revenue mix among the Company’s businesssegments.  Chimes and the SolutionsGroup are higher gross margin businesses than the Company’s IT Servicessegment.  For the first six months of2003, Chimes and Solutions Group revenue totaled 40.0% of consolidated revenue,compared to 30.6% of consolidated revenue for the comparable period in 2002.

 

*S**elling,General and Administrative*. Selling, general and administrative expenses increased to $30.6 millionand $49.8 million in the second quarter and first half of 2003, respectively, from$22.5 million and $48.9 million in the comparable periods of 2002.  As a percentage of revenue, the Company’sSG&A expenses were 52.1% and 41.8% in the second quarter and first half of2003, respectively; an increase from 29.0% and 31.2% in the comparable periodsof 2002.  The increase in the secondquarter of 2003 SG&A expenses included a special charge of $8.0 million, or13.6% of revenue, consisting of $3.7 million for the separation package of theformer CEO and $4.3 million pertaining to expenses related to the unilateralproposal and activities of Aquent, LLC, restructuring charges of $1.9 million,or 3.3% of revenue, for terminated leases ($1.1 million), severance ($697,000)and general office closure expense ($116,000) relating primarily to the closingof facilities in Canada.  In addition,the Company terminated a contract with a customer for financial reasons andrecorded a write-off of approximately $3.1 million, or 5.2% of revenue, in baddebt expense.  This increase waspartially offset by a decrease in SG&A salaries and fringe, with SG&Aheadcount decreasing 26% from approximately 625 at June 30, 2002 toapproximately 460 at June 30, 2003.  Inaddition, office rent expense decreased as a result of office closings.  The expenses in the first half of 2003included an additional restructure expense of $249,000 in severance and theexpenses in the first half of 2002 included assets held fore sale (PrincetonSoftech, Inc.) of $4.3 million, or 7.3% of revenue.

 

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*Loss from Operations*.  The Company’s loss from operations totaled$13.3 million in the second quarter of 2003, a decline of $11.6 million, from aloss of $1.7 million in the second quarter of 2002.  Operating margins were a loss of 22.7% in the second quarter of2003 as compared to a loss of 2.2% in the second quarter of 2002.  This increase in the loss from operations in2003 included a special charge of $8.0 million, or 13.6% of revenue, consistingof $3.7 million for the separation package of the former CEO and $4.3 millionpertaining to expenses related to the unilateral proposal and activities ofAquent, restructuring charges of $1.9 million, or 3.3% of revenue, relatingprimarily to the closing of facilities in Canada and a special bad debt chargeof approximately $3.1 million, or 5.2% of revenue, due to the write-off of aterminated contract with a customer for financial reasons.  The composition of the operating loss,excluding the special items in 2003, included a loss of $672,000 in ITServices, profit of $1.4 million in the Solutions Group and a loss of $1.1million in Chimes.  This compares to theoperating loss of $1.7 million in the second quarter of 2002, consisting of aloss of $215,000 in IT Services, profit of $1.0 million in the Solutions Groupand a loss of $2.5 million in Chimes.

 

The Company’s loss fromoperations totaled $15.0 million in the first six months of 2003, a decline of$7.9 million, from a loss of $7.1 million in the comparable period of2002.  The increase in the loss fromoperations in 2003 was due to a special charge of $8.0 million, or 6.7% ofrevenue, consisting of $3.7 million for the separation package of the formerCEO and $4.3 million pertaining to expenses related to the unilateral proposaland activities of Aquent, restructuring charges of $2.2 million, or 1.8% ofrevenue, relating primarily to the closing of facilities in Canada and aspecial bad debt charge of $3.1 million, or 2.6% of revenue, due to thewrite-off of a terminated contract with a customer for financial reasons.  The loss from operations in 2002 includedthe loss from operations of the asset held for sale, Princeton Softech, Inc.,of $1.9 million, or 1.2% of revenue. The composition of the 2003 operating loss, excluding the special itemsnoted above, included a loss of $1.9 million in IT Services, profit of $3.1million in the Solutions Group and a loss of $3.0 million in Chimes.  This compares to the operating loss of $5.2million in the first half of 2002 (Excluding operations of Princeton Softech,Inc.), consisting of a loss of $1.4 million in IT Services, profit of $1.2million in the Solutions Group and a loss of $5.0 million in Chimes.

