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UNITED STATES

FORM 10-Q

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

For the quarterly period ended June 30, 2000

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

For the transition period from              to             

Commission File Number: 000-21407

LASON, INC.

1305 Stephenson Highway

Telephone: (248) 597-5800

     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 [X]     No [   ]

     As of August 10, 2000, 19,510,572 shares of Common Stock, $.01 par value were outstanding.

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LASON, INC.

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

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LASON, INC.

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

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LASON, INC.

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

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Note 1.  Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements of Lason, Inc. (together with its subsidiaries, “Lason” or the “Company”) have been prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, such interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements.

      In the opinion of management, all necessary adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The operating results for the six month period ended June 30, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000.

      For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 31, 2000.

      Certain reclassifications have been made to the condensed consolidated financial statements for 1999 to conform to the 2000 presentation.

Note 2.  Discontinued Operations

      In December 1999, Lason announced its intention to discontinue, by sale or exit from the market, its activities providing traditional litigation support, software development and other services. Those services are no longer consistent with Lason’s long-term growth strategy. The businesses to be discontinued consist of nine litigation copy businesses, an offset print business, a digital graphics business and the software development business that was acquired as part of the acquisition of M-R Group plc (“M-R”) in 1999. The results of operations of these businesses have been classified as discontinued operations in the accompanying condensed consolidated financial statements.

      Following is summary financial information for the Company’s discontinued operations (in thousands):

      Net loss from discontinued operations includes interest costs totaling $920,000 and $610,000 for the three months ended June 30, 2000 and 1999, respectively, and $1.8 million and $1.2 million for the six months ended June 30, 2000 and 1999, respectively, which was allocated based on the ratio of net assets to be

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      The Company has engaged brokers and is actively marketing these businesses.

Note 3.  Restructuring

      In the fourth quarter of 1999, management completed a thorough review of its operations and approved a restructuring plan to make the Company more efficient and to lower overall costs. These decisions resulted in the Company recording a one time pre-tax charge to operations of $14.9 million in the fourth quarter of 1999. The charge consisted of severance, facility closure and exit costs related primarily to discontinued leases and equipment write downs. The restructuring plan calls for the consolidation of facilities and operations, the closure of facilities, and the streamlining of the administrative support functions.

      A summary of the accrued restructuring accrual for the three months ended June 30, 2000 follows (in thousands):

Note 4.  Acquisitions

      From June 1995 through December 31, 1999, the Company, through certain of its subsidiaries, completed the acquisition of either substantially all the assets or all the stock ownership interest in a substantial number of companies. The Company has not completed any acquisitions for the six months ended June 30, 2000.

      Certain purchase agreements for acquisitions previously completed provide for an increase to the purchase price if operating income of the acquired business exceeds targeted levels. The maximum amount of additional purchase price which may be recorded over the next twenty four months, should such targets be achieved, is approximately $187.0 million. As of June 30, 2000, approximately $18.8 million of such additional purchase price has been earned but not paid and is included in accrued expenses in the condensed consolidated balance sheet.

      For the six months ended June 30, 2000, the Company has recorded additional purchase price related to previous acquisitions totaling approximately $34.7 million primarily resulting from acquired businesses achieving their targeted operating income. These amounts have been recorded as an adjustment to the purchase price of the related acquisitions and charged to goodwill.

Note 5.  Debt

      The Company has a credit agreement with a bank group. Borrowings under the credit agreement are expected to be used to finance the additional purchase price for certain acquisitions, working capital, capital expenditures and other corporate purposes. Such borrowings are collateralized by a lien on all property of the Company, guarantees of certain of the Company’s subsidiaries, as well as pledges of the capital stock of certain subsidiaries. Interest on amounts outstanding is calculated based on interest rates determined at the time of borrowing. Borrowings bear interest at rates ranging from a Eurodollar rate plus a maximum of 2.75% (9.38% as of June 30, 2000) or a base percentage rate plus a maximum of 1.25% (10.75% at June 30, 2000) at

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      The credit agreement includes a revolving credit facility of $150 million, which the Company may increase up to $250 million subject to certain limitations. A portion of the revolving credit facility of up to $50 million is available to the Company for borrowings in Euro, British pound sterling, Canadian dollar and other freely traded currencies to be agreed upon with the lenders. Lason is not required to make principal payments until final maturity in 2004.

