<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 JUNE 30, 1999

                        Commission File Number: 000-21629

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

<TABLE>
                        OHIO                                                  31-1470817
<S>                                                                <C>
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)     (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>


                               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.


                                   22,150,823
                         ------------------------------
             (SHARES OF COMMON STOCK OUTSTANDING AS OF JULY 1, 1999)

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------




<PAGE>   2


                            THE KROLL-O'GARA COMPANY

                                    FORM 10-Q
                         FOR THE QUARTERLY PERIOD ENDED
                                  JUNE 30, 1999

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

         ITEM 1:           FINANCIAL STATEMENTS

                           Consolidated Balance Sheets (unaudited) as of
                           June 30, 1999 and December 31, 1998..................................      1

                           Consolidated Statements of Operations (unaudited) for
                           the three and six months ended June 30, 1999 and 1998................      3

                           Consolidated Statements of Cash Flows (unaudited)
                           for the six months ended June 30, 1999 and 1998......................      4

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

         ITEM 2:           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS..................................     15

PART II - OTHER INFORMATION.....................................................................     26

         ITEM 1:  LEGAL PROCEEDINGS.............................................................     26

         ITEM 2:  CHANGES IN SECURITIES.........................................................     26

         ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K..............................................     26

         SIGNATURES.............................................................................     27
</TABLE>


<PAGE>   3


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                            THE KROLL-O'GARA COMPANY

                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                    AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                             1999             1998
                                                                                          ----------       ----------
<S>                                                                                      <C>             <C>
ASSETS
------
Current Assets:
     Cash and equivalents                                                                $     16,852    $      13,895
     Marketable securities                                                                      1,278           13,285
     Trade accounts receivable, net of allowance for doubtful accounts of $2,758
       and $2,427 at June 30, 1999 and December 31, 1998, respectively                         53,494           48,937
     Unbilled revenues                                                                         19,137            7,766
     Other receivables                                                                          3,956            2,763
     Income tax receivable                                                                      1,002                -
     Costs and estimated earnings in excess of billings on uncompleted contracts               22,895           26,408
     Inventories (Note 8)                                                                      22,695           18,607
     Prepaid expenses and other                                                                 6,883            7,748
     Net current assets of discontinued operations (Note 11)                                    8,672            6,837
                                                                                           ----------       ----------
                  Total current assets                                                        156,864          146,246
                                                                                           ----------       ----------

Property, Plant and Equipment, at cost
     Land                                                                                       2,137            1,856
     Buildings and improvements                                                                 8,419            8,272
     Leasehold improvements                                                                     6,658            6,330
     Furniture and fixtures                                                                     7,981            6,007
     Machinery and equipment                                                                   23,662           19,655
     Construction-in-progress                                                                   6,657            2,915
                                                                                           ----------       ----------
                                                                                               55,514           45,035
     Less: accumulated depreciation                                                           (22,964)         (20,463)
                                                                                           ----------       ----------

                                                                                               32,550           24,572
                                                                                           ----------       ----------

Databases, net of accumulated amortization of $24,426 and $22,789 at June 30, 1999
     and December 31, 1998, respectively                                                        9,445            9,239

Costs in Excess of Assets Acquired and Other Intangible Assets, net of accumulated
      amortization  of $5,752 and $3,986 at June 30,  1999 and December 31, 1998,              78,929           59,154
      respectively

 Other Assets:
     Other assets                                                                               2,747            4,882
     Net non-current assets of discontinued operations (Note 11)                                3,062            4,275
                                                                                           ----------       ----------

                                                                                               94,183           77,550
                                                                                           ----------       ----------

                                                                                           $  283,597       $  248,368
                                                                                           ==========       ==========
</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 JUNE 30, 1999 AND DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           1999              1998
                                                                                        ---------        ----------
<S>                                                                                      <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Bank lines of credit (Note 5)                                                       $  23,128       $        -
     Current portion of other debt                                                           2,717            2,001
     Trade accounts payable                                                                 23,710           32,557
     Related party payables                                                                    101              353
     Billings in excess of costs and estimated earnings on uncompleted contracts                89              183
     Accrued liabilities                                                                    32,813           20,751
     Customer deposits                                                                       2,947            3,971
     Income taxes currently payable                                                              -              760
     Deferred income taxes                                                                     895              895
                                                                                        ----------       ----------
                  Total current liabilities                                                 86,400           61,471
                                                                                        ----------       ----------

Other Long-Term Liabilities                                                                  3,405            1,543

Deferred Income Taxes                                                                        1,625            1,625

Long-Term Debt, net of current portion                                                      37,749           39,346
                                                                                        ----------       ----------

                  Total liabilities                                                        129,179          103,985

Shareholders' Equity (Note 1):
     Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued
     Common stock, $.01 par value, 50,000,000 shares authorized, 22,150,823 and
       21,584,872 shares issued and outstanding at June 30, 1999 and
       December 31, 1998, respectively                                                         222              216
     Additional paid-in capital                                                            168,448          157,230
     Retained deficit                                                                       (8,038)         (11,078)
     Deferred compensation                                                                  (2,172)          (1,114)
     Accumulated other comprehensive loss                                                   (4,042)            (871)
                                                                                        ----------       ----------
                  Total shareholders' equity                                               154,418          144,383
                                                                                        ----------       ----------
                                                                                        $  283,597       $  248,368
                                                                                        ==========       ==========
</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>
                                                                           THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                                          ---------------------------   ---------------------------
                                                                               1999           1998           1999           1998
                                                                          ------------   ------------   ------------   ------------

<S>                                                                       <C>            <C>            <C>            <C>
NET SALES                                                                 $     76,513   $     60,605   $    144,578   $    114,255
COST OF SALES                                                                   44,546         39,109         86,913         74,139
                                                                          ------------   ------------   ------------   ------------
         Gross profit                                                           31,967         21,496         57,665         40,116

OPERATING EXPENSES:
      Selling and marketing expenses                                             6,609          4,066         12,413          7,652
      General and administrative                                                16,048         10,361         29,011         19,438
      Merger expenses (Note 3)                                                   2,886           --            3,094           --
      Restructuring expense (Note 2)                                             3,856           --            4,365           --
                                                                          ------------   ------------   ------------   ------------

         Operating income                                                        2,568          7,069          8,782         13,026
                                                                          ------------   ------------   ------------   ------------

OTHER INCOME (EXPENSE):
      Interest expense                                                            (802)        (1,081)        (1,785)        (2,298)
      Other, net                                                                  (245)           412             71            339
                                                                          ------------   ------------   ------------   ------------
         Income from continuing operations before provision for income
           taxes and cumulative effect of change in accounting principle         1,521          6,400          7,068         11,067


      Provision for income taxes                                                   920          2,655          2,990          4,638
                                                                          ------------   ------------   ------------   ------------
         Income from continuing operations before cumulative effect of
            change in accounting principle                                         601          3,745          4,078          6,429

      Discontinued operations (Note 11):
         Income (loss) from operations of discontinued
           voice and data communications group, net                               (336)           210           (507)           317
                                                                          ------------   ------------   ------------   ------------

         Income before cumulative effect of change in accounting
           principle                                                               265          3,955          3,571          6,746

      Cumulative effect of change in accounting principle,
           net of applicable tax benefit of $408 (Note 6)                         --             --              778           --
                                                                          ------------   ------------   ------------   ------------

         Net income                                                       $        265   $      3,955   $      2,793   $      6,746
                                                                          ------------   ------------   ------------   ------------

Other comprehensive income, net of tax:
      Foreign currency translation adjustment, net of
           $1,784 and $39 tax benefit, respectively                                                           (3,171)           (98)
      Reclassification adjustment for gain on securities
           included in net income, net of $7 tax benefit                                                        --              (10)
                                                                                                        ------------   ------------

         Other comprehensive loss                                                                             (3,171)          (108)
                                                                                                        ------------   ------------

         Comprehensive income (loss)                                                                    $       (378)  $      6,638
                                                                                                        ============   ============

PER SHARE DATA:
BASIC EARNINGS PER SHARE (Note 4)
     Earnings per share                                                   $       0.01   $       0.21   $       0.13   $       0.39
                                                                          ============   ============   ============   ============

WEIGHTED AVERAGE SHARES OUTSTANDING                                         21,891,216     18,677,454     21,815,388     17,320,181
                                                                          ============   ============   ============   ============

DILUTED EARNINGS PER SHARE (Note 4)
     Earnings per share                                                   $       0.01   $       0.21   $       0.12   $       0.38
                                                                          ============   ============   ============   ============

