COMPUTER HORIZONS CORP - 10-K Annual Report

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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, 2001

/ / 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:

Name of each exchange
Title of each class 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 (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 .
--- ---

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. { }

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 27, 2002, was approximately
$125,795,000.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 27, 2002: 31,395,441 shares.

DOCUMENTS INCORPORATED BY REFERENCE

There is incorporated herein by reference the registrant's (i) Annual
Report to Shareholders for the year ended December 3l, 2001, in Part II of this
Report and (ii) Proxy Statement for the 2002 Annual Meeting of Shareholders,
expected to be filed with the Securities and Exchange Commission on or before
April 10, 2002, in Part III hereof.

PART I

Item 1. BUSINESS

GENERAL

The Company provides a wide range of information technology services and
solutions to major corporations. Historically a professional services staffing
firm, the Company has, over the past six years, developed the technological and
managerial infrastructure to offer its clients value added services, e-business
solutions, human resource e-procurement solutions, enterprise network
management, software products, outsourcing, customer relationship management and
knowledge transfer. The Company markets solutions to both existing and potential
clients with the objective of becoming a preferred provider of comprehensive
information technology services and solutions for such clients. The Company
believes that the range of services and solutions that it offers, combined with
its worldwide network of 52 offices and subsidiary organizations, provides it
with significant competitive advantages in the information technology
marketplace.

The Company's clients primarily are Global 1000 companies with significant
information technology budgets and recurring staffing or software development
needs. In 2001, the Company provided information technology services to 879
clients. During 2001, the Company's largest client accounted for 5.0% of the
Company's consolidated revenues. With the trend in the commercial market
moving towards fully integrated information systems solutions, the Company
offers its clients a broad range of business and technical services as a
service outsourcer and systems integrator capable of providing complex total
solutions. This total solutions approach comprises proprietary software and
tools, proven processes and methodologies, tested project management
practices and resource management and procurement programs.

The Company offers a range of information technology services and
solutions, which

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include (1) professional services staffing, (2) e-Business Solutions,
including (2a) CHIMES, (2b) outsourcing, (2c) knowledge transfer, (2d)
software products and (2e) enterprise network management.

(1) PROFESSIONAL SERVICES STAFFING: Providing highly skilled software
professionals to augment the internal information management staffs of major
corporations remains the Company's primary business. The Company offers its
clients a just-in-time solution to supply their staffing needs from among
the Company's over 2,000 software professionals. Customers are serviced
through the Company's branch network of offices in the United States and
Canada.

(2) e-BUSINESS SOLUTIONS: CHC Solutions Group is a leader in a new breed of
end-to-end eSolutions providers, enabling legacy corporations and others to
build business-critical and highly scalable solutions. The Company offers a
comprehensive list of integrated solutions. CHC Solutions' offerings include:
e-Business Strategy and Assessment, Web Architecture Design and Integration,
Application Development, Customer Relationship Management (CRM), Project
Management, Outsourcing and Networking Services. The Solutions Group provides
comprehensive web application development and Internet-working solutions, as
well as network engineering and server management. The Solutions Group
development practice specializes in information design, data driven web site
development, systems integration, project management and web hosting services.

(2a) CHIMES: Chimes, Inc. ("Chimes"), a wholly owned subsidiary of
the Company, is a leading provider of e-Procurement Solutions for Human
Capital Acquisition and Management. Chimes' Centralized Vendor Management
(CVM) offering procures the top professionals on demand by utilizing proven
supply chain management techniques. CVM manages the entire process,
simplifying billing and timesheet administration and coordinating the
activities of all the customer's vendors. Chimes uses scalable procedures

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and browser based software to provide customers access to the best workers, in a
shorter period of time. This is accomplished while cost is controlled through
competitive "e-market effect pricing."

(2b) OUTSOURCING: Spurred by global competition and rapid
technological change, large companies, in particular, are downsizing and
outsourcing for reasons ranging from cost reduction to capital asset
improvement and from improved technology introduction to better strategic
focus. In response to this trend, the Company has created a group of regional
outsourcing centers with 24 hour/7 day a week support, which are fully
equipped with the latest technology and communications, as well as a complete
staff that includes experienced project managers, technicians and operators.
These professionals facilitate essential data functions including:
applications development, systems maintenance, data network management, voice
network administration and help desk operations.

(2c) KNOWLEDGE TRANSFER: The Company's Education Division offers
custom-designed and/or existing training programs to enhance the competencies of
client staff in specific technologies, languages, methodologies and
applications. The prevailing focus of the Company is to assist clients through
instructor-led, on-site training and consulting in the transitioning IT
organization of Fortune 1000 corporations nationwide. To support these changing
technologies, the Company has developed extensive curriculum offerings in Web
technologies, Relational Databases, Programming Languages, Reporting Tools,
Process Improvement, UNIX, Client/Server and Mainframe technologies.

(2d) SOFTWARE PRODUCTS: Princeton Softech, Inc. ("Princeton"), a
wholly-owned subsidiary of the Company, is a software products company that
delivers leveraging technologies for enterprise-scale solutions. Princeton's
patented Relationship Engine technology enables companies with large databases
and large amounts of data to manage their mission critical applications through
database's relational integrity in its business context. As of December 31,

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2001, this subsidiary is an asset held for sale. On March 25, 2002, the net
assets of Princeton Softech, Inc. were sold for a cash payment of approximately
$16 million.

