##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended: September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to .
 Commission File Number: 001-33603
 Dolan Media Company
  Delaware
    
    43-2004527(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 706 Second Avenue South
Suite 1200
Minneapolis, Minnesota 55402
 (612) 317-9420
 þ o
  o o þ
 o þ




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##### 



DOLAN MEDIA COMPANY
QUARTER ENDED SEPTEMBER 30, 2007
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsBalance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006
    
    
    1Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (Unaudited)
    
    
    2Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (Unaudited)
    
    
    3Statements of Stockholders Equity (Deficit) (Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    52Item 4 and 4T.Controls and Procedures
    
    
    53PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    53Item 1A.
    
    Risk Factors
    
    
    53Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    53Item 3.
    
    Defaults Upon Senior Securities
    
    
    57Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    57Item 5.
    
    Other Information
    
    
    58Item 6.
    
    Exhibits
    
    
    58SIGNATURES
    
    
    59INDEX TO EXHIBITS
    
    
    60Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 Dolan Media Company
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except per share data)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    4,041
    
    
    $
    786Accounts receivable (net of allowances for doubtful accounts of $1,117, and
$1,014 as of September 30, 2007 and December 31, 2006, respectively)
    
    
    19,383
    
    
    
    15,679Prepaid expenses and other current assets
    
    
    2,302
    
    
    
    2,187Deferred income taxes
    
    
    152
    
    
    
    152Total current assets
    
    
    25,878
    
    
    
    18,804Investments
    
    
    18,322
    
    
    
    18,065Property and equipment, net
    
    
    11,589
    
    
    
    8,230Finite-life intangible assets, net
    
    
    77,531
    
    
    
    65,881Goodwill
    
    
    79,030
    
    
    
    72,690Other assets
    
    
    1,960
    
    
    
    2,449Total assets
    
    $
    214,310
    
    
    $
    186,119LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilitiesCurrent portion of long-term debt
    
    $
    5,076
    
    
    $
    7,031Accounts payable
    
    
    6,208
    
    
    
    4,438Accrued compensation
    
    
    3,364
    
    
    
    3,526Accrued liabilities
    
    
    2,937
    
    
    
    1,448Due to sellers of acquired businesses
    
    
    600
    
    
    
    600Deferred revenue
    
    
    10,927
    
    
    
    10,752Total current liabilities
    
    
    29,112
    
    
    
    27,795Long-term debt, less current portion
    
    
    48,130
    
    
    
    72,760Deferred income taxes
    
    
    4,034
    
    
    
    4,034Deferred revenue and other liabilities
    
    
    2,600
    
    
    
    1,829Series C mandatorily redeemable, convertible, participating preferred stock, $0.001 par value;
authorized: 40,000 shares; issued and outstanding: 0 shares as of September 30, 2007 and
38,132 shares as of December 31, 2006
    
    
    
    
    
    
    73,292Series B mandatorily redeemable, nonconvertible preferred stock, $0.001 par value;
authorized: 40,000 shares; issued and outstanding: 0 shares as of September 30, 2007 and December 31, 2006
    
    
    
    
    
    
    Series A mandatorily redeemable, nonconvertible preferred stock, $.001 par value; authorized
550,000 shares; issued and outstanding: 0 shares as of September 30, 2007 and 287,000
shares as of December 31, 2006
    
    
    
    
    
    
    35,037Total liabilities
    
    
    83,876
    
    
    
    214,747Minority interest in consolidated subsidiary
    
    
    4,661
    
    
    
    247Commitments and contingencies (Notes 4 and 5)Stockholders equity (deficit)Common stock, $0.001 par value; authorized: 70,000,000 shares; issued and
outstanding: 25,088,804 shares as of September 30, 2007 and 9,324,000*
shares as of December 31, 2006
    
    
    25
    
    
    
    1Additional paid-in capital
    
    
    212,086
    
    
    
    303Accumulated deficit
    
    
    (86,338
    )
    
    
    (29,179
    )Total stockholders equity (deficit)
    
    
    125,773
    
    
    
    (28,875
    )Total liabilities and stockholders equity (deficit)
    
    $
    214,310
    
    
    $
    186,119
 
 *
    
    Adjusted to reflect a 9 for 1 stock split as described in Note 8.  1




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Dolan Media Company
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesBusiness Information
    
    $
    20,962
    
    
    $
    17,810
    
    
    $
    62,030
    
    
    $
    54,465Professional Services
    
    
    17,362
    
    
    
    10,970
    
    
    
    49,044
    
    
    
    24,934Total revenues
    
    
    38,324
    
    
    
    28,780
    
    
    
    111,074
    
    
    
    79,399Operating expensesDirect operating: Business Information
    
    
    7,363
    
    
    
    6,473
    
    
    
    21,140
    
    
    
    19,613Direct operating: Professional Services
    
    
    5,332
    
    
    
    3,217
    
    
    
    15,737
    
    
    
    7,799Selling, general and administrative
    
    
    15,860
    
    
    
    10,892
    
    
    
    45,443
    
    
    
    31,821Amortization
    
    
    1,871
    
    
    
    1,315
    
    
    
    5,585
    
    
    
    3,601Depreciation
    
    
    1,206
    
    
    
    634
    
    
    
    2,851
    
    
    
    1,728Total operating expenses
    
    
    31,632
    
    
    
    22,531
    
    
    
    90,756
    
    
    
    64,562Equity in earnings of Detroit Legal News Publishing, LLC, net of amortization of
$364 and $347 for the three months ended September 30, 2007 and 2006,
respectively, and $1,082 and $1,156 for the nine months ended September 30,
2007
and 2006, respectively
    
    
    1,611
    
    
    
    791
    
    
    
    3,856
    
    
    
    1,782Operating income
    
    
    8,303
    
    
    
    7,040
    
    
    
    24,174
    
    
    
    16,619Non-operating expenseNon-cash interest expense related to redeemable preferred stock
    
    
    (9,872
    )
    
    
    (10,019
    )
    
    
    (66,132
    )
    
    
    (23,470
    )Interest expense, net
    
    
    (3,190
    )
    
    
    (2,404
    )
    
    
    (6,618
    )
    
    
    (4,868
    )Other expense
    
    
    (8
    )
    
    
    (6
    )
    
    
    (21
    )
    
    
    (26
    )Total non-operating expense
    
    
    (13,070
    )
    
    
    (12,429
    )
    
    
    (72,771
    )
    
    
    (28,364
    )Loss from operations before income taxes and minority interest
    
    
    (4,767
    )
    
    
    (5,389
    )
    
    
    (48,597
    )
    
    
    (11,745
    )Income tax expense
    
    
    (1,657
    )
    
    
    (1,484
    )
    
    
    (5,764
    )
    
    
    (3,992
    )Minority interest in net income of subsidiary
    
    
    (1,091
    )
    
    
    (649
    )
    
    
    (2,798
    )
    
    
    (1,238
    )Net loss
    
    $
    (7,515
    )
    
    $
    (7,522
    )
    
    $
    (57,159
    )
    
    $
    (16,975
    )Net loss per share:*Basic and diluted
    
    $
    (0.38
    )
    