WEIGHTED AVERAGE SHARES OUTSTANDING                                         22,480,451     19,287,135     22,547,934     17,862,716
                                                                          ============   ============   ============   ============
</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 7)
                                   (UNAUDITED)

                 FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           1999       1998
                                                                                         --------   --------
<S>                                                                                      <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                          $  2,793   $  6,746
     Adjustments to reconcile net income to net cash used in continuing operations-
         Loss (income) from discontinued operations                                           507       (317)
         Depreciation and amortization                                                      5,904      3,649
         Bad debt expense                                                                     806      1,066
         Gain from extinguishment of long-term debt                                          --          (38)
         Loss on sale of marketable securities                                               --           (7)
         Noncash compensation expense                                                         514         15
     Change in assets and liabilities, net of effects of acquisitions and dispositions-
         Receivables - trade and unbilled                                                 (10,119)    (5,969)
         Costs and estimated earnings in excess of billings on uncompleted contracts        3,513     (7,724)
         Income tax receivable                                                               (327)       190
         Inventories, prepaid expenses and other assets                                      (841)       437
         Accounts payable and income taxes currently payable                              (11,168)    (6,354)
         Billings in excess of costs and estimated earnings on uncompleted contracts          (94)       111
         Amounts due to/from related parties                                               (1,027)      (144)
         Customer deposits                                                                 (1,024)    (1,213)
         Deferred income taxes payable                                                       --         (143)
         Accrued liabilities                                                                6,163        606
         Long-term liabilities                                                              1,862        328
                                                                                         --------   --------
                  Net cash used in continuing operations                                   (2,538)    (8,761)
                                                                                         --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment, net                                       (9,246)    (2,490)
     Additions to databases                                                                (1,843)    (2,407)
     Cash paid for non-compete agreements                                                    --         (134)
     Acquisitions, net of cash acquired                                                   (12,015)    (4,466)
     Sale of marketable securities                                                         12,007         30
                                                                                         --------   --------
                  Net cash used in investing activities of continuing operations          (11,097)    (9,467)
                                                                                         --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings (repayments) under bank lines of credit                                20,808     (1,106)
     Payments of long-term debt                                                              (881)   (10,639)
     Proceeds from common stock issuance                                                     --       68,390
     Proceeds from exercise of stock options                                                  964      2,115
     Foreign currency translation                                                          (2,551)        (4)
                                                                                         --------   --------
                  Net cash provided by financing activities of continuing operations       18,340     58,756
                                                                                         --------   --------

NET INCREASE IN CASH AND EQUIVALENTS                                                        4,705     40,528

Effects of foreign currency exchange rates on cash                                           (450)       (74)

Net cash used in discontinued operations                                                   (1,298)      (733)
                                                                                         --------   --------

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                                  13,895     12,371
                                                                                         --------   --------

CASH AND EQUIVALENTS, END OF PERIOD                                                      $ 16,852   $ 52,092
                                                                                         ========   ========
</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 JUNE 30, 1999 AND DECEMBER 31, 1998


(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 Security Products and
Services Group markets ballistic and blast protected vehicles and security
services. The Investigations and Intelligence Group offers business intelligence
and investigation services. The Information Security Group offers information
and computer security services, including network and system security review and
repair.

      On May 5, 1998, Kroll-O'Gara completed a public offering of 3,200,000
shares of its common stock at $20.50 per share (the "Offering"), resulting in
net proceeds to Kroll-O'Gara of $60.8 million. A portion of the net proceeds was
used to repay $14.8 million of indebtedness of Kroll-O'Gara, with the balance
available for potential acquisitions, working capital and other general
corporate purposes. In addition to the shares sold by Kroll-O'Gara, certain
shareholders sold 1,860,000 shares of common stock in conjunction with the
Offering.

      The consolidated financial statements include all majority-owned
subsidiaries. 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 and six month periods ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. 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/A for the year
ended December 31, 1998.

(2) RESTRUCTURING OF OPERATIONS

      In the second quarter of 1999, Kroll-O'Gara completed its restructuring
plan (the "Plan") to reduce costs and improve operating efficiencies with an
additional non-recurring pre-tax restructuring charge of approximately $3.9
million. Including the first quarter charge of $0.5 million, the total
non-recurring pre-tax restructuring charge associated with the Plan was $4.4
million. Kroll-O'Gara does not expect to incur any other significant
restructuring charges in future periods related to this Plan. The principal
elements of the restructuring plan are the closure of two Investigations and
Intelligence Group offices and the elimination of approximately 82 employees. Of
the 82 eliminated employees, 35 were direct labor and 47 were management and
professional staff. The primary components of the restructuring charge including
accrued balances as of June 30, 1999 are as follows:

                                       5
<PAGE>   8

<TABLE>
<CAPTION>
                                   DESCRIPTION                                                 EXPENSE     ACCRUAL
         ----------------------------------------------------------------------------------   --------    ----------
                                                                                              (DOLLARS IN THOUSANDS)

<S>                                                                                           <C>         <C>
         Severance and related costs                                                            $3,129      $1,474
         Writedown of property, plant and equipment                                                142         -
         Lease termination costs                                                                   966         847
         Other                                                                                     128         -
                                                                                              --------    --------
                                                                                                $4,365      $2,321
                                                                                              ========    ========
</TABLE>

(3) ACQUISITIONS AND MERGERS

      Kroll-O'Gara has completed numerous business combinations in the periods
presented. These transactions were accounted for as both purchase business
combinations and pooling of interests business combinations as follows:

      On June 16, 1999, Kroll-O'Gara acquired all of the outstanding capital
stock of Background America, Inc. for approximately 989,000 shares of
Kroll-O'Gara common stock, including approximately 90,000 shares reserved for
issuance for outstanding common stock equivalents. Background America provides
employment screening and compliance services to a variety of industries and is
included in the Kroll-O'Gara's Investigations and Intelligence Group.

      On June 3, 1999, Kroll-O'Gara acquired substantially all of the assets and
assumed certain liabilities of Buchler Phillips, a partnership headquartered in
London, England. The purchase price of $20.0 million was satisfied with cash of
$12.0 million and 366,469 shares of stock valued at $8.0 million, or $21.86 per
share. The acquisition has been accounted for as a purchase and is effective on
April 1, 1999. Goodwill related to this transaction was approximately $20.7
million which will be amortized over 25 years. Buchler Phillips specializes in
corporate advisory practices which includes work related to corporate rescue,
insolvency, financial consulting and corporate finance. Buchler Phillips'
revenues are included in the Investigations and Intelligence Group. In
connection with the Buchler Phillips purchase acquisition, assets were acquired
and liabilities were assumed as follows (dollars in thousands):

          FAIR VALUE OF ASSETS ACQUIRED INCLUDING:
            Cash                                           $      1
            Accounts receivable                                 457
            Inventories                                       2,119
            Other current assets                                332
            Property, plant and equipment                       480
            Other non-current assets                            124
            Costs in excess of assets acquired               20,700
                                                           --------
                                                             24,213
            Less: Cash paid for net assets                  (12,018)
            Fair Value of stock issued                       (8,011)
                                                           --------
                                                           $  4,184
                                                           ========

          LIABILITIES ASSUMED INCLUDING:
            Liabilities assumed and acquisition costs      $  3,280
            Debt                                                904
                                                           --------
                                                           $  4,184
                                                           ========

      On March 1, 1999, Kroll-O'Gara acquired all of the capital stock of
Financial Research, Inc. for approximately $3.3 million, consisting of 101,555
shares of common stock. Financial Research provides business valuation and
economic damage analysis services and is included in Kroll-O'Gara's
Investigations and Intelligence Group. The acquisition has been accounted for as
a pooling of interests. The pro forma restated results for 1998 would not be
materially different from the reported results.

      In December 1998, a wholly owned subsidiary of Kroll-O'Gara was merged
with and into Laboratory Specialists of America, Inc. Effective upon the
consummation of the merger, each then issued and outstanding share of Laboratory
Specialists common stock was converted into .2102 shares of common stock of
Kroll-O'Gara or 1,209,053 shares of Kroll-O'Gara's common stock in total.
Outstanding stock options and stock warrants of Laboratory Specialists were
converted at the same exchange factor into options to purchase 39,094 and 24,386
shares, respectively, of Kroll-O'Gara's common stock. The financial position and
results of operations of Laboratory Specialists are reported as part of
Kroll-O'Gara's Investigations and Intelligence Group.

      In December 1998, a wholly owned subsidiary of Kroll-O'Gara was merged
with and into Schiff & Associates, Inc. Effective upon the consummation of the
merger, each then issued and outstanding share of Schiff common stock was
converted into approximately 131.41 shares of common stock of Kroll-O'Gara or
169,521 shares of Kroll-O'Gara's common stock in total. The financial position
and results of operations of Schiff are reported as part of Kroll-O'Gara's
Investigations and Intelligence Group.

