SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
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 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 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 4, 1997
--------------------- -----------------------------
Common Stock, $0.01 par value 9,044,180
`
<PAGE>
The registrant's Quarterly Report on Form 10-Q for the Quarterly period
ended June 29, 1997 is hereby amended in it's entirety as set forth below:
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements Page(s)
Condensed Consolidated Balance Sheets
As of June 29, 1997 and December 29, 1996 3-4
Condensed Consolidated Statements of Income
For the Thirteen andTwenty-six Weeks Ended
June 29, 1997 and June 30, 1996 5
Condensed Consolidated Statements of Cash Flows
For the Twenty-six Weeks Ended
June 29, 1997 and June 30, 1996 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Item 3. Quantitative and Qualitative Discussion About Market Risk 11
Part II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Item 1. Financial Statements
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 29, December 29,
1997 1996
-------------- --------------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,042,223 $ 5,784,651
Accounts receivable, net 21,839,649 19,114,117
Current portion of workers' compensation deposit 710,474 610,473
Prepaid expenses and other 318,753 305,151
Deferred tax asset 808,866 661,645
Amounts due from related parties 392,130 406,376
-------------- --------------
Total current assets 29,112,095 26,882,413
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment 1,716,967 1,399,408
Office equipment 2,283,026 1,860,421
Leasehold improvements and other 1,093,394 969,208
-------------- --------------
5,093,387 4,229,037
Less accumulated depreciation and amortization (2,478,660) (2,096,556)
-------------- --------------
Total property and equipment, net 2,614,727 2,132,481
-------------- --------------
OTHER ASSETS:
Workers' compensation deposit, less current portion 106,369 106,369
Intangible assets, net 21,043,390 17,798,588
Deposits and other assets 713,847 372,973
-------------- --------------
Total other assets 21,863,606 18,277,930
-------------- --------------
Total assets $ 53,590,428 $ 47,292,824
============== ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
3
<PAGE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 29, December 29,
1997 1996
-------------- --------------
CURRENT LIABILITIES: (Unaudited)
<S> <C> <C>
Accounts payable $ 400,881 $ 600,504
Line of credit 507,668 -
Accrued payroll costs 2,366,983 2,110,554
Current portion of workers' compensation reserve 1,788,867 1,501,669
Accrued liabilities 500,532 408,027
Income taxes payable 197,500 466,726
Accrued acquisition earnouts 4,460,336 4,782,689
-------------- --------------
Total current liabilities 10,222,767 9,870,169
-------------- --------------
WORKERS' COMPENSATION
RESERVE, less current portion 465,994 375,418
-------------- --------------
`
DEFERRED INCOME TAX LIABILITY 76,516 213,056
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock 90,403 87,060
Additional paid-in capital 34,247,662 31,216,917
Retained earnings 8,487,086 5,530,204
-------------- --------------
Total shareholders' equity 42,825,151 36,834,181
-------------- --------------
Total liabilities and shareholders' equity $53,590,428 $47,292,824
============== ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
4
<PAGE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
---------------------------- ----------------------------
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
-------------- ------------ ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 46,518,025 $29,953,934 $ 87,364,110 $ 54,987,945
DIRECT COSTS OF SERVICES 36,308,265 23,850,252 68,447,274 43,642,684
-------------- ------------ ------------- -------------
Gross profit 10,209,760 6,103,682 18,916,836 11,345,261
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,519,842 4,615,978 14,151,965 8,713,174
-------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 2,689,918 1,487,704 4,764,871 2,632,087
-------------- ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (37,209) (14,268) (74,070) (24,764)
Interest income 154,482 869 238,123 9,498
Other, net (28,670) (37,847) 33,069 (3,983)
-------------- ------------ ------------- -------------
Total, net 88,603 (51,246) 197,122 (19,249)
-------------- ------------ ------------- -------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,778,521 1,436,458 4,961,993 2,612,838
PROVISION FOR INCOME TAXES (1,139,392) (546,160) (2,005,111) (993,243)
-------------- ------------ ------------- -------------
NET INCOME $ 1,639,129 $ 890,298 $ 2,956,882 $ 1,619,595
============== ============ ============= =============
