Walker Innovation (WLKR) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 (Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2009

¨ 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: 001-33700

GLOBALOPTIONS GROUP, INC

(Exact name of registrant as specified in its charter)

Delaware	30-0342273
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
75 Rockefeller Plaza, 27th Floor New York, New York	10019
(Address of Principal Executive Offices)	(Zip Code)

(212) 445-6262

(Registrant’s telephone number, including area code)

 (Former name and former address, 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 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer ¨  Accelerated filer ¨

Non-accelerated filer   ¨  (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):  Yes ¨  No x

As of May 11, 2009, there were 13,667,347 shares of the issuer’s common stock outstanding.

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Form 10-Q

March 31, 2009

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
ITEM 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008	1
	Condensed Consolidated Statements of Operations for the Three Months Ended
	March 31, 2009 and 2008 (Unaudited)	2
	Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended
	March 31, 2009 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended
	March 31, 2009 and 2008 (Unaudited)	4
	Notes to Condensed  Consolidated Financial Statements (Unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	26
ITEM 4T.	Controls and Procedures.	26
PART II
OTHER INFORMATION
ITEM 1.	Legal Proceedings.	27
ITEM 1A.	Risk Factors.	28
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	28
ITEM 3.	Defaults Upon Senior Securities.	28
ITEM 4.	Submission of Matters to a Vote of Security Holders.	28
ITEM 5.	Other Information.	28
ITEM 6.	Exhibits.	29
SIGNATURES.		30

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share amount)

	March 31,			December 31,
	2009			2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,418		$	5,276
Accounts receivable, net		31,762			27,485
Inventories, net		3,052			2,522
Prepaid expenses and other current assets		692			862
Total current assets		37,924			36,145
Property and equipment, net		5,877			5,834
Intangible assets, net		5,370			5,981
Goodwill		19,968			19,968
Security deposits and other assets		548			553
Total assets	$	69,687		$	68,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit	$	7,521		$	7,093
Notes payable		250			400
Accounts payable		6,776			6,199
Deferred revenues		519			585
Accrued compensation and related benefits		4,431			3,155
Other current liabilities		2,145			1,966
Total current liabilities		21,642			19,398
Other long-term obligations		829			838
Total liabilities		22,471			20,236
Commitments and contingencies
Stockholders'  equity:
Preferred stock, $0.001 par value, 14,900,000 shares authorized, no shares issued or outstanding
Series D convertible preferred stock, non-voting, $0.001 par value, 100,000 shares authorized, dividends do not accrue,  no anti-dilution protection, 13,129.84 and 55,388.37 shares issued and  outstanding, convertible into 875,317 and 3,692,743 shares of common stock, liquidation  preference of $0.001 per share or $0.		-			-
Common stock, $0.001 par value; 100,000,000 shares authorized; 13,320,431 shares issued and 13,213,364 shares outstanding at March 31, 2009, and   10,486,935 shares issued and 10,379,868 shares outstanding at December 31, 2008		13			10
Additional paid-in capital		109,592			108,989
Accumulated deficit		(62,181	)		(60,546	)
Treasury stock; at cost, 107,067 shares		(208	)		(208	)
Total stockholders' equity		47,216			48,245
Total liabilities and stockholders' equity	$	69,687		$	68,481

See notes to these condensed consolidated financial statements.

1

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

(Unaudited)

	For the Three Months Ended March 31,
	2009			2008
Revenues	$	25,514		$	21,499
Cost of revenues		14,755			12,366
Gross profit		10,759			9,133
Operating expenses:
Selling and marketing		3,056			2,502
General and administrative		9,148			10,996
Total operating expenses		12,204			13,498
Loss from operations		(1,445	)		(4,365	)
Other income (expense):
Interest income		1			16
Interest (expense)		(191	)		(24	)
Other expense, net		(190	)		(8	)
Net loss	$	(1,635	)	$	(4,373	)
Basic and diluted net loss per share	$	(0.15	)	$	(0.45	)
Weighted average number of common shares outstanding - basic and diluted		11,110,969			9,641,684

See notes to these condensed consolidated financial statements.

2

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

For the Three Months Ended March 31, 2009

(Unaudited)

(dollars in thousands)

										Series D
										Convertible					Additional
	Common Stock				Treasury Shares					Preferred Stock					Paid-in			Accumulated
	Shares		Amount		Shares		Amount			Shares			Amount		Capital			Deficit			Total
Balance, January 1, 2009		10,486,935	$	10		107,067	$	(208	)		55,388.37		$	-	$	108,989		$	(60,546	)	$	48,245
Shares issued upon conversion of Series D convertible preferred stock		2,817,235		3		-		-			(42,258.53	)		-		(3	)		-			-
Issuance of common stock under employee stock purchase plan		16,261		-		-		-			-			-		20			-			20
Stock based compensation - restricted stock vested		-		-		-		-			-			-		192			-			192
Stock based compensation - employee stock purchase plan		-		-		-		-			-			-		7			-			7
Amortization of consultant stock option costs		-		-		-		-			-			-		20			-			20
Amortization of employee stock options costs		-		-		-		-			-			-		115			-			115
Amortization of consultant restricted stock unit costs		-		-		-		-			-			-		(2	)		-			(2	)
Amortization of employee restricted stock unit costs		-		-		-		-			-			-		254			-			254
Net loss		-		-		-		-			-			-		-			(1,635	)		(1,635	)
Balance, March 31, 2009		13,320,431	$	13		107,067	$	(208	)		13,129.84		$	-	$	109,592		$	(62,181	)	$	47,216

See notes to these condensed consolidated financial statements.

3

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)

	For the Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,635	)	$	(4,373	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Recovery of bad debts		(393	)		(115	)
Depreciation and amortization		987			1,014
Deferred rent		13			81
Stock-based compensation		586			1,092
Loss on disposition of equipment		-			21
Changes in operating assets and liabilities:
Accounts receivable		(3,884	)		3,928
Inventories		(530	)		(105	)
Prepaid expenses and other current assets		170			167
Security deposits and other assets		5			19
Accounts payable		577			(1,133	)
Deferred revenues		(66	)		(24	)
Accrued compensation and related benefits		1,276			(589	)
Other current liabilities		172			173
Other long-term obligations		(15	)		(14	)
Total adjustments		(1,102	)		4,515
Net cash (used in) provided by operating activities		(2,737	)		142
Cash flows from investing activities:
Purchases of property and equipment		(413	)		(453	)
Purchase of intangible assets		(6	)		(4	)
Net cash used in investing activities		(419	)		(457	)

See notes to these condensed consolidated financial statements.

