**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM10-Q**

**x****        Quarterly Report Under Section 13 or 15(d)of the Securities Exchange Act of 1934**

**forthe quarterly period ended March 31, 2007**

**or**

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

**forthe transition period from         to**

**CommissionFile Number 0-7282**

**COMPUTERHORIZONS CORP.**(Exact name of registrant as specified in its charter)

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

 

**49Old Bloomfield Avenue, Mountain Lakes, New Jersey 07046-1495**(Address of principal executiveoffices)              (Zipcode)

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

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding twelve months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for 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 of June 1, 2007 the issuer had   33,837,284 shares ofcommon stock outstanding.

 

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**COMPUTERHORIZONS CORP. AND SUBSIDIARIES**

Index
| Part I        | Financial  Information |
|---------------|------------------------|
|          |                   |   |
| Item 1        |                   | Financial Statements: |
|          |                   |   |
|          |                   | Condensed  Statement of Net Assets March 31, 2007 (Liquidation Basis- Unaudited) and Consolidated  Condensed Balance Sheet (Going Concern Basis- Audited) December 31, 2006 |
|          |                   |   |
|          |                   | Condensed  Statement of Changes in Net Assets in Liquidation — Period from February 17-  March 31, 2007 (Unaudited) |
|          |                   |   |
|          |                   | Consolidated  Condensed Statements of Operations- Period Ended February 16, 2007 (unaudited)  andThree Months Ended March 31, 2006 (unaudited) |
|          |                   |   |
|          |                   | Consolidated  Condensed Statements of Cash Flows Period Ended February 16, 2007 (unaudited)  andThree Months Ended March 31, 2006 (unaudited) |
|          |                   |   |
|          |                   | Notes to  Condensed 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  1A      |                   | Risk Factors |
|          |                   |   |
| Item 4        |                   | Submission  of Matters to a Vote of Security Holders |
|          |                   |   |
| Item  6       |                   | Exhibits |
|          |                   |   |
| Signatures    |
|          |                   |   |
| EX-31.1  |                   |   |
|          |                   |   |
| EX-31.2       |                   |   |
|          |                   |   |
| EX-32.1       |                   |   |
|          |                   |   |
| EX-32.2       |                   |   |
|               |                        |  |  |  |

 

1

----

PART I.  FinancialInformation

Item 1.

**Computer Horizons Corp and Subsidiaries**

**Condensed Statement of Net Assets as of March 31, 2007(Liquidation Basis)**

**Consolidated Condensed Balance Sheet as of  December 31, 2006 (Going Concern Basis)**

($ in thousands)
| ** **                                     | ** ** | **March 31, 2007** | ** ** | **December 31, 2006*** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| ** **                                     | ** ** | **(Unaudited)**              | ** ** | ** **                       | ** ** |
| **ASSETS**                                     | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **CURRENT ASSETS:**                            | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Cash and cash  equivalents                     |       | $                            | 30,803     |                             | $          | 71,790 |   |
| Cash held in escrow                            |       | 2,653                        |       | 1,000                            |       |
| Accounts receivable,                           |       | 900                          |       | 34,517                           |       |
| Refundable tax credit                          |       | 8,962                        |       | 8,547                            |       |
| Prepaid expenses and  other                    |       | 966                          |       | 4,741                            |       |
| **TOTAL CURRENT ASSETS**                       |       | 44,284                       |       | 120,595                          |       |
|                                           |       |                         |       |                             |       |
| **PROPERTY AND EQUIPMENT**                     |       | 12                           |       | 44,267                           |       |
| Less accumulated  depreciation                 |       | —                       |       | (41,521                          | )          |
| **TOTAL PROPERTY AND EQUIPMENT,  NET**         |       | 12                           |       | 2,746                            |       |
| ** **                                     | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **OTHER ASSETS - NET:**                        | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Deferred income taxes                          |       | —                       |       | 1,491                            |       |
| Other                                          |       | —                       |       | 940                              |       |
| **TOTAL OTHER ASSETS**                         |       | —                       |       | 2,431                            |       |
| ** **                                     | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **TOTAL ASSETS**                               |       | $                            | 44,296     |                             | $          | 125,772 |   |
|                                           |       |                         |       |                             |       |
| **LIABILITIES AND SHAREHOLDERS  EQUITY**       | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **CURRENT LIABILITIES:**                       | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Accounts payable                               |       | $                            | 93         |                             | $          | 28,126 |   |
| Accrued payroll,  payroll taxes and benefits   |       | —                       |       | 9,431                            |       |
| Net working capital  adjustment                |       | 1,904                        |       | —                           |       |
| Income taxes payable                           |       | 2,977                        |       | 1,150                            |       |
| Restructuring reserve                          |       | —                       |       | 61                               |       |
| Other accrued expenses                         |       | 8,573                        |       | 4,212                            |       |
| Change of control  payable                     |       | 563                          |       | 2,316                            |       |
| Deferred Tax                                   |       | —                       |       | 1,491                            |       |
| Deferred compensation                          |       | —                       |       | 1,847                            |       |
| **TOTAL CURRENT LIABILITIES**                  |       | 14,109                       |       | 48,634                           |       |
|                                           |       |                         |       |                             |       |
| **OTHER LIABILITIES:**                         | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| Other                                          |       | —                       |       | 443                              |       |
| **TOTAL OTHER LIABILITIES**                    |       | —                       |       | 443                              |       |
|                                           |       |                         |       |                             |       |
| **TOTAL LIABILITIES**                          |       | $                            | 14,109     |                             | $          | 49,077 |   |
|                                           |       |                         |       |                             |       |
| **TOTAL SHAREHOLDERS EQUITY**                  |       | —                       |       | 76,697                           |       |
|                                           |       |                         |       |                             |       |
| **TOTAL LIABILITIES AND  SHAREHOLDERS EQUITY** |       |                         |       | $                                | 125,772    |   |
| ** **                                     | ** ** | ** **                   | ** ** | ** **                       | ** ** |
| **NET ASSETS IN LIQUIDATION**                  |       | $                            | 30,187     |                             |       |   |

 

----

* Derived from audited financial statements

 

The accompanying notes are an integral part of these statements.

2

----

**ComputerHorizons Corp and Subsidiaries**

**CondensedStatement of Net Assets as of March 31, 2007 (Liquidation Basis)**

($ in thousands)

(Unaudited)

 
| ** **                                                  | ** ** | **For the period  from February 16  to March 31, 2007** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| Shareholders’  Equity at February 16, 2007             |       | $                                                                                          | 176,624    |   |
| Liquidation  basis adjustments:                             |       |                                                                                       |       |
| Adjust assets and liabilities to fair value                 |       | (973                                                                                       | )          |
| Accrued cost of liquidation                                 |       | (9,010                                                                                     | )          |
|                                                        |       |                                                                                       |       |
| Net Assets in  Liquidation February 16, 2007                |       | 166,641                                                                                    |       |
|                                                        |       |                                                                                       |       |
| Cash distribution to shareholders                           |       | (135,349                                                                                   | )          |
| Transition Services Billing                                 |       | 930                                                                                        |       |
| Surrender program payment - stock options                   |       | (395                                                                                       | )          |
| Adjustments to Liquidation accruals                         |       | 121                                                                                        |       |
| Investment income from February 17, 2007 to March  31, 2007 |       | 672                                                                                        |       |
| Costs incurred from February 17, 2007 to March 31,  2007    |       | (2,433                                                                                     | )          |
| Net Assets in  Liquidation March 31, 2007                   |       | $                                                                                          | 30,187     |   |

 

3

----

 

**Computer Horizons Corp and Subsidiaries**

Consolidated Condensed Statement of Operations and Comprehensive Income(Going Concern Basis)

($ in thousands except per share data)

