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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 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: 000-21407 LASON, INC.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    38-3214743
(I.R.S. Employer
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 Rule 12b-2 of the Exchange Act). Yes o No x As of August 9, 2004, 288,966 shares of Common Stock, $.01 par value were
reserved for issuance according to the Companys Plan of Reorganization and
29,756,034 shares were issued and outstanding.




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TABLE OF CONTENTS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
    
    
    2CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 (UNAUDITED) AND
DECEMBER 31, 2003
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2004
AND 2003 (UNAUDITED)
    
    
    4NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    
    
    5NOTE 1: NATURE OF OPERATIONS
    
    
    5NOTE 2: BASIS OF PRESENTATION
    
    
    5NOTE 3: NEW ACCOUNTING STANDARDS
    
    
    5NOTE 4: LONG TERM OBLIGATIONS
    
    
    6NOTE 5: INCOME TAXES
    
    
    6NOTE 6: INCOME (LOSS) PER SHARE
    
    
    7NOTE 7: COMMITMENTS AND CONTINGENCIES
    
    
    7NOTE 8: PENDING MERGER TRANSACTION
    
    
    7ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    8ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    13ITEM 4: CONTROLS AND PROCEDURES
    
    
    13FORWARD-LOOKING STATEMENTS
    
    
    13PART II. OTHER INFORMATION
    
    
    14ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS
AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    14ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    14SIGNATURES
    
    
    15CERTIFICATION OF CHIEF EXECUTIVE OFFICER
    
    
    16CERTIFICATION OF CHIEF FINANCIAL OFFICER
    
    
    17CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
    
    
    18Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification pursuant to Section 1350
  1




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LASON, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts, Unaudited) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    35,123
    
    
    $
    43,206
    
    
    $
    70,300
    
    
    $
    87,222Cost of revenues
    
    
    26,166
    
    
    
    31,943
    
    
    
    53,540
    
    
    
    64,285Gross profit
    
    
    8,957
    
    
    
    11,263
    
    
    
    16,760
    
    
    
    22,937Selling, general and administrative expenses
    
    
    8,171
    
    
    
    10,380
    
    
    
    16,328
    
    
    
    21,648Income from operations
    
    
    786
    
    
    
    883
    
    
    
    432
    
    
    
    1,289Net interest expense
    
    
    451
    
    
    
    759
    
    
    
    947
    
    
    
    1,515Income (loss) from operations before
income taxes
    
    
    335
    
    
    
    124
    
    
    
    (515
    )
    
    
    (226
    )Provision for income taxes
    
    
    37
    
    
    
    89
    
    
    
    74
    
    
    
    197Net income (loss)
    
    
    298
    
    
    
    35
    
    
    
    (589
    )
    
    
    (423
    )Basic and diluted income (loss) per common share
    
    $
    0.01
    
    
    $
    (0.00
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
 The accompanying Notes are an integral part of the condensed consolidated financial statements. 2




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LASON, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS As of June 30, 2004 and December 31, 2003
(In thousands, except for shares)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCash and cash equivalents
    
    $
    13,314
    
    
    $
    12,153Accounts receivable (net of allowance of $1,676 and 2,009, respectively)
    
    
    26,123
    
    
    
    25,972Supplies
    
    
    1,954
    
    
    
    2,182Prepaid expenses and other
    
    
    5,554
    
    
    
    7,412Total current assets
    
    
    46,945
    
    
    
    47,719Property and equipment (net of accumulated depreciation of $5,187
and $3,770, respectively)
    
    
    6,673
    
    
    
    5,927Total assets
    
    $
    53,618
    
    
    $
    53,646LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    6,672
    
    
    $
    6,076Accrued expenses
    
    
    7,711
    
    
    
    7,325Customer deposits
    
    
    3,457
    
    
    
    2,973Deferred revenue
    
    
    2,046
    
    
    
    1,969Current portion of long-term obligations
    
    
    4,437
    
    
    
    4,414Total current liabilities
    
    
    24,323
    
    
    
    22,757Long-term obligations
    
    
    26,276
    
    
    
