---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2004



OR



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number: 000-50285



FIRST ADVANTAGE CORPORATION

(Exact
name of registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Incorporated in Delaware                                       |  | 61-1437565                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



One Progress Plaza,
Suite 2400

St. Petersburg, Florida 33701

(Address of principal executive offices, including zip code)



(727) 214-3411

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



There were 5,614,497 shares of outstanding Class A Common Stock of the registrant as of August 2, 2004.



There were 16,027,286 shares of outstanding Class B Common Stock of the registrant as of
August 2, 2004.



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INDEX



|                              |  |                                                                                                      |  |   
|----------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --
|Part I. FINANCIAL INFORMATION |  | 1                                                                                                   
|                              |  |                                                                                                     
|Item 1.                       |  | Financial Statements                                                                                 |  | 1 
|                              |  |                                                                                                     
|                              |  | Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003                                |  | 1 
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Income for the Three and Six Months Ended June 30, 2004 and June 30, 2003 |  | 2 
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Changes in Stockholders Equity for the Six Months Ended June 30, 2004    |  | 3 
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003       |  | 4 
|                              |  |                                                                                                     
|                              |  | Notes to Consolidated Financial Statements                                                           |  | 5 
|                              |  |                                                                                                     
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 13
|                              |  |                                                                                                     
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 21
|                              |  |                                                                                                     
|Item 4.                       |  | Controls and Procedures                                                                              |  | 21
|                              | 
|Part II. OTHER INFORMATION    |  | 22                                                                                                  
|                              |  |                                                                                                     
|Item 1.                       |  | Legal Proceedings                                                                                    |  | 22
|                              |  |                                                                                                     
|Item 2.                       |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                     |  | 22
|                              |  |                                                                                                     
|Item 3.                       |  | Defaults Upon Senior Securities                                                                      |  | 22
|                              |  |                                                                                                     
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                  |  | 22
|                              |  |                                                                                                     
|Item 5.                       |  | Other Information                                                                                    |  | 22
|                              |  |                                                                                                     
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                     |  | 23



---

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



First Advantage Corporation



Consolidated Balance Sheets (Unaudited)



|                                                                                                                                                                                   |  |              |             |                  |   |            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | ---------------- | - | -----------
|                                                                                                                                                                                   |  | June 30,2004 |             | December 31,2003
|Assets                                                                                                                                                                             |  |              |             |                  |   |            
|Current assets:                                                                                                                                                                    |  |              |             |                  |   |            
|Cash and cash equivalents                                                                                                                                                          |  | $            | 6,065,000   |                  | $ | 5,637,000  
|Accounts receivable (less allowance for doubtful accounts of $1,914,000 and $1,327,000 in 2004 and 2003, respectively)                                                             |  |              | 43,055,000  |                  |   | 23,672,000 
|Income taxes receivable                                                                                                                                                            |  |              | 503,000     |                  |   | 1,282,000  
|Due from affiliates                                                                                                                                                                |  |              | 637,000     |                  |   |           
|Prepaid expenses and other current assets                                                                                                                                          |  |              | 2,635,000   |                  |   | 2,512,000  
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total current assets                                                                                                                                                               |  |              | 52,895,000  |                  |   | 33,103,000 
|Property and equipment, net                                                                                                                                                        |  |              | 20,615,000  |                  |   | 19,719,000 
|Goodwill                                                                                                                                                                           |  |              | 263,553,000 |                  |   | 204,710,000
|Intangible assets, net                                                                                                                                                             |  |              | 31,066,000  |                  |   | 18,528,000 
|Database development costs, net                                                                                                                                                    |  |              | 7,797,000   |                  |   | 7,162,000  
|Other assets                                                                                                                                                                       |  |              | 1,575,000   |                  |   | 678,000    
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total assets                                                                                                                                                                       |  | $            | 377,501,000 |                  | $ | 283,900,000
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Liabilities and Stockholders Equity                                                                                                                                               |  |              |             |                  |   |            
|Current liabilities:                                                                                                                                                               |  |              |             |                  |   |            
|Accounts payable                                                                                                                                                                   |  | $            | 6,746,000   |                  | $ | 4,211,000  
|Accrued compensation                                                                                                                                                               |  |              | 10,526,000  |                  |   | 9,373,000  
|Accrued liabilities                                                                                                                                                                |  |              | 14,745,000  |                  |   | 6,327,000  
|Due to affiliates                                                                                                                                                                  |  |              |            |                  |   | 992,000    
|Current portion of long-term debt and capital leases                                                                                                                               |  |              | 9,046,000   |                  |   | 7,231,000  
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total current liabilities                                                                                                                                                          |  |              | 41,063,000  |                  |   | 28,134,000 
|Long-term debt and capital leases, net of current portion                                                                                                                          |  |              | 64,335,000  |                  |   | 13,473,000 
|Convertible notes                                                                                                                                                                  |  |              | 8,722,000   |                  |   |           
|Deferred income taxes                                                                                                                                                              |  |              | 4,061,000   |                  |   |           
|Other liabilities                                                                                                                                                                  |  |              | 1,990,000   |                  |   | 1,957,000  
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total liabilities                                                                                                                                                                  |  |              | 120,171,000 |                  |   | 43,564,000 
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Commitments and contingencies                                                                                                                                                      |  |              |             |                  |   |            
|Stockholders equity:                                                                                                                                                              |  |              |             |                  |   |            
|Preferred stock, $.001 par value; 1,000,000 shares authorized, no shares issued or outstanding                                                                                     |  |              |            |                  |   |           
|Class A common stock, $.001 par value; 75,000,000 shares authorized; 5,612,962 and 4,866,362 shares issued and outstanding as of June 30, 2004
and December 31, 2003, respectively |  |              | 6,000       |                  |   | 5,000      
|Class B common stock, $.001 par value; 25,000,000 shares authorized; 16,027,286 shares issued and outstanding as of June 30, 2004 and December
31, 2003                            |  |              | 16,000      |                  |   | 16,000     
|Additional paid-in capital                                                                                                                                                         |  |              | 246,236,000 |                  |   | 233,101,000
|Retained earnings                                                                                                                                                                  |  |              | 11,061,000  |                  |   | 7,214,000  
|Accumulated other comprehensive income                                                                                                                                             |  |              | 11,000      |                  |   |           
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total stockholders equity                                                                                                                                                         |  |              | 257,330,000 |                  |   | 240,336,000
|                                                                                                                                                                                   |  |              |             |                  |   |            
|Total liabilities and stockholders equity                                                                                                                                         |  | $            | 377,501,000 |                  | $ | 283,900,000
|                                                                                                                                                                                   |  |              |             |                  |   |            



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



1



---

First Advantage Corporation



Consolidated Statements of Income (Unaudited)



|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                                            |  | For the Three Months EndedJune 30, |            |   | For the Six Months EndedJune 30, |  
|                                            |  | 2004                               |            |   | 2003                             |   |            | 2004 |  |   | 2003        |  
|Service revenue                             |  | $                                  | 58,032,000 |   |                                  | $ | 30,144,000 |      |  | $ | 103,991,000 |   |  | $ | 54,328,000 |  
|Reimbursed government fee revenue           |  |                                    | 10,887,000 |   |                                  |   | 7,287,000  |      |  |   | 22,361,000  |   |  |   | 14,644,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Total revenue                               |  |                                    | 68,919,000 |   |                                  |   | 37,431,000 |      |  |   | 126,352,000 |   |  |   | 68,972,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Cost of service revenue                     |  |                                    | 16,558,000 |   |                                  |   | 7,531,000  |      |  |   | 30,539,000  |   |  |   | 13,993,000 |  
|Government fees paid                        |  |                                    | 10,887,000 |   |                                  |   | 7,287,000  |      |  |   | 22,361,000  |   |  |   | 14,644,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Total cost of service                       |  |                                    | 27,445,000 |   |                                  |   | 14,818,000 |      |  |   | 52,900,000  |   |  |   | 28,637,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Gross margin                                |  |                                    | 41,474,000 |   |                                  |   | 22,613,000 |      |  |   | 73,452,000  |   |  |   | 40,335,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Salaries and benefits                       |  |                                    | 21,006,000 |   |                                  |   | 11,312,000 |      |  |   | 38,718,000  |   |  |   | 21,837,000 |  
|Other operating expenses                    |  |                                    | 11,292,000 |   |                                  |   | 6,101,000  |      |  |   | 21,596,000  |   |  |   | 10,816,000 |  
|Depreciation and amortization               |  |                                    | 3,145,000  |   |                                  |   | 1,791,000  |      |  |   | 5,785,000   |   |  |   | 3,570,000  |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Total operating expenses                    |  |                                    | 35,443,000 |   |                                  |   | 19,204,000 |      |  |   | 66,099,000  |   |  |   | 36,223,000 |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Income from operations                      |  |                                    | 6,031,000  |   |                                  |   | 3,409,000  |      |  |   | 7,353,000   |   |  |   | 4,112,000  |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Other (expense) income:                     |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Interest expense                            |  |                                    | (498,000   | ) |                                  |   | (36,000    | )    |  |   | (729,000    | ) |  |   | (55,000    | )
|Interest income                             |  |                                    | 4,000      |   |                                  |   | 10,000     |      |  |   | 15,000      |   |  |   | 21,000     |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Total other (expense), net                  |  |                                    | (494,000   | ) |                                  |   | (26,000    | )    |  |   | (714,000    | ) |  |   | (34,000    | )
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Income before income taxes                  |  |                                    | 5,537,000  |   |                                  |   | 3,383,000  |      |  |   | 6,639,000   |   |  |   | 4,078,000  |  
|Provision for income taxes                  |  |                                    | 2,329,000  |   |                                  |   | 1,332,000  |      |  |   | 2,792,000   |   |  |   | 1,697,000  |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Net income                                  |  | $                                  | 3,208,000  |   |                                  | $ | 2,051,000  |      |  | $ | 3,847,000   |   |  | $ | 2,381,000  |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Per share amounts:                          |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Basic                                       |  | $                                  | 0.15       |   |                                  | $ | 0.10       |      |  | $ | 0.18        |   |  | $ | 0.12       |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Diluted                                     |  | $                                  | 0.15       |   |                                  | $ | 0.10       |      |  | $ | 0.18        |   |  | $ | 0.12       |  
|                                            |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Weighted-average common shares outstanding: |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |            |  
|Basic                                       |  |                                    | 21,502,035 |   |                                  |   | 20,002,126 |      |  |   | 21,328,629  |   |  |   | 20,002,126 |  
|Diluted                                     |  |                                    | 22,104,455 |   |                                  |   | 20,122,023 |      |  |   | 21,625,147  |   |  |   | 20,122,023 |  