 

*Other Income/(Expense)*.  Other income was $90,000 in the secondquarter of 2003, compared to other income of $255,000 in the comparable periodof 2002.  This decrease of other incomeduring the second quarter of 2003 was due to decreased interest incomeprimarily resulting from lower interest rates on cash investments.  Other expense was $15,000 in the first sixmonths of 2003, compared to other income of $3.8

 

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million in the comparableperiod of 2002.  This difference was dueto the gain on the sale of Princeton Softech in 2002 totaling $3.6 million, anda decrease in interest income in 2003 of approximately $200,000 as a result oflower interest rates.

 

*Provision for Income Taxes*.  The effective tax rates for Federal, stateand local income taxes were 28% for the second quarter and first six months of2003 compared with 34% for the comparable periods of 2002.  The decrease in the effective tax rates wasprimarily attributable to valuation allowances recorded for state and foreignnet operating loss carryovers.

 

*Net Loss*. Net loss for the second quarter of 2003 was $9.5 million, or $0.31 lossper diluted share, compared to net loss of $956,000, or $0.03 loss per dilutedshare for the second quarter of 2002, an increase of $8.5 million.  The effect of special charges, restructuringcharges and the write-off of a terminated project amounted to $0.31 loss pershare, net of taxes, in the second quarter of 2003.  For the first half of 2003, the net loss was $10.8 million, or$0.36 loss per diluted share, compared to a net loss of $32.1 million, or $1.02loss per diluted share for the first half of 2002.  The net loss in the first half of 2002 includes a charge for thecumulative effect of change in accounting principle of $29.9 million, or $0.95per share, net of taxes, and operations of assets held for sale and the gain onsale of assets which amounted to $1.1 million, or $0.03 loss per share, net oftaxes.

 

**Liquidity and Capital Resources**

 

At June 30, 2003, theCompany had approximately $91 million in working capital, of which $71.1million was cash and cash equivalents.

 

Net cash provided byoperating activities in the first six months of 2003 was $12.6 million,consisting primarily of the tax refund received.

 

Net cash used ininvesting activities in the first six months of 2003 was $1.2 million,consisting primarily of capital expenditures and the purchase ofWestfield-India.

 

Net cash used infinancing activities in the first six months of 2003 was $190,000 primarilyconsisting of the repurchase of treasury shares.  In April of 2001, the Board of Directors approved the repurchasein the open market of up to 10% of its common shares outstanding, orapproximately 3.2 million shares.  As ofthe filing of this report, the Company had repurchased, in the open market, 3,114,900shares of its stock at an average price of $3.47 per share for an aggregatepurchase amount of $10.8 million.  As ofJune 30, 2003, the remaining authorization for repurchase is approximately93,000 shares.

 

At June 30, 2003, theCompany had a current ratio position of 3.3 to 1. The Company believes that itscash and cash equivalents, available borrowings and internally generated fundswill be sufficient to meet its working capital needs through the next year.

 

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On July 31, 2001, amendedFebruary 14, 2003, the Company entered into a secured asset-based lendingfacility that replaced its two unsecured discretionary lines of credit.  This new line of credit is a three-year, $40million facility with availability based primarily on eligible customerreceivables.  The interest rate for thefirst ninety days from closing was Prime plus 0.5%, thereafter the rate wasLIBOR plus 2.75% based on the unpaid principal. The borrowing base lessoutstanding loans must equal or exceed $17.5 million. At the time of closingthere was a $170,000 commitment fee paid to the agent.  As of June 30, 2003, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible customer receivables and cash balances,$15.9 million was available for borrowing as of June 30, 2003.  The fee for the unused portion of the lineof credit is 0.375% per annum charged to the Company monthly.  This charge was approximately $62,000 and$68,000 for the six-month periods ended June 30, 2003 and 2002, respectively.  This line of credit includes covenantsrelating to the maintenance of cash balances and providing for limitations onincurring obligations and spending limits on capital expenditures.

 

**Subsequent Events**

 

OnJuly 8, 2003, the Company acquired all of the stock of privately-held RGIITechnologies, Inc. (“RGII”).  Thepurchase price included an up-front cash payment of approximately $19 millionincluding the $18 million purchase price and $913,000 working capitaladjustment along with an adjustable note with a face value of $10 million thatis payable over three years.  Theultimate value of the note will be based on RGII’s performance againstprofitability objectives.  Additionally,the Company paid two note payables of $1.5 million and $644,000 and a line ofcredit payment of $2.0 million.  TheCompany also entered into employment agreements with the former shareholder andemployees of RGII and has agreed to issue over a three-year period an aggregateof 600,000 options to purchase shares of Computer Horizons stock.  The Company is in process of finalizing theallocation of the purchase price to assets and liabilities acquired and hasengaged valuation consultants to assist in this process.  Audited historical financial statements ofRGII together with applicable pro forma financial information will be filedwith the SEC by mid-September 2003.

