Attached files
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EX-31.1 - WALKER INNOVATION INC. | v165336_ex31-1.htm |
EX-31.2 - WALKER INNOVATION INC. | v165336_ex31-2.htm |
EX-32.2 - WALKER INNOVATION INC. | v165336_ex32-2.htm |
EX-32.1 - WALKER INNOVATION INC. | v165336_ex32-1.htm |
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 September 30, 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 November 12,
2009,
there were 14,299,350 shares of the issuer’s common stock
outstanding.
GLOBALOPTIONS
GROUP, INC. AND SUBSIDIARIES
Form
10-Q
September
30, 2009
TABLE
OF CONTENTS
PART
I
|
||
FINANCIAL
INFORMATION
|
||
ITEM
1. Financial
Statements.
|
||
Condensed
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and
December 31, 2008
|
1
|
|
Condensed
Consolidated Statements of Operations for the Three and Nine Months
Ended
|
||
September
30, 2009 and 2008 (Unaudited)
|
2
|
|
Condensed
Consolidated Statement of Stockholders’ Equity for the Nine Months
Ended
|
||
September
30, 2009 (Unaudited)
|
3
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months
Ended
|
||
September
30, 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.
|
21
|
|
ITEM
3. Quantitative and Qualitative
Disclosures About Market Risk.
|
30
|
|
ITEM
4T. Controls and Procedures.
|
30
|
|
PART
II
|
||
OTHER
INFORMATION
|
||
ITEM
1. Legal
Proceedings.
|
31
|
|
ITEM
1A. Risk Factors.
|
31
|
|
ITEM
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
|
31
|
|
ITEM
3. Defaults Upon Senior
Securities.
|
31
|
|
ITEM
4. Submission of Matters to a
Vote of Security Holders.
|
31
|
|
ITEM
5. Other
Information.
|
31
|
|
ITEM
6. Exhibits.
|
32
|
|
SIGNATURES.
|
|
33
|
GLOBALOPTIONS
GROUP, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(dollars
in thousands, except per share amount)
September 30, 2009
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 5,142 | $ | 5,276 | ||||
Accounts
receivable, net
|
22,272 | 27,485 | ||||||
Inventories,
net
|
3,419 | 2,522 | ||||||
Prepaid
expenses and other current assets
|
993 | 862 | ||||||
Total
current assets
|
31,826 | 36,145 | ||||||
Property
and equipment, net
|
6,573 | 5,834 | ||||||
Intangible
assets, net
|
4,666 | 5,981 | ||||||
Goodwill
|
19,968 | 19,968 | ||||||
Security
deposits and other assets
|
543 | 553 | ||||||
Total
assets
|
$ | 63,576 | $ | 68,481 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Line
of credit
|
$ | 3,677 | $ | 7,093 | ||||
Notes
payable
|
- | 400 | ||||||
Accounts
payable
|
4,592 | 6,199 | ||||||
Deferred
revenues
|
645 | 585 | ||||||
Accrued
compensation and related benefits
|
4,597 | 3,155 | ||||||
Other
current liabilities
|
1,870 | 1,966 | ||||||
Total
current liabilities
|
15,381 | 19,398 | ||||||
Other
long-term obligations
|
801 | 838 | ||||||
Total
liabilities
|
16,182 | 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, 0 and 55,388.37 shares issued and outstanding,
convertible into 0 and 3,692,743 shares of common stock at September 30,
2009 and December 31, 2008, respectively, liquidation
preference of $0.001 per share or $0.
|
- | - | ||||||
Common
stock, $0.001 par value; 100,000,000 shares authorized; 14,414,999 shares
issued and 14,291,105 shares outstanding at September 30, 2009,
and 10,486,935 shares issued and 10,379,868 shares
outstanding at December 31, 2008
|
14 | 10 | ||||||
Additional
paid-in capital
|
111,140 | 108,989 | ||||||
Accumulated
deficit
|
(63,517 | ) | (60,546 | ) | ||||
Treasury
stock; at cost, 123,894 shares at September 30, 2009 and 107,067 shares at
December 31, 2008
|
(243 | ) | (208 | ) | ||||
Total
stockholders' equity
|
47,394 | 48,245 | ||||||
Total
liabilities and stockholders' equity
|
$ | 63,576 | $ | 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 September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
$ | 26,005 | $ | 29,488 | $ | 77,949 | $ | 77,241 | ||||||||
Cost
of revenues
|
14,441 | 16,876 | 44,033 | 44,349 | ||||||||||||
Gross
profit
|
11,564 | 12,612 | 33,916 | 32,892 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
and marketing
|
3,156 | 3,154 | 9,465 | 8,374 | ||||||||||||
General
and administrative
|
8,821 | 9,801 | 26,935 | 31,103 | ||||||||||||
Total
operating expenses
|
11,977 | 12,955 | 36,400 | 39,477 | ||||||||||||
Loss
from operations
|
(413 | ) | (343 | ) | (2,484 | ) | (6,585 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
income
|
9 | 2 | 10 | 24 | ||||||||||||
Interest
(expense)
|
(110 | ) | (74 | ) | (497 | ) | (198 | ) | ||||||||
Other
expense, net
|
(101 | ) | (72 | ) | (487 | ) | (174 | ) | ||||||||
Net
loss
|
$ | (514 | ) | $ | (415 | ) | $ | (2,971 | ) | $ | (6,759 | ) | ||||
Basic
and diluted net loss per share
|
$ | (0.04 | ) | $ | (0.04 | ) | $ | (0.24 | ) | $ | (0.70 | ) | ||||
Weighted
average number of common shares outstanding - basic and
diluted
|
13,270,411 | 9,734,067 | 12,459,456 | 9,660,684 |
See notes to these condensed
consolidated financial statements.
