**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-Q**
| x                                                                                                                                                                            | **Quarterly Report Under  Section 13 or 15(d) of the Securities Exchange Act of 1934**        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         | ** **                                                                                         |
| **for the  quarterly period ended September 30, 2006**                                                                                                                       |
| ** **                                                                                                                                                                   |
| **or**                                                                                                                                                                       |
| ** **                                                                                                                                                                   |
| o                                                                                                                                                                            | **Transition Report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                                                         | ** **                                                                                         |
| **for the  transition period from            to             ** |
| ** **                                                                                                                                                                   |
| **Commission  File Number 0-7282**                                                                                                                                           |

 

**COMPUTERHORIZONS CORP.**

(Exact name ofregistrant as specified in its charter)
| **New York**                                              | **13-2638902**          |
|-----------------------------------------------------------|-------------------------|
| (State or other  jurisdiction of                          | (I.R.S. Employer        |
| incorporation or  organization)                           | Identification  Number) |
|                                                      |                    |
| **49  Old Bloomfield Avenue, Mountain Lakes, New Jersey** | **07046-1495**          |
| (Address of  principal executive offices)                 | (Zip code)              |

 

Registrant’stelephone number, including area code  **(973) 299-4000**

**NotApplicable**

(Former name, formeraddress and former fiscal year, if  changed 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 thepreceding twelve months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filing requirementsfor the past 90 days.
|        | x   | o  |   |
|--------|-----|----|--------|
|   | Yes | No |   |

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated fileror a non-accelerated filer. See definitions of “accelerated filer and largeaccelerated filer”.
| o   Large  Accelerated Filer | x   Accelerated  Filer | o   Non-accelerated  Filer |
|---------------------------------------------|---------------------------------------|-------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
|        | o   | x  |   |
|--------|-----|----|--------|
|   | Yes | No |   |

 

As October 31, 2006 theissuer had   33,228,752  shares of common stock outstanding.

 

----

 

**COMPUTERHORIZONS CORP. AND SUBSIDIARIES**

Index

 
| Part I   | Financial  Information                                                                                                   |
|----------|--------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                     |
| Item 1   | Financial Statements:                                                                                                    |
|     |                                                                                                                     |
|     | Consolidated  Balance Sheets September 30, 2006 (unaudited) and December 31, 2005                                   |
|     |                                                                                                                     |
|     | Consolidated Statements of Operations Three and Nine  Months Ended September 30, 2006 and September 30, 2005 (unaudited) |
|     |                                                                                                                     |
|     | Consolidated Statements of Cash Flows Nine Months  Ended September 30, 2006 and September 30, 2005 (unaudited)           |
|     |                                                                                                                     |
|     | Notes to Consolidated Financial Statements                                                                               |
|     |                                                                                                                     |
| Item 2   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                              |
|     |                                                                                                                     |
| Item 3   | Quantitative and Qualitative Disclosures about Market  Risk                                                              |
|     |                                                                                                                     |
| Item 4   | Controls and Procedures                                                                                                  |
|     |                                                                                                                     |
| Part  II | Other  Information                                                                                                       |
|     |                                                                                                                     |
|     |                                                                                                                     |
|     |                                                                                                                     |
| Item 6   | Exhibits                                                                                                                 |
|     |                                                                                                                     |
|     | Signatures                                                                                                               |
|     |                                                                                                                     |
|          |                                                                                                                          |  |

 

----

PART I.  FinancialInformation

Item 1.

**COMPUTER HORIZONS CORP. ANDSUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**(dollarsin thousands)
| ** **                                                                                                                                                                                                                  | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                  | ** ** | **(unaudited)**                  | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **CURRENT ASSETS:**                                                                                                                                                                                                         |       |                             |       |                            |       |
| Cash and cash  equivalents                                                                                                                                                                                                  |       | $                                | 48,185     |                            | $          | 40,903 |   |
| Cash held in escrow                                                                                                                                                                                                         |       | 1,000                            |       | —                          |       |
| Accounts receivable,  less allowance for doubtful accounts of $4,875 and $4,654 at September 30,  2006 and December 31, 2005, respectively                                                                                  |       | 42,560                           |       | 39,701                          |       |
| Refundable tax credit                                                                                                                                                                                                       |       | 7,714                            |       | 6,294                           |       |
| Other receivables                                                                                                                                                                                                           |       | 429                              |       | —                          |       |
| Prepaid expenses and  other                                                                                                                                                                                                 |       | 2,982                            |       | 4,028                           |       |
| Current Assets from  Discontinued Operations                                                                                                                                                                                |       | —                           |       | 14,101                          |       |
| **TOTAL CURRENT ASSETS**                                                                                                                                                                                                    |       | 102,870                          |       | 105,027                         |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **PROPERTY AND EQUIPMENT**                                                                                                                                                                                                  |       | 44,275                           |       | 43,350                          |       |
| Less accumulated  depreciation                                                                                                                                                                                              |       | (41,178                          | )          | (39,512                         | )          |
| **TOTAL PROPERTY AND EQUIPMENT,  NET**                                                                                                                                                                                      |       | 3,097                            |       | 3,838                           |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **OTHER ASSETS - NET:**                                                                                                                                                                                                     |       |                             |       |                            |       |
| Deferred income taxes                                                                                                                                                                                                       |       | 1,637                            |       | —                          |       |
| Other                                                                                                                                                                                                                       |       | 2,685                            |       | 2,740                           |       |
| Long-term Assets from  Discontinued Operations                                                                                                                                                                              |       | —                           |       | 31,737                          |       |
| **TOTAL OTHER ASSETS**                                                                                                                                                                                                      |       | 4,322                            |       | 34,477                          |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **TOTAL ASSETS**                                                                                                                                                                                                            |       | $                                | 110,289    |                            | $          | 143,342 |   |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS  EQUITY**                                                                                                                                                                                    |       |                             |       |                            |       |
| **CURRENT LIABILITIES:**                                                                                                                                                                                                    |       |                             |       |                            |       |
| Accounts payable                                                                                                                                                                                                            |       | $                                | 18,002     |                            | $          | 35,615 |   |
| Accrued payroll,  payroll taxes and benefits                                                                                                                                                                                |       | 9,145                            |       | 8,113                           |       |
| Income taxes payable                                                                                                                                                                                                        |       | 1,150                            |       | 1,150                           |       |
| Restructuring reserve                                                                                                                                                                                                       |       | 146                              |       | 1,656                           |       |
| Other accrued expenses                                                                                                                                                                                                      |       | 4,569                            |       | 3,439                           |       |
| Current Liabilities  from Discontinued Operations                                                                                                                                                                           |       | —                           |       | 3,649                           |       |
| Deferred Tax                                                                                                                                                                                                                |       | 1,636                            |       | —                          |       |
| **TOTAL CURRENT LIABILITIES**                                                                                                                                                                                               |       | 34,648                           |       | 53,622                          |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **OTHER LIABILITIES:**                                                                                                                                                                                                      |       |                             |       |                            |       |
| Deferred compensation                                                                                                                                                                                                       |       | 1,734                            |       | 1,588                           |       |
| Change of control  payable                                                                                                                                                                                                  |       | 2,330                            |       | 2,938                           |       |
| Other                                                                                                                                                                                                                       |       | —                           |       | 197                             |       |
| Long Term Liabilities  from Discontinued operations                                                                                                                                                                         |       | —                           |       | 970                             |       |
| **TOTAL OTHER LIABILITIES**                                                                                                                                                                                                 |       | 4,064                            |       | 5,693                           |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **TOTAL LIABILITIES**                                                                                                                                                                                                       |       | $                                | 38,712     |                            | $          | 59,315 |   |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **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 33,158,105 shares at  September 30, 2006, and December 31,2005 |       | 3,315                            |       | 3,315                           |       |
| Additional paid in  capital                                                                                                                                                                                                 |       | 146,506                          |       | 148,083                         |       |
| Accumulated other  comprehensive loss                                                                                                                                                                                       |       | (179                             | )          | (643                            | )          |
| Retained earnings/  (Accumulated deficit)                                                                                                                                                                                   |       | (77,134                          | )          | (60,492                         | )          |
|                                                                                                                                                                                                                        |       | 72,508                           |       | 90,263                          |       |
| Less shares held in  treasury, at cost; 134,948 and 1,118,014 shares at September 30, 2006 and  December 31, 2005, respectively                                                                                             |       | (931                             | )          | (6,236                          | )          |
| **TOTAL SHAREHOLDERS EQUITY**                                                                                                                                                                                               |       | 71,577                           |       | 84,027                          |       |
| ** **                                                                                                                                                                                                                  |       |                             |       |                            |       |
| **TOTAL LIABILITIES AND SHAREHOLDERS EQUITY**                                                                                                                                                                               |       | $                                | 110,289    |                            | $          | 143,342 |   |

 

5

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**COMPUTERHORIZONS CORP. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

**(dollarsin thousands, except per share data)**
| ** **                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
| ** **                                                            | ** ** | ** **                       | ** ** | **% of  revenue**           | ** ** | ** ** | ** ** | **% of  revenue** | ** ** | ** ** | ** ** | **% of  revenue** | ** ** | ** ** | ** ** | **% of  revenue** | ** ** |
| **REVENUES:**                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                            |       | $                                | 44,642     |                             | 84.8       | % | $ | 49,183 |   | 87.0 | % | $ | 136,124 |   | 85.3 | % | $ | 148,504 |   | 87.7 | % |
| Chimes                                                                |       | 7,977                            |       | 15.2                             | %          | 7,372 |   | 13.0 | % | 23,474 |   | 14.7 | % | 20,747 |   | 12.3 | % |
| **Total**                                                             |       | 52,619                           |       | 100.0                            | %          | 56,555 |   | 100.0 | % | 159,598 |   | 100.0 | % | 169,251 |   | 100.0 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **COSTS  AND EXPENSES:**                                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct costs                                                          |       | 35,064                           |       | 66.6                             | %          | 39,805 |   | 70.4 | % | 107,689 |   | 67.5 | % | 120,908 |   | 71.4 | % |
| Selling, general  & administrative                                |       | 17,452                           |       | 33.2                             | %          | 18,851 |   | 33.3 | % | 51,758 |   | 32.4 | % | 52,797 |   | 31.2 | % |
| Amortization of  intangibles                                          |       | —                           |       | 0.0                              | %          | — |   | 0.0 | % | — |   | 0.0 | % | 78 |   | 0.0 | % |
| Restructuring  charges                                                |       | (32                              | )          | -0.1                             | %          | 574 |   | 1.0 | % | (32 | ) | 0.0 | % | 716 |   | 0.4 | % |
| Special charges                                                       |       | 86                               |       | 0.2                              | %          | 5,414 |   | 9.6 | % | 366 |   | 0.2 | % | 4,482 |   | 2.6 | % |
| Gain on sale of  assets                                               |       | (394                             | )          | -0.7                             | %          | — |   | 0.0 | % | (394 | ) | -0.2 | % | — |   | 0.0 | % |
| Goodwill  impairment                                                  |       | —                           |       | 0.0                              | %          | — |   | 0.0 | % | — |   | 0.0 | % | — |   | 0.0 | % |
| Total Costs                                                           |       | 52,176                           |       | 99.2                             | %          | 64,644 |   | 114.3 | % | 159,387 |   | 99.9 | % | 178,981 |   | 105.7 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME/(LOSS)  FROM OPERATIONS**                                    |       | 443                              |       | 0.8                              | %          | (8,089 | ) | -14.3 | % | 211 |   | 0.1 | % | (9,730 | ) | -5.7 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **OTHER  INCOME/(EXPENSE):**                                          |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                       |       | 527                              |       | 1.0                              | %          | 262 |   | 0.5 | % | 1,308 |   | 0.8 | % | 541 |   | 0.3 | % |
| Interest expense                                                      |       | —                           |       | 0.0                              | %          | (3 | ) | 0.0 | % | (1 | ) | 0.0 | % | (5 | ) | 0.0 | % |
|                                                                  |       | 527                              |       | 1.0                              | %          | 259 |   | 0.5 | % | 1,307 |   | 0.8 | % | 536 |   | 0.3 | % |
| **INCOME/(LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES**     |       | 970                              |       | 1.8                              | %          | (7,830 | ) | -13.8 | % | 1,518 |   | 1.0 | % | (9,194 | ) | -5.4 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME  (TAXES)/BENEFIT:**                                          |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                               |       | (79                              | )          | -0.2                             | %          | (102 | ) | -0.2 | % | (150 | ) | -0.1 | % | 259 |   | 0.2 | % |
| Deferred                                                              |       | —                           |       | 0.0                              | %          | (23 | ) | 0.0 | % | — |   | 0.0 | % | (100 | ) | -0.1 | % |
|                                                                  |       | (79                              | )          | -0.2                             | %          | (125 | ) | -0.2 | % | (150 | ) | -0.1 | % | 159 |   | 0.1 | % |
|                                                                  |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **NET  INCOME/(LOSS) FROM CONTINUING OPERATIONS**                     |       | $                                | 891        |                             | 1.7        | % | $ | (7,955 | ) | -14.1 | % | $ | 1,368 |   | 0.9 | % | $ | (9,035 | ) | -5.3 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from discontinued operations**                       |       | 540                              |       |                             |       | 617 |   |   |   | (13,232 | ) |   |   | 2,071 |   |   |   |
| **Loss on  sale of discontinued operations**                          |       | (4,779                           | )          |                             |       | — |   |   |   | (4,779 | ) |   |   | — |   |   |   |
| **INCOME/(LOSS)  FROM DISCONTINUED OPERATIONS NET OF TAX**            |       | (4,239                           | )          |                             |       | 617 |   |   |   | (18,011 | ) |   |   | 2,071 |   |   |   |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **NET LOSS**                                                          |       | $                                | (3,348     | )                                | -6.4       | % | $ | (7,338 | ) | -13.0 | % | $ | (16,643 | ) | -10.4 | % | $ | (6,964 | ) | -4.1 | % |
| ** **                                                            |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **EARNINGS/(LOSS)  PER SHARE FROM CONTINUING OPERATIONS - BASIC**     |       | $                                | 0.03       |                             |       |   | $ | (0.25 | ) |   |   | $ | 0.04 |   |   |   | $ | (0.29 | ) |   |   |
| **EARNINGS/(LOSS)  PER SHARE FROM DISCONTINUED OPERATIONS - BASIC**   |       | $                                | (0.13      | )                                |       |   | $ | 0.02 |   |   |   | $ | (0.56 | ) |   |   | $ | 0.07 |   |   |   |
| **LOSS PER  SHARE - BASIC**                                           |       | $                                | (0.10      | )                                |       |   | $ | (0.23 | ) |   |   | $ | (0.51 | ) |   |   | $ | (0.22 | ) |   |   |
| **EARNINGS/(LOSS)  PER SHARE FROM CONTINUING OPERATIONS - DILUTED**   |       | $                                | 0.03       |                             |       |   | $ | (0.25 | ) |   |   | $ | 0.04 |   |   |   | $ | (0.29 | ) |   |   |
| **EARNINGS/(LOSS)  PER SHARE FROM DISCONTINUED OPERATIONS - DILUTED** |       | $                                | (0.13      | )                                |       |   | $ | 0.02 |   |   |   | $ | (0.55 | ) |   |   | $ | 0.07 |   |   |   |
| **LOSS PER  SHARE - DILUTED**                                         |       | $                                | (0.10      | )                                |       |   | $ | (0.23 | ) |   |   | $ | (0.51 | ) |   |   | $ | (0.22 | ) |   |   |
| **WEIGHTED  AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC**            |       | 32,297,660                       |       |                             |       | 31,375,000 |   |   |   | 32,411,474 |   |   |   | 31,280,000 |   |   |   |
| **WEIGHTED AVERAGE NUMBER OF  SHARES OUTSTANDING - DILUTED**          |       | 32,365,000                       |       |                             |       | 31,375,000 |   |   |   | 32,619,000 |   |   |   | 31,280,000 |   |   |   |

