UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: June 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From          to         .

Dolan Media Company

Delaware		43-2004527
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

706 Second Avenue South, Suite 1200,
Minneapolis, Minnesota 55402
(Address, including zip code of registrant’s principal executive offices)

(612) 317-9420
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 þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

     On August 5, 2008, there were 29,129,052 shares of the registrant’s common stock outstanding.

 

 

PART I — FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007			1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007			2
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) as of June 30, 2008 (unaudited)			3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007			4
Notes to Unaudited Condensed Consolidated Interim Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			49
Item 4T. Controls and Procedures			50
PART II — OTHER INFORMATION			50
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities			52
Item 4. Submission of Matters to a Vote of Security Holders			53
Item 5. Other Information			53
Item 6. Exhibits			53
SIGNATURES			54
Section 302 Certification
Section 302 Certification
Section 906 Certification
Section 906 Certification

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Dolan Media Company

		June 30,				December 31,
		2008				2007
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	2,615			$	1,346
Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $1,377 and $1,283 as of June 30, 2008 and December 31, 2007, respectively)			25,150				20,689
Prepaid expenses and other current assets			2,214				2,649
Deferred income taxes			259				259
Total current assets			30,238				24,943
Investments			18,005				18,479
Property and equipment, net			13,209				13,066
Finite-life intangible assets, net			100,843				88,946
Goodwill			81,543				79,044
Other assets			2,454				1,889
Total assets		$	246,292			$	226,367
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt		$	6,526			$	4,749
Accounts payable			4,731				6,068
Accrued compensation			3,620				4,677
Accrued liabilities			1,728				2,922
Due to sellers of acquired businesses			525				600
Deferred revenue			11,632				11,387
Total current liabilities			28,762				30,403
Long-term debt, less current portion			67,312				56,301
Deferred income taxes			4,393				4,393
Deferred revenue and other liabilities			3,929				3,890
Total liabilities			104,396				94,987
Minority interest in consolidated subsidiary (redemption value of $16,020 as of June 30, 2008)			3,524				2,204
Commitments and contingencies (Note 12)
Stockholders’ equity
Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 25,131,282 and 25,088,718 shares as of June 30, 2008 and December 31, 2007, respectively			25				25
Preferred stock, $0.001 par value; authorized: 5,000,000 shares; no shares outstanding			—				—
Additional paid-in capital			213,156				212,364
Accumulated deficit			(74,809	)			(83,213	)
Total stockholders’ equity			138,372				129,176
Total liabilities and stockholders’ equity		$	246,292			$	226,367

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Revenues
Business Information		$	23,424			$	21,588			$	46,196			$	41,068
Professional Services			18,129				15,467				36,869				31,682
Total revenues			41,553				37,055				83,065				72,750
Operating expenses
Direct operating: Business Information			8,152				7,060				15,724				13,879
Direct operating: Professional Services			6,436				5,273				12,747				10,898
Selling, general and administrative			16,732				15,660				32,836				28,988
Amortization			2,318				1,871				4,536				3,714
Depreciation			1,190				889				2,291				1,645
Total operating expenses			34,828				30,753				68,134				59,124
Equity in earnings of The Detroit Legal News Publishing, LLC			1,469				1,330				3,026				2,245
Operating income			8,194				7,632				17,957				15,871
Non-operating expense
Non-cash interest expense related to redeemable preferred stock			—				(26,318	)			—				(56,260	)
Interest expense, net of interest income			(287	)			(1,393	)			(2,738	)			(3,428	)
Other income (expense)			10				(5	)			21				(13	)
Total non-operating expense			(277	)			(27,716	)			(2,717	)			(59,701	)
Income (loss) before income taxes and minority interest			7,917				(20,084	)			15,240				(43,830	)
Income tax expense			(3,027	)			(967	)			(5,786	)			(4,107	)
Minority interest in net income of subsidiary			(493	)			(807	)			(1,050	)			(1,707	)
Net income (loss)		$	4,397			$	(21,858	)		$	8,404			$	(49,644	)
Net income (loss) per share:
Basic		$	0.18			$	(2.34	)		$	0.34			$	(5.32	)
Diluted		$	0.17			$	(2.34	)		$	0.33			$	(5.32	)
Weighted average shares outstanding:
Basic			24,936,360				9,324,000				24,936,183				9,324,000
Diluted			25,307,422				9,324,000				25,246,279				9,324,000

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

										Additional
		Common Stock								Paid-In				Accumulated
		Shares				Amount				Capital				Deficit				Total
Balance (deficit) at December 31, 2006			9,324,000			$	1			$	303			$	(29,179	)		$	(28,875	)
Net loss			—				—				—				(54,034	)			(54,034	)
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			171,563				—				970				—				970
Preferred stock series C conversion			5,093,155				5				73,844				—				73,849
Initial public offering proceeds, net of underwriting discount and offering costs			10,500,000				11				137,255				—				137,266
Other			—				8				(8	)			—				—
Balance (deficit) at December 31, 2007			25,088,718			$	25			$	212,364			$	(83,213	)		$	129,176
Net income			—				—				—				8,404				8,404
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			42,564				—				792				—				792
Balance (deficit) at June 30, 2008 (unaudited)			25,131,282			$	25			$	213,156			$	(74,809	)		$	138,372

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

		Six Months Ended
		June 30,
		2008				2007
Cash flows from operating activities
Net income (loss)		$	8,404			$	(49,644	)
Distributions received from The Detroit Legal News Publishing, LLC			3,500				2,800
Minority interest distributions paid			(909	)			(1,102	)
Non-cash operating activities:
Amortization			4,536				3,714
Depreciation			2,291				1,645
Equity in earnings of The Detroit Legal News Publishing, LLC			(3,026	)			(2,245	)
Minority interest			1,050				1,707
Stock-based compensation expense			792				21
Change in value of interest rate swap and accretion of interest on note payable			81				(207	)
Non-cash interest related to redeemable preferred stock			—				56,327
Amortization of debt issuance costs			94				79
Change in accounting estimate related to self-insured medical reserve			(470	)			—
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable			(4,461	)			(2,422	)
Prepaid expenses and other current assets			386				(324	)
Other assets			17				(996	)
Accounts payable and accrued liabilities			(2,910	)			4,075
Deferred revenue			199				(739	)
Net cash provided by operating activities			9,574				12,689
Cash flows from investing activities
Acquisitions and investments			(19,176	)			(17,335	)
Pending acquisitions			(691	)			—
Capital expenditures			(2,303	)			(4,210	)
Net cash used in investing activities			(22,170	)			(21,545	)
Cash flows from financing activities
Net (payments) borrowings on senior revolving note			(9,000	)			4,000
Proceeds from borrowings or conversions on senior term notes (Note 6)			25,000				10,000
Payments on senior long-term debt			(1,564	)			(3,700	)
Capital contribution from minority partner			1,179				—
Payment on unsecured note payable			(1,750	)			—
Payments of offering costs			—				(537	)
Payments of deferred financing costs			—				(42	)
Other			—				(28	)
Net cash provided by financing activities			13,865				9,693
Net increase in cash and cash equivalents			1,269				837
Cash and cash equivalents at beginning of the period			1,346				786
Cash and cash equivalents at end of the period		$	2,615			$	1,623

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

Note 1. Nature of Business and Significant Accounting Policies

     Basis of Presentation: The condensed consolidated balance sheet as of December 31, 2007, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements of Dolan Media Company, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to the quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2007 included in the Company’s annual report on Form 10-K filed on March 28, 2008 with the Securities and Exchange Commission.

     In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of the Company’s interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full calendar year. Certain prior year amounts have been reclassified for comparability purposes within the statement of operations with no impact on net income.

     The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company, its wholly-owned subsidiaries and the following interests in American Processing Company, LLC (APC): (1) an 81.0% interest from January 1, 2007, to January 8, 2007; (2) a 77.4% interest from January 9, 2007, to November 30, 2007; (3) an 88.7% interest from December 1, 2007, to February 21, 2008; and (4) an 88.9% interest from February 22, 2008, through June 30, 2008. The Company accounts for the percentage interest in APC that it does not own as a minority interest.

     All significant intercompany accounts and transactions have been eliminated in consolidation.

     Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The Company believes the critical accounting policies that require the most significant assumptions and judgments in the preparation of its consolidated financial statements include: purchase accounting; valuation of the Company’s equity securities prior to the Company’s initial public offering; accounting for and analysis of potential impairment of goodwill, other intangible assets and other long-lived assets; accounting for share-based compensation; income tax accounting; and allowances for doubtful accounts.

     New Accounting Pronouncements: In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Issued in February 2008, FSP 157-1 “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” removed leasing transactions accounted for under Statement 13 and related guidance from the scope of SFAS No. 157. FSP 157-2 “Partial Deferral of the Effective Date of Statement 157” (FSP 157-2), deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.

     The implementation of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008, did not have a material impact on the Company’s consolidated financial position and results of operations. The

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

Company is currently assessing the impact of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities on its consolidated financial position and results of operations.

     SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

		Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities
		Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or
				Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
				Inputs other than quoted prices that are observable for the asset or liability
		Level 3		Unobservable inputs for the asset or liability

     The Company endeavors to use the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has determined that its financial liabilities are level 2 in the fair value hierarchy. As of June 30, 2008, the Company’s only financial liabilities accounted for at fair value on a recurring basis were its interest rate swaps, included in deferred revenue and other liabilities at $1.2 million.

     The Company is exposed to market risks related to interest rates. Other types of market risk, such as foreign currency risk, do not arise in the normal course of its business activities. The Company’s exposure to changes in interest rates is limited to borrowings under its credit facility. However, as of June 30, 2008, the Company had swap arrangements that convert $40.0 million of its variable rate term loan into a fixed rate obligation. Under its bank credit facility, the Company is required to enter into derivative financial instrument transactions, such as swaps or interest rate caps, in order to manage or reduce its exposure to risk from changes in interest rates. The Company does not enter into derivatives or other financial instrument transactions for speculative purposes. The interest rate swaps are valued using market interest rates. As such, these derivative instruments are classified within level 2.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits an entity to choose, at specified election dates, to measure eligible financial instruments and certain other items at fair value that are not currently required to be measured at fair value. An entity must report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected must be recognized in earnings as incurred and not deferred. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 was effective beginning January 1, 2008 for the Company. At the effective date, an entity may elect the fair value option for eligible items that exist at that date. The entity must report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings. The Company has not elected the fair value option for eligible items that existed as of January 1, 2008.

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which changes how the Company will account for business acquisitions. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration);

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, SFAS No. 141R is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008. The Company is currently evaluating the future impacts and disclosure requirements of this standard.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” which establishes new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability; that increases and decrease in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires changes to certain presentation and disclosure requirements. For the Company, SFAS No. 160 is effective beginning January 1, 2009. The provisions of the standard are to be applied to all NCIs prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively to all periods presented. The Company is currently evaluating the future impacts and disclosures requirements of this standard.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.” The Statement requires companies to provide enhanced disclosures regarding derivative instruments and hedging activities. It requires companies to better convey the purpose of derivative use in terms of the risks that the company is intending to manage. Disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows are required. This Statement retains the same scope as SFAS No. 133 and is effective beginning January 1, 2009 for the Company. The Company is currently evaluating the impact, if any, that the adoption of this Statement will have on the Consolidated Financial Statements of the Company.

     In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007), “Business Combinations,” and other U.S. generally accepted accounting principles (GAAP). FSP 142-3 is effective for the Company beginning January 1, 2009. The Company is currently evaluating the impact, if any, that the adoption of this Statement will have on the Consolidated Financial Statements of the Company.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This statement documents the hierarchy of the various sources of accounting principles and the framework for selecting the principles used in preparing financial statements. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. SFAS 162 will not have a material impact on the Consolidated Financial Statements of the Company.

