<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1996
OR
[ ] 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 0-26094
SOS STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0295503
(State or other jurisdiction of incorporation) (I.R.S. Employer ID No.)
1415 South Main Street
Salt Lake City, Utah 84115
(Address of principal executive offices)
(801) 484-4400
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 of 15(d) of the Securities and Exchange
Act of 1934 during the 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filings requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at August 12, 1996
----------------------------- -------------------------------
Common Stock, $0.01 par value 6,703,800
<PAGE>
SOS STAFFING SERVICES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page(s)
-------
Consolidated Condensed Balance Sheets
As of June 30, 1996, and December 31, 1995 3-4
Consolidated Condensed Statements of Income
For the Thirteen Weeks and Twenty-six Weeks
Ended June 30, 1996 and July 2, 1995 5
Consolidated Condensed Statements of Cash Flows
For the Twenty-six Weeks
Ended June 30, 1996 and July 2, 1995 6-7
Notes to Consolidated Condensed Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
1996 1995
------------ ------------
CURRENT ASSETS: (Unaudited)
Cash $ 109,668 $ 2,717,389
Accounts receivable, net 12,725,349 9,784,022
Current portion of workers' compensation deposit 919,976 568,658
Prepaid expenses and other 338,835 191,616
Deferred tax asset 114,567 61,803
Amounts due from related parties 408,897 460,897
----------- -----------
Total current assets 14,617,292 13,784,385
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 1,152,386 1,011,363
Office equipment 1,245,808 1,087,262
Leasehold improvements and other 851,571 789,633
----------- -----------
3,249,765 2,888,258
Less accumulated depreciation and amortization (1,468,693) (1,267,233)
----------- -----------
Total property and equipment, net 1,781,072 1,621,025
----------- -----------
OTHER ASSETS:
Workers' compensation deposit, less current portion 87,549 142,164
Intangible assets, net 8,422,699 3,582,924
Deposits and other assets 333,343 196,850
----------- -----------
Total other assets 8,843,591 3,921,938
----------- -----------
Total assets $25,241,955 $19,327,348
----------- -----------
----------- -----------
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed balance sheets.
3
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SOS STAFFING SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES: (Unaudited)
Note payable $ - $ 1,450,000
Line of credit 5,420,407 -
Accounts payable 159,324 126,349
Accrued payroll costs 1,107,305 1,275,617
Current portion of workers' compensation reserve 1,006,526 735,799
Accrued liabilities 651,759 477,361
Income taxes payable 212,104 74,576
------------ ------------
Total current liabilities 8,557,425 4,139,702
------------ ------------
WORKERS' COMPENSATION
RESERVE, less current portion 225,910 183,950
------------ ------------
DEFERRED INCOME TAX LIABILITY 146,784 336,155
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock 67,038 67,000
Additional paid-in capital 13,124,159 13,099,497
Retained earnings 3,120,639 1,501,044
------------ ------------
Total shareholders' equity 16,311,836 14,667,541
------------ ------------
Total liabilities and shareholders' equity $ 25,241,955 $ 19,327,348
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed balance sheets.
4
<PAGE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
13 Weeks Ended 26 Weeks Ended
---------------------------- ----------------------------
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
------------- ------------ ------------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 29,953,934 $ 20,510,495 $ 54,987,945 $ 40,083,550
DIRECT COSTS OF SERVICES 23,850,252 16,246,108 43,642,684 31,795,686
------------- ------------ ------------- ------------
Gross profit 6,103,682 4,264,387 11,345,261 8,287,864
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,615,978 3,398,673 8,713,174 6,331,072
------------- ------------ ------------- ------------
INCOME FROM OPERATIONS 1,487,704 865,714 2,632,087 1,956,792
------------- ------------ ------------- ------------
OTHER INCOME (EXPENSE):
Interest expense (14,268) (63,867) (24,764) (94,225)
Interest income 869 16,438 9,498 28,607
Other, net (37,847) 11,974 (3,983) 19,580
------------- ------------ ------------- ------------
Total, net (51,246) (35,455) (19,249) (46,038)
------------- ------------ ------------- ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,436,458 830,259 2,612,838 1,910,754
PROVISION FOR INCOME TAXES (Including
pro forma adjustment in 1995) (546,160) (318,639) (993,243) (734,718)
------------- ------------ ------------- ------------
NET INCOME (Pro forma for 1995) $ 890,298 $ 511,620 $ 1,619,595 $ 1,176,036
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
NET INCOME PER COMMON SHARE
