UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2008


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

For the transition period from to

Commission file number 333-119127

ALLIED SECURITY HOLDINGS LLC

(Exact name of Registrant as specified in its charter)


Delaware		20-1379003
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3606 Horizon Drive		19406
King of Prussia, PA		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (610) 239-1100

Not Applicable
Former name, former address and former fiscal year, if changed since last report.

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

As of June 30, 2008, there were 1,090,253 vested and unvested Class A, Class B and Class C units outstanding.

ALLIED SECURITY HOLDINGS LLC

TABLE OF CONTENTS


	PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		1
Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007		1
Consolidated Statements of Operations for the Three and Six months ended June 30, 2008 and 2007 (Unaudited)		2
Consolidated Statements of Cash Flows for the Six months ended June 30, 2008 and 2007 (Unaudited)		3
Notes to Consolidated Financial Statements (Unaudited)		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		24
Item 4. Controls and Procedures		24

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 4. Submission of Matters to a Vote of Security Holders		27
Item 5. Other Information		27
Item 6. Exhibits		28

SIGNATURES		29
EX-10.1: AGREEMENT AND PLAN OF MERGER
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATIONS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Allied Security Holdings LLC

Consolidated Balance Sheets

(Dollars in thousands, except unit data)


	June 30,			December 31,
	2008			2007
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	20,480		$	12,611
Restricted cash		4,260			6,128
Accounts receivable, net of allowance for doubtful accounts of $2,260 and $2,050 as of June 30, 2008 and December 31, 2007, respectively		190,280			203,164
Other		5,181			7,051

Total current assets		220,201			228,954
Property and equipment, net		9,337			9,905
Goodwill		399,934			389,848
Other intangible assets, net		50,156			59,052
Deferred financing fees, net		6,921			8,068
Marketable securities		1,531			1,090
Other assets		481			466

Total assets	$	688,561		$	697,383

Liabilities and members’ equity
Current liabilities:
Current maturities of long-term debt	$	9,991		$	10,000
Current installments of obligations under capital leases		272			402
Accounts payable		7,841			8,340
Accrued expenses		17,581			18,078
Interest payable		9,448			9,465
Accrued claims reserves		37,556			36,349
Accrued payroll and related payroll taxes		64,012			66,454
Accrued termination costs		925			1,175
Advance payments		22,049			19,692
Due to affiliate, current		—			5,843

Total current liabilities		169,675			175,798
Senior term loan		247,288			252,500
Senior subordinated notes		178,865			178,714
Obligations under capital leases, excluding current installments		82			198
Other long-term liabilities		4,138			4,037
Class A units subject to put rights: 22,317 units authorized, issued and outstanding		5,025			6,384
Members’ equity:
Units:
Class A, 9,500,000 units authorized, 868,668 units issued and outstanding		131,618			131,618
Class B, 200,000 units authorized, 77,627 units issued and outstanding		50			50
Class C, 300,000 units authorized, 121,641 units issued and outstanding		66			66
Accumulated deficit		(48,331	)		(52,091	)
Accumulated other comprehensive income		85			109

Total members’ equity		83,488			79,752

Total liabilities and members’ equity	$	688,561		$	697,383

See Accompanying Notes

Allied Security Holdings LLC

Consolidated Statements of Operations

(Dollars in thousands)
(Unaudited)


	Three months ended					Six months ended
	June 30,					June 30,
	2008		2007			2008		2007
Revenues	$	393,466	$	358,627		$	780,804	$	721,255
Cost of revenues		337,636		310,756			677,073		627,376

		55,830		47,871			103,731		93,879

Branch and corporate overhead expenses		32,754		29,848			64,694		61,200
Depreciation and amortization		7,729		7,468			15,424		15,071

Operating income		15,347		10,555			23,613		17,608

Interest expense, net		9,748		11,741			20,943		23,629

Net income (loss)	$	5,599	$	(1,186	)	$	2,670	$	(6,021	)

See Accompanying Notes

Allied Security Holdings LLC

Consolidated Statements of Cash Flows

(Dollars in thousands)
(Unaudited)


	Six months ended
	June 30,
	2008			2007
Cash flows from operating activities
Net income (loss)	$	2,670		$	(6,021	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		15,424			15,071
Noncash interest expense		1,321			1,544
Equity unit compensation expense		26			5
Changes in assets and liabilities (net of impact of acquired businesses):
Accounts receivable, net		14,527			4,184
Other current assets and liabilities, net		2,492			8,987
Accounts payable, accrued expenses and other accrued liabilities		(1,429	)		(3,434	)
Advance payments		2,357			2,185
Non-compete payments		(250	)		(250	)

Net cash provided by operating activities		37,138			22,271


Cash flows from investing activities
Consideration paid for acquisition of businesses		(15,713	)		(2,791	)
Purchases of property and equipment		(1,534	)		(1,575	)
Purchases of marketable securities		(465	)		(474	)
Due to affiliate payment		(5,843	)		—
Proceeds from sale of assets		48			40

Net cash used in investing activities		(23,507	)		(4,800	)


Cash flows from financing activities
Proceeds from revolver		17,000			—
Repayment of revolver		(17,000	)		—
Repayment of senior term loan		(5,221	)		(5,000	)
Capital lease payments		(246	)		(240	)
Member tax distributions paid		(295	)		—

Net cash used in financing activities		(5,762	)		(5,240	)


Net increase in cash and cash equivalents		7,869			12,231
Cash and cash equivalents at beginning of period		12,611			12,622

Cash and cash equivalents at end of period	$	20,480		$	24,853

See Accompanying Notes

Allied Security Holdings LLC

Notes to Consolidated Financial Statements

June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

1. Organization and Basis of Presentation

Allied Security Holdings LLC (the ‘‘Company’’) provides premium contract security officer services to public and private sector customers throughout the United States.

SpectaGuard Acquisition LLC (‘‘SpectaGuard’’), a wholly-owned subsidiary of the Company, was formed on February 19, 2003, as a result of the purchase transaction (‘‘Mafco Acquisition’’) involving MacAndrews & Forbes Holdings Inc. (together with certain of its affiliates, ‘‘Mafco’’), as well as certain members of the management of SpectaGuard’s predecessor. As a result of this transaction, Mafco has a substantial controlling interest in the Company. Prior to this transaction, the Company also operated under the name SpectaGuard Acquisition (‘‘Predecessor Company’’).

On August 2, 2004, simultaneous with the acquisition of Barton Protective Services Incorporated (‘‘Barton’’ or “Barton Acquisition”), the members of SpectaGuard became the members of the Company through the contribution of their Class A, Class B, and Class C units, as applicable, of SpectaGuard in exchange for an identical number of Class A, Class B and Class C units, as applicable, of the Company. The Company has no independent assets or operations, other than its ownership of all of the membership units of SpectaGuard and other subsidiaries.

On July 20, 2006, the Company acquired Initial Security LLC (“Initial”) from Rentokil Initial plc and Initial Tropical Plants, Inc. (“Initial Acquisition”).

On January 31, 2007, the Company acquired the assets of Fox Security Group, Inc. and The Fox Group International, Inc. (collectively, “Fox”). On July 2, 2007, the Company acquired the assets of Van Ella, Inc. (“Van Ella”).

