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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number 0-7282

COMPUTER HORIZONS CORP.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (973) 299-4000

Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)

        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 twelve 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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes ý    No o

        As of May 12, 2003 the issuer had 30,305,851 shares of common stock outstanding.

COMPUTER HORIZONS CORP. AND SUBSIDIARIES

Index

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share data)

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)

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COMPUTER HORIZONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended March 31, 2003 and March 31, 2002
(unaudited)

1.     Basis of Presentation

        The consolidated balance sheets as of March 31, 2003, the consolidated statements of operations for the three months ended March 31, 2003 and March 31, 2002, respectively, and the statement of cash flows for the three months ended March 31, 2003 and 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2003 (and for all periods presented) have been made.

        Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, which are not required for interim purposes, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2002 filed by the Company. The results of operations for the periods ended March 31, 2003 and 2002 are not necessarily indicative of the operating results for the respective full years.

Reclassifications

        Certain reclassifications have been made to the 2002 comparative financial statements to conform to the 2003 presentation.

2.     Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and in July 2001, SFAS 142, "Goodwill and Other Intangible Assets." 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 shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company adopted SFAS 142 as of January 1, 2002 and in compliance with this new regulation has discontinued the amortization of goodwill. For the effect of this statement on the Company see Note 3.

        In November 2002, the EITF reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The transition provision allows either prospective application or a cumulative effect adjustment upon adoption. The Company is currently evaluating the impact of adopting this guidance.

        In December 2002, the Financial Accounting Standards Board approved the issuance of SFAS No. 148, "Accounting for Stock-Based Compensation—Translation and Disclosure." This statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 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.

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        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," as modified by FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," in accounting for stock-based employee compensation, whereby no compensation cost had been recognized for the plans. The Company expects to continue following the guidance under APB 25 for stock based compensation to employees. 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 SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:

        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 first quarter 2003 and 2002: expected volatility of 53%; risk-free interest rates of 3.90%; and expected lives of 7.8 years.

        Effective on January 1, 2003 the Company adopted Financial Accounting Standards Board No. 146, "Accounting for Exit or Disposal Activities," ("SFAS 146"), which supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The new standards require that a liability for a cost associated with an exit or disposal activity, including costs related to terminating a contract that is not a capital lease and the termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not ongoing or an individual deferred-compensation contract, be recognized when the liability is incurred. Previously, under Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan, which may not necessarily meet the definition of a liability. SFAS 146 is effective for exit or disposal activities of the Company that are initiated after December 31, 2002. The effect of this statement is immaterial to the Company.

        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 reporting periods beginning after June 15, 2003, for VIEs created prior to February 1, 2003. The Company is currently evaluating the impact of this statement to the Company.

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3.     Adoption of FAS 142

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

        The reporting units are equal to, or one level below, reportable segments. The Company engaged independent valuation consultants to assist with the transitional goodwill impairment tests.

        The fair value of each of the reporting units was calculated using the following approaches: (i) market approach and (ii) income approach. 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 equally blended value of the market multiple approach and the income approach discussed above. As a result of performing steps one and two of the goodwill impairment test, a loss of $29.9 million was recognized and recorded as a cumulative effect of change in accounting principle in the accompanying Consolidated Statements of Operations. There was no income tax effect on the impairment charge as approximately $19 million of the charge related to goodwill in foreign tax jurisdictions where the Company believes it is more likely than not that future taxable income in these jurisdictions will not be sufficient to realize the related income tax benefits associated with the charge. The remaining $11 million of the charge was related primarily to goodwill that was acquired prior to the ability to deduct goodwill for tax purposes.

        The following pro forma table shows the effect of amortization expense and the cumulative effect of change in accounting principle on the Company's net loss as follows:

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4.     Earnings/(Loss) per Share Disclosure

        The computation of diluted earnings per share excludes options with exercise prices greater than the average market price. During 2003, there were 1,592,938 excluded options with exercise prices between $3.65 and $26.63 per share at March 31. During 2002, there were 4,796,054 excluded options outstanding at March 31, 2002 with exercise prices between $1.25 and $26.63 per share.