    27,281Total liabilities
    
    
    50,599
    
    
    
    50,038STOCKHOLDERS EQUITYPreferred stock, $.01 par value; 5,000,000 shares authorized, none issued
and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000,000 shares authorized, 288,966
shares reserved for issuance and 29,756,034 shares issued and outstanding
    
    
    300
    
    
    
    300Additional paid-in capital
    
    
    1,565
    
    
    
    1,565Retained earnings
    
    
    1,154
    
    
    
    1,743Total stockholders equity
    
    
    3,019
    
    
    
    3,608Total liabilities and stockholders equity
    
    $
    53,618
    
    
    $
    53,646
 The accompanying Notes are an integral part of the condensed consolidated financial statements. 3




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LASON, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2004 and 2003
(In thousands, Unaudited)
 Six Months EndedJune 30,2004
    
    2003Cash Flows Provided by Operating Activities
    
    $
    4,405
    
    
    $
    2,140
    1Cash Flows From Investing Activities:Net cash used in investing activities, property and equipment
    
    
    (2,151
    )
    
    
    (1,296
    )Cash Flows From Financing Activities:Repayment of long-term obligations, net
    
    
    (1,084
    )
    
    
    (2,306
    )Repayment on capital lease liabilities and other
    
    
    (9
    )
    
    
    (66
    )Net cash used in financing activities
    
    
    (1,093
    )
    
    
    (2,372
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,161
    
    
    
    (1,528
    )Cash and cash equivalents at beginning of period
    
    
    12,153
    
    
    
    25,931Cash and cash equivalents at end of period
    
    $
    13,314
    
    
    $
    24,403
 The accompanying Notes are an integral part of the condensed consolidated financial statements.   1
 4




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 
 NOTE 1: NATURE OF OPERATIONS Lason, Inc., a Delaware corporation, is a holding company which through
its operating subsidiaries, Lason Systems, Inc. and Lason International,
Inc., both Delaware companies (Lason or the Company), is a leading provider
of integrated information outsourcing solutions through in excess of 55
locations and facilities management sites in 22 states, India, China (service
relationship), Mexico and Canada. The Company serves over 3,500 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: BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of Lason have
been prepared in accordance with accounting principles, generally accepted in
United States of America for interim financial information and the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of the Company, the accompanying financial statements
include all adjustments, of a normal, recurring nature, necessary to present
fairly its financial position as of June 30, 2004 and the results of operations
for the three and six months ended June 30, 2004 and 2003. 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
year ended December 31, 2003 filed with the Securities and Exchange Commission
on March 29, 2004. The accompanying unaudited condensed consolidated financial statements of
Lason have been prepared in conformity with generally accepted accounting
principles for interim financial information 
 NOTE 3: NEW ACCOUNTING STANDARDS In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46 clarifies the applications of Accounting Research Bulletin 51, Consolidated
Financial Statements, for certain entities that do not have sufficient equity
at risk for the entity to finance its activities without additional
subordinated financial support from other parties or in which equity investors
do not have the characteristics of a controlling financial interest (variable
interest entities). Variable interest entities within the scope of FIN 46 will
be required to be consolidated by their primary beneficiary. The primary
beneficiary of a variable interest entity is determined to be the party that
absorbs a majority of the entitys expected losses, receives a majority of its
expected returns, or both. In December 2003, the Financial Accounting Standards
Board issued FASB Interpretation 46(R), Consolidation of Variable Interest
Entities. FIN 46(R) replaces FIN 46 and clarifies the accounting for interests
in variable interest entities. FIN 46(R) should be applied to entities
considered to be Special Purpose Entities (SPEs) no later than the end of
the first reporting period after December 15, 2003 and by the end of the first
reporting period that ends after March 15, 2004 to entities other than SPEs.
The adoption of this standard did not have an impact on the Companys financial
position or results of operations. 5




