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

                                  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 June 30, 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)

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

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

                                 (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.

                                   30,596,448
            --------------------------------------------------------
            (Shares of common stock outstanding as of August 8, 2002)

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

<PAGE>

                                   KROLL INC.

                                    FORM 10-Q
                         FOR THE QUARTERLY PERIOD ENDED
                                  June 30, 2002

                                                                           Page
                                                                           ----
PART I - FINANCIAL INFORMATION

        Item 1:    Financial Statements

                   Consolidated Balance Sheets (unaudited) as of
                   December 31, 2001 and June 30, 2002.....................   1

                   Consolidated Statements of Operations and
                     Comprehensive Income (Loss) (unaudited) for
                     the three and six months ended June 30,
                     2001 and 2002.........................................   3

                   Consolidated Statements of Cash Flows (unaudited)
                     for the six months ended June 30, 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.....................  18

        Item 3:    Quantitative and Qualitative Disclosures About
                   Market Risk.............................................  30


PART II - OTHER INFORMATION

 Item 1:           Legal Proceedings.......................................  31

 Item 2:           Changes in Securities and Use of Proceeds...............  32

 Item 6:           Exhibits and Reports on Form 8-K........................  33

Signatures.................................................................  34


                                       i

<PAGE>

<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                   KROLL INC.

                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                    As of December 31, 2001 and June 30, 2002
                             (Dollars in Thousands)

                                                                             December 31,      June 30,
                                                                           -------------      ----------
                                                                                2001             2002
ASSETS
CURRENT ASSETS:
<S>                                                                         <C>               <C>
   Cash and cash equivalents ..............................................  $  11,485           42,185
   Marketable securities ..................................................       --              5,590
   Trade accounts receivable, net of allowance for
      doubtful accounts of $6,798 and $8,139 at December 31, 2001
      and June 30, 2002, respectively .....................................     37,780           46,383
   Unbilled revenues ......................................................     25,600           23,710
   Related party receivables ..............................................      2,417            2,004
   Prepaid expenses and other current assets ..............................      4,524            6,144
                                                                             ---------        ---------
      Total current assets ................................................     81,806          126,016
                                                                             ---------        ---------

PROPERTY, PLANT AND EQUIPMENT, at cost:
   Land ...................................................................        194              194
   Buildings and improvements .............................................      2,001            2,043
   Leasehold improvements .................................................      7,440           10,472
   Furniture and fixtures .................................................      5,135            6,496
   Machinery and equipment ................................................     27,905           36,615
   Construction-in-progress ...............................................        500             --
                                                                             ---------        ---------
                                                                                43,175           55,820

   Less-accumulated depreciation and amortization .........................    (27,108)         (31,771)
                                                                             ---------        ---------
                                                                                16,067           24,049
                                                                             ---------        ---------

DATABASES, net of accumulated amortization of $33,672
   and $35,880 at December 31, 2001 and June 30, 2002,
   respectively ...........................................................     10,530           10,674
COSTS IN EXCESS OF ASSETS ACQUIRED, net of accumulated
   amortization of $8,033 and $8,036 at December 31, 2001
   and June 30, 2002, respectively (Note 13) ..............................     50,436          145,703
OTHER INTANGIBLE ASSETS, net of accumulated amortization
   of $3,403 and $4,079 at December 31, 2001 and June 30, 2002,
   respectively (Note 13) .................................................      6,720           15,739
DEFERRED TAX ASSET ........................................................       --              1,438
OTHER ASSETS ..............................................................      4,227            4,426
                                                                             ---------        ---------
      Total Assets ........................................................  $ 169,786        $ 328,045
                                                                             =========        =========
</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 June 30, 2002
                      (in Thousands, except share amounts)

                                                                                   December 31,       June 30,
                                                                                  -------------    -------------
                                                                                       2001             2002
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S>                                                                                <C>              <C>
   Revolving lines of credit (Note 8) ............................................. $   2,561        $   1,518
   Current portion of long-term debt (Note 8) .....................................       318               87
   Trade accounts payable .........................................................    10,360           10,122
   Accrued liabilities ............................................................    16,391           17,579
   Income taxes payable ...........................................................     1,434            1,747
   Deferred income taxes ..........................................................     1,936              226
   Deferred revenue ...............................................................     4,389            3,737
   Net current liabilities of discontinued operation ..............................       503             --
                                                                                    ---------        ---------
      Total current liabilities ...................................................    37,892           35,016

OTHER LONG-TERM LIABILITIES .......................................................     1,337            1,129
DEFERRED INCOME TAXES .............................................................       346             --
CONVERTIBLE NOTES, net of unamortized discount of $11,200
   and $10,438 at December 31, 2001 and June 30, 2002,
   respectively (Note 8) ..........................................................    18,800           19,562
LONG-TERM DEBT, net of current portion (Note 8) ...................................       278               18
                                                                                    ---------        ---------
      Total liabilities ...........................................................    58,653           55,725
                                                                                    ---------        ---------

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 30,339,777 shares issued and outstanding at
      December 31, 2001 and June 30, 2002, respectively (Note 14) .................       228              303
   Additional paid-in-capital .....................................................   183,421          338,416
   Accumulated deficit ............................................................   (67,971)         (62,048)
   Accumulated other comprehensive loss ...........................................    (4,545)          (4,351)
                                                                                    ---------        ---------
      Total shareholders' equity ..................................................   111,133          272,320
                                                                                    ---------        ---------
                                                                                    $ 169,786        $ 328,045
                                                                                    =========        =========
</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 (LOSS) (Unaudited)
                    (In Thousands, Except per Share Amounts)

                                                                      For the three months ended        For the six months ended
                                                                              June 30,                          June 30,
                                                                     ---------------------------       -------------------------
                                                                        2001            2002             2001             2002
                                                                     ---------        ---------        ---------        ---------

<S>                                                                  <C>              <C>              <C>              <C>
NET SALES ......................................................     $  48,585        $  59,719        $  99,360        $ 115,735
COST OF SALES ..................................................        28,535           32,170           58,206           63,199
                                                                     ---------        ---------        ---------        ---------
        Gross profit ...........................................        20,050           27,549           41,154           52,536
                                                                     ---------        ---------        ---------        ---------
OPERATING EXPENSES:
   Selling and marketing .......................................         4,527            5,389            9,282            9,765
   General and administrative ..................................        14,988           15,440           29,883           31,340
   Research and development ....................................          --                451             --                451
   Amortization of other intangible assets .....................           207              327              413              544
   Failed separation costs (Note 2) ............................           214             --                393             --
   Restructuring expenses (Note 3) .............................         2,597             --              2,597             --
                                                                     ---------        ---------        ---------        ---------
      Operating expenses .......................................        22,533           21,607           42,568           42,100
                                                                     ---------        ---------        ---------        ---------
        Operating income (loss) ................................        (2,483)           5,942           (1,414)          10,436
                                                                     ---------        ---------        ---------        ---------
OTHER INCOME (EXPENSE):
   Interest expense, net .......................................        (1,141)            (932)          (2,259)          (1,844)
   Other income (expense) ......................................           (20)             170              156              142
                                                                     ---------        ---------        ---------        ---------
        Income (loss) from continuing operations
          before provision for income taxes ....................        (3,644)           5,180           (3,517)           8,734
   Provision for income taxes ..................................           930            1,645            1,234            2,882
                                                                     ---------        ---------        ---------        ---------
        Income (loss) from continuing operations ...............        (4,574)           3,535           (4,751)           5,852
                                                                     ---------        ---------        ---------        ---------
   Discontinued operations (Note 4):
      Income (loss) from discontinued security
        products and services group, net of taxes ..............        (1,103)              70             (352)              70
      Loss from operations of discontinued voice and
        data communications group, net of taxes ................          --               --               (104)            --
                                                                     ---------        ---------        ---------        ---------
        Income (loss) from discontinued operations .............        (1,103)              70             (456)              70
                                                                     ---------        ---------        ---------        ---------

