First Advantage (FA) 10-Q 2004 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2004

OR

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

For the transition period from            to            

Commission file number: 000-50285

FIRST ADVANTAGE CORPORATION

(Exact name of registrant as specified in its charter)

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

One Progress Plaza, Suite 2400

St. Petersburg, Florida 33701

(Address of principal executive offices, including zip code)

(727) 214-3411

(Registrant’s telephone number, including area code)

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

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

There were 7,214,837 shares of outstanding Class A Common Stock of the registrant as of November4, 2004.

There were 16,027,086 shares of outstanding Class B Common Stock of the registrant as of November4, 2004.

INDEX

Part I.FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003	2
		Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2004 and September 30, 2003	3
		Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2004	4
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and September 30, 2003	5
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
Part II.OTHER INFORMATION
	Item 1.	Legal Proceedings	24
	Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	24
	Item 3.	Defaults Upon Senior Securities	24
	Item 4.	Submission of Matters to a Vote of Security Holders	24
	Item 5.	Other Information	24
	Item 6.	Exhibits and Reports on Form 8-K	25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements -

First Advantage Corporation

Consolidated Balance Sheets (Unaudited)

	September 30, 2004		December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	5,803,000	$	5,637,000
Accounts receivable (less allowance for doubtful accounts of $1,737,000 and $1,327,000 in 2004 and 2003, respectively)		47,350,000		23,672,000
Income taxes receivable		—		1,282,000
Prepaid expenses and other current assets		2,806,000		2,512,000
Total current assets		55,959,000		33,103,000
Property and equipment, net		20,257,000		19,719,000
Goodwill		286,563,000		204,710,000
Intangible assets, net		32,362,000		18,528,000
Database development costs, net		8,041,000		7,162,000
Other assets		1,434,000		678,000
Total assets	$	404,616,000	$	283,900,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,115,000	$	4,211,000
Accrued compensation		11,193,000		9,373,000
Accrued liabilities		13,694,000		6,327,000
Due to affiliates		839,000		992,000
Income taxes payable		2,473,000		—
Current portion of long-term debt and capital leases		12,717,000		7,231,000
Total current liabilities		47,031,000		28,134,000
Long-term debt and capital leases, net of current portion		70,763,000		13,473,000
Deferred income taxes		4,061,000		—
Other liabilities		2,636,000		1,957,000
Total liabilities		124,491,000		43,564,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized, no shares issued or outstanding		—		—
Class A common stock, $.001 par value; 75,000,000 shares authorized; 6,771,308 and 4,866,362 shares issued and outstanding as of September 30, 2004 and December 31, 2003, respectively		7,000		5,000
Class B common stock, $.001 par value; 25,000,000 shares authorized; 16,027,286 shares issued and outstanding as of September 30, 2004 and December 31, 2003		16,000		16,000
Additional paid-in capital		264,749,000		233,101,000
Retained earnings		15,212,000		7,214,000
Accumulated other comprehensive income		141,000		—
Total stockholders’ equity		280,125,000		240,336,000
Total liabilities and stockholders’ equity	$	404,616,000	$	283,900,000

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

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First Advantage Corporation

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2004			2003			2004			2003
Service revenue	$	60,722,000		$	39,555,000		$	164,713,000		$	93,883,000
Reimbursed government fee revenue		11,208,000			8,079,000			33,569,000			22,723,000
Total revenue		71,930,000			47,634,000			198,282,000			116,606,000
Cost of service revenue		16,668,000			10,661,000			47,207,000			24,654,000
Government fees paid		11,208,000			8,079,000			33,569,000			22,723,000
Total cost of service		27,876,000			18,740,000			80,776,000			47,377,000
Gross margin		44,054,000			28,894,000			117,506,000			69,229,000
Salaries and benefits		21,842,000			14,261,000			60,560,000			36,098,000
Other operating expenses		11,157,000			9,709,000			32,753,000			20,526,000
Depreciation and amortization		3,283,000			2,396,000			9,068,000			5,966,000
Total operating expenses		36,282,000			26,366,000			102,381,000			62,590,000
Income from operations		7,772,000			2,528,000			15,125,000			6,639,000
Other (expense) income:
Interest expense		(601,000	)		(12,000	)		(1,322,000	)		(67,000	)
Interest income		6,000			9,000			13,000			30,000
Total other (expense), net		(595,000	)		(3,000	)		(1,309,000	)		(37,000	)
Income before income taxes		7,177,000			2,525,000			13,816,000			6,602,000
Provision for income taxes		3,026,000			1,096,000			5,818,000			2,792,000
Net income	$	4,151,000		$	1,429,000		$	7,998,000		$	3,810,000
Per share amounts:
Basic and diluted	$	0.19		$	0.07		$	0.37		$	0.19
Weighted-average common shares outstanding:
Basic		21,878,468			20,203,955			21,513,246			20,069,893
Diluted		22,323,884			20,337,947			21,841,787			20,185,345

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

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First Advantage Corporation

Consolidated Statement of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2004 (Unaudited)