2
GLOBALOPTIONS
GROUP, INC. AND SUBSIDIARIES
Condensed
Consolidated Statement of Stockholders' Equity
For
the Nine Months Ended September 30, 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
|
3,692,552 | 4 | - | - | (55,388.37 | ) | - | (4 | ) | - | - | |||||||||||||||||||||||||
Shares
issued to consultants for services
|
49,800 | - | - | - | - | - | 98 | - | 98 | |||||||||||||||||||||||||||
Shares
issued upon exercise of stock options
|
44 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Shares
issued in connection with vesting of RSUs
|
134,274 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Issuance
of common stock under employee stock purchase plan
|
51,394 | - | - | - | - | - | 69 | - | 69 | |||||||||||||||||||||||||||
Purchase
of treasury shares
|
- | - | 16,827 | (35 | ) | - | - | - | - | (35 | ) | |||||||||||||||||||||||||
Stock
based compensation - restricted stock vested
|
- | - | - | - | - | - | 739 | - | 739 | |||||||||||||||||||||||||||
Stock
based compensation - employee stock purchase plan
|
- | - | - | - | - | - | 23 | - | 23 | |||||||||||||||||||||||||||
Amortization
of consultant stock option costs
|
- | - | - | - | - | - | 75 | - | 75 | |||||||||||||||||||||||||||
Amortization
of employee stock options costs
|
- | - | - | - | - | - | 322 | - | 322 | |||||||||||||||||||||||||||
Amortization
of consultant restricted stock unit costs
|
- | - | - | - | - | - | 4 | - | 4 | |||||||||||||||||||||||||||
Amortization
of employee restricted stock unit costs
|
- | - | - | - | - | - | 825 | - | 825 | |||||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (2,971 | ) | (2,971 | ) | |||||||||||||||||||||||||
Balance,
September 30, 2009
|
14,414,999 | $ | 14 | 123,894 | $ | (243 | ) | - | $ | - | $ | 111,140 | $ | (63,517 | ) | $ | 47,394 |
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 Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (2,971 | ) | $ | (6,759 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Provision
(recovery) of bad debts
|
(245 | ) | 148 | |||||
Depreciation
and amortization
|
2,543 | 3,262 | ||||||
Deferred
rent
|
14 | 439 | ||||||
Stock-based
compensation
|
2,086 | 3,021 | ||||||
Loss
on disposition of equipment
|
- | 27 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
5,458 | (5,021 | ) | |||||
Inventories
|
(897 | ) | (433 | ) | ||||
Prepaid
expenses and other current assets
|
(131 | ) | (104 | ) | ||||
Security
deposits and other assets
|
10 | 40 | ||||||
Accounts
payable
|
(1,607 | ) | 288 | |||||
Deferred
revenues
|
60 | 189 | ||||||
Accrued
compensation and related benefits
|
1,442 | 1,380 | ||||||
Other
current liabilities
|
(105 | ) | 355 | |||||
Other
long-term obligations
|
(42 | ) | (41 | ) | ||||
Total
adjustments
|
8,586 | 3,550 | ||||||
Net
cash provided by (used in) operating activities
|
5,615 | (3,209 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
(1,909 | ) | (921 | ) | ||||
Purchase
of intangible assets
|
(58 | ) | (42 | ) | ||||
Acquisition
of FAIS
|
- | (2,548 | ) | |||||
Net
cash used in investing activities
|
(1,967 | ) | (3,511 | ) |
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 Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from financing activities:
|
||||||||
Net (repayments)
proceeds under line of credit
|
$ | (3,416 | ) | $ | 6,000 | |||
Repayment
of notes payable
|
(400 | ) | (700 | ) | ||||
Accretion
of OCS discounted notes
|
- | 3 | ||||||
Proceeds
from issuance of stock in connection with ESPP
|
69 | 10 | ||||||
Repurchase
of common stock
|
(35 | ) | (50 | ) | ||||
Net
cash (used in) provided by financing activities
|
(3,782 | ) | 5,263 | |||||
Net
decrease in cash and cash equivalents
|
(134 | ) | (1,457 | ) | ||||
Cash
and cash equivalents - beginning of period
|
5,276 | 4,426 | ||||||
Cash
and cash equivalents - end of period
|
$ | 5,142 | $ | 2,969 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for interest
|
$ | 575 | $ | 208 | ||||
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||
Common
stock issued in exchange for obligation to issue common
stock
|
$ | - | $ | 2,160 | ||||
Supplemental
non-cash investing and financing activity - acquisition of
FAIS:
|
||||||||
Assets
acquired and liabilities assumed:
|
||||||||
Accounts
receivable
|
$ | - | $ | 1,201 | ||||
Property
and equipment
|
- | 102 | ||||||
Intangible
assets
|
- | 2,790 | ||||||
Accounts
payable
|
- | (17 | ) | |||||
Other
current liabilities
|
- | (322 | ) | |||||
Earnout
Liability
|
- | (1,206 | ) | |||||
Total
purchase price, paid in cash
|
$ | - | $ | 2,548 |
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. The Company has evaluated subsequent
events through November
12,
2009, the issuance date of this Form 10-Q.
Operating results for the three and nine months ended September 30, 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. 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 and nine months ended September 30, 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.