      The credit agreement also has a term loan facility of $150 million. The credit agreement calls for quarterly principal payments with final maturity August 2004, as follows (in thousands):

      The first scheduled principal payment was due May 31, 2000, however the Company was unable to make the payment on its due date. Accordingly, with the consent of the Company’s lenders, the first scheduled principal payment was deferred and paid July 10, 2000. The next scheduled principal payment is due August 31, 2000.

      On March 30, 2000, the Company amended its credit agreement with its lenders. The amendment increased the revolving credit facility from $150 million to $175 million, which may be further increased to $185 million.

      As of August 14, 2000, the Company is not in compliance with certain covenants in its credit agreement. Under the terms of the credit agreement the lenders can, in addition to any other remedies available to them, declare all amounts outstanding under the credit agreement to be immediately due and payable and can commence enforcement and collection actions. Accordingly, the Company has classified all of the June 30, 2000 outstanding balance of bank debt as a current liability in the condensed consolidated balance sheet as of June 30, 2000 .

      The lenders have waived the covenant violations and related defaults through August 15, 2000.

Note 6.  Comprehensive Income

      The assets and liabilities of foreign subsidiaries are translated into United States dollars using period-end exchange rates, while the income statements are translated using average exchange rates during the periods. Differences arising from the translation of assets and liabilities in comparison with the translation of the previous periods are included as a separate component of stockholder’s equity. The net accumulated foreign currency translation adjustment is $(807,000) at June 30, 2000.

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Note 7.  Earnings Per Share

      The following table presents a reconciliation of the denominator (weighted average common shares outstanding) for the basic and diluted earnings per share calculations for the three months and six months ended June 30, 2000 and 1999 (in thousands):

      The weighted average common shares and common share equivalents outstanding used to compute the dilutive effect of common stock options outstanding was computed using the treasury stock method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 128. During the three and six months ended June 30, 2000, and the three months ended June 30, 1999, the effects of contingently issuable shares of common stock and potential shares of common stock from debentures and stock options outstanding are not included in the denominator for diluted earnings per share, as such effects would be antidilutive.

Note 8.  Segment and Related Information

      The Company’s reportable segments consist of groups of business units that are organized geographically. Each of the Company’s geographic regions has a separate management team and infrastructure and offers different combinations of the Company’s services. Additionally, a group of business units in the United States providing certain data management services are managed as a separate segment with a separate management team, regardless of geographic location.

      The Company evaluates the performance of its operating segments based on income before income taxes and net corporate interest expense. Intersegment sales and transfers are not significant.

      The following table presents summarized financial information for the Company’s reportable segments for the three and six months ended June 30, 2000 and 1999 (in thousands). The “other” balances include corporate related items, results of insignificant operations and, as it relates to segment profit (loss), income and expenses not allocated to reportable segments. The international and data management segments were previously included in “other” but are now shown separately as certain quantitative thresholds have now been met. The international segment includes the United Kingdom, Canada and Mexico. The prior period has been

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Note 9. Commitments and Contingencies

     On December 21, 1999 and various dates thereafter, several individuals filed complaints against the Company and certain officers in various United States District Courts. The complaints purport to be brought as class actions on behalf of purchasers of shares of the Company's common stock during periods ranging from August 14, 1998, through December 17, 1999. These actions were consolidated in the United States District Court for the Eastern District of Michigan into a single action (the "consolidated action").

     On June 30, 2000, the plaintiffs filed an amended complaint in the consolidated action. The amended complaint purports to be brought as a class action on behalf of purchasers of the Company's common stock between February 17, 1998 and December 17, 1999, inclusive. The amended complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and violations of the Securities Act of 1933. Plaintiffs allege that the Company and certain of its officers made public statements containing material omissions and misrepresentations that allegedly created a misleading impression concerning the Company's revenues and earnings, the adequacy of due diligence relating to certain acquired companies and the effectiveness of efforts to integrate certain acquired companies. Plaintiffs also allege that the Company’s financial statements reflected improper accounting methods. In their amended complaint, plaintiffs also have sued various underwriters involved in an August, 1998 offering of shares. The amended complaint seeks unspecified damages allegedly incurred as a result of the decline in the market price of shares of the Company’s common stock after their purchase by the plaintiffs.

