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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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Commission File Number 000-50464

LECG CORPORATION
(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         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.

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

         The approximate aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2009 (the last business day of the registrant's most recently completed second fiscal quarter) was $61,299,703* (based on the closing price for the common stock on the NASDAQ Global Select Market).

         As of March 10, 2010, there were 36,870,842 shares of the registrant's common stock outstanding.

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*

Excludes the common stock held by executive officers, directors and stockholders whose ownership equals or exceeds 10% of the common stock outstanding at June 30, 2009. This calculation does not reflect a determination that such persons are affiliates for any other purposes.

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INDEX

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PART I

ITEM 1.    BUSINESS

Forward-Looking Statements

        The following discussion and other parts of this Annual Report on Form 10-K concerning our future business, operating and financial condition and statements using the terms "believes", "expects", "will", "could", "plans", "anticipates", "estimates", "predicts", "intends", "potential", "continue", "should", "may", or the negative of these terms or similar expressions are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations as of the date of this Report. There may be events in the future that we are not able to accurately predict or control that may cause actual results to differ materially from expectations. Information contained in these forward-looking statements is inherently uncertain, and actual performance is subject to a number of risks, including but not limited to, (1) our ability to successfully attract, integrate and retain our experts and professional staff, (2) dependence on key personnel, (3) successful management and utilization of professional staff, (4) dependence on growth of our service offerings, (5) our ability to maintain and attract new business, (6) our ability to maintain and comply with the covenants under our new credit facility, (7) the cost and contribution of additional hires and acquisitions, (8) risks relating to the recent closing of our Merger with SMART and our ability to successfully integrate the service offerings, professional staff, facilities and culture of the predecessor organizations, (9) successful administration of our business and financial reporting capabilities including maintaining effective internal control over financial reporting, (10) potential professional liability, (11) intense competition, (12) risks inherent in international operations, and,(13) risks inherent in successfully transitioning and managing our restructured business. Further information on these and other potential risk factors that could affect our financial results may be described from time to time in our periodic filings with the Securities and Exchange Commission and include those set forth in this Report under Item 1A. "Risk Factors." We cannot guarantee any future results, levels of activity, performance or achievement. We undertake no obligation to update any of these forward-looking statements after the date of this Report.

Introduction

        We provide expert services through our highly credentialed experts and professional staff whose skills and qualifications allows us the opportunity to address complex, unstructured business and public policy problems. We deliver independent expert testimony and original authoritative studies in both adversarial and non-adversarial environments. We conduct economic, financial, accounting and statistical analyses to provide objective opinions and strategic advice to legislative, judicial, regulatory and business decision makers. Our skills include electronic discovery, forensic accounting, data collection, econometric modeling and other types of statistical analyses, report preparation and oral presentation at depositions. Our experts are renowned academics, former senior government officials, experienced industry leaders, technical analysts and seasoned consultants. Our clients include Fortune Global 500 corporations, major law firms and local, state and federal governments and agencies in the United States and other countries throughout the world.

        On November 13, 2003 we completed our initial public offering in which we issued 8,625,000 shares of our Common Stock at $17.00 per share and received net proceeds of $134.1 million. The entity that operated our business prior to the completion of the initial public offering was LECG, LLC, a limited liability company and wholly owned subsidiary of LECG Holding Company, LLC. Following completion of the initial public offering, the sole shareholder of LECG Holding Company, LLC was LECG Corporation ("LECG").

        Our total expert and professional staff headcount was 495 at December 31, 2003, and was 642 at December 31, 2009. Since August 2003, we have completed 12 acquisitions in order to add expert and professional staff, to expand into new practice areas, and to strengthen our existing practice areas. We

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have also made individual and group hires, including experienced professionals from consulting firms, government, and educational institutions.

        Our office locations expanded from 24 at December 31, 2003 to 32 at December 31, 2009, including 19 offices in the United States and 13 offices in 10 foreign countries.

Recent development—Merger with SMART

        On March 10, 2010, we completed our merger (which we refer to as the Merger) with SMART Business Holdings, Inc. (SMART), a privately held provider of business advisory services, and we received a $25.0 million cash investment from SMART's majority shareholder, Great Hill Equity Partners III, LP (which we refer to as the investment). In the Merger transaction, we acquired 100% of SMART's outstanding stock, in exchange for which we issued 10,927,869 shares of LECG common stock, and we assumed approximately $42.8 million of SMART debt. Simultaneously with the consummation of the Merger, SMART's majority shareholder, Great Hill Equity Partners III, LP, made a $25.0 million cash investment into LECG in exchange for our issuance to them of 6,313,131 shares of Series A Convertible Redeemable Preferred Stock. This stock is convertible share-for-share into LECG's common stock (equivalent to a price of $3.96 per share), and provides a 7.5% dividend payable in cash or Series A Convertible Redeemable Preferred Stock at our discretion. As a result of the issuance of the common stock and Series A Convertible Redeemable Preferred Stock, Great Hill Equity Partners III, LP owns approximately 40% of our outstanding voting shares.

        Mr. Steve Samek, the Chief Executive Officer of SMART prior to the Merger, will become our CEO before the end of March 2010. The combined entity will operate under the LECG name and continue as a publicly-traded company. The Merger will be accounted for under the purchase method of accounting.

        SMART provides business advisory, consulting, technology, accounting, compensation and benefits, tax, and transaction advisory services to a range of industry sectors including: banking and capital markets, government, healthcare, higher education, insurance/reinsurance, life sciences, manufacturing and distribution, not-for-profit and real estate. SMART is an international firm comprised of approximately 500 employees (this number includes the employees of SMART and Associates, LLP, discussed below), many of whom have either come from national or international consulting and accounting firms or industry and have held senior-level executive or director positions prior to joining SMART.

        SMART derives a significant portion of revenues from SMART and Associates, LLP (SMART LLP), which offers attestation and public accounting services for non-SEC registered companies. SMART and SMART LLP are separate and independent legal entities operating under a structured management agreement.

        As of December 31, 2009, SMART had ten office locations, including nine offices in the United States and one international office in London, United Kingdom. Its headquarters is located in Devon, PA, and its core markets include Chicago, London, New York, and Philadelphia.

LECG segments

        In 2008, we reorganized our historical practice groups and individual experts into two operating segments: Economics Services, and Finance and Accounting Services. Below is a description of our two operating segments:

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Economics Services segment is composed of energy and environment, global competition, labor and employment, regulated industries, and securities sectors as follows:



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Energy and environment—provides expertise in the regulated energy, environment and natural resources industries.

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Global competition—offers a complete range of services on antitrust matters, including mergers and acquisitions, before courts and regulatory authorities around the world. The services involve the use of economic and statistical techniques to develop independent and objective analyses concerning issues related to merger reviews, monopolization claims, cartels, and quantification of damages. Experts in this area frequently testify before courts and appear before competition authorities in many jurisdictions around the world.



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Labor and employment—provides litigation support, independent expert testimony, and business advisory services, including issues of statistical liability in discrimination, wrongful termination, and wage and hour claims.



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Regulated industries—provides expertise in a broad range of regulated industries, such as telecommunications, transportation and financial claims.



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Securities—specializes in the study of capital markets. These leading financial economists conduct independent analyses in disputes involving allegations of securities fraud, valuation of complex securities, and capital market transactions such as mergers and acquisitions.



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Finance and Accounting Services segment is composed of electronic discovery, financial services, forensic accounting, healthcare, higher education, intellectual property, and international finance and accounting services sectors as follows:



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Electronic discovery—provides direct collaboration with outside counsel, general counsel, corporate executives, bank examiners, bankruptcy trustees, forensic accountants, fraud examiners, and damages experts to deliver objective advice and testimony in all phases of the electronic discovery process including litigation preparedness, computer forensics and data analytics.



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Financial services—provides banking advisory services to leading financial service firms world wide, addressing regulatory compliance, tax, and dispute resolution, and provides representation before applicable regulatory authorities and assists clients in regulatory compliance and SEC investigations and litigation.



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Forensic accounting—provides a broad range of expertise in accounting, auditing, computer forensics, regulatory (SEC), valuation, tax, and securities litigation, and offers a comprehensive mix of forensic accounting services, including internal investigations, fraud investigations, and when necessary, expert witness testimony.



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Healthcare—provides analyses and insight to clients confronting the uncertain healthcare environment by advising clients in the development of strategies, designing and understanding policies, and responding to legal and regulatory challenges, and offers a broad range of litigation support, management advisory, compliance, and expert testimony services.



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Higher education—provides strategic advice and management consulting to companies, universities, governments, and non-profit organizations with a focus on research and development and higher education.



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Intellectual property—provides expertise in areas such as capturing value from technological innovation and knowledge assets, estimating damages due to infringement or misappropriation, definition of markets and analyses of non-infringing alternatives, transfer pricing valuation studies, and valuation of businesses, opportunities, and intangible assets.



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International finance and accounting services—provides expert finance and accounting services to clients outside the United States, with particular emphasis on investigations, damages analysis and expert testimony in international arbitrations.

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        We present and discuss information about our internal management and reporting in the Results of Operations section and other parts of Management's Discussion and Analysis of Financial Condition and Results of Operations.

BUSINESS ENVIRONMENT FOR EXPERT SERVICES

Demand for expert services

        Management, courts, arbitration panels, tribunals, regulatory authorities, legislative bodies and boards of directors throughout the world use independent expert analysis and advice to help resolve disputes through litigation, arbitration and negotiation, as well as to understand and address the impact of regulation and legislation. These processes generate ongoing demand for original authoritative economic, financial and statistical analyses, usually irrespective of the business cycle. The credibility of expert analysis and advice is enhanced if the work is independent, is prepared by highly qualified individuals and is informed by the objective facts and circumstances concerned. Judges, jurors, arbitrators, legislators, senior executives and boards of directors tend to give greater weight to experts who do not have a vested interest in the outcome. When trying to resolve or assess important, complex issues, it is frequently insufficient to rely on already published studies. Typically, original and forensic analysis must be conducted based on specific data, documents and facts.

Dispute resolution and decision-making

        Disputes are an inherent element of the economy and generally occur regardless of the business cycle. Disputes that require expert analysis and advice typically have significant financial impact for the parties involved, and as the costs of, or potential for adverse outcomes increase, the demand for expert services grows. Expert analysis and advice can also help shape policy choices and can help guide affected parties' responses. The dispute resolution and decision-making processes can be assisted by independent, objective expert analysis of facts, data, causes and consequences.

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Litigation.  Complex litigation continues to grow, driven by legislative ambiguities, regulatory activities, judicial interpretations and private actions, including class action law suits. Litigation arises from many areas of economic activity, including mergers and acquisitions, intellectual property, contract disputes, interpretation and enforcement, and taxation. Hundreds of millions of dollars in damages are frequently sought and sometimes awarded in the United States. Both defendants and plaintiffs seek expert analysis and advice to inform courts, arbitration panels and juries in determining appropriate remedies.

Many aspects of business behavior, including mergers and acquisitions, pricing policies, collaborative arrangements, exclusivity arrangements and patent licensing are scrutinized by governments and private parties with respect to antitrust issues. Antitrust scrutiny creates the need for analyses of effects of mergers and acquisitions, assessment of organizational arrangements and distribution policies, pricing behavior and pricing patterns. While the United States has led the development of antitrust laws, many non-U.S. jurisdictions are increasingly applying antitrust policies, procedures and methods of analysis and assessment. The result is a high degree of transferability of and demand for independent expert analysis and advice across jurisdictional boundaries.

Intellectual property disputes have also increased as intellectual property rights, including patents, trade secrets, copyrights and trademarks have become more important and valuable. The rate and complexity of patent applications filed with the United States Patent and Trademark Office have grown dramatically in the last decade. In addition, new fields for which patents were not issued 30 years ago, such as biotechnology and software, are now significant areas for patent applications in the United States. Claims of patent infringement are common and often require independent valuations and assessments. The increased complexity of patent

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applications and the increased value of these intangible assets have created a significant amount of intellectual property-based litigation. Determination of lost profits, reasonable royalties, valuations and other market impacts require detailed economic, financial and statistical analysis.

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Arbitration.  Arbitration is often used to resolve commercial disputes under long-term contracts arising from changes in the business environment due to a number of factors, including government action, new technology and shifts in critical input costs. For instance, long-term gas supply contracts for electric utilities may not be able to adequately address changes in world energy prices, and contracting parties may seek a resolution to these unanticipated changes through arbitration rather than litigation. Various governments and financial institutions are signatories to certain treaties which allow for them to engage in dispute resolution through the use of arbitration proceedings. Such proceedings have the potential to provide a multi-national solution to a variety of complex matters. International arbitration has seen a growing number of cases brought before the International Centre for Settlement of Investment Disputes ("ICSID") created by the World Bank, examples of which include investment disputes between sovereign governments and private foreign investors. Parties increasingly rely on arbitration to maintain commercial contracts over time. Authoritative reports are often commissioned to analyze unanticipated changes and help determine the appropriate adjustments that should be made.



