10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to

Commission file number 0-7282

COMPUTER HORIZONS 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 No.)
49 Old Bloomfield Avenue
Mountain Lakes, New Jersey	07046-1495
(Address of principal	(Zip Code)
executive offices)
Registrant’s telephone number, including area code:	(973) 299-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (Par value $.10 per share)
(Title of class)
Series A Preferred Stock Purchase Rights
(Title of class)

Indicate by check mark whether the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).   Yes   o  No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   o  No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o Accelerated filer  x Non-accelerated filer  o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.
 Yes   o  No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2005 was approximately $98,000,000.The number of shares outstanding of each of the registrant’s classes of common stock as of March 14, 2006 were 32,525,514 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III incorporate by reference information from the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2006 Annual Meeting of Stockholders.

COMPUTER HORIZONS CORP.
December 31, 2005
Form 10-K

Table of Contents

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	7
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	12
PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	64
Item 9A.	Controls and Procedures	64
Item 9B.	Other Information	65
PART III
Item 10.	Directors and Executive Officers of the Registrant	66
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
Item 13.	Certain Relationships and Related Transactions	66
Item 14.	Principal Accountant Fees and Services	66
PART IV
Item 15.	Exhibits and Financial Statement Schedules	67
SIGNATURES		74

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Disclosure Regarding Forward Looking Statements

Statements included in this Report that do not relate to present or historical conditions are “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission (“SEC”). Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in such forward-looking statements. Forward-looking statements may include, without limitation, statements relating to the Company’s plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,” “intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements are based are assumptions concerning the anticipated growth of the information technology industry, the continued need of current and prospective clients for the Company’s services, the availability of qualified professional staff, and price and wage inflation.

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PART I

Item 1.Business

General

Computer Horizons Corp. (“CHC” or “the Company”), founded in 1969, provides professional information technology (IT) services to multi-national companies throughout North America, and to the United States government. CHC was founded in 1969 and incorporated in 1972 under the laws of the State of New York. The Company provides a broad range of IT staffing and project-based solution services using a global delivery model that allows the Company to perform work at client sites or at CHC development centers in the U.S., Montreal, Canada, and Chennai, India. CHC has long-standing relationships, some dating back almost 30 years, with many blue-chip customers in a range of vertical industries, with particular strengths in the insurance, financial services, healthcare, pharmaceutical, telecom and consumer packaged goods industries. CHC’s subsidiary, RGII Technologies, Inc (“RGII”), serves various agencies and departments of the U.S. Federal government. CHC’s market-leading Chimes, Inc. (“Chimes”) subsidiary offers a comprehensive business process outsourcing (BPO) solution for vendor management services (VMS), enabled by its proprietary technology, Chimes™. Chimes manages more than $1.8 billion in contingent labor spend for its global client base.

The Company’s clients are generally very large, Global 2000 companies in many industries and with wide geographic dispersion. For the years ended December 31, 2005, 2004 and 2003, the Company’s ten largest clients accounted for approximately 32%, 24% and 38% of its revenues, respectively. In 2005, the Company provided information technology services to 408 clients. During 2005, the Company’s largest client accounted for approximately 6% of the Company’s consolidated revenues.

The Company offers professional information technology (IT) services, which are divided into three segments; (1) Commercial; (2) RGII Technologies, Inc. (Federal); and (3) Chimes, Inc. The following describes each of these segments:

(1)Commercial: CHC’s Commercial Services business unit is organized into two lines of services: IT Services (IT staffing), and Solutions (project-based IT work). The IT Services practice provides skilled technology personnel to meet clients’ temporary needs (including support personnel, programmers, architects and project managers). These personnel are typically deployed and managed by CHC clients as part of a larger on-site technology effort. The Solutions practice offers a very broad range of technical knowledge, focusing on application management and support, application development and software quality management. All Solutions engagements are managed by CHC using its own technical resources and development centers. The Commercial division was comprised of approximately 1,730 billable consultants at the end of 2005.

(2)RGII Technologies, Inc. (Federal): As a wholly-owned subsidiary of CHC, RGII provides enterprise management, network infrastructure, information assurance and security, web development and integration, call management, engineering technology and technical services to Federal government agencies and both small and large prime contractors, both on- and off-site. The division was comprised of approximately 390 billable consultants at the end of 2005. The Company also offers as part of its services its Monument ™ software solution, a web-enabled performance-based budgeting tool for the government market. Although the Federal unit has a presence in numerous Federal government agencies, the agencies accounting for the larger percentage of unit revenue are the Federal Aviation Administration, Department of Commerce, Department of Defense, Department of Labor and the Department of State.

(3)Chimes, Inc.: As a wholly-owned subsidiary of CHC, Chimes provides business process outsourcing (BPO) services and workforce procurement and management services to the Global

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2000.  Through scalable, web-based applications and on-site program management services, Chimes administers the staffing cycle to identify, leverage and manage the enterprise-wide spend on human procurement. The Chimes BPO solution delivers a supplier-neutral approach to human capital procurement, while significantly reducing the cost of acquiring and managing contingent and permanent labor by incorporating workflow efficiencies with integrated applications and services. Chimes replaces clients’ many existing individual supplier contracts with a single Chimes BPO agreement and re-engages all necessary resource suppliers under a single contract umbrella. This allows Chimes to simplify clients’ timesheet, billing, contracting and payments processes by submitting a single invoice for all resource usage. Chimes is responsible for paying and administering suppliers, providing its clients with significant process efficiencies. Research and Development costs for the years ended December 31, 2005, 2004 and 2003 were approximately $2.0 million, $3.3 million and $3.8 million, respectively.

As previously announced by the Company, at a special shareholders meeting on October 18, 2005, CHC shareholders elected a new Board of Directors, which is now chaired by Eric Rosenfeld, president and chief executive officer of Crescendo Partners. The Board also appointed Dennis J. Conroy, president and chief executive officer, and Brian A. Delle Donne, executive vice president and chief operating officer.

During the fourth quarter of 2005, the new CHC executive team conducted a review of the Company’s strategic and operational strengths and weaknesses, and formulated a plan for improved performance. The plan included restructuring the Company to address lines of accountability, sharpen the focus of service offerings, set performance standards and goals and eliminate inefficiencies. CHC’s Commercial Services business was a highly centralized organization. This plan reorganized the business into five consolidated geographic regions for Staffing sales, recruiting and operations, and two Solutions units. The reorganization should encourage closer collaboration between sales and delivery at the customer level and to facilitate clearer and more-timely measurement of and influence on results. In Solutions delivery, CHC expects to tighten its focus on a more limited but deeper suite of services that capitalizes on CHC strengths, promises growth, and can be supported effectively in CHC-controlled development sites. At the same time, CHC expects to reduce corporate overhead. As an outgrowth of all of these changes, CHC anticipates improved revenue and margin performance. The Company also took steps to lower operating overhead and recognized a related $1.5 million charge during the fourth quarter of 2005. CHC expects an approximate $3.2 million reduction in annual costs, which is designed to deliver growth and profitability for 2006 and beyond. In addition to these personnel costs savings, the Company’s SAP financial system was fully depreciated at the end of 2005 and the Company will complete additional office consolidations which, together, the Company expects will reduce annualized operating expenses by about $1,000,000.

Similarly, the Federal business unit completed a restructuring and rationalization of its services, while working to strengthen business development. Chimes moves into 2006 with an expanded suite of services, stronger focus on sales and continued emphasis on customer service.

Financial Information about Industry Segments

The information required by this item is incorporated herein by reference to Note 9 of the Notes to Consolidated Financial Statements included under Item 8 of this Report.

Employees

As of December 3l, 2005, the Company had a staff of 2,890, including approximately 2,200 IT professionals. None of the Company’s employees are subject to a collective bargaining arrangement. The Company devotes significant resources to recruitment of qualified professionals and provides continuing in-house training and education, and a career path management development program within the Company.

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Intellectual Property

Certain aspects of our products and technology are proprietary. We rely on U.S. intellectual property laws, including patent, copyright, trademark, and trade secret laws to protect our proprietary rights. We also maintain contractual restrictions in our agreements with customers, employees, and others to protect our intellectual property rights. In addition, we license software and technology from third parties, and incorporate them into our own software products as well as using them as tools in developing our products or providing our services. The source code for our products is protected both as a trade secret and as a copyrighted work.

Seasonality

The Company experiences a moderate amount of seasonality, primarily in the fourth quarter of the year, due to the large number of holidays and an increased amount of vacation time taken by our employees and clients. As a result, revenues and profitability may be reduced in the fourth quarter.

Backlog

The Company’s backlog of services to be completed pertains primarily to the Federal business unit. Funded and unfunded backlog (contracted, but not yet funded) approximated $15.7 million and $118.7 million, respectively, as of December 31, 2005. Funded and unfunded backlog was approximately $20.2 million and $115.5 million, respectively, as of December 31, 2004.

Competition

The Company competes in the commercial information technology services market which is highly competitive. Although there has been a significant amount of consolidation in this sector, the competitive landscape remains highly fragmented and characterized by small local and regional firms and a few large, multi-national competitors. The market includes participants in a variety of market segments, including systems consulting and integration firms, professional services companies, application software firms, temporary employment agencies, the professional service groups of computer equipment companies, facilities management and management information systems or MIS outsourcing companies, certain accounting firms, and general management consulting firms. The Company’s competitors include companies such as Analysts International Corp., CIBER, Inc., Computer Task Group Inc., iGATE Corp. and Covansys Corp. Many participants in the information technology consulting and software solutions market have significantly greater financial, technical and marketing resources and generate greater revenues than the Company. Management believes that the principal competitive factors in the commercial information technology services industry include responsiveness to client needs, speed of application software development, quality of service, price, project management capability and technical expertise. Pricing has its greatest importance as a competitive factor in the area of professional service staffing. Management believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability of its competitors to hire, retain and motivate skilled technical and management personnel, the ownership by competitors of software used by potential clients, the price at which others offer comparable services and the extent of its competitors’ responsiveness to client needs.

Available Information

The Company’s internet website address is www.computerhorizons.com. Each of the companies subsidiaries maintains its own website. The RGII website address is www.rg2.com and the Chimes, Inc. website address is www.chimesnet.com. The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished

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pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

Item 1A.Risk Factors

Our operating results have varied, and are likely to continue to vary significantly. This may result in volatility in the market price of our common stock.

Our revenues and operating results have varied in the past and are likely to vary significantly from year to year. This may lead to volatility in the share price. Some other factors that may cause the market price of the common stock to fluctuate substantially, include:

·the failure to be awarded a significant project on which we have bid;

·the termination by a client of a material project or the decision by a client not to proceed to the stage of a project that we anticipated;

·announcement of new services by us or the competitors;

·announcement of acquisitions or other significant transactions by us or our competitors;

·changes in or failure to meet earnings estimates by us and/or securities analysts;

·sales of common stock by us or the existing shareholders or the perception that such sales may occur;

·adverse judgments or settlements obligating us to pay liabilities;

·changes in management; and

·general economic conditions and overall stock market volatility.

The current trend of companies moving technology jobs and projects offshore has caused and could continue to cause revenues to decline.

In the past few years, more companies are using or are considering using low cost offshore outsourcing centers, particularly in India, to perform technology related work and projects. This trend has contributed to the decline in domestic IT staff augmentation revenue as well as on-site solutions oriented projects. We now have our own outsourcing centers in India and Canada to compete for this business, but this new business has not been sufficient to offset the revenue decline. Additionally, the equivalent amount of work in low cost centers will generate substantially less revenue due to the lower billing rates that are charged in these offshore outsourcing centers.

The failure to be successful in retaining existing and future highly-skilled technical personnel and attracting a sufficient number of IT professionals and project managers could adversely affect our business.

Our business is labor intensive and depends to a large extent on its ability to attract, train, motivate and retain highly-skilled IT professionals and project managers. Our ability to win and retain new business is significantly affected by client relationships and the quality of service rendered. The loss of key IT professionals and project managers may jeopardize existing client relationships with businesses that continue to use our services based upon past relationships with key IT professionals and project managers.

We derive a significant portion of revenues from a limited number of large clients and the loss of any large client could have an adverse effect on our business.

We have derived, and we believe we will continue to derive, a significant portion of our revenues from a limited number of large clients. For the years ended December 31, 2005, 2004 and 2003, our ten largest

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clients accounted for approximately 32%, 24% and 38% of our revenues, respectively. The loss of any large client could have an adverse effect on our business, results of operations and financial condition. For the year ended December 31, 2005, approximately 6% of RGII’s revenues were derived from restricted contracts (minority based contracts, etc.)  These contracts may be terminated pursuant to the Federal government’s rights under the Federal Acquisition Regulations. In addition, as a result of RGII’s acquisition by us, RGII will not be eligible to compete for these types of contracts in the future and will have to replace this revenue stream with new contracts. If these contracts are terminated or we are not able to enter new contracts on acceptable terms, our business could be adversely affected.

Changes in Federal government programs and requirements, or budgetary changes affecting Federal government spending in agencies specific to us, or changes in fiscal policies or available funding, may adversely affect our results of operations.

We acquired RGII Technologies, Inc. in July 2003 and RGII acquired AIM in April 2004. RGII receives substantially all its revenue from contracts with the Federal government. For the year ended December 31, 2005, we received approximately 17% of our total revenue from RGII. Significant changes in RGII’s revenues may adversely affect our results of operations.

Projects performed by RGII are subject to Defense Contract Audit Agency audits and compliance with government cost accounting standards. The results of such audits may result in adjustments to RGII’s reported financial results.

RGII has cost reimbursable type contracts with the U.S. Government, whereby RGII is reimbursed based upon direct expenses attributable to the contract, plus a percentage based upon indirect expenses. The indirect rates are estimated. Accordingly, if the actual rates as determined by the Defense Contract Audit Agency, or DCAA are below the estimated rates, a refund for the difference will be due to the U.S. Government. A significant refund due to the U.S. Government may adversely affect our results of operations. DCAA has completed its incurred cost audits for all fiscal years for RGII through December 31, 2004 and through December 31, 2002 for AIM.  Past audits have not resulted in significant adjustments.

We face competition from a number of existing competitors, as well as potential new competitors, which could result in loss of market share and adversely affect business.

The markets for our services are highly competitive. We compete with large providers of IT staffing services, including Comsys IT Partners Inc. and MPS Group, Inc. In addition, we compete for staffing projects with the information systems groups of prospective clients. In the Solutions business, we compete with consulting and system integration firms, including Analysts International Corporation, iGATE Corp., Covansys Corp., Accenture, Bearingpoint, CIBER, Inc., Computer Sciences Corporation, Computer Task Group, Electronic Data Systems Corp., IBM Corp. and Keane, Inc. We also compete in the IT solutions market with vendors of application software. There are relatively low barriers to entry in the markets that we compete in and we have faced and expect to continue to face, additional competition from other established and emerging companies. Increased competition may result in greater pricing pressure which could have an adverse effect on our business, results of operations and financial condition. Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources and generate greater revenues than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in clients’ requirements, or to devote greater resources to the development, promotion, sale and support of their services and products. In addition, current and potential competitors may establish cooperative relationships among themselves or with third parties to increase the ability of their services or products to address the staffing and solution needs of prospective clients. Accordingly, it is possible that new competitors, alliances among competitors or alliances between

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competitors and third parties may emerge and acquire significant market share. If this were to occur, it could have an adverse effect on our business, results of operations and financial condition.

The introduction of competitive IT solutions embodying new technologies and the emergence of new industry standards may render our existing IT solutions or underlying technologies obsolete or unmarketable which could have an adverse effect on its business.

The IT solutions industry is characterized by rapid technological change, changing client requirements and new service and product introductions. The introduction of competitive IT solutions embodying new technologies and the emergence of new industry standards may render our existing IT solutions or underlying technologies obsolete or unmarketable. As a result, it is dependent in large part upon its ability to develop new IT solutions that address the increasingly sophisticated needs of our clients, keep pace with new competitive service and product offerings and emerging industry standards and achieve broad market acceptance. The business will be adversely affected if we are not successful in developing and marketing new IT solutions that respond to technological change, changing client requirements or evolving industry standards.

Some of our services are offered on a fixed-price basis. The failure to estimate accurately the resources and time required for a project or failure to complete our contractual obligations within the time frame committed could have an adverse effect on our business.

We offer some of our services on a fixed-price rather than on a time-and-materials, or best efforts, basis. Under the terms of these contracts we bear the risk of cost overruns and inflation in connection with these projects. In the event that we fail to estimate accurately the resources and time required for a project or fail to complete our contractual obligations within the time frame committed, our business, operating results and financial condition could be adversely affected.

Our international operations subject us to additional risks that can adversely affect operating results.

Our international operations, which comprised 13.5%, 10.7%, and 10.5% of consolidated revenues for the years ended December 31, 2005, 2004, and 2003, respectively, depend greatly upon business, immigration and technology transfer laws in those countries in which we have international operations and upon the continued development of technology infrastructure. As a result, our business is subject to the risks generally associated with non-U.S. operations including:

·unexpected changes in regulatory environments;

·the costs and difficulties relating to geographically diverse operations;

·differences in, and uncertainties arising from changes in, foreign business culture and practices;

·fluctuations in currency exchange rates;

·restrictions on the movement of cash;

·longer accounts receivable payment cycles and greater difficulties in collecting accounts receivable;

·potential foreign tax consequences, including the impact of repatriation of earnings, tariffs and other trade barriers; and

·political unrest and changing conditions in countries in which our services are provided or facilities are located.

If any of these factors were to render the conduct of business in a particular country undesirable or impracticable, there could be an adverse effect on our business, operating results and financial condition.

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If we fail to protect our intellectual property rights, competitors may be able to use our technology and this could weaken our competitive position, reduce revenue and increase costs.

We rely primarily upon a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual arrangements to protect proprietary rights. The steps taken to protect proprietary rights may not prevent misappropriation of our proprietary rights, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States. If third parties were to use or otherwise misappropriate our copyrighted materials, trademarks or other proprietary rights without consent or approval, our competitive position could be harmed, or we could become involved in litigation to enforce our rights.

Third parties could assert that our services infringe their intellectual property rights, which, if successful, could adversely affect our business.

Third parties may assert trademark, copyright, patent and other types of infringement or unfair competition claims against us. If we are forced to defend against any such claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, loss of access to, and use of software and diversion of technical and management personnel. As a result of such dispute, we may have to develop non-infringing technology or enter into royalty or licensing arrangements. Such royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. If there is a successful claim of infringement against us and it is unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, it could adversely affect our business.

In the event of a failure in a client’s computer system, a claim for substantial damages may be made against us regardless of our responsibility for the failure, which if successful, could adversely affect our business.

Much of our business involves projects that are critical to the operations of our clients’ businesses and provide benefits that may be difficult to quantify. Any failure in a client’s system could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Limitations of liability set forth in service contracts may not be enforceable in all instances and may not otherwise protect us from liability for damages. We maintain general liability insurance, including coverage for errors and omissions, however, we may not be able to avoid significant claims and resulting publicity. Furthermore, there can be no assurance that the insurance coverage will be adequate or that coverage will remain available at acceptable costs. Successful claims brought against us in excess of our insurance coverage could have an adverse effect on business, operating results and financial condition.

As a provider of staffing services, there are risks associated with placing employees (and independent contractors) at clients’ businesses, which could result in costly and time-consuming litigation.

We could be subject to liability if any of the following risks associated with placing our employees (and independent contractors) at clients’ businesses occurs:

·possible claims of discrimination and harassment;

·liabilities for errors and omissions by our employees (and independent contractors);

·misuse of client proprietary information or intellectual property;

·injury to client employees;

·misappropriation of client property;

·other criminal activity; and

·torts and other similar claims.

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Any claims made against us could result in costly and time-consuming litigation. In addition, under some circumstances, we may be held responsible for the actions of persons not under our direct control.

We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of us or limit the price investors might be willing to pay for our stock.

Certain provisions of our Certificate of Incorporation and Bylaws could make a merger or tender offer involving us more difficult, even if such events would be beneficial to the interests of the shareholders. These provisions include adoption of a Preferred Shares Rights Agreement, commonly known as a “poison pill” and giving the Board the ability to issue preferred stock and determine the rights and designations of the preferred stock at any time without shareholder approval. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock. The above factors and certain provisions of the New York Business Corporation Law may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in our control or management, including transactions in which the shareholders might otherwise receive a premium over the fair market value of our common stock.

Item 2.Properties

The Company’s Corporate and Financial Headquarters (the “Headquarters”), as well as its Eastern Regional Office, comprising approximately 31,764 square feet, are located at 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey. The Mountain Lakes lease is for a term expiring September 30, 2006, at a current annual rental of approximately $700,000. Upon lease expiration, the Company intends to enter a new lease for its Headquarters (for approximately 20,000 square feet) located in the general vicinity of its current leased property. As of December 3l, 2005, the Company also maintained leased operating facilities, some of which are shared between Commercial and Chimes business segments, in Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Michigan, Minnesota, New Jersey, New York, Ohio and Washington, as well as international operations located in India and Canada, with an aggregate of approximately 205,350 square feet. RGII maintains leases in Maryland, Virginia and Oklahoma. Chimes maintains facilities in California, Illinois, Michigan, Minnesota and New Jersey. The leases for all of these facilities are at a current annual aggregate rental of approximately $4.3 million. These leases expire at various times with no lease commitment longer than March 31, 2012. The Company believes that the facilities are adequate for the current level of operations.

