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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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 March 31, 2003



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 0-26149



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US
SEARCH.COM INC.

(Exact name of registrant as specified in its charter)



|Delaware (State or other jurisdiction of incorporation or
organization) |  | 95-4504143 (I.R.S. Employer Identification
Number)
|----------------------------------------------------------------------- |  | --------------------------------------------------



5401
Beethoven Street, Los Angeles, CA 90066

(Address of principal executive offices, including zip code)



(310) 302-6300

(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)  Yes x    No ̈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 97,025,977 shares of outstanding Common Stock of the registrant as of May 9, 2003.



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##### Table of Contents

US SEARCH.COM INC.



Form 10-Q for the quarterly period ended March 31, 2003



INDEX



|Part I.           |  | FINANCIAL INFORMATION                                                                           |  |   
|----------------- |  | ----------------------------------------------------------------------------------------------- |  | --
|                 
|Item 1.           |  | Financial Statements                                                                            |  | 1 
|                 
|                  |  | Consolidated Statements of Operations for the three month periods ended March 31, 2003 and 2002 |  | 1 
|                 
|                  |  | Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                          |  | 2 
|                 
|                  |  | Consolidated Statements of Cash Flows for the three month periods ended March 31, 2003 and 2002 |  | 3 
|                 
|                  |  | Notes to Consolidated Financial Statements                                                      |  | 4 
|                 
|Item 2.           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 11
|                 
|Item 3.           |  | Quantitative and Qualitative Disclosures about Market Risk                                      |  | 28
|                 
|Item 4.           |  | Controls and Procedures                                                                         |  | 28
|                 
|Part II.          |  | OTHER INFORMATION                                                                               |  |   
|                 
|Item 1.           |  | Legal Proceedings                                                                               |  | 30
|                 
|Item 2.           |  | Changes in Securities and Use of Proceeds                                                       |  | 30
|                 
|Item 3.           |  | Defaults Upon Senior Securities                                                                 |  | 30
|                 
|Item 4.           |  | Submission of Matters to a Vote of Security Holders                                             |  | 30
|                 
|Item 5            |  | Other Information                                                                               |  | 30
|                 
|Item 6.           |  | Exhibits and Reports on Form 8-K                                                                |  | 30
|                 
|SIGNATURES        |  | 32                                                                                             
|                 
|CERTIFICATIONS    |  | 33                                                                                             
|                 
|INDEX TO EXHIBITS |  |                                                                                                



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##### Table of Contents

PART I.    FINANCIAL INFORMATION



Item 1.    Financial Statements



US SEARCH.COM INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                                                                                                             |  | Three Months Ended March 31, |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                                                                                                                                                             |  | 2003                         |           
|Net revenues                                                                                                                                                                                 |  | $                            | 8,079,000 
|Cost of services                                                                                                                                                                             |  |                              | 2,693,000 
|                                                                                                                                                                                             |  |                              |           
|Gross profit                                                                                                                                                                                 |  |                              | 5,386,000 
|                                                                                                                                                                                             |  |                              |           
|Operating expenses:                                                                                                                                                                          |  |                              |           
|Selling and marketing                                                                                                                                                                        |  |                              | 2,766,000 
|General and administrative                                                                                                                                                                   |  |                              | 3,430,000 
|Information technology                                                                                                                                                                       |  |                              | 769,000   
|                                                                                                                                                                                             |  |                              |           
|Total operating expenses                                                                                                                                                                     |  |                              | 6,965,000 
|                                                                                                                                                                                             |  |                              |           
|Loss from operations                                                                                                                                                                         |  |                              | (1,579,000
|Interest expense, net (including non-cash charges relating to amortization of debt
issuance costs of $171,000 and $886,000 for the three months ended March 31, 2003 and 2002, respectively) |  |                              | (230,000  
|Other income, net                                                                                                                                                                            |  |                              |          
|                                                                                                                                                                                             |  |                              |           
|Loss before income taxes                                                                                                                                                                     |  |                              | (1,809,000
|                                                                                                                                                                                             |  |                              |           
|Provision for income taxes                                                                                                                                                                   |  |                              | 2,000     
|                                                                                                                                                                                             |  |                              |           
|Net loss                                                                                                                                                                                     |  | $                            | (1,811,000
|                                                                                                                                                                                             |  |                              |           
|Net loss per share                                                                                                                                                                           |  | $                            | (0.02     
|                                                                                                                                                                                             |  |                              |           
|Weighted-average shares outstanding used in per share calculation                                                                                                                            |  |                              | 97,021,055
|                                                                                                                                                                                             |  |                              |           







The accompanying notes are an integral part of these
statements.



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##### Table of Contents

US SEARCH.COM INC.



CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                                                                               |  | March 31, 2003 |              |   | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------------ | - | ----------------- | -
|ASSETS:                                                                                                                                                                        |  |                |              |   |                   |  
|Current assets:                                                                                                                                                                |  |                |              |   |                   |  
|Cash and cash equivalents                                                                                                                                                      |  | $              | 899,000      |   |                   | $
|Restricted cash                                                                                                                                                                |  |                | 475,000      |   |                   |  
|Accounts receivable, net of allowance for doubtful accounts of $72,000 as of March 31,
2003 and December 31, 2002                                                              |  |                | 1,944,000    |   |                   |  
|Prepaids and other current assets                                                                                                                                              |  |                | 1,045,000    |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total current assets                                                                                                                                                           |  |                | 4,363,000    |   |                   |  
|Property and equipment, net                                                                                                                                                    |  |                | 9,070,000    |   |                   |  
|Goodwill                                                                                                                                                                       |  |                | 13,529,000   |   |                   |  
|Intangible assets, net                                                                                                                                                         |  |                | 2,572,000    |   |                   |  
|Other assets                                                                                                                                                                   |  |                | 249,000      |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total assets                                                                                                                                                                   |  | $              | 29,783,000   |   |                   | $
|                                                                                                                                                                               |  |                |              |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY:                                                                                                                                          |  |                |              |   |                   |  
|Current liabilities:                                                                                                                                                           |  |                |              |   |                   |  
|Accounts payable                                                                                                                                                               |  | $              | 5,307,000    |   |                   | $
|Accrued liabilities                                                                                                                                                            |  |                | 2,352,000    |   |                   |  
|PRSI acquisition obligations, current portion                                                                                                                                  |  |                | 647,000      |   |                   |  
|Bank debt, current portion                                                                                                                                                     |  |                | 1,111,000    |   |                   |  
|Notes payable, current portion                                                                                                                                                 |  |                | 1,405,000    |   |                   |  
|Capital lease obligations, current portion                                                                                                                                     |  |                | 111,000      |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total current liabilities                                                                                                                                                      |  |                | 10,933,000   |   |                   |  
|PRSI acquisition obligations, net of current portion                                                                                                                           |  |                | 1,091,000    |   |                   |  
|Bank debt, net of current portion                                                                                                                                              |  |                |              |   |                   |  
|Capital lease obligations, net of current portion                                                                                                                              |  |                | 14,000       |   |                   |  
|Other non-current liabilities                                                                                                                                                  |  |                | 5,000        |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total liabilities                                                                                                                                                              |  |                | 12,043,000   |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Commitments and contingencies (Note 4)                                                                                                                                         |  |                |              |   |                   |  
|                                                                                                                                                                              
|Stockholders equity:                                                                                                                                                          |  |                |              |   |                   |  
|Preferred stock $0.001 par value; 1,000,000 shares authorized, 0 shares issued and
outstanding at March 31, 2003 and December 31, 2002                                         |  |                |             |   |                   |  
|Common stock $0.001 par value; 300,000,000 shares authorized; 97,025,978 and 97,018,716
shares issued and outstanding as of March 31, 2003 and December 31, 2002, respectively |  |                | 97,000       |   |                   |  
|Additional paid-in capital                                                                                                                                                     |  |                | 118,048,000  |   |                   |  
|Accumulated deficit                                                                                                                                                            |  |                | (100,405,000 | ) |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total stockholders equity                                                                                                                                                     |  |                | 17,740,000   |   |                   |  
|                                                                                                                                                                               |  |                |              |   |                   |  
|Total liabilities and stockholders equity                                                                                                                                     |  | $              | 29,783,000   |   |                   | $
|                                                                                                                                                                               |  |                |              |   |                   |  





The accompanying notes are an integral part of these statements.



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##### Table of Contents

US SEARCH.COM INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                            |  | Three Months Ended March 31, |           
|--------------------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                                            |  | 2003                         |           
|Cash flows from operating activities:                                       |  |                              |           
|Net loss                                                                    |  | $                            | (1,811,000
|Adjustments to reconcile net loss to net cash used in operating
activities: |  |                              |           
|Depreciation and amortization                                               |  |                              | 732,000   
|Provision for doubtful accounts                                             |  |                              |           
|Non-cash interest expense                                                   |  |                              | 171,000   
|Change in assets and liabilities:                                           |  |                              |           
|Accounts receivable                                                         |  |                              | (80,000   
|Prepaid and other assets                                                    |  |                              | 3,000     
|Accounts payable and accrued expenses                                       |  |                              | (903,000  
|                                                                            |  |                              |           
|Net cash used in operating activities                                       |  |                              | (1,888,000
|                                                                            |  |                              |           
|Cash flows from investing activities:                                       |  |                              |           
|Purchase of property and equipment                                          |  |                              | (696,000  
|PRSI acquisition costs                                                      |  |                              |          
|                                                                            |  |                              |           
|Net cash used by investing activities                                       |  |                              | (696,000  
|                                                                            |  |                              |           
|Cash flows from financing activities:                                       |  |                              |           
|(Increase) decrease in restricted cash                                      |  |                              | 100,000   
|Repayments of third party notes payable                                     |  |                              | (45,000   
|Repayment of PRSI acquisition obligation                                    |  |                              | (150,000  
|Repayments of bank debt                                                     |  |                              | (51,000   
|Repayments of capital lease obligations                                     |  |                              | (27,000   
|Proceeds from notes payable, net                                            |  |                              | 1,400,000 
|Proceeds from stock option exercises                                        |  |                              | 2,000     
|                                                                            |  |                              |           
|Net cash provided by financing activities                                   |  |                              | 1,229,000 
|                                                                            |  |                              |           
|Net (decrease) increase in cash and cash equivalents                        |  |                              | (1,355,000
|Cash at beginning of period                                                 |  |                              | 2,254,000 
|                                                                            |  |                              |           
|Cash at end of period                                                       |  | $                            | 899,000   
|                                                                            |  |                              |           
|Supplemental cash flow disclosure is comprised of:                          |  |                              |           
|Cash paid for interest                                                      |  | $                            | 29,000    
|Non-cash investing and financing activities:                                |  |                              |           
|Issuance of warrants in connection with convertible notes payable           |  | $                            |          
|Issuance of warrants to bank                                                |  | $                            | 25,000    
|Issuance of warrants to third parties                                       |  | $                            |          







The accompanying notes are an integral part of these
statements.