    $
    (0.81
    )
    
    $
    (4.46
    )
    
    $
    (1.84
    )Weighted average shares outstanding:*Basic and diluted
    
    
    19,675,101
    
    
    
    9,336,131
    
    
    
    12,812,282
    
    
    
    9,230,373
 
 *
    
    Adjusted to reflect a 9 for 1 stock split as described in Note 8.  2




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Dolan Media Company
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activitiesNet loss
    
    $
    (57,159
    )
    
    $
    (16,975
    )Distributions received from Detroit Legal News Publishing, LLC
    
    
    4,200
    
    
    
    2,800Minority interest distributions paid
    
    
    (1,814
    )
    
    
    (1,015
    )Non-cash operating activities:Amortization
    
    
    5,585
    
    
    
    3,601Depreciation
    
    
    2,851
    
    
    
    1,728Stock-based compensation expense
    
    
    564
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    112Change in value of interest rate swap and accretion of interest on note payable
    
    
    698
    
    
    
    234Equity in earnings of Detroit Legal News Publishing, LLC
    
    
    (3,856
    )
    
    
    (1,782
    )Minority interest
    
    
    2,798
    
    
    
    1,238Non-cash interest related to redeemable preferred stock
    
    
    66,611
    
    
    
    23,570Amortization of debt issuance cost
    
    
    696
    
    
    
    613Changes in operating assets and liabilities, net of effects of business acquisitions:Accounts receivable
    
    
    (3,705
    )
    
    
    (615
    )Prepaid expenses and other current assets
    
    
    (707
    )
    
    
    (124
    )Other assets
    
    
    28
    
    
    
    (231
    )Accounts payable and accrued liabilities
    
    
    4,313
    
    
    
    2,002Deferred revenue
    
    
    (767
    )
    
    
    (305
    )Net cash provided by operating activities
    
    
    20,336
    
    
    
    14,851Cash flows from investing activitiesAcquisitions and investments
    
    
    (17,335
    )
    
    
    (42,262
    )Capital expenditures
    
    
    (5,724
    )
    
    
    (1,598
    )Other
    
    
    130
    
    
    
    40Net cash used in investing activities
    
    
    (22,929
    )
    
    
    (43,820
    )Cash flows from financing activitiesNet payments on senior revolving note
    
    
    
    
    
    
    (13,500
    )Proceeds from borrowings on senior term notes
    
    
    10,000
    
    
    
    56,350Payments on senior long-term debt
    
    
    (39,750
    )
    
    
    (4,500
    )Proceeds from initial public offering, net of underwriting discount
    
    
    141,593
    
    
    
    Redemption of preferred stock
    
    
    (101,089
    )
    
    
    Payments of offering costs
    
    
    (3,985
    )
    
    
    Payments of deferred financing costs
    
    
    (891
    )
    
    
    (777
    )Other
    
    
    (30
    )
    
    
    (69
    )Net cash provided by financing activities
    
    
    5,848
    
    
    
    37,504Net increase in cash and cash equivalents
    
    
    3,255
    
    
    
    8,535Cash and cash equivalents at beginning of period
    
    
    786
    
    
    
    2,348Cash and cash equivalents at end of period
    
    $
    4,041
    
    
    $
    10,883
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Dolan Media Company
Condensed Consolidated Statements of Stockholders Equity (Deficit)
Year Ended December 31, 2006 and
Nine Months Ended September 30, 2007
(unaudited)
(In thousands, except share data)
 Common Stock
    
    
    AdditionalShares*
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Accumulated Deficit
    
    
    TotalBalance (deficit) at December 31, 2006
    
    
    9,324,000
    
    
    $
    1
    
    
    $
    303
    
    
    $
    (29,179
    )
    
    $
    (28,875
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,159
    )
    
    
    (57,159
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    564
    
    
    
    
    
    
    
    564Preferred stock series C conversion
    
    
    5,093,155
    
    
    
    5
    
    
    
    73,844
    
    
    
    
    
    
    
    73,849Initial public offering proceeds,
net of
underwriting discount and offering
costs
    
    
    10,500,000
    
    
    
    11
    
    
    
    137,383
    
    
    
    
    
    
    
    137,394Issuance of restricted stock, net of
forfeitures
    
    
    171,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    
    
    
    
    Balance (deficit) at September 30, 2007
    
    
    25,088,804
    
    
    $
    25
    
    
    $
    212,086
    
    
    $
    (86,338
    )
    
    $
    125,773
 
 *
    
    Adjusted to reflect a 9 for 1 stock split as described in Note 8.  4




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 1. Significant Accounting Policies
 Basis of Presentation
   Use of Estimates in the Preparation of Financial Statements
 Recently Issued Accounting Standards SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities Accounting for Derivative Instruments and Hedging Activities
 Fair Value Measurements
 5




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 Recently Adopted Accounting Pronouncement Accounting for Uncertainty in Income Taxes Statement No. 109
    Note 2. Accounts Receivable
  in thousands
 Provision(Reduction) forBeginning
    
    
    
    
    
    Doubtful
    
    (Write offs)Balance
    
    Acquisitions
    
    Accounts
    
    Recoveries
    
    Ending BalanceFor the nine months
ended September 30,
2007
    
    $
    1,014
    
    
    $
    
    
    
    $
    506
    
    
    $
    (403
    )
    
    $
    1,117For the nine months
ended September 30,
2006
    
    $
    1,175
    
    
    $
    
    
    
    $
    (112
    )
    
    $
    (171
    )
    
    $
    892
 Note 3. Basic and Diluted Loss Per Share
  6




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
  in thousands, except per
share amounts
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (7,515
    )
    
    $
    (7,522
    )
    
    $
    (57,159
    )
    
    
    (16,975
    )Basic:Weighted average common shares outstanding
    
    
    19,777
    
    
    
    9,336
    
    
    
    12,847
    
    
    
    9,230Weighted average common shares of unvested restricted stock
    
    
    (102
    )
    
    
    
    
    
    
    (35
    )
    
    
    Weighted average common shares equivalents of convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares used in the computation of basic net loss per share
    
    
    19,675
    
    
    
    9,336
    
    
    
    12,812
    
    
    
    9,230Net loss per share  basic
    
    $
    (0.38
    )
    
    $
    (0.81
    )
    
    $
    (4.46
    )
    
    $
    (1.84
    )Diluted:Shares used in the computation of basic net loss per share
    
    
    19,675
    
    
    
    9,336
    
    
    
    12,812
    
    
    
    9,230Employee and non-employee director stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unvested restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares used in the computation of diluted net loss per share
    
    
    19,675
    
    
    
    9,336
    
    
    
    12,812
    
    
    
    9,230Net loss per share  diluted
    
    $
    (0.38
    )
    
    $
    (0.81
    )
    
    $
    (4.46
    )
    
    $
    (1.84
    )
  Note 4. Acquisitions
 Business Combinations
 2007 Acquisitions:
 Feiwell & Hannoy P.C.
 7




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
    Venture Publications Inc. Mississippi Business Journal
 Mississippi Business Journal
  8