5.     Segment Information

        The Company has identified three business segments: IT Services, the Solutions Group and Chimes, Inc. The IT Services division provides highly skilled software professionals to augment the internal information management staffs of major corporations. IT Services is primarily staffing augmentation. 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, strategic outsourcing and managed resourcing as well as software and relational database products, up to the time of sale, March 25, 2002, of Princeton Softech Inc. Chimes, Inc., a wholly-owned subsidiary of CHC, provides workforce procurement and management services to Global 2000 companies. Operating loss consists of loss before income taxes, excluding interest income, interest expense, gain/(loss) on the sale of assets, restructuring charges and net loss on investments. These exclusions total expense of $0.4 million and income of $3.6 million at March 31, 2003 and 2002, respectively. Corporate services, consisting of general and administrative services are provided to the segments from a centralized location. Such costs are allocated to the segments based on revenue.

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6.     Restructuring Charges

        During the fourth quarter of 2002, the Company recorded a restructuring charge of $2.8 million pertaining to 2002 office closings.

        During the fourth quarter of 2001, the Company recorded a restructuring charge of $410,000 pertaining to 2001 office closings. In addition, during the second quarter of 2001, the Company recorded an additional $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 restructuring charges of $43.9 million. The Company's restructuring plan included the offering for sale of four businesses acquired between 1998 and 1999, including Princeton Softech, Inc., SELECT Software Tools division ("Select"), eB Networks and CHC International, Ltd (formerly Spargo Consulting PLC). In addition, restructuring charges included the shutdown of Enterprise Solutions Group ("ESG") which was acquired in 1998, the closing of seven offices and the site reduction of two other IT Services offices.

        At December 31, 2000, the Company recorded a write-down of goodwill of $7.2 million for the shutdown of ESG. In addition, a non-cash charge writing down goodwill of $26 million and purchased software of $6.9 million was recorded, in the fourth quarter of 2000, in connection with the write-down of assets held for sale to realizable value. The closing of IT Services' and Solutions' offices resulted in the termination of 90 employees with a severance charge of $1.3 million. As of March 31, 2003, $1,127,000 had been paid in severance to the terminated employees. The balance remaining at March 31, 2003 includes continuing rent on six properties terminating in 2003, 2004 and 2005.

        During the fourth quarter of 2001, the Company recorded a restructuring charge adjustment of $638,000 pertaining to the termination, by the sublessee, of the sublease contracts for closed offices included in the 1999 restructure 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 attendant reduction of related staff levels.

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        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 occupancy of two abandoned properties that were part of the 1999 restructuring reserve and the reversal of an over accrual of employee severance benefits due to terminated employees in the United Kingdom and Canada. The balance remaining at March 31, 2003 includes continuing rent on one property with the lease terminating in 2005.

7.     Comprehensive Income / (Loss)

        Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No.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 three months ended March 31, 2003 and March 31, 2002 are as follows:

8.     Purchase of Westfield-India

        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 Chenni (Madras), India. This transaction was accounted for as a purchase.

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9.     Sale of Subsidiaries

        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 Sterling Pounds (approximately US$ 145,500).

        On March 25, 2002, the Company sold the net assets of Princeton Softech to Apax Partners, Inc. and LLR Partners, for cash of $16 million, including amounts held in escrow of $1.5 million. The gain from the transaction was initially estimated as $3.6 million and was adjusted in the fourth quarter of 2002 to $3.2 million due to a purchase price adjustment. The results of operations are included in the consolidated financial statements through February 28, 2002 within the Solutions group.

        On September 10, 2001, the Company sold the assets of eB Networks to Inrange Technologies, a storage networking company, for cash of $5.4 million, including amounts held in escrow of $540,000. The loss from the transaction was initially estimated as $3.2 million, which included the final write-down of related goodwill of $2.1 million. A purchase price adjustment was recorded in the fourth quarter of 2002 resulting in an increase to the loss of $144,000. The results of operations are included in the consolidated financial statements through September 10, 2001 within the Solutions group.

        On August 30, 2001, the Company sold the ICM Education name to AlphaNet Solutions, Inc., an IT professional services firm, for $0.5 million. The gain from the transaction was $332,000. The results of operations are included in the consolidated financial statements through August 30, 2001 within the Solutions group. In November 2002, the Company received an additional $100,253 from AlphaNet Solutions, Inc, relating to an earnout.