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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS

(unaudited)



1.    Organization and Business:



US SEARCH.com Inc. (the Company) provides
individual reference services and background information about individuals. The Company was formed as a California S Corporation in 1994, and reincorporated as a Delaware corporation in April 1999. On December 28, 2001 the Company acquired all of
the outstanding stock of Professional Resource Screening, Inc. (PRSI), which provides pre-employment screening services primarily to large corporations, including Fortune 1000 companies in the United States.



Managements Plans



The accompanying financial statements have been prepared
assuming the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Since inception, the Company has experienced negative cash flows from
operations. At March 31, 2003, the Company has cash and cash equivalents of $0.9 million, a working capital deficiency of $6.6 million, an accumulated deficit of $100.4 million and stockholders equity of $17.7 million.



In December 2002, the Company entered into an Agreement and
Plan of Merger with The First American Corporation (see Note 7).



On March 18, 2003, the Company amended its loan and security agreement with the bank to increase its revolving credit limit (see Note 3).



Based on the Companys current operating plans, including the consummation of the merger with First American, management believes
existing cash resources, including the proceeds available from the amended loan and security agreement and cash forecasted by management to be generated by operations will be sufficient to meet working capital and capital requirements through March
31, 2004. Also, managements plans to attain profitability and generate additional cash flows include, increasing revenues from large business services and consumer-focused services, focusing on cost reductions and operational efficiencies to
be derived from further deployment of the Companys technologies, and the launch of additional products. There is no assurance that management will be successful with these plans. However, if events and circumstances occur such that the Company
does not meet its current operating plan as expected, is unable to raise additional financing, or the merger with The First American Corporation is not consummated, the Company may be required to reduce certain discretionary spending, which could
have a material adverse effect on the Companys ability to achieve its intended business objectives and continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.



2.    Summary of Significant Accounting Policies:



Basis of Presentation



These unaudited financial statements and accompanying notes prepared in accordance with instructions to Form 10-Q have been condensed and,
therefore, do not contain certain information included in the Companys annual financial statements and accompanying notes. Therefore, you should read these unaudited condensed financial statements in conjunction with the Companys annual
financial statements included in the annual report on Form 10-K.



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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





The
unaudited condensed financial statements reflect, in the opinion of management, all adjustments that are of a normal recurring nature, necessary for a fair statement of the financial position of the Company as of March 31, 2003, and the results
of its operations for the three-month periods ended March 31, 2003 and 2002. Interim results are not necessarily indicative of results to be expected for a full fiscal year.



Principles of Consolidation.    The financial statements include the accounts of
US SEARCH.com Inc. and its wholly owned subsidiary. All material inter-company accounts and transactions have been eliminated in consolidation.



Net Loss Per Share



Basic net loss per common share is computed using the weighted-average number of shares of common stock outstanding and diluted net loss
per common share is computed using the weighted average number of shares of common stock and common equivalent shares outstanding. Common equivalent shares related to convertible preferred stock, convertible notes payable, stock options and warrants
are excluded from the computation when their effect is anti-dilutive.



The following summarizes the stock options, warrants and convertible preferred stock excluded from the weighted-average number of shares because their effect is anti-dilutive:



|                            |  | March 31, 
|--------------------------- |  | ----------
|                            |  | 2003      
|Stock options               |  | 19,785,849
|Common stock warrants       |  | 10,407,019
|Convertible preferred stock |  |          



Stock-Based
Compensation



The Company accounts for
stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure requirements of SFAS No.
123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation cost, if any, is recognized over the respective vesting period based on the difference on the date of grant, between the fair value of the Companys common
stock and the grant price.



The Company accounts
for stock-based awards to non-employees in accordance with SFAS No. 123 and EITF 96-18. An expense is recognized for common stock, warrants, or stock options issued for services rendered by non-employees based on the estimated fair value of the
security exchanged.



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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



The following table illustrates the effect on net loss and loss per share if
compensation cost for all outstanding and unvested stock options and other stock-based employee compensation awards had been determined based on their fair values at the grant date, consistent with the method prescribed by SFAS No. 123:



|                                                                        |  | For the Three Months Ended March 31, |           
|----------------------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                                        |  | 2003                                 |           
|Net Loss                                                                |  |                                      |           
|As reported                                                             |  | $                                    | (1,811,000
|Stock-based compensation expense determined under the fair value method |  |                                      | (854,000  
|                                                                        |  |                                      |           
|Pro forma                                                               |  | $                                    | (2,665,000
|                                                                        |  |                                      |           
|Loss per sharebasic and diluted                                        |  |                                      |           
|As reported                                                             |  | $                                    | (0.02     
|Pro forma                                                               |  | $                                    | (0.03     



SFAS No.
123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that
have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. Because the
Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. The fair value of the options were determined using the Black-Scholes option pricing model with the following assumptions: expected
volatility of 80%, risk free interest rate ranges of 4.3% to 4.86%, expected life of 3.5 years and no expected dividend yield.



Because additional stock options are expected to be granted each year, the pro forma disclosures above are not representative of pro forma
effects on financial results for future years.



Recent
Accounting Pronouncements



In June 2002, the
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 nullifies EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when it is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of an entitys commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. Under SFAS No. 146, an entity may not restate its
previously issued financial statements. The adoption of SFAS No. 146 did not have a material impact on the Companys consolidated financial statements.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, an amendment
of SFAS No. 123. SFAS No. 148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to that statements fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provision of SFAS No. 123 and APB No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting



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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



policies about the method of accounting for stock-based compensation and the effects of the method on reported net income and earnings per
share in annual and interim financial statements. The transition and disclosure provisions of this statement are effective for financial statements for fiscal years ending after December 15, 2002. The Company has continued to use the intrinsic value
method of accounting for stock-based compensation in accordance with APB Opinion No. 25. The Company made the disclosures required by SFAS No. 148 in the consolidated financial statements for the first quarter of 2003. Accordingly, adoption of SFAS
No. 148 did not impact the Companys financial position or results of operations.



Reclassifications



Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation.



3.    Bank Debt



On March 18, 2003, the Company renewed its loan facility with its bank. Availability under the new $2.5 million revolving loan
facility (the Facility) is limited to an advance formula of up to 100% on the first $1.5 million of availability and 85% of eligible accounts receivable for amounts advanced in excess of $1.5 million up to $2.5 million. The
Facility matures on April 30, 2004. The Facility is collateralized by all of the personal property of US SEARCH, tangible and intangible. The Company is required to maintain a certificate of deposit with the bank of $450,000, which is classified as
restricted cash in the accompanying balance sheet. The Facility bears interest at prime plus 1.50% on the first $1.5 million and prime plus 2.50% on amounts above $1.5 million up to $2.5 million. The bank will receive a 7-year warrant to
purchase common stock at an exercise price per share equal to the closing price of such common stock on the last trading day preceding the date of consummation of the merger (see Note 7) such that the product of such number of shares multiplied by
such exercise price equals $25,000. The company will have to meet certain operating performance, minimum EBITDA and Debt/Tangible Net Worth covenants on a monthly basis. The Company was in compliance with or had received a bank waiver of covenants
at March 31, 2003 and expects the same at April 30, 2003.



4.    Commitments and Contingencies



Strategic Alliance Commitments



The Company has several cancelable and non-cancelable distribution and marketing agreements with various Internet companies. The terms of these agreements provide for varying levels of exclusivity and minimum and maximum fees payable
based on the number of banners, buttons and text links displayed on affiliate web sites. At March 31, 2003, the minimum non-cancelable payments due under these agreements are approximately $2,475,000 for the remainder of 2003, and approximately
$550,000 for 2004.



The Company has entered into
an agreement with a supplier of online public records data. At March 31, 2003, the non-cancelable payments under this agreement are $483,000 due in 2003.



Legal Proceedings



In May 2001, ChoicePoint, Inc., the successor entity to DBT Online, Inc., our former data supplier, served the Company with a complaint
filed in Palm Beach County, Florida alleging breach of contract, fraudulent misrepresentation, unjust enrichment, quantum meruit and breach of the implied covenant of good faith and fair dealing. ChoicePoint sought approximately $1.5 million
relating to disputed invoices, as well as interest and attorneys fees. The Company removed this action to the United States District Court for the Southern District of



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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



Florida. The United States District Court for the Southern District of Florida ordered the matter to arbitration. In arbitration the Company
alleged that ChoicePoint breached the contract by providing inferior data. The arbitration was concluded in April 2002 and in June 2002 the arbitrator found that ChoicePoint had provided inferior data and awarded the Company a credit of $297,671 to
be deducted from invoices of $1,418,731. ChoicePoint filed a motion to confirm the Arbitration Award and the Company filed a motion to modify and correct the Arbitration Award to provide additional credits because of a calculation error by the
Arbitrator. The Company is awaiting rulings on these motions. The Company has paid ChoicePoint $300,000 of the award. At March 31, 2003 the Company has approximately $780,000 accrued for this liability in accounts payable.



On June 25, 2002, a complaint seeking $434,000 in damages was
filed against Professional Resource Screening, Inc. in Superior Court of California, county of Contra Costa, styled Wood Warren & Co. v. Professional Resource Screening, Inc., No. C02-01816, alleging breach of an oral agreement relating to fees
for investment banking services in connection with the merger of Professional Resource Screening and US SEARCH, negligent misrepresentation, promissory estoppel, equitable estoppel and quantum meruit. Plaintiff Wood Warren admits that there was
no written contract for investment banking services between Wood Warren and Professional Resource Screening in effect at the time of the merger. Professional Resource Screening denies that there was any oral agreement. Although it is too early to
predict the outcome, the Company believes it has meritorious defenses to plaintiffs claims.