(Unaudited)
| ** **                                                            | ** ** | **For the period  from January 1 to  February 16, 2007** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| **REVENUES:**                                                         | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Commercial                                                            |       | $                                                                                           | 24,995     |                                                       | $          | 45,839 |   |
| Chimes                                                                |       | 4,671                                                                                       |       | 7,441                                                      |       |
| **Total**                                                             |       | 29,666                                                                                      |       | 53,280                                                     |       |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **COSTS  AND EXPENSES:**                                              | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Direct costs                                                          |       | 23,086                                                                                      |       | 36,383                                                     |       |
| Selling, general  & administrative                                |       | 10,761                                                                                      |       | 17,226                                                     |       |
| Restructuring  charges                                                |       | 14                                                                                          |       | —                                                     |       |
| Special charges                                                       |       | —                                                                                      |       | (6                                                         | )          |
| Total Costs                                                           |       | 33,861                                                                                      |       | 53,603                                                     |       |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **INCOME/(LOSS)  FROM OPERATIONS**                                    |       | (4,195                                                                                      | )          | (323                                                       | )          |
| ** **                                                            | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| **OTHER  INCOME/(EXPENSE):**                                          | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Interest income                                                       |       | 881                                                                                         |       | 398                                                        |       |
| Interest expense                                                      |       | (1                                                                                          | )          | (63                                                        | )          |
|                                                                  |       | 880                                                                                         |       | 335                                                        |       |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **INCOME/(LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES**     |       | (3,315                                                                                      | )          | 12                                                         |       |
| ** **                                                            | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| **GAIN ON  SALE**                                                     |       | 102,686                                                                                     |       | —                                                     |       |
| **INCOME  FROM EXTRAORDINARY ITEMS**                                  |       | 102,686                                                                                     |       | —                                                     |       |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **INCOME  (TAXES)/BENEFIT:**                                          | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Current                                                               |       | —                                                                                      |       | (34                                                        | )          |
|                                                                  |       | —                                                                                      |       | (34                                                        | )          |
| **NET  INCOME/(LOSS) FROM CONTINUING OPERATIONS**                     |       | $                                                                                           | 99,371     |                                                       | $          | (22 | ) |
| **INCOME/(LOSS)  FROM DISCONTINUED OPERATIONS**                       |       |                                                                                        |       | $                                                          | 780        |   |
| **NET  INCOME**                                                       |       | 99,371                                                                                      |       | 758                                                        |       |
| ** **                                                            | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| **EARNINGS/(LOSS)  PER SHARE FROM CONTINUING OPERATIONS - BASIC**     |       | $                                                                                           | 2.94       |                                                       | $          | (0.00 | ) |
| **EARNINGS/(LOSS)  PER SHARE FROM DISCONTINUED OPERATIONS - BASIC**   |       | $                                                                                           | —     |                                                       | $          | 0.02 |   |
| **EARNINGS/(LOSS)  PER SHARE - BASIC**                                |       | $                                                                                           | 2.94       |                                                       | $          | 0.02 |   |
| ** **                                                            | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| **EARNINGS/(LOSS)  PER SHARE FROM CONTINUING OPERATIONS - DILUTED**   |       | $                                                                                           | 2.94       |                                                       | $          | (0.00 | ) |
| **EARNINGS/(LOSS)  PER SHARE FROM DISCONTINUED OPERATIONS - DILUTED** |       | $                                                                                           | 2.94       |                                                       | $          | 0.02 |   |
| **EARNINGS/(LOSS)  PER SHARE - DILUTED**                              |       | $                                                                                           | 2.94       |                                                       | $          | 0.02 |   |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **WEIGHTED  AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC**            |       | 33,837,284                                                                                  |       | 32,067,905                                                 |       |
|                                                                  |       |                                                                                        |       |                                                       |       |
| **WEIGHTED AVERAGE NUMBER OF  SHARES OUTSTANDING - DILUTED**          |       | 33,837,284                                                                                  |       | 32,355,667                                                 |       |

 

The accompanying notesare an integral part of these statements.

4

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**ComputerHorizons Corp. and Subsidiaries**

**Consolidated Condensed Statement ofCash Flows**

($ in thousands)

(Unaudited)
| ** **                                                                                               | ** ** | **For the period from  January 1 to February 16,  2007** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| **CASH  FLOWS FROM OPERATING ACTIVITIES**                                                                | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Net  Income/(Loss)                                                                                       |       | $                                                                                           | 99,371     |                                                       | $          | 758 |   |
| Less: Income  from discontinued operations                                                               |       |                                                                                        |       | 780                                                        |       |
| Less: Gain on  sale of Chimes and Commercial                                                             |       | 102,625                                                                                     |       |                                                       |       |
| Income/(Loss)  from continuing operations                                                                |       | (3,254                                                                                      | )          | (22                                                        | )          |
| **Adjustments  to reconcile net income/(loss) to net cash provided by/(used in) operating  activities:** | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Deferred taxes                                                                                           |       | (1                                                                                          | )          | —                                                     |       |
| Depreciation                                                                                             |       | 234                                                                                         |       | 569                                                        |       |
| Provision for  bad debts                                                                                 |       | 1,452                                                                                       |       | 180                                                        |       |
| Restructure  expense                                                                                     |       | 14                                                                                          |       | —                                                     |       |
| FAS 123R Option  Expense                                                                                 |       | (15                                                                                         | )          | 283                                                        |       |
| Changes in  assets and liabilities, net of acquisitions                                                  |       | (5,124                                                                                      | )          | (32,669                                                    | )          |
| **NET  CASH USED IN OPERATING ACTIVITIES**                                                               |       | (6,692                                                                                      | )          | (31,659                                                    | )          |
| **NET  CASH PROVIDED BY DISCONTINUED OPERATIONS**                                                        |       | 104,657                                                                                     |       | 6,396                                                      |       |
| **NET  CASH PROVIDED BY/ (USED IN) OPERATING ACTIVITIES**                                                |       | 97,965                                                                                      |       | (25,263                                                    | )          |
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES**                                                                | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Sale/Purchase of  furniture and equipment                                                                |       | 1,527                                                                                       |       | (229                                                       | )          |
| **NET  CASH (USED IN) INVESTING ACTIVITIES**                                                             |       | 1,527                                                                                       |       | (229                                                       | )          |
| **NET  CASH PROVIDED BY/(USED IN) DISCONTINUED OPERATIONS**                                              |       | —                                                                                      |       | —                                                     |       |
| **NET  CASH PROVIDED BY/ (USED IN) INVESTING ACTIVITIES**                                                |       | 1,527                                                                                       |       | (229                                                       | )          |
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES**                                                                | ** ** | ** **                                                                                  | ** ** | ** **                                                 | ** ** |
| Stock options  exercised                                                                                 |       | 334                                                                                         |       | 1,704                                                      |       |
| Stock issued on  employee stock purchase plan                                                            |       | 97                                                                                          |       | 132                                                        |       |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                                                           |       | 431                                                                                         |       | 1,836                                                      |       |
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| Foreign currency  gains/(losses)                                                                         |       |                                                                                        |       | 93                                                         |       |
| **NET INCREASE/(DECREASE)  IN CASH AND CASH EQUIVALENTS**                                                |       | 99,923                                                                                      |       | (23,563                                                    | )          |
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| **CASH  AND CASH EQUIVALENTS AT BEGINNING OF YEAR**                                                      |       | 72,790                                                                                      |       | 46,365                                                     |       |
|                                                                                                     |       |                                                                                        |       |                                                       |       |
| **CASH AND CASH EQUIVALENTS AT  END OF PERIOD**                                                          |       | $                                                                                           | 172,713    |                                                       | $          | 22,802 |   |

 

The accompanyingnotes are an integral part of these statements.

5

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**COMPUTERHORIZONS CORP.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(unaudited)

**1.             Basis of Presentation**

At a Special Meeting heldon February 14, 2007, the shareholders of Computer Horizons Corp. (the “Company”)approved the sales of the Company’s Chimes, Inc. subsidiary to an affiliate ofAxium International and the Company’s Commercial Division to an affiliate ofAllegis Group (collectively, the “Asset Sales”).  At the Special Meeting, the shareholders ofthe Company also approved a proposed plan of complete liquidation anddissolution of the Company (the “Plan of Liquidation”).  The Company began implementing the Plan ofLiquidation after the Asset Sales were completed on February 16, 2007.

The consolidatedfinancial statements have been prepared by the Company without audit inaccordance with the rules and regulations of the Securities and ExchangeCommission, and should be read in conjunction with the audited ConsolidatedFinancial Statements previously filed on the Company’s Form 10-K for the yearended December 31, 2006.  In the opinionof management, the statements reflect all adjustments necessary for a fairpresentation of the results of interim periods. Certain information and note disclosures, normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America, which are not required for interim purpose,have been condensed or omitted.  Theresults for any interim period are not necessarily indicative of the results tobe expected for a full year.

The consolidatedfinancial statements for the period January 1, 2007 to February 16, 2007 andfor all periods presented for 2006 were prepared on the going concern basis ofaccounting, which contemplates realization of assets and satisfaction ofliabilities in the normal course of business. As a result of the shareholders’ approval of the Plan of Liquidation,the Company adopted the liquidation basis of accounting effective February 17,2007.  This basis of accounting isconsidered appropriate when, among other things, liquidation of a company isprobable and the net realizable values of assets are reasonablydeterminable.  Under this basis ofaccounting, assets are valued at their net realizable values and liabilitiesare stated at their estimated settlement amounts.