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In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity, which provides standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The statement is effective for financial instruments entered into or
modified after May 31, 2003 and for pre-existing instruments as of the
beginning of the first interim period beginning after June 15, 2003. In 2003,
the FASB elected to indefinitely defer the effective date for certain
provisions of SFAS No. 150 relating to investments in limited-life entities.
The adoption of the provisions of SFAS No. 150 not deferred by the FASB did not
have a material effect on the Companys financial condition, results of
operations, or cash flows. The Company has not completed its evaluation of the
effect of those provisions for which the effective dates have been deferred. 
 NOTE 4: LONG TERM OBLIGATIONS In September of 2003, the Company amended its Credit Agreement with the
holders of its Senior Notes via the First Amendment to the Credit Agreement
(the Amendment). Under the terms of the Amendment, the holders of the
Companys Senior Notes agreed to bifurcate such notes into a new $10 million
revolving credit facility and a $32 million term loan obligation. The
Amendment leaves unchanged the maturity date of the Credit Agreement, as
applicable to the term loan. The revolving credit facility matures on December
31, 2005. These obligations 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. Borrowings under the
revolving credit facility and the term loan obligation bear interest at a rate
of prime (floating) plus 2.5 percent (6.75% at June 30, 2004). The Credit
Agreement and Amendment contain restrictions on acquisitions, disposition of
assets, and the incurrence of other liabilities and contain certain financial
covenants related to minimum EBITDA, liquidity, ratio of earnings to fixed
charges and certain restrictions on capital expenditures. At June 30, 2004,
the Company had $6 million outstanding on its $10 million revolving credit
facility. 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. Aggregate maturities of the Senior Notes and revolving credit facility for
the four years subsequent to June 30, 2004 are $4,000, $10,000, $4,000, and
$10,864. The Companys long-term obligations also include a unsecured, non-interest
bearing Junior Note issued to certain key managers (who were also ex-owners of
businesses acquired by Lason). The Junior Note calls for semi-annual principal payments with final
maturity at December 31, 2006. Aggregate maturities for the Junior subsequent
to June 30, 2004 are as follows (in thousands): 2004
    
    
    6242005
    
    
    6242006
    
    
    933Total
    
    $
    2,181Unamortized Discount at June 30, 2004
    
    
    (332
    )Junior Note Balance
    
    $
    1,849
 The Junior Note Indenture 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 performance tests will be satisfied and the payments will be made. 
 NOTE 5: INCOME TAXES In connection with the Companys past plan of reorganization under Chapter
11 of the United States Bankruptcy Code, a gain on cancellation of indebtedness
was realized by the Companys predecessor in the amount of approximately $236.0
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. However, at the beginning of its
2003 taxable year, the Company reduced certain attributes including net
operating loss carry forwards (NOLs), certain tax credits and tax basis in
assets in an amount equal to such gain on 6




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extinguishment. At June 30, 2004, the Company estimates that its NOLs
aggregated approximately $23.6 million, which will expire in 2022. 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, 2004
and December 31, 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 6: INCOME (LOSS) PER SHARE Basic income (loss) per share has been computed in accordance with SFAS No. 128,
Earnings per Share. The weighted average common shares used for the three
and six month periods ending June 30, 2004 and 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, 2004 and June 30, 2003,
respectively. 
 NOTE 7: COMMITMENTS AND CONTINGENCIES The Company is a defendant in an adversary proceeding in the Bankruptcy
Court for the District of Delaware in Wilmington (the Court). The plaintiff
is Ark 2000-1 CLO, Limited (Ark), one of the Companys senior secured
lenders. 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
secured lenders. The net proceeds in dispute are approximately $1.7 million.
On October 15, 2003, the Court ruled in favor of the Company, denying the
plaintiffs motion and any claim by the plaintiffs to the proceeds. On October
24, 2003, Ark filed a motion before the Court asking it to reconsider its
ruling. The Company believes the plaintiffs arguments are without merit and
it is vigorously defending itself in this matter. An unfavorable outcome or
settlement, if any, in this matter may 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. 
 NOTE 8: PENDING MERGER TRANSACTION On May 21, 2004 the Company entered into a merger agreement with a
affiliate of Charterhouse Group, Inc. (Charterhouse), under which
Charterhouse will acquire the Company in a transaction valued at approximately
$30 million. Under the pending merger agreement, Charterhouse would acquire
100% of the common stock of the Company for $0.125 per share (approximately
30,045,000 shares) and replace the Companys current senior indebtedness with
substantially less indebtedness. The Companys resulting capital structure
would include significantly more equity. Existing management is expected to
continue operating the Company after the transaction closes and will have an
ownership interest in the Charterhouse affiliate. Completion of the
transaction is subject to certain closing conditions, including the approval of
holders of a majority of the Companys outstanding common stock. The Company mailed its definitive proxy statement regarding the pending
transaction on July 16, 2004 and has scheduled a shareholder meeting for August
11, 2004, seeking approval of the transaction. If the transaction is approved
by the Companys shareholders and subsequently completed, the Company will have
less than 300 shareholders and will seek to de-register its common stock and
cease to be a public company. Should the pending transaction be approved, it is
expected to close by mid August 2004. 7