        Net income (loss) ......................................     $  (5,677)       $   3,605        $  (5,207)       $   5,922
                                                                     ---------        ---------        ---------        ---------

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
   Foreign currency translation adjustment, net of
      tax benefit of $1,429 and tax provision of $96 ...........                                          (2,331)             194
      for 2001 and 2002, respectively                                                                  ---------        ---------
        Comprehensive income (loss) ............................                                       $  (7,538)       $   6,116
                                                                                                       =========        =========
PER SHARE DATA (Note 7):
   BASIC EARNINGS (LOSS) PER SHARE
      Earnings (loss) per share from continuing operations......     $   (0.20)       $    0.15        $   (0.21)       $    0.25
                                                                     =========        =========        =========        =========
      Earnings (loss) per share from discontinued operations....     $   (0.05)       $    0.00        $   (0.02)       $    0.00
                                                                     =========        =========        =========        =========
      Earnings (loss) per share ................................     $   (0.25)       $    0.15        $   (0.23)       $    0.25
                                                                     =========        =========        =========        =========
      Weighted average shares outstanding ......................        22,419           24,577           22,417           23,675
   DILUTED EARNINGS (LOSS) PER SHARE                                 =========        =========        =========        =========
      Earnings (loss) per share from continuing operations......     $   (0.20)       $    0.14        $   (0.21)       $    0.24
                                                                     =========        =========        =========        =========
      Earnings (loss) per share from discontinued ..............     $   (0.05)       $    0.00        $   (0.02)       $    0.00
        operations                                                   =========        =========        =========        =========
      Earnings (loss) per share ................................     $   (0.25)       $    0.14        $   (0.23)       $    0.24
                                                                     =========        =========        =========        =========
      Weighted average shares outstanding ......................        22,419           25,846           22,417           24,945
                                                                     =========        =========        =========        =========
</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 10)
                                   (Unaudited)
                 For the Six Months Ended June 30, 2001 and 2002
                             (Dollars in Thousands)

                                                                                       June 30,       June 30,
                                                                                         2001           2002
                                                                                      ---------       ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                  <C>              <C>
   Net income (loss) ................................................................ $ (5,207)       $  5,922
   Adjustments to reconcile net income (loss) to net cash provided by
      continuing operations--
      Loss (income) from discontinued operations ....................................      456             (70)
      Depreciation and amortization .................................................    6,557           5,638
      Bad debt expense ..............................................................    1,870           1,726
      Non-cash interest expense .....................................................     --               939
      Non-cash compensation expense .................................................      127            --
   Change in assets and liabilities, net of effects of acquisitions and
      dispositions--
      Receivables--trade and unbilled ...............................................     (163)         (3,827)
      Prepaid expenses and other current assets .....................................     (848)           (351)
      Trade accounts payable and income taxes payable ...............................   (1,903)           (683)
      Amounts due to/from related parties ...........................................      771             863
      Deferred revenue ..............................................................      610          (1,127)
      Accrued liabilities ...........................................................     (787)         (3,166)
      Other long-term liabilities ...................................................    1,121            (235)
                                                                                      --------        --------
        Net cash provided by operating activities of continuing operations...........    2,604           5,629
                                                                                      --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment .......................................   (1,258)           (946)
   Additions to databases ...........................................................   (1,953)         (2,035)
   Additions to intangible assets ...................................................     --            (2,933)
   Acquisitions, net of cash acquired (Note 6) ......................................     --            29,132
   Sale of marketable securities ....................................................     --                 5
   Purchase of investments ..........................................................     --               (14)
                                                                                      --------        --------
      Net cash provided by (used in) investing activities of continuing operations...   (3,211)         23,209
                                                                                      --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net payments under revolving lines of credit .....................................     (108)         (1,765)
   Payments of long-term debt .......................................................     (244)           (469)
   Foreign currency translation .....................................................   (1,060)           (466)
   Proceeds from exercise of stock options and warrants .............................      115           5,052
                                                                                      --------        --------
      Net cash provided by (used in) financing activities of continuing operations...   (1,297)          2,352
                                                                                      --------        --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................   (1,904)         31,190
Effects of foreign currency exchange rates on cash and cash equivalents .............      (99)            (58)
Net cash provided by (used in) discontinued operations ..............................       89            (432)
CASH AND CASH EQUIVALENTS, beginning of period ......................................    6,277          11,485
                                                                                      --------        --------
CASH AND CASH EQUIVALENTS, end of period ............................................ $  4,363        $ 42,185
                                                                                      ========        ========
</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 June 30, 2002


(1)     General

        Kroll Inc., a Delaware corporation (see Note 14), 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 architectural and corporate consulting,
crisis management programs and technology services; and (3) Employee Screening
Services including pre-employment and vendor 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 (a) the businesses it has
acquired, since their respective dates of acquisition, under the purchase method
of accounting; and (b) 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 and six months ended June 30,
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 $0.4 million ($0.01 per diluted share) for the six
months ended June 30, 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 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

                                       5
<PAGE>

escrow, pending agreement on the closing date balance sheet audit. 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 (see Note 4(a)).

        On May 6, 2002, agreement was reached on SPSG's closing date balance
sheet, which resulted in a payment to Kroll of $1.1 million of the amount held
in escrow. In conjunction with this escrow payment, Kroll forgave certain
obligations due to Kroll by Armor of approximately $1.6 million, primarily
relating to SPSG's Central American operations (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. On November 14, 2001, these debt
instruments were retired using the proceeds from the issuance of the convertible
notes discussed below (see Note 8(a)).

        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 on 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 on 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 8(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 June 30, 2002 there were no amounts borrowed under the credit
facility (see Note 8(a)).

        In May 2002, Kroll executed agreements to sell to local management its
interest in its Russian armored car businesses that were not sold to Armor.
Kroll received $150,000 upon closing, and expects to receive $127,000 within one
year of the closing date and an additional $50,000 within two years of the
closing date. These transactions relieve Kroll of any liability associated with
its Russian businesses (see Note 4(a)).