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Negotiation.  In commercial contexts, parties frequently negotiate to resolve disputes in order to avoid litigation or arbitration. Negotiation is less structured than litigation or arbitration and often involves multiple parties to a transaction or to a settlement. A report or a finding from an expert known to be knowledgeable and independent can help resolve disputes. For instance, in the environmental claims area, the resolution of disputes regarding recoveries or the assessment of exposure can be aided by authoritative reports that calculate the exposure among all parties, including insurers.



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Regulation.  Government regulation remains considerable and involves high stakes for new and existing businesses. For example, the United States telecommunications industry has over 50 active regulatory agencies, including state agencies, the Federal Communications Commission, and the Department of Justice. In addition to specific regulations covering industries such as electricity, telecommunications, mail, insurance, financial markets, healthcare, railroads and airlines, there are general regulations such as health and safety, environmental protection and international trade.

In many instances, affected parties engage experts to evaluate the economic and financial impact of regulation. The Telecommunications Act of 1996 generated the submission of a number of studies and reports by affected parties in an effort to influence rule making by the Federal Communications Commission. Regulatory decisions are frequently challenged in the courts, often resulting in demand for additional studies. Regulatory activity has increased internationally. For example, as the European Union seeks increasingly to harmonize financial services rules across its internal market, the regulatory role of the European Commission has grown correspondingly. Regulatory decisions in Europe have a corresponding impact on financial markets and institutions in the United States. Consequently, United States governmental agencies such as the Federal Reserve have a strong interest in the regulatory environments in which these institutions operate outside the United States. Demand for expert analysis on regulatory issues is both domestic and international, as regulators around the world increasingly draw upon the skills of outside experts to help shape and improve policy.

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Legislation.  Representative bodies around the world, such as legislatures and parliaments, continuously modify the rules by which society and the economy are organized. The legislative process frequently provides an opportunity for experts to study legislative impact on behalf of businesses and trade associations. In the United States, legislative bodies and executive branches

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of government often seek expert advice, as do corporations and trade associations. Legislation will often have a material impact on national, state and local economies. For example, environmental legislation like the Clean Air Act and securities legislation like the Sarbanes-Oxley Act of 2002 have had significant economic impact on businesses. Authoritative reports, detailed analysis and the presentation of data can shape business behavior and legislative and market outcomes. Once enacted, legislation invites further analyses and creates the opportunity to provide compliance studies and impact assessments.

Supply of expert services

        Experts come from universities, think tanks, public and private research laboratories, governmental bodies, private enterprises and professional services firms. Many potential providers of expert services do not readily offer expert analysis or advice as an identified line of business.

        Large-scale authoritative studies and analyses for dispute resolution are unsuited to traditional consulting and academic environments. For instance, most universities, think tanks and laboratories do not allow faculty or staff to use the institution's facilities or students when they are on private consulting engagements. Traditional consulting firms are also not designed to support a broad range of individuals with highly specialized and differentiated expertise. Management consulting firms often operate by leveraging particular methodologies and concepts. Providing expert services requires specialized analysis and highly customized approaches that can involve the analysis of large numbers of legal documents and electronic data related to the issues at hand.

Addressing expert needs

        Experts provide a unique managerial challenge because they are highly specialized, educated, independent and self-motivated, and may have already enjoyed senior management or executive-level status. We believe experts desire to work in an organization that enables professional autonomy, brings together other experts with substantive specialized knowledge, provides clear incentives that align returns for both the expert and the firm, employs experienced professional staff with strong analytical and project management skills, and provides the requisite administrative infrastructure.

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Objective rewards.  Because professional activities for experts are substantially self-directed, and because of the need for autonomy, compensation systems are more effective if they are tied to objective financial criteria over which the expert has significant control.



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Association with other experts.  Experts benefit from being able to call upon the expertise of their colleagues. Bringing together experts in a services organization can create a collegial environment in which knowledge can be exchanged, and colleagues can share work, ideas, professional experiences and client opportunities.



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Professional staff.  Engagements often include a multitude of tasks that require various levels of expertise and sophistication. Expert services are typically requested or required in time-sensitive matters with high financial impact where effective professional staff, and occasionally other experts, are critical factors in completing an engagement. The ability to utilize professional staff enables experts to focus their time on the high level components of a project. Also, because reputations are at stake when experts testify, experts require and demand experienced professional staff who can assist them on substantive issues including data collection, statistical analysis, presentation preparation and project management.

Addressing client challenges

        Expert services are highly specialized and their effective delivery requires identifying individuals with substantive knowledge of the specific problems or issues under consideration, quality reputations

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and the ability to clearly communicate and defend analyses and advice under rigorous questioning or cross-examination. On-time performance is critical, especially when there are deadlines for reports and appearances before judges, juries, arbitrators and legislators. In addition, clients expect that experts will be efficient in leveraging the capabilities of professional staff to manage costs.

OUR COMPETITIVE STRENGTHS

        Our competitive strengths enable us to provide high-quality, independent expert testimony, original authoritative studies and strategic advice to Fortune Global 500 companies, major law firms and local, state and federal government agencies in the United States and internationally. We continually seek new talent to deepen our existing capabilities as well as expand into new areas. We believe that our experts' qualifications, independence, experience and reputations give us a strong presence in the marketplace for expert services.

Renowned experts

        Our experts include internationally recognized faculty and former faculty from many of the world's best universities, many of whom are also significant contributors to academic and professional literature in economics and finance. These experts specialize in areas such as antitrust, policy, complex financial damages, forensic accounting, electronic discovery, environmental damages assessment, telecommunications regulation and deregulation, bankruptcy, corporate restructuring, electricity market design, healthcare and intellectual property valuation. Many of our experts also have valuable hands-on industry experience or have worked in or with government agencies, such as the Federal Deposit Insurance Corporation, United States Department of Justice, United States Securities and Exchange Commission, United States Federal Trade Commission, Internal Revenue Service, Environmental Protection Agency, European Commission, United Kingdom's Office of Gas and Electricity Markets and national treasuries around the world. The reputations and experience of our experts drives the demand for our services.

        Our growth is dependent upon our ability to hire and retain leading experts in fields where we believe there is substantial business opportunity for expert analysis and advice due to the significant economic and financial impact of the disputes and decisions involved. Our focus of informing decision-makers involved in complex dispute resolution enables us to effectively recruit and retain top expert talent from a variety of disciplines.

Entrepreneurial culture

        Our organizational structure fosters an entrepreneurial culture that enables us to attract, deploy and retain leading independent experts from academia, government and the private sector. Our experts are credentialed, self-motivated, individuals with highly specialized knowledge who respond best to an organization such as ours that provides them with a high degree of autonomy and intellectual freedom. We have demonstrated the ability to effectively identify, recruit and integrate additional experts into our company. We also have the ability to develop experts from within the firm.

Highly proficient professional staff

        We employ an experienced professional staff to support our experts. The utilization of our professional staff is important to the profitability of our business. Many of our professional staff have advanced degrees in economics, finance or related disciplines, and relevant business and public service experience. Our professional staff enables our experts to focus their time on the most significant components of a project by assisting them on issues such as data collection, statistical analysis, data and fact auditing, presentation preparation and project management. This allows the expert to deliver a higher quality, more robust and timely work product in a cost-effective manner. Many of our professional staff have become experts in their own right, testifying, authoring studies, developing sophisticated models and providing strategic advice.

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OUR EXPERT SERVICES BUSINESS

        We provide expert services including independent expert testimony, original authoritative studies and strategic advice to Fortune Global 500 corporations, major law firms, local, state and regional governments and governmental agencies in the United States and internationally. Demand for our services is driven by clients attempting to resolve complex disputes through litigation, arbitration or negotiation, or seeking to understand and address regulation and legislation. We apply our core competencies to matters arising from these key drivers to provide independent expert services to our clients.

Core competencies

        Our experts and professional staff have specialized knowledge in economic, financial and statistical theories, antitrust policy, complex financial damages, electronic discovery and data organization, forensic accounting and other areas requiring complex analyses. In addition, many of our experts and professional staff also possess in-depth knowledge of specific markets, regulations and industries. These core competencies enable us to incorporate complex methodologies and tools developed in research settings to deliver independent expert testimony, original authoritative studies and strategic advice in adversarial and non-adversarial settings to assist in dispute resolution and decision-making. The reputations of our experts and the quality of our experts' services have resulted in a high level of repeat business and the development of significant new business.

Services provided

        Our experts and professional staff provide independent expert testimony, original authoritative studies and strategic advice to help resolve complex disputes and inform legislative, judicial, regulatory and business decision-makers. Our experts and professional staff manage information and conduct independent, sophisticated economic, financial and statistical analyses for clients attempting to resolve disputes through litigation, arbitration or negotiation or seeking to understand and address regulation and legislation.

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Expert testimony.  Our experts provide independent oral and written expert testimony on behalf of plaintiffs and defendants in trial, arbitration and mediation proceedings, as well as in matters before regulatory agencies and legislative bodies. Our experts have testified throughout the world on matters such as antitrust policy, class certification, complex merger filings, contract damages, employment discrimination, damage quantification as well as on the valuation of a wide range of intellectual property assets, including patents, copyrights, trademarks, trade secrets and trade dress.



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Authoritative studies.  We prepare and provide independent authoritative studies generally in connection with litigation; such as studies containing detailed economic, financial and statistical analyses. Authoritative studies are often commissioned in support of expert testimony or to analyze proposed regulations or legislation. Large amounts of information and data must often be assembled by staff in order to conduct these analyses. We also prepare expert studies that are used during arbitration and negotiation.



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Advisory services.  Our experts and professional staff provide independent strategic advice and expert consulting, particularly in industries with heavy regulatory oversight. This advice is usually provided to senior management and boards of directors of our clients. Our services include the analysis and evaluation of potential mergers and the integration of businesses, the economic analysis of prospective investments, securities litigation consulting, transfer pricing valuation, risk management analysis in connection with large insurance claims, the design of regulatory compliance systems and the management of intangible assets. We frequently advise on regulatory strategy and on market design. In the finance area, we perform valuations of assets, including

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intellectual property, such as patents, trade secrets and trademarks. We provide advice regarding licensing and transfer pricing strategies and protocols.

Representative practice area expertise

        Our experts have specific expertise in practice areas that include competition policy/antitrust; complex damages including intellectual property, environmental claims; market and regulatory design; valuation analysis; labor and employment; forensic accounting; electronic discovery, bankruptcy and securities litigation. Many of our projects span multiple practice areas, and many of our staff work in several practice areas. We have also developed new practice areas in the past several years, such as labor and employment, bankruptcy and reorganization and securities litigation, as the issues facing our clients evolve and new business opportunities arise.

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Competition policy/antitrust.  We have provided expert services in the antitrust field since our founding. Many antitrust projects require special skills and, in many cases, experience with or exposure to approaches and methods used by the antitrust enforcement agencies. Antitrust issues increasingly involve other practice areas in the firm such as regulatory design and intellectual property. Mergers involving large multinational corporations often require coordination across many of our offices worldwide.



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Securities.  As damages from business litigation become more complex, there is a need for expert advice based on advanced economic and financial analysis. Our practice in this area includes many professionals with a deep understanding of the application of advanced methodologies and techniques in economics, finance, accounting and statistics. An important element of this practice is assessing damages in securities litigation, as well as damage issues related to patent, copyright and trademark infringement and trade secret misappropriation. These issues can involve determinations of lost profits, damages and reasonable royalties.



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Regulated industries.  We help businesses and governments understand and address market and regulatory policies through the use of economic and financial analyses. Our insights, analyses, recommendations and presentations are used to respond to proposed policy changes, as well as initiate new policies that address strategic objectives. We offer a broad array of services in market and regulatory design ranging from testimony and guidance in front of regulatory commissions or legislative bodies, to the actual design and oversight of independent system administration in the electricity sector.

Many industries in the United States are exposed to claims of environmental damages due to current or legacy activities, including oil spills, chemical spills and other sources of environmental contamination. Our experts provide advice on how contamination affects property values. Our experts also quantify damages and estimate penalty exposure. Piecing together the data that addresses liability issues, the amount of damage, and the coverage available under legacy insurance policies involves historical research, the quantification of damages and the apportionment of damages to multiple insurers when the insured has complex insurance coverage profiles.

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Labor and employment.  Our experts perform statistical analyses and evaluate discrimination, wrongful termination and wage and hour claims. Our experts calculate economic loss and damages by analyzing employer statistics for potential disparities in hiring, layoffs, promotions, and pay and performance assessments. Our experts have advised on human resource management, benefits, collective bargaining and arbitration.



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Intellectual property and damages.  We provide a global perspective, solid expertise and recognized credentials to our clients' intellectual property-related issues. In an increasingly knowledge-driven economy, a company's intangible assets are often its most important assets and

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the major source of its competitive advantage. Developing, managing, and protecting these assets is a key component of an effective business strategy. Our intellectual property services include expert testimony, damages analysis, market issues, valuation and management of intellectual property.