	Common Stock Shares	Common Stock Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance at December 31, 2003	20,893,648	$	21,000	$	233,101,000	$	7,214,000	$	—	$	240,336,000
Net income			—		—		7,998,000		—		7,998,000
Class A Shares issued in connection with acquisitions	1,112,432		1,000		19,179,000		—		—		19,180,000
Class A Shares issued in connection with stock option plan and employee stock purchase plan	229,257		—		3,509,000		—		—		3,509,000
Class A Shares issued in connection with convertible notes	563,257		1,000		8,960,000		—		—		8,961,000
Other comprehensive income			—		—		—		141,000		141,000
Balance at September 30, 2004	22,798,594	$	23,000	$	264,749,000	$	15,212,000	$	141,000	$	280,125,000

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

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First Advantage Corporation

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2004 and 2003 (Unaudited)

	For the Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	7,998,000		$	3,810,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,068,000			5,966,000
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable		(14,742,000	)		(4,520,000	)
Prepaid expenses and other current assets		(9,000	)		24,000
Other assets		(581,000	)		378,000
Accounts payable		256,000			(4,940,000	)
Accrued liabilities		2,531,000			372,000
Due (from) to affiliates		(238,000	)		563,000
Income taxes		4,845,000			88,000
Accrued compensation and other liabilities		226,000			1,398,000
Net cash provided by operating activities		9,354,000			3,139,000
Cash flows from investing activities:
Database development costs		(2,123,000	)		(1,649,000	)
Purchases of property and equipment		(3,848,000	)		(2,450,000	)
Cash paid for acquisitions		(49,970,000	)		(8,524,000	)
Cash balance of companies acquired		3,212,000			1,429,000
Net cash used in investing activities		(52,729,000	)		(11,194,000	)
Cash flows from financing activities:
Proceeds from long-term debt		57,000,000			6,500,000
Repayment of long-term debt		(16,968,000	)		(2,836,000	)
Cash contributions from First American		—			5,269,000
Proceeds from class A shares issued in connection with stock option plan and employee stock purchase plan		3,509,000			15,000
Net cash provided by financing activities		43,541,000			8,948,000
Increase in cash and cash equivalents		166,000			893,000
Cash and cash equivalents at beginning of period		5,637,000			6,514,000
Cash and cash equivalents at end of period	$	5,803,000		$	7,407,000
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,203,000		$	51,000
Cash paid for income taxes	$	176,000		$	—
Non-cash investing and financing activities:
Class A shares issued in connection with acquisitions	$	19,180,000		$	13,030,000
Class A shares issued in connection with convertible notes	$	8,961,000		$	—
Notes issued in connection with acquisitions	$	30,819,000		$	9,200,000
Operations contributed by First American	$	—		$	10,697,000
Shares issued in connection with US SEARCH.com acquisition	$	—		$	60,167,000

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

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

1. Organization and Nature of Business

In June 2003, First Advantage Corporation (the “Company”), a holding company, acquired US SEARCH.com and six operating subsidiaries of The First American Corporation (“First American”) that formerly comprised its First American Screening Technologies (“FAST”) division. The operating subsidiaries included HireCheck, Inc., First American Registry, Inc., Substance Abuse Management, Inc., American Driving Records, Inc., Employee Health Programs, Inc., and SafeRent, Inc. First American owns approximately 70% of the shares of capital stock of the Company as of September 30, 2004. The Class B common stock owned by First American is entitled to ten votes per share on all matters presented to the stockholders for vote.

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

2. Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Reclassifications

Certain amounts in our prior period condensed consolidated financial statements have been reclassified from salaries and benefits, and other operating expenses to cost of sales in order to conform with the current period’s presentation.

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

Comprehensive Income

Comprehensive income is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Net Income	$	4,151,000	$	1,429,000	$	7,998,000	$	3,810,000
Other comprehensive income:
Foreign currency translation adjustments		130,000		—		141,000		—
Comprehensive Income	$	4,281,000	$	1,429,000	$	8,139,000	$	3,810,000

Impairment of Intangible and Long-Lived Assets

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

Stock Based Compensation Plan

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Net income, as reported	$	4,151,000	$	1,429,000	$	7,998,000	$	3,810,000
Less: stock based compensation expense, net of tax		820,000		580,000		2,502,000		712,000
Pro forma net income	$	3,331,000	$	849,000	$	5,496,000	$	3,098,000
Earnings per share:
Basic, as reported	$	0.19	$	0.07	$	0.37	$	0.19
Basic, pro forma	$	0.15	$	0.04	$	0.26	$	0.15
Diluted, as reported	$	0.19	$	0.07	$	0.37	$	0.19
Diluted, pro forma	$	0.15	$	0.04	$	0.25	$	0.15

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

3. Acquisitions

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

In connection with the acquisition of CIC Enterprises, LLC, up to $14 million of additional purchase price was contingent upon the renewal by the United States government of the Work Opportunity Tax Credit (WOTC) program or a similar program. The Working Families Tax Relief Act of 2004 became law on October 4, 2004. The Act extended the WOTC program through 2005. The additional consideration that is comprised of $11 million of subordinated debt and $3 million of stock was released from escrow on November 2, 2004.

Convertible promissory notes totaling $8,722,000 had been issued in connection with the acquisitions of CoreFacts, LLC, Realeum, Inc. and CIC Enterprises, LLC. In September 2004, the debt was converted into 563,257 shares of Class A common stock.

