===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2002

                                       OR

            [  ]  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: 000-21629

                                   KROLL INC.
             (Exact name of registrant as specified in its charter)

                 Ohio                                     31-1470817
    (State or other jurisdiction of                    (I.R.S. Employer
    incorporation or organization)                   Identification Number)

              900 Third Avenue
                New York, NY                                       10022
    (Address of principal executive offices)                     (Zip code)

                                 (212) 593-1000
              (Registrant's telephone number, including area code)

         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 [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date.

                                   22,915,692

             (Shares of common stock outstanding as of May 9, 2002)


===============================================================================

<PAGE>

                                   KROLL INC.

                                    FORM 10-Q
                         FOR THE QUARTERLY PERIOD ENDED
                                 March 31, 2002

                                                                           Page
                                                                           ----
PART I - FINANCIAL INFORMATION

      Item 1:     Financial Statements

                  Consolidated Balance Sheets (unaudited) as of
                  December 31, 2001 and March 31, 2002................        1

                  Consolidated Statements of Operations and
                  Comprehensive Income (unaudited) for the three
                  months ended March 31, 2001 and 2002................        3

                  Consolidated Statements of Cash Flows
                  (unaudited) for the three months ended
                  March 31, 2001 and 2002.............................        4

                  Notes to Consolidated Unaudited Financial Statements        5

      Item 2:     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.................       16

      Item 3:     Quantitative and Qualitative Disclosure About
                  Market Risk.........................................       26


PART II - OTHER INFORMATION

      Item 1:     Legal Proceedings...................................       27

      Item 6:     Exhibits and Reports on Form 8-K....................       28

Signatures............................................................       29


                                       i

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                   KROLL INC.

                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                   As of December 31, 2001 and March 31, 2002
                             (Dollars in Thousands)

                                                            December 31,   March 31,
                                                               2001         2002
                                                            -----------    --------
ASSETS
CURRENT ASSETS:
<S>                                                         <C>          <C>
   Cash and cash equivalents ............................   $  11,485    $  10,934
   Trade accounts receivable, net of allowance for
     doubtful accounts of $6,798 and $6,382 at December
     31, 2001 and March 31, 2002, respectively ..........      37,780       40,784
   Unbilled revenues ....................................      25,600       25,801
   Related party receivables ............................       2,417        1,438
   Prepaid expenses and other current assets ............       4,524        4,989
                                                            ---------    ---------
     Total current assets ...............................      81,806       83,946
                                                            ---------    ---------

PROPERTY, PLANT AND EQUIPMENT, at cost:
   Land .................................................         194          194
   Buildings and improvements ...........................       2,001        2,015
   Leasehold improvements ...............................       7,440        7,494
   Furniture and fixtures ...............................       5,135        5,203
   Machinery and equipment ..............................      27,905       28,060
   Construction-in-progress .............................         500          502
                                                            ---------    ---------
                                                               43,175       43,468
   Less-accumulated depreciation and amortization .......     (27,108)     (28,193)
                                                            ---------    ---------
                                                               16,067       15,275
                                                            ---------    ---------

DATABASES, net of accumulated amortization of $33,672 and
   $34,560 at December 31, 2001 and March 31, 2002,
   respectively..........................................      10,530       10,647
COSTS IN EXCESS OF ASSETS ACQUIRED, net of accumulated
   amortization of $8,033 at December 31, 2001 and March
   31, 2002..............................................      50,436       50,436
OTHER INTANGIBLE ASSETS, net of accumulated
   amortization of $3,403 and $3,613 at December 31,
   2001 and March 31, 2002, respectively ................       6,720        6,668
OTHER ASSETS ............................................       4,227        4,985
                                                            ---------    ---------
     Total Assets .......................................   $ 169,786    $ 171,957
                                                            =========    =========
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated unaudited financial statements.


                                       1

<PAGE>

<TABLE>
<CAPTION>

                                   KROLL INC.

                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                   As of December 31, 2001 and March 31, 2002
                      (in Thousands, except share amounts)

                                                            December 31,  March 31,
                                                               2001         2002
                                                            -----------  ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S>                                <C>                      <C>          <C>
   Revolving lines of credit (Note 6) ...................   $   2,561    $   4,184
   Current portion of long-term debt (Note 6) ...........         318           77
   Trade accounts payable ...............................      10,360        8,853
   Accrued liabilities ..................................      16,391       15,452
   Income taxes payable .................................       1,434        2,402
   Deferred income taxes ................................       1,936        1,936
   Deferred revenue .....................................       4,389        3,740
   Net current liabilities of discontinued operation ....         503          503
                                                            ---------    ---------
     Total current liabilities ..........................      37,892       37,147

OTHER LONG-TERM LIABILITIES .............................       1,337        1,243
DEFERRED INCOME TAXES ...................................         346          346
CONVERTIBLE NOTES, net of unamortized discount of $11,200
   and $10,825 at December 31, 2001 and March 31, 2002,
   respectively (Note 6).................................      18,800       19,175
LONG-TERM DEBT, net of current portion (Note 6) .........         278          262
                                                            ---------    ---------
     Total liabilities ..................................      58,653       58,173
                                                            ---------    ---------

SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 1,000,000 shares
     authorized, none issued.............................        --           --
   Common stock, $.01 par value, 50,000,000 shares
     authorized, 22,793,871 and 22,902,313 shares issued
     and outstanding at December 31, 2001 and March 31,
     2002, respectively..................................         228          229
   Additional paid-in-capital ...........................     183,421      184,239
   Accumulated deficit ..................................     (67,971)     (65,654)
   Accumulated other comprehensive loss .................      (4,545)      (5,030)
                                                            ---------    ---------
     Total shareholders' equity .........................     111,133      113,784
                                                            ---------    ---------
                                                            $ 169,786    $ 171,957
                                                            =========    =========
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated unaudited financial statements.


                                       2
<PAGE>

<TABLE>
<CAPTION>

                                   KROLL INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND COMPREHENSIVE INCOME (Unaudited)
                    (In Thousands, Except per Share Amounts)

                                                           For the three months ended
                                                                     March 31,
                                                           --------------------------
                                                                 2001        2002
                                                           ------------   -----------

<S>                                                            <C>         <C>
NET SALES ..................................................   $ 50,775    $ 56,016
COST OF SALES ..............................................     29,671      31,029
                                                               --------    --------
      Gross profit .........................................     21,104      24,987
                                                               --------    --------
OPERATING EXPENSES:
   Selling and marketing ...................................      4,755       4,376
   General and administrative ..............................     14,895      15,900
   Amortization of other intangible assets .................        206         217
   Failed separation costs (Note 2) ........................        179        --
                                                               --------    --------
     Operating expenses ....................................     20,035      20,493
                                                               --------    --------
      Operating income .....................................      1,069       4,494
                                                               --------    --------
OTHER INCOME (EXPENSE):
   Interest expense, net ...................................     (1,118)       (912)
   Other income (expense), net .............................        176         (28)
                                                               --------    --------
      Income from continuing operations before provision for
         income taxes ......................................        127       3,554
   Provision for income taxes ..............................        304       1,237
                                                               --------    --------
      Income (loss) from continuing operations .............       (177)      2,317
                                                               --------    --------
   Discontinued operations (Note 4):
     Income of discontinued security products and services
       group, net of taxes.................................         751        --
     Loss from operations of discontinued voice and data
       communications group, net of taxes...................       (104)       --
                                                               --------    --------
      Income from discontinued operations ..................        647        --
                                                               --------    --------

      Net income ...........................................   $    470    $  2,317
                                                               --------    --------

OTHER COMPREHENSIVE LOSS, NET OF TAX:
   Foreign currency translation adjustment, net of $989 and
     $259 tax benefit, respectively.........................     (1,920)       (485)
                                                               --------    --------
      Comprehensive income (loss) ..........................   $ (1,450)   $  1,832
                                                               ========    ========
PER SHARE DATA (Note 5):
   BASIC EARNINGS (LOSS) PER SHARE
     Earnings (loss) per share from continuing operations ..   $  (0.01)   $   0.10
                                                               ========    ========
     Earnings per share from discontinued operations .......   $   0.03    $   --
                                                               ========    ========
     Earnings per share ....................................   $   0.02    $   0.10
                                                               ========    ========
     Weighted average shares outstanding ...................     22,415      22,870
                                                               ========    ========
   DILUTED EARNINGS (LOSS) PER SHARE

     Earnings (loss) per share from continuing operations ..   $  (0.01)   $   0.10
                                                               ========    ========
     Earnings per share from discontinued operations .......   $   0.03    $   --
                                                               ========    ========
     Earnings per share ....................................   $   0.02    $   0.10
                                                               ========    ========
     Weighted average shares outstanding ...................     22,476      23,788
                                                               ========    ========
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated unaudited financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

                                   KROLL INC.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 8)
                                   (Unaudited)
               For the Three Months Ended March 31, 2001 and 2002
                             (Dollars in Thousands)

                                                               March 31,  March 31,
                                                                 2001       2002
                                                              ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                           <C>         <C>
   Net income .............................................   $    470    $  2,317
   Adjustments to reconcile net income to net cash provided
     by continuing operations--
     Income from discontinued operations ..................       (647)       --
     Depreciation and amortization ........................      3,298       2,678
     Bad debt expense .....................................        828         693
     Non-cash interest expense ............................         27         441
     Non-cash compensation expense ........................         90        --
   Change in assets and liabilities, net of effects of
     acquisitions and dispositions--
     Receivables--trade and unbilled ......................     (4,195)     (4,558)
     Prepaid expenses and other current assets ............        138          (2)
     Trade accounts payable and income taxes payable ......       (561)       (421)
     Amounts due to/from related parties ..................      1,233         993
     Deferred revenue .....................................      2,177        (621)
     Accrued liabilities ..................................     (1,914)       (424)
     Other long-term liabilities ..........................      1,222        (121)
                                                               -------     -------
       Net cash provided by operating activities of
         continuing operations.............................      2,166         975
                                                               -------     -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment .............     (1,046)       (887)
   Additions to databases .................................     (1,159)     (1,090)
   Additions to intangible assets .........................       --          (444)
                                                               -------     -------
     Net cash used in investing activities of continuing
       operations .........................................     (2,205)     (2,421)
                                                               -------     -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net borrowings under revolving lines of credit .........        972       1,088
   Payments of long-term debt .............................     (1,050)       (553)
   Foreign currency translation ...........................     (2,026)       (375)
   Proceeds from exercise of stock options and warrants ...       --           819
                                                               -------     -------
     Net cash provided by (used in) financing activities of
       continuing operations ..............................     (2,104)        979
                                                               -------     -------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................     (2,143)       (467)
Effects of foreign currency exchange rates on cash and cash
   equivalents ............................................       (122)        (84)
Net cash provided by discontinued operations ..............        550        --
CASH AND CASH EQUIVALENTS, beginning of period ............      6,277      11,485
                                                               -------     -------
CASH AND CASH EQUIVALENTS, end of period ..................   $  4,562    $ 10,934
                                                              ========    ========
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated unaudited financial statements.


