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SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2001

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 No. 0-26149

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US SEARCH.COM INC.(Exact name of registrant as specified in its charter)

Delaware

95-4504143(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

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)

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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 / /

There
were 17,938,244 shares of outstanding Common Stock of the registrant as of May 4, 2001.

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US SEARCH.COM INC.  Form 10-Q for the quarterly period ended March 31, 2001

INDEX

|                  |  |                       |  |                                                                                              |  | Page Number
|----------------- |  | --------------------- |  | -------------------------------------------------------------------------------------------- |  | -----------
|Part I            |  | FINANCIAL INFORMATION |  |                                                                                             
|                  |  | Item 1                |  | Financial Statements                                                                         |  | 3          
|                  |  |                       |  | Balance Sheets as of March 31, 2001 and December 31, 2000                                    |  | 3          
|                  |  |                       |  | Statements of Operations for the three month periods ended
March 31, 2001 and March 31, 2000 |  | 4          
|                  |  |                       |  | Statements of Cash Flows for the three month periods ended
March 31, 2001 and March 31, 2000 |  | 5          
|                  |  |                       |  | Notes to Financial Statements                                                                |  | 6          
|                  |  | Item 2                |  | Management's Discussion and Analysis of Financial Condition and Results of Operations        |  | 9          
|                  |  | Item 3                |  | Quantitative and Qualitative Disclosures about Market Risks                                  |  | 22         
|Part II           |  | OTHER INFORMATION     |  |                                                                                             
|                  |  | Item 1                |  | Legal Proceedings                                                                            |  | 23         
|                  |  | Item 2                |  | Changes in Securities and Use of Proceeds                                                    |  | 23         
|                  |  | Item 3                |  | Defaults Upon Senior Securities                                                              |  | 23         
|                  |  | Item 4                |  | Submission of Matters to a Vote of Security Holders                                          |  | 23         
|                  |  | Item 5                |  | Other Information                                                                            |  | 23         
|                  |  | Item 6                |  | Exhibits and Reports on Form 8-K                                                             |  | 24         
|SIGNATURES        |  | 25                   
|INDEX TO EXHIBITS |  | 26                   

2

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

US SEARCH.COM INC        BALANCE SHEETS

|                                                                                                                                                                                                                                                            |                                                                                                                | March 31, 2001                              |           | December 31, 2000 |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------- | ----------------- | ----------
|
|ASSETS:                                                                                                                                                                                                                                                     |                                                                                                               
|Current assets:                                                                                                                                                                                                                                             |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            | Cash and cash equivalents                                                                                      |                                             | $         | 7,150,000         |           
|                                                                                                                                                                                                                                                            | Restricted cash                                                                                                |                                             |           | 1,200,000         |           
|                                                                                                                                                                                                                                                            | Accounts receivable, less allowance for doubtful accounts of $15,000 (2001) and $22,000 (2000)                 |                                             |           | 13,000            |           
|                                                                                                                                                                                                                                                            | Other current assets                                                                                           |                                             |           | 1,338,000         |           
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            | Total current assets                                                                                           |                                             |           | 9,701,000         |           
|                                                                                                                                                                                                                                                            | Property and equipment, net                                                                                    |                                             |           | 7,614,000         |           
|                                                                                                                                                                                                                                                            | Other assets                                                                                                   |                                             |           | 175,000           |           
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            | Total assets                                                                                                   |                                             | $         | 17,490,000        |           
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|LIABILITIES AND STOCKHOLDERS' DEFICIT:                                                                                                                                                                                                                      |                                                                                                               
|Current liabilities:                                                                                                                                                                                                                                        |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            | Accounts payable                                                                                               |                                             | $         | 5,161,000         |           
|                                                                                                                                                                                                                                                            | Accrued liabilities                                                                                            |                                             |           | 953,000           |           
|                                                                                                                                                                                                                                                            | Notes payable, current portion                                                                                 |                                             |           | 463,000           |           
|                                                                                                                                                                                                                                                            | Capital lease obligations, current portion                                                                     |                                             |           | 355,000           |           
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            |                                                                                                                | Total current liabilities                   |           |                   | 6,932,000 
|Notes payable, net of current portion                                                                                                                                                                                                                       |                                                                                                                |                                             | 9,856,000 |                   |           
|Capital lease obligations, net of current portion                                                                                                                                                                                                           |                                                                                                                |                                             | 48,000    |                   |           
|Other non-current liabilities                                                                                                                                                                                                                               |                                                                                                                |                                             | 5,000     |                   |           
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            |                                                                                                                | Total liabilities                           |           |                   | 16,841,000
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|Commitments and contingencies (Note 4)                                                                                                                                                                                                                      |                                                                                                                |                                             |           |                   |           
|Mandatorily redeemable preferred stock $.001 par value; authorized 1,000,000 shares, 350,000 shares designated Series A; 100,000 shares of Series A convertible preferred stock issued and outstanding (liquidation
preference$10,000,000 (2001 and 2000)) |                                                                                                                |                                             | 6,449,000 |                   |           
|Stockholders' deficit:                                                                                                                                                                                                                                      |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            | Common stock, $.001 par value; authorized 40,000,000 shares; issued and outstanding 17,938,244 (2001 and 2000) |                                             |           | 18,000            |           
|                                                                                                                                                                                                                                                            | Additional paid-in capital                                                                                     |                                             |           | 59,553,000        |           
|                                                                                                                                                                                                                                                            | Accumulated deficit                                                                                            |                                             |           | (65,371,000       | )         
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            |                                                                                                                | Total stockholders' deficit                 |           |                   | (5,800,000
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           
|                                                                                                                                                                                                                                                            |                                                                                                                | Total liabilities and stockholders' deficit |           | $                 | 17,490,000
|                                                                                                                                                                                                                                                            |                                                                                                                |                                             |           |                   |           

The
accompanying notes are an integral part of these statements.