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

Cash	$	49,970,000
Notes		30,819,000
Stock		19,180,000
Purchase price	$	99,969,000

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

Goodwill	$	81,608,000
Identifiable intangible assets		16,183,000
Net assets acquired		2,178,000
	$	99,969,000

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Total revenue	$	74,038,000	$	71,022,000	$	216,282,000	$	201,074,000
Net income	$	4,186,000	$	1,312,000	$	8,788,000	$	246,000
Earnings per share:
Basic and diluted	$	0.18	$	0.06	$	0.39	$	0.01
Weighted-average common shares outstanding:
Basic		22,795,943		22,542,363		22,674,707		22,542,363
Diluted		22,869,760		22,676,355		22,835,574		22,657,505

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

	Enterprise Screening			Risk Mitigation		Consumer Direct		Consolidated
Balance, at December 31, 2003	$	115,595,000		$	63,539,000	$	25,576,000	$	204,710,000
Acquisitions		57,871,000			23,737,000		—		81,608,000
Adjustments to net assets acquired		(71,000	)		289,000		27,000		245,000
Balance, at September 30, 2004	$	173,395,000		$	87,565,000	$	25,603,000	$	286,563,000

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

	Intangible Assets
Balance, at December 31, 2003	$	18,528,000
Acquisitions		16,183,000
Amortization		(2,349,000	)
Balance, at September 30, 2004	$	32,362,000

Amortization expense totaled $2,349,000 and $831,000 for the nine months ended September 30, 2004 and 2003, respectively.

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

4. Debt

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

Acquisition notes:
Weighted average interest rate of 3.9% with maturities through 2007	$	25,859,000
Bank notes:
$20 million Loan Agreement, interest at 30-day LIBOR plus 1.25% (3.08% at September 30, 2004), matures July 2006		11,500,000
$25 million Line of Credit, interest at 30-day LIBOR plus 1.39% (3.22% at September 30, 2004), matures March 2007		25,000,000
Promissory Notes with First American:
$10 million revolving loan, interest at 30-day LIBOR plus 1.75% (3.58% at September 30, 2004), matures July 2006		6,500,000
$20 million revolving loan, interest at 30-day LIBOR plus 1.75% (3.58% at September 30, 2004), matures July 2006		14,000,000
Promissory Note (related to US SEARCH.com acquisition):
Interest rate of 5%, principal and interest payments monthly of $127,000, matures December 2004		377,000
Capital leases and other debt:
Various interest rates with maturities through 2006		244,000
Total long-term debt and capital leases		83,480,000
Less current portion of long-term debt and capital leases		12,717,000
Long-term debt and capital leases, net of current portion	$	70,763,000

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

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

On September 7, 2004 the Company amended its Loan Agreement (“Amended Loan Agreement”). As part of the amendment, the Company’s available borrowings thereunder were increased from $15 million to $20 million with a two year maturity date of July 31, 2006. The Amended Loan Agreement is secured by a security interest in the Company’s accounts receivable, as well as the accounts receivable of certain subsidiaries.

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

5. Earnings Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Net Income - numerator for basic earnings per share	$	4,151,000	$	1,429,000	$	7,998,000	$	3,810,000
Interest on convertible notes, net of tax		40,000		—		81,000		—
Net Income - numerator for fully diluted earnings per share	$	4,191,000	$	1,429,000	$	8,079,000	$	3,810,000
Denominator:
Weighted-average shares for basic earnings per share		21,878,468		20,203,955		21,513,246		20,069,893
Effect of dilutive securities
Employee stock options and warrants		73,816		133,992		160,868		115,452
Convertible notes		371,600		—		167,673		—
Denominator for diluted earnings per share		22,323,884		20,337,947		21,841,787		20,185,345
Earnings per share:
Basic	$	0.19	$	0.07	$	0.37	$	0.19
Diluted	$	0.19	$	0.07	$	0.37	$	0.19

For the three months ended September 30, 2004 and 2003 options and warrants totaling 2,163,305 and1,729,732, respectively, were excluded from the weighted average diluted shares outstanding as they were antidilutive. For the nine months ended September 30, 2004 and 2003 options and warrants totaling 1,853,676 and1,221,052, respectively, were excluded, as they were antidilutive.

6. Segment Information

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

The Enterprise Screening segment includes employment background screening, occupational health services, resident screening services and tax incentives. Products and services relating to employment background screening include criminal records searches, employment and education verification, social security number verification and credit reporting. Occupational health services include drug-free workplace programs, physical examinations and employee assistance programs. Resident screening services include criminal background and eviction searches, credit reporting, employment verification and lease performance and payment histories. Tax incentives specialize in the identification and processing of tax and incentive credits, sales and use-tax services, transportation tax services and tax consulting services. Revenue for the Enterprise Screening segment includes $8,000 and $32,000 of sales to the Consumer Direct segment for the three and nine months ended September 30, 2004, respectively.

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

The Risk Mitigation segment includes motor vehicle records and investigative services. Products and services provided by the Risk Mitigation segment include: driver history reports, vehicle registration, financial responsibility filings, surveillance services, statements and field interviews and due diligence reports. Revenue for the Risk Mitigation segment includes $226,000 and $427,000 of sales to the Enterprise Screening segment for the three months ended September 30, 2004 and 2003, respectively, and $1,283,000 and $1,062,000 of sales for the nine months ended September 30, 2004 and 2003, respectively.