                                       4
<PAGE>

                                   KROLL INC.

            NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
                   As of December 31, 2001 and March 31, 2002


(1)   General

      Kroll Inc., an Ohio corporation, together with its subsidiaries
(collectively, Kroll), is a leading global provider of a broad range of
specialized services that are designed to provide solutions to a variety of risk
mitigation and security needs. Kroll offers: (1) Consulting Services such as
business investigations and intelligence as well as financial services; (2)
Security Services such as security and technology services; and (3) Employee
Screening Services including pre-employment background checking, drug testing
and surveillance services. The former Security Products and Services Group
(SPSG) marketed ballistic and blast protected vehicles and security services
(see Note 4(a) - Discontinued Operations).

      The consolidated financial statements include the historical consolidated
financial statements of Kroll (and the businesses it has acquired, since their
respective dates of acquisition, under the purchase method of accounting) and
the financial position, results of operations and cash flows of entities which
were merged with Kroll in connection with pooling of interests business
combinations. All material intercompany accounts and transactions are
eliminated. Investments in 20% to 50% owned entities are accounted for using the
equity method. Affiliated entities are not included in the accompanying
consolidated financial statements.

      The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three months ended March 31, 2001 and
2002 are not necessarily indicative of the results that may be expected for a
full year. The accompanying financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in Kroll's
annual report on Form 10-K for the year ended December 31, 2001.

(2)   Corporate Initiatives

      Kroll has considered a variety of corporate initiatives within the periods
presented in the accompanying consolidated unaudited financial statements.

      In September 2000, the Board of Directors approved an agreement and plan
of reorganization and dissolution of Kroll, that would have resulted in the
spinoff of net assets of its two principal operating segments, the Security
Products and Services Group and the Investigations and Intelligence Group, into
two public companies. On April 20, 2001, the Board of Directors decided not to
pursue this separation alternative. Costs associated with this proposed
separation were approximately $0.2 million ($0.01 per diluted share) for the
three months ended March 31, 2001 and consisted primarily of fees for attorneys,
accountants, investment bankers and other related charges. Kroll does not
anticipate any additional expenses related to this now terminated separation
alternative.

      On August 22, 2001, Kroll completed the sale of SPSG to Armor Holdings,
Inc. (Armor) for up to $55.7 million, consisting of $37.2 million in cash, $15.0
million in Armor common stock, and $1.5 million placed in escrow, pending
agreement on the closing date balance sheet audit (see Note 12(b) - "Subsequent
Events"). The

                                       5
<PAGE>

purchase and sale agreement also provides for a potential deferred payment of up
to $2.0 million by Armor to Kroll based on the achievement of a gross profit
target by SPSG for the year ended December 31, 2001. Resolution of this deferred
payment is still under review (see Note 4(a)).

      On March 30, 2001, Kroll entered into amended and restated agreements for
its revolving credit facility, letters of credit facility and its senior notes,
which agreements were further amended in April 2001. The agreements were amended
again on October 22, 2001, which extended the date of repayment of all
outstanding debt to November 16, 2001. In November 2001, these debt instruments
were retired using the proceeds from the issuance of the convertible notes
discussed below.

      In November 2001, Kroll obtained new financing of $30.0 million in the
form of 6% Senior Secured Subordinated Convertible Notes due 2006. On November
14, 2001, Kroll issued $25.0 million of notes and issued an additional $5.0
million of notes on November 20, 2001. The notes mature November 14, 2006 and
bear interest at the rate of 6% per annum payable semi-annually. However, 12%
per annum will accrue on any principal payment that is past due. The notes are
secured by a security interest in substantially all the assets of Kroll and its
material domestic subsidiaries, and a pledge of the stock of certain of Kroll's
subsidiaries. The notes are subordinate to the security interest and rights of
the revolving credit facility lender discussed below.

       Kroll may redeem these convertible notes at par plus accrued interest, in
whole or in part, beginning November 14, 2004, provided the note holders have
been notified in writing 20 days in advance. The note holders may at any time
prior to one day before the earlier of the maturity date or the redemption date,
convert all or a portion of the principal amount of the notes into Kroll common
stock at the conversion price of $10.80 per share. The $30.0 million of notes
are immediately convertible into 2,777,777 shares of Kroll common stock, subject
to customary and other anti-dilution adjustments. In connection with the
issuance of the notes, Kroll recorded a notes discount of approximately $11.4
million based on the difference between the closing price of its stock on the
issuance date and the conversion price. In addition to the stated 6% interest,
the discount will be amortized as non-cash interest expense over the expected
5-year life of the notes. Barring early conversion by the noteholders or early
redemption by Kroll, the additional non-cash interest expense resulting from
this discount amortization will average approximately $2.3 million or 7.6% per
year on $30.0 million principal (see Note 6(c)).

      On February 21, 2002, Kroll executed agreements with Foothill Capital
Corporation (Foothill) to provide a revolving credit facility of up to $15
million, subject to borrowing base limitations, for a term of three years. The
asset-based loan agreement requires Kroll to maintain a minimum level of EBITDA
(earnings before interest, taxes, depreciation and amortization) and contains
restrictions on the incurrence of additional debt, the creation of any liens on
any of Kroll's assets, certain acquisitions, distributions to certain
subsidiaries and other affirmative and negative covenants customarily contained
in debt agreements of this type. The credit facility is secured by the same
assets of Kroll and its material domestic subsidiaries and the same pledge of
the stock of certain of Kroll's subsidiaries as the convertible notes, except
that Foothill is senior in security interest and rights to the convertible
notes. As of March 31, 2002 there were no amounts borrowed under the credit
facility.

(3)   Restructuring of Operations

      In the second quarter of 2001, Kroll began implementation of a
restructuring plan (the 2001 Plan) to reduce costs and improve operating
efficiencies. The 2001 Plan was substantially completed by the end of 2001. The
total pre-tax restructuring charge recorded pursuant to the 2001 Plan was
approximately $2.7 million. Total payments or writeoffs made pursuant to the
2001 Plan through December 31, 2001 were $1.8 million. Kroll does not expect to
incur any other significant restructuring charges in future periods related to
the 2001 Plan. The principal elements of the restructuring plan were the closure
of four Investigations and Intelligence Group offices and the elimination of
approximately 98 employees. The components of the restructuring charge including
accrued balances as of March 31, 2002 are as follows:

                                       6
<PAGE>

Description                                                   Accrual
---------------------------------------------------------   -----------

Severance and related costs..............................   $   395,717
Lease termination costs..................................       311,458
                                                            -----------
                                                                707,175
Less--Current portion.....................................      707,175
                                                            -----------
                                                            $        --
                                                            ===========

(4)   Discontinued Operations

      (a) Security Products and Services Group - On August 22, 2001, Kroll sold
the common stock of most of the active companies that comprise SPSG to Armor for
up to $55.7 million, consisting of $37.2 million in cash, $15.0 million in
common stock, and an additional $1.5 million placed in escrow, pending agreement
on the closing date balance sheet audit (see Note 12(b) - "Subsequent Events").
The purchase and sale agreement also provides for a potential deferred payment
of up to $2.0 million by Armor to Kroll based on the achievement of a gross
profit target by SPSG for the year ended December 31, 2001. Resolution of this
deferred payment is still under review. The sale did not include the
subsidiaries that provide kidnap and ransom and risk information services, which
Kroll continues to operate. Also excluded from the sale was the Russian business
although it was included in SPSG discontinued operations, as further described
below.

      The results of operations have been classified as discontinued and all
prior periods have been restated accordingly. The results of the discontinued
SPSG reflect an allocation of Kroll's administrative costs attributable to SPSG
and, to the extent that such identification was not practicable, on the basis of
SPSG's sales as a percentage of Kroll's sales. The results of the discontinued
SPSG also reflect an allocation of corporate interest expense based on Kroll's
weighted average interest rate applied to intercompany advances.

      The $1.5 million in escrow has not been included in determining the
estimated gain or loss on the sale of SPSG. Similarly, Kroll has not included
any impact of the potential $2.0 million deferred payment by Armor to Kroll in
determining the estimated gain or loss on the sale of SPSG.

      Although Kroll's Russian business was not sold to Armor, the Russian
business was part of the plan to discontinue SPSG and, therefore, has been
included in discontinued operations of SPSG (see Note 12(c) - "Subsequent
Events").