 

6

----

 

**COMPUTERHORIZONS CORP. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(dollarsin thousands)**
| ** **                                                                                          | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                          | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|                                                                                                |       |                             |       |   |   |
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net loss                                                                                            |       | $                                | (16,643    | ) | $ | (6,964 | ) |
| Less:  Income/(Loss) from discontinued Operations                                                   |       | (13,232                          | )          | 2,071 |   |
| Less: Loss on  sale of discontinued operations                                                      |       | (4,779                           | )          | — |   |
| Income/(Loss)  from continuing operations                                                           |       | 1,368                            |       | (9,035 | ) |
| Adjustments to  reconcile net income/(loss) to net cash provided by/(used in) operating activities: |       |                             |       |   |   |
| Deferred taxes                                                                                      |       | —                           |       | (347 | ) |
| Depreciation                                                                                        |       | 1,609                            |       | 2,541 |   |
| Amortization of  intangibles                                                                        |       | —                           |       | 78 |   |
| Provision for  bad debts                                                                            |       | 289                              |       | 458 |   |
| Gain on sale of  assets                                                                             |       | (394                             | )          | (327 | ) |
| FAS 123R Option  Expense                                                                            |       | 472                              |       | — |   |
| **Changes  in assets and liabilities, net of acquisitions:**                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Accounts  receivable                                                                                |       | (3,148                           | )          | (6,253 | ) |
| Prepaid expenses  and other current assets                                                          |       | 1,011                            |       | (55 | ) |
| Other  receivables                                                                                  |       | —                           |       | 1,204 |   |
| Other assets                                                                                        |       | 55                               |       | (356 | ) |
| Goodwill  impairment                                                                                |       | —                           |       | 1,783 |   |
| Refundable tax  credit                                                                              |       | (1,420                           | )          | (1,925 | ) |
| Accrued payroll,  payroll taxes and benefits                                                        |       | 1,032                            |       | 1,100 |   |
| Accounts payable                                                                                    |       | (17,613                          | )          | 19,980 |   |
| Income taxes  payable                                                                               |       | —                           |       | 246 |   |
| Other accrued  expenses /change of control                                                          |       | (988                             | )          | (1,837 | ) |
| reserve                                                                                             |       |                             |       |   |   |
| Deferred  compensation                                                                              |       | 146                              |       | 7 |   |
| Supplemental  executive retirement plan                                                             |       | —                           |       | 78 |   |
| Other  liabilities                                                                                  |       | (197                             | )          | 72 |   |
|                                                                                                |       |                             |       |   |   |
| **NET  CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES**                                            |       | (17,778                          | )          | 7,412 |   |
| **NET  CASH PROVIDED BY DISCONTINUED OPERATIONS**                                                   |       | 8,927                            |       | 2,696 |   |
| **NET  CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES**                                            |       | (8,851                           | )          | 10,108 |   |
|                                                                                                |       |                             |       |   |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Proceeds from  sale of assets                                                                       |       | —                           |       | 564 |   |
| Purchases of  furniture and equipment                                                               |       | (868                             | )          | (1,766 | ) |
| **NET  CASH (USED IN) INVESTING ACTIVITIES**                                                        |       | (868                             | )          | (1,202 | ) |
| **NET  CASH PROVIDED BY/(USED IN) DISCONTINUED OPERATIONS**                                         |       | 13,281                           |       | (513 | ) |
| **NET  CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES**                                            |       | 12,413                           |       | (1,715 | ) |
|                                                                                                |       |                             |       |   |   |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Stock options  exercised                                                                            |       | 2,795                            |       | 1,001 |   |
| Stock issued on  employee stock purchase plan                                                       |       | 461                              |       | 518 |   |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                                                      |       | 3,256                            |       | 1,519 |   |
|                                                                                                |       |                             |       |   |   |
| Foreign currency  gains/(losses)                                                                    |       | 464                              |       | 216 |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                                      |       | 7,282                            |       | 10,128 |   |
| ** **                                                                                          |       |                             |       |   |   |
| **CASH  AND CASH EQUIVALENTS AT BEGINNING OF YEAR**                                                 |       | 40,903                           |       | 33,649 |   |
|                                                                                                |       |                             |       |   |   |
| **CASH AND CASH EQUIVALENTS AT  END OF PERIOD**                                                     |       | $                                | 48,185     |   | $ | 43,777 |   |

The accompanying notes are an integral part of these statements.

7

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**COMPUTERHORIZONS CORP.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

For the PeriodsEnded September 30, 2006 and September 30, 2005(unaudited)

**1.             Basis of Presentation**

Theconsolidated balance sheet as of September 30, 2006, the consolidatedstatements of operations for the three and nine months ended September 30, 2006and September 30, 2005, respectively, and the statement of cash flows for thenine months ended September 30, 2006 and 2005 have been prepared by the Companywithout audit.  In the opinion of management, all adjustments (whichinclude normal recurring adjustments) necessary to present fairly the financialposition, results of operations and cash flows at September 30, 2006 (and forall periods presented) have been made.

Certaininformation and note disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America, which are not required for interim purpose, have beencondensed or omitted.  It is suggested that these consolidated financialstatements be read in conjunction with the financial statements and notesthereto included in the Annual Report on Form 10-K for the year endedDecember 31, 2005 filed by the Company.  The results of operationsfor the periods ended September 30, 2006 and 2005 are not necessarilyindicative of the operating results for the respective full years.

On September 29, 2006, Computer Horizons Corp. soldits Federal Government subsidiary, RGII Technologies, Inc., to Netstar-1 for $15.3million in cash, less an estimated net asset adjustment of $1.2 million,subject to a post-closing net asset value adjustment.  (The sale transaction is discussed in Note 14below.)  Results of the RGII subsidiaryfor all periods presented are presented as results from discontinuedoperations. Assets and liabilities of RGII are shown on the Balance Sheet asassets of discontinued operations and liabilities of discontinued operationsrespectively.  To provide a comparablepresentation period over period, the prior period financial statementscontained herein have also been restated to reflect RGII as assets held fordisposal.

**2.            ****Recent Accounting Pronouncements**

 

InSeptember, 2006 the FASB issued Statement 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*:an amendment of FASB Statements No. 87, 88, 106, and 132(R).  Statement 158 requires employers withsingle-employer defined benefit plans or postretirement plans to recognize thefunded status of all such plans in the employer’s statement of financialposition; recognize the changes in a plan’s funded status in comprehensiveincome of a business entity or as changes in unrestricted net assets of anot-for-profit organization in the year of change; and measure a plan’s fundedstatus as of the date of the employer’s fiscal year-end statement of financialcondition.  The provisions of Statement158 are effective for entities with publicly traded equity securities as of theend of the fiscal year ending after December 15, 2006.  The Company does not expect a material impactfrom the adoption of Statement 158.

InSeptember 2006, the Securities and Exchange Commission issued Staff AccountingBulletin “SAB” 108 regarding the process of quantifying financial statementmisstatements.  The provisions of thisstatement will be effective for the year end. The company does not expect a material impact from adoption of SAB 108.

InJune 2006, the Financial Accounting Standards Board (FASB) issued FASBInterpretation No. 48, Accounting for Uncertainty in Income Taxes-aninterpretation of FASB Statement No. 109 (FIN 48), which clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements.  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.  The provisions of FIN 48will be effective for the Company as of January 1, 2007, with the cumulativeeffect of applying the provisions of this Interpretation reported as anadjustment to the opening balance of retained earnings. The Company iscurrently evaluating the impact of adopting FIN 48.

InDecember 2004, the FASB issued Statement of Financial Accounting StandardNo. 123 (revised 2004), “Share-Based Payment” (FAS 123R).FAS 123R requires that compensation cost be recognized for all new awardsand awards that are modified, repurchased or cancelled after the adoption date.The SEC amended the effective dates of FAS 123R for public companies inApril 2005, which allowed registrants to implement FAS 123R at thebeginning of their next fiscal year, instead of the next interim period, thatbegan after June 15, 2005. The SEC also issued Staff AccountingBulletin 107, “Share-Based Payment” (SAB 107), in April 2005, whichprovides the views of the SEC staff regarding certain aspects of theapplication of FAS 123R. SAB 107 assists issuers in their initialimplementation of FAS 123R. The provisions of this statement wereeffective for the Company’s first quarter ended March 31, 2006.

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FAS 123Rallows for two alternative transition methods. The first method is the modifiedprospective application whereby compensation cost for the portion of awards forwhich the requisite service has not yet been rendered that are outstanding asof the adoption date will be recognized over the remaining service period. Thecompensation cost for that portion of awards will be based on the grant-datefair value of those awards as calculated for pro forma disclosures underStatement 123, “Accounting for Stock-Based Compensation”, as originallyissued. All new awards and awards that are modified, repurchased or cancelledafter the adoption date will be accounted for under the provisions of FAS123(R). The second method is the modified retrospective application, whichrequires that the Company restate prior period financial statements. Themodified retrospective application may be applied either to all prior periodsor only to prior interim periods in the year of adoption of this statement. TheCompany has elected to apply the modified prospective method.

On November 2005,the FASB issued FASB Staff Position No. FAS 123R-3—“Transition Election Relatedto Accounting for the Tax Effects of Share-Based Payment Awards.”  TheCompany has elected to adopt the alternative transition method provided in thisFASB Staff Position for calculating the tax effects of share-based compensationpursuant to FAS 123R. The alternative transition method includes a simplifiedmethod to establish the beginning balance of the additional paid-in capitalpool (APIC pool) related to the tax effects of employee share-basedcompensation, which is available to absorb tax deficiencies recognizedsubsequent to the adoption of FAS 123R.

**3.             Accounting for Stock-BasedCompensation**

*Accountingfor Stock-Based Compensation*

In December 2002,the FASB approved the issuance of Statement of Financial Accounting StandardNo. 148, “Accounting for Stock-Based Compensation—Translation andDisclosure” (FAS No. 148).  This statement amends FASB StatementNo. 123, “Accounting for Stock-Based Compensation,” to provide alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation.  In addition, thisStatement amended the disclosure requirements of the FAS 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based compensation and the effect of the methodsused on reported results. The Company adopted these disclosure provisions as ofDecember 31, 2002.

*Adoptionof FAS 123R*

TheCompany issues common stock options to certain employees and board members. InJanuary 2006, the Company adopted Financial Accounting StandardsBoard Statement No. 123 (revised 2004) (“FAS 123R”) - Share-Based Payments*.* FAS 123R requires all entities to recognize compensation expense in anamount equal the fair value of share-based payments, such as stock optionsgranted to employees. The Company has elected to apply FAS 123R on a modifiedprospective method. Under this method, the Company is required to recordcompensation expense for newly granted options and (as previous awards continueto vest) for the unvested portion of previously granted awards that remainoutstanding at the date of adoption. Additionally, the financial statements forprior interim periods and fiscal years do not reflect any adjusted amounts.

OnSeptember 30, 2006, the Company has three share-based compensation plans and anEmployee Stock Purchase Plan (“ESPP”) which are described below. The compensationcost that has been charged against income for the three and nine months endedSeptember 30, 2006 was $94,000 and $472,000 respectively, comprised of $18,000and $79,000 ESPP and $76,000 and $393,000 for stock option plans. This reducedearnings from continuing operations before and after taxes and netearnings.  Basic and diluted net earningsper common share for the three and nine months ended September 30, 2006 werereduced by $0.00 and $0.01 respectively as a result of adopting thispronouncement. As the Company has a net operating loss carryforward and hasestablished a full valuation allowance on its deferred tax assets, there is nocurrent tax benefit associated with the accrued compensation expense for thisquarter.

*StockOptions*

In1994, the Company adopted a stock option plan which provides for the grantingof options to officers and key employees, for the purchase of a maximum of7,594,000 shares of common stock and stock appreciation rights (“SARs”).Options and SARs generally expire ten years from the date of grant and becomeexercisable in specified amounts during the life of the respective options.There are no shares available as of September 30, 2006 for the 1994 stockoption plan.

InMay 2004, the Company received shareholder approval and adopted the 2004Omnibus Incentive Compensation Plan (the “Omnibus Plan”). This plan replacedthe 1994 Stock Option and Appreciation Plan and provides for a maximum numberof 3,500,000 shares of common stock issuable under the plan. These awards maybe stock options, stock appreciation rights, restricted stock or performanceshare awards, and expire after ten years. Awards from this plan are exercisableimmediately for members of

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the Board of Directors and ratably over a three yearperiod for employees. This Plan is scheduled to expire on May 19, 2014. Asof September 30, 2006, there were 2,711,500 shares available for awards underthe Omnibus Plan.

