UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003

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

For the transition period from to
Commission File Number: 000-21407

LASON, INC.
(Exact name of registrant as specified in its charter)


DELAWARE		38-3214743
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		identification number)

1305 Stephenson Highway
Troy, Michigan 48083
(Address of principal executive offices including zip code)

Telephone: (248) 837-7100
(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 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 o No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No x

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

As of August 14, 2003, 3,267,656 shares of Common Stock, $.01 par value were reserved for issuance according to the Company’s Plan of Reorganization and 26,777,344 shares were issued and outstanding.

TABLE OF CONTENTS


Table of Contents
Part I. Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002
	Condensed Consolidated Statements of Operations, Three and Six Months Ended June 30, 2003 (Unaudited)
	Condensed Consolidated Statement of Cash Flows, Six Months Ended June 30, 2003 (Unaudited)
	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
	Notes to Condensed Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3: Quantitative and Qualitative Disclosures About Market Risk
	Item 4: Controls and Procedures
Part II. Other Information
	Item 1. Legal Proceedings.
	Item 6. Exhibits and Reports on Form 8-K
	Signatures
Exhibit Index
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO & CFO

TABLE OF CONTENTS


		Page No.

Table of Contents			1

Part I.	Item 1. Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002		2

	Condensed Consolidated Statements of Operations, Three and Six Months Ended June 30, 2003 (Unaudited)		3

	Condensed Consolidated Statement of Cash Flows, Six Months Ended June 30, 2003 (Unaudited)		4

	Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)		5

	Notes to Condensed Consolidated Financial Statements (Unaudited)		6-10

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11-15

	Item 3. Quantitative and Qualitative Disclosures about Market Risk		15

	Item 4. Controls and Procedures		15

Part II.	Other Information

	Item 1. Legal Proceedings		16

	Item 6. Exhibits and Reports on Form 8-K		16

	Signatures		17


Exhibit Index			18

	Certification of Chief Executive Officer		Exhibit 31.1

	Certification of Chief Financial Officer		Exhibit 31.2

	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Exhibit 32.1

PART I. ITEM 1. FINANCIAL STATEMENTS

LASON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2003 and December 31, 2002
(In thousands, except for shares)


		June 30,		December 31,
		2003		2002

		(Unaudited)
ASSETS
Cash and cash equivalents		$	24,403	$	25,931
Accounts receivable (net of allowance of $2,865 and $4,010, respectively)			32,810		35,962
Supplies			3,512		4,021
Prepaid expenses and other			5,249		5,440

	Total current assets		65,974		71,354
Property and equipment (net of accumulated depreciation of $2,478 and $1,199, respectively)			6,176		6,193

	Total assets	$	72,150	$	77,547

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable		$	7,862	$	7,095
Accrued expenses			11,023		14,094
Customer deposits			2,886		2,557
Deferred revenue			2,077		2,892
Current portion of long-term obligations			4,392		3,372

	Total current liabilities		28,240		30,010
Long-term obligations			41,797		45,001

	Total liabilities		70,037		75,011

STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued and outstanding			—		—
Common stock, $.01 par value; 100,000,000 shares authorized, 3,327,656 shares reserved for issuance and 26,717,344 shares issued and outstanding			300		300
Additional paid-in capital			1,565		1,565
Retained earnings			248		671

	Total stockholders’ equity		2,113		2,536

	Total liabilities and stockholders’ equity	$	72,150	$	77,547

The accompanying Notes are an integral part of the condensed consolidated financial statements.

LASON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, Unaudited)


		Three Months Ended		Six Months Ended
		June 30,		June 30,
		2003		2003

Revenues		$	43,206	$	87,222
Cost of revenues			31,943		64,285

	Gross profit		11,263		22,937

Selling, general and administrative expenses			10,380		21,648

	Income from operations		883		1,289

Net interest expense			759		1,515

	Income (loss) from operations before income taxes		124		(226	)

Provision for income taxes			89		197

	Net income (loss)		35	$	(423	)

Basic and diluted income (loss) per common share			—	$	(0.01	)

The accompanying Notes are an integral part of the condensed consolidated financial statements.

LASON, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2003
(In thousands, Unaudited)


		Six Months Ended
		June 30,
		2003

Cash Flows Provided by Operating Activities		$	2,140¹

Cash Flows From Investing Activities:
	Net cash used in investing activities, property and equipment		(1,296	)

Cash Flows From Financing Activities:
	Repayment of long-term obligations		(2,306	)
	Repayment of capital lease liabilities and other		(66	)

	Net cash used in financing activities		(2,372	)
	Net decrease in cash and cash equivalents		(1,528	)
Cash and cash equivalents at beginning of period			25,931

Cash and cash equivalents at end of period		$	24,403

The accompanying Notes are an integral part of the condensed consolidated financial statements.