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Forensic accounting.  We provide forensic accounting services in connection with complex commercial disputes and regulatory investigations. We gather and analyze voluminous financial data to uncover evidence, reconstruct complex financial transactions and events and identify potential liabilities or areas of fraud.



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Electronic discovery services.  The capability for law firms to effectively manage and access case documentation and data is critical to attorneys responsible for the outcome of a case and the clients they represent. Our electronic discovery experts work directly with outside counsel, general counsel and corporate executives to deliver objective advice in all phases of electronic discovery. Our electronic discovery services include: litigation readiness planning, electronic discovery consulting, litigation information management, data preservation, computer forensics, email recovery and reconstruction, and transactional data analysis.



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Bankruptcy and restructuring.  We provide a comprehensive scope of specialized accounting and tax services to clients, courts and law firms in connection with bankruptcy and reorganization matters, which include providing expert consulting to trustees, receivers, examiners, debtors, creditor committees, and secured creditors. Our experts also serve as trustees, receivers and examiners in Chapter 11 and Chapter 7 cases.



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Mergers and acquisitions.  We advise firms and government agencies in assessing the competitive implications of mergers and acquisitions. We have presented analyses to government agencies and testified in hundreds of merger-related matters. Our experts perform extensive data and information collection to answer important factual questions and provide empirical support for expert opinions based on state-of-the-art merger analyses.

Representative industry expertise

        Over time we have been able to develop deep knowledge of specific client industries, including the following:

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Energy.  For over a decade, our experts have been engaged to provide expert advice to the petroleum industry in the areas of exploration, refining, pipeline transportation and distribution. We have advised on mergers and acquisitions, provided analysis of competitive effects, modeled refining operations, assessed intermodal competition facing pipelines and analyzed the effects of multiple channels of distribution. We have detailed knowledge of the oil and gas industry not only in the United States, but also in many other countries and regions, including Australia, New Zealand and Europe.

In the electricity area our experts have been involved in network modeling, market design, auctions and pricing. They have developed a deep understanding of different regulatory regimes around the world. The firm's experts have provided services to generators, independent system operators, transmission companies and service companies. Our experts have performed cross-jurisdictional studies on electricity policy issues in the United States, Australia, New Zealand, the United Kingdom and Chile.

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Financial services.  Our experts provide services related to numerous companies and entities involved in financial services, including banks, insurance companies, capital market organizations and the government and regulatory entities with respective oversight. Our services have typically focused on performing complex economic and financial analyses associated with industry consolidation, the evolving regulatory and accounting environment and risk management. Our

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services have included expert testimony related to valuation and damages, as well as class certification and authoritative public policy studies assessing the impacts of regulation on markets, product offerings and consumers.

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Healthcare and pharmaceuticals.  We have a diverse healthcare and pharmaceuticals practice which spans competition analysis, patent damages, commercial disputes, cost and public policy analysis, strategic consulting and regulatory compliance. Our clients include pharmaceutical and biotech companies, hospitals, managed care providers and physicians groups. Our experts and staff have been involved in healthcare and health insurance reform efforts in several states. Our work frequently involves analyzing large amounts of electronic data. We are able to analyze healthcare claim issues, perform regulatory compliance reviews and design systems to help providers comply with regulations and analyze existing and emerging market competition. We advise providers on information systems designs most likely to facilitate regulatory compliance, financial viability and restructuring programs.



•

Telecommunications.  We have a long-standing telecommunications practice that has advised firms regarding regulatory, litigation and strategic planning in the United States and internationally. We have assessed various pricing regimes, analyzed emerging competition, modeled new entry and commented on various proposals to restructure the industry. We have in-depth knowledge of regulatory environments around the world including the United States, the United Kingdom, Australia, New Zealand, Argentina and the Baltic States.

Representative clients

        We provide expert services to Fortune Global 500 corporations, major law firms and local, state and federal governments and agencies in the United States and other countries throughout the world. Our ten largest clients represented 14%, 13%, and 18% of our revenues in 2009, 2008 and 2007, respectively. No single client accounted for more than 3% of our revenues in any of those periods. We are frequently approached directly by law firms on behalf of clients to provide independent testimony, authoritative studies and/or strategic advice in matters involving litigation, arbitration, negotiation, legislation or regulation. In these cases, our engagement and billing arrangements are often with such law firms.

International operations

        We have international offices in Argentina, Australia, Belgium, France, Hong Kong, Italy, Mexico, New Zealand, Spain and the United Kingdom. Our international revenues accounted for 19%, 23% and 17% of our consolidated revenues in 2009, 2008 and 2007, respectively. International practice areas include competition policy and antitrust, finance and damages, regulatory expertise and transfer pricing. Through our international operations, we provide law firms, businesses, regulators, and governmental agencies with independent and objective advice and analysis on matters of economics, finance and strategy. Our international experts and professional staff work across a range of industries and have particular expertise in financial services, communications and media, and energy and utilities.

        Financial information about our geographic areas and risks associated with our international operations appear in Note 16 of Notes to Consolidated Financial Statements included under "Segment Reporting" in this Form 10-K report and in Item 1A: "Risk Factors."

SMART'S BUSINESS

Company Overview

        Founded in 1988, SMART provides business advisory, consulting, technology, accounting, compensation and benefits, tax, and transaction advisory services to a range of industry sectors

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including: banking and capital markets, government, healthcare, higher education, insurance/reinsurance, life sciences, manufacturing and distribution, not-for-profit and real estate. SMART is an international firm comprised of approximately 500 employees (this number includes the employees of SMART and Associates, LLP, discussed below), many of whom have either come from national or international consulting and accounting firms or industry and have held senior-level executive or director positions prior to joining SMART.

        SMART derives a significant portion of revenues from SMART and Associates, LLP ("SMART LLP"), which offers attestation and public accounting services for non-SEC registered companies. SMART and SMART LLP are separate and independent legal entities operating under a structured management agreement.

        SMART had ten office locations as of December 31, 2009, including nine offices in the United States and one international office in London, United Kingdom. Its headquarters is located in Devon, PA, and its core markets include Chicago, London, New York, and Philadelphia.

Services

        SMART (in some cases in conjunction with SMART LLP) offers the following services to its clients:

•

Actuarial solutions.  SMART offers life and property and casualty actuarial solutions. Its actuarial services team evaluates many of the risks associated with doing business and assists clients with all of their actuarial needs, from strategic planning to profitability studies.



•

Audit, risk and compliance solutions.  SMART's accounting and risk management professionals assist clients with implementing compliance programs, developing streamlined enterprise risk management models, and identifying opportunities for enhancing the effectiveness of the internal audit function. Its audit, risk, and compliance solutions include external audits for non-SEC registered companies (through SMART LLP), compliance program management, enterprise risk management, internal audits, quality assurance reviews, and Sarbanes-Oxley compliance.



•

Executive solutions.  SMART works closely with its clients to understand and measure the performance of their business to ultimately grow revenues or reduce costs. SMART's executive solutions include business strategy and planning, business valuation, key performance indicators, and operations excellence.



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Financial solutions.  SMART's financial solutions include software selection, implementation, rollout and training, policy and procedures review and documentation, business intelligence and analysis, spend management, activity-based costing, business process management, working capital management and program management.



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Legal solutions.  SMART offers resources to help law firms and legal departments manage information, integrate mission-critical technologies, and measure compliance to standard operating procedures and best practices, both internally and when collaborating with one another.



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Outsourcing solutions.  SMART offers accounting, business process, tax, and technology outsourcing solutions. Its accounting outsourcing services include interim management, CFO outsourcing, bookkeeping, reports, check writing, monthly financial statements, invoicing, unemployment compensation, and related back-office needs. SMART's business process outsourcing services include new technology and software implementation, revised processes and procedures, and personnel and department changes. Its tax outsourcing services include complete tax department outsourcing, co-sourcing, specific project assistance, audit assistance, amended returns, and contingency tax services. SMART also provides technology outsourcing

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services including assessments for organizations, data centers, call centers, application development, application support, and project management.

•

People solutions.  SMART's people solutions include compensation and benefits services and human capital management services. SMART's compensation and benefits practice helps design new compensation and benefit plans, evaluate and enhance existing plans, and review programs for compliance with changing laws and regulations, while minimizing tax, financial, and regulatory burdens. Its compensation and benefits services include corporate recovery services, career path planning, health and welfare, retirement plan evaluation and design, and total rewards. SMART's Human Capital Management solutions include change management, organizational dynamics, strategic human resources advisory, training and instructional design, and merger and integration/consolidation and restructuring services.



•

Tax solutions.  SMART's tax team assists clients with tax services in the following areas: federal tax, international tax, property tax, sales and use tax, state and local tax, strategic wealth services, tax technology, tax provision, and transaction advisory. The details of these tax services are as follows:



•

Federal tax services.  IRS representation, strategic tax planning, tax compliance, and transaction advisory services.



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International tax services.  Repatriation planning and analysis, transfer pricing analysis/documentation/support, formation and exit strategies, organizational restructuring, and cross-border financing evaluation.



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Property tax services.  Personal property tax compliance, personal property tax consulting, and real estate tax consulting.



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Sales and use tax services.  Sales and use tax compliance outsourcing, sales and use tax consulting, and tax technology.



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State and local tax services.  Audit and controversy support, credits and incentives, liability analysis and calculation, multi-state tax planning, payroll taxes and income tax withholding, and tax compliance.



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Tax provision services.  Income tax accounting implementation and ongoing compliance, Sarbanes-Oxley readiness and compliance, resolution of global tax accounting issues and coordination with new International Financial Reporting Standards (IFRS) rules, and global tax provision process improvement and remediation.



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Transaction advisory services.  Pre and post-transaction Program Management Office (PMO) services to help manage due diligence, regulatory filing and post-merger integration activities.



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Technology solutions.  SMART's technology solutions include application development, business applications, business continuity/disaster recovery planning, business intelligence/data warehousing, IT infrastructure and security, IT strategy/assessment/planning, PCI compliance, PMO and governance, and software implementation. SMART's business intelligence solutions include data warehousing model architecture design and implementation, selection of analytical tools and software, enhanced report design from existing systems, and distribution of data through information portals and executive dashboards. SMART's IT infrastructure and security services include internet attack and penetration analysis, security architecture, application controls review, incident response, and identity management.

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Industries

        SMART provides services for clients in the following industries: banking and capital markets, government, healthcare, higher education, insurance/reinsurance, life sciences, manufacturing and distribution, not-for-profit and real estate. SMART expects its focus in financial services, public sector, and healthcare to increase as a direct consequence of the changing regulatory, risk management, and reporting and controls landscape.

•

Banking and capital markets.  SMART assists financial institutions involved in capital markets, corporate banking and wealth management. In capital markets, SMART helps its clients with improving front office sales and trading, trade reconciliation and risk management, trade operations, product control and financial reporting, and compliance. In corporate banking, SMART offers transaction banking solutions in strategic billing and pricing, supply chain finance and client management. From a wealth management perspective, SMART advises clients on the infrastructure, operational and compliance facets of setting up a trust business, trust accounting system migration and implementation and client reporting.



•

Government.  SMART has worked with a variety of state and regional counties and municipalities around the country on a range of projects providing IT and management consulting services. Its teams help clients with a broad spectrum of projects. Examples include enterprise resource planning, software selection and implementation initiatives to fully define and re-design the functional requirements of a state agency, county, municipal, or special district program or system.



•

Healthcare.  SMART provides services that meet the specific financial, clinical, and technical needs of healthcare providers including community hospitals, health systems, academic medical centers, long-term care, home care, physician multi-practices, and managed care organizations. SMART's healthcare services include medical management and patient safety. Its medical management services include: medical management systems strategy, medical management process and systems requirements analysis, medical management solution architecture design, and medical management system selection and implementation. Its patient safety services include patient safety culture assessment, patient safety process reviews, and quality data reporting.



•

Higher education.  SMART offers colleges and universities a complete range of professional services to help meet the evolving administrative needs of academia. SMART's services for higher education include Enterprise Resource Planning (ERP) system implementation and support (BANNER), business intelligence and reporting, and student administration. Its business intelligence and reporting services include: strategic planning, report identification and development, tool selection, and implementation services.



•

Insurance/reinsurance.  SMART offers a broad range of services to property and casualty insurance companies, life and health insurance companies, HMOs, Managing Agents (MGAs), third-party administrators, primary carriers and receivers, stock companies, agents and brokers, and insurance regulators. SMART's insurance/reinsurance services include statutory or regulatory accounting, risk management, claims management, tax advice, run-off services and commutations, arbitration and lawsuits support, MGA/Third Party Administrator investigations, and insurance/reinsurance disputes and reconciliations.



•

Life sciences.  SMART offers compliance and risk management solutions and customer relationship management solutions to companies in the life sciences industry. It has experience with biotechnology, medical device, clinical research, pharmaceutical organizations, and other members of the life sciences supply chain, ranging from startups to global leaders.