                                       6
<PAGE>   9
      In December 1998, a wholly owned subsidiary of Kroll-O'Gara was merged
with and into Securify Inc. Effective upon the consummation of the merger, all
of the outstanding stock of Securify was converted to shares of Kroll-O'Gara's
common stock at a rate of .110793 for Series A Preferred, .118273 for Series B
Preferred and .0955252 for Securify common stock. In total, Kroll-O'Gara issued
1,430,936 shares of common stock. In addition, outstanding employee stock
options of Securify were converted at the same exchange factor as Securify
common stock into options to purchase 179,877 shares of Kroll-O'Gara's common
stock. Effective with the consummation of the merger, Kroll-O'Gara created the
Information Security Group and Securify's results of operations and financial
position are reported in this group.

      The mergers with Laboratory Specialists, Schiff, Securify and Background
America constituted tax-free reorganizations and have been accounted for as
pooling of interests transactions. Accordingly, all prior period consolidated
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of Laboratory
Specialists, Schiff, Securify and Background America as though they had always
been a part of Kroll-O'Gara.

      There were no transactions between Kroll-O'Gara and Laboratory
Specialists, Schiff, Securify and Background America prior to the combination
and immaterial adjustments were recorded to conform Laboratory Specialists',
Schiff's, Securify's and Background America's accounting policies. Certain
reclassifications were made to Kroll-O'Gara's, Laboratory Specialists',
Schiff's, Securify's and Background America's financial statements to conform
presentation. The results of operations for the separate companies and the
combined amounts presented in the consolidated financial statements follow:

                                       7
<PAGE>   10

<TABLE>
<CAPTION>
                                 KROLL-O'GARA   LABORATORY                                BACKGROUND
                                  HISTORICAL    SPECIALISTS      SCHIFF       SECURIFY     AMERICA      COMBINED
                                 ------------   ----------     ---------     ----------    --------    ----------
<S>                                 <C>           <C>            <C>         <C>           <C>          <C>
Three months ended June 30,
1998
(unaudited)
Revenue                             $53,644       $ 4,088        $ 1,113     $      -      $ 1,760      $ 60,605
Income from
discontinued                            210             -             -             -            -           210
operation
Net income (loss)                   $ 3,780       $   552        $   120     $    (310)    $  (187)     $  3,955
</TABLE>


<TABLE>
<CAPTION>
                                 KROLL-O'GARA   LABORATORY                                BACKGROUND
                                  HISTORICAL    SPECIALISTS      SCHIFF       SECURIFY     AMERICA      COMBINED
                                 ------------   ----------     ---------     ----------    --------     ---------
<S>                                <C>            <C>            <C>         <C>             <C>         <C>
Six months ended June 30, 1998
(unaudited)
Revenue                            $101,275       $ 7,660        $ 2,278     $        -      $ 3,042      $114,255
Income from
discontinued                            317             -             -               -            -           317
operation
Net income (loss)                  $  6,307       $   954        $   418     $      (352)    $  (581)     $  6,746
</TABLE>

      Through June 30, 1999, Kroll-O'Gara recorded a charge to operating
expenses of approximately $3.1 million for direct and other merger and
integration related costs. Merger transaction costs are non-recurring and
include $0.2 million for stay bonuses, $0.4 million for compensation related to
variable plan accounting for options which vest upon a change in control and
$2.1 million which consisted primarily of fees for investment bankers,
attorneys, accountants, financial printing, travel and other related charges.
Integration costs relate primarily to the mergers completed in December 1998 and
were approximately $0.4 million.

      Kroll-O'Gara completed eight other acquisitions in 1998, all of which were
accounted for as purchase business combinations. Seven of the 1998 purchase
acquisitions have been included in Kroll-O'Gara's Investigations and
Intelligence Group and the eighth has been included in the Security Products and
Services Group. The aggregate purchase price of these eight acquisitions
amounted to approximately $36.5 million and consisted of $19.4 million in cash
and 745,003 shares of common stock (valued at approximately $17.1 million or an
average of $22.95 per share). The $36.5 million aggregate purchase price for the
1998 acquisitions excludes a potential earnout of $3.25 million applicable to
one of the acquired companies, which is payable over three years and is
contingent upon the achievement of specified operating income targets. In
addition, in connection with these acquisitions, Kroll-O'Gara entered into
various employment and non-compete agreements with officers and key employees of
the acquired companies with varying terms and conditions. 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 periods ranging from
fifteen to twenty-five years.

      Kroll-O'Gara made one significant acquisition in 1998 which is included
above. In September 1998, Kizorek, Inc., now renamed InPhoto Surveillance, Inc.,
a company located in Illinois specializing in video surveillance services, was
acquired for approximately $9.0 million, consisting of $0.8 million in cash and
352,381 shares of Kroll-O'Gara's common stock valued at approximately $8.2
million or $23.35 per share. For accounting purposes, the acquisition was
effective on July 1, 1998 and the results of operations of InPhoto are included
in the consolidated results of operations of Kroll-O'Gara from that date
forward. The following unaudited pro forma combined results of operations for

                                       8
<PAGE>   11

the three and six months ended June 30, 1998 assumes the InPhoto acquisition
occurred as of January 1, 1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED         SIX MONTHS
                                                                  JUNE 30, 1998       ENDED JUNE 30, 1998
                                                               -----------------      -------------------

<S>                                                                <C>                    <C>
         Sales                                                     $  63,765              $  120,640
         Income from continuing operations                         $   3,815              $    6,345
         Net income                                                $   4,025              $    6,662
         Earnings per share:
           Basic                                                   $    0.21              $     0.38
           Diluted                                                 $    0.20              $     0.37
</TABLE>

(4) 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 year. 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 year. 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 and six months ended June 30, 1999 and 1998 (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED JUNE 30, 1999
                                                                   ----------------------------------------------
                                                                      INCOME            SHARES          PER-SHARE
                                                                   (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                                                   -----------       -------------     -----------

<S>                                                                  <C>                  <C>             <C>
               Basic EPS                                             $   265              21,891          $0.01
                                                                                                        ==========

               Effect of dilutive securities:
                 Options                                                   -                 570
                 Warrants                                                  -                   1
                 Restricted Stock                                          -                  18
                                                                   -----------       -----------

               Diluted EPS                                           $   265              22,480          $0.01
                                                                   ===========       ============       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED JUNE 30, 1999
                                                                   ----------------------------------------------
                                                                      INCOME            SHARES          PER-SHARE
                                                                   (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                                                   -----------       -------------     -----------

<S>                                                                <C>                    <C>             <C>
               Basic EPS                                           $   3,955              18,677          $0.21
                                                                                                          =====
               Effect of dilutive securities:
                 Options                                                   -                 589
                 Warrants                                                  -                  21
                                                                   ---------              ------
               Diluted EPS                                         $   3,955              19,287          $0.21
                                                                   =========              ======          =====
</TABLE>

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED JUNE 30, 1999
                                                                   ----------------------------------------------
                                                                      INCOME            SHARES          PER-SHARE
                                                                   (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                                                   -----------       -------------     -----------

<S>                                                                <C>                    <C>             <C>
               Basic EPS                                           $   2,793              21,815          $0.13
                                                                                                        ==========
</TABLE>

                                       9
<PAGE>   12

<TABLE>
<S>                                                                <C>                    <C>             <C>
               Effect of dilutive securities:
                 Options                                                   -                 708
                 Warrants                                                  -                   3
                 Restricted Stock                                          -                  22

               Diluted EPS                                         $   2,793              22,548          $0.12
                                                                   =========              ======          =====
</TABLE>

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED JUNE 30, 1998
                                                                   ----------------------------------------------
                                                                      INCOME            SHARES          PER-SHARE
                                                                   (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                                                   -----------       -------------     -----------

<S>                                                                <C>                    <C>             <C>
               Basic EPS                                           $   6,746              17,320          $0.39
                                                                                                        =======
               Effect of dilutive securities:
                 Options                                                   -                 522
                 Warrants                                                  -                  21
                                                                   ---------              ------
               Diluted EPS                                         $   6,746              17,863          $0.38
                                                                   =========              ======        =======
</TABLE>

      Basic and diluted earnings per share based on income from continuing
operations were $0.03 for the three months ended June 30, 1999. 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 before cumulative effect of change in accounting principle were $0.19
and $0.18, respectively, for the six months ended June 30, 1999. The basic and
diluted per share impact of the discontinued operation was $0.02 and the basic
and diluted per share impact of the change in accounting principle was $0.04.