¹ During the first six months of 2003, approximately $0.6 million of cash used in operating activities related primarily to payments made with respect to the Predecessor’s bankruptcy proceedings for professional and administrative fees, cure costs and other administrative type claims which were accrued as of June 30, 2002.

LASON, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Month Period Ended June 30, 2003
(In thousands, except for shares, Unaudited)


	Common Stock				Additional
					Paid-in		Retained
	Shares		Amount		Capital		Earnings			Total

Balances at January 1, 2003		30,045,000	$	300	$	1,565	$	671		$	2,536
Net loss		—		—		—		(423	)		(423	)

Balances at June 30, 2003		30,045,000	$	300	$	1,565	$	248		$	2,113

The accompanying Notes are an integral part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: NATURE OF OPERATIONS

Lason, Inc., a Delaware corporation, together with its subsidiaries (“Lason” or the “Company”) is a leading provider of integrated information outsourcing solutions through in excess of 60 locations and facilities management sites in 26 states, India, China (service relationship), Mexico and Canada. The Company serves over 5,500 active customers primarily in the healthcare, financial services, government and manufacturing and industrial vertical markets. The Company’s core competency resides in its ability to enhance the performance of its customers’ business by outsourcing their non-core business processes and back office operations. The Company’s primary services are data, document and image capture, web-based document repository services via its Document DNA™ (digital network access) product, analog services, on-site facilities management, print and mail type services, database management and other professional services. The Company’s service capabilities across a broad range of data and media types allows its customers to fulfill their business process and information outsourcing needs with a single vendor regardless of geography.

NOTE 2: CHAPTER 11 PROCEEDINGS AND REORGANIZATION

On December 5, 2001 (the “Petition Date”), Lason, Inc. and certain of its direct and indirect subsidiaries incorporated in the United States (collectively referred to as the “Debtors”) filed voluntary petitions to reorganize under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware in Wilmington (the “Bankruptcy Court”). The Bankruptcy Court approved the Company’s Plan of Reorganization (the “Plan”) at its Confirmation Hearing on April 30, 2002. On May 17, 2002, the Bankruptcy Court entered an order confirming its First Amended Joint Plan of Reorganization of Lason, Inc. and its Subsidiary Debtors, as modified (the “Plan”). From the Petition Date through June 30, 2002, the Debtors operated their businesses as debtors-in-possession pursuant to the Bankruptcy Code. On July 1, 2002 (the “Effective Date”), the Plan became effective and the Debtors successfully emerged from their Chapter 11 bankruptcy proceedings. For periods prior to the Effective Date, the Company is referred to as “Old Lason” or the “Predecessor” in these financial statements and footnotes and in the Company’s Management Discussion and Analysis. For periods including and subsequent to the Effective Date, the Company is referred to as “New Lason” or the “Successor” in these financial statements and footnotes and in the Company’s Management Discussion and Analysis. Please refer to the Company’s Plan for capitalized terms not defined herein.

Pursuant to the Plan, the following transactions were completed on or about the Effective Date:

	a.		all of Old Lason’s issued and outstanding common stock was cancelled;

	b.		certain indebtedness of the Debtors was cancelled in exchange for cash and/or common stock, par value $0.01 per share, of New Lason (“Common Stock”);

	c.		executory contracts or unexpired leases to which any Debtor was a party were assumed or rejected; and

	d.		members of the board of directors and officers of New Lason were elected and began serving their respective terms.

On the Effective Date, 100,000,000 shares of Common Stock were authorized, with 30,000,000 shares of Common Stock reserved for distribution. Of the 30,000,000 shares reserved for distribution, the Company’s Plan called for 87.5% or 26,250,000 shares to be issued in respect of general unsecured claims against the Debtors and 12.5% or 3,750,000 shares to be issued to management of the Company as part of an Executive Management Incentive Plan (“EMIP”) for past services. In April 2003, 26,672,344 shares were initially issued by the Company, with 3,327,656 shares reserved for issuance according to the Company’s Plan. The Company currently cannot speculate as to the ultimate completion date for the final issuance of the shares held in reserve, as such is dependent upon the litigation and settlement of claims in the Bankruptcy Court. The Company desires to complete this process as soon as is reasonably practical.

In addition, on the Effective Date the Company’s Plan called for it to issue New Senior Notes (the “Senior Notes”) to the Holders of its Allowed Secured Lender Claims (i.e., its senior secured lenders) in an amount equal to $90 million, maturing five years after the Effective Date and bearing interest at the Agent’s prime rate plus 2.5% (floating). The amount

of the Senior Notes was reduced by proceeds of asset sales received by Holders of the Allowed Secured Lender Claims from November 1, 2001 to the Effective Date and thereafter as set forth in a new Credit or Note Agreement. The amount outstanding under the Senior Notes as of June 30, 2003 is $43.9 million. The terms of the Senior Notes are governed by a Credit Agreement.

