##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
ORo 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 000-21407LASON, INC.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    38-3214743
(I.R.S. Employer
identification number)1305 Stephenson Highway, Troy, Michigan
(Address of principal executive offices)
    
    48083
(Zip Code)
 Telephone: (248) 837-7100
(Registrants telephone number, including area code)   Securities Registered Pursuant to Section 12(b) of the Exchange Act:None Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common Stock, Par Value $0.01 per share
(Title of Class) 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.       o State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of
June 30, 2003: As
of June 30, 2003 there is no market for registrants common stock. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes o       No x Indicate by check mark whether the registrant has filed all documents and
report 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 As
of March 29, 2004, 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. Portions of the definitive 2004 Proxy Statement which is required to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with a 2004 Annual Meeting of Stockholders are incorporated by
reference into Part III as set forth in Part III. Such definitive Proxy
Statement or an amendment to this report on Form 10-K containing the
information to be incorporated by reference will be filed with the Commission
not later than 120 days after the conclusion of registrants fiscal year ended
December 31, 2003.




---



TABLE OF CONTENTS  FORWARD-LOOKING STATEMENTSPART IPART IIPART IIISIGNATURESPOWER OF ATTORNEYINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Certified Public AccountantsCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENT OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSubsidiariesCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 FORWARD-LOOKING STATEMENTS Lason may from time to time provide information including certain
statements included in or incorporated by reference in this Form 10-K 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 the Companys judgment as of the date hereof. The Company disclaims,
however, any intent or obligation to update its forward-looking statements. 
 PART I Item 1: Business General Lason, Inc., a Delaware corporation, was formed in 1995. 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
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. Solutions and Services Lason enables organizations to secure their decisions and their future by
improving business processes through outsourced services in industries that are
data and document intensive such as, financial services and healthcare where
accuracy, privacy and security are top concerns. Lasons solutions are
uniquely customized to provide its customers with substantial and identifiable
cost savings. Lasons integrated suite of solutions utilizes the latest
technology surrounding data input, scanning, digital storage, retrieval and
delivery of sensitive data and documents to increase the efficiency and
effectiveness of back-office and administrative functions. 1




---



##### Table of Contents



The Company employs a broad range of services in delivering its customized
business process solutions including electronic conversion services, electronic
document storage and retrieval, database management, web-based services,
micrographic conversion services, high-volume, quick turnaround reprographics
and on-site facilities management. A key part of Lasons integrated approach is Document DNA. Document
DNA is a unique browser based data and document management service that
improves information accessibility and enhances workflow in business processes.
This proven, encrypted system handles billions of documents, stores virtually
any type of data or document and enables secure and instant access to critical
information  all conveniently at a clients desktop. Customers The Company currently has over 3,500 active customers primarily in the
healthcare, financial services, governmental, transportation, manufacturing,
retailing and professional services vertical markets. The Company services
accounts of all sizes, from small business and professional groups to Fortune
100 companies. No single customer accounted for more than ten percent of the
Companys total consolidated net revenues for the year ended December 31, 2003
and the six month period ended December 31, 2002. Competition The business process outsourcing industry, in which the Company competes,
is a highly fragmented and competitive industry. A significant source of
competition is the in-house document handling capability of the Companys
target customer base. In addition, with respect to those services that are
outsourced, the Company has a variety of competitors, including large national
or multinational companies, which vary by market segment and services provided,
and small regional or local companies. The Companys businesses compete on the
basis of price, service, quality, security, and innovation. As a result of
this competitive environment the Company may lose customers or have difficulty
acquiring new customers, which may adversely affect its operations. Proprietary Rights and Processes The Company regards the systems, workflow capabilities, information and
know-how underlying its services as proprietary and relies primarily on a
combination of contract, trade secrets, confidentiality agreements and
contractual provisions to protect its rights. The Companys business is not
materially dependent on any patents. Despite the Companys efforts to protect
its proprietary rights, unauthorized parties may attempt to obtain and use
information that the Company regards as proprietary, and policing unauthorized
use of the Companys proprietary information is difficult. Litigation may be
necessary for the Company to protect its proprietary information and could
result in substantial cost to, and diversion of resources by, the Company. Environmental Matters The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes; or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other release of solid wastes and hazardous substances. The Company is not aware of any environmental conditions that would be
likely to have a material adverse effect on the business, financial condition
or results of operations of the Company. However, there can be no assurance
that environmental liabilities in the future will not have a material adverse
effect on the business, financial condition or results of operations of the
Company. Employees As
of March 29, 2004, the Company had approximately 2,700 employees,
including approximately 1,200 in foreign countries. No domestic employees of
the Company are represented by a labor union, however, some foreign employees
are represented by local labor unions in certain countries. The Company
considers its relationship with its employees to be good. The Company further
has relationships and access to an additional 4,000 individuals (i.e., business
associates) located in certain foreign countries. 2




---



##### Table of Contents



Executive Officers of the Registrant The following table sets forth certain information concerning the
Companys executive officers as of March 29, 2004: Name
    
