UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission File Number: 001-33603

Dolan Media Company

(Exact name of registrant as specified in its charter)

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

222 South Ninth Street, Suite 2300,
Minneapolis, Minnesota 55402
(Address, including zip code of registrant’s principal executive offices)

(612) 317-9420
Registrant’s telephone number, including area code

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

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

On November 4, 2009, there were 30,083,354 shares of the registrant’s common stock outstanding.

 

 

PART I — FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008			1
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008			2
Unaudited Condensed Consolidated Statements of Stockholders’ Equity as of September 30, 2009			3
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			4
Notes to Unaudited Condensed Consolidated Interim Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			43
Item 4. Controls and Procedures			44
PART II — OTHER INFORMATION			44
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			48
SIGNATURES			50
Exhibit 2.1
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

Dolan Media Company

		September 30,				December 31,
		2009				2008
		(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	20,640			$	2,456
Accounts receivable, including unbilled services (net of allowances for doubtful accounts of $914 and $1,398 as of September 30, 2009 and December 31, 2008, respectively)			53,338				38,776
Unbilled pass-through costs			14,893				7,164
Prepaid expenses and other current assets			4,642				4,881
Deferred income taxes			397				397
Total current assets			93,910				53,674
Investments			16,923				16,663
Property and equipment, net			15,534				21,438
Finite-life intangible assets, net			166,515				254,917
Indefinite life intangible assets			203,108				118,983
Other assets			5,490				5,166
Total assets		$	501,480			$	470,841
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt		$	12,825			$	12,048
Due to sellers of acquired businesses			13,000				75
Accounts payable			7,015				9,116
Accrued pass-through liabilities			27,356				21,598
Accrued compensation			7,801				7,673
Accrued liabilities			4,277				2,738
Deferred revenue			15,738				13,014
Total current liabilities			88,012				66,262
Long-term debt, less current portion			133,675				143,450
Deferred income taxes			7,644				18,266
Deferred revenue and other liabilities			4,772				5,136
Total liabilities			234,103				233,114
Redeemable noncontrolling interest			28,484				15,760
Commitments and contingencies (Note 13)
Stockholders’ equity
Common stock, $0.001 par value; authorized: 70,000,000 shares; outstanding: 30,079,014 and 29,955,018 shares as of September 30, 2009 and December 31, 2008, respectively			30				30
Preferred stock, $0.001 par value; authorized: 5,000,000 shares; designated: 5,000 shares of Series A Junior Participating Preferred Stock; no shares outstanding			—				—
Additional paid-in capital			285,513				291,310
Accumulated deficit			(46,650	)			(69,373	)
Total stockholders’ equity			238,893				221,967
Total liabilities and stockholders’ equity		$	501,480			$	470,841

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues
Professional Services		$	39,996			$	25,673			$	126,322			$	62,542
Business Information			22,348				22,211				66,998				68,406
Total revenues			62,344				47,884				193,320				130,948
Operating expenses
Direct operating: Professional Services			15,553				9,941				46,693				22,688
Direct operating: Business Information			6,952				7,961				21,827				23,686
Selling, general and administrative			22,910				18,950				66,073				51,787
Break-up fee			—				1,500				—				1,500
Amortization			3,924				3,050				13,219				7,587
Depreciation			2,264				1,501				6,738				3,790
Total operating expenses			51,603				42,903				154,550				111,038
Equity in earnings of affiliates			731				1,329				3,461				4,355
Operating income			11,472				6,310				42,231				24,265
Non-operating income (expense)
Interest expense, net of interest income			(1,607	)			(1,851	)			(5,305	)			(4,611	)
Non-cash interest income (expense) related to interest rate swaps			205				(80	)			735				(58	)
Other income			23				11				1,469				34
Total non-operating expense			(1,379	)			(1,920	)			(3,101	)			(4,635	)
Income before income taxes			10,093				4,390				39,130				19,630
Income tax expense			(3,529	)			(1,471	)			(13,207	)			(7,257	)
Net income			6,564				2,919				25,923				12,373
Less: Net income attributable to the redeemable noncontrolling interest			(694	)			(466	)			(3,200	)			(1,516	)
Net income attributable to Dolan Media Company		$	5,870			$	2,453			$	22,723			$	10,857
Earnings per share — basic:
Net income attributable to Dolan Media Company		$	0.20			$	0.09			$	0.76			$	0.42
Accretion of redeemable noncontrolling interest, net of tax			(0.02	)			—				(0.26	)			—
Net income attributable to Dolan Media Company common stockholders		$	0.18			$	0.09			$	0.50			$	0.42
Weighted average shares outstanding — basic			29,843,444				27,926,118				29,821,661				25,940,102
Earnings per share — diluted:
Net income attributable to Dolan Media Company		$	0.20			$	0.09			$	0.76			$	0.42
Accretion of redeemable noncontrolling interest, net of tax			(0.02	)			—				(0.26	)			—
Net income attributable to Dolan Media Company common stockholders		$	0.18			$	0.09			$	0.50			$	0.42
Weighted average shares outstanding — diluted			29,932,275				28,059,701				29,908,462				26,105,413

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)

										Additional
		Common Stock								Paid-In				Accumulated
		Shares				Amount				Capital				Deficit				Total
Balance (deficit) at December 31, 2007			25,088,718			$	25			$	212,364			$	(83,676	)		$	128,713
Net income			—				—				—				14,303				14,303
Private placement of common stock, net of offering costs			4,000,000				4				60,483				—				60,487
Issuance of common stock in a business acquisition			825,528				1				16,460				—				16,461
Issuance of common stock pursuant to the exercise of stock options under the 2007 incentive compensation plan			8,089				—				21				—				21
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			32,683				—				1,918				—				1,918
Tax benefit on stock options exercised			—				—				64				—				64
Balance (deficit) at December 31, 2008			29,955,018			$	30			$	291,310			$	(69,373	)		$	221,967
Net income attributable to Dolan Media Company			—				—				—				22,723				22,723
Accretion of redeemable noncontrolling interest, net of tax			—				—				(7,665	)			—				(7,665	)
Net income attributable to Dolan Media Company common stockholders			—				—				—				—				15,058
Issuance of common stock pursuant to the exercise of stock options under the 2007 incentive compensation plan			5,033				—				7				—				7
Stock-based compensation expense, including issuance of restricted stock (shares are net of forfeitures)			118,963				—				1,861				—				1,861
Balance (deficit) at September 30, 2009			30,079,014			$	30			$	285,513			$	(46,650	)		$	238,893

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Dolan Media Company

		Nine Months Ended
		September 30,
		2009				2008
Cash flows from operating activities
Net income		$	25,923			$	12,373
Distributions received from The Detroit Legal News Publishing, LLC			4,200				5,600
Distributions paid to holders of noncontrolling interest			(3,145	)			(1,351	)
Non-cash operating activities:
Amortization			13,219				7,587
Depreciation			6,738				3,790
Equity in earnings of affiliates			(3,461	)			(4,355	)
Stock-based compensation expense			1,861				1,341
Deferred income taxes			166				(576	)
Change in value of interest rate swap and accretion of interest on note payable			(731	)			213
Amortization of debt issuance costs			182				156
Change in accounting estimate related to self-insured medical reserve			—				(470	)
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and unbilled pass-through costs			(22,290	)			(9,354	)
Prepaid expenses and other current assets			239				(1,840	)
Other assets			(507	)			90
Accounts payable and accrued liabilities			7,110				1,048
Deferred revenue			2,600				1,959
Net cash provided by operating activities			32,104				16,211
Cash flows from investing activities
Acquisitions and investments			(2,441	)			(183,518	)
Capital expenditures			(2,584	)			(3,957	)
Other			100				100
Net cash used in investing activities			(4,925	)			(187,375	)
Cash flows from financing activities
Net payments on senior revolving note			—				90,000
Proceeds from borrowings or conversions on senior term notes			—				25,000
Payments on senior long-term debt			(7,250	)			(2,746	)
Proceeds from private placement of common stock, net of offering costs			—				60,541
Capital contribution from holder of noncontrolling interest			—				1,179
Payment on unsecured note payable			(1,750	)			(1,750	)
Payment of deferred financing costs			—				(404	)
Proceeds from stock option exercises			7				3
Other			(2	)			(6	)
Net cash (used) provided by financing activities			(8,995	)			171,817
Net increase in cash and cash equivalents			18,184				653
Cash and cash equivalents at beginning of the period			2,456				1,346
Cash and cash equivalents at end of the period		$	20,640			$	1,999

See Notes to Unaudited Condensed Consolidated Interim Financial Statements

Notes to Unaudited Condensed Consolidated Interim Financial Statements

Note 1. Nature of Business and Significant Accounting Policies

Basis of Presentation: The condensed consolidated balance sheet as of December 31, 2008, which has been derived from audited financial statements, and the unaudited condensed consolidated interim financial statements of Dolan Media Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to the quarterly report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2008 included in the Company’s annual report on Form 10-K filed on March 12, 2009, with the Securities and Exchange Commission.

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of the Company’s interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full calendar year.

The statement of operations for the three and nine months ended September 30, 2008 changed from the Company’s previous presentation because a $1.5 million break-up fee recorded in the third quarter of 2008 was previously classified as a non-operating expense and is now included as an operating expense. See Note 3 for more information regarding the break-up fee.

The Company has also adjusted certain amounts on the balance sheet as of December 31, 2008 to reflect the retroactive application of the equity method of accounting to reflect that portion of the income and losses of GovDelivery, Inc. attributable to the Company’s ownership from the date of the income and investment. The Company had previously accounted for its investment in GovDelivery under the cost method of accounting. See Note 4 for more information about the change in the Company’s investment in GovDelivery.

The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company, its wholly-owned subsidiaries and it majority ownership interest in American Processing Company, LLC d/b/a NDeX (NDeX). The Company accounts for the percentage interest in NDeX that it does not own as noncontrolling interest.

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

Use of Derivative Instruments: Under the Company’s bank credit facility, it is required to enter into derivative financial instrument transactions, such as swaps or interest rate caps, in order to manage or reduce its exposure to risk from changes in interest rates. The Company uses interest rate swaps because it is exposed to market risks related to interest rates, with its exposure to changes in interest rates being limited to borrowings under its credit facility. The Company has not designated these interest rate swap agreements for hedge accounting treatment. As of September 30, 2009, the Company had swap arrangements that convert $40.0 million of its variable rate term loan into a fixed rate obligation. The Company does not enter into derivatives or other financial instrument transactions for speculative purposes. The interest rate swaps are valued using market interest rates, and are included in “deferred revenue and other liabilities” in the Company’s unaudited condensed consolidated balance sheet and were valued at $1.9 million at September 30, 2009. These derivative instruments are classified within level 2 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 157).

Fair Value of Financial Instruments: The carrying value of cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term nature of these instruments. To estimate the fair value of debt issuances that are not quoted on an exchange, the Company estimates an interest rate it would be required to pay if it had to refinance its debt. At September 30, 2009, the estimated fair value of debt was $133.4 million compared to a carrying value of $146.5 million.