(2e) ENTERPRISE NETWORK MANAGEMENT: eB Networks, Inc., a formally
wholly-owned subsidiary of the Company, specializes in building and implementing
strategic network infrastructure to assist companies in achieving e Business
objectives. eB Networks' service offerings include infrastructure architecture,
enterprise management, security, operating systems integration and high
availability internet. On September 10, 2001, the Company sold the assets of eB
Networks, with the exception of its HIPAA practice which was retained by the
Company.

PERSONNEL

As of December 3l, 2001, the Company had a staff of 3,313, of whom more
than 2,500 were IT professionals. 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.

COMPETITION

The Company competes in the commercial information technology services
market which is highly competitive and served by numerous firms, many of which
serve only their respective local markets. 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 ("MIS")
outsourcing companies, certain "Big Five" accounting firms, and general
management consulting firms. The Company's competitors also include companies
such as Accenture (formerly Andersen Consulting), Technology Solutions
Corporation, Cap Gemini America, Business System Group, the consulting division
of Computer Sciences

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Corporation, Analysts International Corp., CIBER, Inc., Computer Task Group
Inc., Keane Inc., i GATE 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. The Company 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. The Company 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
customer needs.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934. Accordingly, the Company files annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any document filed by the Company at
the SEC's public reference room in Washington, D.C. at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or in the public reference rooms located in New York,
New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The Company's SEC filings are
also available to the public from the SEC's website at http://www.sec.gov.

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Item 2. PROPERTIES

The Company's Corporate and Financial Headquarters, as well as its Eastern
Regional Office, comprising approximately 63,000 square feet, are located at
49 Old Bloomfield Avenue, Mountain Lakes, New Jersey. The Mountain Lakes lease
is for a term expiring December 31, 2002, at a current annual rental of
approximately $1,400,000. As of December 3l, 2001, the Company also maintained
facilities in Arizona, California, Colorado, Connecticut, Florida, Georgia,
Illinois, Indiana, Iowa, Maryland, Massachusetts, Michigan, Minnesota, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas,
Washington and Washington D.C. as well as international operations located in
Europe and Canada, with an aggregate of approximately 341,000 square feet. The
leases for these facilities are at a current annual aggregate rental of
approximately $6,597,000. These leases expire at various times with no lease
commitment longer than December 31, 2007.

Item 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information with respect to the
executive officers of the Company, who are elected to serve until the next
annual meeting of the Board of Directors and until their successors are elected
and qualify. All the positions listed are or were held by such officers with the
Company.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information required by this item is contained under the caption
"Market and Dividend Information" in the Company's Annual Report to Shareholders
for the year ended December 3l, 2001, which material is incorporated by
reference in this Form 10-K Annual Report.

Item 6. SELECTED FINANCIAL DATA

The information required by this item is contained under the caption
"Selected Financial Data" in the Company's Annual Report to Shareholders for the
year ended December 3l, 2001, which material is incorporated by reference in
this Form 10-K Annual Report.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

The information required by this item is contained under the caption
"Management's Discussion and Analysis" in the Company's Annual Report to
Shareholders for the year ended December 3l, 2001, which material is
incorporated by reference in this Form 10-K Annual Report.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is contained under the caption
"Management's Discussion and Analysis" in the Company's Annual Report to
Shareholders for the year ended December 3l, 2001, which material is
incorporated by reference in this Form 10-K Annual Report.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements together with the report thereon by Grant Thornton
LLP, Independent Certified Public Accountants, appearing in the Company's Annual
Report to Shareholders for the year ended December 31, 2001, are incorporated
herein by reference. Such information is listed in Item 14(a)1 of this Form 10-K
Annual Report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no disagreements with the Company's independent accountants
involving accounting and financial disclosure matters.

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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 for
its 2002 Annual Meeting of Shareholders which is expected to be filed with the
Securities and Exchange Commission on or before April 10, 2002 (the "2002 Proxy
Statement").

(b) The information called for by Item 10 with respect to executive
officers of the Company is included in Part I herein under the caption
"Executive Officers of the Company".

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 2002 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item 12 with respect to security ownership of
certain beneficial owners and management is incorporated herein by reference to
the material under the caption "Certain Holders of Voting Securities" in the
2002 Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None

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PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

1. The following consolidated financial statements, appearing in the Company's
2001 Annual Report to Shareholders, are incorporated herein by reference.

-Report of independent certified public accountants on the consolidated
financial statements

-Consolidated balance sheets as of December 3l, 2001 and 2000

-Consolidated statements of operations for each of the three years in the
period ended December 31, 2001

-Consolidated statement of shareholders' equity for each of the three
years in the period ended December 31, 2001

-Consolidated statements of cash flows for each of the three years in the
period ended December 31, 2001

-Notes to consolidated financial statements

2. Schedule II - Valuation and qualifying accounts for the years ended
December 31, 2001, 2000 and 1999.

Report of independent certified public accountants 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. The exhibit index

4. Consent of Grant Thornton LLP

(b) No reports on Form 8K have been filed during the quarter for which this
report is filed.