On June 13, 2008, the Company acquired the assets of HR Plus (“HR Plus”) from Gallery Holdings, LLC. See Note 3, Acquisition, for a description of this acquisition.

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries, which are (i) SpectaGuard Acquisition LLC, (ii) AlliedBarton Security Services LLC, (iii) AlliedBarton Security Services LP, (iv) Allied Security Finance Corp. and (v) AlliedBarton (NC) LLC. All significant intercompany transactions have been eliminated in consolidation.

The Company operates under the name of “AlliedBarton Security Services” and “AlliedBarton” nationally and as “VanElla” and “HR Plus” in the conduct of the background verification business.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company has prepared the accompanying unaudited consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial statements. The consolidated balance sheet as of June 30, 2008, consolidated statements of operations for the three and six months ended June 30, 2008 and 2007 and the consolidated statements of cash flows for the six months ended June 30, 2008 and 2007 are unaudited, but include all normal recurring adjustments that the Company’s management considers necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The consolidated balance sheet at December 31, 2007 has been derived from the Company’s audited financial statements.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

Although the Company’s management believes that the disclosures in these interim financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 17, 2008. All terms used but not defined elsewhere herein have the meaning ascribed to them in the Company’s 2007 Annual Report on Form 10-K.

Revenue Recognition

The Company recognizes revenue in the period in which services are provided to its customers. Advance payments represent amounts received from customers in advance of performing the related services and are recorded as a current liability. The Company reports revenue net of sales tax.

Uniform Purchases

The Company expenses all uniform purchases at time of receipt to cost of revenues.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities. Actual results may differ from such estimates.

Restricted Cash

Restricted cash includes balances on deposit with the Company’s insurance carriers to pay workers’ compensation claims and general liability insurance claims as they become due.

Property and Equipment, net

Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of future minimum lease payments. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: leasehold improvements — up to 10 years; computer equipment — 1 to 5 years; computer and operating software — 3 to 5 years; vehicles — up to 5 years; office furniture, fixtures and equipment — 5 years.

Goodwill and Intangible Assets

Under Statement of Financial Accounting Standards (‘‘SFAS’’) No. 142, ‘‘Goodwill and Other Intangible Assets’’, goodwill and other intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Additionally, intangible assets, such as customer lists, with finite lives are amortized over their estimated useful lives.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

SFAS No. 142 requires a two-step impairment test for goodwill. The first step is to compare the carrying amount of the reporting unit’s net assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further analysis is required and no impairment loss is recognized. If the carrying amount exceeds the fair value then the second step is required to be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being the implied fair value of goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied fair value of goodwill. The determination of the fair value of the Company’s reporting unit is based on a combination of significant observable and unobservable inputs, including estimates of future operating performance. Changes in market conditions, among other factors, may have an impact on these estimates. The Company completes its annual impairment test as of October 1 of each calendar year.

Customer lists are amortized using the straight-line method over six years. The Company performs periodic analyses and adjusts through accelerated amortization any impairment of customer lists. None of the currently held customer lists have required accelerated amortization adjustments to date. Covenants not-to-compete are amortized using the straight-line method over the period covered by the not-to-compete agreement, which is five years.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of an asset or group of assets exceeds its net realizable value, the asset or group of assets will be written down to its fair value.

Marketable Securities — Available-for-Sale

The Company’s investments in marketable securities are classified as available-for-sale in accordance with SFAS No. 115, ‘‘Accounting for Certain Investments in Debt and Equity Securities.’’ The marketable securities are carried at fair value based on quoted prices in active markets. Unrealized gains and losses are reported as a separate component of accumulated other comprehensive income. The Company reports realized gains and losses from investments in interest expense, net. All of the Company’s available-for-sale securities are classified as long-term and include investments that do not have contractual maturities due to the nature of the investment vehicle.

Insurance Reserves

The Company maintains insurance coverage, subject to certain self-insured retentions, for workers’ compensation, general liability and employment practice liability matters. The Company also maintains medical insurance coverage for certain of its employees, however, since January 1, 2007, the Company has not been subject to self-insured retentions for employee medical coverage. Reserves have been provided for certain of these claims based upon insurance coverages, the risk of loss retained by the Company, third party actuarial analysis and management’s judgment. Management reviews these estimates on a quarterly basis subject to information then currently available and adjusts the reserves accordingly. In the opinion of management, the Company’s insurance reserves are sufficient to cover the ultimate costs of these claims.

Deferred Financing Fees

Costs incurred in connection with obtaining financing are deferred and amortized to interest expense using the effective interest method over the terms of the respective financing agreements.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

Statement of Cash Flows

The following noncash transactions have been excluded from the consolidated statements of cash flows for the six months ended June 30, 2008 and 2007, respectively:


	Six months ended
	June 30,			June 30,
	2008			2007
(Decrease) increase in redemption amount of Class A Units subject to put rights	$	(1,359	)	$	1,040
Fox goodwill adjustments	$	—		$	(124	)
PSB goodwill adjustments	$	—		$	(111	)
Initial goodwill adjustments	$	(8	)	$	885

Cash interest paid during the six months ended June 30, 2008 and 2007 was $20,114 and $22,669, respectively.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. In February 2008, the FASB issued FASB Staff Positions (“FSP”) 157-1 and 157-2. FSP 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. With respect to financial assets and financial liabilities, the adoption of SFAS No. 157, as amended by FSP 157-1, did not have a material effect on the Company’s results of operations or financial position.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The Company adopted the provisions of SFAS No. 159 on January 1, 2008 and did not elect the fair value option for any items permitted under SFAS No. 159. Accordingly, SFAS No. 159 had no effect on the Company’s consolidated results of operations or financial position.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting (previously referred to as the purchase method) but SFAS No. 141(R) changes the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also apply the provisions of SFAS No. 141(R). Early adoption is not permitted. The Company will apply the provisions of SFAS No. 141(R) to any business combinations occurring on or after January 1, 2009.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. Its intent is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. This FSP applies to all intangible assets, whether acquired in a business combination or otherwise, and shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and applied prospectively to intangible assets acquired after the effective date. Early adoption is not permitted. The Company will apply the provisions of this FSP beginning January 1, 2009.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in accordance with GAAP. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS No. 162 to have a material impact on its consolidated results of operations or financial position.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

3. Acquisition

On June 13, 2008, the Company acquired the assets of HR Plus (the “HR Plus Acquisition”), a provider of employee background verification services. The cost of the HR Plus Acquisition, which was funded by operating cash flow, was $15,713. The preliminary purchase price has been allocated as follows:


Accounts receivable	$	1,643
Property and equipment		148
Goodwill		10,094
Customer list		4,326
Other assets		5
Accounts payable		(450	)
Accrued expenses		(3	)
Accrued termination costs		(50	)

	$	15,713

In connection with the HR Plus Acquisition, the Company deposited $1,750 of the purchase price into an escrow account pending resolution of any claims on the part of the Company for indemnification from the sellers. No disbursements have been made from the escrow account.

Unaudited pro forma consolidated results of operations of the Company assuming the HR Plus Acquisition had occurred at the beginning of the periods presented have not been presented due to the immaterial nature of this acquisition.