TheCompany also has a non-qualified Directors’ stock option plan (the “Directors’Plan”). In 1998, the Company amended the Directors’ Plan, providing that eachnew director of the Company who is not an employee of the Company(i) shall immediately receive options to purchase 10,000 shares of theCompany’s common stock and (ii) shall receive annual grants to purchase anadditional 10,000 shares of its common stock. Awards from this plan areexercisable immediately, and expire in ten years. The Directors’ Planoriginally was to expire on March 4, 2001 and was extended by the Board ofDirectors and Shareholders through March 6, 2007. There were 24,000 sharesof common stock available for grant at September 30, 2006 under the Directors’Plan.

Summary of the status ofall the Company’s stock option plans as of September 30, 2006 and the changesduring the three and nine months ended on that date is presented below:
| **Options (Three Months)**                               | ** ** | ** **       | ** ** | ** **   | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|--------------------------------------------------------------------|------------|------------------|------------|--------------|------------|-----------------|------------|---------------|------------|
| ** **                                                         | ** ** | ** **       | ** ** | **Weighted** | ** ** | **Average**     | ** ** | **Aggregate** | ** ** |
| ** **                                                         | ** ** | ** **       | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Intrinsic** | ** ** |
| ** **                                                         | ** ** | **Shares**       | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Value**     | ** ** |
| ** **                                                         | ** ** | **(000’s)** | ** ** | **Price**    | ** ** | **Term**        | ** ** | **($000)**    | ** ** |
| ** **                                                         | ** ** | ** **       | ** ** | ** **   | ** ** | ** **      | ** ** | ** **    | ** ** |
| Outstanding June  30, 2006                                         |       | 2,099            |       | $            | 3.90       |            | —     |          | —     |   |
| Granted                                                            |       | —           |       | —       |       | —          |       | —        |       |
| Exercised                                                          |       | 104              |       | $            | 3.53       |            | —     |          | —     |   |
| Canceled/forfeited/expired                                         |       | 11               |       | $            | 3.21       |            | —     |          | —     |   |
| Outstanding  September 30, 2006                                    |       | 1,984            |       | $            | 3.93       |            | 5.5        |          | $          | 652 |   |
| Options  exercisable September 30, 2006                            |       | 1,569            |       | $            | 3.83       |            | 5.8        |          | $          | 652 |   |
| Weighted average fair  value of options granted during the quarter |       |             |       | $            | 0.00       |            |       |          |       |   |

 

 
| **Options (Nine Months)**                                          | ** ** | ** **       | ** ** | ** **   | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|------------------------------------------------------------------------------|------------|------------------|------------|--------------|------------|-----------------|------------|---------------|------------|
| ** **                                                                   | ** ** | ** **       | ** ** | **Weighted** | ** ** | **Average**     | ** ** | **Aggregate** | ** ** |
| ** **                                                                   | ** ** | ** **       | ** ** | **Average**  | ** ** | **Remaining**   | ** ** | **Intrinsic** | ** ** |
| ** **                                                                   | ** ** | **Shares**       | ** ** | **Exercise** | ** ** | **Contractual** | ** ** | **Value**     | ** ** |
| ** **                                                                   | ** ** | **(000’s)** | ** ** | **Price**    | ** ** | **Term**        | ** ** | **($000)**    | ** ** |
| ** **                                                                   | ** ** | ** **       | ** ** | ** **   | ** ** | ** **      | ** ** | ** **    | ** ** |
| Outstanding  December 31, 2005                                               |       | 2,658            |       | $            | 3.69       |            | —     |          | —     |   |
| Granted                                                                      |       | 315              |       | $            | 4.39       |            | —     |          | —     |   |
| Exercised                                                                    |       | 898              |       | $            | 3.43       |            | —     |          | —     |   |
| Canceled/forfeited/expired                                                   |       | 91               |       | $            | 3.63       |            | —     |          | —     |   |
| Outstanding  September 30, 2006                                              |       | 1,984            |       | $            | 3.93       |            | 5.5        |          | $          | 652 |   |
| Options  exercisable September 30, 2006                                      |       | 1,569            |       | $            | 3.83       |            | 5.8        |          | $          | 652 |   |
| Weighted average fair  value of options granted during the nine months ended |       |             |       | $            | 2.47       |            |       |          |       |   |

 

Thefair value of each option grant is estimated on the date of the grant using theBlack-Scholes options pricing model. The following weighted-average assumptionswere used for grants in the nine months ended September 30, 2006: expectedvolatility of 37%; a risk-free interest rate of 4.64%; and an expected life of5.06 years. The expected term of the options is based on evaluations ofhistorical and expected future employee exercise behavior. The risk-free rateis based on the US Treasury rates at the close of the quarter with maturitydates approximately equal to the expected life at the grant date. The expectedvolatility is based on the historical volatility of the Company’s stock.

Cashreceived from option exercise under all share-based payment arrangements forthe three and nine months ended September 30, 2006 was $432,000 and $3,257,000.The actual tax benefit realized for the tax deductions from option exercise ofthe share-based payment arrangements totaled $69,516 and $273,972 for the sameperiod. As the Company currently has a full valuation allowance with respect toits deferred tax assets, no tax benefit from the options are recognized at thistime. If the Company determines that it is more likely than not that it willrecognize a tax benefit from the exercise of the options, then this amountwould generally reflect the overall tax benefit.

Priorto the adoption of SFAS 123R, the Company presented all tax benefits ofdeductions resulting from the exercise of share-based awards as operating cashflows in the consolidated statement of cash flows. SFAS 123R requires the cashflows

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resulting from the tax benefits generated from taxdeductions in excess of the compensation costs recognized for the share-basedawards (excess tax benefits) be classified as financing cash flows. SFAS 123Rrequires the cash flows resulting from the tax benefits for the tax deductionsin excess of the compensation expense recorded for those options to beclassified as financing cash flows. As the Company currently has a netoperating loss carryforward and a full valuation allowance, no excess taxdeductions are recognized at this time.

Asof September 30, 2006, there was $656,437 of total unrecognized compensationcost related to nonvested share-based compensation arrangements granted underthese plans; that cost is expected to be recognized over a period of three years.

TheCompany offers an Employee Stock Purchase Plan (“ESPP”) to its employees. TheESPP purchases shares quarterly at a 15% discount from the lower of the openingand closing stock prices for the period. The shares are purchased at a fixeddiscount and therefore give rise to a liability under FAS 123R. The liabilityfor the quarter ended September 30, 2006 is $18,000. Shares are purchased thefirst business day after the end of each quarter. There were 1,882,164 sharesof common stock available for purchase after October 3, 2006 under the ESPPPlan.

Priorto the adoption of FAS 123R, the Company applied Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), asmodified by FIN 44, “Accounting for Certain Transactions Involving StockCompensation,” in accounting for stock-based employee compensation, whereby nocompensation cost had been recognized for the plans. Had compensation costfor the plans been determined based on the fair value of the options at thegrant dates and been consistent with the method of FAS 123, the Company’s netincome and earnings per share for the comparable periods of 2005 would havebeen decreased to the pro forma amounts indicated below:

 

 
|                                      |   |                                                                                                                                           |   | **Three Months Ended  September 30,  2005** | ** ** | **Nine Months Ended  September 30,  2005** |   |
|-------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|-------------------------------------------------|--------|
|                                      |   |                                                                                                                                           |   |                                             |       |                                            |   |
| **(in thousands, except per share data)** |   |                                                                                                                                           |   |                                             |       |
| Net  income/(loss)                        |   | As  reported                                                                                                                                   |   | $                                                | (7,338     | )                                               | $      | (6,964 | ) |
|                                      |   | Deduct  : Total tock-baed employee  compensation expense determined under  fair value based method for all  awards, net of related tax effects |   | (169                                             | )          | (700                                            | )      |
|                                      |   |                                                                                                                                           |   |                                             |       |                                            |   |
|                                      |   | Pro  forma                                                                                                                                     |   | $                                                | (7,507     | )                                               | $      | (7,664 | ) |
|                                      |   |                                                                                                                                           |   |                                             |       |                                            |   |
| Earnings per  share                       |   |                                                                                                                                           |   |                                             |       |                                            |   |
| Basic                                     |   | As  reported                                                                                                                                   |   | $                                                | (0.23      | )                                               | $      | (0.22 | ) |
|                                      |   | Pro  forma                                                                                                                                     |   | (0.24                                            | )          | (0.25                                           | )      |
|                                      |   |                                                                                                                                           |   |                                             |       |                                            |   |
| Diluted                                   |   | As  reported                                                                                                                                   |   | $                                                | (0.23      | )                                               | $      | (0.22 | ) |
|                                      |   | Pro Forma                                                                                                                                      |   | (0.24                                            | )          | (0.25                                           | )      |

 

Theeffect of adopting SFAS No. 123R was a reduction of $94,000 and $472,000to the Company’s income from continuing operations for the three and ninemonths ended September 30, 2006. There was no additional cumulative effect ofadoption using the modified-prospective transition method was similarlymaterial.

**4.****             Cash**

Includedin cash and cash equivalents at September 30, 2006 and December 31, 2005is restricted cash of $167,019 and $219,000 respectively.  Restricted cashrepresents funds received by Chimes and held in client-specific bank accounts,to be used to make payments to vendors of the applicable client.  In addition, $1,000,000 in cash from the saleof RGII has been held in escrow, pending the final true up.  Cash and cash equivalents at September 30,2006 and December 31, 2005 also include approximately $12.0 million and$29.4 million, respectively, of cash to be disbursed to Chimes vendors inaccordance with the client payment terms.

 

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**5. Earnings/(Loss)per Share**

BasicEarnings Per Share (“EPS”) is based on the weighted average number of commonshares outstanding without consideration of common stock equivalents. Diluted earnings per share are based on the weighted average number of commonand common equivalent shares outstanding.  The calculation takes intoaccount the shares that may be issued upon exercise of stock options, reducedby the shares that may be repurchased with the funds received from theexercise, based on the average price during the year.
| ** **                                                                                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                          | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                          | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Numerator:                                                                                                          |       |                             |       |                            |       |   |   |   |   |
| Net income/(loss) from  operations - (000)                                                                          |       | $                                | 891        |                            | $          | (7,955 | ) | $ | 1,368 |   | $ | (9,035 | ) |
| Net income/(loss) from  discontinued operations - (000)                                                             |       | $                                | (4,239     | )                               | $          | 617 |   | $ | (18,011 | ) | $ | 2,071 |   |
| Net loss - (000)                                                                                                    |       | $                                | (3,348     | )                               | $          | (7,338 | ) | $ | (16,643 | ) | $ | (6,964 | ) |
| Denominator:                                                                                                        |       |                             |       |                            |       |   |   |   |   |
| Denominator for basic  earnings per share - weighted average shares outstanding                                     |       | 32,298,000                       |       | 31,375,000                      |       | 32,411,000 |   | 31,280,000 |   |
| Effect of stock options                                                                                             |       | 67,000                           |       | —                          |       | 208,000 |   | — |   |
| Diluted earnings/(loss)  per share:                                                                                 |       |                             |       |                            |       |   |   |   |   |
| Denominator for diluted  earnings per share - adjusted weighted average shares outstanding and assumed  conversions |       | 32,365,000                       |       | 31,375,000                      |       | 32,619,000 |   | 31,280,000 |   |
| Basic earnings/(loss)  per share from continuing operations                                                         |       | $                                | 0.03       |                            | $          | (0.25 | ) | $ | 0.04 |   | $ | (0.29 | ) |
| Basic earnings/(loss)  per share from discontinued operations                                                       |       | $                                | (0.13      | )                               | $          | 0.02 |   | $ | (0.56 | ) | $ | 0.07 |   |
| Basic loss per share                                                                                                |       | $                                | (0.10      | )                               | $          | (0.23 | ) | $ | (0.51 | ) | $ | (0.22 | ) |
| Diluted earnings/(loss)  per share from continuing operations                                                       |       | $                                | 0.03       |                            | $          | (0.25 | ) | $ | 0.04 |   | $ | (0.29 | ) |
| Diluted earnings/(loss)  per share from discontinued operations                                                     |       | $                                | (0.13      | )                               | $          | 0.02 |   | $ | (0.55 | ) | $ | 0.07 |   |
| Diluted loss per share                                                                                              |       | $                                | (0.10      | )                               | $          | (0.23 | ) | $ | (0.51 | ) | $ | (0.22 | ) |

 

The computation ofdiluted loss per share excludes all options because they areantidilutive.  For the third quarter and the first nine months ended September30, 2006 there were 345,000 and 70,000 options excluded with exercise pricesbetween $4.22 and $16.38 and $4.70 and $16.38. In September 30, 2005, there were 2,081,973 and 2,117,187 excludedoptions, respectively, for the third quarter and the first nine months endedSeptember 30, 2005, with exercise prices between $3.65 and $16.38 and $3.56 and$16.38 respectively, per share.

**6. SegmentInformation**

Duringthe fourth quarter of 2004, the Company completed a realignment of the Company’sbusiness model, effective January 1, 2005, around its three distinctsegments of clients: Commercial, Federal Government and Vendor Managementservices (Chimes).  This realigned business model was designed to deliverimproved operational performance for the Company and reduce annual operatingcosts.  On September 29, 2006, theCompany sold its Federal Government business segment (consisting of RGIITechnologies, Inc.), to Netstar-1, Inc. As a result, this business segment is now reflected as discontinuedoperations, and all prior periods have been restated to provide a comparablepresentation.

Income/(loss)before income tax benefit consists of income/(loss) before income taxes,excluding interest income, interest expense, gain/(loss) on the sale ofassets/investments, change of control charges, restructuring charges andspecial charges/(credits). 

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These exclusionstotaled a gain of $461,000 and a loss of $6.2 million for the quarters endedSeptember 30, 2006 and 2005 respectively, and a gain of $147,000 and a loss of$6.1 million for the nine months ended September 30, 2006 and 2005. Corporateservices, consisting of general and administrative services are provided to thesegments from a centralized location. Such costs are allocated to the applicable segments based on acombination of services received and revenue.