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



2



---

First Advantage Corporation



Consolidated Statement of Changes in Stockholders Equity

For the Six Months Ended June 30, 2004 (Unaudited)



|                                                                                            |  |                    |  |                   |        |                            |   |                  |  |                                       |            |       |   |        |  |   |            
|------------------------------------------------------------------------------------------- |  | ------------------ |  | ----------------- | ------ | -------------------------- | - | ---------------- |  | ------------------------------------- | ---------- | ----- | - | ------ |  | - | -----------
|                                                                                            |  | CommonStock Shares |  | CommonStockAmount |        | Additional Paid-in Capital |   | RetainedEarnings |  | Accumulated Other ComprehensiveIncome |            | Total
|Balance at December 31, 2003                                                                |  | 20,893,648         |  | $                 | 21,000 |                            | $ | 233,101,000      |  | $                                     | 7,214,000  |       | $ |       |  | $ | 240,336,000
|Net income                                                                                  |  |                    |  |                   |       |                            |   |                 |  |                                       | 3,847,000  |       |   |       |  |   | 3,847,000  
|Class A Shares issued in connection with acquisitions                                       |  | 522,825            |  |                   | 1,000  |                            |   | 9,704,000        |  |                                       |           |       |   |       |  |   | 9,705,000  
|Class A Shares issued in connection with stock option plan and employee stock purchase plan |  | 223,775            |  |                   |       |                            |   | 3,431,000        |  |                                       |           |       |   |       |  |   | 3,431,000  
|Other comprehensive income                                                                  |  |                    |  |                   |       |                            |   |                 |  |                                       |           |       |   | 11,000 |  |   | 11,000     
|                                                                                            |  |                    |  |                   |        |                            |   |                  |  |                                       |            |       |   |        |  |   |            
|Balance at June 30, 2004                                                                    |  | 21,640,248         |  | $                 | 22,000 |                            | $ | 246,236,000      |  | $                                     | 11,061,000 |       | $ | 11,000 |  | $ | 257,330,000
|                                                                                            |  |                    |  |                   |        |                            |   |                  |  |                                       |            |       |   |        |  |   |            



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



3



---

First Advantage Corporation



Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2004 and 2003 (Unaudited)



|                                                                                                          |  |                                   |             |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                                          |  | For the Six Months Ended June 30, |            
|                                                                                                          |  | 2004                              |             |   | 2003 |  
|Cash flows from operating activities:                                                                     |  |                                   |             |   |      |   |            |  
|Net income                                                                                                |  | $                                 | 3,847,000   |   |      | $ | 2,381,000  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                         |  |                                   |             |   |      |   |            |  
|Depreciation and amortization                                                                             |  |                                   | 5,785,000   |   |      |   | 3,570,000  |  
|Change in operating assets and liabilities, net of acquisitions:                                          |  |                                   |             |   |      |   |            |  
|Accounts receivable                                                                                       |  |                                   | (11,070,000 | ) |      |   | (3,675,000 | )
|Prepaid expenses and other current assets                                                                 |  |                                   | 59,000      |   |      |   | 134,000    |  
|Other assets                                                                                              |  |                                   | (3,172,000  | ) |      |   | 178,000    |  
|Accounts payable                                                                                          |  |                                   | 1,068,000   |   |      |   | (2,081,000 | )
|Accrued liabilities                                                                                       |  |                                   | 4,173,000   |   |      |   | 1,433,000  |  
|Due (from) to affiliates                                                                                  |  |                                   | (1,673,000  | ) |      |   | 747,000    |  
|Income taxes                                                                                              |  |                                   | 3,552,000   |   |      |   | (988,000   | )
|Accrued compensation and other liabilities                                                                |  |                                   | 291,000     |   |      |   | 1,409,000  |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Net cash provided by operating activities                                                                 |  |                                   | 2,860,000   |   |      |   | 3,108,000  |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Cash flows from investing activities:                                                                     |  |                                   |             |   |      |   |            |  
|Database development costs                                                                                |  |                                   | (1,435,000  | ) |      |   | (1,133,000 | )
|Purchases of property and equipment                                                                       |  |                                   | (2,416,000  | ) |      |   | (1,253,000 | )
|Cash paid for acquisitions                                                                                |  |                                   | (44,195,000 | ) |      |   |           |  
|Cash balance of companies acquired                                                                        |  |                                   | 1,820,000   |   |      |   | 1,004,000  |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Net cash used in investing activities                                                                     |  |                                   | (46,226,000 | ) |      |   | (1,382,000 | )
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Cash flows from financing activities:                                                                     |  |                                   |             |   |      |   |            |  
|Proceeds from long-term debt                                                                              |  |                                   | 53,000,000  |   |      |   |           |  
|Repayment of long-term debt                                                                               |  |                                   | (12,637,000 | ) |      |   | (1,316,000 | )
|Cash contributions from First American                                                                    |  |                                   |            |   |      |   | 5,269,000  |  
|Proceeds from class A shares issued in connection with stock option plan and employee stock purchase plan |  |                                   | 3,431,000   |   |      |   | 1,000      |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Net cash provided by financing activities                                                                 |  |                                   | 43,794,000  |   |      |   | 3,954,000  |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Increase in cash and cash equivalents                                                                     |  |                                   | 428,000     |   |      |   | 5,680,000  |  
|Cash and cash equivalents at beginning of period                                                          |  |                                   | 5,637,000   |   |      |   | 6,514,000  |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Cash and cash equivalents at end of period                                                                |  | $                                 | 6,065,000   |   |      | $ | 12,194,000 |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Supplemental disclosures of cash flow information:                                                        |  |                                   |             |   |      |   |            |  
|Cash paid for interest                                                                                    |  | $                                 | 521,000     |   |      | $ | 48,000     |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Non-cash investing and financing activities:                                                              |  |                                   |             |   |      |   |            |  
|Class A shares issued in connection with acquisitions                                                     |  | $                                 | 9,705,000   |   |      |   |           |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Cash paid for income taxes                                                                                |  | $                                 | 124,000     |   |      |   |           |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Notes issued in connection with acquisitions                                                              |  | $                                 | 20,389,000  |   |      |   |           |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Operations contributed by First American                                                                  |  | $                                 |            |   |      | $ | 10,696,000 |  
|                                                                                                          |  |                                   |             |   |      |   |            |  
|Shares issued in connection with US SEARCH.com acquisition                                                |  | $                                 |            |   |      | $ | 60,167,000 |  
|                                                                                                          |  |                                   |             |   |      |   |            |  



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



4



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



|1. | Organization and Nature of Business
|-- | -----------------------------------



In June 2003, First Advantage Corporation (the Company), a holding company, acquired US SEARCH.com and six operating subsidiaries of The First
American Corporation (First American) that formerly comprised its First American Screening Technologies (FAST) division. The operating subsidiaries included HireCheck, Inc., First American Registry, Inc., Substance Abuse
Management, Inc., American Driving Records, Inc., Employee Health Programs, Inc., and SafeRent, Inc. First American owns approximately 74% of the shares of capital stock of the Company as of June 30, 2004. The Class B common stock owned by First
American is entitled to ten votes per share on all matters presented to the stockholders for vote.



The Company operates in three primary business segments: Enterprise Screening, Risk Mitigation and Consumer Direct. The Enterprise Screening segment
includes employment background screening, occupational health services and resident screening services. The Risk Mitigation segment includes motor vehicle records and investigative services. The Consumer Direct segment provides consumers with a
single, comprehensive access point to a broad range of information to assist them in locating people and other public data searches.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



Basis of Presentation



The consolidated financial information included in this report has been prepared in accordance with the instructions to Form 10-Q and does not include all
of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments are of a normal recurring nature and are considered necessary for a fair statement of
the results for the interim period. This report should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.



First Advantage completed four acquisitions during the second quarter of
2004. The Companys operating results for the three and six months ended June 30, 2004 include results for the acquired entities from their respective dates of acquisition. The Companys operating results for the three and six months ended
June 30, 2003 include results for the FAST division from January 1, 2003 and the results for US SEARCH.com from June 1, 2003.



Operating results for the six months ended June 30, 2004 and 2003 are not necessarily indicative of the results that may be expected for the entire fiscal
year.