Item 3.Legal Proceedings

The Company is involved in various routine litigation matters, which arise through the normal course of business. Although the outcome of such matters is unpredictable with assurance, management does not expect that the ultimate outcome of any of these matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operations. However, depending on the amount and timing of any unfavorable outcome of any such matters, such outcome could possibly materially and adversely affect our future results of operations or cash flows in any particular period.

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Item 4.Submission of Matters to a Vote of Security Holders

On July 22, 2005, a group comprised of Crescendo Partners II, L.P., Series R, Crescendo Investments II, LLC, Eric Rosenfeld, F. Annette Scott Florida Trust, Richard L. Scott Florida Trust, Scott Family Florida Partnership Trust, Richard L. Scott, Stephen T. Braun and The Computer Horizons Full Value Committee (collectively, the “Full Value Committee”), filed a Statement on Schedule 13D (the “Schedule 13D”) with the SEC disclosing their opposition to the Company’s previously announced proposed merger with Analysts  International Corporation (“Analysts”) and their intention to solicit the Company’s shareholders to vote against the Company’s proposals in furtherance of the proposed merger. The Schedule 13D further disclosed the Full Value Committee’s intention to call a special meeting of the Company’s shareholders in order to remove up to all of the Company’s existing directors and to replace them with the Full Value Committee’s own slate of director nominees. As previously reported, at the Company’s special meeting of shareholders held on  September 2, 2005, the Company’s shareholders voted not to approve the proposals related to the proposed merger and, as such, the proposed merger was not consummated.

On July 27, 2005, the Company received from the Full Value Committee a request that a special meeting of the shareholders of the Company be called for the following purposes: (i) to remove all of the existing directors serving on the Company’s board of directors without cause, (ii) to fix the number of members comprising the board at five, and (iii) to elect five director nominees selected by the Full Value Committee.

This second special meeting of shareholders took place on October 11, 2005. At the special meeting, the Company’s shareholders voted (i) to remove all of the existing directors serving on the Company’s board of directors without cause, (ii) to fix the number of members comprising the board at five, and (iii) to elect the five directors nominees selected by the Full Value Committee, specifically: Messrs. Eric Rosenfeld, Karl L. Meyer, Robert F. Walters, Frank J. Tanki and Willem van Rijn. The proposals and results of the voting are as follows:

1.To remove all of the existing directors serving on the Company’s board of directors without cause:

	For		Against		Abstain
15,561,343		5,642,343		2,150,655

2.To fix the number of members comprising the board at five:

	For		Against		Abstain
15,488,116		5,704,625		2,161,599

3.To elect the following five director nominees: Eric Rosenfeld, Karl L. Meyer, Robert F. Walters, Frank J. Tanki and Willem van Rijn:

	For	Withhold
Eric Rosenfeld	15,550,674	7,803,666
Karl L. Meyer	15,489,370	7,864,970
Robert F. Walters	15,547,723	7,806,617
Frank J. Tanki	15,542,718	7,811,622
Willem van Rijn	15,547,018	7,807,322

Since all proposals before the meeting were non-discretionary, there were no broker non-votes as to any proposal.

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PART II

Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is quoted on the Nasdaq National Market, under the symbol CHRZ. The range of high and low closing stock prices, as reported by the Nasdaq National Market, for each of the quarters for the years ended December 31, 2005 and 2004 is as follows:

	2005				2004
	High		Low		High		Low
Quarter
First	$	4.40	$	3.48	$	4.50	$	3.85
Second	3.96		2.62		4.23		3.38
Third	4.48		3.04		4.62		3.66
Fourth	4.56		3.96		4.41		3.45

The Company plans to reinvest its earnings in future growth opportunities and, therefore, does not anticipate paying cash dividends in the near future and has not paid any to date. During 2005, the Company did not issue or repurchase shares of its common stock. As of March 6, 2006, there were approximately 798 registered holders of common stock, according to the Company’s transfer agent.

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Item 6.Selected Financial Data

Consolidated Statement of Operations Data:

	December 31,
	2005			2004			2003			2002			2001
	(dollars amounts in thousands, except per share data)
Revenues	$	268,836		$	262,527		$	245,210		$	297,115		$	400,784
Costs and expenses:
Direct costs	184,159			180,606			173,198			216,181			281,576
Selling, general and administrative	88,341			85,141			80,634			91,343			128,832
Change of Control charges	13,247			—			—			—			—
Amortization of intangibles	1,080			1,695			1,084			—			2,695
Restructuring charges	2,175			2,859			3,278			2,515			1,048
Write-down of assets held for sale	—			—			—			—			5,473
Special charges/(credits)	5,728			(939		)	10,113			—			—
Goodwill impairment	—			20,306			—			—			—
Write-off of assets	—			910			—			—			—
Loss from operations	(25,894		)	(28,051		)	(23,097		)	(12,924		)	(18,840		)
Other income/(expense):
Gain/(loss) on sale of assets	—			—			(424		)	5,890			(3,197		)
Net (loss)/gain on investments	(1,180		)	—			(432		)	(61		)	90
Interest income	849			337			529			928			2,293
Interest expense	(27		)	(103		)	(51		)	(174		)	(1,944		)
Loss before income taxes and cumulative effect of a change in accounting principle and minority interest	(26,252		)	(27,817		)	(23,475		)	(6,341		)	(21,598		)
Income taxes/(benefit)	20,168			(2,690		)	(6,409		)	1,869			(7,148		)
Loss before cumulative effect of change in accounting principle and minority interest	(46,420		)	(25,127		)	(17,066		)	(8,210		)	(14,450		)
Minority interest	—			(45		)	(89		)	35			—
Cumulative effect of change in accounting principle	—			—			—			(29,861		)	—
Net loss	$	(46,420	)	$	(25,172	)	$	(17,155	)	$	(38,036	)	$	(14,450	)
Loss per share:
Basic and diluted	$	(1.48	)	$	(0.82	)	$	(0.56	)	$	(1.22	)	$	(0.45	)
Weighted average number of shares outstanding:
Basic and diluted	31,399,000			30,870,000			30,455,000			31,243,000			31,911,000

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	December 31,
	2005			2004			2003			2002			2001
Analysis (%)
Revenues	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Gross margin	31.5			31.2			29.4			27.2			29.7
Selling, general and administrative	32.9			32.4			32.9			30.8			32.1
Amortization of intangibles	0.4			0.6			0.4			—			0.7
Restructuring charges	(0.8		)	1.1			1.3			0.8			0.2
Write-down of assets held for sale	—			—			—			—			1.4
Special charges/(credits)	2.1			(0.3		)	4.1			—			—
Goodwill impairment	—			7.7			—			—			—
Write-off of assets	—			0.3			—			—			—
Loss from operations	(9.7		)	(10.7		)	(9.4		)	(4.4		)	(4.7		)
Gain/(loss) on sale of assets	—			—			(0.2		)	2.0			(0.8		)
Net (loss)/gain on investments	(0.4		)	—			(0.2		)	—			—
Interest income/(expense)—net	0.3			0.1			0.2			0.3			0.1
Loss before income taxes and cumulative effect of a change in accounting principle and minority interest	(9.8		)	(10.6		)	(9.6		)	(2.1		)	(5.4		)
Income taxes/(benefit)	7.5			(1.0		)	(2.6		)	0.6			(1.8		)
Loss before cumulative effect of change in accounting principle	(17.3		)	(9.6		)	(7.0		)	(2.7		)	(3.6		)
Cumulative effect of change in accounting principle	—			—			—			(10.1		)	—
Net loss	(17.3		)	(9.6		)	(7.0		)	(12.8		)	(3.6		)
Revenue growth/(decline) YOY	2.4			7.1			(17.5		)	(25.9		)	(10.0		)
Net income growth/(decline)YOY	(84.0		)	(46.7		)	54.9			(163.2		)	75.0
Return on equity, average(1)	(44.2		)	(19.7		)	(12.4		)	(22.7		)	(7.3		)
Effective tax rate	2.7			9.7			27.3			29.5			33.1
Consolidated Balance Sheet Data:
At year-end
Total assets	$	143,342		$	159,084		$	180,326		$	193,731		$	237,721
Working capital	51,404			68,882			64,824			105,579			115,747
Long-term debt	—			—			—			—			—
Shareholders’ equity	84,027			125,781			130,337			145,855			189,855
Other Data:
Stock price	$	4.35		$	3.81		$	3.92		$	3.27		$	3.21
Employees	2,890			3,137			2,665			2,800			3,313
Clients (during year)	408			405			967			905			879
Offices (worldwide)	27			31			31			36			52

(1)Return on equity, average is calculated by dividing Net Income/(loss) for the period by the average shareholders’ equity for the same period.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following detailed discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the December 31, 2005 financial statements and related notes included in separate sections of this Form 10-K.

Overview

Computer Horizons Corp. (“CHC”, or  the “Company”), founded in 1969 provides professional information technology (IT) services to multi-national companies throughout North America, and to the United States government. CHC was founded in 1969 and incorporated in 1972 under the laws of the State of New York. The Company provides a broad range of IT staffing and project-based solution services using a global delivery model that allows the Company to perform work at client sites or at CHC development centers in the U.S., Montreal, Canada, and Chennai, India.

The Company had revenues for the full year ended December 31, 2005 of $268.8 million, compared to $262.5 million for 2004. The revenue increase of 2.4% for the full year ended December 31, 2005 was primarily attributable to Chimes and, to a lesser extent, the Commercial business.

The Company’s net loss for the year ended December 31, 2005 totaled $46.4 million, or $(1.48) per share, compared with a net loss of $25.2 million, or $(0.82) per share in the comparable period of 2004. The net loss for 2005 includes amortization of intangibles and special charges/(credits) which approximate:

·$1.1 million, or $(0.03) per share related to the amortization of intangibles;

·$13.2 million, or $(0.42) per share pertaining to change of control charges as a consequence of the removal of the Company’s existing Board of Directors and the election of a new Board of Directors in October 2005;

·$5.7 million, or $(0.18) of special charges pertaining primarily to costs associated with the unsuccessful proposed merger with Analysts International Corp. and the expenses associated with two proxy contests;

·$2.2 million, or $(0.07) per share of restructuring costs related to the reorganization of the Commercial Services business;

·$19.5 million, or $(0.62) per share, pertaining to an increase in the valuation allowance established for deferred tax assets;

·$1.2 million, or $(0.04) per share, loss on sale of investments related to the Supplemental Executive Retirement Plan.

Management continues to focus on maintaining a healthy balance sheet, with approximately $46.4 million in cash and cash equivalents at December 31, 2005 (including $29.4 million of cash to be disbursed to Chimes vendors in accordance with the client payment terms), along with $51.4 million in working capital and no debt outstanding.

During the fourth quarter of 2005, the new CHC executive team conducted a review of the Company’s strategic and operational strengths and weaknesses, and formulated a plan for improved performance. The plan included restructuring the Company to address lines of accountability, sharpen the focus of service offerings, set performance standards and goals and eliminate inefficiencies.

The Company’s Commercial Services business was a highly centralized organization. This plan reorganized the business into five consolidated geographic regions for Staffing sales, recruiting and operations, and two Solutions units. The reorganization should encourage closer collaboration between sales and delivery at the customer level and to facilitate clearer and more timely measurement of and

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influence on results. In Solutions delivery, the Company expects to tighten its focus on a more limited but deeper suite of services that capitalize on the Company’s strengths promises growth and can be supported effectively in Company-controlled development sites. At the same time, the Company expects to shrink corporate overhead. The Company also took steps to lower operating overhead and recognized a related $1.5 million restructuring charge during the fourth quarter of 2005. In addition to these personnel costs savings, the Company’s SAP financial system was fully depreciated at the end of 2005 and the Company expects to complete additional office consolidations, which together the Company expects will reduce annualized operating expenses by about $1.0 million.

Similarly, the Federal business unit completed a restructuring and rationalization of its services, while working to strengthen business development.

Recent Developments

Termination of Proposed Merger

As previously reported, in April, 2005, the Company, JV Merger Corp., a Minnesota corporation and a wholly-owned subsidiary of the Company (the “Sub”), and Analysts International Corporation, a Minnesota corporation (“Analysts”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other things, subject to satisfaction or waiver of applicable conditions, Sub would have been merged with and into Analysts (the “Merger”) and each issued and outstanding share of common stock, par value $.10 per share, of Analysts (other than shares held of record by the Company, Sub, Analysts and any of their subsidiaries) would have been converted into the right to receive 1.15 fully paid and non-assessable shares of the Company’s common stock, par value $.10 per share (the “Merger Consideration”). Completion of the Merger was subject to several conditions, including approval by the shareholders of each company and, on September 2, 2005, the Company held a special meeting of its shareholders (the “Special Meeting”) for the purpose of voting on the proposals related to the proposed merger. The Company’s shareholders voted not to approve the proposals related to the proposed merger and, as such, the proposed merger was not consummated. Due to the failure of the condition of shareholder approval, the Merger Agreement was terminated subsequent to the special meeting.

Special Meeting of Shareholders

On July 22, 2005, a group comprised of Crescendo Partners II, L.P., Series R, Crescendo Investments II, LLC, Eric Rosenfeld, F. Annette Scott Florida Trust, Richard L. Scott Florida Trust, Scott Family Florida Partnership Trust, Richard L. Scott , Stephen T. Braun and The Computer Horizons Full Value Committee (collectively, the “Full Value Committee”), filed a Statement on Schedule 13D (the “Schedule 13D”) with the SEC disclosing their opposition to the Company’s previously announced proposed merger with Analysts and their intention to solicit the Company’s shareholders to vote against the Company’s proposals in furtherance of the proposed merger. The Schedule 13D further disclosed the Full Value Committee’s intention to call a special meeting of the Company’s shareholders in order to remove up to all of the Company’s existing directors and to replace them with the Full Value Committee’s own slate of director nominees. As previously reported, at the Company’s Special Meeting held on September 2, 2005, the Company’s shareholders voted not to approve the proposals related to the proposed merger and, as such, the proposed merger was not consummated.

On July 27, 2005, the Company received from the Full Value Committee a request that a special meeting of the shareholders of the Company be called for the following purposes: (i) to remove all of the existing directors serving on the Company’s board of directors without cause, (ii) to fix the number of members comprising the board at five, and (iii) to elect five director nominees selected by the Full Value Committee.

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This second special meeting of shareholders (the “Second Meeting”) took place on October 11, 2005. At the Second Meeting, the Company’s shareholders voted (i) to remove all of the existing directors serving on the Company’s board of directors without cause, (ii) to fix the number of members comprising the board at five, and (iii) to elect the five director nominees selected by the Full Value Committee, specifically: Messrs. Eric Rosenfeld, Karl L. Meyer, Robert F. Walters, Frank J. Tanki, and Willem van Rijn.

Since the Second Meeting, Mr. Eric Rosenfeld has been named non-executive Chairman of the Company and the Company’s Board of Directors named Dennis J. Conroy, President and Chief Executive Officer, and Brian A. Delle Donne, Executive Vice President and Chief Operating Officer.

Change of Control Charges

In 1995, the Company instituted a Supplemental Executive Retirement Plan (“SERP”), entitling key executives to receive lump-sum retirement payments upon reaching age 65. The SERP is non-qualified, with life insurance policies purchased by the Company to assist in the funding of the amounts payable. The SERP expense is charged to operations during the service lives of the members. The SERP contains a change of control provision whereby, in the event of a change of control (as defined in the Plan), all retirement benefits immediately vest and become payable within five (5) business days.

On October 18, 2005, as a consequence of the removal of the Company’s then existing Board of Directors without cause and the election of the new Board of Directors, a change of control was deemed to have occurred under the Company’s SERP. Accordingly, change of control payments totaling $11.9 million were paid on October 25, 2005, including $10.4 million to the SERP participants and $1.5 million to key executives, pursuant to the terms of the related employment agreements. As of October 25, 2005, the prior accruals for SERP payments approximated $2.2 million, resulting in a charge of approximately $9.7 million, which was recorded in the fourth quarter of 2005. In addition, as of October 25, 2005, the Company had unrealized losses on the applicable SERP investments totaling $1.2 million. This loss was recognized in the fourth quarter of 2005 as a result of the sale of all SERP investments, which generated sales proceeds of approximately $4.7 million.

The Company maintains employment agreements with certain employees which contain change of control provisions requiring the payment of specified amounts approximating $3.5 million in aggregate. As a result of the previously noted October 18, 2005 change of control, the Company has recorded a $3.5 million charge in the fourth quarter of 2005, for change of control payments which payments will be made to the respective employees upon retirement or upon their termination of employment from the Company, other than for cause or disability. This liability is presented on the balance sheet as $2.9 million in long-term liabilities, and $0.6 million in other accrued expenses at December 31, 2005.

Vesting of Stock Options

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

Board Review of Strategic Alternatives

In September of 2005, the Company’s Board of Directors retained the services of Jefferies Broadview to assist the Company in exploring strategic alternatives to maximize shareholder value. These alternatives include, but are not limited to, the possible sale of all or parts of the Company. Expressions of interest have been received from various parties and are currently being reviewed by the Company.

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FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements including, but not limited to, risks associated with unforeseen 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 certain technologies, delays, market acceptance and competition, as well as other risks described from time to time in the Company’s filings with the Securities and Exchange Commission, press releases and other communications. All forward-looking statements included in this report are based on information available to the Company on the date hereof. The Company undertakes no obligation (and expressly disclaims any such obligation) to update forward-looking statements made in this report to reflect events or circumstances after the date of this report or to update reasons why actual results would differ from those anticipated in such forward-looking statements.

Additional Information and Where to Find It

The Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this Part II has been changed to reflect the realigned operating segments: Commercial, Federal Government and Vendor Management Services (Chimes) for 2004, as previously reported in the Company’s Form 10-K for the year ended December 31, 2004.

Revenue Generating Activities

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

The Commercial business consists of providing technology consultants to large organizations on a temporary hire basis and is classified in two general categories, staff augmentation and solutions work. For the year ended December 31, 2005, this segment represented approximately 72% of total revenues, including $138.3 million of staff augmentation revenue and $57.1 million of commercial solutions revenue.

For staff augmentation assignments, the consultant work is supervised and managed by the customer. Staff augmentation tends to be a lower risk, lower gross margin business with very competitive pricing. The Company’s solutions work tends to be higher margin, higher risk business, due to the fact that the Company is responsible for project deliverables and other conditions contained in statements of work and/or contracts with clients. Virtually all projects performed by the commercial solutions group are IT related and consist of practices such as application development, outsourcing arrangements, government services, Health Insurance Portability and Accountability Act (“HIPAA”) services, technology training and managed services.

The Company’s customer relationships are memorialized in master agreements which address the terms and conditions which define the client engagement. Depending on the service to be performed for the client, either a task order (in the case of a Staffing engagement) or a Statement of Work (“SOW”) (in the case of a Solutions engagement) is generated. The SOW is signed by both the Company and the customer. In general, no Solutions work is done unless there is a SOW because the SOW provides the technical details of the work to be done. The SOW, although falling under the corresponding master

19

agreement, is a stand-alone binding contractual document, typically outlining the project objectives, describing the personnel who will work on the project, describing phases of the project, the timeframes for work performance, and the rate of compensation, on a time and materials basis. In the event that the parameters of the project expand or otherwise change, a Project Change Request is implemented to memorialize whatever change has occurred to the deliverables, personnel and/or time/materials. The master agreements, in conjunction with the SOWs, are written to define, with as much detail as possible, the client relationship and all aspects of the work to be performed for the client. With regard to revenues expected in future periods, each SOW has a defined term or sets forth the anticipated length of a project. Where a client engagement is on-going, like certain “Help Desk” type services, the master agreements would still have a term length, but would recite that the agreement was renewable. Generally, commercial solutions engagements are for a year or less. Staff augmentation engagements can and do last for more than a year, with variations in the number of consultants being provided at any given time. Staffing engagements are generally cancelable by clients with a two to four week notice period. Commercial accounted for approximately 72% of revenue.

The Federal Government segment consists primarily of solutions type assignments, whereby the Company is responsible for project deliverables and other conditions contained in SOWs and/or contracts with the Federal Government. Federal Government engagements generally have a duration of several years, contingent upon the Federal Government exercising annual options to continue work. For the year ended December 31, 2005, the Federal Government segment accounted for approximately 17% of consolidated revenues.

Chimes, Inc., or Chimes, is a human capital management solution that, through the use of proprietary software and processes, manages the acquisition of temporary workforce of large organizations. For the year ended December 31, 2005, Chimes accounted for approximately 11% of total revenues.

