<PAGE>   1
================================================================================

                       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

                                       OR

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                        Commission File Number: 000-21629

                            THE KROLL-O'GARA COMPANY
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                    OHIO                                    31-1470817
      (STATE OR OTHER JURISDICTION OF                     (IRS EMPLOYER
       INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)


                               9113 LESAINT DRIVE
                              FAIRFIELD, OHIO 45014
                                 (513) 874-2112
               (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
              INCLUDING AREA CODE OF PRINCIPAL EXECUTIVE OFFICES)

      Indicate by check mark whether the registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  registrant was required to file such reports), and (2) has been subject to
  such filing requirements for the past 90 days. Yes [ X ]   No [  ]

  APPLICABLE ONLY TO CORPORATE ISSUERS:

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


                                   22,414,697
                         ------------------------------
             (SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 1, 2001)

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




<PAGE>   2

                            THE KROLL-O'GARA COMPANY

                                    FORM 10-Q
                         FOR THE QUARTERLY PERIOD ENDED
                                 MARCH 31, 2001

<TABLE>
<CAPTION>
                                                                                                 PAGE
                                                                                                 ----
<S>               <C>                                                                           <C>
PART I - FINANCIAL INFORMATION

         ITEM 1:  FINANCIAL STATEMENTS

                  Consolidated Balance Sheets (unaudited) as of
                  December 31, 2000 and March 31, 2001........................................     1

                  Consolidated Statements of Operations (unaudited) for
                  for the three months ended March 31, 2000 and 2001..........................     3

                  Consolidated Statements of Cash Flows (unaudited)
                  for the three months ended March 31, 2000 and 2001..........................     4

                  Notes to Consolidated Unaudited Financial Statements........................     5

         ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.........................................    13

         ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................    22

PART II - OTHER INFORMATION...................................................................    23

         ITEM 1:  LEGAL PROCEEDINGS...........................................................    23

         ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K............................................    23

         SIGNATURES...........................................................................    24
</TABLE>
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                            THE KROLL-O'GARA COMPANY

                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                   AS OF DECEMBER 31, 2000 AND MARCH 31, 2001
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,       MARCH 31,
                                                                                                         2000             2001
                                                                                                     ------------       ---------
<S>                                                                                                 <C>                <C>
ASSETS
Current Assets:
     Cash and equivalents                                                                              $  8,438         $  8,373
     Trade accounts receivable, net of allowance for doubtful accounts of $5,701 and $5,755 at
       December 31, 2000 and March 31, 2001, respectively                                                65,266           58,600
     Unbilled revenues                                                                                   19,995           24,076
     Related party receivables                                                                            2,475            1,033
     Costs and estimated earnings in excess of billings on uncompleted contracts                          8,634            8,675
     Inventories (Note 11)                                                                               18,641           19,326
     Prepaid expenses and other                                                                           9,820           10,208
     Net current assets of discontinued operation (Note 5)                                                1,879            1,830
                                                                                                       --------         --------
                  Total current assets                                                                  135,148          132,121
                                                                                                       --------         --------
Property, Plant and Equipment, at cost
     Land                                                                                                 2,545            2,528
     Buildings and improvements                                                                           8,407            8,168
     Leasehold improvements                                                                               8,038            8,040
     Furniture and fixtures                                                                              10,707           11,416
     Machinery and equipment                                                                             39,065           39,596
     Construction-in-progress                                                                             1,326              634
                                                                                                       --------         --------
                                                                                                         70,088           70,382
     Less: accumulated depreciation                                                                     (32,739)         (34,134)
                                                                                                       --------         --------
                                                                                                         37,349           36,248
                                                                                                       --------         --------
Databases,  net of  accumulated  amortization  of $29,759 and $30,571 at December  31, 2000 and
     March 31, 2001, respectively                                                                        10,204           10,290


Costs in Excess of Assets Acquired and Other Intangible Assets, net of
      accumulated amortization of $12,119 and $13,721 at December 31, 2000 and
      March 31, 2001, respectively
                                                                                                         75,486           75,045

Other assets                                                                                              3,562            3,000
                                                                                                       --------         --------
                                                                                                         89,252           88,335
                                                                                                       --------         --------
                                                                                                       $261,749         $256,704
                                                                                                       ========         ========
</TABLE>

                   The accompanying notes are an integral part
                      of these consolidated balance sheets.



                                       1
<PAGE>   4

                            THE KROLL-O'GARA COMPANY

                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                   AS OF DECEMBER 31, 2000 AND MARCH 31, 2001
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,       MARCH 31,
                                                                                            2000             2001
                                                                                        ------------       ---------
<S>                                                                                    <C>                <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Bank lines of credit (Note 8)                                                        $ 39,613         $ 39,887
     Current portion of other debt (Note 8)                                                  5,138            6,033
     Trade accounts payable                                                                 30,665           27,203
     Related party payables                                                                    239               96
     Accrued liabilities                                                                    21,156           19,203
     Income taxes currently payable                                                          1,526            1,800
     Deferred income taxes                                                                   1,553            1,553
     Customer deposits                                                                       9,544           11,135
                                                                                          --------         --------
                  Total current liabilities                                                109,434          106,910
                                                                                          --------         --------

Other Long-Term Liabilities                                                                  1,665            2,272

Deferred Income Taxes                                                                          515              515

Long-Term Debt, net of current portion (Note 8)                                             33,714           31,945
                                                                                          --------         --------

                  Total liabilities                                                        145,328          141,642

Shareholders' Equity:
     Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued                  --               --
     Common stock, $.01 par value, 50,000,000 shares authorized, 22,414,697 shares
     issued and outstanding at both December 31, 2000 and March 31, 2001                       224              224
     Additional paid-in capital                                                            169,467          169,467
     Retained deficit                                                                      (46,584)         (46,114)
     Deferred compensation                                                                    (337)            (246)
     Accumulated other comprehensive loss                                                   (6,349)          (8,269)
                                                                                          --------         --------
                  Total shareholders' equity                                               116,421          115,062
                                                                                          --------         --------
                                                                                          $261,749         $256,704
                                                                                          ========         ========
</TABLE>

                   The accompanying notes are an integral part
                      of these consolidated balance sheets.


                                       2
<PAGE>   5

                            THE KROLL-O'GARA COMPANY

                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                     MARCH 31, 2000        MARCH 31, 2001
                                                                     --------------        --------------
<S>                                                                 <C>                   <C>
 NET SALES                                                             $    80,226           $    79,251
 COST OF SALES                                                              50,184                51,718
                                                                       -----------           -----------
         Gross profit                                                       30,042                27,533

 OPERATING EXPENSES:
      Selling and marketing expenses                                         6,813                 6,320
      General and administrative                                            20,255                18,395
      Failed merger expenses (Note 2)                                        1,370                    --
      Merger expenses                                                           39                    --
      Failed separation costs (Note 2)                                          --                   179
                                                                       -----------           -----------

         Operating income                                                    1,565                 2,639
                                                                       -----------           -----------

 OTHER INCOME (EXPENSE):
      Interest expense                                                      (1,342)               (1,696)
      Other, net                                                               (29)                   26
                                                                       -----------           -----------
         Income from continuing operations before provision
           for income taxes                                                    194                   969

      Provision for income taxes                                               279                   395
                                                                       -----------           -----------
         Income (loss) from continuing operations                              (85)                  574

      Discontinued operations (Note 5):
               Loss from operations of discontinued Voice and
           Data Communications Group, net                                     (295)                 (104)

         Net income (loss)                                             $      (380)          $       470
                                                                       -----------           -----------