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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 55 locations and facilities management sites in
22 states, India, China (service relationship), Mexico and Canada. The Company
serves over 3,500 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. Results of OperationsThree Months Ended June 30, 2004 Compared with Three
Months Ended June 30, 2003 Consolidated net revenues were $35.1 million for the three months ended
June 30, 2004 as compared to $43.2 million for the three months ended June 30,
2003. The decline in revenues was a result of several factors, including an
effort to focus on more complex BPO and integrated solution sales, which
require a longer sales cycle, a cyclical decline in volumes within certain
applications, such as mortgage loan processing, due to external macro-economic
factors, continued decline in the demand for the Companys analog services, and
due to customers that elected to pursue strategic re-sourcing alternatives
following the Companys emergence from its previous Chapter 11 proceedings.
The demand for the Companys BPO services remains high and it has developed a
substantial pipeline of opportunities as compared to the second quarter of
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. Gross profit was to $9.0 million for the three months ended June 30, 2004
as compared to $11.3 million for the three months ended June 30, 2003. Gross
profit as a percentage of net revenues was 25.6 percent for the three months
ended June 30, 2004 versus 26.2 percent for the three months ended June 30,
2003. The decrease in gross profit and gross margin percentage is due
principally to lower revenue levels and the mix of applications or services
provided. 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 decreased $2.2 million to
$8.2 million or 23.4 percent of net revenues for the three months ended June 30,
2004 from $10.4 million or 24.1 percent of net revenues for the three months
ended June 30, 2003. The reduction of $2.2 million is due to the Companys
ongoing integration and restructuring activities to realign organizationally,
eliminate excess capacity and streamline its operations and further enhance its
off-shore service capabilities, consistent with its strategic focus on more
complex Business Process Outsourcing and integrated solution sales. 8