Lastly, on the Effective Date, Lason issued a Junior Note in the principal amount of $3.1 million to certain key managers (who were also ex-owners of businesses acquired by Lason) in full satisfaction of their Allowed Key Manager Claims against the Debtors. The Junior Note is a non-interest bearing, unsecured note, maturing within five years following the Effective Date. The Junior Note is supported by an Indenture Agreement dated as of June 30, 2002. For further details regarding the Senior Notes and Junior Note see Note 6.

NOTE 3: FRESH START ADJUSTMENTS

The Debtors emerged from their Chapter 11 bankruptcy proceedings on July 1, 2002, which for financial reporting purposes was deemed the Effective Date of the Plan. In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”), the Company adopted fresh start reporting because holders of existing voting shares of Lason immediately before filing and confirmation of the Plan received less than 50% of the Common Stock distributed under the Plan and the Company’s reorganization value was less than the Debtors’ post-petition liabilities and allowed claims in the aggregate on a consolidated basis.

Fresh start reporting requires that the reorganization value of the Company be allocated to its assets in conformity with Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations.” The excess of the fair value of the specific tangible or identifiable intangible net assets over reorganization value, or negative goodwill, is to be allocated to non-current, non-monetary assets on a pro rata basis. Based on the consideration of many factors and various valuation methods, including a discounted cash flow, a comparable public company analysis, a comparable acquisitions analysis, and other applicable analyses believed by the Company’s management to be appropriate for the Company’s business and industry, the Company and its financial advisors determined the reorganization value of the Debtors to be approximately $33 million, which served as the basis for the Plan approved by the Bankruptcy Court. The fair value of the Debtors net assets approximates its reorganization value as of the Effective Date.

NOTE 4: BASIS OF PRESENTATION

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements include all adjustments, of a normal, recurring nature, necessary to present fairly its financial position as of June 30, 2003 and the results of operations for the six months then ended. Results of operations for interim periods may not be indicative of future results.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the six month period ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003.

The accompanying unaudited condensed consolidated financial statements of Lason have been prepared in conformity with generally accepted accounting principles for interim financial information, but not in conformity with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X, as the Company has not presented comparable information for the three and six month periods ending June 30, 2002.

As previously disclosed, in Lason’s Form 8-K filed on March 26, 2001, the Company informed the U.S. Securities and Exchange Commission (“SEC”) and U.S. Attorney for the Eastern District of Michigan (“U.S. Attorney”) of accounting irregularities and system deficiencies that affected certain portions of the Predecessor’s financial statements. Some of these items were material to the Predecessor’s financial statements for at least the third quarter of 1999 and may also have been material to statements for other periods. The irregularities and deficiencies were found in accounting records of the Company’s North American operations.

A Special Committee of the Company’s Board of Directors determined that these irregularities and deficiencies may have occurred during some periods between late 1997 and 1999. The Committee also found that the Predecessor’s financial statements for at least the third quarter of 1999 requires restatement. The Committee and Company do not believe that any such irregularities have extended beyond the first half of 2000. The extent of any misstatements is still being investigated and evaluated by the Company. As a result, the Predecessor’s financial statements for the years ended December 31, 2001 and December 31, 2000, have not been reviewed or audited by an independent public accounting firm and do not reflect the impact resulting from the correction of, if any, accounting irregularities or system deficiencies, which are under investigation. As such, the Company has not provided comparable financial information in this Form 10-Q for the three and six month period ending June 30, 2002. As a result of adopting fresh start reporting, the Company believes the ultimate effects, if any, from the alleged accounting irregularities during 1997 – 1999, as discussed above, have been eliminated in the financial statements as of and for the three and six month periods ended June 30, 2003.

On May 13, 2003, the Company announced its continued cooperation with the SEC and U.S. Attorney with respect to their investigations regarding accounting irregularities potentially affecting certain portions of the Company’s financial statements from 1997-1999. Based on the investigations, the SEC and U.S. Attorney respectively announced the filing of civil and criminal charges against three former employees of the Company. These actions were brought solely against and relate to the three individual former employees and are not against the Company itself. The SEC and U.S. Attorney are not bringing civil or criminal charges against the Company.

NOTE 5: NEW ACCOUNTING STANDARDS

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 applies to costs associated with an exit activity (including a restructuring) or with a disposal of long-lived assets. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. A liability is incurred when an event obligates the entity to transfer or use assets. Under current accounting guidance, a liability can be recorded when management has committed to an exit plan. The requirements under SFAS No. 146 are effective prospectively for exit and disposal activities initiated subsequent to December 31, 2002. Restatement of previously issued financial statements is not permitted. The Company adopted SFAS No. 146 during the first quarter of fiscal year 2003 and it did not have a material impact on our financial position or results from operations.