 Other comprehensive loss, net of tax:
      Foreign currency translation adjustment, net of
           $1,535 and $989 tax benefit, respectively                        (2,303)               (1,920)
                                                                       -----------           -----------
         Other comprehensive loss                                           (2,303)               (1,920)
                                                                       -----------           -----------
         Comprehensive loss                                            $    (2,683)          $    (1,450)
                                                                       ===========           ===========

PER SHARE DATA (Note 7):
BASIC EARNINGS (LOSS) PER SHARE
     Earnings (loss) per share                                         $     (0.02)          $      0.02
                                                                       -----------           -----------

          Weighted average shares outstanding                           22,255,751            22,414,697
                                                                       ===========           ===========

 DILUTED EARNINGS (LOSS) PER SHARE
      Earnings (loss) per share                                        $     (0.02)          $      0.02
                                                                       ===========           ===========

          Weighted average shares outstanding                           22,255,751            22,475,808
                                                                       ===========           ===========
</TABLE>



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



                                       3
<PAGE>   6

                            THE KROLL-O'GARA COMPANY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 10)
                                  (UNAUDITED)

               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 2001
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                    MARCH 31,         MARCH 31,
                                                                                                      2000               2001
                                                                                                    ---------         ---------
<S>                                                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                                               $  (380)          $   470

     Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
       activities-
         Loss from discontinued operations                                                               295               104
         Depreciation and amortization                                                                 4,135             4,342
         Bad debt expense                                                                              1,287               980
         Non-cash compensation expense                                                                   187                91
     Change in assets and liabilities, net of effects of acquisitions and dispositions-
         Receivables - trade and unbilled                                                             (8,660)             (235)
         Costs and estimated earnings in excess of billings on uncompleted contracts                     864               (41)
         Inventories, prepaid expenses and other assets                                               (3,000)           (1,684)
         Accounts payable and income taxes currently payable                                           2,921            (2,579)
         Amounts due to/from related parties                                                             (96)            1,299
         Customer deposits                                                                               (75)            1,591
         Accrued liabilities                                                                           2,893            (1,148)
         Long-term liabilities                                                                          (726)              607
                                                                                                     -------           -------
                  Net cash provided by (used in) operating activities                                   (355)            3,797
                                                                                                     -------           -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment, net                                                  (1,836)           (1,687)
     Additions to databases                                                                             (590)           (1,159)
                                                                                                     -------           -------
                  Net cash used in investing activities                                               (2,426)           (2,846)
                                                                                                     -------           -------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings under bank lines of credit                                                         1,836               274
     Payments of long-term debt                                                                       (1,750)             (874)
     Proceeds from exercise of stock options and warrants                                                 15                --
     Foreign currency translation                                                                     (2,133)             (172)
                                                                                                     -------           -------
                  Net cash used in financing activities                                               (2,032)             (772)
                                                                                                     -------           -------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                                       (2,058)              179

Effects of foreign currency exchange rates on cash                                                      (102)             (189)
Net cash used in discontinued operations                                                                (388)              (55)
                                                                                                     -------           -------
CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                                             13,031             8,438
                                                                                                     -------           -------
CASH AND EQUIVALENTS, END OF PERIOD                                                                  $ 7,728           $ 8,373
                                                                                                     =======           =======
</TABLE>


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



                                       4
<PAGE>   7



                            THE KROLL-O'GARA COMPANY

              NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

                   AS OF DECEMBER 31, 2000 AND MARCH 31, 2001


(1) GENERAL

         The Kroll-O'Gara Company, an Ohio corporation, together with its
subsidiaries (collectively "Kroll-O'Gara"), is a leading global provider of a
broad range of specialized products and services that are designed to provide
solutions to a variety of security needs. Kroll-O'Gara's Investigations and
Intelligence Group offers business intelligence and investigation and risk
mitigation consulting services. The Security Products and Services Group markets
ballistic and blast protected vehicles and security services. See Note 6 for a
discussion of the preferred stock sale completed during fiscal 2000 by the
Information Security Group subsidiary. See Note 5 for a discussion of the
discontinuance of the Voice and Data Communications Group.

         The consolidated financial statements include the historical
consolidated financial statements of Kroll-O'Gara (and the businesses it has
acquired, since their respective dates of acquisition, under the purchase method
of accounting) and the financial position, results of operations and cash flows
of entities which were merged with Kroll-O'Gara 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 generally accepted accounting principles 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 generally accepted accounting principles 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 month period ended March 31,
2001, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. The accompanying financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in Kroll-O'Gara's annual report on Form 10-K for the year ended
December 31, 2000.

(2) CORPORATE INITIATIVES

         Kroll-O'Gara has considered a variety of corporate initiatives within
the periods presented in the accompanying consolidated financial statements.
Acquisitions are discussed in Note 4.

         On November 15, 1999, Kroll-O'Gara announced that it had entered into a
definitive agreement with Blackstone Capital Partners III Merchant Banking Fund
L. P. (Blackstone) pursuant to which shares held by all Kroll-O'Gara
shareholders, other than certain members of management, would be acquired by
Blackstone for $18.00 per share in cash. On April 12, 2000, Kroll-O'Gara
announced that Blackstone had withdrawn its offer to acquire Kroll-O'Gara
shares. Costs associated with the failed merger were approximately $1.4 million
($0.06 per diluted share) for the three months ended March 31, 2000, and
consisted primarily of fees for attorneys, accountants, investment bankers,
travel and other related charges.

         On April 18, 2000, Kroll-O'Gara announced it would explore structuring
a transaction that would result in the separation of its two principal operating
segments, the Security Products and




                                       5
<PAGE>   8
 Services Group and the Investigations and Intelligence Group, and it would seek
an equity investment for its Information Security Group. In September 2000, the
Board of Directors approved an agreement and plan of reorganization and
dissolution of Kroll-O'Gara, that would have resulted in the spinoff of net
assets into two new public companies. Had the spinoff been completed,
Kroll-O'Gara shareholders, other than members of management of the separated
companies, would have owned shares in both companies. On April 20, 2001, the
Board of Directors decided not to pursue this separation alternative. Costs
associated with this proposed separation were approximately $0.2 million ($0.01
per diluted share) for the three months ended March 31, 2001 and consisted
primarily of fees for attorneys, accountants, investment bankers and other
related charges. Kroll-O'Gara does not anticipate any additional expenses
related to this now terminated separation alternative. In October 2000,
Kroll-O'Gara's then wholly owned subsidiary, Securify, completed a sale of
preferred stock through a private equity offering to certain unrelated third
parties.

         On April 20, 2001, in lieu of the proposed separation, the Board
approved a definitive agreement, subject to a limited number of closing
conditions, to sell most of the active companies that comprise the Security
Products and Services Group to Armor Holdings, Inc. ("Armor") for up to $56.5
million (see Note 14).

         On March 30, 2001, Kroll-O'Gara 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 (see Note 8).