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Included in the results of operations for the three months ended June 30,
2004 and 2003 was approximately $0.7 and $0.6 million, respectively, in
depreciation expense related to property and equipment. Net interest expense was $0.5 million and $0.8 million for the three
months ended June 30, 2004 and three months ended June 30, 2003, respectively,
consisting principally of interest on the Companys long term obligations which
decreased significantly. The provision for income taxes was approximately $0.04 million and $0.1
million for the three months ended June 30, 2004 and 2003, respectively. The
provision is primarily related to foreign and state income taxes. Results of OperationsSix Months Ended June 30, 2004 Compared with Six Months
Ended June 30, 2003 Consolidated net revenues were $70.3 million for the six months ended June
30, 2004 as compared to $87.2 million for the six months ended June 30, 2003.
The decline in revenues was a result of several factors, including an effort to
focus on more complex Business Process Outsourcing and integrated solution
sales, which require a longer sales cycle, a cyclical decline in volumes within
certain applications, such as mortgage loan processing, due to external
macro-economic factors, continued decline in the demand for the Companys
analog services, and due to customers that elected to pursue strategic
re-sourcing alternatives following the Companys emergence from its previous
Chapter 11 proceedings. The demand for the Companys BPO services remains high
and it has developed a substantial pipeline of opportunities as compared to the
second quarter of 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. Gross profit was to $16.8 million for the six months ended June 30, 2004
as compared to $22.9 million for the six months ended June 30, 2003. Gross
profit as a percentage of net revenues was 23.9 percent for the six months
ended June 30, 2004 versus 26.3 percent for the six months ended June 30, 2003.
The decrease in gross profit and gross margin percentage is due principally to
lower revenue levels and the mix of applications or services provided. 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 decreased $5.3 million to
$16.3 million or 23.2 percent of net revenues for the six months ended June 30,
2004 from $21.6 million or 24.8 percent of net revenues for the six months
ended June 30, 2003. The reduction of $5.3 million is due to the Companys
ongoing integration and restructuring activities to realign organizationally,
eliminate excess capacity and streamline its operations and further enhance its
off-shore service capabilities, consistent with its strategic focus on more
complex Business Process Outsourcing and integrated solution sales. Included in the results of operations for the six months ended June 30,
2004 and 2003 was approximately $1.7 and $1.3 million, respectively, in
depreciation expense related to property and equipment. Net interest expense was $0.9 million and $1.5 million for the six months
ended June 30, 2004 and six months ended June 30, 2003, respectively,
consisting principally of interest on the Companys long term obligations. The
decrease in interest expense of approximately $0.6 million is the result of the
Company establishing a new revolving credit facility in September of 2003, and
use of a portion of the Companys excess cash to pay down its outstanding
obligations. The provision for income taxes was approximately $0.1 million and $0.2
million for the six months ended June 30, 2004 and 2003, respectively. The
provision is primarily related to foreign and state income taxes. 9




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Liquidity and Capital Resources At June 30, 2004, the Company had net working capital of $22.6 million and
cash and cash equivalents of $13.3 million. The Companys net senior debt
(defined as total term loan and revolving credit borrowings less cash and cash
equivalents) was $15.6 million at June 30, 2004. In addition, at June 30,
2004, the Company had $4.0 million of availability on its revolving credit
facility. The Company has funded its operations and integration and
restructuring activities through cash from operations. Net cash provided by
operating activities for the six months ended June 30, 2004 was $4.4 million. Net cash used in investing activities totaled $2.2 million for the six
months ended June 30, 2004. These funds were used for investments in capital
assets. In September of 2003, the Company amended its Credit Agreement with the
holders of its Senior Notes via the First Amendment to the Credit Agreement
(the Amendment). Under the terms of the Amendment, the holders of the
Companys Senior Notes agreed to bifurcate such notes into a new $10 million
revolving credit facility and a $32 million term loan obligation. The
Amendment leaves unchanged the maturity date of the Credit Agreement, as
applicable to the term loan. The revolving credit facility matures on December
31, 2005. Such obligations are collateralized by a lien on all property of the
Company, guaranties of certain of the Companys subsidiaries, as well as
pledges of the capital stock of certain subsidiaries. Borrowings under the
revolving credit facility and term loan obligation bear interest at a rate of
prime (floating) plus 2.5 percent (6.75% at June 30, 2004). The Credit
Agreement and Amendment contain restrictions on acquisitions, disposition of
assets, and the incurrence of other liabilities and contain certain financial
covenants related to minimum EBITDA, liquidity, ratio of earnings to fixed
charges, and cash-flow levels and certain restrictions on capital expenditures.
At June 30, 2004, the Company had $4 million of availability on its $10
million revolving credit facility. The Junior Note Indenture 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
performance tests will be satisfied and the payments will be made. Management believes that it has sufficient liquidity through its cash from
operations, cash on hand of $13.3 million and $4.0 million of revolving credit
availability at June 30, 2004 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. Contractual Obligations Information regarding our contractual obligations is contained in Item 7
of our annual report on Form 10-K for the fiscal year ended December 31, 2003.
No material changes to such information have occurred during the six months
ended June 30, 2004. Risk Factors If any of the following risks actually occur, the Companys business,
financial condition or results of operations could be negatively impacted. You
should also refer to the other information contained in this report and
incorporated in this report by reference, including our consolidated financial
statements and the related notes.  Volatility of Available Temporary Labor and Paper Prices The Company is dependent primarily upon two basic supplies: temporary
labor and paper. The Company uses and relies on temporary labor to manage
fluctuations in its business. The supply and price of available and trained
temporary labor is dependent upon general economic conditions that are beyond
the Companys control. There can be no assurance that the Company will
continue to have access to the trained temporary labor necessary to manage its
business as it would expect, nor assurance that it will be available at the
prices the Company would like. Further, the price of paper can be highly
volatile. There can be no assurance that the price of paper will not change in
the future. Any significant price increase in either 10