Critical Accounting Policies

The most critical accounting policies used in the preparation of the Company’s financial statements are related to revenue recognition, the evaluation of the bad debt reserve, the valuation of goodwill, and the valuation of deferred tax assets.

Revenue Recognition

Approximately 95% and 94% of consolidated revenue in 2005 and 2004, respectively, was derived from time-and-material contracts.

The Company recognizes revenues either on a time-and-materials basis or on a fixed fee basis. Under a typical time-and-materials billing arrangement, our customers are billed on a regularly scheduled basis, such as biweekly or monthly. At the end of each accounting period, revenue is estimated and accrued for services performed since the last billing cycle. These unbilled amounts are billed the following month.

For fixed fee contracts, revenue is recognized on the basis of the estimated percentage of completion. Each fixed fee contract has different terms, milestones and deliverables. The milestones and deliverables primarily relate to the work to be performed and the timing of the billing. At the end of each reporting period an assessment of revenue recognized on the percentage of completion and milestones achieved criteria is made. If it becomes apparent that estimated cost will be exceeded, an adjustment to revenue and/or costs will be made. The cumulative effect of revisions in estimated revenues and costs are recognized in the period in which the facts that give rise to the impact of any revisions become known.

Unbilled accounts receivable represent amounts recognized as revenue based on services performed in advance of customer billings principally on a time-and-materials basis. At the end of each accounting period, revenue is accrued for services performed since the last billing cycle. These unbilled amounts are

20

billed the following month. Costs and estimated earnings in excess of billings on fixed fee contracts arise when percentage of completion accounting is used. Such amounts are billed at specific dates or at contract completion.

The Company’s Chimes subsidiary recognizes revenue on a transaction fee basis. The Chimes service offering aggregates the suppliers of temporary workers to the customer and renders one invoice to the customer. Upon payment from the customer, Chimes deducts a transaction fee and remits the balance of the client payment to the applicable vendor. Chimes recognizes only their fee for the service, not the aggregate billing to the customer. The gross amount of the customer invoicing is not considered revenue or a receivable to Chimes because there is no earnings process for the gross amount and by contract terms, Chimes is not obligated to pay the vendor until paid by the customer.

Evaluation of Bad Debt Reserve

The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to income or to the allowance for doubtful accounts.

Goodwill

As of December 31, 2005 and 2004, the fair value of each of the reporting units was calculated using the following approaches (i) market approach and (ii) income approach. The reporting units are equal to, or one level below, reportable segments. Under the market approach, value is estimated by comparing the performance fundamentals relating to similar public companies’ stock prices. Multiples are then developed of the value of the publicly traded stock to various measures and are then applied to each reporting unit to estimate the value of its equity. Under the income approach, value is determined using the present value of the projected future cash flows to be generated by the reporting unit.

The fair value conclusion of the reporting units reflects an appropriately weighted value of the market multiple approach and the income approach discussed above. An asset approach is not used because the asset approach is most relevant for liquidation approaches, investment company valuations and asset rich company valuations (i.e. real estate entities) and was not deemed relevant for manufacturing and service company going-concern valuations.

For the year ended December 31, 2005, using an evaluation prepared by an independent appraisal firm, the Company completed an assessment of the fair value and carrying value of its Federal Government segment. As of December 31, 2005, the indicated fair value of the Federal Government reporting unit exceeded the carrying value. As a result, the Company concluded that the goodwill of approximately $27.6 million is not impaired.

For the year ended December 31, 2004, the Company reassessed the carrying value of goodwill associated with its Commercial Solutions Group. Because of a reduction in projected future cash flows in the Commercial Solutions business unit, primarily resulting from significant revenue declines in 2004, the Company determined that goodwill was impaired and recorded a non-cash charge of $20.3 million, related to the write-off of the Commercial Solutions goodwill. There was no income tax effect on the impairment charge as the related goodwill was primarily attributable to acquisitions which yielded no tax basis for the Company. The remaining goodwill of $27.6 million, as of December 31, 2004, is associated with the Company’s Federal Government segment.

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Valuation of the Deferred Tax Asset

The Company records deferred tax assets for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases, and operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, management considers the scheduled reversal periods of the deferred tax assets, whether sustained profitability has been achieved and tax planning strategies.

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

In prior years management relied primarily on future projected income in assessing the realizability of deferred tax assets resulting from federal net operating loss carryforwards and other deductible temporary differences. As of December 31, 2005 it was determined that because of continued losses through the fourth quarter of the current year, it was no longer appropriate to rely on future projected income until sustained profitability has been achieved. Accordingly, the Company recorded a full valuation allowance on its remaining net deferred tax assets of $19.5 million in the fourth quarter of 2005.

As indicated previously in “Board Review of Strategic Alternatives,” various expressions of interest have been received for the purchase of all or parts of the Company. Should some of these result in the sale of parts of the Company, significant amounts of the $45.1 million of available net deferred tax assets may be realized.

Please refer to Note 7 of the Notes to Consolidated Financial Statements contained elsewhere in this Form 10-K, for further information regarding deferred income taxes.

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RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues.   Consolidated revenue increased to $268.8 million in the year ended December 31, 2005 from $262.5 million in the year ended December 31, 2004, an increase of $6.3 million or 2%.

Commercial revenues increased to $195.4 million in the year ended December 31, 2005 from $191.1 million in the year ended December 31 2004, an increase of $4.3 million or 2%. For the year ended December 31, 2005, Commercial consultant average headcount increased 1%, accounting for approximately $1.9 million of the revenue increase. The balance of the increase in revenue (approximately $2.4 million) is attributable to an increase in average bill rates.

Federal revenues decreased to $45 million in the year ended December 31, 2005 from $48.3 million in the year ended December 31, 2004, a decrease of $3.3 million or 7%. This decrease in Federal revenues is attributable to a 10% decrease in consultant average headcount, partially offset by the inclusion of Automated Information Management, Inc. (“AIM”) revenue (acquired in April 2004) in the full year of 2005.

Chimes revenue increased to $28.4 million in the year ended December 31, 2005, from $23.1 million in the year ended December 31, 2004, an increase of $5.3 million or 23%. This increase was primarily due to an expansion of managed spend at existing clients of approximately $3.6 million, with a $1.7 million increase attributable to new clients started in 2005.

Direct Costs and Gross Margins.   Direct costs increased to $184.2 million in the year ended December 31, 2005 from $180.6 million in the year ended December 31, 2004. Consolidated gross margin, revenue less direct costs, increased to 31.5% for the year ended December 31, 2005 from 31.2% in the same period of 2004. Commercial gross margin for 2005 were $36.8 million, or 18.8%, compared to $38 million, or 19.9% for 2004. This decrease is primarily attributable to the increase in Commercial revenue being transacted through Vendor Managed Service providers (23% of Commercial revenue in 2005 vs. 18% in 2004). Federal gross profit decreased to $20.4 million, or 45.4% in 2005, from $22.2 million, or 46%, in 2004. Gross margin in the Company’s Chimes segment increased to 96.7% for 2005 from 94% in 2004, primarily attributable to a reduction in licensing fees for software used to deliver Chimes services.

The slight improvement in the Company’s consolidated gross margin is primarily attributable to the increase in revenue from the higher-margin Chimes business unit. In 2005, Chimes represented approximately 11% of consolidated revenue, compared to approximately 9% in 2004.

Selling, general and administrative expenses.Selling, general and administrative (“SG&A”) expenses increased to $88.3 million in the year ended December 31, 2005 from $85.1 million for the comparable period of 2004. As a percentage of revenue, the Company’s SG&A expenses increased to 32.9% in the year ended December 31, 2005 from 32.4% in the year ended December 31, 2004. This increase is primarily attributable to the acquisition of AIM in April 2004 (which yielded incremental SG&A expenses of approximately $900,000), additional SG&A expense in Chimes of approximately $1.4 million primarily related to increased delivery costs to support new clients, along with increased Corporate overhead.

Change of Control charges.In the fourth quarter of 2005, the Company recorded a charge of approximately $13.2 million related to the change of control resulting from the removal of the Company’s then existing Board of Directors. The $13.2 million charge is comprised of the following:

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

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

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Special charges/(credits).   For fiscal year 2005, the Company recorded special charges/(credits) of $5.7 million primarily pertaining to expenses associated with two proxy contests and merger-related charges pertaining to the proposed merger with Analysts International Corp., which was not approved by the Company’s shareholders at the September 2, 2005 special meeting. For the year ended December 31, 2004, the Company recorded a special credit of $0.9 million related to an insurance refund.

Restructuring charges.For the year ended December 31, 2005, the Company recorded restructuring charges of $2.2 million, primarily comprised of severance costs. During 2005, the Company conducted a review of the Company’s strategic and operational strengths and weaknesses and formulated a plan for improvement. The plan included restructuring the Company to address lines of accountability, eliminating several service offerings, setting performance standards and eliminating inefficiencies.

For the year ended December 31, 2004, the Company recorded restructuring charges of $2.9 million. During the fourth quarter of 2004, the Company completed its realignment initiatives whereby the Company’s business model has been realigned, effective January 1, 2005, around its three distinct segments of clients:  Federal Government (RGII), Commercial and Vendor Management Services (Chimes). In connection with the realignment, the Company recorded a $2.9 million restructuring charge comprised of approximately $2.8 million in severance costs and $0.1 million in lease obligation costs.

Loss from Operations.   The Company’s loss from operations totaled $25.9 million in the year ended December 31, 2005, compared to a loss of $28.1 million in 2004. The 2005 loss before income taxes, excluding the special items noted above, net interest and the loss on investments, totaled $3.6 million and was comprised of: a loss of $9.2 million in the Commercial business, profit of $2.6 million in the Federal business and profit of $3.0 million in Chimes. This compares to a loss before income taxes, excluding the special items noted above and net interest income, of $3.2 million in 2004 and is comprised of: a loss of $7.3 million in the Commercial business, profit of $4.7 million in the Federal business and a loss of $0.6 million in Chimes. The consolidated loss before income taxes, excluding all special items, was 1.4% of revenue for the year ended December 31, 2005, as compared to a loss of 1.2% in the comparable period of 2004.

Other Income/(Expense).   Other expense was $0.4 million in 2005, comprised of a loss on the sale of SERP investments of $1.2 million, partially offset by net interest income of $0.8 million. Other income in 2004, comprised of net interest income, totaled $0.2 million.

Provision for Income Taxes.   The effective tax rate for Federal, state and local income taxes was a tax expense of 76.8% for the year ended December 31, 2005 compared with 9.7% benefit for the year ended December 31, 2004. The primary reasons for the change in the effective tax rate were charges for change of control payments which did not give rise to tax benefits and an increase in the valuation allowance on deferred tax assets. In prior years management relied primarily on future projected income in assessing the realizability of deferred tax assets resulting from federal net operating loss carryforwards and other deductible temporary differences. As of December 31, 2005 it was determined that because of continued losses through the fourth quarter of the current year, it was no longer appropriate to rely on future projected income until sustained profitability has been achieved. Accordingly, the Company recorded a full valuation allowance on its remaining net deferred tax assets of $19.5 million in the fourth quarter of 2005. (see Note 7 of the Notes to Consolidated Financial Statements contained elsewhere in this Form 10-K).

Net Loss.For the year ended December 31, 2005, the net loss was $46.4 million, or $1.48 loss per share, compared to a net loss of $25.2 million, or $0.82 loss per share for the year ended December 31, 2004. The effect of the change of control charges, special charges/(credits), restructuring charges, loss on sale of investments, amortization expense and increase in the deferred tax valuation allowance amounted to $1.33 loss per share in 2005. The effect of restructuring charges, goodwill impairment, amortization expense, write-off of assets, and special credit for an insurance refund amounted to $0.68 loss per share in 2004.

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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues.   Consolidated revenue increased to $262.5 million in the year ended December 31, 2004 from $245.2 million in the year ended December 31, 2003, an increase of $17 million or 7%.

Commercial revenues decreased to $191.1 million in the year ended December 31, 2004 from $207.0 million in the year ended December 31, 2003, a decrease of $15.9 million or 8%. This decrease in Commercial revenues is attributable to continued decreases in the demand for temporary technology workers, the trend of companies to outsource technology jobs offshore and the impact of pricing decreases by clients.

Federal revenues increased to $48.3 million in the year ended December 31, 2004 from $18.2 million in the year ended December 31, 2003, an increase of $30.1 million or 165%.  This increase is attributable to theexpansion in the Company’s Federal government practice, including the July 2003 acquisition of RGII and the April 2004 acquisition, by RGII, of AIM.

Chimes revenue increased to $23.1 million in the year ended December 31, 2004, from $20.0 million in the year ended December 31, 2003, an increase of $3.1 million or 15.4%. This increase was primarily due to an expansion of managed spend at existing clients, with less than 1% of the increase attributable to new clients started in 2004.

Direct Costs.   Direct costs increased to $180.6 million in the year ended December 31, 2004 from $173.2 million in the year ended December 31, 2003. Consolidated gross margin, revenue less direct costs, increased to 31.2% for the year ended December 31, 2004 from 29.4% in the same period of 2003. In the Company’s Commercial business, gross profit decreased to $38.0 million, or 19.9% as a result of an increase in Commercial revenue being transacted through Vendor Managed Service providers (18% in 2004 vs. 14% in 2003). Federal business gross margin increased in 2004 to 46%, from 43% in 2003, primarily due to the acquisition of AIM in April 2004. Gross margin in the Company’s Chimes segment stayed relatively flat at 94.0% for 2004 and 2003.

The Company’s consolidated gross margin improvement is primarily attributable to the increases in revenue from the Company’s higher margin Federal business and Chimes, partially offset by gross margin declines in the Commercial segment. For the year ended December 31, 2004, the Federal business and Chimes revenue totaled 27.0% of consolidated revenue, compared to 16.0% of consolidated revenue for the comparable period in 2003.

Selling, general and administrative expenses.Selling, general and administrative (“SG&A”) expenses increased to $85.1 million in the year ended December 31, 2004 from $80.6 million for the comparable period of 2003. As a percentage of revenue, the Company’s SG&A expenses decreased to 32.4% in the year ended December 31, 2004 from 32.9% in the year ended December 31, 2003. The expenses in 2003 included a bad debt charge of $3.1 million related to the write-off of a sub-contract with ATEB, a privately held company, which the Company voluntarily terminated for financial reasons. ATEB was the primary contractor to develop a new pharmacy system for Royal Ahold. The Company is continuing recovery efforts for this receivable.

Excluding the $3.1 million ATEB write-off in 2003, SG&A expenses would have increased by $7.6 million in 2004 in comparison to the prior year. This increase is primarily attributable to the July 2003 acquisition of RGII, and the April 2004 acquisition, by RGII, of AIM (which yielded incremental SG&A expense of approximately $9.6 million); costs related to Sarbanes-Oxley activities of approximately $1.2 million, and approximately $590,000 pertaining to professional fees for the restatement of financials associated with a previously announced accounting error.

Amortization of Intangibles.During the year ended December 31, 2004, the Company recorded $1.7 million of amortization expense related to the 2003 acquisition of intangibles for RGII and Xpress Software. The increase in 2004 is attributable to intangibles for the AIM acquisition completed in April 2004 by RGII.

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Restructuring charges/(credits).   For the year ended December 31, 2004, the Company recorded restructuring charges of $2.9 million. During the fourth quarter of 2004, the Company completed its realignment initiatives whereby the Company’s business model has been realigned, effective January 1, 2005, around its three distinct segments of clients: Commercial, Federal Government (RGII) and Vendor Management Services (Chimes). In connection with the realignment, the Company recorded a $2.9 million restructuring charge, comprised of approximately $2.8 million in severance costs and $0.1 million in lease obligation costs. As a result of this restructuring, the Company is expecting an approximate $5 million reduction in its annual costs, which will be predominantly reflected in the Commercial business, designed to deliver improved operational performance. During the year ended December 31, 2003, the Company recorded restructuring charges of $3.3 million pertaining to terminated leases ($1.4 million), severance ($1.6 million) and general office closure expenses ($330,000) relating primarily to the closing of facilities in Canada and the United Kingdom.  In 2003, the office closings were made to eliminate the infrastructure costs related to having offices in certain areas. The Company did not eliminate marketing efforts or business in these areas, but rather turned these areas into virtual marketplaces whereby sales personnel work from their homes.

Special charges/(credits).   For the year ended December 31, 2004, the Company recorded a special credit of $0.9 million related to an insurance refund.  For the year ended December 31, 2003, the Company incurred special charges of $10.1 million consisting of a severance package for the Company’s former CEO and expenses related to the unilateral acquisition proposal and activities of Aquent LLC. The separation package of the former CEO included a $3.5 million severance payment and $200,000 in continued medical coverage. The remaining $6.4 million of the expense pertained to the unilateral acquisition proposal and activities of Aquent LLC. This expense is primarily attributable to approximately $3.4 million of legal fees, $1.8 million in financial advisor fees and $1.2 million of proxy solicitation and other fees. As management considers these special items to be infrequent and material in nature, the Company has reported the expenses on a separate line for full disclosure purposes, however, the amounts are reported within operating income.

Goodwill impairment.As of December 31, 2004, based on a valuation completed by an independent appraisal firm, it was determined that the indicated fair value for the Commercial Solutions business unit was below the carrying value of the entity’s equity. Because of a reduction in projected future cash flows, primarily resulting from significant revenue declines in 2004, the Company determined that the Commercial Solutions goodwill was impaired and recorded a non-cash goodwill impairment charge of $20.3 million. There was no income tax effect on the impairment charge as the related goodwill was primarily attributable to acquisitions which yielded no tax basis for the Company.

Write-off of assets.   For the year ended December 31, 2004, the Company recorded a write-off of assets approximating $0.9 million. This charge pertained to the write-off of a security deposit in connection with an escrow agreement of a previously sold subsidiary and a write-off of fixed assets related to previously closed offices.

Loss from Operations.   The Company’s loss from operations totaled $28.1 million in the year ended December 31, 2004, an increased loss of $5.0 million, from a loss of $23.1 million in the year ended December 31, 2003. As discussed above, the loss from operations in 2004 included goodwill impairment of $20.3 million, restructuring charges of $2.9 million, amortization of intangibles of $1.7 million, $0.9 million pertaining to the write-off of assets, and a special credit of $0.9 million related to an insurance refund. The loss from operations in 2003 included special charges of $10.1 million, restructuring charges of $3.3 million, amortization of intangibles of $1.1 million and a special bad debt charge (recorded in SG&A expense) of $3.1 million due to the write-off of a terminated contract with a client for financial reasons. The 2004 loss before income taxes, excluding the special items noted above and net interest income, totaled $3.2 million and was comprised of: a loss of $7.3 million in the Commercial business, profit of $4.7 million in the Federal business and a loss of $0.6 million in Chimes. This compares to the loss before income taxes of

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$5.6 million, excluding the special items noted above and loss on sale of assets, net loss on investments and net interest income and was comprised of: $2.5 million loss in the Commercial business, profit of $0.9 million in the Federal business and a loss of $4.0 million in Chimes. The consolidated loss before income taxes, excluding all special items, was a loss of 1.2% of revenue for the year ended December 31, 2004 as compared to a loss of 2.3% in the comparable period of 2003.

Other Income/(Expense).   Other income was $234,000 in the year ended December 31, 2004, compared to other expense of $378,000 in the comparable period of 2003. This difference was primarily due to the loss on sale of assets and loss on investments in 2003.

Provision for Income Taxes.   The effective tax rate for Federal, state and local income taxes was a tax benefit of 9.7% for the year ended December 31, 2004 compared with 27.3% benefit for the year ended December 31, 2003. The primary reasons for the decrease in the effective tax rate were goodwill impairment charges which did not give rise to a tax benefit and increases in the valuation allowance for certain Federal and state deferred tax assets. A review of all available positive and negative evidence was conducted by the Company, including the Company’s past, current and projected operating performance, the market environment in which the company operates and the length of carryback and carryforward periods.

Net Loss.   For the year ended December 31, 2004, the net loss was $25.2 million, or $0.82 loss per share, compared to a net loss of $17.2 million, or $0.56 loss per share for the year ended December 31, 2003. The effect of restructuring charges, goodwill impairment, amortization expense, write-off of assets, professional fees for the restatement of financials associated with a previously announced accounting error, and special credit for an insurance refund amounted to $0.75 loss per share, net of taxes, in 2004. The effect of restructuring charges, loss on sale of assets, loss on investments, amortization expense, write-off of terminated project and special charges amounted to $0.45 loss per share, net of taxes, in 2003.

Liquidity and Capital Resources

Computer Horizons has historically financed its operations through cash generated from operations, borrowings against bank lines of credit and the public sale of its common stock. At December 31, 2005, the Company had approximately $51.4 million in working capital, of which $46.4 million was cash and cash equivalents. Cash and cash equivalents at December 31, 2005 and December 31, 2004 includes approximately $29.4 million and $2.1 million of cash, respectively, to be disbursed to Chimes vendors in accordance with the client payment terms.