September 30 ,
|
||||||||
2009
|
2008
|
|||||||
Stock
options
|
1,037,794 | 666,923 | ||||||
Restricted
stock units
|
229,526 | 368,433 | ||||||
Convertible
preferred stock
|
- | 3,692,743 | ||||||
Potentially
dilutive securities realizable from the vesting of performance based
restricted stock
|
558,063 | 558,063 | ||||||
Contingently
returnable shares related to the acquisitions of
Facticon, Inc. (“Facticon”), James Lee Witt Associates, Inc. and Hyperion
Risk, Inc.
|
- | 162,500 | ||||||
Total
potentially dilutive securities
|
1,825,383 | 5,448,662 |
Recently
Implemented Accounting Guidance
The FASB,
in June 2009, issued new accounting guidance that established the FASB
Accounting Standards Codification, ("Codification" or “ASC”) as the
single source of authoritative GAAP to be applied by nongovernmental
entities, except for the rules and interpretive releases of the SEC under
authority of federal securities laws, which are sources of authoritative
GAAP for SEC registrants. The FASB will no longer issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting
Standards Updates will not be authoritative in their own right as they will only
serve to update the Codification. These changes and the Codification itself do
not change GAAP. This new guidance became effective for interim and annual
periods ending after September 15, 2009. Other than the manner in
which new accounting guidance is referenced, the adoption of these changes did
not have a material effect on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued new accounting guidance, under ASC Topic 805 on
business combinations, which established principles and requirements as to how
acquirers recognize and measure in these financial statements the identifiable
assets acquired, the liabilities assumed, noncontrolling interests and goodwill
acquired in the business combination or a gain from a bargain
purchase. This guidance 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. This guidance
will have an impact on the Company’s accounting for any future business
acquisitions.
In December 2007, the FASB issued new
accounting guidance, under ASC Topic 810 on consolidations, which establishes
the accounting for noncontrolling interests in a subsidiary and the
deconsolidation of a subsidiary. This guidance 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. This guidance is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008, and interim
periods within those fiscal years. This guidance will have an impact on the
Company’s 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 Guidance, continued
In April
2008, the FASB issued new accounting guidance, under ASC Topic 350 on
intangibles, which outlines the requirements for determining the useful life of
an intangible asset. The new guidance is intended to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of the asset 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 entity-specific factors. This guidance 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 the new guidance to have an impact on the accounting for any future
business acquisitions.
In June 2008, the FASB
issued new accounting guidance, under ASC Topic 260 on earnings per share,
related to the determination of whether instruments granted in share-based
payment transactions are participating securities. This guidance clarifies 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. This guidance 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 this guidance did not have a material effect on
the Company’s consolidated financial statements.
In June
2008, the FASB issued new accounting guidance, under ASC Topic 815 on
derivatives and hedging, as to how an entity should determine whether an
instrument (or an embedded feature) is indexed to an entity's own stock. This
guidance 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. This guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early
application is not permitted. The adoption of this guidance did not
have a material effect on the Company’s consolidated financial
statements.
In
November 2008, the FASB issued new accounting guidance, under ASC Topic 323 on
investments— equity method and joint ventures, relating to the accounting for
equity method investments. This guidance addresses 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 guidance is effective
on a prospective basis in fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years. The Company expects
this guidance to have an impact on its accounting for any future business
acquisitions.
In
May 2009, the FASB issued new accounting guidance, under ASC Topic 855 on
subsequent events, which sets forth: 1) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; 2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and 3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
was effective for interim and annual periods ending after June 15, 2009.
The adoption of this guidance did not have a material effect on the Company’s
consolidated financial statements.
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 nine months ended September 30, 2008 of the Company with FAIS, as if the
acquisition had occurred as of January 1, 2008.
For the Nine
months ended
September 30,
|
||||
2008
|
||||
Revenues
|
$ | 80,233 | ||
Net
loss
|
$ | (7,916 | ) | |
Pro-forma
basic and diluted net loss per common share (not
rounded)
|
$ | (0.82 | ) | |
Pro-forma
weighted average common shares outstanding - basic and
diluted
|
9,660,684 |
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
|
||||||||
September
30, 2009
|
December
31, 2008
|
|||||||
Raw
materials
|
$ | 2,152 | $ | 1,373 | ||||
Work
in progress – DNA Analysis
|
395 | 304 | ||||||
Finished
goods
|
922 | 900 | ||||||
3,469 | 2,577 | |||||||
Less:
Reserve for obsolescence
|
(50 | ) | (55 | ) | ||||
Total
|
$ | 3,419 | $ | 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
|
- | - | - | - | 59 | - | 59 | |||||||||||||||||||||
Amortization
|
- | - | - | - | - | (1,374 | ) | (1,374 | ) | |||||||||||||||||||
Balance
as of September 30, 2009
|
$ | 2,560 | $ | 440 | $ | 1,660 | $ | 8,715 | $ | 174 | $ | (8,883 | ) | $ | 4,666 | |||||||||||||
Weighted
average amortization period at September 30, 2009 (in
years)
|
5.6 | 0.6 | 0.2 | 2.0 | - | (1) |
(1) Patents
not yet approved and as such, the amortization period has not yet begun as of
September 30, 2009.