(3) RESTRUCTURING OF OPERATIONS

         In the first quarter of 1999, Kroll-O'Gara began implementation of a
restructuring plan (the "Plan") to reduce costs and improve operating
efficiencies. The Plan was substantially completed by the end of the second
quarter of 1999. The total non-recurring pre-tax restructuring charge recorded
pursuant to the Plan was approximately $4.4 million. Total payments or writeoffs
made pursuant to the Plan through March 31, 2001 were $3.9 million. Kroll-O'Gara
does not expect to incur any other significant restructuring charges in future
periods related to this Plan. The primary components of the restructuring
charge, including accrued balances as of March 31, 2001, were as follows:

<TABLE>
<CAPTION>
                                                            CUMULATIVE
                       DESCRIPTION                           EXPENSE        ACCRUAL
          -------------------------------------------        -------        -------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                          <C>             <C>
          Severance and related costs                         $3,116          $132
          Writedown of property, plant and equipment             150            --
          Lease termination costs                              1,064
                                                                               318
          Other                                                   34            --
                                                              ------          ----
                                                              $4,364           450
                                                              ======
          Less - Current portion                                               141
                                                                              ----
                                                                              $309
                                                                              ====
</TABLE>

         In the third quarter of 2000, Kroll-O'Gara's Security Products and
Services Group implemented and completed a plan to reduce costs and improve
operating efficiencies (the 2000 Plan) with a total pre-tax restructuring charge
of approximately $0.7 million. Total payments pursuant to the 2000 Plan through
March 31, 2001 were $0.5 million. Kroll-O'Gara does not expect to incur any
other significant restructuring charges in future periods related to the 2000
Plan. The principal element of the restructuring plan was the elimination of
approximately 25 employees. The only component of the restructuring charge was
severance related to the termination of employees. At March 31, 2001,
approximately $0.2 million remained as an accrual relating to the 2000 Plan.



                                       6
<PAGE>   9

(4) ACQUISITIONS

         During the second quarter of 2000, Kroll-O'Gara completed two
acquisitions which were accounted for as purchase business combinations. Both of
these acquisitions have been included in Kroll-O'Gara's Investigations and
Intelligence Group. The aggregate purchase price of these acquisitions amounted
to approximately $1.3 million and consisted of $0.7 million in cash and notes
payable of $0.6 million to the former owners of the businesses. The results of
operations of the acquired businesses are included in the consolidated financial
statements from the respective effective dates of acquisition. The resulting
goodwill from these transactions is being amortized over 25 years.

(5) DISCONTINUED OPERATION- 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. Kroll-O'Gara has decided to divest itself of the operations of this
segment by no later than December 31, 2001. The discontinuance plan includes an
overall shutdown through an orderly runoff of operations. However, Kroll-O'Gara
will continue to consider proposals from parties that may be interested in
acquiring these operations prior to their shutdown. The results of operations of
VDCG have been classified as discontinued operations and all prior periods have
been restated accordingly. The results of the discontinued Voice and Data
Communications Group 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.

         The fiscal 2000 estimated loss on disposal of VDCG of $5.0 million
includes the estimated future results of operations through the estimated date
of the shutdown. Major components of the estimated loss on disposal include a
writedown of related goodwill and other asset balances of $4.2 million and
estimated severance, operating and shutdown costs of $0.8 million. An additional
estimated loss on disposal of $0.1 million was recorded in the first quarter of
2001. The loss on disposal calculation includes $0.2 million of allocated
interest expense. The estimated loss on disposal is based upon management's best
estimates of the net realizable value of the net assets of this segment and of
the estimated direct costs of disposing of these operations. The amounts the
Company will ultimately realize may differ materially from the amounts utilized
in arriving at the estimated loss on disposal of the discontinued operations.

         Net sales, results of operations and net assets from this discontinued
operation are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     PERIOD ENDED MARCH 31,
                                                                    -------------------------
                                                                     2000               2001
                                                                    ------             ------
<S>                                                                <C>                <C>
          Net sales                                                 $4,549             $3,134
          Interest expense allocation                               $   59             $   60
          Loss from discontinued operations, net                    $ (295)            $ (104)
</TABLE>

<TABLE>
<CAPTION>
                                                                             AS OF
                                                             ------------------------------------
                                                             DECEMBER 31, 2000     MARCH 31, 2001
                                                             -----------------     --------------
<S>                                                         <C>                   <C>
          Current assets                                           $ 8,104            $ 8,186
          Property, plant and equipment, net                            --                 --
          Other assets                                                  --                 --
          Current liabilities                                       (6,225)            (6,356)
                                                                   -------            -------
                   Net assets of discontinued operations           $ 1,879            $ 1,830
                                                                   =======            =======
</TABLE>



                                       7
<PAGE>   10

         A valuation allowance for VDCG's net operating loss carryforwards has
been provided as it is not certain that the tax benefit will be realized in the
foreseeable future.

(6) SALE OF STOCK BY INFORMATION SECURITY GROUP

         In October 2000, Kroll-O'Gara's then wholly owned subsidiary, Securify,
completed a sale of preferred stock through a private equity offering to
certain unrelated third parties. Under the terms of the stock purchase
agreement, Securify issued approximately 49.2 million shares of Series A
Convertible Preferred Stock, valued at $0.68 per share, for total gross
proceeds of approximately $33.5 million. These preferred shares are convertible
into an equivalent number of shares of Securify's common stock, subject to
anti-dilution adjustments. Further, Kroll-O'Gara has assigned to the purchasers
substantially all of Kroll-O'Gara's voting rights. As a result of this
transaction, as of March 31, 2001, Kroll-O'Gara's voting control in Securify
approximated 27 percent. The investment in Securify, previously consolidated,
is now accounted for using the equity method. Kroll-O'Gara does not have any
carrying value for its investment as of March 31, 2001. Securify has realized
continuing losses since October 2000. Since Kroll-O'Gara 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.

(7) EARNINGS PER SHARE

         In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", basic earnings per share are computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share are computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Dilutive common stock equivalents
represent shares issuable upon assumed exercise of stock options and warrants
and upon assumed issuance of restricted stock. The following is a reconciliation
of the numerator and denominator for basic and diluted earnings per share for
the three months ended March 31, 2000 and 2001 (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED MARCH 31, 2000
                                                                  --------------------------------------------
                                                                     LOSS              SHARES        PER-SHARE
                                                                  (NUMERATOR)       (DENOMINATOR)      AMOUNT
                                                                  -----------       -------------    ---------
<S>                                                              <C>               <C>              <C>
             Basic and diluted loss per share                        $(380)             22,256         $(0.02)
                                                                     =====                             ======
             Effect of dilutive securities:
               Options                                                                     325
               Warrants                                                                      1
               Restricted Stock                                                             48
                                                                                        ------
             Diluted shares                                                             22,630
                                                                                        ======
</TABLE>

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED MARCH 31, 2001
                                                                   ---------------------------------------------
                                                                     INCOME             SHARES         PER-SHARE
                                                                   (NUMERATOR)       (DENOMINATOR)       AMOUNT
                                                                   -----------       -------------     ---------
<S>                                                               <C>               <C>               <C>
             Basic earnings per share                                  $470              22,415          $0.02
                                                                                                         =====
             Effect of dilutive securities:
               Options                                                                       60
               Warrants                                                                       1
                                                                       ----              ------
             Diluted earnings per share                                $470              22,476          $0.02
                                                                       ====              ======          =====
</TABLE>



                                       8
<PAGE>   11

         As a result of the net loss recorded in the first quarter of 2000,
basic and diluted earnings per share are identical as all options and warrants
are anti-dilutive.

         Basic and diluted loss per share based on loss from continuing
operations were $0.00 for the three months ended March 31, 2000. The basic and
diluted per share impact of the discontinued operation was $(0.02).

         Basic and diluted earnings per share based on income from continuing
operations were $0.03 for the three months ended March 31, 2001. The basic and
diluted per share impact of the discontinued operation was $(0.01).