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STATEMENTS OF OPERATIONS

|                                                                  |                            | Three Months Ended                                     |           
|----------------------------------------------------------------- | -------------------------- | ------------------------------------------------------ | ----------
|
|Net revenue                                                       |                            | $                                                      | 4,941,000 
|Cost of services                                                  |                            |                                                        | 1,424,000 
|                                                                  |                            |                                                        |           
|                                                                  |                            | Gross profit                                           |           
|                                                                  |                            |                                                        |           
|Operating expenses:                                               |                            |                                                        |           
|                                                                  | Selling and marketing      |                                                        |           
|                                                                  | Information technology     |                                                        |           
|                                                                  | General and administrative |                                                        |           
|                                                                  |                            |                                                        |           
|                                                                  |                            | Total operating expenses                               |           
|                                                                  |                            |                                                        |           
|Loss from operations                                              |                            |                                                        | (2,806,000
|Interest income (expense), net                                    |                            |                                                        | 16,000    
|Other income, net                                                 |                            |                                                        | 2,000     
|                                                                  |                            |                                                        |           
|                                                                  |                            | Loss before income taxes                               |           
|Provision for income taxes                                        |                            |                                                        | 2,000     
|                                                                  |                            |                                                        |           
|                                                                  |                            | Net loss                                               |           
|Accretion of discount on preferred stock                          |                            |                                                        | 126,000   
|Accrued preferred stock dividends                                 |                            |                                                        | 113,000   
|                                                                  |                            |                                                        |           
|                                                                  |                            | Net loss attributable to common stockholders           |           
|                                                                  |                            |                                                        |           
|                                                                  |                            | Net loss per share attributable to common stockholders |           
|                                                                  |                            |                                                        |           
|Weighted-average shares outstanding used in per share calculation |                            |                                                        | 17,938,244

The
accompanying notes are an integral part of these statements.

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STATEMENT OF CASH FLOWS

|                                                                            |                                                                   | Three Months Ended  |           
|--------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------- | ----------
|
|Cash flows from operating activities                                        |                                                                   |                     |           
|                                                                            | Net Loss                                                          |                     | $         
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                   |                     |           
|                                                                            | Depreciation and amortization                                     |                     |           
|                                                                            | Provision for doubtful accounts                                   |                     |           
|                                                                            | Stock option compensation                                         |                     |           
|                                                                            | Loss on disposal of property and equipment                        |                     |           
|                                                                            | Change in assets and liabilities:                                 |                     |           
|                                                                            |                                                                   | Accounts receivable |           
|                                                                            |                                                                   | Accounts payable    |           
|                                                                            |                                                                   | Accrued liabilities |           
|                                                                            |                                                                   | Prepaid and other   |           
|                                                                            |                                                                   |                     |           
|Net cash used by operating activities                                       |                                                                   |                     | (3,865,000
|                                                                            |                                                                   |                     |           
|Cash flows from investing activities                                        |                                                                   |                     |           
|                                                                            | Purchase of property and equipment                                |                     |           
|                                                                            | Proceeds from disposal of property and equipment                  |                     |           
|                                                                            |                                                                   |                     |           
|Net cash used by investing activities                                       |                                                                   |                     | (1,355,000
|                                                                            |                                                                   |                     |           
|Cash flows from financing activities:                                       |                                                                   |                     |           
|                                                                            | Repayments of third party notes payable                           |                     |           
|                                                                            | Proceeds from convertible notes payable                           |                     |           
|                                                                            | Repayments of capital lease obligations                           |                     |           
|                                                                            | Proceeds from stock option exercises                              |                     |           
|                                                                            |                                                                   |                     |           
|Net cash provided by financing activities                                   |                                                                   |                     | 9,539,000 
|                                                                            |                                                                   |                     |           
|Net increase (decrease) in cash and cash equivalents                        |                                                                   |                     | 4,319,000 
|Cash at beginning of period                                                 |                                                                   |                     | 2,831,000 
|                                                                            |                                                                   |                     |           
|Cash at end of period                                                       |                                                                   | $                   | 7,150,000 
|                                                                            |                                                                   |                     |           
|Non-cash items:                                                             |                                                                   |                     |           
|                                                                            | Conversion of accounts payable to notes payable                   |                     | $         
|                                                                            | Issuance of warrants in connection with convertible notes payable |                     |           
|                                                                            | Capital lease obligations                                         |                     |           

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, corporate and professional clients with a single, comprehensive access point to a broad range of
individual reference services and background screening services. Individual reference services include personal identifying information about individuals that can be used to identify, locate or verify
the identity and background of an individual. The Company was formed as a California S Corporation in 1994, and reincorporated as a Delaware Corporation in April 1999.

2.  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.

The
unaudited condensed financial statements reflect, in the opinion of management, all adjustments which are of a normal recurring nature, necessary to present fairly the financial
position of the Company as of March 31, 2001, and the results of its operations for the three month periods ended March 31, 2001 and 2000. Interim results are not necessarily indicative
of results to be expected for a full fiscal year.

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 antidilutive. As of March 31, 2001, stock options representing 12,667,592 shares of common stock and
warrants representing 1,750,000 and 80,000 shares of common and preferred stock, respectively, 5,882,353 common shares issuable on conversion of convertible preferred stock and 5,970,588 common shares
ultimately issuable on conversion of notes payable have been excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. As of March 31,
2000, there were 2,732,744 options which are excluded from the computation of diluted earnings per share because their inclusion would have been antidilutive.