4. Goodwill and Other Intangible Assets, net

The change in carrying amount of goodwill for the six months ended June 30, 2008 is as follows:


Balance as of December 31, 2007	$	389,848
Initial Acquisition adjustments		(8	)
HR Plus Acquisition (see Note 3)		10,094

Balance as of June 30, 2008	$	399,934

Gross carrying amounts and accumulated amortization for intangible assets as of June 30, 2008 and December 31, 2007 are as follows:


	June 30, 2008							December 31, 2007
	Gross		Accumulated					Gross		Accumulated
	Amount		Amortization			Net		Amount		Amortization			Net
Amortized intangible assets:
Customer lists	$	160,514	$	(110,528	)	$	49,986	$	156,188	$	(97,476	)	$	58,712
Covenants not-to-compete		1,700		(1,530	)		170		1,700		(1,360	)		340

Total	$	162,214	$	(112,058	)	$	50,156	$	157,888	$	(98,836	)	$	59,052

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

Amortization expense for the three and six months ended June 30, 2008 was $6,632 and $13,222, respectively. Amortization expense for the three and six months ended June 30, 2007 was $6,530 and $13,049, respectively.

Estimated annual aggregate amortization expense for the years ending December 31 is as follows:


2008 (less six months ended June 30, 2008)	$	13,546
2009		16,130
2010		9,833
2011		5,775
2012		3,688
Thereafter		1,184

	$	50,156

5. Deferred Financing Fees, net

Deferred financing fees, net are being amortized to interest expense using the effective interest method over the term of the respective financing agreements in relation to the Notes, the Senior Term Loan and the Revolver (as hereinafter defined), which mature between June 2010 and July 2011 (see Note 8).

Amortization of deferred financing fees for the three and six months ended June 30, 2008 was $578 and $1,147, respectively. Amortization of deferred financing fees for the three and six months ended June 30, 2007 was $546 and $1,085, respectively.

The estimated annual aggregate amortization expense, which will be included as interest expense, for the remainder of the current year and the following three years is as follows:


2008 (less six months ended June 30, 2008)	$	1,181
2009		2,475
2010		2,213
2011		1,052

	$	6,921

6. Marketable Securities

The unrealized (losses) gains on available-for-sale securities as of June 30, 2008 and December 31, 2007 were approximately $(14) and $10, respectively, and have been reported in the Company’s balance sheet as a component of accumulated other comprehensive income. The cost, unrealized (losses) gains and estimated fair value related to the Company’s available-for-sale securities are as follows:


	June 30,			December 31,
	2008			2007
Cost	$	1,545		$	1,080
Unrealized (losses) gains		(14	)		10

Estimated fair value	$	1,531		$	1,090

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

7. Accrued Termination Costs

As a result of the Initial Acquisition on July 20, 2006, the Company adopted a formal plan (the “Initial Plan”) to terminate certain Initial employees and close duplicative Initial office facilities. The Initial Plan provides for severance-related benefits to cover affected Initial employees. The Initial Plan also includes lease termination costs incurred in the closing of 16 Initial office facilities. The Company initially recorded approximately $2,475 of termination costs related to the Initial Plan as part of the purchase price allocation. In 2007, the Company revised its estimate of certain lease termination and severance costs and decreased the corresponding aggregate liability by $59, recording the adjustment to goodwill. In 2008, the Company revised its estimate of certain severance costs and decreased the corresponding aggregate liability by $8, recording the adjustment to goodwill. As of June 30, 2008, approximately $1,533 of payments have been made related to the Initial Plan with a liability for remaining lease payments of $875 expected to be paid out by March 31, 2012.

As a result of the HR Plus Acquisition completed on June 13, 2008, the Company adopted a formal plan (the “HR Plus Plan”) to terminate certain HR Plus employees. The HR Plus Plan provides for severance-related benefits to cover affected HR Plus employees. The Company initially recorded approximately $50 of termination costs related to the HR Plus Plan as part of the purchase price allocation.

The following table shows the activity for the six months ended June 30, 2008, for the accrued termination costs for the above acquisitions:


	Lease			Severance			Total
Balance as of December 31, 2007	$	1,015		$	160		$	1,175
Additions		—			50			50
Payments		(140	)		(152	)		(292	)
Adjustments		—			(8	)		(8	)

Balance as of June 30, 2008	$	875		$	50		$	925

8. Debt

The Company’s debt is summarized as follows:


	June 30,			December 31,
	2008			2007
Senior Term Loan, variable rate interest (effective rate 5.49% and 7.83% as of June 30, 2008 and December 31, 2007, respectively), due June 30, 2010	$	257,279		$	262,500
11.375% Senior Subordinated Notes, due July 15, 2011, net of unamortized discount of $1,135 and $1,286 as of June 30, 2008 and December 31, 2007, respectively		178,865			178,714
Capital leases at a rate of 3.69% and 5.88% as of June 30, 2008 and December 31, 2007, respectively, due through June 30, 2010		354			600

		436,498			441,814
Less current maturities		(10,263	)		(10,402	)

	$	426,235		$	431,412

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

On August 2, 2004, the Company issued $180.0 million in aggregate principal amount of Senior Subordinated Notes (the ‘‘Notes’’), at a discount of $2.1 million and bearing interest of 11.375%, which mature on July 15, 2011. The fair value of the Notes was below its carrying value by approximately $24.1 million at June 30, 2008.

On July 20, 2006, the Company entered into an Amended and Restated Credit Agreement (the ‘‘Credit Agreement’’) governing its $325.0 million senior secured credit facility with Bear Stearns Corporate Lending Inc., as Administrative Agent, the financial institutions party thereto as lenders, Sovereign Bank., as syndication agent, and CIT Lending Services Corporation, ING Capital LLC and PNC Bank, National Association, as co-documentation agents. The Credit Agreement amended, restated and superseded the Company’s prior credit agreement. The Credit Agreement consists of a $275.0 million term loan (the ‘‘Senior Term Loan’’) facility which was drawn at the closing of the Initial Acquisition and which matures on June 30, 2010 (with such date being automatically extended to July 20, 2012 if the Notes are refinanced as permitted under the Credit Agreement by new indebtedness having a term of at least six years and six months after July 20, 2006) and a $50.0 million revolving credit facility (the ‘‘Revolver’’) that matures on August 2, 2009. The Revolver includes a $50.0 million sub-limit for letters of credit. The fair value of the Senior Term Loan approximates its carrying value at June 30, 2008.

The indebtedness under the Credit Agreement is guaranteed by the Company and its subsidiaries (collectively, the ‘‘Guarantors’’). The Company’s obligations under the Credit Agreement and the guarantees of the Guarantors are secured by a first-priority security interest in substantially all of the Company’s and the Guarantors’ assets, other than leased real property. Borrowings under the Credit Agreement bear interest, at the Company’s option, at either an adjusted Eurodollar rate plus an applicable margin of 4.50% in the case of revolving loans or 3.00% in the case of term loans, or an alternative base rate plus an applicable margin of 3.50% in the case of revolving loans or 2.00% in the case of term loans.