From time to time, the Company has been party to other litigation and administrative proceedings relating to claims arising in the normal
course of business. Management believes that the resolution of these matters will not have a material adverse effect on the Companys financial position, results of operations or cash flows.



5.    Related Party Transactions



A director of the Company is a partner at a law firm that
provides legal services to the Company. The Company incurred legal fees of $241,000 and $25,000 to the law firm during the three months years ended March 31, 2003 and 2002, respectively. As of March 31, 2003 and December 31, 2002, liabilities of
$1,039,000 and $819,000, respectively, are due to the law firm.



A director of the Company is a partner at a consulting firm that provides consulting services to the Company. During the three months ended March 31, 2003 and March 31, 2002, this firm provided no consulting services. As of March 31,
2003 and December 31, 2002, $138,000 and $138,000 were due to this consulting firm.



An executive vice president of the Company is on the Board of Advisors of a web traffic monitoring service, and is the owner of 20,000 options to purchase stock at an exercise price of $0.90 per share
in this entity. During the three-month periods ended March 31, 2003 and 2002, the Company incurred costs of $12,000 and $0, respectively, to this entity for web traffic monitoring services. At March 31, 2003 and December 31, 2002, liabilities of
$5,000 and $4,200, respectively, are due to this entity.



6.    Segment Information



As of March 31, 2003, the Company has organized its operations into two business segments: large business services and consumer-focused services. The business segments disclosed in this Form 10-Q are based on this
organizational structure and information reviewed by the Companys management to evaluate the segment results. A description of the types of services provided by each reportable segment is as follows:



Large Business Services.    Through
this segment, the Company provides large businesses, government agencies and other large employers with a variety of employment screening, background check and risk



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##### Table of Contents

US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)



mitigation products and services via an online, web-based system that enables instant ordering and prompt delivery of results. The
Companys employment screening products include social security number traces, federal and state felony and misdemeanor record searches, employment and education verification, and credit histories. The Company also provides character reference
checks and drug screening via third party providers. In addition, the Company offers a Management Services program that provides customers with an outsourced solution to background investigations, which includes analysis of developed investigation
data, management of Fair Credit Reporting Act communications, legal compliance, and direct applicant contact.



Consumer-Focused Services.    Through this segment, the Company provides consumer clients and small and medium
sized businesses with a single, comprehensive access point to a broad range of information to assist them in locating individuals or to learn more information about people in their lives or with whom they do business. The consumer clients can obtain
public information including addresses, aliases, phone numbers, property ownership, court records, professional license verification, corporate affiliations and death record information. The Company also offers nanny and contractor background check
services for consumers and employment screening for small businesses.



Segment information is presented in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information. This standard is based on a management approach, which requires segmentation based
upon the Companys internal organization and disclosure of revenue and operating results based upon internal accounting methods. The Companys financial reporting systems present various data for management to run the business, including
internal operating profit and loss statements prepared on a basis not necessarily in conformity with U.S. generally accepted accounting principles. The Company uses shared-resources, including its IT infrastructure, for both segments. During the
quarter ended March 31, 2003, the Company allocated certain shared service costs related to IT, human resources, general and administrative and depreciation to the large business services segment for management reporting purposes. The comparative
segment information for 2002 has been presented on a consistent basis with the 2003 information.



Management evaluates segment performance based on segment operating profit or loss. Selected financial information about the Companys operations by segment for the three months ended March 31,
2003 and 2002 are as follows:



|For The Three Months Ended March 31, 2003 |  | Consumer-focused Services |           | Large Business Services |   | Consolidated
|----------------------------------------- |  | ------------------------- | --------- | ----------------------- | - | ------------
|Revenue                                   |  | $                         | 5,706,000 |                         | $ | 2,373,000   
|Operating Loss                            |  |                           | 552,000   |                         |   | 1,027,000   
|Depreciation and Amortization             |  |                           | 451,000   |                         |   | 281,000     
|Interest Expense                          |  |                           | 124,000   |                         |   | 106,000     
|Total expenditures on long lived assets   |  | $                         | 686,000   |                         | $ | 10,000      
|                                         
|For The Three Months Ended March 31, 2002 |  |                           |           |                         |   |             
|Revenue                                   |  | $                         | 4,781,000 |                         | $ | 1,882,000   
|Operating Loss                            |  |                           | 1,093,000 |                         |   | 983,000     
|Depreciation and Amortization             |  |                           | 380,000   |                         |   | 450,000     
|Interest Expense                          |  |                           | 611,000   |                         |   | 324,000     
|Total expenditures on long lived assets   |  | $                         | 505,000   |                         | $ |            



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NOTES TO FINANCIAL STATEMENTS(Continued)





7.    Pending Merger



The First American Corporation, a leading diversified provider of business information and related products and services, and US Search have signed a definitive agreement to merge their background screening businesses and form a new
company that will apply for listing on the NASDAQ National Market System. The Agreement and Plan of Merger (pending merger agreement) dated as of December 13, 2002, sets forth the terms and conditions of the mergers. Among other things, the pending
merger agreement restricts the business conduct of the parties before the closing of the merger, contains representations and warranties of the parties to the agreement, prohibits US SEARCH from soliciting competing offers and provides for
adjustments of the exchange ratio in certain circumstances. Under certain specified terms in the merger agreement either First American or US Search may terminate the merger agreement, however, the agreement provides for the payment of a termination
fee of $2,800,000 by US Search if the merger agreement is terminated for certain reasons. The parties have agreed to pay all of their own expenses relating to the mergers, including the fees and expenses of their financial advisers.



The merger, which will combine US Searchs services with
First Americans Screening Information group, (FAST), is scheduled to close during the second quarter of 2003. The combination of these businesses will create a new publicly held company that will be named First Advantage Corporation. First
Advantage will be approximately 80 percent owned by The First American Corporation, with the remainder owned by the shareholders of US Search.



Completion of the merger is subject to customary closing conditions that include, among other things, receipt of required approvals from a
majority of the outstanding shares of US SEARCH common stock, and receipt of required regulatory approvals. Only holders of record of US SEARCH common stock at the close of business on the record date of May 1, 2003 are entitled to vote. The
transaction, while expected to close in the second quarter of calendar year 2003, may not be completed if any of the aforementioned conditions are not satisfied.



Pequot Private Equity Fund II has entered into a voting agreement with First American, pursuant to which
Pequot has agreed to vote the Companys shares of common stock held by it in favor of the merger. Accordingly, approval of the merger by the stockholders of US SEARCH is assured as long as the voting agreement remains in effect and the parties
perform their obligations thereunder.



On March
31, 2003, US SEARCH received a written notice from The First American Corporation, which alleged that US SEARCH had breached the merger agreement. The notice of breach concerned US SEARCHs award of bonuses to certain executive officers of US
SEARCH for services performed in 2002. Representatives of US SEARCH and First American discussed the concerns raised in First Americans notice and reached agreement as to how and when such bonuses will be paid during the pendency of the merger
agreement. On April 1, 2003, US SEARCH and First American entered into a letter agreement relating to such bonuses and pursuant to which First American formally withdrew its notice of breach.



The Subordinated Secured Promissory Note



In connection with the merger agreement, on January 15, 2003,
First American loaned the Company $1.4 million pursuant to a subordinated secured promissory note. The note matures on June 30, 2003 and bears interest at a rate equal to the lesser of 10.0% and the prime rate plus 4.75%. If an event of default
occurs under the note, all principal and accrued interest will become immediately due and payable and the interest rate will increase to the lesser of 10.0% and the prime rate plus 6.75%.



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



Forward-Looking Statements



THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANYS BUSINESS, MANAGEMENTS BELIEFS AND ASSUMPTIONS MADE BY MANAGEMENT. WORDS SUCH AS
ANTICIPATES, EXPECTS, INTENDS, PLANS, BELIEVES, SEEKS, ESTIMATES, LIKELY, VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM
WHAT IS EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE SET FORTH BELOW UNDER FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION AND OUR OTHER PUBLIC
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.



Overview



US SEARCH provides employment screening services to large
businesses and a range of location and risk management services to consumers and small and medium sized business clients including identity verification, individual location, criminal record checks, employment and education verifications,
professional reference checks, credit and motor vehicle record checks, drug screening, and pre-employment screening services. US SEARCH is able to deliver location verification and screening services through its proprietary web-based
applications and patent pending US SEARCH DARWINtechnology. US SEARCHs services can be accessed through its websites, USSEARCH.com, ussearch.com/business or prsinet.com, or by calling toll
free telephone numbers, 1-800-USSEARCH for consumers, 1-877-327-2410 for small and medium businesses or 1-800-232-0247 for large businesses.



US SEARCHs consumer and small and medium business products provide direct (Internet and telephone) individual locator, and other
public record searches to consumers and these services and pre-employment screening services to small and medium-sized businesses. US SEARCHs business product provides employment screening and risk mitigation services to large businesses and
organizations.



Due to the high level of
automation, certain of US SEARCHs services can be conducted instantly online. US SEARCH also offers assisted searches and screening services, both online and through a toll free telephone number.



Large Business Services.    US
SEARCH provides large businesses, government agencies and other large employers with a variety of employment screening, background check and risk mitigation products and services via an online, web-based system that enables instant ordering and
prompt delivery of results. Customers can customize their search and decision parameters online using a drag-and-drop browser interface. US SEARCHs employment screening products include social security number traces, federal and
state felony and misdemeanor record searches, employment and education verification, and credit histories. US SEARCH also provides character reference checks and drug screening via third party providers. In addition, US SEARCH offers a



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Management Services program that provides customers with an outsourced solution to background investigations, which includes analysis of
developed investigation data, management of Fair Credit Reporting Act communications, legal compliance, and direct applicant contact.