    Age
    
    Position
    
    Executive Officer SinceRonald D. Risher
    
    
    47
    
    
    President, Chief Executive Officer and Director
    
    2001Douglas S. Kearney
    
    
    35
    
    
    Executive Vice President, Chief Financial
Officer and Secretary
    
    2001Michael H. Riley
    
    
    56
    
    
    Executive Vice President
    
    2001Thomas W. Denomme
    
    
    43
    
    
    Executive Vice President Operations, Chief
Information Officer
    
    2001Kenneth L. Shaw
    
    
    56
    
    
    Executive Vice President of Human Resources
    
    2001Trevor G. Brown
    
    
    45
    
    
    Chief Marketing Officer
    
    2003
 Ronald D. Risherwas appointed President, Chief Executive Officer and
Director in May 2001. Mr. Risher joined the Company in November 2000 as its
Executive Vice President and Chief Financial Officer. Prior to joining the
Company, Mr. Risher was a founder and a principal of Franklin Advisors, L.L.C.,
a Michigan limited liability company formed in 2000 providing executive
management and consulting services. From 1983 to 1999, Mr. Risher was the Vice
President, Corporate Controller, Treasurer and Secretary of Thorn Apple Valley,
Inc., a producer of processed meat and poultry. From 1978 to 1983, Mr. Risher
was employed by Price Waterhouse performing assurance services on various
organizations. Mr. Risher is a graduate of Western Michigan University and is
a Certified Public Accountant. Douglas S. Kearneywas appointed Chief Financial Officer in July 2002. Mr.
Kearney served as the Companys Interim Chief Financial Officer since May 2001.
From May 2000 to July 2002, Mr. Kearney was employed by Conway, MacKenzie &
Dunleavy (CMD), a leading Michigan-based crisis management and turnaround
consulting firm. From January 1999 to May 2000, Mr. Kearney worked in the
Corporate Financial Analysis and Activities department of DaimlerChrysler
Corporation, the U.S. subsidiary of one of the worlds leading automotive
companies. Prior to 1999, Mr. Kearney was a Senior Manager in the Business
Advisory Services practice of PricewaterhouseCoopers. Mr. Kearney has over 10
years experience, including his tenure with CMD, providing financial,
operational and strategic assistance as senior management of Fortune 500 and
middle market businesses, either as an outside consultant or as part of the
internal management team. Mr. Kearney is a graduate of the University of
Michigan, is a Certified Public Accountant and received his MBA from Yale
University. Michael H. Rileywas appointed Executive Vice President in September 2001.
Mr. Riley was previously the President of Imaging Services and the Products
Division, as well as responsible for all of Lasons strategic marketing
efforts. Mr. Riley joined Lason in 1997 as part of the Image Conversion Systems
acquisition where he served as Executive Vice President. Prior to joining Image
Conversion Systems, Mr. Riley served in positions including President of the
Strategic Partners Group and Senior Vice President of Marketing and Product
Development of Anacomp, Inc. Mr. Riley recently served a three-year term on the
board of directors of AIIM, the prominent industry trade group. Mr. Riley holds
a liberal arts degree from the University of Massachusetts. Thomas W. Denommewas appointed Executive Vice President, Chief
Information Officer and President of Lasons Output Services Division in July
2002. Prior to joining Lason in December 2000, Mr. Denomme was a principal
with Franklin Advisors, L.L.C., a Michigan limited liability company, formed in
2000 providing executive management and consulting services. Mr. Denomme
previously was employed by IBP, Inc. from 1986 to 2000. During this period of
time he held various operational, financial, and strategic positions including
Vice President and Controller of IBP Foods Inc., a subsidiary of IBP, Inc.,
Vice President of Product Management, and Vice President of Planning and
Integration at Thorn Apple Valley, Inc., which was acquired by IBP in 1999.
Mr. Denomme holds an executive MBA from Michigan State Universitys Advanced
Management Program. Kenneth L. Shawhas served as Executive Vice President of Human Resources since
he joined the Company in 2001. Mr. Shaw was previously employed by IBP, Inc.
from 1981 to 2001. During this period of time he held various human resource
positions including the responsibility of Corporate Director of Human Resources
for Thorn Apple Valley, Inc. which was acquired by IBP, Inc. in 1999. Prior to
joining IBP, Inc. Mr. Shaw had been employed by Burlington Industries, 3




---



##### Table of Contents



Inc. in various human resource management assignments for approximately
eight years. He holds a bachelors degree in Social Science from Elon University
in North Carolina. He served as an assistant district executive with the Boy
Scouts of America following his graduation from college and is currently a
member of the Society of Human Resources Management (SHRM). Trevor G. Brownwas appointed Chief Marketing Officer in November 2003.
Mr. Brown joined the Company in 1998 as Vice-President of Sales for the
Southeast Region. Prior to joining the Company, Mr. Brown served in numerous
senior international sales and marketing management roles with Danka from 1996
to 1997, Eastman Kodak from 1987 to 1995 and Olivetti-FileNet from 1986 to 1987
and has over twenty years experience in the Information Technology industry.
Mr. Brown, a native of England, holds a BSC Honors in Management Sciences from
The University of Manchester Institute of Technology and is a member of The
Institute of Marketing. 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 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. 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 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 typically lower during the fourth quarter 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. 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. Potential Liability for Unauthorized Disclosure of Confidential Information 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 4




---



##### Table of Contents



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. 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. 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 December 31, 2003.
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 5




---



##### Table of Contents



enforcing any liens; however, in the event of any future noncompliance the
Company would seek a waiver from such lenders related to these types of
technical covenant violations. 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. Fresh Start Reporting and Factors that Affect Comparability of Financial
Information As previously disclosed in prior SEC filings, the Company and certain of
its direct and indirect North American subsidiaries (Debtors) filed a
voluntary petition on December 5, 2001 (the Petition Date) to reorganize
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the District of Delaware in Wilmington. The Debtors
operated the business as debtors-in-possession. 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 of
Reorganization. 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. 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 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
financial information, but not in conformity with the instructions for Form
10-K, Regulation S-K and Rule 10-01 of Regulation S-X, as the Company has not
presented information for the twelve months ending December 31, 2002 and 2001. As previously disclosed in Old 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. 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 Predecessor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 former
employees of Old Lason. These actions were brought solely against and relate
to the 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. 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 Successors
financial statements as of and for the year ended December 31, 2003 and the six
month period ended December 31, 2002. 6




---



##### Table of Contents



ITEM 2: PROPERTIES The Company has direct operations in 22 U.S. states, Canada, Mexico and
India. Except for one facility that is owned by the Company, all the facilities
are leased and are used for operations and general administrative functions. ITEM 3: LEGAL PROCEEDINGS 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
plaintiffs motion and any claim by the plaintiffs 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. 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. 7




---



##### Table of Contents



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Companys shareholders
during the fourth quarter of 2003. 
 PART II ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is currently no established public trading market for the Companys
Common Stock. There can be no assurance regarding the future development of a
market for or as to the liquidity of the Common Stock. 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, or whether it would satisfy other applicable listing
requirements of a national securities exchange or NASDAQ. There are 2,045 holders of record of the Companys Common Stock, as of
March 29, 2004. The Company has no compensation plans (including individual
compensation arrangements) under which equity securities of the Company are
authorized for issuance. Dividend Policy The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all future earnings for the operation
and expansion of its business. The Company does not anticipate declaring or
paying cash dividends on its Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock will be at the discretion of the
board of directors and will depend on its results of operations, earnings,
capital requirements, contractual restrictions and other factors deemed
relevant by the board of directors. Further, the Companys Credit Agreement,
as amended, prohibits the payment of cash dividends. 8