     The consolidated action is in a preliminary stage. However, the Company believes, based on the advice of outside legal counsel, that it and the named officers have substantial defenses to the plaintiffs’ claims, and the Company intends to vigorously defend these claims. The Company’s officers that are named in this litigation are covered by liability insurance policies paid for by the Company. While the final resolution of this litigation cannot be presently determined, management does not believe it will have a material adverse effect on the Company’s business, or the future consolidated financial statements, although such adverse effects could be possible.

     Various other claims have been made against the Company in the normal course of business. Management believes that none of those proceedings will have a material adverse effect on the Company’s business, financial condition or results of operations.

 

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

Overview

      Lason is a leading provider of information management services. The Company’s strategy is to process information in the following ways: (1) to provide integrated solutions that capture information across a variety of formats; (2) to manage information through database development; (3) to manage information through electronic storage and retrieval services; and (4) to disseminate information through hardcopy output, print on demand and electronic formats.

      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.

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Acquisitions

      From 1995 through December 31, 1999, the Company acquired a significant number of businesses. The information management industry is highly fragmented, consisting of a large number of small companies providing limited service offerings. An important element of the Company’s growth strategy has been to selectively make acquisitions of companies with complementary technologies or customer bases to consolidate its position as a provider of comprehensive information management services across a broad geographic area. However, as part of the Company’s restructuring, management has now shifted its focus away from acquisitions and has accelerated the integration of its businesses to enhance the Company’s future profitability. Accordingly, business acquisitions are not expected to be a significant part of the Company’s growth and operating strategy going forward. The Company did not complete any acquisitions during the six months ended June 30, 2000.

Results of Operations — Three Months Ended June 30, 2000 Compared with Three Months Ended June 30, 1999.

      Consolidated net revenues increased 30% to $144.2 million for the three months ended June 30, 2000 from $110.6 million in the comparable 1999 period, excluding the results of discontinued operations. All of the increase was due to revenue contributed by Companies acquired after June 30, 1999. Revenue from M-R, which was acquired June 30, 1999, accounted for 17% of the total increase in net revenue for the three months ended June 30, 2000 as compared to the comparable 1999 period.

      Gross profit increased to $43.7 million for the second quarter of 2000 from $39.7 million for the comparable 1999 period, however, gross profit as a percentage of net revenues declined to 30% for the three months ended June 30, 2000 from 36% for the comparable period of 1999. The lower gross profit as a percentage of revenue is largely the result of changes in the Company’s product mix and costs associated with restructuring activities.

      Selling, general and administrative expenses increased $12.0 million to $38.1 million for the three months ended June 30, 2000 from $26.1 million for the comparable 1999 period. Selling, general and administrative expenses were approximately 26% of net revenues for the current year quarter, versus 24% in the comparable period of 1999. Approximately $7.2 million of the increase is due to selling, general and administrative expenses of companies acquired after June 30, 1999. The remaining increase is primarily due to enhancing the corporate infrastructure, restructuring related costs, and other corporate administration expenses associated with managing a larger consolidated organization.

      Amortization of intangibles increased to $5.7 million for the three months ended June 30, 2000 from $3.0 million for the second quarter of 1999 primarily due to an increase in goodwill related to business acquisitions that were completed subsequent to June 30, 1999.

      On June 30, 1999, the Company completed its merger with M-R, a leading document and data management company headquartered in the United Kingdom. In connection with the M-R merger, the Company recorded a $7.8 million pre-tax restructuring charge during the second quarter of 1999 for costs associated with discontinued leases, the consolidation of facilities, severance and other related expenses for Lason facilities which were to be closed or consolidated with M-R facilities. As of June 30, 2000, all of the restructuring accrual related to the M-R merger had been utilized.

      In the fourth quarter of 1999, management completed a thorough review of its operations and approved a restructuring plan to make the Company more efficient and to lower overall costs. These decisions resulted in the Company recording a one time pre-tax charge to operations of $14.9 million in the fourth quarter of 1999. The charge consisted of severance costs ($1.7 million), facility closures and exit costs related primarily to discontinued leases ($11.6 million) and equipment write-downs ($1.6 million). The restructuring plan calls for the consolidation of facilities and operations, the closure of facilities, and streamlining of the administrative support functions. As of June 30, 2000, approximately $11.5 million of this restructuring accrual remains to be used consisting of severance costs ($603,000), facility closures and exit costs ($10.7 million) and equipment write-downs ($116,000).