NOTE 6: LONG TERM OBLIGATIONS

The Company’s long term obligations as of June 30, 2003 and December 31, 2002 consist of Senior Notes in the aggregate outstanding amount of $43.9 and $45.9 million, respectively, which are collateralized by a lien on all property of the Company, guarantees of certain of the Company’s subsidiaries, as well as pledges of the capital stock of certain subsidiaries and a unsecured, non-interest bearing Junior Note issued to certain key managers (who were also ex-owners of businesses acquired by Lason). As of June 30, 2003 and December 31, 2002 the aggregate outstanding principal amount on the Junior Note was $2.8 and $3.1 million, respectively. The Senior Notes are supported by a Credit Agreement. The notes bear interest at the prime rate (floating) plus 2.5 percent (6.50% and 6.75% at June 30, 2003 and December 31, 2002, respectively). The Credit Agreement contains restrictions on acquisitions, disposition of assets, and the incurrence of other liabilities and contain certain financial covenants related to minimum EBITDA and cash-flow levels and certain restrictions on capital expenditures.

The Senior Notes call for quarterly principal payments with final maturity at June 30, 2007, as follows (in thousands):


2003	$	2,000
2004		4,000
2005		4,000
2006		4,000
2007		29,931

Total	$	43,931

In addition to the quarterly principal payments, the Credit Agreement calls for principal reductions from net cash proceeds received from the sale or disposition of assets.

The Junior Note calls for semi-annual principal payments with final maturity at December 31, 2006, as follows (in thousands):


2003		$	312
2004			624
2005			624
2006			1,246

Total		$	2,806
	Unamortized Discount at June 30, 2003		(548	)

	Junior Note Balance	$	2,258

The Junior Note Indenture Agreement provides that the principal payments outlined above will be made, subject to the express condition that certain performance tests are satisfied. Based upon the Company’s current information, it believes that the payments will be made.

NOTE 7: INTEGRATION ACTIVITIES

In connection with its Plan, the Company has undertaken certain integration and restructuring activities to realign organizationally, eliminate excess capacity and streamline its operations and further enhance its off-shore service capabilities. As such, the Company has been and is in the process of closing certain operating locations. As of June 30, 2003 and December 31, 2002, the Company has accrued $0.3 million and $0.5 million, respectively, related to its commitment to these activities. As of June 30, 2003, the Company has substantially completed these activities. The Company’s remaining obligations related to these activities will be paid through the second quarter of 2004.

During the second quarter of 2003, the Company announced and began the implementation of a plan to strategically re-brand its image and marketing activities consistent with its business process outsourcing offerings. In connection therewith, the Company strategically restructured its sales force and sales activities. The Company recorded a special charge of $0.5 million during the second quarter, which consisted principally of severance costs, related to its sales force restructuring. As of June 30, 2003, the Company had accrued $0.2 million related to its remaining obligations for this activity, which is expected to be paid throughout the remainder of 2003.

NOTE 8: INCOME TAXES

In connection with the Plan, a gain on cancellation of indebtedness was realized by the Predecessor in the amount of approximately $272.3 million. The ultimate gain realized by the Company will depend upon the final resolution of claims in the Bankruptcy Court and could vary from that currently realized. This gain was not taxable since the gain resulted from reorganization under the Bankruptcy Code. On January 1, 2003, the Company was required, to reduce all of the net operating loss carry forwards (“NOLs”), certain tax credits and tax basis in assets in an amount equal to such gain on extinguishment.

The reorganization of the Company on the Effective Date constituted an ownership change under Section 382 of the Internal Revenue Code. Consequently, the use of any of the NOLs and tax credits generated prior to the ownership change, that are not reduced pursuant to the provisions discussed above, will be subject to an annual limitation.

At June 30, 2003, the Company has a provision for income taxes of $0.2 million for foreign and state income taxes.

The Company’s management, in assessing the realizability of deferred tax assets, must consider whether it is more likely than not that part or all of the deferred tax assets may not be realized. This assessment includes consideration for the scheduled reversal of temporary taxable difference, projected future taxable income, and tax planning strategies. At June 30, 2003, due to the high degree of uncertainty surrounding their realizability, a full valuation allowance has been established on all of the deferred taxes.

NOTE 9: EARNINGS PER SHARE

Basic earnings per share have been computed in accordance with SFAS No. 128, “Earnings per Share.” The weighted average common shares used for the three month and six month period ending June 30, 2003 were 30,045,000. This includes shares reserved for distribution under the Company’s Plan in addition to shares issued and outstanding as of June 30, 2003.