The
Company recorded amortization expense related to the acquired amortizable
intangibles of $358 and $777 for the three months ended September 30, 2009 and
2008, and $1,374 and $2,224 for the nine months ended September 30, 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
|
||||||||
September 30,
2009
|
December 31,
2008
|
|||||||
Accrued
performance based bonuses
|
$ | 1,341 | $ | 1,237 | ||||
Accrued
payroll and commissions
|
2,194 | 1,172 | ||||||
Accrued
employee benefits
|
1,062 | 746 | ||||||
Total
|
$ | 4,597 | $ | 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 September 30,
2009 was 7.25%. As of September 30, 2009, the Company’s net
borrowings were $3,677 under the line of credit and based upon the amount of
qualifying accounts receivable, the Company was eligible to draw an additional
$6,323 for up to a total of $10,000, under the Facility.
Effective
as of August 26, 2009, the financial institution that provides the Facility
entered into an amendment to the Company’s working capital line of credit to
modify certain collateral requirements. The maximum amount available
under the Facility remains $10,000.
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 matured at various dates through 2009, consisted of the
following:
As
of
|
||||
December 31,
2008
|
||||
Note
payable to seller for acquisition of Secure Source, Inc. (“Secure
Source”)
|
$ | 250 | ||
Notes
payable to seller for acquisition of SPZ Oakland Corporation dba On Line
Consulting Service, Inc. (“On Line Consulting”)
|
150 | |||
Total
|
$ | 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.
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.
10. Commitments
and Contingencies
Employment
Agreements
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 August
13, 2009, the Company entered into employment agreement modifications with
Harvey W. Schiller, the Company’s Chairman and Chief Executive Officer, and
Jeffrey O. Nyweide, the Company’s Chief Financial
Officer. These modified agreements clarified the
employment and compensation provisions upon a termination of employment or a
change of control. Aggregate annual salary compensation
levels of $425 and $375 for each of Dr. Schiller and Mr. Nyweide, respectively,
will remain in effect for the remaining term of the agreements, which currently
is through January 31, 2011, as will the terms of the bonus program in effect
prior to the modification.
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 $894 and $918, for the three months
ended September 30, 2009 and 2008, and $2,748 and $2,805 for the nine months
ended September 30, 2009 and 2008, respectively.
The terms
of certain of the Company’s lease obligations provide for scheduled escalations
in the monthly rent. 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 September 30, 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 $62 and $40 as of September 30, 2009 and December 31, 2008,
respectively, and is reflected within other current liabilities in the condensed
consolidated balance sheets.
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
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, under the successor liability
theory. The federal matter was settled in full on December 22, 2008
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. The State matter was settled in full on May 12,
2009 with a cash payment of $118.
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.
On April
14, 2009, the Company issued 36,900 shares valued at $75 for services rendered
during 2008, and 12,900 shares valued at $22 for services rendered during the
three months ended March 31, 2009, to Lippert/Heilshorn and
Associates.
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.
During July 2009, the
Company issued 44 shares of its common stock in connection with the exercise of
a stock option.
During
September 2009, the Company issued 477,317 shares of its common stock upon the
conversion of the remaining outstanding 7,159.75 shares of Series D convertible
preferred stock. After this conversion, no shares of Series D
convertible stock were outstanding.
During
the nine months ended September 30, 2009, the Company issued 134,274 shares of
its common stock pursuant to the vesting of RSUs under the 2006 Long Term
Incentive Plan (the “Incentive Plan”). Of the 134,274 shares issued,
31,912 and 14,094 shares were issued to the Chief Executive Officer and Chief
Financial Officer, respectively. The Chief Executive Office and Chief
Financial Officer elected to have the Company withhold 12,063 and 4,764 shares,
respectively, in satisfaction of their tax obligations in connection with the
vesting of these RSUs. Such withheld shares valued at $25 and $10,
respectively are reflected as treasury shares in the Company’s books and
records.
During
the nine months ended September 30, 2009, the Company issued 51,394 shares of
its common stock under the Amended and Restated 2006 Employee Stock Purchase
Plan (the “Stock Purchase Plan”). The Company realized proceeds of
$69 and recognized stock based compensation of $ $23 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.
13
GLOBALOPTIONS
GROUP, INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(In
thousands except share and per share amounts)
12.
Stock
Based Compensation
Restricted
Stock Issued Under Performance Based Executive Bonus Plan,
continued
At
September 30, 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.
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
September 30, 2009, 993,857 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
September 30, 2009, 1,926,488 shares of common stock remain unissued under the
Stock Purchase Plan.
Stock
Based Compensation
Equity
instruments issued to employees are recorded at their fair value on the date of
grant and are amortized over the vesting period of the award. Stock
based compensation for employees was approximately $634 and $734 for the three
months ended September 30, 2009 and 2008, respectively, and $1,909 and $2,759
for the nine months ended September 30, 2009 and 2008,
respectively. For the three months ended September 30, 2009 and
2008, $130 and $85, respectively, were reflected in selling and marketing
expenses, and $504 and $649, respectively, were reflected in general and
administrative expenses. For the nine months ended September 30, 2009 and 2008,
$245 and $189 respectively, were reflected in selling and marketing expenses,
and $1,664 and $2,570, respectively, were reflected in general and
administrative expenses.
Equity
instruments issued to non-employees are recorded at their fair value on the
grant date. The non-vested portions of the award are adjusted based on
market value on a quarterly basis and the adjusted value of award is amortized
over the expected service period. Stock based compensation for
non-employees was approximately $20 and $24 for the three months ended September
30, 2009 and 2008 respectively, and $177 and $263 for the nine months ended
September 30, 2009 and 2008, respectively. For the three months ended September
30, 2009 and 2008, all stock based compensation for non-employees was reflected
in general and administrative expenses. For the nine months ended
September 30, 2009 and 2008, $98 and $0, respectively, were reflected in selling
and marketing expenses, and $79 and $263, respectively, were reflected in
general and administrative expenses.