 

**ContractualObligations and Commercial Commitments**

 

The Company does notutilize off balance sheet financing other than operating lease arrangements foroffice premises and related equipment. Leases are short term in nature and non-capital.  The following table summarizes allcommitments under contractual obligations as of June 30, 2003:

 
|                    |   | **Obligation  Due** |   |
|-------------------------|--------|---------------------|--------|
|                    |   | **Total  Amount**   |   | **1 Year** |   | **2-3 Years** |   | **4-5 Years** |   | **Over 5 Years** |   |
|                    |   | **(in 000’s)** |   |
| Operating  leases       |   | $                   | 10,663 |   | $ | 3,995 |   | $ | 5,481 |   | $ | 1,173 |   | $ | 14 |   |
| Other  long-term        |   | 5,993               |   | 942 |   | — |   | — |   | 5,051 |   |
|                    |   |                |   |   |   |   |   |   |   |   |   |
| Total  Cash Obligations |   | $                   | 16,656 |   | $ | 4,937 |   | $ | 5,481 |   | $ | 1,173 |   | $ | 5,065 |   |

 

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## **RecentAccounting Pronouncements**

 

In June 2001, theFinancial Accounting Standards Board approved the issuance of SFAS No. 141,“Business Combinations” and in July 2001, SFAS 142, “Goodwill and OtherIntangible Assets.”  The new standardsrequire that all business combinations initiated after June 30, 2001 must beaccounted for under the purchase method. In addition, all intangible assets acquired that are obtained throughcontractual or legal right, or are capable of being separately sold,transferred, licensed, rented or exchanged shall be recognized as an assetapart from goodwill.  Goodwill andintangibles with indefinite lives will no longer be subject to amortization,but will be subject to at least an annual assessment for impairment by applyinga fair value based test.  The Companyadopted SFAS 142 as of January 1, 2002 and in compliance with this newregulation has discontinued the amortization of goodwill.  For the effect of this statement on theCompany see Note 3.

 

In November 2002, theEITF reached a consensus on Issue No. 00-21, “ Accounting for RevenueArrangements with Multiple Deliverables.” This Issue provides guidance on when and how to separate elements of anarrangement that may involve the delivery or performance of multiple products,services and rights to use assets into separate units of accounting.  The guidance in the consensus is effectivefor revenue arrangements entered into in fiscal periods beginning after June15, 2003.  The transition provision allowseither prospective application or a cumulative effect adjustment uponadoption.  The Company is currentlyevaluating the impact of this statement to the Company.

 

In December 2002, theFinancial Accounting Standards Board approved the issuance of SFAS No. 148,“Accounting for Stock-Based Compensation – Translation and Disclosure.”  This statement amends FASB Statement No.123, “Accounting for Stock-Based Compensation,” to provide alternative methodsof transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  In addition, this Statement amended the disclosure requirementsof Statement 123 to require prominent disclosures in both annual and interimfinancial statements about the method of accounting for stock-based employeecompensation and the effect of the methods used on reported results.  The Company adopted the disclosureprovisions as of December 31, 2002.

 

The exercise price pershare on all options granted may not be less than the fair value at the date ofthe option grant.  The Company appliesAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” as modified by FIN 44, “Accounting for Certain TransactionsInvolving Stock Compensation,” in accounting for stock-based employeecompensation, whereby no compensation cost had been recognized for theplans.  The Company expects to continuefollowing the guidance under APB 25 for stock based compensation to employeesand has therefore included the disclosure requirements of FASB 148 in theaccompanying financial statements.

 

Effective on January 1,2003 the Company adopted Financial Accounting Standards Board No. 146,“Accounting for Exit or Disposal Activities,” (“SFAS 146”), which supersedesEmerging Issues Task Force Issue No. 94-3, “Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (includingCertain Costs Incurred in a Restructuring).” The new standards require that a liability for a cost associated with anexit or disposal activity, including costs related to terminating a contractthat is not a capital lease and the termination benefits that employees who areinvoluntarily terminated receive

 

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under the terms of aone-time benefit arrangement that is not ongoing or an individualdeferred-compensation contract, be recognized when the liability isincurred.  Previously, under Issue No.94-3, a liability for an exit cost was recognized at the date of an entity’s commitmentto an exit plan, which may not necessarily meet the definition of aliability.  SFAS 146 is effective forexit or disposal activities of the Company that are initiated after December31, 2002.  The Company adopted SFAS 146as of January 1, 2003 (See Note 6).