(8) DEBT

Revolving Line of Credit

         On March 30, 2001, Kroll-O'Gara entered into an amended and restated
loan agreement to provide for a revolving credit facility that initially amounts
to $40.0 million. The loan agreement was further amended on April 20, 2001.
Additionally, the loan agreement provides for a letter of credit facility of
$1,356,250 supporting Kroll-O'Gara's Economic Development Revenue Bonds and
up to $6.0 million of transactional letters of credit. Letters of credit can not
be issued or renewed with a maturity date beyond May 31, 2002. The loan
agreement is secured by substantially all assets of Kroll-O'Gara and its
subsidiaries and a pledge of the stock of essentially all the subsidiaries, all
of which jointly and severally guarantee obligations under the agreement. The
security, pledge and joint and several guarantee also extend to the $35.0
million senior notes. Based on the amendments on March 30, 2001 and April 20,
2001, advances under the revolving credit facility bear interest at the greater
of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5% times the number of
30-day periods which have expired since April 20, 2001 (or, if less, the highest
rate allowed by law). At March 31, 2001, the interest rate on the line of credit
was 9.5%. Borrowings under Kroll-O'Gara's line of credit were approximately
$36.4 million at March 31, 2001.

         The $40.0 million revolving credit facility requires quarterly
reductions in the amount that may be borrowed or outstanding in total as
follows:

---------------------------------- --------------------------
DATE                                    TOTAL PERMITTED
                                          BORROWINGS
---------------------------------- --------------------------
March 31, 2001                            $40,000,000
---------------------------------- --------------------------
June 30, 2001                              38,864,200
---------------------------------- --------------------------
September 30, 2001                         37,728,400
---------------------------------- --------------------------
December 31, 2001                          36,024,700
---------------------------------- --------------------------
March 31, 2002                             34,321,000
---------------------------------- --------------------------

         The net proceeds from any lender approved asset sales in excess of $1.0
million per transaction or $2.0 million per fiscal year must be paid
proportionately to the lender and the holders of the senior notes, with a
corresponding reduction in the total permitted borrowings under the revolving
credit facility. A material adverse change in the business of Kroll-O'Gara,
including a significant sale of net assets, would result in the acceleration of
all amounts due to the lender and the holders of the senior notes. In
accordance with the April 20, 2001 amendment to the loan agreement,
Kroll-O'Gara's agreement to sell the entities that comprise the Security
Products and Services Group discussed in Note 14 would result in an acceleration
of all amounts due under the loan agreement 60 days after the closing of the
sale. The loan agreement expires on May 31, 2002.

         This loan agreement includes financial covenants which, among other
restrictions, require the maintenance of certain financial ratios and other
financial requirements, including an interest coverage ratio, net worth minimums
and minimum quarterly EBITDA, that requires Kroll-O'Gara to




                                       9
<PAGE>   12

effectively break even before taxes and to generate EBITDA of $6.0 million per
quarter. The loan agreement also imposes limitations on mergers, acquisitions,
stock redemptions, additional indebtedness and capital expenditures. The loan
agreement does not permit the declaration or payment of any dividends, other
than stock dividends. Kroll-O'Gara was in compliance with these covenants as of
March 31, 2001.

Senior Notes

         Kroll-O'Gara's $35.0 million of senior notes were amended on March 30,
2001 and April 20, 2001. Based on the amendments, the senior notes bear
interest at the greater of (a) 8.56% or (b) the prime rate plus 1.5%, plus 0.5%
times the number of 30-day periods which have expired since April 20, 2001 (or,
if less, the highest rate allowed by law). At March 31, 2001, the interest rate
on the senior notes was 9.5%. The senior notes also contain financial
covenants, which among other restrictions, require the maintenance of a minimum
level of net worth and a fixed charge coverage ratio. The senior notes are
cross-collateralized and guaranteed with the Company's revolving credit
facility and contain similar acceleration features. In addition, the net
proceeds from asset sales must be paid proportionately to the revolving credit
facility lender and the holders of the senior notes. In accordance with the
April 20, 2001 amendment to the senior notes, Kroll-O'Gara's agreement to sell
the entities that comprise the Security Products and Services Group discussed
in Note 14 would result in an acceleration of all amounts due under the senior
notes 60 days after the closing of the sale. At March 31, 2001, borrowings under
Kroll-O'Gara's senior notes was $35.0 million, $4.3 million of which is current.

 (9) NEW PRONOUNCEMENTS

         In 1998, Kroll-O'Gara adopted SFAS No. 130, "Reporting Comprehensive
Income" (SFAS 130), which established standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Kroll-O'Gara
has chosen to disclose comprehensive income, which encompasses net income,
foreign currency translation adjustments and unrealized holding gains of
marketable securities, in the consolidated statements of shareholders' equity.
The accumulated other comprehensive loss balance of ($8.3) million at March 31,
2001, consisted entirely of foreign currency translation-related adjustments.

         The Emerging Issues Task Force (EITF) Issue No. 00-20, "Accounting for
Costs Incurred to Acquire or Originate Information for Database Content and
Other Collections of Information," states that the EITF is considering different
views for the accounting for database costs. One of the views would require
Kroll-O'Gara to expense some or all of the database costs that Kroll-O'Gara
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-O'Gara's financial position and results of
operations. To date, the EITF has not made any official determinations on this
issue.



                                       10
<PAGE>   13

(10) SUPPLEMENTAL CASH FLOW DISCLOSURE


<TABLE>
<CAPTION>
                                                        2000       2001
                                                       ------     ------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                  <C>        <C>
       Cash paid (received) for taxes                   $256       $(42)
       Cash paid for interest                           $567       $944
</TABLE>

(11) INVENTORIES

         Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and include the following (dollars in
thousands):

<TABLE>
<CAPTION>
                       INVENTORY CATEGORY                 DECEMBER 31, 2000      MARCH 31, 2001
                       ------------------                 -----------------      --------------
                                                                        (UNAUDITED)
<S>                                                      <C>                    <C>
              Raw materials                                     $11,651                $13,842
              Vehicle costs and work-in-process                   6,990                  5,484
                                                                -------                -------
                       Total inventory                          $18,641                $19,326
                                                                =======                =======
</TABLE>


(12) DERIVATIVE FINANCIAL INSTRUMENTS

         On January 1, 2001, Kroll-O'Gara adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Upon adoption of SFAS 133, Kroll-O'Gara recorded a decrease in assets by
approximately $0.2 million with an offsetting amount recorded in the accumulated
other comprehensive income (loss) component of shareholders' equity. At March
31, 2001, Kroll-O'Gara has entered into eight foreign currency exchange
contracts to effectively hedge a specific portion of its exposure to certain
foreign currency rate fluctuations on its net investment in two foreign
subsidiaries. These contracts mature between May 2001 and December 2002. As of
March 31, 2001, the foreign hedge contracts had a notional amount and estimated
fair value of $13.4 million and $0.9 million, respectively. Unrealized gains of
$0.1 million were recorded in the accumulated other comprehensive income (loss)
component of shareholders' equity.

(13) SEGMENT DATA

         Through October 17, 2000 Kroll-O'Gara operated in three business
segments, the Security Products and Services Group, the Investigations and
Intelligence Group and the Information Security Group. As a result of the
preferred stock sale completed by the Information Security Group on October 17,
2000, the Group ceased to be a part of the consolidated results of the
Kroll-O'Gara Company from that date forward. See Note 6 for more information on
this transaction.