New Accounting Pronouncements: In December 2007, the FASB issued ASC 805 (formerly SFAS No. 141R) which changes how the Company accounts for business acquisitions occurring after January 1, 2009. ASC 805 requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. For the Company, ASC 805 was effective beginning January 1, 2009. Accordingly, the Company is now required to expense, in the period incurred, acquisition-related costs, rather than including such costs in the purchase price as it has historically done in prior year periods. The Company did not consummate any acquisitions or incur any significant transaction related costs during the nine months ended September 30, 2009. See Note 14 “Subsequent Events” for information relating to acquisitions the Company consummated after September 30, 2009.

In December 2007, the FASB issued ASC 810 (formerly SFAS No. 160), which establishes new standards governing the accounting for and reporting of noncontrolling interest (NCI) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interest), in most cases, be treated as a separate component of equity, not as a liability; that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires the Company to change certain presentation and disclosures in its financial statements. For the Company, ASC 810 was effective beginning January 1, 2009. The Company’s noncontrolling interest consists of the 15.3% aggregate membership interest in its subsidiary, NDeX, held by APC Investments, LLC, Feiwell & Hannoy Professional Corporation and the sellers of Barrett-NDEx (defined in Note 3 below) or their transferees (as a group). Under the NDeX operating agreement, each of the holders of the noncontrolling interest has the right, for a certain period of time, to require NDeX to repurchase all or any portion of the NDeX membership interests held by such holder. To the extent any holder timely exercises this right, the purchase price of such membership interest will be based on 6.25 times NDeX’s trailing twelve month earnings before interest, taxes, depreciation and amortization less the aggregate amount of any interest bearing indebtedness outstanding for NDeX as of the date the repurchase occurs. Because the NCI has a redeemable feature outside of the control of the Company, the Company will continue to show the NCI on the mezzanine section of the balance sheet between “Liabilities” and “Stockholders’ Equity,” rather than as a separate component of equity. Because the redeemable feature of the NCI is based upon a formula, the Company is required to employ the provisions of ASC 480 (formerly EITF Topic D-98), which ASC 810 amended, and adjust the NCI to either the fair value or the redemption amount at each reporting period. The Company has recorded its noncontrolling interest at the redemption amount, with the adjustment recorded through “additional paid-in capital” rather than directly as a charge against earnings, and has therefore employed the two-class method as set forth in ASC 260 (formerly EITF 03-6) to calculate earnings per share based on net income attributable to its common stockholders. The Company has recorded an adjustment of $0.4 million and $7.7 million (both net of tax) to record the redeemable noncontrolling interest to its redemption value for the three and nine months ended September 30, 2009, respectively. If ASC 810 was effective at December 31, 2008, the carrying amount of the noncontrolling interest of $15.8 million would have been adjusted to reflect the redemption value of $16.8 million, resulting in a $0.6 million adjustment to additional paid-in capital (net of tax). The provisions of the standard have been applied to the NCI prospectively for periods after January 1, 2009, except for the presentation and disclosure requirements, which have been applied retrospectively to all periods presented.

In March 2008, the FASB updated its guidance in ASC 815, “Derivatives and Hedging” (formerly SFAS No. 161), requiring companies to provide enhanced disclosures regarding derivative instruments and hedging activities in order to better convey the purpose of derivative use in terms of the risks that such companies are intending to manage. Disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows are required. This was effective beginning January 1, 2009 for the Company. Accordingly, the Company has included the required disclosures in “Use of Derivative Instruments” above.

In April 2009, the FASB issued guidance regarding interim disclosures about the fair value of financial instruments, which increases the frequency of certain fair value disclosures from annual to quarterly. Such disclosures include the fair value of all financial instruments within the scope of ASC 820 (formerly SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”) as well as the methods and significant assumptions used to estimate fair value. This guidance was effective for interim periods ending after June 15, 2009. Accordingly, the Company has included these disclosures in “Fair Value of Financial Instruments” above.

In May 2009, the FASB updated its guidance in ASC 855 (formerly SFAS No. 165) regarding subsequent events, establishing principles and requirements for subsequent events. In particular, ASC 855 sets forth the period after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. This updated guidance is effective for interim periods ending after June 15, 2009. Accordingly, the Company has applied the provisions of this statement in the current reporting period. See Note 14 for information relating to any subsequent events.

Note 2. Basic and Diluted Income Per Share

Basic per share amounts are computed, generally, by dividing net income by the weighted-average number of common shares outstanding. As described in the Company’s discussion of ASC 810 in Note 1 above, the Company has employed the two-class method to calculate earnings per share based on net income attributable to its common stockholders. At September 30, 2009 and December 31, 2008, there were no shares of preferred stock issued and outstanding. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments (see Note 12 for information on stock options) unless their effect is anti-dilutive.

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

		Three Months								Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
Net income attributable to Dolan Media Company		$	5,870			$	2,453			$	22,723			$	10,857
Accretion of redeemable noncontrolling interest, net of tax			(372	)			—				(7,665	)			—
Net income attributable to Dolan Media Company common stockholders		$	5,498			$	2,453			$	15,058			$	10,857
Basic:
Weighted average common shares outstanding			30,080				28,093				30,023				26,106
Weighted average common shares of unvested restricted stock			(237	)			(167	)			(201	)			(166	)
Shares used in the computation of basic net income per share			29,843				27,926				29,822				25,940
Net income attributable to Dolan Media Company common stockholders per share — basic		$	0.18			$	0.09			$	0.50			$	0.42
Diluted:
Shares used in the computation of basic net income per share			29,843				27,926				29,822				25,940
Stock options and restricted stock			89				134				86				165
Shares used in the computation of dilutive net income per share			29,932				28,060				29,908				26,105
Net income attributable to Dolan Media Company common stockholders per share — diluted		$	0.18			$	0.09			$	0.50			$	0.42

For the three months ended September 30, 2009 and 2008, options to purchase approximately 1.6 million and 1.2 million weighted shares of common stock, respectively, were excluded from the computation because their effect would have been anti-dilutive. For the nine months ended September 30, 2009 and 2008, options to purchase approximately 1.4 million and 13,000 weighted shares of common stock, respectively, were excluded from the computation because their effect would have been anti-dilutive.

Note 3. Acquisitions

Management is responsible for determining the fair value of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets acquired and liabilities assumed represent management’s estimate of fair values. Management determines valuations through a combination of methods, which include internal rate of return calculations, discounted cash flow models, outside valuations and appraisals and market conditions. The Company did not consummate any acquisitions during the nine months ended September 30, 2009. See Note 14 for a discussion of acquisitions that the Company consummated after September 30, 2009. For acquisitions consummated in 2008, the Company has included the results of these acquisitions in the accompanying interim condensed consolidated statement of operations from the respective acquisition dates forward.

Wilford & Geske: On February 22, 2008, NDeX acquired the mortgage default processing services business of Wilford & Geske, a Minnesota law firm. Under the purchase agreement, NDeX was obligated to pay up to an additional $2.0 million in purchase price depending upon the adjusted EBITDA for this business during the twelve months ended March 31, 2009. In connection with the partial achievement of this performance target, NDeX paid an additional $1.3 million in purchase price to the sellers in the second quarter of 2009. The Company has allocated this amount to the long-term service agreement entered into with the law firm Wilford & Geske, which is being amortized over the remaining initial contract term.

Midwest Law Printing Co., Inc.: On June 30, 2008, the Company acquired the assets of Midwest Law Printing Co., Inc., which provides printing and appellate services in Chicago, Illinois. During the second quarter of 2009, the Company paid to the seller $75,000, which it had held back at the closing to secure indemnification claims. Under the purchase agreement, the Company was also obligated to pay the seller up to an additional $225,000 in three annual installments of up to $75,000 each based upon the revenues it earns from the assets in each of the three years following closing. In connection with the satisfaction of the first revenue target, the Company paid the seller $75,000 in additional purchase price, during the second quarter of 2009, which has been allocated to a customer list.

National Default Exchange, L.P. and related entities: On September 2, 2008, NDeX acquired all of the outstanding equity interests in National Default Exchange Management, Inc., National Default Exchange Holdings, LP, THP/ NDEx AIV, Corp., and THP/ NDEx AIV, LP (all of such entities referred to collectively as “Barrett-NDEx”). The table below (amounts in thousands) shows the Company’s preliminary allocation of purchase price, along with the final purchase price allocation completed in the third quarter of 2009. The final allocation also includes adjustments to goodwill for the achievement of the earnout ($13.0 million) as well as the adjustment to deferred income taxes recorded as a result of the adjustments to the fair value of the intangible assets acquired in this acquisition. See Note 8 for additional information relating to the deferred income taxes adjustment.

		Amortization				Preliminary				Final
		Period				Allocation				Allocation
Long-term service agreement		25 years				$	154,000			$	59,728
Customer list		15 years					—				19,565
Non-compete agreements		5 years					5,000				3,198
Finite-life intangible assets							159,000				82,491
Trade names			—				—				6,537
Goodwill			—				37,827				116,927
Indefinite life intangible asset							37,827				123,464
Software		2 years					6,949				5,542
Total						$	203,776			$	211,497

The Company’s preliminary purchase price allocation combined the services agreement with the Barrett law firm and customer list related to California foreclosure files as a single intangible asset. In completing the final allocation, the Company determined that the California customer list is a separate identifiable asset from the services agreement because the services agreement requires NDeX to provide mortgage default processing services only to the Barrett law firm whereas NDeX provides these services directly to California customers under no specific services agreement. The Company’s initial assumptions regarding Barrett-NDEx’s California operations also included obtaining new customers in the California market, the value of which the Company preliminarily allocated to the services agreement and later determined was goodwill.

The values of the intangible assets and software acquired were estimated by management with the assistance of an independent third-party valuation firm. The primary assets acquired were the services agreement and the customer list. To estimate the fair value of these assets, the Company used a discounted cash flow analysis (income approach) using an average annual growth rate of approximately 3% and a discount rate of 15.4%.

The Company paid a premium over the fair value of the net tangible and identified intangible assets acquired in connection with this acquisition (i.e. goodwill) because the acquired business is a complement to NDeX and the Company anticipated cost savings and revenue synergies through combined general and administrative functions. This goodwill is deductible for tax purposes.

In connection with the closing of this acquisition, the Company also recorded, as additional purchase price, a liability of $1.5 million for the estimated severance costs related to involuntary employee terminations resulting from the anticipated elimination of certain duplicative positions, which was expected to be paid out in cash within the twelve months following the acquisition. This liability was included as goodwill in the preliminary allocation of the purchase price. In the second quarter of 2009, the Company eliminated certain positions in connection with this plan for aggregate payments of approximately $453,000. Also in the second quarter, the Company completed its plan of restructuring and determined that it will not be eliminating any additional positions under this restructuring plan. Accordingly, the Company reduced the liability to zero as a purchase price adjustment to goodwill.