4

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, continued

(Unaudited)

(dollars in thousands)

	For the Three Months Ended March 31,
	2009			2008
Cash flows from financing activities:
Net  proceeds under line of credit	$	428		$	-
Repayment of notes payable		(150	)		(450	)
Proceeds from issuance of stock in connection with ESPP		20			-
Repurchase of common stock		-			(17	)
Net cash provided by (used in) financing activities		298			(467	)
Net decrease  in cash and cash equivalents		(2,858	)		(782	)
Cash and cash equivalents - beginning of period		5,276			4,426
Cash and cash equivalents - end of period	$	2,418		$	3,644
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	109		$	50
Supplemental disclosures of non-cash investing and financing activities:
Common stock issued in exchange for obligation to issue common stock	$	-		$	2,160

See notes to these condensed consolidated financial statements.

5

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

1.  Nature of Operations

GlobalOptions Group, Inc. and Subsidiaries (collectively the “Company” or “GlobalOptions Group”) is an integrated provider of risk mitigation and management services to government entities, Fortune 1000 corporations and high net-worth and high-profile individuals. The Company delivers these services through four business units: Preparedness Services; Fraud and Special Investigative Unit (“SIU”) Services; Security Consulting and Investigations; and International Strategies. The Preparedness Services, Fraud and SIU Services, and Security Consulting and Investigations units represent the Company’s three financial reporting segments. The results of the International Strategies business unit, on the basis of its relative materiality, are included in the Fraud and SIU Services segment.

References herein to “GlobalOptions” refer to GlobalOptions, Inc., an operating subsidiary of the Company.

2.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K filed on March 16, 2009 for the year ended December 31, 2008.

3.  Summary of Significant Accounting Policies

Income Taxes

The Company accounts for income taxes using the liability method as required by Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of the underlying assets and liabilities. The Company establishes a valuation allowance for deferred tax assets when it determines that it is more likely than not that the benefits of deferred tax assets will not be realized in future periods.  The Company was not required to provide for a provision for income taxes for the three months ended March 31, 2009 and 2008, respectively as a result of losses incurred during this period.

Net Loss Per Common Share

Basic net loss per common share is computed based on the weighted average number of shares of common stock outstanding, as adjusted, during the periods presented. Common stock equivalents, consisting of stock options, restricted stock units (“RSUs”), and Series D convertible preferred stock were not included in the calculation of the diluted loss per share because their inclusion would have been anti-dilutive.  The basic weighted average number of shares was reduced for non-vested restricted stock awards and contingently returnable escrowed shares issued in connection with acquisitions.

6

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Net Loss Per Common Share, continued

Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share, because the effect of their inclusion would have been anti-dilutive.

	March 31,
	2009		2008
Stock options		1,066,008		1,709,353
Restricted stock units		366,045		-
Convertible preferred stock		875,317		3,732,808
Potentially dilutive securities realizable from the vesting of performance based restricted stock		558,063		164,063
Contingently returnable shares related to the acquisitions of Facticon, Inc. (“Facticon”) and Hyperion Risk, Inc.		-		167,865
Total potentially dilutive securities		2,865,433		5,774,089

Recently Implemented Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141R is effective for business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company expects SFAS 141R to have an impact on the accounting for any future business acquisitions.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires (a) the ownership interest in the subsidiary held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity, (b) the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of operations and (c) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently. Entities must provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company expects SFAS 160 to have an impact on the accounting for any future business acquisitions.

7

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Recently Implemented Accounting Pronouncements, continued

In April 2008, the FASB issued FASB Staff Position (“FSP”) SFAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). The guidance of FSP 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R when the underlying arrangement includes renewal or extension of terms that would require substantial costs or result in a material modification to the asset upon renewal or extension. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for SFAS 142’s entity-specific factors. FSP 142-3 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years.  The Company expects SFAS 142-3 to have an impact on the accounting for any future business acquisitions.

In June 2008, the FASB issued EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The adoption of EITF 03-6-1 did not have a material effect on the consolidated financial statements.

In June 2008, the FASB ratified EITF No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock" ("EITF 07-5"). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted.  The adoption of EITF 07-5 did not have a material effect on the consolidated financial statements.

In November 2008, the EITF issued EITF No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”). This Issue addresses the impact that SFAS 141R and SFAS 160 might have on the accounting for equity method investments, including how the initial carrying value of an equity method investment should be determined, how it should be tested for impairment, and how changes in classification from equity method to cost method should be treated. This Issue is effective on a prospective basis in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, consistent with the effective dates of SFAS 141R and SFAS 160. The Company expects EITF 08-6 to have an impact on the accounting for any future business acquisitions.

8

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

4.   Acquisition

Acquisition of Omega Insurance Services, Inc. (d/b/a First Advantage Investigative Services) (“FAIS”)

On April 21, 2008, GlobalOptions Group acquired substantially all of the business and net assets of FAIS. The aggregate purchase price paid for the assets and business was $2,548, consisting of cash in the amount of $2,164, a broker fee of $350 and acquisition and related legal expenses of $34.  The Company began consolidating the results of operations of FAIS with its operations beginning April 21, 2008.

The following presents the unaudited pro-forma combined results of operations for the three months ended March 31, 2008 of the Company with FAIS, as if the acquisition had occurred as of January 1, 2008.

	For the Three Months Ended March 31,
	2008
Revenues	$	23,947
Net loss	$	(5,319	)
Pro-forma basic and diluted net loss per common share (not rounded)	$	(0.55	)
Pro-forma weighted average common shares outstanding - basic and diluted		9,641,684

The pro-forma combined results of operations are not necessarily indicative of the results of operations that actually would have occurred if the acquisition of FAIS had been completed as of the beginning of 2008, nor are they necessarily indicative of future consolidated results.