                                       11
<PAGE>   14
         The following summarizes information about Kroll-O'Gara's business
segments:

<TABLE>
<CAPTION>
                                                                   INVESTIGATIONS
                                                      SECURITY           AND
                                                    PRODUCTS AND    INTELLIGENCE    INFORMATION
                                                    SERVICES GROUP     GROUP       SECURITY GROUP    OTHER        CONSOLIDATED
                                                    --------------  ------------   --------------    -----        ------------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                <C>            <C>              <C>              <C>          <C>
          THREE MONTHS ENDED MARCH 31, 2000
          Net sales to unaffiliated customers          $30,352        $ 49,011        $   863        $    --        $ 80,226
                                                       =======        ========        =======        =======        ========
          Gross profit (loss)                          $ 8,598        $ 21,819        $  (375)       $    --        $ 30,042
                                                       =======        ========        =======        =======        ========
          Operating income (loss)                      $ 3,551        $  5,068        $(2,383)       $(4,671)       $  1,565
                                                       =======        ========        =======        =======        ========

          THREE MONTHS ENDED MARCH 31, 2001
          Net sales to unaffiliated customers          $29,763        $ 49,488        $    --        $    --        $ 79,251
                                                       =======        ========        =======        =======        ========
          Gross profit                                 $ 6,819        $ 20,714        $    --        $    --        $ 27,533
                                                       =======        ========        =======        =======        ========
          Operating income (loss)                      $ 2,736        $  3,024        $    --        $(3,121)       $  2,639
                                                       =======        ========        =======        =======        ========
          Identifiable assets at March 31, 2001        $81,697        $162,277        $    --        $    --        $243,974
                                                       =======        ========        =======        =======
Corporate assets                                                                                                      10,900
Net assets of discontinued operation                                                                                   1,830
                                                                                                                    --------
     Total assets at March 31, 2001                                                                                 $256,704
                                                                                                                    ========
</TABLE>

(14) SUBSEQUENT EVENTS

Disposition of Security Products and Services Group

         On April 20, 2001, the Board of Directors approved a definitive
agreement, subject to a limited number of closing conditions, to sell the common
stock of the active companies that comprise the Security Products and Services
Group, other than the Group's subsidiaries that provide kidnap and ransom and
risk information services and its Russian subsidiaries, to Armor for up to $56.5
million. A portion of the sales price ($53.0 million subject to adjustment) is
to be paid at closing, currently expected to occur late in the second quarter or
in the third quarter of 2001. An escrow of $1.5 million will be maintained and a
deferred payment of up to $2.0 million may be made based on the Group's
achievement of a gross profit target for the year ending December 31, 2001. At
Armor options, up to $15.0 million of the purchase price can be paid in
registered common stock of Armor. The purchase price will be reduced
dollar-for-dollar to the extent tangible net assets, as defined, are less than
approximately $37.4 million. Kroll-O'Gara currently believes the sale of the
Security Products and Services Group will approximate book value. In the event
the sale to Armor is not consummated, Kroll-O'Gara will continue to evaluate all
options available to it, including seeking other buyers or other alternatives.
Consummation of this sale is subject to a limited number of closing conditions.

                                       12
<PAGE>   15

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-O'Gara's
Consolidated Financial Statements and Notes. As a result of the acquisitions
made by Kroll-O'Gara in 2000, financial results from period-to-period may lack
comparability. Additionally, on April 16, 2001, the Board of Directors approved
a plan to discontinue operations of the Voice and Data Communications Group.
Historical amounts have been reclassified to conform to the current categories.

RECENT DEVELOPMENTS

Corporate Initiatives. Kroll-O'Gara has considered a variety of corporate
initiatives within the periods presented in the accompanying consolidated
financial statements.

         On November 15, 1999, Kroll-O'Gara announced that it had entered into a
definitive agreement with Blackstone Capital Partners III Merchant Banking Fund
L. P. (Blackstone) pursuant to which shares held by all Kroll-O'Gara
shareholders, other than certain members of management, would be acquired by
Blackstone for $18.00 per share in cash. On April 12, 2000, Kroll-O'Gara
announced that Blackstone had withdrawn its offer to acquire Kroll-O'Gara
shares. Costs associated with the failed merger were approximately $1.4 million
for the three months ended March 31, 2000, and consisted primarily of fees for
attorneys, accountants, investment bankers, travel and other related charges.

         On April 18, 2000, Kroll-O'Gara announced it would explore structuring
a transaction that would result in the separation of its two principal operating
segments, the Security Products and Services Group and the Investigations and
Intelligence Group, and it would seek an equity investment for its Information
Security Group. In September 2000, the Board of Directors approved an agreement
and plan of reorganization and dissolution of Kroll-O'Gara, that would have
resulted in the spinoff of net assets into two new public companies. Upon the
completion of the split-up, Kroll-O'Gara shareholders, other than members of
management of the separated companies, would have owned shares in both
companies. On April 20, 2001, the Board decided not to pursue this separation
alternative. Costs associated with this proposed separation were approximately
$0.2 million for the three months ended March 31, 2001 and consisted primarily
of fees for attorneys, accountants and other related charges. Kroll-O'Gara does
not anticipate any additional expenses related to this now terminated separation
alternative.

         On April 20, 2001, in lieu of the proposed separation, the Board
approved a definitive agreement, subject to a limited number of closing
conditions, to sell the common stock of the active companies that comprise the
Security Products and Services Group, other than the Group's subsidiaries that
provide kidnap and ransom and risk information services and its Russian
subsidiaries, to Armor Holdings, Inc. ("Armor") for up to $56.5 million. A
portion of the sales price ($53.0 million subject to adjustment) is to be paid
at closing, currently expected to occur late in the second quarter or in the
third quarter of 2001. An escrow of $1.5 million will be maintained and a
deferred payment of up to $2.0 million may be made based on the Group's
achievement of a gross profit target for the year ending December 31, 2001. At
Armor's option, up to $15.0 million of the purchase price can be paid in
registered common stock of Armor. The purchase price will be reduced
dollar-for-dollar to the extent tangible net assets, as defined, are less than
approximately $37.4 million. Kroll-O'Gara currently believes the sale of the
Security Products and Services Group will approximate book value. In the event
the sale to Armor is not consummated, Kroll-O'Gara will continue to evaluate all
options available to it, including seeking





                                       13
<PAGE>   16

other buyers or other alternatives. See Note 14 to the Notes to Unaudited
Consolidated Financial Statements.

Other. In October 2000, Kroll-O'Gara's then wholly owned subsidiary, Securify,
completed a sale of preferred stock through a private equity offering to certain
unrelated third parties. Under the terms of the stock purchase agreement,
Securify issued approximately 49.2 million shares of Series A Convertible
Preferred Stock, valued at $0.68 per share, for total gross proceeds of
approximately $33.5 million. These preferred shares are convertible into an
equivalent number of shares of Securify's common stock, subject to anti-dilution
adjustments. Further, Kroll-O'Gara has assigned to the purchasers substantially
all of Kroll-O'Gara's voting rights. As a result of this transaction, as of
March 31, 2001, Kroll-O'Gara's voting control in Securify approximated 27
percent. The investment in Securify, previously consolidated, is now accounted
for using the equity method. Kroll-O'Gara does not have any carrying value for
its investment as of March 31, 2001. Securify has realized continuing losses
since October 2000. Since Kroll-O'Gara 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. See Note 6 to the Notes to Unaudited
Consolidated 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. Kroll-O'Gara has decided to divest itself of the operations of this
segment by no later than December 31, 2001. The discontinuance plan includes an
overall shutdown through an orderly runoff of operations. However, Kroll-O'Gara
will continue to consider proposals from parties that may be interested in
acquiring these operations prior to their shutdown. The results of operations of
VDCG have been classified as discontinued operations and all prior periods have
been restated accordingly. See Note 5 to the Notes to Unaudited Consolidated
Financial Statements.