Break-up Fee: Pursuant to its agreement with the sellers of a business that the Company intended to acquire, the Company paid $1.5 million to such sellers during the three months ended September 30, 2008 because the Company was unable to obtain debt financing on terms and timing satisfactory to the Company to close the acquisition. During the three months ended September 30, 2009, the Company changed its presentation of this expense on the statement of operations for the three and nine months ended September 30, 2008, from a non-operating expense to an operating expense because it determined that acquisitions are not an infrequent or unusual part of the Company’s operations.

Pro Forma Information: Actual results of operations of the companies acquired in 2008 are included in the unaudited condensed consolidated interim financial statements from the dates of acquisition. The unaudited pro forma condensed consolidated statement of operations of the Company, set forth below, gives effect to the following acquisitions: (1) the mortgage default processing services business of Wilford & Geske acquired in February 2008, (2) the assets of Legal & Business Publishers, Inc. acquired in February 2008, (3) the assets of Midwest Law Printing Company, Inc. acquired in June 2008, and (4) the business of Barrett-NDEx acquired in September 2008, using the purchase method as if the acquisitions occurred on January 1, 2008. These amounts are not necessarily indicative of the consolidated results of operations for future years or actual results that would have been realized had the acquisitions occurred as of the beginning of each such year. There is no corresponding pro forma data shown for the three and nine months ended September 30, 2009, as the Company has included each of the above acquisitions in its actual operating results for the full periods (in thousands, except per share data):

		Pro Forma
		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2008				2008
Total revenues		$	61,446			$	186,519
Net income attributable to Dolan Media Company common stockholders			2,566				11,446
Net income attributable to Dolan Media Company common stockholders per share:
Basic		$	0.09			$	0.43
Diluted		$	0.09			$	0.43
Actual/Pro forma weighted average shares outstanding:
Basic			28,482				26,675
Diluted			28,610				26,839

Note 4. Investments

Investments consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):

		Accounting				Percent				September 30,				December 31,
		Method				Ownership				2009				2008
The Detroit Legal News Publishing, LLC		Equity					35			$	15,680			$	16,226
GovDelivery, Inc.		Equity		(1)			22				1,243				437
Total										$	16,923			$	16,663

For the three and nine month periods ended September 30, 2009 and 2008, the equity (loss) in earnings is as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
The Detroit Legal News Publishing, LLC		$	924			$	1,329			$	3,654			$	4,355
GovDelivery, Inc.			(193	)			—				(193	)			—
Total		$	731			$	1,329			$	3,461			$	4,355

In the three and nine months ended September 30, 2009, the Company recorded the adjustment representing its share of the losses of GovDelivery, Inc. for 2009. This adjustment resulted from the Company’s application of the equity method of accounting for its investment in GovDelivery, Inc. in the third quarter of 2009. See below for more information regarding this change to the equity method of accounting.

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

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

The following table summarizes certain key information relating to the Company’s investment in DLNP as of September 30, 2009 and December 31 2008, and for the three and nine months ended September 30, 2009 and 2008 (in thousands):

		As of September 30,				As of December 31,
		2009				2008
Carrying value of investment		$	15,680			$	16,226
Underlying finite-lived customer list, net of amortization			9,298				10,429

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Equity in earnings of DLNP, net of amortization of customer list		$	924			$	1,329			$	3,654			$	4,355
Distributions received			700				2,100				4,200				5,600
Amortization expense			377				377				1,131				1,131

DLNP publishes ten legal newspapers, along with one quarterly magazine, all located in southern Michigan. Summarized financial information for DLNP for the three and nine months ended September 30, 2009 and 2008 is as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues		$	9,565			$	11,676			$	33,048			$	36,113
Cost of revenues			3,807				4,874				13,245				14,413
Gross profit			5,758				6,802				19,803				21,700
Selling, general and administrative expenses			1,663				1,593				4,989				4,825
Operating income			4,095				5,209				14,814				16,875
Net income		$	3,717			$	4,873			$	13,670			$	15,673
Company’s 35% share of net income		$	1,301			$	1,706			$	4,784			$	5,486
Less amortization of intangible assets			377				377				1,130				1,131
Equity in earnings of DLNP, LLC		$	924			$	1,329			$	3,654			$	4,355

GovDelivery, Inc.: In August 2009, the Company made an additional investment in GovDelivery, Inc. by purchasing 1,000,000 shares of its preferred stock for $1,000,000. Prior to this investment, the Company had accounted for its ownership in GovDelivery using the cost method of accounting because the Company only owned approximately 15.0% of GovDelivery’s outstanding voting stock (on an as-converted basis) and did not have the ability to exert influence. The additional investment increased the Company’s ownership in GovDelivery to 21.9% of the outstanding voting stock of GovDelivery (on an as-converted basis). As a result, the Company has determined that it will account for this investment using the equity method. Therefore, the Company has retroactively applied the equity method of accounting to reflect that portion of GovDelivery’s income and losses attributable to its ownership from the date of its original investment.

In addition to the Company’s ownership in GovDelivery, James P. Dolan, the Company’s Chairman, President and Chief Executive Officer personally owns approximately 139,000 shares of preferred stock of GovDelivery, or 1.0% (on an as-converted basis). He also served as a member of the GovDelivery board of directors until his resignation in March 2008.

Note 5. Intangible Assets

Indefinite Life Intangible Assets: Indefinite life intangible assets consist of trade names and goodwill. Trade names consist of trademarks and domain names associated with the Barrett-NDEx acquisition. The Company has determined that these assets have an indefinite life and therefore will not be amortized. The Company will review them annually for impairment. As of September 30, 2009, the trade names balance was $6.5 million. The Company had no balance for trade names as of December 31, 2008.

The following table represents the goodwill balances as of September 30, 2009 and December 31, 2008 and changes in goodwill by segment for the nine months ended September 30, 2009 (in thousands):

		Professional				Business
		Services				Information				Total
Balance as of December 31, 2008		$	59,751			$	59,232			$	118,983
Barrett-NDEx			77,588				—				77,588
Balance as of September 30, 2009		$	137,339			$	59,232			$	196,571

The change in goodwill in the Professional Services Division resulted from the completion of the valuation of the assets acquired in the 2008 Barrett-NDEx acquisition as well as the $13.0 million earnout liability recorded as an addition to goodwill at September 30, 2009, in connection with the satisfaction of the $28.0 million adjusted EBITDA earnout target.

Finite-Life Intangible Assets: The following table summarizes the components of finite-life intangible assets as of September 30, 2009 and December 31, 2008 (in thousands, except amortization periods):

						As of September 30, 2009												As of December 31, 2008
		Amortization				Gross				Accumulated								Gross				Accumulated
		Period				Amount				Amortization				Net				Amount				Amortization				Net
Mastheads			30			$	11,965			$	(2,096	)		$	9,869			$	11,965			$	(1,796	)		$	10,169
Advertising customer lists			5-11				16,566				(7,480	)			9,086				16,566				(6,286	)			10,280
Subscriber customer lists			2-14				7,645				(3,218	)			4,427				7,645				(2,666	)			4,979
Professional services customer lists			7				7,707				(4,542	)			3,165				7,632				(3,717	)			3,915
Noncompete agreements			5				3,948				(2,309	)			1,639				5,750				(666	)			5,084
NDeX long-term service contracts			15-25				120,857				(18,115	)			102,742				213,877				(10,779	)			203,098
NDeX customer lists			14-15				32,831				(1,918	)			30,913				13,267				(1,065	)			12,202
Customer relationships			14				3,283				(668	)			2,615				3,283				(496	)			2,787
SunWel contract			7				3,322				(1,263	)			2,059				3,322				(919	)			2,403
Total intangibles						$	208,124			$	(41,609	)		$	166,515			$	283,307			$	(28,390	)		$	254,917

The change in the finite-life intangible assets as of September 30, 2009 resulted from the completion of the valuation of the assets acquired in the Barrett-NDEx acquisition; refer to Note 3 for additional information pertaining to the valuation of these intangible assets. Total amortization expense for finite-life intangible assets for the three months ended September 30, 2009 and 2008 was approximately $3.9 million and $3.1 million, respectively, and for the nine months ended September 30, 2009 and 2008 was approximately $13.2 million and $7.6 million, respectively. In the nine months ended September 30, 2009, the Company also recorded an additional $0.9 million of amortization expense to write off the non-compete agreement with Michael Barrett, a senior officer of Barrett-NDEx, who died in January 2009.

Note 6. Long-Term Debt, Capital Lease Obligation

A summary of long-term debt is as follows (in thousands):

		September 30,				December 31,
		2009				2008
Senior secured debt (see below):
Senior variable-rate term note, payable in quarterly installments with a balloon payment due August 8, 2014		$	146,500			$	153,750
Senior variable-rate revolving note due August 8, 2012			—				—
Total senior secured debt			146,500				153,750
Unsecured note payable			—				1,746
Capital lease obligations			—				2
			146,500				155,498
Less current portion			12,825				12,048
Long-term debt, less current portion		$	133,675			$	143,450

Senior Secured Debt: The Company and its consolidated subsidiaries have a credit agreement with U.S. Bank, NA and other syndicated lenders for a senior secured credit facility comprised of a term loan facility due and payable in quarterly installments with a final maturity date of August 8, 2014 and a revolving credit facility with a final maturity date of August 8, 2012. In accordance with the terms of this credit agreement, if at any time the outstanding principal balance of revolving loans under the revolving credit facility exceeds $25.0 million, such revolving loans will convert to an amortizing term loan, in the amount that the Company designates if it gives notice, due and payable in quarterly installments with a final maturity date of August 8, 2014.

At September 30, 2009, the Company had net unused available capacity of $40.0 million on its revolving credit facility, after taking into account the senior leverage ratio requirements under the credit facility, and outstanding debt of $146.5 million (all of which was under the term loan facility). At September 30, 2009, the weighted-average interest rate on the senior term note was 2.4%. The Company is subject to certain restrictions and covenant ratio requirements relating to its financing arrangement, all of which were satisfied as of September 30, 2009.

Unsecured Note Payable: During the nine months ended September 30, 2009, NDeX made the final $1.8 million payment to Feiwell & Hannoy on a $3.5 million non-interest bearing promissory note NDeX issued in connection with the acquisition of the mortgage default processing services business of Feiwell & Hannoy in January 2007.

Note 7. Common and Preferred Stock

At September 30, 2009, the Company had 70,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized and 30,079,014 shares of common stock and no shares of preferred stock outstanding. On January 29, 2009, the Company’s board of directors designated 5,000 shares of Series A Junior Participating Preferred Stock, which are issuable upon the exercise of rights as described in the Stockholder Rights Plan adopted by the Company on the same date. The rights to purchase 1/10,000 of a share of the Series A Junior Participating Preferred Stock were issued to the Company’s stockholders of record on February 9, 2009. All other authorized shares of preferred stock are undesignated.

Note 8. Income Taxes

The provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates. For the nine months ended September 30, 2009 and 2008, the effective tax rate was 36.7% and 40.0%, respectively. The decrease in the Company’s effective income tax rate resulted primarily from the receipt of non-taxable life insurance proceeds paid upon the death of Michael Barrett, a senior officer of Barrett-NDEx, in January 2009. At September 30, 2009, excluding the impact of discrete items, the Company estimates an annual effective tax rate for 2009 of 39.1%.