3.  Notes Payable

In February 2001 and March 2001, Pequot Private Equity Fund II, L.P. advanced the Company an aggregate of $10 million from the issuance of
$10,150,000 of promissory notes that are convertible into Series A-1 Convertible Preferred Stock. On May 1, 2001, the Company received a waiver from the NASD of its
shareholder approval requirement; provided that we provide 10 days notice to our stockholders. The promissory notes bear interest at a rate of seven percent (7%) per annum through
August 2001 and 12% thereafter, and, if not previously converted into Series A-1 Convertible Preferred Stock, are due and payable on April 1, 2002. Subject to the
Company and Pequot finalizing the agreements for the Series A-1, under the terms of the agreements the notes payable will convert into Preferred Stock Series A-1 with conversion rights
to common stock at the lesser of (a) $2.00, (b) 105% of the ten day average of the closing bid price prices of the Company's common stock for the ten days

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prior to but not including the date on which the preferred shares are purchased and (c) if the preferred shares are not purchased on or prior to April 15, 2001, 105% of the ten day
average of the closing bid prices for the ten days prior to but not including April 15, 2001. Since the preferred shares were not purchased on or prior to April 15, 2001, under the terms
of the agreement, the conversion price will be no greater than $0.50 per share, in the event that the finalization of the agreements occurs prior to April 1, 2002. The Company will record a
non-cash charge of $250,000 for a contingent beneficial conversion feature if the finalization of the Series A-1 agreements occurs. In the event that the finalization of the Series A-1
agreements does not occur before April 1, 2002 or if an Acceleration event occurs, as defined, the note may at the option of the holder be (a) due and payable in full on April 2,
2002 or (b) be converted into such number of shares of Series A preferred having conversion rights into common stock at $1.70 per share. To induce Pequot to advance the purchase price of
the Series A-1 Convertible Preferred Stock in exchange for the promissory notes, the Company agreed to issue to Pequot a warrant to purchase up to 5,000 shares of
Series A-1 Convertible Preferred Stock at an initial purchase price of $100 per share. In accordance with Accounting Principles Board Opinion No. 14 "Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants", the proceeds
received under the notes payable of $10,000,000 has been allocated to the warrants ($250,000) and to the notes payable ($9,750,000). The Company will record additional interest charges over the
remaining life of the note payable for the discount allocated to the warrants.

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,
2001, the minimum non-cancelable payments due under these agreements are approximately $3.6 million for the remainder of 2001, $2.9 million for 2002 and $1.8 million
for 2003.

Lease Agreement

In September 1999, the Company entered into a five-year lease for a 52,500 square foot facility located in the Marina Del Rey area of Los
Angeles, California. Under the terms of the lease agreement, the Company is committed to make total rental payments of $4.0 million over the remaining term of the lease.

Supplier Agreement

In March 2001, the Company entered into an agreement with RiskWise LLC, a provider of computer-based information, verification and fraud detection
services. The terms of the agreement provide for minimum non-cancelable payments of $365,000 in the remainder of 2001, $965,000 in 2002, $1.4 million in 2003 and $290,000 in 2004.

Legal Proceedings

On April 3, 2000 a two count tradename and service mark complaint was filed against the Company in the United States District Court for the Eastern
District of Virginia, styled U.S. Search, LLC v
USSearch.com Inc. Civil Action No. 00-554-A. On January 26, 2001, the motion for summary judgment was granted and the court ordered that both counts of
plaintiff's complaint be dismissed with prejudice.

On
August 14, 2000 a proposed class action complaint was filed against the Company in the Superior Court of the State of California for the County of Los Angeles, Dorothy
Pilkington and Alice Schwartz-Scholl on behalf of themselves, and all other similarly situated, and on behalf of the general

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public vs. US Search.com, Inc., Case No. BC234858. The Complaint claims damages for breach of contract, violation of Unfair Practices Act, violation of the Consumer Legal Remedies Act, fraud
and negligent misrepresentation in connection with the Company's adoption services. The Company and its insurance carrier have agreed with plaintiffs' counsel to terms for a settlement of this matter
that is awaiting court approval. The Company's insurance carrier has agreed to coverage of the settlement amount with the Company agreeing to contribute $50,000 pursuant to a promissory note bearing
no interest and payable in one year.

In
May 2001, ChoicePoint, Inc., the successor entity to DBT Online, Inc., served us with a complaint that it filed 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 is seeking approximately $1.5 million
and damages, interest and attorneys' fees. Although we have had only a limited amount of time to review and consider the allegations contained in the complaint, we believe that we have meritorious
defenses to ChoicePoint's claims and that some of the allegations contained in the complaint are without merit and were filed maliciously and in bad faith. We intend to defend ourself vigorously in
this action. We also believe that we have meritorious counter-claims against ChoicePoint and intend to prosecute vigorously those claims. Through the term of our contract with DBT, we have accrued the
approximately $1.5 million amount that ChoicePoint is seeking through this lawsuit, however, even if we are ultimately successful in defending ourselves, the costs related to this litigation,
including the fees and costs of our attorneys and other litigation support professionals, could be significant.

6.  Stock Options:

During the quarter ended March 31, 2001, 4,870,000 options were granted pursuant to the 1998 Stock Incentive Plan, at an average exercise price of $0.50
and 400,000 options were granted pursuant to the 2000 Stock Incentive Plan at an average exercise price of $0.45.

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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 individual, corporate and professional clients with a single, comprehensive access point to a broad range of information and data for
locating individuals, discovering more about individuals and businesses, preventing fraud and screening prospective employees, among other things. Our services can be accessed through our Web sites, www.ussearch.comandwww.verotrust.com, or by calling one of our toll free telephone numbers,
1-800-USSEARCH for consumers or 1-877-327-2410 for businesses.

US
SEARCH's core competency of accessing data from many disparate sources is leveraged across the three product lines that US SEARCH provides: consumer services, corporate services
and internet trust services. US SEARCH is currently developing differentiating, proprietary technology that will allow the
Company to more efficiently access disparate data in order to answer precise questions and to integrate results of its searches into meaningful responses that provide the information US SEARCH
customers seek, whether it is to locate an individual, verify a business, screen a prospective employee or provide a risk profile that will help one entity determine whether or not to engage in a
transaction with another.

Results of Operations

Comparison of the Three Months Ended March 31, 2001 to the Three Months Ended March 31, 2000

Net
Revenues. Our net revenues decreased from approximately $7.5 million for the three months ended March 31, 2000 to approximately $4.9 million for the three
months ended March 31, 2001, representing a 34% decrease. The decrease is primarily attributable to a decrease in the number of Internet-based transactions which occurred as a result of
decreased web site visitor traffic. The decline in Web site traffic was likely a result of decreased advertising expense.