5



---

First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)





Comprehensive Income



Comprehensive income is as follows:



|                                         |  |                             |           |                           |   |           |  |      |           |  |   |          
|---------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                         |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                         |  | 2004                        |           | 2003                      |   | 2004      |  | 2003
|Net Income                               |  | $                           | 3,208,000 |                           | $ | 2,051,000 |  | $    | 3,847,000 |  | $ | 2,381,000
|Other comprehensive income:              |  |                             |           |                           |   |           |  |      |           |  |   |          
|Foreign currency translation adjustments |  |                             | 11,000    |                           |   |          |  |      | 11,000    |  |   |         
|                                         |  |                             |           |                           |   |           |  |      |           |  |   |          
|Comprehensive Income                     |  | $                           | 3,219,000 |                           | $ | 2,051,000 |  | $    | 3,858,000 |  | $ | 2,381,000
|                                         |  |                             |           |                           |   |           |  |      |           |  |   |          



Impairment of
Intangible and Long-Lived Assets



First Advantage carries
intangible and long-lived assets at cost less accumulated amortization. Accounting standards require that assets be written down if they become impaired. Intangible and long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset is not recoverable. At such time that an impairment in value of an intangible or long-lived asset is identified, the impairment will be measured as the amount by which the carrying amount
of a long-lived asset exceeds its fair value. Fair value is determined by employing an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate.



Stock Based Compensation Plan



The Company adopted SFAS 148 as of January 1, 2003 with respect to the
disclosure requirements. The Company has elected to continue accounting for stock-based compensation using the intrinsic value method prescribed in APB 25 and related interpretations. If the Company had elected or was required to apply the fair
value recognition provisions of SFAS 123 to stock-based employee compensation, net income and net income per share would have been reduced to the pro forma amounts indicated in the following table.



|                                                   |  |                             |           |                           |   |           |  |      |           |  |   |          
|-------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                   |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                   |  | 2004                        |           | 2003                      |   | 2004      |  | 2003
|Net income, as reported                            |  | $                           | 3,208,000 |                           | $ | 2,051,000 |  | $    | 3,847,000 |  | $ | 2,381,000
|Less: stock based compensation expense, net of tax |  |                             | 756,000   |                           |   | 200,000   |  |      | 1,683,000 |  |   | 200,000  
|                                                   |  |                             |           |                           |   |           |  |      |           |  |   |          
|Pro forma net income                               |  | $                           | 2,452,000 |                           | $ | 1,851,000 |  | $    | 2,164,000 |  | $ | 2,181,000
|                                                   |  |                             |           |                           |   |           |  |      |           |  |   |          
|Earnings per share:                                |  |                             |           |                           |   |           |  |      |           |  |   |          
|Basic, as reported                                 |  | $                           | 0.15      |                           | $ | 0.10      |  | $    | 0.18      |  | $ | 0.12     
|Basic, pro forma                                   |  | $                           | 0.11      |                           | $ | 0.09      |  | $    | 0.10      |  | $ | 0.11     
|Diluted, as reported                               |  | $                           | 0.15      |                           | $ | 0.10      |  | $    | 0.18      |  | $ | 0.12     
|Diluted, pro forma                                 |  | $                           | 0.11      |                           | $ | 0.09      |  | $    | 0.10      |  | $ | 0.11     



|3. | Acquisitions
|-- | ------------



During the first quarter of 2004, the Company acquired Quantitative Risk Solutions LLC, Proudfoot Reports Incorporated, MVRs, Inc., Background
Information Systems, Inc., Infocheck Ltd. and Landlord Protect, Inc. During the second quarter of 2004, the Company acquired U.D. Registry, Inc., CoreFacts, LLC, Realeum, Inc. and created a new subsidiary, CIC Enterprises, LLC, that acquired
substantially all of the assets of CIC Enterprises, Inc., STEPS, Inc., and Horton, Inc. These acquisitions have been included in the Companys Enterprise Screening and Risk Mitigation segments. The preliminary allocation of the purchase price
is based upon estimates of the assets and liabilities acquired in accordance with Statement of Financial Accounting Standards (SFAS) No. 141. The allocations may be revised in 2004. The acquisition of these companies is based on
managements consideration of past and expected future performance as well as the potential strategic fit with the long-term goals of First Advantage. The expected long-term growth, market position and expected synergies to be generated by
inclusion of these companies are the primary factors which gave rise to an acquisition price which resulted in the recognition of goodwill.



In connection with the acquisition of CIC Enterprises, LLC, up to $14 million of additional purchase price is contingent upon the renewal by the United
States government of the Work Opportunity Tax Credit program or a similar program. The contingent consideration placed in escrow is comprised of an $11 million subordinated note and a $3 million convertible note (escrowed assets). The
final



6



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



amount of the escrowed assets may be reduced based upon the timing, similarity and retroactive application of a new program. The contingent consideration
will be included in the purchase price when the contingency is resolved and the additional consideration is issued. If no renewal event, as defined in the acquisition agreement, has occurred prior to December 31, 2005, the entire amount of the
escrowed assets will be forfeited by the seller and returned to the Company.



Convertible promissory notes totaling $8,722,000, excluding escrowed assets, have been issued in connection with the acquisitions of CoreFacts, LLC, Realeum, Inc. and CIC Enterprises, LLC. Certain of these notes
convert automatically into shares of the Companys Class A common stock while others convert at the option of the Company or the holder. The conversion price per share is equal to the average of the closing price of the common stock for the ten
consecutive trading days ending on the third trading day prior to the conversion date. One method for conversion of the notes is at such time as the Securities and Exchange Commission (SEC) declares effective registration statements of
the Company on Form S-3. The Company filed the registration statements on Form S-3 in July 2004, for all of the issued convertible promissory notes.



The aggregate purchase price of acquisitions completed during 2004 is as follows:



|                  |  |   |           
|----------------- |  | - | ----------
|Cash              |  | $ | 44,195,000
|Notes             |  |   | 11,667,000
|Convertible Notes |  |   | 8,722,000 
|Stock             |  |   | 9,705,000 
|                  |  |   |           
|Purchase price    |  | $ | 74,289,000
|                  |  |   |           



The preliminary
allocation of the aggregate purchase price of these acquisitions is as follows:



|                               |  |   |           
|------------------------------ |  | - | ----------
|Goodwill                       |  | $ | 57,569,000
|Identifiable intangible assets |  |   | 13,953,000
|Net assets acquired            |  |   | 2,767,000 
|                               |  |   |           
|                               |  | $ | 74,289,000
|                               |  |   |           



7



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



Unaudited pro forma results of operations assuming all acquisitions were consummated on January 1,
2003 are as follows:



|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|------------------------------------------- |  | ---------------------------------- | ---------- | --------------------------------- | - | ---------- |  | ---- | ----------- |  | - | ----------- | -
|                                            |  | For the Three Months EndedJune 30, |            | For the Six Months Ended June 30, |  
|                                            |  | 2004                               |            | 2003                              |   | 2004       |  | 2003 |            
|Total revenue                               |  | $                                  | 70,839,000 |                                   | $ | 66,459,000 |  | $    | 137,623,000 |  | $ | 127,617,000 |  
|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Net income (loss)                           |  | $                                  | 3,097,000  |                                   | $ | 961,000    |  | $    | 3,960,000   |  | $ | (766,000    | )
|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Earnings per share:                         |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Basic                                       |  | $                                  | 0.14       |                                   | $ | 0.04       |  | $    | 0.18        |  | $ | (0.04       | )
|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Diluted                                     |  | $                                  | 0.14       |                                   | $ | 0.04       |  | $    | 0.18        |  | $ | (0.04       | )
|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Weighted-average common shares outstanding: |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  
|Basic                                       |  |                                    | 21,502,035 |                                   |   | 21,628,339 |  |      | 21,460,489  |  |   | 21,628,339  |  
|Diluted                                     |  |                                    | 22,240,781 |                                   |   | 21,748,236 |  |      | 21,910,936  |  |   | 21,748,236  |  
|                                            |  |                                    |            |                                   |   |            |  |      |             |  |   |             |  



The changes in the
carrying amount of goodwill, by operating segment, are as follows for the six months ended June 30, 2004:



|                                   |  |                     |             |                |   |                |  |              |            |  |   |            
|---------------------------------- |  | ------------------- | ----------- | -------------- | - | -------------- |  | ------------ | ---------- |  | - | -----------
|                                   |  | EnterpriseScreening |             | RiskMitigation |   | ConsumerDirect |  | Consolidated
|Balance, at December 31, 2003      |  | $                   | 115,595,000 |                | $ | 63,539,000     |  | $            | 25,576,000 |  | $ | 204,710,000
|Acquisitions                       |  |                     | 42,343,000  |                |   | 15,226,000     |  |              |           |  |   | 57,569,000 
|Adjustments to net assets acquired |  |                     | 473,000     |                |   | 774,000        |  |              | 27,000     |  |   | 1,274,000  
|                                   |  |                     |             |                |   |                |  |              |            |  |   |            
|Balance, at June 30, 2004          |  | $                   | 158,411,000 |                | $ | 79,539,000     |  | $            | 25,603,000 |  | $ | 263,553,000
|                                   |  |                     |             |                |   |                |  |              |            |  |   |            



Adjustments to net
assets acquired relate primarily to pre-acquisition expenses that were realized after the acquisitions were completed.



The changes in the carrying amount of intangible assets are as follows for the six months ended June 30, 2004:



|                              |  |                  |            |  
|----------------------------- |  | ---------------- | ---------- | -
|                              |  | IntangibleAssets |           
|Balance, at December 31, 2003 |  | $                | 18,528,000 |  
|Acquisitions                  |  |                  | 13,953,000 |  
|Amortization                  |  |                  | (1,415,000 | )
|                              |  |                  |            |  
|Balance, at June 30, 2004     |  | $                | 31,066,000 |  
|                              |  |                  |            |  



Amortization expense
totaled $1,415,000 and $509,000 for the six months ended June 30, 2004 and 2003, respectively.