The Consumer Direct segment provides consumers with a single, comprehensive access point to a broad range of information to assist them in locating people and other public data searches. Revenue for the Consumer Direct segment includes $4,000 and $93,000 of sales to the Enterprise Screening segment for the three months ended September 30, 2004 and 2003, respectively, and $86,000 and $124,000 of sales for the nine months ended September 30, 2004 and 2003, respectively.

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

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First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

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

	Revenue			Depreciation and Amortization		Income (Loss) Before Income Taxes			Assets
Three Months Ended September 30, 2004
Enterprise Screening	$	50,310,000		$	2,144,000	$	8,317,000		$	253,717,000
Risk Mitigation		19,142,000			553,000		2,089,000			112,274,000
Consumer Direct		2,815,000			563,000		137,000			30,663,000
Corporate and Eliminations		(337,000	)		23,000		(3,366,000	)		7,962,000
Consolidated	$	71,930,000		$	3,283,000	$	7,177,000		$	404,616,000
Three Months Ended September 30, 2003
Enterprise Screening	$	31,715,000		$	1,541,000	$	2,622,000		$	155,088,000
Risk Mitigation		11,404,000			188,000		1,521,000			74,381,000
Consumer Direct		4,955,000			667,000		117,000			53,927,000
Corporate and Eliminations		(440,000	)		—		(1,735,000	)		2,703,000
Consolidated	$	47,634,000		$	2,396,000	$	2,525,000		$	286,099,000
Nine Months Ended September 30, 2004
Enterprise Screening	$	133,793,000		$	5,909,000	$	16,787,000		$	253,717,000
Risk Mitigation		55,912,000			1,413,000		5,260,000			112,274,000
Consumer Direct		10,011,000			1,694,000		(4,000	)		30,663,000
Corporate and Eliminations		(1,434,000	)		52,000		(8,227,000	)		7,962,000
Consolidated	$	198,282,000		$	9,068,000	$	13,816,000		$	404,616,000
Nine Months Ended September 30, 2003
Enterprise Screening	$	81,217,000		$	4,564,000	$	6,128,000		$	155,088,000
Risk Mitigation		29,930,000			502,000		4,279,000			74,381,000
Consumer Direct		6,534,000			900,000		135,000			53,927,000
Corporate and Eliminations		(1,075,000	)		—		(3,940,000	)		2,703,000
Consolidated	$	116,606,000		$	5,966,000	$	6,602,000		$	286,099,000

7. Subsequent Events

On October 11, 2004, the Company acquired substantially all of the assets of the Business Tax Credit Corporation d/b/a The Alameda Company, under the terms of an asset purchase agreement. In consideration for the purchase of the assets, the Company paid the sellers an aggregate purchase price of $7.6 million comprised of $2.5 million in cash and $5.1 million of subordinated notes.

-13-

First Advantage Corporation

Notes to Consolidated Financial Statements

September 30, 2004 and 2003 (Unaudited)

On November 3, 2004, the Company acquired CompuNet Credit Services, Inc, under the terms of the purchase agreement. In consideration for the purchase of the assets, the Company paid the sellers an aggregate purchase price of $18 million comprised of $5 million in cash, $9 million in subordinated notes, and $4 million of the Company’s Class A common stock.

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2004		2003		2004		2003
Total revenue	$	75,823,000	$	73,364,000	$	222,554,000	$	207,067,000
Net income	$	4,266,000	$	1,740,000	$	9,545,000	$	908,000
Earnings per share:
Basic	$	0.19	$	0.08	$	0.42	$	0.04
Diluted	$	0.19	$	0.08	$	0.42	$	0.04
Weighted-average common shares outstanding:
Basic		23,045,133		22,791,553		22,923,897		22,791,553
Diluted		23,118,950		22,925,545		23,084,764		22,906,695

-14-

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

Note of Caution Regarding Forward Looking Statements

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

First Advantage Corporation (Nasdaq: FADV) (“First Advantage” or the “Company”) was created by the June 5, 2003 merger of The First American Corporation’s Screening Technologies (“FAST”) division with US SEARCH.com Inc. (“US SEARCH”). First Advantage provides global risk management screening services to enterprise and consumer customers. The Company operates in three primary business segments: Enterprise Screening, Risk Mitigation and Consumer Direct. First Advantage is headquartered in St. Petersburg, Florida, and has more than 1,700 employees in offices throughout the United States and abroad. Since its formation, First Advantage has acquired 22 companies as of September 30, 2004 and completed two of those acquisitions in the third quarter of 2004.

Operating results for the three and nine months ended September 30, 2004 included total revenue of $71.9 million and $198.3 million, respectively, representing an increase of 51% and 70% over the same periods in 2003. Net income for the three and nine months ended September 30, 2004 was $4.2 million and $8.0 million, respectively. Net income increased $2.7 million and $4.2 million for the three and nine months ended September 30, 2004 in comparison to the same periods in 2003.