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** | **Nine Months   Ended**     | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|----------------------------------|------------|
| **(dollars in thousands)**                     | ** ** | ** **             | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
| Revenues :                                               |       |                   |       |                             |       |   |   |   |   |
| Commercial                                               |       | $                      | 44,642     |                             | $          | 49,183 |   | $ | 136,124 |   | $ | 148,504 |   |
| Chimes                                                   |       | 7,977                  |       | 7,372                            |       | 23,474 |   | 20,747 |   |
| **Total  Revenues**                                      |       | $                      | 52,619     |                             | $          | 56,555 |   | $ | 159,598 |   | $ | 169,251 |   |
|                                                     |       |                   |       |                             |       |   |   |   |   |
| Gross Profit :                                           |       |                   |       |                             |       |   |   |   |   |
| Commercial                                               |       | $                      | 9,746      |                             | $          | 9,590 |   | $ | 29,003 |   | $ | 28,316 |   |
| Chimes                                                   |       | 7,809                  |       | 7,159                            |       | 22,906 |   | 20,027 |   |
| **Total  Gross Profit**                                  |       | $                      | 17,555     |                             | $          | 16,749 |   | $ | 51,909 |   | $ | 48,343 |   |
| %                                                        |       | 33.4                   | %          | 29.6                             | %          | 32.5 | % | 28.6 | % |
|                                                     |       |                   |       |                             |       |   |   |   |   |
| Operating Income  :                                      |       |                   |       |                             |       |   |   |   |   |
| Commercial                                               |       | $                      | 3,965      |                             | $          | 2,425 |   | $ | 11,685 |   | $ | 7,337 |   |
| Chimes                                                   |       | 1,381                  |       | 1,420                            |       | 4,070 |   | 4,216 |   |
| **Total  Operating Income**                              |       | $                      | 5,346      |                             | $          | 3,845 |   | $ | 15,755 |   | $ | 11,553 |   |
| %                                                        |       | 10.2                   | %          | 6.8                              | %          | 9.9 | % | 6.8 | % |
|                                                     |       |                   |       |                             |       |   |   |   |   |
| Corporate  Allocation :                                  |       |                   |       |                             |       |   |   |   |   |
| Commercial                                               |       | $                      | 4,103      |                             | $          | 4,685 |   | $ | 12,268 |   | $ | 12,693 |   |
| Chimes                                                   |       | 733                    |       | 782                              |       | 2,116 |   | 1,984 |   |
| **Total  Corporate Allocation**                          |       | $                      | 4,837      |                             | $          | 5,467 |   | $ | 14,384 |   | $ | 14,677 |   |
| %                                                        |       | 9.2                    | %          | 9.7                              | %          | 9.0 | % | 8.7 | % |
|                                                     |       |                   |       |                             |       |   |   |   |   |
| **Total  Income / (Loss) before Income Taxes**           |       |                   |       |                             |       |   |   |   |   |
| **/  (Benefit) :**                                       |       |                   |       |                             |       |   |   |   |   |
| Commercial                                               |       | $                      | (138       | )                                | $          | (2,260 | ) | $ | (583 | ) | $ | (5,356 | ) |
| Chimes                                                   |       | 648                    |       | 638                              |       | 1,954 |   | 2,232 |   |
| **Total  Income / (Loss) before Income Taxes/(Benefit)** |       | $                      | 509        |                             | $          | (1,622 | ) | $ | 1,371 |   | $ | (3,124 | ) |
| %                                                        |       | 1.0                    | %          | -2.9                             | %          | 0.9 | % | -1.8 | % |
|                                                          |            |                        |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

*Reconciliationof Segment Income /(Loss) before Income Taxes /(Benefit) to Consolidated Income/(Loss) Before Income Taxes /(Benefit):*
| ** **                                                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **September 30,** | ** ** | **September 30,** | ** ** | **Septmber 30,** | ** ** | **September 30,** | ** ** |
| **(dollars in thousands)**                         | ** ** | ** **             | ** ** | **2006**               | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total segment  income/(loss) before income taxes/(benefit) : |       | $                      | 509        |                   | $          | (1,622 | ) | $ | 1,371 |   | $ | (3,124 | ) |
| Adjustments :                                                |       |                   |       |                   |       |   |   |   |   |
| Corporate  allocation to Discontinued Operations             |       | (406                   | )          | (479                   | )          | (1,220 | ) | (1,330 | ) |
| Restructuring  charges                                       |       | 32                     |       | (574                   | )          | 32 |   | (716 | ) |
| Special charges                                              |       | (86                    | )          | (5,414                 | )          | (366 | ) | (4,482 | ) |
| Amortization of  intangibles                                 |       | —                 |       | —                 |       | — |   | (78 | ) |
| Sale of Assets                                               |       | 394                    |       | —                 |       | 394 |   | — |   |
| Net interest  income                                         |       | 527                    |       | 259                    |       | 1,307 |   | 536 |   |
| Total  adjustments                                           |       | 461                    |       | (6,208                 | )          | 147 |   | (6,070 | ) |
| Consolidated  income/(loss) before income taxes/(benefit)    |       | $                      | 970        |                   | $          | (7,830 | ) | $ | 1,518 |   | $ | (9,194 | ) |
|                                                              |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

 

13

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* OnSeptember 30, 2006, Computer Horizons Corp. sold a condominium in Sunny IslesBeach Florida for $450,000.  Cash of$407,879 was received on October 5, 2006. Closing cost was $42,121. FixedAssets net of depreciation were $13,453. A gain on sale of $394,426 wasrecorded by the Company in the third quarter of 2006.

**7.****  Shareholders’Equity**
| ** **                               | ** ** | **Nine Months at September 30, 2006** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                               | ** ** | **(dollars in thousands)**                           | ** ** | **Shares** | ** ** |
| Balance at beginning of  period          |       | $                                                              | 84,027     |   | 32,040,091 |   |
| Net Income after taxes                   |       | (16,643                                                        | )          |   |   |
| Proceeds upon exercise  of stock options |       |                                                           |       |   |   |
| and ESPP                                 |       | 3,257                                                          |       | 983,066 |   |
| Stock option expense                     |       | 472                                                            |       |   |   |
| Other comprehensive  income              |       | 464                                                            |       |   |   |
|                                     |       | $                                                              | 71,577     |   | 33,023,157 |   |

** **

**8.****  ComprehensiveIncome/ (Loss)**

Statementof Financial Accounting Standards No. 130, “Reporting Comprehensive Income”(FAS 130), requires that items defined as other comprehensive income/ (loss),such as foreign currency translation adjustments and unrealized gains andlosses, be separately classified in the financial statements and that the accumulatedbalance of other comprehensive income/ (loss) be reported separately fromretained earnings and additional paid-in capital in the equity section ofthe balance sheet. The components of comprehensive loss for the three and ninemonths ended September 30, 2006 and December 31, 2005 are as follows:

** **
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| **(dollars in thousands)** | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Comprehensive  income/(loss) :       |       |                             |       |                            |       |   |   |   |   |
| Net loss                             |       | $                                | (3,348     | )                               | $          | (7,338 | ) | $ | (16,643 | ) | $ | (6,964 | ) |
| Foreign currency  adjustment         |       | (42                              | )          | 636                             |       | 464 |   | 216 |   |
| Unrealized gain on SERP  investments |       | —                           |       | 228                             |       | — |   | 84 |   |
| Comprehensive loss                   |       | $                                | (3,390     | )                               | $          | (6,474 | ) | $ | (16,179 | ) | $ | (6,664 | ) |

 

The accumulatedbalances related to each component of other comprehensive income (loss) for thenine months ended September 30, 2006 and December 31, 2005 were as follows:

 
| **(dollars in thousands)** | ** ** | **Foreign Currency  Translation** | ** ** | **Unrealized  Gain/(Loss) on  Investments** | ** ** | **Accumulated Other  Comprehensive Loss** | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| Balance at  December 31, 2005        |       | $                                      | (643       | )                                                | $          | —                                              |       | $ | (643 | ) |
| Accumulated  comprehensive income    |       | 464                                    |       | —                                           |       | 464                                                 |       |
| Balance at  September 30, 2006       |       | $                                      | (179       | )                                                | $          | —                                              |       | $ | (179 | ) |
|                                 |       |                                   |       |                                             |       |                                                |       |
| Balance at  December 31, 2004        |       | $                                      | (936       | )                                                | $          | (1,264                                              | )          | $ | (2,200 | ) |
| Accumulated  comprehensive income    |       | 216                                    |       | 84                                               |       | 300                                                 |       |
| Balance at September  30, 2005       |       | $                                      | (720       | )                                                | $          | (1,180                                              | )          | $ | (1,900 | ) |

 

**9. Purchase of Treasury Stock**

InApril of 2001, the Board of Directors approved the repurchase in the openmarket of up to 10% of its common shares 

14

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outstanding, orapproximately 3.2 million shares.  The Company did not repurchaseshares of its common stock during the nine months ended September 30, 2006 andSeptember 30, 2005, respectively. As of September 30, 2006, the remainingauthorization for repurchase is approximately 93,000 shares.

**10. Designated pools for issuance of authorized but unissued shares**

AsTreasury Shares have been depleted through issuance upon stock option exercisesand to the Employee Stock Purchase Plan (the “ESPP”), on October 2, 2006,Computer Horizons created designated pools for issuance of authorized butunissued shares.  The designated pool forstock option exercise is 3,000,000 and the designated pool for the ESPP is 250,000shares.

**11. Asset-Based Lending Facility**

OnJune 16, 2006 the Company amended the line of credit facility.  The line was reduced to $20 million from $40million, reflecting management’s belief that there was no need for the higherlevel of funding and thereby reducing associated costs.  The amendment extended the termination of theFinancing Agreement from July 31, 2006 to July 31, 2007.  The Administrative Management Fee, the EarlyTermination Fee and the Line of Credit Fee have all been eliminated.  Since November 2, 2005, the interest rate hasbeen calculated using the lesser of Prime +.50% or LIBOR plus 2.75% based onunpaid principal.  The minimum borrowingbase threshold has been eliminated as of November 4, 2005.  As of September 30, 2006, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances$6.3 million was available for borrowing as of September 30, 2006. The unusedline fee has been eliminated beginning June 1, 2006, however, the unused line fee and other associated fees,including the float and wire fees, were approximately $64,000 and $83,000 forthe nine months ended September 30, 2006 and September 30, 2005,respectively.  This line of creditinvolves covenants relating to the maintenance of cash balances and providingfor limitations on incurring obligations of operating leases exceeding $9million annually and spending limits on capital expenditures exceeding $8million annually.  As of September 30,2006, the Company was in compliance with the covenants.  This credit facility will remain in effectuntil July 31, 2007.

**12.****  Income Taxes**

Inaccordance with Accounting for Income Taxes-an interpretation of FASB StatementNo. 109 (FIN 18), the Company has recorded its first and second quarter taxprovision using the actual effective tax rate. The Company has determined thatthis method will yield a more reliable tax provision calculation due to theinclusion of the valuation allowance created during the prior year (see notebelow). This is a change from the prior year method as the Company was able todetermine an annual effective tax rate during the year ended December 31,2005.  Accordingly, the Company is not ina position to disclose its projected December 31, 2006 annual effective taxrate but will update the actual 2006 quarterly effective tax rate in thesubsequent reporting periods.  If theCompany utilizes its existing net operating losses, in a jurisdiction byjurisdiction basis, additional tax provisions could be recorded in theremaining quarter of the year.

Forthe third quarter ended September 30, 2006, the Company calculated its actualeffective tax rate for continuing operations to be approximately 9.9% and itsdiscontinued operations to be -.5%.  Forthe third quarter ended 2005, the company calculated its annual effective taxfor continuing operations to be approximately -1.7% and its discontinuedoperations to be -20%.

*DeferredTax Asset and Valuation Allowance*

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

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods. The Company has provided fullvaluation allowances on the future tax benefits related to capital losses,foreign net operating losses, and all state net operating losses. The Companybelieves that the valuation allowance is appropriate because these deferred taxassets have relatively short carryforward periods or relate to taxingjurisdictions which do not allow the filing of consolidated tax returns. TheCompany expects to continue to maintain a valuation allowance on these deferredtax assets until an appropriate level of profitability has been achieved in theapplicable taxing jurisdictions, or strategies are developed that would enablethe Company to conclude that it is more likely than not that a portion of thesedeferred tax assets will be realized.

Inprior years, management relied primarily on future projected income inassessing the realizability of deferred tax assets resulting from federal netoperating loss carryforwards and other deductible temporary differences. As ofDecember 31, 2005, it was 

15

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determined thatbecause of continued losses through the fourth quarter of the prior year, itwas no longer appropriate to rely on future projected income until sustainedprofitability has been achieved. Accordingly, the Company recorded a full valuation allowance on itsremaining net deferred tax assets for the year end and quarter end,respectively.

**13.****  Legal Matters**

TheCompany is involved in various and routine litigation matters, which arisethrough the normal course of business. Management believes that the resolutionof these matters will not have a material adverse effect on the Company’sfinancial position or results of operations.

**14.  DiscontinuedOperations**

OnSeptember 29, 2006, Computer Horizons Corp. sold its Federal Governmentsubsidiary, RGII Technologies, Inc., to Netstar-1, Inc. for $15.3 million incash, less an estimated net asset adjustment of $1.2 million.  This amount may be further adjusted subjectto a final  net asset value adjustment,to be completed no later than 90 days after the closing date.  To the extent that the final net asset amountsold to NetStar-1 is greater than the estimated asset amount at closing, theexcess will be paid to CHC together with interest thereon at the prime ratefrom the closing date to the date of payment. If the final net asset amount sold to NetStar-1 is less than theestimated asset amount at closing, the deficiency will be paid by CHC toNetStar-1, together with interest thereon at the prime rate from the closingdate to the date of payment.  The companycurrently estimates that the net asset value adjustment will be favorable toCHC.  In addition, CHC retained all cashand cash equivalents of RGII, in the amount of $6.3 million.