      Net sales and results of operations from SPSG are as follows:

                                                           Three Months ended
                                                             March 31, 2001
                                                         ---------------------
                                                         (dollars in thousands)

Net sales.....................................................  $ 28,476
Cost of sales.................................................    22,048
                                                                --------
   Gross profit...............................................     6,428
Operating expenses............................................     4,858
                                                                --------
     Operating income.........................................     1,570
Other expense.................................................       728
                                                                --------
     Income before provision for income taxes.................       842
Provision for income taxes....................................        91
                                                                --------
     Net income...............................................  $    751
                                                                ========

                                       7
<PAGE>

      (b) Voice and Data Communications Group - On April 16, 2001, the Board of
Directors approved a formal plan to discontinue operations of VDCG, which
offered secure satellite communication equipment and satellite navigation
systems. Kroll has divested itself of the operations of this segment.

      The results of operations of VDCG have been classified as discontinued
operations and all prior periods have been restated accordingly. The results of
VDCG reflect an allocation of interest expense based on VDCG's average net
assets. The tax effects of the results of operations of VDCG were not
significant for the periods presented.

      On June 27, 2001, Kroll sold its ownership in the stock of VDCG to an
unrelated third party for notes that are due and payable in 2004 with a
contingent value of up to $4.0 million. Kroll subsequently evaluated the
collectibility of the notes and determined that the ultimate resale of VDCG and
collection on the notes were uncertain. As a result, the notes were written down
to zero.

      Net sales and results of operations from this discontinued operation are
as follows:

                                                           Three Months ended
                                                             March 31, 2001
                                                         ---------------------
                                                         (dollars in thousands)

Net sales......................................................  $ 3,134
Interest expense allocation....................................  $    60
Net loss from discontinued VDCG operations.....................  $  (104)

       A valuation allowance for VDCG's net operating loss carryforwards has
been provided, as the tax benefit will not be realized.

(5)   Earnings Per Share

       Pursuant to the provisions of SFAS No. 128 "Earnings Per Share", basic
earnings per share are computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per share are computed by dividing net income (loss) by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. Dilutive common stock equivalents represent shares
issuable upon assumed exercise of stock options and warrants and assumed
issuance of restricted stock.

      The following is a reconciliation of the numerator and denominator for
basic and diluted earnings per share for the three months ended March 31, 2001
and 2002:

<TABLE>
<CAPTION>

                                                Three Months Ended March 31, 2001
                                              -----------------------------------
                                                              Weighted
                                                Net Income     Average
                                                  (Loss)        Shares      Per Share
                                               (Numerator)   (Denominator)   Amount
                                              ------------  --------------  ---------
                                               (in thousands, except per share data)

Basic and diluted earnings (loss) per share:
<S>                                           <C>               <C>       <C>
   Continuing operations....................    $   (177)                   $  (0.01)
   Discontinued operations .................         647                        0.03
                                                --------                    --------
   Total....................................    $    470         22,415     $   0.02
                                                ========                    ========
Effect of dilutive securities:
   Options..................................                         60
   Warrants.................................                          1
                                                                -------
   Diluted shares...........................                     22,476
                                                                =======


                                       8
<PAGE>

<CAPTION>

                                                Three Months Ended March 31, 2002
                                              -----------------------------------
                                                              Weighted
                                                Net Income     Average
                                                  (Loss)        Shares      Per Share
                                               (Numerator)   (Denominator)   Amount
                                              ------------  --------------  ---------
                                               (in thousands, except per share data)

<S>                                              <C>              <C>       <C>
Basic earnings per share:                        $  2,317         22,870    $  0.10
                                                 ========                   =======
Effect of dilutive securities:
   Options..................................                         918
                                                                  ------
Diluted earnings per share..................     $  2,317         23,788    $  0.10
                                                 ========         ======    =======
</TABLE>

      Basic and diluted loss per share for continuing operations were $(0.01)
for the three months ended March 31, 2001, while basic and diluted earnings for
discontinued operations were $0.03, resulting in a $0.02 earnings per basic and
diluted share.

      Basic and diluted earnings per share for the three months ended March 31,
2002 were $0.10.

(6)   Debt

   (a) Revolving Line of Credit

      In 2001, Kroll entered into an amended and restated loan agreement to
provide for a revolving credit facility that initially amounted to $40.0
million. The loan agreement was secured by substantially all assets of Kroll and
its subsidiaries, and a pledge of the stock of essentially all the subsidiaries,
all of which jointly and severally guaranteed obligations under the agreement.
The security pledge and joint and several guarantee also extended to Kroll's
$35.0 million senior notes. Advances under the revolving credit facility bore
interest at the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5%
times the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law). Kroll's agreement to sell the
entities that comprise the Security Products and Services Group discussed in
Note 4(a) resulted in an acceleration of all amounts due under the loan
agreement 60 days after the closing of the sale, resulting in the expiration of
the agreement on October 22, 2001, which was then extended to November 16, 2001.
Kroll used 56.79% of the proceeds from the sale of SPSG, including the
subsequent conversion of Armor stock to cash, to pay down this line of credit by
approximately $28.2 million during the third quarter of 2001. All amounts
outstanding under this agreement were repaid on November 14, 2001, thus
terminating the agreement.

      On February 21, 2002, Kroll executed agreements with Foothill Capital
Corporation to provide a revolving credit facility of up to $15 million, subject
to borrowing base limitations, for a term of three years. The borrowing amount
is calculated based on an analysis of Kroll's accounts receivable and unbilled
revenues as of the month end preceding the borrowing date. Borrowings under the
credit facility will bear interest, at Kroll's election, at a rate per annum
equal to (1) a base rate, which will be the prime rate of Wells Fargo Bank,
N.A., plus 0.75% or (2) LIBOR plus 2.75%. During the term of the credit
facility, Kroll will pay Foothill Capital a fee equal to the product of 0.375%
per annum and the unused portion of the credit facility. The credit facility


                                       9
<PAGE>

agreement requires Kroll to maintain a minimum level of EBITDA, and contains
restrictions on the incurrence of additional debt, the creation of any liens on
any of Kroll's assets, certain acquisitions, distributions to certain
subsidiaries and other affirmative and negative covenants customarily contained
in debt agreements of this type. The credit facility is secured by a security
interest in substantially all of the assets of Kroll and its material domestic
subsidiaries and a pledge of the stock of certain of Kroll's subsidiaries. As of
March 31, 2002, there were no amounts borrowed under the credit facility.

       (b) Senior Notes

      Kroll's $35.0 million of senior notes were amended in 2001 to bear
interest at the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5%
times the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law). These agreements were also secured by
substantially all assets of Kroll and its subsidiaries and a pledge of the stock
of essentially all the subsidiaries and were jointly and severally guaranteed by
essentially all the subsidiaries. Kroll's sale of the entities that comprised
the Security Products and Services Group on August 22, 2001 (see Note 4(a))
resulted in the acceleration of all amounts due under the revolving credit
facility and the senior notes to a date 60 days after the closing of the sale.
Kroll obtained from the lender an extension from October 22, 2001 to November
16, 2001. Kroll used 43.21% of the proceeds from the sale of SPSG, including the
subsequent conversion of Armor common stock to cash, to repay these notes by
approximately $21.2 million during the third quarter of 2001. On November 14,
2001, all outstanding debt under the senior notes was repaid.

       (c) Senior Secured Subordinated Convertible Notes

       In November 2001, Kroll obtained new financing of $30.0 million in the
form of 6% Senior Secured Subordinated Convertible Notes due 2006. On November
14, 2001, Kroll issued $25.0 million of notes and issued an additional $5.0
million of notes on November 20, 2001. The notes mature November 14, 2006 and
bear interest at the rate of 6% per annum payable semi-annually. However, 12%
per annum will accrue on any principal payment that is past due. Kroll may
redeem these convertible notes at par plus accrued interest, in whole or in
part, beginning November 14, 2004, provided the note holders have been notified
in writing 20 days in advance. The note holders may at any time prior to one day
before the earlier of the maturity date or the redemption date, convert all or a
portion of the principal amount of the notes into Kroll common stock at the
conversion price of $10.80 per share. The $30.0 million of notes are immediately
convertible into 2,777,777 shares of Kroll common stock, subject to customary
and other anti-dilution adjustments.

      The notes are secured by the same assets of Kroll and its material
domestic subsidiaries and the same pledge of stock of certain of Kroll's
subsidiaries as the $15 million revolving credit facility, except that the notes
are subordinate to the security interest and rights of the credit facility
lender.

      The notes contain certain customary covenants, including covenants that
prohibit Kroll from disposing of any material subsidiary, incurring or
permitting to exist any debt other than the $15.0 million credit facility,
guaranteeing the obligations of any third party, creating or permitting to exist
any material liens on assets of material subsidiaries or entering into a
transaction prior to November 14, 2003 that involves a "change in control" of
Kroll (as defined in the notes). The notes are payable upon any change in
control of Kroll at the option of the holders. The note holders have designated
an observer to the Board of Directors who may serve in this capacity as long as
20% of the notes, or shares into which the notes were converted, are held by the
noteholders or investors. The observer may also attend Audit and Compensation
Committee meetings.

      Kroll has an effective registration statement with the SEC covering the
resale of the notes, and the shares of common stock issuable upon conversion of
these notes, and is required to keep the registration statement effective until
November 2003.

      In connection with the issuance of the notes Kroll recorded a notes
discount of approximately $11.4

                                       10
<PAGE>

million based on the difference between the closing price of its stock on the
issuance date and the conversion price. In addition to the stated 6% interest,
the discount will be amortized as non-cash interest expense over the expected
5-year life of the notes. Barring early conversion by the noteholders or early
redemption by Kroll, the additional non-cash interest expense resulting from
this discount amortization will average approximately $2.3 million or 7.6% per
year on $30.0 million principal. During the three months ended March 31, 2002,
$0.4 million was amortized.