8



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



|4. | Debt
|-- | ----





Long-term debt consists of the following at June 30, 2004:



|                                                                                                             |  |   |           
|------------------------------------------------------------------------------------------------------------ |  | - | ----------
|Acquisition notes:                                                                                           |  |   |           
|Weighted average interest rate of 3.4% with maturities through 2007                                          |  | $ | 18,334,000
|Bank notes:                                                                                                  |  |   |           
|$15 million Loan Agreement, interest at 30-day LIBOR plus 1.25% (2.62% at June 30, 2004), matures July 2005  |  |   | 12,500,000
|$25 million Line of Credit, interest at 30-day LIBOR plus 1.39% (2.76% at June 30, 2004), matures March 2007 |  |   | 21,000,000
|Promissory Notes with First American:                                                                        |  |   |           
|$10 million revolving loan, interest at 30-day LIBOR plus 1.75% (3.12% at June 30, 2004), matures July 2006  |  |   | 6,500,000 
|$20 million revolving loan, interest at 30-day LIBOR plus 1.75% (3.12% at June 30, 2004), matures July 2006  |  |   | 14,000,000
|Promissory Note (related to US SEARCH.com acquisition):                                                      |  |   |           
|Interest rate of 5%, principal and interest payments monthly of $127,000, matures December 2004              |  |   | 749,000   
|Capital leases and other debt:                                                                               |  |   |           
|Various interest rates with maturities through 2006                                                          |  |   | 298,000   
|                                                                                                             |  |   |           
|Total long-term debt and capital leases                                                                      |  |   | 73,381,000
|Less current portion of long-term debt and capital leases                                                    |  |   | 9,046,000 
|                                                                                                             |  |   |           
|Long-term debt and capital leases, net of current portion                                                    |  | $ | 64,335,000
|                                                                                                             |  |   |           
|Convertible notes:                                                                                           |  |   |           
|Weighted average interest rate of 4.4% with maturities through 2007                                          |  | $ | 8,722,000 
|                                                                                                             |  |   |           



On March 18, 2004, the
Company entered into a three year $25 million unsecured revolving line of credit with a bank (the Line of Credit). The Line of Credit is guaranteed by First American. The Line of Credit bears interest at a rate equal to the 30-day LIBOR
Rate plus an applicable margin ranging from 1.29% per annum to 2.29% per annum. Accrued interest is payable monthly.



On April 27, 2004, the Company entered into a Promissory Note with First American. The loan evidenced by the Promissory Note is a $20 million unsecured
revolving loan, with interest payable monthly. The principal balance of the Promissory Note is due on July 31, 2006. The Promissory Note is subordinated to the bank Loan Agreement and Line of Credit and bears interest at the rate payable under the
$15 million bank Loan Agreement plus 0.5% per annum.



At June
30, 2004, the Company was in compliance with the financial covenants of its Loan Agreement.



In July 2004, the maturity date of the $15 million bank Loan Agreement was extended to July 31, 2006.



9



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



|5. | Earnings Per Share
|-- | ------------------



A reconciliation of earnings per share and weighted-average shares outstanding is as follows:



|                                                                      |  |                             |            |                           |   |            |  |      |            |  |   |           
|--------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                      |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                                                      |  | 2004                        |            | 2003                      |   | 2004       |  | 2003
|Net Income                                                            |  | $                           | 3,208,000  |                           | $ | 2,051,000  |  | $    | 3,847,000  |  | $ | 2,381,000 
|Interest on convertible notes, net of tax                             |  |                             | 40,000     |                           |   |           |  |      | 40,000     |  |   |          
|                                                                      |  |                             |            |                           |   |            |  |      |            |  |   |           
|Net Income - numerator for basic and fully diluted earnings per share |  | $                           | 3,248,000  |                           | $ | 2,051,000  |  | $    | 3,887,000  |  | $ | 2,381,000 
|                                                                      |  |                             |            |                           |   |            |  |      |            |  |   |           
|Denominator:                                                          |  |                             |            |                           |   |            |  |      |            |  |   |           
|Weighted-average shares for basic earnings per share                  |  |                             | 21,502,035 |                           |   | 20,002,126 |  |      | 21,328,629 |  |   | 20,002,126
|Effect of dilutive securities                                         |  |                             |            |                           |   |            |  |      |            |  |   |           
|Employee stock options and warrants                                   |  |                             | 256,168    |                           |   | 119,897    |  |      | 211,141    |  |   | 119,897   
|Convertible notes                                                     |  |                             | 346,252    |                           |   |           |  |      | 85,377     |  |   |          
|                                                                      |  |                             |            |                           |   |            |  |      |            |  |   |           
|Denominator for diluted earnings per share                            |  |                             | 22,104,455 |                           |   | 20,122,023 |  |      | 21,625,147 |  |   | 20,122,023
|                                                                      |  |                             |            |                           |   |            |  |      |            |  |   |           
|Earnings per share:                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           
|Basic                                                                 |  | $                           | 0.15       |                           | $ | 0.10       |  | $    | 0.18       |  | $ | 0.12      
|Diluted                                                               |  | $                           | 0.15       |                           | $ | 0.10       |  | $    | 0.18       |  | $ | 0.12      



| | For the three months ended June 30, 2004 and 2003 options and warrants totaling 1,420,843 and 1,022,423, respectively, were excluded from the weighted average diluted shares
outstanding as they were antidilutive. For the six months ended June 30, 2004 and 2003 options and warrants totaling 1,410,415 and 962,535, respectively, were excluded as they were antidilutive.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



|6. | Segment Information
|-- | -------------------



The Company operates in three primary business segments: Enterprise Screening, Risk Mitigation and Consumer Direct.



The Enterprise Screening segment includes employment background screening,
occupational health services and resident screening services. Products and services relating to employment background screening include criminal records searches, employment and education verification, social security number verification and credit
reporting. Occupational health services include drug-free workplace programs, physical examinations and employee assistance programs. Resident screening services include criminal background and eviction searches, credit reporting, employment
verification and lease performance and payment histories. Revenue for the Enterprise Screening segment includes $12,000 and $24,000 of sales to the Consumer Direct segment for the three and six months ended June 30, 2004, respectively.



The Risk Mitigation segment includes motor vehicle records and
investigative services. Products and services provided by the Risk Mitigation segment include: driver history reports, vehicle registration, financial responsibility filings, surveillance services, statements and field interviews and due diligence
reports. Revenue for the Risk Mitigation segment includes $575,000 and $312,000 of sales to the Enterprise Screening segment for the three months ended June 30, 2004 and 2003, respectively, and $1,057,000 and $635,000 of sales for the six months
ended June 30, 2004 and 2003, respectively.



The Consumer
Direct segment provides consumers with a single, comprehensive access point to a broad range of information to assist them in locating people and other public data searches. Revenue for the Consumer Direct segment includes $18,000 and $82,000 of
sales to the Enterprise Screening segment for the three and six months ended June 30, 2004, respectively.



The elimination of inter-segment revenue and cost of service revenue is included in Corporate. These transactions are recorded at cost.



The following table sets forth segment information for the three and six
months ended June 30, 2004 and 2003.



11



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First Advantage Corporation



Notes to Consolidated Financial Statements

June 30, 2004 and 2003 (Unaudited)



|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|-------------------------------- |  | ------- | ----------- | - | ---------------------------- | - | -------------------------------- |  | - | ---------- | - |  | -----------
|                                 |  | Revenue |             |   | Depreciationand Amortization |   | Income (Loss)Before Income Taxes |  |   | Assets    
|Three Months Ended June 30, 2004 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Enterprise Screening             |  | $       | 47,464,000  |   |                              | $ | 2,078,000                        |  | $ | 6,587,000  |   |  | 235,757,000
|Risk Mitigation                  |  |         | 19,031,000  |   |                              |   | 484,000                          |  |   | 2,048,000  |   |  | 102,341,000
|Consumer Direct                  |  |         | 2,964,000   |   |                              |   | 563,000                          |  |   | (126,000   | ) |  | 34,232,000 
|Corporate and Eliminations       |  |         | (540,000    | ) |                              |   | 20,000                           |  |   | (2,972,000 | ) |  | 5,171,000  
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Consolidated                     |  | $       | 68,919,000  |   |                              | $ | 3,145,000                        |  | $ | 5,537,000  |   |  | 377,501,000
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Three Months Ended June 30, 2003 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Enterprise Screening             |  | $       | 27,040,000  |   |                              | $ | 1,402,000                        |  | $ | 3,054,000  |   |  | 152,532,000
|Risk Mitigation                  |  |         | 9,124,000   |   |                              |   | 156,000                          |  |   | 1,358,000  |   |  | 59,235,000 
|Consumer Direct                  |  |         | 1,579,000   |   |                              |   | 233,000                          |  |   | 18,000     |   |  | 38,250,000 
|Corporate and Eliminations       |  |         | (312,000    | ) |                              |   |                                 |  |   | (1,047,000 | ) |  | 3,384,0000 
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Consolidated                     |  | $       | 37,431,000  |   |                              | $ | 1,791,000                        |  | $ | 3,383,000  |   |  | 253,401,000
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Six Months Ended June 30, 2004   |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Enterprise Screening             |  | $       | 83,483,000  |   |                              | $ | 3,765,000                        |  | $ | 8,470,000  |   |  | 235,757,000
|Risk Mitigation                  |  |         | 36,770,000  |   |                              |   | 860,000                          |  |   | 3,171,000  |   |  | 102,341,000
|Consumer Direct                  |  |         | 7,196,000   |   |                              |   | 1,131,000                        |  |   | (141,000   | ) |  | 34,232,000 
|Corporate and Eliminations       |  |         | (1,097,000  | ) |                              |   | 29,000                           |  |   | (4,861,000 | ) |  | 5,171,000  
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Consolidated                     |  | $       | 126,352,000 |   |                              | $ | 5,785,000                        |  | $ | 6,639,000  |   |  | 377,501,000
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Six Months Ended June 30, 2003   |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Enterprise Screening             |  | $       | 49,502,000  |   |                              | $ | 3,023,000                        |  | $ | 3,507,000  |   |  | 152,532,000
|Risk Mitigation                  |  |         | 18,526,000  |   |                              |   | 314,000                          |  |   | 2,758,000  |   |  | 59,235,000 
|Consumer Direct                  |  |         | 1,579,000   |   |                              |   | 233,000                          |  |   | 18,000     |   |  | 38,250,000 
|Corporate and Eliminations       |  |         | (635,000    | ) |                              |   |                                 |  |   | (2,205,000 | ) |  | 3,384,000  
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            
|Consolidated                     |  | $       | 68,972,000  |   |                              | $ | 3,570,000                        |  | $ | 4,078,000  |   |  | 253,401,000
|                                 |  |         |             |   |                              |   |                                  |  |   |            |   |  |            