Critical Accounting Policies

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

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

Three Months Ended September 30, 2004	Enterprise Screening			Risk Mitigation			Consumer Direct			Corporate and Eliminations			Total
Service revenue	$	47,529,000		$	10,715,000		$	2,815,000		$	(337,000	)	$	60,722,000
Reimbursed government fee revenue		2,781,000			8,427,000			—			—			11,208,000
Total revenue		50,310,000			19,142,000			2,815,000			(337,000	)		71,930,000
Cost of service revenue		12,886,000			3,895,000			224,000			(337,000	)		16,668,000
Government fees paid		2,781,000			8,427,000			—			—			11,208,000
Total cost of service		15,667,000			12,322,000			224,000			(337,000	)		27,876,000
Gross margin		34,643,000			6,820,000			2,591,000			—			44,054,000
Salaries and benefits		16,197,000			2,908,000			549,000			2,188,000			21,842,000
Other operating expenses		7,982,000			1,270,000			1,342,000			563,000			11,157,000
Depreciation and amortization		2,144,000			553,000			563,000			23,000			3,283,000
Income (loss) from operations		8,320,000			2,089,000			137,000			(2,774,000	)		7,772,000
Gross margin percentage of service revenue		72.9	%		63.6	%		92.0	%		N/A			72.6	%

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Three Months Ended September 30, 2003	Enterprise Screening			Risk Mitigation			Consumer Direct			Corporate and Eliminations			Total
Service revenue	$	30,455,000		$	4,585,000		$	4,955,000		$	(440,000	)	$	39,555,000
Reimbursed government fee revenue		1,260,000			6,819,000			—			—			8,079,000
Total revenue		31,715,000			11,404,000			4,955,000			(440,000	)		47,634,000
Cost of service revenue		9,388,000			1,191,000			522,000			(440,000	)		10,661,000
Government fees paid		1,260,000			6,819,000			—			—			8,079,000
Total cost of service		10,648,000			8,010,000			522,000			(440,000	)		18,740,000
Gross margin		21,067,000			3,394,000			4,433,000			—			28,894,000
Salaries and benefits		10,959,000			1,144,000			1,273,000			885,000			14,261,000
Other operating expenses		5,945,000			538,000			2,376,000			850,000			9,709,000
Depreciation and amortization		1,541,000			188,000			667,000			—			2,396,000
Income (loss) from operations		2,622,000			1,524,000			117,000			(1,735,000	)		2,528,000
Gross margin percentage of service revenue		69.2	%		74.0	%		89.5	%		N/A			73.0	%
Nine Months Ended September 30, 2004	Enterprise Screening			Risk Mitigation			Consumer Direct			Corporate and Eliminations			Total
Service revenue	$	125,977,000		$	30,159,000		$	10,011,000		$	(1,434,000	)	$	164,713,000
Reimbursed government fee revenue		7,816,000			25,753,000			—			—			33,569,000
Total revenue		133,793,000			55,912,000			10,011,000			(1,434,000	)		198,282,000
Cost of service revenue		36,084,000			11,779,000			778,000			(1,434,000	)		47,207,000
Government fees paid		7,816,000			25,753,000			—			—			33,569,000
Total cost of service		43,900,000			37,532,000			778,000			(1,434,000	)		80,776,000
Gross margin		89,893,000			18,380,000			9,233,000			—			117,506,000
Salaries and benefits		44,328,000			8,088,000			2,052,000			6,092,000			60,560,000
Other operating expenses		22,836,000			3,614,000			5,493,000			810,000			32,753,000
Depreciation and amortization		5,909,000			1,413,000			1,694,000			52,000			9,068,000
Income (loss) from operations		16,820,000			5,265,000			(6,000	)		(6,954,000	)		15,125,000
Gross margin percentage of service revenue		71.4	%		60.9	%		92.2	%		N/A			71.3	%
Nine Months Ended September 30, 2003	Enterprise Screening			Risk Mitigation			Consumer Direct			Corporate and Eliminations			Total
Service revenue	$	78,196,000		$	10,228,000		$	6,534,000		$	(1,075,000	)	$	93,883,000
Reimbursed government fee revenue		3,021,000			19,702,000			—			—			22,723,000
Total revenue		81,217,000			29,930,000			6,534,000			(1,075,000	)		116,606,000
Cost of service revenue		23,613,000			1,432,000			684,000			(1,075,000	)		24,654,000
Government fees paid		3,021,000			19,702,000			—			—			22,723,000
Total cost of service		26,634,000			21,134,000			684,000			(1,075,000	)		47,377,000
Gross margin		54,583,000			8,796,000			5,850,000			—			69,229,000
Salaries and benefits		29,407,000			2,846,000			1,743,000			2,102,000			36,098,000
Other operating expenses		14,443,000			1,174,000			3,071,000			1,838,000			20,526,000
Depreciation and amortization		4,564,000			502,000			900,000			—			5,966,000
Income (loss) from operations		6,169,000			4,274,000			136,000			(3,940,000	)		6,639,000
Gross margin percentage of service revenue		69.8	%		86.0	%		89.5	%		N/A			73.7	%

-17-

Enterprise Screening Segment

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

Total service revenue was $47.5 million as of September 30, 2004, an increase of $17.0 million compared to service revenue of $30.5 million in the same period of 2003. Acquisitions accounted for approximately $15.1 million of the revenue increase. There were sixteen businesses acquired since the third quarter of 2003. Revenue increased by $1.9 million, or 6.4%, at businesses owned in the third quarter of 2003 due to expanded market share and an increase in products and services.