The conversion from thegoing concern to liquidation basis of accounting required management to makesignificant estimates and judgments.  Inorder to record assets at estimated net realizable value and liabilities at estimatedsettlement amounts under the liquidation basis of accounting, the Companyrecorded the following adjustments to record its assets and liabilities at fairvalue as of February 17, 2007, the date of adoption of the liquidation basis ofaccounting:
|                                               | ** ** | **($ in thousands)** | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| Adjust assets  and liabilities to fair value: |       |                           |       |
| Write down of Fixed Assets                    |       | 119                            |       |
| Write off of Advances to India                |       | 698                            |       |
| Write down of Other Assets                    |       | 156                            |       |
| Total                                         |       | $                              | 973        |   |
|                                               |            |                                |            |  |

 

***Accrued Cost of Liquidation***

Under the liquidationbasis of accounting, the Company has accrued for the known costs to be incurredin liquidation, as follows:
|                             | ** ** | **($ in thousands)** | ** ** |
|-----------------------------|------------|--------------------------------|------------|
| Lease Obligation            |       | $                              | 1,324      |   |
| Professional  Fees          |       | 1,927                          |       |
| Legal and  Insurance        |       | 560                            |       |
| Human Resources             |       | 3,480                          |       |
| Systems-related             |       | 819                            |       |
| Misc.                       |       | 900                            |       |
|                        |       |                           |       |
| Total Liquidation  Reserves |       | $                              | 9,010      |   |

 

6

----

The Company will continueto incur operating costs and receive income on its investments throughout theliquidation period.  On a regular basis,we evaluate our assumptions, judgments and estimates that can have asignificant impact on our reported net assets in liquidation based on the mostrecent information available to us, and when necessary make changesaccordingly.  Actual costs and income maydiffer from our estimates, which might reduce net assets available inliquidation to be distributed to shareholders.

The Company expects tomake further distributions to its shareholders of its remaining cash, less anyamount applied to or reserved for actual or contingent liabilities (which willbe deposited in a liquidating trust). The amounts reserved will be based on a determination by the board ofdirectors, derived from consultation with management and outside experts, ifthe board of directors determines that it is advisable to retain such experts,and a review of, among other things, our estimated contingent liabilities andour estimated ongoing expenses, including, but not limited to, payroll, legalexpenses, regulatory filings and other miscellaneous expenses.  To the extent that assets deposited in theliquidating trust are not applied to or reserved for payment of the Company’sliabilities, these assets will be distributed to holders of beneficialinterests in the liquidating trust at one or more later dates.  Each shareholder will receive his or her prorata share of each distribution based on the number of shares held on therecord date for such distribution.

*Saleof RGII*

On September 29, 2006,the Company sold its 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 an escrow of $1 million of the purchase price.  In addition, CHC retained all cash and cashequivalents of RGII, in the amount of $6.3 million.  The amount of the estimated net assetadjustment is subject to a final review, and may be further adjusted.  To the extent that the final net asset amountsold to NetStar-1 is greater than the estimated asset amount at closing, theStock Purchase Agreement provides that the excess will be paid to CHC togetherwith interest thereon at the prime rate from the closing date to the date ofpayment.  If the final net asset amountsold to NetStar-1 is less than the estimated asset amount at closing, the StockPurchase Agreement provides that 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.  Subsequentto the end of the reporting period, the parties reached agreement on the finalnet asset amount, resulting in a payment to the Buyer in the amount of $215thousand.  The remainder of the amount inescrow of $885 thousand, together with interest on the escrowed amount, wasreleased from escrow to CHC. The sale of RGII resulted in a net book loss ondisposal of $4.8 million, including approximately $969 thousand in transactioncosts as reported September 30, 2006.

*Saleof Commercial*

On November 7, 2006, theCompany entered into an asset purchase agreement (the “Commercial Services AssetPurchase Agreement”) by and among TEKsystems, Inc., a Maryland corporation (“TEKsystems”),TEKsystems EF&I Solutions, LLC, a Maryland limited liability company,Allegis Group Canada Corporation, a Nova Scotia unlimited liabilitycorporation, the Company, GBS Holdings Private Limited, a corporation organizedunder the laws of Mauritius, CHC Healthcare Solutions, LLC, a Delaware limitedliability company, and Allegis Group, Inc., a Maryland corporation.  Pursuant to the Commercial Services AssetPurchase Agreement, on February 16, 2007, the Company sold to TEKsystemssubstantially all of the assets of its Commercial Services Business (as definedin the Commercial Services Asset Purchase Agreement), for a purchase price of$57 million in cash subject to a potential post-closing working capitaladjustment, estimated at $(1.9) million using data as of the date of sale (the “CommercialServices Asset Sale”).  The sale was alsosubject to an escrow of $1.7 million of the purchase price pending receipt oftax certificates in connection with the Taxation Act — Quebec; the certificateswere subsequently received and the escrow released on April 24, 2007.  Subsequent to the end of the quarterTEKsystems submitted their revised calculation of the net working capital adjustment,asserting a claim for $6 million payable to TEKsystems.  The Company continues to believe that itsestimate of $1.9 million is appropriate, and is working with TEKsystems toresolve the discrepancies.  In the eventthat agreement cannot be reached, under the Commercial Services Asset PurchaseAgreement, the parties are required to submit the matter to an independentaccounting firm for determination.

Assets not included inthe Commercial Services Asset Sale include a refundable tax credit of $8.9 million,and the unit’s operating cash as of the date of the sale.  The Company recorded an estimated gain of$29.1 million as a result of the sale of the Commercial Services Business.  The maximum liability of the Company forindemnification claims under the Commercial Services Asset Purchase Agreementis $10 million and is contingent upon assertion of a claim for indemnity withinnine months after the closing date.

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

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received by it and itsaffiliates on such sale and the Company’s (or an affiliate’s) tax basis in theassets.  For purposes of calculating gainor loss, the proceeds received by the Company and its affiliates will includethe cash  received by them, the amount oftheir indebtedness that is cancelled or assumed, and any other consideration receivedby them for their assets.  It is anticipatedthat the Company will have sufficient current losses to offset most of the gainexpected to be realized from the Commercial Services Business asset sale forregular Federal income tax purposes and otherwise incur approximately $134thousand in alternative minimum taxes. The Company and/or its affiliates may be subject to state income taxesto the extent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant.

*Saleof Chimes*

On October 18, 2006, theCompany signed a definitive asset purchase agreement (the “Chimes AssetPurchase Agreement”) by and among Axium International, Inc., a Delawarecorporation, Diversity MSP, Inc., a California corporation (“Diversity MSP”)and Chimes, Inc., a Delaware corporation and wholly-owned subsidiary of theCompany (subsequently known as Chimes, LLC; a Delaware limited liabilitycompany, and referred to herein as “Chimes”). Pursuant to the Chimes Asset Purchase Agreement, on February 16, 2007,the Company sold to Diversity MSP substantially all of the assets of Chimes,excluding cash and marketable securities, for a purchase price of $80.0 millionin cash (the “Chimes Asset Sale”), with a gain of $73.6 million.  The maximum liability of the Company forindemnification claims under the Chimes Asset Purchase Agreement is $8 millionand is contingent upon assertion of a claim for indemnity within six monthsafter the closing date.

The Chimes Asset Sale isa taxable transaction with respect to the Company to the extent of the gainthat was realized.  The Company willrealize gain measured by the difference between the proceeds received by it andits affiliates on such sale and the Company’s (or an affiliate’s) tax basis inthe assets.  For purposes of calculatingthe gain, the proceeds received by the Company and its affiliates will includethe cash received by them, the amount of their indebtedness that is cancelledor assumed, and any other consideration received by them for their assets.  It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain realized from theChimes Transaction for regular Federal income tax purposes and otherwise incurapproximately $1.46 million in alternative 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, and have been accrued.

**2.             Contingencies and Estimates**

The Company will continueto incur costs through the liquidation. Note 1 sets forth the current (initial) estimate of these costs.  The Company will evaluate the assumptions,judgments and estimates that can have a significant impact during liquidationand make changes accordingly.  Inaddition, the following contingencies should be noted:
|                                                                                                                                                                                    | ** ** | **($ in thousands)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| Sale of the  Commercial Services Business Unit, maximum contingent liability under asset  purchase agreement, upon assertion of a claim within nine months after the  closing date |       | $                              | 10,000     |   |
| Sale of the  Commercial Services Business Unit, claim filed for Net Working Capital  Adjustment as provided in asset purchase agreement less $1.9 million accrual                  |       | $                              | 4,100      |   |
| Sale of Chimes, maximum  contingent liability under asset purchase agreement, upon assertion of a  claim within six months after the closing date                                  |       | $                              | 8,000      |   |

 

The details of the aboveare described more fully elsewhere in this filing.

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*LegalMatters*

The Company is involvedin various and routine litigation matters, which arise through the normalcourse of business.  Management believesthat the resolution of these matters will not have a material adverse effect onthe final liquidation of the Company. While it firmly maintains that all pending claims are meritless, theCompany will, however, continue to expend costs as it vigorously defendsagainst these claims.

**3.             Initial Liquidating Distribution**

On March 5, 2007, theCompany announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to its commonshareholders and certain former option holders under the provisions of thesurrender plan as described below.  Theinitial liquidating distribution represented a partial distribution toshareholders of the proceeds received by the Company from the sales of RGII,Chimes and the Commercial Services Business Unit.  In determining the amount of the initialdistribution, the Company considered wind down and transition expenses and theexposure for contingent claims under the asset purchase agreements.  The distribution was payable on March 27,2007 to shareholders of record as of the close of business on March 16,2007.  The initial liquidatingdistribution was the first of what is expected to be a series of liquidatingdistributions pursuant to the Plan of Liquidation.