5. Inventories

Inventories are comprised of the following: 

	As of
	March 31, 2009			December 31, 2008
Raw materials	$	1,771		$	1,373
Work in progress – DNA Analysis		323			304
Finished goods		968			900
		3,062			2,577
Less: Reserve for obsolescence		(10	)		(55	)
Total	$	3,052		$	2,522

9

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

 6.  Intangible Assets and Goodwill

Intangible Assets

Intangible assets are comprised of the following:

	Trade Names		Developed Technology		Non-Compete Agreements		Client Relationships		Patents			Accumulated Amortization			Total
Balance as of  January 1, 2009	$	2,560	$	440	$	1,660	$	8,715	$	115		$	(7,509	)	$	5,981
Additions:
Costs of patents		-		-		-		-		6			-			6
Amortization		-		-		-		-		-			(617	)		(617	)
Balance as of  March 31, 2009	$	2,560	$	440	$	1,660	$	8,715	$	121		$	(8,126	)	$	5,370
Weighted average amortization period at March 31, 2009 (in years)		6.1		0.7		0.3		2.3		-	(1)

(1)  Patents not yet approved and as such, the amortization period has not yet begun as of March 31, 2009.

The Company recorded amortization expense related to the acquired amortizable intangibles of $617 and $681 for the three months ended March 31, 2009 and 2008, respectively.

10

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

7.  Accrued Compensation and Related Benefits

A summary of accrued compensation and related benefits is comprised of the following:

	As of
	March 31, 2009		December 31, 2008
Accrued performance based bonuses	$	1,630	$	1,237
Accrued payroll and commissions		1,929		1,172
Accrued employee benefits		872		746
Total	$	4,431	$	3,155

8.  Line of Credit

The Company maintains a working capital line of credit (the “Facility”) which is secured by accounts receivable and is subject to certain liquidity and earnings financial covenants. The Company has granted a first priority security interest in substantially all of its assets to the financial institution that provides this Facility.

Effective as of March 30, 2009, the financial institution that provides the Facility entered into an amendment to the Company’s working capital line of credit to (i) reduce the maximum amount available under the Facility to $10,000 (ii) increase the range of the applicable interest rate with respect to the amount outstanding under the line of credit  to 1.00% to 1.75% based upon the Company’s liquidity, plus the greater of 6.25% or the lender’s most recently announced “prime rate”, and (iii) extend the maturity of the Facility to March 29, 2010.  The Company paid a one-time fee of $55 in connection with the March 30, 2009 modification, which is included in general and administrative expenses.  The interest rate on the line of credit at March 31, 2009 was 7%.  As of March 31, 2009, the Company’s net borrowings were $7,521 under the line of credit and based upon the amount of qualifying accounts receivables, the Company was eligible to draw up to a total of $10,000 under the Facility.

11

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

9.  Notes Payable

Notes payable, which mature at various dates through 2009, consisted of the following:

	As of
	March 31, 2009		December 31, 2008
Note payable to seller for acquisition of Secure Source, Inc. (“Secure Source”)	$	250	$	250
Notes payable to seller for acquisition of SPZ Oakland Corporation dba On Line Consulting Service, Inc. (“On Line Consulting”)		-		150
Total	$	250	$	400

On January 6, 2009, the Company repaid $150 in satisfaction of a note payable issued in connection with the purchase of On Line Consulting.

10.  Commitments and Contingencies

           Operating Leases

The Company has obligations for various office and laboratory leases.  Such lease obligations expire at various dates through August 2016.

Rent expense charged to operations amounted to $874 and $930, for the three months ended March 31, 2009 and 2008, respectively.

The terms of certain of the Company’s lease obligations provide for scheduled escalations in the monthly rent. In accordance with SFAS No. 13, “Accounting for Leases,” the non-contingent rent increases are being amortized over the life of the leases on a straight line basis. Deferred rent of $789 and $784 represents the long-term unamortized rent adjustment amount at March 31, 2009 and at December 31, 2008 and is reflected within other long-term obligations in the condensed consolidated balance sheet. In addition, the current portion of deferred rent was $47 and $41 as of March 31, 2009 and December 31, 2008, respectively, and is reflected within other current liabilities in the condensed consolidated balance sheets.

Litigation, Claims and Assessments

From time to time, in the normal course of business, the Company may be involved in litigation.  Except for certain claims as described below, the Company’s management has determined any asserted or unasserted claims to be immaterial to the consolidated financial statements. 

The Company was added as a defendant in federal and state litigation matters related to Facticon, which were initially filed by the plaintiffs prior to the Company’s acquisition of the assets of  Facticon.  On December 22, 2008, the Federal matter was settled in full with a cash payment of $657.

12

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

10.  Commitments and Contingencies, continued

Litigation, Claims and Assessments, continued

In the State Court matter, Wonsch, et al. vs. Facticon Inc. and GlobalOptions Group, Inc., filed in the State Court for the Central District of California, the plaintiffs in a class action (the “State Plaintiffs”), alleged that Facticon failed to pay overtime wages under the California Civil Code. This action was similar to the Anchondo case, but was limited to the state laws of California. Subsequent to the acquisition, the Company was added as a defendant in said case, under the successor liability theory.  On December 30, 2008, the Company and the State Plaintiffs tentatively agreed to settle this matter.  As of March 31, 2009, the Company has established a reserve in the amount of $118 to cover the Company for the expected cash settlement of the remaining Facticon State Court matter, included in other current liabilities.  This amount was paid on May 8, 2009.

11. Stockholders’ Equity

Common Stock Issued

On February 17, 2009, the Company issued 2,817,235 shares of its common stock upon the conversion of 42,258.53 shares of Series D convertible preferred stock.

During the three months ended March 31, 2009, the Company issued 16,261 shares of its common stock under the Amended and Restated 2006 Employee Stock Purchase Plan (the “Stock Purchase Plan”).  The Company realized proceeds of $20 and recognized stock based compensation of $7 in connection with the issuance of these shares.

Restricted Stock Issued Under Performance Based Executive Bonus Plan

On December 19, 2006, the Company awarded 100,000 and 75,000 shares of unvested restricted stock to its Chief  Executive Officer and Chief Financial Officer, respectively, in connection with the extension of their respective employment and consulting agreements. On July 24, 2008 the Company awarded an additional 250,000 and 187,500 shares of unvested restricted stock to its Chief Executive Office and Chief Financial Officer, respectively, in connection with the 2006 Executive Compensation Performance Bonus Plan.

At March 31, 2009, an aggregate of 558,063 of the restricted shares awarded to these executives remain subject to vesting based on certain performance and stock price targets that have been established by the Compensation Committee.