                                       6
<PAGE>

        On May 23, 2002, Kroll received $500,000 from Securify, representing
payment on an unsecured short-term note, undertaken as part of the refinancing
and restructuring of Securify's debt (see Note 5).

(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, of which approximately $2.6 million was recorded in
the second quarter of 2001. Kroll does not expect to incur any other significant
restructuring charges in future periods related to the 2001 Plan. Total payments
or writeoffs made pursuant to the 2001 Plan through June 30, 2002 were
approximately $2.3 million. 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
accrued balance as of June 30, 2002 are as follows:

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

Severance and related costs................................     $    160,351
Lease termination costs....................................          270,691
                                                                ------------
                                                                     431,042
Less--Current portion.......................................         431,042
                                                                ------------
                                                                $         --
                                                                ============

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

        On May 6, 2002, agreement was reached on SPSG's closing date balance
sheet, which resulted in a payment to Kroll of $1.1 million of the amount held
in escrow. In conjunction with this escrow payment, Kroll has forgiven certain
obligations due to Kroll by Armor of approximately $1.6 million primarily
relating to SPSG's Central American operations. On May 15, 2002, Kroll received
$.6 million from Armor, representing the residual balance due from the sale of
the $15.0 million in common stock.

        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.

                                       7
<PAGE>

        Although Kroll's Russian businesses were not sold to Armor, the Russian
businesses were part of the plan to discontinue SPSG and, therefore, have been
included in discontinued operations of SPSG. In May 2002, Kroll executed
agreements to sell to local management its interest in its Russian armored car
businesses. Kroll received $150,000 upon closing, and expects to receive
approximately $127,000 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 relieve Kroll of
any liability associated with its Russian businesses.

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

<TABLE>
<CAPTION>

                                                                 Six Months ended
                                                                  June 30, 2001
                                                              ---------------------
                                                              (dollars in thousands)
<S>                                                              <C>
Net sales....................................................... $      61,404
Cost of sales...................................................        49,446
                                                                 -------------
   Gross profit.................................................        11,958
Operating expenses..............................................        10,421
                                                                 -------------
      Operating income..........................................         1,537
Other expense...................................................         1,507
                                                                 -------------
      Income before provision for income taxes..................            30
Provision for income taxes......................................           382
                                                                 -------------
      Net loss.................................................. $        (352)
                                                                 =============
</TABLE>

        (b) Voice and Data Communications Group - 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 to an
unrelated third party for notes that are due and payable in 2004 with a
contingent value of up to $4.0 million. As the realization of the $4.0 million
in notes was contingent upon subsequent factors, at June 30, 2001, these notes
were valued at $1.8 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 in the
third quarter of 2001.

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

                                                             Six Months ended
                                                              June 30, 2001
                                                          ----------------------
                                                          (dollars in thousands)
Net sales.....................................................  $       4,590
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)     Sale of Stock by Information Security Group

        In October 2000, Kroll's then wholly owned subsidiary, Securify,
completed a sale of preferred stock through a private equity offering to certain
unrelated third parties. Kroll recognized a pre-tax gain on this

                                       8
<PAGE>

transaction of approximately $1.6 million and an after-tax loss of approximately
$0.5 million, net of approximately $2.1 million of unrealizable operating loss
carryforwards and other deferred tax assets that Kroll did not retain. At
December 31, 2001, Kroll had a fully reserved receivable from Securify of
approximately $5.4 million, which was represented by a promissory note with a
five-year repayment schedule.

        As a result of this transaction, as of December 31, 2000, Kroll's voting
control in Securify approximated 27 percent. The investment in Securify, which
had been previously consolidated, was then accounted for using the equity
method. Kroll does not have any carrying value for its investment as of June 30,
2002. Securify has realized continuing losses since October 2000. Since Kroll
has not provided any guarantees and is not committed to provide any future
funding to Securify, it has not recorded its equity share of Securify losses.

        In January 2002, Kroll agreed with Securify to restructure its existing
debt, receiving in its place the following:

     (1)  $500,000 short-term subordinated unsecured promissory note (the
          "Short-Term Note"),

     (2)  $500,000 long-term subordinated unsecured promissory note (the
          "Long-Term Note"),

     (3)  $2.5 million subordinated unsecured convertible promissory note (the
          "Convertible Note"),

     (4)  58,666 shares of Class B common stock of Securify and,

     (5)  A non-exclusive license to use proprietary software developed by
          Securify.

        In May 2002, Securify obtained additional equity financing. In
conjunction with this financing the parties restructured the January 2002
agreement as follows:

     (1)  Securify paid Kroll $500,000 in payment of the Short-Term Note,

     (2)  Kroll cancelled the Long-Term Note,

     (3)  $250,000 of the Convertible Note was exchanged for an equivalent value
          of Securify Series B Preferred Stock,

     (4)  The remaining balance of the Convertible Note was cancelled.

     (5)  Kroll now owns 131,854 shares of Securify common stock and retains the
          non-exclusive license to use proprietary software developed by
          Securify.

     (6)  As a result of the additional financing obtained by Securify, Kroll's
          voting control of Securify was reduced to approximately 1%.
          Accordingly, Securify, formerly accounted for under the equity method,
          is now accounted for as a cost basis investment which the Company has
          valued at zero.

(6)     Merger Agreement

        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 provided that a wholly
owned subsidiary of Kroll would be merged with and into Ontrack (the "Merger"),
resulting in Ontrack becoming a wholly owned subsidiary of Kroll. The Merger was
consummated effective June 13, 2002. The transaction, which qualifies as a
tax-free reorganization for federal income tax purposes, is valued at
approximately $154 million. Ontrack shareholders received 0.6447 shares of Kroll
common stock for each share of Ontrack. In addition, pursuant to the Merger
Agreement, Kroll assumed Ontrack's existing stock option plans. As a result of
the Merger, Kroll will issue up to 7.9 million shares of its common stock,
including shares that may be issued upon the future exercise of Ontrack options.

                                       9
<PAGE>

        In connection with the acquisition of Ontrack, assets were acquired and
liabilities assumed as follows (dollars in thousands):

                                                                   Ontrack
                                                                  ---------
VALUATION OF ONTRACK TRANSACTION:
   Value of shares issued........................................ $ 137,706
   Value of options assumed......................................    12,313
   Transaction costs.............................................     3,900
                                                                  ---------
   Purchase price................................................ $ 153,919
                                                                  =========

ASSETS ACQUIRED:
   Current assets................................................    44,331
   Property, plant and equipment, net............................     9,451
   Other non-current assets......................................     2,922
      Total assets acquired......................................    56,704
      Current liabilities assumed................................    (4,468)
         Net assets acquired.....................................    52,236
                                                                  ---------
         Intangible assets acquired.............................. $ 101,683
                                                                  =========

INTANGIBLE ASSETS:
   Goodwill recognized...........................................    95,183
   Identifiable intangible assets................................     6,500
                                                                  ---------
      Intangible assets acquired................................. $ 101,683
                                                                  =========

        The above schedule is based on a preliminary valuation of the assets and
liabilities involved. A final determination will be made within 12 months of the
effective acquisition date.