The gross margin percentage of service revenue increased from 69.2% to 72.9% primarily as a result of an increase in resident screening revenue and the contribution of the tax incentive revenue, which have generally higher gross margins.

Salaries and benefits increased by $5.2 million. Salaries and benefits were 34.1% of service revenue for the third quarter of 2004 compared to 36.0% of service revenue in the same period of 2003. This decrease reflected economies achieved in 2004 by consolidating certain operations and leveraging databases.

Other operating expenses increased by $2.0 million and were 16.8% of service revenue in the third quarter of 2004 compared to 19.5% in the same period of 2003. This decrease in other operating expenses, as a percentage of revenue, is due to operating efficiencies in connection with the consolidation of the businesses.

Depreciation and amortization increased by $0.6 million. Depreciation and amortization were 4.5% of service revenue in the third quarter of 2004 compared to 5.1% in the same period of 2003. This decrease, as a percent of service revenue, is primarily due to several assets being fully depreciated offset by an increase in the amortization of intangible assets as a result of acquisitions.

Income from operations was $8.3 million in the third quarter of 2004 compared to income from operations of $2.6 million in the same period of 2003. The increase in income from operations was the result of increased revenue, primarily from acquisitions. Operating costs as a percent of revenue declined due to consolidation of businesses and leveraging of databases.

Risk Mitigation Segment

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

Total service revenue was $10.7 million as of September 30, 2004, an increase of $6.1 million compared to service revenue of $4.6 million in the same period of 2003. The acquisition of two investigative service businesses account for a substantial part of the increase in service revenue.

The gross margin percentage of service revenue decreased from 74.0% to 63.6% primarily due to the acquisition of the investigative service businesses, which generate margin levels that are lower as a percentage of service revenue, than the motor vehicle records operations of this segment.

Salaries and benefits increased by $1.8 million. Salaries and benefits were 27.1% of service revenue in the third quarter of 2004 compared to 25.0% in the same period of 2003. The percentage increase is primarily due to the acquisition of the investigative service businesses.

Other operating expenses increased by $0.7 million. Other operating expenses were 11.9% of service revenue in the third quarter of 2004 and 11.7% in the third quarter of 2003. The increase is primarily due to the acquisition of the investigative service businesses.

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Depreciation and amortization increased by $0.4 million due to an increase in amortization of intangible assets as a result of the acquisitions.

Income from operations was $2.1 million for the third quarter of 2004 compared to $1.5 million in the third quarter of 2003.

Consumer Direct

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

Total service revenue was $2.8 million as of September 30, 2004, a decrease of $2.2 million compared to service revenue of $5.0 million in the same period of 2003. The decrease is due to the reduction in the number of distribution channels in May 2004.

The gross margin percentage of service revenue increased from 89.5% to 92.0% primarily due to vendor negotiations to reduce fulfillment costs.

Salaries and benefits decreased by $0.7 million. Salaries and benefits were 19.5% of service revenue in the third quarter of 2004 compared to 25.7% in the same period of 2003. The percentage decrease is primarily due to the centralization of some of the key functions of accounting, human resource and technology to the corporate office.

Other operating expenses decreased by $1.0 million. Other operating expenses were 47.7% of service revenue in the third quarter of 2004 and 48.0% for the same period of 2003. The decrease is primarily due to reduced advertising expenditures.

Depreciation and amortization decreased by $0.1 million.

Income from operations was $137 thousand for the third quarter of 2004 compared to income from operations of $117 thousand in September 2003.

Corporate

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

Salary and benefits increased primarily due to an increase in the number of senior management, administrative and technology personnel. Other operating expenses increased due to additional regulatory and professional fees.

Consolidated Results

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

Consolidated service revenue for the three months ended September 30, 2004 was $60.7 million, an increase of $21.1 million compared to service revenue of $39.6 in the same period in 2003. Acquisitions accounted for $20.8 million of the increase.

The consolidated gross margin of service revenue was 72.6% for the three months ended September 30, 2004 compared to 73.0% for the same period in 2003. The decrease is due to the change in the mix of margins related to the acquired businesses.

Salaries and benefits were 36.0% of service revenue for the three months ended September 30, 2004 and 36.1% compared to the same period in 2003.

-19-

Other operating expenses were 18.4% of service revenue for the three months ended September 30, 2004 and 24.5 % compared to the same period for 2003. The decrease is due to the consolidation of acquired businesses in the Enterprise Screening segment and reduced advertising expenditures in the Consumer Direct segment.

Depreciation and amortization increased by $0.9 million due to an increase in amortization of intangible assets as a result of acquisitions.

Income from operations was $7.8 million for the three months ended September 30, 2004 compared to $2.5 million for the same period in 2003. The increase of $5.3 million is comprised of an increase in operating income of $5.7 million in the Enterprise Screening segment, an increase in operating income of $0.6 million in the Risk Mitigation segment and an increase of corporate expenses of $1.0 million.

Enterprise Screening Segment

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total service revenue was $126.0 million as of September 30, 2004, an increase of $47.8 million compared to service revenue of $78.2 million in the same period of 2003. Acquisitions accounted for approximately $41.7 million of the revenue increase. There were sixteen businesses acquired since September 2003. Revenue increased by $6.1 million, or 7.8%, at businesses owned at September 2003 due to expanded market share and an increase in products and services.