13

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

12.  Stock Based Compensation

Amended and Restated 2006 Long-Term Incentive Plan

Under the Company’s Amended and Restated 2006 Long-Term Incentive Plan (the “Incentive Plan”), the Company may issue up to 3,000,000 shares of the Company’s common stock.  The Compensation Committee has the authority to determine the amount, type and terms of each award, but may not grant awards under the Incentive Plan, in any combination, for more than 625,000 shares of the Company’s common stock to any individual during any calendar year, increased from 312,500 under the Company’s original 2006 Long-Term Incentive Plan.

As of March 31, 2009, 964,787 shares of common stock remain eligible to be issued under the Incentive Plan.

Amended and Restated 2006 Employee Stock Purchase Plan

Under the Company’s Amended and Restated Employee Stock Purchase Plan (the “Stock Purchase Plan”), eligible employees of the Company are permitted to automatically purchase at the end of each month at a discounted price, a certain number of shares of the Company’s common stock by having the effective purchase price of such shares withheld from their base pay.  The Stock Purchase Plan provides for the issuance of up to 2,000,000 shares of the Company’s common stock.

As of March 31, 2009, 1,961,621 shares of common stock remain unissued under the Stock Purchase Plan.

Stock Based Compensation

Stock based compensation for employees accounted for under SFAS No. 123R “Share-Based Payment” (“SFAS 123R”) was approximately $568 and $896 for the three months ended March 31, 2009 and 2008, respectively.   For the three months ended March 31, 2009 and 2008, $48 and $-, respectively, of stock based compensation under SFAS 123R was reflected in selling and marketing expenses, and $520 and $896, respectively, was reflected in general and administrative expenses.

 The Company accounts for equity instruments issued to non-employees in accordance with EITF Issue No.  96-18,  “Accounting  for  Equity  Instruments  That Are Issued to Other Than  Employees  for  Acquiring,  or In  Conjunction  with Selling,  Goods or Services” (“EITF 96-18”) which requires that such equity instruments are recorded at their fair value on the measurement date, which is typically the date the services are performed.  Stock based compensation for non-employees accounted for under EITF 96-18 was approximately $18 and $28 for the three months ended March 31, 2009 and 2008, respectively, and is reflected within general and administrative expenses. 

The following table summarizes total stock based compensation costs recognized under SFAS 123R and EITF 96-18 for the three months ended March 31, 2009 and 2008, respectively.

	For the Three Months Ended March 31,
	2009							2008
	SFAS 123R		EITF 96-18			Total		SFAS 123R		EITF 96-18		Total
Stock options	$	115	$	20		$	135	$	727	$	28	$	755
RSUs		254		(2	)		252		-		-		-
Stock purchase plan		7		-			7		-		-		-
Vesting of restricted shares under performance based executive bonus award		192					192		169		-		169
Shares issued to consultants for services		-		-			-		-		168		168
Total	$	568	$	18		$	586	$	896	$	196	$	1,092

14

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

12. Stock Based Compensation, continued

Stock Options

The fair value of each option grant during the three months ended March 31, 2009 and 2008 was estimated on the date of grant using the Black-Scholes option pricing model.  The weighted average assumptions used to compute the grant date value of the options granted during the three months ended March 31, 2009 and 2008 were as follows:

	Three Months Ended March 31,
	2009	2008
Dividend yield	0%	0%
Expected volatility	104%	87%
Risk-free interest rate	1.86%	2.95%
Expected lives	3.6 years	5 years

The Company has determined that the expected life of options granted is the same as the contractual term for options granted prior to July 1, 2008, because the employees were expected to remain with the Company for the full term of the option award.  The expected life of options granted after June 30, 2008 was calculated using the simplified method set out in SEC Staff Accounting Bulleting No. 110 calculating the expected life as the average of the contractual term and the vesting period.

The weighted average fair value of the options on the date of grant, using the fair value based methodology for the three months ended March 31, 2009 and 2008 was $1.24 and $1.85 per share, respectively.

On January 1, 2009, the Company granted, in the aggregate, options for the purchase of 75,000 shares of its common stock at an exercise price of $1.99 per share, under the Incentive Plan, to three members of the Board of Directors. The options have a five year term and vest ratably at the end of each of the four quarterly periods following the date of grant.  In the aggregate, these options have a value of approximately $96 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of three years, volatility of 104%, dividends of 0%, and a risk free interest rate of 1.55%.

On January 1, 2009, the Company granted, in the aggregate, options for the purchase of 100,000 shares of its common stock at an exercise price of $1.99 per share, under the Incentive Plan, to certain members of its advisory boards for their advisory services to the Company.  The options have a five year term and vest ratably at the end of each of the four quarterly periods following the date of grant.  In the aggregate, these options have a value of approximately $128 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of three years, volatility of 104%, dividends of 0%, and a risk free interest rate of 1.55%.

On February 25, 2009, the Company granted, in the aggregate, options for the purchase of 267,500 shares of its common stock at an exercise price of $1.70 per share, under the Incentive Plan, to certain officers and employees.  The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant.  In the aggregate, these options have a value of approximately $325 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of four years, volatility of 104%, dividends of 0%, and a risk free interest rate of 2.06%.

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GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

12. Stock Based Compensation, continued

Stock Options, continued

At March 31, 2009, the unamortized value of stock options held by employees under SFAS123R was approximately $637.  The unamortized portion will be expensed over a weighted average period of 1.6 years.

 A summary of the status of the Company’s stock option plans and the changes during the three months ended March 31, 2009, is presented in the table below:

	Number of Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Intrinsic Value
Options outstanding at December 31, 2008		634,687		$	3.62		4.1
Granted		442,500
Forfeited		(11,179	)
Options outstanding at March 31, 2009		1,066,008		$	2.58		4.2		-
Exercisable March 31, 2009		340,141		$	3.85		3.9		-

Restricted Stock Units (“RSUs”)

At March 31, 2009, the unamortized value of RSUs held by employees under SFAS 123R was approximately $2,072. The unamortized portion will be expensed over a weighted average period of 2.1 years.