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

        On January 31, 2001, the Company sold the stock of CHC International Limited, ("Spargo"), to an information technology consultancy service provider for cash of $3.2 million. The gain from the transaction was initially estimated as $438,000. A purchase price adjustment of $2.7 million was recorded, in the fourth quarter of 2002, to increase the gain after the final resolution of outstanding accounts receivables and the termination of leases. The results of operations for January 2001 were not material to the consolidated financial statements.

10.   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 shares outstanding, or approximately 3.2 million shares. As of the filing of this report, the Company had repurchased, in the open market, 3,114,900 shares of its stock at an average price of $3.47 per share for an aggregate purchase amount of $10.8 million. As of March 31, 2003 the remaining authorization for repurchase is approximately 93,000 shares.

11.   Asset-Based Lending Facility

        On July 31, 2001, amended February 14, 2003, the Company entered into a secured asset-based lending facility that 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 was Prime plus 0.5%, thereafter the rate was LIBOR plus 2.75% based on the unpaid principal. The borrowing base less outstanding loans must equal or exceed $17.5 million. At the time of closing there was a $170,000 commitment fee paid to the agent. As of March 31, 2003, the Company had no outstanding loan balance against the facility. Based on the Company's eligible customer receivables and cash balances, $21.9 million was available for borrowing as of March 31, 2003. The fee for the unused portion of the line of credit is 0.375% per annum charged to the Company monthly. This charge was approximately $42,000 and $170,000 for the three-month periods ended March 31, 2003 and 2002, 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.

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12.   Tax Benefit Reserve

        On March 9, 2002, the Job Creation and Worker Assistance Act of 2002 (the "Act") was enacted into law. This Act contains 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 was increased to approximately $30 million. The additional refund amount of $20 million was received in January 2003.

        During 1998, the Company completed a business combination which, for financial statement purposes, has been accounted for as a pooling-of-interests. For income tax purposes the Company believes the transaction qualifies as a taxable purchase that gives rise to future tax deductions. Upon the sale of the acquired business in 2001, these deductions were recognized for tax purposes. The tax benefit of $19.6 million relating to the part of these deductions that was carried back to prior years was included in refundable income taxes in 2002. Since the tax structure of the transaction is subject to determination by the tax authorities, the Company has recorded a reserve for the tax benefits resulting from the carryback and has not recorded deferred tax assets for the tax benefits being carried forward. When resolved, the Company will record a deferred tax asset for the part of the tax benefits being carried forward and a tax benefit for the portion that was carried back, net of an appropriate valuation allowance. The tax benefit will be reflected as an increase in additional paid-in capital. Any adjustments to the valuation allowance will be charged or credited to income.

        The Internal Revenue Service is currently examining 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 is shown as a liability until the audit is completed.

13.   Subsequent Events

        On April 15, 2003 the Company received an unsolicited proposal from Aquent, LLC, a privately held professional services firm, to acquire all of the outstanding common stock of the Company for $5.00 per share in cash, subject to a number of conditions. Aquent also indicated that it would seek to replace two current directors at the May 14, 2003 Shareholders' meeting, along with lowering the voting threshold to call a special Shareholders' meeting to 10%.

        On April 28, 2003 in a letter from its Board of Directors, the Company advised its shareholders that recent hostile proxy activities of Aquent, LLC are misleading, needlessly disruptive and confusing to shareholders.

        On April 29, 2003, the Company announced that its Board had executed a separation and non-compete agreement with John J. Cassese, the Company's founder and former CEO, under which Mr. Cassese resigned as an employee and officer of the Company and its subsidiaries, terminating his employment agreement with the Company. The agreement calls for Mr. Cassese to be bound by a five-year non-competition agreement and pays him $3.5 million, and certain health and insurance benefits.

        On May 2, 2003 the Company stated in a press release that Aquent, LLC had failed to respond to the Company's request for its relevant financial data, financing commitments and the nature of any conditions or contingencies that might occur in the proposed transaction.

        On May 2, 2003 Aquent, LLC announced that it has commenced mailings of its definitive proxy materials to all shareholders of record of the Company for the May 14, 2003 Annual Meeting of Shareholders.