Net cash provided/(used in) by operating activities for the year ended December 31, 2005, December 31, 2004 and December 31, 2003, totaled $7.3 million, $(1.4) million and $16.9 million, respectively. For the year ended December 31, 2005, the cash provided by operating activities is primarily attributable to deferred taxes (non-cash valuation reserve), depreciation, amortization and other non-cash expenses and increases in accounts payable (primarily Chimes vendor payments), partially offset by the Company’s net loss, a reduction in accrued expenses and payment of the Supplemental Executive Retirement Plan. For the year ended December 31, 2004, the cash used in operating activities was primarily attributable to the net loss of $25.2 million, offset by non-cash charges of $27.4 million and an increase in refundable income taxes of $4.1 million. In 2003, the cash provided by operating activities was primarily due to the Federal income tax refund received and a reduction in accounts receivable partially offset by the Company’s net loss.

Net accounts receivable decreased $3.2 million to $48.1 million at December 31, 2005 from $51.3 million at December 31, 2004. Accounts receivable days sales outstanding (“DSO”) were 66 days at December 31, 2005 compared to 68 days at December 31, 2004. The Company expects an increase in DSOs for the first quarter of 2006 attributable to the seasonal slowdown of payments from clients, which historically occurs in the first quarter of each year.  All client receivable collectibility and billing issues

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identified by management have been adequately reserved. For the period ended December 31, 2005, there were no significant changes in credit terms, credit policies or collection efforts.

Net cash provided by investing activities for the year ended December 31, 2005 was $2.0 million, consisting primarily of proceeds from sale of assets of $0.6 million and proceeds from the sale of SERP investments of $4.7 million, partially offset by capital expenditures totaling $3.3 million. Net cash used in investing activities was $19.2 million for the year ended December 31, 2004. This was primarily attributable to the purchase of AIM by RGII in April 2004. Net cash used in investing activities was $23.5 million for the year ended December 31, 2003, primarily due to the purchase of RGII.

For the year ended December 31, 2005, net cash provided by financing activities was $3.1 million, consisting primarily of proceeds from shares issued pursuant to the employee stock option plan of $2.4 million and $0.7 million from the employee stock purchase plan. For the year ended December 31, 2004, net cash provided by financing activities was $1.4 million primarily consisting of proceeds from stock options exercised of $0.8 million and $0.6 million from stock issued through the employee stock purchase plan. For the year ended December 31, 2003, net cash used in financing activities was $2.5 million, primarily from the pay off of the notes payable of $2.6 million related to the acquisition of RGII and $1.2 million used in the repurchase of the Company’s common stock.

The Company has a $40 million line of credit facility with availability based primarily on eligible client receivables. Effective November 17, 2005, the interest rate is calculated using the lesser of: Prime or LIBOR plus 2.5% based on unpaid principal. The minimum borrowing base threshold was eliminated as of November 17, 2005. As of December 31, 2005, the Company had no outstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances, $8.3 million was available for borrowing as of December 31, 2005. The fee for the unused portion of the line of credit is 0.375% per annum based on $20 million, charged to the Company monthly. This charge, including other associated fees, was approximately $136,000 and $99,000 for the years ended December 31, 2005 and 2004, respectively. This line of credit includes covenants relating to the maintenance of cash balances and providing for limitations on incurring obligations and spending limits on capital expenditures.  As of December 31, 2005, the Company was in compliance with the covenants. This credit facility will remain in effect until July 2006. The Company is currently in discussions to extend the facility.

Pursuant to the terms of the Company’s acquisition of RGII, the seller of RGII may be entitled to contingent payments based on RGII’s performance against profitability objectives over three years ending June 30, 2006. The contingent payments are evidenced by a contingent note with a face value of $10 million that is payable over three years only if certain financial performance objectives are met. These financial performance objectives are based on earnings before interest and taxes (“EBIT”) targets totaling $19.8 million over a three-year period. The $10 million contingent note is collateralized by the assets of RGII. There are no minimum or maximum payment obligations under the terms of the contingent note. The contingent payment will be reduced on a dollar for dollar basis for financial performance below EBIT targets and increased by 29 cents ($0.29) for each dollar exceeding EBIT targets. In February 2004, a payment was made for the first six-month installment of approximately $631,000, pertaining to this contingent note. In February 2005, a payment of approximately $1.8 million was made representing the second installment of the contingent note. EBIT targets were not achieved for the third installment of the note for the period ending December 31, 2005 and no contingent payment is due. If EBIT targets are not met at the expiration of the contingent earnout period (June 30, 2006), significant amounts previously paid are to be repayable to the Company.

During the first quarter of 2004, the Company recorded a non-cash reduction in tax benefit reserves and an increase in additional paid-in capital of $19.9 million.

The Company believes that its cash and cash equivalents, available borrowings and internally generated funds will be sufficient to meet its working capital needs through the next 12 months.

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Contractual Obligations and Commercial Commitments

The Company does not utilize off balance sheet financing other than operating lease arrangements for office premises and related equipment. The following table summarizes all commitments under contractual obligations as of December 31, 2005:

	Obligation Due
	Total Amount		1 Year		2-3 Years			4-5 Years			Over 5 Years
	(dollars in thousands)
Operating Leases	$	7,523	$	4,072		$	2,779		$	544	$	128
RGII Contingent Notes*	7,596		7,596			—			—		—
Deferred Compensation	2,468		891			22			11		1,544
Retention Bonus	316		245			71
Change of Control	3,412		472			—			—		2,940
Other	673		673			—			—		—
Total Cash Obligations	$	21,988	$	13,949		$	2,872		$	555	$	4,612

*Payment of this obligation is remote as it is only applicable if EBIT targets are met. If EBIT targets are not met at the expiration of the contingent earnout period (June 30, 2006), significant amounts previously paid are to be repayable to the Company. Any repayment will be recorded as a reduction of the goodwill pertaining to the Federal business.

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (FSP) EITF 03-1-1 that delayed the effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing “other-than-temporary” guidance until a final consensus is reached. Management does not anticipate that issuance of a final consensus will materially impact the Company’s financial condition or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-Based Payment” (FAS 123R). FAS 123R requires that compensation cost be recognized for new awards of equity instruments and unvested awards on the adoption date. The SEC amended the effective dates of FAS 123R for public companies in April 2005, which allows registrants to implement FAS 123R at the beginning of their next fiscal year, instead of the next interim period, that begins after June 15, 2005. The SEC also issued Staff Accounting Bulletin 107, “Share-Based Payment” (SAB 107), in April 2005, which provides the views of the SEC staff regarding certain aspects of the application of FAS 123R. SAB 107 assists issuers in their initial implementation of FAS 123R and indicates that the staff’s understanding that, particularly in the period of initial implementation, issuers may reasonably arrive at different estimates and option valuations in applying FAS 123R. The provisions of this statement are effective for the Company’s first quarter ending March 31, 2006. Statement 123R requires compensation cost be recognized for new awards of equity instruments and unvested awards on the adoption date.

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Statement 123(R) allows for two alternative transition methods. The first method is the modified prospective application whereby compensation cost for the portion of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date will be recognized over the remaining service period. The compensation cost for that portion of awards will be based on the grant-date fair value of those awards as calculated for pro forma disclosures under Statement 123, “Accounting for Stock-Based Compensation”, as originally issued. All new awards and awards that are modified, repurchased or cancelled after the adoption date will be accounted for under the provisions of Statement 123(R). The second method is the modified retrospective application, which requires that the Company restates prior period financial statements. The modified retrospective application may be applied either to all prior periods or only to prior interim periods in the year of adoption of this statement. The Company is currently determining which transition method it will adopt and is evaluating the impact Statement 123(R) will have on its financial position, results of operations, EPS and cash flows when the Statement is adopted.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets” (FAS 153) - an amendment of Accounting Principles Board Opinion No. 29 (Opinion 29). The guidance in Opinion 29, “Accounting for Nonmonetary Transactions” is based on the underlying principle that the measurement of exchanges of nonmonetary assets should be based on the fair value of the assets exchanged. However, Opinion 29 included certain exceptions to that principle, including a requirement that exchanges of similar productive assets should be recorded at the carrying amount of the asset relinquished. FAS153 eliminates that exception and replaces it with a general exception for exchanges of nonmonetary assets that lack commercial substance. Only nonmonetary exchanges in which an entity’s future cash flows are expected to significantly change as a result of the exchange will be considered to have commercial substance. FAS 153 must be applied to nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement did not have a material impact on the Company’s financial condition or results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, “Accounting Changes and Error Corrections” (FAS 154) , which changes the accounting and reporting requirements for the change in an accounting principle. Accounting Principles Board Opinion 20, “Accounting Changes” (Opinion 20), which is superseded by FAS 154, required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle as a component of net income in the period of the change. FAS 154 instead requires retrospective application to prior periods’ financial statements of changes in an accounting principle, unless it is impracticable to do so. FAS 154 differentiates between “retrospective application” and “restatement”.  “Retrospective application” is defined as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. In contrast, restatement is defined as the revising of previously issued financial statements to reflect the correction of an error. FAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. The guidance contained in Opinion 20 for reporting the corrections of errors in previously issued financial statements, and changes in accounting estimates is carried forward to FAS 154 without change. Additionally, FAS 154 carries forward the guidance in Opinion 20 requiring justification of a change in accounting principle on the basis of preferability. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the adoption of this statement will have a material impact on the Company’s financial condition or results of operations

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Savings Plan and Other Retirement Plans

The Company maintains a defined contribution savings plan covering eligible employees. The Company makes contributions up to a specific percentage of the participants’ contributions.

In 2004, the Company maintained a Supplemental Executive Retirement Plan “SERP”, whereby key executives are entitled to receive payments upon reaching the age of 65 and being in the employment of the Company. Benefits accrue and vest based on a formula which includes total years with the Company and total years possible until age 65. In the event of a change of control, as defined in the Plan, this event would result in an immediate vesting of the retirement benefit. The Plan is nonqualified and not formally funded. Life insurance policies on the members are purchased to assist in funding the cost. The cumulative accrued liability for the SERP is determined based on the Unit Credit Method by using a discount rate of 9% until age 65 for each participant. This plan was terminated as a result of the change of control of the Company in October 2005, and the related payment of the existing SERP assets to participants, in the fourth quarter of 2005.

The Company maintains a deferred compensation plan for key executives that permits the individuals to defer a portion of their salary/bonus. There is no effect on the Company’s operating results since all amounts deferred under the plan are expensed in the period incurred.

Foreign Currency Exposure

The Company’s international operations expose it to translation risk when the local currency financial statements are translated to U.S. dollars. As currency exchange rates fluctuate, translation of the financial statements of international businesses into U.S. dollars will affect the comparability of revenues and expenses between years. None of the components of the Company’s consolidated statements of income was materially affected by exchange rate fluctuations in 2005, 2004 or 2003. At December 31, 2005 the Company had approximately $1.9 million in cash maintained in foreign financial institutions.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Market Risk Exposure

The Company has financial instruments that are subject to interest rate risk. Historically, the Company has not experienced material gains or losses due to interest rate changes. Based on the current holdings, the exposure to interest rate risk is not material. Additionally, at December 31, 2005 the Company was debt free.

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Item 8.Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Computer Horizons Corp.

We have audited the accompanying consolidated balance sheets of Computer Horizons Corp. and Subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Horizons Corp. and Subsidiaries as of December 31, 2005 and 2004 and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Oversight Board (United States), the effectiveness of Computer Horizons Corp. and Subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”), and our report dated March 14, 2006 expressed an unqualified opinion thereon.

/s/ GRANT THORNTON LLP

Grant Thornton LLP

Edison, New Jersey

March 14, 2006

32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Computer Horizons Corp.

We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over Financial Reporting, that Computer Horizons Corp. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Computer Horizons Corp. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Computer Horizons Corp. and Subsidiaries of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and cash flows, for each of the three years in the period ended December 31, 2005, and our report dated March 14, 2006 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Grant Thornton LLP

Edison, New Jersey

March 14, 2006

33

Computer Horizons Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

	December 31,
	2005		2004
	(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents (Note 1)	$	46,365	$	33,649
Accounts receivable—net (Note 2)	48,124		51,322
Deferred income taxes (Note 7)	—		1,868
Refundable income taxes (Note 7)	6,430		4,088
Other	4,108		5,550
Total current assets	105,027		96,477
Property and equipment:
Furniture, equipment and other	46,116		42,810
Less: accumulated depreciation	41,051		36,815
	5,065		5,995
Other assets—net:
Goodwill (Note 1)	27,625		27,625
Intangibles (Note 1)	1,938		3,253
Deferred income taxes (Note 7)	—		17,698
Other	3,687		8,036
	33,250		56,612
Total Assets	$	143,342	$	159,084

The accompanying notes are an integral part of these statements.

34

Computer Horizons Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(continued)

	December 31,
	2005			2004
	(in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities :
Accrued payroll, payroll taxes and benefits	$	10,548		$	8,489
Accounts payable	36,252			7,615
Restructuring reserve (Note 13)	1,668			3,351
Income taxes payable	1,150			1,377
RGII contingency payment (Note 15)	—			1,851
Other accrued expenses	4,005			4,912
Total current liabilities	53,623			27,595
Deferred compensation (Note 10)	2,468			2,633
Change of control payable	2,938			—
Supplemental executive retirement plan (Note 10)	—			2,162
Other liabilities	286			913
Total liabilities	59,315			33,303
Commitments and Contingencies (Notes 4 and 11)
Shareholders’ equity:
Preferred stock, $.10 par; authorized and unissued, 200,000 shares, including 50,000 Series A
Common stock, $.10 par; authorized, 100,000,000 shares; issued 33,158,105 and 33,153,805 shares at December 31, 2005 and 2004, respectively	3,315			3,315
Additional paid-in capital	148,083			151,281
Accumulated other comprehensive loss	(643		)	(2,200		)
Retained deficit	(60,492		)	(14,072		)
	90,263			138,324
Less shares held in treasury, at cost; 1,118,014 and 2,060,011 shares at December 31, 2005 and 2004, respectively	(6,236		)	(12,543		)
Total shareholders’ equity	84,027			125,781
Total Liabilities and Shareholders’ Equity	$	143,342		$	159,084

35

Computer Horizons Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2005			2004			2003
	(in thousands, except per share data)
Revenues	$	268,836		$	262,527		$	245,210
Costs and expenses:
Direct costs	184,159			180,606			173,198
Selling, general and administrative	88,341			85,141			80,634
Change of control charges (Note 17)	13,247			—			—
Amortization of intangibles	1,080			1,695			1,084
Restructuring charges (Note 13)	2,175			2,859			3,278
Special charges/(credits) (Note 17)	5,728			(939		)	10,113
Goodwill impairment	—			20,306			—
Write-off of assets	—			910			—
	294,730			290,578			268,307
Loss from operations	(25,894		)	(28,051		)	(23,097		)
Other income/(expense):
Gain/(loss) on sale of assets	—			—			(424		)
Net gain/(loss) on investments	(1,180		)	—			(432		)
Interest income	849			337			529
Interest expense	(27		)	(103		)	(51		)
	(358		)	234			(378		)
Loss before income taxes and minority interest	(26,252		)	(27,817		)	(23,475		)
Income taxes/(benefit) (Notes 1 and 7):
Current	602			(1,436		)	341
Deferred	19,566			(1,254		)	(6,750		)
	20,168			(2,690		)	(6,409		)
Loss before minority interest	(46,420		)	(25,127		)	(17,066		)
Minority interest	—			(45		)	(89		)
Net Loss	$	(46,420	)	$	(25,172	)	$	(17,155	)
Loss per share—Basic and Diluted (Notes 1 and 8):	$	(1.48	)	$	(0.82	)	$	(0.56	)
Weighted average number of shares outstanding:
Basic and Diluted	31,399,000			30,870,000			30,455,000

The accompanying notes are an integral part of these statements.

36

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Years ended December 31, 2005, 2004 and 2003

	Common Stock				Additional Paid-in				Accumulated other Comprehensive				Retained Earnings /				Treasury Stock
	Shares	Amount			Capital				Income/(Loss)				(Deficit)				Shares		Amount			Total
	(dollars in thousands)
Balance, December 31, 2002	33,153,107		$	3,315		$	133,518			$	(4,306	)		$	28,255		2,660,667		$	(14,927	)	$	145,855
Net loss for the year														(17,155		)						(17,155		)
Other comprehensive loss:
Current year unrealized loss on investments										(489		)										(489		)
Foreign currency translation adjustments										2,006												2,006
Total comprehensive loss																						(15,638		)
Stock options exercised																	(361,410	)	959			959
Employee stock purchase program						(472		)									(153,765	)	863			391
Purchase of treasury shares																	392,200		(1,230		)	(1,230		)
Balance, December 31, 2003	33,153,107		3,315			133,046				(2,789		)		11,100			2,537,692		(14,335		)	130,337
Net loss for the year														(25,172		)						(25,172		)
Other comprehensive loss:
Current year unrealized gain on investments										325												325
Foreign currency translation adjustments										264												264
Total comprehensive loss																						(24,583		)
Other issuance of common stock	698
Stock options exercised																	(306,460	)	774			774
Employee stock purchase program						(395		)									(171,221	)	1,018			623
Purchase of treasury shares
Tax benefits/other, net related to acquisition						18,630																18,630
Balance, December 31, 2004	33,153,805		3,315			151,281				(2,200		)		(14,072		)	2,060,011		(12,543		)	125,781
Net Loss for the year														(46,420		)						(46,420		)
Other comprehensive Loss:
Current year realized loss on investments										1,180												1,180
Current year unrealized gain on investments										84												84
Foreign currency translation adjustments										293												293
Total comprehensive loss																						(44,863		)
Other issuance of common stock
Other issuance of common stock	4,300
Stock options exercised																	(741,895	)	2,441			2,441
Treasury stock reclassification (Note 6)						(2,657		)											2,657
Employee stock purchase program						(541		)									(200,102	)	1,209			668
Balance, December 31, 2005	33,158,105		$	3,315		$	148,083			$	(643	)		$	(60,492	)	1,118,014		$	(6,236	)	$	84,027

The accompanying notes are an integral part of this statement.

37

Computer Horizons Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2005			2004						2003
	(in thousands)
Cash flows from operating activities
Net loss	$	(46,420	)	$				(25,172	)	$				(17,155	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Deferred taxes	19,567			(1,254					)	(6,750					)
Depreciation	4,181			4,821						5,336
Amortization of intangibles	1,080			1,695						1,084
Provision for bad debts	1,632			969						4,644
Loss /(gain) on sale of assets	(327		)	—						424
Loss on investments	1,264			—						432
Goodwill impairment	—			20,306						—
Write-off of assets	—			910						—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	1,566			(696					)	14,635
Prepaid expenses and other current assets	(1)			254						—
Other receivables	1,443			(1,040					)	2,388
Other assets	(357)			(245					)	(3,612					)
Refundable income taxes/benefit reserve	(2,342		)	(4,088					)	19,051
Accrued payroll, payroll taxes and benefits	2,060			(49					)	3,262
Accounts payable	28,637			(1,072					)	(4,026					)
Income taxes payable	(227		)	134						1,033
RGII contingency payment	(1,851		)	1,221						630
Other accrued expenses	(2,590		)	582						(2,303					)
Change of Control payable	2,938			—						—
Deferred compensation	(165		)	530						747
Supplemental executive retirement plan	(2,162		)	480						117
Other liabilities	(627		)	317						(3,064					)
Net cash provided by/(used in) operating activities	7,299			(1,397					)	16,873
Cash flows from investing activities
Purchases of furniture and equipment	(3,252		)	(2,050					)	(2,387					)
Proceeds on sale of investments	4,705			—						2,517
Acquisitions, net of cash received	—			(14,714					)	(22,178					)
Proceeds received from the sale of assets	562			—						149
Acquisitions of intangibles	—			—						(566					)
Acquisitions of goodwill	—			(2,461					)	(1,057					)
Net cash provided by/(used in) investing activities	2,015			(19,225					)	(23,522					)
Cash flows from financing activities
Payment of notes payable	—			—						(2,636					)
Stock options exercised	2,441			774						959
Purchase of treasury shares	—-			—-						(1,230					)
Stock issued on employee stock purchase plan	668			623						391
Net cash provided by/(used in) financing activities	3,109			1,397						(2,516					)
Effect of foreign currency gains/(losses)	293			264						2,006
Net increase/(decrease) in cash and cash equivalents	12,716			(18,961					)	(7,159					)
Cash and cash equivalents at beginning of year	33,649			52,610						59,769
Cash and cash equivalents at end of year	$	46,365		$				33,649		$				52,610
Supplemental disclosures of cash flow information:
Cash paid/(received) during the year for:
Interest	$	(822	)	$			(224		)	$			(427		)
Income taxes	342			461						(20,339					)
Details of acquisition:
Tangible assets acquired **				$		4,613				$		13,083
Liabilities assumed				(2,523					)	(7,442					)
Goodwill				11,252						13,958
Intangibles				2,540						2,926
Cash paid				15,882						22,525
Less: cash received in acquisition				(1,168					)	(347					)
Net cash paid *				$	14,714					$	22,178

*2003 Included a $1.5 million note payment

**Excluding cash of $1,168 in 2004 for the AIM acquisition and $347 in 2003 for the RGII acquisition

Non Cash Activities:

During the first quarter of 2004, the Company recorded a reduction in tax benefit reserves and an increase in additional paid-in capital of $19.9 million. During the third quarter of 2004, the Company recorded a reduction in other assets and a reduction in additional paid-in capital of $1.2 million.