In the nine months ended September 30, 2009, the Company completed its purchase price allocation relating to the Barrett-NDEx acquisition. This resulted in a reduction of the estimated net deferred tax liabilities related to the Barrett-NDEx intangible assets from $13.0 million to $7.2 million due to changes in the tax basis of these assets and goodwill from the Company’s preliminary estimates.

Note 9. Other Income

In the nine months ended September 30, 2009, the Company recorded a net gain of $1.4 million on a company-owned life insurance policy on the life of Michael Barrett, a senior officer of Barrett-NDEx, who passed away in January 2009. This net gain includes a reduction for a $0.5 million contribution the Company made to Southern Methodist University Dedman School of Law from the life insurance proceeds, to establish a scholarship fund in Mr. Barrett’s name.

Note 10. Major Customers and Related Parties

In early 2009, NDeX and Trott & Trott, whose managing partner is NDeX chairman and chief executive officer David A. Trott, agreed to increase the fixed fee per file NDeX receives for each mortgage foreclosure, bankruptcy, eviction, litigation and other mortgage default file Trott & Trott refers to NDeX for processing under NDeX’s service agreement with Trott & Trott.

Note 11. Reportable Segments

The Company’s two reportable segments consist of its Professional Services Division and its Business Information Division. The Company determined its reportable segments based on the types of products sold and services performed. The Professional Services Division comprises two operating units providing support to the legal market, NDeX, which provides mortgage default processing services, and Counsel Press, LLC, which provides appellate services. Both of these operating units generate revenues through fee-based arrangements. 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 (which includes sponsorships and ticket sales for events), public notices, circulation (primarily consisting of subscriptions), and sales from commercial printing and database information. In addition, the Company reports and allocates certain administrative activities as part of corporate-level expenses.

The tables below reflect summarized financial information concerning the Company’s reportable segments for the three and nine months ended September 30, 2009 and 2008 (in thousands):

		Professional				Business
		Services				Information				Corporate				Total
		(In thousands)
Three Months Ended September 30, 2009
Revenues		$	39,996			$	22,348			$	—			$	62,344
Direct operating expenses			15,553				6,952				—				22,505
Selling, general and administrative expenses			10,537				8,770				3,603				22,910
Amortization and depreciation			4,663				1,322				203				6,188
Equity in earnings of affiliates			—				731				—				731
Operating income (loss)		$	9,243			$	6,035			$	(3,806	)		$	11,472
Three Months Ended September 30, 2008
Revenues		$	25,673			$	22,211			$	—			$	47,884
Direct operating expenses			9,941				7,961				—				17,902
Selling, general and administrative expenses			6,646				9,486				2,818				18,950
Break-up fee			—				—				1,500				1,500
Amortization and depreciation			3,059				1,275				217				4,551
Equity in earnings of affiliates			—				1,329				—				1,329
Operating income (loss)		$	6,027			$	4,818			$	(4,535	)		$	6,310

		Professional				Business
		Services				Information				Corporate				Total
		(In thousands)
Nine Months Ended September 30, 2009
Revenues		$	126,322			$	66,998			$	—			$	193,320
Direct operating expenses			46,693				21,827				—				68,520
Selling, general and administrative expenses			31,361				25,699				9,013				66,073
Amortization and depreciation			15,325				3,955				677				19,957
Equity in earnings of affiliates			—				3,461				—				3,461
Operating income (loss)		$	32,943			$	18,978			$	(9,690	)		$	42,231
Nine Months Ended September 30, 2008
Revenues		$	62,542			$	68,406			$	—			$	130,948
Direct operating expenses			22,688				23,686				—				46,374
Selling, general and administrative expenses			15,889				29,311				6,587				51,787
Break-up fee			—				—				1,500				1,500
Amortization and depreciation			7,124				3,663				590				11,377
Equity in earnings of affiliates			—				4,355				—				4,355
Operating income (loss)		$	16,841			$	16,101			$	(8,677	)		$	24,265

Note 12. Share-Based Compensation

Total share-based compensation expense for the three months ended September 30, 2009 and 2008, was approximately $0.7 million and $0.5 million, respectively, before income taxes. Total share-based compensation expense for the nine months ended September 30, 2009 and 2008, was approximately $1.9 million and $1.3 million, respectively, before income taxes.

The Company has reserved 2,700,000 shares of its common stock for issuance under its incentive compensation plan, of which there were 698,996 shares available for issuance under the plan as of September 30, 2009.

Stock Options: Share-based compensation expense related to grants of options for the three months ended September 30, 2009 and 2008, was approximately $0.4 million and $0.4 million, respectively, before income taxes and for the nine months ended September 30, 2009 and 2008, was approximately $1.2 million and $0.9 million, respectively, before income taxes.

The following weighted average assumptions were used to estimate the fair value of stock options granted in 2009:

Dividend yield			0.0	%
Expected volatility			48.0	%
Risk free interest rate			2.0	%
Expected term of options		4.75 years
Weighted average grant date fair value		$	5.35

The following table represents stock option activity for the nine months ended September 30, 2009:

						Weighted				Weighted				Weighted Average
		Number of				Average Grant				Average				Remaining
		Shares				Date Fair Value				Exercise Price				Contractual Life
Outstanding options at December 31, 2008			1,352,992			$	4.54			$	14.21			6.06 Yrs.
Granted			414,882				5.35				12.51				—
Exercised			(5,375	)			1.35				2.22				—
Canceled or forfeited			(98,168	)			4.95				14.38				—
Outstanding options at September 30, 2009			1,664,331			$	4.73			$	13.81			5.56 Yrs.
Options exercisable at September 30, 2009			571,290			$	4.31			$	13.21			5.10 Yrs.

At September 30, 2009, the aggregate intrinsic value of options outstanding was approximately $1.0 million, and the aggregate intrinsic value of options exercisable was approximately $0.8 million. At September 30, 2009, there was approximately $4.5 million of unrecognized compensation cost related to outstanding options, which is expected to be recognized over a weighted-average period of 2.7 years.

Restricted Stock Grants: The following table represents a summary of nonvested restricted stock activity for the nine months ended September 30, 2009:

						Weighted
						Average
		Number				Grant Date
		of Shares				Fair Value
Nonvested, December 31, 2008			149,296			$	15.30
Granted			129,990				12.51
Vested			(43,233	)			15.06
Canceled or forfeited			(11,027	)			14.01
Nonvested, September 30, 2009			225,026			$	13.80

Share-based compensation expense related to grants of restricted stock for the three months ended September 30, 2009 and 2008 was approximately $0.3 million and $0.2 million, respectively, before income taxes and for the nine months ended September 30, 2009 and 2008, was approximately $0.6 million and $0.4 million, respectively, before income taxes. Total unrecognized compensation expense for unvested restricted shares of common stock as of September 30, 2009, was approximately $2.5 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Note 13. Contingencies and Commitments

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

NDeX: Each of the holders of the noncontrolling interest in NDeX has the right to require NDeX to repurchase all or any portion of the NDeX membership interest held by them. For APC Investments and Feiwell & Hannoy, this right is exercisable until February 7, 2010. If both APC Investments and Feiwell & Hannoy had exercised their respective put rights at September 30, 2009, NDeX would have been obligated to pay an aggregate of $17.2 million, payable in the form of a three-year unsecured note bearing interest at a rate equal to prime plus 2.0%. The put rights of other holders of noncontrolling interest in NDeX have not yet become exercisable.

Note 14. Subsequent Events

The Company has evaluated subsequent events through the date this report was filed and those are as follows:

Albertelli. On October 1, 2009, NDeX entered into an asset purchase agreement with James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli (collectively, the “Albertelli Sellers”), under the terms of which NDeX acquired the mortgage default processing services and certain title assets of the Albertelli Sellers on that date. NDeX paid $7.0 million in cash at closing, held back an additional $1.0 million to secure the Albertelli Sellers’ obligations under the asset purchase agreement (including payment of any indemnification claims and working capital adjustments) and will pay an additional $2.0 million in equal installments of $1.0 million on each of October 1, 2010 and 2011, respectively. In addition, NDeX may be obligated to pay the Albertelli Sellers up to an additional $9.0 million in three annual installments of up to $3.0 million each. The amount of these annual cash payments will be based upon the adjusted EBITDA for the acquired mortgage default processing services and related title business during the twelve calendar months ending on each of September 30, 2010, 2011, and 2012. The Company used available cash to fund the closing payment.

In addition, NDeX also entered into a twenty-year services agreement with James E. Albertelli, P.A. which provides for the exclusive referral of residential mortgage default and related files from the law firm to NDeX for processing in Florida.

DiscoverReady: On November 2, 2009, the Company acquired an 85% equity interest in DiscoverReady, LLC under the terms of a membership interest purchase agreement with DiscoveryReady, LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes and C. Parkhill Mays. The Company paid the sellers $28.9 million in cash at closing and placed an additional $3.0 million in escrow pursuant to the terms of an escrow agreement to secure the sellers’ obligations under the purchase agreement (including payment of any indemnification claims and working capital and capital lease liability adjustments). After closing, DR Holdco LLC holds a 15% noncontrolling interest in DiscoverReady. The individual sellers of DiscoverReady, along with other DiscoverReady employees, own all of the equity interests of DR Holdco. The Company used $22.9 million in a combination of cash on the balance sheet at September 30, 2009 and cash flow from operations since September 30, 2009, as well as $9.0 million from its revolving line of credit, to fund the closing payments made in connection with this acquisition. At November 2, 2009, the Company had total outstanding debt of $155.5 million and available credit of approximately $31.0 million on our revolving line of credit, after taking into account the senior leverage ratio requirements under the Company’s credit agreement.

The Company will be required to record on its balance sheet an adjustment for that portion of DiscoverReady which it does not own as a noncontrolling interest. Because the redeemable feature of this noncontrolling interest is based on fair value, the Company is not required to record this adjustment as an item affecting net income attributable to Dolan Media Company common stockholders.

The Company expects to include the results of operations for this acquisition in its Professional Services segment.

Purchase Price Allocation and Pro Forma Financial Information. Since the initial purchase accounting for both the Albertelli and DiscoverReady acquisitions described above is not yet complete, it is not practicable for the Company to provide these required disclosures in this Form 10-Q.

Second Amendment to Credit Agreement. In connection with the acquisition of DiscoverReady, LLC described above, the Company and its subsidiaries amended its credit agreement with the syndicate of lenders that are party to that agreement. Under the terms of this amendment, the lenders consented to the acquisition of DiscoverReady and no changes were made to the material terms of the credit agreement. The Company paid $0.5 million in fees to the lenders in connection with this amendment.