12



---

|7. | Subsequent Events
|-- | -----------------



On July 28, 2004, the Company amended its $15 million Loan Agreement with a bank by extending the maturity date to July 31, 2006. Prior to this amendment,
the maturity date of the Loan Agreement was July 31, 2005. All other material terms of the related Note remain the same, including the interest rate, and adherence to certain financial covenants.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Note of Caution Regarding Forward Looking Statements



Certain statements in this quarterly report on Form 10-Q relate to future results of the Company and are considered forward-looking
statements. These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to among other things, sufficiency and availability of cash flows and other sources of liquidity, current
levels of operations, anticipated growth, future market positions, synergies from integration, ability to execute its growth strategy, levels of capital expenditures and the ability to satisfy current debt. These forward-looking statements, and
others forward-looking statements contained in other public disclosures of the Company are based on assumptions that involve risks and uncertainties, and that are subject to change based on various important factors (some of which are beyond the
Companys control). Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the
forward-looking statements include: general volatility of the capital markets and the market price of the Companys Class A common stock; the Companys ability to successfully raise capital; the Companys ability to identify and
complete acquisitions and to successfully integrate businesses it acquires; changes in applicable government regulations; the degree and nature of the Companys competition; increases in the Companys expenses; continued consolidation
among the Companys competitors and customers; unanticipated technological changes and requirements; the Companys ability to identify suppliers of quality and cost-effective data; and other factors described in this quarterly report on
Form 10-Q. Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties. The forward-looking statements speak only as of the date they are made. The Company does not undertake to update
forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.



Overview



First Advantage Corporation (Nasdaq: FADV) (First Advantage or the Company) was created by the June 5, 2003 merger of The First
American Corporations Screening Technologies (FAST) division with US SEARCH.com Inc. (US SEARCH). First Advantage provides global risk management screening services to enterprise and consumer customers. The Company
operates in three primary business segments: Enterprise Screening, Risk Mitigation and Consumer Direct. First Advantage is headquartered in St. Petersburg, Florida, and has more than 1,700 employees in offices throughout the United States and
abroad. Since its formation, First Advantage has acquired 19 companies as of June 30, 2004 and completed four of those acquisitions in the second quarter of 2004.



Operating results for the three and six months ended June 30, 2004 included total revenue of $68.9 million and $126.4
million, respectively, representing an increase of 84% and 83% over the same periods in 2003, with 13.8% and 10.1% of that growth being organic growth. Net income for the three and six months ended June 30, 2004 was $3.2 million and $3.8 million,
respectively. Net income increased $1.2 million and $1.5 million for the three and six months ended June 30, 2004 in comparison to the same periods in 2003.



Critical Accounting Policies



Critical accounting policies are those policies used in the preparation of the companys financial statements that require management to make
estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies. A summary of these policies can be found in Managements Discussion and Analysis in the
Companys Annual Report on Form 10-K for year ended December 31, 2003.



The following is a summary of the operating results by the Companys business segments for the three months ended June 30, 2004 and 2003 and for the six months ended June 30, 2004 and 2003.



|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |            |  
|------------------------------------------ |  | ------------------- | ---------- | - | -------------- | - | ---------- | -------------- |  | - | ------------------------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|Three Months Ended June 30, 2004           |  | EnterpriseScreening |            |   | RiskMitigation |   |            | ConsumerDirect |  |   | Corporate andEliminations |   |  | Total |           
|Service revenue                            |  | $                   | 44,744,000 |   |                | $ | 10,864,000 |                |  | $ | 2,964,000                 |   |  | $     | (540,000   | ) |  | $ | 58,032,000 |  
|Reimbursed government fee revenue          |  |                     | 2,720,000  |   |                |   | 8,167,000  |                |  |   |                          |   |  |       |           |   |  |   | 10,887,000 |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |            |  
|Total revenue                              |  |                     | 47,464,000 |   |                |   | 19,031,000 |                |  |   | 2,964,000                 |   |  |       | (540,000   | ) |  |   | 68,919,000 |  
|Cost of service revenue                    |  |                     | 12,516,000 |   |                |   | 4,321,000  |                |  |   | 261,000                   |   |  |       | (540,000   | ) |  |   | 16,558,000 |  
|Government fees paid                       |  |                     | 2,720,000  |   |                |   | 8,167,000  |                |  |   |                          |   |  |       |           |   |  |   | 10,887,000 |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |            |  
|Total cost of service                      |  |                     | 15,236,000 |   |                |   | 12,488,000 |                |  |   | 261,000                   |   |  |       | (540,000   | ) |  |   | 27,445,000 |  
|Gross margin                               |  |                     | 32,228,000 |   |                |   | 6,543,000  |                |  |   | 2,703,000                 |   |  |       |           |   |  |   | 41,474,000 |  
|Salaries and benefits                      |  |                     | 15,484,000 |   |                |   | 2,732,000  |                |  |   | 638,000                   |   |  |       | 2,152,000  |   |  |   | 21,006,000 |  
|Other operating expenses                   |  |                     | 8,066,000  |   |                |   | 1,271,000  |                |  |   | 1,628,000                 |   |  |       | 327,000    |   |  |   | 11,292,000 |  
|Depreciation and amortization              |  |                     | 2,078,000  |   |                |   | 484,000    |                |  |   | 563,000                   |   |  |       | 20,000     |   |  |   | 3,145,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |            |  
|Income (loss) from operations              |  |                     | 6,600,000  |   |                |   | 2,056,000  |                |  |   | (126,000                  | ) |  |       | (2,499,000 | ) |  |   | 6,031,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |            |  
|Gross margin percentage of service revenue |  |                     | 72.0       | % |                |   | 60.2       | %              |  |   | 91.2                      | % |  |       | N/A        |   |  |   | 71.5       | %