NOTE 10: COMMITMENTS AND CONTINGENCIES

As a consequence of the Debtor’s Plan, any claims from actions or proceedings against the Company’s domestic operations, related to periods prior to or on the Petition Date, will be treated according to such Plan, which generally provides unsecured claims to be settled in common shares of New Lason and claims related to Old Lason common stock or securities to be discharged.

The Company is a defendant in an adversary proceeding in the Bankruptcy Court for the District of Delaware in Wilmington. The plaintiff is Ark 2000-1 CLO, Limited (“Ark”), one of the Company’s senior note holders. The nature of the dispute is over certain provisions in the Company’s Pre-petition Credit Agreements and Plan, which call for the sharing of net proceeds from certain designated asset sales between the Company and the senior note holders. Ark alleges, among other things, that the Company is not entitled to the use or share of such net sale proceeds. The net proceeds in dispute are approximately $1.7 million, of which approximately $1.5 million is currently being held in escrow by the Pre-petition Agent. The Company believes the plaintiff’s arguments are without merit and it is vigorously defending itself in this matter. Final arguments and closing briefs have been given and filed with the Bankruptcy Court. The exact timing of a ruling by the Court is not known at this time. Any unfavorable outcome or settlement, if any, in this matter could result in a charge to current earnings.

In addition to the foregoing, the Company is subject to lawsuits and pending or asserted claims with respect to matters arising out of the ordinary course of business. Although the Company cannot predict the outcomes of these legal proceedings, it is not currently aware of any claim or action, in the aggregate, that would have a material adverse effect on its financial position, results of operations or liquidity.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Lason is a leading provider of integrated information outsourcing solutions through in excess of 60 locations and facilities management sites in 26 states, India, China (service relationship), Mexico and Canada. The Company serves over 5,500 active customers primarily in the healthcare, financial services, government and manufacturing and industrial vertical markets. The Company’s core competency resides in its ability to enhance the performance of its customers’ business by outsourcing their non-core business processes and back office operations. The Company’s primary services are data, document and image capture, web-based document repository services via its Document DNA™ (digital network access) product, analog services, on-site facilities management, print and mail type services, database management and other professional services. The Company’s service capabilities across a broad range of data and media types allows its customers to fulfill their business process and information outsourcing needs with a single vendor regardless of geography. Lason’s capability to capture, manage and output information includes both traditional and digital services that support customer migration to new technologies including internal-based applications.

The Company’s strategy is to be a value-added business partner to its customers by leveraging its integrated business process outsourcing (“BPO”) capabilities across a broad geographical spectrum to continually assist them in reducing their information management and back office costs and minimize their on-going technology and capital requirements. Key components to this strategy are the Company’s strategically located off-shore capabilities and solution offerings, such as Document DNA™ (its web-based document repository), which allow it to fulfill customers’ business process outsourcing needs cost effectively twenty-four hours a day, seven days a week.

Fresh Start Reporting and Factors that Affect Comparability of Financial Information

As previously disclosed, the Debtors emerged from Chapter 11 bankruptcy proceedings on July 1, 2002, which for financial reporting purposes, the Company deemed the Effective Date of the Plan. Fresh start reporting has been implemented as of the Effective Date and accordingly, at such date, all assets and liabilities of the Debtors were restated to their respective fair values. See Note 3 to the unaudited condensed consolidated financial statements, included elsewhere in this Form 10-Q, for a discussion of the fresh start adjustments. For financial reporting purposes references to “Predecessor” refer to “Old Lason” on and prior to June 30, 2002. References to “Successor” refer to “New Lason” on and after July 1, 2002, after giving effect to the implementation of fresh start reporting. Successor financial statements are therefore not comparable to Predecessor financial statements.

The accompanying unaudited condensed consolidated financial statements of Lason, Inc. (together with its subsidiaries, “Lason” or the “Company”) have been prepared in conformity with generally accepted accounting principles for interim financial information, but not in conformity with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X, as the Company has not presented comparable information for the three and six month periods ending June 30, 2002.

As previously disclosed in the Company’s Form 8-K filed, on March 26, 2001, the Company informed the U.S. Securities and Exchange Commission and U.S. Attorney for the Eastern District of Michigan of accounting irregularities and system deficiencies that affected certain portions of the Company’s financial statements. Some of these items were material to the Company’s financial statements for at least the third quarter of 1999 and may also have been material to statements for other periods. The irregularities and deficiencies were found in accounting records of the Company’s North American operations.

evaluated by the Company. As a result, the Company’s financial statements for the years ended December 31, 2001 and December 31, 2000, have not been reviewed or audited by an independent public accounting firm and do not reflect the impact resulting from the correction of, if any, accounting irregularities or system deficiencies, which are under investigation. As such, the Company has not provided comparable financial information in this Form 10-Q for the three and six month periods ending June 30, 2002. Accordingly, the discussion of results of operations and liquidity and capital resources is limited to the three and six month periods ended June 30, 2003 or subsequent periods. As a result of adopting fresh start reporting, the Company believes the ultimate effects, if any, from the alleged accounting irregularities during 1997 – 1999, as discussed above, have been eliminated in the financial statements as of and for the three and six month periods ended June 30, 2003.

