*		Adjusted to reflect a 9 for 1 stock split.

2

*		Adjusted to reflect a 9 for 1 stock split.

3

4

5

6

7

8

9

10

11

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

then existing credit facility. The then existing agreement provided for a term loan facility in an aggregate amount of approximately $86.1 million with a final maturity date of December 31, 2012 and a revolving credit facility in an aggregate amount of up to $15.0 million with a final maturity date of December 31, 2008.

          On August 8, 2007, the Company and its consolidated subsidiaries further amended and restated the credit facility by entering into a second amended and restated credit agreement effective August 8, 2007 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 million with a final maturity date of August 8, 2012. 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 remaining balance of the variable term loans and outstanding revolving loans under the credit facility was converted to $50 million of term loans under the term loan facility and approximately $9.1 million of revolving loans under the revolving credit facility. The Company expects to use the remaining availability under the credit facility for working capital and other general corporate purposes.

          The senior debt is secured by a first-priority security interest in substantially all of the properties and assets of the Company and its subsidiaries, including a pledge of all of the stock of such subsidiaries except for the minority interests in APC which are held by Trott & Trott and Feiwell & Hannoy. Borrowings under the credit facility accrue interest, at the Company’s option, based on the prime rate or LIBOR plus a margin that fluctuates on the basis of the ratio of the Company’s and its consolidated subsidiaries’ total liabilities to the Company’s and its consolidated subsidiaries pro forma EBITDA. The margin on the prime rate loans may fluctuate from 0% and .5% and the margin in the LIBOR loans may fluctuate between 1.5% and 2.5%. If the Company elects to have interest accrue (i) based on the prime rate, then such interest is due an payable on the last day of each month and (ii) based on LIBOR, then such interest is due and payable at the end of the applicable interest period that the Company elected, provided that if the applicable interest period is longer than three months, interest will be due and payable in three month intervals.

          At June 30, 2007, the weighted-average interest rate on the senior term note was 7.36%. The Company is also required to pay customary fees with respect to the credit facility, including an up-front arrangement fee, annual administrative agency fees and commitment fees on the unused portion of its revolving credit facility.

          The credit facility includes negative covenants, including restrictions on the Company’s and its consolidated subsidiaries’ ability to incur debt, grant liens, consummate certain acquisitions, mergers, consolidations and sales of all or substantially all of its assets and pay dividends to its stockholders. The credit facility contains customary events of default, including nonpayment, misrepresentation, breach of covenants and bankruptcy. The credit facility also requires that, as of the last day of any fiscal quarter, the Company and its consolidated subsidiaries not permit their senior leverage ratio to be more that 4.5 to 1.00 and fixed charge coverage ratio to be less than 1.20 to 1.00.

Note 8. Common and Preferred Stock

          At June 30, 2007, the Company had authorized 2,000,000 shares of common stock and 1,000,000 shares of preferred stock (see Note 14). Of these totals, 550,000 shares of the preferred stock were designated as Series A redeemable, nonconvertible preferred stock (the Series A stock), 40,000 shares of the preferred stock were designated as Series B redeemable, nonconvertible preferred stock (the Series B stock), and 40,000 shares were designated as Series C redeemable, convertible, participating preferred

12

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

stock (the Series C stock). There were 9,324,000 shares of common stock, 287,000 shares of Series A stock, no shares of Series B stock and 38,132 shares of Series C stock outstanding at June 30, 2007. The balance of the preferred stock was not designated and was available for issuance by the Company. See Note 14 regarding the conversion of the Series C stock and the redemption of the Series A stock and Series B stock on August 7, 2007.

          The Company’s Series A stock ($28,700,000 at issuance) was issued in July 2003 in conjunction with the Company’s formation. The Series A stock ranks senior to the common stock. The Series A stock is nonvoting and is entitled to an accrued dividend of 6% of the original issue price per share plus accumulated unpaid dividends, compounded annually, from the date of issuance. Cumulative unpaid dividends of approximately $0.5 million, $1.0 million, $0.5 million and $1.0 million for the three and six months ended June 30, 2007 and 2006, respectively, were added to the Series A preferred stock balance on the face of the consolidated balance sheet. The Series A stock is subject to mandatory redemption at $100 per share, plus accumulated dividends on July 31, 2010.

          The Company’s Series C stock was issued in September and November 2004 in conjunction with the Lawyers Weekly acquisition and related refinancing. In connection with the issuance of the Series C stock, the Company sold each share of Series C stock for $1,000, raising approximately $38,132,000. The Series C stock ranked senior to the Series A stock and the common stock. The Series C Stock voted as if converted into common stock. The Series C stock was subject to mandatory redemption of $1,000 per share plus accumulated dividends on July 31, 2010. In addition to the mandatory redemption, each share of Series C stock was entitled to convert into (1) one share of $1,000 redemption value Series B cumulative redeemable shares, (2) approximately 5 shares of Series A stock at June 30, 2007, and (3) approximately 135 shares of common stock. The Series C stock was entitled to a cumulative dividend at an annual rate of 6% of the original issue price per share plus accumulated unpaid dividends, compounded quarterly (which was increased to 8% effective March 2006 and subsequently reduced to 6% in July 2007, as disclosed in Note 14), from the date of issuance.

          The Series C has been accounted for at fair value under SFAS No. 150 because it had a stated redemption date. In addition, although the Series C was convertible into other shares, these shares into which the Series C was convertible also had the same mandatory redemption date, except for the common shares. However on the issuance date of the Series C, the common stock portion of the conversion feature was considered to be a non-substantive feature and therefore disregarded in the mandatorily redeemable determination. The estimated fair value of the Series C was affected by the fair value of such common stock. Accordingly, the increase or decrease in the fair value of this security has been recorded as either an increase or decrease in interest expense at each reporting period. During the three and six months ended June 30, 2007 and 2006, respectively, the Company recorded the related dividend accretion for the change in fair value of this security of $25.8 million, $8.3 million, $55.2 million and $12.5 million, respectively, as interest expense. Given the absence of an active market for the Company’s common stock, the Company conducted a contemporaneous valuation analysis to help it estimate the fair value of the Company’s common stock that was used to value the conversion option for the 2006 periods. A variety of objective and subjective factors were considered to estimate the fair value of the common stock. Factors considered included contemporaneous valuation analysis using the income and market approaches, the likelihood of achieving and the timing of a liquidity event, such as an initial public offering or sale of the Company, the cash flow and EBITDA-based trading multiples of comparable companies, including the Company’s competitors and other similar publicly-traded companies, and the results of operations, market conditions, competitive position and the stock performance of these companies. In particular, the Company used the current value method to determine the estimated fair value of its securities by allocating its enterprise value among its different classes of securities. The Company considered such method more applicable than the probability weighted expected return method because of the terms of its redeemable preferred stock.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

          For the 2007 periods, the Company used the initial public offering price of $14.50 per share as the fair value of its common stock to determine the fair value of the Series C stock and to calculate the non-cash interest expense related to redeemable preferred stock. The Series C stock has been recorded on the unaudited condensed consolidated balance sheet net of unaccreted issuance costs of approximately $412,000 and $479,000 at June 30, 2007 and December 31, 2006, respectively.

Note 9. Income Taxes

          The provision of income taxes is based upon estimated annual effective tax rates in the tax jurisdications in which the Company operates. For the six months ended June 30, 2007 and 2006, the Company used an effective tax rate of 38% and 37%, respectively, based on its annual projected income in accordance with APB No. 28.

          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 $153,000 of unrecognized income tax benefits. All of the unrecognized income tax benefits, if recognized, would favorably affect its effective income tax rate in future periods. There were no significant adjustments for the unrecognized income tax benefits in the first six months of 2007.

Note 10. Major Customers and Related Parties

          APC’s only two mortgage default processing services customers, Trott & Trott and Feiwell & Hannoy, are related parties. The Company has fifteen-year service contracts with Trott & Trott and Feiwell & Hannoy, expiring in 2021 and 2022, respectively, which renew automatically for up to two successive ten year periods unless either party elects to terminate the term then in effect. Trott & Trott and Feiwell & Hannoy pay the Company monthly for the Company’s services.

          David Trott, president of APC, is also the managing attorney of Trott & Trott. The Company’s wholly-owned subsidiary, Lawyers Weekly Inc., and APC lease office space from a partnership, NW13 LLC, a majority of which is owned by David Trott. Feiwell & Hannoy owns a 4.5% membership interest in APC, and Michael J. Feiwell and Douglas J. Hannoy, employees of APC, are the sole shareholders and the principal attorneys of Feiwell & Hannoy.

Note 11. Reportable Segments

          The Company’s two reportable segments consist of its Business Information Division and its Professional Services Division. Reportable segments were determined 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. The Professional Services Division comprises two operating units providing support to the legal market. These are Counsel Press, LLC (Counsel Press), 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, certain administrative activities are reported and included under corporate.