Note 2. Basic and Diluted Income (Loss) Per Share

     Basic per share amounts are computed, generally, by dividing net income (loss) by the weighted-average number of common shares outstanding. At June 30, 2007, the Company had shares of Series A and Series C preferred stock issued and outstanding. There were no shares of preferred stock issued and outstanding at June 30, 2008 because all issued and outstanding shares of Series C preferred stock were converted into shares of Series A preferred stock, Series B preferred stock and common stock in connection with the consummation of the Company’s initial public offering on August 7, 2007. Also, at that time, the Company redeemed all outstanding shares of preferred stock, including shares of Series A and Series B preferred stock issued upon conversion of the Series C preferred stock.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

     See Note 7 for more information about the conversion of the Series C preferred stock and the redemption of preferred stock in connection with the Company’s initial public offering. The Company believes that, prior to its conversion, the Series C preferred stock was a participating security because the holders of the convertible preferred stock participated in any dividends paid on its common stock on an as converted basis. Consequently, the two-class method of income allocation was used in determining net income (loss), except during periods of net losses, for the three and six months ended June 30, 2007. Under this method, net income (loss) is allocated on a pro rata basis to the common and Series C preferred stock to the extent that each class may share in income for the period had it been distributed. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments (see Note 11 for information on stock options) unless their effect is anti-dilutive.

     The following table computes basic and diluted net income (loss) per share (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net income (loss)		$	4,397			$	(21,858	)		$	8,404			$	(49,644	)
Basic:
Weighted average common shares outstanding			25,116				9,324				25,101				9,324
Weighted average common shares of unvested restricted stock			(180	)			—				(165	)			—
Shares used in the computation of basic net income (loss) per share			24,936				9,324				24,936				9,324
Net income (loss) per share — basic		$	0.18			$	(2.34	)		$	0.34			$	(5.32	)
Diluted:
Shares used in the computation of basic net income (loss) per share			24,936				9,324				24,936				9,324
Stock options			371				—				310				—
Shares used in the computation of dilutive net income (loss) per share			25,307				9,324				25,246				9,324
Net income (loss) per share — diluted		$	0.17			$	(2.34	)		$	0.33			$	(5.32	)

     For the three and six months ended June 30, 2008 and 2007, options to purchase approximately 236,000, 123,000, 126,000, and 126,000 weighted shares of common stock, respectively, were excluded from the diluted computation because their effect would have been anti-dilutive.

Note 3. Acquisitions

     The Company accounts for acquisitions under the purchase method of accounting, in accordance with SFAS No. 141, “Business Combinations.” Management is responsible for determining the fair value of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets acquired and liabilities assumed represent management’s estimate of fair values. Management determines valuations through a combination of methods which include internal rate of return calculations, discounted cash flow models, outside valuations and appraisals and market conditions. The Company consummated the acquisitions described below during the six months ended June 30, 2008. The results of the acquisitions are included in the accompanying interim condensed consolidated statement of operations from the respective acquisition dates forward.

     Legal and Business Publishers, Inc.: On February 13, 2008, the Company acquired the assets of Legal and Business Publishers, Inc., which include The Mecklenburg Times, an 84-year old court and commercial publication located in Charlotte, North Carolina, and electronic products, including www.mecktimes.com and www.mecklenburgtimes.com. The Company paid $3.3 million in cash for the assets, consisting of $2.8 million paid at the closing date, plus an additional $500,000 the Company paid on May 13, 2008 in accordance with the terms of the purchase agreement. In addition, the Company incurred acquisition costs of approximately $80,000. Under the terms of its agreement with Legal and Business Publishers, the Company may be obligated to pay up to an additional $500,000 in the aggregate based upon the revenues it earns from the assets during the six-month and twelve-month periods following the closing of this acquisition. The Company will account for these cash payments, if made, as additional purchase price. These assets are a part of the Company’s Business Information segment.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

     Of the $3.3 million of acquired intangibles, the Company has preliminarily allocated $0.6 million to newspaper trade names/mastheads, which is being amortized over 30 years, and $2.7 million to advertising customer lists, which is being amortized over 10 years. The Company has engaged an independent third-party valuation firm to assist it in estimating the fair value of the finite-lived intangible assets and this valuation is not yet complete.

     Wilford & Geske: On February 22, 2008, APC, a majority owned subsidiary of the Company, acquired the mortgage default processing services business of Wilford & Geske, a Minnesota law firm, for $13.5 million in cash. In addition, the Company incurred acquisition costs of approximately $0.2 million. APC may be obligated to pay up to an additional $2.0 million in purchase price depending upon the adjusted EBITDA for this business during the twelve months ending March 31, 2009. In connection with the acquisition of the mortgage default processing services business of Wilford & Geske, APC appointed the managing attorneys of Wilford & Geske as executive vice presidents of APC. These assets are part of the Company’s Professional Services segment.

     In conjunction with this acquisition, APC entered into a services agreement with Wilford & Geske that provides for the exclusive referral of files from the law firm to APC for processing for an initial term of fifteen years, with such term to be automatically extended for up to two successive ten year periods unless either party elects to terminate the term then-in-effect with prior notice. Under the agreement, APC is paid a fixed fee for each foreclosure, bankruptcy, eviction, and, to a lesser extent, litigation, reduced redemption and torrens action case file for residential mortgages that are in default referred by Wilford & Geske for processing. The fixed fee per file increases on annual basis to account for inflation as measured by the consumer price index.

     Of the $13.6 million of acquired intangibles, the Company has preliminarily allocated $11.7 million to a long-term service agreement, which is being amortized over 15 years, representing its initial contractual term. The Company preliminarily allocated the remaining $1.9 million of the purchase price to goodwill. The goodwill is tax deductible and was allocated to the Professional Services segment of the Company. The Company has engaged an independent third-party valuation firm to assist in estimating the fair value of the identified intangibles and this valuation is not yet complete. The Company paid a premium over the fair value of the net tangible and identified intangible assets acquired in the acquisition (i.e., goodwill) because the acquired business is a complement to APC and the Company anticipated cost savings and revenue synergies through combined general and administrative and corporate functions.

     Minnesota Political Press: On March 14, 2008, the Company acquired the assets of Minnesota Political Press, Inc. and Quadriga Communications, LLC, which includes the publication, Politics in Minnesota, for a purchase price of $285,000 plus acquisition costs of approximately $49,000. The entire purchase price has preliminarily been allocated to a customer list, which is being amortized over two years. These assets are part of the Company’s Business Information segment.

     Midwest Law Printing Co., Inc.: On June 30, 2008, the Company acquired the assets of Midwest Law Printing Co., Inc., which provides printing and appellate services in Chicago, Illinois. The Company paid $600,000 in cash for the assets at closing. Acquisition costs associated with this purchase were immaterial. The Company is also obligated to pay the seller $75,000 on the first anniversary of closing, which was held back to secure indemnification claims. The Company may be obligated to pay the seller up to an additional $225,000 in three annual installments of up to $75,000 each based upon the revenues it earns from the assets in each of the three years following closing. The purchase price has been preliminarily allocated to a customer list, which is being amortized over seven years, and working capital in the amount of $25,000. These assets are part of the Company’s Professional Services segment.

     The following table provides further unaudited information on the Company’s preliminary purchase price allocations for the aforementioned 2008 acquisitions. The purchase price allocation of each acquisition is preliminary pending completion of the final valuation of intangible assets associated with those transactions. These preliminary allocations of purchase price are as follows (in thousands):

														Midwest
		Legal and								MN				Law
		Business				Wilford &				Political				Printing
		Publishers				Geske				Press				Co., Inc.				Total
Assets acquired and liabilities assumed at their fair values:
Working capital		$	—			$	—			$	—			$	25			$	25
Property and equipment			50				122				—				—				172
APC long-term service contract			—				11,664				—				—				11,664
Other finite-life intangible assets			3,282				—				334				650				4,266
Goodwill			—				1,899				—				—				1,899
Total consideration, including direct expenses		$	3,332			$	13,685			$	334			$	675			$	18,026

     Pro Forma Information (unaudited): Actual results of operations of the companies acquired in 2008 and 2007 are included in the unaudited condensed consolidated interim financial statements from the dates of acquisition. The unaudited pro forma condensed consolidated statement of operations of the Company, set forth below, gives effect to the following acquisitions: (1) the assets of Midwest Law Printing Co., Inc. acquired in June 2008, (2) the mortgage default processing services business of Wilford & Geske acquired in February 2008, (3) the assets of Legal & Business Publishers, Inc. acquired in February 2008, (4) the purchase of minority interests in APC from Trott & Trott and Feiwell & Hannoy in November 2007, (5) the assets of Venture Publications, Inc. acquired in March 2007, and (6) the mortgage default processing services business of Feiwell & Hannoy acquired in January 2007, using the purchase method as if the acquisitions occurred on January 1, 2007. We did not include the acquisition of the assets of Minnesota Political Press, Inc. and Quadriga Communications, LLC because their impact on the Company’s financial statements would be immaterial. These amounts are not necessarily indicative of the consolidated results of operations for future years or actual results that would have been realized had the acquisitions occurred as of the beginning of each such year. Amounts in this table are in thousands, except per share data.

		Pro Forma
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Total revenues		$	41,735			$	39,083			$	84,388			$	77,732
Net income (loss)			4,412				(21,439	)			8,544				(48,700	)
Net income (loss) per share:
Basic		$	0.18			$	(2.30	)		$	0.34			$	(5.22	)
Diluted		$	0.17			$	(2.30	)		$	0.34			$	(5.22	)
Pro forma weighted average shares outstanding:
Basic			24,936				9,324				24,936				9,324
Diluted			25,307				9,324				25,246				9,324

Note 4. Investments

     Investments consisted of the following at June 30, 2008 and December 31, 2007 (in thousands):

		Accounting				Percent				June 30,				December 31,
		Method				Ownership				2008				2007
The Detroit Legal News Publishing, LLC		Equity					35			$	17,105			$	17,579
GovDelivery, Inc.		Cost					15				900				900
Total										$	18,005			$	18,479

     The Detroit Legal News Publishing, LLC: The Company owns a 35% membership interest in The Detroit Legal News Publishing, LLC, or DLNP. The Company accounts for this investment using the equity method. Under DLNP’s membership operating agreement, the Company receives quarterly distributions based on its ownership percentage.

     The difference between the Company’s carrying value and its 35% share of the members’ equity of DLNP relates principally to an underlying customer list at DLNP that is being amortized over its estimated economic life through 2015.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

     The following tables summarize certain key information relative to the Company’s investment in DLNP as of June 30, 2008 and December 31 2007, and for the three and six months ended June 30, 2008 and 2007 (in thousands):

		As of June 30,				As of December 31,
		2008				2007
Carrying value of investment		$	17,105			$	17,579
Underlying finite-lived customer list, net of amortization			11,183				11,937

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Equity in earnings of DLNP, net of amortization of customer list		$	1,469			$	1,330			$	3,026			$	2,245
Distributions received			2,100				1,400				3,500				2,800
Amortization expense			377				358				754				718

     DLNP publishes one daily and nine weekly court and commercial newspapers located in southeastern Michigan. Summarized financial information for DLNP for the three and six months ended June 30, 2008 and 2007 is as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues		$	12,031			$	10,019			$	24,436			$	19,089
Cost of revenues			4,797				3,649				9,539				7,512
Gross profit			7,234				6,370				14,897				11,577
Selling, general and administrative expenses			1,934				1,531				4,051				3,099
Operating income			5,300				4,839				10,846				8,478
Net income		$	5,273			$	4,823			$	10,800			$	8,465
Company’s 35% share of net income		$	1,846			$	1,688			$	3,780			$	2,963
Less amortization of intangible assets			377				358				754				718
Equity in earnings of DLNP, LLC		$	1,469			$	1,330			$	3,026			$	2,245

     GovDelivery, Inc.: In addition to the Company’s 15% ownership of GovDelivery, James P. Dolan, the Company’s Chairman, Chief Executive Officer and President personally owns 50,000 shares of GovDelivery, Inc. He also served as a member of GovDelivery’s board of directors until his resignation in March 2008. The Company accounts for its investment in GovDelivery using the cost method of accounting.

Note 5. Goodwill and Finite-life Intangible Assets

     Goodwill: Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to acquired tangible and identified intangibles assets and assumed liabilities. Identified intangible assets represent assets that lack physical substance but can be distinguished from goodwill.