Consumer-Focused Services.    US SEARCH provides consumer clients and small and medium sized businesses with a
single, comprehensive access point to a broad range of information to assist them in locating individuals or to learn more information about people in their lives or with whom they do business. US SEARCHs consumer clients can obtain
public information including addresses, aliases, phone numbers, property ownership, court records, professional license verification, corporate affiliations and death record information. US SEARCH also offers nanny and contractor background check
services for consumers and employment screening for small businesses.



Prices for US SEARCHs non-instant consumer and small and medium business services have ranged from approximately $20 to $395 per search. Prices for Instant Searches range from approximately $10 to $15 per
search. Prices for large business services range from $3 to $495. The prices for services vary based on the nature and amount of information and whether or not the search is assisted by a search specialist.



Revenue for US SEARCHs services is recognized when the
results are delivered to the client. The terms of sale do not provide for refunds after services have been delivered, however, in instances where the clients indicate that the initial search result was unsuccessful, US SEARCH may perform another
search or provide a refund at the customers discretion. In addition, where clients desire additional information they can request to broaden the scope of their Instant Searches and US SEARCH applies up to a portion of the cost of
the clients Instant Searches towards the cost of the more comprehensive search.



US SEARCHs cost of services consists primarily of payroll and benefits, data acquisition costs, local and long distance telephone
charges associated with providing its services, and payment processing costs. US SEARCHs cost of services is likely to increase with increasing revenue levels. US SEARCH has entered into an agreement with Confi-Check, Inc., a supplier of
online public record data. This agreement, which permits US SEARCH representatives and customers access to Confi-checks information database, will remain in effect following the close of the proposed merger with the FAST division. It
expires in October 2003 and is renewable at US SEARCHs option for up to five additional one-year periods. At March 31, 2003, the non-cancelable payments under this agreement are $483,000 in 2003.



US SEARCHs operating expenses consist primarily of
selling, marketing, general and administrative expenses and information technology costs. US SEARCH expects operating expenses to increase as it attempts to expand its corporate sales force and product lines.



Selling and marketing expenses are a significant portion of US
SEARCHs operating expenses. Internet advertising expenses are the most significant selling and marketing expense. US SEARCH has several cancelable and non-cancelable distribution and marketing agreements with various Internet companies
including Yahoo! Inc. The terms of these agreements provide for varying levels of exclusivity and minimum and maximum fees payable based on the number of banners, buttons and text links displayed on affiliate websites. At March 31, 2003, the minimum
non-cancelable payments due under these agreements are approximately $2,475,000 for 2003, and $550,000 for 2004.



US SEARCH expects selling and marketing expenses to increase as it attempts to expand its products and market reach in both the
consumer-focused and business services groups.



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Information technology expenses consist primarily of the compensation and benefits for employees and consultants involved in development, network administration, planning and maintenance of infrastructure. Certain costs associated
with the development of software for internal use are capitalized. Information technology costs are expected to increase with the continuing development of proprietary technology.



General and administrative expenses consist primarily of compensation and related costs for administrative
personnel, our occupancy costs and other overhead costs. US SEARCH expects general and administrative costs to remain flat or decrease as it continues to manage the size and growth of its organization.



Interest expense, net of interest income, consists of interest
on outstanding short term and long-term debt, and convertible notes payable. Interest expense also includes non-cash charges resulting from beneficial conversion features on US SEARCHs convertible notes payable, and the amortization of
discounts and issuance costs on US SEARCHs convertible notes payable, vendor notes payable, and bank credit facility. Upon the conversion of all remaining convertible notes payable into US SEARCHs common stock, US SEARCH recognized all
remaining beneficial conversion feature charges and wrote off all remaining discounts and issuance cost related to the convertible notes payable. Consequently, US SEARCH expects interest expense to decrease.



Results of Operations



Comparison of the Three Months Ended March 31, 2003 to the Three Months
Ended March 31, 2002



Net
Revenues.Net revenues increased from approximately $6.7 million for the three months ended March 31, 2002 to approximately $8.1 million for the three months ended March 31, 2003, representing a 21% increase.
Approximately $500,000 of the increase is attributable to our large business services division that added new clients. The remaining $900,000 increase was due to growth in the Companys consumer-focused business. Through a combination of
establishing new channel partnerships, strengthening existing channel partnership relationships, and implementing enhanced search technology, the Company was able to increase internet traffic to its website and improve customer conversion rates for
the consumer-focused business.



Gross
Profit.Gross profit increased from approximately $4.7 million for the three months ended March 31, 2002, to approximately $5.4 million for the three months ended March 31, 2003, representing a 15% increase. Gross
profit as a percentage of net revenues was approximately 67% and 70% for the three month periods ended March 31, 2003 and 2002, respectively. The decrease in gross margin reflects the change in product mix at our large business services division
causing an increase in direct labor to fulfill the product sales. Increased automation in our consumer-focused business, which resulted in a reduction in direct labor expense for the consumer-focused business, also contributed to an increase in
gross profit, which offset some of the decrease in gross profit from our large business services division.



Selling and Marketing Expenses.Selling and marketing expenses were $2.8 million for the three-month period
ended March 31, 2003 as compared to $2.8 million for the 2002 period. Although costs remained unchanged, selling and marketing expenses were 34% of sales for the three months ended March 31, 2003 compared to 42% of sales for the three months ended
March 31, 2002. The decrease in the ratio of selling and marketing expenses to sales is a result of the Companys efforts to reduce customer acquisition costs and to implement more efficient means of marketing by taking steps such as developing
better channel partnerships and more efficient monitoring of channel partner performance.



General and Administrative Expenses.General and administrative expenses for the three months ended March 31, 2003 increased by $399,000 compared to the same period in
2002. The change is primarily the result



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NOTES TO FINANCIAL STATEMENTS(Continued)



of a $370,000 increase due to merger related costs, a $38,000 increase in accounting fees, a $28,000 increase in bank fees relating to the
new credit facility and a $91,000 increase in insurance, partially offset by a $88,000 reduction in legal fees. Additionally, there was a net $40,000 reduction in credit card dispute chargebacks and related chargeback fees. To achieve the reduction
in chargebacks, the Company introduced several new credit card authentication procedures to verify credit card transactions.



Information Technology Expenditures.Information technology expenditures decreased by $169,000 for the
three-month period ended March 31, 2003 as compared to the 2002 period. The change is the result of a reduction in payroll costs due to a reduction in headcount, and a decrease in consulting costs due to implementation of certain of the
Companys internally developed software and re-negotiation of software maintenance contracts.



Interest Expense, Net.Interest expense, net of interest income, was $230,000 for the three months ended
March 31, 2003 as compared to $935,000 for the same period in 2001. The reduction is due to the conversion, in July 2002, of the 8% Convertible Promissory Notes. Included in interest expense for the 2002 period are non-cash interest charges of
$611,000 related to the amortization of discounts on the Companys convertible notes payable. Also included is $275,000 related to the amortization of debt issuance costs incurred in connection with the Companys bank credit facility.
Included in interest expense for the 2003 period are non-cash interest charges of $171,000 primarily related to the amortization of debt issuance costs incurred in connection with the Companys bank credit facility.



Net Loss.    Net loss decreased
$1.2 million from $3.0 million for the three months ended March 31, 2002 to $1.8 million for the three months ended March 31, 2003. The decrease in net loss was primarily attributable to an increase in gross profit and a reduction in interest
expense described above.



Liquidity and Capital Resources



As of March 31, 2003, cash and cash
equivalents totaled $899,000 (excluding $475,000 of restricted cash pledged in part as collateral in connection with US SEARCHs credit facility with Comerica) as compared with $2.3 million as of December 31, 2002.



Cash used in operations decreased to $1.9 million for the
three months ended March 31, 2003 as compared to $3.9 million for the three months ended March 31, 2002. This decrease is primarily attributable to reduced losses from operations, net of non-cash interest expense.



Cash used in investing activities remained constant at
approximately $700,000 for both the three months ended March 31, 2003 and March 31, 2002.



Cash provided by financing activities was approximately $1.2 million for the three months ended March 31, 2003 compared to the $8.2 million for the three months ended March 31, 2001. The cash provided
in 2003 is primarily attributable to $1.4 million in cash proceeds from a note payable to First American, offset by $150,000 repayment of PRSI acquisition obligation, repayment of $51,000 of bank debt, $100,000 decrease in restricted cash, $45,000
repayment of notes payable and payments of $27,000 relating to capital lease obligations. The cash provided in 2002 is primarily attributable to $10.2 million in cash proceeds from issuance of our convertible notes payable, offset by $490,000
repayment of PRSI acquisition obligation, repayment of $234,000 of bank debt, $1.2 million increase in restricted cash and $81,000 of capital lease obligations.



On March 27, 2002 the Companys Loan Agreement with the Bank was renewed through March 26, 2003 by
Waiver and Amendment Number One. On August 7, 2002 the Loan Agreement was amended to provide a



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NOTES TO FINANCIAL STATEMENTS(Continued)



total credit extension of up to $1 million by Waiver and Amendment Number Two. The Loan Agreement was amended again on January 22, 2003 to
retroactively reduce the restricted cash requirement to $550,000 at December 31, 2002 by Waiver and Amendment Number Three. Borrowings under this line bear interest at prime plus 2.5%, (6.75% at December 31, 2002). At various times throughout the
year the company was in violation of certain of its loan covenants related to minimum EBITDA and Debt/Tangible net worth, all violations of which the banked waived.



On March 18, 2003, the loan agreement was renewed and expanded to a $2.5 million Revolving Loan Facility.
Availability under the Facility will be limited to an advance formula of up to 100% on the first $1.5 million of availability and 85% of eligible accounts receivable for amounts advanced in excess of $1.5 million up to $2.5 million. The
Facility matures on April 30, 2004. The Facility is collateralized by all of the personal property of US SEARCH, tangible and intangible. Security will include a $450,000 pledged certificate of deposit, considered restricted cash. The borrowing rate
is prime plus 1.50% on the first $1.5 million and prime plus 2.50% on amounts above $1.5 million up to $2.5 million. The bank will receive a 7-year warrant to purchase common stock at an exercise price per share equal to the closing price of such
common stock on the date of consummation of the merger such that the product of such number of shares multiplied by such exercise price equals $25,000. The Company will have to meet certain operating performance, minimum EBITDA and Debt/Tangible Net
Worth covenants on a monthly basis.