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 in thousands
 Feiwell &
    
    
    VentureHannoy
    
    
    Publications
    
    
    TotalAssets acquired and liabilities assumed at their
estimated fair market values:Property and equipment
    
    $
    565
    
    
    $
    33
    
    
    $
    598APC long-term service contract
    
    
    15,300
    
    
    
    
    
    
    
    15,300Other finite-life intangible assets
    
    
    
    
    
    
    1,530
    
    
    
    1,530Goodwill
    
    
    5,044
    
    
    
    1,296
    
    
    
    6,340Operating liabilities assumed
    
    
    (934
    )
    
    
    
    
    
    
    (934
    )Total consideration paid, including direct expenses
    
    $
    19,975
    
    
    $
    2,859
    
    
    $
    22,834
 2006 Acquisitions:
 Pro Forma Information in thousands, except per share data
 Pro FormaThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Total revenues
    
    $
    38,324
    
    
    $
    29,592
    
    
    $
    112,045
    
    
    $
    87,326Net loss
    
    
    (7,515
    )
    
    
    (7,506
    )
    
    
    (57,124
    )
    
    
    (16,971
    )Net loss per share:Basic and diluted
    
    $
    (0.38
    )
    
    $
    (0.80
    )
    
    $
    (4.46
    )
    
    $
    (1.82
    )Pro forma weighted average shares outstanding, basic and diluted
    
    
    19,675
    
    
    
    9,336
    
    
    
    12,812
    
    
    
    9,349
 Note 5. Investments
 in
thousands
 Accounting
    
    
    Percentage
    
    
    September 30,
    
    
    December 31,Method
    
    
    Ownership
    
    
    2007
    
    
    2006Detroit Legal News Publishing, LLC
    
    Equity
    
    
    35
    
    
    $
    17,422
    
    
    $
    17,165GovDelivery, Inc.
    
    Cost
    
    
    15
    
    
    
    900
    
    
    
    900$
    18,322
    
    
    $
    18,065
  9




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
  in thousands
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    11,609
    
    
    $
    7,510
    
    
    $
    30,698
    
    
    $
    20,663Expenses
    
    
    6,034
    
    
    
    4,275
    
    
    
    16,645
    
    
    
    12,318Operating income
    
    $
    5,575
    
    
    $
    3,235
    
    
    $
    14,053
    
    
    $
    8,345Net income
    
    $
    5,644
    
    
    $
    3,252
    
    
    $
    14,109
    
    
    $
    8,393Companys 35% share of net income
    
    $
    1,975
    
    
    $
    1,138
    
    
    $
    4,938
    
    
    $
    2,938Less amortization of intangible assets
    
    
    364
    
    
    
    347
    
    
    
    1,082
    
    
    
    1,156Equity in earnings of DLNP
    
    $
    1,611
    
    
    $
    791
    
    
    $
    3,856
    
    
    $
    1,782
 in thousands
 For the year ending December 31,2007 (remainder of year)
    
    $
    3772008
    
    
    1,5082009
    
    
    1,5082010
    
    
    1,5082011
    
    
    1,508Thereafter
    
    
    5,905Total
    
    $
    12,314
 Note 6. Goodwill and Finite-life Intangible Assets
 Goodwill
 in
thousands
 10




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Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 Business
    
    
    ProfessionalInformation
    
    
    Services
    
    
    TotalBalance as of December 31, 2006
    
    $
    57,322
    
    
    $
    15,368
    
    
    $
    72,690Feiwell & Hannoy P.C
    
    
    
    
    
    
    5,044
    
    
    
    5,044Venture Publications Inc.
    
    
    1,296
    
    
    
    
    
    
    
    1,296Balance as of September 30, 2007
    
    $
    58,618
    
    
    $
    20,412
    
    
    $
    79,030
 Finite-Life Intangible Assets in thousands except amortization
periods
 Amortization
    
    
    As of September 30, 2007
    
    
    As of December 31, 2006Period
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    Accumulated(Years)
    
    
    
    Gross Amount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetMastheads and trade names
    

    30
        
    
    $
    11,298
    
    
    $
    (1,307
    )
    
    $
    9,991
    
    
    $
    10,498
    
    
    $
    (1,031
    )
    
    $
    9,467Advertising customer lists
    
    5-11
        
    
    
    13,441
    
    
    
    (4,428
    )
    
    
    9,013
    
    
    
    12,811
    
    
    
    (3,484
    )
    
    
    9,327Subscriber customer lists
    

    7-14
        
    
    
    7,311
    
    
    
    (1,817
    )
    
    
    5,494
    
    
    
    7,211
    
    
    
    (1,395
    )
    
    
    5,816Professional services customer lists
    

    7
        
    
    
    6,982
    
    
    
    (2,424
    )
    
    
    4,558
    
    
    
    6,982
    
    
    
    (1,676
    )
    
    
    5,306Noncompete agreements
    

    5
        
    
    
    750
    
    
    
    (144
    )
    
    
    606
    
    
    
    750
    
    
    
    (32
    )
    
    
    718APC long-term service contracts
    

    15
        
    
    
    46,300
    
    
    
    (4,037
    )
    
    
    42,263
    
    
    
    31,000
    
    
    
    (1,722
    )
    
    
    29,278Customer relationship
    

    14
        
    
    
    3,283
    
    
    
    (210
    )
    
    
    3,073
    
    
    
    3,283
    
    
    
    (38
    )
    
    
    3,245Sunwel contract
    

    7
        
    
    
    2,821
    
    
    
    (389
    )
    
    
    2,432
    
    
    
    2,821
    
    
    
    (97
    )
    
    
    2,724Exhibitor customer list
    

    1
        
    
    
    404
    
    
    
    (303
    )
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    Total intangibles
    
    
    
    
    
    $
    92,590
    
    
    $
    (15,059
    )
    
    $
    77,531
    
    
    $
    75,356
    
    
    $
    (9,475
    )
    
    $
    65,881
  in thousands
 2007 (remainder of year)
    
    $
    1,8582008
    
    
    7,0762009
    
    
    7,0762010
    
    
    7,0232011
    
    
    6,965Thereafter
    
    
    47,533Total
    
    $
    77,531
 Note 7. Long-Term Debt
 in thousands
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)Senior secured debt (see below):Senior variable-rate term note, payable in quarterly installments with a balloon payment
due December
2012, replaced by new term debt payable in quarterly installments with a balloon payment due
August 8, 2014
    
    $
    50,000
    
    
    $
    79,750Senior variable-rate revolving note, due August 8, 2012
    
    
    
    
    
    
    Total senior secured debt
    
    
    50,000
    
    
    
    79,750Unsecured note payable
    
    
    3,195
    
    
    
    Capital lease obligations
    
    
    11
    
    
    
    4153,206
    
    
    
    79,791Less current portion
    
    
    5,076
    
    
    
    7,031Long-term debt, less current portion
    
    $
    48,130
    
    
    $
    72,760
 11




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 Senior Secured Debt:
    12




---



##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
   Unsecured Note Payable:
 in thousands
 2007 (remainder of the year)
    