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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 29, 2002 By: /s/ John J. Cassese
-------------------
John J. Cassese, Chairman
of the Board and President

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 29, 2002 By: /s/ John J. Cassese
-------------------
John J. Cassese, Chairman
of the Board and President
(Principal Executive Officer) and
Director

Date: March 29, 2002 By: /s/ William J. Murphy
---------------------
William J. Murphy,
Executive Vice President and CFO
(Principal Financial Officer) and
Director

Date: March 29, 2002 By: /s/ Michael J. Shea
-------------------
Michael J. Shea
Vice President and Controller
(Principal Accounting Officer)

Date: March 29, 2002 By: /s/ Thomas J. Berry
--------------------
Thomas J. Berry, Director

Date: March 29, 2002 By: /s/ William M. Duncan
---------------------
William M. Duncan, Director

Date: March 29, 2002 By: /s/ Rocco J. Marano
-------------------
Rocco J. Marano, Director

Date: March 29, 2002 By: /s/ William J. Marino
---------------------
William J. Marino, Director

Date: March 29, 2002 By: /s/ Earl Mason
--------------
Earl Mason, Director

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EXHIBIT INDEX

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4(c) Amendment No. 2 dated as of Exhibit 4(c) to Form 10K
August 10, 1994 to Rights for the fiscal year ended
Agreement. December 31, 1994.

4(d) Employee's Savings Plan and Exhibit 4.4 to Registration
Amendment Number One. Statement on Form S-8 dated
December 5, 1995.

4(e) Employee's Savings Plan Trust Exhibit 4.5 to Registration
Agreement as Amended and Statement on Form S-3 dated
Restated Effective January 1, December 5, 1995.
1996.

4(f) Amendment No. 3 dated as of Exhibit 4.1 to Form 8-K
July 13, 1999 to Rights dated July 13, 1999.
Agreement.

10(a) Employment Agreement dated as Exhibit 10(a) to Form 10K for
of February 16, 1990 between the the year ended December 31,
Company and John J. Cassese. 1989.

10(b) Employment Agreement dated as Exhibit 10(g) to Form S-3 dated
of January 1, 1997 between the August 14, 1997.
Company and William J. Murphy.

10(c) Employment Agreement dated as Exhibit 10(c) to Form 10K for
of March 6, 1997 between the the year ended December 31,
Company and Michael J. Shea. 1996.

10(d) 1991 Directors' Stock Option Exhibit 10(g) to Form 10-K
Plan, as amended. for the year ended December 31,
1994.

10(e) 1994 Incentive Stock Option and Exhibit 10(h) to Form 10K
Appreciation Plan. for the fiscal year ended
December 31, 1994.

10(f) $15,000,000 Discretionary Line of Exhibit 10(h) to Form S-3
Credit payable to Chase Manhattan dated August 14, 1997.
Bank dated as of June 30, 1998.

10(g) $10,000,000 Discretionary Line Exhibit 10(h) to Form 10K
of Credit from PNC Bank dated for the fiscal year ended
as of June 5, 1998. December 31, 1996.

10(h) 1999 Employee Stock Purchase Plan. Exhibit 99.1 to Form S8 dated
March 17, 1999.

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10(i) Amendment to the employment agreement Exhibit 10(i) to Form 10K
dated as of March 24, 2000 between the for the fiscal year ended
Company and William J. Murphy. December 31, 1999.

10(j) $15,000,000 Discretionary Line of Exhibit 10(j) to Form 10K
Credit payable to Chase Manhattan for the fiscal year ended
Bank dated as of June 30, 1998, as December 31, 1999.
amended on March 15, 2000 (increased to
$30,000,000).

10(k) $20,000,000 Discretionary Line of Credit Exhibit 10(k) to Form 10K
payable to Chase Manhattan Bank for the fiscal year ended
dated as of March 20, 2001. December 31, 2000.

10 (l) $40,000,000 Asset-Based Lending
Agreement payable to CIT dated as of
July 31, 2001.

13 Annual Report to Security Holders.

21 List of Subsidiaries.

23 Consent of Grant Thornton LLP,
Independent Public Accountants.

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS ON SCHEDULE II

Board of Directors and Shareholders
Computer Horizons Corp.

In connection with our audit of the consolidated financial statements of
Computer Horizons Corp. and Subsidiaries referred to in our report dated
February 26, 2002, which is included in the 2001 Annual Report to
Shareholders and incorporated by reference in this Form 10-K, we have also
audited Schedule II for each of the years ended December 31, 2001, 2000 and
1999. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.

/s/ Grant Thornton LLP
- ----------------------
Grant Thornton LLP

Edison, New Jersey
February 26, 2002

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Computer Horizons Corp. and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2001, 2000 and 1999

Notes

(1) Uncollectible accounts written off, net of recoveries.
(2) Includes write-down of assets held for sale and write-off of
ceased operations.
(3) Credit recorded resulting from earlier than expected subleasing of
properties.

Computer Horizons Corp. and Subsidiaries
SELECTED FINANCIAL DATA

Year ended December 31,

1

Computer Horizons Corp. and Subsidiaries

SELECTED FINANCIAL DATA (CONTINUED)

Year ended December 31,

2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of
consolidated revenues for the period indicated:

3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

REVENUE GENERATING ACTIVITIES AND CRITICAL ACCOUNTING POLICIES

REVENUE GENERATING ACTIVITIES

The majority of the Company's revenues are derived from professional services
rendered in the information technology sector. The Company also owns a
stand-alone software products company, Princeton Softech Inc. ("Princeton"),
which accounted for less than 10% of consolidated revenues in 2001 and as of
December 31, 2001 is the only remaining asset held for sale from the
restructuring plan announced at the end of 2000. On March 25, 2002, the net
assets of Princeton Softech, Inc. were sold for a cash payment of
approximately $16 million.