 

In January 2003, the FASBissued Financial Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46”), which addresses consolidation by business enterprises ofvariable interest entities (VIEs).  Theaccounting provisions and disclosure requirements of FIN 46 are effectiveimmediately for VIEs created after January 31, 2003, and are effective forreporting periods beginning after June 15, 2003, for VIEs created prior toFebruary 1, 2003.  The Company iscurrently evaluating the impact of this statement to the Company.

 

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Item 4.             Control and Procedures

 

DisclosureControls and Procedures

 

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

 

InternalControls over Financial Reporting

 

Therehave not been any changes in the Company’s internal controls over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934, as amended) during the fiscal quarter to whichthis report relates that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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PART II   Other Information

 

 

Item1.  LegalProceedings

 

On April 29, 2003, theCompany filed an action in the United States District Court for the District ofNew Jersey (the “New Jersey action”) against Aquent LLC, seeking (i) to enjoinAquent from disseminating false and misleading proxy materials and pressreleases in support of its two nominees for director positions in connectionwith the Company’s May 14, 2003 Annual Meeting; (ii) to invalidate any proxiessecured by Aquent through the use of unlawful proxy solicitation materials; and(iii) to require Aquent to disseminate corrective disclosure that not onlyamended the false and misleading proxy materials but also advised CHCshareholders how Aquent’s solicitations had violated the securities laws.  The court held that Aquent’s proxy materialscontained statements that were material and misleading.  However, the court did not invalidate anyproxies and permitted Aquent to disseminate a supplement with new text alongwith the old proxy materials, which contained the misleading statements.  On May 30, 2003, the Company filed a Noticeof Appeal to the United States Court of Appeals for the Third Circuit,contending, among other things, that the corrective disclosure ordered by theUnited States District Court was inadequate and not in compliance with federalsecurities laws.

 

On May 27, 2003, theCompany brought an action in the Supreme Court of the State of New York, NewYork County (the “New York action”), seeking an order invalidating votes fordirectors Karl Meyer and Robert Trevisani cast at the Annual Meeting bystockholders of record who sold their shares between the record date and thedate of the Annual Meeting.  The courtin the New York action denied temporary restraints but on June 11, 2003,deferred ruling on the Company’s application for preliminary injunctive reliefpending discovery and trial.

 

On or about June 2, 2003,Aquent filed a counterclaim in the New Jersey action against the Company andWilliam J. Murphy, the Company’s President and Chief Executive Officer,alleging breaches of fiduciary duty and seeking to enjoin the Company fromdelaying the continuation of the Annual Meeting — at which the certifiedelection results would be accepted – or otherwise interfering with the seatingof the newly elected directors.  Aquentalso sought attorneys’ fees and costs. On or about June 20, 2003, Aquent filed an amended counterclaim in theNew Jersey action, alleging breach of the duty of care and the duty of loyalty,waste of corporate assets, and violation of the proxy rules under Section 14(a)of the Securities Exchange Act of 1934 and seeks attorneys’ fees andcosts.  The Company has filed an answerdenying Aquent’s allegations.

 

On or about July 15,2003, Aquent filed an Order to Show Cause in the New Jersey action, challengingan amendment to the Company’s by-laws the Board of Directors adopted on June30, 2003.  The by-law amendment specifies(a) that any request for a special meeting of shareholders must set a date forthe meeting not fewer than seventy-five (75) nor more than ninety (90) daysafter the date on which the request is received; (b) that any such requestshall be ineffective, and any special meeting cancelled, if the shareholder(s)who sign the request is/are not the holder(s) of the beneficial interest of 10%or more of the Company’s issued and outstanding shares on each of the followingdates:   the date such request ismailed; the record date for the meeting (to be fixed by the Board within fivebusiness days after the receipt of the request); and the date of the meeting;and (c) that any such request for a special meeting shall be or becomeineffective, and any meeting called or noticed pursuant thereto shall becancelled, if such request or any solicitation therefore is not made incompliance with applicable law.  Thecourt took testimony in the New Jersey action on August 7, 2003 and hasdirected the parties to submit additional briefs on the issues.

 

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Item4.             Submissionof Matters to a Vote of Security Holders

 

On May 14, 2003, the Company held its Annual Meetingof Stockholders.

 

(1)  Thefollowing directors were elected to serve on the Company’s Board of Directors.