(Pro forma for 1995) $ 0.13 $ 0.09 $ 0.24 $ 0.21
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Pro forma for 1995) 6,769,665 5,730,769 6,769,473 5,730,769
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
5
<PAGE>
SOS STAFFING SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
26 Weeks Ended
---------------------------
June 30, 1996 July 2, 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net income $ 1,619,595 $ 1,438,898
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 288,248 160,758
Deferred income taxes (242,135) 445,000
Loss on disposition of assets 51,009 -
Other (65,493) -
Changes in operating assets and liabilities:
Accounts receivable, net (2,941,327) (6,036,262)
Workers' compensation deposit (296,703) 52,775
Prepaid expenses and other (147,219) (133,233)
Amounts due from related parties 52,000 (209,084)
Deposits and other assets (70,610) 59,624
Accounts payable 32,975 57,573
Accrued payroll costs (168,312) 517,407
Workers' compensation reserve 312,686 67,769
Accrued liabilities (40,434) (9,569)
Amounts due shareholders 7,889 -
Income taxes payable 137,528 26,856
----------- -----------
Net cash used in operating activities (1,470,303) (3,561,488)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (351,866) (416,550)
Cash paid in acquisition of certain assets (4,780,659) (276,278)
Deposits related to acquisition of certain assets - 206,278
Principal payment on note related to acquisition (1,450,000) -
----------- -----------
Net cash used in investing activities (6,582,525) (486,550)
----------- -----------
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements
6
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SOS STAFFING SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
26 Weeks Ended
---------------------------
June 30, 1996 July 2, 1995
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited) (Unaudited)
Proceeds from common stock options excercised $ 24,700 $ -
Net borrowings on line of credit 5,420,407 2,718,170
Increase in amounts due to shareholders - 1,658,214
Principal payments on long-term debt - (550,000)
Offering costs - (279,670)
Capital contribution from shareholders - 750,000
Distributions to shareholders - (750,000)
----------- -----------
Net cash provided by financing activities 5,445,107 3,546,714
----------- -----------
NET DECREASE IN CASH (2,607,721) (501,324)
CASH AT BEGINNING OF PERIOD 2,717,389 613,049
----------- -----------
CASH AT END OF PERIOD $ 109,668 $ 111,725
----------- -----------
----------- -----------
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements
7
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SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments), which
in the opinion of management, are necessary to present fairly the results of
operations of the Company for the periods presented. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
condensed financial statements and the notes thereto included in the Company's
Annual Report to Shareholders on Form 10-K.
The results of operations for the thirteen and twenty-six week period ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. ASSET ACQUISITIONS
GEOMINE PERSONNEL, INC.
In February, 1996, the Company purchased certain assets and substantially
all of the business of Geomine Personnel, Inc. for approximately $485,000 plus
contingent future earnout payments up to a maximum of $300,000. As of June 30,
1996, approximately $111,000 of contingent earnouts were accrued and/or paid.
This acquisition has been accounted for as a purchase. The excess of the
purchase price over the estimated fair market value of the acquired tangible
assets was approximately $576,000, of which approximately $451,000 has been
allocated to goodwill and $125,000 has been allocated to other intangible
assets.
VIP LIMITED LLC
In April, 1996, the Company purchased certain assets and substantially all
of the business of VIP Limited LLC for approximately $65,000 plus contingent
future earnout payments up to a maximum of $135,000. As of June 30, 1996,
approximately $50,000 of contingent earnouts were accrued. The acquisition has
been accounted for as a purchase. The excess of the purchase price over the
fair market value of the acquired tangible assets was approximately $60,000, of
which approximately $50,000 has been allocated to goodwill and $10,000 has been
allocated to other intangible assets.
SNAKE RIVER T.E.M.P.S.,INC.
In April, 1996, the Company purchased certain assets and substantially all
the business of Snake River T.E.M.P.S., Inc. for approximately $65,000 plus
contingent future earnouts up to a maximum of $135,000. The acquisition has
been accounted for as a purchase. Of the $65,000 purchase price, approximately
$35,000 has been allocated to goodwill and $30,000 has been allocated to other
intangible assets.
8
<PAGE>
ABACUS CONSULTING GROUP, INC., ABACUS CONSULTANTS, INC., THE PERFORMANCE
PROFESSIONALS, INC.