---



##### Table of Contents



ITEM 6: SUMMARIZED FINANCIAL INFORMATION The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data presented below is as of and
for the year ended December 31, 2003 and for the six month period ending
December 31, 2002. This information has been derived from the Companys
consolidated financial statements, which have been audited by Grant Thornton
LLP and should be read in conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the consolidated financial
statements and notes thereto included in this Form 10-K. As discussed
throughout this Form 10-K, the Company has not provided financial information
in this Form 10-K for the twelve months ended December 31, 2002, 2001, 2000,
and 1999. Accordingly, the discussion of results of operations and liquidity
and capital resources is limited to the year ended December 31, 2003 and the
six month period ended December 31, 2002. Year Ended
    
    Six Months EndedDecember 31, 2003
    
    December 31, 2002(Dollars in Thousands, except per share amounts)Income Statement DataRevenues, net
    
    $
    166,905
    
    
    $
    96,934Income from operations
    
    $
    3,656
    
    
    $
    2,177Net income
    
    $
    1,072
    
    
    $
    671Income per
share: (1)Basic
    
    $
    .04
    
    
    $
    .02Diluted
    
    $
    .04
    
    
    $
    .02Balance Sheet DataCash and cash equivalents plus revolving credit availability
    
    $
    18,153
    
    
    $
    25,931Working capital
    
    $
    24,962
    
    
    $
    41,344Total assets
    
    $
    53,646
    
    
    $
    77,547Long-term
obligations
    
    $
    27,281
    
    
    $
    45,001Net senior debt (2)
    
    $
    17,483
    
    
    $
    19,994
   (1)
    
    Assumes weighted average common shares of 30,045,000 for December 31,
2003 and 30,032,500 shares for December 31, 2002.  (2)
    
    Defined as total term loan and outstanding revolving credit
borrowings less cash and cash equivalents. ITEM 7: 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 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 9




---



##### Table of Contents



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-Year Ended December 31, 2003 Consolidated net revenues were $166.9 million for the year ended December
31, 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 $44.4 million for the year ended December 31, 2003 or
26.6 percent of net revenues. 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 $40.6 million or 24.3
percent of net revenue for the year ended December 31, 2003. As previously
disclosed, 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 December 31, 2003, the Company has
substantially completed these activities. 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 year ended December 31, 2003, which consisted
principally of severance costs, related to its sales force restructuring. As
of December 31, 2003, the Company has substantially completed these activities.
Also during the year, the Company sold a facility and a customer list which
resulted in a gain of approximately $0.3 million and $0.5 million,
respectively. Included in the results of operations for the year ended December 31, 2003
was approximately $2.7 million, in depreciation expense related to property and
equipment. Net interest expense was $2.8 million for the year ended December 31,
2003, consisting principally of interest on the Companys long-term
obligations. The provision for income taxes was approximately $0.3 million for the year
ended December 31, 2003, related principally to foreign and state income taxes. Net income for the year ended December 31, 2003 was $1.1 million. Results of Operations-Six Months Ended December 31, 2002 Consolidated net revenues were $97.0 million for the six months ended
December 31, 2002. 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. 10




---



##### Table of Contents



Gross profit was $27.0 million for the six months ended December 31, 2002.
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 $24.5 million for the
six months ended December 31, 2002. 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
December 31, 2002, the Company has accrued $0.5 million related to its
commitment to these activities, of which approximately $0.3 million was
included as a special charge in the results of operations for the six months
ended December 31, 2002. The Company anticipates being substantially completed
with such activities during the second quarter of 2003. However, the exact
completion date is dependent upon a number of factors, some of which are beyond
the control of the Company. Net interest expense was $1.5 million for the six month period ended
December 31, 2002, consisting principally of interest on the Companys Senior
Notes. Included in the results of operations for the six months ended December
31, 2002 was approximately $1.2 million in depreciation expense related to
property and equipment. Liquidity and Capital Resources At December 31, 2003, the Company had net working capital of $25.0 million
and cash and cash equivalents of $12.2 million. The Companys net senior debt
(defined as total term loan and revolving credit borrowings less cash and cash
equivalents) was $17.5 million at December 31, 2003. In addition, at December
31, 2003, the Company has $6.0 million of availability on its revolving credit
facility. The Company has used its excess working capital, principally its
excess cash to pay down its long-term debt, which is expected to result in
savings of approximately $1.0 million in interest costs annually. The Company
has funded its operations and integration and restructuring activities through
cash from operations. Net cash provided by operating activities for the year
ended December 31, 2003 was $4.5 million. The net cash provided by 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 $1.0
million for the year ended December 31, 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 $0.2
million at December 31, 2003 and that these will be paid over the remainder of
2004. In addition, the net cash provided by operating activities was reduced
by $0.9 million for the year ended December 31, 2003 related to the payment of
costs and obligations associated with the Companys previously mentioned
integration and restructuring activities. Net cash used in investing activities was $1.6 million for year ended
December 31, 2003, of which approximately $2.6 million was used for investments
in capital assets and was off-set by approximately $1.0 million
of proceeds from the sale of non-core 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 (6.50% at December 31, 2003). 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 December 31, 2003, the Company had $6 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. 11




---



##### Table of Contents



Management believes that it has sufficient liquidity through its cash from
operations, cash on hand of $12.2 million and $6.0 million of revolving credit
availability at December 31, 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. Contractual Obligations The table below summarizes our known contractual obligations at December
31,2003 consisting of principal payments on our long-term obligations and
future minimum lease payments on our operating leases (in thousands): Payments due by PeriodTotal
    
    Within 1
    
    2-3
    
    4-5
    
    After 5Years
    
    Years
    
    Years
    
    YearsLong-term obligations
    
    $
    31,695
    
    
    $
    4,414
    
    
    $
    13,645
    
    
    $
    13,636
    
    
    
    Operating leases
    
    
    13,189
    
    
    
    5,153
    
    
    
    5,794
    
    
    