(7)   New Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), which addresses financial accounting and reporting for business
combinations. SFAS No. 141 requires all business combinations in the scope of
the statement to be accounted for using one method, the purchase method. Kroll
adopted the provisions of this statement as of June 30, 2001.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which
established accounting and reporting standards for goodwill and other intangible
assets that are acquired individually or with a group of other assets. The
provisions of this statement are effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 requires goodwill and similar intangible assets
to be accounted for using an impairment-only method instead of the amortization
method previously used. Accordingly, effective January 1, 2002, Kroll ceased
amortizing goodwill and similar intangible assets. Additionally, during 2002
Kroll will conduct impairment tests of the goodwill currently on its books.
Impairment tests will be conducted annually thereafter, or sooner if
circumstances indicate an impairment may have taken place. Refer to Note 11 for
the effect of implementation of SFAS No. 142.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143), which
addresses financial accounting and reporting for obligations and costs
associated with the retirement of tangible long-lived assets. Kroll is required
to implement SFAS No. 143 on January 1, 2003, and has not yet determined the
impact that this statement will have on its results of operations or financial
position.

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144), which replaces SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
establishes accounting and reporting standards for long-lived assets to be
disposed of by sale. This standard applies to all long-lived assets, including
discontinued operations. SFAS No. 144 requires that those assets be measured at
the lower of carrying amount or fair value less cost to sell. SFAS No. 144 also
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
that will be eliminated from the ongoing operations of the entity in a disposal
transaction. Kroll implemented SFAS No. 144 on January 1, 2002, and there was no
material impact relating to the implementation of this statement on its
consolidated results of operations or financial position.

      In September 2000, the Emerging Issues Task Force (EITF) announced Issue
No. 00-20, "Accounting for Costs Incurred to Acquire or Originate Information
for Database Content and Other Collections of Information," stating that the
EITF is considering different views for the accounting for database costs. One
of the views would require Kroll to expense some or all of the database costs
that Kroll currently capitalizes and amortizes, which is currently an acceptable
alternative. Adoption of a different method of accounting for database costs
could have a material impact on Kroll's financial position and results of
operations. To date, the EITF has not made any official determinations on this
issue.

                                       11
<PAGE>

(8)   Supplemental Cash Flows Disclosures

      The following is a summary of cash paid related to certain items:

<TABLE>
<CAPTION>

                                                         Three Months Ended March 31,
                                                         ----------------------------
                                                              2001        2002
                                                            --------    --------
                                                            (dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
<S>                                                          <C>         <C>
   Cash paid for interest of continuing operations........   $  881      $    85
                                                             ======      =======
   Cash paid for interest of discontinued operations......   $   62      $    --
                                                             ======      =======
   Cash paid for taxes of continuing operations, net of
     refunds..............................................   $  (42)     $   371
                                                             ======      =======
Supplemental Disclosure of Non-cash Activities:
   None
</TABLE>

(9)   Derivative Financial Instruments

      Financial instruments in the form of foreign currency exchange contracts
were utilized by Kroll in 2001 to hedge its exposure to movements in foreign
currency exchange rates. Kroll does not hold or issue derivative financial
instruments for trading purposes. As of March 31, 2001, the foreign hedge
contracts had a notional amount and estimated fair value of $13.4 million and
$0.9 million, respectively. During the three months ended March 31, 2002, Kroll
did not utilize foreign currency exchange contracts.

(10)  Customer and Segment Data

      As a result of the sale of SPSG to Armor on August 22, 2001 (see Note
4(a)), SPSG was accounted for as a discontinued operation and all prior periods
have been restated accordingly in the accompanying consolidated financial
statements. The segment data in the table below depicts Kroll's three business
segments: Consulting Services, Security Services and Employee Screening
Services, restated historically for segment presentation. Kroll's reportable
segments are now organized, managed and operated along product lines, as these
product 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 Consulting Services segment includes revenues from business
investigations and intelligence services as well as financial services. Business
investigations and intelligence services include revenues from nonfinancial due
diligence, litigation support, fraud investigations, monitoring services and
special inquiries, and intellectual property and infringement investigations.
Financial services include revenues from forensic accounting, recovery and
restructuring, asset tracing and analysis, and pre-acquisition due diligence.

      The Security Services segment includes revenues from security and
technology services. Security services include revenues from threat assessment,
risk and crisis management, corporate security planning and executive
protection, security architecture and design, and electronic countermeasures.
Technology services include revenues from computer forensics and data recovery,
information security and litigation and systems support.

      The Employee Screening Services segment includes revenues from
pre-employment background checking, drug testing and surveillance.

                                       12
<PAGE>

      The following summarizes information about Kroll's business segments for
the three months ended March 31, 2001 and 2002:

<TABLE>
<CAPTION>

                                  Consulting    Security    Employee
                                   Services     Services    Screening    Other    Consolidated
                                  ----------    --------   ----------    -----    ------------
                                                (dollars in thousands)
<S>                                 <C>         <C>        <C>         <C>         <C>
Three Months Ended March 31, 2001
   Net sales to unaffiliated
     customers...................   $ 34,139    $  5,850    $ 10,786    $   --      $ 50,775
                                    ========    ========    ========    ========    ========
   Gross profit .................   $ 13,870    $  2,316    $  4,918    $   --      $ 21,104
                                    ========    ========    ========    ========    ========
   Operating income (loss) ......   $  2,485    $    180    $    968    $ (2,564)   $  1,069
                                    ========    ========    ========    ========    ========

Three Months Ended March 31, 2002
   Net sales to unaffiliated
     customers...................   $ 36,005    $  8,914    $ 11,097    $   --      $ 56,016
                                    ========    ========    ========    ========    ========
   Gross profit .................   $ 16,042    $  3,760    $  5,185    $   --      $ 24,987
                                    ========    ========    ========    ========    ========
   Operating income (loss) ......   $  5,817    $  2,006    $  2,077    $ (5,406)   $  4,494
                                    ========    ========    ========    ========    ========
   Identifiable assets at March
     31, 2002....................   $ 78,167    $ 18,001    $ 23,441    $   --      $119,609
                                    ========    ========    ========    ========
   Corporate assets .............                                                     52,348
                                                                                    --------
   Total assets at March 31, 2002...                                                $171,957
                                                                                    ========
</TABLE>

      Total net sales by segment include sales to unaffiliated customers.
Inter-segment sales are nominal. Operating income equals gross profit less
operating expenses. Operating income does not include the following items:
interest expense, other expenses and income taxes. The "Other" column includes
the cost of Kroll's corporate headquarters. Identifiable assets by segment are
those assets that are used in Kroll's operations in each segment. Corporate
assets are principally cash, computer software, costs in excess of assets
acquired and certain prepaid expenses.

      Prior to the sale of the Security Products and Services Group to Armor,
corporate costs relating to Consulting Services, Security Services and Employee
Screening Services were included in the calculation of operating income for each
of those segments. This mirrored the management of those businesses as one
segment, the Investigations and Intelligence Group, at that time. Subsequent to
the sale, Kroll's remaining business was the Investigations and Intelligence
Group, which has been broken out into the three described segments. Corporate
costs relating to each of these segments are now included with "Other" corporate
costs in order to mirror the post sale management structure of Kroll. For the
three months ended March 31, 2001, corporate costs of approximately $2.9
million, relating to these three segments, were included in the calculation of
segment operating income. Had these costs been included with "Other" corporate
costs in 2001, the operating loss relating to "Other" would have been
approximately $5.5 million.

(11)  Effect of the Implementation of SFAS No. 142

      In accordance  with SFAS No. 142, Kroll no longer  records  amortization
expense for goodwill. This had the following effect on reported earnings:


                                       13
<PAGE>

<TABLE>
<CAPTION>

                                                          Three Months Ended March 31,
                                                      -------------------------------------
                                                               2001        2002
                                                             --------    --------
                                                      (in thousands, except per share data)

<S>                                                          <C>         <C>
Net income as reported....................................   $    470    $  2,317
Amortization of goodwill..................................        589          --
                                                             --------    --------
   Adjusted net income....................................   $  1,059    $  2,317
                                                             ========    ========

Income per share as reported..............................   $   0.02    $   0.10
Amortization of goodwill..................................       0.03          --
                                                             --------    --------
   Adjusted income per share..............................   $   0.05    $   0.10
                                                             ========    ========
</TABLE>

      Kroll has not changed the amortization periods or ceased amortizing
intangible assets other than goodwill as a result of our review of indefinite
lived assets to date. During 2002, Kroll will conduct impairment tests of the
goodwill currently on its books. Impairment tests will be conducted annually
thereafter, or sooner if circumstances indicate an impairment may have taken
place.

      As of March 31, 2002, Kroll had recorded cost and accumulated amortization
of intangible assets of $10.3 million and $3.6 million, respectively. Of this
amount, $8.2 million and $2.7 million related to the cost and accumulated
amortization of intangible assets pertained to acquired customer lists. The
remaining $2.1 million and $0.9 million of cost and accumulated amortization are
primarily related to non-compete agreements.

      Amortization expense on intangible assets of $0.2 million was recognized
in the three months ended March 31, 2002. Approximately $3.6 million of
amortization expense is anticipated to be recognized over the next five years.