 

|                 |   | **For**    |   | **Withhold** |   |
|----------------------|--------|------------|--------|--------------|--------|
| William  J. Murphy   |   | 18,227,321 |   | 279,928      |   |
|                 |   |       |   |         |   |
| William  M. Duncan   |   | 17,944,557 |   | 673,379      |   |
|                 |   |       |   |         |   |
| Earl  L. Mason       |   | 17,883,186 |   | 734,750      |   |
|                 |   |       |   |         |   |
| William  J. Marino   |   | 17,707,502 |   | 910,434      |   |
|                 |   |       |   |         |   |
| Karl  L. Meyer       |   | 9,159,186  |   | 40,698       |   |
|                 |   |       |   |         |   |
| Robert  A. Trevisani |   | 9,159,186  |   | 40,698       |   |

 

(2)  Theappointment of Grant Thornton LLP as independent auditors of the Company forfiscal year 2003 was ratified.

 
| For:     |   | 9,203,247 |
|----------|--------|-----------|
|     |   |      |
| Against: |   | 273,664   |
|     |   |      |
| Abstain: |   | 52,671    |

 

(3)  TheCompany’s 1991 Director’s Stock Option Plan was amended to extend the term ofthe plan to March 4, 2007.

 
| For:     |   | 8,544,720 |
|----------|--------|-----------|
|     |   |      |
| Against: |   | 928,617   |
|     |   |      |
| Abstain: |   | 56,245    |

 

(4)  Theissuance of 903,404 shares of the Company’s common stock previously issued underthe Company’s Employee Stock Purchase Plan was ratified and the Company’sEmployee Stock Purchase Plan was amended to reserve an additional 3,500,000shares (inclusive of the 903,404 shares) of the Company’s common stock undersuch Employee Stock Purchase Plan.

 
| For:     |   | 8,674,014 |
|----------|--------|-----------|
|     |   |      |
| Against: |   | 772,096   |
|     |   |      |
| Abstain: |   | 83,472    |

 

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(5)  TheCompany’s By-Laws were amended to authorize special meetings to be called bypersons who own, individually or in the aggregate, 10% or more of the Company’soutstanding common stock.

 
| For:     |   | 13,050,936 |
|----------|--------|------------|
|     |   |       |
| Against: |   | 4,501,170  |
|     |   |       |
| Abstain: |   | 73,443     |

 

Item6.             Exhibitsand Reports on Form 8-K

 

a)              Exhibits

 

 
| 31.1   | – | CEO Certification  required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of  1934.                                  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                 |
| 31.2   | – | CFO Certification  required by Rule 13a-14(a)/15d-14(a) 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. |

 

b)             Reports on Form8-K

 

A report on Form 8-K wasfiled on June 30, 2003, reporting that on June 30, 2003 the Board of Directorsof Computer Horizons Corp. approved the addition of Article I, Section 3A as anamendment to the Company’s By-Laws.

 

A report on Form 8-K wasfiled on June 4, 2003, reporting the issuance of a press release stating thatit reconvened its annual meeting and seated a slate of six directors,consisting of four incumbent directors and two directors proposed by adissident shareholder.  The Company alsoannounced that it was moving ahead on legal proceedings challenging the outcomeof the annual meeting vote and that the shareholders had approved an amendmentto its by-laws so as to permit shareholders holding 10% or more of theCompany’s independent auditors; approved an amendment to the Company’s 1991Directors Stock Option Plan; ratified the issuance of 903,404 Company sharesunder the Company’s Employee Stock Purchase Plan and approved a furtheramendment thereto to reserve an additional 3,500,000 shares (inclusive of the903,404 shares).

 

A report on Form 8-K wasfiled on April 30, 2003, reporting the issuance of a press release reportingthe financial results of Computer Horizons for its first fiscal quarter.

 

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Signatures

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|   |            |   | COMPUTER  HORIZONS CORP.              |                        |
|--------|-----------------|--------|---------------------------------------|-----------------------------|
|   |            |   | (Registrant)                          |                        |
|   |            |   |                                  |                        |
|   |            |   |                                  |                        |
| DATE:  | August 14, 2003 |   |                                  | /s/  William J. Murphy |   |
|   |            |   | William J. Murphy,  President and CEO |
|   |            |   | (Principal Executive  Officer)        |
|   |            |   |                                  |
|   |            |   |                                  |
| DATE:  | August 14, 2003 |   |                                  | /s/ Michael J. Shea         |   |
|   |            |   | Michael J. Shea,                      |
|   |            |   | Vice President and CFO                |
|   |            |   | (Principal Financial  Officer)        |
|   |            |   |                                  |
|   |            |   |                                  |
| DATE:  | August 14, 2003 |   |                                  | /s/ Kristin Evins           |   |
|   |            |   | Kristin Evins,                        |
|   |            |   | Controller                            |
|   |            |   | (Principal Accounting  Officer)       |
|        |                 |        |                                       |                             |  |  |  |

 

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