    1,992
    
    
    $
    250Total
    
    $
    44,884
    
    
    $
    9,567
    
    
    $
    19,439
    
    
    $
    15,628
    
    
    $
    250
 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. 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 has made distributions of its common stock in accordance with
its Plan of Reorganization. 26,777,344 shares were issued to the Senior Note
holders, general unsecured creditors and management of the Company and are
outstanding at December 31, 2003. The Company has 3,267,656 shares currently
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 established public trading market for the Companys
Common Stock. There can be no assurance regarding the future development of a
market for or as to the liquidity of the Common Stock now or when 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, or
whether it would satisfy other applicable listing requirements of a national
securities exchange or NASDAQ. 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 12




---



##### Table of Contents



manager claims that have been allowed and are represented by the Companys
Junior Note, in the principal amount of $2.5 million and $3.1 million at
December 31, 2003 and 2002, respectively. Critical Accounting Policies The Company has identified the following significant accounting policies
set forth below that, as a result of complexities, judgments and uncertainties
of the accounting standards and operations involved could result in material
changes to its financial condition or results of operations under different
conditions, assumptions or estimates. The Company applies a consistent
methodology at the end of each quarter to determine the account balances that
require judgment: Cash and Cash Equivalents. Cash equivalents consist of short-term liquid
investments with a maturity at date of purchase of three months or less. Revenue Recognition. The Companys revenues are driven primarily by
transaction volumes. The Company records revenues when the services are
provided and all significant obligations of the Company have been satisfied.
In certain circumstances, depending upon contractual terms or billing cycle
cut-off, the Company is unable to bill for work completed in a certain period.
In these cases, the Company recognizes revenue when the work is performed in
order to match revenues with the services and related expenses. The work
ultimately will be billed according to the contractual terms or the next
possible billing cycle, as applicable. Allowance for Doubtful Accounts. The Companys allowance for doubtful
accounts is generally established during the period in which the loss is
expected to occur and is overall provided at a level for which management has
deemed appropriate based upon all currently available information such as,
historical trends, subsequent collections, viability of the customer and other
such relevant factors. The evaluation of these factors involves subjective
judgments and changes in these factors may significantly impact the Companys
consolidated financial statements. Supplies. Supplies are valued at the lower of cost or market, using the
first-in, first-out method. From time to time, due to changes in market
demand, technology or other such factors it may be necessary for the Company to
write-down the carrying value of its supplies. The evaluation of these factors
involves subjective judgments and changes in these factors may significantly
impact the Companys consolidated financial statements. Property and Equipment. The Companys property and equipment, including
significant improvements at July 1, 2002 have been stated at their fair values.
The Companys additions subsequent to such date are recorded at cost to
acquire. Expenditures for normal repairs and maintenance are charged to
operations as incurred. Adjustments of the asset and related accumulated
depreciation accounts are made for retirements of property and equipment with
the resulting gain or loss included in operations. Self-insurance Liabilities and Reserves. The Company is self-insured for
its healthcare obligations and covers its workers compensation obligations
through an incurred loss retro policy, under which the Company is obligated to
cover losses on an actual basis up to a prescribed amount. The Company
accounts for these programs based upon actuarial estimates of the loss inherent
in the claims during the period, including an estimate for losses incurred but
not yet reported. These loss estimates rely on observations of historical loss
experience for similar events. The Company mitigates its ultimate exposure by
carrying certain stop loss coverage. The evaluation of these factors and
establishment of the loss estimates involves subjective judgments and changes
in these factors may significantly impact the Companys consolidated financial
statements. Other Loss Contingencies.The Company records liabilities when it is
probable that a loss has been incurred and the amount of that loss can be
reasonably estimated. These types of losses can develop over long periods of
time, with potentially significant changes occurring in the facts of each case.
Estimates of probable losses often include analysis and judgments about
actions or potential actions of third parties, including governmental
regulators, which are beyond the control or influence of the Company. Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the periods presented. Actual
results could differ materially from those estimates. 13




---



##### Table of Contents



New Accounting Standards. 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. In April 2003, the FASB issued SFAS No. 149, Amendments of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. The statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of this
standard did not have a material effect on the Companys financial condition,
results of operations, or cash flows. 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 FIN 46 did not have a material effect on the Companys
financial condition and results of operations or cash flows. 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 of operations. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Lason 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 December 31, 2003 of $29.6 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. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements and supplemental financial information included
in this report including the selected Quarterly Financial Data (unaudited) are
set forth on the Index to Financial Statements, Financial Statement Schedules
and/or Notes to Consolidated Financial Statements included in this report. 14




---



##### Table of Contents



ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE The disclosures required by this Item 9 have been previously disclosed by
the Company in its Form 8-K filed on July 30, 2002, Form 8-K/A filed on May 3,
2002, its Form 8-K filed on March 14, 2002 and its Form 8-K filed on February
28, 2002. ITEM 9A: CONTROLS AND PROCEDURES (a) 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 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, as of the Evaluation
Date, 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. (b) There has been no change in the Companys internal control over
financial reporting that occurred during the quarter ended December 31, 2003
that materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 
 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to executive officers of the Company is
included in Part I of this Form 10-K under the heading Executive Officers of
the Registrant and the information about directors of the Company, the Company's Code of Ethics, and
compliance with Section 16(a) of the Securities Exchange Act of 1934 will
either be included in the Companys 2004 definitive Proxy Statement under the
headings Information About the Nominee and the Incumbent Directors,
Committees and Meetings of Directors, Code of Ethics, and Section 16(a) Beneficial Ownership
Reporting Compliance which are incorporated herein by reference or will be
included by amendment to this Form 10-K. ITEM 11: EXECUTIVE COMPENSATION The information regarding executive compensation will either be included
in the Companys 2004 definitive Proxy Statement under the headings Executive
Compensation, and Compensation of Directors which are incorporated herein by
reference or will be included by amendment to this Form 10-K. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS The information with respect to the security ownership of certain beneficial
owners and management and with respect to equity compensation plans will either
be included in the Companys 2004 definitive Proxy Statement under the 15




---



##### Table of Contents



sections Security Ownership of Certain Beneficial Owners and Management
and Equity Compensation Plan Information which are incorporated herein by
reference or will be included as an amendment to this Form 10-K. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information with respect to certain relationships and related
transactions will either be included in the Companys 2004 definitive Proxy
Statement under the heading Transactions of Directors, Executive Officers and
Certain Beneficial Owners which is incorporated herein by reference or will be
included as an amendment to this Form 10-K. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES The information with respect to principal accountant fees and services
will either be included in the Companys 2004 definitive Proxy Statement under
the heading Relationship with Independent Public Accountants which is
incorporated herein by reference or will be included as an amendment to this
Form 10-K. 16




---



##### Table of Contents



ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  A.
    