        The following unaudited pro forma combined results of operations for the
three and six months ended June 30, 2002 assumes that the Ontrack acquisition
occurred as of January 1, 2002. (Period to period comparisons within a given
year or between years may not be indicative of operating results over a full
fiscal year.) (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                   For the Three Months Ended     For the Six Months Ended
                                                          June 30, 2002                June 30, 2002
                                                   --------------------------     ------------------------
<S>                                                      <C>                          <C>
Sales .............................................       $ 71,014                      $142,132
Income (loss) from continuing .....................       $  3,934                      $  7,416
   operations
Net income (loss) .................................       $  4,004                      $  7,486
Earnings (loss) per share:
   Basic ..........................................       $   0.13                      $   0.25
   Diluted ........................................       $   0.13                      $   0.24
</TABLE>


(7)     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

                                       10
<PAGE>

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 six months ended June 30, 2001 and
2002:

<TABLE>
<CAPTION>

                                                               Six Months Ended June 30, 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.............................   $      (4,751)                   $     (0.21)
   Discontinued operations ..........................            (456)                         (0.02)
                                                        -------------                    -----------
   Total.............................................   $      (5,207)         22,417    $     (0.23)
                                                        =============                    ===========

<CAPTION>

                                                               Six Months Ended June 30, 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:                               $       5,922           23,675   $      0.25
                                                        =============                    ===========
Effect of dilutive securities:
   Options...........................................                            1,270         (0.01)
                                                        -------------        ---------   -----------
Diluted earnings per share...........................   $       5,922           24,945   $      0.24
                                                        =============        =========   ===========
</TABLE>

(8)     Debt

    (a) Revolving Line of Credit

        In April 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 assets and the joint and several guarantee also secured 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) caused
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 approximately
$28.2 million of the proceeds from the sale of SPSG to pay down this line of
credit during the third quarter of 2001. The remaining balance under this
agreement was subsequently 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

                                       11
<PAGE>

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 the stock of certain of Kroll's
subsidiaries. As of June 30, 2002, there were no amounts borrowed under the
credit facility.

         (b) Senior Notes

        Kroll's $35.0 million of senior notes were amended in April 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 expired after 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 approximately $21.2 million of the proceeds from the sale
of SPSG to repay the note holders during the third quarter of 2001. On November
14, 2001, all remaining 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 on 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. In May 2002,
Kroll made the first required interest payment of approximately $0.9 million.
Kroll may redeem these convertible notes at par plus accrued interest, in whole
or in part, beginning on 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 senior or pari-passu debt other than the $15.0 million
credit facility, or any liability for borrowed money, guaranteeing the
obligations for borrowed money 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 are converted, are held by the
original noteholders or investors. The observer may also attend Audit and
Compensation Committee meetings.

                                       12
<PAGE>

        Kroll has an effective registration statement under the Securities Act
of 1933, as amended, 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 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 six months ended June 30, 2002, $0.8 million was amortized.

(9)     New Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board (FDSB) 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. In addition, Kroll has conducted impairment tests of
the goodwill recorded on its books as required by SFAS 142. These tests
determined that Kroll's recorded goodwill is not impaired. Impairment tests will
be conducted annually, or sooner if circumstances indicate an impairment may
have taken place. Refer to Note 13 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 management expects that the
adoption of this statement will not have a material impact on the Company's
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. There was no
material impact relating to the implementation of this statement on its
consolidated results of operations or financial position.

        In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the automatic


                                       13

<PAGE>

classification of gain or loss on extinguishment of debt as an extraordinary
item of income and requires that such gain or loss be evaluated for
extraordinary classification under the criteria of Accounting Principles Board
No. 30 "Reporting Results of Operations". This statement also requires
sales-leaseback accounting for certain lease modifications that have economic
effects that are similar to sales-leaseback transactions, and makes various
other technical corrections to existing pronouncements. This statement will be
effective for the Company for the year ending December 31, 2003. Management
expects that adoption of this statement will not have a material effect on our
results of operations or financial position.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 will supersede EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). "SFAS No. 146 requires that costs associated with an exit or
disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.

        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.

(10)    Supplemental Cash Flows Disclosures

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

<TABLE>
<CAPTION>

                                                                              Six Months Ended June 30,
                                                                             ---------------------------
                                                                                 2001           2002
                                                                             ------------   ------------
                                                                               (dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
<S>                                                                          <C>            <C>
   Cash paid for interest of continuing operations....................       $      3,287   $      1,025
                                                                             ============   ============
   Cash paid for interest of discontinued operations..................       $        141   $         --
                                                                             ============   ============
   Cash paid for taxes of continuing operations, net of refunds.......       $        794   $      1,492
                                                                             ============   ============
   Cash paid for taxes of discontinued operations, net of refunds.....       $         63   $         --
                                                                             ============   ============

Supplemental Disclosure of Non-cash Activities:
   Notes received from the sale of businesses, net of discounts (Note 4(b)   $      1,831   $         --
                                                                             ============   ============
   Equity financing from the acquisition of a business (common stock
      $69 and additional paid-in-capital $149,950 - Note 6)                  $         --   $    150,019
                                                                             ============   ============
</TABLE>

(11)    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 June 30, 2001, the foreign currency
hedge contracts had a notional amount of $3.2 million, which approximated their
estimated fair value. During the six months ended June 30, 2002, Kroll did not
utilize foreign currency exchange contracts.

(12)    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.

                                       14
<PAGE>

        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.

        The following summarizes information about Kroll's business segments for
the three and six months ended June 30, 2001 and 2002:

<TABLE>
<CAPTION>

                                                    Consulting        Security       Employee
                                                     Services         Services       Screening         Other        Consolidated
                                                    ----------       ---------      ----------       ---------      ------------
                                                                               (dollars in thousands)
Three Months Ended June 30, 2001

<S>                                                 <C>              <C>             <C>             <C>             <C>
   Net sales to unaffiliated customers              $  31,645        $   6,016       $  10,924       $    --         $  48,585
                                                    =========        =========       =========       =========       =========
   Gross profit                                     $  12,589        $   2,366       $   5,095       $    --         $  20,050
                                                    =========        =========       =========       =========       =========
   Operating income (loss)                          $    (666)       $     200       $     909       $  (2,926)      $  (2,483)
                                                    =========        =========       =========       =========       =========

Three Months Ended June 30, 2002
   Net sales to unaffiliated customers              $  35,328        $  10,778       $  13,613       $    --         $  59,719
                                                    =========        =========       =========       =========       =========
   Gross profit                                     $  16,350        $   4,660       $   6,539       $    --         $  27,549
                                                    =========        =========       =========       =========       =========
   Operating income (loss)                          $   5,825        $   1,698       $   3,046       $  (4,627)      $   5,942
                                                    =========        =========       =========       =========       =========

