Attached files

file filename
EX-23.1 - WALKER INNOVATION INC.v177355_ex23-1.htm
EX-31.1 - WALKER INNOVATION INC.v177355_ex31-1.htm
EX-21.1 - WALKER INNOVATION INC.v177355_ex21-1.htm
EX-32.1 - WALKER INNOVATION INC.v177355_ex32-1.htm
EX-32.2 - WALKER INNOVATION INC.v177355_ex32-2.htm
EX-31.2 - WALKER INNOVATION INC.v177355_ex31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 (Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 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)

Registrant’s telephone number, including area code: (212) 445-6262

(Former name and former address, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
 
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12 (g) of the Act:  None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨  No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
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
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter ($2.00) was $15,997,186.  Solely for the purposes of this calculation, shares held by directors, executive officers and 10% owners of the registrant have been excluded.  Such exclusion should not be deemed a determination or an admission by the registrant that such individuals are, in fact, affiliates of the registrant.
 
As of March 16, 2010, there were 14,357,254 shares of the registrant’s common stock outstanding.

 
 

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Form 10-K
December 31, 2009
TABLE OF CONTENTS

PART I  
 
1
FORWARD-LOOKING STATEMENTS
1
ITEM 1.
Business.
1
ITEM 1A.
Risk Factors.
10
ITEM 1B.
Unresolved Staff Comments.
16
ITEM 2.
Properties.
17
ITEM 3.
Legal Proceedings.
17
ITEM 4.
(Removed and Reserved)
17
PART II
 
18
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
18
ITEM 6.
Selected Financial Data.
20
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
20
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk.
28
ITEM 8.
Financial Statements and Supplementary Data.
28
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
29
ITEM 9A
Controls and Procedures.
29
ITEM 9B.
Other Information.
30
PART III
 
31
ITEM 10.
Directors, Executive Officers and Corporate Governance.
31
ITEM 11.
Executive Compensation.
36
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
45
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence.
47
ITEM 14.
Principal Accountant Fees and Services.
48
PART IV
 
49
ITEM 15.
Exhibits and Financial Statement Schedules.
49
EXHIBIT 21.1
   
EXHIBIT 23.1
   
EXHIBIT 31.1
   
EXHIBIT 31.2
   
EXHIBIT 32.1
   
EXHIBIT 32.2
   
 
 
 

 

PART I

FORWARD-LOOKING STATEMENTS

 This Annual Report on Form 10-K contains forward-looking statements (as defined in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  To the extent that any statements made in this Annual Report on Form 10-K contain information that is not historical, these statements are essentially forward-looking.  Forward-looking statements may be identified by the use of words such as “expects,” “plans,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates” and other words or phrases of similar meaning.  Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements are subject to a number of risks and uncertainties discussed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K.  All forward-looking statements attributable to us are expressly qualified by these and other factors.  We cannot assure you that actual results will be consistent with these forward-looking statements.
 
Information regarding market and industry statistics contained in this Annual Report on Form 10-K is included based on information available to us that we believe is accurate.  Forecasts and other forward-looking information obtained from this available information is subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.  The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made.  We do not undertake any obligation to publicly update any forward-looking statements.  As a result, you should not place undue reliance on these forward-looking statements.

Item 1. Business
 
GlobalOptions Overview
 
GlobalOptions is an integrated provider of risk mitigation and management services to government entities, Fortune 1,000 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. Our strategy is to continue to develop a comprehensive risk mitigation solutions company through both organic growth and acquisitions. In pursuit of our strategy, we have acquired and integrated nine complementary risk mitigation businesses since August 2005 that contributed an aggregate of approximately $103 million, $103 million, and $84 million, respectively, in revenues to our business during the years ended December 31, 2009, 2008 and 2007. 
 
We believe our reputation, credentials and personal relationships provide us with a competitive advantage in securing new business opportunities. 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 four business units: Preparedness Services; Fraud and Special Investigative Unit (“SIU”) Services; Security Consulting and Investigations; and International Strategies. The Preparedness Services unit 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 unit provides investigative surveillance, anti-fraud solutions and business intelligence services to the insurance industry, law firms and multinational organizations. The Security Consulting and Investigations unit delivers specialized security and investigative services, such as security assessments, threat analyses and forensic DNA analysis and casework, to governments, corporations and individuals. The International Strategies unit provides a full range of security and risk management services, such as global business intelligence, investigations and litigation support, and personal protection, to foreign and domestic governments, corporations and individuals.

 
1

 
 
Industry Overview
 
We compete in the global security industry, focused on providing comprehensive risk mitigation and management services to government entities, Fortune 1,000 corporations and high net-worth and high-profile individuals throughout the world. The risk mitigation industry encompasses a broad range of services enabling governments, corporations and individuals to enhance security, reduce exposure to overt and covert threats and optimize preparation for and response to critical events.
 
Until recently, risk mitigation was defined by the actions taken by organizations following the occurrence of a critical incident. Risk mitigation firms were traditionally engaged to assess damage once a serious event, loss or security breach had occurred. Engagements were typically non-recurring in nature and usually involved a service provider offering both assistance with primarily reactive measures and high-level analysis of incidents in order to reduce losses following an event.
 
In recent years, the risk mitigation industry has experienced significant growth, primarily driven by the occurrence of natural and man-made disasters, heightened regulatory and compliance standards and flaws and gaps in existing risk mitigation policies and procedures. The importance of risk mitigation has evolved as governments, corporations and individuals are faced with actively managing a broad variety of elements of risk, including terrorism, litigation, fraud, compliance, business continuity, brand protection, cyber attacks, industrial espionage and regulatory issues. In response, the focus of risk mitigation has shifted to proactively evaluating, identifying, quantifying and managing elements of risk, in addition to reacting to critical events.
 
The risk mitigation industry is highly fragmented, comprised primarily of smaller, specialized providers of a particular service. Historically, purchasers of risk mitigation services have relied upon multiple vendors to satisfy their requirements. However, due to the growing importance of risk mitigation, we believe governments, corporations and individuals are seeking to address proactively all of their risk mitigation needs through a single solutions provider. Despite this trend, there are currently few large, independent providers capable of delivering the full range of services sought by clients. As the risk mitigation market continues to grow, we anticipate the pace of industry consolidation will increase.
 
We categorize the risk mitigation industry into four primary service areas: investigations and background screening; preparedness and continuity planning; security consulting; and litigation and compliance support. There are other services, such as security guard services and alarm monitoring, that are lower-margin areas of the risk mitigation industry and outside the scope of our operational focus.
 
 
Investigations and Background Screening. Investigative services enable insurance companies, law firms and other organizations to combat fraud, substantiate suspicions of criminal acts and, ultimately, provide protection against financial loss and fraudulent activity. Background screening enables governments and corporations to implement effective hiring practices through in-depth analysis of a broad range of criteria of prospective employees, including work history, criminal offenses and drug testing results.
 
 
Preparedness and Continuity Planning. Preparedness and continuity planning services enable governments and corporations to effectively prepare for, respond to and recover from natural or man-made disasters. Specifically, these services include the creation of emergency response plans, business continuity planning and recovery services. We believe the funding of preparedness and continuity planning initiatives continues to be a priority for foreign, federal, state and local governments.
 
 
Security Consulting. Security consulting services provide governments, corporations and individuals with increased protection by analyzing and aiding in the implementation of security measures. These services include executive protection, facility security assessments and threat analysis.
 
 
Litigation and Compliance Support. In an increasingly stringent regulatory environment, governments and corporations have utilized litigation and compliance support services to ensure compliance with regulations and minimize the threat of litigation. Compliance support services assist organizations in effectively managing compliance with regard to financial reporting, government regulations and Securities and Exchange Commission (“SEC”) requirements. Litigation support services aid in the preparation for legal proceedings and include document review, case preparation, targeted investigations and witness interviewing.

 
2

 
 
Collectively, these risk mitigation services enable organizations to protect constituents, employees and stockholders as well as optimize preparation for and response to critical events. We believe these services have become vital to the operational effectiveness of organizations worldwide and that they will continue to be a primary point of emphasis going forward.
 
Market Opportunity
 
As a result of geo-political events, corporate scandals, natural and man-made disasters and increasing litigation costs, we believe proactive risk mitigation has become critical for government entities, corporations and individuals. Our target clients are now actively addressing their security needs, thereby driving increased demand for outsourced risk mitigation and management services. The emerging trend towards outsourcing these services represents a fundamental shift in demand and we believe has created a compelling opportunity for market growth in the risk assessment and mitigation industry. We believe the following key market trends define our opportunity.
 
Natural Disasters and Emergency Preparedness. Governments, corporations and individuals have increased their focus on disaster preparedness and prevention after witnessing the loss of life and financial impact of natural disasters and acts of terror, including Hurricane Katrina and the terror attacks of September 11, 2001. According to The Federal Emergency Management Agency (“FEMA”), in 2009, there were 59 major disaster declarations in the U.S., and public assistance for major disasters in the U.S. has averaged approximately $275 billion annually since 1998. While major catastrophes capture the attention of a global audience, smaller regional and localized disasters can be equally damaging to governments, corporations and individuals. We believe most government entities, corporations and individuals are not equipped to address communications continuity, coordinate a rapid response and handle insurance related issues effectively enough to satisfy their constituents, employees and stockholders.
 
Market Inefficiencies Created by Fraud. According to the Insurance Information Institute, the total annual cost of insurance fraud, including life and health insurance, is more than $100 billion. The Coalition Against Insurance Fraud estimates insurance fraud’s overall impact on the consumer to be the equivalent of a hidden tax of approximately $1 per U.S. family on the cost of goods and services. We believe these market inefficiencies and the financial strain upon businesses as a result of insurance fraud have created a demand for expertise in investigative surveillance, business intelligence and other anti-fraud services.
 
Regulatory Complexity and Increased Litigation. We believe heightened focus on regulatory activity and corporate governance scrutiny will drive demand for risk mitigation and management services. Ineffective compliance management in today’s stringent regulatory environment can result in severe civil and criminal penalties for a company and its officers and directors. We believe the financial and business risk borne by a company, its corporate officers and directors from legislation such as the USA Patriot Act, the Federal Information Security Act, the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act and the Sarbanes-Oxley Act of 2002, increases the need for industry experts to help organizations manage regulatory requirements.
 
Lack of Full Service Provider in a Fragmented Market. We believe the heightened focus on emergency preparedness and response, the escalating costs of fraud and the proliferation of regulatory scrutiny have created the need for an efficient provider of comprehensive risk mitigation and management services. Several of the traditional leaders in our industry have been acquired or evolved their business model, and we believe niche providers that offer limited services on a local scale are unable to meet the full range of their clients’ needs, leaving a service gap. We believe the drivers of increased risk assessment and mitigation spending are likely to continue into the foreseeable future and, as a provider of a comprehensive suite of customized services, we should benefit as the market opportunity grows.

 
3

 
 
Competitive Strengths
 
We are committed to providing comprehensive risk mitigation and management services. We believe the following factors are strengths of our company and provide us with key competitive advantages.
 
Comprehensive Risk Mitigation Solutions. We have assembled what we believe to be core services utilized by clients seeking risk mitigation solutions. We are therefore able to offer a comprehensive suite of customized services designed to address each client’s specific needs. Our service offerings have been enhanced through our proprietary systems, such as GlobalTrak 3.0™, which provides both client and internal personnel access to real-time, web-based reporting, communications and fraud program management tools, and through advanced technologies, such as the forensic DNA capabilities of the Bode Technology Group (“Bode”), part of our Security Consulting Investigations Unit.
 
Reputable and Resourceful Management and Advisory Boards. Due to the critical and sensitive nature of risk mitigation and investigative engagements, we believe the ability to provide services and retain clients is driven largely by reputation and personal relationships. Our senior management and advisory boards have exceptional credentials and well-established relationships. Their experience and former titles include: a Brigadier General in the U.S. Air Force; a Director of FEMA; a Director of the FBI; a U.S. Secretary of Transportation; a Director of the CIA; a U.S. Ambassador and high-ranking corporate executives. We believe this level of expertise provides credibility with clients and access to key decision-makers within government and industry.
 
Experienced Senior Management Team and Professionals. Our senior management team and professionals include individuals with vast industry experience. These individuals have the operational experience to execute sensitive and critical engagements, enabling us to effectively deliver solutions to our clients. Our management team has demonstrated the ability to lead the integration of acquisitions, retain top talent and drive organic growth from the combined business units.
 
Demonstrated Success with Strategic Acquisitions. Since August 2005, we have executed and integrated nine strategic acquisitions and retained selected key professionals, many as senior management. These acquisitions have contributed to our rapid growth in revenues, number of professionals, vertical industry coverage, areas of functional expertise, geographic presence and brand recognition.
 
Strategic Alternatives
 
We have retained the services of Needham & Company to explore strategic alternatives.  The exploration of strategic alternatives is consistent with our overall strategy to maximize stockholder value.  While we have not made any determination to pursue any transaction involving the sale of our entire business or any of our individual business units, pursuant to the retention of Needham we have had and continue to have discussions with various third parties with respect to potential transactions.  No assurance can be given that any such transaction will be effected and upon what terms such a transaction would be effected.
 
Growth Strategy
 
Our goal is to continue to develop a company within the risk mitigation industry that provides clients with a comprehensive offering solution 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.

 
4

 
 
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 the continuing expansion of the capabilities of our enterprise-oriented solution, GlobalTrak 3.0™.  Through our GlobalTrak 3.0™ platform we are building more enhanced client interface and support capabilities and additional tools to help us more efficiently manage our investigations our Rapid Data and Rapid Video are example of solutions that have helped us leverage technologies to better serve our clients.  Our DNA technology service we offer through Bode continues to develop new tools and technologies.

Our Business Units
 
We deliver risk mitigation and management services through four business units: Preparedness Services; Fraud and SIU Services; Security Consulting and Investigations; and International Strategies.
 
Preparedness Services
 
The Preparedness Services unit 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. We offer a full range of services to help our clients better prepare for, respond to and recover from disasters. We believe our ability to mobilize management, security and communications resources in an expedited manner differentiate us from our competitors. Services we provide include:
 
 
Business continuity plans

 
Emergency exercises and training programs

 
Post-disaster crisis communications assistance

 
Preparedness, response and recovery services

 
Strategic advisory services

 
Threat and impact assessments
 
The Preparedness Services unit is comprised of James Lee Witt Associates, LLC (“JLWA”) and is led by former FEMA Director James Lee Witt.  Mr. Witt’s employment contract with us expired on March 10, 2010 and he is now working with us on at at-will basis.  Our staff includes seasoned crisis and emergency management leaders with significant experience in the public sector. Our Preparedness Services unit has 74 full-time employees and 1 part-time employee and is headquartered in Washington, D.C.
 
For the year ended December 31, 2009, we completed 103 crisis management and emergency response projects with average revenue of approximately $379.  Preparedness Services accounted for approximately 38% of our revenues for the year ended December 31, 2009.

 
5

 
 
Fraud and SIU Services
 
The Fraud and SIU Services unit provides investigative surveillance, anti-fraud solutions and business intelligence services to the insurance industry, law firms and multinational organizations. We provide services to clients both nationally and regionally through licensed investigators in all 50 states, as well as internationally through affiliates. Our investigators provide reports and intelligence on subjects such as workman’s compensation surveillance, unfair trade practices, political trends, economic forecasts, mortgage insurance fraud, profiles on competitors and satellite reconnaissance. Services we provide include:
 
 
Anti-fraud training

 
Background investigations

 
Corporate investigations for liability

 
Fraud reporting

 
Insurance claims investigations

 
On-scene accident investigations

 
Regulatory compliance

 
Surveillance

Our proprietary GlobalTrak 3.0™ technology enables us to deliver real-time, web-based reporting, communications , rapid data intelligence, and fraud program management. By automating and streamlining investigative processes, GlobalTrak 3.0™provides our clients with more expedient and cost-effective service. Our recent rollout of rapid video upload, allowing for immediate delivery of field intelligence represents an example our advanced capabilities. Our comprehensive software enables adjusters, claims representatives, risk managers and SIU departments to securely access and download status updates, including case receipts, assignments, work schedules, results of investigative activity, investigative reports and streaming video and audio. We believe GlobalTrak 3.0™ is a significant competitive differentiator and offers our clients a valuable enterprise solution.
 
The Fraud and SIU Services unit is comprised of the following acquired companies: Confidential Business Resources (“CBR”); Hyperion Risk, Inc. (“Hyperion Risk”); Secure Source, Inc (“Secure Source”); Facticon, Inc. (“Facticon”); and First Advantage Investigative Services (“FAIS”).  This unit is led by Halsey Fischer, a 20-year industry veteran and former President and Chief Executive Officer of CBR. Our investigative team includes highly educated and trained investigators who utilize extensive public and proprietary databases to uncover factual circumstances surrounding sensitive investigations. Our experts are capable of handling any type of investigative need anywhere in the world. Our anti-fraud services are national in scope, but local in expertise. Headquartered in Nashville, TN, the Fraud and SIU Services unit has 298 full-time and 68 part-time employees and has offices in Sacramento, Chicago, Orlando and Philadelphia.

For the year ended December 31, 2009, we completed 31,930 investigations and anti-fraud projects with average revenue of just under $1. Fraud and SIU Services accounted for approximately 29% of our revenues for the year ended December 31, 2009.

 
6

 

Security Consulting and Investigations
 
The Security Consulting and Investigations unit delivers specialized security and investigative services to governments, corporations and individuals. We provide security assessments, anti-terrorism training, threat analyses, fraud prevention techniques, special event security, private travel management and the design, implementation and management of security systems. Services we provide include:
 
 
Business intelligence
 
 
 
Facility and IT security
 
 
 
Forensic DNA analysis and casework
 
 
 
Independent monitoring and regulatory compliance
 
 
 
IT and accounting forensics
 
 
 
Litigation support
 
Through Bode we are able to provide forensic DNA analysis, highly advanced and proprietary DNA collection products and research services to law enforcement agencies, federal and state governments, crime laboratories and disaster management organizations.
 
Our Security Consulting and Investigations unit is comprised of the following acquired companies: Safir Rosetti, LLC (“Safir”); Bode and SPZ Oakland Corporation, dba On Line Consulting Services, Inc. (“On Line Consulting”). Until March 31, 2010, this unit will be led by Howard Safir, former New York City Police Commissioner. Effective April 1, 2010, pursuant to the terms of a consulting agreement, Mr. Safir will become a consultant to this business unit and this unit will then be led by Harvey Schiller, our Chief Executive Officer and Jeffrey Nyweide, our Chief Financial Officer. Our national network of security and investigative personnel has extensive backgrounds in the fields of security, investigations, intelligence, law enforcement and public safety. Headquartered in New York, NY, we have 302 full-time and 14 part-time employees in the Security Consulting and Investigations unit and have offices in Dallas, Oakland, and Lorton, VA.
 
For the year ended December 31, 2009, we completed 811 security and investigation projects (excluding Bode) with average revenue of $15. During the year ended December 31, 2009, Bode completed 75,621 DNA related projects with average revenue of less than $1. Security Consulting and Investigations (including Bode) accounted for approximately 33% of our revenues for the year ended December 31, 2009.

International Strategies
 
The International Strategies unit provides multidisciplinary, international risk management and business solutions. We offer a range of security and risk management services to foreign and domestic governments, corporations and individuals. The International Strategies unit was our original core business and is led by Thomas Ondeck, a founder of GlobalOptions. Headquartered and operated in Washington, D.C., we employ two full-time employees.
 
International Strategies is not a separate reporting segment and as such we attribute its revenues to the Fraud and SIU Services unit.
 
Corporate History
 
GlobalOptions, Inc., our wholly-owned operating subsidiary, was initially formed as a limited liability company in the state of Delaware in November 1998 and converted into a Delaware corporation on January 24, 2002. On June 24, 2005, we became a public company by completing a reverse merger transaction, in which GlobalOptions Acquisition Corp., a Delaware corporation and our newly created, wholly owned subsidiary, merged with and into GlobalOptions, Inc. As a result of the reverse merger, GlobalOptions, Inc. became our wholly owned operating subsidiary, with GlobalOptions, Inc.’s former security holders acquiring a majority of the outstanding shares of our common stock. At the time of the reverse merger, our corporate name was Creative Solutions with Art, Inc., a Nevada corporation. Following the reverse merger, we changed our name to GlobalOptions Group, Inc.  On December 8, 2006, we completed a reincorporation merger whereby we changed our state of incorporation from Nevada to Delaware.

 
7

 

History of Acquisitions
 
Since becoming a public company in June 2005, we have actively pursued our acquisition strategy.
 
On August 14, 2005, we purchased substantially all of the assets and liabilities of CBR, a nationwide investigations firm based in Nashville, Tennessee. CBR was the foundation acquisition for our Fraud and SIU Services unit. The CBR acquisition provides us with significant capabilities in the intelligence gathering, surveillance, investigation, risk reduction and litigation exposure reduction fields.
 
On January 9, 2007, we acquired substantially all of the business and assets of On Line Consulting, a full-service security and fire alarm consulting and design firm headquartered in Oakland, California. The On Line Consulting acquisition added security and communications systems expertise to our Security Consulting and Investigations unit.
 
On February 28, 2007, we acquired all of the outstanding common stock of Bode, which provides forensic DNA analysis, proprietary DNA collection products and related research services to law enforcement agencies, federal and state governments, crime laboratories and disaster management organizations. The Bode acquisition significantly expanded the size of our Security Consulting and Investigations unit.
 
On February 28, 2007, we acquired substantially all of the business and assets of Facticon, a surveillance, investigative and business intelligence firm based in Chadds Ford, Pennsylvania. The Facticon acquisition expanded our Fraud and SIU Services unit’s risk mitigation expertise in the insurance, legal, business and financial industries.
 
On April 21, 2008, we acquired substantially all of the business and assets of FAIS related to our Fraud and SIU Services unit.  The FAIS acquisition expanded our Fraud and SIU Services unit’s risk mitigation expertise in the legal, business and insurance industries.
 
Underwritten Public Offering
 
On October 29, 2007, we completed an underwritten public offering of 4,500,000 shares of our common stock, receiving approximately $20.25 million in gross proceeds ($18.2 million in net proceeds).
 
We used a portion of the net proceeds from the proposed underwritten public offering to repay $4.3 million of notes and $38 of related accrued interest and have been using the balance of the net proceeds for working capital and general corporate purposes.

In connection with the underwritten public offering, on October 29, 2007 we entered into an agreement with Canaccord Adams Inc. and Morgan Keegan & Company, Inc., as underwriters, who were paid aggregate fees of $1.41 million.

Clients
 
We have completed engagements for clients globally, including foreign, federal, state and local government entities, domestic and foreign Fortune 1,000 corporations, and high net-worth and high-profile individuals. We frequently work with clients on multiple assignments. As required by the highly confidential nature of our work, we keep the identities of our clients strictly confidential.
 
For the years ended December 31, 2009, 2008 and 2007, a limited number of clients accounted for a substantial percentage of our total revenues. For the year ended December 31, 2009, our two largest clients accounted for approximately 24% and 8% of our revenues. For the year ended December 31, 2008, our two largest clients accounted for approximately 26% and 8% of our revenues. For the year ended December 31, 2007, our two largest clients accounted for approximately 29% and 9% of our revenues.  Revenues from our largest client, the State of Louisiana,. accounted for 63%, 68%, and 83%, of the revenues generated by our Preparedness Services unit during the years ended December 31, 2009, 2008 and 2007, respectively.
 
Sales and Marketing
 
Our business is intensely personal due to the highly confidential nature of the engagements and the critical nature of the brands, reputations, competitive positions and overall market perceptions that our services support. We believe our ability to provide services and retain clients is driven largely by reputation and personal relationships. Our senior management team and advisory boards have exceptional 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, each of whom can leverage relationships with leaders in both the corporate and government markets.

 
8

 
 
We believe these relationships give us the opportunity to bring in high-margin, well-known clients and our operational experience allows us to successfully complete these critical engagements. The success of this strategy is demonstrated by the recurring nature of our business with established clients. New opportunities typically arise from the ongoing relationships that our management personnel have with their client counterparts. As executives move to different companies or agencies, they often call upon us in their new environment.
 
Our sales and marketing strategy is to maintain and expand our reputation and track record, the quality of the services we deliver and the skills and character of the people we deploy on client engagements. In doing so, we intend to provide the high level of investigative, litigation support, crisis management, risk management and protective services demanded by our clients.
 
Competition
 
The market for risk mitigation services is very competitive, highly fragmented and subject to rapid change. We operate in a number of geographic and service markets, all of which are highly competitive. We believe the principal competitive factors and key differentiators in this market are reputation, relationships, expertise, quality and scope of service and size of institution. Therefore, new market entrants as well as existing competitors that have strong brand recognition or highly recognized principals in the risk mitigation industry likely pose the greatest threat to our business. We believe, however, our reputation and the breadth and depth of our services provide us with key competitive strengths and differentiate us from our competitors.
 
Competitors in the risk management and security market include Control Risks Group Limited, G4S Risk Management, Kroll Inc., Toribos GmbH, and Olive Group. Additionally, many of the national and international accounting and consulting firms, along with other companies such as FTI Consulting, Inc., Securitas AB and its subsidiary, Pinkerton Consulting & Investigations, Inc., Alvarez & Marsal, LLC, AlixPartners LLC, Xroads Solutions Group, and LexisNexis Applied Discovery, provide investigative, consulting and other services that are similar to services we provide.
 
Employees
 
As of January 31, 2010 the Company had 681 full-time and 83 part-time employees. We enjoy good employee relations. None of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.
 
Government Regulation
 
Due to our participation in government contracts, we are subject to audit from time to time for our compliance with government regulations by various agencies. Government agencies may also periodically conduct inquiries or investigations that may cover a broad range of our activities. We believe we operate our business in material compliance with all applicable federal, state and local government regulations and contracts.
 
We hold a number of General Services Administration (“GSA”) Federal Schedules, which enable federal and state agencies to buy services and products from us. We are required to be in compliance with the Federal Acquisition Regulations (“FAR”) in providing these services and products to our federal and state government clients. We are subject to audit by the GSA to assure we maintain compliance with these requirements.

In addition to maintaining our compliance with the FAR and the GSA, some contracts we have with state agencies contain additional requirements. While most states follow the FAR, in each contract, the state may require additional rules and regulations to maintain compliance with each contract. In providing services under each contract, we must be in compliance with contract rules and regulations before we can invoice under the contract. Before making any payments under a contract, a state will review our compliance.
 
Our investigation and surveillance business must be in compliance with each state’s licensing requirements for providing these services. In each state that we operate our investigation and surveillance business, we maintain the necessary licensing requirements to do business.

 
9

 

Item 1A. Risk Factors

Any investment in our common stock involves a high degree of risk. You should consider carefully the specific risk factors described below in addition to the other information contained in this Annual Report on Form 10-K,, including our consolidated financial statements and related notes included elsewhere in this Annual report on Form 10-K, before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially and adversely affected. This could cause the trading price of our common stock to decline and a loss of all or part of your investment.
 
Risks Related to Our Business and Industry
 
We are an emerging company with a history of operating losses and may not become profitable.
 
We were founded in 1998 and are still in the process of developing our four business units: Preparedness Services; Fraud and SIU Services; Security Consulting and Investigations; and International Strategies. We have incurred significant operating losses since inception, including net losses available to common stockholders of approximately $5.3 million, $7.9 million, and $27.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. We cannot anticipate when or if we will achieve profitability in the future. We may not generate sufficient revenues to meet our expenses, operate profitably or utilize our net operating losses in the future.
 
Our arrangements with members of our senior management team, or our failure to retain or recruit key personnel, could negatively impact our ability to sell our products and services and grow our business.
 
Our success will depend to a significant extent upon the abilities, level of service, reputation and relationships of members of our senior management team, our Board of Directors and our advisory boards. Some members of our senior management team work on a part-time basis and some do not have non-competition agreements with us. These arrangements, or any reduction or loss of these individuals’ services, could have a material adverse effect upon our business, particularly if any of our key personnel sought to compete against us.
 
Our future success and growth also largely depends upon our ability to attract, motivate and retain additional highly competent technical, management, service and operations personnel. The marketplace for these qualified individuals is highly competitive in the risk mitigation industry, and we cannot guarantee that we will be successful in attracting and retaining this personnel. Departures and additions of key personnel may be disruptive to and detrimentally affect our business, operating results and financial condition.
 
Because a small number of clients account for a substantial portion of our revenues, the loss of any of these clients, or a decrease in their use of our services, could cause our revenues to decline and losses to increase substantially.
 
Revenues from our services to a limited number of clients have accounted for a substantial percentage of our total revenues.  For the year ended December 31, 2009, our largest client accounted for approximately 24% of revenues For the year ended December 31, 2008, our largest client accounted for approximately 26% of revenues.  For the year ended December 31, 2007, our largest client accounted for approximately 29% of revenues. Revenues from our largest client, the State of Louisiana, accounted for 63%, 68%, and 83% of the revenues generated by our Preparedness Services unit during the years ended December 31, 2009, 2008 and 2007, respectively.  Our contract with the State of Louisiana, which expires on August 31, 2010, is a time and materials contract under which the State is not required to purchase a minimum amount of our services. Therefore, this contract could cease producing revenues at any time with little or no notice.
 