•

Manufacturing and distribution.  SMART has a broad range of industry and functional experience covering all aspects of operational, financial, and acquisition services for companies

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in the manufacturing and distribution industry. Its manufacturing and distribution services include just-in-time inventory, root cause analysis, lean flow procedures, facility feasibility studies, inventory controls, merger and acquisition support, product cost methodologies, turnaround diagnostic services and trend analyses. Additionally, SMART provides assistance to clients by serving as technical consultants in matters of accounting for certain transactions specific to the manufacturing industry.

•

Not-for-profit.   SMART offers services to enhance the regulatory compliance, operational efficiency, internal controls and governance, and business management for not-for-profit organizations. It provides services for the following types of not-for-profit organizations: charitable foundations, memberships, education, government units, healthcare, professional/trade associations, social, arts and culture, and religious organizations.



•

Real estate.  SMART's real estate clients include third-party managed service operators, owners, owner-operators, investment managers, real estate investment trusts and global real estate fund managers. SMART offers enterprise risk management, accounting and assurance, tax, and software services to the real estate industry.

EMPLOYEES

        As of December 31, 2009, we had 806 employees and 68 exclusive independent contractors, consisting of 290 experts, 352 professional staff and 232 administrative staff members.

        Upon the closing the Merger with SMART on March 10, 2010, we gained approximately 500 additional employees (including the employees of SMART LLP).

Experts and professional staff

Experts

        We classify our experts as directors or principals. As of December 31, 2009, we had 290 experts, consisting of 208 directors and 82 principals. Directors tend to be more experienced than principals, and generally have more established reputations. Directors are expected to generate more engagements than principals. Principals are hired from outside the Company or promoted from the ranks of senior professionals after they have achieved a sufficient reputation of their own and developed the ability to attract new business. Directors tend to be paid a higher percentage of their individual billings, which we refer to as pass-through rates, and may receive other forms of variable compensation not typically offered to principals. Our agreements with our directors and principals generally provide for exclusivity with us in consideration for consulting fees determined by the expert's time billed and collected, as well as project origination fees for work originated or managed by the expert. The agreements generally are terminable at will and generally do not restrict competition with us following termination. However, our agreements generally limit post-departure solicitation of certain clients and staff. From time to time, we will allow experts to accept engagements outside the firm, and we also engage experts not otherwise associated with us.

        In addition to our experts, we had affiliate relationships with approximately 200 individuals, who worked with us on a non-exclusive basis during 2009. Fee-based revenue from affiliates accounted for approximately 1.4% of our revenues in 2009. We compensate these affiliates similarly to the majority of our experts; that is, they are paid upon our receipt of payment from clients.

        We offer our experts a lucrative compensation model, a collegial atmosphere, high autonomy and transparency of compensation through contractually agreed pass-through rates on billed and collected work, as well as project origination fees. We refer to this variable compensation as the "expert model." Under the expert model, our experts are compensated based on a percentage of their own billings, or pass-through rates, ranging from 30% to 100%, and currently average approximately 72% of their

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individual billings. The possibility of lucrative compensation is coupled with high accountability as each expert's compensation on a project is linked to our ability to collect on that project, leaving the expert at-risk for payment from us. As of December 31, 2009, approximately 64% of our experts participated in this variable compensation model. We also compensate certain experts based on specified revenue and gross margin targets that are calculated and evaluated on groups of experts and staff working together throughout the year. Experts not participating in either of these variable compensation models are paid a fixed salary and are typically eligible for bonus compensation based on revenue, leverage and other criteria.

        We allow our experts to retain significant control over their time commitments. This flexibility enables our experts to pursue the educational, research, publishing and professional activities that add to their reputations and increase their value as experts.

        Our experts have entered into agreements with us in which they have agreed that they will exclusively utilize our support staff in connection with their expert services work, whenever the staff with the required level of expertise is available. In calculating incentive compensation for individual experts under the expert model, we generally deduct the cost of an expert's own executive assistants, employment related taxes and certain benefits, as well as a portion of the cost of business development activities. While some of our experts are exclusive independent contractors, most are our employees.

Professional staff

        Our professional staff includes highly educated individuals with a broad range of experience and skills needed to support our experts and complement their talents. We recruit our professional staff from leading universities and through references from our experts. Additionally, we seek individuals with highly relevant business, government or professional experience. Most of our professional staff are full-time employees and are available to our experts throughout our company, based on the expertise required for a given project.

MARKETING

        The reputation of the firm and of our experts for professional excellence and independence is the most important factor in our business development efforts. We endeavor to capitalize on the professional visibility and accomplishments of our experts and professional staff. We maintain and enhance our name and reputation through our performance and quality of work on engagements, speeches, presentations and articles in industry, business, economic, legal and scientific journals.

        We also market our services directly through corporate efforts and through the individual efforts of our professionals. We sponsor, attend and organize conferences and seminars on topical issues at which our experts lecture, present studies, speak on panels and meet with attendees.

COMPETITION

        The market for expert and professional advisory services is highly competitive and fragmented. We compete with a large number of service providers in each practice area. We consider some of our principal competitors to be:

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economic, legal and management consulting firms such as CRA International, Inc., Navigant Consulting, Inc., National Economic Research Associates, Inc., FTI Consulting, Inc. and Huron Consulting Group Inc.;



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current and former consulting arms of large accounting firms such as BearingPoint, Accenture and Capgemini;



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general management and strategy consulting firms such as Bain & Company, Booz Allen Hamilton and The Boston Consulting Group;

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•

specialized or industry-specific consulting or research firms; and



•

individual academics, researchers and private consultants.

        Many of our competitors have significantly greater personnel, financial, technical and marketing resources as well as greater name recognition than we do. We also expect to continue to face competition from new entrants because the barriers to entry into consulting services are relatively low.

        We believe the principal competitive factors in our markets include:

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reputation of the firm and experts;



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client referrals;



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ability to access leading experts and staff;



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ability to provide project management skills;



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ability to be responsive and to meet deadlines;



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ability to communicate findings to relevant parties; and



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fee structure.

        We believe that we compete favorably with respect to each of these factors.

AVAILABLE INFORMATION

        Our internet address is www.lecg.com. Documents we have filed with the Securities and Exchange Commission ("SEC"), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports can be accessed through the investor relations link on our website as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

1A.    RISK FACTORS

        Set forth below are certain risks and uncertainties that affect our business and that could cause our actual results to differ materially from the results contemplated by forward-looking statements we may make in our press releases, conference calls and other communications with our investors, and in our reports filed with the Securities and Exchange Commission, including those contained in this Report. The occurrence of any of the following risks could harm our business, financial condition, results of operations or cash flows. In that case, the market price of our common stock could decline, and stockholders may lose all or part of their investment. The markets and economic environment in which we compete is constantly changing, and it is not possible to predict or identify all the potential risk factors. Additional risks and uncertainties not presently known to us or that we do not currently consider to be material could also impair our operations.

Risks relating to our Merger with SMART

The combined company must continue to retain, motivate and recruit executives, experts, professional staff and other key employees, which may be difficult in light of uncertainty regarding the integration of the two businesses, and failure to do so could negatively affect the combined company.

        Our Merger with SMART is a significant business combination for us, which substantially changes the size and profile of our company, and which also introduces a new chief executive officer for us. Managing change of this magnitude presents a challenge and presents risks for any business, but particularly for a professional services organization. For the Merger to be successful, our combined company must be successful at retaining key personnel following the completion of the Merger. Experienced experts, professional staff and executives are in high demand and competition for their

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talents can be intense. Employees of both SMART and LECG may experience uncertainty about their future role with the combined company until, or even after, strategies with regard to the combined company are announced or executed. Our competitors may seek to exploit that uncertainty in their efforts to recruit our experts and key employees, and we may experience increased attrition. These potential distractions of the Merger may adversely affect our ability to retain, motivate and attract executives, experts, professional staff, and other key employees and keep them focused on applicable strategies and goals. A failure by our combined company to retain and motivate executives, experts, professional staff, and other key employees during the period after the completion of the Merger could have a material and adverse impact on the business of the combined company.

We may fail to realize some or all of the anticipated benefits of the Merger, which may adversely affect the value of our common stock.

        The success of the Merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the historical businesses of SMART and LECG. However, to realize these anticipated benefits and cost savings, we must successfully combine those businesses. If we are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits and cost savings of the Merger may not be realized or may take longer to realize than expected, and the value of our common stock may be adversely affected.

        SMART and LECG have operated independently through the completion of the Merger. It is possible that the integration process could result in the loss of key employees, including experts, consultants, other professionals and senior management, in the disruption of ongoing business, or in the identification of inconsistencies in practices, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with clients, experts, professional staff, contractors, creditors, lessors, landlords, or to otherwise achieve the anticipated benefits of the Merger.

        Specifically, risks in integrating the operations of SMART into our operations in order to realize the anticipated benefits of the Merger include, among other things:

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failure of clients to accept new products or services or to continue as clients of the combined company;



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failure to successfully manage relationships with expert witnesses, consultants and other professionals, which could result in the loss of key revenue generating experts;



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the loss of key employees and expert staff critical to the ongoing operation of the business;



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failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined company;



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failure to combine product and service offerings quickly and effectively;



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failure to successfully develop new products and services on a timely basis that address the market opportunities of the combined company;



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failure to compete effectively against companies already serving the broader market opportunities expected to be available to the combined company;



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unexpected revenue attrition;



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failure to successfully integrate and harmonize financial reporting and information technology systems of LECG and SMART; and



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failure to maintain an effective internal control environment as required under the Sarbanes-Oxley Act of 2002 (SMART is a private company and not subject to the Sarbanes-Oxley Act of 2002).

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        Integration efforts will also require effective leadership and will divert management attention and resources. An inability to realize in full the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the completion of the Merger.

        In addition, the integration process will likely result in additional expenses and may result in unforeseen expenses, and the anticipated benefits of the integration plans may not be realized. Actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than anticipated. If we are not able to adequately address these challenges, we may be unable to successfully integrate SMART's operations into its own, or to realize the anticipated benefits of the integration of the two companies.

The move of our corporate headquarters will lead to loss of personnel and institutional knowledge, and may disrupt the continuity of our control functions.

        In March 2010, in connection with the closing of our merger with SMART, we announced the relocation and consolidation of our corporate headquarters to suburban Philadelphia, Pennsylvania, which is scheduled to be completed by the end of the third quarter of 2010. This move and consolidation will include our human resources, finance and accounting, information technology, conflict clearance and legal functional organizations. This relocation will significantly increase employee turnover. For the functional groups in which significant numbers of employees are being replaced, there may be interruptions and inefficiencies as new employees gain experience in their new roles and familiarize themselves with business processes and operating requirements, and in particular with our public company reporting and internal controls compliance requirements. The loss of personnel could lead to disruptions in control functions stemming from delays in filling vacant positions and a lack of personnel with institutional or procedural knowledge and experience. We may face significant challenges resulting from the relocation of key functions to our new principal executive offices, including difficulties in retaining and attracting officers, key personnel and other employees. The relocation will also require significant management time and effort, which could otherwise be devoted to focusing on ongoing business operations and other initiatives and opportunities. In addition, we may not realize the benefits we anticipate from the relocation, which is intended to produce cost savings and create more a unified, streamlined infrastructure. Any such difficulties or disruptions could have an adverse effect on our business, results of operations or financial condition.

We will incur significant transaction and Merger-related costs.

        We expect to incur a number of non-recurring costs associated with combining the operations of the two companies. The substantial majority of non-recurring expenses resulting from the Merger will be comprised of transaction costs related to the Merger, facilities and systems consolidation costs and employment-related costs, including severance and other employee separation costs. We will also incur fees and costs related to formulating integration plans. Transaction costs incurred by LECG through February 28, 2010 totaled approximately $2.5 million. We are still in the process of quantifying systems integration and exit activity-related costs, but this amount could ultimately total several million dollars. Additional unanticipated costs may be incurred in the integration of the two companies' businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset incremental transaction and Merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

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The Merger may not be accretive and may cause dilution to our earnings per share, which may negatively affect the market price of our common stock.

        We currently anticipate that the Merger will be accretive to earnings per share during the first full calendar year after the Merger. This expectation is based on preliminary estimates which may materially change. We could also encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated in the Merger. All of these factors could cause dilution to our earnings per share or decrease or delay the expected accretive effect of the Merger and cause a decrease in the price of our common stock.

Risks relating to our debt and our working capital requirements

We have assumed term loan debt of approximately $40.8 million, which is due on March 31, 2011 and for which we must make significant quarterly debt service payments. If we are unable to make required payments and comply with the covenants, or in the event we are required to refinance this debt in unfavorable market conditions, we may have to pay penalties or higher interest rates and be subject to more stringent financial covenants, which could adversely affect our results of operations.