The Company operates its business in two basic segments, IT Services and the
Solutions Group. The distinctions between the two segments primarily relate to
the management and supervision of services performed and related gross margins.

The IT Services business consists of providing technology consultants to large
organizations on a temporary hire basis. The consultant work is supervised and
managed by the customer. For the most recent year 2001, this segment represented
approximately 68.5% of total revenues. The IT Services business tends to be a
lower risk, lower gross margin business with very competitive pricing.

The Solutions Group tends to be a 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 customers.
Virtually all projects performed by the 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.

Our Chimes subsidiary is currently part of the Solutions Group. Chimes is a
human capital management solution that, through the use of proprietary software
and processes, manages the temporary workforce of large organizations. During
2001, Chimes accounted for less than 3% of total revenues. It is the Company's
expectation that Chimes will continue to grow and become a separate business
segment for financial reporting purposes.

4

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

The most critical accounting policies used in the preparation of the Company's
financial statements are related to revenue recognition and the evaluation of
long-lived assets for impairment.

The revenue for the IT Services Group is recognized as services are rendered.
Hourly or daily rates are determined in advance and agreed to with the customer.
Time worked is documented in various forms using the applicable timekeeping
process (i.e. the client's or the Company's timekeeping systems). Revenues in
the Solutions Group are also recognized as services are performed, however,
adjustments are sometimes needed to reflect progress against milestones or
deliverables. On fixed fee engagements, revenue and gross profit adjustments are
made to reflect revisions in estimated costs and contract values. It is
estimated that approximately 5% of total revenue is generated under fixed fee
contracts.

The Company's Chimes subsidiary recognizes revenue on a net transaction fee
basis. Chimes recognizes only their fee for the service, not the aggregate
billing to the customer. The Chimes solution aggregates the temporary workforce
supply chain to the customer and renders one invoice to the customer. Chimes is
paid for this service by the supply chain in the form of a fee. The gross amount
of the customer invoicing is not considered revenue to Chimes because there is
no earnings process for the gross amount and by contract terms, Chimes is not
obligated to pay the supply chain until paid by the customer.

Princeton recognizes revenue in accordance with AICPA Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition," and AICPA Statement of
Position 98-9 ("SOP 98-9"). Under SOP 97-2, the Company recognizes software
license revenue when a noncancelable license agreement has been executed, fees
are fixed and determinable, the software has been delivered, and collection is
considered probable.

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 are reported at the lower of the carrying
amount or fair value, less costs to sell.

5

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

During 2001, all assets declared for sale were disposed of except for
Princeton, which was sold on March 25, 2002. At the end of 2000, the Company
made certain strategic decisions to realign businesses and declared certain
assets for sale or disposition. These decisions resulted in the application
of the above mentioned policy and the recording of $40.3 million of non-cash
charges in 2000 for related write-offs.

New accounting rules relating to goodwill and other intangibles are to take
effect in 2002 together with new procedures to evaluate the carrying value of
these assets. It is possible that the adoption of these new rules in 2002 could
result in a transitional charge relating to the write-down of goodwill. If this
were to occur, the charge would be reported as a change in accounting principle
in the Company's income statement when adopted.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

REVENUES

Revenues decreased to $400.8 million in the year ended December 31, 2001 from
$445.5 million in the year ended December 31, 2000, a decrease of $44.7 million,
or 10.0%. Solutions Group revenues, including business units held for sale
decreased to $126.4 million in the year ended December 31, 2001 from
$141.8 million in the year ended December 31, 2000, a decrease of $15.4 million
or 10.9%. The decrease in Solutions Group revenue is primarily attributable to
the decline experienced by the business units held for sale. Solutions Group
revenue, excluding the operations of units held for sale increased to
$85.9 million in the year ended December 31, 2001 from $60.0 million in the year
ended December 31, 2000, an increase of $25.9 million or 43.2%. IT Services
revenues decreased to $274.4 million in the year ended December 31, 2001 from
$303.7 million in the year ended December 31, 2000, a decrease of $29.3 million
or 9.6%. The decrease in IT Services revenue of $29.3 million is the result of
continued decreases in the demand for temporary technology workers, the impact
of pricing decreases by customers and the lagging economy. The Company does not
anticipate any growth during 2002 in IT Services from the year-end 2001
headcount levels unless the economy recovers and IT spending increases.

6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

DIRECT COSTS

Direct costs decreased to $281.6 million in the year ended December 31, 2001
from $312.8 million in the year ended December 31, 2000. Gross margin remained
essentially flat at 29.7% in the year ended December 31, 2001 from 29.8% in the
year ended December 31, 2000. The Company's margins are subject to fluctuation
due to a number of factors, including the level of salary and other compensation
necessary to attract and retain qualified technical personnel.