    $
    6252008
    
    
    5,3292009
    
    
    5,5022010
    
    
    5,2502011
    
    
    7,2502012
    
    
    9,750Thereafter
    
    
    19,500Total
    
    $
    53,206
 Note 8. Common and Preferred Stock
 Authorized Shares and Stock Split :
  13




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
  Series A preferred stock:
 Series B preferred stock:
 Series C preferred stock:
  14




---



##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
   Redemption of Preferred Stock.
 Note 9. Income Taxes
  Accounting for Uncertainty
in Income Taxes  an Interpretation of FASB Statement No. 109
 15




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 Note 10. Major Customers and Related Parties
   Note 11. Reportable Segments
    16




---



##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
 in
thousands
 Three Months Ended September 30, 2007Business
    
    
    ProfessionalInformation
    
    
    Services
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    20,962
    
    
    $
    17,362
    
    
    $
    
    
    
    $
    38,324Operating expenses
    
    
    15,711
    
    
    
    10,062
    
    
    
    2,782
    
    
    
    28,555Amortization and depreciation
    
    
    1,168
    
    
    
    1,759
    
    
    
    150
    
    
    
    3,077Equity in earnings of DLNP, LLC
    
    
    1,611
    
    
    
    
    
    
    
    
    
    
    
    1,611Operating income (loss)
    
    $
    5,694
    
    
    $
    5,541
    
    
    $
    (2,932
    )
    
    $
    8,303
 Three Months Ended September 30, 2006Business
    
    
    ProfessionalInformation
    
    
    Services
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    17,810
    
    
    $
    10,970
    
    
    $
    
    
    
    $
    28,780Operating expenses
    
    
    13,378
    
    
    
    6,083
    
    
    
    1,121
    
    
    
    20,582Amortization and depreciation
    
    
    888
    
    
    
    992
    
    
    
    69
    
    
    
    1,949Equity in earnings of DLNP, LLC
    
    
    791
    
    
    
    
    
    
    
    
    
    
    
    791Operating income (loss)
    
    $
    4,335
    
    
    $
    3,895
    
    
    $
    (1,190
    )
    
    $
    7,040
 Nine Months Ended September 30, 2007Business
    
    
    ProfessionalInformation
    
    
    Services
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    62,030
    
    
    $
    49,044
    
    
    $
    
    
    
    $
    111,074Operating expenses
    
    
    46,342
    
    
    
    29,346
    
    
    
    6,632
    
    
    
    82,320Amortization and depreciation
    
    
    3,308
    
    
    
    4,748
    
    
    
    380
    
    
    
    8,436Equity in earnings of DLNP, LLC
    
    
    3,856
    
    
    
    
    
    
    
    
    
    
    
    3,856Operating income (loss)
    
    $
    16,236
    
    
    $
    14,950
    
    
    $
    (7,012
    )
    
    $
    24,174
 Nine Months Ended September 30, 2006Business
    
    
    ProfessionalInformation
    
    
    Services
    
    
    Corporate
    
    
    TotalRevenues
    
    $
    54,465
    
    
    $
    24,934
    
    
    $
    
    
    
    $
    79,399Operating expenses
    
    
    40,890
    
    
    
    15,039
    
    
    
    3,304
    
    
    
    59,233Amortization and depreciation
    
    
    2,673
    
    
    
    2,435
    
    
    
    221
    
    
    
    5,329Equity in earnings of DLNP, LLC
    
    
    1,782
    
    
    
    
    
    
    
    
    
    
    
    1,782Operating income (loss)
    
    $
    12,684
    
    
    $
    7,460
    
    
    $
    (3,525
    )
    
    $
    16,619
 Note 12. Share-Based Compensation
  17




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
   Stock Options.
    18




---



##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
    Dividend yield
    
    
    0.0%Expected volatility
    
    
    28%Risk free interest rate
    
    
    4.60%Expected
life of options (in years)
    
    
    4.75Weighted-average fair value of options granted
    
    $
    4.73
  Weighted
    
    
    
    
    
    WeightedAverage
    
    Weighted
    
    AverageGrant
    
    Average
    
    RemainingNumber of
    
    Fair
    
    Exercise
    
    ContractualShares
    
    Value
    
    Price
    
    LifeOutstanding options at December 31, 2006
    
    
    126,000
    
    
    $
    1.35
    
    
    $
    2.22
    
    
    9.79 Yrs.Granted
    
    
    873,157
    
    
    
    4.73
    
    
    
    14.50
    
    
    6.84 Yrs.Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled or forfeited
    
    
    (11,570
    )
    
    
    4.73
    
    
    
    14.50
    
    
    
    Outstanding options at September 30, 2007
    
    
    987,587
    
    
    $
    4.30
    
    
    $
    12.93
    
    
    7.12 Yrs.Options exercisable at September 30, 2007
    
    
    31,500
    
    
    $
    1.35
    
    
    $
    2.22
    
    
    9.04 Yrs.
   Restricted Stock Grants.
 19




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
  WeightedNumber
    
    
    Averageof
    
    
    Grant DateShares
    
    
    Fair ValueOutstanding, December 31, 2006
    
    
    
    
    
    $
    Granted
    
    
    193,829
    
    
    
    14.50Vested
    
    
    (18,340
    )
    
    
    14.50Canceled or forfeited
    
    
    (22,180
    )
    
    
    14.50Outstanding, September 30, 2007
    
    
    153,309
    
    
    $
    14.50
  Note 13. Contingencies and Commitments
 Litigation
 Employment Agreements
  Change of Control Plan
 20




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##### Table of Contents



Dolan Media Company
Notes to Unaudited Condensed Consolidated Financial Statements
   21




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Result of Operations
  
    
    our business operates in highly competitive markets and depends upon the economies and
the demographics of the legal, financial and real estate sectors in the markets we serve
and changes in those sectors could have an adverse effect on our revenues, cash flows and
profitability;
    
    a decrease in paid subscriptions to our print publications, which occurred between
September 2006 and 2007, primarily due to the termination of discounted subscription
programs, could adversely affect our circulation revenues to the extent we are not able to
continue increasing our subscription rates and our advertising and display revenues to the
extent advertisers begin placing fewer advertisements with us due to decreased readership;
    
    we have owned and operated the businesses in our Professional Services Division (APC and
Counsel Press) for a very short period of time;
    
    APCs business revenues are very concentrated, as APC currently provides mortgage
default processing services to only two customers, Trott & Trott and Feiwell & Hannoy, and
if the number of case files referred to APC by Trott & Trott and Feiwell & Hannoy decreases
or fails to increase, our operating results and ability to execute our growth strategy
could be adversely affected;
    
    the key attorneys at each of APCs two law firm customers are employed by, and hold an
indirect equity interest in, APC, and therefore may, in certain circumstances, have
interests that differ from or conflict with our interests;
    
    a key component of our operating income and operating cash flows has been, and may
continue to be, our minority equity investment in Detroit Legal News Publishing, LLC
    
    we are dependent on our senior management team, especially James P. Dolan, our founder,
Chairman, President and Chief Executive Officer; Scott J. Pollei, our Executive Vice
President and Chief Financial Officer; Mark W.C. Stodder, our Executive Vice President
Business Information; and David Trott, President, APC; and
    
    growing our business may place a strain on our management and internal systems,
processes and controls.
 22