Gross Profit.Gross profit decreased from approximately $4.3 million for the three months ended March 31,
2000, to approximately $3.5 million for the three months ended March 31, 2001, representing a 18% decrease. Gross profit as a percentage of net revenues was approximately 71% and

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57% for the three month periods ended March 31, 2001, and March 30, 2000, respectively. Cost of services decreased to approximately $1.4 million for the three months ended
March 31, 2001, or 55%, from approximately $3.2 million for the three months ended March 30, 2000. Data acquisition and fulfillment costs as a percentage of revenues in 2001
decreased compared to 2000 due to the use of a lower cost data provider for certain products.

Selling and Marketing Expenses.Selling and marketing expenses decreased from approximately $7.5 million for the
three months ended March 30, 2000 to approximately $2.6 million for the three months ended March 31, 2001. As a percentage of net revenues, selling and marketing expenses
decreased to approximately 52% for the three months ended March 31, 2001, from approximately 100% for the three months ended March 30, 2000. Online advertising declined in the three
months ending March 31, 2001, compared to the same period in 2000 due to the restructuring of our advertising agreements requiring lower guaranteed minimum payments.

Information Technology Expenses.Information technology expenses increased from approximately $841,000 for the three
months ended March 31, 2000 to approximately $1.2 million for the same three month period in 2001. The increase is due to increased investment in the Company's proprietary technology. We
expect to continue investing in this technology through most of 2001.

General and Administrative Expenses.General and administrative expenses decreased from approximately
$2.8 million for the three months ended March 31, 2000 to approximately $2.5 million for the three months ended March 31, 2001. This decrease is primarily due to severance
payments made to certain terminated executives in the first quarter of 2000. We expect general and administrative expenses to continue to decrease slightly through the remainder of the year.

Interest Income(Expense) Net.Interest income, net of interest expense, decreased to $16,000 for the three months ended
March 31, 2001 compared to $227,000 for the three months ended March 31, 2000. The decline is attributable to the decline in the cash balances available for investment. We expect our
interest expense to increase in the second quarter as a result of our new convertible notes and amortization of the debt discount.

Liquidity and Capital Resources

As of March 31, 2001, cash and cash equivalents have increased to $7.2 million (excluding $1.2 million of restricted cash pledged as
collateral principally in connection with our building lease) from $2.8 million at December 31, 2000.

Cash
used in operations decreased to $3.9 million for the three months ended March 31, 2001 as compared to $6.2 million for the three months ended
March 31, 2000. This decrease is primarily attributable to decreased gross profits and decreased general and administrative expenses and sales and marketing expenses.

Cash
used in investing activities increased to $1.4 million for the three months ended March 31, 2001 as compared to $606,000 for the three months ended March 31,
2000. This increase is primarily attributable to increased investment in software and web development.

Cash
provided by financing activities increased to approximately $9.5 million for the three months ended March 31, 2001 as compared to $1.5 million for the three
months ended March 31, 2000. In 2001, we received approximately $10.0 million of proceeds in connection with the issuance of convertible notes payable.

Since
inception we have experienced negative cash flow from operations and expect to continue to experience significant negative cash flow from operations in the foreseeable future.
We have working capital of $2,769,000 as of March 31, 2001. We currently believe that our existing capital resources including the aggregate net proceeds of $10.0 million from the
issuance of convertible subordinated

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notes in February and March 2001, and cash generated from operations will be sufficient to meet our cash requirements through at least the next 12 months. No assurance is given that we
will not be required to raise additional financing prior to that time. Furthermore, there is no assurance that additional financing will be available when needed or that, if available, the financing
will be on favorable terms. If the financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business and results of operations.

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.

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

We incurred significant net losses of approximately $6.8 million in 1998, $26.4 million in 1999, $29.4 million in 2000 and
$2.3 million in the first quarter of 2001. As of March 31, 2001, we had an accumulated deficit of approximately $65.4 million. We expect to incur additional losses and continued
negative cash flow from operations for at least the next two quarters of 2001. We have achieved positive contribution in our consumer business by reducing our staff as well as data acquisition and
advertising expenses related to that business. However, we may never achieve profitability.

Our revenues and operating results may fluctuate significantly

Our quarterly revenues and operating results have fluctuated in the past, and may significantly fluctuate in the future due to a variety of factors, many of
which are outside of our control. These factors include:



We face risk resulting from our litigation with ChoicePoint, Inc.

In May 2001, ChoicePoint, Inc., the successor entity to DBT Online, Inc., served us with a complaint that it filed 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

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faith and fair dealing. ChoicePoint is seeking approximately $1.5 million and damages, interest and attorneys' fees. Although we have had only a limited amount of time to review and consider
the allegations contained in the complaint, we believe that we have meritorious defenses to ChoicePoint's claims and that some of the allegations contained in the complaint are without merit and were
filed maliciously and in bad faith. We intend to defend ourself vigorously in this action. We also believe that we have meritorious counter-claims against ChoicePoint and intend to prosecute
vigorously those claims. Through the term of our contract with DBT, we have accrued the approximately $1.5 million amount that ChoicePoint is seeking through this lawsuit, however, even if we
are ultimately successful
in defending ourselves, the costs related to this litigation, including the fees and costs of our attorneys and other litigation support professionals, could be significant.

We face competition from many sources

The market in which we operate is highly competitive and highly fragmented.

Currently,
our competition falls into four categories:



Our
primary competitors in the trust services market include Equifax Secure, the e-commerce division Equifax, Inc., eccelerate.com (a Division of Dun &
Bradstreet), ChoiceTrust (a Division of ChoicePoint), Verisign, Inc., and RiskWise, Inc. There are no significant barriers that would prevent new companies from entering the market in
which we operate. In addition, some of our current suppliers and companies with which we have advertising agreements may compete with us in the future, which may make it more difficult to advertise
our services effectively on their Web sites.