(12)  Subsequent Events

      (a) Agreement to acquire Ontrack Data International, Inc. - On April 1,
2002, Kroll entered into an agreement (the "Merger Agreement") to acquire all of
the outstanding shares of Ontrack Data International, Inc. ("Ontrack"). The
Merger Agreement provides that a wholly owned subsidiary of Kroll will be merged
with and into Ontrack (the "Merger"), resulting in Ontrack becoming a wholly
owned subsidiary of Kroll. In the Merger, each share of outstanding Ontrack
common stock will be converted into the right to receive a fraction of a share
of Kroll's common stock (the "Exchange Ratio") equal to the product of (x) one
and (y) a fraction, the numerator of which is $12.50 and the denominator of
which is the Average Stock Price (as defined in the Merger Agreement), in a
transaction intended to qualify as a tax-free reorganization for federal income
tax purposes. If the Average Stock Price is equal to or greater than $19.3886,
each share of outstanding Ontrack common stock will be converted into the right
to receive 0.6447 of one share of Kroll's common stock. If the Average Stock
Price is equal to or less than $15.8634, each share of outstanding Ontrack
common stock will be converted into the right to receive 0.7880 of one share of
Kroll's common stock; provided that, if the Average Stock Price is less than
$15.634, Ontrack has the right to terminate the Merger Agreement unless Kroll
agrees to an Exchange Ratio equal to $12.50 divided by the Average Stock Price.

      In addition, pursuant to the Merger Agreement, Kroll will assume Ontrack's
existing stock option plans. As a result of the Merger, outstanding Ontrack
stock options will become exercisable for a number of shares of Kroll's common
stock and at exercise prices as adjusted for the Exchange Ratio. The total
purchase price for the acquisition of Ontrack is expected to be approximately
$140 million based on the number of shares of Ontrack common stock and Ontrack
stock options outstanding as of April 1, 2002.

      The Merger is subject to customary closing conditions, including the
approval of Kroll's shareholders, the approval of Ontrack's shareholders and
certain regulatory approvals. The Boards of Directors of both

                                       14
<PAGE>

companies have unanimously approved the Merger and the Merger Agreement. The
proposed acquisition is expected to close late in the second quarter of 2002.

      (b) Armor escrow - As a part of the August 22, 2001 sale agreement of the
Security Products and Services Group to Armor, $1.5 million was placed in
escrow, pending agreement on the closing date balance sheet audit. In May 2002,
agreement was reached on SPSG's closing date balance sheet, which resulted in
the payment of $1.1 million of the escrow to Kroll. In conjunction with this
escrow payment, Kroll will forgive certain obligations due to Kroll by Armor of
approximately $1.5 million primarily relating to former Central American
operations.

      (c) Agreement to sell Russian business - In April 2002, Kroll executed
letters of intent to sell its interest in its Russian armored car business, that
was not sold to Armor, to local management. The letters of intent specify that
Kroll will receive approximately $200,000 upon closing, $117,000 within one year
of the closing date and an additional $50,000 within two years of the closing
date. Payments not received on the due date will accrue interest at 10% per
annum. These transactions will relieve Kroll of any liability associated with
its Russian business. Closing of these transactions is anticipated to occur in
May 2002.



                                       15
<PAGE>

ITEM 2  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 Kroll's Consolidated
Financial Statements and Notes for the year ended December 31, 2001. On August
22, 2001, Kroll sold most of the active companies that comprised the Security
Products and Services Group (SPSG) to Armor Holdings, Inc. (Armor). Historical
amounts have been reclassified to conform to the current categories.

Forward-Looking Statements

      This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements can sometimes be identified by the use of forward-looking words
such as "anticipate," "believe," "estimate," "expect," "intend," "may," "will"
and similar expressions. These statements are based on management's current
expectations and are subject to risks, uncertainty and assumptions. Should one
or more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected, estimated or projected.

      The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: changes in
the demand for, or in the mix of, Kroll's services; project delays or
cancellations; cost overruns with regard to fixed price projects; competitive
pricing and other competitive pressures; changes in United States and foreign
governmental regulation and licensing requirements; currency exchange rate
fluctuations; foreign currency restrictions; general economic conditions;
political instability in foreign countries in which Kroll operates; Kroll's
ability to implement its internal growth strategy and to integrate and manage
successfully any business Kroll acquires; and other factors that are set forth
in Kroll's annual report on Form 10-K for the year ended December 31, 2001.

Recent Developments

      Kroll has considered a variety of corporate initiatives within the periods
presented in the accompanying consolidated unaudited financial statements.

      On April 16, 2001, the Board of Directors approved a formal plan to
discontinue operations of the Voice and Data Communications Group (VDCG), which
offered secure satellite communication equipment and satellite navigation
systems. On June 27, 2001, Kroll sold its ownership in the stock of VDCG. The
results of operations of VDCG have been classified as discontinued operations
and all prior periods have been restated accordingly (see Note 4(b) to the Notes
to the Consolidated Unaudited Financial Statements).

      On April 20, 2001, Kroll entered into a definitive agreement to sell most
of the active companies that comprised its Security Products and Services Group
(SPSG), other than SPSG's subsidiaries that provide kidnap and ransom and risk
information services and its Russian business, to Armor Holdings, Inc. (Armor).
On August 22, 2001, Kroll completed the sale of SPSG to Armor for up to $55.7
million, consisting of $37.2 million in cash, $15.0 million in Armor common
stock, and $1.5 million placed in escrow pending agreement on the closing date
balance sheet audit. In May 2002, agreement was reached on SPSG's closing date
balance sheet, which resulted in the payment of $1.1 million of the escrow to
Kroll. In conjunction with this escrow payment, Kroll will forgive certain
obligations due to Kroll by Armor of approximately $1.5 million primarily
relating to former Central American operations. The agreement also provides for
a potential deferred payment of up to $2.0 million by Armor to Kroll if a gross
profit target is achieved by SPSG for the year ended December 31, 2001.
Resolution of this deferred payment is still under review (see Note 4(a) to the
Notes to the Consolidated Unaudited Financial Statements).

                                       16
<PAGE>

      On September 14, 2001, Kroll converted approximately $14.1 million in
Armor common stock to cash. An additional $0.3 million was converted to cash on
September 21, 2001. There remains a balance of approximately $0.6 million as of
March 31, 2002, which Armor is contractually obligated to pay to Kroll. The
proceeds from the sale of SPSG were used by Kroll to repay approximately $49.4
million of debt during the third quarter of 2001.

      In November 2001, Kroll obtained new financing of $30.0 million in the
form of 6% Senior Secured Subordinated Convertible Notes due 2006. On November
14, 2001, Kroll issued $25.0 million of notes and issued an additional $5.0
million of notes on November 20, 2001. The notes mature November 14, 2006 and
bear interest at the rate of 6% per annum payable semi-annually. However, 12%
per annum will accrue on any principal payment that is past due. The notes are
secured by the same assets of Kroll and its material domestic subsidiaries and
the same pledge of stock of certain of Kroll's subsidiaries as the credit
facility discussed below, except that the notes are subordinate to the interest
and rights of the credit facility lender. Kroll may redeem these convertible
notes at par plus accrued interest, in whole or in part, beginning November 14,
2004, provided the note holders have been notified in writing 20 days in
advance. The note holders may at any time prior to one day before the earlier of
the maturity date or the redemption date, convert all or a portion of the
principal amount of the notes into Kroll common stock at the conversion price of
$10.80 per share. The $30.0 million of notes are immediately convertible into
2,777,777 shares of Kroll common stock, subject to customary and other
anti-dilution adjustments (see Note 6(c) to the Notes to the Consolidated
Unaudited Financial Statements).

      On February 21, 2002, Kroll executed agreements with Foothill Capital
Corporation to provide a revolving credit facility of up to $15 million, subject
to borrowing base limitations, for a term of three years. Borrowings under the
credit facility will bear interest, at Kroll's election, at a rate per annum
equal to (1) a base rate, which will be the prime rate of Wells Fargo Bank,
N.A., plus 0.75% or (2) LIBOR plus 2.75%. During the term of the credit
facility, Kroll will pay Foothill Capital a fee equal to the product of 0.375%
per annum and the unused portion of the credit facility. The credit facility
agreement requires Kroll to maintain a minimum level of EBITDA (earnings before
interest, taxes, depreciation and amortization), and contains restrictions on
the incurrence of additional debt, the creation of any liens on any of Kroll's
assets, certain acquisitions, distributions to certain subsidiaries and other
affirmative and negative covenants customarily contained in debt agreements of
this type. The credit facility is secured by a security interest in
substantially all of the assets of Kroll and its material domestic subsidiaries
and a pledge of the stock of certain of Kroll's subsidiaries (see Note 6(a) to
the Notes to the Consolidated Unaudited Financial Statements). Through May 15,
2002 there were no borrowings under the credit facility.

      On April 1, 2002, Kroll executed an agreement (the "Merger Agreement") to
acquire all of the outstanding shares of Ontrack Data International, Inc.
("Ontrack"). The Merger Agreement provides that a wholly owned subsidiary of
Kroll will be merged with and into Ontrack (the "Merger"), resulting in Ontrack
becoming a wholly owned subsidiary of Kroll. In the Merger, each share of
outstanding Ontrack common stock will be converted into the right to receive a
fraction of a share of Kroll's common stock (the "Exchange Ratio") equal to the
product of (x) one and (y) a fraction, the numerator of which is $12.50 and the
denominator of which is the Average Stock Price (as defined in the Merger
Agreement), in a transaction intended to qualify as a tax-free reorganization
for federal income tax purposes. If the Average Stock Price is equal to or
greater than $19.3886, each share of outstanding Ontrack common stock will be
converted into the right to receive 0.6447 of one share of Kroll's common stock.
If the Average Stock Price is equal to or less than $15.8634, each share of
outstanding Ontrack common stock will be converted into the right to receive
0.7880 of one share of Kroll's common stock; provided that, if the Average Stock
Price is less than $15.634, Ontrack has the right to terminate the Merger
Agreement unless Kroll agrees to an Exchange Ratio equal to $12.50 divided by
the Average Stock Price.