---



##### Table of Contents



Overview
  Recent Developments
   23




---



##### Table of Contents



Recent Acquisitions
      24




---



##### Table of Contents



Revenues
  
    
    54.7% and 55.8%, respectively, from our Business Information Division; and
    
    45.3% and 44.2%, respectively, from our Professional Services Division.
 Business Information
  25




---



##### Table of Contents



Professional Services
  26




---



##### Table of Contents



Operating Expenses
  
    
    Direct operating expenses, which consist primarily of the cost of compensation and
employee benefits for our editorial personnel within our Business Information Division and
the processing staff at APC and Counsel Press, and production and distribution expenses,
such as compensation and employee benefits for personnel involved in the production and
distribution of our business information products, the cost of newsprint and the cost of
delivery of our business information products;
    
    Selling, general and administrative expenses, which consist primarily of the cost of
compensation and employee benefits for our sales, human resources, accounting and
information technology personnel, publishers and other members of management, rent, other
sales and marketing related expenses and other office-related payments;
    
    Depreciation expense, which represents the cost of fixed assets and software allocated
over the estimated useful lives of these assets, with such useful lives ranging from one to
thirty years; and
    
    Amortization expense, which represents the cost of finite-lived intangibles acquired
through business combinations allocated over the estimated useful lives of these
intangibles, with such useful lives ranging from one to thirty years.
 27




---



##### Table of Contents



Equity in Earnings of Detroit Legal News Publishing
   Minority Interest in Net Income of Subsidiary
  Critical Accounting Policies
  28




---



##### Table of Contents



Purchase Accounting
 Business Combinations
 Valuation of Our Company Equity Securities
   29




---



##### Table of Contents




    
    a long-term revenue growth of 5.5%, trailing down to 4.0%
    
    EBITDA would grow by 8% in 2008, 7% in 2009 and 2010, 6% in 2011, 5% in 2012 and 4%
thereafter and expected EBITDA margins would range from 23  26%
    
    capital expenditures of approximately 2% of revenues
    
    a discount rate, based on our estimated capital structure and the cost of our equity and
debt, of 13%
    
    a terminal multiple, based on our anticipated growth prospects and private and public
market valuations of comparable companies, of 7.1
    
    a non-marketability discount of 15%
    
    cost growth assumptions (we assumed direct operating expenses and selling, general and
administrative expenses would grow 3% per year)
  30




---



##### Table of Contents



Goodwill, Other Intangible Assets and Other Long-Lived Assets
 Goodwill and Other Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
 31




---



##### Table of Contents



Share-Based Compensation Expense
 Share-Based Payment
  32




---



##### Table of Contents



Dividend yield
    
    
    0.0
    %Expected volatility
    
    
    28
    %Risk free interest rate
    
    
    4.60
    %Expected life of options
(in years)
    
    
    4.75Weighted-average fair value of options granted
    
    $
    4.73
   33




---



##### Table of Contents



Income Taxes
 Accounting for Income Taxes
   34




---



##### Table of Contents



Accounts Receivable Allowances
   New Accounting Pronouncements
   35




---



##### Table of Contents



Recently Adopted Accounting Pronouncement
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
    Non-GAAP Financial Measures
  Adjusted EBITDA
 before
 
    
    non-cash interest expense related to redeemable preferred stock;
    
    interest expense, net;
    
    income tax expense;
    
    depreciation and amortization;
    
    non-cash compensation expense; and
    
    minority interest in net income of subsidiary;
 after
 
    
    minority interest distributions paid.
 36




---



##### Table of Contents



Managements Use of Adjusted EBITDA
     37




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (7,515
    )
    
    $
    (7,522
    )
    
    $
    (57,159
    )
    
    $
    (16,975
    )Non-cash interest expense related to
redeemable preferred stock
    
    
    9,872
    
    
    
    10,019
    
    
    
    66,132
    
    
    
    23,470Interest expense, net
    
    
    3,190
    
    
    
    2,404
    
    
    
    6,618
    
    
    
    4,868Income tax expense
    
    
    1,657
    
    
    
    1,484
    
    
    
    5,764
    
    
    
    3,992Amortization of intangibles
    
    
    1,871
    
    
    
    1,315
    
    
    
    5,585
    
    
    
    3,601Depreciation expense
    
    
    1,206
    
    
    
    634
    
    
    
    2,851
    
    
    
    1,728Amortization of DLNP intangible
    
    
    364
    
    
    
    347
    
    
    
    1,082
    
    
    
    1,156Non-cash compensation expense
    
    
    543
    
    
    
    
    
    
    
    564
    
    
    
    Minority interest in net income of subsidiary
    
    
    1,091
    
    
    
    649
    
    
    
    2,798
    
    
    
    1,238Cash distributions to minority interest
    
    
    (712
    )
    
    
    (712
    )
    
    
    (1,814
    )
    
    
    (1,015
    )Adjusted EBITDA
    
    $
    11,567
    
    
    $
    8,618
    
    
    $
    32,421
    
    
    $
    22,063
 RESULTS OF OPERATIONS
 in thousands
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    % of Revenues
    
    
    2006
    
    
    % of Revenues
    
    
    2007
    
    
    % of Revenues
    
    
    2006
    
    
    % of RevenuesRevenues:Business information
    
    $
    20,962
    
    
    
    54.7
    %
    
    $
    17,810
    
    
    
    61.9
    %
    
    $
    62,030
    
    
    
    55.8
    %
    
    $
    54,465
    
    
    
    68.6
    %Professional Services
    
    
    17,362
    
    
    
    45.3
    %
    
    
    10,970
    
    
    
    38.1
    %
    
    
    49,044
    
    
    
    44.2
    %
    
    
    24,934
    
    
    
    31.4
    %Total revenues
    
    
    38,324
    
    
    
    100.0
    %
    
    
    28,780
    
    
    
    100.0
    %
    
    
    111,074
    
    
    
    100.0
    %
    
    
    79,399
    
    
    
    100.0
    %Operating expenses:Business Information
    
    
    16,879
    
    
    
    44.0
    %
    
    
    14,266
    
    
    
    49.6
    %
    
    
    49,650
    
    
    
    44.7
    %
    
    
    43,563
    
    
    
    54.9
    %Professional Services
    
    
    11,821
    
    
    
    30.8
    %
    
    
    7,075
    
    
    
    24.6
    %
    
    
    34,094
    
    
    
    30.7
    %
    
    
    17,474
    
    
    
    22.0
    %Unallocated
corporate operating
expenses
    
    
    2,932
    
    
    
    7.7
    %
    
    
    1,190
    
    
    
    4.1
    %
    
    
    7,012
    
    
    
    6.3
    %
    
    
    3,525
    
    
    
    4.4
    %Total operating expenses
    
    
    31,632
    
    
    
    82.5
    %
    
    
    22,531
    
    
    
    78.3
    %
    
    
    90,756
    
    
    