A summary of the activity related to RSUs for the three months ended March 31, 2009 is presented below:

	Total			Weighted  Average  Grant  Date  Fair Value
Nonvested at January 1, 2009		366,087		$	2.12
RSUs vested		-
RSUs forfeited		(42	)
Nonvested at March 31, 2009		366,045		$	2.12

16

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

12. Stock Based Compensation, continued

Stock Purchase Plan

The Stock Purchase Plan was established for eligible employees to purchase shares of the Company’s common stock on a monthly basis at 85% of the lower of the market value of the Company’s common stock on the first or last business day of each month. Under the Stock Purchase Plan, employees may authorize the Company to withhold up to 15% of their compensation during any monthly offering period for common stock purchases, subject to certain limitations. The Stock Purchase Plan was implemented during July 2008 and is qualified under Section 423 of the Internal Revenue Code. For the three months ended March 31, 2009, 16,261 shares were issued under the Stock Purchase Plan. Stock based compensation recognized in connection with the issuance of these shares was $7 for the three months ended March 31, 2009.

13.   Client and Segment Data

The Company’s reportable operating segments consist of the following three business segments: Preparedness Services, Fraud and SIU Services, and Security Consulting and Investigations. The Company’s reportable segments are organized, managed and operated along key product and service lines. These product and service lines provided to similar clients are offered together as packaged offerings, generally produce similar margins and are managed under a consolidated operations management.

The Preparedness Services segment develops and implements crisis management and emergency response plans for disaster mitigation, continuity of operations and other emergency management issues for governments, corporations and individuals.

The Fraud and SIU Services segment provides investigative surveillance, anti-fraud solutions and business intelligence services to the insurance industry, law firms and multinational organizations. The results of the Company’s International Strategies business unit, on the basis of its relative materiality, are included in the Fraud and SIU Services segment.

The Security Consulting and Investigations segment delivers specialized security and investigative services to governments, corporations and individuals.

Total revenues by segment include revenues to unaffiliated clients. The Company evaluates performance based on income (loss) from operations. Operating income (loss) is gross profit less operating expenses.

The following tables summarize financial information about the Company’s business segments for the three months ended March 31, 2009 and 2008.   

For the Three Months Ended March 31, 2009

	Preparedness Services		Fraud & SIU Services-			Security Consulting & Investigations			Corporate			Consolidated
Revenues	$	10,958	$	6,899		$	7,657		$	-		$	25,514
Income (Loss) from Operations	$	741	$	(1,165	)	$	(1,021	)	$	-		$	(1,445	)
Depreciation and Amortization	$	251	$	288		$	448		$	-		$	987
Interest Expense , net	$	-	$	-		$	-		$	(190	)	$	(190	)

17

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands except share and per share amounts)

13.   Client and Segment Data, continued

For the Three Months Ended March 31, 2008

	Preparedness Services			Fraud & SIU Services-			Security Consulting & Investigations			Corporate		Consolidated
Revenues	$	7,142		$	6,240		$	8,117		$	-	$	21,499
Loss from Operations	$	(443	)	$	(1,443	)	$	(2,479	)	$	-	$	(4,365	)
Depreciation and Amortization	$	312		$	283		$	419		$	-	$	1,014
Interest Expense, net	$	-		$	-		$	-		$	24	$	24

14.  Major Clients/Customers

Revenues from the Company’s services to a limited number of clients have accounted for a substantial percentage of the Company’s total revenues. The Company’s largest client, which is within the Preparedness Services segment and represents work performed under government contracts, accounted for approximately 27% and 25% of the Company’s revenues for the three months ended March 31, 2009 and 2008, respectively.

For the three months ended March 31, 2009 and 2008, work performed under government contracts represented 55% and 46% of the Company’s revenues, respectively, the most significant of which, in 2009 and 2008, represented 62% and 82%, respectively, of the Company’s revenues within the Preparedness Services segment.

15.  Subsequent Events

On April 1, 2009, the Company entered into an amendment of an employment agreement with one of its key executives, at an annual salary of $375, expiring March 31, 2010. The agreement provides, among other things, for the payment of an annual performance bonus.

On April 14, 2009, the Company issued 36,900 shares valued at $75 for services rendered during 2008, and 12,900 shares valued at $23 for services rendered during the three months ended March 31, 2009, to Lippert/Heilshorn and Associates.

On April 30, 2009, the Company issued 6,183 shares of its common stock under the stock purchase plan.  The Company realized proceeds of $7 and recognized stock based compensation of $2 in connection with the issuance of these shares.

On May 1, 2009, the Company issued 398,000 shares of its common stock upon the conversion of 5,970 shares of  Series D convertible preferred stock.

On May 6, 2009, the Company repaid $288, consisting of $250 and $38 of principal and interest, respectively, in satisfaction of a note payable issued in connection with the purchase of Secure Source.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 (Amounts contained in this Item 2 are in thousands, except share and per share amounts).

The following discussion of results of operations and financial condition is based upon, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes thereto included elsewhere herein.

Forward-Looking Statements

Information included or incorporated by reference in this Quarterly Report on Form 10-Q may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology.

Overview

GlobalOptions Group, Inc. and Subsidiaries (collectively the “Company” or “GlobalOptions Group”) is an integrated provider of risk mitigation and risk management services to government entities, Fortune 1000 corporations and high net-worth and high-profile individuals. We enable clients to identify, assess and prevent natural and man-made threats to the well-being of individuals and the operations of governments and corporations. In addition, we assist our clients in recovering from the damages or losses resulting from the occurrence of acts of terror, natural disasters, fraud and other risks. We have established operating platforms for each of our business units that leverage our experienced senior management team and our proprietary business processes and technology solutions.  We have an established base of key clients, forming a base upon which we intend to grow both vertically and horizontally.

We believe our reputation, credentials and personal relationships provide us with a competitive advantage in both expanding business with our existing clients as well as securing new business. Our senior management team and advisory boards have extensive industry backgrounds and include former generals in the military, top government officials and corporate officers, intelligence and law enforcement officers, professional investigators and legal and crisis communications specialists.

We deliver risk mitigation and management services through the following four business units:

• Preparedness Services develops and implements crisis management and emergency response plans for disaster mitigation, continuity of operations and other emergency management issues for governments, corporations and individuals. Services we provide include preparedness, response and recovery services, threat and impact assessments, business continuity plans and emergency exercises and training programs. The Preparedness Services unit is led by former Federal Emergency Management Agency Director James Lee Witt.