The accompanying notes are an integral part of these statements.

38

Computer Horizons Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Computer Horizons Corp. (“CHC”) is a strategic Information Technology solutions and professional services company which does business principally in the United States and Canada. The Company enables its Global 2000 (which Forbes magazine defines as the biggest and most important companies as measured by sales, profits, assets and market value) client base to realize competitive advantages through three business segments: Commercial, Federal Government (RGII) and Vender Management Services (Chimes). CHC’s Commercial Services business unit is organized into two lines of services: IT Services (IT staffing) and Solutions (project-based IT work). The IT Services practice provides skilled technology personnel to meet clients’ temporary needs (including support personnel, programmers, architects and project managers). The Solutions practice offers a very broad range of technical knowledge, focusing on application management and support, application development and software quality management. RGII Technologies, Inc. (Federal) provides enterprise management, network infrastructure, information assurance and security, web development and integration, call management, engineering technology and technical services to Federal government agencies and large prime contractors, both on and off site. Chimes, Inc., a wholly-owned subsidiary of CHC (“Chimes”), provides workforce procurement and management services to Global 2000 companies.

Principles of Consolidation

The consolidated financial statements include the accounts of Computer Horizons Corp. and its wholly-owned and majority-owned subsidiaries (the “Company”). All subsidiaries of the Company have been consolidated into these financial statements. ISG - Canada reports their financials on a one-month lag. All material intercompany accounts and transactions have been eliminated.

Revenue Recognition

Approximately 95% and 94% of consolidated revenue in 2005 and 2004, respectively, was derived from time-and-material contracts.

The Company recognizes revenues either on a time-and-materials basis or on a fixed fee basis. Under a typical time-and-materials billing arrangement, our customers are billed on a regularly scheduled basis, such as biweekly or monthly. At the end of each accounting period, revenue is estimated and accrued for services performed since the last billing cycle. These unbilled amounts are billed the following month.

For fixed fee contracts, revenue is recognized on the basis of the estimated percentage of completion. Each fixed fee contract has different terms, milestones and deliverables. The milestones and deliverables primarily relate to the work to be performed and the timing of the billing. At the end of each reporting period an assessment of revenue recognized on the percentage of completion and milestones achieved criteria is made. If it becomes apparent that estimated cost will be exceeded or required milestones or deliverables will not have been obtained, an adjustment to revenue and/or costs will be made. The cumulative effect of revisions in estimated revenues and costs are recognized in the period in which the facts that give rise to the impact of any revisions become known.

Unbilled accounts receivable represent amounts recognized as revenue based on services performed in advance of customer billings principally on a time-and-materials basis. At the end of each accounting period, revenue is accrued for services performed since the last billing cycle. These unbilled amounts are

39

billed the following month. Costs and estimated earnings in excess of billings on fixed fee contracts arise when percentage of completion accounting is used. Such amounts are billed at specific dates or at contract completion.

The Company’s Chimes subsidiary recognizes revenue on a transaction fee basis. The Chimes service offering aggregates the suppliers of temporary workers to the customer and renders one invoice to the customer. Upon payment from the customer, Chimes deducts a transaction fee and remits the balance of the client payment to the applicable vendor. Chimes recognizes only their fee for the service, not the aggregate billing to the customer. The gross amount of the customer invoicing is not considered revenue or a receivable to Chimes because there is no earnings process for the gross amount and by contract terms, Chimes is not obligated to pay the vendor until paid by the customer.

Recruitment Costs

Recruitment costs are charged to operations as incurred.

Advertising Costs

The Company expenses all advertising costs as incurred and classifies these costs under selling, general and administrative expenses. Advertising costs for the years ended December 31, 2005, 2004 and 2003 were $0.2 million.

Research and Development Costs

The Company charges all costs incurred to establish the technological feasibility of software products or product enhancements to research and development costs, which are included in selling, general and administrative expenses and are primarily attributable to the Company’s Chimes subsidiary and RGII monument costs. Research and Development costs for the years ended December 31, 2005, 2004 and 2003 were approximately $2.2 million, $3.3 million and $3.8 million, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid instruments with an original maturity of three months or less at the time of purchase and consist of the following at December 31:

	2005		2004
	in thousands
Cash	$	45,094	$	25,456
Commercial paper	1,052		8,002
Restricted cash	219		191
	$	46,365	$	33,649

Restricted cash represents funds received by Chimes and held in client-specific bank accounts, to be used to make payments to vendors of the applicable client. Cash and Accounts Payable at December 31, 2005 and 2004 also includes approximately $29.4 million and $2.1 million, respectively, of cash to be disbursed to Chimes vendors in accordance with the client payment terms.

Investments

The Company’s marketable securities are categorized as available-for-sale securities, as defined by the Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”  Unrealized gains and losses are reflected as a net amount under the caption of accumulated other comprehensive loss within the statement of shareholders’ equity. Realized gains and

40

losses are recorded within the statement of income under the caption other income or expenses. For the purposes of computing realized gains and losses, cost is identified on a specific identification basis.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, regardless of the degree of such risk, consist principally of cash and cash equivalents and trade accounts receivable. The Company invests the majority of its excess cash in overnight commercial paper of high-credit, high quality, short-term money market instruments, high quality financial institutions or companies, with certain limitations as to the amount that can be invested in any one entity.

The Company maintains its cash balances principally in twelve financial institutions located in the United States, Canada, India, and Puerto Rico. The balances in U.S banks are insured by the Federal Deposit Insurance Corporation up to $100,000 for each entity at each institution. The balance in the Canadian bank is insured by the Canadian Deposit Insurance Corporation up to $60,000 Canadian (approximately $51,000 U.S.) per account. Of the balance held in the Indian bank, approximately $36,000 is held in U.S. dollars and is fully insured in (Export Earners Foreign Currency Account) “EEFC”. The remaining balance is insured by the Deposit Insurance and Credit Guarantee Corporation up to 100,000 Rupees (approximately $2,000 U.S.). There is no depository insurance in the United Kingdom. At December 31, 2005, uninsured amounts held by the Company at these financial institutions total approximately $62 million. At December 31, 2005, the Company had approximately $1.9 million in cash maintained in overseas financial institutions.

The Company’s clients are generally very large, Global 2000 companies in many industries and with wide geographic dispersion. For the years ended December 31, 2005, 2004, 2003, the Company’s ten largest clients accounted for approximately 32%, 24%, and 38% of its revenues, respectively, and no single client represents more than 6% of annual revenues.

Fair Value of Financial Instruments

The carrying value of financial instruments (principally consisting of cash and cash equivalents, accounts receivable and payable) approximates fair value because of their short maturities.

Property and Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to seven years.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

Up to and including the year ended December 31, 2001, the Company evaluated its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used was measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such an asset was considered to be impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the asset exceeded the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying amount or fair value less costs to sell.

Effective on January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” (“FAS 144”). This supersedes Statement of Financial Accounting Standard No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“FAS 121”), while retaining many of the

41

requirements of such statement. The effect of the adoption of this statement was immaterial to the Company.

Income Taxes

The Company and its domestic subsidiaries file a consolidated Federal income tax return. The foreign subsidiaries file in each of their local jurisdictions.

The Company follows the liability method of accounting for income taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred income taxes are recognized for temporary differences between the financial statement carrying amounts and the tax bases of certain assets and liabilities. Temporary differences result primarily from net operating loss carryovers, amortization of goodwill, allowance for doubtful accounts and certain accrued liabilities which are deductible, for tax purposes, only when paid. The Company records deferred tax assets for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases, and operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, management considers the scheduled reversal periods of the deferred tax assets, whether sustained profitability has been achieved and tax planning strategies.

Tax benefits from early disposition of the stock by optionees under incentive stock options and from exercise of non-qualified options are credited to additional paid-in capital.

The Company provides United States income taxes on the earnings of foreign subsidiaries, unless they are considered permanently invested outside the United States. As of December 31, 2005, cumulative amount of foreign earnings on which United States income taxes have not been provided is approximately $115,000.

Loss Per Share

Basic loss per share is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted loss per share is based on the weighted average number of common and common equivalent shares outstanding, except when the effect is anti-dilutive. The calculation takes into account when dilutive, the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the year. For all years presented all stock options (See Note 8) were excluded for diluted loss per share because they were antidilutive.

Use of Estimates in Financial Statements

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

For operations outside the United States that prepare financial statements in currencies other than the United States dollar (Canadian dollar, British pound, and Indian Rupee), results of operations and cash flows are translated at the average exchange rates during the period, and assets and liabilities are translated at end of period exchange rates. Exchange amounts included in operations are income/(loss) of

42

$(23,000), $392,000 and nil for December 31, 2005, 2004 and 2003, respectively. Translation adjustments are included as a separate component of comprehensive income/(loss) within the statement of shareholders’ equity.

Accounts Receivable

Accounts receivable are generally due within 30 days and are stated at amounts due from clients net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the client’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to income or the allowance for doubtful accounts.

Goodwill

In June 2001, the FASB approved the issuance of Statement of Financial Accounting Standards No. 141 “Business Combinations” (“FAS 141”), and in July 2001, Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). The new standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged are recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer subject to amortization, but are subject to at least an annual assessment for impairment by applying a fair value based test.

For the years ended December 31, 2003 and 2002 the Company completed valuations of the carrying value of goodwill and it determined that no impairment had occurred.

For the year ended December 31, 2004, the Company reassessed the carrying value of goodwill associated with its Commercial Solutions Group using an evaluation prepared by an independent appraisal firm. Because of a reduction in projected future cash flows in the Commercial Solutions business unit, primarily resulting from significant revenue declines in 2004, the Company determined that goodwill was impaired and recorded a non-cash charge of $20.3 million, related to the write-off of the Commercial Solutions goodwill. There was no income tax effect on the impairment charge as the related goodwill was primarily attributable to acquisitions which yielded no tax basis for the Company. The remaining goodwill of $27.6 million, as of December 31, 2004, is associated with the Company’s Federal Government segment.

For the year ended December 31, 2005, using an evaluation prepared by an independent appraisal firm, the Company completed an assessment of the fair value and carrying value of its Federal Government segment. As of December 31, 2005, the indicated fair value of the Federal Government reporting unit exceeded the carrying value. As a result, the Company concluded that the goodwill of approximately $27.6 million is not impaired.

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The changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004, are as follows (in 000’s):

Reporting Units	December 31, 2005			December 31, 2004
Balance as of January 1,		$	27,625		$	34,218
Additions to goodwill*		—-			13,713
Impairment losses (Commercial Solutions)		—-			(20,306		)
Balance as of December 31,		$	27,625		$	27,625

*Additions to goodwill in 2004 recorded principally as a result of the acquisition of AIM ($11.2 million) by RGII, and the contingent note paid on the EBIT target of RGII ($1.8 million). Refer to Note 15 regarding repayment of contingent payments pertaining to the RGII acquisition and the resulting reduction in the carrying amount of goodwill.

As of December 31, 2005 and 2004, the fair value of each of the reporting units was calculated using the following approaches (i) market approach and (ii) income approach. The reporting units are equal to, or one level below, reportable segments. Under the market approach, value is estimated by comparing the performance fundamentals relating to similar public companies’ stock prices. Multiples are then developed of the value of the publicly traded stock to various measures and are then applied to each reporting unit to estimate the value of its equity. Under the income approach, value was determined using the present value of the projected future cash flows to be generated by the reporting unit.

The fair value conclusion of the reporting units reflects an appropriately weighted value of the market multiple approach and the income approach discussed above. An asset approach was not used because the asset approach is most relevant for liquidation approaches, investment company valuations and asset rich company valuations (i.e. real estate entities) and was not deemed relevant for manufacturing and service company going-concern valuations.

Intangible Assets

Intangible assets are the result of the acquisition, in July 2003, of certain assets and operations of RGII, the acquisition of  Xpress software from Commerce One and the acquisition of AIM, by RGII, in April 2004. Accordingly, the Company completed purchase price allocation reviews and according to FAS 142, assessed the useful lives of its acquired intangible assets.

The following table summarizes the acquired intangible assets, the remaining components and the accumulated amortization as of December 31, 2005 (in thousands):

	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Weighted Average Amortization Period
Amortized intangible assets:
Non-compete agreements		410			145			265			6.2 yrs
RGII trademark		430			430			0			1 yr
RGII software		726			372			354			4.9 yrs
Client contracts		3,900			2,581			1,319			4.5 yrs
Xpress software—Sold 6/22/05		566			566			0			3 yrs
Total		$	6,032		$	4,094		$	1,938		3.7 yrs

Intangible assets are being amortized over periods ranging from six months to seven years, based on the estimated useful lives. The amortization expense on these intangible assets for the year ended

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December 31, 2005 was $1.1 million. The estimated remaining amortization expense for each year ending December 31, is as follows (in thousands):

2006	$	928
2007	641
2008	308
2009	44
2010	17
Total	$	1,938

Recent Accounting Pronouncements

In January 2003, the FASB issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which addresses consolidation by business enterprises of variable interest entities (“VIEs”). The accounting provisions and disclosure requirements of FIN 46 are effective immediately for VIEs created after January 31, 2003, and are effective for the Company’s fiscal period ending March 31, 2004, for VIEs created prior to February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, public companies that have interests in VIEs that are commonly referred to as special purpose entities are required to apply the provisions of FIN 46R for periods ending after December 15, 2003. A public company that does not have any interests in special purpose entities but does have a variable interest in a VIE created before February 1, 2003, must apply the provisions of FIN 46R by the end of the first interim or annual reporting period ending after March 14, 2004. Adoption of FIN 46R did not have a material effect on the Company’s financial statements.

In March 2004, the FASB Emerging Issues Task Force (EITF) released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (“FSP”) EITF 03-1-1 that delayed the effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing “other-than-temporary” guidance until a final consensus is reached. Management does not anticipate that issuance of a final consensus will materially impact the Company’s financial condition or results of operations.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), FAS 123R requires that compensation cost be recognized for new awards of equity instruments and unvested awards on the adoption date. The SEC amended the effective dates of FAS 123R for public companies in April 2005, which allows registrants to implement FAS 123R at the beginning of their next fiscal year, instead of the next interim period, that begins after June 15, 2005. The SEC also issued Staff Accounting Bulletin 107, “Share-Based Payment” (SAB 107), in April 2005, which provides the views of the SEC staff regarding certain aspects of the application of FAS 123R. SAB 107 assists issuers in their initial implementation of FAS 123R and indicates that the staff’s understanding that, particularly in the period of initial implementation, issuers may reasonably arrive at different estimates and option valuations in applying FAS 123R. The provisions of this statement are effective for the Company’s first quarter ending March 31, 2006. Statement 123R requires compensation cost be recognized for new awards of equity instruments and unvested awards on the adoption date.

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Statement 123(R) allows for two alternative transition methods. The first method is the modified prospective application whereby compensation cost for the portion of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date will be recognized over the remaining service period. The compensation cost for that portion of awards will be based on the grant-date fair value of those awards as calculated for pro forma disclosures under Statement 123, “Accounting for Stock-Based Compensation”, as originally issued. All new awards and awards that are modified, repurchased or cancelled after the adoption date will be accounted for under the provisions of Statement 123(R). The second method is the modified retrospective application, which requires that the Company restates prior period financial statements. The modified retrospective application may be applied either to all prior periods or only to prior interim periods in the year of adoption of this statement. The Company is currently determining which transition method it will adopt and is evaluating the impact Statement 123(R) will have on its financial position, results of operations, EPS and cash flows when the Statement is adopted.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153, “Exchanges of Nonmonetary Assets” (FAS 153) - an amendment of Accounting Principles Board Opinion No. 29 (Opinion 29). The guidance in Opinion 29, “Accounting for Nonmonetary Transactions” is based on the underlying principle that the measurement of exchanges of nonmonetary assets should be based on the fair value of the assets exchanged. However, Opinion 29 included certain exceptions to that principle, including a requirement that exchanges of similar productive assets should be recorded at the carrying amount of the asset relinquished. FAS153 eliminates that exception and replaces it with a general exception for exchanges of nonmonetary assets that lack commercial substance. Only nonmonetary exchanges in which an entity’s future cash flows are expected to significantly change as a result of the exchange will be considered to have commercial substance. FAS 153 must be applied to nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement did not have a material impact on the Company’s financial condition or results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154, “Accounting Changes and Error Corrections” (FAS 154) , which changes the accounting and reporting requirements for the change in an accounting principle. Accounting Principles Board Opinion 20, “Accounting Changes” (Opinion 20), which is superseded by FAS 154, required that most voluntary changes in accounting principle be recognized by including the cumulative effect of changing to the new accounting principle as a component of net income in the period of the change. FAS 154 instead requires retrospective application to prior periods’ financial statements of changes in an accounting principle, unless it is impracticable to do so. FAS 154 differentiates between “retrospective application” and “restatement”.  “Retrospective application” is defined as the application of a different accounting principle to prior accounting periods as if that principle had always been used or as the adjustment of previously issued financial statements to reflect a change in the reporting entity. In contrast, restatement is defined as the revising of previously issued financial statements to reflect the correction of an error. FAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. The guidance contained in Opinion 20 for reporting the corrections of errors in previously issued financial statements, and changes in accounting estimates is carried forward to FAS 154 without change. Additionally, FAS 154 carries forward the guidance in Opinion 20 requiring justification of a change in accounting principle on the basis of preferability. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the adoption of this statement will have a material impact on the Company’s financial condition or results of operations

Accounting for Stock Based Compensation

In December 2002, the FASB approved the issuance of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Translation and Disclosure” (“FAS 148”). This

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statement amends FAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amended the disclosure requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the methods used on reported results. The Company adopted the disclosure provisions as of December 31, 2002.

The exercise price per share on all options granted may not be less than the fair value at the date of the option grant. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) as modified by Financial Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation” (“FIN 44”) in accounting for stock-based employee compensation, whereby no compensation cost had been recognized for the plans. Had compensation cost for the plans been determined based on the fair value of the options at the grant dates and been consistent with the method of FAS 123, the Company’s net loss and loss per share would have been reduced to the pro forma amounts indicated below:

		2005			2004			2003
		(in thousands)
Net loss	As reported	$	(46,420	)	$	(25,172	)	$	(17,155	)
	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(1,285		)	(1,754		)	(2,401		)
	Pro forma	$	(47,705	)	$	(26,926	)	$	(19,556	)
Loss per share
Basic & Diluted	As reported	$	(1.48	)	$	(0.82	)	$	(0.56	)
	Pro forma	(1.52		)	(0.87		)	(0.64		)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions used for grants in 2005, 2004 and 2003, respectively:  expected volatility of 41%, 36% and 62%;  risk-free interest rates of 4.39%, 4.24% and 4.27%; and expected lives of 8.8, 6.1 and 7.8 years.

Reclassifications

Certain reclassifications have been made to the 2004 and 2003 comparative financial statements to conform to the 2005 presentation.

NOTE 2—ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at December 31:

	2005		2004
	(in thousands)
Billed	$	45,388	$	49,571
Unbilled—primarily scheduled billings	7,390		7,665
	52,778		57,236
Less allowance for doubtful accounts	4,654		5,914
	$	48,124	$	51,322

Included in unbilled accounts receivable at December 31, 2005 and 2004 are amounts not yet billable to customers of approximately $447,000 and $390,000, respectively.

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NOTE 3—PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	2005		2004
	(in thousands)
Furniture, Fixtures and Equipment	$	39,412	$	36,669
Software	3,580		3,406
Leasehold Improvements	3,124		2,735
	46,116		42,810
Less : accumulated depreciation	41,051		36,815
	$	5,065	$	5,995

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to seven years. Depreciation expense was $4.2 million, $4.8 million and $5.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 4—ASSET-BASED LENDING FACILITY

The Company has a $40 million line of credit facility with availability based primarily on eligible client receivables. Since November 4, 2005, the interest rate has been calculated using the lesser of: Prime or LIBOR plus 2.5% based on unpaid principal. The minimum borrowing base threshold has been eliminated as of November 4, 2005. As of December 31, 2005, the Company had no outstanding loan balance against the facility. Based on the Company’s eligible client receivables and cash balances, $8.3 million was available for borrowing as of December 31, 2005. The fee for the unused portion of the line of credit is 0.375% per annum based on $20 million, charged to the Company monthly. This charge, including other associated fees, was approximately $136,000 and $99,000 for the years ended December 31, 2005 and 2004, respectively. This line of credit includes covenants relating to the maintenance of cash balances and providing for limitations on incurring obligations and spending limits on capital expenditures. As of December 31, 2005, the Company was in compliance with the covenants. This credit facility will remain in effect until July 2006 and the Company is currently in discussions to extend the facility.