The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.68 to$4.81 per share of Common Stock. However, uncertainties as to the ultimate amount of our liabilities makeit impossible to predict with certainty the actual aggregate net amounts thatwill ultimately be available for distribution to shareholders or the timing ofany such distribution.  Such amount andtiming will depend on a number of factors, several of which cannot bedetermined at this time, including:

·                  The ultimateamount of our known, unknown and contingent debts and liabilities;

·                  The fees andexpenses incurred by us in the liquidation of our assets and the dissolution ofthe Company;

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

*Electionto Surrender Options*

In order to facilitatethe participation in any liquidating distributions by the holders of Companyoptions, the board of directors granted to each option holder the right tosurrender their options in exchange for the right to receive the amount(s) thatsuch option holder would have been entitled to receive in each distribution asif they held the number of shares of Common Stock issuable upon exercise of thesurrendered options.  The amount sodistributed to each option holder will be reduced by the exercise price of hisor her options, which will be applied to reduce the amounts that wouldotherwise be payable to the option holder until the exercise price has beenapplied in full.  A total of 1,162,820options were surrendered under the plan. The average exercise price for such options was $2.97 per share.  The initial distribution to holders ofsurrendered options was $394,569.

**4.             Voluntary withdrawal from NASDAQ**

On March 9, 2007, theBoard of Directors of the Company approved a plan to voluntarily withdraw itscommon stock from trading on The NASDAQ Stock Market (“NASDAQ”) effective afterthe close of trading on March 30, 2007.

On March 12, 2007, theCompany received a letter from NASDAQ stating that, based on the NASDAQ staff’sreview of the Company’s public announcements concerning its shareholders’approval of a plan of complete liquidation and dissolution of the Company andthe declaration of an initial distribution (and anticipated subsequentdistributions) in connection therewith and pursuant to Marketplace Rule 4300,the NASDAQ staff believes that the Company is a “public shell” and as such nolonger meets NASDAQ’s continued listing requirements, but that in view of theCompany’s plan to voluntarily withdraw its common stock from listing on NASDAQand pursuant to

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Marketplace Rule 4450(f)the staff has determined to grant an extension of time permitting the Company’scommon stock to continue to trade on NASDAQ through March 30, 2007.

On March 13, 2007, theCompany announced that it had notified NASDAQ of its intention to voluntarilywithdraw its common stock from listing on NASDAQ effective immediately prior tothe opening of trading on April 2, 2007, with the effect that the last day oftrading on NASDAQ would be March 30, 2007. The company’s stock began trading in the Pink Sheets effective at theopening of trading on Monday, April 2, 2007.

**5.             Recent Accounting Pronouncements**

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB StatementNo. 109 (FIN 48), which clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements.  This Interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  This interpretation alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition.

On January 1, 2007, theCompany adopted the provisions of FASB Interpretation 48, Accounting for Uncertaintyin Income Taxes, in regards to our accounting and disclosure of uncertain taxpositions.  The Company has reviewed itsaccounting for income taxes in light of the provisions of FIN 48 and does notexpect that adoption will materially affect our consolidated financialstatements.  Upon the adoption of FIN 48,a tax contingency reserve of approximately $350 thousand was establishedrelated to various Federal, Foreign and State income tax matters.  An additional amount was accrued for interestand penalties.

**6.             Accounting for Stock-BasedCompensation**

*Accountingfor Stock-Based Compensation*

The Company issues commonstock options to certain employees and certain of its board members.  In January 2006, the Company adoptedFinancial Accounting Standards Board Statement No. 123 (revised 2004) (“FAS123R”) - “Share-Based Payments”.  FAS123R requires all entities to recognize compensation expense in an amount equalto the fair value of share-based payments, such as stock options granted toemployees.  The Company elected to applyFAS 123R under a modified prospective method. Under this method, the Company is required to record compensationexpense for newly granted options and (as previous awards continue to vest) forthe unvested portion of previously granted awards that remain outstanding atthe date of adoption.  The financialstatements for prior interim periods and fiscal years do not reflect anyadjusted amounts.

A summary of the statusof all the Company’s stock option plans as of March 31, 2007 and the changesduring the three months ended on that date is presented below:
|                                                                                              | ** ** | **Three months ended  March 31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | ** **                                                 | ** ** | **Weighted** | ** ** |
| ** **                                                                                   | ** ** | ** **                                                 | ** ** | **Average** | ** ** |
| ** **                                                                                   | ** ** | ** **                                                 | ** ** | **Exercise** | ** ** |
| **Options (Three Months)**                                                         | ** ** | **Shares**                                                 | ** ** | **Price** | ** ** |
| ** **                                                                                   | ** ** | **(000’s)**                                           | ** ** | ** ** | ** ** |
| ** **                                                                                   | ** ** | ** **                                                 | ** ** | ** ** | ** ** |
| Outstanding  January 1, 2007                                                                 |       | 1,287                                                      |       | $ | 3.72 |   |
| Granted                                                                                      |       | 0                                                          |       | $ | 0.00 |   |
| Exercised                                                                                    |       | (99                                                        | )          | $ | 3.37 |   |
| Canceled/forfeited/expired                                                                   |       | (1,163                                                     | )          | $ | 3.76 |   |
| Outstanding  March 31                                                                        |       | 25                                                         |       | $ | 3.31 |   |
| Options  exercisable March 31, 2007                                                          |       | 25                                                         |       | $ | 3.31 |   |
| Weighted average fair  value of options granted during the three months ended March 31, 2007 |       |                                                       |       | $ | 0.00 |   |

 

Cash received from optionexercise under all share-based payment arrangements for the three months endedMarch 31, 2007 was $431,000.  There areno tax benefits realized for the tax deductions from option exercise

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of the share-basedpayment arrangements for the same period due to the full valuation allowanceposition.  As the Company currently has afull valuation allowance with respect to its deferred tax assets, no tax benefitfrom the options are recognized at this time. 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.

*FAS123R Calculations*

FAS 123R providesprocedures for the estimation of employee compensation by forecasting thefuture stock price at an estimated point in time.  Following the sale of Chimes and Commercial,the Company can more accurately estimate the ending share price based on theaggregate amount of distribution range per share as well as the expectedterm.  Using the midpoint of theliquidating distribution range, the FAS123R estimated compensation expense forstock option plans in 2007 was estimated at $16 thousand.

As of March 31, 2007,there was no total unrecognized compensation cost related to non-vestedshare-based compensation arrangements granted under these plans.

In addition to the threeshare-based compensation plans detailed above, the Company also maintained anEmployee Stock Purchase Plan (“ESPP”). The ESPP purchased shares quarterly at a 15% discount from the lower ofthe opening and closing stock prices for the period.  The shares were purchased at a fixed discountand therefore gave rise to a liability under FAS 123R.  The Company discontinued the ESPP as of theend of fourth quarter 2006.  The lastcontributions were accepted through December 31, 2006 and the final purchasefor ESPP was made on January 3, 2007.

**7.             Cash**

Included in cash and cashequivalents at December 31, 2006 was restricted cash of $1.2 million.  Restricted cash pertains to funds received byChimes and held in client-specific bank accounts to be used to make payments tovendors of the applicable client.  AtMarch 31, 2007 there was cash held in escrow of $1.7 million from the sale ofthe Company’s commercial business, $100 thousand in cash held in escrow by CITin connection with the termination by the Company of its credit facility withCIT (which amount was returned in full to CHC subsequent to the end of thereporting period) and $1 million of cash held in escrow in connection with thesale of RGII.  (Subsequent to the end ofthe reporting period, the parties to the RGII sale reached agreement on thefinal net asset amount sold, resulting in a payment to the Buyer in the amountof $215 thousand; the remainder of the amount held in escrow of $885 thousand,plus interest on the escrowed amount, was released from escrow to CHC.)  Cash and cash equivalents at December 31,2006 also included approximately $23.3 million of cash which was fullydisbursed to Chimes vendors in accordance with the client payment terms.

On March 5, 2007, theCompany announced that its Board of Directors had declared an initialliquidating distribution of $4.00 per share, or $135.3 million, to its commonshareholders and certain former option holders under the provisions of thesurrender plan described in Note 3.  Thedistribution was payable March 27, 2007 to shareholders of record as of the closeof business on March 16, 2007.  Theinitial liquidating distribution was the first of what is expected to be aseries of liquidating distributions pursuant to the plan of liquidation anddissolution approved by the Company’s shareholders on February 14, 2007.  The liquidating distribution represents apartial distribution to shareholders of the proceeds received by the Companyfrom the sale of its RGII Technologies subsidiary and substantially all of thenon-cash assets of its Chimes, Inc. subsidiary and its Commercial division.