In June, 1996, the Company purchased certain assets and substantially all
the business of Abacus Consulting Group, Inc., Abacus Consultants, Inc., and The
Performance Professionals, Inc. for approximately $3.2 million plus other costs
and contingent future earnouts up to a maximum of $1.8 million. The
acquisition has been accounted for as a purchase. The excess of the purchase
price over the fair market value of the acquired tangible assets was
approximately $3.2 million, substantially all of which has been preliminarily
allocated to goodwill.
ALLYN COLORADO ENTERPRISES, INC.
In June, 1996, the Company purchased certain assets and substantially all
the business of Allyn Colorado Enterprises, Inc. for approximately $750,000 and
future contingent earnouts not to exceed $1.25 million. The acquisition has
been accounted for as a purchase. Approximately $600,000 has been allocated to
goodwill and approximately $150,000 has been allocated to other intangible
assets.
PRO FORMA ACQUISITION INFORMATION -- UNAUDITED
The unaudited pro forma acquisition information for the twenty-six weeks
ended June 30, 1996 as compared to the twenty-six weeks ended July 2, 1995
presents the results of operations of material acquisitions as if the
acquisitions had occurred at the beginning of each twenty-six week period. The
results of operations give effect to certain adjustments, including amortization
of intangible assets. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of the applicable period as
described above or of the results which may occur in the future.
Unaudited results of operations
26 Weeks Ended
---------------------------------
June 30,1996 July 2, 1995
------------ ------------
Service revenues $57,842,332 $43,413,309
----------- -----------
----------- -----------
Income from operations $ 2,691,561 $ 2,000,092
----------- -----------
----------- -----------
Net income $ 1,663,100 $ 1,231,426
----------- -----------
----------- -----------
9
<PAGE>
NOTE 3. LEGAL MATTERS
On February 21, 1996, a former employee of the Company filed a wrongful
termination lawsuit against the Company in Third District Court, Salt Lake
County, State of Utah. The complaint originally sought compensatory damages of
$4.5 million and punitive damages of $4.0 million. Subsequent to the original
filing of the lawsuit, the plaintiff revised the amounts involved to $1.0
million and $1.0 million, respectively. Discovery is in the early stages;
however, based upon the information currently available, the Company believes
that the claim is without merit, and that the Company has valid defenses to all
the allegations raised in the Complaint.
NOTE 4. 1995 PRO FORMA STATEMENTS OF INCOME INFORMATION
Effective June 26, 1995, the Company's S Corporation election was
terminated, accordingly, the income taxes for 1995 have been reflected as if
the election was terminated at the beginning of 1995.
Prior to the Company's initial public offering, the Company distributed
approximately $8.0 million of its accounts receivable to its S Corporation
shareholders. The pro forma weighted average common shares outstanding for 1995
reflects the effect of the issuance of 1,230,769 shares at an offering price of
$6.50 per share, as if the accounts receivable distribution of $8.0 million had
occurred at the beginning of 1995.
10
<PAGE>
SOS STAFFING SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated condensed financial statements and notes thereto appearing
elsewhere in this report. The Company's fiscal year consists of a 52-or 53-week
period ending on the Sunday closest to December 31.
RESULTS OF OPERATIONS
The following table sets forth unaudited income statement information for
the comparative thirteen and twenty-six week periods.
<TABLE>
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Service revenues $29,954 $20,510 $54,988 $40,084
Direct cost of services 23,851 16,246 43,643 31,796
------- ------- ------- -------
Gross profit 6,103 4,264 11,345 8,288
Selling, general and
administrative expenses 4,616 3399 8,713 6,331
------- ------- ------- -------
Operating income 1,487 865 2,632 1,957
Other income (expense) (51) (35) (19) (46)
------- ------- ------- -------
Income before provision for taxes 1,436 830 2,613 1,911
Provision for income taxes (including
pro forma adjustment in 1995) (546) (318) (993) (735)
------- ------- ------- -------
Net income (Pro forma for 1995) $ 890 $ 512 $ 1,620 $ 1,176
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
SERVICE REVENUES. Service revenues increased by $9.4 million, or 46%, to
$29.9 million in the thirteen weeks ended June 30, 1996 compared to the thirteen
weeks ended July 2, 1995. Of the $9.4 million increase, approximately $4.2
million was attributable to increased revenue in existing offices, $0.5 million
resulted from opening offices in new markets and $4.7 million was attributable
to offices acquired during 1995 and 1996. In the twenty-six weeks ended June
30, 1996 as compared to the twenty-six weeks ended July 2, 1995, service
revenues increased by $14.9 million or 37%, to $55.0 million. Of the $14.9
million increase, approximately $6.8 million was attributable to increased
revenue in existing offices, $0.6 million resulted from opening new offices, and
approximately $7.5 million was attributable to offices acquired in 1995 and
1996. The increase in service revenues was also generally consistent with
increases in hours billed, customers served and temporary staffing employees
utilized.