The Credit Agreement contains affirmative and negative covenants customary for such financings. The Credit Agreement also requires the Company to maintain, as further defined in the Credit Agreement, a minimum ratio of Consolidated EBITDA to total consolidated cash interest expense and to not exceed a maximum ratio of total consolidated debt outstanding to Consolidated EBITDA as of the last day of each calendar quarter.

The Credit Agreement contains events of default customary for such financings, including but not limited to non-payment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration to certain indebtedness; certain ERISA events; change of control; dissolution, insolvency and bankruptcy events; material judgments; the subordination provisions under the Indenture being revoked, invalidated or otherwise ceasing to be in full force and effect; and actual or asserted invalidity of the guarantees or security documents. Some of these events of default allow for grace periods and materiality qualifications. As of June 30, 2008, the Company is in compliance with all covenants under the Credit Agreement.

The Revolver availability with a lending capacity of $50.0 million is reduced by outstanding letters of credit, which totaled $32.4 million as of June 30, 2008. On March 17, 2008, the Company borrowed $17.0 million under the Revolver for general corporate purposes. In April 2008, the $17.0 million Revolver borrowing was repaid in full. At June 30, 2008, the remaining amount available for borrowing under the Revolver was $17.6 million.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

The Company is obligated under capital leases for vehicles that expire at various dates during the next 24 months totaling $0.4 million.

Debt maturities for the remainder of the current year and the following three years are as follows:


2008 (less six months ended June 30, 2008)	$	5,157
2009		10,166
2010		242,310
2011		178,865

Total	$	436,498

9. Contingent Liabilities

In the normal course of operations, various legal claims are filed against the Company. The Company has reserved for certain of these claims based upon insurance coverages, the risk of loss retained by the Company, and management’s judgment (in some cases after receipt of the advice of counsel). In the opinion of management, the ultimate outcome of these actions is not expected to have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.

10. Comprehensive Income (Loss)

Comprehensive income (loss) is defined as net income (loss) and other changes in members’ equity (deficit) from transactions and other events from sources other than those derived from members. A reconciliation of net income (loss) to comprehensive income (loss) is as follows:


	Three months ended					Six months ended
	June 30,					June 30,
	2008		2007			2008			2007
Net income (loss)	$	5,599	$	(1,186	)	$	2,670		$	(6,021	)
Unrealized gains (losses) on marketable securities		21		55			(24	)		71

Comprehensive income (loss)	$	5,620	$	(1,131	)	$	2,646		$	(5,950	)

11. Income Taxes

The members of the Company have elected to be treated as a partnership for both federal and state income tax reporting purposes. In accordance with applicable regulations, taxable income or loss of the Company is required to be reported in the income tax returns of the Company’s members in accordance with the Company’s Operating Agreement, dated as of August 2, 2004, as amended (the “Operating Agreement”). Accordingly, no provision for income taxes has been made in the Company’s consolidated financial statements. The Operating Agreement enables the Company to make distributions to each member to satisfy their respective tax liabilities arising in connection with their respective ownership interest in the Company. Distributions for the three and six months ended June 30, 2008 were approximately $0.2 million and $0.3 million, respectively. No distributions were made for the three and six months ended June 30, 2007. Due principally to differences in depreciation and amortization, taxable income may vary substantially from income or loss reported for financial reporting purposes.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

12. Defined Benefit Pension Plan

The Company maintains a defined benefit pension plan covering a limited number of current and former employees who are members of a guard union located in New York, NY. Eligibility and benefits vary depending upon the year of hire; furthermore, benefit accumulation has been suspended.

Net periodic benefit income for the Company’s pension plan includes the following components:


	Three months ended						Six months ended
	June 30,						June 30,
	2008			2007			2008			2007
Interest cost	$	15		$	16		$	30		$	32
Expected return on assets		(22	)		(22	)		(44	)		(44	)

Net periodic benefit income	$	(7	)	$	(6	)	$	(14	)	$	(12	)

The Company contributed $22 and $42 to the defined benefit pension plan during the three and six months ended June 30, 2008. The Company’s contributions to the plan for the remainder of fiscal 2008 are expected to be in the range of $40 to $45.

13. Units Subject to Put Rights and Members’ Equity

The capital structure of the Company consists of three classes of units which are designated as Class A units, Class B units and Class C units. The Company is authorized to issue up to 10,000,000 units. The units do not have any voting approval or consent rights. Class A and Class B units represent vested ownership interests in the Company. Class C units generally vest 50% based on passage of time and 50% based on achievement of defined performance targets over periods ranging from three to six years.

Pursuant to the Operating Agreement, cash distributions may be made to the members in the following order and priority: (i) among the units in proportion to, and to the extent of, initial contributed capital attributable to the units (excluding any capital attributable to unvested Class C units) until all initial contributed capital has been returned, and (ii) any remaining balance to the members in proportion to their ownership percentage.

The Operating Agreement includes put rights issued to OCM Specta Holdings Inc. (“OCM”), a member of the Company, that give OCM the option to cause the Company to purchase all of the 22,317 Class A units subject to put rights held by OCM at specified periods of time, the earliest of which was 2007, at the estimated redemption amount at the time the put right is exercised. The estimated redemption amount is recorded at its estimated fair value and is calculated using a combination of significant observable and unobservable inputs. During the six months ended June 30, 2008, the Company recorded an estimated decrease in the redemption amount of such Class A units subject to put rights of $1,359 as an increase of members’ equity.

Class C units outstanding at June 30, 2008 totaled 121,641. There were no new issuances or cancellations of Class C units during the six months ended June 30, 2008. The number of Class C units vested as of June 30, 2008 and December 31, 2007 was 108,142.

Allied Security Holdings LLC
Notes to Consolidated Financial Statements
June 30, 2008
(Dollars in thousands except as otherwise stated)
(Unaudited)

14. Related Party Transactions

In connection with the Mafco acquisition, senior management of the Company canceled their vested options in the Predecessor Company. The Company’s majority member, SpectaGuard Holding Corporation, was obligated to return to members of senior management the amount of deferred payment totaling $16,251 including estimated taxes, in periods ranging from three to five years. This amount has been recorded at its present value and is included on the accompanying consolidated balance sheets in due to affiliate. In 2006, the Company paid $10,191 to senior management, and as of December 31, 2007, the Company had $5,843 accrued related to this remaining liability, which was paid on February 19, 2008. The Company was obligated to reimburse SpectaGuard Holding Corporation for all costs and expenses incurred in connection with its performance under the Amended and Restated Management Agreement between the Company and SpectaGuard Holding Corporation dated as of August 2, 2004, including amounts of such deferred payments to senior management.

During the three and six months ended June 30, 2008 and 2007, the Company provided contract security officer services to certain companies in which Mafco has a significant ownership percentage. The Company earned revenue from these companies for such services in the amounts of $1,513 and $2,935 for the three and six months ended June 30, 2008, respectively, and $817 and $1,639 for the three and six months ended June 30, 2007, respectively. The rates charged for these services were competitive with industry rates for similarly situated security firms. The Company had accounts receivable balances from these companies of $1,161 and $741 at June 30, 2008 and December 31, 2007, respectively.