Six Months Ended June 30, 2001
   Net sales to unaffiliated customers              $  65,784        $  11,866       $  21,710       $    --         $  99,360
                                                    =========        =========       =========       =========       =========
   Gross profit                                     $  26,459        $   4,682       $  10,013       $    --         $  41,154
                                                    =========        =========       =========       =========       =========
   Operating income (loss)                          $   1,820        $     380       $   1,876       $  (5,490)      $  (1,414)
                                                    =========        =========       =========       =========       =========

Six Months Ended June 30, 2002
   Net sales to unaffiliated customers              $  71,333        $  19,693       $  24,709       $    --         $ 115,735
                                                    =========        =========       =========       =========       =========
   Gross profit                                     $  32,392        $   8,420       $  11,724       $    --         $  52,536
                                                    =========        =========       =========       =========       =========
   Operating income (loss)                          $  11,642        $   3,704       $   5,123       $ (10,033)      $  10,436
                                                    =========        =========       =========       =========       =========
   Identifiable assets at June 30, 2002             $  75,813        $  48,006       $  27,529       $    --         $ 151,348
                                                    =========        =========       =========       =========
   Corporate assets                                                                                                  $ 176,697
                                                                                                                     ---------
   Total assets at June 30, 2002                                                                                     $ 328,045
                                                                                                                     =========
</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,

                                       15
<PAGE>

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 and six
months ended June 30, 2001, corporate costs of approximately $3.8 million and
$6.7 million, respectively, 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 $6.7 million and $12.2 million for the three and six
months ended June 30, 2001, respectively.

(13)    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:

<TABLE>
<CAPTION>

                                                         Three Months Ended June 30,   Six Months Ended June 30,
                                                        ----------------------------   -------------------------
                                                           2001           2002           2001            2002
                                                        ----------      ---------     ----------       ---------
                                                                (in thousands, except per share data)

<S>                                                      <C>            <C>           <C>              <C>
Net income as reported ..............................    $  (5,677)     $   3,605     $   (5,207)      $   5,922
Amortization of goodwill ............................          604           --            1,193            --
                                                         ---------      ---------      ---------       ---------
   Adjusted net income ..............................    $  (5,073)     $   3,605     $   (4,014)      $   5,922
                                                         =========      =========      =========       =========

Diluted income per share as reported ................    $   (0.25)     $    0.14     $    (0.23)      $    0.24
Amortization of goodwill ............................         0.02             --           0.05              --
                                                         ---------      ---------      ---------       ---------
   Adjusted income per share ........................    $   (0.23)     $    0.14     $    (0.18)      $    0.24
                                                         =========      =========      =========       =========
</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. Kroll has conducted impairment tests of the goodwill
recorded on its books as required by SFAS 142. These tests determined that
Kroll's recorded goodwill is not impaired. Impairment tests will be conducted
annually, or sooner if circumstances indicate an impairment may have taken
place.

        As of June 30, 2002, Kroll had recorded cost and accumulated
amortization of intangible assets of $19.8 million and $4.1 million,
respectively. Of this amount, $10.5 million and $2.9 million related to the cost
and accumulated amortization of intangible assets of acquired customer lists. An
additional $6.5 million and $0.1 million pertaining to the cost valuation and
related accumulated amortization of in-house systems software was recorded as
part of the Company's merger with Ontrack. The remaining $2.8 million and $1.1
million of cost and accumulated amortization are primarily related to
non-compete agreements.

        Amortization expense on intangible assets of $0.5 million was recognized
in the six months ended June 30, 2002. Approximately $11.5 million of
amortization expense is anticipated to be recognized over the next five years.

(14)    Subsequent Events

        (a) Change of Incorporation - On July 2, 2002, Kroll, formerly an Ohio
corporation, became a Delaware corporation pursuant to a merger in which the
Ohio corporation merged with and into its wholly-owned Delaware subsidiary. In
connection with this reincorporation in Delaware, Kroll's authorized capital
increased to 100,000,000 shares of common stock and 5,000,000 shares of
preferred stock.

                                       16
<PAGE>

        (b) Acquisition - On July 3, 2002, Kroll acquired Crucible, a privately
held company which provides elite training and protective services. Kroll paid
$1.0 million upon closing and the purchase agreement calls for an additional
$1.0 million to be paid in equal annual installments over the next four years.



                                       17

<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, uncertainties 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 businesses, 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 to Kroll of
the amount held in escrow. In conjunction with this escrow payment, Kroll
forgave certain obligations due to Kroll by Armor of approximately $1.6 million
primarily relating to SPSG's 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).

                                       18
<PAGE>

        On September 14, 2001, Kroll converted approximately $14.1 million in
Armor common stock into cash. An additional $0.3 million was converted to cash
on September 21, 2001. The remaining balance of approximately $0.6 million was
received from Armor on May 15, 2002. Kroll used the proceeds from the sale of
SPSG 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 on 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 on 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 8(c) of the Notes to the Consolidated
Unaudited Financial Statements).

        In January 2002, Kroll restructured its debt with Securify, receiving in
its place a $0.5 million short-term and a $0.5 million long-term note, along
with a $2.5 million convertible note, approximately 60,000 shares of Securify
common stock, and a non-exclusive license to use proprietary software developed
by Securify. In May 2002, the parties restructured the January agreement, with
Kroll receiving the $0.5 million short-term note payment and converting
approximately $.3 million of the convertible note into an equivalent value of
preferred stock. The remaining balance of the convertible note as well as the
$0.5 million long term note were forgiven. Kroll retained its shares of Securify
stock and the non-exclusive license (see Note 5 of 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 8(a) of
the Notes to the Consolidated Unaudited Financial Statements). Through August 9,
2002 there were no borrowings under the credit facility.

        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 provided that a wholly
owned subsidiary of Kroll would be merged with and into Ontrack (the "Merger"),
resulting in Ontrack becoming a wholly owned subsidiary of Kroll. The Merger was
consummated effective June 13, 2002. The transaction, which qualifies as a
tax-free reorganization for federal income tax purposes, is valued at
approximately $154 million. Each share of outstanding Ontrack common stock was
converted into 0.6447 of one share of Kroll's common stock. In addition,
pursuant to the Merger Agreement, Kroll assumed Ontrack's existing stock option
plans. As a result of the Merger, Kroll will issue up to 7.9 million shares of
its common stock, including shares that may be issued upon the future exercise
of Ontrack options (see Note 6 of the Notes to the Consolidated Unaudited
Financial Statements).

                                       19
<PAGE>

        In May 2002, Kroll executed agreements to sell to local management its
interest in its Russian armored car businesses that were not sold to Armor.
Kroll received $150,000 upon closing, and expects to receive approximately
$127,000 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 relieve Kroll of any liability
associated with its Russian businesses (see Note 4(a) of the Notes to the
Consolidated Unaudited Financial Statements).