     The following table represents the balances as of June 30, 2008 and December 31, 2007 and changes in goodwill by segment for the six months ended June 30, 2008 (in thousands):

		Business				Professional
		Information				Services				Total
Balance as of December 31, 2007		$	58,632			$	20,412			$	79,044
Venture Publications, Inc.*			600				—				600
American Processing Company (Wilford & Geske)			—				1,899				1,899
Balance as of June 30, 2008		$	59,232			$	22,311			$	81,543

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

     Finite-Life Intangible Assets: Total amortization expense for finite-life intangible assets for the three months ended June 30, 2008 and 2007 was approximately $2.3 million and $1.9 million, respectively. Total amortization expense for finite-life intangible assets for the six months ended June 30, 2008 and 2007 was approximately $4.5 million and $3.7 million, respectively.

Note 6. Long-Term Debt, Capital Lease Obligation

     At June 30, 2008 and December 31, 2007, long-term debt consisted of the following (in thousands):

		June 30,				December 31,
		2008				2007
Senior secured debt (see below):
Senior variable-rate term note, payable in quarterly installments with a balloon payment due August 8, 2014		$	72,188			$	48,750
Senior variable-rate revolving note			—				9,000
Total senior secured debt			72,188				57,750
Unsecured note payable			1,644				3,290
Capital lease obligations			6				10
			73,838				61,050
Less current portion			6,526				4,749
Long-term debt, less current portion		$	67,312			$	56,301

     Senior Secured Debt: At June 30, 2008, the Company and its consolidated subsidiaries had a credit agreement with U.S. Bank, NA and other syndicated lenders, referred to collectively as U.S. Bank, for a $200.0 million senior secured credit facility comprised of a term loan facility in an initial aggregate amount of $50.0 million due and payable in quarterly installments with a final maturity date of August 8, 2014 and a revolving credit facility in an aggregate amount of up to $150.0 million with a final maturity date of August 8, 2012. At June 30, 2008, the credit facility was governed by the terms and conditions of a Second Amended and Restated Credit Agreement dated August 8, 2007. In accordance with the terms of this credit agreement, if at any time the outstanding principal balance of revolving loans under the revolving credit facility exceeds $25.0 million, such revolving loans will convert to an amortizing term loan due and payable in quarterly installments with a final maturity date of August 8, 2014. The Company and U.S. Bank amended the terms of the credit agreement after June 30, 2008. See Note 13 for information about an amendment to the credit facility occurring after June 30, 2008.

     During the three months ended June 30, 2008, the Company made no draws on its credit facility. During the six months ended June 30, 2008, the Company drew $16.0 million, which funded the acquisitions of the assets of Legal & Business Publishers, Inc. and the mortgage default processing services business of Wilford & Geske and general working capital needs. In March 2008, the Company converted $25.0 million of the revolving loans then-outstanding under the credit facility to term loans. The term loans, including those issued as a result of this conversion, have a maturity date of August 8, 2014. At June 30, 2008, the Company had net unused available capacity of approximately $125.0 million on its revolving credit facility, after taking into account the senior leverage ratio requirements under the credit facility. At June 30, 2008, the weighted-average interest rate on the senior term note was 6.0%.

     Unsecured Note Payable: On January 9, 2008, APC made a $1.75 million payment to Feiwell & Hannoy on a $3.5 million non-interest bearing promissory note APC issued in connection with the acquisition of the mortgage default processing services business of Feiwell & Hannoy in January 2007. The second installment of $1.75 million is due January 9, 2009.

Note 7. Common and Preferred Stock

     At June 30, 2008, the Company had 70,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized and 25,131,282 shares of common stock and no shares of preferred stock outstanding. All authorized shares of preferred stock are undesignated. Please refer to Note 13 for changes in our outstanding shares occurring after June 30, 2008.

     In connection with the Company’s initial public offering on August 7, 2007, the Company effected a 9 for 1 stock split of the Company’s outstanding shares of common stock through a dividend of 8 shares of common stock for

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

each share of common stock outstanding immediately prior to the consummation of the initial public offering. At the time of the initial public offering, the Company’s preferred stock was divided into Series A, Series B and Series C preferred stock. In connection with the initial public offering, the Company converted all outstanding shares of Series C preferred stock into shares of Series A preferred stock, Series B preferred stock and common stock. The Company then used $101.1 million of the net proceeds of the initial public offering to redeem all of the outstanding shares of Series A preferred stock (including all accrued and unpaid dividends and shares issued upon conversion of the Series C preferred stock) and Series B preferred stock (including shares issued upon conversion of the Series C preferred stock). As a result of the redemption, there are no shares of preferred stock issued and outstanding as of June 30, 2008 or December 31, 2007. Accordingly, the Company did not record any non-cash interest expense related to its preferred stock for the three or six months ended June 30, 2008.

Note 8. Income Taxes

     The provision of income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. For the six months ended June 30, 2008 and 2007, the Company used an effective tax rate of 41% and 38%, respectively, based on its annual projected income in accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” (“APB No. 28”) Pursuant to the principles of APB No. 28 and FASB Interpretation No. 18 (as amended) “Accounting for Income Taxes in Interim Periods, an Interpretation of APB Opinion No. 28,” the Company treated the dividend accretion deduction reflected in its ordinary income in the six months ended June 30, 2007, as an unusual item in computing its annual effective tax rate. This deduction was associated with the Company’s non-cash interest expense related to its Series C preferred stock, shares of which were outstanding until August 7, 2007. See Note 7 for more information about the conversion and redemption of the Series C preferred stock in connection with the Company’s initial public offering.

     The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”),” on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, the Company had $197,000 of gross unrecognized tax benefits, or $153,000 of unrecognized tax benefits, including interest and net of federal benefit. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, was $171,000 as of December 31, 2007. There were no significant adjustments for the unrecognized income tax benefits for the six months ended June 30, 2008.

     During the second quarter of 2008, the Internal Revenue Service commenced an audit of the Company’s federal tax returns for the year ended December 31, 2005. At this time, the IRS is still auditing the Company’s tax returns and has not issued any adjustments. The Company does not believe any adjustments, if issued, would have a material impact on its financial position.

Note 9. Major Customers and Related Parties

     As of June 30, 2008, APC, the Company’s majority owned subsidiary, had three customers, Trott & Trott, Feiwell & Hannoy, and Wilford & Geske. APC has fifteen-year service contracts with each of these customers, expiring in 2021, 2022, and 2023, respectively, which renew automatically for up to two successive ten year periods unless either party elects to terminate the term then-in-effect, upon prior written notice. These three customers pay APC monthly for its services. See Note 13 for information about changes in APC’s customers, which may occur after June 30, 2008.

     David A. Trott, president of APC, is also the managing attorney of Trott & Trott and owns a majority of Trott & Trott. Trott & Trott is a related party. Trott & Trott owned a 9.1% interest in APC until February 2008, when it assigned its interest in APC to APC Investments, LLC, a limited liability company owned by the shareholders of Trott & Trott, including Mr. Trott and APC’s two executive vice presidents in Michigan. Together, these three individuals own 98% of APC Investments. APC also pays Net Director, LLC and American Servicing Corporation for services provided to APC. Mr. Trott has an 11.1% and 50% ownership interest in Net Director and American Servicing Corporation, respectively. In the first quarter of 2008, APC and Trott & Trott agreed to increase the fixed fee per file APC receives for each mortgage foreclosure, bankruptcy, eviction, litigation and other mortgage default file Trott & Trott refers to APC for processing under APC’s service agreement with Trott & Trott. APC also agreed

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

to extend the payment terms from 30 to 45 days. Mr. Trott and his family members own 80.0% of Legal Press, LLC, which owns 10.0% of the outstanding membership interests of DLNP, in which the Company owns a 35.0% interest. In addition, Mr. Trott serves as a consultant to DLNP under a consulting agreement and Trott & Trott has an agreement with DLNP to publish its foreclosure notices in DLNP’s publications.

     At January 1, 2008, Feiwell & Hannoy owned a 2.3% interest in APC. Its interest in APC was diluted to 2.0% in connection with the acquisition of the mortgage default processing services business of Wilford & Geske. See Note 3 for more information about the Company’s acquisition of the mortgage default processing business of Wilford & Geske. In connection with this acquisition, APC made a capital call in which Feiwell & Hannoy declined to participate. The Company contributed Feiwell & Hannoy’s portion of the capital call to APC. Michael J. Feiwell and Douglas J. Hannoy, senior executives of APC in Indiana, are shareholders and principal attorneys of Feiwell & Hannoy.

     APC Investments and Feiwell & Hannoy’s interests in APC are expected to be diluted after June 30, 2008 as a result of the acquisition of NDEx described in Note 13.

Note 10. Reportable Segments

     The Company’s two reportable segments consist of its Business Information Division and its Professional Services Division. The Company determined its reportable segments based on the types of products sold and services performed. The Business Information Division provides business information products through a variety of media, including court and commercial newspapers, weekly business journals and the Internet. The Business Information Division generates revenues from display and classified advertising, public notices, circulation (primarily consisting of subscriptions) and sales from commercial printing and database information. At June 30, 2008, the Professional Services Division comprised two operating units providing support to the legal market. These are Counsel Press, LLC, which provides appellate services, and American Processing Company (APC), which provides mortgage default processing services. Both of these operating units generate revenues through fee-based arrangements. In addition, the Company reports and allocates certain administrative activities as part of corporate-level expenses.

     The tables below reflect summarized financial information concerning the Company’s reportable segments for the three and six months ended June 30, 2008 and 2007 (in thousands):

		Three Months Ended June 30, 2008
		Business				Professional
		Information				Services				Corporate				Total
Revenues		$	23,424			$	18,129			$	—			$	41,553
Direct operating expenses			8,152				6,436				—				14,588
Selling, general and administrative expenses			10,203				4,585				1,944				16,732
Amortization and depreciation			1,230				2,083				195				3,508
Equity in Earnings of DLNP, LLC			1,469				—				—				1,469
Operating income (loss)		$	5,308			$	5,025			$	(2,139	)		$	8,194

		Three Months Ended June 30, 2007
		Business				Professional
		Information				Services				Corporate				Total
Revenues		$	21,588			$	15,467			$	—			$	37,055
Direct operating expenses			7,060				5,273				—				12,333
Selling, general and administrative expenses			8,712				4,323				2,625				15,660
Amortization and depreciation			1,097				1,545				118				2,760
Equity in Earnings of DLNP, LLC			1,330				—				—				1,330
Operating income (loss)		$	6,049			$	4,326			$	(2,743	)		$	7,632

		Six Months Ended June 30, 2008
		Business				Professional
		Information				Services				Corporate				Total
Revenues		$	46,196			$	36,869			$	—			$	83,065
Direct operating expenses			15,724				12,747				—				28,471
Selling, general and administrative expenses			19,825				9,242				3,769				32,836
Amortization and depreciation			2,388				4,065				374				6,827
Equity in Earnings of DLNP, LLC			3,026				—				—				3,026
Operating income (loss)		$	11,285			$	10,815			$	(4,143	)		$	17,957

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

		Six Months Ended June 30, 2007
		Business				Professional
		Information				Services				Corporate				Total
Revenues		$	41,068			$	31,682			$	—			$	72,750
Direct operating expenses			13,879				10,898				—				24,777
Selling, general and administrative expenses			16,752				8,386				3,850				28,988
Amortization and depreciation			2,140				2,989				230				5,359
Equity in Earnings of DLNP, LLC			2,245				—				—				2,245
Operating income (loss)		$	10,542			$	9,409			$	(4,080	)		$	15,871

Note 11. Share-Based Compensation

     The Company applies SFAS 123(R) “Share-Based Payment,” which requires compensation cost relating to share-based payment transactions to be recognized in the financial statements based on the estimated fair value of the equity or liability instrument issued. The Company uses the Black-Scholes option pricing model in deriving the fair value estimates of share-based awards. All inputs into the Black-Scholes model are estimates made at the time of grant. The Company used the SAB 107 “Share-Based Payment” simplified method to determine the expected life of options it had granted. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant. The Company also made assumptions with respect to expected stock price volatility based on the average historical volatility of a select peer group of similar companies. Stock-based compensation expense related to restricted stock is based on the grant date price and is amortized over the vesting period. Forfeitures of share-based awards are estimated at time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures were estimated based on the percentage of awards expected to vest, taking into consideration the seniority level of the award recipients. The Company has assumed a ten percent forfeiture rate on all restricted stock awards issued to non-management employees, and a zero percent forfeiture rate on all stock option and restricted stock awards issued to management employees and directors. Total share-based compensation expense for the three months ended June 30, 2008 and 2007, was approximately $393,000 and $11,000, respectively, before income taxes. Total share-based compensation expense for the six months ended June 30, 2008 and 2007, was approximately $792,000 and $21,000, respectively, before income taxes.