The concentration of our clients can cause our revenues and earnings to fluctuate from quarter-to-quarter and year-to-year, based on the requirements of our clients and the timing of delivery of services. Although the particular clients are likely to change from period to period, we believe that large engagements by a limited number of clients will continue to account for a substantial portion of our revenues in any period or year. In any period or year, the unexpected loss of or decline in business from a major client, or the failure to generate significant revenues from other clients, could have a material adverse effect on our consolidated financial results.
 
The integration of acquired companies may be difficult and may result in a failure to realize some of their anticipated potential benefits.
 
We may not be able to integrate or manage businesses that we have acquired or may acquire. Any difficulty in successfully integrating or managing the operations of acquired businesses could have a material adverse effect on our business, financial condition, results of operations or liquidity, and could lead to a failure to realize any anticipated synergies. Our management team also will be required to dedicate substantial time and effort to the integration of any acquisitions. These efforts could divert management’s focus and resources from other strategic opportunities and operational matters.

 
10

 
 
We may have difficulty pursuing our acquisition strategy
 
           A key part of our growth strategy is to acquire complementary businesses. However, we may not be able to identify suitable acquisition candidates, obtain the capital necessary to pursue our acquisition strategy or complete acquisitions on satisfactory terms or at all. A number of competitors have also adopted a strategy of expanding and diversifying through acquisitions, including National Security Solutions Inc., blank check company of which Howard Safir, our Chief Executive Officer of our Security Consulting and Investigations Unit, and Adam Safir, our Chief Operating Officer of our Security Consulting and Investigations Unit, are the Chairman of the Board and a director, respectively.  Such persons may have conflicting interests in presenting acquisition opportunities to National Security Solutions Inc. and us.  In addition, we will likely experience significant competition in our effort to execute our acquisition strategy. As a result, we may be unable to continue to make acquisitions or may be forced to complete acquisitions on less favorable terms.
 
Our business is vulnerable to fluctuations in government spending and subject to additional risks as a result of the government contracting process, which often involves risks not present in the commercial contracting process.
 
Because many of our contracts are with government entities, our business is subject to a number of risks, including global economic developments, wars, political and economic instability, election results, changes in the tax and regulatory environments, foreign exchange rate volatility and fluctuations in government spending. Because many clients are federal, state or municipal government agencies with variable and uncertain budgets, the amount of business that we might receive from them may vary from year to year, regardless of the perceived quality of our business.
 
Moreover, competitive bidding for government contracts presents a number of risks that are not typically present in the commercial contracting process, including:
 
 
the need to devote substantial time and attention of our management team and key personnel to the preparation of bids and proposals for contracts that may not be awarded to us; and
 
 
the expenses that we might incur and the delays and revenue loss that we might suffer if our competitors protest or challenge contract awards made to us pursuant to competitive bidding. Such a protest or challenge could result in the resubmission of bids based on modified specifications, or in the termination, reduction or modification of the awarded contract.
 
If we are unable to consistently win new government contract awards over an extended period, or if we fail to anticipate all of the costs and resources that will be required to secure such contract awards, our growth strategy and our business, financial condition and operating results could be materially adversely affected.

Our professional reputation, which is critical to our business, is especially vulnerable to circumstances outside our control.

We depend upon our reputation and the individual reputations of our senior management team and advisory boards to obtain new client engagements. We also obtain a substantial number of new engagements from existing clients or through referrals from existing clients. Anything that diminishes our reputation or the reputations of our senior management team and advisory boards may make it more difficult to compete for new engagements or to retain existing clients and, therefore, could materially adversely affect our business. For example, a national television news story in 2007 that contained allegations regarding JLWA’s performance and billing practices under our contract with the State of Louisiana prompted a State auditor to review these allegations. Although we were awarded and subsequently executed a renewal contract with the State, the State may terminate this new contract without penalty upon limited notice. Any circumstances, including those where we are not at fault, and including any repercussions from the above events, that might publicly damage our goodwill, injure our reputation or damage our business relationships may lead to a broader material adverse effect on our business or prospects through loss of business, goodwill, clients, agents or employees. In particular, if the State of Louisiana were to terminate our contract, it may have a material adverse effect on our business.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and operating results. In addition, current and potential stockholders could lose confidence in our financial reporting, which could cause our stock price to decline.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our business could be harmed.

 
11

 

As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal control over financial reporting. Furthermore, our registered independent public accounting firm will be required to report on our assessment of the effectiveness of our internal control over financial reporting and separately report on the effectiveness of our internal control over financial reporting beginning with our fiscal year ending December 31, 2010.

Failure to maintain an effective internal control environment could cause us to face regulatory action, result in delays or inaccuracies in reporting financial information or cause investors to lose confidence in our reported financial information, any of which could cause our stock price to decline.

In order to comply with public reporting requirements, we may need to strengthen the financial systems and controls of any business we acquire, and the failure to do so could adversely affect our ability to provide timely and accurate financial statements.
 
Immediately upon the acquisition of any company, we will be responsible for ensuring that the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) of any acquired company are effectively designed, operated and integrated with our disclosure controls and procedures. Our management and our independent registered public accounting firm may be required to test any acquired business’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing of internal control by our independent registered public accounting firm, may reveal deficiencies in an acquired company’s financial systems that are deemed to be material weaknesses with respect to our financial systems. The existence of these material weaknesses or any failure to improve an acquired company’s financial systems could result in delays or inaccuracies in reporting financial information, or non-compliance with SEC reporting and other regulatory requirements, any of which could subject us to sanctions from the SEC and The NASDAQ Stock Market LLC and adversely affect our business and stock price.
 
Our business depends, in part, on the occurrence of unpredictable events.
 
Our Preparedness Services unit assists governments, corporations and individuals in connection with, among other things, emergency management issues and natural and other disaster preparedness and recovery efforts. Our revenues may fluctuate significantly depending upon the occurrence, or anticipated occurrence, of events of this nature. For example, for the years ended December 31, 2009, 2008 and 2007, 24%, 26% and 29% of the Company’s revenues, or 45%, 52% and 61% of the Company’s revenues from government contracts, respectively, were generated by one contract with the State of Louisiana. Accordingly, any decrease in demand for our services in this area could materially adversely affect our results of operations.
 
We may not be able to manage our growth or meet marketplace demands effectively.
 
We have expanded significantly in the past few years and intend to maintain our focus on growth. However, our growth will place additional demands on our resources and we cannot be sure that we will be able to manage our growth effectively. In order to successfully manage our growth, we will need to:
 
 
expand and enhance our administrative infrastructure;

 
continue to improve our management, financial and information systems and controls; and

 
recruit, train, manage and retain our employees effectively.
 
Continued growth could place a strain on our management, operations and financial resources. In addition, this growth may adversely affect our ability to service the demands of our clients or the quality of services we provide. If we are unable to meet these demands or our clients’ expectations, our competitors may be able to gain a greater market share in the risk mitigation markets generally, as well as gain a greater share of our clients’ business. We cannot assure you that our infrastructure, operational, financial and management controls, reporting systems and procedures, facilities and personnel will be adequate to support our future operations or to effectively adapt to future growth. Our expected addition of personnel and capital investments will increase our fixed costs, which will make it more difficult for us to offset any future revenue shortfalls with short-term expense reductions. If we cannot manage our growth effectively, our business and results of operations may be adversely affected.

 
12

 

We may not be able to realize the entire book value of goodwill from acquisitions.
 
As of December 31, 2009, we had approximately $19,968 of goodwill, which represented approximately 34% of our total assets as of December 31, 2009. All of this goodwill resulted from previous acquisitions, and it is possible that future acquisitions will result in additional goodwill. We have implemented accounting guidance for acquisitions which requires that existing goodwill not be amortized, but instead be assessed annually for impairment or sooner if circumstances indicate a possible impairment.  In the event that we determine the book value of goodwill is impaired, any such impairment would be charged to earnings in the period of impairment. Any such future impairment of goodwill could have a material adverse effect on our results of operations.
 
Competitive conditions could adversely affect our business.
 
We operate in a number of geographic and service markets, all of which are highly competitive. There are relatively few barriers preventing companies from competing with us and we do not own any patents or other technology that, by itself, precludes or inhibits others from entering our markets. As a result, new market entrants, particularly those who already have recognizable names in the risk mitigation industry, will likely pose a threat to our business. If we are unable to respond effectively to our competitors, some of which have greater financial resources or name recognition, our business and results of operations will be materially adversely affected. Competitors in the risk management and security market include Control Risks Group Limited, G4S Risk Management, Kroll Inc., Toribos GmbH and Olive Group. Additionally, many of the national and international accounting and consulting firms, along with other companies such as FTI Consulting, Inc., Securitas AB and its subsidiary, Pinkerton Consulting & Investigations, Inc., Alvarez & Marsal, LLC, AlixPartners LLC, Xroads Solutions Group, and LexisNexis Applied Discovery, provide investigative, consulting and other services that are similar to services we provide.
 
Some of these firms have indicated an interest in providing services on a broader scale similar to ours and may prove to be formidable competitors if they elect to devote the necessary resources to these competitive businesses. The national and international accounting, consulting and risk management firms have significantly larger financial and other resources than we have, greater name recognition and long-established relationships with their clients, which also are likely to be clients or prospective clients of our company.
 
We are a worldwide business and are therefore influenced by factors and regulations in many countries.
 
We undertake our business worldwide. The occurrence of any of the following risks relating to the conduct of our business in foreign countries could have a material adverse effect on the market for our services, their value to our clients or our ability to provide them:

 
changes in, and difficulty in complying with, laws and regulations of the different countries, including authority to trade or perform our existing and future services;

 
nullification, modification and renegotiation of contracts;

 
reversal of current policies, including favorable tax policies, encouraging foreign investment or foreign trade, or relating to the use of local agents;

 
restrictive actions by local governments, including tariffs and limitations on imports and exports;

 
adverse economic conditions which might impact the generation and flow of capital; and

 
difficulty in collecting accounts receivable and longer collection times.
 
The occurrence of any of these risks could materially adversely affect our results of operations or financial condition.

 
13

 
 
Clients can terminate engagements with us on short notice or with no notice.
 
A majority of our engagements are project-based and are generally terminable by either party on short-term notice. As a result, our clients, including the State of Louisiana under the three year contract that it awarded to us in September 2007, are not obligated to continue using our services at historical levels or at all, and may cancel their arrangements with us without penalty. Identifying and engaging new clients can be a lengthy and difficult process. If a significant amount of our clients cease using our services around the same time, we could experience an adverse effect on our results of operations.
 
Our inability to accurately forecast costs of fixed price contracts could result in lower than expected margins and profitability.
 
The profitability of fixed price projects is primarily determined by our success in correctly estimating and thereafter controlling project costs. Costs may in fact vary substantially as a result of various factors, including underestimating costs, need for unforeseen specialized subcontractors, difficulties with new technologies and economic, regulatory and other changes that may occur during the term of the contract. If for any reason the costs are substantially higher than expected, we may incur losses on fixed price contracts and our profitability could be adversely affected.
 
We may need to raise additional funds to consummate an acquisition or continue our operations.
 
An unforeseen reduction in our revenues or cash flows, an increase in operating expenses or the consummation of an acquisition may require us to raise additional funds. To the extent we identify additional opportunities to raise cash, we may sell additional equity or convertible debt securities, which would result in further dilution of our stockholders. Stockholders may experience substantial dilution due to our current stock price and the amount of financing we may need to raise, and any securities we issue may have rights senior to our common stock. Any future indebtedness may contain covenants that restrict our operating flexibility.
 
We have limited access to the capital markets. The capital markets have been unpredictable in the past, especially for smaller companies or for unprofitable companies such as ours, and recent contractions in the capital markets have generally made financing more difficult to obtain.  In addition, the amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control, such as the share price of our stock and its trading volume. As a result, efforts to secure financing on terms attractive to us may not be successful, and we may not be able to secure additional financing on any terms.
 
If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, results of operations and financial condition may be materially adversely affected.
 
Compliance with changing corporate governance and public disclosure regulations may result in additional expenses.
 
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and The NASDAQ Stock Market LLC’s marketplace rules, require a substantial amount of management attention and financial and other resources. We intend to continue to invest all reasonably necessary resources to comply with evolving standards, which may result in increased general and administrative expenses and divert management from revenue-generating activities.

We may become subject to significant legal proceedings.
 
We are subject from time to time to litigation and other adverse claims related to our businesses, some of which may be substantial.  These claims have in the past been, and may in the future be, asserted by persons who are screened by us, regulatory agencies, clients or other third parties. Matters such as these, in which we may become defendants, may negatively impact our results of operations or cash flows, as well as our reputation.
 
 
14

 

Our exposure in a future liability action could exceed our insurance coverage.
 
Some of our service offerings involve high risk activities. We may not be able to maintain insurance at levels of risk coverage or policy limits that we deem adequate for any of our activities and cannot guarantee that every contract contains or will contain limitations on our liability below these policy limits. Because of the increasing cost of liability insurance, purchasing sufficient amounts of insurance coverage, or additional insurance when needed, could be prohibitively expensive. If we are sued for any injury caused by our business offerings, our liability could exceed our total assets. Any claims against us, regardless of their merit or eventual outcome, could have a detrimental effect upon our business, operating results and financial condition.

We may be subject to increased regulation regarding the use of personal information.
 
Some of the data and services that we provide, including DNA testing conducted by Bode, are subject to regulation by various federal, state and local regulatory authorities, which may become more stringent in the future. Federal, state and local laws and regulations in the United States designed to protect the public from the misuse of personal information in the marketplace, and adverse publicity or potential litigation concerning the commercial use of such information, may negatively affect our operations and could result in substantial regulatory compliance expense, litigation expense or revenue loss.
 
If we are unable to manage successfully our relationships with our information suppliers, the quality and availability of our services may be harmed.
 
We obtain some of the data used in our services from third-party information suppliers, some of which are government entities. If a supplier is no longer able or willing to provide us with data, we may need to find alternative sources. There is no assurance that we will obtain new agreements with third-party suppliers on favorable terms, if at all. If we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Loss of such access or the availability of data in the future due to increased government regulation or otherwise could have a material adverse effect on our business, financial condition or results of operations.
 
Risks Related to Our Common Stock
 
Our common stock price has fluctuated considerably and stockholders may not be able to resell their shares at or above the price at which their shares were purchased.
 
Since our reverse merger in June 2005, the high and low bid price for our common stock has been $32.00 and $1.14 per share, respectively. The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including the following:
 
 
factors affecting demand for risk mitigation services such as the domestic and global security environment, competition and general economic conditions;
 
 
 
fluctuation in government spending that affects our contracts with government entities; and
 
 
 
changes in the laws and regulations of different countries that affect our ability to perform the services of a  risk mitigation and management services company.
 
The stock market in general has experienced extreme price fluctuations. The market prices of shares of companies in the security industry have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility might be worse if the trading volume of our common stock continues to be low.

 
15

 
 
Our common stock has historically been sporadically or thinly traded.  While our common stock became listed on the NASDAQ Capital Market on September 26, 2007, there is no guarantee that our trading volume will increase. As a result, the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume may be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our common stock until we demonstrate that we can consistently operate profitably. As a consequence, there may be periods of several days or more when trading activity in our shares is low and a stockholder may be unable to sell his shares of common stock at an acceptable price, or at all. We cannot give stockholders any assurance that a broader or more active public trading market for our common stock will develop or be sustained, that current trading levels will be sustained or that we will continue to meet the requirements for listing on the NASDAQ Capital Market.

Our executive officers, directors and 10% stockholders have significant voting power and may vote their shares in a manner that is not in the best interest of other stockholders.
 
Our executive officers, directors and 10% stockholders control approximately 41% of the voting power represented by our outstanding.  If these stockholders act together, they may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions.  This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all our stockholders.
 
We do not anticipate paying cash dividends for the foreseeable future, and the lack of dividends may have a negative effect on our stock price.
 
We have never declared or paid any cash dividends or distributions on our common stock and our senior credit facility prohibits us from paying dividends. We currently intend to retain our future earnings, if any, to support operations and to finance our growth strategy and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
 
Provisions in our certificate of incorporation and by-laws may deter third parties from acquiring us and could lead to the entrenchment of our Board of Directors.
 
Our certificate of incorporation and by-laws contain provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors, including the following:
 
 
we have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

 
stockholder action by written consent must be unanimous;

 
stockholders may only remove directors for cause;

 
vacancies on the Board of Directors may be filled only by the directors; and

 
we require advance notice for stockholder proposals.
 
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions that you desire. The anti-takeover defenses in our certificate of incorporation and by-laws could discourage, delay or prevent a transaction involving a change in control of our company.

Item 1B. Unresolved Staff Comments

Not applicable

 
16

 

Item 2.    Properties
 
Our operational headquarters is located in Washington, D.C. and our administrative headquarters is located in New York, New York. We have additional offices in Arkansas, California, Florida, Illinois, Tennessee, Texas and Virginia. All of our offices are leased and we do not consider any specified leased facility to be material to our operations. We believe that equally suited facilities are available in several other areas throughout the U.S. The following table summarizes information with respect to our material facilities:
 
Business Unit
 
Location
 
Area
(sq.feet)
 
Year of Lease
Expiration
Corporate Headquarters:
 
New York, New York
 
4,525
 
      (1)
             
Preparedness Services:
 
Washington, D.C.
 
15,294
 
2015
   
Little Rock, Arkansas
 
4,000
 
2012
   
Sacramento, California
 
3,322
 
2011
             
Fraud and SIU Services:
 
Orlando, Florida
 
7,872
 
2011
   
Nashville, Tennessee
 
2,942
 
2012
             
Security Consulting and
Investigations:
 
Lorton, Virginia
 
38,505
 
2016
   
New York, New York
 
9,179
 
2015
   
Dallas, Texas
 
5,500
 
2012
 
 (1) The Company’s leases its Corporate Headquarters on a month to month basis.

Item 3.    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 4.    (Removed and Reserved)

 
17

 

PART II

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

Market for Common Equity

Our common stock is quoted on the NASDAQ Capital Market under the symbol “GLOI”. Based upon information furnished by our transfer agent, as of March 6, 2010, we had 207 holders of record of our common stock.
 
The following table sets forth the high and low sales prices for our common stock for the periods indicated as reported by NASDAQ:

Fiscal Year 2008
 
High
   
Low
 
First Quarter
  $ 4.02     $ 1.47  
Second Quarter
    2.99       1.90  
Third Quarter
    2.36       1.25  
Fourth Quarter
    2.45       1.25  
                 
Fiscal Year 2009
 
High
   
Low
 
First Quarter
  $ 2.15     $ 1.14  
Second Quarter
    2.15       1.25  
Third Quarter
    2.10       1.55  
Fourth Quarter
    2.08       1.30  
                 
Fiscal Year 2010
 
High
   
Low
 
First Quarter (1)
  $ 1.92     $ 1.38  

            We have not declared or paid any cash dividends on our common stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. Our senior credit facility prohibits us from paying dividends.  We currently expect to retain future earnings, if any, for the development of our business.

(1)  From January 1, 2010 through March 12, 2010.

 
18

 

Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table contains information about our common stock that may be issued upon the exercise of options and upon the vesting of restricted stock units (“RSUs”) under all of our equity compensation plans as of December 31, 2009. See “Executive Compensation—Benefit Plans” for a description of our stock option and incentive plans.
 
Plan Category
 
Number of securities
to be issued upon
exercise of
outstanding options
and upon vesting of
RSUs
(a)
  
Weighted average
exercise price of
outstanding
options
(does not include
RSUs)
(b)
  
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a)) 
(c) 
               
Equity compensation plans approved by security holders(1)
 
1,196,600
  
$
2.57
  
2,971,976 (2)
Equity compensation plans not approved by security holders
 
  
 
  
Total
 
1,196,600
  
$
2.57
  
2,971,976
 

(1)Our 2005 Stock Option Plan and 2006 Stock Option Plan were adopted by our stockholders on August 8, 2005 and June 12, 2006, respectively. On October 17, 2006, our Board of Directors approved, and stockholders later ratified, that the remaining shares reserved, but unissued, with respect to any awards under the 2005 Stock Option Plan and 2006 Stock Option Plan were unreserved and that no new awards were to be issued under these plans. Our Amended and Restated 2006 Long-Term Incentive Plan and Amended and Restated 2006 Employee Stock Purchase Plan were adopted by our stockholders on July 24, 2008.
 
(2)The number of securities remaining available for future issuances includes 1,063,075 under the Amended and Restated 2006 Long-Term Incentive Plan and 1,908,901 under the Amended and Restated 2006 Employee Stock Purchase Plan.

 
19

 

Item 6.  Selected Financial Data
 
Not applicable.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of results of operations and financial condition is based upon, and should be read in conjunction with, our consolidated financial statements and accompanying notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of some of the uncertainties, risks and assumptions associated with these statements.
 
(Dollar amounts in thousands, except per share amounts)
 
Overview
 
GlobalOptions is an integrated provider of risk mitigation and management services to government entities, Fortune 1,000 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. Our strategy is to continue to develop a comprehensive risk mitigation solutions company.  In pursuit of our strategy, we have acquired and integrated nine complementary risk mitigation businesses since August 2005 that contributed an aggregate of approximately $102,900, $103,000, and $84,800 in revenues to our business during the years ended December 31, 2009, 2008 and 2007, respectively.
 
We believe our reputation, credentials and personal relationships provide us with a competitive advantage in 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. This unit is comprised of  JLWA.

 
Fraud and SIU Services provides investigative surveillance, anti-fraud solutions and business intelligence services to the insurance industry, law firms and multinational organizations. This unit is comprised of the following acquired companies: CBR; Hyperion Risk; Secure Source; Facticon and FAIS.

 
Security Consulting and Investigations delivers specialized security and investigative services, such as security assessments, threat analyses and forensic DNA analysis and casework, to governments, corporations and individuals. This unit is comprised of the following acquired companies: Safir; Bode; and On Line Consulting.

 
International Strategies provides a range of security and risk management services, such as global business intelligence, investigations and litigation support to foreign and domestic governments, corporations and individuals. Our International Strategies unit was our original core business.
 
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.

 
20

 

The following table represents the revenue contribution by each of these three reporting segments as a percentage of our total revenues:
 
   
For the Years Ended
December 31,
 
Segment
 
2009
   
2008
   
2007
 
          
  
       
Preparedness Services
    38.2 %     37.6 %     35.4 %
Fraud and SIU Services
    29.0       30.1       28.1  
Security Consulting and Investigations
    32.8       32.3       36.5  
Total
    100.0 %     100.0 %     100.0 %
 
Strategic Alternatives
 
We have retained the services of Needham & Company to explore strategic alternatives.  The exploration of strategic alternatives is consistent with our overall strategy to maximize stockholder value.  While we have not made any determination to pursue any transaction involving the sale of our entire business or any of our individual business units, pursuant to the retention of Needham we have had and continue to have discussions with various third parties with respect to potential transactions.  No assurance can be given that any such transaction will be effected and upon what terms such a transaction would be effected.
 
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 ranges 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 that 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 or a specialized expertise. Currently, a small portion of our revenues is 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.
 
Operating Expenses
 
Our selling and marketing expenses primarily include salaries and commissions, as well as travel and other expenses, incurred by our employees who are involved in selling and promoting our services. The accrued earnout expenses related to the acquisition of JLWA are also reflected in our selling and marketing expenses. Our general and administrative expenses consist primarily of salaries, bonuses, depreciation and amortization, and stock-based compensation for our employees not performing work directly for our clients. 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, stock option expenses, salaries for members of our senior management team and impairment losses recognized on goodwill.

 
21

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

   
For the years ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Revenues
    100 %     100 %     100 %
Cost of revenues
    56       58       56  
Gross profit
    44       42       44  
                         
Operating expenses:
                       
Selling and marketing
    12       11       17  
General and administrative
    36       39       52  
Impairment loss on goodwill and intangibles
    -       -       6  
Total operating expenses
    48       50       75  
                         
Loss from operations
    (4 )     (8 )     (31 )
Other income (expense), net
    -       -       (1 )
                         
Net loss before income taxes
    (4 )     (8 )     (32 )
Provision for income taxes
    (1 )     -       -  
                         
Net loss after taxes
    (5 )     (8 )     (32 )
Net loss applicable to common stockholders
    (5 )%     (8 )%     (32 )%

GlobalOptions’ Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 
Revenues

We had overall revenues of $102,130 for the year ended December 31, 2009, as compared to revenues of $104,187 for the year ended December 31, 2008, for an overall decrease of $2,057 or 2%  The decrease in revenues for the year ended December 31, 2009 was principally attributable to a slowdown in investigations and security projects resulting from recessionary economic conditions, partially offset by increases in revenues related to DNA projects at our Bode division.
 
Preparedness Services revenues were $39,003 for the year ended December 31, 2009, as compared to $39,117 for the year ended December 31, 2008, representing a decrease of $114 or less than 1%.  The State of Louisiana, which retained JLWA to manage the state’s relief program related to Hurricanes Katrina, Rita, and Gustav, represented $24,478 of revenues for the year ended December 31, 2009, as compared to $26,647 of revenues for the year ended December 31, 2008.
 
Fraud and SIU Services revenues were $29,593 for the year ended December 31, 2009, as compared to $31,388 for the year ended December 31, 2008.  The decrease of $1,795 or 6% was attributable to the reduction in revenues of $1,000 from our International Strategies Unit and $795 was on account of a slowdown in the demand for our investigations with our Fraud and SIU Unit, principally due to softness in the insurance industry.

Security Consulting and Investigations revenues were $33,534 for the year ended December 31, 2009, as compared to $33,682 for the December 31, 2008, representing a decrease of $148 or less than 1%.

 
22

 

Gross Profit

Our consolidated gross profit for the years ended December 31, 2009 and 2008 was $44,763 and $44,248, reflecting gross profit margins of 44% and 42%, respectively.  Preparedness Services gross profit was $17,933 or 46% of this segment’s revenues for the year ended December 31, 2009, as compared to $17,323 or 44% of this segment’s revenues for the year ended December 31, 2008, due to a decreased usage of outside consultants. Fraud and SIU Services gross profit was $12,066 or 41% of this segment’s revenues for the year ended December 31, 2009, as compared to $13,152 or 42% of this segment’s revenues for the year ended December 31, 2008.  Security Consulting and Investigations gross profit was $14,764 or 44% of this segment’s revenues for the year ended December 31, 2009, as compared to $13,773 or 41% of this segment’s revenues for the year ended December 31, 2008, due principally to measures taken to improve efficiency and greater utilization of labor and equipment on account of higher revenue levels at Bode.

Operating Expenses

Selling and marketing expenses were $12,455 or 12% of revenues for the year ended December 31, 2009, as compared to $11,504 or 11% of revenues for the year ended December 31, 2008, representing an increase of $949 or 8%.  During the years ended December 31, 2009 and December 31, 2008, we incurred earnout charges of $0 and $720 respectively, in connection with the May 11, 2007 JLWA Modification Agreement.  The $720 decrease in earnout is offset by an increased emphasis on selling and marketing activities during 2009, including additional personnel dedicated to these activities.

General and administrative expenses were $36,568 or 36% of revenues for the year ended December 31, 2009, as compared to $40,348 or 39% of revenues for the year ended December 31, 2008. The decrease of $3,780 or 9% is principally due to a decrease in headcount and professional fees.

Other Income (Expense), Net

Interest expense, net, was $540 for the year ended December 31 2009, as compared to $352 for the year ended December 31, 2008. The increase of $187 or 53% was attributable to an increase in the average balance outstanding under our line of credit.
 
Income Tax Provision
 
Income tax provision, to record deferred income taxes, was $511 for the year ended December 31, 2009.
 
GlobalOptions’ Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
 
Revenues

We had overall revenues of $104,187 for the year ended December 31, 2008, as compared to revenues of $87,131 for the year ended December 31, 2007, for an overall increase of $17,056 or 20%.  The increase in revenues for the year ended December 31, 2008 was principally attributable to a combination of organic growth and to our new client account relationships that we have obtained through the execution of our acquisition plan.
 
Preparedness Services revenues were $39,117 for the year ended December 31, 2008, as compared to $30,823 for the year ended December 31, 2007.  The increase of $8,294 or 27% was primarily attributable to an increase in revenues related to response and recovery efforts in Louisiana in connection with Hurricane Gustav as well as the flooding in Iowa and Indiana. The State of Louisiana, which retained JLWA to manage the state’s relief program related to Hurricanes Katrina, Rita, and Gustav, represented $26,647 of revenues for the year ended December 31, 2008, as compared to $25,536 of revenues for the year ended December 31, 2007.
 