We may be unable to respond to the competitive efforts of other companies

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 internet trust services than we are willing or able to
accomplish. 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 for information used in our services

We obtain data used in our services from a limited number of third party suppliers. Some of these suppliers offer services that may compete with ours. One of
our data suppliers, RiskWise, Inc. offers trust services comparable to some of our service offerings. If our current suppliers raise their prices, or if, due to limitations or restrictions
placed on a supplier by government regulations or its own contractual arrangements, or for other reasons, the information they provide becomes unavailable or unreliable, we may need to find
alternative sources of information. The time it takes to identify and contract with suitable alternative data suppliers, as well as integrate these data sources into our service offerings, could cause
service disruptions, increased costs and reduced quality of our services. Additionally, costs of obtaining data that may be necessary in our new service offerings, such as criminal record searches,
could be significantly higher, on a per transaction basis, than our current information costs. Termination of existing agreements, or, failure after termination, to enter into new agreements with
third party suppliers on terms favorable to us, could have a material adverse effect on our business, financial condition and results of operations. Additionally, failure to obtain the data and
information necessary for our intended service offerings at commercially reasonable costs or at all could prevent us from offering these new services and our business, financial condition and results
of operations could be materially adversely affected. We have recently changed from DBT to Confichek for most of our data needs. Confichek's cost structure is significantly more favorable and DBT had
indicated its intention to renegotiate our existing agreement. ChoicePoint, Inc., which recently acquired DBT has filed a lawsuit against us, so it is possible that we would be unable to purchase data
from DBT or ChoicePoint in the future.

We may incur liability based on consumer complaints

A substantial amount of our business involves sales of services to consumers. We have received customer complaints concerning the quality of our services
directly and have received inquiries from consumer agencies such as the Better Business Bureau and state attorney general consumer divisions although we have seen a decline in consumer agency
complaints, most likely as a result of our quality assurance efforts during the past year. We could in the future experience similar complaints and inquiries from consumers and governmental and
consumer agencies. 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. This could in turn have a material adverse effect on our business, financial condition and results of operations.

Our business and financial performance may suffer if we are unsuccessful in expanding our service offering especially our corporate and trust services offerings.

Our strategy includes expanding the market awareness of our existing services. We intend to offer a greater number of new services available through our Web
site and to develop and promote service offerings to address the needs of corporate and professional clients. We have very limited experience in providing employment screening and trust services to
corporate and professional clients. Attracting these clients will require us to hire new sales and marketing personnel and spend money to develop and promote these new services. We may fail in our
efforts to provide these new services in a timely and cost-effective manner. If individual or corporate clients are unwilling to pay for the aggregation of data and information, or if the
market for our services, particularly our corporate and trust services fails to develop or develops more slowly than anticipated, our business and prospects will be materially adversely affected.
Implementing these measures will substantially increase our operating expenses and will place considerable strain on our existing management and operational resources. We will incur a substantial
portion of these expenses before we achieve any meaningful revenues or market acceptance of new services. Our new services may not achieve a sustainable level of market acceptance or ever become
profitable. If a new service is unsuccessful, our reputation and brand position may be damaged

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and this may make it more difficult to sell our existing services. A significant amount of our future growth depends on our ability to offer these new services. If we fail to grow our corporate and
trust services, our business, financial condition and results of operation could be materially adversely affected.

We depend on a limited number of service offerings for a significant portion of our revenues

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 may need to raise additional capital that may not be available

We believe our existing capital resources will be sufficient to meet our cash requirements through the next 12 months. However, we may need to raise
additional capital and we may not be able to obtain additional financing on favorable terms, if at all. If we cannot raise necessary additional capital on acceptable terms, we may not be able to
develop or enhance our services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on our
business, financial condition, and results of operations. In September 2000 we sold 100,000 shares of Series A Convertible Preferred Stock to Pequot Private Equity Fund II, L.P.
("Pequot") for an aggregate purchase price of $10.0 million. In February 2001 and March 2001, we issued convertible subordinated notes to Pequot for aggregate proceeds of
$10.0 million. The notes are due in April 2002 are convertible to preferred stock subject to The Nasdaq Stock Market's approval of a waiver of the stockholder vote requirement for
issuance of convertible preferred stock and certain other conditions. On May 1, 2001, we received the waiver from the NASD of the shareholders approval requirement for sale of the
Series A-1 Preferred Stock.

If
we raise additional capital through a debt financing, it may involve limiting, or restricting our operations or future opportunities.

We are dependent upon the success of the products and services offered by our partners

In our efforts to increase the market acceptance of our services and to more effectively market our services to corporate and professional clients, we intend
to continue to develop and establish relationships with key partners and enter into affiliate and co-marketing programs. Our intent is that these partners will promote our services or
incorporate our services into their products and services intended for the corporate and professional and trust services markets. We have little or no ability to influence the marketing efforts of
these partners and these partners may fail to dedicate adequate resources necessary to successfully develop and market products which incorporate our services. As a result, our success in the
corporate, professional and trust services market is dependent in part on factors which are outside our control which include the performance of our partners and the market acceptance of our partners'
products and services.

Agreements with partners may not result in any increase in our revenues or improvement in our operations or financial conditions

Existing arrangements with partners such as NetHot Development, BeFree, Employee Matters, and AAFES generally do not contain minimum purchase commitments or
payment obligations. Similarly, new agreements with additional partners may not contain any minimum purchase commitments or payment obligations or may be limited to a pilot or test program. As a
result, existing agreements and new agreements, if any, with partners may not result in any meaningful increase in our revenues, or any improvement in our operations or financial condition.

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

A substantial portion of our operating expenses are related to management personnel, administrative support and our advertising agreements. Our advertising is
typically conducted under non-cancelable fixed term contracts. Additionally, we have entered into data supplier contracts that have minimum payment obligations. As a result, a substantial
portion of our expenses in any given period is fixed and based in part on our expectations of future revenues and advertising and sales productivity. We may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall. If we are unable to generate sufficient revenues to offset our advertising costs or the minimum payment obligations under the
agreement with our key database and information supplier, or if we are unable to lower our advertising costs to respond to lower than expected revenues, our results of operations will suffer and the
market price of our common stock could fall or our business could fail.

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. Although we have restructured all of our marketing and advertising agreements, significantly reducing our costs, advertising on the
Internet remains expensive, new and evolving. Although many of our advertising agreements are now based on a "revenue share" model, we have minimum payment commitments with certain of our advertising
partners whether or not the advertising was effective. We may not be able to maintain our existing marketing relationships with other Internet companies. We may also be unable to enter into new
marketing relationships with Internet companies, which generate adequate returns to offset related costs. We currently anticipate that these expenses will continue to constitute a significant portion
of our total operating expenses in future periods although we have significantly reduced these costs. 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 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.