        On May 2, 2003, the Company announced that after careful consideration, including a thorough review with an independent financial advisor, J.P. Morgan, its Board of Directors has unanimously determined that Aquent LLC's purported $5.00 per share proposal for the Company's shares is grossly inadequate and not in the best interest of all of its shareholders.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Periods Ended March 31, 2003 and March 31, 2002

FORWARD-LOOKING STATEMENTS

        Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document 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. 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 customers for the Company's services, the availability of qualified professional staff, and price and wage inflation.

RESULTS OF OPERATIONS

        Revenues.    Revenues decreased to $60.3 million in the first quarter of 2003 from $79.2 million in the first quarter of 2002, a decrease of $18.9 million or 23.9%. Solutions Group revenues, including business units held for sale in 2002, decreased to $19.6 million in the first quarter of 2003 from $20.7 million in the first quarter of 2002, a decrease of $1.1 million or 5.3%. The decrease in Solutions Group revenues is entirely attributable to the revenue decline experienced by the business units held for sale. Solutions Group revenues, excluding the operations of units held for sale, increased $1.8 million in the first quarter of 2003 from $17.8 million in the first quarter 2002.

        IT Services revenues decreased to $36.2 million in the first quarter of 2003 from $54.7 million in the first quarter of 2002, a decrease of $18.5 million or 33.8%. The decrease in IT Services revenue of $18.5 million, is the result of continued decreases in the demand for temporary technology workers, the trend of companies to outsource technology jobs offshore, the impact of pricing decreases by customers and the lagging economy. The Company does not anticipate any growth during 2003 in IT Services headcount levels unless the economy recovers and IT spending increases.

        Chimes revenue increased to $4.5 million in the first quarter of 2003 from $3.9 million in the first quarter of 2002, an increase of $0.6 million, or 15.4%.

        Direct Costs.    Direct costs decreased to $42.8 million in the first quarter of 2003, from $58.2 million in the comparable period of 2002. Gross margin increased to 29.0% in the first quarter of 2003 from 26.5% in the same period of 2002.

        Excluding assets for sale in the first quarter of 2002, direct costs decreased to $42.8 million in the first quarter of 2003 from $57.7 million in the first quarter of 2002. Gross margin increased to 29.0% in the first quarter of 2003 from 24.4% in the first quarter of 2002.

        The Company's margins are subject to fluctuations due to a number of factors, including the level of salary and other compensation necessary to attract and retain qualified technical personnel.

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        Selling, General and Administrative.    Selling, general and administrative expenses (excluding restructuring charges in the first quarter of 2003) decreased to $18.9 million in the first quarter of 2003 from $26.5 million in the first quarter of 2002, a decrease of $7.6 million or 28.7%.

        Selling, general and administrative expenses (excluding assets held for sale in the first quarter of 2002 and restructuring charges in the first quarter of 2003) decreased to $18.9 million in the first quarter of 2003 from $22.1 million in the first quarter of 2002, a decrease of $3.2 million or 14.5%.

        The decrease in selling, general and administrative expenses was primarily attributable to cost reductions in the IT Services group, the Solutions group and Corporate, offset by increases in Chimes as the Company continues to invest in this subsidiary.

        Loss from Operations.    The Company's loss from operations, excluding restructuring charges in the first quarter of 2003 and gain/(loss) on sale of assets in both quarters, totaled $1.4 million in the first quarter of 2003, an improvement of $4.0 million, from a loss of $5.4 million in the first quarter of 2002. The composition of operating loss of $1.4 million included a loss of $1.2 million in IT Services, profit of $1.7 in the Solutions Group and a loss of $1.9 million in Chimes. This compares to the operating loss of $5.4 million in the first quarter of 2002, consisting of a loss of $1.0 million in IT Services, a loss of $1.9 million in the Solutions Group and a loss of $2.5 million in Chimes. Operating margins, excluding restructuring charges in the first quarter of 2003 and gain/(loss) on sale of assets in both quarters, were a loss of 2.4% in the first quarter of 2003 as compared to a loss of 6.9% in the first quarter of 2002.