    81.7
    %
    
    
    64,562
    
    
    
    81.3
    %Equity in earnings of
Detroit Legal News
Publishing, LLC, net of
amortization
    
    
    1,611
    
    
    
    4.2
    %
    
    
    791
    
    
    
    2.7
    %
    
    
    3,856
    
    
    
    3.5
    %
    
    
    1,782
    
    
    
    2.2
    %Operating income
    
    
    8,303
    
    
    
    21.7
    %
    
    
    7,040
    
    
    
    24.5
    %
    
    
    24,174
    
    
    
    21.8
    %
    
    
    16,619
    
    
    
    20.9
    %Non-cash interest
expense related to
redeemable preferred
stock
    
    
    (9,872
    )
    
    
    (25.8
    )%
    
    
    (10,019
    )
    
    
    (34.8
    )%
    
    
    (66,132
    )
    
    
    (59.5
    )%
    
    
    (23,470
    )
    
    
    (29.6
    )%Interest expense, net
    
    
    (3,190
    )
    
    
    (8.3
    )%
    
    
    (2,404
    )
    
    
    (8.4
    )%
    
    
    (6,618
    )
    
    
    (6.0
    )%
    
    
    (4,868
    )
    
    
    (6.1
    )%Other expense, net
    
    
    (8
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (26
    )
    
    
    Loss from continuing
operations before
income taxes
    
    
    (4,767
    )
    
    
    (12.4
    )%
    
    
    (5,389
    )
    
    
    (18.7
    )%
    
    
    (48,597
    )
    
    
    (43.8
    )%
    
    
    (11,745
    )
    
    
    (14.7
    )%Income tax expense
    
    
    (1,657
    )
    
    
    (4.3
    )%
    
    
    (1,484
    )
    
    
    (5.2
    )%
    
    
    (5,764
    )
    
    
    (5.2
    )%
    
    
    (3,992
    )
    
    
    (5.0
    )%Minority interest
    
    
    (1,091
    )
    
    
    (2.8
    )%
    
    
    (649
    )
    
    
    (2.3
    )%
    
    
    (2,798
    )
    
    
    (2.5
    )%
    
    
    (1,238
    )
    
    
    (1.6
    )%Loss from continuing
operations
    
    $
    (7,515
    )
    
    
    (19.6
    )%
    
    $
    (7,522
    )
    
    
    (26.1
    )%
    
    $
    (57,159
    )
    
    
    (51.5
    )%
    
    $
    (16,975
    )
    
    
    (21.4
    )%Adjusted EBITDA
    
    $
    11,567
    
    
    
    30.2
    %
    
    $
    8,618
    
    
    
    29.9
    %
    
    $
    32,421
    
    
    
    29.2
    %
    
    $
    22,063
    
    
    
    27.8
    %
 38




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##### Table of Contents



Three Months Ended September 30, 2007
Compared to Three Months Ended September 30, 2006
 Revenues
  
    
    $3.2 million of revenues from our mortgage default processing services operations in
Indiana, which we acquired from Feiwell & Hannoy on January 9, 2007;
    
    $0.5 million of revenues from the Mississippi Business Journalincluded as part of our
acquisition of the publishing assets of Venture Publications, Inc., which we acquired on
March 30, 2007; and
    
    $5.8 million of increased revenues from our organic growth and fold-in acquisitions
within existing businesses (i.e., businesses that we operated in the third quarter of both
2006 and 2007) including $3.2 million of increased revenues from our Professional Services
Division and $2.6 million of increased revenues in our Business Information Division,
primarily resulting from increased public notice revenues.
  Operating Expenses
 Direct Operating Expenses
 39




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##### Table of Contents



Selling, General and Administrative Expenses
 Depreciation and Amortization Expense
 Adjusted EBITDA
  Non-Cash Interest Expense Related to Redeemable Preferred Stock
  Interest Expense, Net
  40




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##### Table of Contents



Income Tax Expense
  Business Information Division Results
 Revenues
  The Daily Record
 Operating Expenses
 41




---



##### Table of Contents



Professional Services Division Results
 Revenues
 Operating Expenses
  42




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##### Table of Contents



Nine Months Ended September 30, 2007
Compared to Nine Months Ended September 30, 2006
 Revenues
  
    
    $7.9 million of increased revenues from our mortgage default processing service in
Michigan, which we acquired when we acquired APC on March 14, 2006, and for which we
recognized a full nine months of revenues in 2007;
    
    $8.9 million of revenues from our mortgage default processing services operations in
Indiana, which we acquired from Feiwell & Hannoy on January 9, 2007;
    
    $1.1 million of revenues from the Mississippi Business Journalincluded as part of our
acquisition of the publishing assets of Venture Publications, Inc. which we acquired on
March 30, 2007; and
    
    $13.8 million of increased revenues from our organic growth within existing businesses
(i.e., businesses that we operated in the first nine months of both 2006 and 2007),
consisting of $7.3 million of increased revenues from our Professional Services Division
and $6.5 million of increased revenues in our Business Information Division, primarily
resulting from increased public notice revenues.
  Operating Expenses
  Direct Operating Expenses
 43




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##### Table of Contents



Selling, General and Administrative Expenses
 Depreciation and Amortization Expense
 Adjusted EBITDA
  Non-Cash Interest Expense Related to Redeemable Preferred Stock
  44




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##### Table of Contents



Interest Expense, Net
  Income Tax Expense
  Business Information Division Results
 Revenues
  The Daily Record
 Operating Expenses
 45




---



##### Table of Contents



Professional Services Division Results
 Revenues
  Operating Expenses
 46




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS
  LIQUIDITY AND CAPITAL RESOURCES
  September 30, 2007
    
    December 31, 2006Cash and cash equivalents
    
    $
    4,041
    
    
    $
    786Working capital deficit
    
    
    (3,234
    )
    
    
    (8,991
    )Long-term debt, less current portion
    
    
    48,130
    
    
    
    72,760
 Nine Months EndedSeptember 30,2007
    
    2006Net cash provided by operating activities
    
    $
    20,336
    
    
    $
    14,851Net cash used in investing activities:Acquisitions and investments
    
    
    (17,335
    )
    
    
    (42,262
    )Capital expenditures and other
    
    
    (5,594
    )
    
    
    (1,558
    )Net cash provided by financing activities
    
    
    5,848
    
    
    
    37,504
 Cash Flows Provided by Operating Activities
    47




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September 30,
    
    December 31,2007
    
    2006Allowance for doubtful accounts as a percentage of gross accounts receivable
    
    
    5.4
    %
    
    
    6.1
    %Day sales outstanding
    
    
    49.8
    
    
    
    58.3
   Cash Flows Used by Investing Activities
   48




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Cash Flows Provided by Financing Activities
   Credit Agreement
   49




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##### Table of Contents




    
    incurring indebtedness (including guarantee obligations) or liens;
    
    entering into mergers, consolidations, liquidations or dissolutions;
    
    selling assets;
    
    entering into certain acquisition transactions;
    
    forming or entering into partnerships and joint ventures;
    
    entering into negative pledge agreements;
    
    paying dividends, redeeming or repurchasing shares or making other payments in respect
of capital stock;
    
    entering into transactions with affiliates;
    
    making investments;
    
    entering into sale and leaseback transactions; and
    
    changing our line of business.
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##### Table of Contents