**8.             Comprehensive Income/(Loss)**

Statement of FinancialAccounting Standards No. 130, “Reporting Comprehensive Income” (FAS 130),requires that items defined as other comprehensive income/ (loss), such asforeign currency translation adjustments and unrealized gains and losses, beseparately classified in the financial statements and that the accumulatedbalance of other comprehensive income/ (loss) be reported separately fromretained earnings and additional paid-in capital in the equity section of thebalance sheet.  The components ofcomprehensive loss for the period from January 1, 2007 to February 16, 2007 andthe three month period ended March 31, 2006 are as follows:

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| ** **                           | ** ** | **Period Ended** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **February 16,** | ** ** | **March 31,** | ** ** |
| **(dollars in thousands)** | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Comprehensive income/(loss)  :       |       |                  |       |   |   |
|                                 |       |                  |       |   |   |
| Net  income/(loss)                   |       | $                     | 99,371     |   | $ | 758 |   |
| Foreign currency  adjustment         |       | 9                     |       | 93 |   |
| Comprehensive  income/(loss)         |       | $                     | 99,380     |   | $ | 851 |   |

 

The accumulated balancesrelated to each component of other comprehensive income (loss) for the periodfrom January 1, 2007 through February 16, 2007 and the three months ended March31, 2006 were as follows:
| **(dollars in thousands)**     | ** ** | **Foreign Currency  Translation** | ** ** | **Unrealized  Gain/(Loss) on  Investments** | ** ** | **Accumulated Other  Comprehensive Loss** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------|------------|-----------------------------------------------------|------------|
| Balance at  December 31, 2006            |       | $                                      | (652       | )                                                | $          | —                                              |       | $ | (652 | ) |
| Accumulated  comprehensive income/(loss) |       | 9                                      |       | —                                           |       | 9                                                   |       |
| Balance at  February 16, 2007            |       | $                                      | (643       | )                                                | $          | —                                              |       | $ | (643 | ) |
|                                     |       |                                   |       |                                             |       |                                                |       |
| Balance at  December 31, 2005            |       | $                                      | (643       | )                                                | $          | —                                              |       | $ | (643 | ) |
| Accumulated  comprehensive income/(loss) |       | 93                                     |       | —                                           |       | 93                                                  |       |
| Balance at March 31,  2006               |       | $                                      | (550       | )                                                | $          | —                                              |       | $ | (550 | ) |

 

**9.             Purchase of Treasury Stock**

In April of 2001, theBoard of Directors approved the repurchase in the open market of up to 10% ofits common shares outstanding, or approximately 3.2 million shares.  The Company did not repurchase shares of itscommon stock during the three months ended March 31, 2007 and March 31,2006.  As of January 2007 all TreasuryShares were fully depleted.  No furtherpurchases are contemplated.

**10.          Asset-Based Lending Facility**

The Company’s creditfacility with CIT was cancelled by the Company effective February 12,2007.  CIT held $100 thousand in escrowfor 90 days after the effective date of cancellation.  Subsequent to the end of the first quarter2007, such funds were released from escrow and returned to the Company.

**11.          Income Taxes**

Similar to the prioryear, the Company is not in a position to determine its projected annualeffective tax rate.  For the year endedDecember 31, 2006, the Company could not estimate the rate due to the large netoperating loss carryforward and corresponding valuation allowance.

Income tax expense hasbeen provided for the quarter ended March 31, 2006 at an effective tax rate of8.6%.  As mentioned, for the quarterended March 31, 2007, liquidation accounting has been adopted and as the resultof operational losses, there is no provision from continuing operations.  Taxes have been provided as a result of thesale of the business operations.  TheCompany has accrued $617 thousand for state and local taxes and $1.3 millionfor federal alternative minimum taxes.

*DeferredTax Asset and Valuation Allowance*

The Company recordsdeferred tax assets for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and theirrespective tax bases, and operating loss carryforwards.  Deferred tax assets are reduced by avaluation allowance if, based on available evidence, it is more likely than notthat some portion or all of the deferred tax assets will not be realized.  In assessing the realizability of deferredtax assets, management considers the scheduled reversal periods of the deferredtax assets, whether sustained profitability has been achieved and tax planningstrategies.

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The Company has significantdeferred tax assets resulting from net operating loss carryforwards, capitalloss carryforwards, and deductible temporary differences that may reducetaxable income in future periods.  TheCompany has provided full valuation allowances on the future tax benefitsrelated to capital losses, foreign net operating losses, and all state netoperating losses.  The Company believesthat the valuation allowance is appropriate because these deferred tax assetshave relatively short carryforward periods or relate to taxing jurisdictionswhich do not allow the filing of consolidated tax returns.  Also, as a result of adopting liquidationaccounting, the Company does not expect to utilize its deferred tax asset dueto the sale of the remaining operations.

The Company adopted FASBInterpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), atthe beginning of fiscal year 2007.  As aresult of the implementation the Company recognized a $150 thousand netincrease to reserves for uncertain tax positions.  This change has two components of whichamounts related to a re-class to a non income tax reserve balance of $200thousand for sales and use tax and a $350 thousand increase to the income taxreserve.  The $350 thousand increase wasaccounted for as an adjustment to the beginning balance of retained earnings onthe Balance Sheet.  Including thecumulative effect for the adoption of FIN 48, at the beginning of 2007, theCompany had approximately $1.3 million of total gross unrecognized taxbenefits.  Of this total, $845 thousand(net of the federal benefit on state issues) represents the amount ofunrecognized tax benefits that, if recognized, would favorably affect theeffective income tax rate in any future periods.

The Company and itssubsidiaries are subject to U.S. federal income tax as well as income tax ofmultiple state jurisdictions.  TheCompany has substantially concluded all U.S. federal income tax matters foryears through 2002.  Substantially allmaterial state, local and foreign income tax matters have been concluded foryears through 2001.  There are nomaterial audits in process at this time.

The Company’s continuingpractice is to recognize interest and/or penalties related to income taxmatters in income tax expense.  TheCompany had an immaterial amount of accrued interest and penalties during thefirst quarter of 2007 and at December 2006.

**12.          Change of Control and other SpecialCharges and Contingency Payments**

The balance of the $2.3million in change of control payments to employees has been re-classed to theshort-term liability section of the 2006 balance sheet due to the futureliquidation of the Company.  Theremaining liability for change of control was $563 thousand at March 31, 2007.  These liabilities have been paid in full asof the end of the second quarter of 2007.

**13.          Refundable Income Tax**

The Quebec Governmentthrough Invest Quebec has granted the Company’s Montreal Outsourcing Centre(“MOC”) a refundable tax credit on certain qualifying job positions inInformation Technology.  This program hasbeen available to MOC since 2002.  Theoutstanding receivable as of March 31, 2007 and December 31, 2006 includescredits relating to 2005, 2006 and the period from January 1 through February16, 2007, and 2005 and 2006, respectively.

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**Item2.**

**MANAGEMENT’S DISCUSSION AND ANALYSISOFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**For the Periods Ended March 31, 2007 and March 31, 2006

The following detaileddiscussion and analysis of the financial condition and results of operations ofComputer Horizons Corp. (the “Company”) should be read in conjunction with thefinancial statements and related notes included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2006, and the financial statementsand notes included elsewhere in this Report on Form 10-Q.

**FORWARD-LOOKINGSTATEMENTS**

This report containsforward-looking statements within the meaning of the safe harbor provisions ofthe Private Securities Litigation Reform Act of 1995.  In some cases, forward-looking statements canbe identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,”“continue” or similar expressions. Forward-looking statements also include the assumptions underlying orrelating to any of the foregoing statements. Such forward-looking statements are based upon current expectations andbeliefs and are subject to a number of factors and uncertainties that couldcause actual results to differ materially from those described in theforward-looking statements including, but not limited to, risks associated withunforeseen technical difficulties, the ability to meet customer requirements,market acceptance of service offerings, changes in technology and standards,the ability to complete cost reduction initiatives, dependencies on certaintechnologies, delays, market acceptance and competition, as well as other risksdescribed from time to time in the Company’s filings with the Securities andExchange Commission, press releases and other communications. Allforward-looking statements included in this report are based on informationavailable to the Company on the date hereof. The Company undertakes no obligation (and expressly disclaims any suchobligation) to update forward-looking statements made in this report to reflectevents or circumstances after the date of this report or to update reasons whyactual results would differ from those anticipated in such forward-lookingstatements.

**Overview**

At a Special Meeting heldon February 14, 2007, the shareholders of the Company approved the sales of theCompany’s Chimes, Inc. subsidiary to an affiliate of Axium International andthe Company’s Commercial Division to Allegis Group (collectively, the “AssetSales”).  At the Special Meeting, theshareholders of the Company also approved a proposed plan of completeliquidation and dissolution of the Company (the “Plan of Liquidation”).  The Company began implementing the Plan ofLiquidation after the Asset Sales were completed on February 16, 2007.  Prior to the Asset Sales, the Company providedinformation technology staffing and project-based services to private companiesand the United States government.