      In addition, pursuant to the Merger Agreement, Kroll will assume Ontrack's
existing stock option plans. As a result of the Merger, outstanding Ontrack
stock options will become exercisable for a number of shares of Kroll's common
stock and at exercise prices as adjusted for the Exchange Ratio. The total
purchase price for the

                                       17
<PAGE>

acquisition of Ontrack is expected to be approximately $140 million based on the
number of shares of Ontrack common stock and Ontrack stock options outstanding
as of April 1, 2002.

      The Merger is subject to customary closing conditions, including the
approval of Kroll's shareholders, the approval of Ontrack's shareholders and
certain regulatory approvals. The Board of Directors of both companies have
unanimously approved the Merger and the Merger Agreement. The proposed
acquisition is expected to close late in the second quarter of 2002 (see Note
12(a) to the Notes to the Consolidated Unaudited Financial Statements).

      In April 2002, Kroll executed letters of intent to sell its interest in
its Russian armored car business, that was not sold to Armor, to local
management. The letters of intent specify that Kroll will receive approximately
$200,000 upon closing, $117,000 within one year of the closing date and an
additional $50,000 within two years of the closing date. Payments not received
on the due date will accrue interest at 10% per annum. These transactions will
relieve Kroll of any liability associated with its Russian business. Closing of
these transactions is anticipated to occur in May 2002.

General

      Kroll is a leading global provider of investigations, intelligence,
security and risk mitigation consulting services. Through a network of 55
offices located in 18 countries, Kroll provides information, analysis and
solutions, including:

     o    Consulting services, which are comprised of: (1) business
          investigations and intelligence services, including nonfinancial due
          diligence, litigation support, fraud investigations, monitoring
          services and special inquiries and intellectual property infringement
          investigations; and (2) financial services, including forensic
          accounting, recovery and restructuring, asset tracing and analysis
          services and pre-acquisition financial due diligence; and

     o    Security services, which are comprised of: (1) security services,
          including threat assessment, risk and crisis management, corporate
          security planning and executive protection, security architecture and
          design, and electronic countermeasures; and (2) technology services,
          including computer forensics and data recovery, information security
          and litigation and systems support services; and

     o    Employee screening services, which include pre-employment background
          checking, drug testing and surveillance services.

Critical Accounting Policies

      Kroll's significant accounting policies, including the assumptions and
judgments underlying them, are more fully described in the Notes to the
Consolidated Financial Statements included in Kroll's annual report on Form 10K
for the year ended December 31, 2001. Some of our accounting policies require
the application of significant judgment by management in the preparation of our
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. Kroll's significant accounting policies include the following.

      Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the

                                       18
<PAGE>

reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

      Revenue recognition. Revenue 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 from standard hourly rate engagements is recognized as hours
are incurred and revenue from standard daily rate arrangements is recognized at
amounts represented by the agreed-upon billing amounts as incurred. Revenue
related to fixed price arrangements is recognized based upon costs incurred as a
percentage of the estimated total direct costs of the respective arrangements.
The impact of any revisions in estimated total revenue and direct contract costs
is recognized in the period in which they become known. Kroll records either
billed or unbilled accounts receivable based on case-by-case invoicing
determinations.

      Databases. Databases are capitalized costs incurred in obtaining
information from third party providers. Kroll utilizes this information to
create and maintain its proprietary and non-proprietary databases. Because of
the continuing accessibility of the information and its usefulness to future
investigative procedures, the cost of acquiring the information is capitalized
and amortized over a five year period.

      Foreign Currency Translation and Transactions. Assets and liabilities of
foreign operations are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year, with
gains or losses resulting from translation included in a separate component of
shareholders' equity.

      Gains or losses resulting from foreign currency transactions are
translated to local currency at the rates of exchange prevailing at the dates of
the transactions. Amounts receivable or payable in foreign currencies, other
than the subsidiary's local currency, are translated at the rates of exchange
prevailing at the balance sheet date. The effect of transactional gains or
losses is included in other income (expense) in the accompanying consolidated
statements of operations.

Results of Operations

      The following table sets forth the items noted as a percentage of total
net sales for the three months ended March 31:

<TABLE>
<CAPTION>

                                                                      2001     2002
                                                                     ------   ------

<S>                                                                   <C>      <C>
   Consulting Services..........................................      67.2%    64.3%
   Security Services............................................      11.5     15.9
   Employee Screening...........................................      21.3     19.8
                                                                     ------   ------
     Total net sales............................................     100.0%   100.0%
Cost of sales...................................................      58.4     55.4
                                                                     ------   ------
     Gross profit...............................................      41.6     44.6
                                                                     ------   ------
Selling and marketing...........................................       9.4      7.8
General and administrative......................................      29.3     28.4
Amortization of other intangible assets.........................       0.4      0.4
                                                                     ------   ------
   Total recurring operating costs..............................      39.1     36.6
                                                                     ------   ------
     Operating income before non-recurring operating costs......       2.5      8.0
                                                                     ------   ------
Failed separation costs.........................................       0.4      0.0
                                                                     ------   ------
     Operating income...........................................       2.1      8.0
                                                                     ------   ------

                                       19
<PAGE>

<CAPTION>

                                                                      2001     2002
                                                                     ------   ------
<S>                                                                   <C>      <C>
Interest expense, net...........................................      (2.2)    (1.7)
Other, net......................................................       0.3      0.0
                                                                     ------   ------
   Total other expense..........................................      (1.9)    (1.7)
                                                                     ------   ------
     Income from continuing operations before provision for
       income taxes.............................................       0.2      6.3
Provision for income taxes......................................       0.5      2.2
                                                                     ------   ------
     Income (loss) from continuing operations...................      (0.3)     4.1
Income of discontinued operations, net of tax...................       1.2      0.0
                                                                     ------   ------
     Net income.................................................       0.9%     4.1%
                                                                     ======   ======
</TABLE>


      Net sales. Net sales increased $5.2 million, or 10.3%, from $50.8 million
in the three months ended March 31, 2001 (the 2001 Period) to $56.0 million in
the three months ended March 31, 2002 (the 2002 Period).

      Consulting Services - Net sales for the Consulting Services segment
increased $1.9 million, or 5.5%, from $34.1 million in the 2001 Period to $36.0
million in the 2002 Period. This increase was primarily attributable to the
strong demand for our corporate recovery and turnaround services in the United
Kingdom, where net sales increased approximately $3.9 million, or 58.0%, from
$6.8 million in the 2001 Period to $10.7 million in the 2002 Period. These
increases were offset, in part, by decreased net sales in our Asian operations,
where the weak regional economy and the reduced merger and acquisition activity
continue to negatively impact sales.

      Security Services - Net sales for the Security Services segment increased
$3.0 million, or 52.4%, from $5.9 million in the 2001 Period to $8.9 million in
the 2002 Period. Our domestic security services business posted sales growth of
approximately $3.5 million, or 71.3%, from $5.0 million in the 2001 Period to
$8.5 million in the 2002 Period as a result of the increased demand for security
services in the aftermath of the events of September 11th. This increase was
partially offset by a decreased demand for security services in Latin America of
approximately $0.5 million, where poor economic conditions existed. In addition,
Kroll's net sales from security services decreased because Kroll is in the
process of transitioning its security services business in Latin America from
guard services, which have low margins, to other security services with higher
margins.

      Employee Screening Services - Net sales for the Employee Screening
Services segment increased $0.3 million, or 2.9%, from $10.8 million in the 2001
Period to $11.1 million in the 2002 Period. Demand for domestic pre-employment
background checking increased approximately $1.0 million or 24.7%, but was
largely offset by declines in domestic demand for both drug-testing and
surveillance services, primarily due to the decline in domestic hirings as a
result of the weak economy.

      Cost of sales and gross margin. Cost of sales increased $1.3 million, or
4.6%, from $29.7 million in the 2001 Period to $31.0 million in the 2002 Period.
Gross margin as a percentage of sales increased 3.0 percentage points from 41.6%
for the 2001 Period to 44.6% for the 2002 Period.

      Consulting Services - Gross margin for the Consulting Services segment
increased 4.0 percentage points from 40.6% in the 2001 Period to 44.6% in the
2002 Period. This was primarily due to our turnaround business in the United
Kingdom, where sales increased at a greater rate than cost of sales and at
a greater rate than sales for other consulting services.

      Security Services - Gross margin for the Security Services segment
increased 2.6 percentage points from 39.6% in the 2001 Period to 42.2% in the
2002 Period. This increase is a result of efficiency gains in employee
utilization associated with the significant increase in sales of our domestic
security services.

                                       20
<PAGE>

      Employee Screening Services - Gross margin for the Employee Screening
Services segment increased 1.1 percentage points from 45.6% in the 2001 Period
to 46.7% in the 2002 Period. This increase was primarily attributable to
increased margins in our domestic pre-employment background checking business,
which was partially offset by a decline in the period-to-period sales of our
higher margin drug-testing services.

      Operating expenses. Operating expenses increased $0.5 million, or 2.3%,
from $20.0 million in the 2001 Period to $20.5 million in the 2002 Period.
Included in this increase are non-recurring expenses, which decreased $0.2
million, from $0.2 million in the 2001 Period to zero in the 2002 Period.
Non-recurring charges in the 2001 Period consisted of costs associated with the
failed separation of Kroll into two publicly traded companies. Excluding
non-recurring expenses, operating expenses increased $0.7 million, or 3.2%, from
$19.8 million in the 2001 Period to $20.5 million in the 2002 Period. Beginning
with the 2002 Period, Kroll implemented SFAS 142, which, if applied to the 2001
Period, would have lowered 2001 Period operating expenses by $0.6 million, and
produced an increase in operating expenses of $1.1 million, or 5.4%, for the
2002 Period compared to the 2001 Period. The increase in operating expenses is
primarily due to increases in payroll and related expenses in our general and
administrative support functions.