Fraud and SIU Services revenues were $31,388 for the year ended December 31, 2008, as compared to $24,493 for the year ended December 31, 2007.  The increase of $6,895 or 28% was primarily attributable to the expansion of our client base through the acquisition of FAIS in April 2008 and benefitting from a full year of revenues from the Facticon acquisition, as well as through the addition of new program accounts.

Security Consulting and Investigations revenues were $33,682 for the year ended December 31, 2008, as compared to $31,815 for the December 31, 2007.  The increase of $1,867 or 6% was principally attributable to a full year of revenues from the acquisition of Bode, as well as through the expansion of our physical safety and security consulting practice.
 
 
23

 
 
Gross Profit

Our consolidated gross profit for the years ended December 31, 2008 and 2007 was $44,248 and $38,162, reflecting gross profit margins of 42% and 44%, respectively.  Preparedness Services gross profit was $17,323 or 44% of this segment’s revenues for the year ended December 31, 2008, as compared to $13,559 or 44% of this segment’s revenues for the year ended December 31, 2007. Fraud and SIU Services gross profit was $13,152 or 42% of this segment’s revenues for the year ended December 31, 2008, as compared to $11,117 or 45% of this segment’s revenues for the year ended December 31, 2007, due to changes in customer programs and product mix.  Security Consulting and Investigations gross profit was $13,773 or 41% of this segment’s revenues for the year ended December 31, 2008, as compared to $13,486 or 42% of this segment’s revenues for the year ended December 31, 2007, due primarily to changes in product mix at Bode.

Operating Expenses

Selling and marketing expenses were $11,504 or 11% of revenues for the year ended December 31, 2008, as compared to $14,821 or 17% of revenues for the year ended December 31, 2007, representing a decrease of $3,317 or 22%.  During the years ended December 31, 2008 and December 31, 2007, we incurred earnout charges of $720 and $6,330 respectively, in connection with the May 11, 2007 JLWA Modification Agreement.  The $5,610 decrease in earnout is offset by an increased emphasis on selling and marketing activities in 2008, including additional personnel dedicated to these activities.

General and administrative expenses were $40,348 or 39% of revenues for the year ended December 31, 2008, as compared to $44,908 or 52% of revenues for the year ended December 31, 2007. The decrease of $4,560 or 10% is principally due to personnel reductions implemented at the operating levels and corporate cost savings attributable to lower professional fees on account of reduced restructuring activities and fewer acquisitions in 2008.

Other Income (Expense), Net

Interest expense, net, was $352 for the year ended December 31 2008, as compared to $517 for the year ended December 31, 2007. The decrease of $165 or 32% was attributable to a net decrease in debt related to acquisitions.

Liquidity and Capital Resources

We had a cash and cash equivalent balance of $3,221 as of December 31, 2009.

Cash provided by (used in) operating activities was approximately $6,082 and ($839) for the years ended December 31, 2009 and 2008, respectively.  Cash provided by operating activities for the year ended December 31, 2009 resulted primarily from improvements in the collection of accounts receivable of $8,112 as well as  non-cash charges for depreciation and amortization $3,352 and for stock based compensation of $2,831, offset by our net loss of $5,311 as well as an increase in the use of funds to reduce accounts payable of $2,634.

Cash used in operating activities for the year ended December 31, 2008 resulted primarily from our net loss of $7,956 as well as an increase in the use of funds to finance accounts receivable of $1,219, offset by non-cash charges for depreciation and amortization of $4,366 and for stock based compensation of $4,258.

Cash used in investing activities during 2009 was $2,865 of which $2,797 related to the purchases of property and equipment, including the capitalization of internally developed software. Cash used in investing activities for the year ended December 31, 2008 was $4,430, of which $2,548 related to the Company’s acquisition of FAIS in April 2008.

Financing activities used net funds of $5,272 during the year ended December 31, 2009 and provided net funds 6,119 for the year ended December 31, 2008. Cash used during the year ended December 31, 2009 was primarily to the paydown the line of credit. Cash provided for the year ended December 31, 2008 was primarily due to draws upon our line of credit of $7,093, less repayment of notes payable of approximately $800, and the repurchase of common stock of approximately $208.

 
24

 

We have an arrangement with a financial institution that provides a line of credit for us and our wholly owned subsidiaries.  The applicable interest rate with respect to the amount outstanding under the line of credit ranges from 1.00% to 1.75%, based upon our liquidity, plus the greater of 6.25% or the lender’s most recently announced “prime rate.”  As of December 31, 2009, our net borrowings were $2,163 under the line of credit and based upon the amount of qualifying accounts receivable, we were eligible to draw up an additional $7,837 for 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 30, 2010.  We are currently in discussions with respect to the renewal or replacement of this line of credit.  We anticipate that any renewal or replacement would be in an aggregate amount sufficient for our current working capital requirements.  There can be no assurance that we will successfully renew or replace this line of credit.
 
In connection with exploring our strategic alternatives, during the year ended December 31, 2009, we have spent approximately $669.  We believe that as we pursue these efforts in 2010, we may need to spend additional funds towards these strategic alternatives.
 
For the year 2009, we have met our cash needs through operating cash flows and through borrowings under our line of credit.  At December 31, 2009, we had working capital of $15,356.   We believe that a combination of cost reductions that we have implemented during 2009 and will continue to implement in 2010, along with our targeted improvements in revenues in 2010, will allow us to generate improvements in 2010 cash flows from operations, as compared to 2009.  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 December 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 elsewhere within this Annual Report on Form 10-K. 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 collectability is reasonably assured. The Company reduces revenue for estimated discounts and other allowances.

 
25

 

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 accounting standards, we recognize certain intangible assets acquired in acquisitions, primarily goodwill, trade names, covenants not to compete and client relationships.  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 utilizes the fair value method for stock-based awards and the related stock-based compensation is based upon the estimated grant-date fair value. 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.

Accounting guidance requires forfeitures to be estimated at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience.
 
We account for equity instruments issued to non-employees in accordance with accounting standards 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 reflected within general and administrative expenses.
 
Recent Accounting Pronouncements
 
In June 2009, the FASB 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 our consolidated financial statements.

 
26

 

In February 2007, the FASB issued new accounting guidance, under ASC Topic 825 on financial instruments, which permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by this statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Adoption is required for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of ASC Topic 820 on fair value measurements and disclosures. We did not elect the fair value reporting option for any assets and liabilities not previously recorded at fair value.

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 our 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 our accounting for any future business acquisitions.

In March 2008, the FASB issued new accounting guidance under ASC Topic 815 on derivatives and hedging, which changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow.  The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  This accounting guidance encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of this guidance did not have a material effect on our consolidated financial statements.

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.  We expect 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 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 our consolidated financial statements.

 
27

 

In June 2008, the FASB issued new accounting guidance, under ASC Topic 260 on earnings per share, which 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. The 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 our 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.  We expect this guidance to have an impact on its accounting for any future business acquisitions.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

           Our consolidated financial statements and the related notes to the financial statements called for by this item appear under the caption “Index to Consolidated Financial Statements” beginning on Page F-1 attached hereto of this Annual Report on Form 10-K.

 
28

 
 
GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Table of Contents to Consolidated Financial Statements

 
Page(s)
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Balance Sheets as of December 31, 2009 and 2008
F-3
   
Consolidated Statements of Operations for the Years Ended December 31, 2009,  2008 and 2007
F-4
   
Consolidated Statements of Stockholders' Equity for the Years Ended December 2009, 2008 and 2007
F-5
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
F-8
   
Notes to Consolidated Financial Statements
F-12
 
 
F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the Board of Directors and Shareholders
Of GlobalOptions Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of GlobalOptions Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2009, 2008 and 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GlobalOptions Group, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the years ended December 31, 2009, 2008 and 2007 in conformity accounting principles generally accepted in the United States of America.

/s/ Marcum LLP

New York, New York
 
March 16, 2010

 
F-2

 
 
GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share amount)

   
December 31,
 
   
2009
   
2008
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 3,221     $ 5,276  
Accounts receivable, net
    19,632       27,485  
Inventories, net
    3,354       2,522  
Prepaid expenses and other current assets
    840       862  
                 
Total current assets
    27,047       36,145  
                 
                 
Property and equipment, net
    6,994       5,834  
Intangible assets, net
    4,268       5,981  
Goodwill
    19,968       19,968  
Security deposits and other assets
    537       553  
                 
Total assets
  $ 58,814     $ 68,481  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Line of credit
  $ 2,163     $ 7,093  
Notes payable
    -       400  
Accounts payable
    3,565       6,199  
Deferred revenues
    590       585  
Accrued compensation and related benefits
    3,643       3,155  
Other current liabilities
    1,730       1,966  
                 
Total current liabilities
    11,691       19,398  
                 
Long-term liabilities:
               
Deferred tax obligation
    511       -  
Other long-term obligations
    789       838  
Total long-term liabilities
    1,300       838  
                 
Total liabilities
    12,991       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 December 31, 2009 and 2008, respectively, liquidation preference   of $0.001 per share or $0.
    -       -  
Common stock, $0.001 par value; 100,000,000 shares authorized; 14,472,363 shares issued and 14,348,469  shares outstanding at December 31, 2009,  and   10,486,935 shares issued and 10,379,868 shares outstanding at December 31, 2008,  and
    14       10  
Additional paid-in capital
    111,909       108,989  
Accumulated deficit
    (65,857 )     (60,546 )
Treasury stock; at cost, 123,894 and 107,067 shares at December 31, 2009 and December 31, 2008, respectively
    (243 )     (208 )
Total stockholders' equity
    45,823       48,245  
Total liabilities and stockholders' equity
  $ 58,814     $ 68,481  
 
See notes to these consolidated financial statements.

 
F-3

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Revenues
  $ 102,130     $ 104,187     $ 87,131  
                         
Cost of revenues
    57,367       59,939       48,969  
Gross profit
    44,763       44,248       38,162  
                         
Operating expenses:
                       
                         
Selling and marketing
    12,455       11,504       14,821  
                         
General and administrative
    36,568       40,348       44,908  
                         
Impairment loss on goodwill and intangibles
    -       -       5,144  
                         
Total operating expenses
    49,023       51,852       64,873  
                         
Loss from operations
    (4,260 )     (7,604 )     (26,711 )
                         
Other income (expense):
                       
                         
Interest income
    12       27       297  
                         
Interest expense
    (552 )     (379 )     (814 )
                         
Other income
    -       -       100  
                         
Prepayment premium
    -       -       (800 )
                         
Other expense, net
    (540 )     (352 )     (1,217 )
                         
Loss before income taxes
    (4,800 )     (7,956 )     (27,928 )
                         
Income tax provision
    511       -       -  
                         
Net loss
  $ (5,311 )   $ (7,956 )   $ (27,928 )
                         
Basic and diluted net loss per share
  $ (0.41 )   $ (0.81 )   $ (6.69 )
                         
Weighted average number of common shares outstanding - basic and diluted
    12,870,729       9,834,069       4,177,435  
 
See notes to these consolidated financial statements.

 
F-4

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
 Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 2009
(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  
                                                                         
Stock issued to consultants for services
    89,577       -       -       -       -       -       165       -       165  
                                                                         
Shares issued upon the exercise of stock options
    44       -       -       -       -       -       -       -       -  
                                                                         
Shares issued in connection with the vesting of RSUs
    134,274       -       -       -       -       -       -       -       -  
                                                                         
Treasury shares acquired in satisfaction of income tax withoholding
    -       -       16,827       (35 )     -       -       -       -       (35 )
                                                                         
Issuance of common stock in connection with the conversion of Series D Convertible Preferred Stock
    3,692,552       4       -       -       (55,388.37 )     -       (4 )     -       -  
                                                                         
Issuance of common stock under employee stock purchase plan
    68,981       -       -       -       -       -       93       -       93  
                                                                         
Stock based compensation - restricted stock vested
    -       -       -       -       -       -       1,041       -       1,041  
                                                                         
Stock based compensation - employee stock purchase plan
    -       -       -       -       -       -       31       -       31  
                                                                         
Amortization of consultant stock option costs
    -       -       -       -       -       -       96       -       96  
                                                                         
Amortization of employee stock options costs
    -       -       -       -       -       -       394       -       394  
                                                                         
Amortization of consultant restricted stock unit costs
    -       -       -       -       -       -       4       -       4  
                                                                         
Amortization of employee restricted stock unit costs
    -       -       -       -       -       -       1,100       -       1,100  
                                                                         
Net loss
    -       -       -       -       -       -       -       (5,311 )     (5,311 )
                                                                         
Balance, December 31, 2009
    14,472,363     $ 14       123,894     $ (243 )     -     $ -     $ 111,909     $ (65,857 )   $ 45,823  

See notes to these consolidated financial statements.
 
F-5

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
 Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 2008
(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, 2008
    9,660,269     $ 10       -     $ -       55,989.32     $ -     $ 102,537     $ (52,590 )   $ 49,957  
                                                                         
Stock issued to consultants for services
    26,984       -       -       -       -       -       167       -       167  
                                                                         
Treasury shares acquired in satisfaction of income tax withoholding
    -       -       19,567       (50 )     -       -       -       -       (50 )
                                                                         
Treasury shares acquired in connection with settlement of Facticon matters
    -       -       87,500       (158 )     -       -       -       -       (158 )
                                                                         
Issuance of common stock to sellers of JLWA in satisfaction of $2,160 obligation to issue common stock
    225,000       -       -       -       -       -       2,160       -       2,160  
                                                                         
Issuance of common stock to sellers of JLWA
    75,000       -       -       -       -       -       720       -       720  
                                                                         
Issuance of common stock in connection with the conversion of Series D Convertible Preferred Stock
    40,064       -       -       -       (600.95 )     -       -       -       -  
                                                                         
Issuance of common stock to executive employees for future services
    437,500       -       -       -       -       -       -       -       -  
                                                                         
Issuance of common stock under employee stock purchase plan
    22,118       -       -       -       -       -       34       -       34  
                                                                         
Stock based compensation - restricted stock vested
    -       -       -       -       -       -       1,058       -       1,058  
                                                                         
Stock based compensation - employee stock purchase plan
    -       -       -       -       -       -       11       -       11  
                                                                         
Amortization of consultant stock option costs
    -       -       -       -       -       -       122       -       122  
                                                                         
Amortization of employee stock options costs
    -       -       -       -       -       -       1,650       -       1,650  
                                                                         
Amortization of consultant restricted stock unit costs
    -       -       -       -       -       -       4       -       4  
                                                                         
Amortization of employee restricted stock unit costs
    -       -       -       -       -       -       526       -       526  
                                                                         
Net loss
    -       -       -       -       -       -       -       (7,956 )     (7,956 )
                                                                         
Balance, December 31, 2008
    10,486,935     $ 10       107,067     $ (208 )     55,388.37     $ -     $ 108,989     $ (60,546 )   $ 48,245  
 
See notes to these consolidated financial statements.
 
F-6

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Year Ended December 31, 2007
(dollars in thousands)

               
Series A
   
Series B
   
Series C
   
Series D
                   
               
Convertible
   
Convertible
   
Convertible
   
Convertible
   
Additional
             
   
Common Stock
   
Preferred Stock
   
Preferred Stock
   
Preferred Stock
   
Preferred Stock
   
Paid-in
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
Balance, January 1, 2007
    2,678,059     $ 3       6,380     $ -       53,073     $ -       -     $ -       -     $ -     $ 78,558     $ (24,662 )   $ 53,899  
                                                                                                         
Fractional shares of common stock issued in connection with reverse split
    42       -       -       -       -       -       -       -       -       -       -       -       -  
                                                                                                         
Adjustment to Series B Convertible Preferred shares outstanding
    -       -       -       -       (3 )     -       -       -       -       -       -       -       -  
                                                                                                         
Issuance of common stock  in connection with the purchase of On Line Consulting
    84,375       -       -       -       -       -       -       -       -       -       1,350       -       1,350  
                                                                                                         
Issuance of common stock in connection with purchase of Facticon
    87,500       -       -       -       -       -       -       -       -       -       1,400       -       1,400  
                                                                                                         
Exercise of stock options
    88,236       -       -       -       -       -       -       -       -       -       48       -       48  
                                                                                                         
Cashless exercise of stock options
    39,706       -       -       -       -       -       -       -       -       -       (318 )     -       (318 )
                                                                                                         
Stock issued to employees pursuant to 2006 Long-Term Incentive Plan
    3,471       -       -       -       -       -       -       -       -       -       41       -       41  
                                                                                                         
Stock issued to consultants for services
    3,823       -       -       -       -       -       -       -       -       -       67       -       67  
                                                                                                         
Stock based compensation - restricted stock vested
    -       -       -       -       -       -       -       -       -       -       677       -       677  
                                                                                                         
Amortization of consultant stock option costs
    -       -       -       -       -       -       -       -       -       -       64       -       64  
                                                                                                         
Amortization of employee stock options costs
    -       -       -       -       -       -       -       -       -       -       2,480       -       2,480  
                                                                                                         
Issuance of common stock in connection with the conversion of shares of Series A Convertible Preferred Stock
    3,125       -       (50 )     -       -       -       -       -       -       -       -       -       -  
                                                                                                         
Equity restructuring (See Note 14)
    630,765       -       (6,330 )     -       (53,070 )     -       59,400       -       19,706.52       -       -       -       -  
                                                                                                         
Issuance of common stock in connection with qualified public offering net of offering costs
    4,500,000       5       -       -       -       -       -       -       -       -       18,172       -       18,177  
                                                                                                         
Conversion of Series C Convertible Preferred Stock into shares of common stock and share of Series D Convertible Preferred Stock
    1,541,167       2       -       -       -       -       (59,400 )     -       36,283.00       -       (2 )     -       -  
                                                                                                         
Net loss
    -       -       -       -       -       -       -       -       -       -       -       (27,928 )     (27,928 )
                                                                                                         
Balance, December 31, 2007
    9,660,269     $ 10       -     $ -       -     $ -       -     $ -       55,989.52     $ -     $ 102,537     $ (52,590 )   $ 49,957  
 
See notes to these consolidated financial statements.
 
F-7

 

Consolidated Statements of Cash Flows
(dollars in thousands)

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
Cash flows from operating activities:
                 
                   
Net loss
  $ (5,311 )   $ (7,956 )   $ (27,928 )
                         
Adjustments to reconcile net loss to net cash provided by
                       
(used in) operating activities:
                       
                         
  Provision for bad debts
    (259 )     148       1,699  
                         
  Depreciation and amortization
    3,352       4,366       3,917  
                         
  Deferred rent
    28       448       38  
                         
  Non-cash interest charges
    -       4       37  
                         
  Reserve for restructuring
    420       517       -  
                         
  Reserve for litigation
    65       -       -  
                         
  Reserve for obsolete inventory
    (5 )     -       -  
                         
  Impairment of goodwill and intangible assets
    66       -       5,144  
                         
  Stock-based compensation
    2,831       4,258       3,330  
                         
  Deferred income taxes
    511       -       -  
                         
  Loss on disposition of equipment
    -       27       -  
                         
Changes in operating assets and liabilities:
                       
                         
  Accounts receivable
    8,112       (1,219 )     (723 )
                         
  Inventories
    (827 )     (196 )     194  
                         
  Prepaid expenses and other current assets
    22       (70 )     (59 )
                         
  Security deposits and other assets
    16       25       (264 )
                         
  Accounts payable
    (2,634 )     459       769  
                         
  Deferred revenues
    5       42       396  
                         
  Accrued compensation and related benefits
    488       (585 )     576  
                         
  Due to former members of JLWA for earnout
    -       -       7,732  
                         
  Other current liabilities
    (751 )     (1,053 )     (432 )
                         
  Other long-term obligations
    (47 )     (54 )     108  
                         
            Total adjustments
    11,393       7,117       22,462  
                         
            Net cash provided by (used in) operating activities
    6,082       (839 )     (5,466 )
                         
Cash flows from investing activities:
                       
                         
   Purchases of property and equipment
    (2,797 )     (1,638 )     (1,520 )
                         
   Purchase of intangible assets
    (68 )     (44 )     (920 )
                         
   Acquisition of FAIS
    -       (2,548 )     -  
                         
   Acquisition of On Line Consulting
    -       (200 )     (988 )
                         
   Acquisition of Facticon
    -       -       (1,300 )
                         
   Acquisition of Bode, less cash acquired of $284
    -       -       (12,907 )
                         
            Net cash used in investing activities
    (2,865 )     (4,430 )     (17,635 )
 
See notes to these consolidated financial statements.

 
F-8

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(dollars in thousands)

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Cash flows from financing activities:
                 
                   
Net  proceeds (repayments) under line of credit
  $ (4,930 )   $ 7,093     $ -  
                         
Proceeds from issuance of common stock
    -       -       18,177  
                         
Repayment of notes payable
    (400 )     (800 )     (12,231 )
                         
Proceeds from exercise of stock options
    -       -       48  
                         
Proceeds from issuance of stock in connection with ESPP
    93       34       -  
                         
Repurchase of common stock
    (35 )     (208 )     -  
                         
Net cash (used in) provided by  financing activities
    (5,272 )     6,119       5,994  
                         
Net increase (decrease)  in cash and cash equivalents
    (2,055 )     850       (17,107 )
                         
Cash and cash equivalents - beginning of year
    5,276       4,426       21,533  
                         
Cash and cash equivalents - end of year
  $ 3,221     $ 5,276     $ 4,426  
                         
Supplemental disclosure of cash flow information:
                       
                         
 Cash paid during the year for interest
  $ 631     $ 353     $ 827  
                         
Supplemental disclosures of non-cash investing and financing activities:
                       
                         
Common stock issued to settle the obligation to issue common stock
  $ -     $ 2,160     $ -  
                         
Common stock issued upon the cashless exercise of stock options
  $ -     $ -     $ 318  
                         
Common stock issued upon conversion of Series A convertible
                       
  preferred stock
  $ -     $ -     $ 3  
                         
Common stock ($1,541) and Series D convertible preferred stock ($36)
                       
  issued upon conversion of Series C convertible preferred stock
  $ -     $ -     $ 1,577  
                         
Issuance of common stock ($631), Series C ($59) and Series D ($20)
                       
  convertible preferred stock in equity restructuring
  $ -     $ -     $ 1  
 
See notes to these consolidated financial statements.
 
 
F-9

 
 
GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows, continued
(dollars in thousands)

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Supplemental non-cash investing and financing activity - acquisition of FAIS:
                 
Assets acquired and liabilities assumed:
                 
Accounts receivable
  $ -     $ 1,201     $ -  
Property and equipment
    -       61       -  
Intangible assets
    -       1,625       -  
Accounts payable
    -       (17 )     -  
Other current liabilities
    -       (322 )     -  
                         
Total purchase price, paid in cash
  $ -     $ 2,548     $ -  
                         
Supplemental non-cash investing and financing activity - acquisition of On Line Consulting:
                       
Assets acquired and liabilities assumed:
                       
Property and equipment
  $ -     $ -     $ 97  
Intangible assets
    -       -       1,199  
Goodwill recognized on purchase business combination
    -       200       1,845  
Accounts payable, accrued expenses and deferred revenues
    -       -       (199 )
Other current liabilities
    -       -       (46 )
                         
Total purchase price
    -       200       2,896  
                         
Less: Cash paid to acquire On Line Consulting
    -       -       (988 )
   Non-cash consideration to seller
  $ -     $ 200     $ 1,908  
                         
Non-cash consideration consisted of:
                       
Common stock issued to acquire On Line Consulting
  $ -     $ -     $ 1,350  
Notes payable issued to seller
    -       -       558  
Total non-cash consideration
  $ -     $ -     $ 1,908  
                         
Supplemental non-cash investing and financing activity - acquisition of Bode:
                       
Assets acquired and liabilities assumed:
                       
Accounts receivable
  $ -     $ -     $ 5,510  
Inventories
    -       -       2,519  
Other current assets (including cash of $284)
    -       -       560  
Property and equipment
    -       -       4,133  
Intangible assets
    -       -       310  
Goodwill recognized on purchase business combination
    -       -       1,377  
Accounts payable, accrued expenses and deferred rent obligations
    -       -       (1,217 )
                         
Total purchase price
    -       -       13,192  
                         
Less: Cash acquired
    -       -       (284 )
Less: Cash paid to acquire Bode
    -       -       (12,908 )
  Non-cash consideration to seller
  $ -     $ -     $ -  

See notes to these consolidated financial statements.
 
F-10

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows, continued
(dollars in thousands)

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Supplemental non-cash investing and financing activity - acquisition of Facticon:
                 
Assets acquired and liabilities assumed:
                 
Accounts receivable
  $ -     $ -     $ 759  
Property and equipment
    -       -       34  
Intangible assets
    -       -       120  
Goodwill recognized on purchase business combination
    -       -       3,113  
Accounts payable, accrued expenses and deferred revenues
    -       -       (1,226 )
                         
Total purchase price
    -       -       2,800  
                         
Less: Cash paid to acquire Facticon
    -       -       (1,300 )
  Non-cash consideration to seller
  $ -     $ -     $ 1,500  
                         
Non-cash consideration consisted of :
                       
Note payable issued to seller
  $ -     $ -     $ 100  
Common stock issued to acquire Facticon
    -       -       1,400  
Total non-cash consideration
  $ -     $ -     $ 1,500  
 
See notes to these consolidated financial statements.
 
F-11

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

1.  Business Organization and Nature of Operations

GlobalOptions, LLC was formed in November 1998 as a limited liability company (“LLC”) in the state of Delaware.  On January 24, 2002, the LLC was recapitalized as a Delaware corporation with the name GlobalOptions, Inc. (“GlobalOptions”).  On June 24, 2005, GlobalOptions consummated a “reverse merger” transaction with a non operating public company accounted for as a recapitalization, with the result that on June 24, 2005, GlobalOptions became the subsidiary of a public company.   Following the  merger, the public company changed its name to GlobalOptions Group, Inc. (“GlobalOptions Group” or the “Company”) and began trading on the OTC (over the counter) Bulletin Board. 

On March 6, 2007 the Company executed a 1 for 8 reverse stock split. All share and per share information preceding the date of this split has been retroactively restated.

 The Company is an integrated provider of risk mitigation and management services to government entities, Fortune 1,000 corporations and high net-worth and high-profile individuals throughout the world. The Company’s risk mitigation services currently include (1) risk management and security, (2) investigations and litigation support, and (3) crisis management and corporate governance. 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 unit, on the basis of its relative materiality, are included in the Fraud and SIU Services segment.
  
On January 9, 2007, GlobalOptions Group purchased substantially all of the business and assets of SPZ Oakland Corporation, dba On Line Consulting Service, Inc. (“On Line Consulting”), a full service security and fire alarm consulting and design firm based in Oakland, California (See Note 4).

On February 28, 2007, GlobalOptions Group acquired substantially all of the business and assets of Facticon, Inc. (“Facticon”).  Facticon is a surveillance, investigative and intelligence firm based in Chadds Ford, Pennsylvania (See Note 4).

              On February 28, 2007, GlobalOptions Group purchased the common stock of The Bode Technology Group, Inc. ("Bode"). Bode is a leading provider forensic DNA analysis and proprietary DNA collection tools based in Lorton, Virginia (See Note 4).

On April 21, 2008, GlobalOptions Group acquired substantially all of the business and net assets of Omega Insurance Services, Inc. (d/b/a First Advantage Investigative Services) (“FAIS”). FAIS is a surveillance, investigative and intelligence firm based in St. Petersburg, Florida (See Note 4).

2. Principles of Consolidation
 
The consolidated financial statements of the Company include the consolidated financial statements of GlobalOptions, Inc. and its wholly-owned subsidiary, Bode. All material intercompany accounts and transactions are eliminated in consolidation.

 
F-12

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies
  
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses. Actual results could differ from estimated amounts. Significant estimates and assumptions include reserves related to receivables and inventories, the recoverability of long-term assets, amortizable lives of intangible assets, purchase accounting, accruals related to performance based compensation plans, deferred taxes and related valuation allowances and valuation of equity instruments.   Global and other economic risks could affect the Company’s estimates.  The Company’s management monitors these risks and assesses its business and financial risks on a quarterly basis.

Concentrations of Credit Risk

Cash: The Company maintains its cash with high credit quality financial institutions.  At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.  As of December 31, 2009 substantially all of the Company’s funds are held at one financial institution.

Accounts Receivable: The number of clients that comprise the Company’s client base, along with the different industries, governmental entities and geographic regions, including foreign clients, in which the Company’s clients operate, limits concentrations of credit risk with respect to accounts receivable. The Company does not generally require collateral or other security to support client receivables, however, the Company may require it’s customers to provide retainers, up-front deposits or irrevocable letters-of-credit when considered necessary to mitigate credit risk. The Company has 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. At December 31, 2009 and 2008, the Company had allowances for doubtful accounts of $1,410 and $2,487, respectively.

Cash Equivalents: The Company considers all short-term investments with a maturity of three months or less when purchased to be cash equivalents.