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. Our revenues, reputation and brand would be harmed and the value of our services to clients would be reduced if we experience technical difficulties that result in slower response times,
disruptions or unavailability of the services. We have experienced unanticipated system interruptions in the past and, although we have upgraded our infrastructure, these interruptions may occur again
in the future. For example, we have experienced

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system disruptions and slower response times as we change or upgrade the software and hardware running on our network. In addition, telephone systems and networks are subject to unanticipated
downtimes due to national disasters, power outages and similar events. Our servers may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which
could lead to interruptions, delays, loss of data or the inability to accept and fulfill client orders. The occurrence of any of these events may have a material adverse effect on our business,
financial condition and results of operations.

California's current energy crisis could disrupt our operations and increase our expenses.

California is in the midst of an energy crisis that could disrupt our operations and increase our expenses. In the event of a power shortage, California has on
some recent occasions implemented, and may in the future continue to implement, rolling power blackouts throughout the State. If blackouts interrupt our power supply, we may be temporarily unable to
operate. Future interruptions could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could have a
material adverse effect on our business, financial condition and results of operations. Furthermore, as a result of the energy crisis electricity prices have increased and are likely to increase in
the future. If wholesale prices continue to increase, our operating expenses will likely increase.

If we are unable to expand and improve our infrastructure and operational capacity, we will be unable to grow and our business and our financial condition will suffer

The growth of our business placed significant strain on our communication and networking infrastructure. From time to time, demand for our services following
television or Internet-based advertising has exceeded our infrastructure and operational capacity. Clients may experience delays during times when demand for our services exceeds our operational
capacity. These instances are independent of any service interruptions related to disruption of our Web site or other systems. For example, we have in the past experienced longer response times to
client telephone calls during periods of high calling volume because we lacked adequate capacity through our telephone systems and operations and support personnel to handle the increased number of
calls. Similarly, we have experienced slower Web site response times during periods of high traffic because our Internet servers lacked adequate capacity. If these events occur again, we may lose
clients and our reputation may be damaged. This growth has also increased the demands on our management team and technical, sales and operational resources. We anticipate that continued growth will
require us to implement and improve our operational, financial and management information systems. In addition, we are and will continue to invest in new and expanded computer, telecommunication and
information systems that address our existing capacity constraints. We have relocated to a larger facility that better addresses our operational and personnel needs. We have also added executive
personnel to manage our infrastructure. Significant improvements have already been made to our infrastructure, including relocating our customer facing data center to Exodus, upgrading our internal
and external communications capabilities and increasing capacity and redundancy in our SUN/Oracle environment. As we offer new services and pursue corporate and professional markets, we will need to
increase our executive and sales and support personnel. Our business and results of operations will be adversely affected if we are unable to expand and continually improve our infrastructure.

We may be subject to federal and state laws relating to 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 "header" information contained in various consumer credit reporting agencies' databases to find, among other

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items, current and previous addresses, social security numbers used by an individual, or possible other names (such as maiden names, married names, etc.). "Header" information consists of such
information as the name, social security number, date of birth, and current and previous addresses on a consumer credit report. 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. If federal and/or state laws are amended or enacted in the future relating to access and use of personal information, in
particular, and privacy
and civil rights, in general, there could be a material adverse effect on our business financial condition, 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 any 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.

We depend on attracting qualified employees and responding to employee turnover for our success

As of March 31, 2001, we had 154 full-time employees. Although we implemented a 22% staff reduction in November 2000, we nonetheless
anticipate that the number of employees may increase significantly during the next 12 months if we are successful in expanding our existing service offerings and introducing and marketing new
services to corporate and professional clients. Competition for qualified employees is intense. Our success depends upon our ability to attract and retain additional highly qualified technical, sales
and marketing personnel to support growing operations. The process of locating and hiring personnel with the combination of skills and attributes required to carry out our strategy is
time-consuming and costly. Further, our efforts to implement cost cutting measures through staff reductions may result in a decrease in staff morale which may result in the loss of other
employees or absenteeism, and which may make the hiring of additional employees more difficult. Our success also depends on our ability to effectively train and maximize the productivity of our
existing and future employees. We may also experience higher costs and possible disruption of our business as we hire and train new personnel to replace those lost in the ordinary course of our
business or lost in an expansion or relocation of our facility. The loss of key personnel or the inability to attract additional qualified personnel to supplement or, if necessary, to replace existing
personnel, could have a material adverse effect on our business, financial condition and results of operations.

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.

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

We rely on a combination of 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.

"1-800
U.S. SEARCH", our logo, "The Public Record Portal" and "Reuniting America Two People at a Time" are our registered trademarks. In addition, we have applied for
registered trademark status for "US SEARCH.com" and "VeroTrust" service marks in the United States and intend to pursue registration internationally through applications. Effective 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
trademark, service mark or other proprietary rights might be difficult and expensive and we may be unable to protect our brand and our trademarks from third party challenges. Our US SEARCH 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 trademark, service marks or other proprietary
rights.

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 and verotrust.com. We know of at least one competitor that has a corporate
name and domain name similar to ours. We believe that these similarities may cause confusion on the part of potential clients, and this confusion may harm our business, financial condition, and
results of operations. We have sent several cease-and-desist letters to this competitor and have engaged in settlement discussions. If these discussions do not result in
resolution, we may be required to file lawsuits to protect our interests. 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 property rights.

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. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach
of the security measures used by us to protect customer transaction data. If any compromise of our security were to occur, it could materially adversely affect our reputation and business. A party who
is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations and damage to our reputation and customers' willingness to engage in
electronic commerce on our Web site. We may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches.
If our third-party contractors experience security breaches involving the storage and transmission of proprietary information, such as credit card numbers, our reputation may be damaged and we may be
exposed to risk of loss or litigation.

We face risks of fraud related to fraudulent credit card information

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.