GENERAL

         Kroll-O'Gara is a leading global provider of a broad range of
specialized products and services that are designed to provide solutions to a
variety of security needs. Through October 17, 2000, Kroll-O'Gara reported its
revenue from continuing operations through three groups. The Investigations and
Intelligence Group offers business intelligence, investigation services and risk
mitigation consulting services. The Security Products and Services Group markets
ballistic and blast protected vehicles and security services. The Information
Security Group offered information and computer security services. As a result
of the October 2000 sale of Securify stock, the Information Security Group
ceased to be part of Kroll-O'Gara's consolidated results. On April 16, 2001,
Kroll-O'Gara's Board of Directors approved a formal plan to discontinue
operations of a fourth group, the Voice and Data Communications Group.
Accordingly, these operations have been reclassified and reported as
discontinued operations.

         Acquisitions. Kroll-O'Gara completed several acquisitions in 2000,
which were accounted for as purchases.

         On July 11, 2000, Kroll-O'Gara acquired all of the capital stock of
Decision Resources, Inc., a corporation doing business in Canada. The purchase
price of $0.7 million was satisfied with cash of $0.3 million and a note payable
of $0.4 million to the former owner. The acquisition has been accounted for as a
purchase and was effective on July 1, 2000. Goodwill related to this transaction
was approximately $0.7 million which is being amortized over 25 years. Decision
Resources specializes in market research and business intelligence services. Its
revenues are included in Kroll-O'Gara's Investigations and Intelligence Group.



                                       14
<PAGE>   17

         On May 16, 2000, Kroll-O'Gara acquired substantially all of the assets
and assumed certain liabilities of The Search Is On, Inc., a corporation doing
business in Nashville, Tennessee. The purchase price of $0.6 million was
satisfied with cash of $0.4 million and a note payable of $0.2 million to the
former owner. The acquisition has been accounted for as a purchase and was
effective on May 16, 2000. Goodwill related to this transaction was
approximately $0.4 million which is being amortized over 25 years. The Search Is
On specializes in obtaining public records information for utilization in
providing background investigation to clients. Its revenues are included in
Kroll-O'Gara's Investigations and Intelligence Group.

         Revenue recognition. Revenue from intelligence and investigation
services 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. Revenues related to fixed price
arrangements are recognized based upon costs incurred as a percentage of the
estimated total direct costs of the respective arrangements. The impact of any
revisions in estimated total revenues and direct contract costs is recognized in
the period in which they become known. Kroll-O'Gara records either billed or
unbilled accounts receivable based on case-by-case invoicing determinations.

         Kroll-O'Gara recognizes net sales from certain military and commercial
armoring contracts using the percentage-of-completion method calculated
utilizing the cost-to-cost approach. Under this method, Kroll-O'Gara accrues
estimated contract revenues based generally on the percentage that costs to date
bear to total estimated costs and recognizes estimated contract losses in full
when it becomes likely that a loss will occur. Accordingly, Kroll-O'Gara
periodically reviews and revises contract revenues and total cost estimates as
the work progresses and as change orders are approved. It reflects adjustments
in contract revenues, based upon the percentage of completion, in the period
when the estimates are revised. To the extent that these adjustments result in
an increase, a reduction or an elimination of previously reported contract
revenues, Kroll-O'Gara recognizes a credit or a charge against current earnings,
which could be material. Revenue related to other contracts for security
products (both government and commercial) that results principally from
short-term fixed price contracts is recognized on the completed contract method.
Contract costs include all direct material and labor costs, along with certain
direct overhead costs related to contract production. Kroll-O'Gara records
provisions for any estimated total contract losses on uncompleted contracts in
the period in which it concludes that the losses will occur.

         Kroll-O'Gara recognized information security service revenues, which
consisted of consulting fees on information security projects, ratably over the
period of the agreement as services were performed or according to the completed
contract method of accounting for contract revenues, depending on the nature of
the agreement.

RESTRUCTURING OF OPERATIONS

         In the third quarter of 2000, Kroll-O'Gara's Security Products and
Services Group implemented and completed a plan to reduce costs and improve
operating efficiencies with a total non-recurring pre-tax restructuring charge
of approximately $0.7 million. The principal element of the restructuring plan
was the elimination of approximately 25 employees. The only component of the
restructuring charge was severance related to the termination of employees. See
Note 3 to the Notes to Unaudited Consolidated Financial Statements.



                                       15
<PAGE>   18

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the items noted
as a percentage of net sales:

<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                                                    MARCH 31,
                                                           --------------------------
                                                               2000           2001
                                                               ----           ----
<S>                                                           <C>            <C>
          Security Products and Services
              Military                                         10.3%          11.6%
              Commercial                                       27.5%          26.0%
          Investigations and Intelligence                      61.1%          62.4%
          Information Security                                  1.1%            --%
                                                              -----          -----
                         Total net sales                      100.0%         100.0%
          Cost of sales                                        62.6           65.3
                                                              -----          -----
                  Gross profit                                 37.4           34.7

          Operating expenses:
              Selling and marketing                             8.5            8.0
              General and administrative                       25.2           23.2
              Failed merger expenses                            1.7             --
              Merger expenses                                    --             --
              Failed separation costs                            --            0.2
                                                              -----          -----
                  Operating income                              2.0            3.3
          Other income (expense):
              Interest expense                                 (1.7)          (2.1)
              Other, net                                         --             --
                                                              -----          -----
          Income from continuing operations before
             provision for income taxes                         0.2            1.2
              Provision for income taxes                        0.3            0.5
                                                              -----          -----

          Income (loss) from continuing operations             (0.1)           0.7

          Loss from operations of discontinued Voice
             and Data Communications Group, net                (0.4)          (0.1)
                                                              -----          -----


          Net income (loss)                                    (0.5)%          0.6%
                                                              =====          =====
</TABLE>


Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

         NET SALES. Net sales for the three months ended March 31, 2001
decreased $1.0 million, or 1%, from $80.2 million in 2000 to $79.3 million in
2001. This decrease related primarily to the exclusion of the Information
Security Group's sales from the Kroll-O'Gara Company in 2001. In 2000, the
Information Security Group reported $0.9 million of revenue. See Note 6 to the
Notes to Unaudited Consolidated Financial Statements for more information.

         Security Products and Services Group. Net sales for the Security
Products and Services Group for the three months ended March 31, 2001 decreased
$0.6 million, or 2%, from $30.4 million in 2000 to $29.8 million in 2001. The
decrease results from a decrease in commercial armoring products and services,
which decreased $1.5 million, or 7%, from $22.1 million in 2000 to $20.6 million
in 2001. The decrease in sales was due to the completion of a large contract
from the U.S. government to produce over 300 armored vehicles which Kroll-O'Gara
received in 1999 but completed near the end of the first quarter of 2000.

         Also included in net sales for the Security Products and Services Group
are sales of military products and services, which increased $0.9 million, or
11%, from $8.3 million in 2000 to $9.2 million in 2001. The increase in net
sales of military products and services was a result of a lag in production in
the first quarter of 2000 due to the completion early in the first quarter of
2000 of a contract with the U.S. Military to supply 738 armored High Mobility
Multi-Purpose Wheeled Vehicles ("HMMWVs") to the U.S. Army and the U.S. Air
Force. A new contract was negotiated in the first




                                       16
<PAGE>   19

quarter of 2000 but production on the new contract was not begun until the
middle of the second quarter of 2000.

         Investigations and Intelligence Group. Net sales for the Investigations
and Intelligence Group increased $0.5 million, or 1%, from $49.0 million in the
first quarter of 2000 to $49.5 million in 2001. This increase primarily stems
from internal growth in the Group's worldwide financial services practices.

         COST OF SALES. Cost of sales for the three months ended March 31, 2001
increased $1.5 million, or 3%, from $50.2 million in 2000 to $51.7 million in
2001. Gross margin was 34.7% as compared with 37.4% for the same period in 2000.