Inventories
 
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Reserves for obsolete inventories are provided for based on historical experience. At December 31, 2009 and 2008, the Company had reserves for obsolete inventory of $50 and $55, respectively.

The Company maintains inventories in connection with its DNA related services. Raw materials consist mainly of reagents, primers, enzymes, chemicals and plates used in genotyping and components to assemble DNA collection kits. Work in progress principally consists of data banking and casework not yet completed and partially assembled kits. Finished goods principally consist of kits that have been fully assembled, but have not been shipped.

Property and Equipment

Property and equipment is stated at cost and is being depreciated using the straight-line method over their estimated useful lives, generally five to seven years. Leasehold improvements are being amortized over the shorter of the useful life or the remaining lease term. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated results of operations. Expenditures for maintenance and repairs are charged to operations as incurred. Renewals and betterments are capitalized.

 
F-13

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Intangible Assets
 
The Company recognizes certain intangible assets acquired in acquisitions, primarily goodwill, trade names, covenants not to compete, and client relationships.

The Company has reviewed the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value. No impairment was deemed to exist as of December 31, 2009 and 2008.  The Company intends to re-evaluate the carrying amounts of its amortizable intangibles at lease quarterly to identify any triggering events, including those that could arise from the current national and global economic crisis that would require us to conduct an impairment review. As described above, if triggering events require us to undertake an impairment review, it is not possible at this time to determine whether it would be necessary to record a charge or if such charge would be material.

Goodwill and Impairment
 
The Company is required to perform a goodwill impairment test at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The testing for impairment of goodwill is performed in two steps: (1) potential impairment is identified by comparing the fair value of a reporting unit (based on market capitalization, discounted cash flows, or other acceptable methods) with its carrying amount; and (2) if fair value is less than the carrying amount, an impairment loss is estimated as the excess of the carrying amount of the goodwill over its fair value. Goodwill must be written down when impaired. The Company has adopted December 31 as the annual date for preparing its impairment assessment, unless other triggering events occur during the year which might indicate that an impairment has occurred.

 
The Company applies the revenue recognition principles set forth in applicable accounting guidance with respect to all of its revenue. The Company adheres strictly to this criteria, which provides for revenue to be recognized when (1) persuasive evidence of an arrangement exists, (2) delivery or installation has been completed, (3) the customer accepts and verifies receipt, and (4) collectability is reasonably assured.

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 contractual milestones or progress points within the project plan. Expenses incurred by professional staff in the generation of revenue are billed to the client and recorded as revenue when incurred.

 
F-14

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Revenue Recognition and Related Costs, continued
 
Revenues earned on DNA related services are derived principally 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
 
Advertising

The Company expenses the cost of advertising as incurred. Advertising expense for the years ended December 31, 2009, 2008, and 2007 was approximately $32, $55 and $126, respectively.

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 tax bases of such assets and liabilities. The Company establishes a valuation allowance for certain deferred tax assets. The Company was not required to provide for a provision for income taxes for the years ended December 31, 2008 and 2007, respectively, as a result of losses incurred during these periods.

For the year ended December 31, 2009, the Company recorded a deferred income tax provision on account of an increase in the net deferred tax liability caused principally by current income tax deductions related  to the amortization of goodwill over a 15 year life that have not been recognized for book purposes.

Deferred tax assets pertaining to windfall tax benefits on exercise of non-qualified stock options and the corresponding credit to additional paid-in capital are recorded if the related tax amount either reduces income taxes payable or results in an income tax refund. The Company has elected the “with and without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce income taxes payable or resulted in an income tax refund in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental income tax benefit is realized after considering all other income tax benefits presently available to the Company.

Effective January 1, 2007, the Company adopted accounting guidance which clarifies the accounting for uncertainty in income taxes recognized in the Company’s consolidated financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the years ended December 31, 2007, December 31, 2008 and December 31, 2009. The tax years ended December 31, 2008, 2007, 2006, 2005, 2004 and 2003 remain subject to examination for federal, state, and local income tax purposes by various taxing authorities as of December 31, 2009.

 
F-15

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.
Summary of Significant Accounting Policies, continued

Income Taxes, continued

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses.

Stock-Based Compensation
 
The Company accounts for equity instruments issued to non-employees in accordance with accounting guidance 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 is reflected within general and administrative expenses. 
 
The Company accounts for equity instruments issued to employees in accordance with accounting guidance which requires that awards are recorded at their fair value on the date of grant and are amortized over the vesting period of the award.  The Company recognizes 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.
 
Net Loss Per Common Share
 
 
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.

   
At December 31,
 
   
2009
   
2008
   
2007
 
Stock Options
    967,781       634,687       1,191,665  
Restricted Stock Units
    228,819       366,087       -  
Preferred Stock and Warrants
    -       3,692,743       3,732,821  
Potentially dilutive securities realizable from the vesting of performance based restricted stock
    470,563       558,063       175,000  
Contingently returnable shares related to the  acquisitions of Facticon and Hyperion
    -       -       78,923  
                         
Total Potentially Dilutive Securities
    1,667,163       5,251,580       5,178,409  

Subsequent Events
 
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.

 
F-16

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

In June 2009, the FASB 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 February 2007, the FASB issued new accounting guidance, under ASC Topic 825 on financial instruments, which permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by this statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Adoption is required for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of ASC Topic 820 on fair value measurements and disclosures. The Company did not elect the fair value reporting option for any assets and liabilities not previously recorded at fair value.

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.

 
F-17

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

3.  Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

In March 2008, the FASB issued new accounting guidance under ASC Topic 815 on derivatives and hedging activities, which changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flow.  The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  This accounting guidance encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

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 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.   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 260 on earnings per share, which 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. The 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 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.

 
F-18

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
 
3.  Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

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.



On January 9, 2007, GlobalOptions Group purchased substantially all of the business and assets of On Line Consulting.  The acquisition was made pursuant to a certain Asset Purchase Agreement dated January 9, 2007 (the “On Line Consulting Agreement”) between GlobalOptions Group and On Line Consulting. The aggregate purchase price paid for On Line Consulting, which amounted to approximately $2,896 plus the assumption of certain liabilities, was subject to a working capital purchase price adjustment that was finalized on November 10, 2008.

Purchase consideration, excluding the purchase price adjustment (which was finalized in the amount of $200), consisted of $1,546 in cash and 84,375 shares of common stock of GlobalOptions Group valued at $16.00 per share for a total value of all consideration of $2,846. At closing, the Company paid $750 of the cash portion of the purchase price, and issued promissory notes of which $417 was paid on January 9, 2008, and $141 was due and paid on January 9, 2009.  On March 23, 2007, the Company paid cash of $224, and recorded an obligation of $14, which was paid on August 29, 2007.

Further, at closing, the Company delivered to the seller 46,875 shares of GlobalOptions common stock, with 37,500 shares which were held in escrow. On January 9, 2008, 18,750 of the escrow shares were delivered to the seller.  On November 10, 2008, the Company paid $200 of additional purchase consideration to the sellers of On Line Consulting as a result of having finalized the working capital purchase price adjustment specified in the OnLine Consulting Agreement.  The remaining 18,750 escrow shares were delivered to the seller on January 9, 2009.

All of the promissory notes issued in connection with the acquisition of On Line Consulting bear no stated interest rate. Accordingly, the promissory note obligations were recorded at their net present values discounted at a rate of 6% per annum.  Discounts amounted to $33 and $9 with respect to the $417 and $141 notes due January 9, 2008 and 2009, respectively. The accreted interest for the years ended December 31, 2009 and 2008 is approximately $0 and $5, respectively.

The assets and liabilities of On Line Consulting were recorded in the Company’s consolidated balance sheet at their fair values at the date of acquisition. As part of the purchase of On Line Consulting on January 9, 2007, the Company acquired identifiable intangible assets of $1,199. Of the identifiable intangibles acquired, $70 has been assigned to trade names, $59 to non-compete agreements, and $1,070 to client relationships. The acquired intangibles have been assigned definite lives and are subject to amortization, as described in the table below.

 
F-19

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4. Acquisitions, continued

Acquisition of On Line Consulting, continued

The following details amortization periods for the identifiable, amortizable intangibles:

Intangible Asset Category
 
Amortization Period
Trade names
 
5 years
Non-compete agreements
 
3 years
Client relationships
  
7 years

The following details the allocation of the purchase price for the acquisition of On Line Consulting:

   
Fair Value
 
Property and equipment
  $ 97  
Intangible asset - trade names
    70  
Intangible asset – non-compete agreements
    59  
Intangible asset - client relationships
    1,070  
Accounts payable
    (75 )
Accrued compensation and related benefits
    (84 )
Deferred revenues
    (40 )
Capital lease obligation
    (34 )
Other liabilities
    (12 )
         
Net fair values assigned to assets acquired and liabilities assumed
    1,051  
Goodwill
    2,045  
Total
  $ 3,096  

The following represents a summary of the purchase price consideration:

Cash
  $ 1,174  
Common stock
    1,350  
Amount due to seller
    14  
Notes payable
    558  
Total Purchase Price Consideration
  $ 3,096  

  The results of operations for On Line Consulting for the years ended December 31, 2009 and 2008 and for the period from January 10, 2007 to December 31, 2007, are reflected in the Company’s results for the years ended December 31, 2009, 2008 and 2007 in the accompanying consolidated statements of operations.

 
F-20

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4. Acquisitions, continued

Acquisition of Bode

On February 28, 2007, the Company acquired the common stock of Bode. Bode provides forensic DNA analysis, proprietary DNA collection products, and related research services to law enforcement agencies, federal and state governments, crime laboratories and disaster management organizations and is based in Lorton, Virginia. Bode was a wholly-owned subsidiary of ChoicePoint Inc., a Georgia corporation ("ChoicePoint"). The acquisition was made pursuant to a certain Stock Purchase Agreement, dated February 28, 2007, between ChoicePoint Government Services Inc., ChoicePoint and the Company. On March 8, 2007, Bode was reincorporated in the state of Delaware.  On September 26, 2007, the Company recorded a working capital adjustment in connection with the acquisition of Bode in the amount of $692, paid on October 1, 2007 resulting in an as adjusted total purchase price of $13,192.  On December 31, 2007 the Company recorded an additional purchase price adjustment of $110 related to the valuation of the opening inventory balance.  The $692 and $110 adjustment amounts were recorded as additional goodwill.

The assets and liabilities of Bode have been recorded in the Company’s consolidated balance sheet at their fair values at the date of acquisition.  As part of the purchase of Bode on February 28, 2007, the Company acquired identifiable intangible assets of $310.  Of the identifiable intangibles acquired, $200 has been assigned to trade names and $110 to developed technology.  The acquired intangibles have been assigned definite lives and are subject to amortization, as described in the table below.

The following details amortization periods for the identifiable, amortizable intangibles:

Intangible Asset Category
 
 Amortization Period
Trade names
 
10 years
Developed technology
  
5  years

The following details the allocation of the purchase price for the acquisition of Bode:

   
Fair Value
 
Cash and cash equivalents
  $
284
 
Accounts receivable
    5,510  
Inventories
    2,519  
Other current assets
    276  
Property and equipment
    4,133  
Intangible asset – trade names
    200  
Intangible asset – development technology
    110  
Accounts payable
    (545 )
Deferred rent obligations
    (94 )
Accrued expenses
    (578 )
         
Net fair values assigned to assets acquired and  liabilities assumed
    11,815  
Goodwill
    1,377  
Total purchase price in cash
  $ 13,192  

The purchase price was paid entirely in cash.

The results of operations for Bode for the years ended December 31, 2009 and 2008 and for the period from March 1, 2007 to December 31, 2007, are reflected in the Company’s results for the years ended December 31, 2009, 2008 and 2007 in the accompanying consolidated statements of operations.

 
F-21

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4.      Acquisitions, continued

Acquisition of Facticon

On February 28, 2007, GlobalOptions Group purchased substantially all of the business and assets of Facticon. 

The acquisition was made pursuant to a certain Asset Purchase Agreement, dated February 28, 2007 (the "Facticon Agreement"), between GlobalOptions Group and Facticon. The aggregate purchase price paid was $2,800, which consisted of $1,300 in cash, a promissory note payable to the seller of $100 and 87,500 shares of common stock in GlobalOptions Group, valued at $1,400 and the assumption of certain liabilities.  Of the total purchase price, the $1,300 cash portion, the $100 promissory note and the stock portion were placed into an escrow account and pursuant to the escrow agreement (“Facticon Escrow Agreement”) were to be disbursed upon the satisfaction of claims of certain tax jurisdictions, creditors and litigants against the seller.   The Facticon Agreement was amended to extend the period of time allotted to resolve such claims against Facticon through December 31, 2008.

The assets and liabilities of Facticon have been recorded in the Company’s consolidated balance sheet at their fair values at the date of acquisition.  As part of the purchase of Facticon on February 28, 2007, the Company acquired identifiable intangible assets of $120, consisting of $60 for a trade name and $60 for the value of client relationships.  The acquired intangibles have been assigned definite lives and are subject to amortization, as described in the table below.  In addition, the Company has recorded an adjustment of approximately $693 to record additional goodwill and an accrued liability in connection with the Company’s estimated successor liability obligations.  The successor liability obligations were shown net of approximately $270 that the Company estimates may be recoverable from the seller though amounts held in escrow.

On December 22, 2008, the Company settled certain successor liabilities, resulting in the sellers returning to the Company the $100 note payable to seller and 87,500 shares of the Company stock, valued at $158.

The following details the amortization periods for the identifiable, amortizable intangibles:

Intangible Asset Category
 
Amortization Period
Trade name
 
5 years
Client relationships
  
3 years

The following details the allocation of the purchase price for the acquisition of Facticon:
 
   
Fair Value
 
Accounts receivable
  $ 759  
Property and equipment
    34  
Intangible assets – trade name
    60  
Intangible assets – client relationships
    60  
Accounts payable
    (185 )
Accrued compensation and related benefits
    (237 )
Accrued expenses
    (804 )
Net fair values assigned to assets acquired and liabilities assumed
    (313 )
Goodwill
    3,113  
         
Total
  $ 2,800  

 
F-22

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4.      Acquisitions, continued

Acquisition of Facticon, continued

The following presents a summary of the purchase price consideration for the purchase of Facticon:
 
Cash
$ 1,300  
Note issued to seller
  100  
Value of common stock issued
  1,400  
       
Total Purchase Price Consideration
$ 2,800  

The results of operations for Facticon for the years ended December 31, 2009, 2008 and for the period from March 1, 2007 to December 31, 2007, are reflected in the Company’s results for the years ended December 31, 2009, 2008 and 2007 in the accompanying consolidated statements of operations.

Acquisition of 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 agreement had provided for the sellers to obtain up to an additional $2,000 upon the attainment of certain revenue goals subsequent to the closing of the transaction. On November 20, 2008, the Company determined that the revenue goals under the earnout would not be achieved and thus FAIS would not qualify for any additional purchase price consideration.

The assets and liabilities of FAIS were recorded in the Company’s consolidated balance sheet at their fair values at the date of acquisition. As part of the purchase of FAIS on April 21, 2008, the Company acquired certain identifiable intangible assets valued in the aggregate at $2,790. Of the identifiable intangibles acquired, approximately $290 had been assigned to a non-compete agreement and $2,500 to client relationships.

The calculated value of these intangible assets created an excess of the fair value of assets acquired over the purchase price  using the purchase method of accounting. Under the purchase method of accounting, the payment of contingent consideration that might result in recognition of additional cost of the acquired entity when the contingency is resolved, an amount equal to the lesser of the maximum contingent consideration or the excess of fair value over the cost of the acquired entity is to be  recognized as if it were a liability. Upon the resolution of the contingency and upon issuance of the consideration, any excess of consideration over the amount that was recognized as a liability is to be recognized as additional cost of the acquired entity. If the amount initially recognized as if it were a liability exceeded the consideration issued, that excess amount shall be allocated as a pro rata reduction of the amounts assigned to property and equipment and intangible assets acquired. In accordance with SFAS 141, the Company had initially recorded a liability of $1,206 representing the difference between the fair value of the assets acquired and the consideration transferred to the sellers at the closing date excluding contingent consideration.  On November 20, 2008, the Company determined that no earnout was to be paid.  Accordingly, the Company has recorded an adjustment to the purchase price, reflecting a $41 reduction in net property and equipment and $1,165 of net identifiable intangible assets consisting of reductions of $129 for non-compete agreements, $1,145 for client relationships less $109 of accumulated amortization.  The purchase price adjustment will affect depreciation and amortization on a prospective basis.
 
The Company also recorded a liability of approximately $274 as a reserve for exit activities which includes the estimated costs of certain salary and severance expenses of transitional employees that were accrued and accounted for as part of the purchase price.

 
F-23

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4. Acquisitions, continued

Acquisition of FAIS, continued

The following details amortization periods for the identifiable, amortizable intangibles:

Intangible Asset Category 
 
Amortization Period
Non-compete agreements
 
3 years
Client relationships
  
7 years

The following details the allocation of the purchase price for the acquisition of FAIS as adjusted for the November 20, 2008 determination that the contingent purchase price earnout would not be paid:
   
Fair Value
 
Accounts receivable
  $ 1,201  
Property and equipment
    61  
Intangible asset – non-complete agreements
    182  
Intangible asset – client relationships
    1,443  
Accounts payable
    (17 )
Accrued liabilities
    (48 )
Cost of exit activities
    (274 )
         
Net fair value assigned to assets acquired and liabilities assumed
  $  2,548  

             The following represents a summary of the purchase price consideration:
   
Fair Value
 
Cash
  $ 2,164  
Broker fee
    350  
Legal fee
     34  
     Total Purchase Price Consideration
  $ 2,548  
 
The results of operations of FAIS for the years ended December 31, 2009, and the period from April 21, 2008 to December 31, 2008 are reflected in the Company’s consolidated results for the year ended December 31, 2009 and 2008 in the accompanying consolidated statements of operations.

 
F-24

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

4. Acquisitions, continued

Unaudited Pro-Forma Financial Information

The following presents the unaudited pro-forma combined results of operations of the Company with On Line Consulting, Bode, Facticon and FAIS from the beginning of the year of acquisition in addition to the entire fiscal year preceding the acquisition of their net assets or common stock. The respective acquisition dates are January 9, 2007 for On Line Consulting, February 28, 2007 for Bode and Facticon, and April 21, 2008 for FAIS.

   
For the Years Ended December 31,
 
   
2008
   
2007
 
Revenues
  $ 107,178     $ 102,561  
                 
Net loss available to common stockholders
  $ (9,112 )   $ (32,636 )
                 
Pro-forma basic and diluted net loss per common share
  $ (0.93 )   $ (7.81 )
                 
Pro-forma weighted average common shares outstanding - basic and diluted
    9,834       4,179  

The pro forma combined results are not necessarily indicative of the results that actually would have occurred if the acquisitions of On Line Consulting, Bode, Facticon and FAIS had been completed as of the beginning of 2007, 2008 or 2009, nor are they necessarily indicative of future consolidated results.

5. Inventories

Inventories are comprised of the following: 

   
December 31,
 
   
2009
   
2008
 
Raw materials
  $ 2,099     $ 1,373  
Work in progress – DNA analysis
    330       304  
Finished goods
    975       900  
    $ 3,404     $ 2,577  
 Less:  Reserve for obsolescence
    (50 )     (55 )
Total
  $ 3,354     $ 2,522  

 
F-25

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

 6.  Intangible Assets and Goodwill

Intangible Assets
 
Intangible asset activity consists of amounts related to the 2007 acquisitions, consisting of On Line Consulting, Bode and Facticon and the 2008 acquisition of FAIS.

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, 2008
    2,560       440       1,499       7,360       70       (4,659 )     7,270  
                                                         
Acquisition of FAIS
    -       -       290       2,500       -       -       2,790  
Costs of patents
    -       -       -       -       45       -       45  
Purchase Price Adjustment - FAIS
    -       -       (129 )     (1,145 )     -       109       (1,165 )
Amortization Expense
     -        -       -       -       -        (2,959 )     (2,959 )
                                                         
Balance as of  December 31, 2008
  $ 2,560     $ 440     $ 1,660     $ 8,715     $ 115     $ (7,509 )   $ 5,981  
Costs of patents
     -        -        -        -       68        -       68  
Impairment of non-compete agreement
     -        -       (161 )      -        -       95       (66 )
Amortization Expense
     -        -       -       -       -       (1,715 )     (1,715 )
                                                         
Balance as of  December 31, 2009
  $ 2,560     $ 440     $ 1,499     $ 8,715     $ 183     $ (9,129 )   $ 4,268  
                                                         
Weighted average amortization period at December 31, 2009 in years
    5.4       0.5       0 .0       1.9       12.0                  

 
F-26

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

 6.  Intangible Assets and Goodwill, continued

Intangible Assets, continued

The estimated amortization of amortizable intangible assets are comprised of the following for the five years ending December 31, 2014:

For the Years Ending
December 31,
 
Trade
Names
   
Developed
Technology
   
Non-
Compete
Agreements
   
Client
Relationships
   
Patents
   
Total
 
2010
  $ 305     $ 22     $ 1     $ 857     $ 7     $ 1,192  
2011
    251       22       -       637       8       918  
2012
    207       4       -       508       7       726  
2013
    207       -       -       346       8       561  
2014
    207       -       -       197       8       412  
thereafter
    265       -       -       52        142       459  
Totals
  $ 1,442     $ 48     $ 1     $ 2,597     $ 180     $ 4,268  

During the years ended December 31, 2009, 2008 and 2007, the Company recorded amortization expense related to the acquired amortizable intangibles of approximately $1,715,  $2,959 and $2,909, respectively.  For the year ended December 31, 2009, the Company recorded a charge to general and administrative expenses of approximately $66 for the impairment of the value of a non-compete agreement within the Fraud and SIU Services Segment.  For the year ended December 31, 2007, the Company recorded a charge to general and administrative expense of approximately $186 (which was included in amortization expense) in connection with the abandonment of the trade names previously used within Hyperion, Secure Source and Facticon.

On December 17, 2007, the Company entered into a five year agreement with an insurance service company to provide Fraud and SIU services.  In connection with the agreement, the Company paid a cash inducement fee of $850, which has been recorded as an intangible asset – client relationships, as a fee paid to obtain revenue generating client relationship.  This intangible asset is being amortized on a straight line basis over the term of agreement.  In addition, the agreement included a contingent fee of $150, payable 15 months from closing, for which a portion is subject to forfeiture if revenues under the agreement do not meet certain agreed upon goals.  Under the terms of the agreement, the Company will pay a commission upon the achievement of certain gross revenues at rates ranging from 3% to 7%.  For each twelve month period ending on the first, second, third, fourth, and fifth anniversaries of the agreement, the Company will pay an additional commission in an amount equal to 3% of all revenues in excess of $2,100 up to $3,000; 5% of all revenues in excess of $3,000 up to $4,000; and 7% of all revenues in excess of $4,000. For the commission period ended December 17, 2008, no commission was incurred under this agreement.

Goodwill Impairment
 
At December 31, 2009, 2008 and 2007, the Company performed an annual evaluation of its goodwill. The Company performed its annual impairment tests of goodwill for its three reporting segments: Preparedness Services, Fraud and SIU Services and Security Consulting Investigations,

As a result of these tests the Company determined that for the year ended December 31, 2007 that the amount of goodwill recorded in connection with the Fraud and SIU Services segment was impaired or not fully recoverable, as the current performance and future expectations do not support the carrying value of goodwill.  As a result, the Company recorded a $5,144 impairment charge during the year ended December 31, 2007 for the Fraud and SIU Services segment.

 
F-27

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

6.  Intangible Assets and Goodwill, continued

Goodwill

A summary of Goodwill is comprised of the following for the years ended December 31, 2009 and 2008:

   
Preparedness
Services
   
Fraud and
SIU Services
   
Security
Consulting and
Investigations
   
Consolidated
 
Balance as of  January 1, 2008
  $ 883     $ 6,022     $ 12,863     $ 19,768  
Purchase Price  Adjustment- On Line Consulting
                200       200  
Balance as of December 31, 2009 and 2008
  $ 883     $ 6,022     $ 13,063     $ 19,968  

Of the total goodwill of $19,968 at December 31, 2009 and 2008, $18,591 is tax deductible.  The amount of goodwill recorded in 2007 upon the acquisition of Bode,  which amounted to $1,377,  is not tax deductible.

 
F-28

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

 
A summary of property and equipment is comprised of the following:

   
December 31,
 
   
2009
   
2008
 
Computer hardware and software
  $ 5,993     $ 3,453  
Laboratory equipment
    1,844       1,648  
Furniture and fixtures
    915       895  
Vehicles
    134       134  
Leasehold improvements
    2,718       2,677  
    $ 11,604     $ 8,807  
Less: accumulated depreciation and amortization
  $ (4,610 )   $ (2,973 )
                 
Property and equipment, net
  $ 6,994     $ 5,834  

Depreciation and amortization of property and equipment for the years ended December 31, 2009, 2008 and 2007 was approximately $1,637, $1,407 and $1,012, respectively.  

8.   Accrued Compensation and Related Benefits

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

   
December 31,
 
   
2009
   
2008
 
Performance based bonuses
  $ 1,429     $ 1,237  
Payroll and commissions
    1,499       1,172  
Employee benefits
     715        746  
                 
Total
  $ 3.643     $ 3,155  
 
9.  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 30, 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 December 31, 2009 was 7.25%.  As of December 31, 2009, the Company’s net borrowings were $2,163 under the line of credit and based upon the amount of qualifying accounts receivable, the Company was eligible to draw an additional $7,837 for up to a total of $10,000, under the Facility.

 
F-29

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

 9.  Line of Credit, continued

All obligations outstanding under the Facility are due and payable no later than March 30, 2010.  The Company is currently in discussions with respect to the renewal or replacement of the Facility, and anticipates that any renewal or replacement would be in an aggregate amount sufficient for its current working capital requirements.  There can be no assurance that the Facility will be successfully renewed or replaced.

10.  Due to Former Members of JLWA for Earnout and JLWA Modification Agreement
 
In connection with the purchase of James Lee Witt Associates, LLC (“JLWA”) on March 10, 2006, the Initial JLWA Agreement provided for the Company to pay up to $15,400 in compensatory Earnout payments to the sellers of JLWA upon the attainment of certain contractual annual revenue goals to be measured on the first, second and third anniversaries of the closing date of this transaction.   Prepayment of the Earnout was subject to the continued employment of the JLWA sellers and has therefore been characterized as compensation.  In accordance with the provisions of the agreement, the Earnout was to be paid to JLWA Sellers within sixty (60) days of the dates of the respective anniversaries of March 31, 2006, with the first $4,000 of the Earnout to be paid in cash and the remainder to be paid 50% in cash and 50% in shares of common stock of the Company.
 
On May 11, 2007, the Company reached an agreement with the JLWA Sellers to enter into a second amendment to the JLWA purchase agreement (“JLWA 2007 Modification Agreement”). Under the JLWA 2007 Modification Agreement, the Company agreed to make additional payments in the form of cash, promissory notes and common stock to the JLWA Sellers in exchange for eliminating the earnout provisions of the asset purchase agreement. The additional payments under the JLWA 2007 Modification Agreement consisted of (i) a note in the amount of $2,000, which was paid on May 14, 2007, (ii) a $4,500 promissory note accruing interest at 5.65% per annum, due on January 15, 2008, subject to a 5% penalty fee if not paid on that due date (see below), (iii) 300,000 shares of common stock with an aggregate fair value on May 11, 2007 of $2,880, issued on January 30, 2008, with 75,000 of these shares with a fair value of $720 subject to the Clawback Provision (See below) and (iv) a $4,300 promissory note accruing interest at 11.0% per annum, due on August 11, 2008.  The JLWA Sellers had the right to request acceleration of the $4,300 promissory note upon the consummation of a public offering (see below).

Further, in connection with the execution of the JLWA Modification Agreement, the Company executed an amendment of the employment and non-competition agreement with James Lee Witt. Under the terms of the amendment, upon his voluntary termination of employment without good reason, Mr. Witt would be obligated to reimburse the Company in an amount equal to (i) 25% of any shares received by the JLWA Sellers within 12 months prior to such termination and (ii) 25% of the base salary of Mr. Witt paid within 12 months prior to such termination, payable in cash (“Clawback Provision”).

The JLWA Modification Agreement resulted in $12,960 of non-contingent earnout consideration, of which approximately $6,630 was deemed as earnout accrued through May 10, 2007 and $6,330 was deemed to be accelerated earnout expense.  Earnout expense under the JLWA Agreement (as amended) was approximately $7,745 for the year ended December 31, 2007.  On December 15, 2008, the Company waived the Clawback Provision under the employment agreement of Mr. Witt.   The result was that on December 15, 2008, $720 of contingent consideration was recognized and recorded as earnout expense based upon the issuance on January 30, 2008 of 75,000 shares of stock, pursuant to the terms of the JLWA 2007 Modification Agreement.