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      In December 1999, Lason announced its intention to discontinue, by sale or exit from the market, its activities providing traditional litigation support, software development and other services. Those services are no longer consistent with Lason’s long-term growth strategy. The businesses to be discontinued consist of nine litigation copy businesses, an offset print business, a digital graphics business and the software development business that was acquired as part of the M-R acquisition. The results of operations of these businesses have been classified as discontinued operations in the Company’s condensed consolidated financial statements. Combined, these businesses had net revenue of approximately $6.4 million for the three months ended June 30, 2000 compared to approximately $8.8 million in 1999. The discontinued operations reported a net loss of approximately $748,000 for the three months ended June 30, 2000 compared to $171,000 for the comparable period of 1999. The net assets of the discontinued businesses primarily consist of accounts receivable and goodwill, and have been segregated as net assets of discontinued operations, net of allowance for estimated loss on disposal, in the Company’s condensed consolidated balance sheets. The Company has engaged brokers and is actively marketing these businesses.

      Four non-binding letters of intent have been signed for the sale of certain non-core businesses. The terms of the potential sales are currently being negotiated. However, there can be no assurance that any of the sales will ultimately be completed.

      Net interest expense was $6.6 million for the 2000 second quarter compared to $2.1 million in 1999. The increase is primarily due to higher average line of credit balances resulting from borrowings used to fund business acquisitions during 1999 and the effects of higher average borrowing rates in 2000 compared to 1999.

      The majority of the Company’s goodwill amortization expense is not deductible for federal income tax purposes. As a result, the Company has recorded an income tax benefit of $1.3 million on a pre-tax loss of $6.7 million from continuing operations for the three months ended June 30, 2000.

Results of Operations — Six Months Ended June 30, 2000 compared with Six Months Ended June 30, 1999

      Consolidated net revenues increased $75.6 million to $284.7 million for the six months ended June 30, 2000 from $209.1 million in the comparable 1999 period. Approximately $2.6 million was due to growth in the Company’s existing business. The remaining increase was due to revenue contributed by companies acquired after June 30, 1999. Revenue from M-R accounted for approximately 19% of the total year-over-year increase.

      Gross profit increased to $83.1 million for the six months ended June 30, 2000 from $74.5 for the same period of 1999, however, gross profit as a percentage of net revenues declined to 29% in 2000 from 36% in 1999. The lower gross profit as a percentage of net revenue is largely the result of changes in the Company’s product mix and costs associated with restructuring activities.

      Selling, general and administrative expenses increased to $72.4 million for the six months ended June 30, 2000 from $46.0 million for the comparable 1999 period. Selling, general and administrative expenses were approximately 25% of net revenues for the 2000 first half compared to 22% in 1999. Approximately $14.6 million of the increase is due to selling, general and administrative expenses of companies acquired after June 30, 1999. The remaining increase is primarily due to costs associated with restructuring activities, enhancing the corporate infrastructure, and other corporate administration expenses associated with managing a larger consolidated organization.

      Amortization of intangibles increased to $11.1 million for the six months ended June 30, 2000 from $5.4 million in 1999 primarily due to an increase in goodwill related to business acquisitions that were completed subsequent to June 30, 1999.

      Net interest expense was $12.1 million for the six months ended June 30, 2000 compared to $3.6 million for the comparable 1999 period. The increase is primarily due to higher average borrowing balances, which

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      The majority of the Company’s goodwill amortization expense is not deductible for federal income tax purposes. As a result, the Company has recorded an income tax benefit of $2.3 million on a pre-tax loss of $12.6 million from continuing operations for the six months ended June 30, 2000.

      Discontinued operations reported aggregate revenues of $13.3 million for the six months ended June 30, 2000, down from $16.5 million reported for the comparable 1999 period. The decrease in revenues in 2000 is primarily due to lower revenues from the discontinued offset print business. Discontinued operations reported a loss from operations of $1.1 million for the 2000 first half compared to operating income of $1.4 million in 1999. The significant decrease in operating income is primarily due to losses at the Company’s discontinued offset print business and losses at its discontinued software development company.