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
Based Compensation, continued
The
following table summarizes total stock based compensation costs recognized for
the three and nine months ended September 30, 2009 and 2008,
respectively.
For the Three Months Ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Non-
employees
|
Employees
|
Total
|
Non-
employees
|
Employees
|
Total
|
|||||||||||||||||||
Stock
options
|
$ | 20 | $ | 103 | $ | 123 | $ | 22 | $ | 133 | $ | 155 | ||||||||||||
RSUs
|
- | 247 | 247 | 2 | 256 | 258 | ||||||||||||||||||
Stock
purchase plan
|
- | 8 | 8 | - | 3 | 3 | ||||||||||||||||||
Vesting
of restricted shares under performance based executive bonus
award
|
- | 276 | 276 | - | 342 | 342 | ||||||||||||||||||
Total
|
$ | 20 | $ | 634 | $ | 654 | $ | 24 | $ | 734 | $ | 758 |
For the Nine months ended September 30,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Non-
employees
|
Employees
|
Total
|
Non-
employees
|
Employees
|
Total
|
|||||||||||||||||||
Stock
options
|
$ | 75 | $ | 322 | $ | 397 | $ | 93 | $ | 1,558 | $ | 1,651 | ||||||||||||
RSUs
|
4 | 825 | 829 | 2 | 272 | 274 | ||||||||||||||||||
Stock
purchase plan
|
- | 23 | 23 | - | 3 | 3 | ||||||||||||||||||
Vesting
of restricted shares under performance based executive bonus
award
|
- | 739 | 739 | - | 926 | 926 | ||||||||||||||||||
Shares
issued to consultants for services
|
98 | - | 98 | 168 | - | 168 | ||||||||||||||||||
Total
|
$ | 177 | $ | 1,909 | $ | 2,086 | $ | 263 | $ | 2,759 | $ | 3,022 |
15
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 nine months ended September 30, 2009 and
three and nine months ended September 30, 2008 was estimated on the date of
grant using the Black-Scholes option pricing model. No options were
granted by the Company during the three months ended September 30,
2009. The weighted average assumptions used to compute the grant date
value of the options granted during the nine months ended September 30, 2009 and
thee and nine months ended September 30, 2008 were as follows:
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Dividend
yield
|
-
|
0%
|
0%
|
% |
0%
|
|||||||||||
Expected
volatility
|
-
|
99.8%
|
104%
|
% |
87.0%
|
|||||||||||
Risk-free
interest rate
|
-
|
3.37%
|
1.86%
|
% |
2.97%
|
|||||||||||
Expected
lives
|
-
|
4
years
|
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, 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 was $1.24 per share for the nine months ended September
30, 2009, and was $1.64 and $1.80 per share for the three and nine months ended
September 30, 2008, 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%.
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 Options,
continued
At
September 30, 2009, the unamortized value of stock options held by employees was
approximately $562. The unamortized portion will be expensed over a
weighted average period of 1.2 years.
A
summary of the status of the Company’s stock option plans and the changes during
the nine months ended September 30, 2009, is presented in the table
below:
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Intrinsic
Value
|
|||||||||||||
(per
share)
|
(in
years)
|
|||||||||||||||
Options
outstanding at December 31, 2008
|
634,687 | $ | 3.62 |
4.1
|
||||||||||||
Exercised
|
(44 | ) | ||||||||||||||
Granted
|
442,500 | |||||||||||||||
Forfeited
|
(39,349 | ) | ||||||||||||||
Options
outstanding at September 30, 2009
|
1,037,794 | $ | 2.58 |
3.7
|
$ | 46 | ||||||||||
Exercisable
at September 30, 2009
|
454,812 | $ | 3.41 |
3.5
|
$ | 8 |
Restricted
Stock Units (“RSUs”)
At
September 30, 2009, the unamortized value of RSUs held by employees was
approximately $1,515. The unamortized portion will be expensed over a weighted
average period of 1.6 years.
A summary
of the activity related to RSUs for the nine months ended September 30, 2009 is
presented below:
Total
|
Weighted
Average Grant
Date Fair Value
|
|||||||
Nonvested
at January 1, 2009
|
366,087 | $ | 2.12 | |||||
RSUs
vested
|
(134,274 | ) | ||||||
RSUs
forfeited
|
(2,287 | ) | ||||||
Nonvested
at September 30, 2009
|
229,526 | $ | 2.12 |
17
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 September 30, 2009 and 2008 14,770 and 6,140 shares
respectively were issued under the Stock Purchase Plan. The Company
recognized $8 and $3, respectively of stock based compensation in connection
with the issuance of these shares.
For the
nine months ended September 30, 2009 and 2008, 51,394 and 6,140 shares
respectively were issued under the Stock Purchase Plan. The Company
recognized $23 and $3 of stock based compensation in connection with the
issuance of these shares.
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 and nine months ended September 30, 2009 and
2008.