In December
2001 and in the first quarter of 2002, US SEARCH received $13.9 million net proceeds from the issuance of convertible notes payable, which were subsequently converted into 27,864,051 shares of common stock of the Company during 2002.



On January 15, 2003, as contemplated in the merger agreement
with First American, First American loaned the Company $1.4 million pursuant to a subordinated secured promissory note. The note matures on June 30, 2003 and bears interest at a rate equal to the lesser of 10% or the prime rate plus 4.75%. If an
uncured event of default occurs under the note, all principal and accrued interest will become immediately due and payable and the interest rate will increase to the lesser of 10% or prime plus 6.75%. If the merger with First Advantage is not
completed by June 30, 2003 or an event of default occurs, there is no assurance that the Company will have sufficient liquidity to repay the loan to First American.



Since inception we have experienced negative cash flows from operations. Based on our current operating
plans, including the consummation of the merger with First American, management believes existing cash resources, including availability under the Revolving Loan Facility and cash forecasted by management to be generated by operations will be
sufficient to meet working capital and capital requirements through March 31, 2004. Also, managements plans to attain profitability and generate additional cash flows include, increasing revenues from large business services and
consumer-focused services, focus on cost reductions and operational efficiencies to be derived from further deployment of US SEARCHs technologies, and the launch of additional products. There is no assurance that management will be successful
with these plans. Moreover, pending completion of the merger with First Advantage, US Search has suspended any equity raising activities. If events and circumstances occur such that US SEARCH does not complete the merger with First Advantage and US
Search does not meet its current operating plan as expected, US SEARCH may not have sufficient liquidity to meet its obligations and, as a result the Company may need to seek additional financing. There is no assurance that such financing will be
available on terms favorable to the Company or at all. Under these circumstances, US SEARCH may be required to reduce certain discretionary spending, which could have a material adverse effect on US SEARCHs ability to achieve our intended
business objectives.



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NOTES TO FINANCIAL STATEMENTS(Continued)





Contractual Obligations and Commercial Commitments.    The following table summarizes all significant contractual payment obligations as of March 31, 2003, by payment due date:



|                                |  | Payments by Period
|------------------------------- |  | ------------------
|Contractual Obligation          |  | Total             
|                                |  | ($ Thousands)     
|Bank debt                       |  | $                 
|Advertising commitments(e)      |  |                   
|Capital lease obligations(d)    |  |                   
|Operating lease obligations(c)  |  |                   
|Minimum purchase commitments(b) |  |                   
|PRSI payment obligations(a)     |  |                   
|Total                           |  | $                 

---

|(a) |  | Includes payment obligations of $1,520,000, payable in equal monthly installments of $127,000 commencing January 2004. These payments may be accelerated commencing
July 2002 based on the profitability and cash flows of Professional Resource Screening.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Includes payment obligations of $483,000 to Conficheck, one of our data suppliers, payable at a rate of $69,000 per month until October 22, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Includes real property leases for payments for headquarters offices of US SEARCH and Professional Resource Screening.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|(d) |  | Includes various equipment leases.
|--- |  | ----------------------------------

|(e) |  | Includes $275,000 minimum monthly payment obligation to Yahoo! until February 29, 2004.
|--- |  | ---------------------------------------------------------------------------------------



Risk Factors Affecting Our Business, Operating Results and Financial Condition



The following is a discussion of certain risks, uncertainties
and other factors that currently impact or may impact our business, operating results and/or financial condition. Anyone evaluating us and making an investment decision with respect to our Common Stock or other securities is cautioned to carefully
consider these factors, along with similar factors and cautionary statements contained in our filings with the Securities and Exchange Commission.



If we do not complete the proposed combination with First Americans FAST division, it could negatively impact us and the price of
our common stock.



If the proposed
combination with the FAST division is not completed, we may be subject to a number of material risks, including the following:



| |  |  | Our management time and attention may be diverted from attending to our business because management is focusing on preparing for integration with First Advantage;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are expending unplanned resources on integration efforts designed to ensure a smooth transition if and when the proposed combination is completed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be required to pay First American a termination fee of $2.8 million if we do not complete the combination for certain reasons;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the current market price of our common stock may decline to the extent that it reflects an assumption that the combination will be completed;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO FINANCIAL STATEMENTS(Continued)





| |  |  | we will have to repay up to $1.4 million plus interest that we have borrowed from First American during the period before closing the combination, pursuant to a
subordinated secured promissory note due June 30, 2003; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | substantial costs related to the combination, such as legal and accounting fees and expenses and financial advisor expenses, must be paid even if the combination is
not completed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There is no
assurance that we will have sufficient liquidity to satisfy the obligations described above. As a result, we may need to seek additional financing to satisfy such obligations. There is no assurance that such financing will be available on terms
favorable to us or at all. Further, if the merger agreement with First American is terminated and our board of directors seeks another business combination, we cannot assure you that we will be able to find a party willing to pay an equivalent or
higher price than that which will be paid in the proposed combination with the FAST division. In addition, while the merger agreement is in effect, subject to limited exceptions, we are prohibited from soliciting, initiating, knowingly encouraging
or facilitating the submission of proposals or offers relating to a takeover proposal or endorsing or entering into any agreement with respect to any takeover proposal.



There is no current public market for First Advantage Class A common stock, and there will not be a public
market for First Advantage Class A common stock until the closing. As a result, you will not be able to predict the trading price of the shares of First Advantage Class A common stock you will receive in exchange for your US SEARCH common stock if
the proposed combination is completed.



If
the proposed combination with the FAST division is completed, US SEARCH stockholders will have the right to receive 0.04 of a share of First Advantage Class A common stock for each share of US SEARCH common stock they own. Our board of directors has
determined that the consideration to be received by the US SEARCH stockholders pursuant to the merger agreement with First American is fair and in the best interests of US SEARCH and our stockholders. However, because there is no current public
market for shares of First Advantage Class A common stock, you will not be able to predict the market value of the First Advantage Class A common stock you will receive pursuant to the merger agreement. The market price of First Advantage Class
A common stock immediately following the closing of the proposed combination may vary from the value attributed to it by the board of directors of US SEARCH when it determined to enter into the merger agreement. This variation may be caused by a
number of factors, including market perception of the value of First Advantage, changes in the businesses, operations or prospects of US SEARCH, the FAST division or First Advantage, the timing of the mergers, regulatory considerations and general
market and economic conditions. If the proposed combination is completed, there can be no assurance that an active trading market for First Advantage Class A common stock will develop or, if a trading market does develop, that it will continue. In
the absence of such a market, you may be unable to readily liquidate your investment in First Advantage Class A common stock.



The integration of US SEARCH and the FAST division following the transactions will be difficult and may result in a failure to realize
some of the anticipated potential benefits.



The business combination of US SEARCH and the FAST division involves the integration of several businesses that previously operated independently. We cannot assure you that First Advantage will be able to integrate operations of US
SEARCH and the FAST division without encountering difficulties. Any difficulty in integrating the operations of the businesses successfully could have a material adverse effect on the business, financial condition, results of operations or liquidity
of First Advantage, and could lead to a failure to realize the anticipated synergies of the combination. First Advantages management will be required to dedicate substantial



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time and effort to the integration of US SEARCH and the FAST division. During the integration process, these efforts could divert
managements focus and resources from other strategic opportunities and operational matters.



First Advantage will be controlled by First American and as a result other stockholders will have little or no influence over
stockholders decisions.



If the
proposed combination with the FAST division is completed, First American will own 100% of the First Advantage Class B common stock, which will have ten votes per share, compared to one vote per share of First Advantage Class A common stock.
Consequently, First American will have approximately 98% of the total voting power of First Advantage and, therefore, First American will have the right to control the outcome of any matter submitted for the vote or consent of First Advantages
stockholders, unless a separate class vote is required under Delaware law. First American will have the voting power to control the election of the First Advantage board of directors and it will be able to cause the amendment of First
Advantages certificate of incorporation or bylaws.



First American also may be able to cause changes in the business without seeking the approval of any other party. These changes may not be beneficial to First Advantage or in the best interest of First Advantages other
stockholders. For example, First American will have the power to prevent, delay or cause a change in control and could take other actions that might be favorable to First American, but not necessarily to other stockholders. Similarly, subject to
certain restrictions, First American will have the voting power to exercise a controlling influence over First Advantages business and affairs and will have the ability to make decisions concerning such things as:



| |  |  | mergers or other business combinations;
| | - |  | ---------------------------------------



| |  |  | purchases or sales of assets;
| | - |  | -----------------------------



| |  |  | offerings of securities;
| | - |  | ------------------------



| |  |  | indebtedness that First Advantage may incur; and
| | - |  | ------------------------------------------------



| |  |  | payments of any dividends.
| | - |  | --------------------------



We cannot assure you that First Americans ownership of First Advantage common stock or its relationship with First Advantage will
not have a material adverse effect on the overall business strategy of First Advantage or on the market price of First Advantage Class A common stock. Moreover, under recently proposed Nasdaq corporate governance rules, if a single stockholder holds
more than 50% of the voting power of a company, that company is considered a controlled company. A controlled company is exempt from the Nasdaq rules requiring that a majority of the companys board of directors be independent
directors, that independent directors must have regularly scheduled executive sessions and that the compensation and nomination committees must be comprised solely of independent directors. After the consummation of the proposed combination, First
American will own more than 50% of the voting power of First Advantage and First Advantage expects to take advantage of such exemptions afforded to controlled companies if the proposed Nasdaq rules are enacted.



First Advantage has no operating history as an independent
company.



Due to a lack of operating history
as a separate public company, there can be no assurance that First Advantages business strategy will be successful on a long-term basis. Several members of First Advantages management team have never operated the company as a stand-alone
public company. Following the mergers, First Advantage will have less financial and other resources than First American. First Advantage may not be able to grow its business as planned and may never become a profitable business. First
Advantages ability to



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satisfy obligations and become profitable will be solely dependent upon the future performance of the lines of business it owns and operates,
and it will not be able to rely upon the financial and other resources and cash flows of those business lines remaining with First American. For example, in 2000, 2001 and 2002, First American forgave approximately $6.1 million, $35.2 million and
$95.4 million, respectively, in amounts used by the FAST division for working capital and acquisition financing. You should consider the prospects of First Advantage based on the risks, expenses and difficulties frequently encountered in the
operation of a new public company in a relatively new and evolving industry.