13



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|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|------------------------------------------ |  | ------------------- | ---------- | - | -------------- | - | ---------- | -------------- |  | - | ------------------------- | - |  | ----- | ---------- | - |  | - | ----------- | -
|Three Months Ended June 30, 2003           |  | EnterpriseScreening |            |   | RiskMitigation |   |            | ConsumerDirect |  |   | Corporate andEliminations |   |  | Total |           
|Service revenue                            |  | $                   | 26,131,000 |   |                | $ | 2,746,000  |                |  | $ | 1,579,000                 |   |  | $     | (312,000   | ) |  | $ | 30,144,000  |  
|Reimbursed government fee revenue          |  |                     | 909,000    |   |                |   | 6,378,000  |                |  |   |                          |   |  |       |           |   |  |   | 7,287,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total revenue                              |  |                     | 27,040,000 |   |                |   | 9,124,000  |                |  |   | 1,579,000                 |   |  |       | (312,000   | ) |  |   | 37,431,000  |  
|Cost of service revenue                    |  |                     | 7,608,000  |   |                |   | 73,000     |                |  |   | 162,000                   |   |  |       | (312,000   | ) |  |   | 7,531,000   |  
|Government fees paid                       |  |                     | 909,000    |   |                |   | 6,378,000  |                |  |   |                          |   |  |       |           |   |  |   | 7,287,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total cost of service                      |  |                     | 8,517,000  |   |                |   | 6,451,000  |                |  |   | 162,000                   |   |  |       | (312,000   | ) |  |   | 14,818,000  |  
|Gross margin                               |  |                     | 18,523,000 |   |                |   | 2,673,000  |                |  |   | 1,417,000                 |   |  |       |           |   |  |   | 22,613,000  |  
|Salaries and benefits                      |  |                     | 9,467,000  |   |                |   | 844,000    |                |  |   | 470,000                   |   |  |       | 531,000    |   |  |   | 11,312,000  |  
|Other operating expenses                   |  |                     | 4,573,000  |   |                |   | 321,000    |                |  |   | 691,000                   |   |  |       | 516,000    |   |  |   | 6,101,000   |  
|Depreciation and amortization              |  |                     | 1,402,000  |   |                |   | 156,000    |                |  |   | 233,000                   |   |  |       |           |   |  |   | 1,791,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Income (loss) from operations              |  |                     | 3,081,000  |   |                |   | 1,352,000  |                |  |   | 23,000                    |   |  |       | (1,047,000 | ) |  |   | 3,409,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Gross margin percentage of service revenue |  |                     | 70.9       | % |                |   | 97.3       | %              |  |   | 89.7                      | % |  |       | N/A        |   |  |   | 75.0        | %
|                                           |  |                     |            |   |               
|Six Months Ended June 30, 2004             |  | EnterpriseScreening |            |   | RiskMitigation |   |            | ConsumerDirect |  |   | Corporate andEliminations |   |  | Total |           
|Service revenue                            |  | $                   | 78,448,000 |   |                | $ | 19,444,000 |                |  | $ | 7,196,000                 |   |  | $     | (1,097,000 | ) |  | $ | 103,991,000 |  
|Reimbursed government fee revenue          |  |                     | 5,035,000  |   |                |   | 17,326,000 |                |  |   |                          |   |  |       |           |   |  |   | 22,361,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total revenue                              |  |                     | 83,483,000 |   |                |   | 36,770,000 |                |  |   | 7,196,000                 |   |  |       | (1,097,000 | ) |  |   | 126,352,000 |  
|Cost of service revenue                    |  |                     | 23,198,000 |   |                |   | 7,884,000  |                |  |   | 554,000                   |   |  |       | (1,097,000 | ) |  |   | 30,539,000  |  
|Government fees paid                       |  |                     | 5,035,000  |   |                |   | 17,326,000 |                |  |   |                          |   |  |       |           |   |  |   | 22,361,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total cost of service                      |  |                     | 28,233,000 |   |                |   | 25,210,000 |                |  |   | 554,000                   |   |  |       | (1,097,000 | ) |  |   | 52,900,000  |  
|Gross margin                               |  |                     | 55,250,000 |   |                |   | 11,560,000 |                |  |   | 6,642,000                 |   |  |       |           |   |  |   | 73,452,000  |  
|Salaries and benefits                      |  |                     | 28,131,000 |   |                |   | 5,180,000  |                |  |   | 1,503,000                 |   |  |       | 3,904,000  |   |  |   | 38,718,000  |  
|Other operating expenses                   |  |                     | 14,854,000 |   |                |   | 2,344,000  |                |  |   | 4,151,000                 |   |  |       | 247,000    |   |  |   | 21,596,000  |  
|Depreciation and amortization              |  |                     | 3,765,000  |   |                |   | 860,000    |                |  |   | 1,131,000                 |   |  |       | 29,000     |   |  |   | 5,785,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Income (loss) from operations              |  |                     | 8,500,000  |   |                |   | 3,176,000  |                |  |   | (143,000                  | ) |  |       | (4,180,000 | ) |  |   | 7,353,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Gross margin percentage of service revenue |  |                     | 70.4       | % |                |   | 59.5       | %              |  |   | 92.3                      | % |  |       | N/A        |   |  |   | 70.6        | %
|                                           |  |                     |            |   |               
|Six Months Ended June 30, 2003             |  | EnterpriseScreening |            |   | RiskMitigation |   |            | ConsumerDirect |  |   | Corporate andEliminations |   |  | Total |           
|Service revenue                            |  | $                   | 47,741,000 |   |                | $ | 5,643,000  |                |  | $ | 1,579,000                 |   |  | $     | (635,000   | ) |  | $ | 54,328,000  |  
|Reimbursed government fee revenue          |  |                     | 1,761,000  |   |                |   | 12,883,000 |                |  |   |                          |   |  |       |           |   |  |   | 14,644,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total revenue                              |  |                     | 49,502,000 |   |                |   | 18,526,000 |                |  |   | 1,579,000                 |   |  |       | (635,000   | ) |  |   | 68,972,000  |  
|Cost of service revenue                    |  |                     | 14,225,000 |   |                |   | 241,000    |                |  |   | 162,000                   |   |  |       | (635,000   | ) |  |   | 13,993,000  |  
|Government fees paid                       |  |                     | 1,761,000  |   |                |   | 12,883,000 |                |  |   |                          |   |  |       |           |   |  |   | 14,644,000  |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Total cost of service                      |  |                     | 15,986,000 |   |                |   | 13,124,000 |                |  |   | 162,000                   |   |  |       | (635,000   | ) |  |   | 28,637,000  |  
|Gross margin                               |  |                     | 33,516,000 |   |                |   | 5,402,000  |                |  |   | 1,417,000                 |   |  |       |           |   |  |   | 40,335,000  |  
|Salaries and benefits                      |  |                     | 18,448,000 |   |                |   | 1,702,000  |                |  |   | 470,000                   |   |  |       | 1,217,000  |   |  |   | 21,837,000  |  
|Other operating expenses                   |  |                     | 8,497,000  |   |                |   | 640,000    |                |  |   | 691,000                   |   |  |       | 988,000    |   |  |   | 10,816,000  |  
|Depreciation and amortization              |  |                     | 3,023,000  |   |                |   | 314,000    |                |  |   | 233,000                   |   |  |       |           |   |  |   | 3,570,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Income (loss) from operations              |  |                     | 3,548,000  |   |                |   | 2,746,000  |                |  |   | 23,000                    |   |  |       | (2,205,000 | ) |  |   | 4,112,000   |  
|                                           |  |                     |            |   |                |   |            |                |  |   |                           |   |  |       |            |   |  |   |             |  
|Gross margin percentage of service revenue |  |                     | 70.2       | % |                |   | 95.7       | %              |  |   | 89.7                      | % |  |       | N/A        |   |  |   | 74.2        | %



14



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Enterprise Screening Segment



Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003



Total service revenue was $44.7 million as of June 30, 2004, an increase of
$18.6 million compared to service revenue of $26.1 million in the same period of 2003. Acquisitions accounted for approximately $16.5 million of the revenue increase. There were fourteen businesses acquired since the second quarter of 2003. Revenue
increased by $2.1 million, or 8.2%, at businesses owned in the second quarter of 2003. The growth rate of 15.7%, excluding acquisitions, is due to expanded market share and an increase in products and services.



The gross margin percentage of service revenue increased from 70.9% to 72.0%
primarily as a result of an increase in resident screening revenue, which has generally higher gross margins and more favorable vendor pricing.



Salaries and benefits increased by $6.0 million. Salaries and benefits were 34.6% of service revenue for the second quarter of 2004 compared to 36.2% of
service revenue in the same period of 2003. This decrease reflected economies achieved in 2004 by consolidating certain operations and leveraging databases.



Other operating expenses increased by $3.5 million and were 18.0% of service revenue in the second quarter of 2004 compared to 17.5% in the same period of
2003. This increase, as a percent of revenue, was the primarily due to the increase in facilities expense related to the acquisition of fourteen new business units.



Depreciation and amortization increased by $.7 million. Depreciation and amortization was 4.6% of service revenue in the
second quarter of 2004 compared to 5.4% in the same period of 2003. This decrease, as a percent of service revenue, is primarily due to several assets being fully depreciated offset by an increase in the amortization of intangible assets as a result
of acquisitions.



Income from operations was $6.6 million in
the second quarter of 2004 compared to income from operations of $3.1 million in the same period of 2003. The increase in income from operations was the result of increased revenue, primarily from acquisitions. Operating costs as a percent of
revenue declined due to consolidation of businesses and leveraging of databases.



Risk Mitigation Segment



Three Months Ended June 30, 2004
Compared to Three Months Ended June 30, 2003



Total
service revenue was $10.9 million as of June 30, 2004, an increase of $8.1 million compared to service revenue of $2.8 million in the same period of 2003. The acquisition of two investigative service businesses account for a substantial part of the
increase in service revenue.



The gross margin percentage of
service revenue decreased from 97.3% to 60.2% primarily due to the acquisition of the investigative service businesses, which generate margin levels that are lower as a percentage of service revenue, than the motor vehicle records operations of this
segment.



Salaries and benefits increased by $1.9 million.
Salaries and benefits were 25.1% of service revenue in the second quarter of 2004 compared to 30.7% in the same period of 2003. The percentage decrease is primarily due to the acquisition of the investigative service businesses.



Other operating expenses increased by $1.0 million. Other operating expenses
were 11.7% of service revenue in the second quarter of 2004 and 11.3% in the second quarter of 2003. The increase is primarily due to the acquisition of the investigative service businesses.



Depreciation and amortization increased by $.3 million due to an increase in
amortization of intangible assets as a result of the acquisitions.



15



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Income from operations was $2.1 million for the second quarter of 2004 compared to $1.4 million in the
second quarter of 2003.



Consumer Direct



Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003



Total service revenue was $3.0 million as of June 30,
2004, an increase of $1.4 million compared to service revenue of $1.6 million in the same period of 2003. This segment was formed in connection with the acquisition in June 2003 of US SEARCH and represents only one month of results for the second
quarter of 2003.



The gross margin percentage of service
revenue increased from 89.7% to 91.2% primarily due to vendor negotiations to reduce fulfillment costs.



Salaries and benefits increased by $.2 million. Salaries and benefits were 21.5% of service revenue in the second quarter of 2004 compared to 29.8% in the
same period of 2003. The percentage decrease is primarily due to the centralization of some of the key functions of accounting, human resource and IT to the corporate office.



Other operating expenses increased by $1.0 million. Other operating expenses were 54.9% of service revenue in the second
quarter of 2004 and 43.8% for the same period of 2003. The increased percentage is due to revising the process for allocating shared costs in 2004.



Depreciation and amortization increased by $.3 million due to an increase in amortization of intangible assets as a result of the acquisitions.



Loss from operations was $126 thousand for the second quarter
of 2004 compared to income from operations of $23 thousand in June 2003.



Corporate



Three Months Ended June 30, 2004 Compared to
Three Months Ended June 30, 2003



Corporate expenses for
the three months ended June 30, 2003 were primarily for the FAST division only. The increase of corporate costs and expenses primarily represents the addition of compensation and benefits for senior management, administrative staff, IT staff and
related general and administrative expenses including an administrative fee paid to First American.