SELLING, GENERAL, AND ADMINISTRATIVE

Selling, general and administrative expenses (excluding bad debt expense,
amortization expense and restructuring charges) decreased to $125.4 million in
the year ended December 31, 2001 from $143.7 million in the year ended
December 31, 2000, a decrease of $18.3 million or 12.7%. The decrease in
selling, general and administrative expenses was primarily attributable to cost
reductions in the IT Services group and Corporate, offset by increases in the
Solutions group as the Company continues to invest in its Chimes subsidiary.

BAD DEBT EXPENSE

Bad debt expense decreased to $3.4 million in the year ended December 31, 2001
from $26.5 million in the year ended December 31, 2000, a decrease of
$23.1 million. The 2000 bad debt expense includes a charge of $21.6 million in
the fourth quarter of 2000 as a direct result of problems created in late 1998
and early 1999 relating to the flawed implementation of an enterprise-wide
information system. The system was stabilized in the latter part of 1999 and
much of 2000 was spent attempting to reconcile and settle outstanding balances
with customers. However, it was deemed necessary in the fourth quarter of 2000
to make major concessions with customers for old balances in order to avoid
potentially damaging conflicts.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles decreased to $2.7 million in the year ended
December 31, 2001 from $7.4 million in the year ended December 31, 2000, a
decrease of $4.7 million or 63.5%. This decrease in amortization expense was due
to the reduction of intangibles related to the assets held for sale.

7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESTRUCTURING CHARGES / (CREDITS)

During the fourth quarter of 2001, the Company recorded a restructuring
charge adjustment of $1.0 million primarily due to the termination, by the
sublessee, of the sublease contracts for closed offices included in the 1999
restructure charge. Since the sublessee defaulted on the rent payments, it
was necessary to restore the Company's liability for the remaining lease
obligations. In the second quarter of 2001, the Company recorded $5.5 million
in restructuring expense to reduce the carrying amount of eB Networks to the
estimated net realizable value.

During the fourth quarter of 2000, the Company recorded a restructuring charge
of $43.9 million related to the closing of seven offices, the size reduction of
other IT Services offices, a non-cash write down of assets held for sale of
$26.2 million for eB Networks and $6.9 million for Select Software, along with
$7.2 million for ceased operations. During the second quarter of 2000, the
Company recorded a restructuring credit of $2.4 million. This credit resulted
primarily from the earlier than expected subleasing of discontinued properties
that were part of the third quarter 1999 restructuring charge.

INCOME / (LOSS) FROM OPERATIONS

Income / (loss) from operations, excluding restructuring charges and bad debt
expense, improved to a loss of $8.9 million in the year ended December 31, 2001
from a loss of $18.5 million in the year ended December 31, 2000, an improvement
of $9.6 million or 51.9%. Operating margins, excluding restructuring charges and
bad debt expense, improved to a loss of 2.2% in the year ended December 31, 2001
from a loss of 4.1% in the year ended December 31, 2000. The improvement was
primarily due to decreased SG&A expenses. The Company's business is
labor-intensive and, as such, is sensitive to inflationary trends. This
sensitivity applies to client billing rates, as well as to payroll costs.

OTHER INCOME / EXPENSE

For the year ended December 31, 2001, other expense increased to $2.8 million.
This increase in other expenses was primarily due to the loss on sale of assets,
partially offset by higher interest income on investments and a stock
distribution received on the demutualization of the Company's previous group
health insurance provider of $1.5 million.

8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

PROVISION FOR INCOME TAXES

The effective tax rate for Federal, state, and local income taxes was 33.1% and
34.0% in the years ended December 31, 2001 and 2000, respectively.

NET INCOME / (LOSS)

Net income / (loss) improved to a loss of $14.5 million in the year ended
December 31, 2001 from net loss of $57.8 million in the year ended December 31,
2000, an improvement of $43.3 million or 74.9%. Net loss per share (diluted)
improved to $0.45 in the year ended December 31, 2001 from net loss per share
(diluted) of $1.83 in the year ended December 31, 2000. The effect of
restructuring charges and the operations of the assets held for sale amounted to
$0.34 loss per share, net of taxes, in 2001. The effect of the bad debt special
charge, restructuring charges and operations of assets held for sale amounted to
$1.62 loss per share, net of taxes, in 2000.

9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES

Revenues decreased to $445.5 million in the year ended December 31, 2000 from
$534.6 million in the year ended December 31, 1999, a decrease of $89.1 million,
or 16.7%. Solutions Group revenues increased to $141.8 million in the year ended
December 31, 2000 from $104.8 million in the year ended December 31,1999, an
increase of $37.0 million or 35.3%. IT Services revenues, including Year 2000
revenues, decreased to $303.7 million in the year ended December 31, 2000 from
$429.8 million in the year ended December 31, 1999, a decrease of $126.1 million
or 29.3%. Year 2000 services revenues accounted for $44.3 million of the
decline. As anticipated, the decline in Year 2000 business was reflective of the
completion of code remediation assignments for major customers. The remaining
decrease in IT Services revenue of $81.8 million was primarily attributed to
softness in the IT Staffing business. This softness is the result of spending
shifts of customers from legacy environments to e-business initiatives.