      As a percent of net sales, operating expenses, before non-recurring
expenses, decreased 2.5% from 39.1% in the 2001 Period to 36.6% in the 2002
Period.

      Interest expense. Interest expense decreased $0.2 million, or 16.0%, from
$1.1 million in the 2001 Period to $0.9 million in the 2002 Period, primarily as
a result of the reduction in the level of overall indebtedness following the
sale of SPSG.

      Provision for income taxes. The provision for income taxes increased $0.9
million from $0.3 million in the 2001 Period to $1.2 million in the 2002 Period,
as a result of the $3.5 million increase in the pretax income from continuing
operations.

      Discontinued operations. Income from discontinued operations decreased
from $0.6 million in the 2001 Period to zero in the 2002 Period. VDCG was sold
in June 2001 and SPSG was sold to Armor on August 22, 2001 (see Note 4 to the
Notes to the Consolidated Unaudited Financial Statements).

      Net income. Net income increased $1.8 million from $0.5 million in the
2001 Period to $2.3 million in the 2002 Period. The increase in net income was
due primarily to the $3.9 million increase in gross profit as a result of
increased sales in the 2002 Period. The increase in gross profit was partially
offset by a $0.5 million operating expense increase, a $0.9 million tax
provision increase and a $0.6 million decrease in income from discontinued
operations.

Liquidity and Capital Resources

      General. Kroll historically has met its operating cash needs by utilizing
borrowings under its credit arrangements and net proceeds from public offerings
to supplement cash provided by operations, excluding non-cash charges such as
depreciation and amortization.

      Credit facilities and senior notes. In 2001, Kroll entered into an amended
and restated loan agreement to provide for a revolving credit facility that
initially amounted to $40.0 million. The loan agreement was secured by
substantially all assets of Kroll and its subsidiaries, and a pledge of the
stock of essentially all the subsidiaries, all of which jointly and severally
guaranteed obligations under the agreement. The security pledge and joint and
several guarantee also extended to Kroll's $35.0 million senior notes. Advances
under the revolving credit facility bore interest at the greater of (a) 8.56% or
(b) the prime rate plus 1.5%, plus 0.5% times the number of 30-day periods which
have expired since April 20, 2001 (or, if less, the highest rate allowed by
law). Kroll's agreement to sell the entities that comprise the Security Products
and Services Group discussed in Note 4(a) resulted in an acceleration of all
amounts due under the loan agreement 60 days after the closing of the sale,


                                       21
<PAGE>

resulting in the expiration of the agreement on October 22, 2001, which was then
extended to November 16, 2001. Kroll used 56.79% of the proceeds from the sale
of SPSG, including the subsequent conversion of Armor stock to cash, to pay down
this line of credit by approximately $28.2 million during the third quarter of
2001. All amounts outstanding under this agreement were repaid on November 14,
2001, thus terminating the agreement (see Note 6(a) to the Notes to the
Consolidated Unaudited Financial Statements).

      Kroll's $35.0 million of senior notes were amended in 2001 to bear
interest at the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5%
times the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law). These agreements were also secured by
substantially all assets of Kroll and its subsidiaries and a pledge of the stock
of essentially all the subsidiaries and were jointly and severally guaranteed by
essentially all the subsidiaries. Kroll's sale of the entities that comprised
the Security Products and Services Group on August 22, 2001 (see Note 4(a) to
the Notes to the Consolidated Unaudited Financial Statements) resulted in the
acceleration of all amounts due under the revolving credit facility and the
senior notes to a date 60 days after the closing of the sale. Kroll obtained
from the lender an extension from October 22, 2001 to November 16, 2001. Kroll
used 43.21% of the proceeds from the sale of SPSG, including the subsequent
conversion of Armor common stock to cash, to repay these notes by approximately
$21.2 million during the third quarter of 2001. On November 14, 2001, all
outstanding debt under the senior notes was repaid (see Note 6(b) to the Notes
to the Consolidated Unaudited Financial Statements).

      At the closing of the sale of the SPSG business to Armor, Kroll received
approximately $53.7 million, of which approximately $15.0 million was paid in
shares of Armor common stock and the balance was paid in cash. Of the
approximately $38.7 million balance, $1.5 million was deposited in escrow
pending agreement on SPSG's closing date balance sheet audit. Following the
closing of the transaction with Armor, proceeds from the sale of the Armor stock
of approximately $14.1 million and an additional $0.3 million subsequently
received were paid immediately to the revolving credit facility lender and
senior note holders. $0.6 million remains to be received from Armor.

      In November 2001, Kroll obtained new financing of $30.0 million in the
form of 6% Senior Secured Subordinated Convertible Notes due 2006. On November
14, 2001, Kroll issued $25.0 million of notes and issued an additional $5.0
million of notes on November 20, 2001. The notes mature November 14, 2006 and
bear interest at the rate of 6% per annum payable semi-annually. However, 12%
per annum will accrue on any principal payment that is past due. Kroll may
redeem these convertible notes at par plus accrued interest, in whole or in
part, beginning November 14, 2004, provided the note holders have been notified
in writing 20 days in advance. The note holders may, at any time prior to one
day before the earlier of the maturity date or the redemption date, convert all
or a portion of the principal amount of the notes into Kroll common stock at the
conversion price of $10.80 per share. The $30.0 million of notes are immediately
convertible into 2,777,777 shares of Kroll common stock, subject to customary
and other anti-dilution adjustments. The notes are secured by the same assets of
Kroll and its material domestic subsidiaries and the same pledge of the stock of
certain of Kroll's subsidiaries as the credit facility discussed below, except
that the notes are subordinate to the security interest and rights of the credit
facility lender.

      The notes contain certain customary covenants, including covenants that
prohibit Kroll from disposing of any material subsidiary, incurring or
permitting to exist any debt other than the credit facility, guaranteeing the
obligations of any third party, creating or permitting to exist any material
liens on assets of material subsidiaries or entering into a transaction prior to
November 14, 2003 that involves a "change in control" of Kroll (as defined in
the notes). The notes are payable upon any change in control of Kroll at the
option of the holders.

      The note holders have designated an observer to the Board of Directors who
may serve in this capacity as long as 20% of the notes, or shares into which the
notes were converted, are held by the noteholders or investors. The observer may
also attend Audit and Compensation Committee meetings.

      In connection with the issuance of the notes Kroll recorded a notes
discount of approximately $11.4

                                       22
<PAGE>

million based on the difference between the closing price of its stock on the
issuance date and the conversion price. In addition to the stated 6% interest,
the discount will be amortized as non-cash interest expense over the expected
5-year life of the notes. Barring early conversion by the noteholders or early
redemption by Kroll, the additional non-cash interest expense resulting from
this discount amortization will average approximately $2.3 million or 7.6% per
year on $30.0 million principal. A significant portion of the proceeds from the
new financing was used to retire Kroll's amended bank loan and senior notes (see
Note 6(c) to the Notes to the Consolidated Unaudited Financial Statements).
Excess proceeds of approximately $8.4 million are being used for working capital
to fund operations.

      Effective June 3, 1999, with the acquisition of Buchler Phillips, Kroll
acquired a demand note with maximum borrowings of 2.5 million pounds sterling.
The demand note bears interest at the Bank of England's base rate plus 1.0%. At
March 31, 2002 the interest rate was 5.5%. In March 2002, maximum borrowings
permitted under the demand note were raised from 2.5 million pounds sterling to
4.4 million pounds sterling, or $6.2 million as translated at March 31, 2002.
Borrowings outstanding pursuant to this demand note were approximately $2.6
million and $4.2 million, as translated at December 31, 2001 and March 31, 2002,
respectively

      On February 21, 2002, Kroll executed agreements with Foothill Capital
Corporation to provide a revolving credit facility of up to $15 million, subject
to borrowing base limitations, for a term of three years. Borrowings under the
credit facility will bear interest, at Kroll's election, at a rate per annum
equal to (1) a base rate, which will be the prime rate of Wells Fargo Bank,
N.A., plus 0.75% or (2) LIBOR plus 2.75%. During the term of the credit
facility, Kroll will pay Foothill Capital a fee equal to the product of 0.375%
per annum and the unused portion of the credit facility. The credit facility
agreement requires Kroll to maintain a minimum level of EBITDA, and contains
restrictions on the incurrence of additional debt, the creation of any liens on
any of Kroll's assets, certain acquisitions, distributions to certain
subsidiaries and other affirmative and negative covenants customarily contained
in debt agreements of this type. The credit facility is secured by a security
interest in substantially all of the assets of Kroll and its material domestic
subsidiaries and a pledge of stock of certain of Kroll's subsidiaries (see Note
6(a) to the Notes to the Consolidated Unaudited Financial Statements). Through
May 15, 2002, there were no borrowings under the credit facility.

      In May 2002, Kroll and Armor resolved post-closing adjustments to the SPSG
closing date balance sheet, which resulted in the payment of $1.1 million of
escrowed purchase price to Kroll.

      We currently believe that the net proceeds from the sale of the notes,
combined with the available borrowings under the credit facility, the recovery
of $1.1 million of the Armor escrow, and Kroll's cash from operations, will be
sufficient to fund our operations for at least the next 12 months.

      Cash flows from operating activities. Operating activities provided $2.2
million in net cash in the 2001 Period compared to $1.0 million in the 2002
Period. In the 2002 Period, strong sales growth required a corresponding
increase in working capital investments to fund increased business activity, as
compared to the 2001 Period.