Our stock price may be volatile, and you may lose all or part of your investment.



The market price of our common stock has fluctuated significantly. Since going public in June 1999, the closing price of our common stock
on Nasdaq has ranged from a high of $17.375 to a low of $0.188. During the last twelve months, the closing price of our common stock has ranged from a high of $1.01 to a low of $0.20. On May 8, 2003, the closing price of our common stock was $0.80.
The market price of our common stock and, if the proposed combination with the FAST division is completed, First Advantage common stock could continue to be subject to significant fluctuations as a result of numerous factors, many of which are
beyond our control. Among the factors that could affect ours and First Advantages stock price are:



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | changes in revenue or earnings estimates or publication of research reports by analysts;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | speculation in the press or investment community about our business;
| | - |  | --------------------------------------------------------------------



| |  |  | fluctuations in stock market prices and volumes, particularly of similar companies;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | changes in market valuations of similar companies;
| | - |  | --------------------------------------------------



| |  |  | strategic actions by us or our competitors such as acquisitions or restructurings;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | regulatory developments;
| | - |  | ------------------------



| |  |  | additions or departures of key personnel;
| | - |  | -----------------------------------------



| |  |  | general market conditions, including the effect of market conditions on our customers and suppliers; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | domestic and international economic factors unrelated to our performance.
| | - |  | -------------------------------------------------------------------------



The stock markets in general, and the markets for technology stocks in particular, have experienced extreme
volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. We have experienced previous fluctuations in our common stock
in the past and the price of our stock remains volatile.



We risk being delisted from The Nasdaq National Market.



The closing sale price of our common stock on May 8, 2003 was $0.80 per share. To maintain listing on The Nasdaq National Market System we must maintain a trading price per share of more than $1.00. If
the trading price per share of our common stock remains below $1.00, we may be delisted from the Nasdaq National Market. If we are unable to maintain compliance with the requirements for continued listing on the Nasdaq National Market, including the
$1.00 minimum bid requirement, we may be subject to delisting from the Nasdaq National Market. If we are delisted from the Nasdaq National Market System, trading in our common stock, could occur, if at all, in the Nasdaq SmallCap Market, in the
over-the-counter market in so-called pink sheets or, if then



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available, the OTC Bulletin Board. As a result, the holders of our common stock would find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, our common stock.



In February 2001 and September 2002 we received notices from the Nasdaq Stock Market that we were not in compliance with the $1.00 minimum bid requirement for continued listing on the Nasdaq National Market and that our common stock
was subject to delisting from the Nasdaq National Market. In March 2001 we participated in a hearing before the Nasdaq Listing Qualifications Panel to appeal the earlier decision to delist our common stock. In June 2001 we received a notification
from Nasdaq that the Nasdaq Listing Qualifications Panel (Hearing Panel) had determined that we regained compliance with the requirements for continued listing on the Nasdaq National Market and, accordingly, determined to continue to list our common
stock on the Nasdaq National Market. On October 24, 2002 we participated in another hearing before the Nasdaq Listing Qualification Panel to appeal the September 2002 decision to delist our common stock. On November 25, 2002, the Hearing Panel
determined to continue the listing of US SEARCHs securities on the Nasdaq National Market if the Company met certain conditions.



If our common stock is delisted from trading on The NASDAQ Stock Market and the trading price is less than $5.00 per share, trading in our
common stock would also be subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934. Under such rule, broker/dealers who recommend these low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchasers written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally any equity security not traded on an exchange
or quoted on The Nasdaq Stock Market that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and
the risks associated with the penny stock market. These requirements would likely severely limit the market liquidity of our common stock and the ability of our shareholders to dispose of their shares, particularly in a declining market.



We have incurred significant net losses and
we may never achieve profitability.



We
incurred significant net losses of approximately $26.4 million in 1999, $29.4 million in 2000, $11.9 million in 2001 and $24.1 million in 2002. As of March 31, 2003, we had an accumulated deficit of approximately $100.4 million. If our revenue
does not grow as expected or capital and operating expenditures exceed our plans, our business, operating results and financial condition will be materially adversely affected. We cannot be certain if or when we will be profitable or if or when we
will generate positive operating cash flow.



Our acquisition of Professional Resource Screening, Inc., and future acquisitions, could have a material adverse effect on our business, results of operations or financial condition.



In December 2001, we acquired Professional Resource
Screening, Inc. The acquisition may still present numerous challenges to us, including the continued integration of the operations, technology platform and personnel of Professional Resource Screening. We may also be subject to special risks such as
possible unanticipated liabilities and costs, diversion of management attention and loss of personnel. In addition, we may not achieve the revenue levels, increased earnings, profitability, efficiencies or synergies that we believe justified the
acquisition. In addition, while we have no current plan to acquire any specific business or businesses, if we do not close the proposed combination with First Americans FAST division, we may, from time to time, pursue other acquisitions of
businesses that complement or expand our existing business. There can be no assurance that



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the anticipated economic, operational and other benefits of any future acquisition will be achieved. In addition, acquisitions may involve
the expenditure of significant funds and involve a number of risks, including diversion of management attention, unanticipated problems, liabilities or contingencies and risks of entering markets in which we have limited or no direct expertise. We
cannot assure you that Professional Resource Screening or any businesses we acquire in the future will generate sufficient revenue to offset the associated costs or other adverse effects or that we will be able to successfully integrate or manage
Professional Resource Screening. The occurrence of some or all of these events could have a material adverse effect on our business, results of operations or financial condition.



We face competition from many sources. We may be unable to successfully compete with other companies in
our industry.



We operate in a number of
geographic and service markets, which are fragmented and highly competitive. Currently, our competition falls into three categories:



| |  |  | free individual locator and information services, including services offered by Internet search engines, telephone companies and other third parties who publish free
printed or electronic directories such as Yahoo, Inc. and Infospace, Inc.;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fee-based Internet search services offering comparable services, such as KnowX.com;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | local, regional and national private investigation firms, such as Kroll Worldwide, The Proudfoot Reports division of Aon Corporation, and a significant number of
companies operating on either a national scale or a local or regional basis; and the employment screening market, where our competitors include ADP, Inc., ChoicePoint, Inc., HireCheck, Inc. and General Information Services, Inc.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There are no significant barriers
that would prevent new companies from entering the markets in which we operate. In addition, some of our current suppliers and companies with which we have data or advertising agreements may successfully compete with us in the future, which may make
it more difficult to advertise our services effectively on their Web sites. Recently, InfoSpace, one of our advertising partners, decreased the number of impressions they are delivering to us. InfoSpace also introduced its own PeopleFinder service
that competes with our people locate service. We are negotiating with InfoSpace regarding these matters, but if we are not successful in our negotiations, our business, financial condition and results of operations will be materially adversely
affected.



Many of our competitors have greater
financial and marketing resources than we do and may have significant competitive advantages through other lines of business, their existing client base and other business relationships. These competitors and other potential competitors may
undertake more extensive marketing campaigns, adopt more aggressive pricing policies and devote more resources to developing information search services, background checks for individual or corporate clients and other risk mitigation services than
we are willing or able to accomplish. In addition, our competitors or potential competitors may develop services that are superior to ours, develop services less expensive than ours or that achieve greater market acceptance than our services. We may
not be able to successfully compete against our current or future competitors with respect to any of these factors. As a response to changes in the competitive environment, we may make pricing, service or marketing decisions such as reducing our
prices or increasing our advertising, all of which may affect our operating results. If we are unsuccessful in responding to our competitors, our business, financial condition and results of operations will be materially adversely affected.



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We are
dependent on a limited number of third party database and other information suppliers. If we are unable to manage successfully our relationships with these suppliers, the quality and availability of our services may be harmed.



We do not independently maintain most of the databases from
which we gather information. We obtain the data used in our services from a limited number of third party suppliers. If our current suppliers raise their prices, or are no longer able, due to government regulations or contractual arrangements, or
are unwilling to provide us with certain data, we may need to find alternative sources of information. If we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, we
could experience service disruptions, increased costs and reduced quality of our services. Additionally, if one or more of our suppliers terminates our existing agreements, we cannot assure you that we will be able to obtain new agreements with
third party suppliers on terms favorable to us, if at all. If one or more of these events were to occur, our business, financial condition and results of operations could be materially adversely affected by increased costs, reduced revenue and lower
profit margins.



We may not be able to comply
with the financial performance covenants required by our Comerica loan. If we fail to comply with the covenants and are unable to obtain waivers for any noncompliance, we may be required to repay any outstanding balances.



In September 2001, we entered into a loan and security
agreement with Comerica Bank for a credit facility. The credit facility is collateralized by all of the personal property of the Company, tangible and intangible. On March 18, 2003, the Company and Comerica agreed to amend the loan agreement. The
loan agreement contains significant financial covenants that require the company to satisfy operating performance criteria, achieve a minimum amount of earnings before interest, taxes, depreciation, amortization and merger expenses and not exceed a
specified ratio of debt to tangible net worth. As of March 31, 2003, the Company was in compliance with or had received a waiver from Comerica of all such covenants. If we are unable to maintain compliance with or obtain waivers of these covenants
in the future, Comerica may declare us to be in default of the loan agreement and we would be required to repay all amounts that had been advanced. In addition, a default under our loan agreement with Comerica could trigger a default under our $1.4
million promissory note we issued to First American in connection with signing the merger agreement for the proposed combination. If one or more of these events were to occur, our business, financial condition and results of operations could be
materially adversely affected.



We may incur
liability based on consumer complaints.