Liquidity and Capital Resources

      The Company has funded its operations and acquisitions through a combination of cash from operations, bank borrowings and the issuance of shares of common stock.

      Cash provided by operating activities was $16.7 million for the six months ended June 30, 2000 compared to $5.8 million for the comparable 1999 period. The increase in 2000 versus 1999 is primarily due to faster accounts receivable turnover and higher accounts payable balances, partially offset by lower net income before non-cash expenses.

      Cash used in investing activities totaled $50.2 million for the six months ended June 30, 2000 compared to $113.3 million in 1999. For the six months ended June 30, 2000, approximately $35.3 million was used to fund the additional purchase price resulting from acquired businesses achieving their targeted operating income during the relevant measurement period. In 1999, cash used in investing activities was largely used to fund the acquisition of businesses. Cash used for acquisitions totaled $99.3 million for the six months ended June 30, 1999. Cash used for investments in capital assets totaled $14.4 million in the first half of 2000 compared to $14.6 million in the comparable period of 1999.

      Cash provided by financing activities was $31.1 million for the six months ended June 30, 2000 compared to $114.5 million for the 1999 comparable period and largely consisted of borrowings on the Company’s revolving line of credit.

  Credit Agreement Borrowings

      The Company has a credit agreement with a bank group. Borrowings under the credit agreement are expected to be used to finance the additional purchase price for certain acquisitions, working capital, capital expenditures and other corporate purposes. Such borrowings are collateralized by a lien on all property of the Company, guarantee of certain of the Company’s subsidiaries, as well as pledges of the capital stock of certain subsidiaries. Interest on amounts outstanding is calculated based on interest rates determined at the time of borrowing. Borrowings bear interest at rates ranging from a Eurodollar rate plus a maximum of 2.75% (9.38% as of August 10, 2000) or a base percentage rate plus a maximum of 1.25% (10.75% at August 10, 2000) at the Company’s election at the time of borrowing. The credit agreement contains restrictions on acquisitions, disposition of assets, and the incurrence of other liabilities and contains certain financial ratio covenants.

      The credit agreement includes a revolving credit facility of $150 million, which the Company may increase up to $250 million subject to certain limitations. A portion of the revolving credit facility of up to $50 million is available to the Company for borrowings in Euro, British pound sterling, Canadian dollar and other freely traded currencies to be agreed upon with the lenders. Lason is not required to make principal payments until final maturity in 2004. As of August 10, 2000, $317.6 million was borrowed under the credit agreement.

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      On March 30, 2000, the Company amended its credit agreement with its lenders. The amendment increased the revolving credit facility from $150 million to $175 million, which may be further increased to $185 million.

      As of August 14, 2000, the Company is not in compliance with certain covenants in its credit agreement. Under the terms of the credit agreement the lenders can, in addition to any other remedies that may be available to them, declare all amounts outstanding under the credit agreement to be immediately due and payable and can commence enforcement and collection actions. Enforcement and collection actions by the lenders could have a material adverse effect on the Company.

      The lenders have waived the covenant violations and related defaults through August 15, 2000. The Company is currently negotiating with the lenders to modify the credit agreement to reflect current operating conditions and the Company’s current business plan but, there can be no assurance that the Company will complete these negotiations successfully. Failure to amend the credit agreement could have a material adverse effect on the Company.

  Future Capital Needs

      The Company’s ability to obtain cash adequate to fund its needs depends generally on the results of its operations and the availability of financing. Management believes that cash flow from operations, in conjunction with borrowings from its existing and any future credit agreement, will be sufficient to meet debt services requirements and fund capital expenditures in the future. However, there can be no assurance in this regard or that the terms available for any future financing, if required, would be favorable to the Company.

      In addition to its operational needs, the Company has cash requirements related to additional purchase price payments (the “Payments”) to be made, contingent upon certain targets being achieved, in connection with prior acquisitions. The maximum amount of the Payments, if any, that could be paid over a period of twenty-four months from June 30, 2000 totals approximately $187.0 million. It is anticipated that the actual amount of the Payments will be less than the maximum amount. As of June 30, 2000, approximately $18.8 million of such additional purchase price has been earned but not paid and is included in accrued expenses in the condensed consolidated balance sheet. The ability of the Company to make the Payments is dependent on the availability of financing, and there can be no assurance that any future financing will be available or that the terms of any future financing will be favorable to the Company. See Note 5 of Notes to Condensed Consolidated Financial Statements.