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We could face liability based on the nature of our services and the content of the materials that we provide

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 sent to consumers. 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. 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.

We could face claims from clients or the subjects of our search reports that are not covered by insurance

We could be held liable to clients and/or to the subjects of individual search reports prepared by us for inaccurate information or misuse of the information.
We have internal practices designed to help ensure that information contained in our services meet industry standards for accuracy. We have retained counsel to ensure that we are in compliance with
the Fair Credit Reporting Act and similar state laws with respect to our pre-employment screening services. However, we do not currently maintain liability insurance to cover claims by
clients or the subjects of reports. Based on our research, losses from these claims are either uninsurable or the insurance that is available is so limited in coverage that it is not economically
practicable. We intend to continue our efforts to obtain insurance coverage for these types of claims but adequate insurance coverage may not be available on terms acceptable to us. Claims of
violations of the FCRA or similar state laws may be made against us in the future and the claims, if made, may not be successfully defended. Uninsured losses from claims could materially adversely
affect our business and results of operations.

We face risks associated with government regulation and legal uncertainties relating to the Internet

We are subject to regulations applicable to businesses generally and laws or regulations specifically applicable to electronic commerce. Due to concerns
arising in connection with the increasing popularity and use of the Internet, a number of new or changed laws, governmental policies and/or regulations may be adopted, or cases may be decided, with
respect to the Internet or commercial online services covering issues such as property ownership, user privacy, libel, pricing, acceptable content, copyrights, trademarks and/or other intellectual
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.

Our services may suffer as a result of natural disasters

Our ability to successfully receive and complete search requests and provide high-quality client service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware systems. Substantially all of our computer and communications hardware is currently located at facilities in Southern California,
which is an area susceptible to earthquakes. Our systems and operations may be vulnerable to damage or interruption from earthquakes, fire, flood, power loss, telecommunications failure,
break-ins and similar events. 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.

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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. In September 2000 we sold 100,000 shares of
Series A Preferred Stock to Pequot Private Equity II, L.P. Because Series A Preferred Stock was issued with voting, liquidation, dividend and other rights superior to those of the common
stock, the rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of the Series A Preferred Stock and any preferred stock that may
be issued in the future. In February and March 2001 we issued convertible notes payable which will convert to Series A-1 preferred stock upon the satisfaction of certain conditions. 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 of 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.

The holder of our Series A Convertible Preferred Stock may acquire voting control upon the occurrence of certain events

In September 2000 we sold 100,000 newly-issued shares of our Series A Convertible Preferred Stock to Pequot Private Equity Fund II, L.P., a
Delaware limited partnership for an aggregate purchase price of $10 million and issued to Pequot Private Equity Fund II, L.P. a warrant to purchase up to 75,000 additional shares of our
Series A Convertible Preferred Stock. Pequot Private Equity Fund II, L.P. has also agreed to purchase an additional 100,000 shares of our Series A Convertible Preferred Stock for
$10 million if certain performance criteria and other conditions are satisfied. The Series A Convertible Preferred Stock has a stated value of $100 per share and is convertible into
Common Stock of the Company at $1.70 per share of Common Stock.

In
October 2000 Pequot Private Equity Fund II, L.P. purchased from The Kushner-Locke Company 3.5 million shares of our Common Stock at a purchase price of $1.20 per
share. The Kushner-Locke Company also granted Pequot Private Equity Fund II, L.P. a right of first refusal with respect to the remaining shares of our Common Stock held by The Kushner-Locke Company.

Pequot
Private Equity Fund II, L.P. currently beneficially holds approximately 47% of our common stock, assuming an immediate conversion of the Series A Convertible Preferred
Stock currently held by it, exercise in full of the warrant and an immediate conversion of the Series A Convertible Preferred Stock underlying the warrant. Assuming Pequot Private Equity Fund
II, L.P. acquires an additional 100,000 shares of our Series A Convertible Preferred Stock, Pequot Private Equity Fund II, L.P. will beneficially hold, as of the date thereof, approximately 56%
of our Common Stock, assuming
immediate conversion of all Series A Convertible Preferred Stock, an exercise in full of the warrant and an immediate conversion of the Series A Convertible Preferred Stock underlying
the warrant.

In
February 2001, we agreed with Pequot Private Equity Fund II, L.P. to a summary of terms for the second $10 million phase of its investment pursuant to which, among
other things, we agreed to exchange the Series A Convertible Preferred Stock currently held by Pequot for a newly-issued series of preferred stock, to be designated
Series A-1 Convertible Preferred Stock, and to sell to Pequot $10 million of Series A-1 Convertible Preferred Stock. The Series A-1
Convertible Preferred Stock will convert into common stock at the lesser of $2.00 per share and 105% of the ten day average of the closing bid prices of our common stock for the ten trading days prior
to but not including the date Series A-1 Convertible Preferred Stock are purchased by Pequot. In connection with its purchase of Series A-1 Convertible Preferred
Stock, Pequot has agreed to surrender to us its warrant to purchase

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75,000 shares of Series A Convertible Preferred Stock, relinquish all mandatory redemption rights and two years of cumulative dividends.

In
February 2001 and March 2001, Pequot advanced us an aggregate of $10 million in exchange for promissory notes that is convertible into
Series A-1 Convertible Preferred Stock. The promissory notes bear interest at a rate of seven percent (7%) per annum through August 2001 and 12% thereafter, and, if not
previously converted into Series A-1 Convertible Preferred Stock, are due and payable on April 1, 2002. To induce Pequot to advance the purchase price of the
Series A-1 Convertible Preferred Stock in exchange for the promissory notes, we agreed to issue to Pequot a warrant to purchase up to 5,000 shares of Series A-1
Convertible Preferred Stock at an initial purchase price of $100 per share. Upon conversion of the promissory notes, Pequot will also exchange the Series A Convertible Preferred Stock currently
held by them for additional shares of Series A-1 Convertible Preferred Stock and cancel their warrant as described above.