On October 20, 2007, the Company reached an agreement with the JLWA Sellers under which the JLWA Sellers agreed to the prepayment of the principal and accrued interest on the $4,500 promissory note, originally due on January 15, 2008, that the Company had issued pursuant to the terms of the JLWA Modification Agreement. In connection with this acceleration, on October 29, 2007, the Company made a negotiated prepayment premium of $800 to compensate the JLWA Sellers for, among other things, foregone interest and the cost of accelerated tax payments. The Company borrowed approximately $5,400 from its line of credit to fund these payments, plus interest of $121, prior to the completion of the underwritten public offering (See Note 14).

On October 29, 2007, pursuant to the terms of the JLWA Modification Agreement, the JLWA Sellers requested and were granted accelerated payment of the $4,300 promissory note, plus interest of $38, in connection with the October 29, 2007 completion of the Company’s underwritten public offering.

 
F-30

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

11.  Notes Payable
 
On March 9, 2007, the Company repaid an obligation of $400 in connection with the acquisition of JLWA.
 
On May 14, 2007, the Company made a cash payment of $2,000 related to the JLWA Modification Agreement (See Note 10).
 
On May 30, 2007, the Company paid the $750 note payable installment in connection with the acquisition of Secure Source.
 
On October 29, 2007 the Company paid $8,800 in full satisfaction of the notes issued related to the JLWA Modification Agreement.
 
During the year ended December 31, 2007, the Company paid $281 in full satisfaction of the note payable to the former owners of Safir for the Safir acquisition.
 
On January 7, 2008, the Company repaid $450, consisting of $417 and $33 of principal and interest, respectively, and on January 6, 2009 the Company repaid $150, consisting of $141 and $9 of principal and interest, respectively, in full satisfaction of the notes payable issued in connection with the purchase of On Line Consulting.
 
On May 6, 2008, the Company repaid $275, consisting of $250 and $25 of principal and interest, respectively, in satisfaction of a note payable issued in connection with the purchase of Secure Source.
 
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.

 
F-31

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

12. Income Taxes

For the year ended December 31, 2009, we incurred losses before income taxes of $4,800, while recording a tax provision of $511, representing an effective tax rate of (11%). This tax provision primarily represented an increase in the net deferred tax liability caused principally by current income tax deductions related to amortization of goodwill over a 15 year life that have not been recognized for book purposes.  Goodwill is not amortized for book purposes and is not written down unless impaired, which has not been the case for the Company for the years 2009 and 2008.   As a result, the deferred tax liability will not reverse until such time, if any, that our goodwill becomes impaired or sold. As such, this deferred income tax liability, which is expected to continue to increase, will have an indefinite life, resulting in what is referred to as a “naked credit.”

For the year ended December 31, 2009, on account of the “naked credit” for the deferred tax liability relating to the basis difference in goodwill, this deferred tax liability is not considered in the determination of the valuation allowance due to the indefinite life of the goodwill intangible assets.   Accordingly, the remaining net deferred tax asset of approximately $19,617 at December 31, 2009 is subject to a  100% valuation allowance because it is currently more likely than not that the benefit of the net deferred tax asset will not be realized in future periods.

The valuation allowances related to the Company’s deferred tax asset increased by approximately $9, $3,054 and $10,693 for the years ended December 31, 2009, 2008 and 2007, respectively.

Significant components of the Company’s net deferred tax assets and liability at December 31, 2009 and 2008 is as follows:

 
 
2009
   
2008
 
Deferred tax assets:
               
Net operating loss carryforwards
  $ 7,358     $ 5,846  
Stock-based compensation
    3,127       3,865  
                 
Allowance for doubtful accounts
    550       995  
Intangible assets
    2,277       2,306  
Goodwill
    5,235       6,104  
Other accruals
    1,286       1,146  
Total gross deferred tax assets
    19,833       20,262  
Deferred tax liability:
               
Excess of book over tax basis of:
               
Property and equipment
    (216 )     (655 )
Goodwill
    (511 )      -  
Net deferred tax assets before valuation allowance
    19,106       19,607  
Less: valuation allowance
    (19,617 )     (19,607 )
Deferred tax assets, net
  $ (511 )   $ -  

As of December 31, 2009, the Company had approximately $19,100 and $17,200 of federal and state net operating losses (“NOL”), respectively, available for income tax purposes that may be carried forward to offset future taxable income, if any. The federal carryforwards expire in years 2022 through 2029. The Company conducted a change in ownership study in accordance with  Section 382 of the Internal Revenue Code (“IRC”) and determined that its ability to use approximately $13,900 of its federal and state NOL carryforwards generated prior to October, 2008 is subject to an annual limitation.

 
F-32

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)
 
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

 
 
As of December 31,
 
   
2009
   
2008
   
2007
 
Tax benefit at federal statutory rate
    (34.0 )%     (34.0 )%     (34.0 )%
State income taxes
    (5.0 )     (6.0 )     (6.0 )
Permanent differences:
                       
Stock-based compensation
    31.8       4.0       0.0  
Other
    3.2       0.5       1.7  
Adjustments of deferred tax assets:
                       
Stock-based compensation
    0.0       (9.0 )     0.0  
Net operating loss carry forwards
    5.1       6.1       0.0  
Tax rate change
    9.4       0.0       0.0  
Increase in valuation allowance
    0.2       38.4       38.3  
Effective income tax rate
    10.7 %     0.0 %     0.0 %
 
During the year ended December 31, 2008, the income tax status of certain share based payment awards was recharacterized as a result of issuing restricted stock units in exchange for certain incentive stock options, for which compensation expense was previously treated as a permanent difference because they would not be expected to generate a tax deduction for the Company.  Accordingly, the Company recorded an increase to its gross deferred tax assets at December 31, 2008 for the cumulative compensation expense associated with the incentive stock options which were exchanged, as well as a corresponding increase in the valuation allowance.  In addition, as a result of the vesting of restricted stock units and certain other share based payment awards during the year ended December 31, 2009, the ultimate tax deduction realized by the Company at the vesting date was substantially lower than the cumulative compensation expense recorded for financial reporting purposes, which is commonly referred to as a “shortfall”.  Accordingly, the effective tax rate reconciliation for the year ended December 31, 2009 includes the effect of derecognizing the gross deferred tax asset and the related valuation allowance associated with the book compensation expense of these vested awards and correspondingly, the set-up of the gross deferred tax asset and the corresponding valuation allowance associated with the final tax deduction .

In 2009, the Company re-evaluated its effective state tax rate  as a result of significant operations in new state jurisdictions and a reduction of operations in the previously filed state jurisdictions.
 
F-33

 

Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

13.  Commitments and Contingencies
 
Employment Agreements

The Company has entered into employment agreements with six of its key executives, expiring through January, 2012. The contractual agreements provide, among other things, for the payment of up to twenty-five months of contractual compensation to certain of these executives for termination under certain circumstances. Aggregate potential contractual compensation commitments related to these agreements were $1,883 at December 31, 2009.

At December 31, 2009, aggregate salaries related to these agreements amounted to $2,175.

The Company’s two top executives are eligible for a performance bonus payable 50% in cash and 50% in restricted common stock, pursuant to the Incentive Plan, which vests upon the achievement of goals agreed upon mutually between the executives and the Board’s compensation committee (the “Compensation Committee”). The executives have been awarded shares of restricted common stock under the Incentive Plan, which form a pool of eligible restricted common stock shares that will be earned (or vested) pursuant solely to the achievement of the performance goals agreed upon between the executives and the Compensation Committee (see Note 14).

Operating Leases

In connection with the Company’s acquisitions, GlobalOptions assumed the obligations for various office leases. Such lease obligations expire at various dates through August 2016.

On July 19, 2007, the Company entered into an agreement to lease 15,294 rentable square feet of office space in Washington, D.C., which replaces the Company’s expiring Washington D.C. office lease. The lease commenced on February 27, 2008 and expires on November 30, 2015. The Company has the option to extend the lease for an additional five years. Rent payments have been abated during the first six months of the lease.

On September 12, 2008, effective on August 1, 2008, the Company entered into an agreement to lease 8,204 of rentable square feet of office space in Carrollton, TX, to replace the Company’s prior Carrollton, TX office lease. The new lease effectively terminated the old lease without penalty. The new lease expires on May 31, 2014.

Future minimum lease payments under these operating leases are as follows:

For the Year Ending December 31,
 
Amount
 
                 2010
  $ 2,806  
                 2011
  $ 2,532  
                 2012
  $ 2,173  
                 2013
  $ 2,019  
                 2014
  $ 2,066  
            Thereafter
  $ 2,341  
                Total
  $ 13,937  

Rent expense charged to operations amounted to approximately $3,641, $3,745 and $3,103 for the years ended December 31, 2009, 2008 and 2007, respectively.

The terms of certain of the Company’s lease obligations provide for scheduled escalations in the monthly rent. Non-contingent rent increases are being amortized over the life of the leases on a straight line basis. Deferred rent of $782 and $824 represents the long-term unamortized rent adjustment amount at December 31, 2009 and 2008, respectively and is reflected in other long-term obligations in the accompanying consolidated balance sheets. In addition, the current portion of deferred rent was $70 and $41 at December 31, 2009 and 2008, respectively and is reflected within other current liabilities in the consolidated balance sheets.

Included in other current liabilities at December 31, 2009 and 2008, are obligations of $515 and $517, respectively, for restructuring costs, which include principally rent obligations for closed offices.

 
F-34

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

13. Commitments and Contingencies, continued

Advisory Agreements

On June 12, 2007, the Company entered into an agreement with Burnham Hill Partners (“BHP”) a division of Pale Capital, to provide certain financial advisory services.  In connection with this agreement, on July 26, 2007, the Company paid BHP a fee of $200, which was included in general and administrative expenses.

On August 17, 2007, the Company entered into a financial advisory agreement with BHP to provide general advisory services including, but not limited to, identifying strategic transactions and providing capital market advice.  The agreement commenced on September 1, 2007 and expired on December 31, 2007 and provided for compensation of $50 per month, which was included in general and administrative expenses.

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 prior to the Company’s acquisition of the assets of Facticon.

In the federal matter, Anchondo vs. Facticon Inc. and GlobalOptions Group, Inc. in the U.S. District Court for the Central District of California, Peter Anchondo (the “Federal Plaintiff”), in a class action, alleged that Facticon failed to pay overtime wages.  Subsequent to the acquisition of the assets of Facticon by the Company, the Company was added as a defendant in said case, under the successor liability theory. A Motion for Summary Judgment was filed with the Court to contest the Company’s liability as a successor liable company.  On March 7, 2008, the Court issued a ruling denying the Company’s Motion for Summary Judgment and issued a ruling granting a Motion for Summary Judgment in favor of the Federal Plaintiff ruling that the Company was in fact a successor party to the Federal Plaintiff’s actions.  This ruling by the Court was in opposition to the Court’s original ruling dated March 3, 2008, wherein it granted the Company’s Motion for Summary Judgment. The Company filed a Motion for Reconsideration and the Judge reversed his opinion but ruled that the issue of successor liability must be litigated.  In July 2008, the Company reached a tentative agreement with the Federal Plaintiff to settle this matter and on December 22, 2008, the 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. 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 May 12, 2009, the State Court matter was settled in full with a cash payment of $118.

Under the terms of an escrow agreement, as amended, by and between GlobalOptions and Facticon, 85,700 shares of common stock and a note payable of $100 were held in escrow to satisfy the above mentioned legal matters and other pre-acquisition obligations of Facticon.  In connection with the Company’s payment for these pre-acquisition obligations of Facticon, on December 22, 2008, the 85,700 shares of the Company’s common stock reverted back to the Company as treasury stock with a cost basis of $158 and the $100 note payable obligation to Facticon was canceled.

 
F-35

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

14.   Stockholders’ Equity

Description of Authorized Capital

The Company is authorized to issue up to 100,000,000 shares of common stock. The holders of the Company’s common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However, the current policy of the Board of Directors is to retain earnings, if any, for the operation and expansion of the business. Upon liquidation, dissolution or winding-up of the Company, the holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption or conversion rights.

The Company is authorized to issue 15,000,000 of preferred stock, of which 100,000 shares have been designated as Series D convertible preferred stock.   Shares previously issued for other classes of preferred stock, for which shares are no longer outstanding, have been canceled and returned to undesignated preferred stock that is available for future issuance..

Common Stock Issued

On January 1, 2007, the Company issued 3,471 shares of common stock with a value of $42 to various employees under the 2006 Long-Term Incentive Plan.

On February 1, 2007, the Company issued 39,706 shares of common stock in connection with the cashless exercise of 110,294 stock options.  On February 7, 2007 and February 21, 2007, the Company issued an aggregate of 88,236 shares of common stock in connection with the standard exercise of stock options resulting in total proceeds of approximately $48.

On February 21, 2007, the Company issued 3,125 shares of its common stock upon the conversion of 50 shares of Series A convertible preferred stock.   

 
F-36

 
GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

14.   Stockholders’ Equity, continued

 Common Stock Issued, continued

On September 25, 2007, pursuant to a stock purchase agreement dated March 1, 2007, the Company issued 850 shares of common stock to Verus International Group, of which John Oswald, one of our Directors, is Chief Executive Officer, valued at $15, 1,699 shares of common stock to Athorn, Clark and Partners, Inc. valued at $30 and 1,274 shares of common stock to Lippert/Heilshorn and Associates, Inc. valued at $23 in connection with services provided to the Company.
 
On January 30, 2008, the Company issued 300,000 shares of common stock to the JLWA Sellers including 225,000 shares of common stock, in full satisfaction of the $2,160 obligation to issue common stock. The remaining 75,000 shares were initially subject to the Clawback Provision, whereby Mr. Witt would be obligated to reimburse these shares to the Company upon his voluntary termination of employment without good reason.  The Company agreed to relinquish the clawback as of December 15, 2008, and the value for the shares of $720 was recorded as earnout expense and is included in selling and marketing expenses.
 
On February 15, 2008, the Company issued 21,843 shares of common stock, valued at $153 for services rendered during the year ended December 31, 2007, and 5,141 shares of common stock valued at $15 for services rendered during January and February 2008, to a group of the Company’s service providers including 1,567 shares of common stock valued at $15 to Verus International Group.
 
On May 29, 2008, the Company issued 40,064 shares of its common stock upon the conversion of 600.95 shares of Series D convertible preferred stock.   
 
On April 14, 2009, the Company issued 36,900 shares valued at $75 to Lippert/Heilshorn and Associates for services rendered during 2008, and 12,900 shares valued at $23 for services rendered during 2009.  On December 24, 2009 the Company issued 39,777 shares of its common stock valued at $67 to Lippert/Heilshorn and Associates, for services rendered during 2009.
 
On July 23, 2009, the Company issued 44 shares of its common stock in connection with the exercise of a stock option.
 
During the year ended December 31, 2009, the Company issued 3,692,552 shares of common stock upon the conversion of 55,388 shares of Series D convertible preferred stock.  No shares of Series D convertible preferred stock remain outstanding at December 31, 2009.
 
During the year ended December 31, 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 years ended December 31, 2009 and 2008, the Company issued 68,981 and 22,118 shares of its common stock respectfully under the Amended and Restated 2006 Employee Stock Purchase Plan (the “Stock Purchase Plan”).  The Company realized proceeds of $92 and $35 and recognized stock based compensation of $32 and $11, respectively in connection with the issuance of these shares.

 
F-37

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

14.   Stockholders’ Equity, continued

Equity Restructuring

On July 25, 2007, the Company completed an equity restructuring (the “Equity Restructuring”) in which holders of its Series A convertible preferred stock and Series B convertible preferred stock received, in consideration of the cancellation of those shares and all Series A, B-1 and B-2 warrants held by them, (1) one share of the Company’s newly created Series C convertible preferred stock for each share of Series A convertible preferred stock and Series B convertible preferred stock held by them and (2) 0.5 shares of common stock for each share into which the holder’s Series A convertible preferred stock and Series B convertible preferred stock was then convertible. In addition, holders of (a) the Company’s Series A warrants who did not also hold any shares of Series A convertible preferred stock and (b) the Company’s Series B warrants, Series C warrants and certain placement agent warrants received, in consideration of the cancellation of those warrants, 0.2 shares of common stock for each share subject to those warrants. Each share of Series C convertible preferred stock would automatically convert into 66.67 shares of common stock upon the consummation of a firm commitment underwritten public offering generating at least $20,000 in gross proceeds to the Company (a “Qualified Public Offering”). A limited number of holders whose receipt of common stock, whether in the Equity Restructuring or upon the conversion of the Series C convertible preferred stock, would cause them to beneficially own in excess of 4.99% of the Company’s outstanding common stock, would receive shares of the Company’s Series D convertible preferred stock upon the conversion of the Series C convertible preferred stock, in lieu of shares of common stock.

In summary, as a result of the Equity Restructuring, (i) 6,330 shares of Series A convertible preferred stock, (ii) 53,070 shares of Series B convertible preferred stock and (iii) warrants to purchase an aggregate of 2,913,041 shares of common stock were restructured into (x) 630,765 shares of common stock, (y) 59,400 shares of Series C convertible preferred stock and (z) 19,706.52 shares of Series D convertible preferred stock. On July 26, 2007, the Company filed certificates with the Secretary of the State of Delaware eliminating the Series A and B convertible preferred stock.
 
Upon the closing of the underwritten public offering on October 29, 2007, the then outstanding 59,400 shares of Series C convertible preferred stock were automatically converted into 1,541,167 shares of common stock and 36,282.8 shares of Series D convertible preferred stock. On November 8, 2007, the Company filed a certificate with the State of Delaware, eliminating the Series C convertible preferred stock.

Underwritten Public Offering

On October 29, 2007, the Company completed an underwritten public offering of 4,500,000 shares of its common stock receiving approximately $20,025 in gross proceeds and, resulting in $18,200 in net proceeds. The Company used a portion of the net proceeds from the underwritten public offering to repay certain indebtedness, including $4,300 of notes and $38 of related accrued interest, and is using the balance of the net proceeds for working capital, general corporate purposes, and strategic acquisitions.

In connection with this underwritten public offering, the Company entered into an October 29, 2007 agreement with Canaccord Adams Inc. and Morgan Keegan & Company, Inc., as underwriters, who were paid aggregate fees of $1,418. The underwriters for the offering had a 30-day over-allotment option to purchase up to an additional 675,000 shares of common stock from GlobalOptions at the offering price of $4.50 per share, which expired unexercised.
 
 
F-38

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation
 
On July 24, 2008, at the Company’s 2008 Annual Meeting of Stockholders (the “2008 Annual Meeting”), stockholders approved the Amended and Restated 2006 Long-Term Incentive Plan (the “Incentive Plan”), which became effective immediately following its approval and replaced the Company’s original 2006 Long-Term Incentive Plan.  The Incentive Plan provides for the issuance of up to 3,000,000 shares of the Company’s common stock, increased from 1,500,000 under the Company’s original 2006 Long-Term Incentive Plan. 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 December 31, 2009, 1,063,075 shares of common stock remain eligible to be issued under the Incentive Plan.
 
At the 2008 Annual Meeting, stockholders approved the Amended and Restated Employee Stock Purchase Plan (the “Stock Purchase Plan”), which became effective immediately following its approval and replaced the Company’s original 2006 Employee Stock Purchase Plan.  The Stock Purchase Plan permits eligible employees of the Company 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, increased from 250,000 under the Company’s original 2006 Employee Stock Purchase Plan.  The 2006 Employee Stock Purchase Plan was implemented during July 2008.
 
 On August 20, 2008, the Company filed a registration statement on Form S-8 under the Securities Act covering 1,750,000 shares reserved for issuance under the Stock Purchase Plan.
 
As of December 31, 2009, 1,908,901 shares of common stock remain unissued under the Stock Purchase Plan.
 
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 $2,566, $3,246 and $3,199 for the years ended December 31, 2009, 2008 and 2007, respectively.   For the years ended December 31, 2009, 2008 and 2007, respectively, stock based compensation for employees of $418, $222 and $0 were reflected in selling and marketing expenses, and $2,148, $3,024 and $3,199, 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 $265, $292, and $131 for the years ended December 31, 2009, 2008 and 2007, respectively.   For the years ended December 31, 2009, 2008 and 2007, respectively, stock based compensation for non-employees of $120, $0 and $0 were reflected in selling and marketing expenses, and $145, $292 and $131, respectively, were reflected in general and administrative expenses.

 
F-39

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15.  Stock Based Compensation, continued

Stock-Based Compensation, continued

The following table summarizes total stock based compensation costs for the years ended December 31, 2009, 2008 and 2007.
 
For the Year Ended December 30, 2009
 
                   
   
Advisors
and 
Consultants
   
Employees 
and
Directors
   
Total
 
Stock Options
  $ 96     $ 394     $ 490  
RSUs
    4       1,100       1,104  
Stock issued to consultants for services
    165               165  
Stock purchase plan
    -       31       31  
Vesting of restricted shares under performance based executive bonus award
    -       1,041       1,041  
Total
  $ 265     $ 2,566     $ 2,831  
                         
For the Year Ended December 30, 2008
 
   
   
Advisors
and
Consultants
   
Employees
and
Directors
   
Total
 
Stock Options
  $ 121     $ 1,650     $ 1,771  
RSUs
    4       526       530  
Stock issued to consultants for services
    167       -       167  
Stock purchase plan
    -       11       11  
Earnout (JLWA acquisition)
    720       -       720  
Vesting of restricted shares under performance based executive bonus award
    -       1,059       1,059  
Total
  $ 1,012     $ 3,246     $ 4,258  
                         
For the Year Ended December 30, 2007
 
                         
   
Advisors
and
Consultants
   
Employees
and
Directors
   
Total
 
Stock Options
  $ 64     $ 2,480     $ 2,544  
Stock issued to consultants for services
    67       -       67  
Bonus shares issued to employees
    -       42       42  
Vesting of restricted shares under performance based executive bonus award
    -       677       677  
Total
  $ 131     $ 3,199     $ 3,330  
 
 
F-40

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15.  Stock Based Compensation, continued

Stock Options

The fair value of each option grant during the years ended December 31, 2009, 2008 and 2007 was estimated on the date of grant using the Black-Scholes option pricing model.  The weighted average of the assumptions used to compute the grant date value of the options granted during the years ended December 31, 2009, 2008 and 2007 were as follows:
 
   
Years Ended December 31,
 
   
2009
   
2008
   
2007
 
Dividend yield
    0 %     0 %     0 %
Expected volatility
    104 %     87 %     87 %
Risk-free interest rate
    1.86 %     3.0 %     4.3 %
Expected lives
 
3.6 years
   
5 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 using the vesting term of 3 years and the contractual term of 5 years.  The simplified method defines 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 years ended December 31, 2009, 2008 and 2007 was $1.24, $1.80 and $6.05 per share, respectively.
 
Effective August 1, 2007, the Company terminated its consulting agreement and entered into an employment agreement with its Chief Financial Officer.  As of August 1, 2007, the unvested portion of the officer’s options was valued at $268, and is being amortized to stock based compensation expense over the remaining vesting periods due to his change in status from consultant to employee.  During the years ended December 31, 2008 and 2007, $71 and $72, respectively, was amortized to stock based compensation  in connection with these options.
 
During the years ended December 31, 2009, 2008 and 2007, the Company issued 100,000, 100,000 and 13,750 stock options respectively, to certain members of its advisory boards in exchange for their advisory services to the Company.  The options issued during each such year were valued at $128, $314 and $117, respectively. 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. The fair value of the options granted during the year ended December 31, 2009 was calculated using the Black-Scholes option pricing model with the following assumptions:  dividend yield of 0%, expected volatility of 104%, risk-free interest rate of 1.55% and an expected term of five years.  Options granted during the year ended December 31, 2008 were valued under the Black-Scholes pricing model with the following assumptions: dividend yield of 0%, expected volatility of 87%, risk-free interest rate of 3.45% and an expected term of three years. Options granted during the year ended December 31, 2007 were valued under the Black-Scholes pricing model with the following assumptions: dividend yield of 0%, expected volatility of 87%, risk-free interest rate of 4.7% and an expected term of five years.   For the years ended December 31, 2009, 2008 and 2007, $96, $122 and $85, respectively was amortized to stock based compensation related to these options.

 
F-41

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation, continued

Stock Options, continued

On January 1, 2007, the Company issued stock options for the purchase of 13,750 shares of its common stock at an exercise price of $12.00 per share, under the 2006 Long-Term 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 $117 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 4.70%.

On January 9, 2007, the Company granted, in the aggregate, options for the purchase of 26,423 shares of its common stock at an exercise price of $11.36 per share under the 2006 Long-Term Incentive Plan to employees and officers of On Line Consulting.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $212 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and risk free interest rate of 4.65%.

On February 28, 2007, the Company granted, in the aggregate, options for the purchase of 38,894 shares of its common stock at an exercise price of $10.80 per share under the 2006 Long-Term Incentive Plan to employees and officers of Facticon.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $296 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 4.52%.

On February 28, 2007, the Company granted, in the aggregate, options for the purchase of 62,504 shares of its common stock at an exercise price of $10.80 per share under the 2006 Long-Term Incentive Plan to employees and officers of Bode.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $476 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 4.52%.

On September 28, 2007, the Company granted, in the aggregate, options for the purchase of 300,000 shares of its common stock at an exercise price of $7.24 to the Chief Executive Officers of the Preparedness Services Unit, the Fraud and SIU Services Unit, and the Security Consulting and Investigations Unit.  The options were granted under the 2006 Long-Term Incentive plan.  The options have a five year term, and vest ratably upon the first second and third anniversaries of the date of grant and have a value of approximately $1,526 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 4.22%.

On January 1, 2008, the Company issued stock options for the purchase of 100,000 shares of its common stock at an exercise price of $4.50 per share, under the 2006 Long-Term 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 $314 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 3.45%.

On February 13, 2008, the Company granted, in the aggregate, options for the purchase of 295,000 shares of its common stock at an exercise price of $1.70 per share under the 2006 Long-Term Incentive Plan to certain employees and officers.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $347 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 2.71%.

 
F-42

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation, continued

Stock Options, continued

On March 5, 2008, the Company granted, in the aggregate, options for the purchase of 50,000 shares of its common stock at an exercise price of $1.86 per share under the 2006 Long-Term Incentive Plan to an executive of Bode.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $64 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 2.59%.

On May 7, 2008, the Company granted, in the aggregate, options for the purchase of 97,000 shares of its common stock at an exercise price of $2.23 per share under the 2006 Long-Term Incentive Plan to certain employees of Safir and FAIS.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $150 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 3.09%.

On May 28, 2008, the Company issued a tender offer to holders of outstanding stock options issued prior to January 1, 2008, deemed Eligible Options, to exchange their Eligible Options for Restricted Stock Units (“RSUs”) on a 3 for 1 basis.    As a result of this offer, on June 26, 2008, 1,105,188 stock options were accepted for exchange and cancellation, and the Company issued 368,475 RSUs.  (See “Restricted Stock Units”, below).

On July 24, 2008, the Company granted, in the aggregate, options for the purchase of 2,334 shares of its common stock at an exercise price of $2.33 per share under the Incentive Plan to certain employees of Facticon.   The options have a five year term and vest ratably upon the first, second and third anniversaries of the date of grant and have a value of approximately $4 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of five years, volatility of 87%, dividends of 0%, and a risk free interest rate of 3.37%.

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%.

At December 31, 2009, 2008, and 2007 the unamortized value of employee stock options outstanding under SFAS 123R was approximately $406, $353 and $4,671, respectively. The unamortized portion at December 31, 2009 will be expensed over a weighted average period of 1.0 years. For the years ended December 31, 2009, 2008 and 2007 costs of approximately $394, $1,650, and $2,480, respectively, were recognized in connection with the vesting of these employee stock options.

 
F-43

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation, continued

Stock Options, continued

A summary of the status of the Company’s stock option plans and the changes during the years ended December 31, 2009 2008 and 2007, respectively, is presented in the table below:

   
Number of
Options
   
Weighted
Average
Exercise
Price
 
Weighted
Average
remaining
contractual
life
 
Intrinsic
Value
 
Options outstanding at January 1, 2007
    1,028,793                
Granted
    460,321                
Exercised
    (198,530 )              
Forfeited
    (98,919 )              
Options outstanding at December 31, 2007
    1,191,665     $ 13.72          
Granted
    619,334                  
Forfeited
    (71,124 )                
Canceled/Exchanged
    (1,105,188 )                
Options outstanding at December 31, 2008
    634,687     $ 3.62          
Granted
    442,500     $ 1.81          
Exercised
    (44 )   $ 1.70          
 Forfeited
    (109,362 )   $ 2.64          
Options outstanding at December 31, 2009
    967,781     $ 2.57  
3.5 years
  $ -  
                           
Exercisable, December 31, 2009
    475,919     $ 3.27  
3.4 years
  $ -  
Options vested during the year ended December 31, 2009
    326,572     $ 2.14            

Restricted Stock Units (“RSUs”)

 On May 28, 2008, the Company issued an offer to holders of outstanding stock options issued prior to January 1, 2008 (“Eligible Options”), to exchange their Eligible Options for RSUs on a 3 for 1 basis.  Each RSU represents one share of the Company’s common stock to be issued in the future, based on certain vesting requirements.  The offer expired on June 25, 2008. As result of this offer, as of June 26, 2008, 1,105,188 stock options were accepted for exchange and cancellation, and the Company issued 368,475 RSUs with a grant date fair value of $2.12 per share to participants in the offer.  The grant date fair value of the restricted stock units was determined by using the closing price of the Company’s common stock on the day immediately preceding the grant date.