Thesale of RGII resulted in a net book loss on disposal of $4.8 million, includingapproximately $969,000 in transaction costs. Computer Horizons Corp. sold this operating segment as part of a plan tomaximize the value of the company (see note 15).  RGII had net revenues for the three monthsended September 29, 2006 of $9.6 million and a $29.6  million for the nine months ended September29, 2006.

Resultsof the RGII subsidiary for all periods are presented as results from fromdiscontinued operations.    Assets andliabilities of RGII are shown on the Balance Sheet as assets of discontinuedoperations and Liabilities of discontinued operations respectively.  To provide a comparable presentation periodover period, the prior period financial statements contained herein have alsobeen restated to reflect RGII as assets held for disposal.

** **
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| **(dollars in thousands)**                        | ** ** | ** **                       | ** ** | **2006**                        | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue                                                     |       | 9,630                            |       | 10,862                          |       | 29,582 |   | 33,805 |   |
| Income/(Loss) on  Discontinued Operations Before Income Tax |       | 680                              |       | 652                             |       | (13,023 | )* | 2,590 |   |
|                                                             |            |                                  |            |                                 |            |  |  |  |  |  |  |

 

* primarily relating to a charge of $15 millionfor goodwill impairment taken second quarter of 2006.

**15.  Pending Sale ofChimes**

OnOctober 18, 2006, Computer Horizons signed a definitive asset purchaseagreement to sell its Chimes business unit to AXIUM International, Inc. Thesale price is $80 million in cash for substantially all of the assets ofChimes, excluding operating cash and marketable securities. The transaction isexpected to be completed in the first quarter of 2007 and is subject tocustomary closing conditions, including approval of the Company’s shareholdersand regulatory clearances.  ComputerHorizons Corp. currently expects to record a gain estimated (using data as ofthe end of the third quarter of 2006) at $75 million as a result of the sale ofChimes.

Thesale of Chimes is a disposal of a major line of business where shareholderapproval is required.  Until allconditions of the sale have been met, including the shareholder vote, Chimescontinues to be shown in the results from operations of the Company, and not asassets held for disposal.

Thesale of the Company’s and its affiliate’s assets pursuant to the Chimes AssetPurchase Agreement will be a taxable transaction with respect to the Company tothe extent that any gain or loss is realized. The Company will realize gain or loss measured by the difference betweenthe proceeds received by it and its affiliates on such sale and the Company’s(or an affiliate’s) tax basis in the assets. For purposes of calculating gain or loss, the proceeds received by theCompany and its affiliates will include the cash received by them, the amountof their indebtedness that is cancelled or assumed, and any other considerationreceived by them for their assets.  It isanticipated that the Company will have sufficient NOL carry-forwards to offsetmost of the gain expected to be realized

16

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from the ChimesTransaction for regular Federal income tax purposes and otherwise incurapproximately $1.3 million in alternative minimum taxes.

The Company and/or its affiliates may be subject tostate income taxes to the extent that gains exceed losses for state tax lawpurposes, but does not anticipate that such taxes, if any, will besignificant.  Based Upon currentprojections, such state taxes are estimated to be approximately $1 millionafter taking into account the availability of state losses to offset the gain.

**16. PendingSale of Commercial**

OnNovember 8, 2006, Computer Horizons Corp. announced it signed a definitiveagreement to sell its Commercial Services business to TEKsystems, Inc., awholly-owned subsidiary of Allegis Group, Inc., a privately-held staffing andservices firm. The transaction is valued at $57 million for substantiallyall of the assets of the Commercial business, excluding cash and cashequivalents and approximately $7.7 million related to a tax asset due toCHC by the Quebec government (See note 20 for a discussion of the Montrealrefundable tax credit). The transaction is expected to be completed in thefirst quarter of 2007 and is subject to customary closing conditions, includingapproval of CHC’s shareholders and regulatory clearances. The sale ofCommercial is a disposal of a major line of business, and until all conditionsof the sale have been met, including the shareholder vote, Commercial continuesto be shown in the results from operations of the Company, and not as assetsheld for disposal.

**17.****  Change ofControl and other Special Charges**

Thefinancial statements in this report contain the following special charges:

OnSeptember 30, 2006, Computer Horizons Corp. sold a condominium in Sunny IslesBeach Florida for $450,000.  Cash of$407,879 was received on October 5, 2006. Closing cost was $42,121. FixedAssets net of depreciation were $13,453. A gain on sale of $394,426 wasrecorded by the Company in the third quarter of 2006.

Inthe third quarter of 2006, the Company recorded special charges ofapproximately $86,000 relating to expenses in connection with the review ofstrategic alternatives.

Inthe fourth quarter of 2005, the Company recorded a charge of approximately$13.2 million related to the change of control resulting from the removal ofthe Company’s then existing Board of Directors. The $13.2 million charge iscomprised of the following:

·         $9.7 million charge for change of controlpayments resulting from provisions defined in the Company’s supplementalexecutive retirement plan (SERP);

·         $3.5 million charge pertaining to employmentagreements which contain change of control provisions requiring payments ofspecified amounts;

Forfiscal year 2005, the Company recorded special charges (credits) of $5.7million primarily pertaining to expenses associated with two proxy contests(including approximately $0.5 million paid to reimburse participants inthe proxy contest for costs incurred therein) and merger-related chargespertaining to the proposed merger with Analysts International Corp., which wasnot approved by the Company’s shareholders at the September 2, 2005special meeting.

*Vesting of Stock Options*

Underthe Company’s various equity incentive plans, as a result of the October 2005change of control as defined in each plan, approximately 704,000 of outstandingunvested stock options vested and became immediately exercisable.

**18. Restructuring Charges**

During2005, in connection with the reorganization of the Commercial ServicesDivision, the Company recorded restructuring charges of approximately $2.2 million,comprised of $1.2 million in severance costs and $1.0 million pertaining to theclosing/consolidation of office space in the United States. The leaseobligation is calculated based on current rent commitments, less an estimatedsublease amount.

 
| ** **                           | ** ** | **Remaining at** | ** ** | ** **                      | ** ** | **Remaining at** | ** ** |
|--------------------------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|
| **(dollars in thousands)** | ** ** | ** **            | ** ** | **December 31, 2005** | ** ** | **Paid**              | ** ** | **September 30, 2006** | ** ** |
|                                 |       |                  |       |                            |       |                  |       |
| Severance:                           |       |                  |       |                            |       |                  |       |
| Canada                               |       | $                     | 401        |                            | $          | (401                  | )          | $ | — |   |
| United States                        |       | 9                     |       | (9                              | )          | —                |       |
| Total Severance                      |       | $                     | 410        |                            | $          | (410                  | )          | $ | — |   |
| Lease Obligations :                  |       |                  |       |                            |       |                  |       |
| United States                        |       | $                     | 530        |                            | $          | (518                  | )          | $ | 12 |   |
| Total                                |       | $                     | 940        |                            | $          | (928                  | )          | $ | 12 |   |
|                                      |            |                       |            |                                 |            |                       |            |  |  |  |  |  |

 

17

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During2004, in connection with the Company’s business model realignment, the Companyrecorded a restructuring charge of approximately $2.9 million comprised ofapproximately $2.8 million in severance costs and $0.1 million in leaseobligation costs. The lease obligation of $110,000 is calculated based oncurrent rent commitments less a calculated sublease amount based on currentmarket conditions. Paid column represents payments net of any exchange ratefluctuations.
| ** **                           | ** ** | **Remaining at** | ** ** | ** **                      | ** ** | **Remaining at** | ** ** |
|--------------------------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|
| **(dollars in thousands)** | ** ** | ** **            | ** ** | **December 31, 2005** | ** ** | **Paid**              | ** ** | **September 30, 2006** | ** ** |
|                                 |       |                  |       |                            |       |                  |       |
| Severance :                          |       |                  |       |                            |       |                  |       |
| Canada                               |       | $                     | 383        |                            | $          | (383                  | )          | $ | — |   |
| United States                        |       | 107                   |       | (80)                            |       | 27                    |       |
| Total Severance                      |       | $                     | 490        |                            | $          | (463                  | )          | $ | 27 |   |
|                                 |       |                  |       |                            |       |                  |       |
| Lease Obligations :                  |       |                  |       |                            |       |                  |       |
| United States                        |       | $                     | 12         |                            | $          | (12                   | )          | $ | — |   |
| United Kingdom                       |       | 85                    |       | (18                             | )          | 67                    |       |
| Canada                               |       | 141                   |       | (101                            | )          | 40                    |       |
| Total Lease Obligations              |       | $                     | 238        |                            | $          | (131                  | )          | $ | 107 |   |
|                                 |       |                  |       |                            |       |                  |       |
| Total                                |       | $                     | 728        |                            | $          | (594                  | )          | $ | 134 |   |
|                                      |            |                       |            |                                 |            |                       |            |  |  |  |  |  |

 

During2003, the Company recorded restructuring charges of approximately $3.3 millionrelating to the closing of several offices in the United States, Canada and theUnited Kingdom, including the related severance costs. The severance costsapproximated $1.5 million and future lease obligation costs (less a calculatedsublease amount), including office closure expenses, approximated $1.8 million,which were fully paid by December 31, 2005.

**19.Goodwill**

Inaccordance with Statement of Financial Accounting Standards No. 141 “BusinessCombinations” (“FAS 141”), and Financial Accounting Standards No. 142 “Goodwilland Other Intangible Assets” (“FAS 142”), all business combinations initiatedafter June 30, 2001 must be accounted for under the purchase method.  In addition, all intangible assets acquiredthat are obtained through contractual or legal right, or are capable of beingseparately sold, transferred, licensed, rented or exchanged are recognized asan asset apart from goodwill. Goodwill and intangibles with indefinite livesare not subject to amortization, but are subject to at least an annual assessmentfor impairment by applying a fair value based test.

Followingthe sale of RGII, Inc. to NetStar-1, Inc, the Company no longer carries anygoodwill or intangibles on its Balance Sheet. Changes in the carrying amount of goodwill for the periods endedSeptember 30, 2006 and December 31, 2005, were as follows (in thousands):

 
| **Reporting Units**               | ** ** | ** ** | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------|------------|---------------------------------|------------|
| Balance at the  beginning of year      |       | $          | 27,625     |                             | $          | 27,625                          |       |
| Reduction of  Goodwill June 2006 *     |       | (2,591     | )          | —                           |       |
| Goodwill  impairment loss June 2006 ** |       | (15,000    | )          | —                           |       |
| Sale of RGII  September 2006           |       | (10,034    | )          |                             |       |
| Balance as of end of  period           |       | $          | —     |                             | $     | 27,625                          |       |

----

*Pursuantto the terms of the Company’s acquisition of RGII, the seller of RGII wasentitled to contingent payments based on RGII’s performance againstprofitability objectives over three years.  The contingent payments wereevidenced by a contingent note with a face value of $10 million that waspayable over three years, only if certain financial performance objectives weremet.  In February 2004, a payment was made for the first nine-monthinstallment of approximately $631,000, pertaining to this contingent note.  In February 2005, a payment ofapproximately $1.8 million was made representing the next installment of thecontingent note.  Since the targeted EBITs were not achieved, the sellerof RGII was required to repay amounts previously paid, plus interest.  This amount of $2.6 million was repaid onJuly 31, 2006.  At June 30, 2006, areceivable in this amount was established along with a corresponding reductionin Goodwill.

**For the yearended December 31, 2005, using an evaluation prepared by an independentappraisal firm, the Company completed an assessment of the fair value andcarrying value of its Federal Government segment.  The fair value was calculated using thefollowing 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 thevalue of the publicly traded stock to various measures and are then applied toeach reporting unit to estimate the value of its equity.

18

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Under the incomeapproach, value was determined using the present value of the projected futurecash flows to be generated by the reporting unit.  An asset approach was not used because theasset approach is most relevant for liquidation approaches, investment companyvaluations and asset rich company valuations (i.e. real estate entities) and wasnot deemed relevant for manufacturing and service company going-concernvaluations.  As of December 31,2005, the indicated fair value of the Federal Government reporting unitexceeded the carrying value, and the Company concluded that the goodwill of approximately$27.6 million was not impaired.  As ofSeptember 30, 2006, because of changed conditions, the Company had areevaluation performed by the same independent appraisal firm.  Because of significant changes in projectedrevenues and market conditions, the Company determined that the goodwill of$25.1 million was impaired by $15.0 million and a non-cash charge was taken forthis amount.

**20.  Refundable Tax Credit**

The Quebec Government (“RevenuQuebec”) through Invest Quebec has granted Computer Horizon Corp.’s MontrealOutsourcing Centre (“MOC”) a refundable tax credit (“The Program”) on certainqualifying job positions in Information Technology.  This Program has been available to the MOCsince 2002.  The outstanding receivable as ofSeptember 30, 2006 and December 31, 2005 includes credits relating to2005 and 2006, and 2004 and 2005, respectively.

19

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**Item 2.**

**MANAGEMENT’S DISCUSSION AND ANALYSISOFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**For the Periods Ended September 30, 2006 and September 30,2005

Thefollowing detailed discussion and analysis of the Company’s financial conditionand results of operations should be read in conjunction with the financialstatements and related notes included in the Company’s Form 10-K for the yearended December 31, 2005, and the financial statements and notes includedelsewhere in this Form 10-Q.

**FORWARD-LOOKINGSTATEMENTS**

Thisreport contains forward-looking statements within the meaning of the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Insome cases, forward-looking statements can be identified by words such as “believe,”“expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions.Forward-looking statements also include the assumptions underlying or relatingto any of the foregoing statements. Such forward-looking statements are basedupon current expectations and beliefs and are subject to a number of factorsand uncertainties that could cause actual results to differ materially fromthose described in the forward-looking statements including, but not limitedto, risks associated with unforeseen technical difficulties, the ability tomeet customer requirements, market acceptance of service offerings, changes intechnology and standards, the ability to complete cost reduction initiatives,dependencies on certain technologies, delays, market acceptance and competition,as well as other risks described from time to time in the Company’s filingswith the Securities and Exchange Commission, press releases and othercommunications. All forward-looking statements included in this report arebased on information available to the Company on the date hereof. The Companyundertakes no obligation (and expressly disclaims any such obligation) toupdate forward-looking statements made in this report to reflect events orcircumstances after the date of this report or to update reasons why actualresults would differ from those anticipated in such forward-looking statements.