      In August 2000, the Company hired Donald MacKenzie of Conway MacKenzie & Dunleavy ("CM&D") to assume the role of Chief Restructuring Officer. In this role, Mr. MacKenzie and CM&D will be working with the Company's Board of Directors and Senior Management to secure adequate short-term and long-term financing and will assist with a variety of other restructuring initiatives. In addition, Mr. MacKenzie will be negotiating the resolution as of the additional purchase payments that have been earned but not yet paid.

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. Although the Company to date has been able to substantially offset any such cost increases through increased operating efficiencies, there can be no assurance that the Company will be able to offset any future cost increases through similar efficiencies or increased charges for its products and services.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

      Lason has exposure to interest rate risk on its obligations outstanding under the existing credit agreement, which bears interest at a variable rate. Based on the Company’s outstanding balance under the credit agreement on June 30, 2000 of $319.0 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 $3.2 million on an annualized basis.

      Due to Lason’s operations outside of the United States, the Company experiences foreign currency exchange gains and losses. Fluctuations between the United States dollar and other currencies may adversely affect Lason’s results of operations. While the Company may engage in foreign currency hedging transactions in the future which may moderate the overall effect of such currency rate fluctuations, the Company will be

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Forward-Looking Statements

      Lason may from time to time provide information including certain statements included in or incorporated by reference in this Form 10-Q which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include the intent, belief or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) variations in quarterly results; (ii) the assimilation of acquisitions; (iii) the management of the Company’s growth and expansion; (iv) dependence on major customers, dependence on key personnel; (v) development by competitors of new or superior products or services, or entry into the market of new competitors; (vi) fluctuations in paper prices; (vii) reliability of the Company’s data; (viii) volatility of the Company’s stock price; (ix) management’s ability to successfully complete its restructuring initiatives; (x) any financial and legal impact of the class action litigation; (xi) changes in the business services outsourcing industry; (xii) significance of intangible assets; (xii) changes related to compensatory stock options; and (xiv) other risks identified from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission.

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Item 1.  Legal Proceedings

      On December 21, 1999 and various dates thereafter, several individuals filed complaints against the Company and certain officers in various United States District Courts. The complaints purport to be brought as class actions on behalf of purchasers of shares of the Company's common stock during periods ranging from August 14, 1998, through December 17, 1999. These actions were consolidated in the United States District Court for the Eastern District of Michigan into a single action (the "consolidated action").

      On June 30, 2000, the plaintiffs filed an amended complaint in the consolidated action. The amended complaint purports to be brought as a class action on behalf of purchasers of the Company's common stock between February 17, 1998 and December 17, 1999, inclusive. The amended complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and violations of the Securities Act of 1933. Plaintiffs allege that the Company and certain of its officers made public statements containing material omissions and misrepresentations that allegedly created a misleading impression concerning the Company's revenues and earnings, the adequacy of due diligence relating to certain acquired companies and the effectiveness of efforts to integrate certain acquired companies. Plaintiffs also allege that the Company's financial statements reflected improper accounting methods. In their amended complaint, plaintiffs also have sued various underwriters involved in an August, 1998 offering of shares. The amended complaint seeks unspecified damages allegedly incurred as a result of the decline in the market price of shares of the Company's common stock after their purchase by the plaintiffs.

      The consolidated action is in a preliminary stage. However, the Company believes, based on the advice of outside legal counsel, that it and the named officers have substantial defenses to the plaintiffs' claims, and the Company intends to vigorously defend these claims. The Company's officers that are named in this litigation are covered by liability insurance policies paid for by the Company. While the final resolution of this litigation cannot be presently determined, management does not believe it will have a material adverse effect on the Company's business, or the future consolidated financial statements, although such adverse effects could be possible.

      Various other claims have been made against the Company in the normal course of business. Management believes that none of those proceedings will have a material adverse effect on the Company's business, financial condition or results of operations.