For the Three Months Ended September 30, 2009
|
||||||||||||||||||||
Preparedness
Services
|
Fraud & SIU
Services-
|
Security
Consulting &
Investigations
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 9,461 | $ | 7,806 | $ | 8,738 | $ | - | $ | 26,005 | ||||||||||
Income
(loss) from Operations
|
$ | 735 | $ | (680 | ) | $ | (468 | ) | $ | - | $ | (413 | ) | |||||||
Depreciation
and Amortization
|
$ | 62 | $ | 269 | $ | 440 | $ | - | $ | 771 | ||||||||||
Interest
Expense, net
|
$ | - | $ | - | $ | - | $ | 101 | $ | 101 |
18
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 September 30, 2008
|
||||||||||||||||||||
Preparedness
Services
|
Fraud & SIU
Services-
|
Security
Consulting &
Investigations
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 11,820 | $ | 8,657 | $ | 9,011 | $ | - | $ | 29,488 | ||||||||||
Income (loss) from
Operations
|
$ | (1,191 | ) | $ | (1,117 | ) | $ | (417 | ) | $ | - | $ | (343 | ) | ||||||
Depreciation and
Amortization
|
$ | 320 | $ | 383 | $ | 432 | $ | - | $ | 1,135 | ||||||||||
Interest Expense,
net
|
$ | - | $ | - | $ | - | $ | 72 | $ | 72 |
For the Nine months ended September 30, 2009
|
||||||||||||||||||||
Preparedness
Services
|
Fraud & SIU
Services-
|
Security
Consulting &
Investigations
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 30,450 | $ | 22,391 | $ | 25,108 | $ | - | $ | 77,949 | ||||||||||
Income
(loss) from Operations
|
$ | 2,197 | $ | (2,533 | ) | $ | (2,148 | ) | $ | - | $ | (2,484 | ) | |||||||
Depreciation and
Amortization
|
$ | 375 | $ | 835 | $ | 1,333 | $ | - | $ | 2,543 | ||||||||||
Interest Expense,
net
|
$ | - | $ | - | $ | - | $ | 487 | $ | 487 |
For the Nine months ended September 30, 2008
|
||||||||||||||||||||
Preparedness
Services
|
Fraud & SIU
Services-
|
Security
Consulting &
Investigations
|
Corporate
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 27,070 | $ | 24,173 | $ | 25,998 | $ | - | $ | 77,241 | ||||||||||
Income (loss) from
Operations
|
$ | 962 | $ | (3,466 | ) | $ | (4,081 | ) | $ | - | $ | (6,585 | ) | |||||||
Depreciation and
Amortization
|
$ | 948 | $ | 1,036 | $ | 1,278 | $ | - | $ | 3,262 | ||||||||||
Interest Expense,
net
|
$ | - | $ | - | $ | - | $ | 174 | $ | 174 |
19
GLOBALOPTIONS
GROUP, INC. AND SUBSIDIARIES
Notes to
Condensed Consolidated Financial Statements
(In
thousands except share and per share amounts)
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 a government contract, accounted for approximately 23% and 26%
of the Company’s revenues for the three months ended September 30, 2009 and
2008, and 25% and 25% for nine months ended September 30, 2009 and 2008,
respectively.
For the
three months ended September 30, 2009 and 2008 work performed under government
contracts represented 51% and 51% of the Company’s revenues, respectively, the
most significant of which, in 2009 and 2008, represented 64% and 64%,
respectively, of the Company’s revenues within the Preparedness Services
segment.
For the
nine months ended September 30, 2009 and 2008 work performed under government
contracts represented 53% and 47% of the Company’s revenues, respectively, the
most significant of which, in 2009 and 2008, represented 64% and 71%,
respectively, of the Company’s revenues within the Preparedness Services
segment.
On July
22, 2009, the Company was notified that the State of Louisiana, Governor's
Office of Homeland Security and Emergency Preparedness ("GOHSEP") exercised its
option in the Company’s Consulting Services Contract with GOHSEP (the “Louisiana
Contract”) to extend the term of the Louisiana Contract, which provides for up
to $34 million in potential revenue per contract year, through August 23, 2010.
The Louisiana Contract established the Company as the lead provider of relief
and recovery efforts related to all State of Louisiana (the "State") disasters.
Under the Louisiana Contract, the State chose to expand the Company's role to be
the State's lead disaster advisor and recovery manager. The Company also
continues to provide recovery relief to the State in the aftermath of Hurricanes
Katrina and Rita, as well as Hurricanes Gustav and Ike, and provides these same
services for other new and/or pre-existing disasters. The Company
also provides programmatic and policy advice regarding the Federal Emergency
Management Agency (“FEMA”) and assists with the development and dissemination of
the State's disaster-related policies and procedures. As described above, the
term of the Louisiana Contract is through August 23, 2010 and is terminable by
GOHSEP upon 30 days' written notice.
15. Subsequent
Events
On
October 31, 2009, the Company issued 8,245 shares of its common stock under the
Stock Purchase Plan. The Company realized proceeds of $11 and
recognized stock based compensation of $4 in connection with the issuance of
these shares.
20
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”).
|
|
•
|
Security Consulting
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.
|
21
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
|
For the Nine Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
Segment
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Preparedness
Services
|
36.4 | % | 40.1 | % | 39.1 | % | 35.0 | % | ||||||||
Fraud
and SIU Services
|
30.0 | 29.4 | 28.7 | 31.3 | ||||||||||||
Security
Consulting and Investigations
|
33.6 | 30.5 | 32.2 | 33.7 | ||||||||||||
Total
|
100.0 | % | 100.0 | % | 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 through 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.
22
Corporate
Developments
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.
During
September 2009, the Company issued 477,317 shares of its common stock upon the
conversion of the remaining 7,159.75 shares of Series D
convertible preferred stock. At September 30, 2009, there were
no shares of Series D convertible preferred stock outstanding.