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temporary labor or paper that cannot be passed on to customers or a
shortage in the supply of available temporary labor could have a material
adverse effect on the Companys business, financial condition or results of
operations.  Potential Liability for Unauthorized Disclosure of Confidential
Information and Intellectual Property Infringement A substantial portion of the Companys business involves the handling of
documents containing confidential information. Although the Company has
established procedures intended to eliminate any unauthorized disclosure of
confidential information and, in some cases, has contractually limited its
potential liability for unauthorized disclosure of such information, there can
be no assurance that unauthorized disclosures will not result in liability to
the Company. It is possible that such liabilities could have a material adverse
effect on the Companys business, financial condition or results of operations. The Company from time to time may be required to indemnify customers for
claims of intellectual property infringement made by third parties from using
our products and services. To the extent that the Company enters into these
arrangements, and a claim occurs, the Company could be subject to damages, loss
of existing business or future business, or other remedies under such
agreements, which could have a material adverse effect on the Companys
business, financial condition or results of operations.  Importance of Continued Development of New Services The introduction of competing services incorporating new technologies and
the emergence of new technical standards could render some or all of the
Companys services unmarketable. The Company believes that its future success
depends upon its ability to enhance its current services and develop new
services that address the increasingly sophisticated needs of its customers.
The failure of the Company to continue to service its customers, develop and
enhance its existing services and introduce new services in a timely and cost
effective manner in response to changing technologies, competition and customer
requirements could have a material adverse effect on the Companys business,
financial condition or results of operations.   Risk of Business Interruptions and Dependence on Single Facilities for
Certain Services The Company believes that its ability and its future ability to retain
customers has been due to and will continued to be dependent upon the continued
delivery of prompt, efficient, high value services to its customers. Certain
of the Companys operations are performed at a single location and are
dependent on continuous computer, electrical, telephone and data communication
service. As a result, any disruption of the Companys day-to-day operations
could have a material adverse effect upon the Company. There can be no
assurance that a fire, flood, earthquake, power loss, phone or data service
loss or other disaster affecting one or more of the Companys facilities would
not disable these functions. Any significant damage to any such facility or
other failure that causes significant interruptions in the Companys operations
may not be covered by insurance and could have a material adverse effect on the
Companys business, financial condition or results of operations. 11