Future Needs
  RELATED PARTY TRANSACTIONS
  
    
    ABRY Mezzanine Partners, L.P. and ABRY Investment Partnership, L.P., or the ABRY funds,
designated Peni Garber, an employee and officer of ABRY Partners, LLC, as a member of our
board;
 51




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##### Table of Contents




    
    BG Media Investors L.P., or BGMI, designated Edward Carroll, a member of the general
partner of BGMI, and Earl Macomber, an interest holder in the general partner of BGMI, as
members of our board; Mr. Macomber stepped down from our board in March 2007;
    
    Caisse de dépôt et placement du Québec, or CDPQ, designated Jacques Massicotte, George
Rossi, and Pierre Bédard as members of our board; Mr. Bédard stepped down from our board in
March 2007;
    
    Cherry Tree Ventures IV Limited Partnership, or Cherry Tree, designated Anton J.
Christianson, managing partner of CTV Partners IV, the general partner of Cherry Tree, as a
member of our board;
    
    The David J. Winton trust, or the Winton trust, designated David Michael Winton, the
income beneficiary of the Winton trust, as a member of our board; and
    
    DMIC LLC, or DMIC, designated Dean Bachmeier, a principal with Private Capital
Management, Inc., as a member of our board; Mr. Bachmeier stepped down from our board in
March 2007.
  
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  Accounting for Derivative Instruments and Hedging Activities
 52




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##### Table of Contents



ITEM 4. Items 4 and 4T. Controls and Procedures
 Disclosure Controls and Procedures
  Changes In Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  53




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##### Table of Contents




    
    Prior to the offering, ABRY Mezzanine Partners, L.P. and ABRY Investment Partnership,
L.P., or the ABRY funds, owned 25,000 shares, or approximately 66%, of our outstanding
series C preferred stock and, upon completion of the offering and conversion of these shares of series C preferred stock, received 3,339,171 shares of our common stock, 128,421
shares of our series A preferred stock and 25,000 shares of our series B preferred stock.
Upon consummation of the offering, we redeemed these shares of series A preferred stock and
series B preferred stock for an aggregate of $42.6 million. The ABRY funds were selling
stockholders in the offering and sold an aggregate of 2,020,152 shares of common stock in
the offering and received net proceeds of approximately $27.2 million. Peni Garber, one of
our directors, is an employee and officer of ABRY Partners, LLC, a service provider to, and
a sponsor and affiliate of, the ABRY funds, and was designated as a member of our board by
the ABRY funds.
    
    Prior to the offering, BG Media Investors, L.P., or BGMI, owned 1,460,745 shares, or
approximately 15.7%, of our outstanding common stock and 58,227 shares, or approximately
20%, of our outstanding series A preferred stock. Upon consummation of the offering, we
redeemed these shares of series A preferred stock for $7.4 million. BGMI was a selling
stockholder in the offering and sold an aggregate of 883,729 shares of common stock in the
offering and received net proceeds of approximately $11.9 million. Edward Carroll, one of
our
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##### Table of Contents



directors, and Earl Macomber, who resigned as a director in March 2007, were designated as
members of our board by BGMI. Mr. Carroll is a member of the general partner of BGMI and Mr.
Macomber is an interest holder in the general partner of BGMI.
    
    Prior to the offering, Caisse de dépôt et placement du Québec, or CDPQ, owned 2,285,865
shares or approximately 24.5%, of our outstanding common stock, 91,117 shares, or
approximately 32%, of our outstanding series A preferred stock and 6,500 shares, or
approximately 17%, of our outstanding series C preferred stock and, upon completion of the
offering and conversion of these shares of series C preferred stock, received 868,184
shares of our common stock, 33,390 shares of our series A preferred stock and 6,500 shares
of our series B preferred stock. Upon consummation of the offering, we redeemed these shares of series A preferred stock and series B preferred stock for an aggregate of $22.5
million. CDPQ was a selling stockholder in the offering and sold an aggregate of 1,908,155
shares of common stock in the offering and received net proceeds of approximately $25.7
million. Jacques Massicotte and George Rossi, both of whom are our directors, and Pierre
Bédard, who resigned as a director in March 2007, were designated as members of our board
by CDPQ.
    
    Prior to the offering, Cherry Tree Ventures IV Limited Partnership, or Cherry Tree,
owned 883,998 shares, or approximately 9.5%, of our outstanding common stock and 35,237
shares, or approximately 12%, of our outstanding series A preferred stock. Upon
consummation of the offering, we redeemed these shares of series A preferred stock for $4.4
million. Anton Christianson, one of our directors, is a managing partner of CTV Partners
IV, the general partner of Cherry Tree, and was designated as a member of our board by
Cherry Tree. John Bergstrom, one of our directors, is a former senior associate of Cherry
Tree Investments.
    
    Prior to the offering, DMIC LLC, or DMIC, owned 460,125 shares, or approximately 4.9%,
of our outstanding common stock, 18,341 shares, or approximately 6%, of our outstanding
series A preferred stock and 5,030 shares, or approximately 13%, of our outstanding series
C preferred stock and, upon completion of the offering and conversion of these shares of
series C preferred stock, received 671,841 shares of our common stock, 25,838 shares of our
series A preferred stock and 5,030 shares of our series B preferred stock. Upon
consummation of the offering, we redeemed these shares of series A preferred stock and
series B preferred stock for an aggregate of $10.8 million. Dean Bachmeier, who resigned as
a director in March 2007, is principal of Private Capital Management, Inc., an affiliate of
DMIC, and was designated as a member of our board by DMIC.
    
    Prior to the offering, the David J. Winton trust, or the Winton trust, owned 264,123
shares, or approximately 2.8%, of our outstanding common stock, 10,528 shares, or
approximately 4%, of our outstanding series A preferred stock and 250 shares, or
approximately 1%, of our outstanding series C preferred stock and, upon completion of the
offering and conversion of these shares of our series C preferred stock, received 33,392
shares of our common stock, 1,284 shares of our series A preferred stock and 250 shares of
our series B preferred stock. Upon consummation of the offering, we redeemed these shares
of series A preferred stock and series B preferred stock for an aggregate of $1.8 million.
David Michael Winton, one of our directors, is the income beneficiary of the Winton trust
and was designated as a member of our board by the Winton trust.
    
    Prior to the offering, Parsnip River Company, L.P., or Parsnip, owned 486,846 shares, or
approximately 5.2%, of our outstanding common stock, 19,406 shares, or approximately 7%, of
our outstanding series A preferred stock, 250 shares, or approximately 1%, of our
outstanding series C preferred stock and, upon completion of the offering and conversion of
these shares of our series C preferred stock, received 33,392 shares of our common stock,
1,284 shares of our
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series A preferred stock and 250 shares of our series B preferred stock upon. Upon
consummation of the offering, we redeemed these shares of series A preferred stock and
series B preferred stock for an aggregate of $2.9 million. David Michael Winton, one of our
directors, is the managing general partner of Parsnip.
    