      Basic and diluted earnings per share based on income from continuing
operations were $0.20 and $0.19, respectively, for the three months ended June
30, 1998. The basic and diluted per share impact of the discontinued operation
was $0.01 and $0.02, respectively.

      Basic and diluted earnings per share based on income from continuing
operations were $0.37 and $0.36, respectively, for the six months ended June 30,
1998. The basic and diluted per share impact of the discontinued operation was
$0.02.

 (5) BANK LINES OF CREDIT

      On June 25, 1999, Kroll-O'Gara amended its credit agreement to increase
its revolving line of credit to $25 million. Advances under the revolving credit
facility bear interest at rates ranging from prime less 1.75% to prime, or, at
Kroll-O'Gara's option, LIBOR plus .75% to LIBOR plus 1.75%, dependent upon a
defined financial ratio. Borrowings under this line of credit were approximately
$19.1 million at June 30, 1999. There were no outstanding borrowings pursuant to
line of credit agreements at December 31, 1998.

      This credit agreement includes financial covenants, which among other
restrictions, requires the maintenance of certain financial ratios, including
interest coverage and net worth, and impose limitations on goodwill, additional
indebtedness and capital expenditures. Kroll-O'Gara was not in compliance with
its capital expenditure covenant as of June 30, 1999. However, Kroll-O'Gara did
receive a waiver of this noncompliance.

                                       10
<PAGE>   13
      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
1.5%. Maximum borrowings permitted and borrowings outstanding pursuant to this
demand note were approximately $4.0 million as translated at June 30, 1999.

(6) NEW PRONOUNCEMENTS

      In 1998, Kroll-O'Gara adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 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 and foreign currency translation adjustments and
unrealized holding gains of marketable securities in the Consolidated Statements
of Operations. The accumulated other comprehensive loss balance of $4.0 million
at June 30, 1999 consists entirely of foreign currency translation adjustments.

      In April 1998, the American Institute of Certified Public Accountants
released Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-Up
Activities." The SOP requires costs of start-up activities, including
pre-operating costs, organization costs and start-up costs to be expensed as
incurred. Kroll-O'Gara's practice was to capitalize these expenses and amortize
them over periods ranging from one to five years. Kroll-O'Gara adopted SOP 98-5
in the first quarter of 1999 and recorded a cumulative effect of an accounting
change of $0.8 million net of a tax benefit of $0.4 million.

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. Kroll-O'Gara has
several forward contracts in place in association with demand notes from certain
subsidiaries. These instruments qualify for hedge accounting. Kroll-O'Gara has
not yet quantified the impact of adopting SFAS 133 on its financial statements
and has not determined the timing of or method of adoption of SFAS 133. However,
SFAS 133 could increase volatility in earnings and other comprehensive income.

                                       11
<PAGE>   14

(7) SUPPLEMENTAL CASH FLOW DISCLOSURE

      Cash and equivalents consist of all operating cash accounts and
investments with an original maturity of three months or less. Marketable
securities consist of available-for-sale commercial paper obligations that
matured in 1999. These securities are valued at current market value, which
approximates cost.

<TABLE>
<CAPTION>
                                                                                     1999        1998
                                                                                    ------     -------
                                                                                        (DOLLARS IN
                                                                                         THOUSANDS)
<S>                                                                                  <C>        <C>
         Cash paid for taxes                                                         $3,680     $1,532
         Cash paid for interest                                                      $1,949     $2,439
         Non-cash activity:
         Fair value of stock issued in connection with  acquisition of Buchler       $8,011     $    -
         Phillips
         Fair value of stock issued in connection with acquisition of                $    -     $5,989
         Lindquist Avey
         Fair value of stock issued in connection with acquisition of Corplex        $    -     $  525
</TABLE>

(8) 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>
                                                                        JUNE 30,             DECEMBER 31,
                         INVENTORY CATEGORY                               1999                   1998
               -----------------------------------------------      -----------------     -----------------
                                                                                  (UNAUDITED)
<S>                                                                      <C>                    <C>
                Raw materials                                            $11,053                $ 7,102
                Vehicle costs and work-in-process                         11,642                 11,505
                                                                         -------                -------
                         Total inventory                                 $22,695                $18,607
                                                                         =======                =======
</TABLE>

(9) DERIVATIVE FINANCIAL INSTRUMENTS

      Financial instruments in the form of foreign currency exchange contracts
are utilized by Kroll-O'Gara to hedge its exposure to movements in foreign
currency exchange rates. Kroll-O'Gara does not hold or issue derivative
financial instruments for trading purposes. Gains and losses on foreign exchange
contracts are deferred and amortized as an adjustment to the cumulative foreign
currency translation adjustment component of equity over the terms of the
agreements in accordance with hedge accounting standards. The fair value of
foreign currency exchange contracts is not recognized in the consolidated
financial statements since they are accounted for as hedges.

      Kroll-O'Gara has entered into eight foreign currency exchange contracts to
hedge effectively its exposure to certain foreign currency rate fluctuations on
demand loans to two subsidiaries that are denominated in the foreign currencies.
By virtue of these contracts, Kroll-O'Gara

                                       12
<PAGE>   15

has fixed the total dollar amount that they will receive under the
aforementioned subsidiary loans through the maturity dates of the contracts
regardless of the fluctuations in the exchange rate. At June 30, 1999, the total
notional amount of the contracts, which mature between July 1999 and June 2001,
is $18.0 million. Kroll-O'Gara's foreign currency translation adjustment
component of shareholder's equity was reduced by $0.1 million in the six months
ended June 30, 1999 as a result of these agreements.

(10) SEGMENT DATA

      During 1999 and 1998, Kroll-O'Gara operated in three business segments,
the Security Products and Services Group, the Investigations and Intelligence
Group and the Information Security Group.

      The following summarizes information about the Company's business
segments:

<TABLE>
<CAPTION>
                                       SECURITY     INVESTIGATIONS
                                     PRODUCTS AND       AND           INFORMATION
                                       SERVICES     INTELLIGENCE       SECURITY
                                         GROUP         GROUP             GROUP         OTHER        CONSOLIDATED
                                     -----------    ------------      -----------    ----------     ------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                    <C>           <C>              <C>             <C>             <C>
THREE MONTHS ENDED JUNE 30, 1999

Net sales to unaffiliated              $ 28,755      $ 46,487         $  1,271        $   --          $ 76,513
customers                              ========      ========         ========        ========        ========

Gross profit                           $ 10,001      $ 21,319         $    647        $   --          $ 31,967
                                       ========      ========         ========        ========        ========
Operating income (loss)                $  5,799      $  1,572         $    (41)       $ (4,762)       $  2,568
                                       ========      ========         ========        ========        ========

THREE MONTHS ENDED JUNE 30, 1998
Net sales to unaffiliated              $ 33,910      $ 26,695         $   --          $   --          $ 60,605
customers                              ========      ========         ========        ========        ========

Gross profit                           $  9,913      $ 11,583         $   --          $   --          $ 21,496
                                       ========      ========         ========        ========        ========
Operating income (loss)                $  5,226      $  3,947         $   (319)       $ (1,785)       $  7,069
                                       ========      ========         ========        ========        ========

SIX MONTHS ENDED JUNE 30, 1999
Net sales to unaffiliated              $ 57,475      $ 84,623         $  2,480        $   --          $144,578
customers                              ========      ========         ========        ========        ========

Gross profit                           $ 18,576      $ 37,822         $  1,267        $   --          $ 57,665
                                       ========      ========         ========        ========        ========
Operating income (loss)                $  9,544      $  5,818         $    123        $ (6,703)       $  8,782
                                       ========      ========         ========        ========        ========
Identifiable assets at June 30, 1999   $103,219      $147,575         $  2,445        $   --          $253,239
                                       ========      ========         ========
Corporate assets                                                                          --            18,624
Net assets of discontinued                                                                --            11,734
operation                                                                             --------        --------

     Total assets at June 30, 1999                                                    $   --          $283,597
                                                                                      ========        ========
SIX MONTHS ENDED JUNE 30, 1998
Net sales to unaffiliated              $ 64,128      $ 50,127         $   --          $   --          $114,255
customers                              ========      ========         ========        ========        ========

Gross profit                           $ 18,274      $ 21,842         $   --          $   --          $ 40,116
                                       ========      ========         ========        ========        ========
Operating income (loss)                $  9,207      $  7,527         $   (362)       $ (3,346)       $ 13,026
                                       ========      ========         ========        ========        ========
</TABLE>


                                       13
<PAGE>   16

(11) DISCONTINUED OPERATIONS

      On April 28, 1999, the Board of Directors approved a formal plan to
discontinue operations of the Voice and Data Communications Group, which offers
secure satellite communication equipment and satellite navigation systems.
Kroll-O'Gara received an outside expression of interest for this business in
April 1999 and intends to make the assets of the segment available for sale
immediately and expects to complete the disposal of this segment within the next
twelve months. The results of operations of this Group have been classified as
discontinued operations and all prior periods have been restated accordingly.
The results of the discontinued Voice and Data Communications Group include an
allocation of interest expense based on the Group's average net assets. The
Group does not warrant any material income tax expense or benefit for the
periods presented.