General

        Kroll is a leading global provider of investigations, intelligence,
security and risk mitigation consulting services. With a presence in more than
60 cities in 20 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;

     o    Security services, which include threat assessment, risk and crisis
          management, corporate security planning and executive protection,
          security architecture and design, electronic countermeasures, data
          recovery and computer forensic 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 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

                                       20
<PAGE>

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 period-end exchange rates and revenues
and expenses are translated using exchange rates prevailing during the period,
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:

<TABLE>
<CAPTION>

                                                                         For the Three Months           For the Six Months
                                                                             Ended June 30,               Ended June 30,
                                                                         --------------------         ---------------------
                                                                          2001           2002           2001           2002
                                                                         -----          -----          -----          -----
Net sales:
<S>                                                                       <C>            <C>            <C>            <C>
   Consulting Services ................................................   65.1%          59.2%          66.2%          61.6%
   Security Services ..................................................   12.4           18.0           11.9           17.0
   Employee Screening .................................................   22.5           22.8           21.9           21.4
                                                                         -----          -----          -----          -----
      Total net sales .................................................  100.0%         100.0%         100.0%         100.0%
Cost of sales .........................................................   58.7           53.9           58.6           54.6
                                                                         -----          -----          -----          -----
      Gross profit ....................................................   41.3           46.1           41.4           45.4
                                                                         -----          -----          -----          -----
Selling and marketing .................................................    9.3            9.0            9.3            8.4
General and administrative ............................................   30.9           25.9           30.1           27.1
Research and development ..............................................     --            0.7             --            0.4
Amortization of other intangible assets ...............................    0.4            0.5            0.4            0.5
                                                                         -----          -----          -----          -----
   Total recurring operating costs ....................................   40.6           36.1           39.8           36.4
                                                                         -----          -----          -----          -----
      Operating income before non-recurring operating .................    0.7           10.0            1.6            9.0
        costs                                                            -----          -----          -----          -----
Failed separation costs ...............................................    0.4            0.0            0.4            0.0
Restructuring expenses ................................................    5.4            0.0            2.6            0.0
                                                                         -----          -----          -----          -----
      Operating income (loss) .........................................   (5.1)          10.0           (1.4)           9.0
                                                                         -----          -----          -----          -----
Interest expense, net .................................................   (2.4)          (1.6)          (2.3)          (1.6)
Other, net ............................................................    0.0            0.3            0.2            0.1
                                                                         -----          -----          -----          -----
   Total other expense ................................................   (2.4)          (1.3)          (2.1)          (1.5)
      Income (loss) from continuing operations before                    -----          -----          -----          -----
        provision for income taxes ....................................   (7.5)           8.7           (3.5)           7.5
Provision for income taxes ............................................    1.9            2.8            1.3            2.4
                                                                         -----          -----          -----          -----
      Income (loss) from continuing operations ........................   (9.4)           5.9           (4.8)           5.1
Gain (loss) from discontinued operations, net of tax ..................   (2.3)           0.1           (0.4)           0.0
                                                                         -----          -----          -----          -----
      Net income (loss) ...............................................  (11.7)%          6.0%          (5.2)%          5.1%
                                                                         =====          =====          =====          =====
</TABLE>

                                       21
<PAGE>

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

        Net sales. Net sales increased $11.1 million, or 22.9%, from $48.6
million in the three months ended June 30, 2001 to $59.7 million in the three
months ended June 30, 2002.

        Consulting Services - Net sales for the Consulting Services segment
increased $3.7 million, or 11.6%, from $31.6 million in the three months ended
June 30, 2001 to $35.3 million in 2002. This increase was primarily attributable
to the strong demand for our corporate recovery and turnaround services in the
United Kingdom, where net sales increased $3.6 million, or 54.6%, from $6.5
million in the 2001 period to $10.1 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 reduced merger and acquisition activity continue to
negatively impact sales.

        Security Services - Net sales for the Security Services segment
increased $4.8 million, or 79.2%, from $6.0 million in the three months ended
June 30, 2001 to $10.8 million in 2002. This includes the results of Ontrack
Data International, which was acquired on June 13, 2002 (see Note 6 of the Notes
to the Consolidated Unaudited Financial Statements). Excluding Ontrack, net
sales for the Security Services segment increased $1.8 million or 28.5%. Our
domestic security services business posted sales growth of approximately $2.3
million, or 68.6%, from $3.4 million in the 2001 period to $5.7 million in the
2002 period as a result of the increased demand for security consulting and
design services in the wake of current national and international events. This
increase was partially offset by a decreased demand for security services in
Latin America, where poor economic conditions exist. In addition, Kroll's net
sales from security services in Latin America decreased because Kroll is in the
process of transitioning its security services business in that region 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 $2.7 million, or 24.6%, from $10.9 million for the
three months ended June 30, 2001 to $13.6 million in 2002. Demand for domestic
pre-employment background checking increased approximately $2.1 million or
43.5%.

        Cost of sales and gross margin. Cost of sales increased $3.7 million, or
12.7%, from $28.5 million for the three months ended June 30, 2001, to $32.2
million for the three months ended June 30, 2002. Gross margin as a percentage
of sales increased 4.8 percentage points from 41.3% for the three months ended
June 30, 2001, to 46.1% for the three months ended June 30, 2002.

        Consulting Services - Gross margin for the Consulting Services segment
increased 6.5 percentage points from 39.8% for the three months ended June 30,
2001, to 46.3% in 2002. This was primarily due to our turnaround business in the
United Kingdom, where sales increased at a greater rate than cost of sales.

        Security Services - Gross margin for the Security Services segment
increased 3.9 percentage points from 39.3% for the three months ended June 30,
2001 to 43.2% in 2002. This increase is a result of efficiencies associated with
the significant increase in sales of our domestic security services, as well as
higher margins in our Latin American Security operations.

                                       22
<PAGE>

        Employee Screening Services - Gross margin for the Employee Screening
Services segment increased 1.4 percentage points from 46.6% for the three months
ended June 30, 2001, to 48.0% in 2002. This increase was primarily attributable
to increased margins in our domestic pre-employment background checking
business, and drug-testing services.

        Operating expenses. Operating expenses decreased $0.9 million, or 4.1%,
from $ 22.5 million, for the three months ended June 30, 2001, to $21.6 million
for the three months ended June 30, 2002. Non-recurring charges of $2.8 million
for the three months ended June 30, 2001 consisted of $2.6 million of costs
associated with the 2001 restructuring plan and $0.2 million related to the
failed separation of Kroll into two publicly traded companies. Excluding
non-recurring expenses, operating expenses increased $1.9 million, or 9.6%, from
$19.7 million for the three months ended June 30, 2001 to $21.6 million in 2002.
Beginning in January 2002, Kroll implemented SFAS 142. Accordingly, Kroll ceased
amortizing goodwill on January 1, 2002. If SFAS 142 were applied to the three
months ended June 30, 2001, operating expenses for that period would have been
lowered by $0.6 million, resulting in an increase of $2.5 million for the three
months ended June 30, 2002. The increase in recurring operating expenses is
primarily due to increases in payroll and related expenses in our general and
administrative support functions and the inclusion of operating expenses of
Ontrack in 2002, which were not part of our 2001 results.