• Fraud and Special Investigative Unit (“SIU”) Services provides investigative surveillance, anti-fraud solutions and business intelligence services to the insurance industry, law firms and multinational organizations. Services we provide include fraud reporting, anti-fraud training, insurance claims investigations, surveillance, background investigations, corporate investigations for liability, on-scene accident investigations and regulatory compliance. The Fraud and SIU Services unit is led by Halsey Fischer, an 19-year industry veteran and former President and Chief Executive Officer of Confidential Business Resources (“CBR”).

• SecurityConsulting and Investigations delivers specialized security and investigative services to governments, corporations and individuals. Services we provide include forensic DNA analysis, facilities and IT security, litigation support, business intelligence, IT and accounting forensics, executive protection, independent monitoring and regulatory compliance. The Security Consulting and Investigations unit is led by Howard Safir, former New York City Police Commissioner.

•  International Strategies provides multidisciplinary, international risk management and business solutions to foreign and domestic governments, corporations and individuals. Services we provide include crisis management, facilities security, investigations and litigation support, global business intelligence, corporate governance compliance, personal protection and emerging market services. The International Strategies unit is led by Thomas Ondeck, a founder of GlobalOptions, Inc.

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Our Preparedness Services, Fraud and SIU Services, and Security Consulting and Investigations units represent our three financial reporting segments. Our International Strategies business unit, on the basis of its relative materiality, is included in our Fraud and SIU Services segment.

The following table represents the revenue contribution by each of these three reporting segments as a percentage of our total revenues:

	For the Three Months  Ended March 31,
Segment	2009			2008
Preparedness Services		43.0	%		33.2	%
Fraud and SIU Services		27.0			29.0
Security Consulting and Investigations		30.0			37.8
Total		100.0	%		100.0	%

Growth Strategy

Our goal is to build a company with the risk mitigation industry’s most comprehensive solutions offering through a balance of organic growth and acquisitions. We intend to grow our business in the following manner.

 Leverage Our Relationships and Expertise. Our highly trained professionals have deep domain expertise and exceptional credentials. Further, our advisory boards are comprised of thought leaders in their respective fields. Since our industry relies heavily on reputation and trust, we believe our senior management team’s and advisory boards’ experience and relationships will help us gain access to an increasing number of opportunities.

Cross-sell and Integrate Businesses. We intend to continue our aggressive efforts to integrate the operations of companies we have acquired and will acquire, providing the framework necessary for our senior managers to focus on identifying, prospecting and winning new opportunities across all business units. We believe our operational expertise and comprehensive service offerings enable us to cross-sell over industry verticals as well as leverage our existing client base, thereby enhancing our ability to execute on our organic growth initiatives.

Selectively Acquire Companies. We will continue to pursue complementary acquisitions of companies that enable us to increase our share of those markets in which we already operate and to enter new markets and service segments. We believe there are numerous opportunities to acquire quality companies because of the fragmented nature of our industry and that our past acquisitions track record will assist us in executing this strategy. We expect these acquisitions to be geographically diverse, provide synergies within units and allow for cross-selling opportunities across all of our business units. We structure our acquisitions to ensure that key selected individuals from the acquired company are retained and integrated after the transaction is consummated.

Develop New Solutions. We will continue to develop and seek solutions to meet unique client and dynamic market segment needs by expanding and bundling our product and service offerings. As we continue to grow both organically and through acquisitions, we expect to meet additional needs of our clients. Evidence of this strategy is our enterprise-oriented solution, GlobalTrak, and the DNA technology service we offer as a result of our acquisition of The Bode Technology Group, Inc. (“Bode”).

Expand Internationally. We intend to pursue additional opportunities to offer our services outside the United States. We believe international markets provide a substantial opportunity for growth given the increasing risks that businesses and governments face around the world. We expect that by expanding our offerings to other countries we will also enhance our ability to compete in the United States for the business of global organizations.

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Corporate Developments

Modification to the Line of Credit Agreement

Effective March 30, 2009, GlobalOptions, Inc., an operating subsidiary of the company and Bode entered into an extension and modification extension, the agreement with the financial institution that provides the line of credit, for which we provided an unconditional guarantee (“Loan Agreement”).

The Loan Agreement provides a working capital line of credit (the “Facility”).  The Modification Agreement amended the terms of the Loan Agreement to (i) reduce the maximum amount available under the Facility to $10,000 (ii) increase the range of applicable interest rates for amounts outstanding under the Facility (the exact rate based upon the Borrowers’ Liquidity (as defined in the Loan Agreement)) to 1.00% to 1.75%, plus the greater of 6.25% or the Bank’s most recently announced “prime rate”, (iii) change the Maturity Date (as defined in the Loan Agreement) from March 30, 2009 to March 29, 2010, and (iv) decrease the early termination fee under the Loan Agreement to $50.  The Borrowers paid the Bank a one-time fee of $55 and agreed to reimburse the Bank for certain other fees and expenses in connection with the Modification Agreement.

           Conversion of Series D Convertible Preferred Stock

On February 17, 2009, the Company issued 2,817,235 shares of its common stock upon the conversion of 42,258.53 shares of Series D convertible preferred stock.   

On May 1, 2009, the Company issued 398,000 shares of its common stock upon the conversion of 5,970 shares of Series D convertible preferred stock.

Statements of Operations

Revenues

Principally, we generate our revenues through providing risk mitigation solutions to our clients. For our Preparedness Services and Security Consulting and Investigations engagements, we typically invoice on a time and materials basis. For most of our Fraud and SIU Services engagements, we invoice on a fixed fee basis. We enter into contractual arrangements with most of our clients, on both an exclusive and non-exclusive basis. The duration of our engagements range from one week to two or more years. Over half of our revenues are generated from repeat client relationships that we have had for more than one year. In addition to our services, we also generate revenues from the sale of kits and supplies principally used by law enforcement to collect DNA materials. Generally, we must compete in the market for our clients based upon our reputation, service history and relationships. There are limited cases within all of our business segments in which we are considered by our clients to be the sole source provider, based principally upon the experience of our personnel or, in the case of Bode and certain DNA investigations, our technical expertise. Our clients consist of government entities, corporations and high net-worth and high-profile individuals. We provide our services domestically through our own employees and through a network of approved subcontractors to achieve scale, geographic coverage and specialized expertise. Currently, a small portion of our revenues are generated by services provided outside the United States.