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

                                        THREE MONTHS ENDED JUNE 30,
                                        ---------------------------
                                              1999       1998
                                             -------    -------
Net Sales                                    $ 4,029    $ 5,714
Interest expense allocation                  $    45    $    89
Income (loss) from discontinued operations   $  (336)   $   210


                                          SIX MONTHS ENDED JUNE 30,
                                          -------------------------
                                               1999       1998
                                             -------    -------
Net Sales                                    $ 7,463    $10,540
Interest expense allocation                  $    90    $   204
Income (loss) from discontinued operations   $  (507)   $   317

                                                     JUNE 30, 1999
                                                     -------------
Current assets                                          $ 14,475
Property, plant and equipment, net                           132
Other assets                                               2,930
Current liabilities                                       (5,803)
                                                        --------
                Net assets of discontinued operations   $ 11,734
                                                        ========


      Kroll-O'Gara will continue to monitor the potential for impairment of the
net assets of the discontinued Voice and Data Communications Group, if any, and
will record impairment as facts and circumstances warrant. Based on its most
recent analysis, Kroll-O'Gara believes no impairment exists at June 30, 1999.

                                       14

<PAGE>   17
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 1999 and 1998, financial results from period-to-period may lack
comparability. Additionally, effective December 31, 1998, Kroll-O'Gara
established the Information Security Group and, on April 28, 1999, the Board of
Directors approved a plan to discontinue operations of the Voice and Data
Communications Group. Historical revenue amounts have been reclassified to
conform to the current categories.

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. Kroll-O'Gara reports its revenue from continuing operations
through three groups. The Security Products and Services Group markets ballistic
and blast protected vehicles and security services. The Investigations and
Intelligence Group offers business intelligence and investigation services. The
Information Security Group offers information and computer security services,
including network and system security review and repair. On April 28, 1999,
Kroll-O'Gara's Board of Directors approved a formal plan to discontinue
operations of the Voice and Data Communications Group. Accordingly, these
operations have been reclassified and reported as discontinued operations.

     On May 5, 1998, Kroll-O'Gara completed a public offering (the "Offering")
of 3,200,000 shares of its common stock at $20.50 per share, resulting in net
proceeds to Kroll-O'Gara of $60.4 million. A portion of the net proceeds was
used to repay $14.8 million of indebtedness, with the balance available for
potential acquisitions, working capital and other general corporate purposes. In
addition to the shares sold by Kroll-O'Gara, certain shareholders sold 1,860,000
shares of Kroll-O'Gara common stock in conjunction with the Offering.

     OTHER ACQUISITIONS. Kroll-O'Gara has pursued a strategy of aggressive
growth and has completed numerous acquisitions in 1999 and 1998, some of which
have been accounted for as poolings of interest and others of which have been
accounted for as purchases.

     On June 16, 1999, Kroll-O'Gara acquired all of the capital stock of
Background America, Inc. of Nashville, Tennessee, in exchange for 899,243 shares
of Kroll-O'Gara common stock. Background America provides background
investigation services to a variety of industries. The transaction was accounted
for as a pooling of interests. Background America's revenues are included in the
Investigations and Intelligence Group.

     On June 3, 1999, Kroll-O'Gara acquired substantially all of the assets and
assumed certain liabilities of Buchler Phillips, a partnership headquartered in
London, England. The purchase price of $20.0 million was satisfied with cash of
$12.0 million and 366,469 shares of stock valued at $8.0 million, or $21.86 per
share. The acquisition has been accounted for as a purchase and is effective on
April 1, 1999. Goodwill related to this transaction was approximately $20.7
million which will be amortized over 25 years. Buchler Phillips specializes in
corporate advisory practices which includes work related to corporate rescue,
insolvency, financial consulting and corporate finance. Buchler Phillips'
revenues are included in the Investigations and Intelligence Group.

     On March 1, 1999, Kroll-O'Gara acquired all of the capital stock of
Financial Research, Inc. of Fort Washington, Pennsylvania, in exchange for
101,555 shares of Kroll-O'Gara common stock valued at approximately $3.3
million, or $32.49 per share. The acquisition has been accounted for as a
pooling of interests. Financial Research provides business valuation and
economic damage analysis services throughout the United States. Its revenues are
included in the Investigations and Intelligence Group.

     The acquisitions completed in 1998 are listed in the following chart.


<TABLE>
<CAPTION>
POOLINGS(1)
        COMPANY                  BUSINESS                  GROUP              DATE ACQUIRED              PRICE
---------------------     ---------------------    ---------------------   ------------------       -----------------
<S>                       <C>                      <C>                     <C>                      <C>
Laboratory                Drug testing             Investigations and      December 7, 1998         1,209,053 shares
Specialists of                                     Intelligence
America, Inc. (2)
Securify, Inc.            Information security     Information Security    December 31, 1998        1,430,936 shares
                          services
Schiff & Associates,      Security architectural   Investigations and      December 31, 1998        169,521 shares
Inc.                      services                 Intelligence
-------------------------
</TABLE>


<TABLE>
<CAPTION>
PURCHASES(3)
        COMPANY                  BUSINESS                  GROUP              DATE ACQUIRED              PRICE
---------------------     ---------------------    ---------------------   ------------------       -----------------
<S>                       <C>                      <C>                     <C>                      <C>
Corplex, Inc.             Investigative and        Investigations and      March 1, 1998            29,207 shares
</TABLE>

                                       15
<PAGE>   18

<TABLE>
<S>                       <C>                      <C>                     <C>                      <C>
                          executive protection     Intelligence
                          services
Lindquist Avey            Forensic and             Investigations and      June 1, 1998             $4.7 million in cash
MacDonald Baskerville,    investigative            Intelligence                                     and 278,340 shares
Inc.                      accounting services;
                          headquartered in Canada
Kizorek, Inc.             Video surveillance       Investigations and      July 1, 1998             $0.8 million in cash
                          services                 Intelligence                                     and 352,381 shares
Protec S.A.               Armors cars in Colombia  Security Products and   September 30, 1998       $3.2 million in cash
                                                   Services                                         and 38,788 shares
Holder Associates, S.A.   Security services in     Investigations and      October 1, 1998          $4.5 million in cash
                          Argentina                Intelligence                                     and 46,287 shares
Fact Finders Limited      Investigates             Investigations and      November 1, 1998         $3.2 million in cash,
                          intellectual property    Intelligence                                     plus a 3-year earn-out
                          infringement cases in                                                     based on profits
                          Hong Kong and the
                          Peoples Republic of
                          China
</TABLE>

--------------

(1)   Pooling of interests accounting requires the restating of all prior period
      consolidated financial information as though the acquired entity had
      always been a part of Kroll-O'Gara.

(2)   In 1997 and 1998 Laboratory Specialists paid a total of approximately $5.9
      million to acquire customer lists and related assets from Pathology
      Laboratories, Ltd., Harrison Laboratories, Inc., Accu-Path Medical
      Laboratory, Inc., and TOXWORX Laboratories, Inc.

(3)   Kroll-O'Gara's consolidated financial statements include the reported
      results of each entity from its effective date of acquisition forward.

     REVENUE RECOGNITION. Kroll-O'Gara recognizes net sales from government and
most commercial armoring contracts using the percentage-of-completion method
calculated utilizing the cost-to-cost approach. Under this method, Kroll-O'Gara
recognizes estimated contract revenues based generally on

                                       16
<PAGE>   19

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. 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. Changes in estimated total contract
costs result in revisions to contract revenue. The revisions are recognized when
determined.

     Kroll-O'Gara recognizes revenue from investigative and intelligence
services as the services are performed. It records either billed or unbilled
accounts receivable based on case-by-case invoicing determinations.