A
substantial amount of our business involves sales of services to individual consumers. We have received customer complaints concerning the quality of our services, including complaints about the currency and/or completeness of the data returned to
customers. In addition, our customers have lodged similar complaints with consumer agencies, such as the Better Business Bureau and state attorney general consumer divisions. These consumer agencies, in turn, send us an inquiry regarding the
consumer complaint. Complaints to consumer agencies have continued to decline during the last year, however, we could in the future experience similar complaints from consumers or inquiries from governmental and consumer agencies based on consumer
complaints. If we are unable to resolve existing and future complaints and inquiries, we could be subject to governmental regulatory action as well as civil liability, which may have a material adverse effect on our business, financial condition and
results of operations.



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Our
business and financial performance may suffer if we are unsuccessful in expanding our services especially those related to employment screening and risk mitigation services, to corporate and professional clients.



We have historically derived a substantial portion of our
revenues from a small number of service offerings, particularly our individual locator, individual profile reports and Instant Searches services. If we are unable to continue to offer these services or if our costs of providing these
services increase such that we can no longer offer these services at competitive prices, our business, financial condition, and results of operations may be materially adversely affected. We intend to expand the number of services available through
our Web site and develop and promote service offerings to address the needs of corporate and professional clients. We have limited experience in providing risk mitigation services to corporate and professional clients. Attracting these clients will
requires us to hire new sales and marketing personnel or acquire companies already providing these services. We will also be required to spend money to develop and promote these new services. We may be unsuccessful in our efforts to provide these
new services in a timely and cost-effective manner and these services may never become profitable. If individual or corporate clients are unwilling to pay for these services or if the market for these services fails to develop or continues to
develop more slowly than anticipated, our business financial condition and results of operation will be materially adversely affected.



We have substantial fixed costs which may not be offset by our revenues.



A substantial portion of our operating expenses is related to
management personnel, technical development, administrative support and our advertising agreements. Some of these agreements have non-cancelable fixed terms and minimum payment obligations. As a result, a substantial portion of our expenses in any
given period is fixed costs. If we are unable to generate sufficient revenues to offset our operating costs or if we are unable to lower our advertising costs to respond to lower than expected revenues, our results of operations would be materially
adversely affected. Our minimum non-cancelable payments under certain distribution and marketing agreements with various Internet companies are $2.475 million and $550,000 for the years ending December 31, 2003 and December 31, 2004, respectively.



We depend on our marketing agreements with
Internet companies.



An important element of
our current business strategy is to maintain relationships with a number of Internet search engines and popular Web sites for advertising and to direct and attract traffic to our Web site. The most significant of these agreements are with Yahoo!,
Inc. Our agreement with Yahoo! expires on February 29, 2004. Our Yahoo! agreement constitutes a significant portion of our operating expenses. If the costs associated with this advertising agreement increases, we may not be able to maintain our
existing marketing relationships or enter into future marketing relationships with other Internet companies. Any termination of existing agreements or failure to enter into new agreements with Internet companies on terms favorable to us could have a
material adverse effect on our business, financial condition and results of operations.



Our access to key Internet advertising depends on marketing agreements between other Internet companies that are beyond our control.



Advertising arrangements with one Internet company may provide us access to another companys Web site.
For example, our arrangement with InfoSpace provides us with advertising within the white page directories of the AOL and MSN Web sites, independent of any agreements with AOL or MSN. Our advertising on these Web sites depends on the continued
relationship InfoSpace has with companies such as AOL and MSN. If this relationship is terminated for any reason and if we are either unable to enter into an agreement with these companies or unable to enter into an agreement with another company
that has an agreement providing access to AOL and/or MSN, our advertising will no longer appear on their Web sites. This could significantly reduce our



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advertising reach and, consequently, lower the number of potential clients visiting our Web site, which could in turn materially adversely
affect our business, financial condition and results of operations.



Our large corporate customers may not migrate to our Corporate Services Platform.



We expect that our Corporate Services Platform will enhance the fulfillment productivity and accuracy of Professional Resource
Screenings services. If a majority of Professional Resource Screenings customers to not migrate to the Corporate Services Platform, we will not be able to achieve the efficiencies we expect, which could in turn materially adversely
affect our business, financial condition and results of operations.



Service interruptions may have a negative impact on our revenues and may damage our reputation and decrease our ability to attract clients.



We depend on the satisfactory performance, reliability and
availability of our Web site and telecommunications infrastructure to attract clients and generate sales. We cannot assure you that we will be able to protect our operations from a system outage or data loss by events beyond our control. Events that
could cause system interruptions include:



| |  |  | fire;
| | - |  | -----



| |  |  | earthquake;
| | - |  | -----------



| |  |  | terrorist attacks;
| | - |  | ------------------



| |  |  | natural disasters;
| | - |  | ------------------



| |  |  | computer viruses;
| | - |  | -----------------



| |  |  | unauthorized entry;
| | - |  | -------------------



| |  |  | telecommunications failure; and
| | - |  | -------------------------------



| |  |  | power loss and California rolling blackouts.
| | - |  | --------------------------------------------



We have experienced unanticipated system interruptions in the past and, although we have upgraded our infrastructure, these interruptions
may occur again in the future. During the past twelve months we have experienced two system interruptions lasting more than 30 minutes as a result of a software configuration failure. We have upgraded our software and improved our monitoring
capabilities to minimize the risk and impact of such failure in the future. In addition, we have experienced two limited outages as a result of Internet carrier latency. These issues are not under our control and there can be no assurance that they
will not occur in the future. Substantially all of our computer and communications hardware is currently located at facilities in Southern California, which is an area susceptible to earthquakes. We do not carry business interruption insurance
sufficient to compensate fully for all losses, and in some cases, any losses from any or all these types of events. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of
operations.



We may be subject to federal and
state laws relating to the Internet and the use of personal information and privacy rights.



Many privacy and consumer advocates and federal regulators have become increasingly concerned with the use of personal information, particularly credit header information. For certain
qualified business customers, we use the social security numbers of individuals to search various databases, including those of consumer credit reporting agencies. For example, we search the credit header information contained in various
consumer credit reporting agencies databases to find, among other items, date of birth, current and previous addresses, social



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security numbers used by an individual or possible other names (such as married names, etc.). We also search these databases to determine if
a customers social security number is being used by any other party. Attempts have been made and can be expected to continue to be made by various federal regulators and organized groups to adopt new or additional federal and state legislation
to regulate the use of personal information. Our results of operations could suffer materially if federal or state laws or regulations are amended or enacted in the future, or cases decided relating to the access and use of personal information, or
privacy and civil rights, in general, or with respect to the Internet or commercial online services covering issues such as property rights, distribution, taxation, access charges and other fees, and quality of products and services. Cost increases
relating to this government regulation could result in these increased costs being passed along to Internet end users and could dampen the growth in use of the Internet as a communications and commercial medium, which could have a material adverse
effect on our business and results of operations.



We depend on our key management personnel for our future success.



Our success depends to a significant degree upon the continued contributions of our executive management team and its ability to effectively manage the anticipated growth of our operations and
personnel. The loss of Brent Cohen, our CEO, David Wachtel, our CTO, or other members of our management team and the inability to hire additional senior management, if necessary, could have a material adverse effect on our business and results of
operations. In addition, increased costs of new personnel, including members of executive management, could have a material adverse effect on our business and operating results.



The Internet may fail to support the growth of electronic commerce.



The rapid rise in the number of Internet users and the growth
of electronic commerce and applications for the Internet have placed increasing strains on the Internets communications and transmissions infrastructure. This could lead to significant deterioration in transmission speeds and the reliability
of the Internet as a commercial medium and, consequently, could reduce the use of the Internet by businesses and individuals. The Internet may not be able to support the demands placed upon it by this continued growth. Any failure of the Internet to
support growth due to inadequate infrastructure or for any other reason would seriously limit its development as a viable source of commercial and interactive content and services. This could materially adversely affect the acceptance of our
services and our business.



Our success
depends on our ability to protect and enforce our trademarks and other proprietary rights.



We rely on a combination of patent, trademark, service mark, copyright and trade secret laws, restrictions on disclosure and transferring title and other methods to protect our proprietary rights. We
also generally enter into confidentiality agreements with our employees, business partners and/or others to protect our proprietary rights. It may be possible for a third party to copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently.



Our registered trademarks include: 1-800 U.S. SEARCH, our logo, The Public Record Portal, VeroTrust, TrustIdentity, FraudIdentity, and Reuniting America Two People at
a Time. In addition, we have applied for a patent on our DARWINtechnology and for registered trademark
status for US SEARCH.com service mark in the United States and intend to pursue registration internationally through applications. Effective patent, trademark, service mark, copyright and trade secret protection may not be available in
every country in which our products and services are made available, online or otherwise. Also, policing unauthorized use of our patent, trademark, service mark or other proprietary rights might be difficult and expensive and we may be unable to
protect our brand, patents, and trademarks from third party challenges. Our brand may suffer and our business and results of operations could be materially and adversely affected if we are unable to effectively protect or enforce our patent,
trademark, service marks or other proprietary rights.



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We may
be unable to prevent third parties from developing Web sites and acquiring domain names similar to ours.



We have registered several domain names, including 1800USSEARCH.com, ussearch.com, verotrust.com and prsinet.com. Competitors may obtain a
corporate name and domain name similar to ours which may cause confusion on the part of potential clients. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of
our trademarks and other proprietary rights and we may be required to file law suits to protect our interests. This would be costly and time consuming and our business could suffer.



We face significant security risks related to our electronic transmission of confidential information.



We rely on encryption and other
technologies to provide system security to effect secure transmission of confidential information, such as credit card numbers. We license these technologies from third parties. We cannot assure you that our use of applications designed for data
security, or that of our third-party contractors will effectively counter evolving security risks. A security or privacy breach could:



| |  |  | expose us to additional liability;
| | - |  | ----------------------------------



| |  |  | increase our expenses relating to resolution of these breaches; and
| | - |  | -------------------------------------------------------------------



| |  |  | deter customers from using our services.
| | - |  | ----------------------------------------



Any inability to protect the security and privacy of our electronic transactions could have a material adverse effect on our
profitability.



We face risks related to
chargebacks processed from our merchant bank.