        Prior to our merger with SMART, SMART had term loan bank debt of approximately $40.8 million, and we have assumed that indebtedness as part of the Merger. In connection with the closing of the Merger, we and SMART entered into an amendment of the credit agreement with the lenders, in which the lenders consented to the Merger and we became co-borrowers with SMART. The lenders hold a security interest in substantially all of our assets. As amended, the terms of the loan required that we make a $4.0 million principal payment upon closing (March 10, 2010) and subsequent quarterly principal payments of $3.0 million through December 31, 2010, plus interest, and additional amounts in the event that we have cash balances in excess of specified thresholds or we engage in capital raising transactions. The loan includes a number of financial and operating covenants, and is due on March 31, 2011.

        Our indebtedness limits our ability to borrow additional funds and requires us to dedicate a substantial portion of our cash flow from operations to service the debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate expenditures. This, in turn (1) increases our vulnerability to adverse general economic or industry conditions and to increases in interest rates; (2) limits our flexibility in planning for, or reacting to, changes in our business or our industry; (3) limits our ability to make strategic acquisitions and investments, introduce new services, enter new markets, or exploit business opportunities; and (4) places us at a competitive disadvantage relative to competitors that have less debt or greater financial resources.

        If we fail to make any of the quarterly or other required payments, we fail to satisfy the financial or operating covenants, or we are unable to repay the loan when due, we would be in default and it could have an adverse effect on our business, results of operations or financial condition. If there were an event of default under our loan agreement and we were unable to obtain a waiver or amendment, the lenders could cause all amounts outstanding to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay our indebtedness if accelerated upon an event of default, and there is no guarantee that we would be able to repay, refinance or restructure the payment obligations.

        At or prior to maturity, we will likely seek to refinance this indebtedness. In the event we are required to refinance our credit facility in unfavorable market conditions, we may have to pay interest at higher rates on outstanding borrowings and may be subject to more stringent financial covenants than we are today, which could adversely affect our results of operations. We cannot be certain that we will be able to obtain refinancing on acceptable terms.

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We no longer have a revolving credit facility to provide us with flexible access to working capital to operate our business, and we cannot be certain of our access to additional capital if needed.

        Historically, we have relied upon a revolving credit facility to provide us with adequate working capital to operate our business. In connection with our merger with SMART, we were required to repay the outstanding balance under our revolving credit facility and to terminate that facility. As a result, we no longer have access to that facility as a flexible source of working capital. Although our cash balances have increased as a result of the Merger and the related investment, we may not have sufficient capital to fund our operating needs and/or we may need to secure additional financing to fund our working capital requirements or to repay outstanding debt. We cannot be certain that we will be able to raise additional capital, or that any amount, if raised, will be sufficient to meet our cash requirements. Also, if we are not able to borrow or otherwise raise additional capital when needed, we may be forced to curtail our operations.

Risks relating to our expert and professional services businesses

We are dependent on retaining our experts to keep our existing clients and ongoing and future projects, and our financial results and growth prospects could suffer if we are unable to successfully attract and retain our experts and professional staff.

        Many of our clients are attracted to us by their desire to engage individual experts, and the ongoing relationship with our clients is often managed primarily by our individual experts. If an expert terminates his or her relationship with us, it is probable that most of the clients and projects for which that expert is responsible will continue with the expert, and the clients will terminate or significantly reduce their relationship with us. We generally do not have non-competition agreements with any of our experts, unless the expert came to us through an acquisition of a business. Consequently, experts can generally terminate their relationship with us at any time and immediately begin to compete against us. Our top five experts accounted for 12%, 15% and 17% of our revenues in 2009, 2008, and 2007, respectively. If any of these individuals, our other experts terminate their relationship with us or compete against us, it could materially harm our business and financial results.

        In addition, if we are unable to attract, develop, and retain highly qualified experts, professional staff and administrative personnel, our ability to adequately manage and staff our existing projects and obtain new projects could be impaired, which would adversely affect our business, our financial results and our prospects for growth. Qualified professionals are in great demand, and we face significant competition for both experts and professional staff with the requisite credentials and experience. Our competition comes from other consulting firms, research firms, governments, universities and other similar enterprises. Many of these competitors may be able to offer greater compensation and benefits or more attractive lifestyle choices, career paths or geographic locations than we do. Increasing competition for these professionals may also significantly increase our labor costs, which could negatively affect our margins and results of operations. The loss of services from, or the failure to recruit, a significant number of experts, professional staff or administrative personnel could harm our business, including our ability to secure and complete new projects.

Our financial results could suffer if we are unable to achieve or maintain high utilization and billing rates for our professional staff.

        Our profitability depends to a large extent on the utilization of our professional staff and the billing rates we are able to charge for their services. Utilization of our professional staff is affected by a number of factors, including:

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the number and size of client engagements;

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•

our experts' use of professional staff to perform the projects they obtain from clients and the nature of specific client engagements, some of which require greater professional staff involvement than others;



•

the timing of the commencement, completion and termination of projects, which in many cases is unpredictable;



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our ability to transition our professional staff efficiently from completed projects to new engagements;



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our ability to forecast demand for our services and thereby maintain an appropriate level of professional staff; and



•

conditions affecting the industries in which we practice as well as general economic conditions.

        The billing rates of our professional staff that we are able to charge are also affected by a number of additional factors, including:

•

the quality of our expert and professional services;



•

the market demand for the expert services we provide;



•

our competition and the pricing policies of our competitors; and



•

general economic conditions.

        Forecasting demand for our services and managing staffing levels and transitions in the face of the uncertainties in engagement demand is quite difficult, especially during the current U.S. and European economic slow-down. If we are unable to achieve and maintain high utilization as well as maintain or increase the billing rates for our billable professional staff, our financial results could suffer materially.

SMART's Sarbanes-Oxley compliance business may decline.

        The demand for SMART's services related to Sarbanes-Oxley or other regulatory compliance has declined over the last year and may decline further. A key component of SMART's business includes services related to Sarbanes-Oxley and other regulatory compliance. There can be no assurance that there will be ongoing demand for these services.

A reversal of or decline in the current trend of businesses utilizing third-party service providers may have a material adverse effect on the acquired SMART business' financial condition and results of operations.

        SMART's business and growth depend in part on the trend toward businesses utilizing third-party service providers. This trend may not continue. Current and potential customers may elect to perform such services with their own employees. A significant reversal of, or a decline in, this trend would have a material adverse effect on the financial condition and results of operations of service offerings we acquired from SMART.

Restrictions imposed by state accountancy authority conflict of interest rules may limit our ability to provide services to SMART and Associates, LLP.

        Restrictions imposed by state accountancy laws and regulations preclude us from rendering audit and attest services (other than internal audit services). As such, SMART and SMART and Associates, LLP, an affiliate of SMART ("SMART LLP"), have entered into an agreement under which audit and attest services may be provided to SMART's clients by SMART LLP. Under this agreement, SMART pays for all the direct and indirect overhead costs of SMART LLP and in exchange SMART LLP pays SMART a management fee.

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        While state accountancy conflict rules generally only apply to public companies for which SMART LLP does not provide audit or attest services, state accountancy authorities may in the future extend current restrictions on the profession to include private companies. To the extent that SMART LLP is affected by any such change in state conflict of interest rules, we may experience a decline in fee revenue from the management fee which SMART LLP currently pays.

Our client projects may be terminated or initiated suddenly, which may negatively impact our financial results.

        Our projects generally center on decisions, disputes, proceedings or transactions in which clients are seeking expert advice and opinions. Our projects can terminate suddenly and without advance notice to us. Our clients may decide at any time to settle their disputes or proceedings, to abandon or defer their transactions or to take other actions that result in the early termination of a project. Our clients are ordinarily under no contractual obligation to continue using our services. If an engagement is terminated unexpectedly, or even upon the planned completion of a project, our professionals working on that engagement may be underutilized until we assign and transition them to other projects. The termination, deferral or significant reduction in the scope of a single large engagement could negatively impact our results of operations in a given reporting period.

        Conversely, projects may be initiated or expanded suddenly, and we may not be able to adequately manage the demands placed upon our experts and staff when that occurs. This could result in inefficiencies and additional time spent on engagements by our experts and staff that we may not be able to bill and collect. For example, in 2006 and 2007 we experienced a significant increase in work performed that we considered uncollectible, a part of which was the result of our failure to successfully manage certain engagements. If we are unable to successfully manage the requirements and time spent by experts and staff on engagements, our financial results may be adversely impacted.

Our ability to maintain and attract new business depends upon our reputation, the professional reputation of our experts and the quality of our services on client projects.

        Our ability to secure new projects depends heavily upon our reputation and the individual reputations of our experts and professional staff. Any factor that diminishes our reputation or that of our experts and professional staff could make it substantially more difficult for us to attract new projects and clients. Similarly, because we obtain many of our new projects from clients that we have worked with in the past or from referrals by those clients, any client that is dissatisfied with the quality of our work or that of our experts and professional staff could seriously impair our ability to secure additional new projects and clients.

        In litigation, we believe that there has been an increase in the frequency of challenges made by opposing parties to the qualifications of experts. In the event a court or other decision-maker determines that an expert is not qualified to serve as an expert witness in a particular matter, then this determination could harm the expert's reputation and ability to act as an expert in other engagements which could in turn harm our business reputation and our ability to obtain new engagements.

We depend on complex damages and competition policy/antitrust practices, which could be adversely affected by changes in the legal, regulatory and economic environment.

        Our expert services business is heavily concentrated in the practice areas of complex damages and competition policy/antitrust, including mergers and acquisitions. Projects in our complex damages practice area account for 27%, 23%, and 20% of our billings in 2009, 2008, and 2007, respectively. Projects in our competition policy/antitrust practice area, including mergers and acquisitions, accounted for 17%, 18%, and 18% of our billings in 2009, 2008, and 2007, respectively. Changes in the federal antitrust laws or the federal regulatory environment, or changes in judicial interpretations of these laws could substantially reduce the need for expert consulting services in these areas. This would reduce our

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revenues and the number of future projects in these practice areas. In addition, adverse changes in general economic conditions, particularly conditions influencing the merger and acquisition activity of larger companies, could also negatively impact the number and scope of our projects in proceedings before the Department of Justice and the Federal Trade Commission.

Intense competition from economic, business and financial consulting firms could hurt our business.

        The market for expert consulting and professional advisory services is intensely competitive, highly fragmented and subject to rapid change. Many of our competitors are national and international in scope and have significantly greater personnel, financial, technical and marketing resources. We may be unable to compete successfully with our existing competitors or with any new competitors. There are relatively low barriers to entry, and we have faced and expect to continue to face additional competition from new entrants into the economic, business and financial consulting industries. In the litigation and regulatory expert services markets, we compete primarily with economic, business and financial consulting firms and individual academics. Expert services are also available from a variety of participants in the business consulting market, including general management consulting firms, the consulting practices of major accounting firms, technical and economic advisory firms, regional and specialty consulting firms, small consulting companies and the internal professional resources of companies.

Conflicts of interest could preclude us from accepting projects.

        We provide our expert services primarily in connection with significant or complex decisions, disputes and regulatory proceedings that are often adversarial or involve sensitive client information. Our engagement by a given client may preclude us from accepting projects with that client's competitors or adversaries because of conflicts of interest or other business reasons. As we increase the diversity of our service offerings and the size of our operations, the number of conflict situations can be expected to increase. Moreover, in many industries in which we provide services, for example the petroleum and telecommunications industries, there has been a continuing trend toward business consolidations and strategic alliances, the impact of which is to reduce the number of companies that may seek our services and to increase the chances that we will be unable to accept new projects as a result of conflicts of interest. If we are unable to accept new assignments for any reason, our business may not grow and our professional staff may become underutilized, which would adversely affect our revenues and results of operations in future periods.

Our engagements could result in professional liability, which could be very costly and hurt our reputation.

        Our projects typically involve complex analysis and the exercise of professional judgment. As a result, we are subject to the risk of professional liability. Many of our projects involve matters that could have a severe impact on a client's business, cause a client to gain or lose significant amounts of money or assist or prevent a client from pursuing desirable business opportunities. If a client questions the quality of our work, the client could threaten or bring a lawsuit to recover damages or contest its obligation to pay our fees. Litigation alleging that we performed negligently or breached any other obligations to a client could expose us to significant liabilities and damage our reputation. We carry professional liability insurance intended to cover many of these types of claims, but the policy limits and the breadth of coverage may be inadequate to cover any particular claim or all claims plus the cost of legal defense. For example, we provide services on engagements in which the amounts in controversy or the impact on a client may substantially exceed the limits of our errors and omissions insurance coverage. If we are found to have professional liability with respect to work performed on such an engagement, we may not have sufficient insurance to cover the entire liability. Defending ourselves in any litigation, regardless of the outcome, is often very costly, could result in distractions to our management and experts and could harm our business and our reputation.

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Other risks relating to our business

Recent turmoil in the credit markets and in the financial services industry may impact our ability to collect receivables on a timely basis and may negatively impact our cash flow.