    (1) Consolidated Financial Statements The consolidated financial statements applicable to the Company and its
consolidated affiliates filed with this report are set forth on the Index to
Consolidated Financial Statements of this report.  (2)
    
    Consolidated Financial Statement Schedules The consolidated financial statement schedule and report of independent
accountants have been filed as part of this Annual Report on Form 10-K as
indicated in the Index to Consolidated Financial Statements and of this report.  (3)
    
    Exhibits The following exhibits are filed as part of this report as required by
Item 601 of Regulation S-K.  a.
    
    Exhibits  3.1
    
    Amended and Restated Certificate of Incorporation (1)3.2
    
    Amended and Restated Bylaws (1)10.1
    
    Executive Management Incentive Plan (1)10.2
    
    Junior Note Indenture (1)10.3
    
    Employment Agreement between Lason Systems, Inc. and Ronald D. Risher (1)10.4
    
    Employment Agreement between Lason Systems, Inc. and Michael H. Riley (1)10.5
    
    Employment Agreement between Lason Systems, Inc. and Jerry L. Hon (1)10.6
    
    Employment Agreement between Lason Systems, Inc. and Kenneth L. Shaw (1)10.7
    
    Employment Agreement between Lason Systems, Inc. and Thomas W. Denomme (1)10.8
    
    Employment Agreement between Lason Systems, Inc. and Douglas S. Kearney (1)10.9
    
    Credit Agreement between Lason and the Lenders named
therein, Bank One, N.A. as Agent dated as of June 30, 2002 (2)10.10
    
    First Amendment to the Credit Agreement (3)21.1
    
    Subsidiaries of the Registrant24.1
    
    Power of Attorney (included on signature page)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 (*)  (*)
    
    Filed herewith(1)
    
    Incorporated by reference from Exhibits
to Form 10-Q filed on November 19, 2002, Commission File
No. 0-21407(2)
    
    Incorporated by reference to Exhibit 10.9
to Form 10-K filed on March 31, 2003, Commission File No.
0-21407(3)
    
    Incorporated by reference to Exhibit
10.10 to Form 10-Q filed on November 12, 2003, Commission
File NO. 0-21407 17




---



##### Table of Contents



b.
    
    Reports on Form 8-K On October 24, 2003, the Company filed a Form 8-K disclosing in Item
12 thereof its expected earnings from operations for the third quarter of
2003.  c.
    
    Exhibits See Item 15A(3).  d.
    
    Financial Statement Schedules None. 18




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 29th day of March,
2004 LASON, INC.By:
    
    /s/ Ronald D. Risher
Ronald D. Risher
President and Chief Executive Officer
 
 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald D. Risher and Douglas S. Kearney, and
each of them, this 29th day of March, 2004, his true and lawful
attorney(s)-in-fact and agent(s), with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this report and to file the same,
with all exhibits and schedules thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney(s)-in-fact and agent(s) full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney(s)-in-fact and agent(s), or their
substitutes(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and on the
date indicated above. /s/ Ronald D. Risher
Ronald D. Risher
    
    Director, President and Chief Executive Officer (Principal
Executive Officer)/s/ Douglas S. Kearney
Douglas S. Kearney
    
    Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)/s/ Gary D. DeGourse
Gary D. DeGourse
    
    Director/s/ Robert H. Naftaly
Robert H. Naftaly
    
    Director/s/ David P. Williams
David P. Williams
    
    Director
 19




---



##### Table of Contents



LASON, INC. 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Financial Statements:Report
of Independent Certified Public Accountants
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    F-3Consolidated Statements of Income for the year ended December
31, 2003 and six month period ended December 31, 2002
    
    F-4Consolidated Statements of Stockholders Equity for the year
ended December 31, 2003 and six month period ended December
31, 2002
    
    F-5Consolidated Statements of Cash Flows for the year ended
December 31, 2003 and six month period ended December 31, 2002
    
    F-6Notes to Consolidated Financial Statements
    
    F-7 to F-14
 F-1




---



##### Table of Contents



Report of Independent Certified Public Accountants Board of Directors
Lason, Inc. We have audited the accompanying consolidated balance sheets of Lason,
Inc. and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of
income, stockholders equity and cash flows for the year ended December 31,
2003 and the six months in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lason, Inc.
and subsidiaries as of December 31, 2003 and 2002 and the results of their operations and their
cash flows for the year ended December 31, 2003 and the six months in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. /s/ Grant Thornton LLP Southfield, Michigan
March 10, 2004 F-2




---



##### Table of Contents



LASON, INC. 
 CONSOLIDATED BALANCE SHEETS (In thousands, except for shares) December 31,
    
    December 31,2003
    
    2002ASSETSCash and cash equivalents
    
    $
    12,153
    
    
    $
    25,931Accounts receivable (net of allowance of $2,009 and $4,010, respectively)
    
    
    25,972
    
    
    
    35,962Supplies
    
    
    2,182
    
    
    
    4,021Prepaid expenses and other
    
    
    7,412
    
    
    
    5,440Total current assets
    
    
    47,719
    
    
    
    71,354Property and equipment, net
    
    
    5,927
    
    
    
    6,193Total assets
    
    $
    53,646
    
    
    $
    77,547LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    6,076
    
    
    $
    7,095Accrued expenses
    
    
    7,325
    
    
    
    14,094Customer deposits
    
    
    2,973
    
    
    
    2,557Deferred revenue
    
    
    1,969
    
    
    
    2,892Current portion of long-term obligations
    
    
    4,414
    
    
    
    3,372Total current liabilities
    
    
    22,757
    
    
    
    30,010Long-term obligations
    
    
    27,281
    
    
    
    45,001Total liabilities
    
    
    50,038
    
    
    