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

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

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our business operates in highly competitive markets and depends upon the economies and the demographics of the legal, financial and real estate sectors in the markets we serve and changes in those sectors could have an adverse effect on our revenues, cash flows and profitability;

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NDeX’s business revenues are very concentrated, as NDeX currently provides mortgage default processing services to eight law firm customers, and if the number of case files referred to our law firm customers, and ultimately to NDeX for processing, decreases or fails to increase, it may affect the cash flow of our law firm customers and their ability to pay us timely for services we perform and may also adversely affect our operating results and ability to execute our growth strategy;

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the key attorneys at each of NDeX’s law firm customers are employed by NDeX, some of whom, including David A. Trott, the chairman and chief executive officer of NDeX, also hold a direct or indirect equity interest in NDeX. As a result, these key attorneys may, in certain circumstances, have interests that differ from or conflict with our interests;

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government regulation of sub-prime, Alt-A and other residential mortgage products, including bills introduced in states where we do business (such as recently enacted foreclosure legislation in Michigan and Indiana), the Hope for Homeowners Act, the Emergency Economic Stabilization Act and Homeowner Affordability and Stability Plan, the Streamlined Modification Program, Protecting Tenants at Foreclosure Act of 2009, and voluntary foreclosure relief programs developed by lenders, loan servicers and the Hope Now Alliance, a consortium that includes loan servicers, may have an adverse affect on and restrict our mortgage default processing services and public notice operations;

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we have owned and operated DiscoverReady, LLC for a very short period of time and we are highly dependent on the skills and knowledge of the individuals serving as chief executive officer and president of DiscoverReady as none of our executive officers have managed or operated a discovery management and document review services company prior to this acquisition;

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DiscoverReady’s business revenues are very concentrated among a few customers and if these customers choose to manage their discovery with their own staff or by engaging another provider and if we are unable to develop new customer relationships, our operating results and the ability to execute our growth strategy may be adversely affected;

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we are dependent on our senior management team, especially James P. Dolan, our founder, chairman, president and chief executive officer; Scott J. Pollei, our executive vice president and chief operating officer; Mark W.C. Stodder, our executive vice president-business information; David A. Trott, chairman and chief executive officer, NDeX, and Vicki J. Duncomb, our vice president and chief financial officer;

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the acquisition of DiscoverReady may expose us to particular business and financial risks that include, but are not limited to: (1) diverting management’s time, attention and resources from managing the business; (2) incurring significant additional capital expenditures and operating expenses to improve, coordinate or integrate managerial, operational, financial and administrative systems; (3) failing to integrate the operations, personnel and internal controls of DiscoverReady into our company or to manage DiscoverReady or our growth; and (4) facing operational difficulties in new markets or with new product and service offerings;

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we intend to continue to pursue acquisition opportunities, which we may not do successfully and which may subject us to considerable business and financial risks, and we may be required to incur additional indebtedness or raise additional capital to fund these acquisitions and this additional cash may not be available to us on satisfactory terms or at all;

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growing our business may place a strain on our management and internal systems, processes and controls; and

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we incurred additional indebtedness to close the acquisitions of Barrett-NDEx and DiscoverReady and this additional debt consumed a significant portion of our ability to borrow and may limit our ability to pursue other acquisitions or growth strategies.

See “Risk Factors” in Item 1A of our annual report on Form 10-K filed on March 12, 2009, with the Securities Exchange Commission 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.

In this quarterly report on Form 10-Q, unless the context requires otherwise, the terms “we,” “us,” and “our” refer to Dolan Media Company. When we refer to “NDeX” in this quarterly report on Form 10-Q, we mean all of our mortgage default processing operations, including Barrett-NDEx (defined below), all of which we formerly referred to as “APC.” When we refer to “Barrett-NDEx” in this quarterly report on Form 10-Q, we mean the mortgage default processing operations serving the Texas, California and Georgia markets that NDeX acquired from National Default Exchange Management, Inc., National Default Exchange Holdings, LP, THP/Barrett-NDEx AIV, Corp. and THP/Barrett-NDEx AIV, LP on September 2, 2008. The term “Barrett law firm” refers to Barrett, Daffin, Frappier, Turner & Engel, LLP and its two affiliated law firms.

Overview

We are a leading provider of professional services and necessary business information and to legal, financial and real estate sectors in the United States. We serve our customers through two complementary operating segments: our Professional Services Division and our Business Information Division. Our Professional Services Division comprises three business lines: NDeX, Counsel Press, and DiscoverReady. NDeX provides mortgage default processing services to eight law firms and also directly to mortgage lenders and loan servicers on California foreclosure files, and began processing Florida mortgage default files in early October in connection with the Albertelli acquisition described below. Counsel Press provides appellate services to law firms and attorneys nationwide. DiscoverReady, which we acquired on November 2, 2009 as described below, provides outsourced discovery management and document review services to major United States companies and their counsel.

Our Business Information Division publishes 64 print publications consisting of 14 paid daily publications, 30 paid non-daily publications and 20 non-paid non-daily publications, along with specialty publications and magazines. In addition, we provide business information electronically through our 45 on-line publication web sites, our 34 event and other non-publication web sites and our email notification systems.

Our total revenues increased $14.5 million, or 30.2%, from $47.9 million for the three months ended September 30, 2008, to $62.3 million for the three months ended September 30, 2009, primarily as a result of our acquisition of Barrett-NDEx. For the nine months ended September 30, 2009, our total revenues increased $62.4 million, or 47.6% over the same prior year period, all of which resulted from businesses we acquired in 2008, including Barrett-NDEx. Our operating income increased from $6.3 million for the three months ended September 30, 2008 to $11.5 million for the three months ended September 30, 2009. On a year-to-date basis, our operating income has increased to $42.2 million, up 74.0%, or $18.0 million, from the same period in 2008. Acquisitions, primarily our acquisition of Barrett-NDEx in September 2008, accounted for the majority of the 39.2% increase in our operating expenses for the nine month periods. For the nine months ended September 30, 2009, expense controls in our Business Information division was offset by increased spending at NDeX, primarily as a result of file volume increases during that period. Further, net income attributable to Dolan Media Company increased significantly to $5.9 million for the third quarter of 2009 from $2.5 million for the same period in 2008. Net income attributable to Dolan Media Company doubled, from $10.9 million for the nine months ended September 30, 2008 to $22.7 million for the nine months ended September 30, 2009, primarily as a result of the Barrett-NDEx acquisition.

Recent Developments

New Line of Business in Professional Services Division

On November 2, 2009, we entered a new line of business in our Professional Services division with the acquisition of an 85% interest in DiscoverReady, LLC (as described in “Recent Acquisitions” below). DiscoverReady is a leading provider of outsourced discovery management and document review services to major United States companies and their counsel under fixed-fee arrangements. DiscoverReady is headquartered in New York City, with an office in Charlotte, North Carolina.

Discovery is the process by which parties use the legal system to obtain relevant information, primarily in litigation and regulatory matters. This process can be expensive and time-consuming for companies depending upon the number of e-mails, electronic files and paper documents a company must review to respond to a document request. DiscoverReady assists these companies and their counsel in document reviews and helping these companies manage the discovery process. DiscoverReady also provides related technology management services.

This is a new line of business for us and one in which none of our key employees or executive officers has any previous experience. In connection with the acquisition, we entered into three-year employment agreements with DiscoverReady co-founders James K. Wagner, Jr. and Steven R. Harber to continue to serve as DiscoverReady’s chief executive officer and president, respectively. We also entered into three-year employment agreements with Paul Yerkes and David Shub, two other key employees of DiscoverReady. Messrs. Wagner, Harber, Yerkes and Shub and other employees of DiscoverReady, together, indirectly own the remaining 15% equity interest in DiscoverReady.

Regulatory Environment

Over the past year, federal, state and local governmental entities have proposed, and in some cases, enacted legislation or taken other action that may have, and some of which has had, an adverse impact on the number of mortgage defaults case files referred to NDeX for processing, the length of time it takes to process such files, the time periods over which we recognize revenue associated with the processing of those files, and the number of foreclosure public notices placed in our Business Information products and DLNP (our minority investment) for publication. This enacted or proposed legislation includes the Hope for Homeowners Act of 2008, the Emergency Economic Stabilization Act, the Streamlined Modification Program, laws passed in both California and Maryland last year, and the Homeowner Affordability and Stability Plan, all of which are described in our annual report on Form 10-K filed with the SEC on March 12, 2009. Earlier this year, the California legislature passed legislation, which extends the redemption periods on new and pending foreclosures involving loans that certain criteria, including being owner-occupied when the loan became delinquent. Further, on April 28, 2009, President Obama announced new details for the “Making Home Affordable” program that is part of the Homeowner Affordability and Stability Plan, which provides, among other things, that servicers who participate in a second lien program will automatically reduce payments associated with a second lien mortgage when a borrower initiates a Home Affordable Modification on a first lien mortgage. In May 2009, Congress enacted the Helping Families Save Their Home Act of 2009, which includes the Protecting Tenants at Foreclosure Act of 2009. Under the Protecting Tenants at Foreclosure Act, the new owner of foreclosed property may not evict a tenant until the end of any existing bona fide lease term, except in very limited circumstances, and such new owner is further required to give the tenant 90 days advance notice before an eviction. During the third quarter of 2009, referrals of eviction files declined in many of our NDeX operations, which we believe to be a result of this legislation.

In addition, beginning in July 2009, changes in the relevant state foreclosure laws in Indiana and Michigan require loan servicers to comply with additional notice requirements. Specifically, the Indiana law requires loan servicers to send Indiana borrowers a pre-suit notice at least thirty days prior to filing a foreclosure action, which we expect could delay a foreclosure at least 30 days. The Michigan law requires loan servicers to send and publish a special notice to certain Michigan borrowers that would give the borrower an opportunity to arrange a meeting with loan servicers to explore possible modification of the borrower’s loan. We expect this legislation could delay foreclosures for thirty to ninety days depending upon whether a borrower desires to meet with the loan servicers. During the third quarter of 2009, these Indiana and Michigan legislative changes caused a $3.0 million year-over-year decline in mortgage default processing services revenues because these laws delay or extend the length of the foreclosure process, thereby deferring a portion of our mortgage default processing services revenues on new files into future periods. Because the Michigan law adds additional steps to the foreclosure process, the period of time over which we recognize revenue on new foreclosure files lengthened. In Michigan, foreclosure file counts for the third quarter of 2009 increased nearly 4.5% year-over-year. In Indiana, foreclosure file counts in the third quarter 2009 decreased approximately 56% when compared to the third quarter of 2008 because the new legislation delays when a foreclosure action can be commenced, thus delaying when these files are referred to us for processing. As expected, we began to see Indiana file referrals increase toward the end of the third quarter of 2009.

As this new legislation primarily affects the timing in which we recognize revenue in Michigan and when we receive foreclosure file referrals in Indiana, we anticipate that we will begin to see Michigan and Indiana revenues and Indiana foreclosure file volumes recover over time as mortgage lenders and loan servicers refine processes they have developed in response to this legislation. Other mortgage default processing revenues from our NDeX operations, including those from Barrett-NDEx, offset revenue declines we experienced year-over-year as a result of this legislation. When compared to the second quarter of 2009, mortgage default processing services revenue declined $5.0 million, $3.3 million of which resulted from the new legislation in Michigan and Indiana described above, and $1.7 million of which we believe resulted, in large part, from continuing loan mitigation efforts on the part of loan servicers and federal agencies and other regulatory efforts.