     The Company has reserved 2,700,000 shares of its common stock for issuance under its incentive compensation plan, of which there were 1,125,666 shares available for issuance under the plan as of June 30, 2008.

     Stock Options: Share-based compensation expense related to grants of options under SFAS 123(R) for the three months ended June 30, 2008 and 2007, was approximately $287,000 and $11,000, respectively, before income taxes and for the six months ended June 30, 2008 and 2007, was approximately $553,000 and $21,000, respectively, before income taxes.

     The following weighted average assumptions were used to estimate the fair value of stock options granted in 2008:

Dividend yield			0.0	%
Expected volatility			28.0	%
Risk free interest rate			3.0	%
Expected term of options		4.75 years
Weighted average grant date fair value		$	4.89

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

     The following table represents stock option activity for the six months ended June 30, 2008:

						Weighted				Weighted				Weighted Average
		Number of				Average Grant				Average				Remaining
		Shares				Date Fair Value				Exercise Price				Contractual Life
Outstanding options at December 31, 2007			992,667			$	4.34			$	13.03			6.87 Yrs.
Granted			419,056				4.89				16.52				—
Exercised			—				—				—				—
Canceled or forfeited			(51,516	)			4.75				14.64				—
Outstanding options at June 30, 2008			1,360,207			$	4.49			$	14.04			6.54 Yrs.
Options exercisable at June 30, 2008			63,000			$	1.35			$	2.22			8.29 Yrs.

     At June 30, 2008, the aggregate intrinsic value of options outstanding was approximately $5.7 million, and the aggregate intrinsic value of options exercisable was approximately $1.0 million. At June 30, 2008, there was approximately $5.0 million of unrecognized compensation cost related to outstanding options, which is expected to be recognized over a weighted-average period of 3.4 years.

     Restricted Stock Grants: A summary of our nonvested restricted stock activity for the six months ended June 30, 2008, was as follows:

						Weighted
						Average
		Number				Grant Date
		of Shares				Fair Value
Nonvested, December 31, 2007			152,789			$	14.68
Granted			54,139				16.52
Vested			(603	)			15.05
Canceled or forfeited			(11,575	)			15.03
Nonvested, June 30, 2008			194,750			$	15.17

     Share-based compensation expense related to grants of restricted stock for the three and six months ended June 30, 2008 was approximately $106,000 and $239,000, respectively, before income taxes. There was no comparable expense for the three and six months ended June 30, 2007 because the Company had no outstanding restricted stock during those periods. Total unrecognized compensation expense for unvested restricted shares of common stock as of June 30, 2008 was approximately $2.4 million, which is expected to be recognized over a weighted-average period of 3.4 years.

Note 12. Contingencies and Commitments

     From time to time, the Company is subject to certain claims and lawsuits that have arisen in the ordinary course of its business. Although the outcome of such existing matters cannot presently be determined, it is management’s opinion that the ultimate resolution of such existing matters will not have a material adverse effect on the Company’s results of operations or financial position.

Note 13. Subsequent Events

     Equity Purchase Agreement-NDEx Acquisition: On July 28, 2008, the Company and APC signed an equity purchase agreement to acquire all of the outstanding equity interests in National Default Exchange Management, Inc., National Default Exchange Holdings, L.P., THP/NDEx AIV, Corp., and THP/NDEx AIV, LP (all of such entities referred to collectively as “NDEx”). NDEx provides mortgage default processing services, primarily for the law firm, Barrett Daffin Frappier Turner & Engel, LLP, in Texas. NDEx also provides these services in California and Georgia and operates a real estate title company.

     Under the terms of the purchase agreement, the Company will pay to the sellers of the equity interest in NDEx $167.5 million in cash, with $151.0 million payable at closing, $15.0 million placed into escrow to secure payment

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

of indemnification claims, and $1.5 million held back for working capital adjustments. In addition, the Company may be obligated to pay up to an additional $13.0 million based upon the adjusted EBITDA for NDEx during the first twelve months following the closing of the acquisition. If the adjusted EBITDA for NDEx equals or exceeds $28.0 million during such twelve-month period, the Company will pay the sellers the maximum $13.0 million earnout payment.

     At closing, APC will also issue to the sellers, or their designees, an aggregate 6.1% interest in APC (the “APC Interests”). At July 28, 2008, the APC Interests had an agreed upon fair market value of approximately $11.6 million. The APC Interests, when issued, will include put rights and other terms consistent with the existing minority interests in APC owned by APC Investments, LLC (an affiliate of Trott & Trott P.C.) and Feiwell & Hannoy Professional Corporation. Please refer to “Minority Interest in Net Income of Subsidiary” for more information about this existing right of the minority members. As a result of this acquisition, the Company expects its interest in APC will be diluted from 88.9% to 84.7% of the total outstanding interests in APC.

     In addition, the Company will also issue to the sellers, or their designees, 825,528 unregistered shares of its common stock, having a fair market value of $15.9 million based upon the daily last reported closing price for a share of the Company’s common stock on the 20 consecutive trading days immediately preceding the signing of the equity purchase agreement through, and including, July 25, 2008.

     Upon the closing of the acquisition, the Company expects to allocate substantially all of the acquired intangibles to the long term services agreements described below.

     The closing of this acquisition is conditioned upon (a) NDEx entering into a long-term services agreement with Barrett, Daffin, Frappier, Turner & Engel, LLP and, if applicable, affiliated law firms for the exclusive referral of mortgage default, foreclosure, litigation, bankruptcy and other mortgage default related files for processing, (b) termination of the waiting period under the Hart-Scott-Rodino Act, (c) the shares of common stock issued in the acquisition being listed on the New York Stock Exchange, and (d) satisfaction or waiver of other customary closing conditions. Upon completion of the acquisition, which the Company expects will occur during the third quarter of 2008, NDEx will become a subsidiary of APC and Michael Barrett will serve as president and chairman emeritus of NDEx.

          The Company expects to use all of the net proceeds from the sale of the shares in the private placement (as described below), along with approximately $105.0 million in debt from its credit facility and other available cash for the remaining balance, to finance the cash purchase price for NDEx.

     Securities Purchase Agreement-Private Placement: Also, on July 28, 2008, the Company signed a securities purchase agreement with 24 accredited investors consisting of funds and investment accounts managed or advised by TCS Capital Management, LLC, T. Rowe Price Associates, Inc., GLG Partners, L.P., Polar Securities, Inc., William Blair & Company, LLC or Shannon River Partners to sell an aggregate of 4,000,000 unregistered shares of the Company’s common stock for $16.00 per share. This sale closed on July 30, 2008.

     In connection with this securities purchase agreement, the Company is obligated to file a registration statement covering the re-sale of the privately placed shares and to use its reasonable best efforts to cause the registration statement to be effective within 120 days of the closing. If the registration statement is not declared effective within 120 days of the closing and in certain other limited cases, the Company has agreed to pay the investors a cash penalty equal to 0.25% of each investor’s original purchase price for the shares still held by such investor each week until the registration statement is effective or such investor’s shares can be sold without registration or volume limitations under Rule 144 of the Securities Act. This cash penalty is capped at 8.0% of each investor’s original purchase price for the shares still held by such investor.

     The Company received net proceeds of approximately $60.5 million from this private placement, all of which it intends to apply to the purchase of NDEx (described above).

     Allen & Co, LLP and Craig Hallum Capital Group, LLC served as exclusive placement agents for this private placement. The Company has paid these placement agents $3.2 million, 5.0% of the total offering price of $64.0

Dolan Media Company
Notes to Unaudited Condensed Consolidated Interim Financial Statements

million. In addition, the Company has reimbursed Allen & Co., LLP and Craig Hallum Capital Group, LLC $84,614 and $22,508, respectively, for their expenses.

     First Amendment to Second Amended and Restated Credit Agreement: Also, on July 28, 2008, the Company and its consolidated subsidiaries signed a First Amendment to the Second Amended and Restated Credit Agreement with the syndicate of lenders who are party to that agreement. In addition to approving the acquisition of NDEx and waiving the requirement that the Company use 50% of the proceeds from the private placement to pay down indebtedness under the credit facility (both described above), the amendment (1) reduces the senior leverage ratio the Company and its consolidated subsidiaries are required to maintain as of the last day of each fiscal quarter from no more than 4.50 to 1.00 to no more than 3.50 to 1.00 and (2) increases the interest rate margins charged on the loans under the credit facility. While the amendment is effective as of July 28, 2008, if certain conditions subsequent are not satisfied by September 30, 2008, including, without limitation, the closing of the NDEx acquisition and other customary conditions, the amendments described above will cease to have any force or effect and the credit facility will revert back to the existing provisions (except that the Company and its consolidated subsidiaries will not in any event be required to use 50% of the proceeds from the private placement to pay down indebtedness under the credit facility). The Company paid approximately $296,000 in fees in connection with this amendment.

     Shares outstanding: After completion of the transactions described in this Note 13, without accounting for any forfeitures of restricted stock occurring after June 30, 2008 and assuming no other issuances of shares, the Company expects to have approximately 29,956,810 shares outstanding.

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

          We recommend that you read the following discussion and analysis in conjunction with our unaudited condensed consolidated interim financial statements and the related notes included in this report. This discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Forward looking statements are statements such as those contained in projections, plans, objectives, estimates, and anticipated future economic performance, as well as assumptions relating to any of the foregoing. We have based these forward-looking statements on our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “goal,” “continue,” and similar expressions or terminology. These forward-looking statements are based on information currently available to us and are subject to a number of known and unknown risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include:

	•		our business operates in highly competitive markets and depends upon the economies and the demographics of the legal, financial and real estate sectors in the markets we serve and changes in those sectors could have an adverse effect on our revenues, cash flows and profitability;
	•		a decrease in paid subscriptions to our print publications could adversely affect our circulation revenues to the extent we are not able to sufficiently increase our print subscription rates and adversely affect our advertising and display revenues to the extent advertisers begin placing fewer print advertisements with us due to print decreased readership;
	•		we have owned and operated the businesses in our Professional Services Division (APC and Counsel Press) for a short period of time;
	•		APC’s business revenues are very concentrated, as APC currently provides mortgage default processing services to only three customers, Trott & Trott, Feiwell & Hannoy and Wilford & Geske, and if the number of case files referred to APC by these law firm customers decreases or fails to increase, our operating results and ability to execute our growth strategy could be adversely affected;
	•		the key attorneys at each of APC’s three law firm customers are employed by APC and APC’s president, two of its four executive vice presidents and its two senior executives in Indiana hold an indirect equity interest in APC. As a result, these key attorneys may, in certain circumstances, have interests that differ from or conflict with our interests;
	•		regulation of sub-prime, Alt-A and other residential mortgage products, including bills introduced in states where APC does business and the Housing and Economic Recovery Act of 2008, and voluntary foreclosure relief programs developed by the Hope Now Alliance, a consortium that includes loan servicers, may have an adverse effect on or restrict our operations;
	•		a key component of our operating income and operating cash flows has been, and may continue to be, our minority equity investment in The Detroit Legal News Publishing, LLC;
	•		we are dependent on our senior management team, especially James P. Dolan, our founder, Chairman, President and Chief Executive Officer; Scott J. Pollei, our Executive Vice President and Chief Financial Officer; Mark W.C. Stodder, our Executive Vice President Business Information; and David A. Trott, President, APC;
	•		we intend to continue to pursue acquisition opportunities, which we may not complete or integrate successfully into our business and which may subject us to considerable business and financial risks;

	•		growing our business may place a strain on our management and internal systems, processes and controls;
	•		we may not be able to close the acquisition of NDEx on a timely basis or at all;
	•		we will be required to incur additional indebtedness to close the acquisition of NDEx and this additional debt will consume a significant portion of our ability to borrow and may limit our ability to pursue other acquisitions or growth strategies;
	•		as we expect to do for the acquisition of NDEx, we may be required to incur additional indebtedness or raise additional capital to fund acquisitions; and
	•		the acquisition of NDEx may expose us to particular business and financial risks that include, but are not limited to: (1) diverting management’s time, attention and resources from managing the business; (2) incurring significant additional capital expenditures and operating expenses to improve, coordinate or integrate managerial, operational, financial and administrative systems; (3) failing to integrate the operations, personnel and internal controls of NDEx into APC or to manage NDEx or our growth; and (4) facing operational difficulties in new markets or with new product and service offerings.