**Overview**

ComputerHorizons Corp. (“CHC”, or the “Company”), founded in 1969, providesprofessional information technology (IT) services to national and multi-nationalcompanies throughout North America and to the United States government. CHC wasfounded in 1969 and incorporated in 1972 under the laws of the State of NewYork. The Company provides a broad range of IT staffing and project-basedsolution services using a global delivery model that allows the Company toperform work at client sites or at CHC development centers in the U.S.,Montreal, Canada and Chennai, India. Effective January 1, 2005, the Companybegan reporting by its realigned operating segments: Commercial, FederalGovernment and Vendor Management Services (Chimes.).

TheCompany had revenues for the quarter ended September 30, 2006 of $53 millionfrom continuing operations, a 7 percent decrease from the comparable period in2005.  For the nine months ended September 30, 2006, revenues totaled$159.5 million, compared to $169 million in the comparable period of 2005.  Net income before taxes for the third quarterof 2006 totaled $1.0 million compared with a net loss of $7.8 million in the comparableperiod of 2005.  The loss on sale of RGII of $4.8 million, and the incomefrom discontinued operations of $540,000. For the nine months ending September 30, 2006, net income before taxeswas $1.5 million versus a loss of $9.2 million in the comparable period of2005.  The loss year to date in 2006 wasprimarily comprised of the impairment charge for RGII goodwill of $15 million,and the loss on sale of RGII of $4.8 million.

Managementcontinues to focus on maintaining a strong balance sheet, with approximately $48.2million in cash and cash equivalents (including $12.0 million of Chimes vendorcash) at September 30, 2006, along with $68 million in working capital and nodebt outstanding at the end of the quarter.

**RecentDevelopments**

*DiscontinuedOperations*

On September 29, 2006, Computer Horizons Corp. soldits Federal Government subsidiary, RGII Technologies, Inc., to Netstar-1, Inc.for $15.3 million in cash, less an estimated net asset adjustment of $1.2million, subject to a post-closing net asset value adjustment, to be completedno later than 90 days after the closing date. To the extent that the final net asset amount sold to NetStar-1 isgreater than the estimated asset amount at closing, the excess will be paid toCHC together with interest thereon at the prime rate from the closing date tothe date of payment.  If the final netasset amount sold to NetStar-1 is less than the estimated asset amount atclosing, the deficiency will be paid by CHC to NetStar-1, together withinterest thereon at the prime rate from the closing date to the date ofpayment.  The company currently estimatesthat the net asset value adjustment will be favorable to CHC.  In addition, CHC retained all cash and cashequivalents of RGII, in the amount of $6.3 million.

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The sale of RGII resulted in a net book loss ondisposal of $4.8 million, including approximately $969,000 in transactioncosts.  Computer Horizons Corp. sold thisoperating segment as part of a plan to maximize value of the company (see note15).  RGII had net revenues for the threemonths ended September 29, 2006 of $9.6 million and net revenues of $29.6million for the nine months ended September 29, 2006.  RGII incurred a net loss of $13.2 million forthe nine months ended September 29, 2006, primarily related to a charge of $15Mfor Goodwill impairment taken in the second quarter of 2006.   Net income for the three months endedSeptember 29, 2006 was $540,000.  Resultsof the RGII subsidiary for all periods are presented as results fromdiscontinued operations.

Assets and liabilities of RGII are shown on theBalance Sheet as assets of discontinued operations and Liabilities ofdiscontinued operations respectively.  Toprovide a comparable presentation period over period, the prior periodfinancial statements contained herein have also been restated to reflect RGIIas assets held for disposal.
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **September 30,  2006**     | ** ** | **September 30,  2005**    | ** ** | **September 30,  2006** | ** ** | **September 30,  2005** | ** ** |
| **(dollars in thousands)**                        | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                     |       | 9,630                            |       | 10,862                          |       | 29,582 |   | 33,805 |   |
| Income/(Loss) on  Discontinued Operations Before Income Tax |       | 680                              |       | 652                             |       | (13,023 | ) | 2,590 |   |
|                                                             |            |                                  |            |                                 |            |  |  |  |  |  |  |

*Primarily relating to a charge of $15 millionfor Goodwill impariment taken second quarter of 2006.

*PendingSale of Chimes*

On October18, 2006, Computer Horizons signed a definitive asset purchase agreement tosell its Chimes business unit to AXIUM International, Inc. The sale price is$80 million in cash for substantially all of the assets of Chimes, excludingoperating cash and marketable securities. The transaction is expected to becompleted in the first quarter of 2007 and is subject to customary closingconditions, including approval of the Company’s shareholders and regulatoryclearances.  Computer Horizons Corp.currently expects to record a gain estimated (using account data as of the endof the third quarter of 2006) at $75 million as a result of the sale of Chimes.

Thesale of Chimes is a disposal of a major line of business where shareholderapproval is required. Until all conditions of the sale have been met, includingthe shareholder vote, Chimes continues to be shown in the results fromoperations of the Company, and not as assets held for disposal.

The sale of theCompany’s and its affiliate’s assets pursuant to the Chimes Asset PurchaseAgreement will be a taxable transaction with respect to the Company to theextent that any gain or loss is realized. The Company will realize gain or loss measured by the difference betweenthe proceeds received by it and its affiliates on such sale and the Company’s(or an affiliate’s) tax basis in the assets. For purposes of calculating gain or loss, the proceeds received by theCompany and its affiliates will include the cash received by them, the amountof their indebtedness that is cancelled or assumed, and any other considerationreceived by them for their assets.  It isanticipated that the Company will have sufficient current losses to offset mostof the gain expected to be realized from the Chimes Transaction for regular Federalincome tax purposes and otherwise incur approximately $1.3 million inalternative minimum taxes.

The Company and/orits affiliates may be subject to state income taxes to the extent that gainsexceed losses for state tax law purposes, but does not anticipate that suchtaxes, if any, will be significant. Based upon current projections, such state taxes are estimated to beapproximately $1 million after taking into account the availability of statelosses to offset the gain.

*PendingSale of Commercial*

On November 8, 2006, Computer Horizons Corp.announced it signed a definitive agreement to sell its Commercial Servicesbusiness to TEKsystems, Inc., a wholly-owned subsidiary of Allegis Group, Inc.,a privately-held staffing and services firm. The transaction is valued at$57 million for substantially for all of the assets of the Commercialbusiness, excluding cash and cash equivalents and approximately$7.7 million related to a tax asset due to CHC by the Quebec government(See note 20 for a discussion of the refundable tax credit). The transaction isexpected to be completed in the first quarter of 2007 and is subject tocustomary closing conditions, including approval of CHC’s shareholders andregulatory clearances. The sale of Commercial is a disposal of a major line ofbusiness, until all conditions of the sale have been met, including theshareholder vote, commercial continues to be shown in the results fromoperations of the company, and not as assets held for disposal.

*SpecialMeeting of Shareholders*

OnJuly 22, 2005, a group comprised of Crescendo Partners II, L.P., Series R,Crescendo Investments II, LLC, Eric

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Rosenfeld, F.Annette Scott Florida Trust, Richard L. Scott Florida Trust, Scott FamilyFlorida Partnership Trust, Richard L. Scott , Stephen T. Braun and The ComputerHorizons Full Value Committee (collectively, the “Full Value Committee”), fileda Statement on Schedule 13D (the “Schedule 13D”) with the SEC disclosing theiropposition to the Company’s previously announced proposed merger with AnalystsInternational Corporation a Minnesota Corporation (“Analysts”) and theirintention to solicit the Company’s shareholders to vote against the Company’sproposals in furtherance of the proposed merger.

TheSchedule 13D further disclosed the Full Value Committee’s intention to call aspecial meeting of the Company’s shareholders in order to remove up to all ofthe Company’s existing directors and to replace them with the Full ValueCommittee’s own slate of director nominees. As previously reported, at theCompany’s Special Meeting of Shareholders held on September 2, 2005, theCompany’s shareholders voted not to approve the proposals related to theproposed merger and, as such, the proposed merger was not consummated.

OnJuly 27, 2005, the Company received from the Full Value Committee a requestthat a special meeting of the shareholders of the Company be called for thefollowing purposes: (i) to remove all of the existing directors serving on theCompany’s board of directors without cause, (ii) to fix the number of memberscomprising the board at five, and (iii) to elect five director nomineesselected by the Full Value Committee.

Thissecond Special Meeting of Shareholders took place on October 11, 2005. At theSpecial Meeting, the Company’s shareholders voted (i) to remove all of theexisting directors serving on the Company’s board of directors without cause,(ii) to fix the number of members comprising the board at five, and (iii) toelect the five director nominees selected by the Full Value Committee,specifically: Messrs. Eric Rosenfeld, Karl L. Meyer, Robert F. Walters, FrankJ. Tanki, and Willem van Rijn.

Sincethe Special Meeting, Mr. Eric Rosenfeld has been named non-executive Chairmanof the Company and the Company’s Board of Directors named Dennis J. Conroy,President and Chief Executive Officer, and Brian A. Delle Donne, Executive VicePresident and Chief Operating Officer.  Mr. Conroy replaces William J.Murphy as President and Chief Executive Officer.

*Changeof Control and other Special Charges*

Thefinancial statements in this report contain the following gains and specialcharges:

OnSeptember 30, 2006, Computer Horizons Corp. sold a condominium in Sunny IslesBeach Florida for $450,000.  Cash of $407,879was received on October 5, 2006. Closing cost was $42,121. Fixed Assets net ofdepreciation were $13,453. A gain on sale of $394,426 was recorded by theCompany in the third quarter of 2006.  Asthe company has net operating losses offset with full valuation allowance,there is no tax impact for this transaction.

Inthe third quarter of 2006, the Company recorded special charges ofapproximately $86,000 relating to expenses in connection with the review ofstrategic alternatives.

Inthe 4th quarter of 2005, the Company recorded a chargeof approximately $13.2millions related to the change of control resulting fromthe removal of the Company’s then existing Board of Directors. The $13.2million charge is comprised of the following:

·         $9.7million charge for change of control payments resulting from provisions definedin the Company’s supplemental executive retirement plan (SERP);

·         $3.5million charge pertaining to employment agreements which contain change ofcontrol provisions requiring payments of specified amounts;

Forfiscal year 2005, the Company recorded special charges/(credits) of $5.7million primarily pertaining to expenses associated with two proxy contests(including approximately $.5 million paid to reimburse participants in the proxycontest for costs incurred therein) and merger-related charges pertaining tothe proposed merger with Analysts International Corp., which was not approvedby the Company’s shareholders at the September 2, 2005 special meeting.

*Vestingof Stock Options*

Underthe Company’s various equity incentive plans, as a result of the October 2005change of control as defined in each plan, approximately 704,000 of outstandingunvested stock options vested and became immediately exercisable.

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*Reservesfor issuance of authorized but unissued shares*

AsTreasury Shares have been depleted through issuance upon stock option exercisesand to the Employee Stock Purchase Plan (the “ESPP”), on October 2, 2006,Computer Horizons created reserves for issuance of authorized but unissuedshares.  The reserve for stock optionexercise is 3,000,000 and the reserve for the ESPP is 250,000 shares.

**RevenueGenerating Activities**

*Resultsfrom continuing operations*

Themajority of the Company’s revenues are derived from professional servicesrendered in the information technology sector. Effective January 1, 2005,the Company realigned its business operations into three segments: Commercial,Federal Government and Vendor Management Services (Chimes).

TheCommercial business consists of providing technology consultants to largeorganizations on a temporary hire basis and is classified in two generalcategories, staff augmentation and solutions work.  For the quarter endedSeptember 30, 2006, this segment represented approximately 85% of total revenuesfrom continuing operations, including $30 million of staff augmentation revenueand $15 million of commercial solutions revenue. For nine months endedSeptember 30, 2006, this segment represented approximately 85% of totalrevenues, including $93 million of staff augmentation revenue and $43 millionof commercial solutions revenue.

Forstaff augmentation assignments, the consultant work is supervised and managedby the customer. Staff augmentation tends to be a lower risk, lower grossmargin business with very competitive pricing.  The Company’s solutionswork tends to be higher margin, higher risk business, due to the fact that theCompany is responsible for project deliverables and other conditions containedin statements of work and/or contracts with clients.  Virtually allprojects performed by the commercial solutions group are IT related and consistof practices such as application development, outsourcing arrangements,government services, technology training and managed services.

TheCompany’s customer relationships are memorialized in master agreements thataddress the terms and conditions that define the client engagement. Depending on the service to be performed for the client, either a task order(in the case of a staffing engagement) or a Statement of Work (“SOW”) (in thecase of a solutions engagement) is generated. The SOW is signed by both theCompany and the customer.  In general, no solutions work is done unlessthere is a SOW because the SOW provides the technical details of the work to bedone.  The SOW, although falling under the corresponding master agreement,is a stand-alone binding contractual document, typically outlining the projectobjectives, describing the personnel who will work on the project, describingphases of the project, the timeframes for work performance, and the rate ofcompensation.  In the event that the parameters of the project expand orotherwise change, a Project Change Request is implemented to memorializewhatever change has occurred to the deliverables, personnel and/or time andmaterials.  The master agreements, in conjunction with the SOWs, arewritten to define, with as much detail as possible, the client relationship andall aspects of the work to be performed for the client.  With regard torevenues expected in future periods, each SOW has a defined term or sets forththe anticipated length of a project.  Where a client engagement ison-going, like certain “Help Desk” type services, the master agreements wouldstill have a term length, but would recite that the agreement wasrenewable.  Generally, commercial solutions engagements are for a year orless.  Staff augmentation engagements can and do last for more than ayear, with variations in the number of consultants being provided at any giventime.  Staffing engagements are generally cancelable by clients with a twoto four week notice period.

Chimes, Inc.is a human capital management solution that, through the use of proprietarysoftware and processes, manages the temporary workforce of large organizations.For the quarter and nine months ended September 30, 2006, Chimes accounted forapproximately 15% of total revenues.