DIRECT COSTS

Direct costs decreased to $312.8 million in the year ended December 31, 2000
from $365.3 million in the year ended December 31, 1999. Gross margin decreased
to 29.8% in the year ended December 31, 2000 from 31.7% in the year ended
December 31, 1999. This decrease in gross margin was primarily due to a decrease
in the Company's higher margin Year 2000 business. The Company's margins are
subject to fluctuation due to a number of factors, including the level of salary
and other compensation-related expenses necessary to attract and retain
qualified technical personnel and the mix of IT Services versus Solutions
business during the year.

SELLING, GENERAL, AND ADMINISTRATIVE

Selling, general and administrative expenses (excluding bad debt expense,
amortization expense, restructuring charges and merger-related expenses)
increased to $143.7 million in the year ended December 31, 2000 from $127.7
million in the year ended December 31, 1999, an increase of $16.0 million or
12.5%. The increase in selling, general and administrative expenses was
primarily attributable to an increase in the Solutions Group, as the Company
continues to invest in its business development organization, Chimes and the
development and sales staff of its software products company. This increase was
partially offset by cost reductions in the IT Services Group during 2000.

10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BAD DEBT EXPENSE

Bad debt expense increased to $26.5 million in the year ended December 31, 2000
from $3.4 million in the year ended December 31, 1999, an increase of
$23.1 million. This increase includes a charge of $21.6 million in the fourth
quarter of 2000 as a direct result of problems created in late 1998 and early
1999 relating to the flawed implementation of an enterprise-wide information
system. The system was stabilized in the latter part of 1999 and much of 2000
was spent attempting to reconcile and settle outstanding balances with
customers. However, it was deemed necessary in the fourth quarter of 2000 to
make major concessions with customers for old balances in order to avoid
potentially damaging conflicts.

AMORTIZATION OF INTANGIBLES

Amortization of intangibles increased to $7.4 million in the year ended
December 31, 2000 from $6.2 million in the year ended December 31, 1999, an
increase of $1.2 million or 19.4%. This increase in amortization of intangibles
was primarily due to additional goodwill resulting from acquisition earnouts.

RESTRUCTURING CHARGES / (CREDITS)

During the fourth quarter of 2000, the Company recorded a restructuring charge
of $43.9 million related to the closing of seven offices, the size reduction of
other IT Services offices, a non-cash write down of assets held for sale of
$26.2 million for eB Networks and $6.9 million for Select Software, along with
$7.2 million for ceased operations. During the second quarter of 2000, the
Company recorded a restructuring credit of $2.4 million. This credit resulted
primarily from the earlier than expected subleasing of discontinued properties
that were part of the third quarter 1999 restructuring charge. During the third
quarter of 1999, the Company recorded a restructuring charge of $6.4 million
primarily related to the consolidating and closing of certain facilities,
generally used for Year 2000 and other legacy related services, as well as
reduction of related staff levels.

11

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INCOME / (LOSS) FROM OPERATIONS

Income / (loss) from operations, excluding bad debt expense and restructuring
charges, decreased to a loss of $18.5 million in the year ended December 31,
2000 from income of $35.4 million in the year ended December 31, 1999, a
decrease of $53.9 million or 152.3%. Operating margins, excluding bad debt
expense and restructuring charges, decreased to a loss of 4.1% in the year ended
December 31, 2000 from income of 6.6% in the year ended December 31,1999. The
decrease was primarily due to decreases in the Company's higher margin Year 2000
business, a softness in the IT Staffing business and investments in the
Solutions business, including Chimes in 2000. The Company's business is
labor-intensive and, as such, is sensitive to inflationary trends. This
sensitivity applies to client billing rates, as well as to payroll costs.

OTHER INCOME / EXPENSE

For the year ended December 31, 2000, other expense increased to $1.2 million.
This increase in other expenses was primarily due to interest expense on higher
borrowings and a decrease of interest income.

PROVISION FOR INCOME TAXES

The effective tax rate for Federal, state, and local income taxes was 34.0% and
43.0% in the years ended December 31, 2000 and 1999, respectively. The decrease
in the 2000 effective tax rate was primarily due to losses incurred in 2000.

NET INCOME / (LOSS)

Net income / (loss) decreased to a loss of $57.8 million in the year ended
December 31, 2000 from net income of $14.6 million in the year ended
December 31, 1999, a decrease of $72.4 million or 495.9%. Net loss per share
(diluted) decreased to $1.83 in the year ended December 31, 2000 from net income
per share (diluted) of $0.46 in the year ended December 31, 1999. The effect of
bad debt expense and restructuring charges amounted to $1.42 loss per share, net
of taxes, in 2000. The effect of bad debt expense and restructuring charges
totaled $0.18 per diluted share in 1999, net of taxes.

12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Computer Horizons has historically financed its operations primarily through
cash generated from operations, borrowings against bank lines of credit and
the public sale of its common stock. A major component of the restructuring
plan undertaken at the end of 2000 had, as an objective, the monetizing of
certain non-strategic assets, the reducing of debt and the return of positive
cash flow from operations. As a result of these actions, the Company has
significantly improved its liquidity and capital resources. At December 31,
2001, the Company had $115.7 million in working capital, of which $41.0
million was cash and cash equivalents. The Company's working capital ratio at
December 31, 2001 was 3.5 to 1. During 2001, short-term bank debt of
approximately $21 million was reduced and converted to a long-term debt
arrangement with a balance outstanding of $10 million at year-end. Due to
management's intent to pay back this debt in 2002, the outstanding balance of
$10 million has been classified as short-term debt. The Company also expects
that its liquidity will significantly increase in 2002 with the consummation
of the sale of Princeton Softech and the receipt of a 2001 tax refund (see
Note 16 regarding subsequent events). The Company may use these additional
resources to further reduce debt, continue to buy back its stock and
potentially make acquisitions.