See “Risk Factors” in Item 1A of our annual report on Form 10-K filed on March 28, 2008 with the Securities Exchange Commission and “Risk Factors” in Part II, Item 1A of our quarterly report on Form 10-Q filed on May 8, 2008 with the SEC and in Part II, Item 1A of this report for a description of these and other risks, uncertainties and factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

          You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

Overview

     We are a leading provider of necessary business information and professional services to legal, financial and real estate sectors in the United States. We serve our customers through two complementary operating segments: our Business Information Division and our Professional Services Division. Our Business Information Division currently publishes 65 print publications consisting of 14 paid daily publications, 30 paid non-daily publications and 21 non-paid non-daily publications. In addition, we provide business information electronically through our 48 on-line publication web sites, our 28 event and other non-publication web sites and our email notification systems. Our Professional Services Division comprises two operating units, APC, which currently provides mortgage default processing services to three law firms, one in Michigan, one in Indiana and one in Minnesota, and Counsel Press, which provides appellate services to law firms and attorneys nationwide. Upon the closing of the acquisition of NDEx described below in “Recent Developments,” APC will provide mortgage default processing services to six law firm customers, as well as directly to mortgage lenders and loan servicers in California, and operate in three new states, California, Georgia and Texas.

Recent Developments

Pending Acquisition of Outstanding Equity Interests of NDEx.

     On July 28, 2008, we signed an equity purchase agreement to acquire all of the outstanding equity interests, or equity interests, in National Default Exchange Management, Inc., National Default Exchange Holdings, L.P., THP/NDEx AIV, Corp., and THP/NDEx AIV, LP (all of such entities referred to collectively as “NDEx”). Under the terms of the purchase agreement, we will pay to the sellers of NDEx $167.5 million in cash, with $151.0 million payable at closing, $15.0 million placed into escrow to secure payment of indemnification claims, and $1.5 million held back for working capital adjustments. In addition, we may be obligated to pay up to an additional $13.0 million in the future based upon the adjusted EBITDA for NDEx during the first twelve months following the closing of the

acquisition. If the adjusted EBITDA for NDEx equals or exceeds $28.0 million during such twelve-month period, we will pay the sellers the maximum $13.0 million earnout payment.

     At closing, APC will also issue to the sellers, or their designees, an aggregate 6.1% interest in APC (the “APC Interests”). As of July 28, 2008, the APC Interests had an agreed upon fair market value of approximately $11.6 million. The APC Interests, when issued, will include put rights and other terms consistent with the existing minority interests in APC owned by APC Investments, LLC (an affiliate of Trott & Trott P.C.) and Feiwell & Hannoy. Please refer to “Minority Interest in Net Income of Subsidiary” for more information about the rights of APC Investments and Feiwell & Hannoy. As a result of this acquisition, we expect our interest in APC will be diluted from 88.9% to 84.7% of the total outstanding membership interests in APC and that APC Investments and Feiwell & Hannoy will hold 7.6% and 1.7%, respectively, of the outstanding membership interests in APC.

     In addition, we will also issue to the sellers, or their designees, 825,528 unregistered shares of our common stock, having a fair market value of $15.9 million based upon the daily last reported closing price for a share of our common stock on the 20 consecutive trading days immediately preceding the signing of the equity purchase agreement through, and including, July 25, 2008.

     Upon the closing of the acquisition, we expect to allocate substantially all of the acquired intangibles to the long term services agreements described below.

     The closing of this acquisition is conditioned upon (a) NDEx entering into a long-term services agreement with the Barrett, Daffin, Frappier, Turner & Engel, LLP (the Barrett Law Firm) and, if applicable, affiliated law firms. for the exclusive referral of mortgage default, foreclosure, litigation, bankruptcy and other mortgage default related files for processing, (b) termination of the waiting period under the Hart-Scott-Rodino Act, (c) the shares of common stock issued in the acquisition being listed on the New York Stock Exchange, and (d) satisfaction or waiver of other customary closing conditions. We made our Hart-Scott-Rodino filings shortly after the signing of the equity purchase agreement.

     We expect to use all of the net proceeds from the sale of the shares in the private placement (as described below), along with approximately $105.0 million in debt from our credit facility and other available cash for the remaining balance, to finance the cash purchase price for NDEx. After the acquisition of NDEx, we expect to have approximately $20.0 million available on our credit facility.

     Much like APC, NDEx provides mortgage default processing services, primarily for the Barrett Law Firm in Texas. Last year, NDEx began providing these services in California directly for mortgage lenders and loan servicers (instead of for a law firm that has such lenders and servicers as clients). Unlike other states, foreclosure and certain other mortgage default processes may be undertaken by non-attorneys in California. NDEx recently started providing mortgage default processing services to the Barrett Law Firm and/or its affiliates for foreclosures and other related files in Georgia.

     In addition to providing mortgage default processing services, NDEx also operates a real estate title company, which we will be acquiring as part of this pending acquisition. This is a new line of business for us and one in which, among our key employees or executive officers, only Dave Trott, president of APC, has any previous experience.

     After closing of this acquisition, NDEx will become a subsidiary of APC. Michael C. Barrett, the current chief executive officer of NDEx, will serve as president and chairman emeritus of NDEx. We expect that two other key executives will remain in similar roles with NDEx. All other NDEx senior executives are expected to remain with the business, although some of them may provide services to the business on a limited basis. In addition, we will add approximately 520 new employees with this acquisition. Like APC, NDEx has its own proprietary case management system. We intend to have NDEx continue to use that system to process mortgage default files after completion of the acquisition and eventually combine this system with the case management system currently used by APC.

Private Placement

     Also, on July 28, 2008, we signed a securities purchase agreement with 24 accredited investors consisting of funds and investment accounts managed or advised by TCS Capital Management, LLC, T. Rowe Price Associates, Inc., GLG Partners, L.P. Polar Securities, Inc., William Blair & Company, LLC or Shannon River Partners to sell an aggregate of 4,000,000 unregistered shares of the Company’s common stock for $16.00 per share. This sale closed on July 30, 2008.

     In connection with this securities purchase agreement, we are obligated to file a registration statement covering the re-sale of the privately placed shares and to use our reasonable best efforts to cause the registration statement to be effective within 120 days of the closing. If the registration statement is not declared effective within 120 days of the closing and in certain other limited cases, we have agreed to pay the investors a cash penalty equal to 0.25% of each investor’s original purchase price for the shares still held by such investor each week until the registration statement is effective or such investor’s shares can be sold without registration and volume limitations under Rule 144 of the Securities Act. This cash penalty is capped at 8.0% of each investor’s original purchase price for the shares still held by such investor.

     We received net proceeds of approximately $60.5 million from this private placement. We plan to apply all of these net proceeds toward the cash purchase price of NDEx (described above).

     Allen & Co, LLP and Craig Hallum Capital Group, LLC served as exclusive placement agents for this private placement. We have paid our placement agents $3.2 million, 5.0% of the total offering price of $64.0 million. In addition, we have reimbursed Allen & Co., LLP and Craig Hallum Capital Group, LLC $84,614 and $22,508, respectively, for their reasonable expenses.

Amendment to Credit Facility

     In connection with the transactions described above, we amended our credit facility with the syndicate of lenders who are party to our second amended restated credit facility. Specifically, on July 28, 2008, we and our consolidated subsidiaries signed a first amendment to the credit facility. In addition to approving the acquisition of NDEx and waiving the requirement that we use 50% of the proceeds from the private placement to pay down indebtedness under the credit facility (both described above), the amendment (1) reduces the senior leverage ratio we and our consolidated subsidiaries are required to maintain as of the last day of each fiscal quarter from no more than 4.50 to 1.00 to no more than 3.50 to 1.00 and (2) increases the interest rate margins charged on the loans under the credit facility. While the amendment is effective as of July 28, 2008, if certain conditions subsequent are not satisfied by September 30, 2008, including, without limitation, the closing of the NDEx acquisition and customary conditions, the amendments described above will cease to have any force or effect and the credit facility will revert back to the existing provisions (except that we and our consolidated subsidiaries will not in any event be required to use 50% of the proceeds from the private placement to pay down indebtedness under the credit facility). We paid approximately $296,000 in fees in connection with this amendment.

Outstanding Shares after Private Placement and NDEx

     After completion of the transactions described above, without accounting for any forfeitures of restricted stock occurring after June 30, 2008 and assuming no other issuances of shares, we expect to have approximately 29,956,810 shares outstanding.

Changes in our Ownership in APC

     On November 30, 2007, we increased our majority ownership interest in APC to 88.7% by acquiring 9.1% and 2.3% of the outstanding membership units in APC from the minority members, Trott & Trott and Feiwell & Hannoy, respectively. We paid a total of $15.6 million for these units, of which we paid $12.5 million to Trott & Trott and $3.1 million to Feiwell & Hannoy. After the acquisition of these membership interests, our minority partners, Trott & Trott and Feiwell & Hannoy, owned 9.1% and 2.3%, respectively, of APC. At the same time, the members of APC amended and restated APC’s operating agreement as it related to the right of Trott & Trott and Feiwell & Hannoy to demand that we acquire their minority interest in APC. Please refer to “Minority Interest in

Net Income of Subsidiary” for more information about this right of the minority members. In connection with the acquisition of mortgage default processing services business of Wilford & Geske in February 2008, APC made a capital call. Feiwell & Hannoy declined to participate in the capital call. We contributed Feiwell & Hannoy’s share of the capital call and, as a result, our interest in APC increased to 88.9% and Feiwell & Hannoy’s decreased to 2.0% of the outstanding membership interests of APC. Also, in February 2008, Trott & Trott assigned its interest in APC to APC Investments, LLC, a limited liability company owned by the shareholders of Trott & Trott, including APC President, David A. Trott. After the consummation of the closing of the acquisition of NDEx (as described above), we expect our ownership interest in APC to decrease to 84.7% as a result of the issuance of APC membership interests to the sellers of NDEx. In addition, we expect that APC Investments and Feiwell & Hannoy will hold 7.6% and 1.7%, respectively, of the outstanding membership interests in APC after the closing of NDEx. The sellers of NDEx will own 6.1% of the outstanding membership interests in APC.

Initial Public Offering

     On August 7, 2007, we completed our initial public offering of 10,500,000 shares of common stock (exclusive of 2,956,522 shares sold by selling stockholders and 2,018,478 shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from certain selling stockholders) at a price of $14.50 per share. We received $137.4 million of net proceeds from the offering, after deducting the underwriters’ discount of $10.7 million and offering expenses of approximately $4.3 million. In connection with our initial public offering, all outstanding shares of our Series C preferred stock, including all accrued and unpaid dividends, converted into shares of Series A preferred stock, Series B preferred stock and an aggregate of 5,093,155 shares of common stock. We used $101.1 million of the net proceeds to redeem all of the outstanding shares of Series A preferred stock (including all accrued and unpaid dividends and shares issued upon conversion of the Series C preferred stock), and Series B preferred stock (including shares issued upon conversion of the Series C preferred stock). As a result of the conversion of Series C preferred stock and the redemption of all preferred stock on August 7, 2007, no shares of our preferred stock remain issued and outstanding.

     Prior to August 7, 2007, when shares of our Series C preferred stock were issued and outstanding, we recorded non-cash interest expense related to mandatorily redeemable preferred stock. Prior to the offering, the valuation of our common stock had a material effect on our operating results because we accounted for our Series C preferred stock, a mandatorily redeemable preferred stock that was convertible into shares of common stock, at fair value. Accordingly, we recorded the increase or decrease in the fair value of our redeemable preferred stock as either an increase or decrease in interest expense at each reporting period. During the three and six months ended June 30, 2007, we recorded the related dividend accretion for the change in fair value of this security of $8.3 million and $25.8 million, respectively, as interest expense. Because all shares of series C preferred stock were redeemed by us on August 7, 2007, we have not recorded any non-cash interest expense related to mandatorily redeemable preferred stock for the three and six months ended June 30, 2008 (or any other periods after August 7, 2007).