During late July 2009, mortgage lenders and loan servicers met with the Obama administration and were asked to enter into at least 500,000 loan modifications under the Home Affordable Modification Program by November 2009. We believe that, during the third quarter of 2009, these mortgage lenders and loan servicers may have delayed the referral of some files to us so that they could evaluate such files as candidates under this program in response to the administration’s request.

In addition to enacted or proposed legislation, certain state and local governments have interpreted the Emergency Economic Stabilization Act as preempting state and local foreclosure requirements. Further, various lender and mortgage servicers have voluntarily focused their attention on loss mitigation, loan modification and similar efforts, including moratoria on certain foreclosure sales, in an attempt to reduce the number of mortgage defaults. We believe these efforts have caused lenders and mortgage servicers to delay when they refer mortgage default files to us for processing.

Adoption of Stockholder Rights Plan

On January 29, 2009, our board adopted a Stockholder Rights Plan, which is designed to protect our stockholders from potentially coercive takeover practices or takeover bids and to prevent an acquirer from gaining control of the company without offering a fair price to our stockholders. The plan is not intended to deter offers that are fair or otherwise in the best interests of our stockholders.

This plan is similar to plans that other public companies have adopted and our adoption of this plan was not prompted by any external actions. We have received no hostile communications or takeover approaches of any kind. We adopted the plan to give our board time to evaluate and respond to any unsolicited future attempts to acquire our company.

In connection with the adoption of this plan, our board declared a dividend of one junior participating preferred stock purchase right for each outstanding share of our common stock, payable to the stockholders of record on February 9, 2009. Stockholders may request a copy of this plan by writing to our corporate secretary at our principal offices, 222 South Ninth Street, Suite 2300, Minneapolis, MN 55402.

Recent Acquisitions

We have grown significantly since our predecessor company commenced operations in 1992, in large part due to acquisitions, such as the following:

DiscoverReady: On November 2, 2009, we acquired an 85% equity interest in DiscoverReady, LLC under the terms of a membership interest purchase agreement with DiscoveryReady LLC, DR Holdco LLC, Steven R. Harber, David Shub, James K. Wagner, Paul Yerkes and C. Parkhill Mays. We paid the sellers $28.9 million in cash at closing and placed an additional $3.0 million in escrow pursuant to the terms of an escrow agreement to secure the sellers’ obligations under the purchase agreement (including payment of any indemnification claims and working capital and capital lease liability adjustments). After closing, DR Holdco LLC holds a 15% noncontrolling interest in DiscoverReady. The individual sellers of DiscoverReady, LLC, along with other DiscoverReady employees, own all the equity interests of DR Holdco. We used $22.9 million in a combination of cash on our balance sheet at September 30, 2009, cash flow from operations received from September 30, 2009, through November 2, 2009, as well as $9.0 million from our revolving line of credit, to fund the closing payments in connection with this acquisition.

In connection with the acquisition described above, DiscoverReady entered into employment agreements with each of the individual sellers of DiscoverReady, under the terms of which they serve as senior managers of DiscoveryReady. These employment agreements have a term of three years, except the agreement with C. Parkhill Mays, which has a term of six months.

As part of this acquisition, we, along with DR Holdco, amended and restated DiscoverReady’s limited liability agreement. Under the terms of the limited liability agreement, DR Holdco has the right, for a period of ninety days following November 2, 2012, to require DiscoverReady to repurchase all of its equity interest in DiscoverReady. To the extent that DR Holdco timely exercises this right, the purchase price of such equity interest will be based on the fair market value of such interest. During that same period, we also have the right to require DR Holdco to sell all or a portion its equity interest in DiscoverReady to us. If we timely exercise our right, we would pay DR Holdco an amount based on the fair market value of the equity interest. These rights may be exercised earlier under the following circumstances: An individual seller of DiscoverReady, except Mays, may require DiscoverReady to repurchase the portion of DR Holdco’s interest in DiscoverReady that he beneficially owns if he is terminated without cause or quits for good reason prior to the expiration of his employment agreement. If we terminate any individual seller of DiscoverReady for cause or if such seller quits without good reason, we can require DR Holdco to sell to us the portion of its interest in DiscoverReady that reflects such seller’s beneficial interest in us. The purchase price for that portion of the equity interest repurchased or sold if these rights are exercised will be based on fair market value. With respect to Mays, DiscoverReady will repurchase that portion of DR Holdco’s interest in DiscoverReady, which he beneficially owns at fair market value upon the expiration of his employment agreement.

DiscoverReady will engage an independent third party valuation firm to assist management in determining the fair market value of the equity interest being repurchased by DiscoverReady or sold to us if any of the above-described rights are exercised. The purchase price for any equity interests repurchased or sold pursuant to these rights, if exercised, will be paid in cash to the extent allowed by the terms of our then-existing credit agreement, or pursuant to a three-year unsecured promissory note, bearing interest at a rate equal to prime plus 1.0%.

Albertelli: On October 1, 2009, NDeX entered into an asset purchase agreement with James E. Albertelli, P.A., The Albertelli Firm, P.C., Albertelli Title, Inc. and James E. Albertelli (collectively, the “Albertelli Sellers”), under the terms of which NDeX acquired the mortgage default processing services and related title business of the Albertelli Sellers on such date. NDeX paid $7.0 million in cash at closing, held back an additional $1.0 million to secure the Albertelli Sellers’ obligations under the asset purchase agreement (including payment of any indemnification claims and working capital adjustments) and will pay an additional $2.0 million in equal installments of $1.0 million on each of October 1, 2010 and 2011, respectively.

In addition, NDeX may be obligated to pay the Albertelli Sellers up to an additional $9.0 million in three annual installments of up to $3.0 million each. The amount of these annual cash payments will be based upon the adjusted EBITDA for the acquired mortgage default processing services and related title business during the twelve calendar months ending on each of September 30, 2010, 2011, and 2012. We used available cash to fund the closing payment.

NDeX also entered into a services agreement with James E. Albertelli, P.A. (the “Albertelli law firm”) pursuant to which NDeX has agreed to provide mortgage default processing and related title services to the Albertelli law firm in Florida. The services agreement provides for the exclusive referral of residential mortgage default and related files from the Albertelli law firm to NDeX for servicing. This agreement has an initial term of twenty years, which term may be automatically extended for two successive ten-year periods unless either party elects to terminate the term then-in-effect with prior notice. Under the services agreement, NDeX will be paid a fixed fee for each residential mortgage default and other file referred by the Albertelli law firm to NDeX for servicing, with the amount of such fixed fee being based upon the type of file. Beginning on October 1, 2010, this fixed fee per file will increase or decrease on an annual basis based on the yearly changes to an agreed-upon consumer price index. Under the services agreement, NDeX has also agreed to provide mortgage default processing and related title services in the State of Florida to the Albertelli law firm on an exclusive basis for a period of two years after the closing.

In connection with the transactions described above, NDeX also has entered into an employment agreement with James E. Albertelli, whereby NDeX employs him as an executive vice president. As a result of these transactions, NDeX now provides mortgage default processing services to law firm customers in California, Texas, Michigan, Indiana, Minnesota, Georgia and Florida as well as directly to mortgage lenders and loan servicers for California foreclosure files.

Barrett-NDEx: On September 2, 2008, NDeX acquired the equity interests of Barrett-NDEx for a total of $167.5 million in cash, of which $151.0 million was paid to or on behalf of the sellers of Barrett-NDEx, $15.0 million was placed in escrow to secure payment of indemnification claims and an additional $1.5 million was held back pending working capital adjustments. In addition to the cash payments, NDeX also issued to the sellers of Barrett-NDEx an aggregate 6.1% interest in NDeX, which had an estimated fair market value of approximately $11.6 million on July 28, 2008, the date the parties signed the equity purchase agreement. We also issued to the sellers of Barrett-NDEx 825,528 shares of our common stock. In addition, at September 30, 2009, we recorded $13.0 million as an addition to goodwill because Barrett-NDEx’s adjusted EBITDA for the four quarters ended September 30, 2009 exceeded the earn-out target of $28.0 million. We expect to use our available cash and, to the extent necessary, funds from our credit facility to make this payment. The working capital target of $2.0 million as set forth in the equity purchase agreement was not met, as there was an actual working capital (deficit) of $(1.4) million. As a result, NDeX recovered the $3.4 million shortfall by having the sellers of Barrett-NDEx release the $1.5 million holdback payable to them and by taking receipt of $1.9 million out of the escrow in 2008.

We completed our final allocation of the Barrett-NDEx purchase price during the third quarter, which resulted in the following changes from our preliminary purchase price allocation: (1) we reduced the allocation for our service agreement with the Barrett law firm from $154.0 million to $59.7 million; (2) we allocated $19.6 million to a customer list related to our loan servicer and mortgage lender customers for whom we provide mortgage default processing services directly on California foreclosure files; (3) we reduced the allocation for non-compete agreements from $5.0 million to $3.2 million; (4) we allocated $6.5 million to trade names associated with Barrett-NDEx; (5) we increased our allocation to goodwill from $37.8 million to $116.9 million (which also includes the $13.0 million adjustment to goodwill for the achievement of the earnout as well as the working capital shortfall adjustment, both discussed above); and (6) we decreased our allocation to software from $6.9 million to $5.5 million. Our preliminary purchase price allocation combined the services agreement with the Barrett law firm and the California customer list as a single intangible asset. In completing the final allocation, we determined that the California customer list is a separate identifiable asset from the services agreement because the services agreement requires us to provide mortgage default processing services only to the Barrett law firm whereas we provide these services directly to California customers under no specific services agreement. Our initial assumptions regarding this customer list also included obtaining new customers in the California market, the value of which we preliminarily allocated to the services agreement and later determined was goodwill.

In connection with this acquisition, we also recorded, as additional purchase price, a liability of $1.5 million in estimated severance costs in connection with the elimination of certain duplicative positions, which we expected to pay out in cash within the twelve months following the close of the acquisition. In April 2009, we eliminated certain positions in connection with this plan for aggregate payments of approximately $453,000. Also in the second quarter, we completed our plan of restructure and determined that we will not be eliminating any additional positions under the restructuring plan. Accordingly, we reduced the liability to zero, as a purchase price adjustment to goodwill.

We have accounted for these acquisitions under the purchase method of accounting and have included the operating results of Barrett-NDEx, and expect to include the operating results of the Albertelli and DiscoverReady acquisitions, in the Professional Services segment in our unaudited condensed consolidated interim financial statements since the date we acquired it. As both the Albertelli and DiscoverReady acquisitions occurred after the end of the third quarter and nine months ended September 30, 2009, the operating results of these acquisitions are not included in the unaudited condensed consolidated interim financial statements presented in this Form 10-Q.

Revenues

We derive revenues from two operating segments, our Professional Services Division and our Business Information Division. For the three and nine months ended September 30, 2009, our total revenues were $62.3 million and $193.3 million, respectively, and the percentage of our total revenues attributed to each of our segments was as follows:

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64.2% and 65.3%, respectively, from our Professional Services Division; and

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35.8% and 34.7%, respectively, from our Business Information Division.