          Information as to the operations of our two segments as presented to and reviewed by the Company’s chief operating decision maker, who is its Chief Executive Officer, is set forth below. The

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

		Six Months Ended June 30, 2006
		Business				Professional
		Information				Services				Corporate				Total
Revenues		$	36,655			$	13,964			$	—			$	50,619
Operating expenses			27,512				8,956				2,183				38,651
Amortization and depreciation			1,785				1,443				152				3,380
Equity in earnings of DLNP, LLC			991				—				—				991
Operating income (loss)		$	8,349			$	3,565			$	(2,335	)		$	9,579

Note 12. Share-Based Compensation

          The Company’s Board of Directors approved the adoption of the 2006 Equity Incentive Plan (the “Plan”) in October 2006 and the Company’s stockholders subsequently ratified the Plan. The Plan permits the granting of incentive stock options and nonqualified options to non-employee directors, executive officers, employees and consultants. The Plan also authorizes the granting of awards in the forms of stock appreciation rights, restricted stock, restricted stock units, deferred stock, performance units, substitute award, or dividend equivalent. As of June 30, 2007, a total of 126,000 shares of Company common stock were reserved for issuance pursuant to the options granted under the Plan. These options issued under the Plan were granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant and expire 10 years from the date of grant. These options vest and become exercisable over a three-year period. There were no shares available for grant under the Plan at June 30, 2007. In the event of a change in control, unless otherwise provided in an award agreement, awards shall become vested and all restrictions lapse.

          During 2006 and 2007, the Company applied SFAS 123(R), which requires compensation cost relating to share-based payment transactions be recognized in the financial statements based on the estimated fair value of the equity or liability instrument issued. SFAS No. 123(R) does not specify a preference for a type of valuation model to be used when measuring fair value of share-based payments, and the Company uses the Black-Scholes option pricing model in deriving the fair value estimates of such awards. SFAS No. 123(R) requires forfeitures of share-based awards to be estimated at time of grant and revised in subsequent periods if actual forfeitures differ from initial estimates. Forfeitures were estimated based on projected employee stock option exercise behavior. If factors change causing different assumptions to be made in future periods, compensation expense recorded pursuant to SFAS No. 123(R) may differ significantly from that recorded in the current period.

          The fair value of each option was estimated on the date of grant using the Black-Scholes model. 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 used projected employee stock option exercise behaviors to determine the expected life of options. All inputs into the Black-Scholes model are estimates made at the time of grant. The Company estimated a forfeiture rate based on the portion of share based payments that are expected to vest taking into consideration the senior level recipients of the awards. Actual realized value of each option grant could materially differ from these estimates, though without impact to future reported net income.

          Share-based compensation expense under SFAS 123(R) for the three and six months ended June 30, 2007, was approximately $11,000 and $21,000, respectively, before income taxes. The Company did not recognize any share-based compensation expense for the three and six months ended June 30, 2006 because no options were outstanding.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

          There were no options granted during the six months ended June 30, 2007. The following weighted average assumptions were used to estimate the fair value of stock options granted in the year ended December 31, 2006:

Dividend yield			0.0	%
Expected volatility			55	%
Risk free interest rate			4.75	%
Expected life of options		7 Years
Weighted-average fair value of options granted			$1.35

          The following table represents stock option activity for the six months ended June 30, 2007:

						Weighted								Weighted
						Average				Weighted				Average
						Grant				Average				Remaining
		Number of				Fair				Exercise				Contractual
		Shares				Value				Price				Life
Outstanding options at December 31, 2006			126,000			$	1.35			$	2.22			9.79 Yrs.
Granted			—				—				—				—
Exercised			—				—				—				—
Canceled			—				—				—				—
Outstanding options at June 30, 2007			126,000			$	1.35			$	2.22			9.29 Yrs.
Options exercisable at June 30, 2007			31,500			$	1.35			$	2.22			9.29 Yrs.

          At June 30, 2007, the aggregate intrinsic value of options outstanding was $1.5 million, and the aggregate intrinsic value of options exercisable was $387,000.

          The following table summarizes our non-vested stock option activity for the six months ended June 30, 2007:

		Number				Grant
		of				Fair
		Shares				Value
Nonvested stock options at December 31, 2006			94,500			$	1.35
Granted			—				—
Canceled			—				—
Vested			—				—
Nonvested stock options at June 30, 2007			94,500			$	1.35

          At June 30, 2007, there was approximately $97,000, of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted-average period of 2.28 years.

Note 13. Contingencies and Commitments

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

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

          Employment Agreements: In June 2007, the Company entered into employment agreements that provide three executive officers with the following severance payments in the event the Company terminates such officers without cause or if the executive officer terminates the agreement for good reason: (1) the Company’s President and Chief Executive Officer is entitled to receive 12 months of base salary, a pro-rated portion of the annual bonus that would have been payable to him had he remained employed by the Company for the entire fiscal year; and medical and dental benefits for him and his covered dependents for 18 months following his termination; (2) the Company’s Executive Vice President and Chief Financial Officer is entitled to receive 12 months of base salary, a pro-rated portion of the annual bonus that would have been payable to him had he remained employed by the Company for the entire fiscal year, and medical and dental benefits for him and his covered dependents for 18 months following his termination; and (3) the Company’s Executive Vice President, Business Information is entitled to receive 12 months of base salary, a pro-rated portion of the annual bonus that would have been payable to him had he remained employed by the Company for the entire fiscal year and medical and dental benefits for him and his covered dependents for 18 months following his termination.

          In March 2006, APC entered into an employment agreement with David A. Trott, the President of APC, whereby Mr. Trott is entitled to receive (1) his base salary from the termination date through March 18, 2008, if the employment is terminated without cause prior to March 14, 2008 or (2) a severance amount of $260,000 payable over the twelve month period following a termination of the employment term after March 14, 2008. In addition, upon termination of Mr. Trott’s employment, the Company must provide him with medical insurance for 12 months following his termination date.

          Change of Control Plan. In connection with its initial public offering, the Company adopted an Executive Change of Control Plan that provides its executive officers other than Mr. Trott with certain severance benefits in the case of a qualified change of control event. Under the change of control plan, an executive officer is entitled to receive a severance payment and additional severance benefits if his or her employment is terminated by the Company or an acquiror without cause or by the employee for good reason (as such terms are defined in the plan or the applicable employment agreement for a participant) 90 days prior to or within 12 months following a change in control. A change in control is defined in the plan to mean (1) the acquisition by a third party of more than 50% of the Company’s voting shares, (2) a merger, consolidation or other reorganization if the Company’s stockholders following such transaction no longer own more than 50% of the combined voting power of the surviving organization, (3) the Company’s complete liquidation or dissolution, or (4) a sale of substantially all of the Company’s assets.

          In connection with such change of control termination, participants in the plan receive either one or two times his or her base salary plus annual target short-term incentive amounts for the year in which the termination occurs. In addition, the terminated executive officer will receive 18 months of continuing health and dental coverage on the same terms as the executive officer received such benefits during employment, and will receive outplacement services for 12 months following termination. Under the terms of the change of control plan, if any payments or benefits to which an executive officer becomes entitled are considered “excess parachute payments” under Section 280G of the Internal Revenue Code, then he or she will be entitled to an additional “gross-up” payment from us in an amount such that, after payment by the executive of all taxes, including any excise tax imposed upon the gross-up payment, he or she will retain a net amount equal to the amount he or she would have been entitled to had the excise tax not been imposed upon the payment; provided, however, that if the total payments that the executive officer is entitled to receive from the Company do not exceed 110% of the greatest amount that could be paid to the executive officer without becoming an excess parachute payment, then no “gross-up” payment will be made by the Company, and the executive officer’s payments will be reduced to the greatest amount that could be paid without causing the payments to be “excess parachute payments.”

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

Note 14. Subsequent Events

          Authorized Shares and Stock Split: In connection with its initial public offering, on August 7, 2007, the Company (i) amended and restated its 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 (ii) 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 each share of common stock outstanding immediately prior to the consummation of the offering. Such increase in authorized shares was approved by the Company’s board of directors on June 22, 2007 and such stock split was approved by the Company’s board of directors on July 10, 2007. All references to share and per share amounts have been adjusted retroactively for all periods presented to reflect the foregoing.

          Reduction in Preferred Stock Dividend Rate: On July 10, 2007, the Company amended its certificate of designations, rights and preferences of the Series B preferred stock and Series C preferred stock to reduce the base dividend rate with respect to such shares to 6% per annum from 8% per annum, with such reduction effective as of March 14, 2006. The reduction in the dividend will be recorded in the Company’s third quarter of 2007 financial statements as a $2.8 million decrease in non-cash interest expense related to redeemable preferred stock.

          Stock-Based Compensation: On August 1, 2007, the Company issued stock options exercisable for 873,157 shares of common stock with an exercise price per share equal to the initial public offering price ($14.50) to executive officers, management employees and non-employee directors. Also, on August 1, 2007, the Company issued 193,829 restricted shares of common stock to non-executive employees. Of these restricted shares of common stock, 19,541 shares have been forfeited by the grantees because they did not return an executed restricted share agreement to the Company in the appropriate time period. These 19,541 shares are deemed to be issued but not outstanding, and are held in treasury.

          Initial Public Offering, Conversion and Redemption: On August 7, 2007, the Company completed its initial public offering of 10,500,000 shares of common stock at a price of $14.50 per share, raising approximately $141.6 million, which is net of the underwriters’ discount of $13.7 million. In connection with the initial public offering, all outstanding shares of Series C stock (including all accrued and unpaid dividends) converted into shares of Series A stock, Series B stock and an aggregate of 5,093,155 shares of common stock. The Company used $101.1 million of the net proceeds to redeem all of the outstanding shares of Series A stock (including all accrued and unpaid dividends) and Series B stock (including shares issued upon conversion of the Series C stock). In addition, the Company used a portion of the net proceeds to pay down $30.0 million on the senior term credit facility, reducing its balance to $56.1 million.

Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements

          The following table presents unaudited pro forma condensed consolidated balance sheet information as of June 30, 2007 showing the effect of the offering, the redemption of the preferred stock and the $30.0 million repayment of outstanding indebtedness under the Company’s bank credit facility (in thousands):

						Offering
		Historical				Adjustments				Pro Forma
Total current assets		$	21,789			$	7,609			$	29,398
Total assets			213,305				7,609				220,914
Total current liabilities			33,651				—				33,651
Long-term debt			83,350				(30,000	)			53,350
Other liabilities			5,866				—				5,866
Series C mandatorily redeemable, convertible participating preferred stock			128,593				(128,593	)			—
Series B mandatorily redeemable, nonconvertible preferred stock			—				—				—
Series A mandatorily redeemable, nonconvertible preferred stock			36,062				(36,062	)			—
Total liabilities			287,522				(194,655	)			92,867
Total stockholders’ equity			(78,498	)			202,764				124,266
Total liabilities and stockholders’ equity		$	213,305			$	7,609			$	220,914

          By using approximately $101.1 million of its net proceeds to redeem all of its preferred stock, the Company’s pro forma non-cash interest savings for the three and six months ended June 30, 2007, would have been $26.3 million and $56.3 million, respectively. The pro forma interest savings from the Company using $30.0 million of its net proceeds from the offering for repayment of outstanding indebtedness under its bank credit facility for the three and six months ended June 30, 2007, would have been approximately $511,000 and $1.1 million respectively.

          Credit Agreement: On August 8, 2007, the Company and its consolidated subsidiaries entered into a second amended and restated credit agreement, effective August 8, 2007 with a syndicate of bank lenders. See Note 7 for a further description of the further amended and restated credit facility.

DOLAN MEDIA COMPANY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

          The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated 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. 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” and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of 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 Information Division depends on the economies and the demographics of the legal, financial and real estate sectors in the markets we serve;
	•		a decrease in paid subscriptions to our print publications, which occurred between June 2006 and 2007, primarily due to the termination of discounted subscription programs, could adversely affect our circulation revenues to the extent we are not able to continue increasing our subscription rates and our advertising and display revenues to the extent advertisers begin placing fewer advertisements with us due to decreased readership;
	•		APC’s business revenues are very concentrated, as APC currently provides mortgage default processing services to only two customers, Trott & Trott and Feiwell & Hannoy;
	•		the key attorneys at each of APC’s two law firm customers are employed by, and hold an indirect equity interest in, APC, and therefore may, in certain circumstances, have interests that differ from or conflict with our interests;
	•		we are dependent on our senior management team, especially James P. Dolan, our founder, Chairman, President and Chief Executive Officer; and
	•		growing our business may place a strain on our management and internal systems, processes and controls.

See “Risk Factors” in our prospectus filed on August 2, 2007 with the SEC pursuant to Section 424(b) of the Securities Act of 1933 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 60 print publications consisting of 14 paid daily publications, 29 paid non-daily publications and 17 non-paid non-daily publications. In addition, we provide business information electronically through our 42 on-line publication web sites, our 11 non-publication web sites and our email notification systems. Our Professional Services Division comprises two operating units, APC, which provides mortgage default processing services to two law firms, one in Michigan and one in Indiana, and Counsel Press, which provides appellate services to law firms and attorneys nationwide.

Recent Developments

          On August 7, 2007, we completed our initial public offering of 10,500,000 shares of common stock at a price of $14.50 per share. We received approximately $138.1 million of net proceeds from the offering, after deducting the underwriters’ discount of $13.7 million and estimated offering expenses of $3.5 million payable by us. 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 series B preferred stock, including shares issued upon conversion of the series C preferred stock. Upon the consummation of this conversion and redemption on August 7, 2007, no shares of our preferred stock remain outstanding.

          Prior to August 7, 2007, when shares of our series C preferred stock were 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 and 2006, we recorded the related dividend accretion for the change in fair value of this security of $25.8 million, $8.3 million, $55.2 million and $12.5 million, respectively, as interest expense. Because all shares of series C preferred stock were redeemed by us on August 7, 2007, we will no longer be required to record any non-cash interest expense related to mandatorily redeemable preferred stock for periods after such date.

          In connection with our initial public offering on August 7, 2007, 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 8 shares of common stock for each share of common stock outstanding immediately prior to the consummation of the offering. All share and per share numbers in this report reflect this stock split.

          In connection with our initial public offering, we adopted the Dolan Media Company 2007 Incentive Compensation Plan. On August 1, 2007, pursuant to such incentive compensation plan, we issued (1) stock options exercisable for 873,157 shares of common stock with an exercise price per share equal to the initial public offering price of $14.50 to executive officers, management employees and non-employee directors and (2) 193,829 restricted shares of common stock to non-executive employees. Of these restricted shares of common stock, 19,541 shares have been forfeited by the grantees because they did not return an executed restricted share agreement to us in the appropriate time period. These 19,541 shares are deemed to be issued but not outstanding, and are held in treasury.

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 in 2006 and 2007:

          On March 14, 2006, we formed our mortgage default processing unit and therefore expanded our Professional Services Division by acquiring 81.0% of the membership interests of APC from the law firm of Trott & Trott for $40 million in cash and 450,000 shares of our common stock. APC provides mortgage default processing services in Michigan for Trott & Trott and in Indiana for Feiwell & Hannoy as further discussed below.

          On October 31, 2006, we purchased substantially all of the publishing assets of Happy Sac International Co. (the Watchman Group in St. Louis, Missouri) for approximately $3.1 million in cash. The assets included court and commercial newspapers in and around the St. Louis metropolitan area.

          On November 10, 2006, APC purchased the mortgage default processing service business of Robert A. Tremain and Associates, a Michigan law firm, for $3.6 million in cash. In connection with this acquisition, Trott & Trott purchased the law firm business of Robert A. Tremain.

          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 beginning 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 guarantee APC’s obligations under the note payable to Feiwell & Hannoy. In connection with this guarantee, Trott & Trott, as the holder of 19.0% of the membership interests of APC, executed a reimbursement agreement with us, whereby Trott & Trott agreed to reimburse us for 19.0% of any amounts we are required to pay to Feiwell & Hannoy pursuant to our guarantee of the note. As a result of the acquisition, we currently own 77.4% of APC, Trott & Trott owns 18.1% of APC and Feiwell & Hannoy owns 4.5% of APC. Under the terms of APC’s amended and restated operating agreement, Trott & Trott and Feiwell & Hannoy have the right, for a period of six months following August 7, 2009, the second anniversary of the consummation of our initial public offering, to require APC to repurchase all or any portion of the APC membership interests held by Trott & Trott and Feiwell & Hannoy at a purchase price based on 6.25 times APC’s trailing twelve month earnings before interest, taxes, depreciation and amortization. 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%.

          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. Up to $0.6 million in additional cash purchase price may be payable based on the amount of revenues we derive from the acquired business during the one-year period following the closing of the acquisition.

          We have accounted for each of the acquisitions described above under the purchase method of accounting. The results of the acquired businesses of APC, Tremain and Feiwell & Hannoy have been included in the Professional Services segment, and the results of the acquired business of the Watchman Group and Venture Publications have been included in the Business Information segment, in our unaudited condensed 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. In the three and six months ended June 30, 2007, our total revenues were $37.1 million and $72.8 million, respectively, and the percentage of our total revenues attributed to each of our segments was as follows:

	•		58.3% and 56.4%, respectively, from our Business Information Division; and
	•		41.7% and 43.6%, 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 consisting of display and classified advertising in all of our print products and on most of our web sites. Our display and classified advertising revenues accounted for 26.3% and 23.7% of our total revenues and 45.1% and 42.1% of our Business Information Division’s revenues for the three and six months ended June 30, 2007, respectively. We recognize display and classified advertising revenues upon publication of an advertisement in one of our publications or on one of our web sites. Advertising revenues are driven primarily by the volume, price and mix of advertisements published.

     We publish 286 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. Our public notice revenues accounted for 20.9% and 21.0% of our total revenues and 35.8% and 37.2% of our Business Information Division’s revenues for the three and six months ended June 30, 2007, 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 12 markets where we 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, 2007, our circulation revenues, which consist of subscriptions and single-copy sales, accounted for 9.1% and 9.6%, respectively, of our total revenues and 15.5% and 17.0%, 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 in 2006 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 2.1% and 2.1% of our total revenues and 3.5% and 3.7% of our Business Information Division’s revenues for the three and six months ended June 30, 2007, 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 case files for residential mortgages that are in default. We currently provide these services for Trott & Trott, a Michigan law firm of which David A. Trott, APC’s President, is majority shareholder and managing attorney, and Feiwell & Hannoy, an Indiana law firm of which the two shareholders and principal attorneys are employees of APC. For the three and six months ended June 30, 2007, we serviced approximately 29,700 and 59,700 mortgage default case files, respectively, and our mortgage default processing service revenues accounted for 32.5% and 33.2% of our total revenues and 77.8% and

76.3% of our Professional Services Division’s revenues. We recognize mortgage default processing service revenues on a ratable basis over the period during which the services are provided, which is generally 35 to 60 days for Trott & Trott and 55 to 270 days for Feiwell & Hannoy. 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 for services performed and record amounts billed for services not yet performed as deferred revenue. 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 Trott & Trott and Feiwell & Hannoy that each provide for the exclusive referral of files from the law firm to APC for servicing, unless Trott & Trott 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. 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 and, in the case of the Trott & Trott agreement, the annual volume of these files. 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. APC’s revenues are primarily driven by the number of residential mortgage defaults in Michigan and Indiana, 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 on or before January 1, 2008, and each second anniversary after that. Under the Feiwell & Hannoy agreement, the fixed fee per file increases on an annual basis through 2012 to account for inflation as measured by the consumer price index. In each year after 2012, APC and Feiwell & Hannoy have agreed to review and possibly revise the fee schedule. 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.