         Gross margin for the Security Products and Services Group decreased
approximately 5.4 percentage points from 28.3% in 2000 to 22.9% in 2001. This
decrease relates to poor gross margin performance in certain Latin American
operations as a result of competitive pricing pressures and pricing concessions
necessitated by foreign economic conditions. Additionally, the shift in sales
mix from the more profitable commercial sales to the lower margin military sales
contributed to the erosion in the gross margin.

         Gross margin decreased approximately 2.6 percentage points from 44.5%
in 2000 to 41.9% in 2001 for the Investigations and Intelligence Group. The
decrease in gross margin is due to increased employee compensation costs and
subcontractor fees associated with generating professional fee revenue.

         OPERATING EXPENSES. Operating expenses for the three months ended March
31, 2001 decreased $3.6 million, or 13%, from $28.5 million in 2000 to $24.9
million in 2001. Included in this decrease are non-recurring expenses which
decreased $1.2 million, from $1.4 million in 2000 to $0.2 million in 2001.
Non-recurring charges in 2000 primarily consisted of costs associated with the
failed recapitalization merger with Blackstone. In 2001, non-recurring expenses
primarily consisted of costs associated with the failed separation of the
Company.

         Excluding non-recurring expenses, operating expenses decreased $2.4
million, or 9%. This decrease primarily relates to the exclusion in 2001 of all
operating expenses associated with the Information Security Group. In the first
quarter of 2000, the Information Security Group had $2.0 million of operating
expenses. The remaining decrease of $0.4 million relates to decreased corporate
overhead expenses which had been required to administer the growth experienced
by Kroll-O'Gara due to the acquisitions completed in 1998 and 1999. In 2000,
minimal acquisitions were completed.

         As a percent of net sales, operating expenses, before non-recurring
expenses, decreased from 33.7% in 2000 to 31.2% in 2001. As mentioned
previously, the decrease in operating expenses as a percentage of net sales is
primarily a result of the exclusion of the Information Security Group's
operating expenses. Through October 2000, focus on the development of this
Group's service capabilities and the establishment of a firm customer base had
been a strategic initiative. However, due to this initiative, minimal sales and
high operating costs were experienced by this Group which increased
Kroll-O'Gara's total operating expenses as a percentage of net sales.

         INTEREST EXPENSE. Interest expense for the three months ended March 31,
2001 increased $0.4 million, or 26%, from $1.3 million in 2000 to $1.7 million
in 2001. This increase was the result of higher interest rates and increased
borrowings on Kroll-O'Gara's revolving credit facility as a result of the
continued funding of the Information Security Group through October 17, 2000 as
well as additional costs incurred after the first quarter of 2000 of
approximately $4.2 million related to the failed separation of




                                       17
<PAGE>   20

Kroll-O'Gara's two principal operating groups and $1.1 million related to the
failed merger with Blackstone.

         PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended March 31, 2001 was $0.4 million compared to $0.3 million in
2000. In both periods, Kroll-O'Gara recorded a provision for income taxes for
certain foreign subsidiaries which generated income in the period. Certain
foreign jurisdictions realized losses in the first quarter of 2000 and 2001 from
which Kroll-O'Gara was not able to benefit for tax purposes due to the
uncertainty relating to the future realizability of the net operating loss
carryforward.

         DISCONTINUED OPERATIONS. The loss from operations of the discontinued
Voice and Data Communications Group decreased from $0.3 million in the first
three months of 2000 to $0.1 million for the same period in 2001. In 2000, the
Group focused efforts on reducing its inventory of satellite communications
equipment in order to improve cash flow and offered discounted prices in order
to move certain inventory. As a result, margins were negatively impacted in the
first quarter of 2000. In 2001, the Group was not focused on reducing inventory
and was able to achieve better and more normalized margins for its product
sales.

         Due to the uncertainty surrounding the future realizability of the tax
benefit associated with the Voice and Data Communication Group's losses,
management concluded that a valuation allowance for the entire tax benefit was
required for both 2000 and 2001. In addition, in December 2000, management
estimated a loss on disposal of $5.0 million which includes a writedown of
related goodwill and other asset balances of $4.2 million and estimated
severance, operating and shutdown costs of $0.8 million. Kroll-O'Gara continues
to evaluate the need for an additional provision for a loss on disposal of this
business. However, at March 31, 2001, management concluded that no additional
provision was required.



                                       18
<PAGE>   21

LIQUIDITY AND CAPITAL RESOURCES

         General. Kroll-O'Gara 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. On March 30, 2001, Kroll-O'Gara
entered into an amended and restated loan agreement, which expires on May 31,
2002 if not terminated earlier as described below, to provide for a revolving
credit facility that initially amounts to $40.0 million. The agreement also
provides for a letter of credit facility of approximately $1.4 million
supporting the Company's Economic Development Revenue Bonds and up to $6.0
million of transactional letters of credit. Letters of credit cannot be issued
or renewed with a maturity date beyond May 31, 2002. The agreement is secured by
substantially all assets of Kroll-O'Gara and its subsidiaries and a pledge of
the stock of essentially all the subsidiaries, all of which jointly and
severally guarantee obligations under the agreement. The revolving credit
facility requires quarterly reductions of approximately $1.1 million on each of
June 30 and September 30, 2001 and approximately $1.7 million on each of
December 31, 2001 and March 31, 2002 in the amount that may be borrowed under
the facility and, if necessary, corresponding principal repayments to the
adjusted levels. In addition, the net proceeds from any lender-approved sale of
assets in excess of $1.0 million per transaction or $2.0 million per fiscal year
must be paid proportionately to the revolving credit facility lender and to the
holders of Kroll-O'Gara's outstanding $35.0 million principal amount of senior
notes (discussed below), with a corresponding reduction in the total permitted
borrowings under the revolving credit facility. This includes the net proceeds
from the sale to Armor and any proceeds from sales of Kroll-O'Gara's stock
ownership in Securify or other assets in excess of the threshold amounts.
Borrowings under Kroll-O'Gara's line of credit were approximately $36.5 million
and $36.4 million at December 31, 2000 and March 31, 2001, respectively.

         In connection with the amended credit facility, Kroll-O'Gara entered
into amended and restated agreements with the holders of its senior notes. These
agreements also are secured by substantially all assets of Kroll-O'Gara and its
subsidiaries and a pledge of the stock of essentially all the subsidiaries and
are jointly and severally guaranteed by essentially all the subsidiaries. The
amended and restated senior note agreements require total principal payments of
$864,200 on each of June 30 and September 30, 2001 and of $1,296,300 on each of
December 31, 2001 and March 31, 2002. The balance is payable at maturity in May
2003, but maturity will be accelerated to May 31, 2002 if Kroll-O'Gara's
revolving credit agreement is not renewed and, as described below, further
accelerated upon closing of the transaction with Armor.

         The amended bank loan and senior note agreements contain substantially
identical financial covenants which, among other restrictions, require the
maintenance of certain financial ratios and other financial requirements,
including an interest coverage ratio, net worth minimums and minimum quarterly
EBITDA that requires Kroll-O'Gara to effectively break even before taxes and to
generate EBITDA of $6.0 million per quarter. The agreements also impose
limitations on mergers, acquisitions, stock redemptions, additional indebtedness
and capital expenditures. The loan agreement does not permit the declaration or
payment of any dividend, other than stock dividends. Kroll-O'Gara was in
compliance with these covenants as of March 31, 2001.