NET INCOME PER COMMON SHARE $ 0.18 $ 0.13 $ 0.33 $ 0.24
============== ============ ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 9,132,474 6,769,665 9,096,448 6,769,473
============== ============ ============= =============
</TABLE>
Theaccompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
5
<PAGE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
26 Weeks Ended
----------------------------
June 29, June 30,
1997 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 2,956,882 $ 1,619,595
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 836,930 288,248
Deferred income taxes (300,635) (242,135)
Loss on disposition of assets 4,336 51,009
Other - (65,493)
Changes in operating assets and liabilities:
Accounts receivable, net (2,713,032) (2,941,327)
Workers' compensation deposit (100,001) (296,703)
Prepaid expenses and other 11,051 (147,219)
Amounts due from related parties 14,246 52,000
Deposits and other assets (340,874) (70,610)
Accounts payable (199,623) 32,975
Accrued payroll costs 256,429 (168,312)
Workers' compensation reserve 377,774 312,686
Accrued liabilities 75,997 (40,434)
Amounts due shareholders - 7,889
Income taxes payable (269,226) 137,528
------------- --------------
Net cash provided by (used in) operating activities 610,254 (1,470,303)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (674,415) (351,866)
Cash paid in acquisition of certain assets (3,814,336) (4,780,659)
Payments on acquisition earnouts (405,687)
Principal payment on note related to acquisition - (1,450,000)
------------- --------------
Net cash used in investing activities $(4,894,438) $(6,582,525)
------------- --------------
</TABLE>
The accompanying notes to condensed consolidated financial statements
Are an integral part of these condensed consolidated statements.
6
<PAGE>
SOS STAFFING SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
26 Weeks Ended
----------------------------
June 29, June 30,
1997 1996
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Line of credit $ 507,668 $ 5,420,407
Proceeds from issuance of common stock, net 3,004,300 -
Proceeds from exercise of employee stock options 29,788 24,700
------------- -------------
Net cash provided by financing activities 3,541,756 5,445,107
------------- -------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (742,428) (2,607,721)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,784,651 2,717,389
------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,042,223 $ 109,668
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 62,819 $ 22,079
Income taxes 2,510,376 978,500
</TABLE>
Theaccompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
7
<PAGE>
SOS STAFFING SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying condensed consolidated 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 condensed consolidated 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 condensed
consolidated financial statements be read in conjunction with the condensed
consolidated 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 periods
ended June 29, 1997 are not necessarily indicative of the results to be expected
for the full year.
Note 2. Asset Acquisitions
All of the Company's acquisitions have been accounted for using the
purchase method. Certain acquisitions have contingent earnout components of the
purchase price. Earnout amounts are accrued when payment becomes probable and
increase the amount of goodwill related to the acquisition.
During the twenty-six weeks ended June 29, 1997, the Company acquired
certain assets or stock and substantially all of the operations of six
businesses and a customer list of a seventh. The aggregate purchase price was
approximately $3,571,000 and one of the acquisitions has contingent future
earnouts up to a maximum of $1,300,000. The excess of the initial purchase price
(excluding earnouts) over the estimated fair market value of the acquired
tangible net assets was approximately $3,400,000, of which $3,182,000 has been
preliminarily allocated to goodwill and $218,000 has been allocated to other
intangible assets.
Earnouts and Acquisition Costs - During the twenty-six weeks ended June
29, 1997 the Company paid earnouts totaling $406,000. As of June 29, 1997
accrued acquisition earnouts totaled $4,460,336. During the twenty-six weeks
ended June 29, 1997 the Company incurred direct acquisition costs totaling
$136,238.
Pro Forma Acquisition Information--Unaudited
The unaudited pro forma acquisition information for the twenty-six weeks
ended June 29, 1997 and June 30, 1996 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 and interest expense on
debt borrowings utilized to fund certain acquisitions. 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 or of the results which may occur in the
future.