The Company had revenuesfor the period from January 1, 2007 through February 16, 2007 of $29.7million.  Net loss before extraordinaryitems and income taxes for the first quarter of 2006 totaled $(3.3)million.  Due to the shortened timeperiods as a result of the liquidation basis of accounting, these numbers arenot comparable to the prior year.

As of March 31, 2007, theCompany had approximately $33.5 million in cash and cash equivalents (which nolonger includes Chimes vendor cash) and $30.2 million in working capital and nodebt outstanding.

**Backgroundof Liquidation**

*Saleof RGII*

On September 29, 2006,the Company sold its 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 an escrow of $1 million of the purchase price.  In addition, CHC retained all cash and cashequivalents of RGII, in the amount of $6.3 million.  The amount of the estimated net assetadjustment is subject to a final review, and may be further adjusted.  To the extent that the final net asset amountsold to NetStar-1 is greater than the estimated asset amount at closing, theStock Purchase Agreement provides that the excess will be paid to CHC togetherwith interest thereon at the prime rate from the closing date to the date ofpayment.  If the final net asset amountsold to NetStar-1 is less than the estimated asset amount at closing, the StockPurchase Agreement provides that 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. Subsequent to the end of the reporting period, theparties reached agreement on the final net asset amount, resulting in a paymentto the Buyer in the amount of $215 thousand. The remainder of the amount in escrow of $885 thousand, together withinterest on the escrowed amount, was released from escrow to CHC. The sale ofRGII resulted in a net book loss on disposal of $4.8 million, includingapproximately $969 thousand in transaction costs as reported September 30,2006.

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*Saleof Commercial*

On November 7, 2006, theCompany entered into an asset purchase agreement (the “Commercial ServicesAsset Purchase Agreement”) by and among TEKsystems, Inc., a Marylandcorporation (“TEKsystems”), TEKsystems EF&I Solutions, LLC, a Marylandlimited liability company, Allegis Group Canada Corporation, a Nova Scotiaunlimited liability corporation, the Company, GBS Holdings Private Limited, acorporation organized under the laws of Mauritius, CHC Healthcare Solutions,LLC, a Delaware limited liability company, and Allegis Group, Inc., a Marylandcorporation.  Pursuant to the CommercialServices Asset Purchase Agreement, on February 16, 2007, the Company sold toTEKsystems substantially all of the assets of its Commercial Services Business(as defined in the Commercial Services Asset Purchase Agreement), for apurchase price of $57 million in cash subject to a potential post-closingworking capital adjustment, estimated at $(1.9) million using data as of thedate of sale (the “Commercial Services Asset Sale”).  The sale was also subject to an escrow of$1.7 million of the purchase price pending receipt of tax certificates inconnection with the Taxation Act — Quebec; the certificates were subsequentlyreceived and the escrow released on April 24, 2007.  Subsequent to the end of the quarterTEKsystems submitted their revised calculation of the net working capitaladjustment, asserting a claim for $6 million payable to TEKsystems.  The Company continues to believe that itsestimate of $1.9 million is appropriate, and is working with TEKsystems toresolve the discrepancies.  In the eventthat agreement cannot be reached, under the Commercial Services Asset PurchaseAgreement, the parties are required to submit the matter to an independentaccounting firm for determination.

Assets not included inthe Commercial Services Asset Sale include a refundable tax credit of $8.9million, and the unit’s operating cash as of the date of the sale.  The Company recorded an estimated gain of$29.1 million as a result of the sale of the Commercial Services Business.  The maximum liability of the Company forindemnification claims under the Commercial Services Asset Purchase Agreementis $10 million and is contingent upon assertion of a claim for indemnity withinnine months after the closing date.

The Commercial ServicesAsset Sale is a taxable transaction with respect to the Company to the extentof the gain that was realized.  TheCompany will realize a gain measured by the difference between the proceedsreceived by it and its affiliates on such sale and the Company’s (or anaffiliate’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 amount of theirindebtedness that is cancelled or assumed, and any other consideration receivedby 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 Commercial Services Business assetsale for regular Federal income tax purposes and otherwise incur approximately$430 thousand in alternative minimum taxes. The Company and/or its affiliates may be subject to state income taxesto the extent that gains exceed losses for state tax law purposes, but does notanticipate that such taxes, if any, will be significant.

*Saleof Chimes*

On October 18, 2006, theCompany signed a definitive asset purchase agreement (the “Chimes AssetPurchase Agreement”) by and among Axium International, Inc., a Delawarecorporation, Diversity MSP, Inc., a California corporation (“Diversity MSP”)and Chimes, Inc., a Delaware corporation and wholly-owned subsidiary of theCompany (subsequently known as Chimes, LLC; a Delaware limited liabilitycompany, and referred to herein as “Chimes”). Pursuant to the Chimes Asset Purchase Agreement, on February 16, 2007,the Company sold to Diversity MSP substantially all of the assets of Chimes,excluding cash and marketable securities, for a purchase price of $80.0 millionin cash (the “Chimes Asset Sale”), with a gain of $73.6 million.  The maximum liability of the Company forindemnification claims under the Chimes Asset Purchase Agreement is $8 millionand is contingent upon assertion of a claim for indemnity within six monthsafter the closing date.

The Chimes Asset Sale isa taxable transaction with respect to the Company to the extent of the gainthat was realized.  The Company willrealize gain measured by the difference between the proceeds received by it andits affiliates on such sale and the Company’s (or an affiliate’s) tax basis inthe assets.  For purposes of calculatingthe gain, the proceeds received by the Company and its affiliates will includethe cash received by them, the amount of their indebtedness that is cancelledor assumed, and any other consideration received by them for their assets.  It is anticipated that the Company will havesufficient NOL carry-forwards to offset most of the gain realized from the

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Chimes Transaction forregular Federal income tax purposes and otherwise incur approximately $1.46million in alternative minimum taxes.

The Company and/or itsaffiliates may be subject to state income taxes to the extent that gains exceedlosses for state tax law purposes, but does not anticipate that such taxes, ifany, will be significant.  Based uponcurrent projections, such state taxes are estimated to be approximately $617thousand after taking into account the availability of state losses to offsetthe gain.

***Liquidation Basis ofAccounting***

The consolidatedfinancial statements for the period January 1, 2007 to February 16, 2007 andfor all periods presented for 2006 were prepared on the going concern basis ofaccounting, which contemplates realization of assets and satisfaction ofliabilities in the normal course of business. As a result of the shareholders’ approval of the Plan, the Companyadopted the liquidation basis of accounting effective February 17, 2007.  This basis of accounting is consideredappropriate when, among other things, liquidation of a company is probable and thenet realizable values of assets are reasonably determinable.  Under this basis of accounting, assets arevalued at their net realizable values and liabilities are stated at theirestimated settlement amounts.  The conversionfrom the going concern to liquidation basis of accounting required managementto make significant estimates and judgments to record assets at estimated netrealizable value and liabilities at estimated settlement amounts.

***Critical AccountingPolicies and Estimates***

Our discussion andanalysis of financial condition and results of operations are based upon ourconsolidated financial statements, which have been prepared by the Companywithout audit in accordance with the rules and regulations of the Securitiesand Exchange Commission.  The preparationof our financial statements requires us to make estimates that affect thereported amounts of assets, liabilities, revenue and expense, and relateddisclosure of contingent assets and liabilities.  Accounting estimates are based on historicalexperience and other factors that are believed to be reasonable under thecircumstances.  However, actual resultsmay vary from these estimates under different assumptions or conditions.

Pursuant to the Plan ofLiquidation, since February 16, 2007, our operations have been limited to winddown of our business and affairs, selling our remaining assets and dischargingour known liabilities.  We plan todistribute our remaining assets to our stockholders, in accordance with thePlan of Liquidation.

***Accrued Costs ofLiquidation***

Under the liquidationbasis of accounting, accruals were made for the known costs to be incurred inliquidation, as follows:
|                             | ** ** | **($ in thousands)** | ** ** |
|-----------------------------|------------|--------------------------------|------------|
| Lease Obligation            |       | $                              | 1,324      |   |
| Professional  Fees          |       | 1,927                          |       |
| Legal and  Insurance        |       | 560                            |       |
| Human Resources             |       | 3,480                          |       |
| Systems-related             |       | 819                            |       |
| Misc.                       |       | 900                            |       |
|                        |       |                           |       |
| Total Liquidation  Reserves |       | $                              | 9,010      |   |

 

The Company will continueto incur operating costs and receive income on its investments throughout theliquidation period.  On a regular basis,we evaluate our assumptions, judgments and estimates that can have asignificant impact on our reported net assets in liquidation based on the mostrecent information available to us, and when necessary make changesaccordingly.  Actual costs and income maydiffer from our estimates, which might reduce net assets available inliquidation to be distributed to shareholders.