OnSeptember 29, 2006, Computer Horizons Corp. sold its Federal Governmentsubsidiary, RGII Technologies, Inc., to Netstar-1, Inc..  This represented the entirety of the FederalGovernment business segment.  Resultsfrom discontinued operations are discussed below.

**CriticalAccounting Policies**

Themost critical accounting policies used in the preparation of the Company’sfinancial statements are related to revenue recognition, the evaluation of thebad debt reserve, the valuation of goodwill, and the valuation of deferred taxassets.

**RevenueRecognition**

TheCompany recognizes staff augmentation and solutions revenues either on atime-and-materials basis or on a fixed fee basis.  Under a typicaltime-and-materials billing arrangement, our customers are billed on a regularlyscheduled basis, such as biweekly or monthly.  At the end of eachaccounting period, revenue is estimated and accrued for services performedsince the last billing cycle.  These unbilled amounts are billed thefollowing month.

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Forfixed fee contracts, revenue is recognized on the basis of the estimatedpercentage of completion.  Each fixed fee contract has different terms,milestones and deliverables.  The milestones and deliverables primarilyrelate to the work to be performed and the timing of the billing.  At theend of each reporting period an assessment of revenue recognized on thepercentage of completion and milestones achieved criteria is made.  If itbecomes apparent that estimated cost will be exceeded or required milestones ordeliverables will not have been obtained, an adjustment to revenue and/or costswill be made.  The cumulative effect of revisions in estimated revenuesand costs are recognized in the period in which the facts that give rise to theimpact of any revisions become known.

Unbilledaccounts receivable represent amounts recognized as revenue based on servicesperformed in advance of customer billings principally on a time-and-materialsbasis.  At the end of each accounting period, revenue is accrued forservices performed since the last billing cycle.  For solutions contracts,unbilled revenues occur when the contractual criteria for billing are met afterthe final quarterly billing cycle. These unbilled amounts are billed thefollowing month.

TheCompany’s Chimes subsidiary recognizes revenue on a transaction feebasis.  The Chimes service offering aggregates the suppliers of temporaryworkers to the customer and renders one invoice to the customer.  Uponpayment from the customer, Chimes deducts a transaction fee and remits thebalance of the client payment to the applicable vendors.  Chimesrecognizes only the fee for the service as revenue, not the aggregate billingto the customer.  The gross amount of the customer invoicing is notconsidered a revenue or a receivable to Chimes because there is no earningsprocess for the gross amount and by contract terms, Chimes is not obligated topay the vendor until paid by the customer.

**Evaluationof Bad Debt Reserve**

TheCompany determines its allowance by considering a number of factors, includingthe length of time trade accounts receivable are past due, the Company’sprevious loss history, the customer’s current ability to pay its obligation tothe Company and the condition of the general economy and the industry as awhole.  The Company writes off accounts receivable when they becomeuncollectible, and payments subsequently received on such receivables arecredited to the allowance for doubtful accounts.

**Goodwill**

Inaccordance with Statement of Financial Accounting Standards No. 141 “BusinessCombinations” (“FAS 141”), and Financial Accounting Standards No. 142 “Goodwilland Other Intangible Assets” (“FAS 142”), all business combinations initiatedafter June 30, 2001 must be accounted for under the purchase method.  In addition, all intangible assets acquiredthat are obtained through contractual or legal right, or are capable of beingseparately sold, transferred, licensed, rented or exchanged are recognized asan asset apart from goodwill. Goodwill and intangibles with indefinite livesare not subject to amortization, but are subject to at least an annualassessment for impairment by applying a fair value based test.

Followingthe sale of RGII, Inc. to etStar-1, Inc, the Company no longer carries anygoodwill or intangibles on its Balance Sheet. Changes in the carrying amount of goodwill for the periods endedSeptember 30, 2006 and December 31, 2005, were as follows (in thousands): 
| **Reporting Units**               | ** ** | ** ** | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------|------------|---------------------------------|------------|
| Balance at the  beginning of year      |       | $          | 27,625     |                             | $          | 27,625                          |       |
| Reduction of  Goodwill June 2006 *     |       | (2,591     | )          | —                           |       |
| Goodwill  impairment loss June 2006 ** |       | (15,000    | )          | —                           |       |
| Sale of RGII  September 2006           |       | (10,034    | )          | —                           |       |
| Balance as of end of  period           |       | $          | —     |                             | $          | 27,625                          |       |

*                                         Pursuantto the terms of the Company’s acquisition of RGII, the seller of RGII wasentitled to contingent payments based on RGII’s performance againstprofitability objectives over three years.  The contingent payments wereevidenced by a contingent note with a face value of $10 million that waspayable over three years, only if certain financial performance objectives weremet.  In February 2004, a payment was made for the first nine-monthinstallment of approximately $631,000, pertaining to this contingent note.  In February 2005, a payment ofapproximately $1.8 million was made representing the next installment of thecontingent note.  Since the targeted EBITs were not achieved, the sellerof RGII was required to repay amounts previously paid, plus interest.  This amount of $2.6 million was repaid onJuly 31, 2006.  At June 30, 2006, areceivable in this amount was established along with a corresponding reductionin Goodwill.

**                                  Forthe year ended December 31, 2005, using an evaluation prepared by anindependent appraisal firm, the Company completed an assessment of the fairvalue and carrying value of its Federal Government segment.  The fair value was calculated using the followingapproaches (i) market approach and (ii) income approach.  Under the market approach, value is estimatedby comparing

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the performancefundamentals relating to similar public companies’ stock prices. Multiples arethen developed of the value of the publicly traded stock to various measuresand are then applied to each reporting unit to estimate the value of itsequity. Under the income approach, value was determined using the present valueof the projected future cash flows to be generated by the reporting unit.  An asset approach was not used because theasset approach is most relevant for liquidation approaches, investment companyvaluations and asset rich company valuations (i.e. real estate entities) and wasnot deemed relevant for manufacturing and service company going-concernvaluations.  As of December 31,2005, the indicated fair value of the Federal Government reporting unitexceeded the carrying value, and the Company concluded that the goodwill ofapproximately $27.6 million was not impaired. As of September 30, 2006, because of changed conditions, the Company hada reevaluation performed by the same independent appraisal firm.  Because of significant changes in projectedrevenues and market conditions, the Company determined that the goodwill of$25.1 million was impaired by $15.0 million and a non-cash charge was taken forthis amount.

**Valuation of Deferred Tax Assets**

TheCompany records deferred tax assets for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and their respective tax bases, and operating losscarryforwards.  Deferred tax assets arereduced by a valuation allowance if, based on available evidence, it is more likelythan not that some portion or all of the deferred tax assets will not berealized.  In assessing the realizabilityof deferred tax assets, management considers the scheduled reversal periods ofthe deferred tax assets, whether sustained profitability has been achieved andtax planning strategies.

TheCompany has significant deferred tax assets resulting from net operating losscarryforwards, capital loss carryforwards, and deductible temporary differencesthat may reduce taxable income in future periods.  The Company has provided full valuationallowances on the future tax benefits related to capital losses, foreign netoperating losses, and all state net operating losses.  The Company believes that the valuationallowance is appropriate because these deferred tax assets have relatively shortcarryforward periods or relate to taxing jurisdictions which do not allow thefiling of consolidated tax returns.  TheCompany expects to continue to maintain a valuation allowance on these deferredtax assets until an appropriate level of profitability has been achieved in theapplicable taxing jurisdictions, or strategies developed that would enable theCompany to conclude that it is more likely than not that a portion of thesedeferred tax assets will be realized.

Inprior years, management relied primarily on future projected income inassessing the realizability of deferred tax assets resulting from federal netoperating loss carryforwards and other deductible temporary differences.  As of December 31, 2005, it was determinedthat because of continued losses through the fourth quarter of the prior year,it was no longer appropriate to rely on future projected income until sustainedprofitability has been achieved. Accordingly, the Company recorded a full valuation allowance on itsremaining net deferred tax assets for the year end and quarter end,respectively.

**Resultsof Continuing Operations**

*Revenues*.  Consolidated revenues fromcontinuing operations were $53 million in the third quarter of 2006, a decreaseof $4 million or 7% from $57 million reported in the third quarter of2005.  The decrease came as the Companydeemphasized certain underperforming parts of the Commercial Group business,and heightened its focus on more profitable services, geographies and relationships.  Similarly, for the first nine months of 2006,revenues decreased to $160 million, compared to $169 million in the first ninemonths of 2005, a decrease of $9 million or 5%.

CommercialGroup revenues in the third quarter of 2006 were $45 million, a decrease of $4million or 8 % from $49 million in the third quarter of 2005.  For the first nine months of 2006, CommercialGroup revenues were $136 million, compared to $149 million for the first ninemonths of 2005, a decrease of $13 million or 9 %.  The year-over-year decrease in the CommercialGroup revenues for first nine months of 2006 related to the reemphasis onprofitability of the business and reflected a decrease in average consultantheadcount of approximately 14 %, along with an increase in average billrates in comparison to the comparable periods of 2005.

Chimesrevenues increased to $8.0 million in the third quarter of 2006 from $7.4million in the third quarter of 2005, an increase of  $.6 million, or 8 %. Chimes revenues for thefirst nine months of 2006 increased to $23.5 million from $20.7 million in thefirst nine months of 2005, an increase of $2.8 million or 14 %.  Theadditional revenue was generated as a result of the addition of new customersand increase in sales to existing customers.

*Direct Costs and Gross Margins*. Direct costs were $35.1 million and $39.8 million in the third quarter of 2006and 2005, respectively.  Gross margin, or revenues less direct costs,increased to $17.6 million, or 33.4 % in the third quarter of 2006 from$16.7 million or 29.6 % in the same period of 2005.  For the ninemonths ended September 30, 2006, gross margin increased to 

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$51.9 million or32.5 %, compared to $48.3 million or 28.6 % in the same period of 2005.  In the Company’s Commercial Group, grossprofit totaled $29 million, or 21.3 % for the first nine months of 2006,compared to $28.3 million, or 19.1 % in the comparable prior year period. Thisincrease in profitability is primarily attributable to an emphasis on improvedgross profit margins including the shifting of work to the Montreal OperationsCenter (See Note 20). For the three months ended September 30, 2006 andSeptember 30, 2005, gross profit was $9.7 million or 21.8% and $9.6 million or19.5%.  Chimes gross margins totaled$22.9 million, or 97.6 % for the nine months ended September 30, 2006, comparedto $20 million, or 96.5 % in the same period of 2005, and $7.8 million or 97.9%for the third quarter 2006 versus $7.2 million or 97.1% in the same time periodof 2005.

*Costs and Expenses*.  Selling, generaland administrative expenses were $17.5 million in the third quarter of 2006,compared to $18.9 million in the comparable period of 2005.  Selling,general and administrative were $51.8 million in the first nine months of 2006,compared to $52.8 in the comparable period of 2005.   The third quarter and year to date 2006decrease in selling, general and administrative expense is primarilyattributable to closer attention to spending, renegotiation of certaincontractual arrangements and process re-engineering, partially offset by theadoption of FAS 123R, combined with a decrease in revenue in 2006.

*Income / (Loss) from Continuing Operations*. The Company’s income from operations totaled $443,000 in the third quarter of2006. This compares to a loss from operations of $8 million in the thirdquarter of 2005 which included special charges of $5.4 million related to theproposed merger and proxy contest, and a restructuring charge of $574,000.   The composition of the operating income forthe quarter ended September 30, 2006, excluding special charges, restructuringcharges and amortization expense included loss of $138,000 in the CommercialGroup and income of $648,000 in Chimes.  For the comparable quarter of2005, the Commercial Group had a loss of $2.3 million and Chimes had income of$638,000.

*Other Income /(Expense)*.  Otherincome (primarily net interest income) totaled $527,000 in the third quarter of2006, compared to $259,000 in the third quarter of 2005. Other income for thefirst nine months of 2006 approximated $1.3 million compared to $536,000 forthe first nine months of 2005.

*Provision for Income Taxes*.   In accordance with Accounting for IncomeTaxes-an interpretation of FASB Statement No. 109 (FIN 18), the Company hasrecorded its first and second quarter tax provision using the actual effectivetax rate. The Company has determined that this method will yield a morereliable tax provision calculation due to the inclusion of the valuationallowance created during the prior year. This is a change from the prior yearmethodology as the Company was able to determine an annual effective tax rateduring the year ended December 31, 2005. Accordingly, the Company is not in a position to disclose its projectedDecember 31, 2006 annual effective tax rate but will update the actual 2006quarterly effective tax rate in the subsequent reporting periods.  If the Company utilizes its existing netoperating losses, in a jurisdiction by jurisdiction basis, additional taxprovision could be recorded in the remaining two quarters of the year.

Forthe third quarter ended September 30, 2006, the Company calculated its actualeffective tax rate for continuing operations to be approximately 9.9% and itsdiscontinued operations to be -.5%.  Forthe third quarter ended 2005, the company calculated its annual effective taxfor continuing operations to be approximately -1.7% and its discontinuedoperations to be -20%.

**Results from discontinued operations:**

TheFederal Government segment consists primarily of solutions type assignments,whereby the Company is responsible for project deliverables and otherconditions contained in SOWs and/or contracts with the Federal Government. Federal Government engagements generally have a duration of severalyears, contingent upon the Federal Government exercising annual options tocontinue work.  On September 29, 2006,Computer Horizons Corp. sold its Federal Government subsidiary, RGIITechnologies, Inc., to Netstar-1, Inc. This represented the entirety of the Federal Government businesssegment.  Income before taxes fromdiscontinued operations was $540,000 for the three months ended September 30,2006 versus $617,000 in the third quarter 2005, and loss for the nine monthsended September 30, 2006 was $13 million versus income of $2 million in thefirst nine months of 2005.  The 2006 yearto date loss from discontinued operations was primarily attributable to acharge for goodwill impairment of $15 million taken in the second quarter.  The net loss from discontinued operations was$4.2 million and $18 million for the third quarter and nine months endedSeptember 30, 2006, and additionally included the loss on sale of RGII of $4.8million.