        Recently, the credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and upheaval. While the ultimate outcome of these events cannot be predicted, they could adversely impact the availability of financing and working capital to our clients and therefore adversely impact our ability to collect amounts due from such clients or cause them to terminate their contracts with us completely.

The implementation of our 2009, 2008 and 2007 restructuring activities, which involved workforce reductions and office closures, may not successfully achieve improved long-term operating results.

        In the second and third quarters of 2009, the fourth quarter of 2008, and in 2007 we implemented a number of restructuring actions intended to better align our cost structure with current business levels and market conditions. In connection with the restructuring actions, we incurred charges totaling $5.5 million during the second and third quarter of 2009, $6.4 million during the fourth quarter of 2008 and $10.7 million during 2007, respectively. These charges included one-time termination benefits, write-offs of unearned signing bonuses, lease termination costs and other costs. As a result of these restructuring actions, our fee-generating head count was reduced, and the employment of some experts and professional staff with unique skills was terminated. In the future, other experts and employees may leave our company voluntarily due to the uncertainties associated with our business environment and their job security, and we have experienced and may continue to experience morale issues. In addition, we may lose revenue and miss opportunities to generate revenue and we may not achieve the improved longer-term operating results that we anticipated. Any of these consequences may harm our business and our future results of operations.

Our estimated restructuring accruals may not be adequate.

        While our management uses all available information to estimate restructuring charges, particularly facilities costs, our estimated accruals for restructuring related to our 2009 and 2008 activities and the 2007 value recovery plan may prove to be inadequate. If our actual sublease revenues or the results of our exiting negotiations differ from our assumptions, we may have to record additional charges, which could materially affect our results of operations, financial position and cash flow.

Impairment charges could reduce our results of operations.

        In accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 350, Goodwill and Other Intangible Assets ("ASC 350"), we test goodwill and other intangible assets with indefinite useful lives for impairment on an annual basis or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value. We conduct testing for impairment during the fourth quarter of each year using an October 1^st measurement date. Various uncertainties, including changes in business trends, deterioration in the political environment, continued adverse conditions in the capital markets or changes in general economic conditions, could impact the expected cash flows to be generated by an intangible asset or group of intangible assets, and may result in an impairment of those assets. For example, we recorded a goodwill impairment charge of $118.8 million and other impairment charges of $5.4 million for the year ended December 31, 2008. Although any such impairment charge would be a non-cash expense, further impairment of our intangible assets could materially increase our expenses and reduce our results of operations.

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Changes in our effective tax rate may harm our results of operations.

        A number of factors may increase our future effective tax rates, including:

•

the jurisdictions in which profits are determined to be earned and taxed;



•

the resolution of issues arising from tax audits with various tax authorities;



•

changes in the valuation of our deferred tax assets and liabilities;



•

adjustments to estimated taxes upon finalization of various tax returns;



•

increases in expenses not deductible for tax purposes, including impairments of goodwill;



•

changes in available tax credits or limitations on our ability to utilize foreign tax credits;



•

changes in share-based compensation;



•

changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles; and



•

the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.

        Any significant change in our future effective tax rates could reduce net income or negatively impact earnings for future periods.

If we are unable to manage the growth of our business successfully, our financial results and business prospects could suffer.

        In past years we experienced significant growth in the number of our experts and professional staff. We also expanded our practice areas and opened offices in new locations. On March 10, 2010, we completed the Merger of SMART, which has more than 500 employees in ten offices throughout the United States and Europe. We may not be able to successfully manage a significantly larger and more geographically diverse workforce as we increase the number of our experts and professional staff and expand our practice areas. In 2009, 2008 and 2007 we recognized restructuring charges of $5.7 million, $5.9 million and $10.7 million, respectively, primarily related to the termination of experts and professional staff who were generally direct hires in new practice areas during the past three years. We also closed 11 facilities from 2007 to 2009 and consolidated office spaces in four locations during the third quarter of 2009. From 2006 to 2008, we experienced increased and sometimes unplanned selling, general and administrative costs. In 2009, we recognized acquisition and integration costs of $2.2 million.

        In addition, growth increases the demands on our management, our internal systems, procedures and controls. To successfully manage growth and maintain our capability of complying with existing and new regulatory requirements, we must add administrative staff and periodically update and strengthen our operating, financial and other systems, procedures and controls, which will increase our costs and may reduce our profitability. There are certain key personnel that have developed over time a deep institutional knowledge of, and have helped shape and implement our expert compensation models, including developing the financial and operational support systems and contractual agreements necessary to administer their complexities. This institutional knowledge has been an essential element in our ability to respond to the demands imposed by our growth.

        In 2006, we reported a material weakness in connection with the calculation of certain complex, non-standard compensation arrangements and business acquisition performance-based agreements. At December 31, 2007, we had remediated that material weakness. However, in connection with our Merger with SMART and the relocation of our headquarters, and as we acquire new businesses in the future, we will need to properly and timely manage the accounting for the acquisition and compensation arrangements, and integrate their financial reporting systems into ours, including our

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disclosure controls and procedures. We may be unable to successfully implement changes and make improvements to our information and control systems in an efficient or timely manner and we may discover additional deficiencies in our existing systems and controls. Any failure to successfully manage growth, retain key administrative personnel, and maintain adequate internal disclosure controls and procedures or controls over financial reporting, could result in the identification of additional material weaknesses in our controls which could harm our financial results and business prospects.

Additional hiring and acquisitions could disrupt our operations, increase our costs or otherwise harm our business.

        A portion of our business strategy is dependent in part upon our ability to grow by hiring individuals or groups of experts and by acquiring other expert services firms. However, we may be unable to identify, hire, acquire or successfully integrate new experts and consulting practices without substantial expense, delay or other operational or financial problems. And, we may be unable to achieve the financial, operational and other benefits we anticipate from any hiring or acquisition. Hiring additional experts or acquiring other expert services firms could also involve a number of additional risks, including:

•

the diversion of management's and key senior experts' time, attention and resources, especially since key senior experts involved in the recruiting and acquisition process also provide consulting services that account for a significant amount of our revenues;



•

loss of key acquisition related personnel;



•

the incurrence of significant signing and performance bonuses, which could adversely impact our profitability and cash flow, or result in the later write-off of unearned portions of such bonus, which could adversely impact our profitability;



•

additional expenses associated with the amortization, impairment or write-off of acquired intangible assets, which could adversely impact our profitability;



•

potential assumption of debt to acquire businesses;



•

potential impairment of existing relationships with our experts, professionals and clients;



•

the creation of conflicts of interest that require us to decline engagements that we otherwise could have accepted;



•

increased costs to improve, coordinate or integrate managerial, operational, financial and administrative systems;



•

increased costs associated with the opening and build-out of new offices, redundant offices in the same city where consolidation is not immediately possible or office closures where consolidation is possible, which would result in the immediate recognition of expense associated with the abandoned lease;



•

dilution to our stockholders as a result of issuing equity securities in connection with hiring new experts or acquiring other expert services firms; and



•

difficulties in integrating diverse corporate cultures.

We are subject to additional risks associated with international operations.

        We currently have operations in Argentina, Australia, Belgium, France, Hong Kong, Italy, Mexico, New Zealand, Spain and the United Kingdom. Revenues attributable to activities outside of the United States were 19%, 23%, and 17% in 2009, 2008, and 2007, respectively. Foreign tax laws can be complex and disputes with foreign tax authority can be lengthy and span multiple years. We have been involved in a tax dispute with the Argentine tax authority since 2007 regarding a potential income tax deficiency

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related to our 2003 and 2004 tax returns and a withholding tax deficiency in connection with our 2005 withholding tax return totaling approximately $3.3 million, which includes potential interest if our position is not ultimately sustained. We paid this amount and filed an appeal with the tax authorities, objecting to their position and requesting a refund. On April 8, 2009, we were notified that the AFIP had terminated the penalty procedures relating to amounts previously paid for the 2003 and 2004 income tax and 2005 withholding tax deficiencies due to the passage of Argentine National Law No. 26.476 (Tax Moratorium). However, we may still be subject to penalties and interest on a potential underpayment of taxes related to the 2005 withholding tax return. Also, based on the results of the completed audit discussed above, we may receive additional notices for assessments of additional income taxes, penalties, and interest related to our 2005 and 2006 income tax returns and withholding taxes, penalties, and interest payments made to the U.S. parent company to settle intercompany balances from June 2005 to December 2007.

        We may continue to expand internationally and our international revenues may account for an increasing portion of our revenues in the future. In addition to the tax dispute noted above, our international operations carry special financial and business risks, including:

•

greater difficulties in managing and staffing foreign operations;



•

less stable political and economic environments;



•

cultural differences that adversely affect utilization;



•

currency fluctuations that adversely affect our financial position and operating results;



•

unexpected changes in regulatory requirements, tariffs and other barriers;



•

civil disturbances or other catastrophic events that reduce business activity; and



•

greater difficulties in collecting accounts receivable.

The occurrence of any one of these factors could have an adverse effect on our operating results.

Because following the closing of the Merger and the Investment, the Great Hill Entities hold a significant interest in our voting stock, the influence of our other public stockholders over the election of directors and significant corporate actions may be more limited than it would be if there were no stockholder owning such a significant percentage of our outstanding voting stock.

        The Great Hill Entities own approximately 40% of our outstanding voting stock and have designated two of the members of our board of directors. Although a Governance Agreement imposes limits on the Great Hill Entities regarding taking specified actions related to the acquisition of additional shares of our capital stock and the removal of directors, the Great Hill Entities will nonetheless still be able to exert significant influence over the outcome of a range of corporate matters, including significant corporate transactions requiring a stockholder vote, such as a merger or a sale of the combined company or its assets. This concentration of ownership and influence in management and board decision-making could also harm the price of our common stock following completion of the Merger by, among other things, discouraging a potential acquirer from seeking to acquire shares of our common stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of the combined company.

Sales of our common stock by the Great Hill Entities or issuances of shares of our common stock in connection with future acquisitions or otherwise could cause the price of our common stock to decline.

        If the Great Hill Entities sell a substantial number of their shares of our common stock in the future, the market price of our common stock could decline. The perception among investors that these sales may occur could produce the same effect. The Great Hill Entities have rights, subject to specified conditions, to require us to file registration statements covering shares of common stock held by them

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or to include shares of common stock held by them in registration statements that we may file. By exercising their registration rights and selling a large number of shares of our common stock, the Great Hill Entities could cause the price of our common stock to decline. Furthermore, if we were to include common stock held by the Great Hill Entities in a registration statement we initiate, those additional shares could impair our ability to raise needed capital by depressing the price at which we could sell its common stock.

        One component of our business strategy is to make acquisitions. In the event of any future acquisitions, we could issue additional shares of common stock, which would have the effect of diluting existing LECG stockholders' percentage ownership of our common stock and could cause the price of our common stock to decline.

The SMART Merger and the Investment were dilutive to our existing stockholders.

        As a result of the Merger and the related investment, we issued approximately 17.2 million new shares of capital stock to Great Hill Equity Partners III, LP, and Great Hill Investors, LLC (together, the "Great Hill Entities"), which represents approximately 40% of the total outstanding voting power of all LECG stockholders following the closing of the Merger and the Investment. The issuance of these shares caused immediate and significant dilution to existing LECG stockholders. An additional approximately 1.1 million new shares of our common stock may also be issued to Great Hill III to satisfy certain indemnification obligations described in the Merger Agreement, and we have agreed to grant the Great Hill Entities pre-emptive rights for certain future new issuances of its capital stock. Further, the holders of the Series A Preferred Stock issued pursuant to the Investment are entitled to receive cumulative dividends at a rate of 7.5% per share per annum subject to potential increase as described in the Merger Agreement, which may be paid in cash or additional shares of our capital stock. The dividends, if paid in stock, will further dilute our current stockholders.

The market price of our common stock after the Merger may be affected by factors different from those affecting the shares of LECG prior to the Merger.

        The historic businesses of SMART differ from those of LECG in important respects and, accordingly, the results of operations of the combined company and the market price of our common stock following the Merger may be affected by factors different from those previously affecting the independent results of operations of SMART and LECG.

Our stock price has been and may continue to be volatile.

        The price of our common stock has fluctuated widely and may continue to do so, depending upon many factors, including but not limited to the risk factors listed above and the following:

•

the limited trading volume of our common stock on the NASDAQ Global Select Market;



•

variations in our quarterly results of operations;



•

the hiring or departure of key personnel, including experts;



•

our ability to maintain high utilization of our professional staff;



•

announcements by us or our competitors;



•

the loss of significant clients;



•

changes in our reputation or the reputations of our experts;



•

acquisitions or strategic alliances involving us or our competitors;



•

changes in the legal and regulatory environment affecting businesses to which we provide services;

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•

changes in estimates of our performance or recommendations by securities analysts;



•

inability to meet quarterly or yearly estimates or targets of our performance; and



•

market conditions in the industry and the economy as a whole.