The gross margin percentage of service revenue increased from 69.8% to 71.4% and was primarily due to an increase in resident screening revenue and the contribution of the tax incentive revenue, which have generally higher gross margins.

Salaries and benefits increased by $14.9 million. Salaries and benefits were 35.2% of service revenue for the nine months ended September 2004 compared to 37.6% of service revenue in the same period of 2003. This decrease reflected economies achieved in 2004 by consolidating certain operations and leveraging databases.

Other operating expenses increased by $8.4 million and were 18.1% of service revenue for the nine months ended September 2004 compared to 18.5% in the same period of 2003. This increase in other operating expenses was primarily due to the addition of the tax incentive group to the segment.

Depreciation and amortization increased by $1.3 million. Depreciation and amortization was 4.7% of service revenue for the nine months ended September 30, 2004 compared to 5.8% in the same period of 2003. This decrease, as a percent of service revenue, is primarily due to several assets being fully depreciated offset by an increase in the amortization of intangible assets as a result of acquisitions.

Income from operations was $16.8 million for the nine months ended September 2004 compared to income from operations of $6.2 million in the same period of 2003. The increase in income from operations was the result of increased revenue, from acquisitions and organic growth. Operating costs as a percent of revenue declined due to consolidation of businesses and leveraging of databases.

Risk Mitigation Segment

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total service revenue was $30.2 million as of September 30, 2004, an increase of $20.0 million compared to service revenue of $10.2 million in the same period of 2003. The Company acquired two investigative service businesses, which account for a substantial part of the increase in service revenue.

-20-

The gross margin percentage of service revenue decreased from 86.0% to 60.9% primarily due to the acquisition of the investigative service businesses, which generate margin levels lower than the motor vehicle records operations of this segment.

Salaries and benefits increased by $5.2 million. Salaries and benefits were 26.8% of service revenue year to date September 2004 compared to 27.8% in the same period of 2003. The percentage decrease is primarily due to the acquisition of the investigative service businesses.

Other operating expenses increased by $2.4 million. Other operating expenses were 12.0% of service revenue for the nine months ended September 2004 compared to 11.5% in the same period of 2003. The change is primarily due to the acquisition of the investigative service businesses.

Depreciation and amortization increased by $0.9 million due to an increase in amortization of intangible assets as a result acquisitions.

Income from operations was $5.3 million for the nine months ended September 2004 compared to $4.3 million in the same period of 2003.

Consumer Direct

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Total service revenue was $10.0 million as of September 30, 2004, an increase of $3.5 million compared to service revenue of $6.5 million in the same period of 2003. This segment was formed in connection with the acquisition in June 2003 of US SEARCH and represents only four months of operating results for year-to-date September 2003. On a per month basis, revenue decreased due to a reduction in the number of distribution channels in May 2004.

The gross margin percentage of service revenue increased from 89.5% to 92.2% primarily due to vendor negotiations to reduce fulfillment costs.

Salaries and benefits increased by $0.3 million. Salaries and benefits were 20.5% of service revenue for the nine months ended September 2004 compared to 26.7% in the same period of 2003. The percentage decrease is primarily due to the centralization of some of the key functions of accounting, human resource and technology to the corporate office.

Other operating expenses increased by $2.4 million. Other operating expenses were 54.9% of service revenue for the nine months ended September 2004 and 47.0% for the same period of 2003. The increase in other operating expenses, as a percent of revenue is due to the reduction in the number of distribution channels in May 2004.

Depreciation and amortization increased by $0.8 million due to an increase in amortization of intangible assets as a result of the acquisitions.

Loss from operations was $6 thousand for the nine months ended September 2004 compared to income from operations of $136 thousand in September 2003.

Corporate

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Prior to June 2003, corporate expenses were for the FAST division only. Salary and benefits increased primarily due to an increase in the number of senior management, administrative and technology personnel. Other operating expenses increased due to additional regulatory and professional fees.

-21-

Consolidated Results

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Consolidated service revenue for the nine months ended September 30, 2004 was $164.7 million, an increase of $70.8 million compared to service revenue of $93.9 in the same period in 2003. Acquisitions accounted for $64.2 million of the increase.

The consolidated gross margin of service revenue was 71.3% for the nine months ended September 30, 2004 compared to 73.7% for the same period in 2003. The decrease is due to the change in the mix of margins related to the acquired businesses.

Salaries and benefits were 36.8% of service revenue for the nine months ended September 30, 2004 and 38.4% compared to the same period in 2003. The decrease was primarily due to reductions in salaries and benefits as a percentage of revenue in all the segments offset by an increase in corporate salary and benefits incurred since the creation of First Advantage in June 2003.

Other operating expenses were 19.9% of service revenue for the nine months ended September 30, 2004 and 21.9% compared to the same period for 2003. The decrease was primarily related to the efficiencies realized from consolidating and integrating the acquisitions.

Depreciation and amortization increased by $3.1 million due to an increase in amortization of intangible assets as a result of acquisitions.