Development of Code of Ethics and Compliance Program

The Company engaged outside corporate counsel to assist it in the development of a new corporate Code of Business Conduct, Compliance and Ethics. The Company adopted such Code in late 2002, which included among other things the establishment of a corporate Compliance Officer, the basic obligations and responsibilities of all Lason employees to the Corporation, provisions regarding the accuracy and completeness of company records, and guidelines for avoiding conflicts of interest and protecting and preserving all Company assets. The Company implemented such program during the first quarter of 2003.

Results of Operations—Three and Six Months Ended June 30, 2003

Consolidated net revenues were $43.2 and $87.2 million for the three and six months ended June 30, 2003. The Company’s revenues are generally based upon transaction volumes of information and data sent to it by third parties. For the most part, these volumes are not contractually required or guaranteed. In addition, the mix of the Company’s revenue is dependent upon the application or service being provided and can vary between project and recurring type work. In many cases, the work being performed by the Company for an individual customer contains elements of both project and recurring type work. Project work represents one-time services. Recurring work represents services being provided to a customer on a consistent basis that are generally under contract or have been regularly provided by the Company to the customer through a long standing relationship. Generally, the Company experienced lower transaction volumes from its customers during the first six months of 2003, consistent with the overall softness and lower growth rates in the U.S. economy as a whole.

Gross profit was $11.3 and $22.9 million for the three and six months ended June 30, 2003. The Company’s cost of revenues consist primarily of wages and benefits to its employees, the cost of materials and equipment and other items related to directly providing services and products to its customers.

Selling, general and administrative expenses were $10.4 and $21.6 million for the three and six months ended June 30, 2003. In connection with its Plan, the Company has undertaken certain integration and restructuring activities to realign organizationally, eliminate excess capacity and streamline its operations and further enhance its off-shore service capabilities. As such, the Company has been and is in the process of closing certain operating locations. As of June 30, 2003, the Company has accrued $0.3 million related to its commitment to these activities. The Company has substantially completed these activities as of June 30, 2003. The Company’s remaining obligations related to these activities will be paid through the second quarter of 2004. In addition, during the second quarter of 2003, the Company announced and began the implementation of a plan to strategically re-brand its image and marketing activities consistent with its business process outsourcing offerings. In connection therewith, the Company strategically restructured its sales force and sales activities. The Company recorded a special charge of $0.5 million during the second quarter, which consisted principally of severance costs, related to its sales force restructuring. As of June 30, 2003, the Company had accrued $0.2 million related to its remaining obligations for this activity, which is expected to be paid throughout the remainder of 2003. Included in the results of operations for the three and six months ended June 30, 2003 was approximately $0.6 and $1.3 million, respectively, in depreciation expense related to property and equipment.

Net interest expense was $0.8 and $1.5 million for the three and six month periods ended June 30, 2003, respectively, consisting principally of interest on the Company’s Senior Notes.

The provision for income taxes was approximately $0.1 and $0.2 million for the three and six month periods ended June 30, 2003, respectively, related to foreign and state income taxes.

Liquidity and Capital Resources

At June 30, 2003, the Company had net working capital of $37.7 million, a current ratio of 2.3 to 1.0 and cash and cash equivalents of $24.4 million. The Company’s net senior debt (defined as total Senior Notes less cash and cash equivalents) was $19.5 million at June 30, 2003. The Company has funded its operations and integration and restructuring activities through a combination of cash from operations and net proceeds from sales of non-core assets. Net cash provided by operating activities for the six months ended June 30, 2003 was $2.1 million. The net cash used in operating activities was reduced by payments made with respect to the Company’s previous bankruptcy proceedings for professional and administrative fees, cure costs and other administrative type claims. These payments totaled approximately $0.6 million for the six month period ended June 30, 2003. The Company expects these payments to substantially decrease over time as certain administrative claims related to Company’s cases are settled. The Company estimates that its total remaining obligation related to these types of items is approximately $0.6 million at June 30, 2003 and that these will be paid over the remainder of 2003.

Net cash used in investing activities totaled $1.3 million for the six months ended June 30, 2003. These funds were used for investments in capital assets. At June 30, 2003, the Company has completed its non-core asset divestiture program, which was committed to as part of its Plan of Reorganization. According to the terms of certain sale agreements, part of the consideration was deferred, contingent upon certain future events or structured as a future royalty. At June 30, 2003, the Company estimates that approximately $0.7 million in additional net proceeds from these sales could be received, primarily over the remainder of 2003 and first part of 2004. As called for under the Company’s Plan, most of the net cash proceeds are required to be applied as principal payments against the Company’s Senior Notes.

