According to Thomson Financial, global M&A volume increased 38% in 2006 to an all-time high of $3.8 trillion. Strong equity markets, robust earnings and significant cash balances have made corporate buyers much more active in M&A. In addition, private equity firms and hedge funds, fueled by low interest rates and strong capital inflows into alternative investments, are becoming very aggressive acquirers, creating an additional layer of competition and complexity in the M&A environment.

In addition, according to The Barclays Group, hedge funds now have approximately $1.5 trillion of assets under management, and are increasingly wielding their influence to provoke acquisitions, divestitures or sales of the companies they own or in which they have investments, and have even begun to compete with corporate and private equity buyers in more traditional M&A processes. M&A activity in the middle market has also been strong.

Middle market M&A volume increased to $445 billion in 2006, up 65% from the lows reached in 2002, according to Thomson Financial, driven by increased investor activity from private equity firms, hedge funds and strategic combinations.

According to Standard & Poor\\\'s/LCD and Thomson Financial, over the past three years, approximately $1.9 trillion of leveraged bank loans and high yield bonds have been issued, including record issuances in 2006 for both types of securities. Growth has been driven largely by a combination of low interest rates, stable economic growth and increased liquidity from new institutional investors such as collateralized debt obligation funds and hedge funds.

However, despite this growth, according to Moody\\\'s Investors Service, default rates on non-investment grade securities remain at historical lows of less than 2%, compared to default rates of over 10% during the last two recessions in 1990 and 2000.

The Company’s Financial Advisory segment provides the clients with valuation advisory, transaction advisory, specialty tax, and dispute and legal management consulting services delivered by client service professionals who possess highly specialized skills in finance, valuation, accounting and tax.

The Company provides objective and independent valuation reports that allow its clients to meet important regulatory, market and fiduciary requirements. The Company provides integrated fixed asset and real estate valuations, with specialized expertise in machinery and equipment valuation, fixed asset reconciliation, cost segregation, real estate valuation and real estate consulting.

The Company specializes in tax valuations and related advisory services when tax laws and regulations stipulate that a valuation is required or when assistance is needed to implement a client\\\'s tax strategies. The Company offers tax valuation and advisory services services for a variety of transaction-related, compliance and planning purposes, including taxable reorganizations; purchase price allocations; inventory, fixed asset, intangible asset and goodwill valuations; net operating loss and built-in gains analyses; and estate and gift taxes.

The Company’s portfolio valuation client service professionals specialize in valuing the investment portfolios of its private equity and hedge fund clients. The majority of these portfolios are comprised of illiquid or restricted securities, including secured and unsecured loans and other debt instruments, privately held preferred equity and common equity, convertible securities, warrants and options, as well as other derivative securities.

The Company’s Investment Banking segment focuses on providing M&A advisory services, transaction opinions and restructuring advisory services to corporate and investor clients.

The Company provides objective valuation, structuring and negotiation services tailored to help its clients achieve their strategic goals on the best possible terms. The Company has developed its expertise through hundreds of sell-side, buy-side and divestiture assignments across a wide range of industries. The Company provides its services primarily to middle-market clients.

Direct client service costs increased $19.2 million, or 53.3%, to $55.1 million for the three months ended March 31, 2007 from $36.0 million for the three months ended March 31, 2006.

Operating expenses increased $7.1 million, or 43.7%, to $23.5 million for the three months ended March 31, 2007 from $16.3 million for the three months ended March 31, 2006.

Operating income increased $0.2 million or 20.0% to $1.3 million for the three months ended March 31, 2007 from $1.1 million for the three months ended March 31, 2006.

Net income decreased $0.8 million to $(0.4) million for the three months ended March 31, 2007 from $0.4 million for the three months ended March 31, 2006.