    Prior to the offering, James P. Dolan, our Chairman, President and Chief Executive
Officer, directly owned 1,195,947 shares, or approximately 12.8%, of our outstanding common
stock, 7,127 shares, or approximately 2%, of our outstanding series A preferred stock and
350 shares, or approximately 1%, of our outstanding series C preferred stock and, upon
completion of the offering and conversion of these shares of our series C preferred stock,
Mr. Dolan directly received 46,748 shares of our common stock, 1,798 shares of our series A
preferred stock and 350 shares of our series B preferred stock. Upon consummation of the
offering, we redeemed these shares of series A preferred stock and series B preferred stock
for an aggregate of $1.5 million. In addition, prior to the offering, Mr. Dolans sisters
owned 27 shares of our outstanding series A preferred stock that we redeemed and Mr.
Dolans spouse owned 25 shares of our outstanding series C preferred stock that converted
into series A preferred stock and series B preferred stock, that we redeemed, and common
stock.
    
    Prior to the offering, John Bergstrom, one of our directors, owned 46,152 shares, or
approximately 0.49%, of our outstanding common stock and 46 shares, or approximately 0.02%,
of our outstanding series A preferred stock. Upon consummation of the offering, we redeemed
these shares of series A preferred stock for an aggregate of $5,814.
    
    Prior to the offering, Scott J. Pollei, our Chief Financial Officer, through an IRA
account, owned 50 shares, or approximately 0.13%, of our outstanding series C preferred
stock, and upon completion of the offering and conversion of these shares of our series C
preferred stock, Mr. Polleis account received 6,678 shares of our common stock, 257 shares
of our series A preferred stock and 50 shares of our series B preferred stock. Upon
consummation of the offering, we redeemed these shares of series A preferred stock and
series B preferred stock for an aggregate of $84,319. In addition, Mr. Polleis brother
owned 150 shares of our outstanding series C preferred stock that converted into series A
preferred stock and series B preferred stock, that we redeemed, and common stock.
    
    Prior to the offering, Mark W.C. Stodder, our Executive Vice President, Business
Information, owned 99,000 shares, or approximately 1.1%, of our outstanding common stock,
and 13 shares, or approximately 0.03%, of our outstanding series C preferred stock and,
upon completion of the offering and conversion of these shares of our series C preferred
stock, received 1,736 shares of our common stock, 67 shares of our series A preferred stock
and 13 shares of our series B preferred stock. Upon consummation of the offering, we
redeemed these shares of series A preferred stock and series B preferred stock for an
aggregate of $21,893.
    
    Prior to the offering, Mark Baumbach, our Vice President of Technology, owned 36,000
shares, or approximately 0.4%, of our outstanding common stock, and 5 shares, or
approximately 0.01%, of our outstanding series C preferred stock and, upon completion of
the offering and conversion of these shares of our series C preferred stock, received 668
shares of our common stock, 26 shares of our series A preferred stock and 5 shares of our
series B preferred stock. Upon consummation of the offering, we redeemed these shares of
series A preferred stock and series B preferred stock for an aggregate of $8,382.
    
    Prior to the offering, Chicosa Partners LLC, or Chicosa, owned 229,779 shares, or
approximately 2.5%, of our outstanding common stock and 9,160 shares, or approximately 3%,
of our
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##### Table of Contents



outstanding series A preferred stock. Upon consummation of the offering, we redeemed these shares of series A preferred stock for an aggregate of $1.2 million Mr. Dolan is the
managing member of, and owns a 74.32% membership interest in, Chicosa, and Mr. Dolans
spouse and Messrs. Pollei, Stodder, Baumbach and Bergstrom are also members of Chicosa that
own membership interests of 0.83%, 5.56%, 1.24%, 0.56% and 2.07%, respectively.
    
    Prior to the offering, Media Power Limited Partnership, or Media Power, owned 236,610
shares, or approximately 2.5%, of our outstanding common stock, 9,432 shares, or
approximately 3%, of our outstanding series A preferred stock and 400 shares, or
approximately 1%, of our outstanding series C preferred stock and, upon completion of the
offering and conversion of these shares of series C preferred stock, received 53,427 shares
of our common stock, 2,055 shares of our series A preferred stock and 400 shares of our
series B preferred stock. Upon consummation of the offering, we redeemed these shares of
series A preferred stock and series B preferred stock for an aggregate of $1.9 million. Mr.
Dolan, Cherry Tree Core Growth Fund, L.L.L.P., an affiliate of Cherry Tree, Adam Smith
Growth Partners, L.P. and several employees of Cherry Tree are limited partners of Media
Power. Mr. Christianson is the chairman of Adam Smith Companies, LLC, which is a general
partner of Media Power, as well as the general partner of Adam Smith Growth Partners, L.P.,
a limited partner of Media Power. Messrs. Dolan and Bergstrom and several other employees
of Cherry Tree are also special limited partners of Media Power. Messrs. Dolan and
Bergstrom, Cherry Tree Core Growth Fund, L.L.L.P., Adam Smith Growth Partners, L.P. and
Adam Smith Companies LLC own membership interests in Media Power of 10%, 1.4%, 25.1%, 2.1%
and 3.9%, respectively.
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  1.
    
    Approval and adoption of the Dolan Media Company 2007 Incentive Compensation Plan.2.
    
    Approval and adoption of the Dolan Media Company Employee Stock Purchase Plan.3.
    
    Approval and adoption of a certificate of amendment to the Certificate of Designations,
Preferences and Rights of series B preferred stock and series C preferred Stock reducing
the base dividend rate with respect to the series B preferred stock and series C preferred
stock from 8% to 6% effective as of March 14, 2006.4.
    
    Approval and adoption of our amended and restated certificate of incorporation, among
other things, increasing our number of authorized shares of common stock to 70 million and
preferred stock to 5 million.
 57




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##### Table of Contents



5.
    
    Election of Edward Carroll, David Michael Winton and Peni Garber as Class I Directors;
Anton J. Christianson, Cornelius J. Brakel and Jacques Massicotte as Class II Directors;
and John C. Bergstrom, James P. Dolan and George Rossi as Class III Directors.6.
    
    Approval and adoption of the Second Amended and Restated Bylaws of the Company.
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 Number
    
    Exhibit Title31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith, but deemed not filed in accordance with SEC rules 58




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##### Table of Contents



SIGNATURES
  DOLAN MEDIA COMPANYDate: November 13, 2007
    By:
    /s/ James P. DolanJames P. DolanChief Executive Officer
(Principal Executive Officer)Date: November 13, 2007
    By:
    /s/ Scott J. PolleiScott J. PolleiChief Financial Officer
(Principal Financial Officer)Date: November 13, 2007
    By:
    /s/ Vicki J. DuncombVicki J. DuncombVice President, Finance
(Principal Accounting Officer) 59




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##### Table of Contents



INDEX TO EXHIBITS
 Number
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Furnished herewith, but deemed not filed in accordance with
SEC rules. 60