    75,011STOCKHOLDERS EQUITYPreferred stock, $.01 par value; 5,000,000 shares authorized, none issued
and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000,000 shares authorized, 3,267,656
shares reserved for issuance and 26,777,344 shares issued and outstanding
    
    
    300
    
    
    
    300Additional paid-in capital
    
    
    1,565
    
    
    
    1,565Retained earnings
    
    
    1,743
    
    
    
    671Total stockholders equity
    
    
    3,608
    
    
    
    2,536Total liabilities and stockholders equity
    
    $
    53,646
    
    
    $
    77,547
 The accompanying Notes are an integral part of the consolidated financial statements. F-3




---



##### Table of Contents



LASON, INC. 
 CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
 Year Ended
    
    Six Months EndedDecember 31, 2003
    
    December 31, 2002Revenues, net
    
    $
    166,905
    
    
    $
    96,934Cost of revenues
    
    
    122,481
    
    
    
    69,949Gross profit
    
    
    44,424
    
    
    
    26,985Selling, general and administrative expenses
    
    
    40,572
    
    
    
    24,498Integration activities (See note 7)
    
    
    543
    
    
    
    310Gain on sale of asset (See note 7)
    
    
    (347
    )
    
    
    Income from operations
    
    
    3,656
    
    
    
    2,177Other income (See note 7)
    
    
    (527
    )
    
    
    Interest expense, net
    
    
    2,785
    
    
    
    1,506Income before income taxes
    
    
    1,398
    
    
    
    671Provision for income taxes
    
    
    326
    
    
    
    Net income
    
    $
    1,072
    
    
    $
    671Basic and diluted income per common share
    
    $
    .04
    
    
    $
    .02
 The accompanying Notes are an integral part of the consolidated financial statements. F-4




---



##### Table of Contents



LASON, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY For the Year Ended
December 31, 2003 and Six Month Period
Ended December 31, 2002
(In thousands, except for shares)
 Common Stock
    
    AdditionalPaid-in
    
    RetainedShares
    
    Amount
    
    Capital
    
    Earnings
    
    TotalBalances at July 1, 2002
    
    
    30,000,000
    
    
    $
    300
    
    
    $
    1,565
    
    
    $
    
    
    
    $
    1,865Common stock issued to outside
directors
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    671
    
    
    
    671Balances at December 31, 2002
    
    
    30,045,000
    
    
    
    300
    
    
    
    1,565
    
    
    
    671
    
    
    
    2,536Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    1,072Balances at December 31, 2003
    
    
    30,045,000
    
    
    $
    300
    
    
    $
    1,565
    
    
    $
    1,743
    
    
    $
    3,608
 The accompanying Notes are an integral part of the consolidated financial statements. F-5




---



##### Table of Contents



LASON, INC. 
 CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
 Year ended
    
    Six Months EndedDecember 31,
    
    December 31,2003
    
    2002Cash flows from operating activities:Net income
    
    $
    1,072
    
    
    $
    671Adjustments to reconcile net earnings to net cash provided by
operating activities:Depreciation
    
    
    2,654
    
    
    
    1,199Interest on Junior Note
    
    
    235
    
    
    
    117Gain on sales of assets
    
    
    (874
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    9,990
    
    
    
    6,241Supplies
    
    
    1,839
    
    
    
    (161
    )Prepaid expenses and other
    
    
    (2,116
    )
    
    
    637Accounts payable
    
    
    (1,019
    )
    
    
    (1,843
    )Accrued expenses and other liabilities
    
    
    (7,276
    )
    
    
    (6,349
    )Net cash flows provided by operating activities
    
    
    4,505
    1
    
    
    512
    2Cash Flows From Investing Activities:Investments in property and equipment
    
    
    (2,554
    )
    
    
    (1,479
    )Proceeds from sales of non-core assets
    
    
    1,040
    
    
    
    1,257Net cash used in investing activities
    
    
    (1,514
    )
    
    
    (222
    )Cash Flows From Financing Activities:Repayments of long-term obligations, net
    
    
    (16,678
    )
    
    
    (4,176
    )Payment on capital lease liabilities and other debt
    
    
    (91
    )
    
    
    (155
    )Net cash used in financing activities
    
    
    (16,769
    )
    
    
    (4,331
    )Net decrease in cash and cash equivalents
    
    
    (13,778
    )
    
    
    (4,041
    )Cash and cash equivalents at beginning of period
    
    
    25,931
    
    
    
    29,972Cash and cash equivalents at end of period
    
    $
    12,153
    
    
    $
    25,931Supplemental information:Interest payments
    
    $
    2,992
    
    
    $
    1,680
 The accompanying Notes are an integral part of the consolidated financial statements.   1
    
    During the year ended December 31, 2003, approximately $0.9 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, 2002.2
    
    During the six month period ended December 31, 2002, approximately $6.1
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. F-6




---



##### Table of Contents



LASON, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The
accompanying consolidated financial statements include the accounts
of Lason, Inc. and its subsidiaries. All significant intercompany
transactions have be eliminated. In the opinion of the Company, the
accompanying consolidated financial statements
include all adjustments, of a normal, recurring nature, necessary to present
fairly its financial position as of December 31, 2003 and 2002 and the results
of operations for the year ended December 31, 2003 and six months ended
December 31, 2002. Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with current year presentation. The accompanying consolidated financial statements of Lason have been
prepared in conformity with generally accepted accounting principles for
financial information, but not in conformity with the instructions for Form
10-K, Regulation S-K and Rule 10-01 of Regulation S-X, as the Company has not
presented financial information for the twelve months ending December 31, 2002
and 2001. As previously disclosed, in Lason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 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 year ended December 31,
2001, 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 financial information in
this Form 10-K for the twelve months ending December 31, 2002, and 2001. 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 Successors financial
statements as of and for the year ended December 31, 2003 and the six month
period ended December 31, 2002. Revenue Recognition The Companys revenues are driven primarily by transaction volumes. The
Company records revenues when the services are provided and all significant
obligations of the Company have been satisfied. In certain circumstances,
depending upon contractual terms or billing cycle cut-off, the Company is
unable to bill for work completed in a certain period. In these cases, the
Company recognizes revenue when the work is performed in order to match
revenues with the services and related expenses. The work ultimately will be
billed according to the contractual terms or the next possible billing cycle,
as applicable. In addition, cash received F-7