     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 circuit courts and any state appellate court or appellate division. For the three and six months ended June 30, 2007, our appellate service revenues accounted for 9.3% and 10.3% of our total revenues and 22.2% and 23.7% of our Professional Services Division’s revenues, respectively. Counsel Press charges its customers 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 appeals we file. These revenues tend to be lower in the second quarter of each year because there are typically fewer appellate filings during such quarter. For the three and six months ended June 30, 2007, we provided appellate services to attorneys in connection with approximately 2,200 and 4,400 appellate filings, respectively, in federal and state courts. We recognize appellate service revenues as the services are provided.

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 within our Business Information Division and the processing

			staff at APC and Counsel Press, and production and distribution expenses, such as compensation 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 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 30 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 30 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 Detroit Legal News Publishing

     In November 2005, we acquired 35.0% of the membership interests in DLNP, the publisher of Detroit Legal News and seven other publications, for $16.8 million. We account for our investment in DLNP using the equity method. Our percentage share of DLNP’s earnings was $1.3 million and $2.2 million, net of amortization of $358,000 and $718,000, for the three and six months ended June 30, 2007, respectively, which we recognized as operating income. 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 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 consisted of the 19.0% membership interest in APC held by Trott & Trott as of December 31, 2006, and the 18.1% and 4.5% membership interest in APC held by Trott & Trott and Feiwell & Hannoy, respectively, as of June 30, 2007. We acquired 81.0% of APC on March 14, 2006. In January 2007, APC sold 4.5% membership interest in APC to Feiwell & Hannoy, leaving us and Trott & Trott with 77.4% and 18.1%, respectively, of the aggregate membership interests in APC. 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 indebtedness of APC, capital expenditures and working capital needs to APC’s members on the basis of common equity interest owned. We have paid distributions to Trott & Trott of $1.8 million in 2006 and $919,000 in the first six months of 2007. For the six months ended June 30, 2007, we have also paid distributions of $183,000 to Feiwell & Hannoy. There was not a corresponding distribution in 2006 because Feiwell & Hannoy did not own its membership interests in APC until January 2007.

Critical Accounting Policies

          We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. 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 purchase accounting, valuation of our equity securities of privately-held companies, impairment of goodwill, other intangible assets and other long-lived assets, share-based compensation expense, income tax accounting and allowances for doubtful accounts.

Purchase Accounting

          We have acquired a number of businesses during the last several years, and we expect to acquire additional businesses in the future. Under SFAS No. 141, Business Combinations, we are required to account for business combinations using the purchase method of accounting. The purchase method requires us to determine the fair value of all acquired assets, including identifiable intangible assets, and all assumed liabilities. The cost of the acquisition is allocated to the acquired assets and assumed liabilities in amounts equal to the fair value of each asset and liability, and any remaining acquisition cost is classified as goodwill. This allocation process requires extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets. Certain identifiable, finite-lived intangible assets, such as mastheads and trade names and advertising, subscriber and other customer lists, are amortized on a straight-line basis over the intangible asset’s estimated useful life. The estimated useful life of amortizable identifiable intangible assets ranges from one to 30 years. Goodwill is not amortized. Accordingly, the accounting for acquisitions has had, and will continue to have, a significant impact on our operating results.

Valuation of Our Company Equity Securities

          The valuation of our common stock has had a material effect on our operating results because we account for our mandatorily redeemable preferred stock at fair value. Accordingly, we record 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 and 2006, we recorded non-cash interest expense of $26.3 million, $56.3 million, $8.8 million and $13.5 million, respectively. Determining the fair value of our redeemable preferred stock requires us to value two components: (1) the fixed redeemable portion and (2) the common stock conversion portion.

          We determine the fair value of the fixed portion by calculating the present value of the amount that is mandatorily redeemable, including accreted dividends, on July 31, 2010 as of each balance sheet date. For June 30, 2006, we used a discount fate of 13.0% to calculate such present value based on a weighted average cost of capital analysis. The portion of the non-cash interest expense related to the

fixed portion was $1.5 million and $4.0 million for the three months and six months ended June 30, 2006, respectively.

          The estimated fair value of our common stock per share was $2.22 at June 30, 2006. Given the absence of an active market for our common stock because we were a private company until August 2007, we engaged an independent third-party valuation firm to help us estimate the fair value of our common stock that was used to value the conversion portion of our redeemable preferred stock beginning with the September 30, 2006 valuation. For the valuations prior to that date, we used internally prepared contemporaneous valuations. For the June 30, 2006 valuation, a variety of objective and subjective factors were considered to estimate the fair value of our common stock, including a contemporaneous valuation analysis using the income and market approaches, the likelihood of achieving and the timing of a liquidity event, such as an initial public offering or sale of the company, the cash flow and EBITDA-based trading multiples of comparable companies, including our competitors and other similar publicly-traded companies, and the results of operations, market conditions, competitive position and the stock performance of these companies. In particular, we used the current value method to determine the estimated fair value of our securities by allocating our enterprise value among our different classes of securities. We also considered using the probability weighted expected return method, or PWER method, which is described in the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held Securities, in connection with such valuation. We ultimately decided that the use of the PWER method was not a more appropriate method in the valuation of our equity securities, primarily because of the terms of our preferred stock.

          In preparing a discounted cash flow analysis (income approach) as of June 2006, we made the following significant assumptions:

	•		a long-term revenue growth of 3.5%
	•		EBITDA would grow by 7% in 2006 – 2012 and 5% thereafter and expected EBITDA margins would range from 23 – 26%
	•		capital expenditures of approximately 2% of revenues
	•		a discount rate, based on our estimated capital structure and the cost of our equity and debt, of 13%
	•		a terminal multiple, based on our anticipated growth prospects and private and public market valuations of comparable companies, of 7.1
	•		a non-marketability discount of 15%
	•		cost growth assumptions (we assumed direct operating expenses and selling, general and administrative expenses would grow 3% per year)

          In our valuations, our growth assumptions are based on historical trends and then current beliefs regarding our market. A significant factor that contributed to the increase in the fair value of our common stock that our near-term forecast was increased due to the fact that our revenues from our Business Information Division and Professional Services Division, as well as our equity in earnings of DLNP, exceeded expectations. Business Information Division revenues exceeded expectations primarily because of strong public notice volume related to foreclosure actions. Professional Services Division revenues exceeded expectations primarily because of strong foreclosure volume of mortgage default case files that we serviced for our law firm customer in Michigan. We expected the volume of mortgage default case files that we service to remain strong in Michigan given the foreclosure trends in that state. Equity in earnings of DLNP also exceeded expectations primarily because of strong public notice volume in Michigan related to foreclosure actions. We expected the volume of public notices related to foreclosure activity to continue given the foreclosure trends in the residential mortgage industry in the states in which our court and commercial newspapers and DLNP publish public notices.

          We equally weighted the income and market approach for the June 2006 valuation. Changes in these assumptions could cause our estimates to vary widely, which could materially impact our historical results of operations. The changes in value attributable to the common stock conversion were $4.0 million and $5.7 million in the three and six months ended June 30, 2006, respectively.

          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 three and six months ended June 30, 2007 and will similarly use such initial offering price for the three and nine months ended September 30, 2007. The common stock conversion option in our series C preferred stock terminated upon, and thus will have no further effect on our future operating results for periods after, the consummation of our public offering on August 7, 2007 because all of our series C preferred stock converted into 195,878 shares of series A preferred stock, 38,132 shares of series B preferred stock and 5,093,155 shares of common stock at that time. In connection with the consummation of the public offering, we exercised our call right and redeemed 100% of the series B and series A preferred stock, including accrued dividends. The cash redemption price for the series B preferred stock and the series A preferred stock that were issued upon conversion of the series C preferred stock was approximately $64.8 million. The difference between the cash redemption price and the fair value of the series C preferred stock was attributable to the value of the 5,093,155 shares of our common stock into which the series C preferred stock converted. Upon consummation of the offering, we reclassified this difference as additional-paid-in-capital.

Goodwill, Other Intangible Assets and Other Long-Lived Assets

          Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to acquired assets and assumed liabilities. Intangible assets represent assets that lack physical substance but can be distinguished from goodwill. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we test goodwill allocated to each of our reporting units (our Business Information Division and Professional Services Division) and other intangible assets for impairment on an annual basis and between annual tests if circumstances, such as loss of key personnel, unanticipated competition, higher or earlier than expected customer attrition or other unforeseen developments, indicate that a possible impairment may exist. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we test all other long-lived assets, such as fixed assets, for impairment if circumstances indicate that a possible impairment exists. Impairment in value exists when the carrying amount of goodwill, other intangible assets and other long-lived assets are not recoverable because it exceeds such asset’s implied fair value, with the excess recorded as a charge to earnings. If we determine that an impairment in value has occurred, the carrying value of the asset is reduced to its fair value. An impairment test involves considerable management judgment and estimates regarding future cash flows and operating results. Any changes in key assumptions about our businesses and their prospects, or changes in market conditions, could result in an impairment charge, and such a charge could have a material effect on our consolidated financial statements because of the significance of goodwill, other intangible assets and other long-lived assets to our consolidated balance sheet.