Like many other service providers who accept credit card information without a signature over the telephone or Internet, we have issued credits as a result of orders placed with fraudulent credit card information. We may suffer
losses or damage to our reputation as a result of fraudulent use of credit card information in the future. Moreover, because we offer services over the Internet and accept credit card information without a signature, a certain percentage of our
transactions are automatically charged back by the credit card companies pursuant to their policies if the customer disputes the validity of the charge. Our chargeback rate has periodically exceeded the permissible rates in our merchant card
agreements, and we have been subject to significant fines.



Under the terms of our Merchant Card Agreement with Visa, chargebacks as a percentage of interchange transactions must not exceed 2.5% and the ratio of customer dispute chargebacks to interchange transactions must not exceed 1%.
Although our chargeback rate has periodically exceeded the permissible rates in our merchant card agreements, we have been within permissible rates and, therefore, in compliance with our Merchant Card Agreement since May 1, 2002. Loss of credit card
processing rights could materially adversely affect our business and results of operations. In addition, pursuant to the terms of our bank credit facility, we agreed to reduce our chargeback rate to bring it within the permissible rates in our
merchant card agreements. To accomplish this we have introduced several fraud prevention features, including requiring input of a Card Verification Code and we only accept transactions, which pass these checks. The Card Verification Code (called
CVV, CVC or CID by Visa, Mastercard and American Express respectively) is an authentication procedure established by credit card companies, which requires a cardholder to enter the three or four digit security code printed on the front or back of
credit cards at transaction time to verify that the card is on hand.



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We could
face liability based on the nature of our services and the content of the materials that we provide which may not be covered by insurance.



We may face potential liability from individuals, government agencies or businesses for defamation, invasion of privacy, negligence,
copyright, patent or trademark infringement and other claims based on the nature and content of the materials that appear on our Web site or in our search reports. We also face potential liability to clients and/or the subjects of individual search
reports prepared by us for inaccurate information or misuse of the information. Although we carry a limited amount of general liability insurance, our insurance may not cover claims of these types or may not be adequate to indemnify us for all
liability that may be imposed. In addition, this insurance may not remain available to us on acceptable terms. Additionally, we do not currently maintain liability insurance to cover claims by clients or the subjects of reports. Any imposition of
liability, particularly liability that is not covered by insurance or is in excess of our insurance coverage, could have a material adverse effect on our reputation and our business and results of operations.



If the proposed combination with First Americans FAST
division is not completed, our certificate of incorporation, bylaws and Delaware law contain provisions that could discourage a third party from acquiring us, and consequently decrease the market value of our common stock.



Our certificate of incorporation grants our board of
directors the authority to issue up to 1,000,000 shares of preferred stock, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of these shares without any further vote or action by the stockholders.
Previously, we have issued preferred stock with voting, liquidation, dividend and other rights superior to those of the common stock. Although all preferred stock previously issued has been converted to common stock, we may issue additional
preferred stock in the future and the rights of the holders of common stock will be subject to, and maybe adversely affected by, the rights of any preferred stock that may be issued in the future. The issuance of preferred stock could have the
effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock which could decrease the market value of our stock. Further, provisions in our certificate of incorporation and bylaws and Delaware law could
have the effect of delaying or preventing a third party from acquiring us, even if a change in control would be in the best interest of our stockholders. These provisions include the inability of stockholders to act by written consent without a
meeting and procedures required for director nomination and stockholder proposal.



Pequot Private Equity Fund II, L.P. (Pequot) currently beneficially holds approximately 54.1% of our common stock and will be able to exercise voting control over issues presented to our
stockholders for approval.



We have entered
into a Stockholders Agreement with Pequot and Kushner-Locke. The Stockholders Agreement provides, among other things, that Pequot and Kushner-Locke will vote the shares of capital stock held by them in favor of (i) one member of the Board of
Directors being nominated by Kushner-Locke, (ii) one member, if Pequot Private Equity Fund II, L.P. owns between 10-35% of the shares of common stock issued upon conversion of the Series A-1 Convertible Preferred Stock, or two members, if Pequot
Private Equity Fund II, L.P. owns at least 35% of the shares of common stock issued upon conversion of the Series A-1 Convertible Preferred Stock, of the Board of Directors being nominated by Pequot Private Equity Fund II, L.P., (iii) our Chief
Executive Officer as a member of our Board of Directors, and (iv) three independent members of the Board of Directors, each of which shall be nominated for election by the consent of the Board Members nominated by Pequot and a majority of all other
members of the Board of Directors other than Board Member nominated by Kushner-Locke. Consequently, Pequot is able to exercise voting control over issues presented to our stockholders for approval, including corporate transactions involving a sale
of the company such as the proposed combination with First Americans FAST division. Pequot has agreed to vote its shares in favor of the proposed combination.



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##### Table of Contents

US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





Our
directors, executive officers and existing stockholders and their affiliates will continue to have substantial control over our company, and their interests may differ from and conflict with yours.



Our executive officers, directors and principal stockholders
beneficially own, in total, 81.2% of our outstanding common stock. As a result, these stockholders may have interests that are different from and may conflict with yours, and will be able to influence matters requiring stockholder approval,
including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change of control of our company or otherwise cause us to take action that may not be in the best
interests of all stockholders, either of which in turn could reduce the market price per share of our common stock or prevent you from receiving a premium in such transaction. This concentration of stock ownership may adversely affect the trading
price of our common stock due to investors perception that conflicts of interest may exist or arise.



Your ownership interest may be materially diluted upon exercise of options and warrants.



As of March 31, 2003, we had granted options and warrants to
purchase an aggregate of approximately 30,192,868 shares of common stock at exercise prices ranging from $0.01 per share to $9.69 per share. To the extent that the stock options or warrants are exercised, material dilution of the ownership interest
of our stockholders will occur. We also expect that in the ordinary course of our business we will issue additional warrants and grant additional stock options including, but not limited to, options granted pursuant to our stock option plans. The
merger agreement with First American provides that, upon closing of the mergers contemplated by the agreement, all of US SEARCHs outstanding options and warrants will be converted into options and warrants to purchase shares of First Advantage
Class A common stock. Consequently, your ownership interest in First Advantage as a First Advantage stockholder also will be subject to dilution if and when such options and warrants are exercised.



Item 3.    Quantitative and Qualitative Disclosures about Market Risk



We considered the provision of Financial Reporting Release No. 48 Disclosure of Accounting Policies for Derivative Financial
Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent In Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. We
had no holdings of derivative financial instruments at March 31, 2003 and our total liabilities as of March 31, 2003 consist primarily of notes payable and accounts payable that have fixed interest rates and were not subject to any significant
market risk.



Item 4.    Controls and Procedures



The Company maintains disclosure controls and procedures as such term is defined under Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act), that
are designed to ensure that information required to be disclosed in the Companys reports required to be filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Companys management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives and the Companys management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



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US SEARCH.COM INC.



NOTES TO FINANCIAL STATEMENTS(Continued)





Within 90
days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and the Companys Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.



There have been no significant changes in the Companys internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.



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##### Table of Contents

PART II.    OTHER INFORMATION



Item 1.    Legal Proceedings



In May 2001, ChoicePoint, Inc., the successor entity to DBT Online, Inc., filed a complaint against us in Palm Beach County, Florida alleging breach of contract, fraudulent misrepresentation, unjust
enrichment, quantum meruit and breach of the implied covenant of good faith and fair dealing. ChoicePoint sought approximately $1.5 million in damages, as well as interest and attorneys fees. US SEARCH removed this action to the United States
District Court for the Southern District of Florida. The United States District Court for the Southern District of Florida ordered the matter to arbitration. In June 2002 the arbitrator awarded us a credit of $297,671 to be deducted from invoices of
$1,418,731. ChoicePoint has filed a motion to confirm the Arbitration Award and we have filed a motion to modify and correct the Arbitration award to provide additional credits. We are awaiting rulings on these motions. The costs related to this
litigation, including the fees and costs of our attorneys and other litigation support professionals, have been less than $100,000. The Company has paid a total of $300,000 of the award, leaving approximately $780,000 accrued for this liability.



On June 25, 2002, a complaint seeking $434,000
in damages was filed against Professional Resource Screening, Inc. in Superior Court of California, county of Contra Costa, styled Wood Warren & Co. v. Professional Resource Screening, Inc., No. C02-01816, alleging breach of an oral agreement
relating to investment banking services, negligent misrepresentation, promissory estoppel, equitable estoppel and quantum meruit. Although it is too early to predict the outcome, the Company believes it has meritorious defenses to plaintiff claims.



We may from time to time become a party to
various legal proceedings arising in the ordinary course of business



Item 2.    Changes in Securities and Use of Proceeds



None



Item 3.    Defaults upon Senior Securities



None



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



None



Item 5.    Other Information



None



Item 6.    Exhibits and Reports on Form 8-K



(a)  Exhibits:



|    
|----
|10.1
|    
|10.2



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##### Table of Contents

|    
|----
|10.3
|    
|10.4
|    
|99.1
|    
|99.2

---

|* | Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2002.
|- | -----------------------------------------------------------------------------------------



(b)  Reports on Form 8-K:



During the quarter ended March 31, 2003, we did not file any
current reports on Form 8-K. On April 3, 2003 we filed a report on Form 8-K.



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##### Table of Contents

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.



|                   |  |     |  | US SEARCH.COM INC. (Registrant)                     
|------------------ |  | --- |  | ----------------------------------------------------
|                  
|Date: May 15, 2003 |  | By: |  | /s/    BRENT N. COHEN                               
|                   |  |     |  | Brent N. Cohen President and Chief Executive Officer
|                  
|                   |  | By: |  | /s/    JEFFREY R. WATTS                             
|                   |  |     |  | Jeffrey R. Watts Chief Financial Officer            



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Chief Executive Officer



I, Brent N.
Cohen, President and Chief Executive Officer of US SEARCH.com Inc., certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of US SEARCH.com Inc.;
|-- |  | -------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: May 15, 2003
|                  
|                  





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Chief Financial Officer



I, Jeffrey R. Watts, Chief Financial Officer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of US SEARCH.com Inc.;
|-- |  | -------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: May 15, 2003 |  |  |  |  |  | /s/    JEFFREY R.
WATTS
|------------------ |  |  |  |  |  | -----------------------
|                   |  |  |  |  |  |                        



34