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

RESTRUCTURING OF OPERATIONS

     Due to the large number of acquisitions Kroll-O'Gara completed in 1997 and
1998, integration of the operations of the acquired companies with existing
operations has become a strategic initiative for Kroll-O'Gara's management. As
part of this initiative, management continuously evaluates its business segments
to ensure that its core businesses within the segments are operating
efficiently. In 1998, most of the businesses were acquired as part of the
Investigations and Intelligence Group. As a result of management's evaluation of
this Group, the decision was made to close several less profitable operating
facilities so that the Group could focus on integration of existing facilities
with the newly acquired businesses. In 1997, the Security Products and Services
Group completed several acquisitions as well. In evaluating the operations of
this Group, management concluded that a cost savings initiative was required and
would be achieved largely through operating process improvements and a
corresponding decrease in personnel.

      In the first quarter of 1999, Kroll-O'Gara began implementation of such a
plan to reduce costs and improve operating efficiencies and recorded a
non-recurring pre-tax restructuring charge of approximately $0.5 million. In the
second quarter of 1999, Kroll-O'Gara completed the restructuring plan with an
additional non-recurring pre-tax restructuring charge of $3.9 million. The
principal elements of the restructuring plan are the closure of two
Investigations and Intelligence Group offices and the elimination of
approximately 82 employees. The primary components of the restructuring charge
were severance costs and lease termination costs. See Note 2 to the Notes to
Financial Statements for more information.

RESULTS OF OPERATIONS

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

                                       17
<PAGE>   20

<TABLE>
<CAPTION>
                                              FOR THE THREE MONTHS ENDED    FOR THE SIX MONTHS ENDED JUNE
                                                       JUNE 30,                           30,
                                            -----------------------------    ---------------------------
                                                1999            1998            1999            1998
                                            -----------     -------------    ----------      -----------

<S>                                         <C>             <C>              <C>             <C>
Security Products and Services
   Military                                       9.2%           25.0%           12.4%           23.2%
   Commercial                                    28.4%           31.0%           27.4%           33.0%
Investigations and Intelligence                  60.8%           44.0%           58.5%           43.9%
Information Security                              1.7%             -              1.7%            -
                                             ----------     -------------    ------------    ----------

               Total net sales                  100.0%          100.0%          100.0%          100.0%
Cost of sales                                    58.2            64.5            60.1            64.9
                                             ----------     -------------    ------------    ----------
        Gross profit                             41.8            35.5            39.9            35.1

Operating expenses:
     Selling and marketing                        8.6             6.7            8.6              6.7
     General and administrative                  21.0            17.1           20.1             17.0
     Merger expenses                              3.8              -             2.1              -
     Restructuring charge                         5.0              -             3.0              -
                                             ----------     -------------    ------------    ----------
        Operating income                          3.4            11.7            6.1             11.4
Other income (expense):
     Interest expense                            (1.0)           (1.8)          (1.2)            (2.0)
     Other, net                                  (0.3)            0.7             -               0.3
                                             ----------     -------------    ------------    ----------
Income from continuing operations before
provision for income taxes and cumulative
effect of accounting change                       2.0            10.6            4.9              9.7

     Provision for income taxes                   1.2             4.4            2.1              4.1
                                             ----------     -------------    ------------    ----------

Income from continuing operations before
cumulative effect of accounting change            0.8             6.2            2.8              5.6
Income (loss) from operations of
discontinued Voice and Data                      (0.4)            0.3          (0.4)              0.3
                                             ----------     -------------    ------------    ----------
Communications Group, net
Income before cumulative effect of
accounting change                                 0.3             6.5           2.5               5.9
Cumulative effect of accounting change,
net of tax benefit                                 -               -            0.5               -
                                             ----------     -------------    ------------    ----------

Net income                                        0.3%            6.5%           1.9%            5.9%
                                             ==========     =============    ============    ==========
</TABLE>

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

     NET SALES. Net sales for the three months ended June 30, 1999 increased
$15.9 million, or 26%, from $60.6 million in 1998 to $76.5 million in 1999.

     SECURITY PRODUCTS AND SERVICES GROUP. Net sales for the Security Products
and Services Group for the three months ended June 30, 1999 decreased $5.2
million, or 15%, from $33.9 million in 1998 to $28.8 million in 1999. The
decrease results from a decrease in net sales of military products and services
of $8.1 million, or 53%, from $15.1 million in 1998 to $7.1 million in 1999. In
April 1998, Kroll-O'Gara began work on a new 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 (the "738 Contract"). In addition,
Kroll-O'Gara continued work on a previous contract with the U.S. Military for
360 Up-Armored HMMWVs through July of 1998. The combination of production on the
two contracts as well as an aggressive delivery schedule required by the U.S.
Air Force relating to the 738 Contract resulted in unusually high levels of
production and net sales in 1998. In 1999, levels of production and net sales
more nearly approximated those of 1997 as production was based solely on the 738
Contract.

     Also included in net sales for the Security Products and Services Group are
sales of commercial armoring products and services, which increased $2.9
million, or 15%, from $18.8 million in 1998 to

                                       18
<PAGE>   21

$21.7 million in 1999. The increase in sales was due to increased production
resulting from a large contract from the U.S. government to produce over 300
light armored vehicles which Kroll-O'Gara received at the end of the first
quarter of 1999.

     INVESTIGATIONS AND INTELLIGENCE GROUP. Net sales for the Investigations and
Intelligence Group increased $19.8 million, or 74%, from $26.7 million in the
second quarter of 1998 to $46.5 million in 1999. A substantial portion of this
increase is a result of the acquisitions completed for the Group in the second
half of 1998 and the first half of 1999. Excluding purchase acquisitions, sales
increased $3.5 million. This increase primarily stems from internal growth in
the Group's business intelligence and investigations as well as corporate
services practices.

     INFORMATION SECURITY GROUP. Net sales in the second quarter of 1999 for the
Information Security Group were $1.3 million. The Information Security Group
initiated operations in February 1998 but had no sales in the second quarter of
1998.

     COST OF SALES. Cost of sales for the three months ended June 30, 1999
increased $5.4 million, or 14%, from $39.1 million in 1998 to $44.5 million in
1999. The increase in cost of sales was due to the acquisitions completed in the
second half of 1998 and the first half of 1999. Excluding acquisitions, cost of
sales decreased $5.9 million. Gross profit as a percentage of net sales was
41.8%, as compared with 35.5% for the same period in 1998. The overall increase
in gross profit as a percent of net sales is primarily the result of a shift in
sales mix in which higher margin Investigations and Intelligence Group net sales
increased as a percentage of total net sales. In addition, gross margin
increased as a result of a planned shift in sales mix in the Security Products
and Services Group where commercial armoring sales as well as military spare
parts sales, both with higher margins, increased as a percentage of total
Security Products and Services Group sales.

     As a percentage of net sales, gross margin for the Security Products and
Services Group increased approximately 5.6% from 29.2% in 1998 to 34.8% in 1999.
Gross profit as a percentage of net sales increased approximately 2.5% from
43.4% in 1998 to 45.9% in 1999 for the Investigations and Intelligence Group,
primarily due to the contribution of higher margins from the completed
acquisition of Buchler Phillips in the second quarter of 1999. Gross margin at
the Information Security Group was 50.9%.

     Historically, Kroll-O'Gara has experienced a higher gross profit percent
associated with revenue from its Investigations and Intelligence Group in
comparison with the Security Products and Services Group. Management expects the
level of gross profit as a percent of net sales to remain relatively consistent
within each Group. However, if revenue from the Investigations and Intelligence
Group or the Information Security Group increases as a percentage of total net
sales as occurred in the second quarter of 1999, consolidated gross profit as a
percentage of net sales may increase as well.

     OPERATING EXPENSES. Operating expenses for the three months ended June 30,
1999 increased $15.0 million, or 104%, from $14.4 million in 1998 to $29.4
million in 1999. The increase is partially due to the acquisitions completed
after the second quarter of 1998. Excluding acquisitions, operating expenses
increased $9.9 million. Included in this increase were merger related costs of
$2.9 million primarily for the Background America merger completed on June 16,
1999 and a restructuring charge of $3.8 million. The remaining increase relates
to an increase in the level of personnel and professional services required to
administer the growth experienced by Kroll-O'Gara after the end of the first
quarter in 1998.

                                       19
<PAGE>   22
     As a percent of net sales, operating expenses, before merger related costs
and the restructuring charge, increased from 23.8% in 1998 to 29.6% in 1999. As
mentioned previously in Restructuring of Operations, Kroll-O'Gara continues to
evaluate the different segments of its business and recently concluded that a
plan to reduce costs and improve operating efficiencies was needed. As a result,
a restructuring plan was implemented which management believes will reduce
operating expenses as a percentage of net sales in future periods. However,
there was no such reduction in the second quarter as much of the cost savings
actions did not occur until late in the quarter.