15. Subsequent Event

As previously disclosed on the Company’s Form 8-K filed with the SEC on July 29, 2008, on July 24, 2008, the Company entered into an Agreement and Plan of Merger with SpectaGuard Holding Corporation (“SpectaGuard”), MacAndrews & Forbes Holdings Inc, solely for certain sections specified therein, AB Capital Holdings LLC (“Purchaser”), and AB Merger Sub LLC (“Merger Sub”), a wholly-owned subsidiary of Purchaser, pursuant to which Merger Sub will merge with and into the Company (the “Merger”) and the Company will continue as a subsidiary of Purchaser. Purchaser and Merger Sub are controlled by a private equity fund affiliated with The Blackstone Group (“Blackstone”).

The Merger will constitute a change of control under the Company’s Credit Agreement and the Indenture governing its 11.375% Senior Subordinated Notes due 2011. At the closing of the Merger, the Purchaser will cause all indebtedness under the Company’s Credit Facility to be paid in full or satisfied and discharged, and the Notes will be called for redemption with the proceeds from the Merger deposited with the trustee of the Indenture to effect a defeasance. Consummation of the Merger is subject to certain closing conditions, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the accuracy of the representations and warranties of the parties (subject to certain exceptions), the pro forma ratios of net debt and net senior debt of the Company to EBITDA not exceeding certain thresholds, and other customary closing conditions.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The discussion and analysis of financial condition and results of operations are based upon financial statements which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), and should each be read together with the applicable consolidated financial statements, the notes to those financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.

The following discussion contains certain statements of a forward-looking nature that involve risks and uncertainties. As a result of many factors, including those set forth under the section entitled ‘‘Risk Factors’’ in our filings with the SEC, actual results may differ materially from those anticipated by such forward-looking statements. See ‘‘Forward-Looking Statements.’’

Overview

We offer premium contract security officer services to quality-conscious customers primarily in ten customer verticals throughout the United States: commercial real estate, corporate complexes, shopping centers and malls, financial institutions, healthcare facilities, colleges and universities, manufacturing and distribution facilities, residential communities, government facilities and chemical/petrochemical facilities. We are responsible for recruiting, screening, hiring, training, outfitting, scheduling and supervising our security officers. Our security officers work on-location at our customers’ sites and their responsibilities primarily include deterring, observing, detecting and reporting perceived, potential or actual security threats. As of July 1, 2008, we employed approximately 50,800 security officers and provided contract security officer services to over 3,600 clients, including approximately 200 of the Fortune 500 companies, in 45 states and the District of Columbia. We also provide background verification services under the tradenames “VanElla” and “HR Plus”.

Recent Development

Revenues

Our revenues are generated primarily from customer contracts obligating us to provide security officer services at agreed-upon hourly billing rates. Our standard customer contract is a one-year contract that may be terminated by either our customer or us on 30 days’ notice at any time. Many of our larger contracts are multi-year.

Our contract security officer revenues are dependent on our ability to attract and retain high-quality, qualified employees. We pay above market average wage rates to our contract security officers and provide employee benefits which many of our competitors do not. In addition, we engage in extensive candidate screening, training and development which supports employee retention. The turnover rate for our service employees was approximately 56% for the 12 months ended June 30, 2008, which compares favorably to the average retention rates in our industry.

Cost of Revenues

The direct cost of revenues is comprised primarily of direct labor, payroll taxes, medical and life insurance benefits, workers’ compensation costs, general liability insurance costs and uniform purchases. We believe that we have higher wages and related payroll taxes and benefit costs than others in our industry, due to our focus on attracting and retaining a highly qualified workforce, which in turn allows us to maintain more favorable turnover rates. The major components of cost of revenues are affected by general wage inflation, payroll tax increases and insurance premiums and related claim costs, most of which we have been able to pass on to our customers through bill rate increases.

Our payroll tax expenses historically are higher in the first half of the year due to a significant number of employees reaching their taxable wage limits for employer related employment taxes prior to the second half of the year.

Critical Accounting Policies and Estimates

A description of the Company’s critical accounting policies and estimates was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. There were no changes to these critical accounting policies and estimates during the six months ended June 30, 2008.

Results of Operations

Three months ended June 30, 2008 compared to three months ended June 30, 2007

Revenues. Revenues increased by $34.9 million, or 9.7%, to $393.5 million for the three months ended June 30, 2008 from $358.6 million for the three months ended June 30, 2007. This increase is primarily attributable to revenue from new security service contracts together with rate increases, partially offset by the impact of security service contracts lost.

Cost of Revenues. Cost of revenues increased by $26.8 million, or 8.6%, to $337.6 million for the three months ended June 30, 2008 from $310.8 million for the three months ended June 30, 2007. This increase is attributable to additional costs associated with the additional revenues. Cost of revenues as a percentage of revenues decreased to 85.8% for the three months ended June 30, 2008 from 86.7% for the three months ended June 30, 2007. This decrease is the result of lower direct labor costs, payroll tax expense and operating insurance costs, partially offset by higher other direct costs.

Branch and Corporate Overhead Expenses. Branch and corporate overhead expenses increased by $3.0 million, or 10.1%, to $32.8 million for the three months ended June 30, 2008 from $29.8 million for the three months ended June 30, 2007. This increase is attributable to higher administrative labor costs, administrative insurance costs and legal expenses, partially offset by lower payroll taxes. As a percentage of revenues, branch and corporate overhead expenses remained flat at 8.3% for the three months ended June 30, 2008 and 2007, due to higher administrative labor costs, administrative insurance costs and legal expenses, fully offset by lower payroll taxes and other overhead costs.

Depreciation and Amortization. Depreciation and amortization increased by $0.2 million, or 2.7%, to $7.7 million for the three months ended June 30, 2008 from $7.5 million for the three months ended June 30, 2007. This increase is primarily the result of increased amortization related to the customer lists and other assets acquired as part of the Van Ella and HR Plus acquisitions.

Operating Income. Operating income increased by $4.7 million, or 44.3%, to $15.3 million for the three months ended June 30, 2008 from $10.6 million for the three months ended June 30, 2007. This increase is due to increased revenue, partially offset by the items discussed above.

Interest Expense, Net. Interest expense, net decreased $2.0 million, or 17.1%, to $9.7 million for the three months ended June 30, 2008 from $11.7 million for the three months ended June 30, 2007 due to lower average outstanding debt balances and lower interest rates versus the same prior year period.

Income Tax Expense (Benefit). Our members have elected to be treated as a partnership for both federal and state income tax reporting purposes. In accordance with applicable regulations, our taxable income or loss is required to be reported in the income tax returns of our members in accordance with our Operating Agreement. Accordingly, we do not have income tax expense (benefit). In lieu of paying income taxes, we pay distributions to our members with respect to income tax that they owe on earnings that are allocated to them in accordance with our Operating Agreement. The tax-related distributions paid in the three months ended June 30, 2008 were approximately $0.2 million. No tax-related distributions were paid in the three months ended June 30, 2007.

Net Income (Loss). Net income (loss) increased by $6.8 million to a net income of $5.6 million for the three months ended June 30, 2008 from a net loss of $1.2 million for the three months ended June 30, 2007, as a result of the items described above.