Gross Profit

Our gross profit represents our revenues less the costs of revenues incurred to provide services to our clients. The most significant components of our costs of revenues are the costs of our direct labor, our third-party consultants and our reimbursable costs, which principally consist of travel expenses. For the most part, our costs of revenues are variable and based upon the type of services performed or the amount of revenues generated. Where possible, we structure our personnel arrangements to compensate our employees and our consultants on the basis of work performed. This enables us to maintain a variable cost structure and relatively consistent gross margins in our business segments from year to year. The variability in our gross margins results primarily from changes in our client mix. For our DNA analysis business, we incur fixed costs for our equipment and dedicated personnel.

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Operating Expenses

Our selling and marketing expenses primarily include salaries, commissions, stock based compensation, as well as travel and other expenses, incurred by our employees who are involved in selling and promoting our services. Our general and administrative expenses consist primarily of salaries, bonuses and stock-based compensation for our employees not performing work directly for our clients, as well as depreciation expense of facilities and amortization of intangible assets. Also included in general and administrative expenses are corporate support expenses such as legal and professional fees, investor relations, human resources, facilities, telecommunication support services, information technology, and impairment losses recognized on goodwill and intangibles.

Results of Operations

The following is a summary of our operating results as a percentage of our total condensed consolidated revenues for the periods indicated:   

	For the Three Months  Ended March 31,
	2009			2008
Revenues		100	%		100	%
Cost of revenues		58			58
Gross profit		42			42
Operating expenses:
Selling and marketing expenses		12			11
General and administrative		36			51
Total operating expenses		48			62
Loss from operations		(6	)		(20	)
Other income (expense), net		(1	)		-
Net loss		(7	)%		(20	)%

GlobalOptions Group Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Revenues

We had overall revenues of $25,514 for the three months ended March 31, 2009, as compared to revenues of $21,499 for the three months ended March 31, 2008, for an overall increase of $4,015 or 19%.

Preparedness Services revenues were $10,958 for the three months ended March 31, 2009, as compared to $7,142 for the three months ended March 31, 2008.  Of the $3,816 or 53% increase in revenues, $3,268 was primarily attributable to our relief and recovery efforts in Louisiana and Texas.

Fraud and SIU Services revenues were $6,899 for the three months ended March 31, 2009, as compared to $6,240 for the three months ended March 31, 2008.  The increase of $659 or 11% was primarily attributable to expansion of our client base and growth in our contract account relationships.

Security Consulting and Investigations revenues were $7,657 for the three months ended March 31, 2009, as compared to $8,117 for the three months ended March 31, 2008.  The decrease of $460, or 6%, was primarily attributable to a decline in our investigations business resulting from lighter demand for litigation support services.

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Gross Profit

Our consolidated gross profit for the three months ended March 31, 2009 and 2008 was $10,759 and $9,133, respectively, reflecting an increase of $1,626 or 18%.  This increase was principally due to an increase in revenue, as discussed above.  For the three months ended March 31, 2009 and 2008, our gross profit margins were 42%.

Preparedness Services gross profit was $4,975 or 45% of this segment’s revenues for the three months ended March 31, 2009, as compared to $3,251 or 46% of this segment’s revenues for the three months ended March 31, 2008.  Fraud and SIU Services gross profit was $2,673 or 39% of this segment’s revenues for the three months ended March 31, 2009, as compared to $2,748 or 44% of this segment’s revenues for the three months ended March 31, 2008.  The decrease in gross profit margin in this segment was primarily due to increased use of third party consultants. Security Consulting and Investigations gross profit was $3,111 or 41% of this segment’s revenues for the three months ended March 31, 2009, as compared to $3,134 or 39% of this segment’s revenues for the three months ended March 31, 2008.  The increase in profit margin was primarily a result of decreased use of third party consultants at this segment.

Operating Expenses

Selling and marketing expenses were $3,056 or 12% of revenues for the three months ended March 31, 2009, as compared to $2,502 or 12% of revenues for the three months ended March 31, 2008. The increase in selling expenses for the three months ended March 31, 2009 related to an increased emphasis on our selling and marketing activities and, in particular, the additional costs incurred during 2009 related to an expansion of the scope of the Company’s client forum marketing event.  General and administrative expenses were $9,148 or 36% of revenues for the three months ended March 31, 2009, as compared to $10,996 or 51% of revenues for the three months ended March 31, 2008.  The decrease of $1,848 or 17% is attributable to a $506 reduction in stock based compensation, improved efficiencies resulting from headcount reductions and the further integration of operations.

Liquidity and Capital Resources

For the Three Months Ended March 31, 2009

We had a cash and cash equivalent balance of $2,418 as of March 31, 2009.

Cash (used in) provided by operating activities was approximately $(2,737) and $142 for the three months ended March 31, 2009 and 2008, respectively.  Cash used in operating activities for the three months ended March 31, 2009 resulted primarily from our net loss $1,635 as well as an increase in the funds required to finance accounts receivable of $3,884, offset by a decrease in accrued compensation of $1,276 as well as non-cash charges for depreciation and amortization of $987 and for stock based compensation of $586.

Cash used in investing activities was $419 and $457 for the three months ended March 31, 2009 and 2008, respectively.  Of the cash used in investing activities for the three months ended March 31, 2009, $413 represented purchases of property, plant and equipment.

Financing activities provided net funds of $298 and used net funds of $467 for the three months ended March 31, 2009 and 2008, respectively.  The net cash provided for the three months ended March 31, 2009 is primarily due to proceeds from the line of credit of $428, less repayment of notes payable for acquisitions of $150.

Effective March 31, 2009, the financial institution that provides a line of credit for us and our wholly owned subsidiaries entered into an amendment to our working capital line of credit, reducing the applicable interest rate range with respect to the line of credit to 1.00% to 1.75%, based on our liquidity, plus the greater of 6.25% or the lender’s most recently announced “prime rate.”  As of March 31, 2009 our net borrowings were $7,521 under the line of credit, and based upon the amount of qualifying accounts receivable, we were eligible to draw up to a total of $10,000 under the line of credit.  The line of credit and all obligations outstanding thereunder are due and payable not later than March 29, 2010.