     INTEREST EXPENSE. Interest expense for the three months ended June 30, 1999
decreased $0.3 million, or 26%, from $1.1 million in 1998 to $0.8 million in
1999. This decrease was the result of the Offering, in which a portion of the
Company's debt was repaid. In addition, in May 1998, Kroll-O'Gara received a 1%
step down in interest rate on its $35.0 million senior notes (the "Senior
Notes") as a result of achieving the specified criteria outlined in the Senior
Notes purchase agreement.

     PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended June 30, 1999 was $0.9 million compared to $2.7 million in 1998.
The effective tax rate for the second quarter of 1999 was 60% compared to 41% in
1998. The effective tax rate in the second quarter of 1999 was higher due to the
non-deductibility of some merger-related expenses incurred in the period related
to the Background America, Inc. merger.

     DISCONTINUED OPERATIONS. In the second quarter of 1999, the loss from
operations related to the discontinued Voice and Data Communications Group was
$0.3 million compared to income from operations of this business in 1998 of $0.2
million. The decrease in income was attributable to a $1.7 million decrease in
sales and a related decrease in gross profit of $0.7 million. The decrease in
sales was a result of the slower than anticipated introduction of a new product
into the market to replace an existing product and softness in the market for
the Group's products. Kroll-O'Gara does expect sales performance and
profitability to improve in the third quarter as a large contract was received
at the end of the second quarter for approximately $3.0 million of equipment.
Kroll-O'Gara continues to evaluate the need for a provision for a loss on
disposal of this business. However, management expects proceeds from the sale of
this business to cover Kroll-O'Gara's investment in net assets as well as any
costs incurred to sell the business.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

     NET SALES. Net sales for the six months ended June 30, 1999 increased $30.3
million, or 27%, from $114.3 million in 1998 to $144.6 million in 1999.

     SECURITY PRODUCTS AND SERVICES GROUP. Net sales for the Security Products
and Services Group for the six months ended June 30, 1999 decreased $6.7
million, or 10%, from $64.1 million in 1998 to $57.5 million in 1999. The
decrease results from a decrease in net sales of military products and services
of $8.6 million, or 33%, from $26.5 million in 1998 to $17.9 million in 1999. In
April 1998, Kroll-O'Gara began work on the 738 Contract. In addition,
Kroll-O'Gara continued work on a previous contract with the U.S. Military for
360 Up-Armored HMMWVs through July of 1998. The combination of production on the
two contracts as well as an aggressive delivery schedule required by the U.S.
Air Force relating to the 738 Contract resulted in unusually high levels of
production and net sales in 1998. In 1999, levels of production and net sales
more nearly approximated those of 1997 as production was based solely on the 738
Contract.

                                       20
<PAGE>   23
     Also included in net sales for the Security Products and Services Group are
sales of commercial armoring products and services, which increased $1.9
million, or 5%, from $37.7 million in 1998 to $39.6 million in 1999. The
increase in sales was due to increased production resulting from a large
contract from the U.S. government to produce over 300 light armored vehicles
which Kroll-O'Gara received at the end of the first quarter of 1999.

     INVESTIGATIONS AND INTELLIGENCE GROUP. Net sales for the Investigations and
Intelligence Group increased $34.5 million, or 69%, from $50.1 million in 1998
to $84.6 million in 1999. A substantial portion of this increase is a result of
the acquisitions completed for the Group in the second half of 1998 and the
first half of 1999. Excluding purchase acquisitions, sales increased $5.6
million. This increase primarily stems from internal growth in the Group's
business intelligence and investigations as well as corporate services
practices.

     INFORMATION SECURITY GROUP. Net sales for the six months ended June 30,
1999 for the Information Security Group were $2.5 million. The Information
Security Group initiated operations in February 1998 but had no sales in the
first half of 1998.

     COST OF SALES. Cost of sales for the six months ended June 30, 1999
increased $12.8 million, or 17%, from $74.1 million in 1998 to $86.9 million in
1999. The increase in cost of sales was due to the acquisitions completed in the
second half of 1998 and the first half of 1999. Excluding acquisitions, cost of
sales decreased $5.7 million. Gross profit as a percentage of net sales was
39.9%, as compared with 35.1% for the same period in 1998. The overall increase
in gross profit as a percent of net sales is primarily the result of a shift in
sales mix in which higher margin Investigations and Intelligence Group net sales
increased as a percentage of total net sales. In addition, gross margin
increased as a result of a planned shift in sales mix in the Security Products
and Services Group where commercial armoring sales as well as military spare
parts sales, both with higher margins, increased as a percentage of total
Security Products and Services Group sales.

     As a percentage of net sales, gross margin for the Security Products and
Services Group increased approximately 3.8% from 28.5% in 1998 to 32.3% in 1999.
Gross profit as a percentage of net sales increased approximately 1.1% from
43.6% in 1998 to 44.7% in 1999 for the Investigations and Intelligence Group,
primarily due to the contribution of higher margins from the completed
acquisition of Buchler Phillips in the second quarter of 1999. Gross margin at
the Information Security Group was 51.0%.

     Historically, Kroll-O'Gara has experienced a higher gross profit percent
associated with revenue from its Investigations and Intelligence Group in
comparison with the Security Products and Services Group. Management expects the
level of gross profit as a percent of net sales to remain relatively consistent
within each Group. However, if revenue from the Investigations and Intelligence
Group or the Information Security Group increases as a percentage of total net
sales as occurred in the first six months of 1999, consolidated gross profit as
a percentage of net sales may increase as well.

     OPERATING EXPENSES. Operating expenses for the six months ended June 30,
1999 increased $21.8 million, or 80%, from $27.1 million in 1998 to $48.9
million in 1999. The increase is partially due to the acquisitions completed
after the second quarter of 1998. Excluding acquisitions, operating expenses
increased $12.6 million. Included in this increase were merger-related costs of
$3.1 million primarily for the Background America merger completed on June 16,
1999 and a restructuring charge of $4.4 million. The remaining increase relates
to an increase in the level of personnel and

                                       21
<PAGE>   24

professional services required to administer the growth experienced by
Kroll-O'Gara after the end of the first quarter in 1998.

         As a percent of net sales, operating expenses, before merger related
costs and the restructuring charge, increased from 23.7% in 1998 to 28.7% in
1999. As mentioned previously in Restructuring of Operations, Kroll-O'Gara
continues to evaluate the different segments of its business and recently
concluded that a plan to reduce costs and improve operating efficiencies was
needed. As a result, a restructuring plan was implemented which management
believes will reduce operating expenses as a percentage of net sales in future
periods. However, there was no such reduction in the first six months of 1999 as
much of the cost savings actions did not occur until late in the quarter.

         INTEREST EXPENSE. Interest expense for the six months ended June 30,
1999 decreased $0.5 million, or 22%, from $2.3 million in 1998 to $1.8 million
in 1999. This decrease was the result of the Offering, in which a portion of the
Company's debt was repaid. In addition, in May 1998, Kroll-O'Gara received a 1%
step down in interest rate on the Senior Notes as a result of achieving the
specified criteria outlined in the Senior Notes purchase agreement.

         PROVISION FOR INCOME TAXES. The provision for income taxes for the six
months ended June 30, 1999 was $3.0 million compared to $4.6 million in 1998.
The effective tax rate for the first six months of 1999 was 42% compared to 42%
in 1998. In 1998, the effective tax rate was negatively impacted by recording
valuation allowances on certain foreign net operating losses. In 1999, the
effective tax rate was negatively impacted by the non-deductibility of some
merger-related expenses incurred in the period related to the Background
America merger.

         DISCONTINUED OPERATIONS. In 1999, the loss from operations related to
the discontinued Voice and Data Communications Group was $0.5 million compared
to income from operations of this business in 1998 of $0.3 million. The decrease
in income was attributable to a $3.1 million decrease in sales and a related
decrease in gross profit of $1.1 million. The decrease in sales was a result of
the slower than anticipated introduction of a new product into the market to
replace an existing product and softness in the market for the Group's products.
Kroll-O'Gara does expect sales performance and profitability to improve in the
third quarter as a large contract was received at the end of the second quarter
for approximately $3.0 million of equipment. Kroll-O'Gara continues to evaluate
the need for a provision for a loss on disposal of this business. However,
management expects proceeds from the sale of this business to cover
Kroll-O'Gara's investment in net assets as well as any costs incurred to sell
the business.

         CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Kroll-O'Gara had
previously capitalized costs associated with the start-up of activities,
including pre-operating costs, organization costs and other start-up costs.
These capitalized costs were amortized over periods ranging from one to five
years. The capitalized amount, $1.2 million before tax, was expensed in 1999 in
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, "Reporting on the Cost of Start-Up Activities". The amount
expensed is shown net of applicable tax benefit of $0.4 million.

LIQUIDITY AND CAPITAL RESOURCES

         General. Kroll-O'Gara historically has met its operating cash needs by
utilizing borrowings under its credit arrangements to supplement cash provided
by operations and other financing activities, excluding non-cash charges such as
depreciation and amortization.

                                       22
<PAGE>   25

     CREDIT FACILITY. On June 25, 1999, Kroll-O'Gara amended and restated its
credit agreement with KeyBank National Association to provide for a revolving
line of credit of $25 million and a letter of credit facility of approximately
$7.6 million which matures on May 31, 2000. Advances under the revolving credit
facility bear interest at rates ranging from prime less 1.75% to prime, or, at
Kroll-O'Gara's option, LIBOR plus .75% to LIBOR plus 1.75%, dependent upon a
defined financial ratio. The credit agreement includes financial covenants,
which among other restrictions, requires the maintenance of certain financial
ratios, including interest coverage and net worth, and impose limitations on
goodwill, additional indebtedness and capital expenditures. Kroll-O'Gara was not
in compliance with its capital expenditure covenant as of June 30, 1999.
However, Kroll-O'Gara did receive a waiver of this noncompliance. Borrowings
under this line of credit were approximately $19.1 million at June 30, 1999.

         The remaining proceeds from the Offering along with the unused capacity
on the revolving line of credit will be sufficient to fund the working capital
needs of Kroll-O'Gara for the next twelve months. In addition, Kroll-O'Gara
expects to have proceeds available upon the sale of its Voice and Data
Communications Group.

         Kroll-O'Gara will continue to review additional sources of capital,
which may include additional bank borrowings or equity offerings, as they become
necessary to meet needs other than working capital.

         CASH FLOWS FROM OPERATING ACTIVITIES. Cash used in operating activities
decreased from $8.8 million in the first six months of 1998 to $2.5 million in
1999. In both periods, cash was used primarily to fund working capital
investments offset by income from continuing operations.

         CASH FLOWS FROM INVESTING ACTIVITIES. Historically, Kroll-O'Gara has
limited its capital expenditure requirements by leasing certain assets. Through
June 30, 1999, Kroll-O'Gara incurred $9.2 million of capital expenditures
primarily related to the acquisition of two new enterprise systems at its
Security Products and Services Group and Investigation and Intelligence Group as
well as upgrades of general information systems unrelated to Kroll-O'Gara's Year
2000 compliance efforts. Additional capital expenditures were made for machinery
and equipment. Capital expenditures totaled $2.5 million for the six months
ended June 30, 1998. In 1999, Kroll-O'Gara sold $12.0 million of its marketable
securities in order to fund its increased capital expenditure requirements.
Additions to databases totaled $1.8 million and $2.4 million for the six months
ended June 30, 1999 and 1998, respectively.

         CASH FLOWS FROM FINANCING ACTIVITIES. Cash provided by financing
activities for the first six months of 1998 was $58.8 million. Cash provided by
financing activities was a result of the Offering in May 1998. In 1999, cash
provided by financing activities was $18.3 million and was provided by
borrowings under the bank lines of credit.

         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 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 June 30, 1999, eight such contracts, maturing between July 1999
and December 2000, were outstanding in connection with intercompany

                                       23
<PAGE>   26

demand notes with Labbe and Lindquist Avey. 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, together with
amortized premium, and the fair market value associated with these forward
contracts was $18.0 million. Gains or losses on existing forward instruments are
offset against the translation effects reflected in 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.

     YEAR 2000 ISSUES. Kroll-O'Gara has initiated a program to prepare for the
year 2000. During 1997, Kroll-O'Gara began the process of replacing the
enterprise systems at its two largest subsidiaries, both for the purpose of
making the systems Year 2000 compliant and to enhance the information systems
capabilities of these subsidiaries. One of the new systems became operational
early in the third quarter and the other is scheduled to be operational by the
middle of the fourth quarter of 1999.

     Additionally, Kroll-O'Gara is implementing a plan to prepare its remaining
systems for Year 2000. Kroll-O'Gara has completed an inventory of all its
computer software and embedded technology and has prepared a master database of
all technology potentially impacted by the Year 2000 issue. In conjunction with
outside consultants, Kroll-O'Gara now is in the process of acting to resolve any
potential problems which were previously identified. Kroll-O'Gara anticipates
that it will have taken all the necessary steps to ensure no interruption of
services as a result of the Year 2000 issue by the end of the third quarter of
1999.

     Total Year 2000 compliance cost is estimated to be approximately $5.5
million, of which approximately $4.9 million relates to the acquisition of new
enterprise systems and will be capitalized. The remaining approximately $0.6
million will be charged to expense over several reporting periods in accordance
with established accounting pronouncements, and is not expected to be material
to Kroll-O'Gara's results of operations or cash flows. Total costs paid relating
to this plan as of June 30, 1999 were $4.4 million. There can be no assurance
that the final costs of the Year 2000 program will not exceed current management
estimates.

     Many of the operations of Kroll-O'Gara's largest revenue groups are manual.
The manufacture of bullet resistant vehicles and some of the investigation and
intelligence services provided by Kroll-O'Gara are not largely dependent on
embedded technology. If, however, the databases of public records relied upon by
the Investigations and Intelligence Group are not available due to lack of
compliance with Year 2000, manual searches would be required, which would
increase the cost and length of time as well as negatively effect the quality of
investigations. Kroll-O'Gara is actively engaged in evaluating and confirming
compliance in this area. To the extent that third party providers upon which
Kroll-O'Gara is dependent are not Year 2000 compliant or are likely not to be
compliant, contingency plans will be prepared if possible, although there
currently is no timetable in place for this action. However, viable alternatives
may not be available.

     Kroll-O'Gara believes that its internal computer software and systems will
not experience significant disruption in connection with Year 2000. However,
there can be no assurance that third-party failures to resolve the Year 2000
issue will not have an adverse effect on Kroll-O'Gara. In particular, if
Kroll-O'Gara's internal computer software and systems or those of one or more
third parties experience any significant disruption in connection with the Year
2000 issue, the disruption could affect Kroll-O'Gara's ability to conduct
business and may have a material adverse effect on operations and results.

                                       24
<PAGE>   27

     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.

     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. Kroll-O'Gara's results may differ materially from those in the
forward-looking statements. Forward-looking statements are based on management's
current views and assumptions, and involve risks and uncertainties that could
significantly affect expected results. For example, operating results may be
affected by a number of external factors such as actions of competitors, changes
in laws and regulations, customer demand, effectiveness of programs, strategic
relations, fluctuations in the cost and availability of resources, and foreign
economic conditions, including currency rate fluctuations.

                                       25
<PAGE>   28



                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         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 pending litigation, individually or in aggregate, that is likely to
have a material adverse effect on its business or financial condition.

ITEM 2.  CHANGES IN SECURITIES

         On March 1, 1999, Kroll-O'Gara issued 101,555 shares of common stock in
the acquisition of Financial Research, Inc. On June 3, 1999, the Kroll-O'Gara
Company issued 366,469 shares of common stock in the acquisition of Buchler
Phillips. On June 16, Kroll-O'Gara issued 899,243 shares of common stock in the
acquisition of Background America. In each case, the shares were issued to a
limited number of investors and the issuance was exempt from registration on the
basis of Section 4(2) of the Securities Act of 1933.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

             10.1  Employment Agreement between Kroll Associates, Inc.,
                   The Kroll-O'Gara Company and Michael G. Cherkasky, dated
                   May 17, 1999

             10.2  Amended Loan Agreement, dated June 25, 1999, among The
                   Kroll-O'Gara Company, O'Gara-Hess & Eisenhardt Armoring
                   Company, Kroll Holdings, Inc., Kroll Associates, Inc. and
                   Keybank National Association

               27  Financial Data Schedule (Edgar version only)

         (b)   Reports on Form 8-K.

         During the quarter ended June 30, 1999, Kroll-O'Gara filed the
         following current reports on Form 8-K.

               a.) Announcing the acquisition of assets of Buchler Phillips
         (Date of Report: June 3, 1999) filed June 18, 1999.

                                       26

<PAGE>   29



                                   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 16th day of August, 1999.


                                 THE KROLL-O'GARA COMPANY



                                 By   /s/ Nicholas P. Carpinello

                                     Nicholas P. Carpinello
                                     Controller and Treasurer


                                       27