All of the Company’s executive officers and directors participated in the exchange offer, as a group accounting for approximately 78% of the stock options exchanged and cancelled and RSUs issued in the offer.

The excess of the aggregate grant date fair value of the RSUs of $781 over the fair value of the stock options canceled of $672, was added to the unamortized value of the options canceled on May 28, 2008, which amounted to $2,863 and is being amortized over the vesting period of the RSUs.

 
F-44

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation, continued

Restricted Stock Units (“RSUs”), continued

RSUs held by executive officers and directors vest ratably on each of the first, second and third anniversaries of the grant date.  RSUs held by all other employees and consultants vest ratably on the first and second anniversaries of the grant date.

At December 31, 2009, the unamortized value of RSUs held by employees was approximately $1,236. The unamortized portion will be expensed over a weighted average period of 1.3 years.  For the year ended December 31, 2009, a cost of $1,100 was recognized in connection with the vesting of these employee RSUs.

A summary of the activity related to RSUs for the year ended December 31, 2009 is presented below:
 
   
Total
   
Weighted
Average Grant
Date Fair Value
 
Nonvested at January 1, 2008
    -       -  
RSUs issued upon cancellation of options tendered, June 26, 2008
    368,475     $ 2.12  
RSUs vested
    -          
RSUs forfeited
    (2,388 )        
Nonvested at December 31, 2008
    366,087          
RSUs vested
    (134,274 )        
RSUs forfeited
    (2,994 )        
Nonvested at December 31, 2009
    228,819     $ 2.12  

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 years ended December 31, 2009 and 2008, 68,981 and 22,118 shares respectively, were issued under the Stock Purchase Plan, resulting in total proceeds of $93 and $34 respectively. Stock based compensation recognized in connection with the issuance of these shares was $31 and $11 for the years ended December 31, 2009 and 2008 respectively.

 
F-45

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

15. Stock Based Compensation, continued

Restricted Stock Issued Under Performance Based Executive Bonus Plan
 
On December 19, 2006, the Company awarded 175,000 shares of restricted stock to two senior officers under the terms of the renewal of their respective employment and consulting agreements.  On December 13, 2007, the Compensation Committee determined that 10,939 shares would vest, effective January 1, 2008.
 
On July 24, 2008 the Company awarded 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.
 
On December 12, 2007, the Compensation Committee determined that, effective January 1, 2008, 6,250 shares and 4,687 shares of restricted stock held by its Chief Executive Officer and Chief Financial Officer, respectively, were no longer subject to forfeiture. The Chief Executive Office, and Chief Financial Officer elected to have the Company withhold 2,278 and 1,585 shares, respectively, in satisfaction of their tax obligations in connection with the vesting of their restricted stock. Such withheld shares valued at $10 and $7, respectively, are reflected as treasury shares in the Company’s books and records.
 
Effective August 19, 2008, an additional 25,000 and 18,500 shares of restricted stock held by the Chief Executive Officer and Chief Financial Officer respectively, were no longer subject to forfeiture.  The Chief Executive Office and Chief Financial Officer elected to have the Company withhold 9,451 and 6,253 shares, respectively, in satisfaction of their tax obligations in connection with the August 19, 2008 vesting of their restricted stock.  Such withheld shares valued at $20 and $13, respectively are reflected as treasury shares in the Company’s books and records.
 
On December 14, 2009, the Compensation Committee determined that an additional 50,000 shares and 37,500 shares of restricted stock held by its Chief Executive Officer and Chief Financial Officer, respectively, were no longer subject to forfeiture.  As of December 31, 2009, an aggregate 470,563 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.
 
During the year ended December 31, 2008, in connection with expected performance under a bonus program for senior executives, stock-based compensation of approximately $1,059 was recognized for the estimated pro rata vesting of restricted stock.  Of this amount, $899 is associated with the amortization over the derived service period of the $1,303 grant date value of a restricted stock award that is based on the achievement of certain common stock market price milestones.   The remaining amount of $160 is associated with the amortization over the service period of the probable outcome at each reporting date of a restricted stock award that is based on the achievement of certain performance criteria.
 
During the year ended December 31, 2009, in connection with expected performance under a bonus program for senior executives, stock-based compensation of approximately $1,041 was recognized for the estimated pro rata vesting of restricted stock.  Of this amount, $946 is associated with the amortization over the derived service period of the $975 grant date value of a restricted stock award that is based on the achievement of certain common stock market price milestones.   The remaining amount of $95 is associated with the amortization over the service period of the probable outcome at each reporting date of a restricted stock award that is based on the achievement of certain performance criteria.

 
F-46

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

16.   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 are 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.

The Company’s reportable segments have changed from the prior year, to accommodate the acquisitions that were consummated.

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 years ended December 31, 2009, 2008 and 2007.  The Company’s segment information for the year ended December 31, 2009 is presented on a basis different than for the years ended December 31, 2008 and 2007.

For the Year Ended December 31, 2009
 
   
   
Preparedness
Services
   
Fraud & SIU
Services
   
Security
Consulting & Investigations
   
Corporate
   
Consolidated
 
                                         
Revenues
  $  39,003     $      29,593     $    33,534     $  -     $ 102,130  
                                         
Income (loss) from Operations
  $  3,585     $ (6,030 )   $ (1,815 )   $ -     $ (4,260 )
                                         
Identifiable Assets
  $ 10,492     $ 17,916     $ 30,406     $ -     $ 58,814  
                                         
Depreciation and Amortization
  $ 438     $ 1,130     $ 1,784     $  -     $ 3,352  
                                         
Interest Expense
  $ -     $  -     $     -     $ 552     $   552  
                                         
Income Tax Expense
  $ -     $  -     $     -     $ 511     $   511  
                                         
Capital Expenditures
  $ 102     $ 2,023     $ 740     $ -     $ 2,865  
 
 
F-47

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

16.   Client and Segment Data, continued

For the Year Ended December 31, 2008
 
   
   
Preparedness
Services
   
Fraud & SIU
Services
   
Security
Consulting & Investigations
   
Corporate
   
Consolidated
 
                                         
Revenues
  $ 39,117     $ 31,388     $ 33,682     $  -     $   104,187  
                                         
Income (Loss) from Operations
  $ 1,712     $ ( 4,488 )   $   ( 4,828 )   $ -     $ ( 7,604 )
                                         
Identifiable Assets
  $ 17,331     $ 18,967     $ 32,183     $ -     $ 68,481  
                                         
Depreciation and Amortization
  $ 1,267     $ 1,379     $ 1,720     $  -     $ 4,366  
                                         
Interest Expense
  $ -     $ -     $  -     $ 379     $ 379  
                                         
Capital Expenditures
  $ 144     $ 662     $ 876     $ -     $ 1,682  

For the Year Ended December 31, 2007
 
   
   
Preparedness
Services
   
Fraud & SIU 
Services
   
Security
 Consulting & Investigations
   
Corporate
   
Consolidated
 
                                         
Revenues
  $ 30,823     $ 24,493     $ 31,815     $  -     $   87,131  
                                         
Loss from Operations
  $ (8,057 )   $ (11,543 )   $   ( 7,111 )   $ -     $ (26,711 )
                                         
Identifiable Assets
  $ 13,882     $ 17,250     $ 34,811     $ -     $ 65,943  
                                         
Depreciation and Amortization
  $ 1,244     $ 1,313     $ 1,360     $  -     $ 3,917  
                                         
Interest Expense
  $ -     $ -     $  -     $ 814     $ 814  
                                         
Other Income
  $ 100     $ -     $ -     $ -     $ 100  
                                         
Prepayment Premium
  $ 800     $ -     $ -     $ -     $ 800  
                                         
Capital Expenditures
  $ 8     $ 1,055     $ 1,377     $ -     $ 2,440  
 
 
F-48

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

17.  Major Clients
 
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, accounted for approximately 24% of the Company’s revenues for the year ended December 31, 2009, and represented work performed under government contracts.  For the year ended December 31, 2008, the Company’s largest client, which is within the Preparedness Services segment, accounted for approximately 26% of the Company’s revenues and represented work performed under government contracts.  For the year ended December 31, 2007, the Company’s largest client, which is with the Preparedness Services segment  and represented work performed under government contracts, accounted for 29% of the Company’s revenues, and the Company’s second largest client, which was within the Fraud and SIU services segment accounted for approximately 11% of the Company’s revenues.

For the years ended December 31, 2009, 2008 and 2007, government contracts represented 53%, 49% and 48% of the Company’s net revenues, respectively, the most significant of which, in 2009, 2008 and 2007, represented 63%, 68% and 83%,  respectively, of the Company’s net revenues within the Preparedness Services segment.

As of December 31, 2009 and 2008, accounts receivable from a significant single customer was $5,362 and $10,151, respectively.

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. 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.

18.  Related Party Transactions
 
Issuances to Verus International Group, Ltd.
 
On September 25, 2007, pursuant to a stock purchase agreement dated March 1, 2007 by and between the Company and Verus Support Services, Inc., Verus International Group, Ltd. received 850 shares of common stock in consideration of services performed from July 2006 through September 2006.
 
On February 25, 2008, pursuant to a stock purchase agreement dated February 1, 2008 by and between the Company and Versus Support Services, Inc., Verus International Group, Ltd. received 1,567 shares of common stock in consideration of services performed from April 2007 through June 2007.
 
19.  Defined Contribution Plan

The Company has a 401(k) profit sharing plan (the “401(k) Plan”), covering employees who have completed three months of service and meet certain other eligibility requirements. The 401(k) Plan provides for a discretionary matching contribution by the Company, based on employee elective deferrals, determined each payroll period. The 401(k) Plan also provides for an employer discretionary profit sharing contribution. Employees vest at a rate of 25% per year in discretionary employer contributions. The 401(k) Plan expense amounted to approximately $788, $776 and $290 for the years ended December 31, 2009, 2008 and 2007, respectively.


 
F-49

 

GLOBALOPTIONS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands except share and per share amounts)

20.  Subsequent Events

On January 1, 2010, the Company granted, in the aggregate, options for the purchase of 75,000 shares of its common stock at an exercise price of $1.65 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 $80 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of three years, volatility of 103.2%, dividends of 0%, and a risk free interest rate of 2.69%.

On January 1, 2010, the Company granted, in the aggregate, options for the purchase of 100,000 shares of its common stock at an exercise price of $1.65 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 $106 utilizing the Black-Scholes option pricing model with the following assumptions used: expected life of three years, volatility of 103.2%, dividends of 0%, and a risk free interest rate of 2.69%.
 
During January and February of 2010, the Company issued 8,785 shares of its common stock under the Stock Purchase Plan.  The Company realized proceeds of $11 and recognized stock based compensation of $5 in connection with the issuance of these shares.
 
On March 8, 2010, the United States Postal Service Office of Inspector General (“USPS”) executed a Delivery Order ordering up to approximately $1.839 million of Workers Compensation Analyst Program Management Services for the period commencing on March 3, 2010 and ending on September 25, 2010, which the Company will provide through its FSIU unit.
 
On March 9, 2010, effective as of April 1, 2010, the Company entered into consulting agreements with each of Howard Safir, the Chief Executive Officer of our Security Consulting and Investigations unit and Adam Safir, Howard Safir’s son and an officer of the Company’s Security Consulting and Investigations unit.  Pursuant to the terms of their respective consulting agreements, as of April 1, 2010 Messrs. Safir and Safir will no longer be employees of the Company, but will provide consulting services to the Security Consulting and Investigations business unit, including assistance in the Company’s exploration of strategic alternatives and certain marketing assistance.  The terms of the consulting agreements are 12 months, provided, however, that the Company may terminate each of the consulting agreements after three months and/or each month thereafter.  Messrs. Howard Safir and Adam Safir shall receive, $30,000 per month and $20,000 per month respectively for their consulting services.  In addition, if the Company sells its Security Consulting and Investigations unit or any assets thereof, each of Messrs. Howard Safir and Adam Safir shall receive up to $600,000 and $300,000, respectively, based upon the sales price received for the business or such assets.  Also included in the consulting agreements are 12 month non-solicitation and non-servicing provisions.
 
F-50

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

None.

Item  9A (T). 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 timely decisions regarding required disclosure. Disclosure controls and procedures include many aspects of internal control over financial reporting.
 
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at December 31, 2009.
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including those policies and procedures that:
 
 
·
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
 
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 
 
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
 
It should be noted, however, that because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements.  In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In connection with the preparation of this Annual Report on Form 10-K for the year ended December 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 and internal controls over financial reporting, pursuant to Rule 13a-15 under the Exchange Act, based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was effective as of December 31, 2009.
 
This Annual Report on Form 10-K does not include an attestation report of Marcum LLP, our independent registered public accounting firm, regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this Annual Report on Form 10-K.
 
 
29

 
 
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 fourth quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

The Company held its Annual Meeting on December 14, 2009. A quorum was present at the Annual Meeting, with 9,507,940 outstanding shares of the Company’s common stock entitled to vote represented in person or by proxy.
 
At the Annual Meeting, the Company’s stockholders re-elected each of our incumbent directors, to serve until our 2010 annual meeting of stockholders and until their successors are duly elected and qualify, by the following votes:
 
   
Shares For
   
Shares Withheld
 
             
Harvey W. Schiller, Ph.D.
    9,476,999       30,941  
                 
Per-Olof Lööf
    9,497,207       10,733  
                 
John P. Oswald
    9,499,161       10,733  
                 
Ronald M. Starr
    9,499,161       10,733  
                 
John P. Bujouves
    9,499,161       10,733  
 
The Company’s stockholders voted to ratify the appointment of Marcum LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009, by the following votes:
 
   
Shares
 
       
For:
                 9,507,561  
         
Against:
    0  
         
Abstain:
    379  

 
30

 

PART III

Item 10.   Directors, Executive Officers and Corporate Governance.

The following table sets forth information regarding the members of our Board of Directors and our executive officers. Harvey W. Schiller, Ph.D., Per-Olof Lööf, and Ronald M. Starr became directors and officers on June 24, 2005. John P. Bujouves was subsequently appointed to the Board of Directors on June 27, 2005 and John P. Oswald on January 28, 2008.  All directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Officers are elected annually by the Board of Directors and serve at the discretion of the Board.

Name
 
Age
 
Position
         
Executive Officers and Directors
       
Harvey W. Schiller, Ph.D.
 
70
 
Chairman of the Board of Directors and Chief Executive Officer
         
Jeffrey O. Nyweide
 
54
 
Chief Financial Officer, Executive Vice President-Corporate Development, Treasurer and Secretary
         
Thomas P. Ondeck
 
63
 
President, International Strategies Unit
         
Halsey Fischer
 
61
 
Chief Executive Officer, Fraud and SIU Services Unit
         
James Lee Witt
 
66
 
Chief Executive Officer, Preparedness Services Unit
         
Howard Safir
 
68
 
Chief Executive Officer, Security Consulting and Investigations Unit
         
Per-Olof Lööf
 
59
 
Vice Chairman of the Board of Directors
         
John P. Oswald
 
50
 
Director and Chairman of the Compensation and the Nominating Committees
         
Ronald M. Starr
 
40
 
Director and Chairman of the Audit Committee
         
John P. Bujouves
 
47
 
Director

We believe that the collective skills, experiences and qualifications of our directors provides our Board with the expertise and experience necessary to advance the interests of our stockholders.  While the Nominating Committee of our Board has not established any specific, minimum qualifications that must be met by each of our directors, it uses a variety of criteria to evaluate the qualifications and skills necessary for each member of the Board.  In addition to the individual attributes of each of our current directors described below, we believe that having the highest professional and personal ethics and values, consistent with our longstanding values and standards is an important characteristic for our directors.  They should have broad experience at the policy-making level in business, exhibit commitment to enhancing shareholder value and have sufficient time to carry out their duties and to provide insight and practical wisdom based on their past experience.

The business experience for the past five years (and, in some instances, for prior years) of each of our directors, officers and key employees are as follows:

 
31

 

Harvey W. Schiller, Ph.D. has been our Chairman of the Board and Chief Executive Officer since June 2005.  Dr. Schiller had been Chairman of the Board of privately-held GlobalOptions, Inc. since February 2004.  Dr. Schiller oversees our administrative headquarters with a focus on our strategy and new business development and effective April 1, 2010, Dr. Schiller, along with Jeffrey O. Nyweide will also assume day-to-day control of our Security Consulting and Investigations unit.  From 2007 to 2008, Dr. Schiller served as a director of Dirt Motor Sports, Inc. (currently known as World Racing Group, Inc.).  Prior to joining GlobalOptions, Dr. Schiller served as Chairman of Assante U.S., a provider of financial and life management products and services, from 2002 to 2004.  Prior to joining Assante, he was Chairman and Chief Executive Officer of YankeeNets from 1999 to 2002.  His previous experience includes President of Turner Sports, Inc., Executive Director and Secretary General of the United States Olympic Committee and Commissioner of the Southeastern Conference.  Prior to joining the United States Olympic Committee, Dr. Schiller served for more than 25 years in the United States Air Force, achieving the rank of Brigadier General.  Dr. Schiller is a former partner in QuanStar Group, a management consulting firm in New York, and a former advisory partner of Millennium Technology Value Partners, L.P.  Dr. Schiller brings to the Board extensive leadership experience having held senior positions in several high-profile organizations.  From his military career and as an executive of numerous entities, Dr. Schiller brings to the Board strong leadership and organizational skills and a deep commitment to integrity and excellence.
 
Jeffrey O. Nyweide has been our Chief Financial Officer, Executive Vice President-Corporate Development, Treasurer and Secretary since June 2005 effective April 1, 2010, Mr. Nyweide, along with Dr. Schiller will also assume day-to-day control of our Security Consulting and Investigations unit.  Mr. Nyweide had been Chief Financial Officer and Executive Vice President-Corporate Development of privately-held GlobalOptions, Inc. since April 2003.  Mr. Nyweide has been a successful entrepreneur and executive for the past 20 years.  Mr. Nyweide has been a Venture Partner with Millennium Technology Ventures, L.P., a New York-based venture capital firm, since 2001.  From 1987 to 2000, he co-founded and then grew Dataware Technologies, Inc., a software and services company, as Director, President and Chief Operating Officer, and took the company public.  In 1995, he helped found Northern Light Technology LLC.  Mr. Nyweide has significant experience in mergers and acquisitions, finance and operations, as well as with establishing international business in Europe and Asia from prior experience as a founder and managing director of Quantum Management in Greenwich, Connecticut and Munich, Germany.  In this role he worked with European and United States investment banks and corporations developing merger and acquisition strategies as well as strategic alliances.  His previous experience in the services and solutions business also includes sales, marketing and operating experience as an executive with The Service Bureau Company, a subsidiary of Control Data Corporation, in Chicago, Atlanta and Greenwich.
 
Thomas P. Ondeck became President of our International Strategies unit upon its inception in June 2006.  Mr. Ondeck had been President of privately-held GlobalOptions, Inc. since January 1999.  Mr. Ondeck has dealt with national and international crises, including assisting companies besieged by activist and hate groups, plaintiffs’ product liability litigation campaigns, the financial impact of violence in Southeast Asia, threats against multinational businesses by organized criminal elements in the former Soviet Union, extortive litigation involving misuse of the United States civil RICO statute by business competitors and asset looting in Latin America.  Mr. Ondeck also heads our investigations and business intelligence practice areas.  He supervises our litigation support investigations for law firms.  Mr. Ondeck also spearheads our investigative services for corporations, including due diligence investigations in connection with corporate acquisitions and internal corporate investigations into potential theft of assets, identity misrepresentation and fraud.  Mr. Ondeck was previously a litigation partner in two international law firms and served in the White House as an aide to former President Richard M. Nixon.
 
Halsey Fischer became the Chief Executive Officer of our Fraud and SIU Services unit upon our acquisition of Confidential Business Resources (“CBR”) in August 2005.  Mr. Fischer oversees our national investigations practice.  Mr. Fischer served as the President and Chief Executive Officer of CBR from its founding in 1998 until its acquisition.  During his tenure at CBR, Mr. Fischer built an investigations firm with eight offices in the United States through acquisitions and organic growth.  Under Mr. Fischer’s leadership, CBR developed a state-of-the-art Internet case management system for use by remote offices and its clients.  Prior to forming CBR, Mr. Fischer was Senior Vice President, U.S. Investigations for Pinkerton Consulting & Investigations, Inc., since acquired by Securitas AB, and was responsible for each of its 28 profit centers across the United States.  Prior to Pinkerton, Mr. Fischer was Group President of Security Consulting and Investigations for Business Risks International, the predecessor to Pinkerton’s investigations unit.

 
32

 

James Lee Witt became the Chief Executive Officer of our Preparedness Services unit upon our acquisition of James Lee Witt Associates, LLC (“JLWA”) in March 2006.  As the President and Chief Executive Officer of JLWA from 2002 until its acquisition in March 2006, Mr. Witt provided consulting and crisis management services to state and local governments, educational institutions, the international community and corporations.  From 2003 to 2006, Mr. Witt was the Chief Executive Officer of the International Code Council, a 50,000 member association dedicated to building safety that develops the codes used to construct residential and commercial buildings, including homes and schools.  Mr. Witt has over 25 years of disaster management experience, culminating in his appointment as the Director of FEMA, where he served from 1993 to 2001.  Mr. Witt was appointed by President Clinton and confirmed by the U.S. Senate as Director of FEMA in April 1993.  In February 1996, President Clinton elevated Mr. Witt to cabinet status, a first for a FEMA Director.  As FEMA Director, Mr. Witt coordinated federal disaster relief on behalf of President Clinton, including the response and recovery activities of 28 federal agencies and departments, the American Red Cross and other voluntary agencies.  He also oversaw the National Flood Insurance Program, the U.S. Fire Administration and other pro-active mitigation activities to reduce loss of life and property from all types of hazards.  Mr. Witt directed 2,500 employees located in Washington, D.C. and 10 regional offices.  Mr. Witt’s professional career includes the formation of Witt Construction, a commercial and residential construction company.  After 12 years as a successful businessman and community leader, he was elected County Judge for Yell County, serving as the chief elected official for the county, with judicial responsibilities for county and juvenile court.  At age 34, he was the youngest elected official in Arkansas, and was later honored for his accomplishments by the National Association of Counties.  After being re-elected six times to the position, Mr. Witt was appointed by then Governor Bill Clinton to assume leadership of the Arkansas Office of Emergency Services (“OES”).  He served as the Director of the Arkansas OES for four years.
 
Howard Safir became the Chief Executive Officer of our Security Consulting and Investigations unit upon our acquisition of Safir Rosetti, LLC (“Safir”) in May 2006.  Pursuant to the terms of a consulting agreement with us, effective April 1, 2010, Mr. Safir will no longer be Chief Executive Officer of our Security Consulting and Investigations unit, but will provide consulting services to such unit.  Mr. Safir served as Chairman and Chief Executive Officer of Safir from December 2001 until its acquisition.  Prior to that time, Mr. Safir was Vice Chairman of IPSA International, a provider of investigative and security consulting services.  From 1996 to 2000, Mr. Safir served as Police Commissioner of New York City.  From 1994 to 1996, Mr. Safir served as New York City’s Fire Commissioner.  Mr. Safir began his law enforcement career in 1965 as a special agent assigned to the New York office of the Federal Bureau of Narcotics, a forerunner of the Drug Enforcement Administration (the “DEA”).  From 1977 to 1978, Mr. Safir served as Assistant Director of the DEA.  From 1978 to 1990, Mr. Safir worked for the United States Marshals Service where he served as Director of the Witness Protection Program and Assistant Director for operations.  Mr. Safir is currently Chairman of the Board of Directors of GVI Security Solutions, a provider of video surveillance and security solutions products, and National Security Solutions Inc., a blank check company organized for the purpose of effecting a business combination, including with entities involved in the security and homeland defense industries.  Mr. Safir also serves as a Director of Verint Systems, Inc., a provider of intelligence solutions for enterprise workforce optimization and security intelligence, as a Director of Implant Sciences Corporation, a developer of sophisticated sensors and systems for the security, safety and defense industries, and as Chief Executive Officer of the November Group, through which he provides, to a limited extent, technical and management consulting services to various companies, including ChoicePoint Inc., which provides investigative, consulting and other services which are similar to services the Company provides.
 
Per-Olof Lööf has been our Vice Chairman of the Board since June 2005.  Mr. Lööf had been Vice Chairman of the Board of privately-held GlobalOptions, Inc. since August 2004.  Mr. Lööf has been the Chief Executive Officer and a director of Kemet Corporation, a global manufacturer of electronic components/capacitors supplier, since April 2005, and a director of Devcon International Corp., a company with operating divisions in security services, materials and construction, from 2004 to 2009.  .  Prior to joining Kemet, Mr. Lööf was Managing Partner of QuanStar Group from 2003 to 2004.  Mr. Lööf has significant experience in acquisition integration efforts through past positions at Sensormatic Electronics Corporation, a manufacturer and provider of electronic article surveillance systems and accessories, where he was President and Chief Executive Officer from 1999 until its acquisition by Tyco International, Ltd. in 2002.  Prior to Sensormatic, Mr. Lööf was Senior Vice President at NCR Corporation and Chief Executive Officer of AT&T ISTEL.  Mr. Loof also worked for 12 years at Digital Equipment Corporation as Vice President of Sales and Marketing.  From his experience in serving in the role of Chief Executive Officer for multiple companies, Mr. Lööf possesses significant senior management experience.  The Board believes Mr. Lööf’s experience assists us in integrating entities acquired by us.

 
33

 

John P. Oswald has been a director since January 2008 and has been appointed Chairman of the Compensation Committee and the Nominating Committee.  Mr. Oswald has been the President and Chief Executive Officer of the Capital Trust Group, an international merchant/investment bank with offices in London, New York, Washington, D.C. and Beirut, since 1993.  Mr. Oswald is responsible for the U.S. operations of Capital Trust Group and its worldwide investment banking operations.  His responsibilities have included managing a number of private equity funds, both in U.S. and European markets, which have focused on mezzanine and equity investments ranging from approximately $10 million to $100 million in middle market, private and public companies with revenues from $20 billion to $1 billion.  Since 1993, Mr. Oswald has also managed an extensive portfolio of U.S. real estate comprised of office/retail space primarily in suburban areas in the U.S. and Europe.  The investment banking/advisory function of Capital Trust Group includes advising clients with respect to mergers and acquisitions, financings and dispositions of holdings in the oil and gas, real estate, entertainment, education, construction, media and communications areas.  Mr. Oswald has also been responsible for completing numerous public debt offerings and public issuances of stock for the Capital Trust Group’s portfolio companies and clients.  Since December 1, 2006 Mr. Oswald has also been the President and Chief Executive Officer of Verus International Group, Ltd., an international merchant bank with offices in New York and Barbados.  From 1996 to 2005, Mr. Oswald served as a director of Kirkland’s Inc.  From 1986 to 1996, Mr. Oswald was a partner in the international law firm of Lord Day & Lord.  He began his career as an accountant at Arthur Andersen & Co. and he is a certified public accountant.  Mr. Oswald serves as a director for Preem Holdings AB, the largest downstream refining operation in Europe, Samir, the third largest public company and the only downstream oil refinery in Morocco, and numerous privately held companies. The Board also believes that Mr. Oswald has valuable international business experience and through his service on the boards of several companies, offers in-depth knowledge of numerous industries that is important to us as we evaluate business and growth opportunities.
 
Ronald M. Starr has been a director since June 2005.  Mr. Starr had been a director of privately-held GlobalOptions, Inc. since November 1998.  Since 1996, Mr. Starr has been a Managing Director at Starr & Company, LLC, an accounting and business management firm for high net worth individuals.  Mr. Starr was a member of the General Partner of Millennium Technology Ventures, L.P. from 1999 to 2001 and has been the Chief Financial Officer and General Counsel of the venture capital funds PS Capital Holdings, L.P. and PS Capital Ventures, L.P., where his duties have included negotiating and structuring the funds’ venture capital investments, since 1996 and 1997, respectively.  Prior to working at Millennium Technology Ventures, PS Capital and Starr & Company, Mr. Starr was an attorney in the tax department at Proskauer Rose LLP, a New York City law firm.  The Board believes that, as an attorney, and as an executive in the venture capital industry, Mr. Starr has broad experience advising and assisting in the growth of small and mid-size companies.
 