---



##### Table of Contents



from customers in advance of services performed are recorded as deferred
revenue and credited to income when the related service is provided or
according to the term of the agreement. Cash and Cash Equivalents Cash equivalents consists of short-term liquid investments with a maturity
at date of purchase of three months or less. Accounts Receivable Accounts receivable are generally due within 30 days and are stated at
amounts due from customers net of an allowance for doubtful accounts. The
Company determines its allowance by considering a number of factors, including
the length of time trade account receivable are past due, the Companys
previous collection history, current economic trends and the customers ability
to pay its obligation. The accounts receivable balance was $26.0 million and
$36.0 million, net of an allowance for doubtful accounts of $2.0 million and
$4.0 million at December 31, 2003 and 2002, respectively. The reduction in the allowance
during the year ended December 31, 2003 and six months ended December 31, 2002,
primarily related to write-offs of uncollectable accounts that existed primarily in the fresh start balance sheet. Supplies Supplies are valued at the lower of cost or market, using the first-in,
first-out method. From time to time, due to changes in market demand,
technology or other such factors it may be necessary for the Company to
write-down the carrying value of its supplies. Property and Equipment The property and equipment are recorded at cost and are depreciated using
a straight-line method over the estimated lives of the related assets which
range from 3 to 7 years. Expenditures for normal repairs and maintenance are
charged to operations as incurred. Adjustments of the asset and related
accumulated depreciation accounts are made for retirements of property and
equipment with the resulting gain or loss included in operations. Self-insurance Liabilities and Reserves The Company is self-insured for its healthcare obligations and covers its
workers compensation obligations through an incurred loss retro policy, under
which the Company is obligated to cover losses on an actual basis up to a
prescribed amount. The Company accounts for these programs based upon
actuarial estimates of the loss inherent in the claims during the period,
including an estimate for losses incurred but not yet reported. These loss
estimates rely on observations of historical loss experience for similar
events. The Company mitigates its ultimate exposure by carrying certain stop
loss coverage. Other Loss Contingencies The Company records liabilities when it is probable that a loss has been
incurred and the amount of that loss can be reasonably estimated. These types
of losses can develop over long periods of time, with potentially significant
changes occurring in the facts of each case. Estimates of probable losses
often include analysis and judgments about actions or potential actions of
third parties, including governmental regulators, which are beyond the control
or influence of the Company. Use of Estimates The preparation of the consolidated financial statements is in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenue and expenses at the date of the
reporting period. Estimates have been prepared on the basis of the most
current available information and actual results could differ materially from
those estimates. New Accounting Standards 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 F-8




---



##### Table of Contents



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. In April 2003, the FASB issued SFAS No. 149, Amendments of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. The statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of this
standard did not have a material effect on the Companys financial condition,
results of operations, or cash flows. 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),
Consolidated 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 FIN 46 did not have a material effect on the Companys
financial condition and results of operations or cash flows. 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 of operations. NOTE 3: PROPERTY AND EQUIPMENT At December 31, 2003 and 2002, property and equipment consists of the
following: December 31,
    
    December 31,2003
    
    2002Computer equipment and software
    
    $
    3,856
    
    
    $
    1,984Production and office equipment
    
    
    4,173
    
    
    
    3,674Furniture and fixtures
    
    
    509
    
    
    
    455Leasehold improvements
    
    
    790
    
    
    
    635Other
    
    
    369
    
    
    
    644Total property and equipment
    
    
    9,697
    
    
    
    7,392Less accumulated depreciation
    
    
    (3,770
    )
    
    
    (1,199
    )Net property and equipment
    
    $
    5,927
    
    
    $
    6,193
 NOTE 4: INCOME TAXES In connection with the reorganization, a gain on cancellation of
indebtedness was realized by the 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 extinguishment. As of December 31,
2003, the Company estimates that its NOLs aggregate approximately $38.1 million
which will expire in 2022. F-9




---



##### Table of Contents



The components of the consolidated income tax provision related for year
ended December 31, 2003 and the six month period ended December 31, 2002 are as
follows (in thousands): December 31,
    
    December 31,2003
    
    2002Current provision
    
    
    101,240
    
    
    
    144Deferred provision
    
    
    (100,914
    )
    
    
    (144
    )Total income tax provision
    
    $
    326
    
    
    $
    
 Deferred income taxes represent the net tax effects of temporary
differences between the carrying value amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax return
purposes. Significant components of the Companys deferred federal income tax
assets and liabilities are as follows (in thousands): December 31,
    
    December 31,2003
    
    2002Deferred tax assets related to:Goodwill
    
    
    8,726
    
    
    
    28,523Allowance for doubtful accounts
    
    
    683
    
    
    
    1,540Deferred revenue
    
    
    669
    
    
    
    1,110Depreciation and amortization
    
    
    
    
    
    
    5,063Accrued expenses
    
    
    4,372
    
    
    
    5,688Net operating loss carryforwards
    
    
    12,950
    
    
    
    84,458Total deferred tax assets
    
    
    27,400
    
    
    
    126,382Deferred tax liabilitiesPrepaid expenses
    
    
    1,835
    
    
    
    1,079Depreciation and amortization
    
    
    1,275
    
    
    
    Total deferred tax liabilities
    
    
    3,110
    
    
    
    1,079Net deferred tax assets
    
    
    24,290
    
    
    
    125,303Valuation allowance for deferred tax assets
    
    
    (24,290
    )
    
    
    (125,303
    )Total deferred taxes
    
    
    
    
    
    
    
 A reconciliation of income tax expenses at the U.S. federal statutory
income tax rate to actual income tax expense is as follows (in thousands): December 31,2003Tax at statutory rate
    
    $
    475Nondeductible items and other
    
    
    (386
    )Changed in valuation allowance related to emergence
from bankruptcy- section 382 limitation
    
    
    20,971Changed in valuation allowance related to emergence from bankruptcy-NOLs
    
    
    80,240Foreign tax rate and exchange rate differentials
    
    
    39Change in valuation allowance
    
    
    (101,013
    )Provision for income taxes
    
    $
    326
 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 December 31,
2003 and 2002, due to F-10