Net cash provided by operating activities for the year ended December 31, 2001
and December 31, 2000 totaled $31.9 million and $9.9 million, respectively. In
2001, this was primarily attributable to income tax refunds, other non-cash
charges and a reduction in accounts receivable. In 2000, it was primarily
attributable to a non-cash charge relating to an increase in the provision for
bad debts, the amortization and write-off of intangibles and the write-down of
assets held for sale, offset in part by the operating loss. Net cash used in
operating activities was $19.5 million in 1999, consisting primarily of net
income, offset by an increase in accounts receivable. The significant increase
in accounts receivable during 1999 was primarily attributable to delays in
billing to customers resulting from the implementation of an enterprise-wide
information system.

Net cash provided by investing activities was $6.1 million for the year ended
December 31, 2001, primarily attributable to cash received from the sale of
assets. Net cash used in investing activities was $9.1 million and $14.3 million
in the years ended December 31, 2000 and 1999, respectively. Net cash used in
investing activities in 2000 primarily was attributable to acquisition related
earnouts. Net cash used in investing activities in 1999 consisted primarily of
$14.0 million used for the acquisitions of the assets of SELECT Software Tools
plc, Integrated Computer Management, G. Triad Enterprises, Inc., SPP, and
Unibase.

13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

For the year ended December 31, 2001, net cash used in financing activities
was $12.6 million, resulting from $10.7 million reduction of debt and $3.4
million used in the repurchase of the Company's common stock. For the year
ended December 31, 2000, net cash provided by financing activities was $1.1
million, resulting from $1.2 million in borrowings against the Company's bank
lines of credit, $2.2 million of stock issued as a result of the Company's
employee stock purchase program and stock option exercises partially offset
by a reduction of $4.1 million of the Company's long-term debt. Net cash used
in financing activities in 1999 was $2.1 million, primarily resulting from
$15.0 million in borrowings against the Company's bank lines of credit,
partially offset by $12.8 million used to repurchase the Company's stock.

The Company believes that its cash and cash equivalents, lines of credit,
internally generated funds and tax refunds will be sufficient to meet its
working capital needs through 2002.

The Company's billed accounts receivable were $53.7 million and $65.4 million at
December 31, 2001 and December 31, 2000, respectively. Billed days sales
outstanding were 47 days at December 31, 2001 and 61 days at December 31, 2000,
based on annual sales.

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. Leases are short
term in nature and non-capital. The following table summarizes all commitments
under contractual obligations as of December 31, 2001:

14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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, the Company had $10.0 million in
outstanding borrowings against a long-term asset-based lending arrangement with
CIT Business Credit, which has a LIBOR plus 2.75% interest rate.

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 2001, 2000 or 1999. At December 31, 2001 the Company had
$6.4 million in cash maintained in overseas financial institutions.

15

FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

COMPUTER HORIZONS CORP.

December 31, 2001 and 2000

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP

Edison, New Jersey
February 26, 2002

Computer Horizons Corp. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

Computer Horizons Corp. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

Computer Horizons Corp. and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY
Years ended December 31, 2001, 2000 and 1999

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.

Computer Horizons Corp. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Computer Horizons Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Computer Horizons Corp. is a strategic e-Business solutions and
professional services company. The Company enables its Global 1000 customer
base to realize competitive advantages through two major divisions,
Solutions and IT Services. The IT Services division provides highly skilled
software professionals to augment the internal information management
staffs of major corporations. The Solutions division provides enterprise
application services, e-business solutions, customized Web development and
Web enablement of strategic applications, Customer Relationship Management
(CRM), network services, e-procurement solutions for Human Resource
acquisition and management (CHIMES), strategic outsourcing and managed
resourcing as well as software and relational database products.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Computer
Horizons Corp. and its wholly-owned subsidiaries (the "Company"). All
subsidiaries of the Company have been consolidated into these financial
statements. All material intercompany accounts and transactions have been
eliminated.

REVENUE RECOGNITION

The revenue for the IT Services Group is recognized as services are
rendered. Hourly or daily rates are determined in advance and agreed to
with the customer. Time worked is documented in various forms using the
applicable timekeeping process (i.e. the client's or the Company's
timekeeping systems). Revenues in the Solutions Group are also recognized
as services are performed, however, adjustments are sometimes needed to
reflect progress against milestones or deliverables. On fixed fee
engagements, revenue and gross profit adjustments are made to reflect
revisions in estimated costs and contract values. It is estimated that
approximately 5% of total revenue is generated under fixed fee contracts.