The issuance of preferred stock could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders.

        Our board of directors has the authority to issue preferred stock and to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may make it more difficult for a person to acquire a majority of our outstanding voting stock, and thereby delay or prevent a change in control of us, discourage bids for our common stock over the market price and adversely affect the market price and the relative voting and other rights of the holders of our common stock.

Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

        Our amended and restated certificate of incorporation and our bylaws contain provisions that could delay or prevent a change in control of our company. For example, our charter documents prohibit stockholder actions by written consent.

        In addition, the provisions of Section 203 of Delaware General Corporate Law govern us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These and other provisions in our amended and restated certificate of incorporation, our bylaws and under Delaware law could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        Our principal executive offices are located in a leased facility in Emeryville, California, consisting of approximately 48,000 square feet of office space, under an eight-year lease that expires in July 2010. This facility accommodates our principal administrative and finance operations. As of December 31, 2009, we also had significant offices in the following cities:

•

Washington, D.C.: approximately 56,000 square feet of office space, under a lease that expires in 2011,



•

Chicago, Illinois: approximately 28,000 square feet of office space under a lease that expires in 2015,



•

Lake Oswego, Oregon: approximately 23,000 square feet of office space under a lease that expires in 2014,



•

San Diego, California: approximately 20,000 square feet of office space, under a lease that expires in 2016,



•

Century City, California: approximately 26,000 square feet of office space, under a lease that expires in 2010, and

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•

London, United Kingdom, approximately 23,000 square feet of office space under a lease that expires in 2019, with an option to cancel in 2014.

        We occupy leased facilities in a total of 21 cities throughout the United States and in 15 cities in other countries, including Argentina, Australia, Belgium, France, Hong Kong, Italy, Mexico, New Zealand, Spain and the United Kingdom. We do not own any real property. We believe that our leased facilities are adequate to meet our current needs and that we will be able to obtain additional leased facilities on commercially reasonable term to meet our future needs.

        As a result of the closing the Merger with SMART on March 10, 2010, we gained ten additional office locations, including nine offices in the United States and one international office in London, United Kingdom. As of March 10, 2010, SMART also had significant offices in the following cities:

•

Devon, Pennsylvania: approximately 52,000 square feet of office space, under a lease that expires in 2017, and



•

Chicago, Illinois: approximately 20,000 square feet of office space under a lease that expires in 2016.

ITEM 3.    LEGAL PROCEEDINGS

        We are party to certain legal proceedings arising out of the ordinary course of business, including proceedings that involve claims of wrongful termination by experts and professional staff who formerly worked for us, and claims for payment of disputed amounts relating to agreements in which we have acquired businesses. The outcomes of these matters are uncertain, and we are not able to estimate the amount or range of amounts that may become payable as a result of a judgment or settlement in such proceedings. However, in the opinion of our management, the outcomes of these matters, individually or in the aggregate, would not have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 4.    (REMOVED AND RESERVED)

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our Common Stock is traded on the NASDAQ Global Select Market under the symbol of XPRT. The following table sets forth, for the period indicated, the low and high closing prices per share for our Common Stock as reported by the NASDAQ Global Select Market.

        As of February 26, 2010, there were approximately 87 holders of record of our Common Stock. This number does not include stockholders for whom shares were held in a "nominee" or "street" name. We believe there are approximately 3,100 beneficial owners of our Common Stock.

        We currently expect that we will retain our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any dividends on our Common Stock in the foreseeable future. Future cash dividends, if any on our Common Stock, will be at the discretion of our board of directors and will depend upon, among other things, our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors the board of directors may deem relevant. Also, our credit facility contains restrictions on our ability to pay cash dividends.

Securities authorized for issuance under equity compensation plans

        The information required by this item appears under Item 12. "Security ownership of certain beneficial owners and management and related stockholders matters" included elsewhere in this Annual Report on Form 10-K.

Issuer purchases of equity securities

        No purchases of our equity securities were made by or on behalf of LECG during the three months ended December 31, 2009.

Unregistered sales of equity securities

        There were no unregistered sales of equity securities completed during the year ended December 31, 2009.

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Stock performance graph

        The following graph compares our cumulative total stockholder return to that of the NASDAQ Composite Index, and that of a peer group of companies consisting of CRA International, Inc., FTI Consulting, Inc., Huron Consulting Group, Inc. and Navigant Consulting, Inc. during the five-year period from December 31, 2004 through December 31, 2009. The comparison assumes that $100 was invested on December 31, 2004. We paid no dividends during the period shown. The performance of the market index and the peer group comparison is shown on a total return, i.e. dividends reinvested basis. The peer group returns are determined based on the returns of each component issuer of the peer group, weighted according to the respective issuer's stock market capitalization at the beginning of the period presented.

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ITEM 6.    SELECTED FINANCIAL DATA

        We have derived the following selected consolidated financial data as of and for the years ended December 31, 2009, 2008, 2007, 2006 and 2005 from our audited consolidated financial statements. The selected consolidated financial data reported below includes the financial results of the following businesses as of their acquisition dates, which affects the comparability of the consolidated financial statement information from different periods: Secura (March 2007), Mack Barclay (May 2006), Lancaster (December 2005), Beach (December 2005), Neilson (November 2005), Bates (August 2005), and Cook (March 2005). Please see "Item 7. Management's Discussion and Analysis of Financial Condition and Operations" and the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information about these acquisitions and their effect on our consolidated financial statements. We completed our Merger with SMART on March 10, 2010, which is a significant transaction that will affect the comparability of our results in future periods to the selected consolidated financial data reported below. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

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(1)

Reflects our SVEWG subsidiary as discontinued operations for 2005 through 2006 as we sold this subsidiary on December 31, 2007.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and other parts of this Annual Report on Form 10-K concerning our future business, operating and financial condition and statements using the terms "believes", "expects", "will", "could", "plans", "anticipates", "estimates", "predicts", "intends", "potential", "continue", "should", "may", or the negative of these terms or similar expressions are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations as of the date of this Report. There may be events in the future that we are not able to accurately predict or control that may cause actual results to differ materially from expectations. Information contained in these forward-looking statements is inherently uncertain, and actual performance is subject to a number of risks, including but not limited to, (1) our ability to successfully attract, integrate and retain our experts and professional staff, (2) dependence on key personnel, (3) successful management and utilization of professional staff, (4) dependence on growth of our service offerings, (5) our ability to maintain and attract new business, (6) our ability to maintain and comply with the covenants under our new credit facility, (7) the cost and contribution of additional hires and acquisitions, (8) risks relating to the recent closing of our Merger with SMART and our ability to successfully integrate the service offerings, professional staff, facilities and culture of the predecessor organizations, (9) successful administration of our business and financial reporting capabilities including maintaining effective internal control over financial reporting, (10) potential professional liability, (11) intense competition, (12) risks inherent in international operations, and,(13) risks inherent in successfully transitioning and managing our restructured business. Further information on these and other potential risk factors that could affect our financial results may be described from time to time in our periodic filings with the Securities and Exchange Commission and include those set forth in this Report under Item 1A. "Risk Factors." We cannot guarantee any future results, levels of activity, performance or achievement. We undertake no obligation to update any of these forward-looking statements after the date of this Report.

Recent event—Merger with SMART

        On March 10, 2010, we completed our merger (which we refer to as the Merger) with SMART Business Holdings, Inc. (SMART), a privately held provider of business advisory services, and we received a $25.0 million cash investment from SMART's majority shareholder, Great Hill Equity Partners III, LP (which we refer to as the investment). In the Merger transaction, we acquired 100% of SMART's outstanding stock, in exchange for which we issued 10,927,869 shares of LECG common stock, and we assumed approximately $42.8 million of SMART debt as of March 10, 2010. Simultaneously with the consummation of the Merger, SMART's majority shareholder, Great Hill Equity Partners III, LP, made a $25.0 million cash investment into LECG in exchange for our issuance to them of 6,313,131 shares of Series A Convertible Redeemable Preferred Stock. This stock is convertible share-for-share into LECG's common stock (equivalent to a price of $3.96 per share), and provides a 7.5% dividend payable in cash or Series A Convertible Redeemable Preferred Stock at our discretion. As a result of the issuance of the common stock and Series A Convertible Redeemable Preferred Stock, Great Hill Equity Partners III, LP owns approximately 40% of our outstanding voting shares.

        The Merger is accounted for under the purchase method of accounting. "Note 18—Subsequent event—SMART merger and term loan facility" of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K provides information regarding our preliminary estimate of the purchase price allocation.

        As a result of our Merger with SMART, we have grown significantly and expanded our areas of practice. We have also significantly increased our cost structure and we have assumed additional debt in the amount of $42.8 million. In conjunction with completing the Merger, we repaid and terminated our prior credit facility, and we became co-borrowers with SMART under a term loan that is further

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described in "Note 18—Subsequent event—SMART merger and term loan facility" of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Certain business developments in 2009

        In the second and third quarters of 2009, we executed restructuring actions intended to better align our cost structure with current business and market conditions. These combined actions included a workforce reduction of 133 billable headcount (109 involuntary terminations and 24 voluntary terminations which were not replaced) and 41 administrative staff, as well as adjustments to the compensation structure of 81 billable headcount and 39 administrative staff. These actions also included the divestiture of our Canadian practice and the consolidation of office spaces in four locations. We recognized restructuring charges totaling $5.7 million, consisting of non-cash charges of $1.2 million related to the write-off of draw deficit and unearned signing and performance bonuses, and cash charges of $4.5 million related to one-time termination benefits and lease termination costs. We also recognized a charge of $1.7 million related to the Canadian divestiture and $0.1 million of trailing charges related to the divestiture of a portion of our Milan, Italy practice.

        Further financial information regarding our goodwill impairment, other intangible asset impairments, and restructuring, divestiture and other asset impairment charges is included in "Note 4—Goodwill", "Note 5—Other intangible assets" and "Note 14—Restructuring, divestiture and other asset impairment charges", in Notes to Consolidated Financial Statements contained in this Annual Report Form 10-K.

Revenue, operating profit and cash flow drivers

        We derive substantially all of our revenues from professional services activities. Our revenue is determined by our ability to secure new business from our existing and new clients, by the prices we obtain for our services, and by the size and the utilization of our expert and professional staff workforce. Our ability to generate new business is determined by developments in the economy as well as by our existing and prospective clients' perceptions of the quality of our work and the professional reputations of our experts.

        Our gross profit consists of revenue less costs of services. The primary component of our costs of services is expert and professional staff compensation costs, including salaries, variable compensation arrangements, bonuses, equity compensation costs, and bonus amortization associated with signing, retention, and performance bonuses.

        Our operating profit is calculated by subtracting our operating expenses from our gross profit. Our operating expenses include general and administrative expenses comprised of compensation for personnel in executive and operational management, finance and accounting, human resources, information technology and marketing, as well as facility costs, professional services, recruiting, marketing and business development costs. Our operating expenses also include depreciation of property and equipment and amortization of intangible assets. Restructuring charges, consisting of one-time termination benefits, write-offs of unearned bonuses and draw deficit and lease termination costs, reduced our operating profit in 2009, 2008 and 2007. Other impairments and divestiture charges reduced our operating profit in 2009 and 2008. Also, goodwill impairment charge reduced our operating profit in 2008.

        Our operating cash flow is driven by our operating profit, our accounts receivable levels, and payments of signing, retention and performance bonuses we make to our experts and professional staff. We have made and will continue to make signing, retention and performance bonus payments. We use our operating cash flow to fund our investing activities, including business acquisitions and any related earn-out payments. We have made and may be required to make future performance-based purchase price payments for acquisitions completed between 2005 and 2007.

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Billable headcount

        The following table summarizes billable headcount by segment as of December 31, 2009 and the two prior years.

        The decrease in consolidated billable headcount since December 31, 2008 is primarily due to 133 terminations as a result of our second and third quarter 2009 restructuring actions and 17 terminations as a result of our divestiture activities, including 56 terminations in our Economics segment and 94 terminations in our Finance and Accounting Service segment, and nine hires, net of attrition.

        The decrease in consolidated billable headcount since December 31, 2007 to December 31, 2008 is primarily due to 35 terminations in connection with our 2008 restructuring activities, including 11 terminations in our Economics segment and 24 terminations in our Finance and Accounting Service segment, and 11 terminations due to attrition, net of ongoing recruitment efforts.