Six months ended June 30, 2008 compared to Six months ended June 30, 2007

Revenues. Revenues increased by $59.5 million, or 8.2%, to $780.8 million for the six months ended June 30, 2008 from $721.3 million for the six months ended June 30, 2007. This increase is primarily attributable to revenue from new security service contracts together with rate increases, partially offset by the impact of security service contracts lost and by the expiration of the State of Florida, Department of Transportation (“FDOT”) toll collection services contract on March 31, 2007.

Cost of Revenues. Cost of revenues increased by $49.7 million, or 7.9%, to $677.1 million for the six months ended June 30, 2008 from $627.4 million for the six months ended June 30, 2007. This increase is attributable to additional costs associated with the additional revenues. Cost of revenues as a percentage of revenues decreased to 86.7% for the six months ended June 30, 2008 from 87.0% for the six months ended June 30, 2007. This decrease is the result of lower payroll tax expense and other direct costs, partially offset by higher direct labor costs and operating insurance costs, reflecting the loss of lower direct labor costs associated with the FDOT toll collection contract.

Branch and Corporate Overhead Expenses. Branch and corporate overhead expenses increased by $3.5 million, or 5.7%, to $64.7 million for the six months ended June 30, 2008 from $61.2 million for the six months ended June 30, 2007. This increase is attributable to higher administrative labor costs, administrative insurance costs and legal expenses resulting primarily from the settlement of a lawsuit, partially offset by lower payroll taxes. As a percentage of revenues, branch and corporate overhead expenses decreased to 8.3% for the six months ended June 30, 2008 from 8.5% for the six months ended June 30, 2007. This decrease is due to lower payroll taxes and other overhead costs, partially offset by higher administrative labor costs and administrative insurance costs.

Depreciation and Amortization. Depreciation and amortization increased by $0.3 million, or 2.0%, to $15.4 million for the six months ended June 30, 2008 from $15.1 million for the six months ended June 30, 2007. This increase is primarily the result of increased amortization related to the customer lists and other assets acquired as part of the Fox, Van Ella and HR Plus acquisitions.

Operating Income. Operating income increased by $6.0 million, or 34.1%, to $23.6 million for the six months ended June 30, 2008 from $17.6 million for the six months ended June 30, 2007. This increase is due to increased revenue, partially offset by the items discussed above.

Interest Expense, Net. Interest expense, net decreased $2.7 million, or 11.4%, to $20.9 million for the six months ended June 30, 2008 from $23.6 million for the six months ended June 30, 2007 due to lower average outstanding debt balances and lower interest rates versus the same prior year period.

Income Tax Expense (Benefit). Our members have elected to be treated as a partnership for both federal and state income tax reporting purposes. In accordance with applicable regulations, our taxable income or loss is required to be reported in the income tax returns of our members in accordance with our Operating Agreement. Accordingly, we do not have income tax expense (benefit). In lieu of paying income taxes, we pay distributions to our members with respect to income tax that they owe on earnings that are allocated to them in accordance with our Operating Agreement. The tax-related distributions paid in the six months ended June 30, 2008 were approximately $0.3 million. No tax-related distributions were paid in the six months ended June 30, 2007.

Net Income (Loss). Net income (loss) increased by $8.7 million to a net income of $2.7 million for the six months ended June 30, 2008 from a net loss of $6.0 million for the six months ended June 30, 2007, as a result of the items described above.

Supplemental Non – GAAP financial information

EBITDA is defined as net income (loss) before interest expense, income taxes and depreciation and amortization. EBITDA is presented because we believe it is useful to investors as a widely accepted financial indicator of a company’s ability to service and/or incur indebtedness and because such disclosure provides investors with additional criteria used by us to evaluate our operating performance.

EBITDA and Adjusted EBITDA (as defined below) are not defined under GAAP, should not be considered in isolation or as a substitute for a measure of our liquidity or performance prepared in accordance with GAAP and are not indicative of income from operations as determined under GAAP. EBITDA and Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate the Company’s liquidity or financial performance. EBITDA and Adjusted EBITDA do not include interest expense, which has required significant uses of the Company’s cash in the past and will require the Company to expend significant cash resources in the future. EBITDA and Adjusted EBITDA also do not include income tax expense or depreciation and amortization expense, which may be necessary in evaluating the Company’s operating results and liquidity requirements or those of businesses we may acquire. Our management compensates for these limitations by using EBITDA and Adjusted EBITDA as a supplement to GAAP results to provide a more comprehensive understanding of the factors and trends affecting our business or any business we may acquire. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures provided by other companies, because all companies do not calculate this measure in the same manner.

The following table and related notes reconciles net income (loss) to EBITDA and then EBITDA to Adjusted EBITDA (in thousands):


	Three months ended					Six months ended
	June 30,					June 30,
	2008		2007			2008		2007
	(Unaudited)
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net income (loss)	$	5,599	$	(1,186	)	$	2,670	$	(6,021	)
Interest expense, net		9,748		11,741			20,943		23,629
Depreciation and amortization		7,729		7,468			15,424		15,071

EBITDA (a)(b)		23,076		18,023			39,037		32,679
Uniform purchases		2,264		2,520			4,682		5,465

Adjusted EBITDA (a)(b)	$	25,340	$	20,543		$	43,719	$	38,144


(a)		Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. See also certain factors set forth under “Forward Looking Statements” and additional factors set forth under the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Our payroll tax expenses historically are higher in the first half of the year due to a significant number of employees reaching their taxable wage limits prior to the second half of the year. This seasonality relating to payroll taxes consistently results in higher cost of revenues in the first half of the year.


(b)		The Company believes that the Credit Agreement is a material agreement, that the financial covenants are material terms of the Credit Agreement and that information about the financial covenants are material to an investor’s understanding of the Company’s financial condition and/or liquidity. Financial covenants which are based on Adjusted EBITDA are material terms of the Credit Agreement. Our Credit Agreement uses the term “Consolidated EBITDA” to refer to “Adjusted EBITDA,” which is defined in the Credit Agreement as Consolidated Net Income (as defined in the Credit Agreement) for any period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with indebtedness (including loans, letters of credit and senior subordinated notes), (c) depreciation and amortization expense, (d) any extraordinary non-cash expenses and losses, (e) any costs and expenses incurred in connection with (i) the transactions consummated under the Transaction Documents (as defined in the Credit Agreement) and (ii) the Initial Consent Solicitation (as defined in the Credit Agreement), (f) one-time severance expense in an aggregate amount not to exceed $900 in the fiscal quarters ended December 31, 2005 and March 31, 2006, in the aggregate, (g) any other non-cash charges, expenses or losses, (h) expenses for the purchase of uniforms in the ordinary course of business, and (i) reasonable costs and expenses reasonably attributable to any Permitted Acquisition (as defined in the Credit Agreement) whether or not consummated provided that any such costs and expenses attributed to any Permitted Acquisition which is not consummated shall not exceed $2,500 over the term of the Credit Agreement; provided further, that to the extent any of the income of any Person is excluded from Consolidated Net Income pursuant to the definition thereof for such period, any amounts set forth in the preceding clauses (a) through (i) that are attributable to such Person shall not be included herein for such period, and minus, (a) to the extent included in the statement of such Consolidated Net Income for such period, the sum of (i) interest income, (ii) any extraordinary or non-recurring income or gains (including, whether or not otherwise includable as a seperate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business), (iii) income tax credits (to the extent not netted from income tax expense) and (iv) any other non-cash income and (b) any cash payments made during such period in respect of items described in clause (d) or (g) above subsequent to the fiscal quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Net Income, all as determined on a consolidated basis. As of June 30, 2008, the financial covenants include a consolidated leverage ratio of 5.5 to 1 of consolidated total debt as defined in our Credit Agreement to Consolidated EBITDA (inclusive of certain other pro forma adjustments related to expected cost savings and pre-acquisition results) and a consolidated interest ratio of 1.75 to 1 for Consolidated EBITDA (inclusive of other pro forma adjustments related to expected cost savings) to consolidated interest expense as defined in our Credit Agreement. Failure to meet these financial covenants could result in all of the current oustanding debt to be called by the lenders.