NOTE 5—PURCHASE OF TREASURY STOCK

In April of 2001, the Board of Directors approved the repurchase in the open market of up to 10% of its common stock outstanding, or approximately 3.2 million shares. The Company did not repurchase shares of its common stock during the year ended December 31, 2005 or 2004. For the year ended December 31, 2003, the Company had repurchased, in the open market, 392,200 shares of its common stock at an average price of $3.08 per share for an aggregate purchase amount of $1.2 million. For the year ended December 31, 2002, the Company had repurchased, in the open market, 1,611,700 shares of its common stock at an average price of $3.81 per share for an aggregate purchase amount of $6.1 million. As of December 31, 2005 authorization for repurchase relates to approximately 93,000 shares of common stock.

NOTE 6—SHAREHOLDERS’ EQUITY

Stock Options

In 1994, the Company adopted a stock option plan which provides for the granting of options, to officers and key employees, for the purchase of a maximum of 7,594,000 shares of common stock and stock appreciation rights (“SARs”). Options and SARs generally expire ten years from the date of grant and become exercisable in specified amounts during the life of the respective options. No SARs have been granted as of December 31, 2005. There were 2,427,000 shares available for option grants at December 31, 2003, and no shares available as of December 31, 2005 or 2004 for the 1994 stock option plan.

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In May 2004, the Company received shareholder approval and adopted the 2004 Omnibus Incentive Compensation Plan (the “Omnibus Plan”). This plan replaced the 1994 Stock Option and Appreciation Plan and provides for a maximum number of 3,500,000 shares of common stock issuable under the plan. These awards may be stock options, stock appreciation rights, restricted stock or performance share awards. This Plan is scheduled to expire on May 19, 2014. As of December 31, 2005 and 2004, there were 2,976,500 and 3,294,000 shares, respectively, available for awards under the Omnibus Plan, respectively.

The Company also has a non-qualified Directors’ stock option plan (the “Directors’ Plan”). In 1998, the Company amended the Directors’ Plan, providing that each new director of the Company who is not an employee of the Company (i) shall immediately receive options to purchase 10,000 shares of the Company’s common stock and (ii) shall receive annual grants to purchase an additional 10,000 shares of its common stock. The Directors’ Plan originally was to expire on March 4, 2001 and was extended by the Board of Directors and Shareholders through March 6, 2007. There were 74,000, 184,000 and 264,000 shares of common stock available for grant at December 31, 2005, 2004 and 2003, respectively, under the Directors’ Plan.

A summary of the status of all the Company’s stock option plans as of December 31, 2005, 2004 and 2003, and changes during the years ending on those dates is presented below:

	2005						2004						2003
	Shares (000’s)			Weighted average exercise price			Shares (000’s)			Weighted average exercise price			Shares (000’s)		Weighted average exercise price
Outstanding—January 1		3,656			$	4.23		3.845			$	4.08	4,527			$	7.93
Granted		473			3.88			276			3.88		1,527			3.76
Exercised		(729	)		3.17			(321	)		2.40		(361	)		2.66
Canceled/forfeited/expired		(725	)		4.40			(144	)		3.68		(1,848	)		13.27
Outstanding—December 31		2,675			3.69			3,656			4.23		3,845			4.08
Options exercisable—December 31		2,500			3.66			2,326			4.49		1,420			4.98
Weighted average fair value of options granted during the year					$	1.75					$	1.68				$	1.93

The following information applies to options outstanding at December 31, 2005:

Range of exercise prices	Outstanding as of December 31, 2005 (000’s)		Weighted average remaining contractual life		Weighted average exercise price			Exercisable as of December 31, 2005 (000’s)		Weighted average exercise price
0.00–4.55		2,645		6.0		$	3.56		2,470		$	3.51
4.55–9.10		0		0		0			0		0
9.10–13.65		0		0		0			0		0
13.65–18.20		30		3.7		15.52			30		15.52
18.20–22.75		0		0		0			0		0
22.75–27.30		0		0		0			0		0
		2,675		5.9		$	3.69		2,500		$	3.66

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Prior to the adoption of FIN 44 and the Sarbanes-Oxley Act of 2002, certain officers had the right to borrow from the Company against the exercise price of options exercised. As of December 31, 2005 and 2004, total outstanding borrowings, pertaining to one officer, amounted to $100,000 which borrowings occurred in 1999.

The Company issued 150,001 warrants in 2003 to one major shareholder to purchase shares of its common stock. The exercise price of such warrants is $3.89, representing the fair value of the Company’s common stock at the date of grant. As of December 31, 2003, 152,134 warrants were outstanding. There were no warrants exercised in 2005 or 2004.

Shareholder Rights Plan

In July 1989, the Board of Directors declared a dividend distribution of .131 preferred stock purchase right on each outstanding share of common stock of the Company. The rights were amended on February 13, 1990. Each right will, under certain circumstances, entitle the holder to buy one one-thousandth (1/1000) of a share of Series A preferred stock at an exercise price of $90.00 per one one-thousandth (1/1000) share, subject to adjustment. Each one one-thousandth (1/1000) of a share of Series A preferred stock has voting, dividend and liquidation rights and preferences substantively equivalent to one share of common stock.

The rights will be exercisable and transferable separately from the common stock only if a person or group acquires 20% or more, subject to certain exceptions, of the Company’s outstanding common stock or announces a tender offer that would result in the ownership of 20% or more of the common stock. If a person becomes the owner of at least 20% of the Company’s common shares (an “Acquiring Person”), each holder of a right other than the Acquiring Person is entitled, upon payment of the then current exercise price per right (the “Exercise Price”), to receive shares of common stock (or common stock equivalents) having a market value equal to twice the Exercise Price.

Additionally, if the Company subsequently engages in a merger or other business combination with the Acquiring Person in which the Company is not the surviving corporation, or in which the outstanding shares of the Company’s common stock are changed or exchanged, or if more than 50% of the Company’s assets or earning power is sold or transferred, a right would entitle a Computer Horizon Corp. shareholder, other than the Acquiring Person and its affiliates, to purchase upon payment of the Exercise Price, shares of the Acquiring Person having a market value of twice the Exercise Price. Prior to a person becoming an Acquiring Person, the rights may be redeemed at a redemption price of one cent per right, subject to adjustment. The rights are subject to amendment by the Board. No shareholder rights have become exercisable. The rights originally would have expired on July 16, 1999, however, the Board of Directors approved the adoption of a new Shareholder Rights Plan to replace the existing plan. The terms of the new Rights Plan are substantially the same as the original plan. The new rights will expire on July 15, 2009.

Stock Option Exchange Program

On January 8, 2003, the Company commenced a tender offer to its employees to exchange stock options granted under the Company’s 1994 Incentive Stock Option and Appreciation Plan with an exercise price of $10.01 or greater for new stock options with a new exercise price. The tender offer expired on February 10, 2003, and 1,635,526 options were accepted for exchange. On August 13, 2003, 545,928 options were issued for the exchange at an exercise price of $3.89 per share.

Treasury Stock Reclassification

The Company utilizes the cost method in the recording of treasury stock. During the fourth quarter of 2005, the Company determined that the recording of the issuance of treasury stock pertaining to stock option exercises was not in accordance with GAAP. As a result, the Company recorded a reclassification

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within Shareholders’ Equity of approximately $2.7 million, which decreased treasury stock and decreased additional paid-in capital. Due to the amount and nature of this reclassification within Shareholders’ Equity, the Company deemed this correction to be immaterial.

NOTE 7—INCOME TAXES

The following is a geographical breakdown of the Company’s loss before taxes:

	Year ended December 31,
	2005			2004			2003
	(in thousands)
Domestic	$	(27,187	)	$	(26,929	)	$	(20,360	)
Foreign	935			(888		)	(3,115		)
	$	(26,252	)	$	(27,817	)	$	(23,475	)

The provision for income taxes/(benefit) consists of the following for the years ended December 31:

	2005			2004			2003
	(in thousands)
Current
Federal	$	(7	)	$	(1,181	)	$	30
State	570			(255		)	311
Foreign	39			—			—
Total current	602			(1,436		)	341
Deferred
Federal	18,766			(2,320		)	(6,750		)
State	800			1,066			—
Foreign	—			—			—
Total deferred	19,566			(1,254		)	(6,750		)
	$	20,168		$	(2,690	)	$	(6,409	)

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Deferred tax assets and liabilities consist of the following at December 31:

	2005			2004
	(in thousands)
Deferred tax liabilities
Payroll credit receivable, Foreign	(1,997		)	(1,039		)
Amortization of intangibles	(764		)	(276		)
Prepaid insurance	(506		)	(372		)
Total deferred tax liabilities	$	(3,267	)	$	(1,687	)
Deferred tax assets
Federal and state net operating losses	32,474			24,336
Foreign net operating losses	2,767			2,654
Capital losses	1,315			1,222
Depreciation	1,621			522
Amortization of intangibles, Foreign	5,915			5,729
Accrued payroll and benefits	2,409			2,431
Allowance for doubtful accounts	1,081			2,077
Restructuring charges	257			277
Other	529			984
Net deferred tax assets before valuation allowance	45,101			38,545
Valuation allowance	(45,101		)	(18,979		)
Net deferred tax assets	$	—		$	19,566
Current	$	—		$	1,868
Non current	—			17,698
Total	$	—		$	19,566

A reconciliation of income taxes/(benefit), as reflected in the accompanying statements, with the statutory Federal income tax rate of 35% for the years ended December 31, 2005, 2004 and 2003 is as follows:

	2005			2004			2003
	(in thousands)
Statutory Federal income taxes	$	(9,188	)	$	(9,736	)	$	(8,217	)
State and local income taxes/(benefit), net of Federal tax effect	(893		)	(924		)	(351		)
Goodwill impairment	—			5,391			—
Change of control expenses	3,579			—			—
Change in valuation allowance	26,838			3,632			1,646
Other, net	(168		)	(1,053		)	513
	$	20,168		$	(2,690	)	$	(6,409	)

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The following table summarizes the changes in the valuation allowance for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003
	(in thousands)
Valuation Allowance at beginning of year	13,793		11,612		10,289
Reclassification to conform to 2005 presentation of foreign tax items	5,186		—		—
Adjusted valuation allowance at beginning of year	18,979		11,612		10,289
Reserve on current year tax assets charged to expense	7,272		2,852		1,646
Reserve on prior year tax assets charged to expense	19,566		780		—
Changes in fully reserved assets and other	(716	)	(1,451	)	(323	)
Valuation Allowance at end of year	45,101		13,793		11,612

The Company has significant deferred tax assets from federal, state, and foreign net operating loss carryforwards and capital loss carryforwards. At December 31, 2005 the Company had a Federal net operating loss carryforward of approximately $67.9 million; $11.4 million expires in 2022, $18.3 million expires in 2023, $18.6 million expires in 2024, and $19.6 million expires in 2025. The net operating loss carryforwards include stock option deductions of approximately $1.0 million. The tax benefit related to the stock option deductions will be a credit to additional paid-in capital when realized.

Full valuation allowances were provided on the future tax benefits related to capital losses, foreign net operating losses, and most state net operating losses as of December 31, 2002. These valuation allowances are appropriate because these deferred tax assets have relatively short carryforward periods and relate to taxing jurisdictions which do not allow the filing of consolidated tax returns.

At December 31, 2005, certain foreign subsidiaries of the Company had net operating loss carryforwards totaling approximately $8.1 million (including $6.7 million in Canada, $1.3 million in the United Kingdom, and $0.1 million in other countries); $1.6 million expires in 2006, $1.1 million expires in 2007, $1.8 million expires in 2008, $1.6 million expires in 2011, $0.6 million expires in 2012, and the remainder has no expiration. A full valuation allowance has been recorded on the foreign taxes due to the uncertainty of the realization of certain tax benefits from these net operating loss carryforwards.

In prior years management relied primarily on future projected income in assessing the realizability of deferred tax assets resulting from federal net operating loss carryforwards and other deductible temporary differences. As of December 31, 2005 it was determined that because of continued losses through the fourth quarter of the current year, it was no longer appropriate to rely on future projected income until sustained profitability has been achieved. Accordingly, the Company recorded a full valuation allowance on its remaining net deferred tax assets of $19.5 million in the fourth quarter of 2005.

At December 31, 2005 refundable income taxes consisted primarily of refundable payroll credits claimed on the Company’s Canadian income tax returns.

On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 (the “Act”) was enacted into law. This Act contained many economic and tax incentives, including the extension of the carryback period for losses arising in years ending during 2001 and 2002 to five years from the previous two year carryback rule. As a result, the Company’s tax refund claim of approximately $10 million at December 31, 2001, which was received in April 2002, was increased to approximately $30 million. The additional refund amount of $20 million was received in January 2003.

In December 2003, the Internal Revenue Service examined the Company’s Federal income tax returns for the years ended December 31, 2001 and 2000, along with its Federal refund claims for the calendar years 1996 through 1999. The additional refund amount received in January 2003 was shown as a liability until the audit was completed. During the first quarter of 2004, the Internal Revenue Service and the Joint

53

Committee on Taxation completed their examination of the Company’s Federal income tax returns and Federal refund claims, and accepted them without change. Accordingly, the tax benefit was recorded as a decrease in tax benefit reserves of $19.6 million, a decrease in other tax reserves of $0.3 million, and an increase in additional paid-in capital of $19.9 million. There was no charge or credit to income. The Company did not record deferred tax assets for the tax benefits being carried forward due to remaining uncertainties. It is anticipated that a deferred tax asset, net of an appropriate valuation allowance, will be recorded when it is probable that the tax benefit will be realized. The tax benefit will be reflected as an increase in additional paid-in capital.

The Company assesses the likelihood of the ultimate determination of various contingent tax liabilities that arise in many different taxing jurisdictions. These tax matters can be complex in nature and uncertain as to the ultimate outcome. The Company establishes reserves for tax contingencies when it believes that an unfavorable outcome is likely to occur and the liability can be reasonably estimated. Although the Company believes these positions are fully supportable, the likelihood of potential challenges and sustainability of such challenges upon examination are considered. The Company had reserves for tax contingencies at December 31, 2005 and December 31, 2004 of approximately $1.2 million and $1.3 million, respectively. Changes in the Company’s tax reserves have occurred and are likely to continue to occur as changes occur in the current facts and circumstances. The net impact of the reassessments of such changes resulted in the recognition of income tax benefits of $0.1 million for the year ended December 31, 2005, and income tax benefit of $1.5 million for the year ended December 31, 2004. In addition, the Company’s Federal net operating loss carryforward at December 31, 2005 of $67.9 million excludes deductions of approximately $14.4 million for uncertain tax positions relating to transactions occurring in the ordinary course of business.

NOTE 8—LOSS PER SHARE DISCLOSURES

The computation of diluted loss per share excludes all options because they are antidilutive. During 2005, there were 1,903,000 excluded options outstanding with a weighted average exercise price of $2.45 per share at December 31, 2005.  During 2004, there were 3,656,000 excluded options outstanding with a weighted average exercise price of $4.23 per share at December 31, 2004. During 2003, there were 3,854,000 excluded options outstanding at December 31, 2003 with a weighted average exercise price of $4.08 per share.

NOTE 9—SEGMENT INFORMATION

During the fourth quarter of 2004, the Company completed a restructuring initiative whereby the Company’s business model has been realigned, effective January 1, 2005, around its three distinct segments of clients: Commercial, Federal Government and Vendor Management services (Chimes).  This realigned business model is designed to deliver improved operational performance for the Company and reduce annual operating costs. All prior year amounts reported in this footnote have been changed to reflect the Company’s realigned business segment.

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Income/(loss) before income tax benefit consists of income/(loss) before income taxes, excluding interest income, interest expense, gain/(loss) on the sale of assets/investments, change of control charges, restructuring charges, special charges/(credits), the write-off of  assets and a terminated project, amortization of intangibles and goodwill impairment. These exclusions total expense of $22.6 million, $24.6 million and $18.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.  Long-term assets include goodwill, intangibles and property, plant and equipment. Corporate services, consisting of general and administrative services are provided to the segments from a centralized location. Such costs are allocated to the applicable segments receiving Corporate services based on revenue.

BY LINE OF BUSINESS	2005			2004			2003
	(in thousands)
Revenue:
Commercial	$	195,435		$	191,096		$	206,972
Federal	44,980			48,339			18,220
Chimes	28,421			23,092			20,018
Total revenue	$	268,836		$	262,527		$	245,210
Gross Margin:
Commercial	$	36,786		$	38,004		$	45,484
Federal	20,408			22,221			7,902
Chimes	27,483			21,696			18,626
Total gross margin	$	84,677		$	81,921		$	72,012
Operating income/(loss):
Commercial	$	8,155		$	8,350		$	15,609
Federal	4,449			6,468			1,702
Chimes	5,801			1,420			(2,177		)
Total operating income/(loss)	$	18,405		$	16,238		$	15,134
Corporate Allocation:
Commercial	$	17,375		$	15,600		$	18,104
Federal	1,846			1,793			747
Chimes	2,848			2,065			1,841
Total corporation allocation	$	22,069		$	19,458		$	20,692
Income/(loss) before income tax benefit:
Commercial	$	(9,220	)	$	(7,250	)	$	(2,495	)
Federal	2,603			4,675			955
Chimes	2,953			(645		)	(4,018		)
Total income/(loss) before income tax benefit	$	(3,664	)	$	(3,220	)	$	(5,558	)
Assets:
Commercial	$	59,758		$	93,158		$	134,589
Federal	45,840			53,179			30,306
Chimes	37,745			12,747			15,431
Total assets	$	143,343		$	159,084		$	180,326
Depreciation Expense:
Commercial	$	2,339		$	2,858		$	3,674
Federal	909			431			186
Chimes	933			1,532			1,476
Total depreciation	$	4,181		$	4,821		$	5,336

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BY GEOGRAPHIC AREA *	2005		2004		2003
	(in thousands)
REVENUE
United States	$	232,620	$	234,525	$	219,453
Canada	35,614		27,592		24,709
Europe	262		272		627
India	236		138		421
Puerto Rico	104		—		—-
Total Revenue	$	268,836	$	262,527	$	245,210

*Revenue is generated for each geographic segment based on the locale of the client.

LONG-TERM ASSETS
United States	$	32,670	$	35,621	$	45,191
Canada	1,915		1,211		705
India	46		41		—
Total Long-Term Assets	$	34,631	$	36,873	$	45,949

Reconciliation of Segments Loss before Income Tax Benefit to Consolidated Loss Before Income Tax Benefit:

	2005			2004			2003
	(in thousands)
Total segments loss before income tax benefit	$	(3,664	)	$	(3,220	)	$	(5,558	)
Adjustments:
Change of Control charges	(13,247		)
Special credits / (charges)	(5,728		)	939			(10,113		)
Restructuring charges	(2,175		)	(2,859		)	(3,278		)
Amortization of intangibles	(1,080		)	(1,695		)	(1,084		)
Net gain/(loss) on investments	(1,180		)	—-			(432		)
Write-off of terminated project	—-			—-			(3,064		)
Loss on sale of assets	—-			—-			(424		)
Interest income	849			337			529
Interest expense	(27		)	(103		)	(51		)
Goodwill impairment	—-			(20,306		)	—
Write-off of assets	—-			(910		)	—
Total Adjustments	(22,588		)	(24,597		)	(17,917		)
Consolidated loss before income taxes	$	(26,252	)	$	(27,817	)	$	(23,475	)

NOTE 10—SAVINGS PLAN AND OTHER RETIREMENT PLANS

The Company maintains a defined contribution savings plan covering eligible employees. The Company makes contributions up to a specific percentage of participants’ contributions. The Company contributed approximately $1.4M, $1.4M and $1.1M in 2005, 2004 and 2003, respectively.

In 2004, the Company maintained a Supplemental Executive Retirement Plan (SERP), whereby key executives were entitled to receive payments upon reaching the age of 65 and being in the employment of the Company. Benefits accrue and vest based on a formula which includes total years with the Company and total years until age 65. In the event of a change of control, as defined in the SERP Plan, this event would result in an immediate vesting of the retirement benefit. The Plan is nonqualified and not formally funded. Life insurance policies on the members are purchased to assist in funding the cost. The cumulative accrued liability for the SERP is determined based on the Unit Credit Method by using a discount rate of

56

9% until age 65 for each participant. This plan was terminated as a result of the change of control of the Company in October 2005, and the related payment of all existing SERP assets to participants in the fourth quarter of 2005. The sale of the SERP investments generated approximately $4.7 million of proceeds and resulted in a loss on sale of approximately $1.2 million in the fourth quarter of 2005. The SERP expense was charged to operations during the remaining service lives of the members and was $79,000 in 2005, $480,000 in 2004 and $480,000 in 2003.