---



##### Table of Contents



the high degree of uncertainty surrounding their realizability, a full
valuation allowance has been established on all of the deferred tax assets. NOTE 5: ACCRUED EXPENSES Accrued expenses at December 31, 2003 and 2002 consist of the following
(in thousands): December 31,
    
    December 31,2003
    
    2002Accrued compensation and benefits
    
    
    3,528
    
    
    
    7,278Accrued taxes and other
    
    
    1,131
    
    
    
    1,535Accrued expenses
    
    
    2,666
    
    
    
    5,281Total
    
    $
    7,325
    
    
    $
    14,094
 NOTE 6: 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, 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 the term loan obligation bear interest at a rate
of prime (floating) plus 2.5 percent (6.50% at December 31, 2003). 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 December 31,
2003, the Company had $4 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. Aggregated maturities of long term obligations for the five years
subsequent to December 31, 2003 are $4,000, $8,000, $4,000, and $13,636. The Companys long-term obligations also included 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. Aggregated maturities for the Junior Note subsequent to December 31, 2003 are as follows (in thousands): 2004
    
    
    
    
    
    
    6242005
    
    
    
    
    
    
    6242006
    
    
    
    
    
    
    1,246Total
    
    
    
    
    
    $
    2,494Unamortized Discount at December 31, 2003
    
    
    (435
    )Junior Note Balance
    
    $
    2,059
 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 payments will be
made. NOTE 7: INTEGRATION ACTIVITIES 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 December 31, 2003 and December 31, 2002, the Company has
accrued $0.1 F-11




---



##### Table of Contents



million and $0.5 million, respectively, related to its commitment to these
activities. As of December 31, 2003, the Company has substantially completed
these activities. During the second quarter of 2003, the Company announced and began the
implementation of a plan to strategically re-brand its image and engage in
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 December 31,
2003, the Company has substantially completed these activities. Also during
the year, the Company sold a facility and a customer list (included in other
income) which resulted in a gain of approximately $0.3 million and $0.5
million, respectively. NOTE 8: INCOME PER SHARE Basic income per share has been computed in accordance with SFAS No. 128,
Earnings per Share. The weighted average common shares used for the year and
six month periods ending December 31, 2003 and 2002 were 30,045,000 and
30,032,500. This includes shares reserved for distribution under the Companys
Plan, in addition to shares issued and outstanding as of December 31, 2003 and
December 31, 2002, respectively. F-12




---



##### Table of Contents



NOTE 9: EMPLOYEE BENEFIT PLAN The Company has a 401 (k) profit-sharing plan and trust (the Plan). Each
employee who is 21 years of age or older who has worked for the Company for
three months and performed 1,000 hours of service or, has an adjusted service
date with the equivalent or greater term of service, is eligible to participate
in the Plan. Eligible participants may contribute not less than 1 percent and
up to 25 percent of their pre tax compensation to the Plan. The Plan is
contributory and the Company, at its discretion, can match up to 25 percent of
eligible participant contributions not to exceed 8 percent of the participants
earnings. The Companys match contributions for the year ended December 31,
2003 and for the six months ended December 31, 2002 totaled approximately $0.3
million and $0.3 million, respectively. NOTE 10: LEASE COMMITMENTS The Company has various operating lease agreements related primarily to
equipment and buildings. As of December 31, 2003, future minimum rental
payments required under non-cancelable operating leases with initial or
remaining lease terms in excess of one year are as follows (in thousands): December 31,20032004
    
    $
    5,1532005
    
    
    3,3402006
    
    
    2,4542007
    
    
    1,1842008 and thereafter
    
    
    1,058Total
    
    $
    13,189
 In addition, the Company has a number of equipment leases that are on a
month-to-month basis. Total rent expense on operating lease agreements for the
year ended December 31, 2003 and the six months ended December 31, 2002 was
approximately $6.5 million and $3.4 million, respectively. NOTE 11: 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
plaintiffs motion and any claim by the plaintiffs 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. F-13




---



##### Table of Contents



NOTE 12: SELECTED QUARTERLY FINANCIAL DATA (Unaudited) The following is a summary of unaudited quarterly results of operations
for each quarter of 2003 and the third and fourth quarter of 2002. As
discussed throughout this Form 10-K, the Company has not provided financial
information in this Form 10-K for the first and second quarter of 2002. 2003 Quarters
    
    
    
    
    
    2002 Quarters1st
    
    2nd
    
    3rd
    
    4th
    
    3rd
    
    4thRevenues, net
    
    $
    44,016
    
    
    $
    43,206
    
    
    $
    41,474
    
    
    $
    38,209
    
    
    $
    50,322
    
    
    $
    46,612Cost of revenues
    
    
    32,342
    
    
    
    31,943
    
    
    
    29,876
    
    
    
    28,320
    
    
    
    35,463
    
    
    
    34,486Gross profit
    
    
    11,674
    
    
    
    11,263
    
    
    
    11,598
    
    
    
    9,889
    
    
    
    14,859
    
    
    
    12,126Selling, general and
Administrative expenses
    
    
    11,268
    
    
    
    10,184
    
    
    
    9,718
    
    
    
    9,402
    
    
    
    13,255
    
    
    
    11,243Integration activities
    
    
    
    
    
    
    543
    
    
    
    
    
    
    
    
    
    
    
    310
    
    
    
    Gain on sale of asset
    
    
    
    
    
    
    (347
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from operations
    
    
    406
    
    
    
    883
    
    
    
    1,880
    
    
    
    487
    
    
    
    1,294
    
    
    
    883Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (527
    )Interest expense, net
    
    
    756
    
    
    
    754
    
    
    
    758
    
    
    
    517
    
    
    
    815
    
    
    
    691Income (loss) before income taxes
    
    
    (350
    )
    
    
    129
    
    
    
    1,122
    
    
    
    497
    
    
    
    479
    
    
    
    192Provision for income taxes
    
    
    108
    
    
    
    89
    
    
    
    90
    
    
    
    39
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (458
    )
    
    $
    40
    
    
    $
    1,032
    
    
    $
    458
    
    
    $
    479
    
    
    $
    192Basic and diluted income (loss) per share
    
    $
    (0.02
    )
    
    $
    
    
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.00
 F-14




---



##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description21.1
    
    Subsidiaries of the Registrant24.1
    
    Power of Attorney (included on signature page)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