        As a percent of net sales, operating expenses, before non-recurring
expenses, decreased 4.3 percentage points from 40.5% for the three months ended
June 30, 2001 period to 36.2% in 2002.

        Interest expense. Interest expense decreased $0.2 million, or 18.3%,
from $1.1 million for the three months ended June 30, 2001 to $0.9 million in
2002, 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
$0.7 million from $0.9 million for the three months ended June 30, 2001 to $1.6
million in 2002.

        Discontinued operations. Income from discontinued operations improved
from a loss of $1.1 million for the three months ended June 30, 2001 to income
of $0.1 million in 2002. VDCG was sold in June 2001 and SPSG was sold to Armor
on August 22, 2001 (see Note 4 of the Notes to the Consolidated Unaudited
Financial Statements).

        Net income. Net income improved $9.3 million from a loss of $5.7 million
for the three months ended June 30, 2001 to income of $3.6 million in 2002. The
increase in net income was due primarily to the $7.5 million increase in gross
profit as a result of increased sales in the 2002 period, a $2.8 million
decrease in non-recurring expenses, and a $1.2 million increase in income from
discontinued operations. These were partially offset by a 1.9 million increase
in recurring operating expenses and a $0.7 million tax provision increase.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

        Net sales. Net sales increased $16.3 million, or 16.5%, from $99.4
million in the six months ended June 30, 2001 to $115.7 million in the six
months ended June 30, 2002.

        Consulting Services - Net sales for the Consulting Services segment
increased $5.5 million, or 8.4%, from $65.8 million in the six months ended June
30, 2001 to $71.3 million in 2002. 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 $7.5 million, or 55.0%,
from $13.3 million in the 2001 period to $20.8 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 reduced merger and acquisition activity
continue to negatively impact sales.

                                       23
<PAGE>

        Security Services - Net sales for the Security Services segment
increased $7.8 million, or 66.0%, from $11.9 million in the six months ended
June 30, 2001 to $19.7 million in 2002. This includes the results of Ontrack
Data International, which was acquired on June 13, 2002. Excluding Ontrack,
sales for the Security Services segment increased $4.8 million or 40.2%. Our
domestic security services business posted sales growth of approximately $6.2
million, or 86.4%, from $7.1 million in the 2001 period to $13.3 million in the
2002 period as a result of the increased demand for our security consulting and
design services in the wake of current national and international events. This
increase was partially offset by a decreased demand for security services in
Latin America of approximately $1.0 million, where poor economic conditions
existed. In addition, Kroll's net sales from security services in Latin America
decreased because Kroll is in the process of transitioning its security services
business in that region 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 $3.0 million, or 13.8%, from $21.7 million for the
six months ended June 30, 2001 to $24.7 million in 2002. Demand for domestic
pre-employment background checking increased approximately $3.5 million or
40.0%. This was partially 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 $5.0 million, or
8.6%, from $58.2 million for the six months ended June 30, 2001, to $63.2
million for the six months ended June 30, 2002. Gross margin as a percentage of
sales increased 4.0 percentage points from 41.4% for the six months ended June
30, 2001, to 45.4% for the six months ended June 30, 2002.

        Consulting Services - Gross margin for the Consulting Services segment
increased 5.2 percentage points from 40.2% for the six months ended June 30,
2001, to 45.4% in 2002. 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 3.3 percentage points from 39.5% for the six months ended June 30,
2001, to 42.8% in 2002. This increase is a result of efficiency gains in
employee utilization associated with the significant increase in sales of our
domestic security services, as well as higher margins in our Latin American
operations.

        Employee Screening Services - Gross margin for the Employee Screening
Services segment increased 1.3 percentage points from 46.1% for the six months
ended June 30, 2001, to 47.4% in 2002. This increase is attributable to
increased margins in our domestic background checking business and drug testing
business.

        Operating expenses. Operating expenses decreased $0.5 million, or 1.1%,
from $ 42.6 million, for the six months ended June 30, 2001, to $42.1 million
for the six months ended June 30, 2002. Non-recurring charges of $3.0 million
for the six months ended June 30, 2001 consisted of $2.6 million of costs
associated with the 2001 restructuring plan and $0.4 million relating to the
failed separation of Kroll into two publicly traded companies. Excluding
non-recurring expenses, operating expenses increased $2.5 million, or 6.4%, from
$39.6 million for the six months ended June 30, 2001, to $42.1 million in 2002.
Beginning in January 2002, Kroll implemented SFAS 142. Accordingly, Kroll ceased
amortizing goodwill on January 1, 2002. If SFAS 142 were applied to the six
months ended June 30, 2001, operating expenses for that period would have been
lowered by $1.2 million, resulting in an increase of $3.7 million for 2002. The
increase in recurring operating expenses is primarily due to increases in
payroll and related expenses in our general and administrative support
functions, and the inclusion of operating expenses of Ontrack in the 2002
period, which are not part of our 2001 results.

        As a percent of net sales, operating expenses, before non-recurring
expenses, decreased 3.4% from 39.8% for the six months ended June 30, 2001
period to 36.4% in 2002.

                                       24
<PAGE>

        Interest expense. Interest expense decreased $0.4 million, or 18.4%,
from $2.2 million for the six months ended June 30, 2001 to $1.8 million in
2002, 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
$1.7 million from $1.2 million for the 2001 six months ended June 30, 2001 to
$2.9 million in 2002.

        Discontinued operations. Income from discontinued operations improved
from a loss of $0.4 million for the six months ended June 30, 2001 to income of
$0.1 million in 2002. VDCG was sold in June 2001 and SPSG was sold to Armor on
August 22, 2001 (see Note 4 of the Notes to the Consolidated Unaudited Financial
Statements).

        Net income. Net income improved $11.1 million from a loss of $5.2
million for the six months ended June 30, 2001 to income of $5.9 million in
2002. The increase in net income was due primarily to the $11.4 million increase
in gross profit as a result of increased sales in the 2002 period, a $3.0
million decrease in non-recurring expenses, and a $0.5 million increase in
income from discontinued operations. These were partially offset by a $2.5
million increase in recurring operating expenses and a $1.7 million tax
provision increase.


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 assets and the joint and several
guarantee also secured 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 (see Note 4(a) of the Notes to the Consolidated Unaudited
Financial Statements) caused 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 approximately $28.2 million of the proceeds from the sale of SPSG to
pay down this line of credit during the third quarter of 2001. The remaining
balance under this agreement was subsequently repaid on November 14, 2001, thus
terminating the agreement (see Note 8(a) of the Notes to the Consolidated
Unaudited Financial Statements).