     In connection with our initial public offering, we also (1) amended and restated our certificate of incorporation to increase the number of authorized shares of common stock from 2,000,000 to 70,000,000 and preferred stock from 1,000,000 to 5,000,000 and (2) effected a 9 for 1 stock split of our outstanding shares of common stock through a dividend of eight shares of common stock for each share of common stock outstanding immediately prior to the consummation of the initial public offering. All share and per share numbers in this quarterly report on Form 10-Q reflect this stock split for all periods presented.

Recent Acquisitions

     We have grown significantly since our predecessor company commenced operations in 1992, in large part due to acquisitions. We consummated the following acquisitions during the first six months of 2008 and in 2007:

Business Information

     On February 13, 2008, we acquired the assets of Legal and Business Publishers, Inc., which include The Mecklenburg Times, an 84-year old court and commercial publication located in Charlotte, North Carolina, and electronic products, including www.mecktimes.com and www.mecklenburgtimes.com. The Mecklenburg Times serves Mecklenburg County, North Carolina and is also qualified as a legal newspaper in Union County, North

Carolina. We paid $3.3 million in cash for the assets, including $2.8 million paid at closing, plus an additional $500,000 we paid on May 13, 2008 pursuant to the terms of the purchase agreement. Under the terms of our agreement with Legal and Business Publishers, we may be obligated to pay up to an additional $500,000 in the aggregate based upon the revenues we earn from the assets in the six-month and twelve-month periods following the closing of this acquisition.

     On March 30, 2007, we acquired the business information assets of Venture Publications, Inc., consisting primarily of several publications serving Mississippi and an annual business trade show, for $2.8 million in cash. In addition, we paid $600,000 to Venture Publications in April 2008 in connection with the acquired assets achieving certain revenue targets set forth in the asset purchase agreement.

Professional Services

     On February 22, 2008, APC acquired the mortgage default processing business of the Minnesota law firm, Wilford & Geske. APC acquired these assets for $13.5 million in cash. We may be obligated to pay up to an additional $2.0 million in purchase price depending upon the adjusted EBITDA for this business during the twelve months ending March 31, 2009. At the same time, APC also entered an exclusive service agreement with Wilford & Geske for the referral of mortgage default, foreclosure, bankruptcy, eviction, litigation and other mortgage default related files to us for processing. The agreement is for an initial term of 15 years and is subject to automatically renew for two additional ten year periods unless either party elects to terminate the term then-in-effect with prior notice.

     On January 9, 2007, APC entered the Indiana market by acquiring the mortgage default processing service business of the law firm of Feiwell & Hannoy for $13.0 million in cash, a $3.5 million promissory note payable in two equal annual installments of $1.75 million, the first of which was paid on January 9, 2008, with no interest accruing on the note, and a 4.5% membership interest in APC. Under the terms of the asset purchase agreement with Feiwell & Hannoy, we were required to guaranty APC’s obligations under the note payable to Feiwell & Hannoy. In connection with this guaranty, Trott & Trott executed a reimbursement agreement with us, whereby Trott & Trott agreed to reimburse us for 19.0% (its then-ownership percentage) of any amounts we are required to pay to Feiwell & Hannoy pursuant to our guaranty of the note. At the same time, APC also entered an exclusive service agreement with Feiwell & Hannoy for the referral of mortgage default, foreclosure, bankruptcy, eviction and other mortgage default related files to us for processing. The agreement is for an initial term of 15 years and is subject to automatically renew for two additional ten year periods unless either party elects to terminate the term then-in-effect with prior notice.

     We have accounted for each of the acquisitions described above) under the purchase method of accounting. The results of the acquired mortgage default processing services businesses of Feiwell & Hannoy and Wilford & Geske have been included in the Professional Services segment, and the results of the acquired businesses of Venture Publications, Inc. and Legal and Business Publishers, Inc. have been included in the Business Information segment, in our consolidated financial statements since the date of such acquisition.

Revenues

     We derive revenues from two operating segments, our Business Information Division and our Professional Services Division. For the three and six months ended June 30, 2008, our total revenues were $41.6 million and $83.1 million, respectively, and the percentage of our total revenues attributed to each of our segments was as follows:

	•		56.4% and 55.6%, respectively, from our Business Information Division; and
	•		43.6% and 44.4%, respectively, from our Professional Services Division.

     Business Information. Our Business Information Division generates revenues primarily from display and classified advertising, public notices and subscriptions. We sell commercial advertising which consists of display and classified advertising in our print products and web sites. We include within our display and classified advertising revenues those revenues generated by sponsorships, advertising and ticket sales generated by our local

events). Our display and classified advertising revenues accounted for 21.1% and 20.4% of our total revenues and 37.5% and 36.6% of our Business Information Division’s revenues for the three and six months ended June 30, 2008, respectively. We recognize display and classified advertising revenues upon placement of an advertisement in one of our publications or on one of our web sites. We recognize display and classified advertising revenues generated by sponsorships, advertising and ticket sales from local events when those events are held. Advertising revenues are driven primarily by the volume, price and mix of advertisements published as well as how many local events are held.

     We publish 305 different types of public notices in our court and commercial newspapers, including foreclosure notices, probate notices, notices of fictitious business names, limited liability company and other entity notices, unclaimed property notices, notices of governmental hearings and trustee sale notices. During each of the three and six months ended June 30, 2008, our public notice revenues accounted for 25.5% of our total revenues. During those same periods, these revenues accounted for 45.2% and 45.9% of our Business Information Division’s revenues, respectively. We recognize public notice revenues upon placement of a public notice in one of our court and commercial newspapers. Public notice revenues are driven by the volume and mix of public notices published, which are affected by the number of residential mortgage foreclosures in the 13 markets where we are qualified to publish public notices because of the high volume of foreclosure notices we publish in our court and commercial newspapers. In six of the states in which we publish public notices, the price for public notices is statutorily regulated, with market forces determining the pricing for the remaining states.

     We sell our business information products primarily through subscriptions. For the three and six months ended June 30, 2008, our circulation revenues, which consist of subscriptions and single-copy sales, accounted for 8.8% and 8.5%, respectively, of our total revenues and 15.5% and 15.4%, respectively, of our Business Information Division’s revenues. We recognize subscription revenues ratably over the subscription periods, which range from three months to multiple years, with the average subscription period being twelve months. Deferred revenue includes payment for subscriptions collected in advance that we expect to recognize in future periods. Circulation revenues are driven by the number of copies sold and the subscription rates charged to customers. Our other business information revenues, comprising sales from commercial printing and database information, accounted for 1.0% and 1.2% of our total revenues and 1.8% and 2.1% of our Business Information Division’s revenues for the three and six months ended June 30, 2008, respectively. We recognize our other Business Information revenues upon delivery of the printed or electronic product to our customers.

     Professional Services. Our Professional Services Division generates revenues primarily by providing mortgage default processing and appellate services through fee-based arrangements. Through APC, we assist law firms in processing foreclosure, bankruptcy, eviction and, to a lesser extent, litigation and other mortgage default processing case files for residential mortgages that are in default. As of June 30, 2008, we provided these services for Trott & Trott, a Michigan law firm of which David A. Trott, APC’s President, is majority shareholder and managing attorney, Feiwell & Hannoy, an Indiana law firm of which the two shareholders and principal attorneys are senior executives of APC in Indiana, and the Minnesota law firm, Wilford & Geske. The two shareholders and principal attorneys of Wilford & Geske are executive vice presidents of APC.

     For the three and six months ended June 30, 2008, we serviced approximately 36,700 and 73,300 mortgage default case files, respectively (approximately 10.0% and 7.2% of which, respectively, were referred to us by Wilford & Geske, whose mortgage default processing services business we acquired in February 2008), and our mortgage default processing service revenues accounted for 35.7% and 35.9%, respectively, of our total revenues and 81.8% and 81.0%, respectively, of our Professional Services Division’s revenues. We believe mortgage default file volume, and thus mortgage default processing revenues, tend to be lower in the second quarter of each year because homeowners receive income tax refunds that they can apply towards their residential mortgages during the second quarter. We recognize mortgage default processing service revenues on a ratable basis over the period during which the services are provided, which was generally 31 to 64 days for Trott & Trott, 31 to 270 days for Feiwell & Hannoy, and 37 to 223 days for Wilford & Geske. We consolidate the operations, including revenues, of APC and record a minority interest adjustment for the percentage of earnings that we do not own. See “Minority Interests in Net Income of Subsidiary” for a description of the impact of the minority interests in APC on our operating results. We bill Trott & Trott, Wilford & Geske and Feiwell & Hannoy (for non-foreclosure files) for services performed and record amounts billed for services not yet performed as deferred revenue. On foreclosure files, we bill Feiwell & Hannoy in two installments and record amounts for services performed but not yet billed as unbilled services and amounts billed for services not yet performed as deferred revenue.

     We have entered into long-term services agreements with each of our law firm customers. These agreements provide for the exclusive referral of files from the law firms to APC for servicing, except that, in the case of Trott & Trott’s agreement, Trott & Trott may refer files elsewhere if it is otherwise directed by its clients. These agreements have initial terms of fifteen years, which terms may be automatically extended for up to two successive ten year periods unless either party elects to terminate the term then-in-effect with prior notice. Under each services agreement, we are paid a fixed fee for each residential mortgage default file referred by the law firm to us for servicing, with the amount of such fixed fee being based upon the type of file. We receive this fixed fee upon referral of a foreclosure case file, which consists of any mortgage default case file referred to us, regardless of whether the case actually proceeds to foreclosure. If such file leads to a bankruptcy, eviction or litigation proceeding, we are entitled to an additional fixed fee in connection with handling a file for such proceedings. We also receive a fixed fee for handling files in eviction, litigation and bankruptcy matters that do not originate from mortgage foreclosure files.

     APC’s revenues are primarily driven by the number of residential mortgage defaults in each of the states in which it does business as well as how many of the files we handle that actually result in evictions, bankruptcies and/or litigation. Our agreement with Trott & Trott contemplates the review and possible revision of the fees received by APC every two years beginning on or before January 1, 2008. Under the Feiwell & Hannoy and Wilford & Geske agreements, the fixed fee per file increases on an annual basis through 2012 and 2013, respectively, to account for inflation as measured by the consumer price index. In each year after 2012 (for Feiwell & Hannoy) and 2013 (for Wilford & Geske), APC and such customer will review and possibly revise the fee schedule for future years. If we are unable to negotiate fixed fee increases under these agreements that at least take into account the increases in costs associated with providing mortgage default processing services, our operating and net margins could be adversely affected. During the first quarter of 2008 in accordance with their respective services agreements, we revised our fee structure with Trott & Trott and Feiwell & Hannoy, increasing the fixed per file fee paid for each file referred to us. At the same time, we also agreed to extend the payment terms for Trott & Trott from 30 to 45 days.

     Through Counsel Press, we assist law firms and attorneys throughout the United States in organizing, printing and filing appellate briefs, records and appendices that comply with the applicable rules of the U.S. Supreme Court, any of the 13 federal courts of appeals and any state appellate court or appellate division. These revenues tend to be lower in the second quarter of each year because there are typically fewer appellate filings during such quarter as a result of court recesses. For the three and six months ended June 30, 2008, our appellate service revenues accounted for 8.0% and 8.5%, respectively, of our total revenues and 18.2% and 19.0%, respectively, of our Professional Services Division’s revenues. Counsel Press charges its customers primarily on a per-page basis based on the final appellate product that is filed with the court clerk. Accordingly, our appellate service revenues are largely determined by the volume of appellate cases we handle and the number of pages in the appellate cases we file. For the three and six months ended June 30, 2008, we provided appellate services to attorneys in connection with approximately 2,000 and 4,100 appellate filings, respectively, in federal and state courts. We recognize appellate service revenues as the services are provided, which is when our final appellate product is filed with the court.