         The bank loan agreement and senior notes were further amended as of
April 20, 2001 in connection with Kroll-O'Gara's agreement to sell the Security
Products and Services Group to Armor. The March 30, 2001 agreements required
interest on advances under the revolving credit facility and on the senior notes
at the greater of 8.56% or the prime rate plus 1.5% (9.5% at March 31, 2001).
Effective April 20, 2001 the interest rate under all of the agreements was
changed to the greater of




                                       19
<PAGE>   22

(a) 8.56% or (b) prime plus 1.5%, plus 0.5% times the number of 30-day periods
which have exired since April 20, 2001 (or, if less, the highest rate allowed by
law).

         Kroll-O'Gara's agreement with Armor provides that it will receive
approximately $53.0 million at closing, $15.0 million of which is expected to be
paid in Armor stock. At closing, Kroll-O'Gara expects to pay approximately $3.0
million for transaction costs and certain other payables. Additionally at
closing, $38.0 million must be paid to the revolving credit facility lender and
to the senior note holders, 56.79% and 43.21% of the sum, respectively. During
the 60 days following closing of the transaction with Armor, any proceeds from
the sale of the Armor stock also must be paid immediately to the revolving
credit facility lender and senior note holders in the same percentages. All
remaining outstanding amounts under the revolving credit facility and the senior
notes are due 60 days after closing.

         Kroll-O'Gara has been in discussions with other lenders to provide
financing subsequent to the sale of the Security Products and Services Group to
Armor. After payment of the net proceeds from the sale of the Security Products
and Services Group to the revolving credit facility lender and the senior note
holders, Kroll-O'Gara expects there to be approximately $22 million remaining
outstanding to these parties which must be repaid no later than 60 days after
closing. Kroll-O'Gara believes that it can obtain a credit facility of
approximately $35 million at interest rates comparable to the rate under the
March 30, 2001 amendment to its existing credit facilities. Therefore, the
anticipated financing under discussion should be adequate to meet the ongoing
needs of Kroll-O'Gara. If the sale of the Security Products and Services Group
to Armor is not consummated, Kroll-O'Gara believes it can continue to remain in
compliance with all the terms and conditions of the bank loan agreement and
senior note agreements for the remainder of their terms. However, based on the
increasing interest rates included in the amended bank loan agreement and senior
note agreements, Kroll-O'Gara expects it would endeavor to obtain new financing.

         Effective June 3, 1999, with the acquisition of Buchler Phillips,
Kroll-O'Gara acquired a demand note with maximum borrowings of pound 2.5
million. The demand note bears interest at the Bank of England's base rate plus
1.0%. Maximum borrowings permitted pursuant to this demand note are $4.0
million. Borrowings outstanding pursuant to this demand note were approximately
$2.8 million and $3.1 million, respectively, as translated at December 31, 2000
and March 31, 2001.

         Cash flows from operating activities. In the first quarter of 2001,
cash provided by operating activities was $3.7 million. In the first quarter of
2000, cash used in operating activities was $0.4 million. In 2000, cash was used
primarily to fund working capital investments. In 2001, the improved cash flow
primarily resulted from more timely collections of accounts receivable.

         Cash flows from investing activities. In the first quarter of 2001,
Kroll-O'Gara incurred $1.7 million of capital expenditures primarily related to
upgrades of general information systems and leasehold improvements. In the first
quarter of 2000, Kroll-O'Gara also incurred capital expenditures of $1.8 million
primarily related to upgrades of general information systems and leasehold
improvements. Additions to databases totaled $0.6 million and $1.2 million for
the three months ended March 31, 2000 and 2001, respectively.

         Cash flows from financing activities. In the first three months of
2001, cash used by financing activities was $0.7 million and was the result of
repayments of long-term debt primarily related to capital leases. Cash used in
financing activities for the first three months of 2000 was $2.0 million and was
a result of unfavorable foreign currency translation adjustments.

         Foreign operations. Kroll-O'Gara attempts to mitigate the risks of
doing business in foreign countries by separately incorporating its operations
in those countries; maintaining reserves for credit




                                       20
<PAGE>   23

losses; maintaining insurance on equipment to protect against losses related to
political risks and terrorism, and using financial instruments to hedge
Kroll-O'Gara's risk from translation gains and losses.

         Kroll-O'Gara utilizes derivative financial instruments, in the form of
forward contracts, to hedge some of its exposure to foreign currency rate
fluctuations. At March 31, 2001, eight such contracts, maturing between May 2001
and December 2002, were outstanding in connection with intercompany demand notes
with certain subsidiaries. These contracts are intended to hedge Kroll-O'Gara's
exposure to deterioration in the amount outstanding due to changes in currency
translation rates. The notional amount and the fair market value associated with
these forward contracts was $13.4 million and $0.9 million, respectively. Gains
or losses on existing forward instruments are offset against the translation
effects reflected in the accumulated other comprehensive income (loss) component
of shareholders' equity. The fair value of forward contracts is not recognized
in the consolidated financial statements since they are accounted for as hedges.
Kroll-O'Gara does not hold or issue derivative financial instruments for trading
purposes.

     Quarterly fluctuations. Kroll-O'Gara's operations may fluctuate on a
quarterly basis as a result of the timing of contract costs and revenues of its
Security Products and Services Group, particularly from its military and
governmental contracts which are generally awarded in a periodic and/or sporadic
basis. Kroll-O'Gara generally does not have long-term contracts with its clients
in its Investigations and Intelligence Group and its ability to generate net
sales is dependant 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. The Emerging Issues Task Force (EITF)
Issue No. 00-20, "Accounting for Costs Incurred to Acquire or Originate
Information for Database Content and Other Collections of Information," states
that the EITF is considering different views for the accounting for database
costs. One of the views would require Kroll-O'Gara to expense some or all of the
database costs that Kroll-O'Gara 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-O'Gara's
financial position and results of operations. To date, the EITF has not made any
official determinations on this issue.

     Forward-Looking Statements. This quarterly report contains statements which
Kroll-O'Gara believes are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These statements are made
particularly in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, but also appear elsewhere in this document.
Forward-looking statements can be identified by the use of language such as
"may," "will," "expect," "anticipate," "estimate," "continue" or other similar
words. Such statements are based upon management's estimates, assumptions and
projections and are subject to substantial risks and uncertainties that could
cause actual results to differ materially from those set forth in the




                                       21
<PAGE>   24
 forward-looking statements. Factors that could cause actual results to differ
materially from those in the forward-looking statements include, among other
things: contract delays, reductions or cancellations; cost overruns with regard
to fixed price contracts; problems and costs associated with integrating past
and future business combinations; various political and economic risks of
conducting business outside the United States, including foreign economic
conditions and currency rate fluctuations; changes in laws and regulations;
adjustments associated with percentage-of-completion accounting; inability of
subcontractors to perform on schedule and meet demand; unexpected competitive
pressures resulting in lower margins and volumes; uncertainties in connection
with start-up operations and opening new offices; higher-than-anticipated costs
of financing the business; loss of senior personnel; changes in the general
level of business activity; and a failure to complete the sale of the Security
Products and Services Group.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

         See Item 2, Managements Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Foreign Operations.




                                       22
<PAGE>   25




                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Kroll-O'Gara 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-O'Gara'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-O'Gara'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 the Company and also seek
class certification. On behalf of Kroll-O'Gara and the putative plaintiff
classes of shareholders, they seek a declaration that the individual defendants
breached their fiduciary duty and damages and attorneys' fees in an unspecified
amount. The defendants believe that the allegations in the complaints are
meritless and will defend the suits vigorously.

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

ITEM 6.  EXHIBITS

         (a)  Exhibits

               None



                                       23
<PAGE>   26




                                   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 18th day of May, 2001.


                                        THE KROLL-O'GARA COMPANY



                                        By /s/ Nazzareno E. Paciotti
                                          ----------------------------
                                           Nazzareno E. Paciotti
                                           Chief Financial Officer



                                       24