In addition, the Company adopted a Deferred Compensation Plan for key executives that permits the individuals to defer a portion of their annual salary or bonus for a period of at least five years. There is no effect on the Company’s operating results since any amounts deferred under the plan are expensed in the period incurred. Amounts deferred amounted to $2.5 million and $2.6 million as of December 31, 2005 and 2004, respectively.

The following represents the fair value (included in Other Non-current Assets) and unrealized gain/(loss) for the deferred compensation and SERP plans as of December 31, 2005 and 2004 (amounts in thousands):

	As of						For the years ended
	December 31, 2005			December 31, 2004			December 31, 2005			December 31, 2004
	Fair Value						Unrealized gain/(loss) on SERP investments
Universal/Whole Life insurance		$	880		$	645		$	—-		$	—-
Money market funds		365			395			—-			96
Debt securities issued by the US Treasury		260			367			—-			(32		)
Corporate debt securities		—-			148			—-			(17		)
Mortgage-backed securities		270			227			—-			(16		)
Equity securities		685			4,903			—-			294
Other		9			—-			—-			—-
Total		$	2,469		$	6,685		$			$	325

During 1999, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed six months of service an opportunity to purchase shares of its common stock through payroll deductions, up to 10 percent of eligible compensation. Quarterly, participant account balances are used to purchase shares of stock at 85 percent of its fair market value on either the first or last trading day of each calendar quarter. A total of 4 million shares were approved, with approximately 2.1 million available for purchase under the plan at December 31, 2005. There were 200,102, 171,222 and 153,765 shares purchased under the plan in 2005, 2004 and 2003, respectively.

In December 2003, John Cassese, the former CEO of Computer Horizons Corp., received a lump-sum payment of $1.3 million, net of taxes from his deferred compensation plan account in accordance with his severance agreement. The Company redeemed insurance policies to fund this payment and received approximately $2.5 million for the surrender values of the split dollar policies. The Company recorded a realized loss of approximately $432,000 on investments for these insurance policies, which had an original cost of approximately $2.9 million.

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NOTE 11—COMMITMENTS

Leases

The Company leases office space and equipment under long-term operating leases expiring through 2009. As of December 31, 2005, approximate minimum rental commitments were as follows:

Year ending	(in thousands)
2006		$	4,072
2007		2,350
2008		429
2009		279
Thereafter		393
		$	7,523

Office rentals are subject to escalations based on increases in real estate taxes and operating expenses. Rent expense, net of sublease income of approximately $ 16,000, $131,000 and $137,000 for December 31, 2005, 2004 and 2003, respectively, for operating leases approximated $7.5 million, $5.7 million and $5.0 million in the years ended December 31, 2005, 2004 and 2003, respectively.

Other

In 2003, the Company entered into a separation package with the Company’s former CEO which contained a commitment for the Company to provide continued medical coverage until age 75, with remaining payments totaling approximately $47,000 at December 31, 2005.

NOTE 12—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

For the years ended December 31, 2005 and 2004, selected quarterly financial data is as follows:

	Quarters
	First			Second			Third			Fourth
	(in thousands, except per share data)
2005
Revenues	$	66,573		$	69,065		$	67,418		$	65,780
Direct costs	45,587			47,764			45,640			45,169
Gross profit	20,986			21,301			21,778			20,611
Selling, general and administrative	20,977			21,208			22,983			23,173
Restructuring charges	—			142			574			1,459
Change of Control charges	—			—			—			13,247
Special charges/(credits)	(675		)	(252		)	5,421			1,236
Amortization of intangibles	350			264			233			233
Income/(Loss) from operations	334			(59		)	(7,433		)	(18,737		)
Loss on Investments	—			—			—			(1,180		)
Interest income/(expense)—net	175			120			258			269
(Loss)/profits before income taxes	509			61			(7,175		)	(19,648		)
Income taxes/(benefit)	178			22			163			19,808
Net Income/(Loss)	$	331		$	39		$	(7,338	)	$	(39,456	)
Earnings/(Loss) per share (basic and diluted):	0.01			0.00			(0.23		)	(1.24		)

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	Quarters
	First			Second			Third			Fourth
	(in thousands, except per share data)
2004
Revenues	$	59,706		$	65,790		$	69,397		$	67,634
Direct costs	40,806			44,507			47,880			47,413
Gross profit	18,900			21,283			21,517			20,221
Selling, general and administrative	19,587			21,554			21,851			22,149
Restructuring charges	—			—			—			2,859
Goodwill impairment	—			—			—			20,306
Write-off of assets	—			—			—			910
Special (credits)	—			(939		)	—			—
Amortization of intangibles	208			520			484			483
(Loss)/profit from operations	(895		)	148			(818		)	(26,486		)
Interest income/(expense) - net	83			29			93			29
Loss before income taxes	(812		)	177			(725		)	(26,457		)
Income taxes/(benefit)	(254		)	97			(323		)	(2,210		)
Minority interest	(9		)	45			(58		)	(23		)
Net loss	$	(567	)	$	125		$	(460	)	$	(24,270	)
Income/(Loss) per share (basic and diluted):
Net loss	$	(0.02	)	$	0.00		$	(0.01	)	$	(0.78	)

NOTE 13—RESTRUCTURING CHARGES

During 2005, in connection with the reorganization of the Commercial Services Division, the Company recorded restructuring charges of approximately $2.2 million, comprised of $1.2 million in severance costs and $1.0 million pertaining to the closing/consolidation of office space in the United States. The lease obligation is calculated based on current rent commitments, less a estimated sublease amount.

	Recorded			Paid			Remaining at December 31, 2005
	(dollars in thousands)
Severance:
Canada		$	535	$	(134	)		$	401
United States		698		(689		)		9
Total Severance		$	1,233	$	(823	)		$	410
Lease Obligations :
United States		$	942	$	(412	)		$	530
Total		$	2,175	$	(1,235	)		$	940

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During 2004, in connection with the Company’s business model realignment, the Company recorded a restructuring charge of approximately $2.9 million comprised of approximately $2.8 million in severance costs and $0.1 million in lease obligation costs. The lease obligation of $110,000 is calculated based on current rent commitments less a calculated sublease amount based on current market conditions.

	Remaining at December 31, 2004			Paid			Remaining at December 31, 2005
	(dollars in thousands)
Severance:
United States		$	1,902	$	(1,795	)		$	107
Canada		535		(152		)		383
United Kingdom		50		(50		)		0
Total Severance		$	2,487	$	(1,997	)		$	490
Lease Obligations:
United States		$	377	$	(365	)		$	12
United Kingdom		123		(38		)		85
Canada		319		(178		)		141
Total Lease Obligations		$	819	$	(581	)		$	238
General Office Closure:
United Kingdom		$	45	$	(45	)		$	0
Total		$	3,351	$	(2,623	)		$	728

During 2003, the Company recorded restructuring charges of approximately $3.3 million relating to the closing of several offices in the United States, Canada and the United Kingdom, including the related severance costs. The severance costs approximated $1.5 million and future lease obligation costs (less a calculated sublease amount), including office closure expenses, approximated $1.8 million, which were fully paid by December 31, 2005.

NOTE 14—MAJORITY-OWNED SUBSIDIARY

On September 30, 2002, the Company announced that it had joined its existing HIPAA compliance, healthcare information technology and other compliance business practices with ZA Consulting LLC (ZAC) to form CHC Healthcare Solutions, LLC. Under the terms of the agreement, CHC had an 80% interest in the newly formed company.

On December 31, 2004, the Company acquired the 20% minority interest owned by ZAC, in exchange for the forgiveness of a ZAC note obligation to the Company approximating $630,000.

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NOTE 15—ACQUISITIONS

On April 1, 2004, RGII acquired Automated Information Management, Inc. (“AIM”). The cash transaction was valued at approximately $13.8 million plus an adjustment to purchase price for excess working capital of approximately $2.0 million.

The Company purchased AIM to further its commitment to driving the growth potential that exists in the Federal government market and to expand RGII’s footprint, providing an entrance into certain government agencies, as well as strong relationships with large, prime contractors.

As a result of the integration of AIM into RGII, the Company and the seller of RGII have agreed that the operating results of AIM shall remain separate from and not be included in the RGII EBIT targets related to contingent payments.  RGII, however shall be permitted an intercompany charge to AIM for AIM’s share of combined operating overhead expenses.

On July 8, 2003, the Company acquired all of the stock of privately-held RGII Technologies, Inc. (“RGII”). The Company purchased RGII because acquiring a platform company in the Federal government IT Services marketplace has been a priority for the Company. The purchase price was approximately $22.1 million including an up-front cash payment, acquisition expenses, working capital adjustment and the payoff of a note payable of $1.5 million. In addition the Company paid off a RGII $665,000 note and a line of credit of approximately $2 million. In addition, the seller may be entitled to contingent payments based on RGII’s performance against profitability objectives over three years. The contingent payments are evidenced by a contingent note with a face value of $10 million that is payable over three years, only if certain financial performance objectives are met. These financial performance objectives are based on earnings before interest and taxes (“EBIT”) targets totaling $19.8 million over a three-year period. There are no minimum or maximum payment obligations under the terms of the contingent note. The contingent payment will be reduced on a dollar for dollar basis for financial performance below EBIT targets, and increased by 29 cents ($0.29) for each dollar exceeding EBIT targets. For the years ended December 31, 2003 and 2004, the seller received payments of $0.6 million and $1.8 million, respectively. EBIT targets were not achieved for the year ended December 31, 2005, and no contingent payment is due. If EBIT targets are not met at the expiration of the contingent earnout period (June 30, 2006), significant amounts previously paid will be repaid to the Company. The Company also entered into employment agreements with the former shareholder and key employees of RGII and agreed to issue an aggregate of 600,000 options to purchase shares of Computer Horizons stock over a three-year period.

The Company completed the allocation of the purchase price to assets and liabilities acquired utilizing outside valuation consultants to assist in this process. Audited historical financial statements of RGII together with applicable pro forma financial information were filed with the SEC on September 19, 2003.

The acquisition was treated as a purchase of assets for tax purposes. Accordingly, goodwill is subject to amortization for tax purposes over fifteen years.

On January 31, 2003, the Company acquired the IT Solutions operations of Global Business Technology Solutions (GBTS), from Alea (Bermuda) Limited, a member of the Alea Group of companies and Westfield Services, Inc., a subsidiary of Westfield Financial Corporation for $400,000. The outsourcing facility and its IT professionals are located in Chennai (Madras), India. This transaction was accounted for as a purchase and the entire purchase price was allocated to goodwill.

NOTE 16—SALE OF SUBSIDIARIES

On June 22, 2005, the Company sold their Xpress Software Solution to Redtail Solutions Inc. for approximately $400,000 in cash. The gain from this transaction was approximately $327,000 and was recorded by the Company in the second quarter of 2005.

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On February 14, 2003, the Company sold the business and net assets of Computer Horizons e-Solutions (Europe) Limited, (“Solutions UK”) to Systems Associates Limited for 92,822 British Pounds Sterling (approximately US$ 145,500). The loss from the transaction was $272,000.

NOTE 17—CHANGE OF CONTROL AND OTHER SPECIAL CHARGES

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

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

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

For fiscal year 2005, the Company recorded special charges/(credits) of $5.7 million primarily pertaining to expenses associated with two proxy contests (including approximately $0.5 million paid to reimburse participants in the proxy contest for costs incurred therein) and merger-related charges pertaining to the proposed merger with Analysts International Corp., which was not approved by the Company’s shareholders at the September 2, 2005 special meeting.

For the year ended December 31, 2004, the Company recorded a special credit of $939,000 consisting of an insurance refund. In addition, as of December 31, 2004, the Company determined that goodwill pertaining to Commercial Solutions business unit was impaired and recorded a non-cash impairment charge of $20.3 million.  The Company also recorded a write-off of assets in 2004 approximating $0.9 million relating to the write-off of a security deposit in connection with an escrow agreement of a previously sold subsidiary and the write-off of fixed assets related to previously closed offices.

During the year ended December 31, 2003, the Company incurred special charges of $10.1 million consisting of a severance package for the Company’s former CEO and expenses related to the unilateral acquisition proposal and activities of Aquent LLC. The separation package of the Company’s former CEO, included a $3.5 million severance payment and $200,000 in continued medical coverage. In addition, $6.4 of the special charges pertained to the unilateral acquisition proposal and activities of Aquent LLC.

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NOTE 18—COMPREHENSIVE INCOME/(LOSS)

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (“FAS 130”), requires that items defined as other comprehensive income/(loss), such as foreign currency translation adjustments and unrealized gains and losses, be separately classified in the financial statements and that the accumulated balance of other comprehensive income/(loss) be reported separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The components of comprehensive loss for the years ended December 31, 2005 and 2004 are as follows:

	Year Ended
	December 31, 2005				December 31, 2004
	(dollars in thousands)
Comprehensive Income/(Loss):
Net Income/(Loss)		$	(46,420	)		$	(25,172	)
Other comprehensive income/(loss)—foreign currency adjustment		293				264
Realized loss on SERP investments		1,180				—
Unrealized gain/(loss) on SERP investments		84				325
Comprehensive Income/(Loss)		$	(44,863	)		$	(24,583	)

The accumulated balances related to each component of other comprehensive income (loss) were as follows:

	Foreign Currency Translation			Unrealized gain/(loss) on Investments			Accumulated Other Comprehensive Income/Loss)
	(dollars in thousands)
Balance at December 31, 2003		(1,200	)		(1,589	)		(2,789	)
Other comprehensive income (loss)		264			325			589
Balance at December 31, 2004		(936	)		(1,264	)		(2,200	)
Other comprehensive income (loss)		293			1,264			1,557
Balance at December 31, 2005		(643	)		—			(643	)

NOTE 19—RESCISSION OFFER

From April 2001 through January 2003, the sale of shares of the Company’s common stock pursuant to the Employee Stock Purchase Plan were not exempt from registration or qualification under Federal securities laws. As a result, the Company may have failed to comply with the registration or qualification requirements of Federal and applicable state securities laws because the Company did not register or qualify these stock issuances under either Federal or applicable state securities laws.

As a result, the Company made a rescission offer, effective July 27, 2004, to all those persons who purchased shares of common stock pursuant to the Employee Stock Purchase Plan during the affected periods. The rescission offer was made pursuant to a registration statement filed under the Securities Act and pursuant to applicable state securities laws. In this rescission offer, the Company offered to repurchase the shares, subject to our rescission offer, for the price paid per share plus interest from the date of purchase until the rescission offer expires, at the current statutory rate per year mandated by the state in which the shares were purchased. The rescission offer expired on August 27, 2004, with no individuals accepting the rescission offer.

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NOTE 20—LEGAL MATTERS

The Company is involved in various and routine litigation matters, which arise through the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not applicable.

Item 9A.Controls and Procedures

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15 (f) and 15d-15 (f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s Principal Executive Officer and Principal Financial Officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

1.Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;

2.Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

3.Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, the Company’s management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of our internal control over financial reporting as prescribed above for the periods covered by this report. Based on our evaluation, our

64

Principal Executive Officer and Principal Financial Officer concluded that the Company’s internal control over financial reporting is effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s independent auditors have attested to, and reported on, management’s evaluation of our internal control over financial reporting. This report is contained in this Annual Report on Form 10-K.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information

Not applicable.

65

PART III

Item 10.Directors and Executive Officers of the Registrant

(a)The information called for by Item 10 with respect to identification of directors of the Company is incorporated herein by reference to the material under the caption “Election of Directors” in the Company’s Proxy Statement, pursuant to Regulation 14A, for its 2006 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report (the “2006 Proxy Statement”).

(b)The information called for by Item 10 with respect to executive officers of the Company is incorporated herein by reference to the material under the caption “Executive Officers” in the 2006 Proxy Statement.

(c)The information called for by Item 10 with respect to compliance with Section 16(a) of the Securities Exchange Act of 1939 is incorporated herein by reference to the material under the caption “Compliance with Section 16(a) of the Exchange Act” in the 2006 Proxy Statement.

Code of Ethics

Our executive officers are subject to a code of ethics that complies with standards mandated by the Sarbanes-Oxley Act of 2002. The complete code of ethics is available on our website at www.computerhorizons.com. At any time it is not available on our website, we will provide a copy upon written request made to our Investor Relations Department, at 49 Old Bloomfield Avenue, Mountain Lakes, New Jersey 07046-1495. Information on our website is not part of this Annual Report. If we amend or grant any waiver from a provision of our code of ethics that applies to our executive officers, we will publicly disclose such amendment or waiver as required by applicable law, including by posting such amendment or waiver on our website at www.computerhorizons.com or by filing a Current Report on Form 8-K.

Item 11.Executive Compensation

The information called for by Item 11 with respect to management remuneration and transactions is incorporated herein by reference to the material under the caption “Executive Compensation” in the 2006 Proxy Statement.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information called for by Item 12 with respect to security ownership of certain beneficial owners and management and the equity compensation plan information is incorporated herein by reference to the material under the caption “Security Ownership of Certain Beneficial Owners” in the 2006 Proxy Statement.

Item 13.Certain Relationships and Related Transactions

The information called for by Item 13 with respect to certain relationships and related transactions is incorporated herein by reference to the material under the caption “Certain Relationships and Related Transactions” in the 2006 Proxy Statement.

Item 14.Principal Accountant Fees and Services

The information called for by Item 14 with respect to Principal Accountant Fees and Services is incorporated herein by reference to the material under the caption “Audit Fees” in the 2006 Proxy Statement.

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PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)Financial Statements and Financial Statement Schedules

1.Consolidated financial statements

·Report of independent registered public accounting firm on the consolidated financial statements

·Report of independent registered public accounting firm on internal controls

·Consolidated balance sheets as of December 3l, 2005 and 2004

·Consolidated statements of operations for each of the three years in the period ended December 31, 2005

·Consolidated statement of shareholders’ equity for each of the three years in the period ended December 31, 2005

·Consolidated statements of cash flows for each of the three years in the period ended December 31, 2005

·Notes to consolidated financial statements

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2. Schedule II—Valuation and qualifying accounts for the years ended December 31, 2005, 2004 and 2003.

	Column B			Column C		Column D			Column E
Column A	Balance at beginning of period			Charged to cost and expenses		Deductions— describe			Balance at end of period
Description
Year ended December 31, 2005
Allowance for doubtful accounts		$	5,914		1,632		2,892	(1)		$	4,654
Deferred tax asset valuation		$	13,793		31,308		—			$	45,101
2005 Restructure Reserve		$	—		2,175		1,235	(2)		$	940
2004 Restructure Reserve		$	2,547		—		2,440	(2)		$	107
2003 Restructure Reserve(3)		$	804		—		183	(2)		$	621
Year ended December 31, 2004
Allowance for doubtful accounts		$	5,432		969		487	(1)		$	5,914
Deferred tax asset valuation		$	11,612		2,181		—			$	13,793
2004 Restructure Reserve		$	—		2,859		312	(2)		$	2,547
2003 Restructure Reserve		$	1,075		—		538	(2)		$	537
2002 Restructure Reserve		$	1,159		—		1,018	(2)		$	141
2000 Restructure Reserve		$	78		—		78	(2)		$	—
1999 Restructure Reserve		$	308		—		182	(2)		$	126
Year ended December 31, 2003
Allowance for doubtful accounts		$	7,696		4,644		6,908	(1)		$	5,432
Deferred tax asset valuation		$	10,289		1,323		—			$	11,612
2003 Restructure Reserve		$	—		3,278		2,203	(2)		$	1,075
2002 Restructure Reserve		$	2,483		—		1,324	(2)		$	1,159
2000 Restructure Reserve		$	295		—		217	(2)		$	78
1999 Restructure Reserve		$	488		—		180	(2)		$	308

Notes

(1)Uncollectible accounts written off, net of recoveries.

(2)Includes payments for severance and lease obligation payments for closed offices.

(3)Contains 1999, 2000, 2002 and 2003 restructure reserve.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE II

Board of Directors and Shareholders
Computer Horizons Corp.

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Computer Horizons Corp. and Subsidiaries referred to in our report dated March 14, 2006, which is included in the 2005 Annual Report on Form 10-K. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statement taken as a whole.

/s/ GRANT THORNTON LLP

Grant Thornton LLP

Edison, New Jersey

March 14, 2006

69

Report of independent registered public accounting firm on the financial statements schedule.