          We determine the estimated useful 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 loss for the six months ended June 30, 2007 would have been approximately $0.4 million lower if the actual useful lives of our finite-lived intangible assets were 10%

longer than the estimates and approximately $0.5 million higher if the actual useful lives of our finite-lived intangible assets were 10% shorter than the estimates.

Share-Based Compensation Expense

          During 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment concurrently with the approval and adoption of our 2006 Equity Incentive Plan. The plan was amended and restated in 2007 and renamed the Dolan Media Company 2007 Incentive Compensation Plan. This plan has reserved for issuance 2,700,000 shares of common stock and provides for awards in the form of stock options, restricted stock, stock appreciation rights, restricted stock units, deferred shares, performance units and other stock-based awards. 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 will 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. We will estimate the fair value of share-based awards that contain market conditions using a lattice model. This lattice model will take into account the effect of the market conditions on the fair value at the time of grant. We will recognize compensation expense over the requisite service period, regardless of whether the market conditions are satisfied. We will need to exercise considerable judgment to estimate the number of awards that will ultimately be earned based on the expected satisfaction of associated performance or market conditions.

          Prior to June 30, 2006, we made only a limited number of equity awards, consisting of stock options granted in October 2006 that are exercisable for 126,000 shares of common stock at an exercise price of $2.22 per share, under our incentive compensation plan. Share-based compensation expense that we recognized for these grants is reflected in our selling, general and administrative expenses for the three and six months ended June 30, 2007. On August 1, 2007, we granted stock options exercisable for 873,157 shares of common stock at an exercise price equal to $14.50, the initial public offering price, as well as 193,829 restricted shares of our common stock, which were issued to our executive officers, employees and non-employee directors on such date. In the future, we intend to grant additional equity awards to such persons. Therefore, we expect to record increased share-based compensation expense in the future, which expense for future equity awards will be reflected in our selling, general and administrative expenses and/or direct operating expenses for future periods, depending on to whom we grant an award. The actual amount of share-based compensation expense we record in any fiscal period will depend on a number of factors, including the number of shares and vesting period of equity awards, the fair value of our common stock at the time of issuance, the expected volatility of our stock price over time and the estimated forfeiture rate. Accordingly, we expect that the estimates, assumptions and judgments required to account for share-based compensation expense under SFAS No. 123(R) will have increased significance after the consummation of this offering.

          In accordance with SFAS No. 123(R), we have used the Black-Scholes option pricing model to estimate the fair value on the date of grant of the stock option awards that we issued on October 11, 2006 (which represent the only equity awards we made prior to June 30, 2007) and the option awards we made on August 1, 2007 because such awards contained only service conditions for the grantees. Our determination of the fair value of these stock option awards was affected by the estimated fair value of our common stock on the date of grant, which for the previously granted stock options was based on a third-party appraisal provided to us as of September 30, 2006, in connection with determining the fair value of the common stock conversion feature of our mandatorily redeemable preferred stock and for the grants we made on August 1, 2007 is based on the initial public offering price of $14.50, as well as assumptions regarding a number of highly complex and subjective variables that are discussed below. In connection with our Black-Scholes option pricing model, we calculated the expected term of stock option awards using the “simplified method” as defined by SAB 107 because we lack historical data and are unable to make reasonable expectations regarding the future. SFAS No. 123(R) requires companies to

estimate forfeitures of share-based awards at the time of grant and revise such estimates in subsequent periods if actual forfeitures differ from original projections. We also made assumptions with respect to expected stock price volatility based on the average historical volatility of a select peer group of similar companies. In addition, we chose to use the risk free interest rate for the U.S. Treasury zero coupon yield curve in effect at the time of grant for a bond with a maturity similar to the expected life of the options.

          In specific, the following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the 126,000 stock options that we issued on October 11, 2006:

Dividend yield			0.0	%
Expected volatility			55	%
Risk free interest rate			4.75	%
Expected life of options			7 years
Weighted average fair value of options granted			$1.35

All options granted on October 11, 2006 were incentive stock options, one-fourth of which vested on the grant date and the remaining three-fourths of which will vest in three equal annual installments commencing on the first anniversary of the grant date. These options will terminate seven years after the grant date.

          In addition, the following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the 873,157 stock options we granted on August 1, 2007:

Dividend yield			0.0	%
Expected volatility			28	%
Risk free interest rate			4.90	%
Expected life of options			4.75 years
Weighted-average fair value of options granted			$4.82

All options granted on August 1, 2007 were non-qualified options that vest in four equal annual installments commencing on the first anniversary of the grant date and will terminate seven years after the grant date.

     Our share-based compensation expense for the options granted on October 11, 2006 under SFAS 123(R) for the three and six months ended June 30, 2007 was approximately $11,000 and $21,000, respectively, before income taxes. We expect to incur an additional $462,000 of share-based compensation expense for the remainder of 2007 in connection with these stock options and the stock options granted on August 1, 2007. As of June 30, 2007, our estimated aggregate unrecognized share-based compensation expense for these stock options that are unvested is $4.3 million, which we expect to recognize over a weighted-average period of approximately 3.97 years.

     Our equity incentive plan allows for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. We expect that the shares of nonvested restricted stock that we grant to participants in future periods will be subject to performance or market conditions that may affect the number of shares of nonvested restricted stock that will ultimately vest at the end of the requisite service period. 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. Compensation expense is amortized over the vesting period. We issued 193,829 restricted shares of common stock on August 1, 2007. Of these shares of restricted stock, 19,541 shares have been forfeited by the grantees because they did not return an executed restricted share agreement to us in the appropriate time period. These 19,541 shares are deemed to be issued but not outstanding, and are held in treasury. The restricted shares that have been issued to non-executive management employees will vest in four equal annual installments commencing on the first anniversary of the grant date and the restricted shares issued to non-management employees will vest in five equal installments commencing on the date the initial public offering was consummated and each of the first four anniversaries of the grant date. We have assumed that the market price of our common stock on the date of grant of these restricted shares is the initial public offering price of $14.50. In connection with these restricted shares of common stock that we granted on August 1, 2007, we expect to incur approximately $503,000 of share-based compensation expense for the remainder of 2007. As of June 30, 2007, our estimated aggregate unrecognized share-based compensation expense for these restricted shares of common stock is $2.5 million, which we expect to recognize over a weighted-average period of 4 years.

          We will also record share-based compensation expenses in the future under the terms of our employee stock purchase plan that we plan to commence in 2008 because our eligible employees that participate in the plan will have three-month options to purchase our common stock through payroll deductions at a price equal to 85% of the lower of (1) our stock price on the date the option is granted and (2) our stock price on the date the option expires.

Income Taxes

          We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes . Under SFAS No. 109, income taxes are recognized for the following: (1) amount of taxes payable for the current year and (2) deferred tax assets and liabilities for the future tax consequence of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using statutory tax rates and are adjusted for tax rate changes. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

          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. We do not expect the completion of these audits to have a material effect on our consolidated financial statements.

Accounts Receivable Allowances

          We extend credit to our advertisers, public notice publishers 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, 2007, because the amount due from Trott & Trott was $3.1 million, or 17.3% of our consolidated accounts receivable balance, and the amount due from Feiwell & Hannoy was $1.5 million, or 8.2% of our consolidated accounts 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 set forth in the applicable services agreement.

          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

          On February 15, 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. Under SFAS No. 159, we may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex hedge accounting provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, are not met. SFAS No. 159 is effective for years beginning after November 15, 2007. We are currently evaluating the potential impact of adopting this standard.

          In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning January 1, 2008. We are currently assessing the potential impact that the adoption of SFAS No. 157 will have on our financial statements.

Recently Adopted Accounting Pronouncement

          We 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, we recognized no adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, we had $153,000 of unrecognized income tax benefits. All of the unrecognized income tax benefits, if recognized, would favorably affect our effective income tax rate in future periods. There were no material adjustments for the unrecognized income tax benefits in the first quarter of 2007.

          We are subject to U.S. federal income tax, as well as income tax of multiple state jurisdictions. Currently, no federal or state jurisdiction is examining our income tax returns. We have used net operating losses from tax years ended 2000 through 2006. As a result, our federal income tax returns for those tax years are open to examination for an additional three year period, beginning with the tax year immediately following the tax year in which we fully used the net operating loss from such prior tax year. In states where our operations have generated net operating losses, our state returns will be open for examination for a similar three year period.

          We continue to recognize interest and penalties related to uncertain tax positions in income tax expense. Upon adoption of FIN 48, we had $36,000 of accrued interest related to uncertain tax positions.

          We do not anticipate any significant increases or decreases in unrecognized income tax benefits within twelve months of adoption of FIN 48. Immaterial amounts of interest expense will continue to accrue.

Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. We define and use adjusted EBITDA, a non-GAAP financial measure, as set forth below.