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Lack of Continued Growth in the Business Process Outsourcing Industry The Company believes, based upon independent market research, that the
business process outsourcing market will continue to experience growth for the
next several years. The industry growth assumptions are based upon, among
other things, the continued advancement of technology, increased government
regulations regarding document retention, increased customer expectations
regarding low-cost and efficient electronic access to records and a continued
focus on business and profit enhancement though outsourcing of non-core
activities. There can be no assurance that these factors will ultimately
facilitate industry growth or that other foreseen or unforeseen changes in the
market dynamics will not negatively impact projected market growth. Any
negative impact upon general market trends for the business process outsourcing
industry will have a material adverse effect on the Companys business,
financial condition and results of operations.  HIPPA Regulations As a result of statutory authority granted pursuant to the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), the United
States Department of Health and Human Services has issued regulations regarding
the use and disclosure of personal health information by health care providers,
health plans, and certain other covered entities operating in the health care
industry. The HIPAA regulations require covered entities to take steps to
maintain the privacy and security of personal health information. While the
Company is not a covered entity directly governed by these regulations, many
of its customers are covered entities under the HIPAA regulations and these
customers are required to adjust their business arrangements to comply with
HIPAA. These customers will be required to enter into business associate
arrangements with the Company that conform to the requirements of HIPAA. The
requirements of HIPAA, and the costs of complying with HIPAA, may adversely
affect the business operations of these customers, which could have a negative
impact on the Companys business operations. Furthermore, the requirements of
the business associate arrangements, and the changes the Company will have to
make in its operations to comply with such agreements, will increase the
Companys costs of operations. To the extent the Company is unable to comply
with the provisions of such agreements, it could lose the business generated by
those clients or could be subject to damages for violation of its business
associate agreements with those clients.  Future Financial Covenants Under the Companys First Amendment to the Credit Agreement, it is subject
to certain reporting requirements and financial covenants, including
requirements that it maintain minimum levels of earnings before interest,
taxes, depreciation and amortization (EBITDA) and cash-flow and certain other
restrictions. Certain of these covenants become more restrictive over time. The
Company is currently in compliance with such covenants as of June 30, 2004.
While it is currently in compliance with such covenants, an erosion of its
business could place the Company out of compliance in the future. Potential
remedies for the lenders include declaring all outstanding amounts immediately
payable, terminating commitments and enforcing any liens.  In the event
of any future noncompliance the Company would seek a waiver from such lenders
related to these types of technical covenant violations, however, there is no assurance such waiver would be obtained.  International Operations The Company operates in four countries outside the United States: India,
China (service relationship), Mexico and Canada. Political and economic
instability in these countries could have a material adverse impact on the
Companys results of operations. The Companys future revenues, costs of
operations and profits could be affected by a number of factors related to its
international operations, including changes in foreign currency, exchange
rates, changes in economic conditions from country to country, changes in a
countrys political condition, trade protection measures, licensing and other
legal requirements and local tax issues.  Future Risks The Company identifies and evaluates the material risks potentially
impacting its business on an on-going basis. Certain risks which are material
to the Companys business today may become immaterial in the future.
Additionally, certain risks which are immaterial to the Companys business
today may become material in the future. Further, new risks to the Companys
business, which it is currently unaware of today, could develop in the future
and dramatically impact its business, operations or financial condition. 12




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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has exposure to interest rate risk on its term loan and
revolving credit facility, which bear interest at a variable rate. Based on the
Companys outstanding balance on June 30, 2004 of $28.9 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 $0.3 million on an annualized basis. Due to the Companys operations outside of the United States, the Company
experiences foreign currency exchange gains and losses. Fluctuations between
the United States dollar and other currencies may adversely affect the results
of operations. As the Company does not currently engage in foreign currency
hedging transactions, there is no assurance that such exchange rate
fluctuations will not cause significant fluctuations in the Companys future
results of operations. 
 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. There has been no change in the Companys internal control over financial
reporting that occurred during the Companys last fiscal quarter 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. Without
limitation, the words believes, plans, expects, and similar expressions
are intended to identify forward-looking statements, but are not the exclusive
means of identifying forward-looking statements in this Form 10-Q. 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. 13




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PART II. OTHER INFORMATION  
 ITEM 2:     CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES. In June 2004, 2,978,690 shares of common stock were issued to Senior Note holders and general unsecured creditors of the Company pursuant to the Companys past plan of reorganization.  Such issuance was exempt from registration under the Securities Act of 1933 pursuant to Section 1145 of Title 11 of the United States Code.  The Company has 288,966 shares of common stock reserved for distribution pending the final resolution of
claims under such plan. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  a.
    
    Exhibits  31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    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 A Report on Form 8-K was filed on May 17, 2004, disclosing in Items 7 and
12 thereof, the results of operations for the quarter ended March 31, 2004. 14




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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. LASON, INC.Date: August 10, 2004
    By:
    /s/  RONALD D. RISHERRonald D. RisherChief Executive Officer; President and
Director/s/  DOUGLAS S. KEARNEYDouglas. S. KearneyExecutive Vice President; Chief Financial Officer
and Secretary 15




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Exhibit Index No.
    
    Description31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 16