Liquidity and Capital Resources

Our primary liquidity requirements are for debt service, potential acquisitions and working capital. Our primary source of liquidity is cash provided by operating activities.

Cash provided by operating activities for the six months ended June 30, 2008 and 2007 was $37.1 million and $22.3 million, respectively. For the six months ended June 30, 2008 and 2007, cash provided by operating activities was generated from a net income of $2.7 million and a net loss of $6.0 million, respectively, adjusted for non-cash expenses of $16.8 million and $16.6 million, respectively, as well as favorable working capital changes of $17.6 million and $11.7 million, respectively.

Cash used in investing activities for the six months ended June 30, 2008 and 2007 was $23.5 million and $4.8 million, respectively. For the six months ended June 30, 2008, the Company paid approximately $15.7 million for the acquisition of HR Plus, made a payment due to affiliate of $5.8 million relating to a contractual payment due to a member of senior management and purchased $1.5 million of property and equipment and $0.5 million of marketable securities. For the six months ended June 30, 2007, the Company paid approximately $2.8 million for the acquisition of Fox and purchased $1.6 million of property and equipment and $0.5 million of marketable securities.

Financing activities have consisted primarily of borrowings and repayments on long-term debt associated with acquisitions of businesses. Cash used in financing activities for the six months ended June 30, 2008 was $5.8 million, comprised primarily of the borrowing in March 2008 and the subsequent repayment in full in April 2008 of $17.0 million of proceeds from the Revolver, $5.2 million of scheduled senior term loan payments, $0.2 million of capital lease obligation payments and $0.3 million of member tax distributions. Cash used in financing activities for the six months ended June 30, 2007 was $5.2 million due to $5.0 million of scheduled term loan payments and $0.2 million of capital lease payments.

As of June 30, 2008, we had approximately $436.5 million of indebtedness, which includes the Notes, amounts outstanding under our Credit Facility and capital lease obligations. In addition, as of June 30, 2008, we had $17.6 million of unused borrowing capacity under our Credit Facility, net of the issuance of $32.4 million of outstanding letters of credit.

In lieu of paying federal and state income taxes, we pay distributions to our members with respect to income tax that they owe on earnings that are allocated to them in accordance with our Operating Agreement. Member tax distributions paid for the six months ended June 30, 2008 were approximately $0.3 million. No member tax distributions were paid for the six months ended June 30, 2007.

The contract security services industry is becoming increasingly competitive as more customers select security service providers through competitive bid processes intended to procure quality services at lower prices. The Company’s ability to achieve revenue growth depends not only on its ability to win new customer accounts, but also on its ability to retain its current customer accounts. There can be no assurance that the Company will continue to retain customer accounts at historic levels in an increasingly competitive industry. In addition, there can be no assurance that the Company will be able to acquire new customer accounts and retain existing customer accounts on terms as favorable as those previously available, which may negatively affect profitability. These factors also may limit the Company’s ability to obtain rate increases from existing customers to fully offset cost increases.

Description of Indebtedness

On August 2, 2004, the Company issued $180.0 million in aggregate principal amount of the Notes, at a discount of $2.1 million and bearing interest of 11.375%, which mature on July 15, 2011. The fair value of the Notes at June 30, 2008 was lower than its carrying value by approximately $24.1 million.

On July 20, 2006, the Company entered into the Credit Agreement governing its $325.0 million senior secured credit facility with Bear Stearns Corporate Lending Inc., as Administrative Agent, the financial institutions party thereto as lenders, Sovereign Bank, as syndication agent, and CIT Lending Services Corporation, ING Capital LLC and PNC Bank, National Association, as co-documentation agents. The Credit Agreement amended, restated and superseded the Prior Credit Agreement. The Credit Agreement consists of a $275.0 million term loan facility which was drawn at the closing of the Initial Acquisition and which matures on June 30, 2010 (with such date being automatically extended to July 20, 2012 if the Notes are refinanced as permitted under the Credit Agreement by new indebtedness having a term of at least six years and six months after July 20, 2006) and a $50.0 million Revolver that matures on August 2, 2009. The Revolver includes a $50.0 million sub-limit for letters of credit. The fair value of the Senior Term Loan approximates its carrying value at June 30, 2008.

The indebtedness under the Credit Agreement is guaranteed by the Company and its subsidiaries (collectively, the “Guarantors”). The Company’s obligations under the Credit Agreement and the guarantees of the Guarantors are secured by a first-priority security interest in substantially all of the Company’s and the Guarantors’ assets, other than leased real property. Borrowings under the Credit Agreement bear interest, at the Company’s option, at either an adjusted Eurodollar rate plus an applicable margin of 4.50% in the case of revolving loans or 3.00% in the case of term loans, or an alternative base rate plus an applicable margin of 3.50% in the case of revolving loans or 2.00% in the case of term loans.

The Credit Agreement contains affirmative and negative covenants customary for such financings. The Credit Agreement also requires the Company to maintain, as further specified in the Credit Agreement, a minimum ratio of Consolidated EBITDA (as defined in the Credit Agreement) to total consolidated cash interest expense and to not exceed a maximum ratio of total consolidated debt outstanding to Consolidated EBITDA as of the last day of each calendar quarter. As of June 30, 2008, the Company is in compliance with all covenants under the Credit Agreement.

The Credit Agreement contains events of default customary for such financings, including but not limited to non-payment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration to certain indebtedness; certain ERISA events; change of control; dissolution, insolvency and bankruptcy events; material judgments; the subordination provisions under the Indenture being revoked, invalidated or otherwise ceasing to be in full force and effect; and actual or asserted invalidity of the guarantees or security documents. Some of these events of default allow for grace periods and are subject to materiality qualifications. See also Note 15, Subsequent Event.

The Company is obligated under capital leases for vehicles that expire at various dates during the next 24 months totaling $0.4 million.