        Kroll's $35.0 million of senior notes were amended in April 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 expired after 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) of
the Notes to the Consolidated Unaudited Financial Statements) caused an
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 approximately $21.2 million of the proceeds from the sale of SPSG to repay
the note holders during the third quarter of 2001. On November 14, 2001, all
remaining

                                       25
<PAGE>

outstanding debt under the senior notes was repaid (see Note 8(b) of 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. The remaining $0.6 million was paid by Armor to Kroll on
May 15, 2002.

        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 on 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. In May 2002,
Kroll made the first required interest payment of approximately $0.9 million.
Kroll may redeem these convertible notes at par plus accrued interest, in whole
or in part, beginning on 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 senior or pari-passu debt other than the $15.0 million
credit facility, or any liability for borrowed money, guaranteeing the
obligations for borrowed money 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 are converted, are held by the
original 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 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 8(c) of the Notes to the
Consolidated Unaudited Financial Statements). Excess proceeds of approximately
$8.4 million were used for working capital to fund operations.

                                       26
<PAGE>

        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 1.5%. At
June 30, 2002 the interest rate was 5.5%. In March 2002, maximum borrowings
permitted under the demand note were increased from 2.5 million pounds sterling
to 4.4 million pounds sterling, or $6.7 million as translated at June 30, 2002.
Borrowings outstanding under this demand note were approximately $2.6 million
and $1.5 million, as translated at December 31, 2001 and June 30, 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
8(a) of the Notes to the Consolidated Unaudited Financial Statements). Through
August 9, 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 to Kroll of $1.1
million of the $1.5 million held in escrow.

        We currently believe that the net proceeds from the sale of the notes,
combined with the available borrowings under the credit facility, the cash
acquired in the merger with Ontrack, 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 $2.6
million in net cash for the six months ended June 30, 2001 compared to $5.6
million for the six months ended June 30, 2002. The $3.0 million increase from
the 2001 period to the 2002 period reflects strong sales growth, which was
partially offset by a corresponding increase in working capital investments to
fund increased business activity.

        Cash flows from investing activities. For the six months ended June 30,
2001, Kroll used $3.2 million in investing activities compared to $23.2 million
provided for the six months ended June 30, 2002. In the 2001 period, $1.3
million was used for capital expenditures and $1.9 million was used for database
additions. In the 2002 period, Kroll received $32.0 million in cash (and
approximately $5.6 million in short term marketable securities) as a result of
acquiring Ontrack and made cash expenditures of $2.9 million, resulting in net
cash provided of $29.1 million. In addition, in the 2002 period, Kroll made
expenditures totaling $5.9 million, which included additions to capital assets,
databases and intangible assets of $1.0 million, $2.0 million and $2.9 million,
respectively.

        Cash flows from financing activities. Net cash used in financing
activities was $1.3 million for the six months ended June 30, 2001 compared with
net cash provided of $2.4 million for the six months ended June 30, 2002.
Foreign currency translation accounted for $1.1 million of the cash used in
2001, while $0.2 million was used to pay down long-term debt. In the 2002
period, $5.1 million of cash was provided from the exercise of stock options,
with net payments of $1.8 million made on revolving lines of credit and total
payments $0.5 million made on long-term debt. Foreign currency translation
accounted for the remaining $0.4 million of cash used.

        Kroll's contractual obligations were comprised of the following as of
June 30, 2002:

                                       27
<PAGE>

<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 ....................  $30,068        $    53        $    15        $30,000        $   --
Operating leases ..................   60,090         12,519         21,015         16,449         10,107
                                     -------        -------        -------        -------        -------
   Total ..........................  $90,158        $12,572        $21,030        $46,449        $10,107
                                     =======        =======        =======        =======        =======
</TABLE>


        Kroll also had a standby letter of credit outstanding at June 30, 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 $0.1 million for the six months ended June 30, 2001
compared to net cash used of $0.4 million for the six months ended June 30,
2002. In June 2001, VDCG was sold and on August 22, 2001 SPSG was sold to Armor.
Kroll's discontinued Russian business accounted for the $0.4 million of cash
used in the 2002 period (see Note 4(a) to the Notes to the Consolidated
Unaudited Financial Statements).

        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 insuring 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 June 30, 2001, the foreign currency hedge contracts had a notional amount
of $3.2 million, which approximated their estimated fair value. 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 concerning this issue.

        In June 2001, the Financial Accounting Standards Board (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. In addition, Kroll has conducted impairment tests of the
goodwill recorded on its books, as required by SFAS 142. The tests determined
that Kroll's recorded goodwill is not impaired. Impairment tests will be
conducted annually, or sooner if circumstances indicate an impairment may have
taken place (see Note 13 of the Notes to the Consolidated Unaudited Financial
Statements).

        In June 2001, the financial Accounting Standards Board (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 management expects that the adoption of this statement will not have a
material impact on the Company's results of operations or financial position.

                                       28
<PAGE>

        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.

        In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
Operations". This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement will be effective for the Company for
the year ending December 31, 2003. Management expects that adoption of this
statement will not have a material effect on our results of operations or
financial position.

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities. "SFAS No. 146 will supersede EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). "SFAS No. 146 requires that costs associated with an exit or
disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.



                                       29
<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.



                                       30
<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 parties have entered into a memorandum of
understanding concerning the settlement of these actions. The proposed
settlement will require the approval of the New York and Ohio courts. Kroll
cannot guarantee that the proposed settlement will be consummated.

        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.



                                       31
<PAGE>

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        In June 2002, Kroll realized that it had inadvertently failed to
register on Form S-8 shares of common stock issuable upon the exercise of
options granted under The Kroll-O'Gara Company 2000 Amended and Restated Stock
Option Plan for Employees (the "Plan"). On June 11, 2002, a registration
statement on Form S-8 covering the Plan was filed with the Securities and
Exchange Commission and became effective under the Securities Act of 1933, as
amended (the "Act"). Prior to such registration, approximately 600 employees
exercised options granted under the Plan for, and immediately resold at a profit
approximately 527,000 shares of common stock, or about 1.7% of Kroll's presently
outstanding common stock, for which they paid an aggregate of $3,556,300. These
proceeds were used by Kroll for general corporate purposes. On July 18, 2002,
Kroll made a private rescission offer pursuant to Regulation D of the Act to the
two stockholders who continued to hold the shares of common stock they had
acquired upon the exercise of options granted to them under the Plan. These two
stockholders hold an aggregate of 475 shares of common stock. Each of the two
stockholders rejected the offer.



                                       32
<PAGE>

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

    (a)    During the quarter ended June 30, 2002, Kroll filed the following
           current reports on Form 8-K:

        Date of Report: April 4, 2002; Items 5 and 7.

                        June 28, 2002; Items 5 and 7.

(b)     Exhibits

        99.1   Certification of Chief Executive Officer.

        99.2   Certification of Chief Financial Officer.



                                       33
<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 12th day of August, 2002.

                                               Kroll Inc.

                                               By: /s/ Steven L. Ford
                                                  -------------------------
                                                  Steven L. Ford
                                                  Chief Financial Officer





                                       34