The Company expects tomake further distributions to its shareholders of its remaining cash, less anyamount applied to or reserved for actual or contingent liabilities (which willbe deposited in a liquidating trust). The amounts reserved will be based on a determination by the board ofdirectors, derived from consultation with management and outside experts, ifthe board of directors determines that it is advisable to retain such experts,and a review of, among other things, our estimated contingent liabilities andour estimated ongoing expenses, including, but not limited to, payroll, legalexpenses, regulatory filings and other miscellaneous expenses.  To the extent that assets deposited in theliquidating trust are not applied to or reserved for payment of the Company’sliabilities, these

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assets will bedistributed to holders of beneficial interests in the liquidating trust at oneor more later dates.  Each shareholderwill receive his or her pro rata share of each distribution based on the numberof shares held at the time of the record date for such distribution.

**RecentDevelopments**

*SpecialShareholders Meeting*

As noted above, at aSpecial Meeting held on February 14, 2007, the shareholders of the Companyapproved the Asset Sales and the Plan of Liquidation.  The Company began implementing the Plan ofLiquidation after the Asset Sales were completed on February 16, 2007.

*Changeof Control Charges and Special Charges*

The balance of the $2.3million in change of control payments to employees has been re-classed to theshort-term liability section of the 2006 balance sheet due to the liquidationof the Company.  The remaining liabilityfor change of control payments was $563 thousand at March 31, 2007.

**Evaluationof Bad Debt Reserve**

Historically, the Companydetermined its allowance for doubtful accounts by considering a number offactors, including the length of time trade accounts receivable are past due,the Company’s previous loss history, the customer’s current ability to pay itsobligations to the Company and the condition of the general economy and theindustry as a whole.  The Company wroteoff accounts receivable when they became uncollectible, and payments subsequentlyreceived on such receivables were credited to the allowance for doubtfulaccounts.

In connection with thesale of the Commercial Services Business Unit, the allowance for doubtfulaccounts was increased by $1.3 million as of February 16, 2007.  This recalculation was done utilizing theformula prescribed in the Commercial Services Asset Purchase Agreement, and notas a result of any deterioration in the Commercial accounts receivable.

**Valuationof Deferred Tax Assets**

The Company recordsdeferred tax assets for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and theirrespective tax bases, and operating loss carryforwards.  Deferred tax assets are reduced by avaluation allowance if, based on available evidence, it is more likely than notthat some portion or all of the deferred tax assets will not be realized.  In assessing the realizability of deferredtax assets, management considers the scheduled reversal periods of the deferredtax assets, whether sustained profitability has been achieved and tax planningstrategies.

The Company hassignificant 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 relativelyshort carryforward periods or relate to taxing jurisdictions which do not allowthe filing of consolidated tax returns. Also, as a result of adopting liquidation accounting, the Company doesnot expect to utilize its deferred tax asset due to the sale of the remainingoperations.

The Company adopted FASBInterpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), atthe beginning of fiscal year 2007.  As a resultof the implementation the Company recognized a $150,000 net increase toreserves for uncertain tax positions. This change has two components of which amounts related to a reclass toa non income tax reserve balance of $200 thousand for sales and use tax and a$350 thousand increase to the income tax reserve.  The $350 thousand increase was accounted foras an adjustment to the beginning balance of retained earnings on the BalanceSheet.  Including the cumulative effectfor the adoption of FIN 48, at the beginning of 2007, the Company hadapproximately $1.3 million of total gross unrecognized tax benefits.  Of this total, $845 thousand (net of thefederal benefit on state issues) represents the amount of unrecognized taxbenefits that, if recognized, would favorably affect the effective income taxrate in any future periods.

The Company and itssubsidiaries are subject to U.S. federal income tax as well as income tax ofmultiple state jurisdictions.  TheCompany has substantially concluded all U.S. federal income tax matters foryears through 2002.  Substantially allmaterial state and local, and foreign income tax matters have been concludedfor years through 2001.  There are nomaterial audits in process at this time.

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The Company’s continuingpractice is to recognize interest and/or penalties related to income taxmatters in income tax expense.  TheCompany had an immaterial amount of accrued interest during the first quarterof 2007 and $0 accrued for penalties at December 2006.

**Resultsof Operations — Period from January 1, 2007 to February 16, 2007 and the threemonths ended March 31, 2006**

*Revenues*. Consolidated revenues decreased to $29.7 million in the period fromJanuary 1, 2007 to February 16, 2007, down from $53.3 million in the firstquarter of 2006.  Due to the shortenedtime period during 2007 as a result of the adoption of the liquidation basis ofaccounting effective February 17, 2007, these numbers are not comparable.

*DirectCosts and Gross Margins*.  Direct costs were $23.1million and $36.4 million in the period from January 1, 2007 to February 16,2007 and the first quarter 2006, respectively. Gross margin, revenues less direct costs, decreased to $6.6 million, or22.2% in the first quarter of 2007 from 31.7% in the first quarter of 2006.  Due to the shortened time period during 2007as a result of the adoption of the liquidation basis of accounting effectiveFebruary 17, 2007, these numbers are not comparable.

*Costsand Expenses*.  Selling, general and administrative expenseswere $10.8 million in the first quarter of 2007, compared to $17.2 million inthe first quarter of 2006.  As apercentage of revenue, the Company’s SG&A expenses were 36.3% in the firstquarter of 2007, as compared to 32.3% in the first quarter of 2006.  Due to the shortened time period during 2007as a result of the adoption of the liquidation basis of accounting effectiveFebruary 17, 2007, these numbers are not comparable.

*Income/ (Loss) from Continuing Operations*.  The Company’snet loss from continuing operations totaled $(4.2) million in the first quarterof 2007.  This compares to net loss fromcontinuing operations of $(323) thousand in the first quarter of 2006.

*OtherIncome/(Expense)*.  Other income (primarily net interest income)totaled approximately $880 thousand in the period from January 1, 2007 toFebruary 16, 2007, compared to approximately $335 thousand in the first quarterof 2006.

*Gain onSale of Commercial Services Business Unit*:  Pursuant tothe Commercial Services Asset Purchase Agreement, on February 16, 2007, theCompany sold to TEKsystems substantially all of the assets of its CommercialServices Business (as defined in the Commercial Services Asset PurchaseAgreement), for a purchase price of $57 million in cash subject to a potentialpost-closing working capital adjustment, estimated at $(1.9) million using dataas of the date of sale.  Assets notincluded in the sale of the Commercial Services Business include a refundabletax credit of $8.9 million, and the unit’s operating cash as of the date of thesale.  The Company recorded an estimatedgain of $29.1 million as a result of the sale of the Commercial ServicesBusiness.

*Gain onSale of Chimes*:Pursuant to the Chimes Asset Purchase Agreement, on February 16, 2007, theCompany sold to Diversity MSP substantially all of the assets of Chimes,excluding cash and marketable securities, for a purchase price of $80.0 millionin cash, with an estimated gain of $73.6 million.

*Provisionfor Income Taxes*:  Similar to the prior year, the Company is notin a position to determine its projected annual effective tax rate.  For the year ended December 31, 2006, theCompany could not estimate the rate due to the large net operating losscarryforward and corresponding valuation allowance.  For all periods after February 16, 2007, theCompany has adopted liquidation accounting.

Income tax expense hasbeen provided for the quarter ended March 31, 2006 at an effective tax rate of8.6%.  As mentioned, for the quarterended March 31, 2007, liquidation accounting has been adopted and as the resultof operational losses, there is no provision from continuing operations.  Taxes have been provided as a result of thesale of the business operations.  TheCompany has accrued $617 thousand for state and local taxes and $1.3 millionfor federal alternative minimum taxes.

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

**Liquidityand Capital Resources**

On February 16, 2007,cash was received in the amount of $80 million for the sale of Chimes and $57million for the sale of the Commercial Business Services Unit (of which, $1.7million Canadian remained in escrow

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pending receipt of taxcertificates in connection with the Taxation Act – Quebec; the certificateswere subsequently received and the escrow released on April 24, 2007).  On March 5, 2007, the Company announced thatits Board of Directors had declared an initial liquidating distribution of $4.00per share, or $135.3 million, to its common shareholders and certain formeroption holders under the provisions of the surrender plan described in Note 3to the Company’s Financial Statements included in this Report.  The liquidating distribution represented apartial distribution to shareholders of the proceeds received by the companyfrom the sales of RGII, Chimes and the Commercial Services Business Unit.  In determining the amount of the initialdistribution, the Company considered wind down and transition expenses and theexposure for contingent claims under the asset purchase agreements.  The distribution was payable on March 27,2007 to shareholders of record as of the close of business on March 16,2007.  The initial liquidatingdistribution was the first of what is expected to be a series of liquidatingdistributions pursuant to the Plan of Liquidation.