Extension
of Agreement with the State of Louisiana
On July
22, 2009, the Company was notified that the State of Louisiana, Governor's
Office of Homeland Security and Emergency Preparedness ("GOHSEP") exercised its
option in the Company’s Consulting Services Contract with GOHSEP (the “Louisiana
Contract”) to extend the term of the Louisiana Contract, which provides for up
to $34 million in potential revenue per contract year, through August 23, 2010.
The Louisiana Contract established the Company as the lead provider of relief
and recovery efforts related to all State of Louisiana (the "State") disasters.
Under the Louisiana Contract, the State chose to expand the Company's role to be
the State's lead disaster advisor and recovery manager. The Company also
continues to provide recovery relief to the State in the aftermath of Hurricanes
Katrina and Rita, as well as Hurricanes Gustav and Ike, and provides these same
services for other new and/or pre-existing disasters. The Company
also provides programmatic and policy advice on FEMA and assists with the
development and dissemination of the State's disaster-related policies and
procedures. As described above, the term of the Louisiana Contract is through
August 23, 2010 and is terminable by GOHSEP upon 30 days' written
notice.
Modifications
to Employment Agreements
On August
13, 2009, the Company entered into Employment Agreement Modifications with
Harvey W. Schiller, the Company’s Chairman and Chief Executive Officer and
Jeffrey O. Nyweide, the Company’s Chief Financial Officer.
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.
23
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.
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 September 30,
|
For the Nine Months
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
100% | 100% | 100% | 100% | ||||||||||||
Cost
of revenues
|
56 | 57 | 56 | 57 | ||||||||||||
Gross
profit
|
44 | 43 | 44 | 43 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
and marketing expenses
|
12 | 11 | 12 | 11 | ||||||||||||
General
and administrative
|
34 | 33 | 35 | 40 | ||||||||||||
Total
operating expenses
|
46 | 44 | 47 | 51 | ||||||||||||
Loss
from operations
|
(2) | (1) | (3) | (8) | ||||||||||||
Other
income (expense), net
|
- | - | (1) | - | ||||||||||||
|
||||||||||||||||
Net
loss
|
(2)% | ( 1)% | (4)% | (8)% |
24
GlobalOptions
Group Three Months Ended September 30, 2009 Compared to the Three Months Ended
September 30, 2008
Revenues
We had
overall revenues of $26,005 for the three months ended September 30, 2009, as
compared to revenues of $29,488 for the three months ended September 30, 2008,
for an overall decrease of $3,483 or 12%.
Preparedness Services revenues were
$9,461 for the three months ended September 30, 2009, as compared to $11,820 for
the three months ended September 30, 2008. The $2,359 or 20% decrease in
revenues, was primarily attributable to the winding down of our relief and
recovery efforts in Texas, Indiana and Iowa, the revenues of which were not
replaced with the same level of relief work in 2009.
Fraud and SIU Services revenues were
$7,806 for the three months ended September 30, 2009, as compared to $8,657 for
the three months ended September 30, 2008. The $851 or 10% decrease
in revenues was primarily due to a decline in our investigations business
resulting from lower demand for investigation, resulting from a reduction in
fraud claims processed by our third party claims administrators and the
elimination of certain lower margin accounts.
Security
Consulting and Investigations revenues were $8,738 for the three months ended
September 30, 2009, as compared to $9,011 for the three months ended September
30, 2008, reflecting a decrease of $273, or 3%.
Gross
Profit
Our
consolidated gross profit for the three months ended September 30, 2009 and 2008
was $11,564 and $12,612 respectively, reflecting a decrease of $1,048 or
8%. This decrease was principally due to a decrease in revenue, as
discussed above. For the three months ended September 30, 2009 and
2008, our gross profit margins were 44% and 43%, respectively.
Preparedness
Services gross profit was $4,355 or 46% of this segment’s revenues for the three
months ended September 30, 2009, as compared to $5,225 or 44% of this segment’s
revenues for the three months ended September 30, 2008. The
improvement in gross margin is the result of improvements in efficiency
resulting from the decreased use of outside consultants. Fraud and
SIU Services gross profit was $3,341 or 43% of this segment’s revenues for the
three months ended September 30, 2009, as compared to $3,285 or 38% of this
segment’s revenues for the three months ended September 30, 2008. The
increase in gross profit margin was primarily due to a revenue shift to higher
margin customer accounts. Security Consulting and
Investigations gross profit was $3,868 or 44% of this segment’s revenues for the
three months ended September 30, 2009, as compared to $4,102 or 46% of this
segment’s revenues for the three months ended September 30, 2008. The
decrease in profit margin was primarily a result of lower utilization of labor
costs.
Operating
Expenses
Selling
and marketing expenses were $3,156 or 12% of revenues for the three months ended
September 30, 2009, as compared to $3,154 or 11% of revenues for the three
months ended September 30, 2008. General and administrative expenses were $8,822
or 34% of revenues for the three months ended September 30, 2009, as compared to
$9,801 or 33% of revenues for the three months ended September 30,
2008. The decrease of $978 or 10% is attributable to improved
efficiencies resulting from headcount reductions and the further integration of
operations.
25
GlobalOptions
Group Nine Months Ended September 30, 2009 Compared to the Nine Months Ended
September 30, 2008
Revenues
We had
overall revenues of $77,949 for the nine months ended September 30, 2009, as
compared to revenues of $77,241 for the nine months ended September 30, 2008,
for an overall increase of $708 or 1%.
Preparedness Services revenues were
$30,450 for the nine months ended September 30, 2009, as compared to $27,070 for
the nine months ended September 30, 2008. The $3,380 or 12% increase
in revenues was primarily attributable to our relief and recovery efforts
in Texas, Indiana and Iowa.