Operating Expenses

     Our operating expenses consist of the following:

	•		Direct operating expenses, which consist primarily of the cost of compensation and employee benefits for our editorial personnel in our Business Information Division and the processing staff at APC and Counsel Press, and production and distribution expenses, such as compensation (including stock-based compensation expense) and employee benefits for personnel involved in the production and distribution of our business information products, the cost of newsprint and the cost of delivery of our business information products;
	•		Selling, general and administrative expenses, which consist primarily of the cost of compensation (including stock-based compensation expense) and employee benefits for our sales, human resources, accounting and information technology personnel, publishers and other members of management, rent, other sales and marketing related expenses and other office-related payments;

	•		Depreciation expense, which represents the cost of fixed assets and software allocated over the estimated useful lives of these assets, with such useful lives ranging from one to thirty years; and
	•		Amortization expense, which represents the cost of finite-lived intangibles acquired through business combinations allocated over the estimated useful lives of these intangibles, with such useful lives ranging from one to thirty years.

Total operating expenses as a percentage of revenues depends upon our mix of business from Professional Services, which is our higher margin revenue, and Business Information. This mix may shift between fiscal periods.

Equity in Earnings of The Detroit Legal News Publishing

     We own 35.0% of the membership interests in The Detroit Legal News Publishing, LLC (DLNP), the publisher of The Detroit Legal News and nine other publications. We account for our investment in DLNP using the equity method. Our percentage share of DLNP’s earnings was $1.5 million and $3.0 million for the three and six months ended June 30, 2008, respectively, which we recognized as operating income. This is net of amortization of $0.4 million and $0.8 million for the three and six months ended June 30, 2008, respectively. APC handles all public notices required to be published in connection with files it services for Trott & Trott pursuant to our services agreement with Trott & Trott and places a significant amount of these notices in The Detroit Legal News. Trott & Trott pays DLNP for these public notices. See “Liquidity and Capital Resources — Cash Flow Provided by Operating Activities” below for information regarding distributions paid to us by DLNP.

     Under the terms of the amended and restated operating agreement for DLNP, on a date that is within 60 days prior to November 30, 2011, and each November 30th after that, each member of DLNP has the right, but not the obligation, to deliver a notice to the other members, declaring the value of all of the membership interests of DLNP. Upon receipt of this notice, each other member has up to 60 days to elect to either purchase his, her or its pro rata share of the initiating member’s membership interests or sell to the initiating member a pro rata portion of the membership interest of DLNP owned by the non-initiating member. Depending on the election of the other members, the member that delivered the initial notice of value to the other members will be required to either sell his or her membership interests, or purchase the membership interests of other members. The purchase price payable for the membership interests of DLNP will be based on the value set forth in the initial notice delivered by the initiating member.

Minority Interest in Net Income of Subsidiary

     Minority interest in net income of subsidiary for six months ended June 30, 2008 consisted of the following:

	•		a 9.1% membership interest in APC held by (1) Trott & Trott from January 1, 2008 through January 31, 2008 and (2) APC Investments, LLC, a limited liability company owned by the shareholders of Trott & Trott, including APC President Dave Trott and APC’s two executive vice presidents in Michigan, from February 1, 2008 through June 30, 2008; and
	•		a 2.3% membership interest in APC that Feiwell & Hannoy held for the period of January 1, 2008 through February 21, 2008 and a 2.0% membership interest in APC that Feiwell & Hannoy held for the period of February 22, 2008 through June 30, 2008.

Minority interest in net income of subsidiary for the three months ended June 30, 2008 consisted of a 9.1% and 2.0% membership interest held by APC Investments and Feiwell & Hannoy, respectively.

     You should refer to “Recent Developments” earlier in this report for information about the change in our ownership in APC during the six months ended June 30, 2008 and after June 30, 2008. There was no change in our ownership in APC during the three months ended June 30, 2008.

     Under the terms of the APC operating agreement, each month, we are required to distribute APC’s earnings before interest, taxes, depreciation and amortization less debt service with respect to any interest-bearing indebtedness of APC, capital expenditures and working capital reserves to APC’s members on the basis of common

equity interest owned. We paid the following distributions in the three and six months ended June 30, 2008 and 2007:

		Three Months ended June 30,								Six Months ended June 30,
		2008				2007				2008				2007
APC Investments*		$	436,797			$	509,832			$	736,760			$	919,505
Feiwell & Hannoy			98,415				126,439				172,146				182,993
Total		$	535,212			$	636,271			$	908,906			$	1,102,498

     In addition, APC Investments and Feiwell & Hannoy each have the right, for a period of six months following August 7, 2009 to require APC to repurchase all or any portion of the APC membership interests held by APC Investments or Feiwell & Hannoy, as the case may be, at a purchase price based on 6.25 times APC’s trailing twelve month earnings before interest, taxes, depreciation and amortization less the aggregate amount of any interest bearing indebtedness outstanding for APC as of the date the repurchase occurs. The aggregate purchase price would be payable by APC in the form of a three-year unsecured note bearing interest at a rate equal to prime plus 2.0%. In connection with the closing of the acquisition of NDEx (described in “Recent Developments”), the sellers of NDEx, or their designees, will also have these put rights in connection with their membership interests in APC.

Critical Accounting Policies

     We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States and the discussion of our financial condition and results of operations is based on these financial statements. The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

     We continually evaluate the policies and estimates we use to prepare our consolidated financial statements. In general, management’s estimates and assumptions are based on historical experience, information provided by third-party professionals and assumptions that management believes to be reasonable under the facts and circumstances at the time these estimates and assumptions are made. Because of the uncertainty inherent in these matters, actual results could differ significantly from the estimates, assumptions and judgments we use in applying these critical accounting policies.

     We believe the critical accounting policies that require the most significant estimates, assumptions and judgments to be used in the preparation of our consolidated financial statements are as follows: purchase accounting, valuation of our equity securities as a privately-held company for periods prior to our initial public offering, impairment of goodwill, other intangible assets and other long-lived assets, share-based compensation expense, income tax accounting, and allowances for doubtful accounts. See Note 1 to our unaudited condensed consolidated interim financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Item 7 in our annual report on Form 10-K for the year ended December 31, 2007, which we filed with the SEC on March 28, 2008, and available at the SEC’s web site at www.sec.gov, for a discussion (in addition to that provided below) as to how we apply these policies.

Purchase Accounting

     During the three months ended June 30, 2008, we applied purchase accounting to the acquisition of the assets of Midwest Law Printing Co., Inc. During the six months ended June 30, 2008, we applied purchase accounting to the following acquisitions: (1) the assets of Legal and Business Publishers, Inc., including The Mecklenberg Times; (2) the mortgage default processing services business of Wilford & Geske; (3) the assets of Minnesota Political Press, Inc. and Quadriga Communications, LLC; and (4) the acquisition of the assets of Midwest Law Printing Co., Inc. See Note 3 to our unaudited condensed consolidated interim financial statements included in this quarterly report on Form 10-Q for more information about the application of purchase accounting to these acquisitions.

Valuation of Our Company Equity Securities

     Prior to the consummation of our initial public offering when we redeemed all issued and outstanding shares of our preferred stock, there was no market for our common stock. As a result, the valuation of our common stock had a material effect on our operating results because we accounted for our mandatorily redeemable preferred stock at fair value. Accordingly, we recorded the increase or decrease in the fair value of our redeemable preferred stock as either an increase or decrease in interest expense in each reporting period. During the three and six months ended June 30, 2007, we recorded non-cash interest expense of $26.3 million and $56.3 million, respectively. There was not a similar expense for the three or six months ended June 30, 2008 or other periods after August 7, 2007, the date on which we redeemed all outstanding shares of our preferred stock. Determining the fair value of our redeemable preferred stock (for periods before August 7, 2007) required us to value two components: (1) the fixed redeemable portion and (2) the common stock conversion portion.

     We determined the fair value of the fixed portion by calculating the present value of the amount that was mandatorily redeemable, including accreted dividends, on July 31, 2010 as of each balance sheet date. During the six months ended June 30, 2007, we used a discount rate of 13.0% to calculate such present value based on a weighted average cost of capital analysis.

     We used the initial public offering price of $14.50 per share as the fair value of our common stock to determine the fair value of our series C preferred stock and calculate the non-cash interest expense related to redeemable preferred stock for the six months ended June 30, 2007.

     For information about the objective and subjective factors we considered in estimating the fair value of common stock as of June 30, 2007, please refer to “Management Discussion and Analysis-Critical Accounting Policies-Valuation of Our Company Equity Securities” in our annual report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 28, 2008.

Goodwill, Other Intangible Assets and Other Long-Lived Assets

     We determine the estimated economic lives and related amortization expense for our intangible assets. To the extent actual useful lives are less than our previously estimated lives, we will increase our amortization expense. If the unamortized balance were deemed to be unrecoverable, we would recognize an impairment charge to the extent necessary to reduce the unamortized balance to the amount of expected future discounted cash flows, with the amount of such impairment charged to operations in the current period. We estimate useful lives of our intangible assets by reference to current and projected dynamics in the business information and mortgage default processing service industries and anticipated competitor actions. The amount of net income for the six months ended June 30, 2008 would have been approximately $0.5 million higher if the actual useful lives of our finite-lived intangible assets were 10% longer than the estimates and approximately $0.6 million lower if the actual useful lives of our finite-lived intangible assets were 10% shorter than the estimates. You should refer to the discussion on new accounting pronouncements in Note 1 of our unaudited condensed consolidated interim financial statements included in this quarterly report on Form 10-Q for more information about FSP 142-3, which deals with determining the useful life of recognized intangible assets and will become effective for us beginning January 1, 2009.

Share-Based Compensation Expense

     SFAS No. 123(R) requires that all share-based payments to employees and non-employee directors, including grants of stock options and shares of restricted stock, be recognized in the financial statements based on the estimated fair value of the equity or liability instruments issued. We estimate the fair value of share-based awards that contain performance conditions using the Black-Scholes option pricing model at the grant date, with compensation expense recognized as the requisite service is rendered.

     During the six months ended June 30, 2008, we granted stock options exercisable for 419,056 shares of common stock at an exercise price equal to $16.52. These stock options were granted under the 2007 Incentive Compensation Plan. Grantees forfeited options to purchase 51,516 shares of our common stock during the six months ended June 30, 2008. The majority of these forfeitures were from four directors whose services with us terminated in May 2008

as a result of the expiration of their term on our board, resignation from our board or death. In 2008, we have applied a zero percent forfeiture rate for stock options.

     The following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the stock options we granted during 2008:

		2008
Dividend yield			0.0	%
Expected volatility			28.0	%
Risk free interest rate			3.0	%
Expected term of options		4.75 years
Weighted average grant date fair value		$	4.89

     All options granted in 2008 are non-qualified options that vest in four equal annual installments commencing on the first anniversary of the grant date and expire seven years after the grant date.

     Our share-based compensation expense for all granted options under SFAS 123(R) for the three months ended June 30, 2008 and 2007 was approximately $287,000 and $11,000, respectively, before income taxes and for the six months ended June 30, 2008 and 2007, was approximately $553,000 and $21,000, respectively, before income taxes. As of June 30, 2008, our estimated aggregate unrecognized share-based compensation expense for all unvested stock options was $5.0 million, which we expect to recognize over a weighted-average period of approximately 3.4 years.

     Our 2007 Incentive Compensation Plan allows for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The share-based expense for restricted stock awards is determined based on the market price of our stock on the date of grant applied to the total number of shares that are anticipated to fully vest. During the six months ended June 30, 2008, we granted 54,139 shares of restricted stock to management employees. For these grants, we used the closing share price of our common stock on the grant date to determine the value of our restricted stock awards. Compensation expense is amortized over the vesting period. During the six months ended June 30, 2008, grantees forfeited 11,575 shares of restricted stock. The forfeited shares of restricted stock are deemed to be issued but not outstanding. In 2008, we applied an estimated forfeiture rate of ten percent for restricted stock awards issued to all non-management employees and zero percent for restricted stock awards issued to management employees. Substantially all of these restricted shares vest in four equal annual installments commencing on the first anniversary of the grant date.