        The Company's loss from operations (excluding assets held for sale in the first quarter of 2002, restructuring charges in the first quarter of 2003 and gain/(loss) on sale of assets in both quarters) totaled $1.4 million in the first three months ended March 31, 2003, an improvement of $2.1 million or 60.0%, from a loss of $3.5 million in the first three months ended March 31, 2002. The composition of the operating loss of $3.5 million included a loss of $1.2 million in IT Services, income of $219,000 in the Solutions Group and a loss of $2.5 million in Chimes.

        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).    Other expense increased to $0.1 million in the first quarter of 2003 compared to other income of $3.6 million in the same period of 2002. This decrease in other income was primarily the result of the gain on the sale of Princeton Softech in 2002, compared to a loss on the sale of Solutions UK in 2003.

        Provision for Income Taxes.    The effective tax rate for Federal, state and local income taxes was 30.0% for the first quarter of 2003 and 34% for the first quarter of 2002.

        Net Loss.    Net loss for the first quarter of 2003 was $1.3 million, or $0.04 loss per diluted share, compared to net loss of $31.1 million, or $0.99 loss per diluted share for the first quarter of 2002. The effect of restructuring charges and the loss on sale of assets amounted to $0.01 loss per share, net of taxes, in the first quarter of 2003. The net loss in the first quarter of 2002 includes a charge for the cumulative effect of change in accounting principle of $29.9 million, or $0.95 per share, net of taxes, and operations of assets held for sale and the gain on sale of assets which amounted to $1.1 million, or $0.03 loss per share, net of taxes.

Liquidity and Capital Resources

        At March 31, 2003, the Company had approximately $100 million in working capital, of which $70.4 million was cash and cash equivalents.

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

        Net cash used in investing activities in the first three months of 2003 was $1 million, consisting primarily of capital expenditures and the purchase of Westfield-India.

        Net cash used in financing activities in the first three months of 2003 was $0.9 million primarily consisting of the repurchase of treasury shares. In April of 2001, the Board of Directors approved the repurchase in the open market of up to 10% of its common shares outstanding, or approximately 3.2 million shares. As of the filing of this report, the Company had repurchased, in the open market, 3,114,900 shares of its stock at an average price of $3.47 per share for an aggregate purchase amount of $10.8 million. As of March 31, 2003 the remaining authorization for repurchase is approximately 93,000 shares.

        At March 31, 2002, the Company had a current ratio position of 3.6 to 1. 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 2003.

        On July 31, 2001, amended February 14, 2003, the Company entered into a secured asset-based lending facility that 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 was Prime plus 0.5%, thereafter the rate was LIBOR plus 2.75% based on the unpaid principal. The borrowing base less outstanding loans must equal or exceed $17.5 million. At the time of closing there was a $170,000 commitment fee paid to the agent. As of March 31, 2003, the Company had no outstanding loan balance against the facility. Based on the Company's eligible customer receivables and cash balances, $21.9 million was available for borrowing as of March 31, 2003. The fee for the unused portion of the line of credit is 0.375% per annum charged to the Company monthly. This charge was approximately $42,000 and $170,000 for the three-month periods ended March 31, 2003 and 2002, 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.

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 March 31, 2003:

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and in July 2001, SFAS 142, "Goodwill and Other Intangible Assets." 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 shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The Company adopted SFAS 142 as of January 1, 2002 and in compliance with this new regulation has discontinued the amortization of goodwill. For the effect of this statement on the Company see Note 3.

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        In November 2002, the EITF reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The transition provision allows either prospective application or a cumulative effect adjustment upon adoption. The Company is currently evaluating the impact of adopting this guidance.

        In December 2002, the Financial Accounting Standards Board approved the issuance of SFAS No. 148, "Accounting for Stock-Based Compensation—Translation and Disclosure." This statement amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 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 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," as modified by FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," in accounting for stock-based employee compensation, whereby no compensation cost had been recognized for the plans. The Company expects to continue following the guidance under APB 25 for stock based compensation to employees and has therefore included the disclosure requirements of FASB 148 in the accompanying financial statements.