Signing, retention, and performance bonuses and associated bonus amortization

        In connection with our retention and hiring efforts in 2009, 2008, and 2007, we paid signing, retention and performance bonuses of $10.6 million, $17.4 million, and $38.4 million, respectively, which are amortized over periods ranging from one to seven years. Amortization of signing, retention and performance bonuses expense was $17.8 million, $16.5 million, and $12.1 million in 2009, 2008, and 2007, respectively. Future amortization expense for bonuses recognized as of December 31, 2009 is expected to be (in thousands):

Acquisitions

        Since August 2003, we have acquired 12 businesses. Most of our acquisition agreements required us to make performance-based purchase price payments annually or at other intervals if specified performance targets are achieved during specified measurement periods. These performance-based payments were recorded as additional purchase price and goodwill at the end of each specified measurement period. We have made acquisition-related payments of $5.6 million, $9.7 million, $23.8 million, $22.2 million and $32.1 million in 2009, 2008, 2007, 2006 and 2005, respectively, including the initial purchase price payments, the fair value of our common stock issued, transaction costs, and performance-based purchase price and guaranteed payments. The results of operations of the acquired businesses are included in our operating results from the date of acquisition. Our payments related to prior acquisitions are described in the Contractual Obligations and Commitments section of this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. As of

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December 31, 2009 we are obligated to make additional payments of $1.1 million in July 2010 and $0.1 million in March 2011.

Gross margin

Revenues

        We derive our revenue primarily from professional service fees that are billed at hourly rates on a time and expense basis. Revenue related to these services is recognized when the earnings process is complete and collection is reasonably assured. Revenues are recognized net of amounts estimated to be unrealizable based on several factors, including the historical percentage of write-offs due to fee adjustments for both unbilled and billed receivables.

        Fee-based revenues, net are comprised of:

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fees for the services of our professional staff and subcontractors;



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fees for the services of our experts and affiliates; and



•

realization allowance.

        Reimbursable revenues are comprised of costs that are reimbursable by clients, including travel, document reproduction, subscription data services and other costs, and amounts we charge for services provided by others.

        Our revenue results for any given reporting period are impacted principally by our professional staff utilization rate, the number of business days in each period, the number of professional staff available to work, and the number of hours worked by our experts. For example, during the fourth quarter of each year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which could negatively impact our utilization rate. The number of hours worked by our experts and staff is affected by the number of vacation days taken by them as well as the number of holidays in each quarter. Also, we typically have fewer business days available in the fourth quarter of each year, which can reduce revenues in that period.

Cost of services

        Direct costs are comprised of:

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salary, bonuses, employer taxes and benefits of all professional staff and salaried experts;



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compensation to experts based on a percentage of their individual professional fees;



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compensation to experts based on specified revenue and gross margin performance targets;



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compensation to subcontractors and affiliates;



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fees earned by experts and other business generators as project origination fees;



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amortization of signing, retention and performance bonuses that are subject to vesting over time; and



•

equity-based compensation.

        Reimbursable costs are costs that are reimbursable by clients, including travel, document reproduction, subscription data services, and costs incurred for services provided by others.

        Hourly fees charged by the professional staff that support our experts, rather than the hourly fees charged by our experts, generate a majority of our gross profit. Most of our experts are compensated based on a percentage of their billings from 30% to 100%, and averaging approximately 72%, 71% and 70% of their individual billings on particular projects in 2009, 2008 and 2007, respectively. Such experts

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are paid when we have received payment from our clients. We refer to these experts as at-risk experts. Some of our experts are compensated based on a percentage of performance targets such as revenue or gross margin associated with engagements generated by an expert or a group of experts. Experts not on either of these compensation models are compensated under a salary plus performance-based bonus model. We make advance payments, or draws, to many of our non-salaried experts, and any outstanding draws previously paid to experts are deducted from the experts' fee payments. We recognize an estimate of compensation expense for expert advances that we consider may ultimately be unrecoverable. In some cases, we guarantee an expert's draw at the inception of their employment for a period of time, which is typically one year or less. In such cases, if the expert's earnings do not exceed their draws within a reasonable period of time prior to the end of the guarantee period, we recognize an estimate of the compensation expense we will ultimately incur by the end of the guarantee period.

        Because of the manner in which we pay our experts, our gross profit is significantly dependent on the margin on our professional staff services. The number of professional staff and the level of experience of professional staff assigned to a project will vary depending on the size, nature and duration of each engagement. We manage our personnel costs by monitoring engagement requirements and utilization of the professional staff. As an inducement to encourage experts to utilize our professional staff, experts generally receive project origination fees. Such fees are based primarily on a percentage of the collected professional staff fees. Project origination fees can also include a percentage of the collected expert fees for those experts acting in a support role on an engagement. These fees have averaged 10%, 12% and 11% of professional staff revenues in 2009, 2008, and 2007, respectively. Experts are generally required to use our professional staff unless the skills required to perform the work are not available through us. In these instances we engage outside individual or firm-based consultants, who are typically compensated on an hourly basis. Both the revenue and the cost resulting from the services provided by these outside consultants are recognized in the period in which the services are performed.

        Hiring and/or retaining experts sometimes involves the payment of upfront cash amounts. In some cases, the payment of a portion of an upfront amount is due at a future date. These types of upfront payments are recognized when the payment is made, the obligation to pay such amount is incurred, or on the execution date of the retention agreement, and are generally amortized over the period for which they are recoverable from the individual expert up to a maximum period of seven years.

        We have also paid or are obligated to pay certain performance bonuses that are subject to recovery of unearned amounts if the expert were to voluntarily leave us, be terminated for cause, or fail to meet certain performance criteria prior to a specified date. Like signing and retention bonuses, these performance bonuses are amortized over the period for which unearned amounts are recoverable from the individual expert up to a maximum period of seven years, and we recognize such performance bonuses at the time we determine it to be more likely than not that the performance criteria will be met.

        Most of our agreements allow us to recover signing, retention and performance bonuses from the employee if he or she were to voluntarily leave us or be terminated for cause prior to a specified date. However, for the purpose of recognizing expense, we amortize such signing, retention and performance bonuses over the shorter of the contractual recovery period or seven years. If an employee is involuntarily terminated, we generally cannot recover the unearned amount and we write off the unearned amount at the time of termination.

CRITICAL ACCOUNTING POLICIES

Revenue recognition

        Revenue includes all amounts earned that are billed or billable to clients, including reimbursable expenses, and are reduced for amounts related to work performed that are estimated to be

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unrealizable. Expert revenues consist of revenues generated by experts who are our employees as well as revenues generated by experts who are independent contractors. There is no operating, business or other substantive distinction between our employee experts and our exclusive independent contractor experts.

        Revenues primarily arise from time and expense contracts, which are recognized in the period in which the services are performed. We also enter into certain performance-based contracts for which performance fees are dependent upon a successful outcome, as defined by the consulting engagement. Revenues related to performance-based fee contracts are recognized in the period when the earnings process is complete and we have received payment for the services performed under the contract. Revenues are also generated from fixed price contracts, which are recognized as the agreed upon services are performed. Fixed price and performance-based contracts revenues are not a material component of total revenues.

        We recognize revenue net of an estimate for amounts that will not be collected from the client due to fee adjustments. This estimate is based on several factors, including our historical percentage of fee adjustments and review of unbilled and billed receivables. These estimates are reviewed by management on a quarterly basis.

Accounts receivable, reserves for unrealizable revenue and allowance for bad debts

        Accounts receivable consist of unbilled and billed amounts due from clients, which are recognized net of reserves for unrealizable revenue and allowances for bad debts. We maintain reserves for unrealizable revenue and allowance for bad debts based on several factors, including the length of time receivables are past due, economic trends and conditions affecting our clients base, specific knowledge of a client's inability to meet its financial obligations, significant one-time events and historical write-off experience. We review the adequacy of our reserves on a quarterly basis. These estimates may be significantly different from actual results. If the financial condition of a client deteriorates in the future, impacting the client's ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.

Equity-based compensation

        We account for equity based compensation under the provisions of FASB ASC 718, Compensation—Stock Compensation ("ASC 718"). ASC 718 requires the recognition of the fair value of equity-based compensation in operations. The fair value of our stock option awards are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period. Our forfeiture rate is based upon historical experience as well as anticipated employee turnover considering certain qualitative factors. The fair value of equity-based awards is amortized over the vesting period of the award and we elected to use the straight-line method for awards granted after the adoption of ASC 718.

Income taxes

        We account for income taxes in accordance with FASB ASC 740, Income Taxes ("ASC 740"). The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's consolidated financial statements or tax returns. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Judgment is required in assessing the future tax

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consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations or cash flows.

        We account for uncertainty in income taxes recognized in our financial statements using a two-step approach. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is "more likely than not" that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement. We assessed that it had an unrecognized tax benefit of $3.8 million as of December 31.

        Our deferred tax assets are generally projected to reverse over the next one to thirty-three years. The extended reversal period is the result of significant income tax basis in intangible assets which were impaired for financial statement purposes during 2008. Tax amortization from these assets, if not offset with current taxable income, would create a net operating loss with a 20-year carryforward period for federal tax purposes. At December 31, 2009, we reviewed our net deferred tax assets, as well as future projected taxable income, for recovery using the "more likely than not" approach by assessing the available evidence surrounding recoverability. We considered all available evidence, both positive and negative, including forecasts of future taxable income, tax planning strategies and past operating results which includes a net loss for 2009 and 2008. Even though we project income in future years, based upon past losses, the current economic environment, and the difficulty of accurately projecting taxable income, we determined that it was "more likely than not" that our net deferred tax assets may not be realized. Consequently, a full valuation allowance of $55.6 million has been recorded at December 31, 2009, against our net deferred tax assets. In future years, if we begin to generate taxable income and our management determines that the net deferred tax asset is recoverable, the valuation allowance will be reversed. Any such reversal will result in a tax benefit in the period of reversal.

Goodwill and other intangible assets

        Goodwill relates to our business acquisitions, reflecting the excess of purchase price over fair value of identifiable net assets acquired. ASC 350 requires that goodwill and intangible assets with indefinite lives not be amortized, but rather tested for impairment at least annually, or whenever events or changes in circumstances indicate the carrying amounts of these assets may not be recoverable. Our annual impairment test is performed during the fourth quarter of each year using an October 1^st measurement date.

        Factors that we consider important in determining whether to perform an impairment review on a date other than October 1^st, include significant underperformance relative to forecasted operating results, significant negative industry or economic trends, and permanent declines in our stock price and related market capitalization. If we determine that the carrying value of goodwill may not be recoverable, we will assess impairment based on a projection of discounted future cash flows for each reporting unit, or some other fair value measurement such as the quoted market price of our stock and the resulting market capitalization, and then measure the amount of impairment, if necessary, based on the difference between the carrying value of our reporting units assigned goodwill and its implied fair value. Determining the fair value of our reporting units and the implied fair value of a reporting units' assigned goodwill requires the use of estimates and assumptions and significant management judgments all of which could materially effect our determination and measurement of impairment. As a result of our 2008 annual impairment test, we recognized a goodwill impairment charge of $118.8 million in the fourth quarter of 2008. In the second quarter of 2009, we recorded an additional $1.8 million of goodwill related to a contingent business acquisition payment. As of October 1, 2009, we concluded that there was no impairment to our $1.8 million goodwill asset based on our 2009 annual test.

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        Other intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized over their expected useful lives. Other intangible assets consist principally of customer relationships, contract rights, non-compete agreements and trade processes and are generally amortized over six months to 20 years. We evaluate the recoverability of our other intangible assets over their remaining useful life when changes in events or circumstances warrant an impairment review. If the carrying value of an intangible asset is determined to be impaired and unrecoverable over its originally estimated useful life, we will record an impairment charge to reduce the asset's carrying value to its fair value and then amortize the remaining value prospectively over the revised remaining useful life. We generally determine the fair value of our intangible asset using a discounted cash flow model as quoted market prices for these types of assets is not readily available. Due to changes in events and circumstances in the fourth quarter of 2008, we performed an impairment test and determined that certain amounts related to our intangible assets were not recoverable. As a result, we recorded a $4.5 million impairment charge related to the net carrying value of our customer relationship and trade name intangible assets.

Recently issued accounting standards

        See "Note 2—Summary of significant accounting policies" in Notes to Consolidated Financial Statements contained in this Form 10-K, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

RESULTS OF OPERATIONS

        As previously discussed in the Business section of this Form 10-K, our historical practice groups and individual experts were reorganized into two operating segments during the second quarter of 2008. These two segments are referred to as Economics Services and Finance and Accounting Services. The Chief Operating Decision Maker considers the key profit/loss measurement of the two segments to be gross profit and gross margin. As such, only revenue, costs of services and gross margin are presented and discussed at the segment level. Historical segment revenue, costs of services and other operational data have been recast as if the current management and reporting structure had been in place since the beginning of each period presented. Since we have historically measured our business performance at a consolidated entity level and made resource allocation decisions differently under that structure, the recasting of historical segment information throughout this Management's Discussion and Analysis is not intended to represent the actual results that would have been achieved if our business had been managed under the new structure since the beginning of each period presented, or intended to predict future results.

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Years Ended December 31, 2009, 2008 and 2007

        The following table sets forth the amounts and the percentage of revenues represented by the line items in our Consolidated Statement of Operations for the years ended December 31, 2009, 2008 and 2007, respectively. Our Consolidated Statements of Operations include the financial results of the Secura business which we acquired in March 2007.

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