     Our share-based compensation expense for all restricted shares under SFAS 123(R) for the three and six months ended June 30, 2008 was approximately $106,000 and $239,000, respectively, before income taxes. There was no comparable expense for the three and six months ended June 30, 2007 because the Company had no outstanding grants of restricted stock during those periods. As of June 30, 2008, our estimated aggregate unrecognized share-based compensation expense for all unvested restricted shares was $2.4 million, which we expect to recognize over a weighted-average period of approximately 3.4 years.

     We have reserved 2,700,000 shares of our common stock for issuance under our incentive compensation plan. There were 1,125,666 shares available for issuance under the plan as of June 30, 2008. This includes shares underlying stock options that our board authorized us to grant to two non-employee directors in connection with their election to our board during June and July 2008. The number of shares underlying the options authorized to be granted to these directors is not known at this time because it is based upon the fair market value of a share of our common stock on the grant date and the grant date will be August 11, 2008.

Income Taxes

     The provision of income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which we operate. For the six months ended June 30, 2008 and 2007, we used an effective tax rate of 41% and 38%, respectively, based on our annual projected income in accordance with APB No. 28.

     We consider accounting for income taxes critical to our operations because management is required to make significant subjective judgments in developing our provision for income taxes, including the determination of

deferred tax assets and liabilities, and any valuation allowances that may be required against deferred tax assets. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which could require an extended period of time to resolve. The completion of these audits could result in an increase to amounts previously paid to the taxing jurisdictions. The Internal Revenue Service recently commenced an audit of our federal tax returns for the year ended December 31, 2005. We do not believe any adjustments, if issued, would have a material impact on our financial position.

Accounts Receivable Allowances

     We extend credit to our advertisers, public notice publishers, commercial printing customers and professional service customers based upon an evaluation of each customer’s financial condition, and collateral is generally not required. We establish allowances for doubtful accounts based on estimates of losses related to customer receivable balances. Specifically, we use prior credit losses as a percentage of credit sales, the aging of accounts receivable and specific identification of potential losses to establish reserves for credit losses on accounts receivable. We believe that no significant concentration of credit risk exists with respect to our Business Information Division. We had a significant concentration of credit risk with respect to our Professional Services Division as of June 30, 2008 because the amount due from Trott & Trott was $6.5 million, or 26.0% of our consolidated net accounts receivable balance, and the amount due from Feiwell & Hannoy was $4.0 million, or 15.9% of our consolidated net receivable balance. However, to date, we have not experienced any problems with respect to collecting prompt payment from Trott & Trott or from Feiwell & Hannoy, each of which are required to remit all amounts due to APC with respect to files serviced by APC in accordance with the time periods agreed to by the parties.

     We consider accounting for our allowance for doubtful accounts critical to both of our operating segments because of the significance of accounts receivable to our current assets and operating cash flows. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required, which could have a material effect on our financial statements. See “Liquidity and Capital Resources” below for information regarding our receivables, allowance for doubtful accounts and day sales outstanding.

New Accounting Pronouncements

     Please see Note 1 to our unaudited condensed consolidated interim financial statements earlier in this quarterly report on Form 10-Q for information about new accounting pronouncements affecting us.

Non-GAAP Financial Measures

     We present three non-GAAP financial measures: adjusted EBITDA, cash earnings and cash earnings per diluted share measures.

Adjusted EBITDA

     The adjusted EBITDA measure presented consists of net income (loss) before:

	•		non-cash interest expense related to redeemable preferred stock;
	•		interest expense, net;
	•		income tax expense;
	•		depreciation and amortization;
	•		non-cash compensation expense; and
	•		minority interest in net income of subsidiary;

and after:

•

minority interest distributions paid.

Management’s Use of Adjusted EBITDA

     We are providing adjusted EBITDA, a non-GAAP financial measure, along with GAAP measures, as a measure of profitability because adjusted EBITDA helps us evaluate and compare our performance on a consistent basis for different periods of time. We believe this non-GAAP measure, as we have defined it, helps us evaluate and compare our performance on a consistent basis for different periods of time by removing from our operating results the impact of the non-cash interest expense arising from the common stock conversion option in our Series C preferred stock (which had no impact on our financial performance for the three and six months ended June 30, 2008, because we redeemed all of our outstanding shares of preferred stock, including shares issued upon conversion of the Series C preferred stock, in connection with our initial public offering on August 7, 2007), as well as the impact of our net cash or borrowing position, operating in different tax jurisdictions and the accounting methods used to compute depreciation and amortization, which impact has been significant and fluctuated from time to time due to the variety of acquisitions that we have completed since our inception. Similarly, our presentation of adjusted EBITDA also excludes non-cash compensation expense because this is a non-cash charge for stock options and restricted shares of common stock that we have granted. We exclude this non-cash expense from adjusted EBITDA because we believe any amount we are required to record as share-based compensation expense contains subjective assumptions over which our management has no control, such as share price and volatility.

     We also adjust EBITDA for minority interest in net income of subsidiary and cash distributions paid to minority members of APC because we believe this provides more timely and relevant information with respect to our financial performance. We exclude amounts with respect to minority interest in net income of subsidiary because this is a non-cash adjustment that does not reflect amounts actually paid to APC’s minority members because (1) distributions for any month are actually paid by APC in the following month and (2) it does not include adjustments for APC’s debt or capital expenditures, which are both included in the calculation of amounts actually paid to APC’s minority members. We instead include the amount of these cash distributions in adjusted EBITDA because they include these adjustments and reflect amounts actually paid by APC, thus allowing for a more accurate determination of our performance and ongoing obligations.

     We believe that adjusted EBITDA is meaningful information about our business operations that investors should consider along with our GAAP financial information. We use adjusted EBITDA for planning purposes, including the preparation of internal annual operating budgets, and to measure our operating performance and the effectiveness of our operating strategies. We also use a variation of adjusted EBITDA in monitoring our compliance with certain financial covenants in our credit agreement and are using adjusted EBITDA to determine performance-based short-term incentive payments for our executive officers and other key employees.

     Adjusted EBITDA is a non-GAAP measure that has limitations because it does not include all items of income and expense that affect our operations. This non-GAAP financial measure is not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income (loss), net income (loss) per share, cash flow from continuing operating activities or any other measure of performance or liquidity derived in accordance with GAAP. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, it should be noted that companies calculate adjusted EBITDA differently and, therefore, adjusted EBITDA as presented for us may not be comparable to the calculations of adjusted EBITDA reported by other companies.

     The following is a reconciliation of our net income (loss) to adjusted EBITDA (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net income (loss)		$	4,397			$	(21,858	)		$	8,404			$	(49,644	)
Non-cash interest expense related to redeemable preferred stock			—				26,318				—				56,260
Interest expense, net			287				1,393				2,738				3,428
Income tax expense			3,027				967				5,786				4,107
Amortization of intangibles			2,318				1,871				4,536				3,714
Depreciation expense			1,190				889				2,291				1,645
Amortization of DLNP intangible			377				358				754				718
Non-cash compensation expense			393				11				792				21
Minority interest in net income of subsidiary			493				807				1,050				1,707
Cash distributions to minority interest			(535	)			(636	)			(909	)			(1,102	)
Adjusted EBITDA		$	11,947			$	10,120			$	25,442			$	20,854

Cash Earnings and Cash Earnings per Diluted Share

   The cash earnings measure presented consists of net income (loss) before:

	•		non-cash interest expense related to redeemable preferred stock;
	•		non-cash interest income related to the change in fair value of interest rate swaps;
	•		amortization expense; and
	•		an adjustment to income tax expense related to the reconciling items above at a 41% tax rate.

We calculate the cash earnings per diluted share measure presented by dividing cash earnings by the weighted average number of diluted common shares outstanding during the period.

Management’s Use of Cash Earnings and Cash Earnings Per Diluted Share

     We are providing cash earnings and cash earnings per diluted share, both non-GAAP financial measures, along with GAAP measures, as a measure of profitability because they are commonly used by financial analysts, investors and other interested parties in evaluating companies’ performance. In addition, we are providing cash earnings per diluted share in part because it offers investors a per-share metric, in addition to GAAP measures, in evaluating our performance. We believe these non-GAAP measures, as we have defined them, help us evaluate and compare our performance on a consistent basis for different periods of time by removing from our operating results non-cash interest expense related to our redeemable preferred stock (which had no impact on our financial performance for periods after August 7, 2007 when we redeemed all outstanding shares of preferred stock, including shares issued upon conversion of the Series C preferred stock); non cash interest expense related to the change in the fair value of our interest rate swaps; amortization, which is a significant non-cash expense that has fluctuated from time to time due to acquisitions we have completed since our inception and income tax expense related to these items.

     Although cash earnings and cash earnings per share are new metrics for us, we believe that they provide meaningful information about our business operations that investors should consider along with our GAAP financial information. We have begun using these metrics to measure our operating performance and the effectiveness of our operating strategies. We intend to use cash earnings and cash earnings per diluted share for planning purposes, including the preparation of internal annual operating budgets for the next calendar year.

     Cash earnings and cash earnings per share are both non-GAAP measures that have limitations because they do not include all items of income and expense that affect our operations. Neither of these non-GAAP financial measures are prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income (loss), net income (loss) per diluted share or any other measure of

performance or liquidity derived in accordance with GAAP. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, it should be noted that companies calculate cash earnings and cash earnings per diluted share differently and, therefore, cash earnings and cash earnings per diluted share as presented for us may not be comparable to the calculations of cash earnings and cash earnings per diluted share reported by other companies.

     The following is a reconciliation of the company’s net income (loss) to cash earnings and cash earnings per diluted share (in thousands, except share and per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net income (loss)		$	4,397			$	(21,858	)		$	8,404			$	(49,644	)
Non-cash interest expense related to redeemable preferred stock			—				26,318				—				56,260
Non-cash interest income related to the change in fair value of interest rate swaps			(1,177	)			(561	)			(22	)			(387	)
Amortization of intangibles			2,318				1,871				4,536				3,714
Amortization of DLNP intangible			377				358				754				718
Adjustment to income tax expense related to reconciling items at a 41% tax rate			(622	)			(1,942	)			(2,160	)			(1,948	)
Cash earnings		$	5,293			$	4,186			$	11,512			$	8,713
Net income (loss) per diluted share (GAAP)		$	0.17			$	(2.34	)		$	0.33			$	(5.32	)
Cash earnings per diluted share		$	0.21			$	0.45			$	0.46			$	0.93
Weighted average diluted shares outstanding			25,307,422				9,324,000				25,246,279				9,324,000

RESULTS OF OPERATIONS

     The following table sets forth selected operating results, including as a percentage of total revenues, for the periods indicated below (in thousands, except per share data):

		Three Months Ended June 30,
						% of								% of
		2008				Revenues				2007				Revenues
Revenues:
Business Information		$	23,424				56.4	%		$	21,588				58.3	%
Professional Services			18,129				43.6	%			15,467				41.7	%
Total revenues			41,553				100.0	%			37,055				100.0	%
Operating expenses:
Business Information			19,585				47.1	%			16,869				45.5	%
Professional Services			13,104				31.5	%			11,141				30.1	%
Unallocated corporate operating expenses			2,139				5.1	%			2,743				7.4	%
Total operating expenses			34,828				83.8	%			30,753				83.0	%
Equity in earnings of The Detroit Legal News Publishing, LLC, net of amortization			1,469				3.5	%			1,330				3.6	%
Operating income			8,194				19.7	%			7,632				20.6	%
Non-cash interest expense related to redeemable preferred stock			—				0.0	%			(26,318	)			(71.0	)%
Interest expense, net			(287	)			(0.7	)%			(1,393	)			(3.8	)%
Other income (expense), net			10				0.0	%			(5	)			0.0	%
Income (loss) before income taxes			7,917				19.1	%			(20,084	)			(54.2	)%
Income tax expense			(3,027	)			(7.3	)%			(967	)			(2.6	)%
Minority interest			(493	)			(1.2	)%			(807	)			(2.2	)%
Net income (loss)		$	4,397				10.6	%		$	(21,858	)			(59.0	)%
Adjusted EBITDA		$	11,947				28.8	%		$	10,120				27.3	%
Net income (loss) per diluted share (GAAP)		$	0.17							$	(2.34	)
Cash earnings per diluted share		$	0.21							$	0.45