GROSS PROFIT. Gross profit as a percentage of service revenues for the
thirteen weeks ended June 30, 1996 and July 2, 1995 was 20.4% and 20.8%,
respectively. The decrease in gross profit as a percentage of service revenues
is partially attributable to lower gross profit percentages earned by certain
acquisitions. Gross profit as a percentage of service revenues for the twenty-
six weeks ended June 30, 1996 and July 2, 1995 was 20.6% and 20.7%
respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of service revenues for the thirteen
weeks ended June 30, 1996 and July 2, 1995 were 15.4% and 16.6%,
respectively. The decrease in selling, general and administrative expenses as a
percentage of service revenues is attributable primarily to management's
efforts to control costs as well as lower selling, general, and administrative
percentages associated with certain acquisitions. Selling, general and
11
<PAGE>
administrative expenses as a percentage of service revenues for the twenty-six
weeks ended June 30, 1996 and July 2, 1995 were 15.8% and 15.8% respectively.
INCOME TAXES. The pro forma provision for income taxes for the twenty-six
week period ending July 2, 1995 has been determined assuming the Company had
been taxed as a C corporation for federal and state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the twenty-six weeks ended June 30, 1996 and July 2, 1995 net cash
used by operations was $1.4 million and $3.6 million, respectively. The use of
cash by operations decreased as a result of improvements in accounts receivable,
partially offset by amounts due from related parties and accrued payroll costs.
The Company's investing activities used $0.4 million to purchase property
and equipment and $6.2 million to purchase assets of acquired businesses. See
Note 2 to the financial statements for a description of the material terms of
these acquisitions.
The Company's primary sources of short-term and long-term liquidity and
capital resources at June 30, 1996 were cash flow from operating activities and
an unsecured line of credit with a bank. The Company's line of credit allows
for maximum borrowings of $10.0 million and the Company had outstanding
borrowings on the line of credit of $5.4 million. Borrowings on the line of
credit bore interest at the prime rate charged by the Company's lender which is
periodically adjusted (at June 30, 1996, 8.25%). The Company also had letters
of credit of $2.3 million outstanding at June 30, 1996, for purposes of
securing its workers' compensation premium obligation which are considered as a
reduction of borrowing availability on the line of credit.
Subsequent to June 30, 1996, the Company finalized a new credit facility to
replace the former line of credit which expired on July 16, 1996. The new
facility allows for maximum borrowings of $20 million and includes a long-term
debt feature. Short term borrowings will be at prime rate (currently 8.25%) and
long term borrowings will be at the LIBOR rate plus a variable rate (currently
1.75%), depending on the debt to earnings before interest, taxes, depreciation,
and amortization (EBITDA) ratio The Company's tangible assets are pledged as
security for the new facility.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) No exhibits are filed with this report.
b) No reports were filed on Form 8-K during the quarter for which this
report is filed
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SOS STAFFING SERVICES, INC.
Registrant
Dated: August 12, 1996 /s/ Richard D. Reinhold
-------------------------------
Richard D. Reinhold
Chairman of the Board,
Chief Executive Officer
Dated: August 12, 1996 /s/ Gary B. Crook
-------------------------------
Gary B. Crook
Vice President,
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 107,668
<SECURITIES> 0
<RECEIVABLES> 12,725,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,617,292
<PP&E> 3,249,365
<DEPRECIATION> 1,468,693
<TOTAL-ASSETS> 26,241,955
<CURRENT-LIABILITIES> 8,557,425
<BONDS> 0
0
0
<COMMON> 67,038
<OTHER-SE> 16,244,798
<TOTAL-LIABILITY-AND-EQUITY> 35,241,955
<SALES> 0
<TOTAL-REVENUES> 29,953,934
<CGS> 0
<TOTAL-COSTS> 23,850,252
<OTHER-EXPENSES> 4,615,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,268
<INCOME-PRETAX> 1,436,458
<INCOME-TAX> 546,160
<INCOME-CONTINUING> 890,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 890,298
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