      Cash flows from investing activities. In the 2001 Period, Kroll used $2.2
million in investing activities, of which $1.0 million was used for capital
expenditures and $1.2 million was used for database additions. In the 2002
Period, Kroll used $2.4 million in investing activities, of which $0.9 million
was used for capital expenditures, $1.1 million was used for database additions
and $0.4 million was used for additions to intangible assets.

      Cash flows from financing activities. Net cash used in financing
activities was $2.1 million in the 2001 Period compared with net cash provided
of $1.0 million for the 2002 Period. In the 2001 Period, cash used in the
payment of long term debt was partially offset by borrowings under revolving
lines of credit. In the 2002 Period,

                                       23
<PAGE>

borrowings under revolving lines of credit was largely offset by payments of
long term debt. In addition, $0.8 million of cash was provided from proceeds
from the exercise of stock options.

      Kroll's contractual obligations were comprised of the following as of
March 31, 2002:

<TABLE>
<CAPTION>

                                            Payments due by Period
                          -----------------------------------------------------------------
Contractual Obligation    Total    Within 1 Year    2-3 Years     4-5 Years   After 5 Years
----------------------    -----    -------------    ---------     ---------   -------------
                                             (dollars in thousands)

<S>                    <C>           <C>           <C>            <C>          <C>
Long-term debt........ $  30,339     $      77     $       80     $      56    $  30,126
Operating leases......    36,373         8,406         13,325         8,907        5,735
                       ---------     ---------     ----------     ---------    ---------
   Total.............. $  66,712     $   8,483     $   13,405     $   8,963    $  35,861
                       =========     =========     ==========     =========    =========
</TABLE>


      Kroll also had a standby letter of credit outstanding at March 31, 2002 in
the amount of approximately $1.5 million, which is personally guaranteed by an
executive officer and shareholder of Kroll.

      Cash flows from discontinued operations. Net cash provided by discontinued
operations was $0.6 million in the 2001 Period compared to zero in the 2002
Period. In June 2001, VDCG was sold and on August 22, 2001 SPSG was sold to
Armor.

      Foreign operations. Kroll attempts to mitigate the risks of doing business
in foreign countries by separately incorporating its operations in those
countries; maintaining reserves for credit losses and maintaining insurance on
equipment to protect against losses related to political risks and terrorism. In
the 2001 Period, Kroll utilized derivative financial instruments, in the form of
forward contracts, to hedge some of its exposure to foreign currency rate
fluctuations. As of March 31, 2001, the foreign currency hedge contracts had a
notional amount and estimated fair value of $13.4 million and $0.9 million,
respectively. Kroll did not utilize derivative financial instruments during the
2002 Period.

      Quarterly fluctuations. Kroll generally does not have long-term contracts
with its clients and its ability to generate net sales is dependent upon
obtaining many new projects each year, most of which are of a relatively short
duration. Period-to-period comparisons within a given year or between years may
not be meaningful or indicative of operating results over a full fiscal year.

      New accounting pronouncements. In September 2000, the Emerging Issues Task
Force (EITF) announced Issue No. 00-20, "Accounting for Costs Incurred to
Acquire or Originate Information for Database Content and Other Collections of
Information," stating that the EITF is considering different views for the
accounting for database costs. One of the views would require Kroll to expense
some or all of the database costs that Kroll currently capitalizes and
amortizes, which is currently an acceptable alternative. Adoption of a different
method of accounting for database costs could have a material impact on Kroll's
financial position and results of operations. To date, the EITF has not made any
official determinations on this issue.

      In June 2001,  the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial Accounting  Standards No. 141, "Business  Combinations"
(SFAS No.  141),  which  addresses  financial  accounting  and  reporting  for
business combinations.  SFAS No. 141 requires all business combinations in the
scope of the  statement  to be  accounted  for using one method,  the purchase
method. Kroll adopted the provisions of this statement as of June 30, 2001.

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which
establishes accounting and reporting standards for goodwill and other intangible
assets that are acquired individually or with a group of other assets. The
provisions of this statement are effective for fiscal years beginning after
December 15, 2001. Accordingly, effective January 1, 2002, Kroll ceased
amortizing goodwill and similar intangible assets. During 2002, Kroll will
conduct impairment tests of the goodwill currently on its books. Impairment
tests will be conducted annually thereafter,

                                       24
<PAGE>

or sooner if circumstances indicate an impairment may have taken place (see Note
11 to the Notes to the Consolidated Unaudited Financial Statements).

      In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143), which
addresses financial accounting and reporting for obligations and costs
associated with the retirement of tangible long-lived assets. Kroll is required
to implement SFAS No. 143 on January 1, 2003, and has not yet determined the
impact that this statement will have on its consolidated results of operations
or financial position.

      In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144), which replaces SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
establishes accounting and reporting standards for long-lived assets to be
disposed of by sale. This standard applies to all long-lived assets, including
discontinued operations. SFAS No. 144 requires that those assets be measured at
the lower of carrying amount or fair value less cost to sell. SFAS No. 144 also
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
that will be eliminated from the ongoing operations of the entity in a disposal
transaction. Kroll implemented SFAS No. 144 on January 1, 2002, and there was no
material impact relating to the implementation of this statement on its results
of operations or financial position.



                                       25
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      Fair Value of Financial Instruments -- The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments". Kroll estimated fair
values of financial instruments by using available market information and
appropriate valuation methodologies.

      However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that Kroll could realize in
current market exchange.

      Kroll does not expect to enter into financial instruments for trading or
hedging purposes. Kroll does not currently anticipate entering into interest
rate swaps and/or similar instruments.

      Kroll's carrying values of cash, marketable securities, accounts
receivable, accounts payable and accrued expenses are a reasonable approximation
of their fair value.

      Kroll's business in this regard is subject to certain risks, including,
but not limited to, differing economic conditions, loss of significant
customers, changes in political climate, differing tax structures, other
regulations and restrictions and foreign exchange rate volatility. Kroll's
future results could be materially and adversely impacted by changes in these or
other factors.



                                       26
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

      Kroll has been named as a defendant in eight lawsuits alleging that its
officers and directors breached their fiduciary duties in connection with the
now terminated proposed acquisition of a majority of Kroll's shares by a company
formed by Blackstone Capital Partners III Merchant Banking Fund L.P. Five of the
lawsuits were filed in the Court of Common Pleas, Butler County, Ohio, and were
consolidated on November 29, 1999. The remaining three lawsuits were filed in
the United States District Court for the Southern District of New York and were
consolidated on November 30, 1999. The plaintiffs allege that Kroll's officers
and directors breached their fiduciary duties by deferring acquisitions, by
negotiating an inadequate acquisition price, by failing to engage in arms-length
negotiations and by failing to seek redress from Blackstone after Blackstone
terminated the proposed transaction. The plaintiffs also allege that Blackstone
and AIG aided and abetted the directors' and officers' alleged breaches of
fiduciary duties. The plaintiffs seek to bring their claims derivatively on
behalf of Kroll and also seek class certification. On behalf of Kroll and the
putative plaintiff classes of shareholders, they seek a declaration that the
individual defendants breached their fiduciary duty and damages and attorneys'
fees in an unspecified amount. The defendants believe that the allegations in
the complaints are meritless and will defend the suits vigorously.

      Kroll Lindquist Avey Co. (formerly Lindquist Avey Macdonald &
Baskerville), a subsidiary of Kroll, and several of its principals have been
named as third-party defendants in a lawsuit filed in the Ontario Superior Court
of Justice by HSBC Securities (Canada) Inc., formerly Gordon Capital, an
investment dealer ("HSBC"). HSBC filed the underlying suit against Gordon
Capital's former law firm, Davies, Ward & Beck ("DW&B") seeking damages in the
amount of approximately $40,000,000 (Cdn.). HSBC alleges DW&B negligently
advised Gordon Capital during 1991 through 1993 with respect to its rights
concerning trading losses and irregularities by a client account manager and
various insurance bonds relating to such losses and irregularities. HSBC further
alleges various suits and declaratory judgment actions involving the insurers
were filed in 1993 and that summary judgment granted in favor of the insurers in
1996 was affirmed on appeal to the Supreme Court of Canada on the basis that the
limitation period under the bonds had expired without an action being commenced
for recovery of Gordon Capital's losses. Gordon Capital, DW&B and LAMB entered
into various tolling agreements until the matters pending with the insurers were
exhausted. In April 2000, HSBC filed suit against DW&B. In July 2001, DW&B filed
a third-party claim against LAMB and certain principals for contribution and
indemnity. An amended third-party claim was filed in September 2001. The
third-party claim alleges DW&B retained LAMB in June 1991 to examine the trading
irregularities and to advise Gordon Capital in respect of its dealings with its
insurers and that LAMB acted negligently in carrying out these services. Third
party claims have also been filed against some entities formerly known as Peat
Marwick Thorne, Gordon Capital's alleged former auditors and AON Reed Stenhouse,
Inc., Gordon Capital's alleged former insurance broker. While this matter is at
a preliminary stage and no discovery has been conducted, LAMB and its principals
believe that they have meritorious defenses to the claims and intend to defend
them vigorously.

      In addition to the matters discussed above, Kroll is involved in
litigation from time to time in the ordinary course of its business; however,
Kroll does not believe that such litigation, individually or in the aggregate,
is likely to have a material adverse effect on its business, financial
condition, results of operations or cash flows.



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<PAGE>


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      During the quarter ended March 31, 2002, Kroll filed the following current
      report on Form 8-K.

      Date of Report: February 21, 2002 (filed March 1, 2002); Items 5 and 7.




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<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the 15th day of May, 2002.

                                       Kroll Inc.

                                       By: /s/ Michael A. Petrullo
                                          -------------------------------
                                          Michael A. Petrullo
                                          Acting Chief Financial Officer



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