Adjusted EBITDA

The adjusted EBITDA measure presented consists of income (loss) from continuing operations before:

	•		non-cash interest expense related to redeemable preferred stock;
	•		net interest expense;
	•		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 will have no impact on our financial performance for periods after August 7, 2007, the date we consummated our initial public offering, due to the redemption or conversion of all of our outstanding shares of preferred stock), 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 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 loss to adjusted EBITDA (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net loss		$	(21,858	)		$	(8,403	)		$	(49,644	)		$	(9,453	)
Non-cash compensation expense			11				—				21				—
Non-cash interest expense related to redeemable preferred stock			26,318				8,816				56,260				13,451
Interest expense, net			1,393				988				3,428				2,464
Income tax expense			967				3,743				4,107				2,508
Amortization of intangibles			1,871				1,315				3,714				2,286
Depreciation expense			889				633				1,645				1,094
Amortization of DLNP intangible			358				347				718				809
Minority interest in net income of subsidiary			807				463				1,707				589
Cash distributions to minority interest			(636	)			(303	)			(1,102	)			(303	)
Adjusted EBITDA		$	10,120			$	7,599			$	20,854			$	13,445

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):

		Three Months Ended June 30,																Six Months Ended June 30,
						% of								% of								% of								% of
		2007				Revenues				2006				Revenues				2007				Revenues				2006				Revenues
Revenues:
Business Information		$	21,588				58.3	%		$	18,741				67.2	%		$	41,068				56.4	%		$	36,655				72.4	%
Professional Services			15,467				41.7	%			9,163				32.8	%			31,682				43.6	%			13,964				27.6	%
Total revenues			37,055				100.0	%			27,904				100.0	%			72,750				100.0	%			50,619				100.0	%
Operating expenses:
Business Information			16,868				45.5	%			14,785				53.0	%			32,771				45.1	%			29,297				57.9	%
Professional Services			11,141				30.1	%			6,856				24.6	%			22,273				30.6	%			10,399				20.5	%
Unallocated corporate operating expenses			2,744				7.4	%			1,176				4.2	%			4,080				5.6	%			2,335				4.6	%
Total operating expenses			30,753				83.0	%			22,817				81.8	%			59,124				81.3	%			42,031				83.0	%
Equity in earnings of Detroit Legal News Publishing, LLC, net of amortization			1,330				3.6	%			530				1.9	%			2,245				3.1	%			991				2.0	%
Operating income			7,632				20.6	%			5,617				20.1	%			15,871				21.8	%			9,579				18.9	%
Non-cash interest expense related to redeemable preferred stock (1)			(26,318	)			(71.0	)%			(8,816	)			(31.6	)%			(56,260	)			(77.3	)%			(13,451	)			(26.5	)%
Interest expense, net			(1,393	)			(3.8	)%			(988	)			(3.5	)%			(3,428	)			(4.7	)%			(2,464	)			(4.9	)%
Other expense, net			(5	)			0.0	%			(10	)			0.0	%			(13	)			0.0	%			(20	)			0.0	%
Loss from continuing operations before income taxes			(20,084	)			(54.2	)%			(4,197	)			(15.0	)%			(43,830	)			(60.2	)%			(6,356	)			(12.5	)%
Income tax expense			(967	)			(2.6	)%			(3,743	)			(13.4	)%			(4,107	)			(5.7	)%			(2,508	)			(5.0	)%
Minority interest			(807	)			(2.2	)%			(463	)			(1.7	)%			(1,707	)			(2.3	)%			(589	)			(1.2	)%
Loss from operations		$	(21,858	)			(59.0	)%		$	(8,403	)			(30.1	)%		$	(49,644	)			(68.2	)%		$	(9,453	)			(18.7	)%
Adjusted EBITDA (2)		$	10,120				27.3	%		$	7,599				27.2	%		$	20,854				28.7	%		$	13,445				26.6	%

Three Months Ended June 30, 2007, Compared to Three Months Ended June 30, 2006

Revenues.

          Our total revenues increased $9.2 million, or 32.8%, to $37.1 million for the three months ended June 30, 2007, from $27.9 million for the three months ended June 30, 2006. This increase in total revenues consisted of the following:

•

$3.0 million of revenues from our mortgage default processing services operations in Indiana, which we acquired from Feiwell & Hannoy on January 9, 2007;

	•		$0.5 million of revenues from the Mississippi Business Journal included as part of our acquisition of the publishing assets of Venture Publications, Inc., which we acquired on March 30, 2007; and
	•		$5.7 million of increased revenues from our organic growth within existing businesses (i.e., businesses that we operated in the second quarter of both 2006 and 2007) including $3.4 million of increased revenues from our Professional Services Division and $2.3 million of increased revenues in our Business Information Division, primarily resulting from increased public notice revenues.

We derived 58.3% and 67.2% of our total revenues from our Business Information Division and 41.7% and 32.8% of our total revenues from our Professional Services Division for the three months ended June 30, 2007 and 2006, respectively. This change in the mix between our two operating segments resulted primarily from our acquisition of APC in March 2006 and the mortgage default processing service business of Feiwell & Hannoy in January 2007.

          Operating Expenses. Our total operating expenses increased $7.9 million, or 34.8%, to $30.8 million for the three months ended June 30, 2007, from $22.8 million for the three months ended June 30, 2006. Operating expenses attributable to our corporate operations, which largely consist of compensation and benefit expense for our executive officers and other corporate personnel, as well as unallocated portions of corporate insurance costs, increased $1.6 million, or 133.3%, to $2.7 million, for the three months ended June 30, 2007, from $1.2 million for the three months ended June 30, 2006. Total operating expenses as a percentage of revenues increased to 83.0% in the second quarter of 2007 from 81.8% in the second quarter of 2006 principally due to expenses incurred in connection with the move of APC’s offices to their new location in June 2007, as well as increased corporate insurance costs (including a $0.5 million charge in connection with the cancellation of split dollar life insurance policies for certain of our management employees and the related release of collateral to such employees), which was partially offset by our higher margin Professional Services revenues increasing as a percentage of total revenues.

          Direct Operating Expenses. Our direct operating expenses increased $2.2 million, or 22.0%, to $12.0 million for the three months ended June 30, 2007, from $9.8 million for the three months ended June 30, 2006. This increase in direct operating expenses was primarily attributable to the cost of compensation and employee benefits for the processing staff of the mortgage default processing service business of Feiwell & Hannoy that we acquired in the first quarter of 2007. Direct operating expenses as a percentage of revenue decreased from 35.3% in the second quarter of 2006 to 32.4% in the second quarter of 2007 due to the increase in higher margin revenue.

          Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $5.0 million, or 44.9%, to $16.0 million for the three months ended June 30, 2007, from $11.0 million for the three months ended June 30, 2006, primarily due to the costs of employee salaries and benefits for the mortgage default processing service business of Feiwell & Hannoy that we acquired in the first quarter of 2007, as well as an increase in health insurance costs of approximately $0.8 million and the write off of $0.5 million in split dollar life insurance that we cancelled for certain of our management employees and for which we released collateral to such employees. Selling, general and administrative expense as a percentage of revenue increased to 43.2% in the second quarter of 2007 from 39.6% in the second quarter of 2006 principally due to expenses of $0.2 million incurred in connection with the move of APC’s offices to their new location in June 2007, as well as increased corporate insurance costs, which was partially offset by our higher margin Professional Services revenues increasing as a percentage of total revenues. To the extent our mix of businesses shifts more toward Professional Services, it will cause selling, general and administrative expenses to decrease as a percentage of revenue or partially offset any increase in such percentage that otherwise occurs.

          Depreciation and Amortization Expense. Our depreciation expense increased $0.3 million, or 40.4%, to $0.9 million for the three months ended June 30, 2007, from $0.6 million for the three months ended March 31, 2006 due to higher fixed asset balances in 2007. Our amortization expense increased $0.6 million, or 42.4%, to $1.9 million for the three months ended June 30, 2007, from $1.3 million for the three months ended June 30, 2006, primarily due to the amortization of finite-lived intangible assets acquired as part of the acquisition of the mortgage default processing service business of Feiwell & Hannoy that we acquired in the first quarter of 2007.

Adjusted EBITDA

          Adjusted EBITDA (as defined and discussed above under Non-GAAP Financial Measures above) increased $2.5 million, or 33.2%, to $10.1 million for the three months ended June 30, 2007, from $7.6 million for the three months ended June 30, 2006, due to the cumulative effect of the factors described above that are applicable to the calculation of adjusted EBITDA. Adjusted EBITDA as a percentage of revenues, which we also refer to as adjusted EBITDA margin, increased slightly to 27.3% for the three months ended June 30, 2007, from 27.2% for the three months ended June 30, 2006.

Non-Cash Interest Expense Related to Redeemable Preferred Stock

          Non-cash interest expense related to redeemable preferred stock consists of dividend accretion on our series A preferred stock and series C preferred stock and the change in the fair value of our series C preferred stock. Non-cash interest expense related to redeemable preferred stock increased $17.5 million to $26.3 million for the three months ended June 30, 2007, from $8.8 million for the three months ended June 30, 2006, primarily due to the increase in the fair value of the common stock into which our series C preferred stock converts. For periods after August 7, 2007, the date we closed our initial public offering, converted all shares of series C preferred stock into shares of series A preferred stock, series B preferred stock and common stock, and redeemed all outstanding shares of its preferred stock, we will no longer incur non-cash interest expense related to redeemable preferred stock because no shares of preferred stock are outstanding after such date.