Professional Services. Our Professional Services Division generates revenues primarily by providing mortgage default processing, appellate services, and, beginning November 2, 2009 with the acquisition of DiscoverReady, outsourced discovery management and document review services through fee-based arrangements. Through NDeX, we assist eight law firms in processing foreclosure, bankruptcy, eviction and, to a lesser extent, litigation and other mortgage default processing case files for residential mortgages that are in default. We also provide these services directly to mortgage lenders and loan servicers for California foreclosure files. In addition, NDeX provides loan modification and loss mitigation support on mortgage default files to its customers and related real estate title work primarily to the Barrett law firm and, since October 1, 2009, the Albertelli law firm. We refer to revenues that NDeX derives from these sources collectively as “mortgage default processing service revenues.” Shareholders and/or principal attorneys of our law firm customers, including David A. Trott, chairman and chief executive officer of NDeX, are executive management employees of NDeX.

For the three and nine months ended September 30, 2009, we serviced approximately 83,300 and 267,500 mortgage default case files, respectively, of which approximately 53,900 and 168,000, respectively, were processed by businesses we acquired in 2008, including Barrett-NDEx. Our mortgage default processing service revenues accounted for 57.7% and 59.6%, respectively, of our total revenues and 89.9% and 91.2%, respectively, of our Professional Services Division’s revenues during the three and nine months ended September 30, 2009. We recognize mortgage default processing service revenues on a proportional performance basis over the period during which the services are provided, the calculation of which requires management to make estimates. We consolidate the operations, including revenues, of NDeX and record an adjustment for noncontrolling interest for the percentage of NDeX that we do not own. See “Noncontrolling Interest” below for a description of the impact of this noncontrolling interest in NDeX on our operating results.

NDeX’s revenues are primarily driven by the number of residential mortgage defaults in each of the states in which we do business, as well as the type of files we process (e.g. foreclosures, evictions, bankruptcies or litigation) because each has a different pricing structure. Although the services agreements with our law firm customers contemplate the review and possible revision of the fees for the services we provided, price increases have not historically affected our mortgage default processing revenues materially. In most cases, our services agreements adjust the fee paid to us for the files we process on annual basis pursuant to an agreed-upon consumer price index. In other cases, our services agreements require us to agree with our law firm customer regarding the terms and amount of any fee increase. If we are unable to negotiate fixed fee increases under these agreements that at least take into account the increases in costs associated with providing mortgage default processing services, our operating and net margins could be adversely affected. During the first quarter of 2009, we revised our fee arrangements with Trott & Trott and Feiwell & Hannoy. During the second quarter of 2009, we revised our fee arrangement with Wilford & Geske. To date, we have not revised our fee arrangement with the Barrett law firm. You should refer to “Management’s Discussion and Analysis—Revenues” in our Form 10-K filed with the SEC on March 12, 2009 for more information about the conditions when the fixed fee per file we charge our law firm customers may change.

Through Counsel Press, we assist law firms and attorneys throughout the United States in organizing, preparing and filing appellate briefs, records and appendices, in paper and electronic format, that comply with the applicable rules of the U.S. Supreme Court, any of the 13 federal courts of appeals and any state appellate court or appellate division. For the three and nine months ended September 30, 2009, our appellate service revenues accounted for 6.5% and 5.8%, respectively, of our total revenues and 10.1% and 8.8%, respectively, of our Professional Services Division’s revenues. For the three and nine months ended September 30, 2009, we provided appellate services to attorneys in connection with approximately 2,300 and 6,600 appellate filings, respectively, in federal and state courts. We recognize appellate service revenues as the services are provided, which is when our final appellate product is filed with the court.

Beginning on November 2, 2009, we began to assist major United States companies and their counsel in outsourced discovery management and document review through DiscoverReady. We will consolidate the operations of DiscoverReady and record an adjustment for noncontrolling interest for the percentage of DiscoverReady that we do not own. Because the redeemable feature of this noncontrolling interest is based on fair value (unlike the noncontrolling interest in NDeX), we are not required to record this adjustment as an item affecting net income attributable to Dolan Media Company common stockholders. See “Noncontrolling Interest” below.

Business Information. Our Business Information Division generates revenues primarily from display and classified advertising, public notice 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. We include within our display and classified advertising revenue those revenues generated by sponsorships, advertising and ticket sales generated by our local events. Our display and classified advertising revenues accounted for 10.5% and 10.5%, respectively, of our total revenues and 29.4% and 30.2%, respectively, of our Business Information Division’s revenues for the three and nine months ended September 30, 2009. 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 as well as how many local events are held.

We publish 305 different types of public notices in our court and commercial newspapers, including foreclosure notices, probate notices, notices of fictitious business names, limited liability company and other entity notices, unclaimed property notices, notices of governmental hearings and trustee sale notices. Our public notice revenues accounted for 19.7% and 18.5%, respectively, of our total revenues and 55.0% and 53.4%, respectively, of our Business Information Division’s revenues for the three and nine months ended September 30, 2009. 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 14 markets where we are qualified to publish public notices and the rules governing publication of public notices in such states. 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 nine months ended September 30, 2009, our circulation revenues, which consist of subscriptions and single-copy sales, accounted for 5.1% and 5.1%, respectively, of our total revenues and 14.2% and 14.7%, respectively, of our Business Information Division’s revenues. We recognize subscription revenues ratably over the subscription periods, which range from three months to multiple years, with the average subscription period being twelve months. Deferred revenue includes payment for subscriptions collected in advance that we expect to recognize in future periods. Circulation revenues are driven by the number of copies sold and the subscription rates charged to customers.

Operating Expenses

Our operating expenses consist of the following:

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Direct operating expenses, which consist primarily of the cost of compensation and employee benefits for the processing staff at NDeX and Counsel Press and our editorial personnel in our Business Information Division, production and distribution expenses, such as compensation (including stock-based compensation expense) and employee benefits for personnel involved in the production and distribution of our business information products, the cost of newsprint and delivery of our business information products, and packaging and data service fees in connection with our California foreclosure files;

•

Selling, general and administrative expenses, which consist primarily of the cost of compensation (including stock-based compensation expense) and employee benefits for our sales, human resources, accounting and information technology personnel, publishers and other members of management, rent, other sales and marketing related expenses and other office-related payments;

•

Depreciation expense, which represents the cost of fixed assets and software allocated over the estimated useful lives of these assets, with such useful lives ranging from two to thirty years; and

•

Amortization expense, which represents the cost of finite-lived intangibles acquired through business combinations allocated over the estimated useful lives of these intangibles, with such useful lives ranging from two to thirty years.

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

Equity in Earnings of Affiliates

The Detroit Legal News Publishing, LLC. We own 35.0% of the membership interests in DLNP, the publisher of The Detroit Legal News and ten other publications. We account for our investment in DLNP using the equity method. Our percentage share of DLNP’s earnings was $0.9 million and $1.3 million for the three months ended September 30, 2009 and 2008, respectively, which we recognized as operating income. This is net of amortization of $0.4 million for both periods. For the nine months ended September 30, 2009 and 2008, our percentage share of DLNP’s earnings was $3.7 million and $4.4 million, respectively. This is net of amortization of $1.1 million for both periods. NDeX handles all public notices required to be published in connection with files it services for Trott & Trott pursuant to our services agreement with Trott & Trott and places a significant amount of these notices in The Detroit Legal News. Trott & Trott pays DLNP for these public notices. See “Liquidity and Capital Resources — Cash Flow Provided by Operating Activities” below for information regarding distributions paid to us by DLNP.

GovDelivery, Inc. In August 2009, we made an additional investment in GovDelivery by purchasing 1,000,000 shares of its preferred stock for $1,000,000. Prior to this investment, we had accounted for our ownership in GovDelivery using the cost method of accounting because we only owned approximately 15.0% of GovDelivery’s outstanding voting stock (on an as-converted basis) and did not have any ability to exert influence. The additional investment increased our ownership in GovDelivery to 21.9%. As a result, we have determined that we will account for this investment using the equity method. Therefore, we have retroactively applied the equity method of accounting to reflect that portion of GovDelivery’s income and losses attributable to our ownership from the date of our original investment. In the three and nine months ended September 30, 2009, we recorded $0.2 million as the cumulative adjustment representing our share of the losses of GovDelivery for 2009.

Noncontrolling Interest

Noncontrolling interest for the nine months ended September 30, 2009 consisted of an aggregate 15.3% minority interest in NDeX held by APC Investments, LLC (7.6%), Feiwell & Hannoy (1.7%) and the sellers of Barrett-NDEx or their transferees (as a group) (6.1%). APC Investments, LLC is a limited liability company owned by the shareholders of Trott & Trott, including NDeX chairman and chief executive officer David A. Trott and NDeX’s two executive vice presidents in Michigan. Beginning on November 2, 2009, our noncontrolling interest also includes a 15% minority interest in DiscoverReady held by DR Holdco LLC.

Under the terms of the NDeX operating agreement, each month, we are required to distribute NDeX’s earnings before interest, taxes, depreciation and amortization less debt service with respect to any interest-bearing indebtedness of NDeX, capital expenditures and working capital reserves to NDeX’s members on the basis of common equity interest owned. We paid the following distributions in the three and nine months ended September 30, 2009 and 2008:

		Three Months ended September 30,								Nine Months ended September 30,
		(In thousands)								(In thousands)
		2009				2008				2009				2008
APC Investments		$	414			$	362			$	1,562			$	1,098
Feiwell & Hannoy			93				81				350				253
Sellers of Barrett-NDEx (as a group)*			327				—				1,233				—
Total		$	834			$	443			$	3,145			$	1,351

There is no similar distribution obligation under the DiscoverReady limited liability company agreement; however, we are obligated to make quarterly tax distributions to each of the members of DiscoverReady.

In addition, APC Investments and Feiwell & Hannoy each have the right, until February 7, 2010, to require NDeX to repurchase all or any portion of their respective interest in NDeX. The sellers of Barrett-NDEx, each as members of NDeX, also have the right, for a period of six months following September 2, 2012, to require NDeX to repurchase all or any portion of their respective membership interest in NDeX. To the extent any minority member of NDeX timely exercises this right, the purchase price of such membership interest will be based on 6.25 times NDeX’s trailing twelve month earnings before interest, taxes, depreciation and amortization less the aggregate amount of any interest bearing indebtedness outstanding for NDeX as of the date the repurchase occurs. The aggregate purchase price would be payable by NDeX in the form of a three-year unsecured note bearing interest at a rate equal to prime plus 2.0%. To date, neither APC Investments nor Feiwell & Hannoy have exercised their put right. However, had they both exercised this right at September 30, 2009, NDeX would have been obligated to pay them $17.2 million in the aggregate under the terms described above.