The Company’s long term obligations as of June 30, 2003 consist of Senior Notes in the aggregate outstanding amount of $43.9 million, which are collateralized by a lien on all property of the Company, guarantees of certain of the Company’s subsidiaries, as well as pledges of the capital stock of certain subsidiaries and an unsecured, non-interest bearing Junior Note, in the principal amount of $2.8 million issued to certain key managers (who were also ex-owners of businesses acquired by Lason). The Senior Notes are supported by a Credit Agreement and bear interest at the prime rate (floating) plus 2.5 percent (6.50% at June 30, 2003). The Credit Agreement contains restrictions on acquisitions, disposition of assets, and the incurrence of other liabilities and contain certain financial covenants. In addition to quarterly principal payments, the Credit Agreement calls for principal reductions from net cash proceeds received from the sale or disposition of assets.

The Junior Note Indenture Agreement provides that the principal payments will be made, subject to the express condition that certain performance tests are satisfied. Based upon the Company’s current information, it believes that the payments will be made.

Management believes that it has sufficient liquidity through its cash from operations and cash on hand of $24.4 million at June 30, 2003 to meet its on-going business needs, including satisfying its long term obligations as they become due. The Company consistently monitors and evaluates its capital structure and options for maximizing the efficiency and availability of such. Should the Company require future financing, no assurances can be given that the terms or availability of such would be favorable to the Company.

Inflation

Certain of the Company’s expenses, such as wages and benefits, occupancy costs, and equipment repair and replacement, are subject to normal inflation. Supplies, such as paper and related products, can be subject to significant price fluctuations. There can be no assurance that the Company will be able to offset any future cost increases through efficiencies or increased charges for its services and products.

Effect of Potential Fluctuations in Quarterly Operating Results; Seasonality

The Company has experienced, and in the future may experience, significant quarter to quarter fluctuations in its operating results. Quarterly operating results may fluctuate as a result of a variety of factors, including but not limited to, the size and timing of customer contracts, changes in customer budgets, variations in the cost of temporary labor and paper, the integration of acquired businesses into the Company’s operations, the demand for the Company’s services, the timing and introduction of new services, the market acceptance of new services, the introduction and timing of new services by the Company’s competitors, competitive conditions in the industry and general economic conditions. The Company’s businesses are also typically seasonal as sales and profitability are generally lower during the third and fourth quarters of the year. Negative trends or variations in these items could have a material adverse effect on the Company’s business, financial condition or results of operations.

Market Risk

The Company believes one of its strategic advantages is its long-standing off-shore service capabilities, which are used to service certain of its North American customers. Operations in these countries are subject to certain economic and political risks unlike its operations in the United States. The Company does not hedge its investment in these operations or other risks arising out of operating in these foreign countries. The Company has not experienced significant economic or political difficulties in these operations to date. However, the Company cannot predict changes in the economic or political conditions in these foreign countries or the ultimate impact they may have on its business, financial condition or results of operations.

Speculative Nature of Common Stock; Lack of Trading Market; Issuance to Disbursing Agent

The Company’s Plan reserved 30,000,000 shares of Common Stock for distribution. Of the 30,000,000 shares reserved for distribution, the Company’s Plan called for 87.5% or 26,250,000 shares to be issued in respect of general unsecured claims against the Debtors and 12.5% or 3,750,000 shares to be issued to management of the Company as part of an Executive Management Incentive Plan. The Plan called for such shares to be distributed to Allowed Claim Holders via a Disbursing Agent when reasonably practical.

In April of 2003, the Company did an initial distribution of its common stock in accordance with the Plan and 26,672,344 shares were issued to the Senior Note holders, general unsecured creditors and management of the Company. The Company still has 3,327,656 shares reserved for distribution pending the final resolution of claims under its plan. The Company currently cannot speculate as to the ultimate completion date for the final issuance of the shares held in reserve, as such is dependent upon the litigation and settlement of claims in the Bankruptcy Court. The Company desires to complete this process as soon as reasonably practical.

There is currently no trading market for the Common Stock. There can be no assurance regarding the future development of a market for or as to the liquidity of the Common Stock when the all of the shares are distributed. The Company is currently not in compliance with certain regulations of the SEC necessary for its securities to be listed and traded on a national securities exchange or on NASDAQ. The Company cannot provide any assurances as to if or when it would meet such requirements.

Non-Core Asset Sales

The Predecessor was created through approximately 76 acquisitions during the period of 1996 through 1999, with 55 of those acquisitions occurring in 1998-1999. A significant part of the Company’s Plan was the divesture of certain non-core assets and businesses. The Company has completed the divestiture of in excess of 30 non-core businesses and fulfilled its commitment as outlined under the Plan.