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For the three months ended March 31, 2009, we have met our cash needs through operating cash flows, reduction of our cash balance and through borrowings under our line of credit arrangement. At March 31, 2009, we had working capital of $16,282. We believe that a combination of cost reductions that we have implemented to date, and will continue to implement, an acceleration of the collection of certain of our government receivables, along with anticipated revenue improvements resulting from both new products and from new relationships generated from our February 2009 client forum marketing event, will allow us to generate improvements in cash flows from operations. Furthermore, we believe that these improved operating cash flows, along with the proceeds from our line of credit arrangement will be sufficient to finance our operations through March 31, 2010.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

Critical Accounting Policies

Our significant accounting policies, including the assumptions and judgments underlying them, are more fully described in our “Notes to Consolidated Financial Statements” included in the Annual Report on Form 10-K for the year ended December 31, 2008. Some of our accounting policies require the application of significant judgment by management in the preparation of the consolidated financial statements and, as a result, they are subject to a greater degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in calculating estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. We have identified certain of our accounting policies as the ones that are most important to the portrayal of our consolidated financial condition and results of operations and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting policies include the following:

Revenue Recognition and Related Costs

For investigation, crisis management and non-DNA related security, revenue is recognized on a time and materials or fixed price arrangement and is recognized as the services are performed pursuant to the applicable contractual arrangements. Revenue related to time and materials arrangements is recognized in the period in which the services are performed. Revenue related to fixed price arrangements is recognized based upon the achievement of certain milestones or progress points within the project plan. The impact of any revisions in estimated total revenue and direct contract costs is recognized in the period in which they become known. Expenses incurred by professional staff in the generation of revenue are billed to the client and recorded as revenue when incurred.

For DNA related revenues, revenue is recognized when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence that an agreement exists, prices are fixed or determinable, services and products are provided to the client, and collectibility is reasonably assured. The Company reduces revenue for estimated discounts and other allowances.

Revenues earned on DNA related services are derived from the following sources: (1) forensic DNA analysis; (2) research and development projects; and (3) sales of DNA collection products. The Company recognizes revenues from forensic DNA analysis at the time tests are completed and the results are reported to the client. Revenues from research and development projects are recognized as the related research is completed and when the Company has satisfied specific obligations under the terms of the respective agreements. Revenues from the sales of DNA collection products are recognized upon delivery of the products to the client.

Forensic DNA analysis is billed on a per sample fixed fee arrangement. Research and development projects are billed on a cost plus fixed fee arrangement.

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Costs incurred in the performance of forensic DNA analysis are recorded as inventories and charged to cost of revenues upon the completion of the project, which generally ranges from one to three months. Costs related to research and development projects are expensed as incurred and costs related to DNA collection products are maintained as inventory and charged to operations when the products are delivered.

Intangible Assets, Goodwill and Impairment

In accordance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations” (“SFAS  141”), we recognize certain intangible assets acquired in acquisitions, primarily goodwill, trade names, covenants not to compete and client relationships. In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), on a regular basis, we perform impairment analysis of the carrying value of goodwill and certain other intangible assets by assessing the recoverability when there are indications of potential impairment based on estimates of undiscounted future cash flows.

Allowance for Doubtful Accounts

The number of clients that comprise our client base, along with the different industries, governmental entities and geographic regions, including foreign countries, in which our clients operate, limits concentrations of credit risk with respect to accounts receivable. We do not generally require collateral or other security to support client receivables, although we do require retainers, up-front deposits or irrevocable letters of credit in certain situations. We have established an allowance for doubtful accounts based upon facts surrounding the credit risk of specific clients and past collections history. Credit losses have been within management’s expectations.

Stock-Based Compensation

The Company has adopted the fair value recognition provisions of SFAS No. 123R, “Share Based Payment” (“SFAS 123R”).  Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Company recognizes these compensation costs over the requisite service period of the award, which is generally the vesting term of the options associated with the underlying employment agreement, where applicable.

 SFAS 123R also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. Prior to the adoption of SFAS 123R, the Company accounted for forfeitures as they occurred.

We account for equity instruments issued to non-employees in accordance with the provisions of SFAS 123R and the Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or Services” (“EITF 96-18”) which require that such equity instruments be recorded at their fair value on the measurement date, which is typically the date the services are performed. Stock-based compensation for non-employees is accounted for under EITF 96-18 and is reflected within general and administrative expenses.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4T. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13(a)-15(e)) are controls and other procedures that are designed to ensure that information required to be disclosed by a public company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a public company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow for timely decisions regarding required disclosure. Disclosure controls and procedures include many aspects of internal control over financial reporting.

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act and have determined that such controls and procedures were effective as of March 31, 2009.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls or in other factors that could significantly affect these controls, during our first quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

(Amounts contained in this Item 1 are in thousands, except for share amounts).

From time to time, we are involved in litigation arising in the ordinary course of business. We do not believe that we are involved in any litigation that is likely, individually or in the aggregate, to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

The Company was added as a defendant in federal and state litigation matters related to Facticon, which were initially filed by the plaintiffs prior to the Company’s acquisition of the assets of  Facticon.  On December 22, 2008, the Federal matter was settled in full with a cash payment of $657.

In the State Court matter, Wonsch, et al. vs. Facticon Inc. and GlobalOptions Group, Inc., filed in the State Court for the Central District of California, the plaintiffs in a class action (the “State Plaintiffs”), alleged that Facticon failed to pay overtime wages under the California Civil Code.  Subsequent to the acquisition, the Company was added as a defendant in said case, under the successor liability theory.  On December 30, 2008, the Company and the State Plaintiffs tentatively agreed to settle this matter.  As of March 31, 2009, the Company has established a reserve in the amount of $118 to cover the Company for the expected cash settlement of the remaining Facticon State Court matter, included in other current liabilities.   This amount was paid on May 8, 2009.

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Item 1A. Risk Factors.

Not Applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Default Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

There are no items required to be disclosed on Current Report on Form 8-K during the three months ended March 31, 2009 that were not so reported.

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Item 6. Exhibits.

The exhibits listed in the following Exhibit Index are filed as part of this Report.

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of Principal Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements 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.

	GLOBALOPTIONS GROUP, INC.
Dated:  May 11, 2009	By:	/s/ Harvey W. Schiller
		Harvey W. Schiller Chairman, Chief Executive Officer and Director (Principal Executive Officer)

Dated:   May 11, 2009	By:	/s/ Jeffrey O. Nyweide
		Jeffrey O. Nyweide Executive Vice President-Corporate Development, Chief Financial Officer, Secretary (Principal Financial Officer and Principal Accounting Officer)

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