Under the terms of the DiscoverReady limited liability agreement, DR Holdco has the right, for a period of ninety days following November 2, 2012, to require DiscoverReady to repurchase all or any portion of its equity interest in DiscoverReady. To the extent that DR Holdco timely exercises this right, the purchase price of such equity interest will be based on the fair market value of such interest. During that same period, we also have the right to require DR Holdco to sell its entire equity interest in DiscoverReady to us. If we timely exercise our right, we would pay DR Holdco an amount based on the fair market value of the equity interest. These rights may be exercised earlier under the following circumstances: An individual seller of DiscoverReady, except Mays, may require DiscoverReady to repurchase the portion of DR Holdco’s interest in DiscoverReady that he beneficially owns if he is terminated without cause or quits for good reason prior to the expiration of his employment agreement. If we terminate any individual seller of DiscoverReady for cause or if such seller quits without good reason, we can require DR Holdco to sell to us the portion of its interest in DiscoverReady that reflects such seller’s beneficial interest in us. The purchase price for that portion of the equity interest repurchased or sold if these rights are exercised based on the interest’s fair market value. With respect to Mays, DiscoverReady will repurchase that portion of DR Holdco’s interest in DiscoverReady, which he beneficially owns at fair market value upon the expiration of his employment agreement.

DiscoverReady will engage an independent third party valuation firm to assist it in determining the fair market value of the equity interest being repurchased by DiscoverReady or sold to us if any of the above-described rights are exercised. The purchase price for any equity interests repurchased or sold pursuant to these rights, if exercised, will be paid in cash to the extent allowed by the terms of our then-existing credit agreement, or pursuant to a three- year unsecured promissory note, bearing interest at a rate equal to prime plus 1.0%.

As of January 1, 2009, we are required to record the redeemable noncontrolling interest in NDeX to its redemption amount at each reporting period. As a result, as of September 30, 2009, we recorded an adjustment in the amount of $12.7 million ($7.7 million net of taxes) to additional paid-in capital, which adjustment only reflects the noncontrolling interest in NDeX as we did not have noncontrolling interest in DiscoverReady at September 30, 2009. Please see our condensed consolidated statements of stockholders’ equity (deficit), as well as Note 1 to our unaudited condensed consolidated interim financial statements included in this report on Form 10-Q for further information regarding ASC 810 and its implications to our financial statements.

Critical Accounting Policies and Estimates

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

We continually evaluate the policies and estimates we use to prepare our condensed 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 assumptions and judgments in the preparation of our unaudited condensed consolidated financial statements include: purchase accounting; revenue recognition in connection with mortgage default processing services; impairment of goodwill, other intangible assets and other long-lived assets; share-based compensation expense; capitalization of developed software for internal and external use; income tax accounting; and allowances for doubtful accounts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Item 7 in our annual report on Form 10-K for the year ended December 31, 2008, which we filed with the SEC on March 12, 2009, and is available at the SEC’s web site at www.sec.gov, for a discussion (in addition to that provided below) as to how we apply these policies.

Revenue Recognition

We recognize mortgage default processing service revenues on a proportional performance basis over the period during which the services are provided, the calculation of which requires management to make significant estimates as to the appropriate timing of revenue recognition periods. We base these estimates primarily upon our historical experience and our knowledge of processing cycles in each of the states in which we do business, as well as recent legislative changes which impact the processing period.

We record revenues recognized for services performed, but not yet billed, to certain of our mortgage default processing customers as unbilled services, the calculation of which requires management to make significant estimates. We base these estimates on the proportional performance of the services provided in accordance with the revenue recognition policies discussed in the paragraph immediately above. As of September 30, 2009 and December 31, 2008, we recorded an aggregate $17.4 million and $12.5 million, respectively, as unbilled services to our mortgage default processing customers and included these amounts in accounts receivable on our balance sheet.

Goodwill, Other Intangible Assets and Other Long-Lived Assets

We assess our goodwill and finite life intangible assets for impairment on an annual basis using a November 30 measurement date. We will conduct interim impairment assessments when circumstances and events indicate that we may not be able to recover the carrying value of the assets. These events include, but are not limited to, any strategic decisions we may make in response to economic or competitive conditions affecting our reporting units and the effect of the economic and regulatory environment on our business. We continue to evaluate whether circumstances and events have changed, thereby requiring us to conduct an interim test of our goodwill and other finite-lived assets. In particular, if we see an uncertain political and regulatory environment regarding mortgage foreclosures, tight credit markets, or volatility in our stock price with any resulting decline in our market capitalization, along with other uncertainties, an interim impairment test of our goodwill, tradenames and other finite-lived intangible assets may be triggered. This could result in a future material goodwill and/or intangible impairment charge, which could materially adversely impact our operational results for the period in which such charge is recorded.

We determine the estimated economic lives and related amortization expense for our intangible assets. To the extent actual useful lives are less than our previously estimated lives, we will increase our amortization expense. If the unamortized balance were deemed to be unrecoverable, we would recognize an impairment charge to the extent necessary to reduce the unamortized balance to the amount of expected future discounted cash flows, with the amount of such impairment charged to operations in the current period. We estimate useful lives of our intangible assets by reference to current and projected dynamics in the business information and mortgage default processing service industries and anticipated competitor actions. The amount of net income for the nine months ended September 30, 2009 would have been approximately $1.1 million higher if the actual useful lives of our finite-lived intangible assets were 10% longer than the estimates and approximately $1.2 million lower if the actual useful lives of our finite-lived intangible assets were 10% shorter than the estimates.

Share-based Compensation Expense

We estimate the fair value of share-based awards using the Black-Scholes option pricing model at the grant date, with compensation expense recognized as the requisite service is rendered. We have reserved 2,700,000 shares of our common stock for issuance under our incentive compensation plan, of which 698,996 shares were available for issuance under the plan as of September 30, 2009. We grant both stock options and restricted stock under our incentive compensation plan.

During the nine months ended September 30, 2009, we granted stock options exercisable for 414,882 shares of common stock at an exercise price equal to $12.51. The following weighted average assumptions were used in the Black-Scholes option pricing model to estimate the fair value of the stock options we granted during 2009:

		2009
Dividend yield			0.0	%
Expected volatility			48.0	%
Risk free interest rate			2.0	%
Expected term of options		4.75 years
Weighted average grant date fair value		$	5.35

All options granted in 2009 are non-qualified options that vest in four equal annual installments commencing on the first anniversary of the grant date and expire seven years after the grant date.

Our share-based compensation expense for all options for the three months ended September 30, 2009 and 2008 was approximately $0.4 million for both periods, before income taxes. For the nine months ended September 30, 2009 and 2008, our share-based compensation expense for all granted options was approximately $1.2 million and $0.9 million for the nine months ended September 30, 2009 and 2008, respectively, before income taxes. Substantially all the expense related to our stock options is included in selling, general and administrative expenses. As of September 30, 2009, our estimated aggregate unrecognized share-based compensation expense for all unvested stock options was $4.5 million, which we expect to recognize over a weighted-average period of approximately 2.7 years.

During the nine months ended September 30, 2009, we granted 129,990 shares of restricted stock to management employees. All of these restricted shares vest in four equal annual installments commencing on the first anniversary of the grant date. 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.

Our share-based compensation expense for all restricted shares for the three months ended September 30, 2009 and 2008 was approximately $0.3 million and $0.2 million, respectively, before income taxes. For the nine months ended September 30, 2009 and 2008, our share-based compensation expense for all restricted shares was approximately $0.6 million and $0.4 million, respectively, before income taxes. The expense related to our restricted shares is split approximately 30% to direct operating expense and 70% to selling, general and administrative expense. As of September 30, 2009, our estimated aggregate unrecognized share-based compensation expense for all unvested restricted shares was $2.5 million, which we expect to recognize over a weighted-average period of approximately 2.9 years.

Income Taxes

Our effective income tax rate in the first nine months of 2009 was 36.7% compared to 40.0% in the first nine months of 2008. The decrease in our effective income tax rate resulted primarily from the receipt of non-taxable life insurance proceeds paid upon the death of Michael Barrett, a senior officer of Barrett-NDEx, in January 2009. The tax impact of these non-taxable proceeds was treated as a discrete item in the first quarter of 2009. The Company expects an annual effective tax rate for 2009 of 39.1%, excluding the impact of discrete items.

Allowances for Doubtful Accounts

We extend credit to our advertisers, public notice publishers, commercial printing customers and professional service customers based upon an evaluation of each customer’s financial condition, and collateral is generally not required. We establish allowances for doubtful accounts based on estimates of losses related to customer receivable balances. Specifically, we use prior credit losses as a percentage of credit sales, the aging of accounts receivable and specific identification of potential losses to establish reserves for credit losses on accounts receivable. We believe that no significant concentration of credit risk exists with respect to our Business Information Division. We had a significant concentration of credit risk with respect to our Professional Services Division as of September 30, 2009, because the amount due from the Barrett law firm was $14.9 million, or 27.8% of our consolidated net accounts receivable balance and the amount due from Trott & Trott was $6.9 million, or 12.9% of our consolidated net accounts receivable balance. However, to date, we have not experienced any problems with respect to collecting payment from our law firm customers.

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

New Accounting Pronouncements

Please see Note 1 to our unaudited condensed consolidated interim financial statements included in this report on Form 10-Q as well as Note 1 to our audited condensed consolidated financial statements included in our annual report on Form 10-K filed with the SEC on March 12, 2009, for information about new accounting pronouncements affecting us.

RESULTS OF OPERATIONS

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

		Three Months Ended September 30,
						% of								% of
		2009				Revenues				2008				Revenues
Revenues:
Professional Services		$	39,996				64.2	%		$	25,673				53.6	%
Business Information			22,348				35.8	%			22,211				46.4	%
Total revenues			62,344				100.0	%			47,884				100.0	%
Operating expenses:
Professional Services			30,753				49.3	%			19,646				41.0	%
Business Information			17,044				27.3	%			18,722				39.1	%
Unallocated corporate operating expenses			3,806				6.1	%			4,535				9.5	%
Total operating expenses			51,603				82.8	%			42,903				89.6	%
Equity in earnings of affiliates			731				1.2	%			1,329				2.8	%
Operating income			11,472				18.4	%			6,310				13.2	%
Interest expense, net			(1,607	)			(2.6	)%			(1,851	)			(3.9	)%
Non-cash interest income related to interest rate swaps			205				0.3	%			(80	)			(0.2	)%
Other income, net			23				—				11				0.0	%
Income before income taxes			10,093				16.2	%			4,390				9.2	%
Income tax expense			(3,529	)			(5.7	)%			(1,471	)			(3.1	)%
Net income before noncontrolling interest			6,564				10.5	%			2,919				6.1	%
Less: Net income attributable to the redeemable noncontrolling interest			(694	)			(1.1	)%			(466	)			(1.0	)%
Net income attributable to Dolan Media Company		$	5,870				9.4	%		$	2,453				5.1	%
Net income attributable to Dolan Media Company per diluted share		$	0.20							$	0.09
Accretion of redeemable noncontrolling interest, net of tax			(0.02	)							—
Net income attributable to Dolan Media Company common stockholders per diluted share		$	0.18							$	0.09
Weighted average diluted shares outstanding			29,932								28,060