John P. Bujouves has been a director since June 2005.  Mr. Bujouves has been the President and a director of Bayshore Asset Management Inc., a provider of asset management services, since 2003, and the Chief Executive Officer of Integris Funds Ltd., a Cayman Islands based mutual fund company, since 1999.  Mr. Bujouves serves as Chairman of Globacor Capital Inc., a Canadian private equity investment firm, and J&T Bank and Trust, Inc. (formerly known as Bayshore Bank & Trust Corp.), Bayshore Bank & Trust Corp., one of Barbados’ largest private banks.  Mr. Bujouves is also a director of Safe Storage Depot, a real-estate development company, Numeric Answers Inc., a corporate accounting firm, DLK on Avenue, a cosmetic medical clinic, and the Ontario Arthritis Society.  Mr. Bujouves’s former experience includes directing CIBC’s International Private Banking group in Canada.  Prior to that, as Managing Partner for Royal Trust International, Mr. Bujouves worked globally and launched Royal Trust Corporation’s first two international offices located in the United States.  The Board believes that Mr. Bujouves provides extensive business knowledge through significant experience in banking and offers a broad wealth of experience through his service as a member of the board of directors of numerous entities.
 
Family Relationships
 
There are no family relationships among our executive officers and directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in the ownership of our common stock and other equity securities of ours.  Such persons are required to furnish us copies of all Section 16(a) filings.

 
34

 

Based solely upon a review of the copies of the forms furnished to us, we believe that our officers and directors complied with all applicable filing requirements during the 2009 fiscal year except as set forth below:
 
On January 30, 2009, Mr. Boujoves filed a Statement of Changes in Beneficial Ownership of Securities covering one transaction that occurred on January 1, 2009.
 
On February 2, 2009, Mr. Loof filed a Statement of Changes in Beneficial Ownership of Securities covering one transaction that occurred on January 1, 2009.
 
On February 2, 2009, Mr. Oswald filed a Statement of Changes in Beneficial Ownership of Securities covering one transaction that occurred on January 1, 2009.
 
On February 27, 2009, Vicis Capital, LLC filed an Initial Statement of Beneficial Ownership of Securities on Form 3 covering its becoming a 10% beneficial owner on December 19, 2008.
 
Board Committees
 
 Our Board of Directors has three standing committees to assist it with its responsibilities. These committees are described below.

The Audit Committee, which is comprised solely of directors who satisfy the SEC audit committee membership requirements, is governed by a Board-approved charter that contains, among other things, the committee’s membership requirements and responsibilities. The Audit Committee oversees our accounting, financial reporting process, internal controls and audits, and consults with management and the independent registered public accounting firm (the “Independent Auditors”) on, among other items, matters related to the annual audit, the published financial statements and the accounting principles applied. As part of its duties, the Audit Committee appoints, evaluates and retains our Independent Auditors. It maintains direct responsibility for the compensation, termination and oversight of our Independent Auditors and evaluates the Independent Auditors’ qualifications, performance and independence. The committee also monitors compliance with our policies on ethical business practices and reports on these items to the Board. The Audit Committee has established policies and procedures for the pre-approval of all services provided by the Independent Auditors. Our Audit Committee is comprised of Messrs. Starr, Bujouves and Lööf, and Mr. Starr is the Chairman of the committee.
 
The Board of Directors has determined that Mr. Starr, who currently is a member of the Board of Directors and chairman of the Audit Committee, is the Audit Committee financial expert, as defined under the Securities Exchange Act of 1934, as amended, and is independent as defined by the rules of NASDAQ. The Board of Directors made a qualitative assessment of Mr. Starr’s level of knowledge and experience based on a number of factors, including his formal education and experience as an Attorney for more than 15 years.
 
The Compensation Committee, which is comprised solely of independent directors, determines all compensation for our Chief Executive Officer; reviews and approves corporate goals relevant to the compensation of our Chief Executive Officer and evaluates our Chief Executive Officer’s performance in light of those goals and objectives; reviews and approves objectives relevant to other executive officer compensation; reviews and approves the compensation of other executive officers in accordance with those objectives; administers our stock option plans; approves severance arrangements and other applicable agreements for executive officers; and consults generally with management on matters concerning executive compensation and on pension, savings and welfare benefit plans where Board of Directors or stockholder action is contemplated with respect to the adoption of or amendments to such plans. The committee makes recommendations on organization, succession, the election of officers, consultantships and similar matters where board approval is required. Our Compensation Committee is comprised of Messrs. Oswald, Starr and Lööf. Mr. Oswald is the Chairman of the committee.
 
The Nominating Committee considers and makes recommendations on matters related to the practices, policies and procedures of the Board of Directors and takes a leadership role in shaping our corporate governance. As part of its duties, the committee assesses the size, structure and composition of the Board of Directors and its committees, coordinates evaluation of Board performance and reviews Board compensation. The committee also acts as a screening and nominating committee for candidates considered for election to the Board of Directors. In this capacity it concerns itself with the composition of the Board of Directors with respect to depth of experience, balance of professional interests, required expertise and other factors. The committee evaluates prospective nominees identified on its own initiative or referred to it by other Board members, management, stockholders or external sources and all self-nominated candidates.  The committee uses the same criteria for evaluating candidates nominated by stockholders and self-nominated candidates as it does for those proposed by other Board members, management and search companies. Our Nominating Committee is comprised of Messrs. Lööf, Bujouves and Oswald. Mr. Oswald is the chairman of the committee.


 
35

 

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) applying to all of our directors, officers and employees. The Code of Ethics is reasonably designed to deter wrongdoing and promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents filed with, or submitted to, the SEC and in other public communications made by us, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code of Ethics to appropriate persons identified in the Code of Ethics, and (v) accountability for adherence to the Code of Ethics. A copy of the Code of Ethics is available in the Investor Relations; Corporate Governance portion of our website, http://www.globaloptions.com.  Additional copies of the Code of Ethics may be obtained without charge, from us by writing or calling: 75 Rockefeller Plaza, 27th Floor, New York, New York 10019, Attn: Chief Financial Officer, tel: (212) 445-6261.

Item 11.  Executive Compensation

(Dollar amounts in thousands, except per share amounts)

Summary Compensation Table

The following table sets forth information with respect to compensation earned by the named executive officers:

Name and Principal
Position
 
 
 
Year
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($) (1)
   
Option
Awards
($)
   
All Other
Compensation
($)
   
Total
($)
 
                                         
Harvey W. Schiller, Ph.D.
 
2009
    425        100
(2)
    423
(3)
          5
(4)
    953  
Chairman and Chief
 
2008
    400       50
(5)
    973
(6)
          5
(7)
    1,428  
Executive Officer
                                                   
                                                     
Jeffrey O. Nyweide
 
2009
    375       75
(2)
    317
(3)
          122
(8)
    889  
Chief Financial Officer
and Executive Vice President
 
2008
    350       38
(5)
    728
(6)
          111
(9)
    1,227  
                                                     
James Lee Witt
 
2009
    500       45
(10)
    -       -       4
(11)
    549  
Chief Executive Officer
of Preparedness Services unit
 
2008
    500       55
(10)
    -       -       4
(11)
    559  
 
 
36

 

(1)
The amounts listed in this column are performance-based compensation and reflect the probable outcome award value at the date of grant in accordance with FASB ASC Topic 718.  Amounts for 2008 have been recomputed under the same methodology in accordance with SEC rules.  The stock awards for each of Dr. Schiller and Mr. Nyweide are provided under the terms of a performance bonus program pursuant to the terms outlined by the Compensation Committee of the Board of Directors (the “Performance Bonus Plan”) established on December 5, 2006, and as outlined in the Executive Compensation Plan.  The performance measures, as determined by the Compensation Committee, include components for operations and business integration improvements, achieving revenue goals and overall performance of the company’s stock price.

Summary of Awards.  On December 5, 2006, the Compensation Committee awarded to each of Dr. Schiller and Mr. Nyweide performance based awards covering performance for the period January 6, 2006 through December 31, 2009, under which they may earn vested shares of our Company stock.  In April, 2008, these awards were modified (see note xx, below) and in December, 2009 were extended to the year 2010 (see note 3, below).

Seeding of Restricted Shares Under the Plan.  In order to seed shares of non-vested restricted stock under the Performance Bonus Plan, on December 19, 2006, Dr. Schiller and Mr. Nyweide were granted 100,000 shares and 75,000 shares and on July 24, 2008 were granted 250,000 and 187,500 shares of restricted stock, respectively, under the Long Term Incentive Plan which is subject to vesting upon the achievement of performance criteria.

Vesting Of Shares from Inception of Plan. (a) On December 12, 2007, our Compensation Committee determined that 6,250 shares and 4,687 shares of restricted stock, valued on date of grant at $78 and $58, held by Dr. Schiller and Mr. Nyweide, respectively, effective on January 1, 2008, were no longer subject to forfeiture. (b) Effective on August 15, 2008, our Compensation Committee determined that 25,000 shares and 18,500 shares of restricted stock, valued on date of grant at $163 and $122, held by Dr. Schiller and Mr. Nyweide, respectively, were no longer subject to forfeiture. (c) Effective on December 14, 2009, our Compensation Committee determined that 50,000 shares and 37,500 shares of restricted stock, valued on date of grant at $107 and $80, held by Dr. Schiller and Mr. Nyweide, respectively, were no longer subject to forfeiture.

(2)
Amount represents bonus earned in accordance with achievement of performance criteria established by the Compensation Committee. The bonus amount, as approved by the Compensation Committee, was paid on December 24, 2008.

(3)
On August 13, 2009 the Compensation Committee extended the eligibility period to December 31, 2011 for the performance awards available to be earned by Dr. Schiller and Mr. Nyweide under the Performance Bonus Plan, resulting in a new award effective on August 13, 2009.  Pursuant to the terms of the Performance Bonus Plan, we have estimated the probable value at August 13, 2009 of that modification to be $423 and $317, respectively.  Incorporated into this award is the continuation of uncapped performance measures.  Accordingly, the effective limitation for this award would be 888,065 and 665,304 shares valued at $ 1,598 and $1,198 for Dr. Schiller and Mr. Nyweide respectively, representing the remaining shares available under the Long-term Incentive Plan, each as of the date of this award.

(4)
Amount includes payments towards parking and life insurance benefits.

(5)
Amount represents bonus earned in accordance with achievement of performance criteria established by the Compensation Committee.  The bonus amount, as approved by the Compensation Committee, was paid on September 5, 2008.

(6)
On April 18, 2008 the Compensation Committee modified the award, originally granted to Dr. Schiller and Mr. Nyweide, under the Performance Bonus Plan on December 5, 2006, in effect resulting in a new award effective on April 18, 2008.  Pursuant to the terms of the Performance Bonus Plan, we have estimated the probable value at August 13, 2009 of that modification to be $973 and $728, respectively.  Incorporated into this award is the continuation of uncapped performance measures.  Accordingly, the effective limitation for this award would be 1,156,925 and 865,836 shares valued at $2,475 and 1,853, for Dr. Schiller respectively, representing the remaining shares available under the Long-term Incentive Plan, each as of the date of this award.

(7)
Amount includes payments toward parking and life insurance benefits.

(8)
Amount includes payments of a housing allowance of $108 for the rental of an apartment in New York City, parking, life insurance, as well as reimbursement of professional fees of $10.

 
37

 

(9)
Amount includes payments of a housing allowance of $108 for the rental of an apartment in New York City, as well as payments for parking and life insurance.

(10)
Amount represents bonus earned in accordance with annual performance criteria established by the Compensation Committee.

(11)
Amount includes payments toward parking and life insurance benefits.

Employment Agreements and Potential Payments Upon Termination or Change In Control

Harvey W. Schiller, Ph.D.
 
We entered into a three-year employment agreement with Dr. Schiller, our Chairman and Chief Executive Officer, in January 2004.  The agreement was initially amended on December 19, 2006 to extend the term through January 31, 2010 and subsequently on August 13, 2009 to extend the term through January 31, 2011.  The agreement is subject to automatic one-year extensions, unless either party provides notice to the other party of its intention not to renew the agreement.  The amendments provide for an annual base salary of $375,000, $400,000, $425,000 and $425,000 starting January 1, 2007, 2008, 2009 and 2010, respectively, as well as an annual performance bonus payable 50% in cash and 50% in restricted stock which will vest upon the achievement of goals agreed upon mutually between Dr. Schiller and the Compensation Committee, with the performance goals set for 2008 applied for the years 2009 and 2010.  In connection with the initial extension of the term of his employment agreement, Dr. Schiller was awarded a one-time grant of 100,000 shares, and on July 24, 2008 was granted 250,000 shares of restricted common stock, subject to vesting in accordance with performance criteria established by the Compensation Committee.
 
In the event of death or disability, Dr. Schiller (or his estate) will be entitled to salary and pro rata bonus until termination, and 90 days from termination may exercise vested options; unvested options will be forfeited.  If terminated for cause, Dr. Schiller will forfeit all unexercised options.  If Dr. Schiller terminates his employment with the Company for good reason (other than for non-renewal of the agreement) or the Company terminates his employment without cause, Dr. Schiller shall be entitled to a pro rata bonus for the year in which he terminates his employment and 100% of his salary and bonus for the remaining term of his employment agreement.  If Dr. Schiller terminates his employment for non-renewal of the agreement, all shares of restricted stock and restricted stock units will vest.  In addition, upon a change of control, all stock options, restricted stock and restricted stock units held by Dr. Schiller shall vest immediately and all performance conditions of any and all cash bonuses and performance stock options or restricted stock shall be deemed to be met.  However, (i) the amount of cash bonus and shares of restricted stock to be vested for each year remaining in the term of the Dr. Schiller’s employment agreement is limited to the targeted award permitted under Dr. Schiller’s bonus plan for a given year, and (ii) in lieu of issuing any additional shares of common stock to reach such target, the Company will pay to Dr. Schiller an amount in cash equal to $2.00 per share for each share that would have been required to be issued.  Upon a change of control or a termination for good reason or without cause, the Company will place the cash amounts due to Dr. Schiller upon such events in a “rabbi” trust to be distributed to Dr. Schiller on a timely basis in the event Dr. Schiller becomes entitled to such payments.  The Company and Dr. Schiller also extended the term of Dr. Schiller’s noncompetition period with the Company from one year to two years upon a change of control and his termination of employment with the Company.
 
Jeffrey O. Nyweide
 
We were a party to a consulting agreement with Mr. Nyweide providing for his service as our Chief Financial Officer and Executive Vice President-Corporate Development for a monthly fee of $25,000, subject to adjustment based upon the services performed by Mr. Nyweide.  On December 19, 2006, the Compensation Committee amended the terms of this consulting agreement, extending its term through January 2010.  The amendment provided for an increase in the monthly fee to $27,000, $29,000 and $31,000 for the years 2007, 2008 and 2009, respectively.  In connection with the extension, Mr. Nyweide was awarded a one-time grant of 75,000 shares, and on July 24, 2008 was granted 187,500 shares of restricted common stock, subject to vesting in accordance with performance criteria established by the Compensation Committee.

 
38

 

Effective as of August 1, 2007, Mr. Nyweide and we terminated his consulting agreement and entered into an employment agreement providing for Mr. Nyweide’s service as our Chief Financial Officer, Executive Vice President—Corporate Development, Treasurer and Secretary, reporting to the Chairman of the Board.  The employment agreement, which had an initial term through January 31, 2010, was amended on August 13, 2009 to extend its term through January 31, 2011, and pursuant to its terms was further extended to January 31, 2012.  The agreement is subject to automatic one-year extensions.  Under the employment agreement, Mr. Nyweide’s salary for the remainder of 2007 was $27,000 per month and his annual base salary for 2008 was $350,000 and for each of 2009 and 2010 will be $375,000.  In addition, Mr. Nyweide will receive $9,000 per month to help defray his cost of living in New York City.  Mr. Nyweide will also be entitled to annual performance bonuses payable 50% in cash and 50% in restricted stock subject to vesting according to mutually agreed goals, established by the Compensation Committee.  The employment agreement provides that all options to purchase common stock and the 75,000 shares of restricted stock, subject to vesting as described above, granted to Mr. Nyweide pursuant to his consulting agreement, will remain in full force and effect.  In addition, we have agreed to provide Mr. Nyweide with all employee benefit plans and programs that we offer for our senior management, including 401(k) plans and group life, disability, health, medical and dental insurance plans.
 
If Mr. Nyweide terminates his employment with the Company for good reason or the Company terminates his employment without cause, Mr. Nyweide shall be entitled to a pro rata bonus for the year in which he is terminated and 50% of his salary and bonus for the remaining term of the Mr. Nyweide’s employment agreement.  In addition, upon a change of control, all stock options, restricted stock and restricted stock units held by Mr. Nyweide shall vest immediately and all performance conditions of any and all cash bonuses and performance stock options or restricted stock shall be deemed to be met.  However, (i) the amount of cash bonus and shares of restricted stock to be vested for each year remaining in the term of the employment agreement is limited to 50% of the targeted award permitted under Mr. Nyweide’s bonus plan for a given year, and (ii) in lieu of issuing any additional shares of common stock to reach 50% of such target, the Company will pay to Mr. Nyweide an amount in cash equal to $2.00 per share for each share that would have been required to be issued.  Upon a change of control or a termination for good reason or without cause, the Company will place the cash amounts due to Mr. Nyweide upon such events in a “rabbi” trust to be distributed to Mr. Nyweide on a timely basis in the event Mr. Nyweide becomes entitled to such payments.  The Company and Mr. Nyweide also extended the term of Mr. Nyweide’s noncompetition period with the Company from one year to two years upon a Change of Control and his termination of employment with the Company.  The Company also agreed to pay any excise tax incurred by Mr. Nyweide if the payments under the Nyweide Agreement are considered “parachute payments.”
 
James Lee Witt
 
Concurrently with our acquisition of JLWA in March 2006, we entered into a four-year employment agreement with Mr. Witt, the former President and Chief Executive Officer of JLWA.  On May 11, 2007, the agreement was amended and restated.  In March 2010 the employment agreement with Mr. Witt expired and Mr. Witt is currently an at-will employee.  Pursuant to the amended and restated agreement, Mr. Witt became the Chief Executive Officer of our Preparedness Services unit and agreed to perform such other duties and responsibilities as the Board may assign.  Mr. Witt agreed to devote his full time to us at a salary of $300,000 per year and a discretionary annual bonus.  In addition, Mr. Witt receives annual compensation of $200,000 as consideration for his resignation from the International Code Council.  We may terminate Mr. Witt’s employment agreement for cause, upon the death or disability of Mr. Witt or upon 30 days’ notice by either party.  In the event we terminate the employment agreement without cause, we are required to pay Mr. Witt his base salary and certain benefits for 12 months following termination.  The employment agreement also contains non-compete and non-solicitation provisions for 12 months following termination, as well as confidentiality provisions.  

Benefit Plans

2005 Stock Option Plan

Our 2005 Stock Option Plan was adopted as of August 5, 2005. We had reserved a total of 6,500,000 shares of our common stock for issuance under the 2005 Stock Option Plan.   As of March 15, 2010 there remain outstanding options to purchase 9,113 shares of common stock outstanding under this plan. On October 17, 2006, our Board of Directors approved, and stockholders later ratified, that the remaining shares reserved, but unissued, with respect to any awards under the 2005 Stock Option Plan were unreserved and that no new awards were to be issued under the 2005 Stock Option Plan.

 
39

 

The 2005 Stock Option Plan is administered by the Compensation Committee. Stock options granted under the 2005 Stock Option Plan were either incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified stock options. Stock options granted under the 2005 Stock Option Plan are generally not transferable and are exercisable during the lifetime of the optionee only by the optionee.

The 2005 Stock Option Plan may be amended, altered, suspended, discontinued or terminated by the Board of Directors without further stockholder approval, unless stockholder approval is required by law or regulation or under the rules of the stock exchange or automated quotation system on which our common stock is then listed or quoted. Thus, stockholder approval will not necessarily be required for amendments that might increase the cost of the 2005 Stock Option Plan, except that no amendment or alteration to the 2005 Stock Option Plan may be made without the approval of stockholders that would:
 
 
·
materially increase the benefits accruing to plan participants; or
 
·
materially decrease the exercise price of any options; or
 
·
extend the term of any option.

Unless otherwise provided, the 2005 Stock Option Plan will remain in effect for a period of nine years from the date adopted unless terminated earlier by the Board of Directors, and all stock options then outstanding under the 2005 Stock Option Plan will remain in effect until they have expired or been exercised.

2006 Stock Option Plan

Our 2006 Stock Option Plan was adopted as of June 12, 2006. We had reserved a total of 8,500,000 shares of our common stock for issuance under the 2006 Stock Option Plan, As of March 15, 2010 there are options to purchase 229 shares of our common stock outstanding under this plan.  On October 17, 2006, our Board of Directors approved, and stockholders later ratified, that the remaining shares reserved, but unissued, with respect to any awards under the 2006 Stock Option Plan were unreserved and that no new awards were to be issued under the 2006 Stock Option Plan.

The 2006 Stock Option Plan is administered by the Compensation Committee. Stock options granted under the 2006 Stock Option Plan are generally not transferable and are exercisable during the lifetime of the optionee only by the optionee.

The 2006 Stock Option Plan may be amended, altered, suspended, discontinued or terminated by the Board of Directors without further stockholder approval, unless stockholder approval is required by law or regulation or under the rules of the stock exchange or automated quotation system on which our common stock is then listed or quoted. Thus, stockholder approval will not necessarily be required for amendments that might increase the cost of the 2006 Stock Option Plan, except that no amendment or alteration to the 2006 Stock Option Plan may be made without the approval of stockholders that would:
 
 
·
materially increase the benefits accruing to plan participants; or
 
·
materially decrease the exercise price of any options; or
 
·
extend the term of any option.

Unless otherwise provided, the 2006 Stock Option Plan will remain in effect for a period of 10 years from the date adopted unless terminated earlier by the Board of Directors, and all stock options then outstanding under the 2006 Stock Option Plan will remain in effect until they have expired or been exercised.
 
Amended and Restated 2006 Long-Term Incentive Plan
 
Our 2006 Long-Term Incentive Plan was originally adopted on December 5, 2006.  On July 24, 2008, our stockholders approved the Amended and Restated 2006 Long-Term Incentive Plan (the “Incentive Plan”), which became effective immediately following its approval and replaced the original 2006 Long-Term Incentive Plan.
 
The Incentive Plan provides for the issuance of up to 3,000,000 shares of our common stock, increased from 1,500,000 under the original 2006 Long-Term Incentive Plan.  As of March 15, 2010 there are options to purchase 1,114,325 shares of our common stock, 470,563 shares of restricted common stock and 228,819 shares of common stock underlying restricted stock units outstanding under this plan.  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 our common stock to any individual during any calendar year, increased from 312,500 under the original 2006 Long-Term Incentive Plan.
 

 
40

 

The Incentive Plan is administered by the Compensation Committee, or in the absence of the Compensation Committee, the entire Board of Directors.  The Compensation Committee has sole authority to interpret the Incentive Plan and set the terms of all awards, including, without limitation, determining the performance goals associated with performance-based awards, determining the recipients of awards, determining the types of awards to be granted, and the making policies and procedures relating to administration of the Incentive Plan.
 
The purpose of the Incentive Plan is to allow us to continue to provide incentives to such participants who are responsible for our success and growth, assist us in attracting, rewarding and retaining employees of experience and ability, facilitate the completion of strategic acquisitions, link incentives with increases in stockholder value and to further align participants’ interests with those of other stockholders.  In general, the Incentive Plan empowers us to grant stock options and stock appreciation rights, and performance-based cash and stock and other equity based awards, including restricted stock and restricted stock units.  The Incentive Plan will also continue to allow us to grant performance-based compensation awards that meet the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), thereby preserving our ability to receive tax deductions for the awards.
 
The Incentive Plan may be amended, suspended or terminated by the Board of Directors, except that (a) no amendment shall be made that would impair the rights of any participant under any award theretofore granted without the participant’s consent, and (b) no amendment shall be made which, without the adoption of our stockholders, would (i) materially increase the number of shares that may be issued under the Incentive Plan, except as the Compensation Committee may appropriately make adjustments; (ii) materially increase the benefits accruing to the participants under the Incentive Plan; (iii) materially modify the requirements as to eligibility for participation in the Incentive Plan; (iv) decrease the exercise price of an option to less than 100% of the Fair Market Value (as defined under the Incentive Plan) per share of common stock on the date of grant thereof; or (v) extend the term of any option beyond ten years.
 
No award may be granted under the Incentive Plan after the tenth anniversary of the Incentive Plan’s effective date, December 5, 2006.
 
Amended and Restated 2006 Employee Stock Purchase Plan
 
Our 2006 Stock Purchase Plan was originally adopted on December 5, 2006.  On July 24, 2008, our stockholders approved the Amended and Restated 2006 Employee Stock Purchase Plan (the “Stock Purchase Plan”), which became effective immediately following its approval and replaced the original 2006 Employee Stock Purchase Plan.
 
The Stock Purchase Plan permits eligible employees to automatically purchase at the end of each month at a discounted price, a certain number of shares of our 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 our common stock, increased from 250,000 under the original 2006 Employee Stock Purchase Plan.   As of March 15, 2010 there are 1,900,116 shares of our common stock remaining to be issued under this plan.
 
The Stock Purchase Plan is administered by the Compensation Committee of the Board of Directors.  Pursuant to the terms of the Stock Purchase Plan, the Compensation Committee has the authority to make rules and regulations for the administration of the Stock Purchase Plan.
 
The purpose of the Stock Purchase Plan is to encourage eligible employees to acquire or increase their proprietary interests in our company through the purchase of shares of our common stock, thereby creating a greater community of interest between our stockholders and our employees.
 
The Incentive Plan may be amended or terminated by the Board of Directors, provided that, without stockholder approval, no such amendment may (a) increase the maximum number of shares that may be issued under the Stock Purchase Plan, (b) amend the requirements as to the class of employees eligible to purchase stock under the Stock Purchase Plan, or (c) permit the members of the Compensation Committee to purchase stock under the Stock Purchase Plan.  No termination, modification, or amendment of the Stock Purchase Plan may adversely affect the rights of an employee with respect to an option previously granted to him or her under such option without his or her written consent.
 
Unless the Stock Purchase Plan is previously terminated by the Board of Directors, no additional stock will be available for purchase under the Stock Purchase Plan at the earlier of (a) October 17, 2016, or (b) the point in time when no shares of stock appropriately reserved for issuance are available.

 
41

 

Executive Compensation Plan

On December 5, 2006, the Compensation Committee approved the establishment of our Executive Compensation Plan (“Executive Compensation Plan”), which links base salary, benefits and short-term and long-term incentives within the total compensation framework. The committee also extended the agreements with Dr. Schiller and Mr. Nyweide until January 31, 2010. The Executive Compensation Plan provides for cash awards and vesting of restricted stock, based on the achievement of performance targets set by the Compensation Committee.

Bonus awards granted under the Executive Compensation Plan have two components: an annual (single-year) incentive plan component, which is 20% of the bonus target, and a multi-year incentive plan component, which is 80% of the bonus target. Single-year performance targets are established at the end of the immediately preceding year and are monitored throughout the year. The annual incentive plan provides upside potential when organizational goals are exceeded and less when goals are missed. Multi-year performance metrics include components that related to increasing stockholder value.

Outstanding Equity Awards at Fiscal Year-End

The following table presents information regarding unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of the end of the fiscal year ended December 31, 2009:
 
Stock Awards
 
                         
 
 
Name
 
Equity Incentive
Plan Awards:
Number of
Unearned
Shares of
restricted stock
that have not
vested (1) 
 (#)
   
Equity Incentive
Plan Awards:
Market value at
December 31,
2009 of Unearned
shares that have
not vested
(RSU Awards)
 ($)
   
 
Number of
Securities
Underlying
Unvested
RSUs (1)
(#)
   
 
Market Value
of Securities
Underlying
Unvested
RSUs
($)
 
                         
Harvey Schiller
    268,750
(2)
    443       63,825       105  
                                 
Jeffrey O. Nyweide
    201,813
(2)
    333       28,187       47  
                                 
James Lee Witt
    -       -       25,000       41  

(1)
Pursuant to the terms of their respective employment and consulting agreements, all of Dr. Schiller’s and Mr. Nyweide’s restricted stock and RSUs will vest immediately upon a change in control of the Company, and all performance conditions for any restricted stock will be deemed to be met.

 
42

 

(2)
Amount represents shares of restricted stock subject to vesting in accordance with performance criteria established by the Compensation Committee.   The amounts listed in this column are performance-based compensation and reflect the probable outcome award value at the date of grant in accordance with FASB ASC Topic 718.  Amounts for 2008 have been recomputed under the same methodology in accordance with SEC rules.  The stock awards for each of Dr. Schiller and Mr. Nyweide are provided under the terms of a performance bonus program pursuant to the terms outlined by the Compensation Committee of the Board of Directors (the “Performance Bonus Plan”) established on December 5, 2006, and as outlined in the Executive Compensation Plan.  The performance measures, as determined by the Compensation Committee, include components for operations and business integration improvements, achieving revenue goals and overall performance of the company’s stock price.