8
<PAGE>
Unaudited results of operations
-------------------------------
26 Weeks Ended
--------------
June 29, 1997 June 30,1996
------------- ------------
Service revenues $ 87,776,708 $ 57,508,207
============ ============
Income from operations $ 4,788,375 $ 2,989,704
============ ============
Net income $ 2,971,078 $ 1,835,596
============ ============
Note 3. Legal Matters
From time to time the Company is involved in legal matters generally
incident to its business. It is the opinion of management, after discussions
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
On June 6, 1997, Enerco, Inc. ("Enerco"), a former customer of the
Company, filed a Complaint against the Company in the District Court for the
Second Judicial District, in and for Davis County, State of Utah (hereinafter,
the "Action"). On August 1, 1997, Enerco filed an Amended Complaint against the
Company in the Action. In its Amended Complaint, Enerco alleges claims against
the Company for breach of contract, negligence, and fraud and misrepresentation.
Enerco's claims stem from the alleged theft of surplus military goods from
Enerco's warehouse by a former temporary employee of the Company. Enerco seeks
special, general, consequential, and punitive damages, among others, in an
amount in excess of $7,000,000. Based on the information currently available,
the Company believes that the allegations contained the Amended Complaint are
without merit, that it has valid defenses to each allegation raised in the
Amended Complaint and it intends to vigorously defend the Action.
Note 4. Equity Transactions
In connection with the Company's secondary public offering completed in
December 1996, the underwriters exercised their overallotment option to purchase
330,000 common shares in January 1997. The Company received net proceeds of
approximately $3.0 million.
During the twenty-six weeks ended June 29, 1997, options to purchase 4,260
shares of common stock were exercised by employees and the Company received
$29,788.
Note 5. Subsequent Events
On July 1, 1997, the company purchased assets of one business and stock of
another for an aggregate purchase price of $5,520,000 plus future contingent
earnouts up to a maximum of $6,000,000.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements of the Company 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>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
------------------------- ------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service revenues 100.0% 100.0% 100.0% 100.0%
Direct cost of services 78.1% 79.6% 78.3% 79.4%
----- ------ ----- ------
Gross profit 21.9% 20.4% 21.7% 20.6%
Selling, general and
administrative expenses 16.1% 15.4% 16.2% 15.8%
----- -------- ----- --------
Operating income 5.8% 5.0% 5.5% 4.8%
</TABLE>
Service Revenues. Service revenues increased by $16.6 million or 55.3% to
$46.5 million for the thirteen weeks ended June 29, 1997 compared to the
thirteen weeks ended June 30, 1996. Of the $16.6 million increase, approximately
$8.5 million was attributable to offices acquired during 1996 and 1997, $5.8
million was attributable to increased revenues in existing offices and $2.3
million was attributable to opening offices in new markets. For the twenty-six
weeks ended June 29, 1997 service revenues increased by $32.4 million, or 58.9%,
to $87.4 million compared to $55.0 million for the twenty-six weeks ended June
30, 1996. Of the $32.4 million increase, approximately $16.7 million was
attributable to offices acquired during 1996 and 1997, $11.2 million was
attributable to increased revenues in existing offices and $4.5 million was
attributable to opening offices in new markets. 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 29, 1997 and June 30, 1996 was 21.9% and 20.4%
respectively. Gross profit as a percentage of revenues for the twenty-six weeks
ended June 29, 1997 and June 30, 1996 was 21.7% and 20.6%, respectively. The
increase in gross profit was primarily due to a shift in business mix towards
the information technology business segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of service revenues for the thirteen
weeks ended June 29, 1997 and June 30, 1996 was 16.1% and 15.4%, respectively.
Selling, general and administrative expenses as a percentage of service revenues
for the twenty-six weeks ended June 29, 1997 and June 30, 1996 was 16.2% and
15.8%, respectively. The increase in selling, general and administrative
expenses as a percentage of service revenues was attributable to a higher cost
structure in the information technology and specialty areas and amortization of
intangible assets of 0.6% and 0.2% of service revenues for the thirteen weeks
ended June 29, 1997 and June 30, 1996, respectively.