        Effective on January 1, 2003 the Company adopted Financial Accounting Standards Board No. 146, "Accounting for Exit or Disposal Activities," ("SFAS 146"), which supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The new standards require that a liability for a cost associated with an exit or disposal activity, including costs related to terminating a contract that is not a capital lease and the termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not ongoing or an individual deferred-compensation contract, be recognized when the liability is incurred. Previously, under Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan, which may not necessarily meet the definition of a liability. SFAS 146 is effective for exit or disposal activities of the Company that are initiated after December 31, 2002. The effect of this statement is immaterial to the Company.

        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 reporting periods beginning after June 15, 2003, for VIEs created prior to February 1, 2003. The Company is currently evaluating the impact of this statement to the Company.

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Recent Developments

        On April 15, 2003 the Company received an unsolicited proposal from Aquent, LLC, a privately held professional services firm, to acquire all of the outstanding common stock of the Company for $5.00 per share in cash, subject to a number of conditions. Aquent also indicated that it would seek to replace two current directors at the May 14, 2003 Shareholders' Meeting, along with lowering the voting threshold to call a Special Shareholders' Meeting to 10%.

        On April 28, 2003 in a letter from its Board of Directors, the Company advised its shareholders that recent hostile proxy activities of Aquent, LLC are misleading, needlessly disruptive and confusing to shareholders.

        On April 29, 2003, the Company announced that its Board had executed a separation and non-compete agreement with John J. Cassese, the Company's founder and former CEO, under which Mr. Cassese resigned as an employee and officer of the Company and its subsidiaries, terminating his employment agreement with the Company. The agreement calls for Mr. Cassese to be bound by a five-year non-competition agreement and pays him $3.5 million, and certain health and insurance benefits.

        On May 2, 2003 the Company stated in a press release that Aquent, LLC had failed to respond to the Company's request for its relevant financial data, financing commitments and the nature of any conditions or contingencies that might occur in the proposed transaction.

        On May 2, 2003 Aquent, LLC announced that it has commenced mailings of its definitive proxy materials to all shareholders of record of the Company for the May 14, 2003 Annual Meeting of Shareholders.

        On May 2, 2003, the Company announced that after careful consideration, including a thorough review with an independent financial advisor, J.P. Morgan, its Board of Directors has unanimously determined that Aquent LLC's purported $5.00 per share proposal for the Company's shares is grossly inadequate and not in the best interest of all of its shareholders.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        Within 90 days prior to the filing of this Quarterly Report on Form 10-Q, the Company's CEO and CFO evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures and concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to Registrant's management, including its officers, as appropriate to allow timely decisions regarding required disclosure, and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

Changes in Internal Controls

        The Company's CEO and CFO have also concluded there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II    Other Information

Item 1.    Legal Proceedings

        On April 29, 2003, the Company filed a complaint in the United States District Court, District of New Jersey against Aquent, LLC ("Aquent") and an application for temporary restraints, expedited discovery and a preliminary injunction. The complaint alleged that Aquent's preliminary proxy statement contained materially false and misleading statements requiring corrective disclosure through an amended proxy statement. On May 2, 2003, the court issued an opinion in which the judge found that certain statements in Aquent's preliminary proxy statement were material and misleading. The court ordered Aquent to issue a corrective proxy statement which Aquent did by including a supplement containing the corrective language with its uncorrected proxy statement.

Item 6.    Exhibits and Reports on Form 8-K

        a)    Exhibits

        b)    A report on Form 8-K was filed on March 13, 2003 reporting the issuance of a press release stating that John J. Cassese, its CEO, President and Chairman, has taken a leave of absence as CEO and President and resigned his position as Director and Chairman of the Board. The Board has named William J. Murphy to the position of President and CEO, appointed Thomas J. Berry Chairman of the Board and named Michael J. Shea to the position of Chief Financial Officer.

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Signatures

        Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATIONS

I, WILLIAM J. MURPHY, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of COMPUTER HORIZONS;

2.

Based on my knowledge, this quarterly 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 quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures 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 quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ William J. Murphy
WILLIAM J. MURPHY
Chief Executive Officer

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CERTIFICATIONS

I, MICHAEL J. SHEA, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of COMPUTER HORIZONS;

2.

Based on my knowledge, this quarterly 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 quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures 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 quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Michael J. Shea
MICHAEL J. SHEA
Chief Financial Officer

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QuickLinks

Item 4. Controls and Procedures

Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K