**Net Income:**

*Net Income /(Loss)*.  The net loss forthe third quarter of 2006 was $3.3 million, or $(0.10) per basic and dilutedshare, compared to a net loss of $7.3 million or $(0.23) per basic and dilutedshare for the third quarter of 2005. For the first nine months of 2006, netloss was $16.6 million or $(0.51) per basic and diluted share, compared to anet loss of 7.0 or $(0.22) per share for the first nine months of 2005.  The net loss for the thirdquarter 2006 was primarily the result of the loss on sale of RGII of $4.8million, partially offset by income from both continuing and discontinuedoperations.  The net loss for the ninemonths ended September 30, 2006 consisted of the $15 million charge forgoodwill impairment coupled with the loss on the sale of RGII, partially offsetby income of $1.4 million from continuing operations and $1.7 million fromdiscontinued operations.

 

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**Liquidityand Capital Resources**

ComputerHorizons has historically financed its operations through cash generated fromoperations, borrowings against bank lines of credit and the public sale of itscommon stock. At September 30, 2006, the Company had approximately $68.2million in working capital, of which $48.2 million was cash and cashequivalents, and an additional $1 million of cash held in escrow from the saleof RGII. Cash and cash equivalents at September 30, 2006 and December 31,2005 includes approximately $12.0 million and $29.4 million of cash,respectively, to be disbursed to Chimes vendors in accordance with the clientpayment terms. At September 30, 2006, the Company had a current ratio positionof 3.0 to 1.

Netcash used in operating activities in the first nine months of 2006 was $17.8million consisting primarily of a decrease in Accounts Payable of $17.6million.  This reduction in payables wasattributable to the decrease in Chimes vendor payables and is directlyreflected in the corresponding decrease in on-hand vendor cash.  Vendor cash varies quarter to quarter basedon the relationship of the final billing cycle to the end of the quarter, anddoes not represent a change in the level of operations.

Netaccounts receivable increased $2.9 million to $42.6 million at September 30,2006, from $39.7 million at December 31, 2005.  Accounts receivabledays sales outstanding (“DSO”) at September 30, 2006 for total CHC were 70.5days, down from 72.2 days at June 30, 2006, and up from 65.8 days at December31, 2005.  Commercial DSO was 73.8, downfrom 76.6 days at June 30, 2006, due to an emphasis on collection effortsrelating to older receivables. Commercial DSO at December 31, 2005 was 69.6 days, reflecting the dropin receivables which is customarily seen at year end.  Chimes DSO at September 30, 2006, was 51.9days, up from 41.7 days at June 30, 2006. The increase in Chimes DSO wasprimarily timing-related, as payments were received the first business dayafter the end of the accounting period. All client receivable collectibilityand billing issues identified by management have been adequately reserved. Forthe period ended September 30, 2006, there were no significant changes incredit terms, credit policies or collection efforts.

ForSeptember 30, 2006, net cash provided by discontinued operations was $8.9million, and total cash provided by all operating activities was $8.9 million,versus cash provided by all operating activities of $10.1 million in thecomparable period of 2005.

Netcash used in investing activities in the first nine months of 2006 was $0.9million, consisting primarily of capital expenditures of $868,000.  Additionally, as a result of the sale of thecondo in Florida, a receivable was established for $408,000.  Such receivable was satisfied October 5,2006.  Cash provided by investingactivities relating to discontinued operations was $13.3 million, relating tothe sale of RGII.

Netcash provided by financing activities in the first nine months of 2006 was $3.3million, consisting of shares issued pursuant to the employee stock option planand employee stock purchase plan.

OnJune 16, 2006 the company amended its line of credit facility.  The line was reduced to $20 million from $40million, reflecting management’s belief that there was no need for the higherlevel of funding and to reduce associated costs.  The amendment extended the termination of theFinancing Agreement from July 31, 2006 to July 31, 2007.  The Administrative Management Fee, the EarlyTermination Fee and the Line of Credit Fee have all been eliminated.  Since November 2, 2005, the interest rate hasbeen calculated using the lesser of: Prime +05% or LIBOR plus 2.75% based onunpaid principal.  The minimum borrowingbase threshold has been eliminated as of November 4, 2005.  As of June 30, 2006, the Company had nooutstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances,$6.9 million was available for borrowing as of September 30, 2006.  The unused line fee has been eliminatedbeginning  June 1, 2006, however, theunused line fee and other associated fees, including the float and wire fees,were approximately $64,000 and $83,000 for the nine months ended June 30, 2006and 2005, respectively.  This line ofcredit involves covenants relating to the maintenance of cash balances andproviding for limitations on incurring obligations of operating leasesexceeding $9 million annually and spending limits on capital expendituresexceeding $8 million annually.  As ofSeptember 30, 2006, the Company was in compliance with the covenants.  This credit facility will remain in effectuntil July 31, 2007.

Pursuantto the terms of the Company’s acquisition of RGII, the seller of RGII wasentitled to contingent payments based on RGII’s performance againstprofitability objectives over three years.  The contingent payments wereevidenced by a contingent note with a face value of $10 million that waspayable over three years, only if certain financial performance objectives weremet.  In February 2004, a payment was made for the first nine-monthinstallment of approximately $631,000, pertaining to this contingent note.  In February 2005, a payment ofapproximately $1.8 million was made representing the next installment of thecontingent note.  Since the targeted EBITs were not achieved, the sellerof RGII was required to repay amounts previously paid, plus interest.  This amount of $2.6 million was repaid onJuly 31, 2006.

OnOctober 18, 2005, as a consequence of the removal of the Company’s thenexisting Board of Directors without cause and the election of the new Board ofDirectors, a change of control was deemed to have occurred under the Company’sSERP. Accordingly, change of control payments totaling $11.9 million were paidon October 25, 2005, including $10.4 million to the SERP participants and $1.5million to a key executive, pursuant to the terms of the related employment agreement.As of October 25, 2005,

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the recorded accrual for the SERP paymentsapproximated $2.2 million, resulting in a charge of approximately $9.7 million,which was recorded in the fourth quarter of 2005. In addition, as of October25, 2005, the Company had unrealized losses on the applicable SERP investmentstotaling $1.2 million. This loss was recognized in the fourth quarter of 2005as a result of the sale of all SERP investments, which generated sales proceedsof approximately $4.7 million.

OnOctober 18, 2005, the Company’s Board of Directors appointed a new President andCEO for the Company. The former CEO was paid severance in the amount of$895,000, along with his deferred compensation funds, which approximated$381,000.

TheCompany believes that its cash and cash equivalents, available borrowings andinternally generated funds will be sufficient to meet its working capital needsthrough the next year.

**ContractualObligations and Commercial Commitments**

TheCompany does not utilize off balance sheet financing other than operating leasearrangements for office premises and related equipment.  The followingtable summarizes all commitments under contractual obligations as of  September 30, 2006:
| ** **                      | ** ** | **Obligation Due** | ** ** |
|---------------------------------|------------|-------------------------|------------|
| **(dollars in thousands)** | ** ** | ** **              | ** ** | **Total Amount** | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **Over 5 Years** | ** ** |
| Operating Leases                |       | $                       | 4,179      |   | $ | 694 |   | $ | 2,610 |   | $ | 579 |   | $ | 296 |   |
| Deferred  Compensation          |       | 1,735                   |       | 11 |   | 22 |   | 11 |   | 1,691 |   |
| Retention Bonus                 |       | 250                     |       | 250 |   | — |   | — |   | — |   |
| Change of  Control              |       | 2,316                   |       | 0 |   | — |   | — |   | 2,316 |   |
| Other                           |       | 796                     |       | 796 |   | 0 |   | — |   | — |   |
| **Total Cash Obligations**      |       | $                       | 9,276      |   | $ | 1,751 |   | $ | 2,632 |   | $ | 590 |   | $ | 4,303 |   |
|                                 |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

**Recent Accounting Pronouncements**

InSeptember, 2006 the FASB issued Statement 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*:an amendment of FASB Statements No. 87,88, 106, and 132®.  Statement 158 requires employers withsingle-employer defined benefit plans or postretirement plans to recognize thefunded status of all such plans in the employer’s statement of financialposition, recognize the changes in a plan’s funded status in comprehensiveincome of a business entity or as changes in unrestricted net assets of anot-for-profit organization in the year of change, and measure a plan’s fundedstatus as of the date of the employer’s fiscal year-end statement of financialcondition.  The provisions of Statement158 are effective for entities with publicly traded equity securities as of theend of fiscal years ending after December 15, 2006.  The Company does not expect a material impactfrom the adoption of Statement 158.

InSeptember 2006, the Securities and Exchange Commission issued Staff AccountingBulletin “SAB” 108 regarding the process of quantifying financial statementmisstatements.  The provisions of thisstatement will be effective for the year end. The company does not expect a material impact from adoption of SAB 108.

InJune 2006, the Financial Accounting Standards Board (FASB) issued FASBInterpretation No. 48, Accounting for Uncertainty in Income Taxes-aninterpretation of FASB Statement No. 109 (FIN 48), which clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements.  ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. This interpretation also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.  The provisionsof FIN 48 will be effective for the Company as of January 1, 2007, with thecumulative effect of applying the provisions of this Interpretation reported asan adjustment to the opening balance of retained earnings. The Company iscurrently evaluating the impact of adopting FIN 48.

InDecember 2004, the FASB issued Statement of Financial Accounting StandardNo. 123 (revised 2004), “Share-Based Payment” (FAS 123R).FAS 123R requires that compensation cost be recognized for all new awardsand awards that are modified, repurchased or cancelled after the adoption date.The SEC amended the effective dates of FAS 123R for public companies inApril 2005, which allows registrants to implement FAS 123R at thebeginning of their next fiscal year, instead of the next interim period, thatbegins after June 15, 2005. The SEC also issued Staff AccountingBulletin 107, “Share-Based Payment” (SAB 107), in 

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April 2005, which provides the views of the SEC staffregarding certain aspects of the application of FAS 123R. SAB 107assists issuers in their initial implementation of FAS 123R. The provisionsof this statement are effective for the Company’s third quarter endingSeptember 30, 2006.

FAS 123Rallows for two alternative transition methods. The first method is the modifiedprospective application whereby compensation cost for the portion of awards forwhich the requisite service has not yet been rendered that are outstanding asof the adoption date will be recognized over the remaining service period. Thecompensation cost for that portion of awards will be based on the grant-datefair value of those awards as calculated for pro forma disclosures underStatement 123, “Accounting for Stock-Based Compensation”, as originallyissued. All new awards and awards that are modified, repurchased or cancelledafter the adoption date will be accounted for under the provisions of FAS123(R). The second method is the modified retrospective application, whichrequires that the Company restates prior period financial statements. Themodified retrospective application may be applied either to all prior periodsor only to prior interim periods in the year of adoption of this statement. TheCompany has elected to apply the modified prospective method.

OnNovember 2005, the FASB issued FASB Staff Position No. FAS 123R-3—“TransitionElection Related to Accounting for the Tax Effects of Share-Based PaymentAwards.”  The Company has elected to adopt the alternative transitionmethod provided in this FASB Staff Position for calculating the tax effects ofshare-based compensation pursuant to FAS 123R. The alternative transitionmethod includes a simplified method to establish the beginning balance of theadditional paid-in capital pool (APIC pool) related to the tax effects ofemployee share-based compensation, which is available to absorb taxdeficiencies recognized subsequent to the adoption of FAS 123R.

**Item 3.    Quantitative and Qualitative Disclosuresabout Market Risk**

TheCompany does not ordinarily hold market risk sensitive instruments for tradingpurposes. However, the Company does recognize market risk from interest rateand foreign currency exchange exposure. The Company has financial instrumentsthat are subject to interest rate risk. As of September 30, 2006, the Companywas debt-free. Historically, the Company has not experienced material gains orlosses due to interest rate changes. However, a reduction in interest rateswould reduce the interest income received by the Company on the cash it holdsfor payment to Chimes vendors. The Company’s international operations expose itto translation risk when the local currency financial statements are translatedto US dollars. As currency exchange rates fluctuate, translation of thefinancial statements of international businesses into US dollars will affectthe comparability of revenues and expenses between years. In addition, theCompany bills customers with respect to certain Canadian operations in USdollars but pays Canadian workers in Canadian dollars.

**Item 4.    Controls 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 inRules 13a-15(e) under the Securities Exchange Act of 1934, asamended) as of the end of the period covered by this report.  Based uponsuch evaluation, the Company’s Chief Executive Officer and Chief FinancialOfficer have concluded that, as of the end of the period, the Company’sdisclosure controls and procedures are effective in recording, processing,summarizing and reporting, on a timely basis, information required to bedisclosed by the Company in the reports that it files or submits under theSecurities 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) and15d-15e under the Securities Exchange Act of 1934, as amended) during theperiod to which this report relates that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.  A control system,no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Becauseof the inherent limitations in all control systems, no evaluation of controlscan provide absolute assurance that all control issues and instances of fraud,if any, within a company have been detected.

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**PART II -Other Information**

**Item 6**.    Exhibits
|        | Exhibits   |
|--------|------------|
|        |       |   |   |   |
|   | 31.1— |   | CEO Certification required by Rule  13a-15(e)/15d-15(e) under the Securities Exchange Act of 1934. |
|   |       |   |   |   |
|   | 31.2— |   | CFO Certification required by Rule  13a-15(e)/15d-15(e) under the Securities Exchange Act of 1934. |
|   |       |   |   |   |
|   | 32.1— |   | CEO Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |       |   |   |   |
|   | 32.2— |   | CFO Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

 

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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: November 6, 2006 |   | /s/  Dennis Conroy                    |   |   |
|                   |   | Dennis Conroy, President and CEO           |   |   |
|                   |   | (Principal Executive Officer)              |   |   |
|                   |   |                                       |   |   |
| DATE: November 6, 2006 |   | /s/ Barbara Moss                           |   |   |
|                   |   | Barbara Moss,                              |   |   |
|                   |   | Chief Financial Officer                    |   |   |
|                   |   | (Principal Financial Officer)              |   |   |
|                   |   |                                       |   |   |
| DATE: November 6, 2006 |   | /s/ Marci Braunstein                       |   |   |
|                   |   | Marci Braunstein,                          |   |   |
|                   |   | Corporate Controller                       |   |   |
|                   |   | (Principal Accounting Officer)             |   |   |
|                   |   |                                       |   |   |

 

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