Consolidated Results



Three Months
Ended June 30, 2004 Compared to Three Months Ended June 30, 2003



Consolidated service revenue for the three months ended June 30, 2004 was $58.0 million, an increase of $27.9 million compared to service revenue of $30.1 in the same period in 2003. Acquisitions accounted for $25.5 million of the increase.



The consolidated gross margin of service revenue was 71.5% for
the three months ended June 30, 2004 compared to 75.0% for the same period in 2003. The decrease is due to the change in the mix of margins related to the acquired businesses.



Salaries and benefits were 36.2% of service revenue for the three months ended June 30, 2004 and 37.5% compared to the same
period in 2003. The decrease was primarily due to reductions in salaries and benefits as a percentage of revenue in the Enterprise Screening and Consumer Direct segments offset by an increase in corporate salary and benefits incurred since the
creation of First Advantage in June 2003.



16



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Other operating expenses were 19.5% of service revenue for the three months ended June 30, 2004 and 20.2%
compared to the same period for 2003.



Depreciation and
amortization increased by $1.4 million due to an increase in amortization of intangible assets as a result of acquisitions.



Income from operations was $6.0 million for the three months ended June 30, 2004 compared to $3.4 million for the same period in 2003. The increase of
$2.6 million is comprised of an increase in operating income of $3.5 million in the Enterprise Screening segment, an increase in operating income of $.7 million in the Risk Mitigation segment, a decrease in operating income of $149 thousand in the
Consumer Direct segment and an increase of corporate expenses of $1.5 million.



Enterprise Screening Segment



Six Months Ended June 30,
2004 Compared to Six Months Ended June 30, 2003



Total
service revenue was $78.4 million as of June 30, 2004, an increase of $30.7 million compared to service revenue of $47.7 million in the same period of 2003. Acquisitions accounted for approximately $27.0 million of the revenue increase. There were
fourteen businesses acquired since June 2003. Revenue increased by $3.7 million, or 7.8%, at businesses owned at June 2003. The growth rate of 7.8%, excluding acquisitions, is due to expanded market share and an increase in products and services.



The gross margin percentage of service revenue increased from
70.2% to 70.4% was primarily due to an increase in resident screening revenue, which has generally higher gross margins and more favorable vendor pricing.



Salaries and benefits increased by $9.7 million. Salaries and benefits were 35.9% of service revenue for the six months ended June 2004 compared to 38.6%
of service revenue in the same period of 2003. This decrease reflected economies achieved in 2004 by consolidating certain operations and leveraging databases.



Other operating expenses increased by $6.4 million and were 18.9% of service revenue for the six months ended June 2004 compared to 17.5% in the same
period of 2003. This increase, as a percent of revenue, was the primarily due to the increase in facilities expense related to the acquisition of fourteen new business units.



Depreciation and amortization increased by $.7 million. Depreciation and amortization was 4.8% of service revenue for the
six months ended June 2004 compared to 6.3% in the same period of 2003. This decrease, as a percent of service revenue, is primarily due to several assets being fully depreciated offset by an increase in the amortization of intangible assets as a
result of acquisitions.



Income from operations was $8.5
million for the six months ended June 2004 compared to income from operations of $3.5 million in the same period of 2003. The increase in income from operations was the result of increased revenue, primarily from acquisitions. Operating costs as a
percent of revenue declined due to consolidation of businesses and leveraging of databases.



Risk Mitigation Segment



Six Months
Ended June 30, 2004 Compared to Six Months Ended June 30, 2003



Total service revenue was $19.4 million as of June 30, 2004, an increase of $13.8 million compared to service revenue of $5.6 million in the same period of 2003. The Company acquired two investigative service businesses, which account for a
substantial part of the increase in service revenue.



17



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The gross margin percentage of service revenue decreased from 95.7% to 59.5% primarily due to the
acquisition of the investigative service businesses, which generate margin levels lower than the motor vehicle records operations of this segment.



Salaries and benefits increased by $3.5 million. Salaries and benefits were 26.6% of service revenue year to date June 2004 compared to 30.2% in the same
period of 2003. The percentage decrease is primarily due to the acquisition of the investigative service businesses.



Other operating expenses increased by $1.7 million. Other operating expenses were 12.1% of service revenue for the six months ended June 2004 compared to
11.3% in the same period of 2003. The change is primarily due to the acquisition of the investigative service businesses.



Depreciation and amortization increased by $.5 million due to an increase in amortization of intangible assets as a result of acquisitions.



Income from operations was $3.2 million for the six months ended June 2004
compared to $2.7 million in the same period of 2003. Operating income from existing businesses increased by $.2 million.



Consumer Direct



Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003



Total service revenue was $7.2 million as of June 30, 2004, an increase of $5.6 million compared to service revenue of $1.6 million in the same period of
2003. This segment was formed in connection with the acquisition in June 2003 of US SEARCH and represents only one month of results for year-to-date June 2003.



The gross margin percentage of service revenue increased from 89.7% to 92.3% primarily due to vendor negotiations to reduce fulfillment costs.



Salaries and benefits increased by $1.0 million. Salaries and
benefits were 20.9% of service revenue for the six months ended June 2004 compared to 29.8% in the same period of 2003. The percentage decrease is primarily due to the centralization of some of the key functions of accounting, human resource and IT
to the corporate office.



Other operating expenses increased by
$3.5 million. Other operating expenses were 57.7% of service revenue for the six months ended June 2004 and 43.8% for the same period of 2003. The increase is due to acquisitions and to revising the process for the allocation of shared costs in
2004.



Depreciation and amortization increased by $.9 million
due to an increase in amortization of intangible assets as a result of the acquisitions.



Loss from operations was $143 thousand for the six months ended June 2004 compared to income from operations of $23 thousand in June 2003.



Corporate



Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003



Corporate expenses for the six months ended June 30, 2003 were primarily for the FAST division only. The increase of corporate costs and expenses
primarily represent the addition of compensation and benefits for senior management, administrative staff, IT staff and related general and administrative expenses including an administrative fee paid to First American.



18



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Consolidated Results



Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003



Consolidated service revenue for the six months ended June 30, 2004 was $104.0 million, an increase of $49.7 million compared to service revenue of
$54.3 in the same period in 2003. Acquisitions accounted for $46.0 million of the increase.



The consolidated gross margin of service revenue was 70.6% for the six months ended June 30, 2004 compared to 74.2% for the same period in 2003. The decrease is due to the change in the mix of margins related to the
acquired businesses.



Salaries and benefits were 37.2% of
service revenue for the six months ended June 30, 2004 and 40.2% compared to the same period in 2003. The decrease was primarily due to reductions in salaries and benefits as a percentage of revenue in all the segments offset by an increase in
corporate salary and benefits incurred since the creation of First Advantage in June 2003.



Other operating expenses were 20.8% of service revenue for the six months ended June 30, 2004 and 19.9% compared to the same period for 2003. The increase was primarily related to the acquisitions since June 2003 and
corporate expenses incurred in 2004.



Depreciation and
amortization increased by $2.2 million due to an increase in amortization of intangible assets as a result of acquisitions.



Income from operations was $7.4 million for the six months ended June 30, 2004 compared to $4.1 million for the same period in 2003. The increase of $3.3
million is comprised of an increase in operating income of $5.0 million in the Enterprise Screening segment, an increase in operating income of $.5 million in the Risk Mitigation segment, a decrease in operating income of $.2 million in the Consumer
Direct segment and an increase of corporate expenses of $2.0 million.



Liquidity and Capital Resources



The
Companys primary source of liquidity is cash flow from operations and amounts available under credit lines the Company has established with a bank and with First American. Prior to the June 5, 2003 merger with US SEARCH, contributions from
First American were also a primary source of liquidity. As of June 30, 2004, cash and cash equivalents were $6.1 million.



Cash provided by operating activities was $2.9 million and $3.1 million for the six months ended June 30, 2004 and 2003, respectively.



Cash provided from operating activities decreased $.2 million from the six
months ended June 30, 2004 compared to the same period in 2003, while net income was $3.8 million for the six months ended June 30, 2004 and $2.4 million for the same period in 2003. The decrease in cash provided from operating activities was
primarily due to an increase in accounts receivable offset by an increase in earnings and depreciation and amortization expense.



Cash used in investing activities was $46.2 million and $1.4 million for the six months ended June 30, 2004 and 2003, respectively. For the six months
ended June 30, 2004, net cash in the amount of $44.2 million was used for acquisitions. Purchases of property and equipment were $2.4 million for the six months ended June 30, 2004 compared to $1.3 million in the same period of 2003.



Cash provided by financing activities was $43.8 million and $4.0 million for
the six months ended June 30, 2004 and 2003, respectively. For the six months ended June 30, 2004, proceeds from existing credit facilities with a



19



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bank and First American were $53.0 million. Repayment of debt was $12.6 million for the six months ended June 30, 2004 and $1.3 million in the same period of
2003.



On April 27, 2004, the Company entered into a Promissory
Note with First American. The loan evidenced by the Promissory Note is a $20 million unsecured revolving loan, with interest payable monthly. The principal balance of the Promissory Note is due on July 31, 2006. The Promissory Note is subordinated
to the bank Loan Agreement and Line of Credit and bears interest at the rate payable under the $15 million bank Loan Agreement plus 0.5% per annum. The balance outstanding as of June 30, 2004 was $14 million.



At June 30, 2004 the Company had unused lines of credit of $16 million



First Advantage filed a Registration Statement with the
Securities and Exchange Commission for the issuance of up to 4,000,000 shares of our Class A common stock, par value $.001 per share, from time to time as full or partial consideration for the acquisition of businesses, assets or securities of other
business entities. The Registration Statement was declared effective on July 14, 2003. A total of 1,386,907 of the 4,000,000 shares were issued for acquisitions as of June 30, 2004.