The aggregate amount ofdistributions to our shareholders is expected to be in the range of $4.68 to$4.81 per share of Common Stock. However, uncertainties as to the ultimate amount of our liabilities makeit impossible to predict with certainty the actual aggregate net amounts thatwill ultimately be available for distribution to shareholders or the timing ofany such distribution.  Such amount andtiming will depend on a number of factors, several of which cannot bedetermined at this time, including:

·                  The ultimateamount of our known, unknown and contingent debts and liabilities;

·                  The fees andexpenses incurred by us in the liquidation of our assets and the dissolution ofthe Company;

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

As of March 31, 2007, theCompany had approximately $30.2 million in working capital, of which $33.5 millionwas cash, cash held in escrow, and cash equivalents.  Included in cash and cash equivalents atDecember 31, 2006 was restricted cash of $1.2 million.  Restricted cash pertains to funds received byChimes and held in client-specific bank accounts to be used to make payments tovendors of the applicable client.  AtMarch 31, 2007 there was cash held in escrow of $1.7 million from the sale ofthe Company’s commercial business, $100 thousand in cash held in escrow by CITin connection with the termination by the Company of its credit facility withCIT (which amount was returned in full to CHC subsequent to the end of thereporting period) and $1 million of cash held in escrow in connection with thesale of RGII.  (Subsequent to the end ofthe reporting period, the parties to the RGII sale reached agreement on thefinal net asset amount sold, resulting in a payment to the Buyer in the amountof $215 thousand; the remainder of the amount held in escrow of $885 thousand,plus interest on the escrowed amount, was released from escrow to CHC.)  Cash and cash equivalents at December 31,2006 also included approximately $23.3 million of cash which was fullydisbursed to Chimes vendors in accordance with the client payment terms.

At March 31, 2007, theonly receivables remaining on the Company’s books relate to transition servicesprovided to the purchasers of Chimes and the Commercial Services Business Unit.

The balance of the $2.3million in change of control payments to employees has been re-classed to theshort-term liability section of the 2006 balance sheet due to the liquidationof the Company.  The remaining liabilityfor change of control payments was $563 thousand at March 31, 2007.

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

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

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

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**RecentAccounting Pronouncements**

In June 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB StatementNo. 109 (FIN 48), which clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements.  This Interpretation prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  This interpretation also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure and transition.

On January 1, 2007, theCompany adopted the provisions of FASB Interpretation 48, Accounting forUncertainty in Income Taxes, in regards to our accounting and disclosure ofuncertain tax positions.  The Company hasreviewed its accounting for income taxes in light of the provisions of FIN 48and does not expect that adoption will materially affect our consolidatedfinancial statements.  Upon the adoptionof FIN 48, a tax contingency reserve of approximately $350 thousand wasestablished related to various Federal, Foreign and State income tax matters.

Item 3.    Quantitative and Qualitative Disclosuresabout Market Risk

The Company does notordinarily hold market risk sensitive instruments for trading purposes.  However, the Company does recognize marketrisk from interest rate changes.  TheCompany has financial instruments that are subject to interest rate risk.  However, at March 31, 2007, the Company wasdebt-free.  Historically, the Company hasnot experienced material gains or losses due to interest rate changes.  However, a reduction in interest rates wouldreduce the interest income received by the Company on the cash it holds.

Item 4.    Controls and Procedures

**DisclosureControls and Procedures**

The Company’s CEO and CFOhave evaluated the effectiveness of the Company’s disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as amended, referred to herein as the “Exchange Act”) asof the end of the period covered by this report.  Based upon such evaluation, the Company’sChief Executive Officer and Chief Financial Officer have concluded that, as ofthe end of the period, the Company’s disclosure controls and procedures areeffective in recording, processing, summarizing and reporting informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Exchange Act.  Nonetheless,because of the sale of the Company’s two primary business units and theattendant conversion to liquidation basis accounting, the Company failed tofile this report on a timely basis.

**InternalControls over Financial Reporting**

There have not been anychanges in the Company’s internal controls over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15e under the Exchange Act) duringthe period to which this report relates that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.  A control system,no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within a company have beendetected.

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PART II - OtherInformation

Item 1a.  Risk Factors

*Forwardlooking statements are subject to various uncertainties.*

Statements made in thisReport regarding the payment of additional liquidating distributions areforward-looking statements.  Suchforward- looking statements are subject to a number of risks and uncertainties,and there can be no assurance that the expectations reflected in thosestatements will be realized or achieved. Such risks and uncertainties include, without limitation, possiblecontingent liabilities and post-closing indemnification and other obligations arisingfrom the sale of the Company’s businesses; and risks associated with theliquidation and dissolution of the Company, including, without limitation,settlement of the Company’s liabilities and obligations, costs incurred inconnection with the carrying out of the plan of liquidation and dissolution,the amount of income earned on the Company’s cash and cash equivalents andshort-term investments during the liquidation period, and the actual timing ofliquidating distributions.

*Wehave indemnification obligations under each of the Chimes Asset PurchaseAgreement and the Commercial Services Asset Purchase Agreement*

Under the Chimes AssetPurchase Agreement, we have agreed to indemnify Axium, Diversity MSP and theiraffiliates and other related parties among other things, any losses incurred bythem arising out of our breach of the Chimes Asset Purchase Agreement, subjectto certain dollar and time limitations.

Under the CommercialServices Asset Purchase Agreement, we have agreed to indemnify TEKsystems andits affiliates for, among other things, any losses incurred by them arising outof our breach of the Commercial Services Asset Purchase Agreement, subject tocertain dollar and time limitations.

*OurBoard will need to make provision for the satisfaction of all of our known andunknown liabilities, which could substantially delay or limit our ability tomake distribution in full to shareholders.*

Our Board of Directorswill be required to make adequate provision to satisfy our liabilities,including known and unknown claims against us, before authorizing any furtherdistribution to shareholders.  Theprocess of accounting for our liabilities, including those that are presentlyunknown, may involve difficult valuation decisions, which could adverselyimpact the Board’s ability to make distribution in full in a timelymanner.  Substantial time may be requiredfor us to determine the extent of our liabilities to known third partycreditors and claimants and for us to settle or judicially resolve any claimsthat are contested.  Furthermore,pursuant to the New York Business Corporation Law, we may be subject to claimsbeing commenced against us for liabilities unknown to us for a period of timeafter dissolution.  Assuming we havesufficient remaining cash, a period of time must elapse after dissolutionbefore we would be able to make any distribution in full to shareholders of ourassets remaining after satisfying or providing for all our liabilities andobligations, and such distribution may likely be made in more than oneinstallment over an extended period of time.

*Ifour contingent reserves are insufficient to satisfy our liabilities, creditorscould assert claims against us seeking to prevent distributions or against ourshareholders to the extent of distributions received.*

If a court holds at anytime that we have failed to make adequate provision for our expenses andliabilities or if the amount ultimately required to be paid in respect of suchliabilities exceeds the amount available from the contingency reserve, ourcreditors could seek an injunction against the making of distributions on thegrounds that the amounts to be distributed are needed to provide for thepayment of our expenses and liabilities. Any such action could delay or substantially diminish the amount of anycash distributions to shareholders.

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

Item 4.    Submission of Matters to a Vote of SecurityHolders

At a special meeting ofthe shareholders of the Company held on February 14, 2007, the shareholdersvoted to approve the Asset Sales and the Plan of Liquidation, casting thefollowing votes:

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| **Proposal**                                                                                                     | ** ** | **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|------------|
| To approve the  Chimes Asset Sale                                                                                |       | 24,624,078 |       | 449,580     |       | 42,672      |       |
|                                                                                                             |       |       |       |        |       |        |       |
| To approve the  Commercial Services Asset Sale                                                                   |       | 24,634,144 |       | 434,959     |       | 47,227      |       |
|                                                                                                             |       |       |       |        |       |        |       |
| To approve the  Plan of Liquidation                                                                              |       | 24,612,925 |       | 459,227     |       | 44,178      |       |
|                                                                                                             |       |       |       |        |       |        |       |
| To approve one or more  adjournments of the meeting if deemed necessary to facilitate approval of the  foregoing |       | 23,026,798 |       | 2,017,754   |       | 71,778      |       |

 

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Item 6.    Exhibits

Exhibits

31.1 –                 CEOCertification required by Rule 13a-15(e)/15d-15(e) under the SecuritiesExchange Act of 1934.

31.2 –                 CFOCertification required by Rule 13a-15(e)/15d-15(e) under the SecuritiesExchange Act of 1934.

32.1 –                 CEOCertification pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

32.2 –                 CFOCertification pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|        |         | COMPUTER HORIZONS CORP.                                               |   |
|--------|--------------|-----------------------------------------------------------------------|--------|
|   |         | (Registrant)                                                          |   |
|   |         |                                                                  |
| DATE:  | JULY 2, 2007 |                                                                  |   | /s/ Dennis Conroy |
|   |         | Dennis Conroy, President and CEO                                      |
|   |         | (Principal Executive Officer)                                         |
|   |         |                                                                  |
|   |         |                                                                  |
|   |         |                                                                  |
| DATE:  | JULY 2, 2007 |                                                                  |   | /s/ Barbara Moss |
|   |         | Barbara Moss,                                                         |
|   |         | Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

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