Earnout Obligations

In executing its acquisition strategy, the Predecessor generally entered into additional purchase price arrangements as part of the purchase agreement. Such additional purchase price arrangements would pay the former owner of the business additional amounts depending upon the post-acquisition performance of the business (i.e., an earnout). The Company’s financial obligation related to these agreements has been extinguished under the Plan, with the exception of those key manager claims that have been allowed and are represented by the Company’s Junior Note, in the principal amount of $2.8 million at June 30, 2003.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Lason has exposure to interest rate risk on its Senior Notes, which bear interest at a variable rate. Based on the Company’s outstanding balance on June 30, 2003 of $43.9 million, a one-percent increase or decrease in interest rates would decrease or increase, respectively, the Company’s pre-tax earnings and operating cash flows by appropriately $0.4 million on an annualized basis.

ITEM 4: CONTROLS AND PROCEDURES

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). These Rules refer to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and Our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”), and have concluded that our disclosure controls and procedures are effective in providing them with material information relating to the Company known to others within the Company which is required to be included in our periodic reports filed under the Exchange Act. Reference is made to: Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Fresh Start Reporting and Factors that Affect Comparability of Financial Information” for a discussion of the Company’s inability to provide comparable financial information in the Form 10-Q for the three and six month periods ending June 30, 2002.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the period this Form 10-Q was being prepared that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

Lason may from time to time provide information including certain statements included in or incorporated by reference in this Form 10-Q which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include the intent, belief or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward looking statements are: (1) important information is of a preliminary basis and subject to further adjustment, (2) the assimilation of business units, (3) the economic, political and regulatory environment, (4) competitive risks and uncertainties, (5) dependence on key customers and management, (6) fluctuations in paper prices, (7) price and availability of qualified temporary labor, (8) reliability of Company data, (9) changes in the business outsourcing industry, (10) management’s ability to implement its business plan, (11) the financial and legal effect of any outstanding litigation, (12) ultimate resolution and settlement of administrative and priority claims, including priority tax claims, whether known or unknown as a result of the Company’s previous Chapter 11 filing, (13) status of the Company’s financing, (14) other important factors beyond the control of Lason and (15) other risks identified from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission. Actual future results may vary significantly from those set forth herein. These forward-looking statements represent Lason’s judgment as of the date of this report. Lason disclaims, however, any intent or obligation to update its forward-looking statements.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is a defendant in a proceeding in the Bankruptcy Court for the District of Delaware in Wilmington. The plaintiff is Ark 2000-1 CLO Limited, (“Ark”), one of the Company’s senior note holders. The nature of the dispute is over certain provisions in the Company’s pre-petition credit agreement and First Amended Joint Plan of Reorganization of Lason, Inc. and its Subsidiary Debtors, as modified (the “Plan”), which call for the sharing of net proceeds from certain designated asset sales between the Company and the senior note holders. Ark alleges, among other things, that the Company is not entitled to the use of or share of such net sale proceeds. The net proceeds currently in dispute are approximately $1.7 million, of which approximately $1.5 million is being held in escrow by the Pre-Petition Agent. The Company believes that Ark’s arguments are without merit and it is vigorously defending itself in this matter. Final arguments and closing briefs have been given and filed with the Bankruptcy Court. The exact timing of a ruling by the Court is not known at this time. Any unfavorable outcome or settlement, if any, in this matter could result in a charge to current earnings.

Various other claims have been made against the Company in the normal course of business which management believes will not have a material adverse effect on the Company’s business, financial condition or results of operations.

Item 6. Exhibits and Reports on Form 8-K

Exhibits


31.1		Certification of Chief Executive Officer
31.2		Certification of Chief Financial Officer
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b.		Reports on Form 8-K

		On May 6, 2003, the Company filed a Form 8-K disclosing in Item 5 thereof and including as an exhibit the press release announcing the issuance of 26,672,344 shares of its Common Stock.

		On May 16, 2003, the Company filed a Form 8-K disclosing in Item 5 thereof and including as an exhibit the press release announcing its continued cooperation with the SEC and the U.S. Attorney with respect to their investigations regarding accounting irregularities potentially affecting certain portions of the Company’s financial statements from 1997-1999.

		On May 19, 2003, the Company filed a Form 8-K disclosing in Item 9 thereof and including as an exhibit the press release announcing its results of operations for the first quarter ended March 31, 2003.

SIGNATURES

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


August 14, 2003	LASON, INC.


	By:	/s/	RONALD D. RISHER

			Chief Executive Officer; President and Director


	By:	/s/	DOUGLAS S. KEARNEY

			Executive Vice President; Chief Financial Officer and Secretary

EXHIBIT INDEX


Exhibit		Description

	31.1	Certification of Chief Executive Officer

	31.2	Certification of Chief Financial Officer

	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

LASON INC 10-Q