Convertible promissory notes totaling $8,722,000, excluding escrowed assets, were issued in connection with acquisitions
completed during the second quarter of 2004. Certain of these notes convert automatically into shares of the Companys Class A common stock while others convert at the option of the Company or the holder. The conversion price per share is equal
to the average of the closing price of the common stock for the ten consecutive trading days ending on the third trading day prior to the conversion date. One method for conversion of the notes is at such time as the Securities and Exchange
Commission (SEC) declares effective registration statements of the Company on Form S-3. The Company filed the registration statements on Form S-3 in July 2004, for all of the issued convertible promissory notes.



In the future, First Advantage will seek to acquire other businesses as part
of its growth strategy. The Company will continue to evaluate acquisitions in order to achieve economies of scale, expand market share and enter new markets. The extent of future acquisitions, however, is dependent upon the availability of capital
and liquidity to fund such acquisitions.



While uncertainties
within the Companys industry exist, management is not aware of any trends or events likely to have a material adverse effect on liquidity or the accompanying financial statements. The Company believes that, based on current levels of
operations and anticipated growth, the Companys cash flow from operations, together with available sources of liquidity, will be sufficient to fund operations, anticipated capital expenditures, make required payments of principal and interest
on debt, and satisfy other long-term contractual commitments for the following year. However, any material adverse change in our operating results from our business plan, or acceleration of existing debt obligations or in the amount of investment in
acquisitions, technology or products could require the Company to seek other funding alternatives.



The following is a schedule of long-term contractual commitments (as of June 30, 2004) over the periods in which they are expected to be paid.



|                                      |  |      |           |      |   |            |  |      |            |      |   |            |  |       |           |  |   |           |  |   |            
|------------------------------------- |  | ---- | --------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- |  | ----- | --------- |  | - | --------- |  | - | -----------
|                                      |  | 2004 |           | 2005 |   | 2006       |  | 2007 |            | 2008 |   | Thereafter |  | Total
|Minimum contract purchase commitments |  |      | 330,000   |      |   | 320,000    |  |      | 99,000     |      |   | 91,000     |  |       | 90,000    |  |   |          |  | $ | 930,000    
|Operating leases                      |  |      | 4,219,000 |      |   | 5,988,000  |  |      | 4,712,000  |      |   | 3,013,000  |  |       | 2,198,000 |  |   | 7,371,000 |  | $ | 27,501,000 
|Long-term debt and capital leases     |  |      | 5,132,000 |      |   | 15,646,000 |  |      | 8,819,000  |      |   | 52,506,000 |  |       |          |  |   |          |  | $ | 82,103,000 
|                                      |  |      |           |      |   |            |  |      |            |      |   |            |  |       |           |  |   |           |  |   |            
|Total                                 |  | $    | 9,681,000 |      | $ | 21,954,000 |  | $    | 13,630,000 |      | $ | 55,610,000 |  | $     | 2,288,000 |  | $ | 7,371,000 |  | $ | 110,534,000
|                                      |  |      |           |      |   |            |  |      |            |      |   |            |  |       |           |  |   |           |  |   |            



20



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



There have been no material changes in the Companys risk since filing its Form 10-K for the year ended December 31, 2003.



|Item 4. | Controls and Procedures
|------- | -----------------------



The Companys Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Companys disclosure controls and procedures, as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, have concluded that, as of the end of the fiscal quarter covered by this report on Form 10-Q, the Companys disclosure controls and procedures were effective to
provide reasonable assurances that



21



---

information required to be disclosed in the reports filed or submitted under such Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms.



There was no change in the Companys internal control over financial reporting during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting.



PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



None



|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------



None



|Item 3. | Defaults upon Senior Securities
|------- | -------------------------------



None



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



(a) The annual meeting of the shareholders (the Meeting) of First Advantage Corporation (the Company) was held on May 20, 2004.



(b) The names of the persons who were nominated to serve as directors of the Company for the
ensuing year are listed below, together with a tabulation of the results of the voting with respect to each nominee. Each of the persons named was recommended by the Board of Directors and Nominating Committee of the Company and all such nominees
were elected.



|                 |  |             |  |               
|---------------- |  | ----------- |  | --------------
|Name of Nominee  |  | Votes For   |  | Votes Withheld
|Parker Kennedy   |  | 164,608,600 |  | 247,058       
|John Long        |  | 164,608,584 |  | 247,074       
|J. David Chatham |  | 164,608,612 |  | 247,046       
|Barry Connelly   |  | 164,852,815 |  | 2,843         
|Lawrence Lenihan |  | 164,852,855 |  | 2,803         
|Donald Nickelson |  | 164,852,747 |  | 2,911         
|Donald Robert    |  | 164,515,098 |  | 340,560       
|Adelaide Sink    |  | 164,852,843 |  | 2,815         
|David Walker     |  | 164,852,827 |  | 2,831         



(c) No other matters were voted upon
at the meeting.



|Item 5. | Other Information
|------- | -----------------



None



22



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|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



|(a) | Exhibits
|--- | --------



|     |  |                                                                                                                                                                                                                                                                              
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                  
|     | 
|31.2 |  | Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                  
|     | 
|32.1 |  | Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                      
|     | 
|32.2 |  | Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                      
|     | 
|99.1 |  | Amendment to Security Agreement, dated July 28, 2004, between First Advantage Corporation and Bank of America, N.A.                                                                                                                                                          
|     | 
|99.2 |  | Amendment to Security Agreement, dated July 28, 2004, between Safe Rent, Inc., Employee Health Programs, Inc., Substance Abuse Management, Inc., Hirecheck, Inc., American Driving Records,
Inc., First American Registry, Inc., US SEARCH.com Inc. and Bank of America, N.A.
|     | 
|99.3 |  | Amendment to Security Agreement, dated July 28, 2004, between Omega Insurance Services, Inc., Proudfoot Reports, Inc. and Bank of America, N.A.                                                                                                                              
|     | 
|99.4 |  | Renewal Promissory Note, made July 28, 2004, by First Advantage Corporation to the order of Bank of America, N.A.                                                                                                                                                            
|     | 
|99.5 |  | Amendment to Loan Agreement, dated July 28, 2004, between First Advantage Corporation and Bank of America, N.A.                                                                                                                                                              



|(b) | Reports on Form 8-K
|--- | -------------------



During the three months ended June 30, 2004, the Company:



| | (i) | furnished Form 8-K, dated April 20, 2004 (announcing the results of operations and financial results for the first quarter ended March 31, 2004);
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | filed Form 8-K, dated May 3, 2004 (announcing the acquisition of Realeum, Inc.);
| | ---- | --------------------------------------------------------------------------------



| | (iii) | filed Form 8-K/A, dated May 3, 2004 (amendment to the Form 8-K filed May 3, 2004, providing the financial statements and pro forma financial information for Realeum, Inc.);
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | filed Form 8-K, dated May 5, 2004 (announcing the acquisition of CoreFacts, LLC);
| | ---- | ---------------------------------------------------------------------------------



| | (v) | filed Form 8-K/A, dated May 5, 2004 (amendment to the Form 8-K filed May 5, 2004, providing the financial statements and pro forma financial information for CoreFacts, LLC);
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | filed Form 8-K, dated May 5, 2004 (announcing the acquisition of CIC Enterprises, LLC); and
| | ---- | -------------------------------------------------------------------------------------------



| | (vii) | filed Form 8-K/A, dated May 5, 2004 (amendment to the Form 8-K filed May 5, 2005, providing the financial statements and pro forma financial information for CIC Enterprises, LLC).
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsequent to the quarterly period covered by this report, the
Company furnished Form 8-K, dated July 20, 2004 (announcing the results of operations and financial results for the second quarter ended June 30, 2004).



23



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



FIRST ADVANTAGE CORPORATION

(Registrant)



|                     |  |  |  |     |  |                    |  |                                    
|-------------------- |  |  |  | --- |  | ------------------ |  | -----------------------------------
|                     |  |  | 
|Date: August 6, 2004 |  |  |  | By: |  | /s/    JOHN LONG  
|                     |  |  |  |     |  |                    |  | John Long Chief Executive Officer  
|                     |  |  | 
|Date: August 6, 2004 |  |  |  | By: |  | /s/    JOHN
LAMSON
|                     |  |  |  |     |  |                    |  | John Lamson Chief Financial Officer



24



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                 
|            | 
|31.1        |  | Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|            | 
|31.2        |  | Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                 
|            | 
|32.1        |  | Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                     
|            | 
|32.2        |  | Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                     
|            | 
|99.1        |  | Amendment to Security Agreement, dated July 28, 2004, between First Advantage Corporation and Bank of America, N.A.                                                                                                                                                         
|            | 
|99.2        |  | Amendment to Security Agreement, dated July 28, 2004, between SafeRent, Inc., Employee Health Programs, Inc., Substance Abuse Management, Inc., Hirecheck, Inc., American Driving Records,
Inc., First American Registry, Inc., US SEARCH.com Inc. and Bank of America, N.A.
|            | 
|99.3        |  | Amendment to Security Agreement, dated July 28, 2004, between Omega Insurance Services, Inc., Proudfoot Reports, Inc. and Bank of America, N.A.                                                                                                                             
|            | 
|99.4        |  | Renewal Promissory Note, made July 28, 2004, by First Advantage Corporation to the order of Bank of America, N.A.                                                                                                                                                           
|            | 
|99.5        |  | Amendment to Loan Agreement, dated July 28, 2004, between First Advantage Corporation and Bank of America, N.A.                                                                                                                                                             



25