Item 2.  Changes in Securities and Use of Proceeds

      During the second quarter of 2000, the Company issued 132,944 shares of its common stock to shareholders of companies it had previously acquired as additional consideration for the achievement of certain target levels of financial performance after the acquisitions. The shares were issued at a price of $9.21 per share, for a total value of $1,223,914. The issuance of shares of the common stock were exempt from registration under the Securities Act of 1933 by virtue of Section 4(2) thereof as transactions not involving a public offering.

Item 3.  Defaults upon Senior Securities

      At June 30, 2000, there was $319 million outstanding under the Company’s credit agreement with its lenders. At that time, the Company was not, and the Company currently is not, in compliance with certain financial covenants contained in the credit agreement. The lenders have the right under the credit agreement to, in addition to any other remedies that may be available to them, declare all amounts outstanding immediately due and payable, but they have not done so. The Company is currently negotiating with the lenders to modify the credit agreement to reflect current operating conditions and the Company’s current business plan. There can be no assurance, however, that the Company will complete these negotiations successfully. Failure to amend the credit agreement could have a material adverse effect on the Company. See Note 5 of Notes to Condensed Consolidated Financial Statements.

Item 5.  Other Information

      On August 2, 2000, the Company hired Donald MacKenzie of Conway MacKenzie & Dunleavy (“CM&D”) to assume the role of Chief Restructuring Officer. In this role, Mr. MacKenzie and CM&D will be working with the Company’s Board of Directors and Senior Management to secure adequate short-term and long-term financing and will assist with a variety of other restructuring initiatives.

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      Effective July 26, 2000, Gary L. Monroe resigned his position as Chairman of the Board and Chief Executive Officer of the Company but remains a Director of the Company. Robert A. Yanover, a founder of the Company and a former Chairman of the Board , has been elected Chairman of the Board and John R. Messinger, who joined the Company in July 1997 and has served as President and Chief Operating Officer since January 1999, has been appointed Acting Chief Executive Officer. Mr. Messinger will continue as President and Chief Operating Officer.

     Fariborg Ghadar resigned his position as a Director on the Lason, Inc. Board, effective August 3, 2000. Mr. Ghadar served as Director since January 15, 1997.

Item 6.  Exhibits and Reports on Form 8-K

a.  Exhibits

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(10)	Incorporated herein by reference to Registrant’s Form 10-K filed on March 30, 2000, Commission File No. 0-21407.
(11)	Incorporated herein by reference to registrant’s 1998 proxy statement, Appendix  A, filed on April 28, 1998, Commission File No.  0-21407.

B. Reports on Form 8-K

      The Company filed a Form 8-K, dated April 4, 2000, disclosing in Item 5 that Michael T. Willis resigned as a director of the Company effective April 4, 2000.

      The Company filed a Form 8-K, dated May 26, 2000, disclosing in Item 5 that (i) Joseph P. Nolan resigned as a director of the Company effective May 26, 2000, (ii) William C. Brooks was appointed as a director to fill the vacancy created by Mr. Nolan’s resignation, (iii) Gary L. Monroe was re-elected a director of the Company, and (iv) the Company had obtained an extension until July 10, 2000 of the waiver of certain covenant defaults in its credit agreement.

      The Company filed a Form 8-K, dated July 10, 2000, disclosing in Item 5 that it had obtained an extension until August 15, 2000 of the waiver of certain covenant defaults in its credit agreement.

      The Company filed a Form 8-K, dated July 26, 2000, disclosing in Item 5 that (i) Gary L. Monroe resigned his position as Chairman of the Board and Chief Executive Officer of the Company (ii) Robert A. Yanover was elected Chairman of the Board (iii) John R. Messinger was appointed Acting Chief Executive Officer, and (iv) Mr. Messinger would continue as President and Chief Operating Officer.

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

	/s/ LASON, Inc.
	(Registrant)
	/s/ JOHN R. MESSINGER
	Acting Chief Executive Officer; President and
	Chief Operating Officer
	/s/ ROBERT T. BASSMAN
	Vice President and
	Corporate Controller

August 14, 2000
(Date)

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EXHIBIT INDEX

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(10)	Incorporated herein by reference to Registrant’s Form 10-K filed on March 30, 2000, Commission File No. 0-21407.
(11)	Incorporated herein by reference to registrant’s 1998 proxy statement, Appendix  A, filed on April 28, 1998, Commission File No.  0-21407.