We
have also entered into a Stockholders Agreement with Pequot Private Equity Fund II, L.P. and The Kushner-Locke Company. The Stockholders Agreement provides, among other things,
that Pequot Private Equity Fund II, L.P. and The Kushner-Locke Company 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 and 35% of the shares of Common Stock issued upon conversion of the Series A 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 Preferred Stock, of the Board of Directors being
nominated by Pequot Private Equity Fund II, L.P., (iii) our the 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 Private Equity Fund II, L.P. and a majority of all other members of the Board of
Directors other than Board Member nominated by The Kushner-Locke Company.

Assuming
the conversion of the promissory notes into Series A-1 Convertible Preferred Stock, and the exchange of Series A Convertible Preferred Stock into
Series A-1 Convertible Preferred Stock, Pequot will be able to exercise voting control over issues presented to our stockholders for approval.

Further,
by virtue of the Stockholders Agreement and the rights, preferences and privileges of the Series A Convertible Preferred Stock, Pequot Private Equity Fund II, L.P.
possesses certain special voting and approval rights which could prevent us from taking certain major corporate actions such as the issuance of additional securities, the payment of dividends, or the
merger of us with or into another entity or sale of substantially all of our assets.

If the trading price per share of our common stock remains below $1.00, we may be delisted from The Nasdaq National Market

The closing sale price of our Common Stock on May 7, 2001 was $0.64 per share. Under the rules and regulations of The Nasdaq Stock Market, Inc.,
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 System. On March 28, 2001 we participated in a hearing before a Nasdaq Listing Qualifications panel during which we presented our plan to meet and
sustain compliance with the quantitative maintenance criteria of the Nasdaq National Market System. As of May 7, 2001, the outcome of the hearing has not yet been determined. While we are
hopeful that our common stock will remain listed on the Nasdaq National Market System, because we currently do not meet certain of the quantitative maintenance criteria for the Nasdaq National Market
System, there can be no assurance that our common stock will not be delisted from the Nasdaq National Market System. If we were delisted from the Nasdaq National Market System, trading in our common
stock, if any, may have to be conducted in the over-the-counter market in so-called "pink sheets" or, if then available, the OTC Bulletin Board. As a

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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.

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.

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, 2001 and our total liabilities as of March 31, 2001 consist primarily of notes payable and accounts
payable which have fixed interest rates and were not subject to any significant market risk.

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PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

On April 3, 2000 a two count tradename and service mark complaint was filed against the Company in the United States District Court for the Eastern
District of Virginia, styled U.S. Search, LLC v USSearch.com Inc. Civil Action No. 00-554-A. On January 26, 2001, our motion for summary judgment was
granted and the court ordered that both counts of plaintiff's complaint be dismissed with prejudice.

On
August 14, 2000 a proposed class action complaint was filed against the Company in the Superior Court of the State of California for the County of Los Angeles, Dorothy
Pilkington and Alice Schwartz-Scholl on behalf of themselves, and all other similarly situated, and on behalf of the general public vs. US Search.com, Inc., Case No. BC234858. The Complaint
claims damages for breach of contract, violation of Unfair Practices Act, violation of the Consumer Legal Remedies Act, fraud and negligent misrepresentation in connection with the Company's adoption
services. The Company and its insurance carrier have agreed with plaintiffs' counsel to terms for a settlement of this matter that is awaiting court approval. The Company's insurance carrier has
agreed to coverage of the settlement amount with the Company agreeing to contribute $50,000.00 pursuant to a promissory note bearing no interest and payable in one year.

In
May 2001, ChoicePoint, Inc., the successor entity to DBT Online, Inc., served us with a complaint that it filed 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 is seeking approximately $1.5 million
and damages, interest and attorneys' fees. Although we have had only a limited amount of time to review and consider the allegations contained in the complaint, we believe that we have meritorious
defenses to ChoicePoint's claims and that some of the allegations contained in the complaint are without merit and were filed maliciously and in bad faith. We intend to defend ourself vigorously in
this action. We also believe that we have meritorious counter-claims against ChoicePoint and intend to prosecute vigorously those claims. Through the term of our contract with DBT, we have accrued the
approximately $1.5 million amount that ChoicePoint is seeking through this lawsuit, however, even if we are ultimately successful in defending ourselves, the costs related to this litigation,
including the fees and costs of our attorneys and other litigation support professionals, could be significant.

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.

On February 28, 2001, Pequot Private Equity Fund II, L.P. advanced to the Company the sum of $5 million in exchange for a convertible promissory
note (the "February Note") which will convert into newly issued shares of Series A-1 Convertible Preferred Stock (the "Series A-1 Shares") of the Company upon the satisfaction of certain
conditions, including a waiver by the Nasdaq Stock Market Inc. of its requirement that the Company seek approval of its stockholders to issue the Series A-1 Shares to Pequot. On
March 30, 2001, Pequot advanced to the Company an additional $5 million in cash and forgave $150,000 in un-reimbursed legal expenses in exchange for a convertible promissory note (the
"March Note") in the principal amount of $5.15 million which will convert into Series A-1 Shares upon terms identical to the February Note. The February Note and the March Note were
issued to Pequot in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

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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

|Exhibit No. |  | Description                             
|----------- |  | ----------------------------------------
|4.3         |  | First AmendmentPromissory Note         
|4.4         |  | Convertible Subordinated Promissory Note

None

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SIGNATURES

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

|                   |  | US SEARCH.COM INC.(Registrant)
|------------------ |  | ------------------------------
|Date: May 15, 2001 |  | By:                           
|                   |  | By:                           

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INDEX TO EXHIBITS

|Exhibit No. |  | Description                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------
|3.1*        |  | Certificate of Incorporation                                                                                               
|3.1.1*      |  | Certificate of Amendment of Certificate of Incorporation, dated May 12, 1999, changing corporate name to US SEARCH.com Inc.
|3.1.2**     |  | Amended Certificate of Designations of Series A Convertible Preferred Stock of US SEARCH.com Inc.                          
|3.2*        |  | Bylaws                                                                                                                     
|4.1*        |  | Form of Common Stock Certificate                                                                                           
|4.3         |  | First AmendmentPromissory Note                                                                                            
|4.4         |  | Convertible Subordinated Promissory Note                                                                                   

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