Summary of Awards.  On December 5, 2006, the Compensation Committee awarded to each of Dr. Schiller and Mr. Nyweide performance based awards covering performance for the period January 6, 2006 through December 31, 2009, under which they may earn vested shares of our Company stock.  In April, 2008, these awards were modified (see note xx, below) and in December, 2009 were extended to the year 2010 (see note 3, below).

Seeding of Restricted Shares Under the Plan.  In order to seed shares of non-vested restricted stock under the Performance Bonus Plan, on December 19, 2006, Dr. Schiller and Mr. Nyweide were granted 100,000 shares and 75,000 shares and on July 24, 2008 were granted 250,000 and 187,500 shares of restricted stock, respectively, under the Long Term Incentive Plan which is subject to vesting upon the achievement of performance criteria.

Vesting Of Shares from Inception of Plan. (a) On December 12, 2007, our Compensation Committee determined that 6,250 shares and 4,687 shares of restricted stock, valued on date of grant at $78 and $58, held by Dr. Schiller and Mr. Nyweide, respectively, effective on January 1, 2008, were no longer subject to forfeiture. (b) Effective on August 15, 2008, our Compensation Committee determined that 25,000 shares and 18,500 shares of restricted stock, valued on date of grant at $163 and $122, held by Dr. Schiller and Mr. Nyweide, respectively, were no longer subject to forfeiture. (c) Effective on December 14, 2009, our Compensation Committee determined that 50,000 shares and 37,500 shares of restricted stock, valued on date of grant at $107 and $80, held by Dr. Schiller and Mr. Nyweide, respectively, were no longer subject to forfeiture.

(3)
On April 18, 2008 the Compensation Committee modified the award, originally granted to Dr. Schiller and Mr. Nyweide, under the Performance Bonus Plan on December 5, 2006, in effect resulting in a new award effective on April 18, 2008.  Pursuant to the terms of the Performance Bonus Plan, we have estimated the probable value at August 13, 2009 of that modification to be $973 and $728, respectively.  Incorporated into this award is the continuation of uncapped performance measures.

(4)
On August 13, 2009 the Compensation Committee extended the eligibility period to December 31, 2011 for the performance awards available to be earned by Dr. Schiller and Mr. Nyweide under the Performance Bonus Plan, resulting in a new award effective on August 13, 2009.  Pursuant to the terms of the Performance Bonus Plan, we have estimated the probable value at August 13, 2009 of that modification to be $423 and $317, respectively.  Incorporated into this award is the continuation of uncapped performance measures.
 
 
43

 

DIRECTOR COMPENSATION

The following table sets forth information with respect to compensation earned by or awarded to each Director of the Corporation who is not a named executive officer and who served on the Board of Directors during the fiscal year ended December 31, 2009:

Name
 
Fees Earned 
($)
   
Option
Awards
($)
   
All Other
Compensation
($)
   
Total
($)
 
Per-Olof Lööf
    33       32
(1)
    -       65  
                                 
Ronald Starr
    -       -       -       -  
                                 
John Bujouves
    25       32       -       57  
                                 
John P. Oswald
    40       32       -       72  

(1)
On January 1, 2009, an option to purchase 25,000 shares was granted to Mr. Lööf, Mr. Bujouves and Mr. Oswald under the 2006 Long Term Incentive Plan.
 
 
44

 
 
2009 Director’s Plan

A compensation plan for our Board of Directors is in place for 2009.  Following the Directors Plan, each non-employee member of our Board of Directors is entitled to receive cash compensation consisting of an annual cash retainer of $10,000, a fee of $2,500 for attending each board meeting, $2,500 for attending each committee meeting (the committee chair receives a supplement fee), an annual stock option grant for attending board meetings and serving on and chairing board committees.  One of our directors has declined the cash compensation and has declined the stock option grant.  All stock options were made exercisable at the then prevailing market price on the date immediately prior to the date of grant.
 
On January 1, 2009, we granted options to purchase 75,000 shares, in the aggregate, to three of the four independent members of the Board of Directors, to purchase shares of our common stock under the Amended and Restated 2006 Long-Term Incentive Plan.  These options were granted at an exercise price based upon the closing price of the common stock on the date immediately prior to the date of grant, have a term of five years and vest in equal installments, 25% at March 31, 2009, 25% at June 30, 2009, 25% at September 30, 2009 and 25% at December 31, 2009.

2010 Director’s Plan
 
A compensation plan for our Board of Directors is in place for 2010.  Following the Directors Plan, each non-employee member of our Board of Directors is entitled to receive cash compensation consisting of an annual cash retainer of $10,000, a fee of $2,500 for attending each board meeting, $2,500 for attending each committee meeting (the committee chair receives a supplement fee), an annual stock option grant for attending board meetings and serving on and chairing board committees.  One of our directors has declined the cash compensation and has declined the stock option grant.  All stock options were made exercisable at the then prevailing market price on the date immediately prior to the date of grant.
 
On January 1, 2009, we granted options to purchase 75,000 shares, in the aggregate, to three of the four independent members of the Board of Directors, to purchase shares of our common stock under the Amended and Restated 2006 Long-Term Incentive Plan.  These options were granted at an exercise price based upon the closing price of the common stock on the date immediately prior to the date of grant, have a term of five years and vest in equal installments, 25% at March 31, 2009, 25% at June 30, 2009, 25% at September 30, 2009 and 25% at December 31, 2009.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The following table sets forth information regarding the number of shares of our common stock beneficially owned on March 15, 2010 by:
 
 
each person who is known by us to beneficially own 5% or more of our common stock;
 
 
each of our directors and named executive officers; and
 
 
all of our directors and executive officers, as a group.
 
Except as otherwise set forth below, the address of each of the persons listed below is GlobalOptions Group, Inc., 75 Rockefeller Plaza, 27th Floor, New York, New York 10019. Unless otherwise indicated, the common stock beneficially owned by a holder includes shares owned by a spouse, minor children and relatives sharing the same home, as well as entities owned or controlled by the named person, and also includes options to purchase shares of our common stock exercisable within 60 days which have been granted under the 2005 Stock Option Plan, the 2006 Stock Option Plan, the 2006 Long-Term Incentive Plan and the Amended and Restated 2006 Long-Term Incentive Plan.

 
45

 
 
Name and Address of Beneficial Owner
 
Common Stock
Beneficially Owned (1)
 
   
Shares
   
%
 
5% or Greater Stockholders:
           
             
Vicis Capital Master Fund(2)
    3,299,749       23.0  
Cipher 06 LLC(3)
    1,152,066       8.0  
James L. Witt Revocable Trust U/A/D 12/28/05(4)
    802,318       5.6  
Eric S. Weinstein(5)
    750,821       5.2  
Artio Global Management LLC(6)
    732,677       5.1  
                 
Directors and  Named Executive Officers:
               
                 
Harvey W. Schiller, Ph.D.
    522,382       3.6  
Jeffrey O. Nyweide
    278,592       1.9  
James Lee Witt(7)
    870,851       6.1  
Per-Olof Lööf(8)
    80,709       *  
Ronald M. Starr(9)
    8,124       *  
John P. Bujouves(10)
    308,178       2.1  
John P. Oswald(11)
    137,881       1.0  
                 
All executive officers and directors as a group (10 persons)(12)
    2,572,781       17.7  
 
*
Less than 1% of outstanding shares.
 

(1)
Based upon 14,357,254 shares of our common stock outstanding on March 15, 2010 and, with respect to each individual holder, rights to acquire our common stock exercisable within 60 days of March 15, 2010.

(2)
Based solely on information contained in a Statement of Changes of Beneficial Ownership on Form 4 filed with the SEC on February 19, 2009 by Vicis Capital LLC.  Shares of our common stock held by Vicis Capital Master Fund may be deemed to be controlled by Vicis Capital LLC.  The business address of Vicis Capital LLC is 445 Park Avenue, 16th Floor, New York, New York  10022.

(3)
Based solely on information contained in a Schedule 13G filed with the SEC on August 10, 2009 by Cipher 06 LLC.  Includes a total of 38,632 of shares of our common stock owned by each of Michael Liss and Jason Adelman, managing members of Cipher 06 LLC..  The business address of Cipher 06 LLC is 590 Madison Avenue, 5th Floor, New York, NY  10022.

(4)
Shares of our common stock held by the James L. Witt Revocable Trust U/A/D 12/28/05 may be deemed to be controlled by its trustee, Mr. James Lee Witt.
 
(5)
Based solely on information contained in a Schedule 13G filed with the SEC on November 19, 2009 by Mr. Weinstein.  Mr. Weinstein’s address is 46 Maddock Road, Titusville, NJ  08560.
 
(6)
Based solely on information contained in a report on Schedule 13G/A filed with the SEC on February 2, 2010.   The business address of Artio Global Management LLC is 330 Madison Avenue, Suite 12A, New York, NY 10017.
 
(7)
Consists of 68,533 shares of our common stock held by Mr. Witt individually, and 802,318 shares of our common stock held by the James L. Witt Revocable Trust U/A/D 12/28/05, of which Mr. Witt is the trustee.  Mr. Witt may be deemed to be the beneficial owner of the shares of our common stock held by the James L. Witt Revocable Trust U/A/D 12/28/05.
 
(8)
Consists of 2,709 shares of common stock and 56,250 shares of our common stock issuable upon exercise of stock options held by Mr. Lööf individually, and 21,750 shares of our common stock held by Lööf Holdings, LLC, a limited liability company controlled by Mr. Lööf.  Mr. Lööf may be deemed to be the beneficial owner of the shares of our common stock held by Lööf Holdings, LLC.
 
 
46

 
 
(9)
Consists of 2,569 shares of common stock help by Mr. Starr individually and 5,555 shares of our common stock held by Mr. Starr’s spouse.  Mr. Starr may be deemed to be the beneficial owner of the shares of our common stock held by his spouse.
 
 (10)
Consists of 2,709 shares of common stock and 56,250 shares of our common stock issuable upon exercise of stock options held by Mr. Bujouves individually, 2,344 shares of our common stock held by Bayshore Merchant Services, Inc., 146,875 shares of our common stock held by Integris Funds Ltd., and 100,000 shares of our common stock held by Lauriston Nominees Inc.  Mr. Bujouves is the President and a director of Bayshore Asset Management, Inc., which is an affiliate of Bayshore Merchant Services, Inc., the Chief Executive Officer of Integris Funds Ltd., and Lauriston Nominees Inc. is the nominee of Bayshore Bank and Trust Corp., of which Mr. Bujouves is Chairman.  Mr. Bujouves may be deemed to be the beneficial owner of the shares of our common stock held by Bayshore Merchant Services, Inc., Integris Funds Ltd., and Lauriston Nominees Inc.  Mr. Bujouves disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.
 
(11)
Consists of 7,171 shares of our common stock and 41,250 shares of our common stock issuable upon exercise of stock options held by Mr. Oswald individually, 48,959 shares of our common stock held by Capital Trust Investments Limited, of which Mr. Oswald is a director, and 40,501 shares of our common stock held by Verus International Group, Ltd., of which Mr. Oswald is Chief Executive Officer.  Mr. Oswald may be deemed to be the beneficial owner of the shares of our common stock held by Capital Trust Investments Limited and Verus International Group, Ltd.  Mr. Oswald disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.
 
(12)
Consists of 2,412,364 shares of our common stock and 160,417 shares of our common stock issuable upon exercise of stock options.  Included in the above calculations are 359,397 shares of our common stock and 6,667 shares of our common stock issuable upon exercise of stock options beneficially owned by three executive officers who are not named executive officers and are therefore not specifically identified in the above table.
 
Equity Compensation Plan Information
 
See Part II, Item 5, “Securities Authorized for Issuance Under Equity Compensation Plans” for information regarding our equity compensation plans.
 
Item 13.  Certain Relationships and Related Transactions, and Director Independence.
 
Consulting Agreements
 
On March 9, 2010, effective as of April 1, 2010, we entered into consulting agreements with each of Howard Safir, the Chief Executive Officer of our Security Consulting and Investigations unit and Adam Safir, Howard Safir’s son and an officer or our Security Consulting and Investigations unit.  Pursuant to the terms of their respective consulting agreements, as of April 1, 2010 Messrs. Safir and Safir will no longer be our employees, but will provide consulting services to our Security Consulting and Investigations business unit, including assistance in the Company’s exploration of strategic alternatives and certain marketing assistance.  The terms of the consulting agreements are 12 months, provided, however, that we may terminate each of the consulting agreements after three months and/or each month thereafter.  Messrs. Howard Safir and Adam Safir shall receive, $30,000 per month and $20,000 per month respectively for their consulting services.  In addition, if we sell our Security Consulting and Investigations unit or any assets thereof, each of Messrs. Howard Safir and Adam Safir shall receive up to $600,000 and $300,000, respectively, based upon the sales price received for the business or such assets.  Also included in the consulting agreements are 12 month non-solicitation and non-servicing provisions.

 
47

 

Director Independence

The Board has determined that each of our directors, except for Dr. Schiller, is “independent” under the independence standards of The NASDAQ Stock Market LLC (“NASDAQ”) and applicable SEC rules..  The Board  considered the following relationships in determining that Messrs. Bujouves, Oswald, Lööf and Starr are independant.  The Board considered that Mr. Bujouves is Chief Executive Officer of Integris Funds Ltd. and Chairman of J&T Bank and Trust, Inc. (formerly known as Bayshore Bank & Trust Corp.), each of which formerly held shares of the Company’s preferred stock and/or warrants and currently hold shares of the Company’s common stock, and determined it would not interfere with his independence, as defined by NASDAQ’s rules and regulations.  The Board considered that Mr. Oswald is President and CEO of Verus International Group, Ltd., which has provided capital markets advisory services to the Company, formerly held shares of the Company’s preferred stock and warrants, and currently hold shares of the Company’s common stock, and determined it would not interfere with his independence, as defined by NASDAQ’s rules and regulations.  The Board considered that Mr. Lööf is a former Managing Partner of QuanStar Group and is currently the controlling person of Lööf Holdings, which formerly held shares of the Company’s preferred stock and warrants and currently holds shares of the Company’s common stock, and determined it would not interfere with his independence, as defined by NASDAQ’s rules and regulations.  The Board considered that Mr. Starr is Managing Director at Starr & Company, LLC, an accounting and business management firm for high net worth individuals that has Harvey W. Schiller, our Chairman and Chief Executive Officer, and a number of the Company’s stockholders as clients, and determined it would not interfere with his independence, as defined by NASDAQ’s rules and regulations.

ITEM 14.   Principal Accountant Fees and Services
 
 Audit Fees. The aggregate fees billed for professional services rendered was $433 and $533 for the audits of the Company’s annual financial statements for the fiscal years ended December 31, 2009 and 2008, respectively, which services included the cost of the reviews of the condensed consolidated financial statements for the years ended December 31, 2009 and 2008, and other periodic reports for each respective year.
 
 Audit-Related Fees. The aggregate fees billed for professional services categorized as Audit-Related Fees rendered was $21 and $13 for the years ended December 31, 2009 and 2008, respectively, relating principally to registration statements and mergers and acquisitions.
 
 Tax Fees. For the years ended December 31, 2009 and 2008, the principal accountant billed $125 and $173, respectively, for tax compliance.
 
 All Other Fees. Other than the services described above, the aggregate fees billed for services rendered by the principal accountant which were $21 and $13, respectively, for the fiscal years ended December 31, 2009 and 2008.
 
 Audit Committee Policies and Procedures. The Audit Committee must pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditors, subject to the de-minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, which should be nonetheless be approved by the Board of Directors prior to the completion of the audit. Each year the independent auditor’s retention to audit our financial statements, including the associated fee, is approved by the Audit Committee before the filing of the previous year’s Annual Report on Form 10-K. At the beginning of the fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At each such subsequent meeting, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.
 
Since May 6, 2003, the effective date of the SEC rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of Marcum & Kliegman LLP, has been approved in advance by the Board of Directors, and none of those engagements made use of the de-minimums exception to the pre-approval contained in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934.
 
 
48

 

Part IV

ITEM 15.  Exhibits, Financial Statement Schedules
 
Exhibit No.  
 
Description
     
3.1
 
Certificate of Incorporation of GlobalOptions Group, Inc. (4)
     
3.2
 
Certificate of Amendment to Certificate of Incorporation. (6)
     
3.3
 
Certificate of Designations, Powers, Preferences and Other Rights and Qualifications of Series D Convertible Preferred Stock. (8)
     
3.4
 
Bylaws. (4)
     
3.5
 
Amendment to Bylaws. (7)
     
10.1
 
2005 Stock Option Plan. (2)
     
10.2
 
2006 Stock Option Plan. (3)
     
10.3
 
Amended and Restated 2006 Long-Term Incentive Plan. (14)
     
10.4
 
Amended and Restated 2006 Employee Stock Purchase Plan. (14)
     
10.5
 
Asset Purchase Agreement, dated as of April 21, 2008, by and among GlobalOptions Group, Inc., Omega Insurance Services, Inc., and First Advantage Corporation. (13)
     
10.6
 
Fourth Amended and Restated Loan and Security Agreement, dated as of March 31, 2008, by and among GlobalOptions, Inc., The Bode Technology Group, Inc. and Silicon Valley Bank. (12)
     
10.7
 
First Loan Modification Agreement, dated as of March 30, 2009, by and among GlobalOptions, Inc., The Bode Technology Group, Inc. and Silicon Valley Bank. (15)
     
10.8
 
Unconditional Guaranty, dated as of March 31, 2008, by GlobalOptions Group, Inc. in favor of Silicon Valley Bank. (12)
     
10.9
 
Security Agreement, dated March 31, 2008, by and between GlobalOptions Group, Inc. and Silicon Valley Bank. (12)
     
10.10
 
Intellectual Property Security Agreement, dated March 31, 2008, by and between GlobalOptions Group, Inc. and Silicon Valley Bank. (12)
     
10.11
 
Employment Agreement, dated as of January 29, 2004, between Harvey W. Schiller, Ph.D. and GlobalOptions, Inc. (1)
     
10.12
 
Letter Agreement among GlobalOptions Group, Inc., GlobalOptions, Inc. and Harvey W. Schiller, Ph.D., dated January 29, 2004, pursuant to which GlobalOptions Group, Inc. assumed Dr. Schiller’s original employment agreement with GlobalOptions, Inc. (1)
     
10.13
 
Amendment to Employment Agreement of Harvey W. Schiller, Ph.D. with GlobalOptions Group, Inc., dated as of December 19, 2006. (5)
     
10.14
 
Modification of Employment Agreement of Harvey W. Schiller, Ph.D. with GlobalOptions Groups, Inc., dated as of August 13, 2009. (17)
     
10.15
 
Employment Agreement, dated July 30, 2007, between Jeffrey O. Nyweide and GlobalOptions Group, Inc. (10)
     
10.16
 
Modification of Employment Agreement of Jeffrey O. Nyweide with GlobalOptions Groups, Inc., dated as of August 13, 2009. (17)
     
10.17
 
Amended and Restated Employment Agreement, dated as of May 11, 2007, by and between GlobalOptions Group, Inc. and James Lee Witt. (9)
     
10.18
 
Employment Agreement, dated as of May 12, 2006, by and between GlobalOptions Group, Inc. and Howard Safir. (9)
     
10.19
 
First Amendment to GlobalOptions Group, Inc. Employment Agreement, dated as of April 1, 2009, by and between GlobalOptions Group, Inc. and Howard Safir. (16)
 
 
49

 

10.20
 
Employment Agreement, dated as of September 5, 2008, by and between GlobalOptions, Inc. and Halsey Fischer. (15)
     
10.21
 
Employment Agreement, dated as of January 24, 2002, by and between Thomas P. Ondeck and GlobalOptions, Inc. (9)
     
10.22
 
First Amendment to Employment Agreement, dated September 20, 2002, by and between Thomas P. Ondeck and GlobalOptions, Inc. (9)
     
10.23
 
Amendment to Employment Agreement of Thomas P. Ondeck, dated October 17, 2006. (9)
     
10.24
 
Consulting Services Contract, dated as of August 29, 2007, between the State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness and GlobalOptions Group, Inc. (11)
     
10.25
 
Amendment to Consulting Services Contract between the State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness and GlobalOptions Groups, Inc., effective as of August 24, 2009. (17)
     
21.1
 
Subsidiaries of GlobalOptions Group, Inc.*
     
23.1
 
Consent of Marcum LLP.*
     
31.1
 
Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.*
     
31.2
 
Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.*
     
32.1
 
Certification of Principal Executive Officer of Periodic Report Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*
     
32.2
 
Certification of Principal Financial Officer of Periodic Report Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*

*
Filed herewith
 
(1)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on June 30, 2005, as amended.
 
(2)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on August 11, 2005.
 
(3)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on June 16, 2006.
 
(4)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on December 11, 2006.
 
(5)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on December 22, 2006.
 
(6)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on February 23, 2007.
 
(7)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on May 16, 2007.
 
(8)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on July 26, 2007.
 
(9)
Incorporated by reference to the exhibits included with our registration statement on Form SB-2, as amended, originally filed with the SEC on August 2, 2007.
 
(10)
Incorporated by reference to the exhibits included with our quarterly report on Form 10-QSB filed with the SEC on August 14, 2007.
 
(11)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on September 26, 2007.
 
 
50

 
 
(12)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 22, 2008.
 
(13)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 25, 2008.
 
(14)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on July 30, 2008.
 
(15)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 6, 2009.
 
(16)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 9, 2009.
 
(17)
Incorporated by reference to the exhibits included with our quarterly report on Form 10-Q filed with the SEC on August 14, 2009.
 
 
51

 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  
 
GLOBALOPTIONS GROUP, INC.
     
Dated:   March 16. 2010
By:  
/s/ Harvey W. Schiller
   
 
Harvey W. Schiller
Chairman, Chief Executive Officer
and Director
(Principal Executive Officer)
 
Dated:   March 16, 2010
By:  
/s/ Jeffrey O. Nyweide
   
 
Jeffrey O. Nyweide
Executive Vice President-Corporate Development,
Chief Financial Officer, Secretary
(Principal Financial Officer and
Principal Accounting Officer)
   
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures
 
Title
 
Date
         
/s/ Harvey W. Schiller
 
Chairman, Chief Executive Officer and Director (Principal Executive Officer)
 
March 16, 2010
Harvey W. Schiller
       
         
/s/ Jeffrey O. Nyweide
 
Executive Vice President ─ Corporate Development, Chief Financial Officer, Secretary (Principal Financial Officer and Principal Accounting Officer)
 
March 16, 2010
Jeffrey O. Nyweide
       
         
/s/ Per-Olof Lööf
 
Director
 
March 16, 2010
Per-Olof Lööf
       
         
/s/ John P. Oswald
 
Director
 
March 16, 2010
John P. Oswald         
         
/s/ Ronald M. Starr
 
Director
 
March 16, 2010
Ronald M. Starr
 
 
 
 
         
/s/ John P. Bujouves  
Director
 
March 16, 2010
John P. Bujouves
       
 
52

 
Exhibit Index
 
Exhibit No.
 
Description
     
3.1
 
Certificate of Incorporation of GlobalOptions Group, Inc. (4)
     
3.2
 
Certificate of Amendment to Certificate of Incorporation. (6)
     
3.3
 
Certificate of Designations, Powers, Preferences and Other Rights and Qualifications of Series D Convertible Preferred Stock. (8)
     
3.4
 
Bylaws. (4)
     
3.5
 
Amendment to Bylaws. (7)
     
10.1
 
2005 Stock Option Plan. (2)
     
10.2
 
2006 Stock Option Plan. (3)
     
10.3
 
Amended and Restated 2006 Long-Term Incentive Plan. (14)
     
10.4
 
Amended and Restated 2006 Employee Stock Purchase Plan. (14)
     
10.5
 
Asset Purchase Agreement, dated as of April 21, 2008, by and among GlobalOptions Group, Inc., Omega Insurance Services, Inc., and First Advantage Corporation. (13)
     
10.6
 
Fourth Amended and Restated Loan and Security Agreement, dated as of March 31, 2008, by and among GlobalOptions, Inc., The Bode Technology Group, Inc. and Silicon Valley Bank. (12)
     
10.7
 
First Loan Modification Agreement, dated as of March 30, 2009, by and among GlobalOptions, Inc., The Bode Technology Group, Inc. and Silicon Valley Bank. (15)
     
10.8
 
Unconditional Guaranty, dated as of March 31, 2008, by GlobalOptions Group, Inc. in favor of Silicon Valley Bank. (12)
     
10.9
 
Security Agreement, dated March 31, 2008, by and between GlobalOptions Group, Inc. and Silicon Valley Bank. (12)
     
10.10
 
Intellectual Property Security Agreement, dated March 31, 2008, by and between GlobalOptions Group, Inc. and Silicon Valley Bank. (12)
     
10.11
 
Employment Agreement, dated as of January 29, 2004, between Harvey W. Schiller, Ph.D. and GlobalOptions, Inc. (1)
     
10.12
 
Letter Agreement among GlobalOptions Group, Inc., GlobalOptions, Inc. and Harvey W. Schiller, Ph.D., dated January 29, 2004, pursuant to which GlobalOptions Group, Inc. assumed Dr. Schiller’s original employment agreement with GlobalOptions, Inc. (1)
     
10.13
 
Amendment to Employment Agreement of Harvey W. Schiller, Ph.D. with GlobalOptions Group, Inc., dated as of December 19, 2006. (5)
     
10.14
 
Modification of Employment Agreement of Harvey W. Schiller, Ph.D. with GlobalOptions Groups, Inc., dated as of August 13, 2009. (17)
     
10.15
 
Employment Agreement, dated July 30, 2007, between Jeffrey O. Nyweide and GlobalOptions Group, Inc. (10)
     
10.16
 
Modification of Employment Agreement of Jeffrey O. Nyweide with GlobalOptions Groups, Inc., dated as of August 13, 2009. (17)
     
10.17
 
Amended and Restated Employment Agreement, dated as of May 11, 2007, by and between GlobalOptions Group, Inc. and James Lee Witt. (9)
     
10.18
 
Employment Agreement, dated as of May 12, 2006, by and between GlobalOptions Group, Inc. and Howard Safir. (9)
     
10.19
 
First Amendment to GlobalOptions Group, Inc. Employment Agreement, dated as of April 1, 2009, by and between GlobalOptions Group, Inc. and Howard Safir. (16)
     
10.20
 
Employment Agreement, dated as of September 5, 2008, by and between GlobalOptions, Inc. and Halsey Fischer. (15)
 
 
53

 

10.21
 
Employment Agreement, dated as of January 24, 2002, by and between Thomas P. Ondeck and GlobalOptions, Inc. (9)
     
10.22
 
First Amendment to Employment Agreement, dated September 20, 2002, by and between Thomas P. Ondeck and GlobalOptions, Inc. (9)
     
10.23
 
Amendment to Employment Agreement of Thomas P. Ondeck, dated October 17, 2006. (9)
     
10.24
 
Consulting Services Contract, dated as of August 29, 2007, between the State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness and GlobalOptions Group, Inc. (11)
     
10.25
 
Amendment to Consulting Services Contract between the State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness and GlobalOptions Groups, Inc., effective as of August 24, 2009. (17)
     
21.1
 
Subsidiaries of GlobalOptions Group, Inc.*
     
23.1
 
Consent of Marcum LLP.*
     
31.1
 
Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.*
     
31.2
 
Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.*
     
32.1
 
Certification of Principal Executive Officer of Periodic Report Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*
     
32.2
 
Certification of Principal Financial Officer of Periodic Report Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.*
 

*
Filed herewith
 
(1)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on June 30, 2005, as amended.
 
(2)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on August 11, 2005.
 
(3)
Incorporated by reference to the exhibits included with our Current Report on Form 8-K filed with the SEC on June 16, 2006.
 
(4)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on December 11, 2006.
 
(5)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on December 22, 2006.
 
(6)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on February 23, 2007.
 
(7)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on May 16, 2007.
 
(8)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on July 26, 2007.
 
(9)
Incorporated by reference to the exhibits included with our registration statement on Form SB-2, as amended, originally filed with the SEC on August 2, 2007.
 
(10)
Incorporated by reference to the exhibits included with our quarterly report on Form 10-QSB filed with the SEC on August 14, 2007.
 
(11)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on September 26, 2007.
 
 
54

 
 
(12)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 22, 2008.
 
(13)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 25, 2008.
 
(14)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on July 30, 2008.
 
(15)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 6, 2009.
 
(16)
Incorporated by reference to the exhibits included with our current report on Form 8-K filed with the SEC on April 9, 2009.
 
(17)
Incorporated by reference to the exhibits included with our quarterly report on Form 10-Q filed with the SEC on August 14, 2009.
 
 
55