Based upon our current level of operations, we believe that our existing cash and cash equivalents balances and our cash from operating activities, together with available borrowings under our Credit Agreement, will be adequate to meet our anticipated requirements for working capital, capital expenditures, commitments and interest payments for the foreseeable future. As of June 30, 2008, we do not have any material commitments related to capital expenditures. There can be no assurance, however, that our business will continue to generate cash flow at current levels or that currently anticipated improvements will be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our indebtedness or obtain additional financing. Our ability to make scheduled principal payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting our industry and to general conditions and factors that are beyond our control. There can be no assurance that sufficient funds will be available to enable us to service our indebtedness or to make capital expenditures. For additional factors that may affect the Company’s liquidity position, please see the factors set forth in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Off-Balance Sheet Arrangements

We are not currently a party to any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to interest rate risk related to changes in interest rates for borrowings under our Senior Term Loan and Revolver. These borrowings bear interest at variable rates. At June 30, 2008, a hypothetical 10% increase in interest rates applicable to our Credit Facility would have increased our annual interest expense by approximately $1.4 million and would have decreased our annual cash flow from operations by approximately $1.4 million.

Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007 presents quantitative and qualitative disclosures about market risk as of December 31, 2007. There have been no material changes to this disclosure as of June 30, 2008.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Change in Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Forward-Looking Statements

This Quarterly Report for the period ended June 30, 2008, as well as certain written, electronic and oral disclosures made by us from time to time, contain forward-looking statements that involve risks and uncertainties, which are based on estimates, objectives, projections, forecasts, plans, strategies, beliefs, intentions, opportunities and expectations of our management. Such statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from anticipated results or expectations and investors are cautioned not to place undue reliance on any forward-looking statements. Statements that are not historical facts, including statements about the Company’s strategy, future operations, financial position, estimated revenues, projected costs or the projections, prospects, plans and objectives of management, are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as ‘‘believes,’’ ‘‘estimates,’’ ‘‘expects,’’ ‘‘projects,’’ ‘‘forecasts,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘plans,’’ ‘‘scheduled to,’’ ‘‘anticipates’’ or ‘‘intends’’ or the negative of those terms, or other variations of those terms or comparable language, or by discussions of strategy or intentions, although not all forward-looking statements contain such words.

The following factors, among others, could cause our actual results to differ materially from those expressed in any forward-looking statements made by us:

	•		The Company’s dependence on its relationships with its customers and reputation for providing high-quality contract security services, as well as the risk that the Company’s reputation may be damaged as a result of a publicized incident involving its services;

	•		The Company’s ability to retain existing security officer service contracts (which contracts typically may be terminated by either party on 30 days’ written notice and which may also be subject to periodic bidding procedures) and to obtain new security service contracts, including in each case on terms which are favorable to the Company;

	•		The Company’s exposure to liability, particularly to the extent not covered by insurance and/or where state law prohibits insurance coverage, for certain damages arising from services it provides to its customers, including by reason of the acts or omissions of the Company’s agents or employees or with respect to events that are not within the control of such agents or employees, and the Company’s indemnification obligations under certain service contracts for events occurring on client premises;

	•		The Company’s inability to pass cost increases to customers in light of the price-sensitive nature of the contract security officer industry and the fixed hourly bill rates or limited fee adjustments provided for in many of the Company’s customer contracts;

	•		Competitive pressures resulting from (i) new or existing security service providers, some of which have greater resources than the Company and/or are willing to provide security services at lower prices, (ii) increasing consolidation in the contract security officer industry, (iii) local and regional companies that may be better able to secure and retain customers in their regions, and (iv) decreasing expenditures of client resources on quality security services;

	•		The Company’s ability to (i) attract, retain, train and manage security officers and administrative staff (and the costs associated therewith) in light of the significant number of officers the Company requires to operate its business and increasing demand and competition for such persons, and (ii) attract and retain senior operations employees and key executives and the potential loss of business resulting from the departure of key employees;

	•		The effects of work stoppages and other labor disturbances;

	•		The Company’s failure or inability to comply with city, county, state or federal laws and regulations, including security industry-related laws and regulations and occupational health and safety laws and regulations and, in each case, the costs associated with such compliance, as well as the costs of complying with new laws and regulations, changes in existing laws and regulations or the manner in which existing laws and regulations are interpreted;

	•		The risk that non-compliance with state security licensing regulations could result in the Company being prohibited from operating its business in all or part of a given state;

	•		The effect of changes in security technology, including advances in technology that may decrease demand for security officers, as well as the Company’s ability to acquire and effectively integrate available technologies into its business model;

	•		Delays, difficulties or risks in implementing the Company’s business strategy, successfully integrating acquired businesses, including retaining acquired contracts and achieving cost savings, and the Company’s exposure to risks associated with acquired businesses, including the possibility of undisclosed or unforeseen liabilities resulting from such acquisitions;

	•		The effects of terrorist activity or the threat of terrorism at locations serviced by the Company or elsewhere, including the Company’s exposure to liabilities not covered by insurance for terrorist attacks;

	•		The Company’s ability to obtain insurance coverage on a cost effective basis or at all;

	•		The insufficiency of the Company’s existing working capital, together with cash available under its Credit Facility and anticipated cash flow from operating activities, to meet the Company’s expected operating, capital spending and debt service requirements for the foreseeable future and the inability of the Company to comply with the financial covenants in the Company’s financing arrangements and/or to obtain amendments;

	•		The Company’s level of indebtedness, the restrictions including financial covenants or obligations imposed on the Company by the Credit Facility and the Indenture governing the Notes, and the Company’s exposure to fluctuations in interest rates under the Credit Facility; and

	•		Unanticipated internal control deficiencies or weaknesses or ineffective disclosure controls and procedures.

In addition, we encourage investors to read the discussion of risk factors included in Item 1A ‘‘Risk Factors’’ and the discussion of critical accounting policies included in Item 7 under the heading ‘‘Critical Accounting Policies and Estimates’’ included in our Annual Report on Form 10-K for the year ended December 31, 2007 which we have filed with the SEC, as such discussions may be modified or supplemented by subsequent reports that we file with the SEC. Forward-looking statements speak only as of the date they are made, and except for our ongoing obligations under the U.S. federal securities laws, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

There was no material development with regard to legal proceedings during the three months ended June 30, 2008.

Item 1A. Risk Factors.

There were no material changes to the Company’s risk factors that were disclosed in the Annual Report on Form 10-K for the year ended December 31, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.


Exhibit No.		Description of Exhibit

	10.1	Agreement and Plan of Merger, dated as of July 24, 2008, by and among Allied Security Holdings LLC, SpectaGuard Holding Corporation, MacAndrews & Forbes Holding Inc, solely for certain sections specified therein, AB Capital Holdings LLC, and AB Merger Sub LLC.

	31.1	Certification of Chief Executive Officer of Allied Security Holdings LLC pursuant to Rule 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934

	31.2	Certification of Chief Financial Officer of Allied Security Holdings LLC pursuant to Rule 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934

	32.1	Certifications of Chief Executive Officer and Chief Financial Officer of Allied Security Holdings LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


Signature	Title	Dates

/s/ William C. Whitmore, Jr.	Chairman, President, Chief Executive Officer and Manager	August 6, 2008
William C. Whitmore, Jr.	(Principal Executive Officer)

/s/ William A. Torzolini	Senior Vice President and Chief Financial Officer (Principal	August 6, 2008
William A. Torzolini	Financial Officer)

/s/ Mitchell L. Weiss	Vice President and Chief Accounting Officer (Principal	August 6, 2008
Mitchell L. Weiss	Accounting Officer)

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Allied Security Holdings LLC 10-Q