The Company's Chimes subsidiary recognizes revenue on a net transaction fee
basis. Chimes recognizes only their fee for the service, not the aggregate
billing to the customer. The Chimes solution aggregates the temporary
workforce supply chain to the customer and renders one invoice to the
customer. Chimes is paid for this service by the supply chain in the form
of a fee. The gross amount of the customer invoicing is not considered
revenue to Chimes because there is no earnings process for the gross amount
and by contract terms, Chimes is not obligated to pay the supply chain
until paid by the customer.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company's Princeton subsidiary recognizes revenue in accordance with
AICPA Statement of Position 97-2 ("SOP 97-2"), "Software Revenue
Recognition," and AICPA Statement of Position 98-9 ("SOP 98-9"). Under
SOP 97-2, the Company recognizes software license revenue when a
noncancelable license agreement has been executed, fees are fixed and
determinable, the software has been delivered, and collection is considered
probable.

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, 2001, 2000 and 1999 were $0.6 million,
$0.8 million and $0.9 million, respectively.

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. Research and Development costs for the years ended
December 31, 2001, 2000 and 1999 were $5.4 million, $6.9 million and $6.3
million, respectively.

CASH AND CASH EQUIVALENTS

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

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2001, 2000 and 1999

NOTE 1 (CONTINUED)

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. On July 31, 2001 the Company entered into an agreement with a
secured asset-based lending facility which replaced its two unsecured
discretionary lines of credit. This new line of credit is a three-year,
$40 million facility with availability based primarily on eligible customer
receivables. The interest rate for the first ninety days from closing is
Prime plus 0.5%, thereafter the rate is LIBOR plus 2.75% based on the
unpaid principal. The borrowing base less outstanding loans must equal or
exceed $15 million. At the time of closing there was a $170,000 commitment
fee paid to the agent. As of December 31, 2001, the Company had $10.0
million in borrowings outstanding against the facility. This balance
has been classified as short-term debt on the consolidated financial
statements due to management's intent to pay off the loan in full in 2002.
The Company invests the majority of its excess cash in overnight commercial
paper of high-credit, 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 nine financial
institutions located in the United States, Canada and the United Kingdom.
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 $38,000 U.S.). There is
no depository insurance in the United Kingdom. At December 31, 2001,
uninsured amounts held by the Company at these financial institutions total
approximately $40,095,000.

The Company's customers are generally very large, Global 1000 companies in
many industries and with wide geographic dispersion. The Company's largest
customer receivable accounts for approximately 21.1% and 8.8% of billed
accounts receivable at December 31, 2001 and 2000, respectively. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and
other information.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments (principally consisting of cash
and cash equivalents, accounts receivable and payable and the current
portion of long-term debt) approximates fair value because of the short
maturities or, as to the current portion of long-term debt, the rates
currently offered to the Company.

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.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2001, 2000 and 1999

NOTE 1 (CONTINUED)

GOODWILL AND PURCHASED SOFTWARE

Goodwill, the cost in excess of the fair value of net assets acquired, is
being amortized by the straight-line method, for periods ranging from
twenty to thirty years. Accumulated amortization is $18,567,000 and
$15,872,000 at December 31, 2001 and 2000, respectively. Purchased software
was being amortized by the straight-line method, for a period of five years
and is now included in net assets held for sale (See Note 2). Accumulated
amortization on the stand-alone financials of Princeton was $6,885,000 and
$5,604,000 at December 31, 2001 and 2000, respectively. In 2001 the
amortization was not expensed on the Company's consolidated financial
statements as this entity is an asset held for sale.

New accounting rules relating to goodwill and other intangibles are to take
effect in 2002 together with new procedures to evaluate the carrying value
of these assets. It is possible that the adoption of these new rules in
2002 could result in a transitional charge relating to the write-down of
goodwill. If this were to occur, the charge would be reported as a change
in accounting principle in the Company's income statement when adopted.

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 are
reported at the lower of the carrying amount or fair value less costs to
sell.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2001, 2000 and 1999

NOTE 1 (CONTINUED)

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.

Deferred income taxes result from temporary differences between income
reported for financial and income tax purposes. These temporary differences
result primarily from the allowance for doubtful accounts provision and
certain accrued expenses which are deductible, for tax purposes, only when
paid. A valuation allowance is provided when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.

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, 2001, there is no cumulative amount of
earnings on which United States income taxes have not been provided.

EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of common
shares outstanding without consideration of common stock equivalents.
Diluted earnings 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 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.

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.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2001, 2000 and 1999

NOTE 1 (CONTINUED)

FOREIGN CURRENCY TRANSLATION

For operations outside the United States that prepare financial statements
in currencies other than the United States dollar, 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. Translation adjustments are included as a separate component of
comprehensive income/(loss) within the statement of shareholders' equity.

RECENT ACCOUNTING PRONOUNCEMENTS

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is
effective for all business combinations completed after June 30, 2001.
SFAS 142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Company are as follows:

-All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before
July 1, 2001.
-Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
-Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with indefinite
lives will no longer be subject to amortization.
-Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.
-All acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.

The Company will continue to amortize goodwill recognized prior to July 1,
2001, under its current method until January 1, 2002, at which time annual
goodwill amortization of $2,695,000 will no longer be recognized. By
June 30, 2002 the Company will have completed a transitional fair value
based impairment test of goodwill as of January 1, 2002. Impairment losses,
if any, resulting from the transitional testing will be recognized in the
quarter ended March 31, 2002, as a cumulative effect of a change in
accounting principle. The Company is currently evaluating the impact of
this statement.

Computer Horizons Corp. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2001, 2000 and 1999

NOTE 1 (CONTINUED)

In August 2001, the FASB issued Statement of Financial Accounting Standards