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3.List of Exhibits

Exhibit	Description	Incorporated by Reference to
2.1	Stock purchase agreement dated as of July 8, 2003 between the Company, RGII and Kathryn B. Freeland.	Exhibit 2.1 to Form 8-K dated July 8, 2003.
3(a-1)	Certificate of Incorporation as amended through 1971.	Exhibit 3(a) to Registration Statement on Form S-1 (File No. 2-42259)
3(a-2)	Certificate of Amendment dated May 16, 1983 to Certificate of Incorporation.	Exhibit 3(a-2) to Form 10K for the fiscal year ended February 28, 1983.
3(a-3)	Certificate of Amendment dated June 15, 1988 to Certificate of Incorporation.	Exhibit 3(a-3) to Form 10K for the fiscal year ended December 31, 1988.
3(a-4)	Certificate of Amendment dated July 6, 1989 to Certificate of Incorporation.	Exhibit 3(a-4) to Form 10K for the fiscal year ended December 31, 1994.
3(a-5)	Certificate of Amendment dated February 14, 1990 to Certificate of Incorporation.	Exhibit 3(a-5) to Form 10K for the fiscal year ended December 31, 1989.
3(a-6)	Certificate of Amendment dated May 1, 1991 to Certificate of Incorporation.	Exhibit 3(a-6) to Form 10K for the fiscal year ended December 31, 1994.
3(a-7)	Certificate of Amendment dated July 12, 1994 to Certificate of Incorporation.	Exhibit 3(a-7) to Form 10K for the fiscal year ended December 31, 1994.
3.2	Bylaws, as amended and presently in effect.	Exhibit 3.2 to Form 10K for the fiscal year ended December 31, 2003.
4(a)	Rights Agreement dated as of July 6, 1989 between the Company and Chemical Bank, as Rights Agent (“Rights Agreement”) which includes the form of Rights Certificate as Exhibit B.	Exhibit 1 to Registration Statement on Form 8-A dated July 7, 1989.
4(b)	Amendment No. 1 dated as of February 13, 1990 to Rights Agreement.	Exhibit 1 to Amendment No. 1 on Form 8 dated February 13, 1990 to Registration Statement on Form 8-A.
4(c)	Amendment No. 2 dated as of August 10, 1994 to Rights Agreement.	Exhibit 4(c) to Form 10K for the fiscal year ended December 31, 1994.
4(d)	Employee’s Savings Plan and Amendment Number One.	Exhibit 4.4 to Registration Statement on Form S-8 dated December 5, 1995.
4(e)	Employee’s Savings Plan Trust Agreement as Amended and Restated Effective January 1, 1996.	Exhibit 4.5 to Registration Statement on Form S-3 dated December 5, 1995.

70

Exhibit	Description	Incorporated by Reference to
4(f)	Amendment No. 3 dated as of July 13, 1999 to Rights Agreement.	Exhibit 4.1 to Form 8-K dated July 13, 1999.
10(a)	Employment Agreement dated as of February 16, 1990 between the Company and John J. Cassese.	Exhibit 10(a) to Form 10K for the year ended December 31, 1989.
10(b)	Employment Agreement dated as of January 1, 1997 between the Company and William J. Murphy.	Exhibit 10(g) to Form S-3 dated August 14, 1997.
10(c)	Employment Agreement dated as of March 6, 1997 between the Company and Michael J. Shea.	Exhibit 10(c) to Form 10K for the year ended December 31, 1996.
10(d)	1991 Directors’ Stock Option Plan, as amended.	Exhibit 10(g) to Form 10-K for the year ended December 31, 1994.
10(e)	1994 Incentive Stock Option and Appreciation Plan.	Exhibit 10(h) to Form 10K for the fiscal year ended December 31, 1994.
10(f)	$15,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank dated as of June 30, 1998.	Exhibit 10(h) to Form S-3 dated August 14, 1997.
10(g)	$10,000,000 Discretionary Line of Credit from PNC Bank dated as of June 5, 1998.	Exhibit 10(h) to Form 10K for the fiscal year ended December 31, 1996.
10(h)	1999 Employee Stock Purchase Plan.	Exhibit 99.1 to Form S8 dated March 17, 1999.
10(i)	Amendment to the employment agreement dated as of March 24, 2000 between the Company and William J. Murphy.	Exhibit 10(i) to Form 10K for the fiscal year ended December 31, 1999.
10(j)	$15,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank dated as of June 30, 1998, as amended on March 15, 2000 (increased to $30,000,000).	Exhibit 10(j) to Form 10K for the fiscal year ended December 31, 1999.
10(k)	$20,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank  dated as of March 20, 2001.	Exhibit 10(k) to Form 10K for the fiscal year ended December 31, 2000.
10(l)	$40,000,000 Asset-Based Lending Agreement payable to CIT dated as of July 31, 2001.	Exhibit 10(l) to Form 10K for the fiscal year ended December 31, 2001
10(n)	Amendment to the $40,000,000 Asset-Based Lending Agreement payable to CIT dated as of February 14, 2003.	Exhibit 10(n) to Form 10-K for the fiscal year ended December 31, 2002.
10(o)	Non-qualified supplemental retirement benefit agreement for William J. Murphy.	Exhibit 10(o) to Form 10-K/A for the fiscal year ended December 31, 2003.

71

Exhibit	Description	Incorporated by Reference to
10(p)	Non-qualified supplemental retirement benefit agreement for Michael J. Shea.	Exhibit 10(p) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(q)	First Amendment to the non-qualified supplemental retirement benefit agreement for William J. Murphy.	Exhibit 10(q) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(r)	First Amendment to the non-qualified supplemental retirement benefit agreement for Michael J. Shea.	Exhibit 10(r) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(s)	Summary of Executive Compensation Exchange Program with John J. Cassese.	Exhibit 10(s) to Form 10-K/A for the fiscal year ended December 31, 2002.
10(t)	Severance Agreement dated as of April 28, 2003 between the Company and John J. Cassese.	Exhibit 10.1 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(u)	Amendment to the Employment Agreement dated as of March 31, 2003 between the Company and William J. Murphy.	Exhibit 10.2 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(v)	Amendment to the Employment Agreement dated as of April 3, 2003 between the Company and Michael J. Shea.	Exhibit 10.3 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(w)	Employment agreement dated as of July 8, 2003 between RGII and Kathryn B. Freeland.	Exhibit 10.1 to Form 8-K dated July 8, 2003.
10(x)	Employment agreement dated as of August 19, 2003 between the Company and Kristin R. Evins.	Exhibit 10.1 to Form 10-Q for the fiscal quarter ended September 30, 2003.
10(y)	Employment Agreement dated as of September 8, 2004, by and between Computer Horizons Corp. and John Ferdinandi together with Offer Letter dated August 5, 2004	Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 12, 2005
10(z)	Employment Agreement dated as of October 20, 2005 between Computer Horizons Corp. and Dennis J. Conroy	Exhibit 99.01 to the Company’s Current Report on Form 8-K/A filed on October 26, 2005
10(aa)	Employment Agreement dated as of October 20, 2005 between Computer Horizons Corp. and Brian A. Delle Donne	Exhibit 99.02 to the Company’s Current Report on Form 8-K/A filed on October 26, 2005
10(bb)	Accepted offer letter dated November 15, 2005 between Computer Horizons Corp. and Marci Braunstein	Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on November 30, 2005

72

Exhibit	Description	Incorporated by Reference to
10(cc)	Retention bonus agreement dated November 29, 2005 between Computer Horizons Corp. and Michael J. Shea	Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on December 5, 2005
10(dd)	Agreement and Plan of Merger, dated as of April 12, 2005, among Computer Horizons Corp., Analysts International Corporation and JV Merger Corp	Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 13, 2005
10(ee)	Internal Memorandum to Computer Horizon Corp. employees, dated April 13, 2005	Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on April 13, 2005
10(ff)	2004 Omnibus Incentive Compensation Plan dated May 19, 2004.	Exhibit 10(Y) to Form 10-K for year ended December 31, 2004
10(gg)	Stock Purchase Agreement between RGII Technologies, Inc. and Automated Information Management, Inc. dated April 1, 2004	Exhibit 10(Z) to Form 10-K for year ended December 31, 2004
21	List of Subsidiaries.	Filed herewith
23	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.	Filed herewith
31.1	CEO Certification required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	Filed herewith
31.2	CFO Certification required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	Filed herewith
32.1	CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.2	CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COMPUTER HORIZONS CORP.
Date:   March 16, 2006	By:	/s/ DENNIS J. CONROY
	Dennis J. Conroy, President, CEO
	(Principal Executive Officer)
Date:   March 16, 2006	By:	/s/ MICHAEL J. SHEA
	Michael J. Shea,
	Vice President and CFO
	(Principal Financial Officer)
Date   March 16, 2006	By:	/s/ MARCI BRAUNSTEIN
	Marci Braunstein
	Corporate Controller (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	COMPUTER HORIZONS CORP.
Date:   March 16, 2006	By:	/s/ ERIC ROSENFELD
	Eric Rosenfeld, Chairman of the Board and Director
Date:   March 16, 2006	By:	/s/ KARL L. MEYER
	Karl L. Meyer, Director
Date:   March 16, 2006	By:	/s/ FRANK J. TANKI
	Frank J. Tanki, Director
Date:   March 16, 2006	By:	/s/ WILLEM VAN RIJN
	Willem van Rijn, Director
Date:   March 16, 2006	By:	/s/ ROBERT F. WALTERS
	Robert F. Walters, Director

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Exhibit Index

Exhibit	Description	Incorporated by Reference to
2.1	Stock purchase agreement dated as of July 8, 2003 between the Company, RGII and Kathryn B. Freeland.	Exhibit 2.1 to Form 8-K dated July 8, 2003.
3(a-1)	Certificate of Incorporation as amended through 1971.	Exhibit 3(a) to Registration Statement on Form S-1 (File No. 2-42259)
3(a-2)	Certificate of Amendment dated May 16, 1983 to Certificate of Incorporation.	Exhibit 3(a-2) to Form 10K for the fiscal year ended February 28, 1983.
3(a-3)	Certificate of Amendment dated June 15, 1988 to Certificate of Incorporation.	Exhibit 3(a-3) to Form 10K for the fiscal year ended December 31, 1988.
3(a-4)	Certificate of Amendment dated July 6, 1989 to Certificate of Incorporation.	Exhibit 3(a-4) to Form 10K for the fiscal year ended December 31, 1994.
3(a-5)	Certificate of Amendment dated February 14, 1990 to Certificate of Incorporation.	Exhibit 3(a-5) to Form 10K for the fiscal year ended December 31, 1989.
3(a-6)	Certificate of Amendment dated May 1, 1991 to Certificate of Incorporation.	Exhibit 3(a-6) to Form 10K for the fiscal year ended December 31, 1994.
3(a-7)	Certificate of Amendment dated July 12, 1994 to Certificate of Incorporation.	Exhibit 3(a-7) to Form 10K for the fiscal year ended December 31, 1994.
3.2	Bylaws, as amended and presently in effect.	Exhibit 3.2 to Form 10K for the fiscal year ended December 31, 2003.
4(a)	Rights Agreement dated as of July 6, 1989 between the Company and Chemical Bank, as Rights Agent (“Rights Agreement”) which includes the form of Rights Certificate as Exhibit B.	Exhibit 1 to Registration Statement on Form 8-A dated July 7, 1989.
4(b)	Amendment No. 1 dated as of February 13, 1990 to Rights Agreement.	Exhibit 1 to Amendment No. 1 on Form 8 dated February 13, 1990 to Registration Statement on Form 8-A.
4(c)	Amendment No. 2 dated as of August 10, 1994 to Rights Agreement.	Exhibit 4(c) to Form 10K for the fiscal year ended December 31, 1994.
4(d)	Employee’s Savings Plan and Amendment Number One.	Exhibit 4.4 to Registration Statement on Form S-8 dated December 5, 1995.
4(e)	Employee’s Savings Plan Trust Agreement as Amended and Restated Effective January 1, 1996.	Exhibit 4.5 to Registration Statement on Form S-3 dated December 5, 1995.

75

Exhibit	Description	Incorporated by Reference to
4(f)	Amendment No. 3 dated as of July 13, 1999 to Rights Agreement.	Exhibit 4.1 to Form 8-K dated July 13, 1999.
10(a)	Employment Agreement dated as of February 16, 1990 between the Company and John J. Cassese.	Exhibit 10(a) to Form 10K for the year ended December 31, 1989.
10(b)	Employment Agreement dated as of January 1, 1997 between the Company and William J. Murphy.	Exhibit 10(g) to Form S-3 dated August 14, 1997.
10(c)	Employment Agreement dated as of March 6, 1997 between the Company and Michael J. Shea.	Exhibit 10(c) to Form 10K for the year ended December 31, 1996.
10(d)	1991 Directors’ Stock Option Plan, as amended.	Exhibit 10(g) to Form 10-K for the year ended December 31, 1994.
10(e)	1994 Incentive Stock Option and Appreciation Plan.	Exhibit 10(h) to Form 10K for the fiscal year ended December 31, 1994.
10(f)	$15,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank dated as of June 30, 1998.	Exhibit 10(h) to Form S-3 dated August 14, 1997.
10(g)	$10,000,000 Discretionary Line of Credit from PNC Bank dated as of June 5, 1998.	Exhibit 10(h) to Form 10K for the fiscal year ended December 31, 1996.
10(h)	1999 Employee Stock Purchase Plan.	Exhibit 99.1 to Form S8 dated March 17, 1999.
10(i)	Amendment to the employment agreement dated as of March 24, 2000 between the Company and William J. Murphy.	Exhibit 10(i) to Form 10K for the fiscal year ended December 31, 1999.
10(j)	$15,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank dated as of June 30, 1998, as amended on March 15, 2000 (increased to $30,000,000).	Exhibit 10(j) to Form 10K for the fiscal year ended December 31, 1999.
10(k)	$20,000,000 Discretionary Line of Credit payable to Chase Manhattan Bank  dated as of March 20, 2001.	Exhibit 10(k) to Form 10K for the fiscal year ended December 31, 2000.
10(l)	$40,000,000 Asset-Based Lending Agreement payable to CIT dated as of July 31, 2001.	Exhibit 10(l) to Form 10K for the fiscal year ended December 31, 2001
10(n)	Amendment to the $40,000,000 Asset-Based Lending Agreement payable to CIT dated as of February 14, 2003.	Exhibit 10(n) to Form 10-K for the fiscal year ended December 31, 2002.
10(o)	Non-qualified supplemental retirement benefit agreement for William J. Murphy.	Exhibit 10(o) to Form 10-K/A for the fiscal year ended December 31, 2003.

76

Exhibit	Description	Incorporated by Reference to
10(p)	Non-qualified supplemental retirement benefit agreement for Michael J. Shea.	Exhibit 10(p) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(q)	First Amendment to the non-qualified supplemental retirement benefit agreement for William J. Murphy.	Exhibit 10(q) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(r)	First Amendment to the non-qualified supplemental retirement benefit agreement for Michael J. Shea.	Exhibit 10(r) to Form 10-K/A for the fiscal year ended December 31, 2003.
10(s)	Summary of Executive Compensation Exchange Program with John J. Cassese.	Exhibit 10(s) to Form 10-K/A for the fiscal year ended December 31, 2002.
10(t)	Severance Agreement dated as of April 28, 2003 between the Company and John J. Cassese.	Exhibit 10.1 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(u)	Amendment to the Employment Agreement dated as of March 31, 2003 between the Company and William J. Murphy.	Exhibit 10.2 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(v)	Amendment to the Employment Agreement dated as of April 3, 2003 between the Company and Michael J. Shea.	Exhibit 10.3 to Form 10-Q for the fiscal quarter ended March 31, 2003.
10(w)	Employment agreement dated as of July 8, 2003 between RGII and Kathryn B. Freeland.	Exhibit 10.1 to Form 8-K dated July 8, 2003.
10(x)	Employment agreement dated as of August 19, 2003 between the Company and Kristin R. Evins.	Exhibit 10.1 to Form 10-Q for the fiscal quarter ended September 30, 2003.
10(y)	Employment Agreement dated as of September 8, 2004, by and between Computer Horizons Corp. and John Ferdinandi together with Offer Letter dated August 5, 2004	Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 12, 2005
10(z)	Employment Agreement dated as of October 20, 2005 between Computer Horizons Corp. and Dennis J. Conroy	Exhibit 99.01 to the Company’s Current Report on Form 8-K/A filed on October 26, 2005
10(aa)	Employment Agreement dated as of October 20, 2005 between Computer Horizons Corp. and Brian A. Delle Donne	Exhibit 99.02 to the Company’s Current Report on Form 8-K/A filed on October 26, 2005
10(bb)	Accepted offer letter dated November 15, 2005 between Computer Horizons Corp. and Marci Braunstein	Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on November 30, 2005

77

Exhibit	Description	Incorporated by Reference to
10(cc)	Retention bonus agreement dated November 29, 2005 between Computer Horizons Corp. and Michael J. Shea	Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on December 5, 2005
10(dd)	Agreement and Plan of Merger, dated as of April 12, 2005, among Computer Horizons Corp., Analysts International Corporation and JV Merger Corp	Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 13, 2005
10(ee)	Internal Memorandum to Computer Horizon Corp. employees, dated April 13, 2005	Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on April 13, 2005
10(ff)	2004 Omnibus Incentive Compensation Plan dated May 19, 2004.	Exhibit 10(Y) to Form 10-K for year ended December 31, 2004
10(gg)	Stock Purchase Agreement between RGII Technologies, Inc. and Automated Information Management, Inc. dated April 1, 2004	Exhibit 10(Z) to Form 10-K for year ended December 31, 2004
21	List of Subsidiaries.	Filed herewith
23	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.	Filed herewith
31.1	CEO Certification required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	Filed herewith
31.2	CFO Certification required by Rule 13a-14(a)/ 15d-14(a) under the Securities Exchange Act of 1934.	Filed herewith
32.1	CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.2	CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

78

EX-21

Exhibit 21

The Company’s only active subsidiaries are each wholly owned and are included in the consolidated financial statements of the Company.

Their jurisdictions of incorporation are as follows:

Name of Subsidiary	Jurisdiction of Incorporation
Computer Horizons E-Solutions (Europe) Limited	England and Wales
Computer Horizons (Canada) Corp./Corporation
Computer Horizons Canada	Toronto, Canada
Horizons Technologies, Inc.	Delaware
Strategic Outsourcing Services, Inc.	Delaware
CHC/Prince Co., Inc.	New Jersey
G. Triad Development Corp.	New Jersey
Integrated Computer Management, Inc.	New Jersey
CHIMES, Inc.	Delaware
eB Networks, LLC	Delaware
CG Computer Services Corp.	California
Horizon Enterprises, Inc.	Delaware
Spargo Holdings, Inc.	Delaware
Spargo Holdings II, Inc.	Delaware
Chimes (UK) Limited	England and Wales
Chimes Netherlands B.V.	Netherlands
Chimes Servicing Corp.	Delaware
CHC Healthcare Solutions, LLC	Delaware
RG II Technologies, Inc.	Maryland
Global Business Technology Services Private Limited	India
GBTS America, Inc.	Delaware
GBTS America, LLC	Delaware
GBS Holdings Private Limited	Mauritius
Chimes (Puerto Rico), Inc. (Formerly: CHC
Caribbean Solutions, Inc.)	Puerto Rico
Chimes (Canada), Inc.	Nova Scotia, Canada
Automated Information Management, Inc.	Maryland

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 14, 2006, accompanying the consolidated financial statements and Schedule II and management’s assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Computer Horizons Corp. and Subsidiaries on Form 10-K for the year ended December 31, 2005. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Computer Horizons Corp. and Subsidiaries on Forms S-3 (File No. 333-33665, effective September 24, 1997, File No. 333-44417, effective February 27, 1998 and File No. 333-48877, effective March 30, 1998), and on Forms S-8 (File No. 033-41726, effective July 16, 1991, File No. 033-59437, effective May 18, 1995, File No. 033-64763, effective December 5, 1995 and File No. 333-60751, effective August 5, 1998,  File No. 333-74579, effective March 17, 1999, and File No. 333-104126, effective March 28, 2003).

/s/ GRANT THORNTON LLP

GRANT THORNTON LLP

Edison, New Jersey

March 14, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, DENNIS J. CONROY, certify that:

1.I have reviewed this Annual Report on Form 10-K of COMPUTER HORIZONS CORP;

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

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006

/s/ DENNIS J. CONROY

DENNIS J. CONROY

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, MICHAEL J. SHEA, certify that:

1.I have reviewed this Annual Report on Form 10-Kof COMPUTER HORIZONS CORP;

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

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006

/s/ MICHAEL J. SHEA

MICHAEL J. SHEA

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Computer Horizons Corp. (the “Company”) for the year ended December 31, 2005 (the “Annual Report”), I, Dennis J. Conroy, Chief Executive Officer of the Company, hereby certify to the best of my knowledge, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.     the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and

2.     the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:   March 16, 2006	/s/ DENNIS J. CONROY
	DENNIS J. CONROY
	Chief Executive Officer

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Computer Horizons Corp. (the “Company”) for the year ended December 31, 2005 (the “Annual Report”), I, Michael J. Shea, Chief Financial Officer of the Company, hereby certify to the best of my knowledge, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.     the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and

2.     the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:   March 16, 2006	/s/  MICHAEL J. SHEA
	MICHAEL J. SHEA
	Chief Financial Officer

This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.