Fraud and SIU Services revenues were
$22,391 for the nine months ended September 30, 2009, as compared to $24,173 for
the nine months ended September 30, 2008. The $1,782 or 7% decrease
in revenues was primarily attributable to decreased demand for investigative
services at this segment, resulting from a reduction in fraud claims processed
by our third party claims administrators and the elimination of certain lower
margin accounts.
Security
Consulting and Investigations revenues were $25,108 for the nine months ended
September 30, 2009, as compared to $25,998 for the nine months ended September
30, 2008. The $890, or 3% decrease in revenues resulted from a
reduction in demand for investigation services, litigation support and computer
forensic services, due to the changes in the economic environment.
Gross
Profit
Our
consolidated gross profit for the nine months ended September 30, 2009 and 2008
was $33,916 and $32,891, respectively, reflecting an increase of $1,025 or
3%. This increase was principally due to an increase in gross margin
percentages, as discussed below. For the nine months ended September
30, 2009 and 2008, our gross profit margins were 44% and 43%,
respectively.
Preparedness
Services gross profit was $14,045 or 46% of this segment’s revenues for the nine
months ended September 30, 2009, as compared to $12,050 or 45% of this segment’s
revenues for the nine months ended September 30, 2008. The
improvement in gross margin is the result of improvements in efficiency
resulting from the decreased use of outside consultants. Fraud and
SIU Services gross profit was $9,094 or 41% of this segment’s revenues for the
nine months ended September 30, 2009, as compared to $10,118 or 42% of this
segment’s revenues for the nine months ended September 30, 2008. The
decrease in gross profit margin was primarily due to changes in client mix
related to our 2008 acquisition of FAIS. Security Consulting and Investigations
gross profit was $10,777 or 43% of this segment’s revenues for the nine months
ended September 30, 2009, as compared to $10,724 or 41% of this segment’s
revenues for the nine months ended September 30, 2008. The increase
in profit margin was the result of improved utilization of labor and the
increase in sales of our DNA related products.
Operating
Expenses
Selling
and marketing expenses were $9,465 or 12% of revenues for the nine months ended
September 30, 2009, as compared to $8,374 or 11% of revenues for the nine months
ended September 30, 2008. The $1,091 or 13% increase in selling expenses for the
nine months ended September 30, 2009 related to an increased emphasis on our
selling and marketing activities, including the re-assignment of internal
personnel and the utilization of marketing consultants, as well as the expansion
of our client forum marketing event held in February. General and administrative
expenses were $26,935 or 35% of revenues for the nine months ended September 30,
2009, as compared to $31,103 or 40% of revenues for the nine months ended
September 30, 2008. The decrease of $4,167 or 13% is attributable to
a decrease in stock based compensation, as well as improved efficiencies
resulting from headcount reductions and the further integration of
operations.
26
Liquidity
and Capital Resources
For
the Nine months ended September 30, 2009
We had a
cash and cash equivalent balance of $5,142 as of September 30,
2009.
Cash provided
by (used in) operating activities was approximately $5,615 and $(3,209) for the
nine months ended September 30, 2009 and 2008, respectively. Cash
provided by operating activities for the nine months ended September 30, 2009
resulted primarily from a reduction in accounts receivable of $5,458 resulting
primarily from collections, offset by an increase in inventories of $897 as well
as our net loss $2,971 as adjusted for non-cash charges for depreciation and
amortization of $2,543 and for stock based compensation
of $2,086.
Cash used in investing activities was
$1,967 and $3,511 for the nine months ended September 30, 2009 and 2008,
respectively. Of the cash used in investing activities for the nine
months ended September 30, 2009, $1,909 represented purchases of property, plant
and equipment and capitalization of internally developed software
costs.
Cash
(used in) provided by financing activities was $(3,782) and $5,263,
respectively, and consisted principally of the net (repayments) and borrowings
under the line of credit of $(3,416) and $6,000, for the nine months ended
September 30, 2009 and 2008, respectively.
Effective
March 30, 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 September 30, 2009 our net borrowings were $3,677 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.
For the
nine months ended September 30, 2009, we have met our cash needs through
operating cash flows and through borrowings under our line of credit
arrangement. At September 30, 2009, we had working capital of $16,445. We
believe that a combination of cost reductions that we have implemented to date,
and will continue to implement, along with anticipated revenue improvements
resulting from both new products and from new relationships 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
September 30, 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:
27
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.
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 accounting standards, we recognize certain intangible assets
acquired in acquisitions, primarily goodwill, trade names, covenants not to
compete and client relationships. In accordance with the provisions within the
Intangibles Topic of the FASB Accounting Standards Codfication, 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 Accounting Standards
Codification 718 “Compensation—Stock Compensation” (“ASC 718”).
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 ASC 718. 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.
ASC 718
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 ASC 718, the Company accounted for forfeitures as they
occurred.
28
We
account for equity instruments issued to non-employees in accordance with the
provisions of ASC 718 which requires 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 ASC 718 and is reflected within general and administrative
expenses.
29
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 September 30, 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 September 30, 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 third quarter ended September 30, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
30
PART
II
OTHER
INFORMATION
(Amounts
contained in this Part II are in thousands, except for share
amounts).
Item
1. Legal Proceedings.
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.
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.
None.
31
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
|
32
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:
November 12, 2009
|
By:
|
/s/
Harvey W. Schiller
|
Harvey
W. Schiller
Chairman,
Chief Executive Officer
and
Director
(Principal
Executive Officer)
|
||
Dated:
November 12,
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)
|
33