Interest Expense, Net

          Interest expense, net consists primarily of interest expense on outstanding borrowings under our bank credit facility, offset by interest income from our invested cash balances and the increase in the estimated fair value of our interest rate swaps. Interest expense, net increased $0.4 million to $1.4 million for the three months ended June 30, 2007, from $1.0 million for the three months ended June 30, 2006, due primarily to increased average outstanding borrowings under our bank credit facility, and to a lesser extent to interest rate increases, given that our interest rate swaps are only a partial hedge of our exposure to interest rate fluctuations. For the three months ended June 30, 2007, our average outstanding borrowings were $91.5 million compared to $84.3 million for the three months ended June 30, 2006. This increase in average outstanding borrowings was due to the debt borrowed to finance acquisitions. Interest income decreased $0.2 million to $0.4 million for the three months ended June 30, 2007, from $0.6 million for the three months ended June 30, 2006. The estimated fair value of our fixed rate interest rate swaps decreased by $0.4 million, to a $0.4 million asset at June 30, 2007, from a $0.8 million asset at June 30, 2006, due to the decrease in variable interest rates. We are required by our bank credit facility to maintain an interest rate protection program, and therefore we use interest rate swaps to manage our interest rate risk.

Income Tax Expense

          We recorded income tax expense of $1.0 million and $3.7 million, respectively, for the three months ended June 30, 2007 and 2006. For these quarterly periods, we used an effective tax rate based on our annual projected income in accordance with APB No. 28.

Business Information Division Results

          Revenues. Business Information Division revenues increased $2.8 million, or 15.2%, to $21.6 million for the three months ended June 30, 2007, from $18.7 million for the three months ended June 30, 2006. Our display and classified advertising revenues increased $1.3 million, or 15.2%, to $9.7 million for the three months ended June 30, 2007, from $8.5 million for the three months ended June 30, 2006, primarily due to growth in the number of advertisements placed in our publications. Our public notice revenues increased $1.8 million, or 29.8%, to $7.7 million for the three months ended June 30, 2007, from $6.0 million for the three months ended June 30, 2006 primarily due to the increased number of foreclosure notices placed in our publications.

          Circulation revenues remained flat at $3.4 million for the three months ended June 30, 2007 and 2006. An increase in the average price per subscription was offset by a decline in the number of paid subscribers. As of June 30, 2007, our paid publications had approximately 73,500 subscribers, a decrease of approximately 4,100, or 5.3%, from total subscribers of approximately 77,600 as of June 30, 2006. This decrease was primarily due to our termination of discounted subscription programs for LawyersUSA and for publications in Colorado, New Orleans and Maryland, partially offset by an increase in paid subscribers related to our acquisition of Venture Publications Inc. in March 2007. Other Business Information Division revenues decreased $0.2 million, or 20.4%, to $0.8 million for the three months ended June 30, 2007, from $1.0 million for the three months ended June 30, 2006, primarily due to decreased commercial printing sales.

          One of our paid publications, The Daily Record in Maryland, as well as the business information products we target to the Missouri markets and the Massachusetts market, each accounted for over 10% of our Business Information Division’s revenues for the three months ended June 30, 2007.

          Operating Expenses. Total direct operating expenses attributable to our Business Information Division increased $0.4 million, or 5.9%, to $7.0 million for the three months ended June 30, 2007, from $6.6 million for the three months ended June 30, 2006. This increase was primarily attributable to increased costs due to the acquisition of Venture Publications, Inc. in March 2007. Selling, general and administrative expenses attributable to our Business Information Division increased $1.5 million, or 20.5%, to $8.8 million for the three months ended June 30, 2007, from $7.3 million for the three months ended June 30, 2006, due to increased costs related to the acquisition of Venture Publications, as well as increased overall wage costs and costs of various marketing promotions. Total operating expenses attributable to our Business Information Division as a percentage of Business Information Division revenue decreased slightly to 78.1% in the second quarter of 2007 from 78.9% in the second quarter of 2006.

Professional Services Division Results

          Revenues. Professional Services Division revenues increased $6.3 million to $15.5 million for the three months ended June 30, 2007, from $9.2 million for the three months ended June 30, 2006, primarily due to a $5.5 million increase in mortgage default processing service revenues to $12.0 million in the second quarter of 2007 from $6.5 million in the second quarter of 2006. This increase in revenues from the mortgage default processing service business was comprised of $2.9 million from the mortgage

default processing service business that we acquired from Feiwell & Hannoy in January 2007 and $2.6 million from the growth of APC’s mortgage default processing service business in Michigan. In the second quarter of 2007, we serviced approximately 29,700 mortgage default case files for clients of our law firm customers in Michigan and Indiana, compared to approximately 16,400 mortgage default case files that we serviced for clients of our law firm customer in Michigan in the second quarter of 2006. Appellate services revenues increased $0.8 million, or 28.2%, to $3.4 million for the three months ended June 30, 2007, from $2.7 million for the three months ended June 30, 2006. This increase was attributable to Counsel Press providing assistance with respect to a greater number of appellate filings (approximately 2,200 in the second quarter of 2007 compared to approximately 1,800 in the second quarter of 2006), several of which were large and complex filings that we completed during the second quarter of 2007.

          Operating Expenses. Total direct operating expenses attributable to our Professional Services Division increased $1.8 million to $5.0 million for the three months ended June 30, 2007, from $3.2 million for the three months ended June 30, 2006, due to $1.3 million of additional expenses associated with the mortgage default processing service business of Feiwell & Hannoy, which we acquired in January 2007 and $0.4 million of other expenses primarily due to increased personnel costs resulting from an increase in the volume of files processed by APC. Selling, general and administrative expenses attributable to our Professional Services Division increased $2.0 million to $4.6 million for the three months ended June 30, 2007, from $2.6 million for the three months ended June 30, 2006, $0.9 million of which was due to our acquisition of the mortgage default processing service business of Feiwell & Hannoy in January 2007 and $0.8 million of which was primarily due to costs associated with APC’s move to a new leased office facility in June 2007 ($0.2 million), increased personnel costs resulting from an increase in the volume of files processed by APC ($0.3 million), increased rent expense ($0.2 million) and increased other operating expenses ($0.1 million). Counsel Press’ selling, general and administration expenses increased $0.3 million due primarily to increased personnel costs.

          Depreciation expense attributable to our Professional Services Division increased $0.2 million to $0.4 million for the three months ended June 30, 2007, from $0.2 million for the three months ended June 30, 2006. This increase was partially attributable to the inclusion of fixed assets from Feiwell & Hannoy that were acquired in January 2007, as well as fixed assets acquired by APC in connection with their move to a new facility in the second quarter of 2007. Amortization expense increased $0.4 million to $1.1 million in the second quarter of 2007 from $0.7 million in the second quarter of 2006 due to the amortization of finite-lived intangible assets associated with the January 2007 acquisition of the mortgage default processing service business of Feiwell & Hannoy. Total operating expenses attributable to our Professional Services Division as a percentage of Professional Services Division revenue decreased from 74.8% for the three months ended June 30, 2006, to 72.0% for the three months ended June 30, 2007.

Six Months Ended June 30, 2007, Compared to Six Months Ended June 30, 2006

Revenues.

          Our total revenues increased $22.1 million, or 43.7%, to $72.8 million for the six months ended June 30, 2007, from $50.6 million for the six months ended June 30, 2006. This increase in total revenues consisted of the following:

	•		$7.9 million of increased revenues from our mortgage default processing service in Michigan, which we acquired when we acquired APC on March 14, 2006, and for which we recognized a full six months of revenues in 2007;
	•		$5.7 million of revenues from our mortgage default processing services operations in Indiana, which we acquired from Feiwell & Hannoy on January 9, 2007;

	•		$0.5 million of revenues from the Mississippi Business Journal included as part of our acquisition of the publishing assets of Venture Publications, Inc. which we acquired on March 30, 2007; and
	•		$8.0 million of increased revenues from our organic growth within existing businesses (i.e., businesses that we operated in the first six months of both 2006 and 2007).

We derived 72.4% and 56.5% of our total revenues from our Business Information Division and 27.6% and 43.6% of our total revenues from our Professional Services Division for the six months ended June 30, 2006 and 2007, respectively.

Operating Expenses.

          Our total operating expenses increased $17.1 million, or 40.7%, to $59.1 million for the six months ended June 30, 2007, from $42.0 million for the six months ended June 30, 2006. Operating expenses attributable to our corporate operations, which largely consist of compensation expense for our executive officers and other corporate personnel, as well as unallocated portions of corporate insurance costs, increased $1.7 million, or 74.7%, to $4.1 million, for the six months ended June 30, 2007, from $2.3 million for the six months ended June 30, 2006. Total operating expenses as a percentage of revenues decreased to 81.3% for the six months ended June 30, 2007 from 83.0% for the six months ended June 30, 2006 principally because our higher margin Professional Services revenues increased as a percentage of total revenues in 2007.

          Direct Operating Expenses. Our direct operating expenses increased $6.5 million, or 36.5%, to $24.2 million for the six months ended June 30, 2007, from $17.7 million for the six months ended June 30, 2006. This increase in direct operating expenses was primarily attributable to the cost of compensation and employee benefits for the processing staff of the mortgage default processing service business of Feiwell & Hannoy that we acquired in the first quarter of 2007 and for APC that we acquired in March 2006 and for which we recognized a full six months of operating expenses in the six months ended June 30, 2007. Direct operating expenses as a percentage of revenue decreased from 35.0% as of June 30, 2006 to 33.2% as of June 30, 2007 due to the increase in higher margin revenue.

          Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $8.7 million, or 41.4%, to $29.6 million for the six months ended June 30, 2007, from $20.9 million for the six months ended June 30, 2006, due to the costs of employee salaries and benefits for the mortgage default processing service business of Feiwell & Hannoy in the first quarter of 2007 and for APC that we acquired in March 2006 and for which we recognized a full six months of operating expenses in the six months ended June 30, 2007, as well as an increase in corporate insurance costs. Selling, general and administrative expense as a percentage of revenue decreased from 41.3% as of June 30, 2006 to 40.7% as of June 30, 2007 due to our Professional Services businesses requiring less overhead than our Business Information businesses. To the extent our mix of businesses shifts more toward Professional Services, it will cause selling, general and administrative expenses to decrease as a percentage of revenue or partially offset any increase in such percentage that otherwise occurs.

          Depreciation and Amortization Expense. Our depreciation expense increased $0.6 million, or 50.3%, to $1.6 million for the six months ended June 30, 2007, from $1.1 million for the six months ended June 30, 2006 due to increased levels of property and equipment in 2007. Our amortization expense increased $1.4 million, or 62.5%, to $3.7 million for the six months ended June 30, 2007, from $2.3 million for the six months ended June 30, 2006, due primarily to the amortization of finite-lived intangible assets acquired in the APC acquisition in March 2006, as well as the mortgage default processing service business of Feiwell & Hannoy that we acquired in the first quarter of 2007.

Adjusted EBITDA

          Adjusted EBITDA (as defined and discussed above under Non-GAAP Financial Measures above) increased $7.4 million, or 55.1%, to $20.9 million for the six months ended June 30, 2007, from $13.4 million for the six months ended June 30, 2006, due to the cumulative effect of the factors described above that are applicable to the calculation of adjusted EBITDA. Adjusted EBITDA as a percentage of revenues, which we also refer to as adjusted EBITDA margin, increased to 28.7% for the six months ended June 30, 2007, from 26.6% for the six months ended June 30, 2006.

Non-Cash Interest Expense Related to Redeemable Preferred Stock

          Non-cash interest expense related to redeemable preferred stock consists of non-cash interest expense related to the dividend accretion on our series A preferred stock and series C preferred stock and the change in the fair value of our series C preferred stock. Non-cash interest expense related to redeemable preferred stock increased $42.8 million to $56.3 million for the six months ended June 30, 2007, from $13.5 million for the six months ended June 30, 2006, primarily due to the increase in the fair value of our series C preferred stock.

Interest Expense, Net

          Interest expense, net consists primarily of interest expense on outstanding borrowings under our bank credit facility, offset by interest income from our invested cash balances and the increase in the estimated fair value of our interest rate swaps. Interest expense, net increased $1.0 million to $3.4 million for the six months ended June 30, 2007, from $2.5 million for the six months ended June 30, 2006, due primarily to increased average outstanding borrowings under our bank credit facility, and to a lesser extent to interest rate increases, given that our interest rate swaps are only a partial hedge of our exposure to interest rate fluctuations. For the six months ended June 30, 2007, our average outstanding borrowings were $90.6 million compared to $67.0 million for the six months ended June 30, 2006. This increase in average outstanding borrowings was due to the debt borrowed to finance acquisitions. Interest income decreased $0.3 million to $0.5 million for the six months ended June 30, 2007, from $0.8 million for the six months ended June 30, 2006. The estimated fair value of our fixed rate interest rate swaps decreased by $0.4 million, to a $0.4 million asset at June 30, 2007, from a $0.8 million asset at June 30, 2006, due to the decrease in variable interest rates.

Income Tax Expense

          We recorded income tax expense of $4.1 and $2.5 million, respectively, for the six months ended June 30, 2007 and 2006. For these periods, we used an effective tax rate of 38% and 37% based on our annual projected income in accordance with APB No. 28.

Business Information Division Results

          Revenues. Business Information Division revenues increased $4.4 million, or 12.0%, to $41.1 million for the six months ended June 30, 2007, from $36.7 million for the six months ended June 30, 2006. Our display and classified advertising revenues increased $1.7 million, or 11.0%, to $17.3 million for the six months ended June 30, 2007, from $15.6 million for the six months ended June 30, 2006, primarily due to growth in the number of advertisements placed in our publications. Our public notice revenues increased $2.9 million, or 23.5%, to $15.3 million for the six months ended June 30, 2007, from $12.4 million for the six months ended June 30, 2006 primarily due to the increased number of foreclosure notices placed in our publications.

          Circulation revenues increased $0.1 million, or 2.2%, to $7.0 million for the six months ended June 30, 2007, from $6.9 million for the six months ended June 30, 2006. This increase was due to an increase in the average price per subscription, which was partially offset by a decline in the number of paid subscribers between June 30, 2006 and June 30, 2007, as described above. Other Business Information Division revenues decreased $0.4 million, or 19.6%, to $1.5 million for the six months ended June 30, 2007, from $1.9 million for the six months ended June 30, 2006, primarily due to decreased commercial printing sales.

          One of our paid publications, The Daily Record in Maryland, as well as the business information products we target to the Missouri markets and the Massachusetts market, each accounted for over 10% of our Business Information Division’s revenues for the six months ended June 30, 2007.

          Operating Expenses. Total direct operating expenses attributable to our Business Information Division increased $0.6 million, or 4.8%, to $13.8 million for the six months ended June 30, 2007, from $13.1 million for the six months ended June 30, 2006. This increase was primarily attributable to spending on outside software programmers working on web-related initiatives and increased costs due to the acquisition of Venture Publications Inc. in March 2007. Selling, general and administrative expenses attributable to our Business Information Division increased $2.5 million, or 17.3%, to $16.9 million for the six months ended June 30, 2007, from $14.4 million for the six months ended June 30, 2006, due to the acquisition of Venture Publications Inc. as well as increased overall wage costs and costs of various marketing promotions. Total operating expenses attributable to our Business Information Division as a percentage of Business Information Division revenue decreased slightly to 79.8% as of June 30, 2007 from 79.9% as of June 30, 2006 .

Professional Services Division Results

          Revenues. Professional Services Division revenues increased $17.7 million to $31.7 million for the six months ended June 30, 2007, from $14.0 million for the six months ended June 30, 2006, primarily due to the $16.2 million increase in mortgage default processing service revenues to $24.2 million for the six months ended June 30, 2007 from $8.0 million for the six months ended June 30, 2006. This increase was primarily attributable to the revenues from the mortgage default processing service businesses of APC (a $10.5 million increase) and Feiwell & Hannoy (a $5.7 million increase), which we acquired in March 2006 and January 2007, respectively. For the six months ended June 30, 2007, we serviced approximately 59,700 mortgage default case files for clients of our law firm customers in Michigan and Indiana, compared to approximately 20,200 mortgage default case files that we serviced for clients of our law firm customer in Michigan during the six months ended June 30, 2006.

          Appellate services revenues increased $1.5 million, or 25.4%, to $7.5 million for the six months ended June 30, 2007, from $6.0 million for the six months ended June 30, 2006. This increase was attributable to Counsel Press providing assistance with respect to a greater number of appellate filings (approximately 4,400 in the first six months of 2007 compared to approximately 3,600 in the first six months of 2006), several of which were large and complex filings that we completed during the first six months of 2007.

          Operating Expenses. Total direct operating expenses attributable to our Professional Services Division increased $5.8 million to $10.4 million for the six months ended June 30, 2007, from $4.6 million for the six months ended June 30, 2006, primarily due to the expenses of the mortgage default processing service businesses of APC (a $3.0 million increase) and Feiwell & Hannoy (a $2.5 million increase) , which we acquired in March 2006 and January 2007, respectively. Selling, general and administrative expenses attributable to our Professional Services Division increased $4.5 million to $8.9

million for the six months ended June 30, 2007, from $4.4 million for the six months ended June 30, 2006 due to our acquisition of the mortgage default processing service businesses of APC (a $2.3 million increase) and Feiwell & Hannoy (a $1.7 million increase) in March 2006 and January 2007, respectively. Depreciation expense attributable to our Professional Services Division increased $0.4 million to $0.8 million for the six months ended June 30, 2007, from $0.3 million for the six months ended June 30, 2006. This increase was attributable to the inclusion of fixed assets from APC (a $0.2 million increase) and Feiwell & Hannoy (a $0.1 million increase) that were acquired in March 2006 and January 2007, respectively. Amortization expense increased $1.1 million to $2.2 million for the six months ended June 30, 2007 from $1.1 million for the six months ended June 30, 2006 due to the amortization of finite-lived intangible assets associated with the March 2006 acquisition of APC (a $0.5 million increase) and the January 2007 acquisition of the mortgage default processing service business of Feiwell & Hannoy (a $0.5 million increase). Total operating expenses attributable to our Professional Services Division as a percentage of Professional Services Division revenue decreased from 74.5% for the six months ended June 30, 2006, to 70.3% for the six months ended June 30, 2007.

OFF BALANCE SHEET ARRANGEMENTS

          We have not entered into any off balance sheet arrangements.

LIQUIDITY AND CAPITAL RESOURCES

          Our primary sources of liquidity are cash flows from operations, debt capacity under our credit facility, distributions received from Detroit Legal News Publishing, LLC, sale of our equity securities, and available cash reserves. The following table summarizes our cash and cash equivalents, working capital (deficit) and long-term debt as of June 30, 2007 and December 31, 2006, as well as cash flows for the six months ended June 30, 2007 and 2006 (in thousands):

		June 30,				December 31,
		2007				2006
Cash and cash equivalents		$	1,623			$	786
Working capital deficit*			(11,862	)			(8,991	)
Long-term debt, less current portion			83,350				72,760