Income from operations was $15.1 million for the nine months ended September 30, 2004 compared to $6.6 million for the same period in 2003. The increase of $8.5 million is comprised of an increase in operating income of $10.7 million in the Enterprise Screening segment, an increase in operating income of $0.9 million in the Risk Mitigation segment, a decrease in operating income of $0.1 million in the Consumer Direct segment and an increase of corporate expenses of $3.0 million.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash flow from operations and amounts available under credit lines the Company has established with a bank and with First American. Prior to the June 5, 2003 merger with US SEARCH, contributions from First American were also a primary source of liquidity. As of September 30, 2004, cash and cash equivalents were $5.8 million.

Cash provided by operating activities was $9.4 million and $3.1 million for the nine months ended September 30, 2004 and 2003, respectively.

Cash provided from operating activities increased $6.3 million from the nine months ended September 30, 2004 compared to the same period in 2003, while net income was $8.0 million for the nine months ended September 30, 2004 and $3.8 million for the same period in 2003. The increase in cash provided from operating activities was primarily due to an increase in earnings and depreciation and amortization expense offset by an increase in accounts receivable.

Cash used in investing activities was $52.7 million and $11.2 million for the nine months ended September 30, 2004 and 2003, respectively. For the nine months ended September 30, 2004, net cash in the amount of $50.0 million was used for acquisitions. Cash used for the purchase of property, equipment and database development was $6.0 million for the nine months ended September 30, 2004 compared to $4.1 million in the same period of 2003.

Cash provided by financing activities was $43.5 million and $8.9 million for the nine months ended September 30, 2004 and 2003, respectively. For the nine months ended September 30, 2004, proceeds from existing credit facilities with a bank and First American were $57.0 million. Repayment of debt was $17.0 million for the nine months ended September 30, 2004.

-22-

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

On September 7, 2004 the Company amended its Loan Agreement (“Amended Loan Agreement”). As part of the amendment, the Company’s available borrowings thereunder were increased from $15 million to $20 million with a two year maturity date of July 31, 2006. The Amended Loan Agreement is secured by a security interest in the Company’s accounts receivable, as well as the accounts receivable of certain subsidiaries.

At September 30, 2004 the Company had unused lines of credit of $17.6 million.

First Advantage filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to 4,000,000 shares of our Class A common stock, par value $.001 per share, from time to time as full or partial consideration for the acquisition of businesses, assets or securities of other business entities. The Registration Statement was declared effective on July 14, 2003. A total of 1,976,514 of the 4,000,000 shares were issued for acquisitions as of September 30, 2004.

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

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

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

	2004		2005		2006		2007		2008		Thereafter		Total
Minimum contract purchase commitments		185,000		320,000		99,000		91,000		90,000		—	$	785,000
Operating leases		2,346,000		5,974,000		4,733,000		3,008,000		2,163,000		7,371,000	$	25,595,000
Long-term debt and capital leases		3,379,000		11,225,000		23,338,000		44,576,000		962,000		—	$	83,480,000
Total	$	5,910,000	$	17,519,000	$	28,170,000	$	47,675,000	$	3,215,000	$	7,371,000	$	109,860,000

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, have concluded that, as of the end of the fiscal quarter covered by this report on Form 10-Q, the Company’s disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports filed or submitted under such Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

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

None

Item 3. Defaults upon Senior Securities

None

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

None

Item 5. Other Information

None

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1	Amendment to Loan Agreement, dated Sept 7, 2004, between First Advantage Corporation and Bank of America, N.A.
10.2	Amendment to Security Agreement, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.3	Renewal Promissory Note, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.4	Amended and Restated Security Agreement, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.5	Guaranty of Payment, dated Sept 7, 2004 between American Driving Records, Inc., Background information Systems, Inc., CIC Enterprises, LLC, Corefacts, LLC, Employee Health Programs, Inc., Hirecheck, Inc., Infocheck, LTD, Landlord Protect, Inc., MVRS, Inc., Omega Insurance Services, Proudfoot Reports, Inc., Realcum, Inc., Saferent, Inc., Seconda, LLC, UD Registry, Inc., and US Search.com, Inc.
31.1	Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

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

(i) furnished Form 8-K, dated July 20, 2004 (announcing the results of operations and financial results for the second quarter ended June 30, 2004);

(ii) filed Form 8-K, dated September 7, 2004 (announcing the amendment of the bank Loan Agreement);

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SIGNATURES

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

                                                                 FIRST ADVANTAGE CORPORATION

                                                 (Registrant)

Date: November 5, 2004	By:	/s/ JOHN LONG
		John Long
		Chief Executive Officer
Date: November 5, 2004	By:	/s/ JOHN LAMSON
		John Lamson
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Amendment to Loan Agreement, dated Sept 7, 2004, between First Advantage Corporation and Bank of America, N.A.
10.2	Amendment to Security Agreement, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.3	Renewal Promissory Note, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.4	Amended and Restated Security Agreement, dated Sept 7, 2004 between First Advantage Corporation and Bank of America, N.A.
10.5	Guaranty of Payment, dated Sept 7, 2004 between American Driving Records, Inc., Background information Systems, Inc., CIC Enterprises, LLC, Corefacts, LLC, Employee Health Programs, Inc., Hirecheck, Inc., Infocheck, LTD, Landlord Protect, Inc., MVRS, Inc., Omega Insurance Services, Proudfoot Reports, Inc., Realcum, Inc., Saferent, Inc., Seconda, LLC, UD Registry, Inc., and US Search.com, Inc.
31.1	Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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