10
<PAGE>
Income Taxes. The effective combined federal and state income tax rate for
the thirteen weeks ended June 29, 1997 and June 30, 1996 was 41.0% and 38.0%,
respectively. The effective combined federal and state income tax rate for the
twenty-six weeks ended June 29, 1997 and June 30, 1996 was 40.4% and 38.0%,
respectively. The increased combined tax rate was due to an increase in
non-deductible amortization of intangible assets relating to certain
acquisitions and increasing profits generated in states which assess higher
state tax rates.
Liquidity and Capital Resources
For the twenty-six weeks ended June 29, 1997 net cash provided by
operating activities was $0.6 million compared to net cash used in operating
activities of $1.5 million for the twenty-six weeks ended June 30, 1996. The
increase in operating cash flow was a result of higher net income and increased
depreciation and amortization.
The Company's investing activities used $0.7 million to purchase property
and equipment, $3.8 million to purchase assets of acquired businesses and $0.4
million to pay earnouts on acquisitions. See Note 2 to the condensed
consolidated financial statements of the Company 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 29, 1997 were cash flows from operating activities and
a secured line of credit with a bank. The Company's line of credit allows for
maximum borrowings of $20 million. As of June 29, 1997 the Company had
outstanding borrowings of $0.5 million on the line of credit. Short-term
borrowings bear interest at the prime rate charged by the Company's lender which
is periodically adjusted (at June 29, 1997, 8.50%), and long-term borrowings
which bear interest at the LIBOR rate plus 1.75% (at June 29, 1997, 7.50%). The
Company also had letters of credit of $3.7 million outstanding at June 29, 1997,
for purposes of securing its workers' compensation premium obligation. The
aggregate amount of such letters of credit reduces the borrowing availability on
the line of credit. At June 29, 1997, $15.8 million was available for borrowings
or additional letters of credit under the line of credit. Management believes
that the present credit facility, together with cash reserves and cash flow from
operations, will be sufficient to fund the Company's operations, capital
expenditure requirements and acquisitions presently anticipated for at least the
next 12 months. However, if the Company were to expand its operations
significantly, especially through unanticipated acquisitions, additional capital
may be required. There can be no assurance that the Company will be able to
obtain additional capital at acceptable rates.
Other Matters
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This
statement is effective for periods ending after December 15, 1997 and early
application is prohibited. The statement will require that the Company present
basic earnings per share and diluted earnings per share data to replace current
earnings per share information previously presented and all prior period data
must be restated. SFAS No. 128 provides new guidelines expected to simplify the
computation of diluted earnings per share. This statement is not expected to
have a material impact on the Company's financial condition when adopted.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not Required
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings
From time to time the Company is involved in legal matters generally
incident to its business. It is the opinion of management, after discussions
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
On June 6, 1997, Enerco, Inc. ("Enerco"), a former customer of the
Company, filed a Complaint against the Company in the District Court for the
Second Judicial District, in and for Davis County, State of Utah (hereinafter,
the "Action"). On August 1, 1997, Enerco filed an Amended Complaint against the
Company in the Action. In its Amended Complaint, Enerco alleges claims against
the Company for breach of contract, negligence, and fraud and misrepresentation.
Enerco's claims stem from the alleged theft of surplus military goods from
Enerco's warehouse by a former temporary employee of the Company. Enerco seeks
special, general, consequential, and punitive damages, among others, in an
amount in excess of $7,000,000. Based on the information currently available,
the Company believes that the allegations contained the Amended Complaint are
without merit, that it has valid defenses to each allegation raised in the
Amended Complaint and it intends to vigorously defend the Action.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27 - Financial Data Schedule, filed herewith.
b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
12
<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 20, 1997 /s/ Gary B. Crook
-----------------
Gary B. Crook
Vice President,
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 5042223
<SECURITIES> 0
<RECEIVABLES> 22399372
<ALLOWANCES> (559723)
<INVENTORY> 0
<CURRENT-ASSETS> 29112095
<PP&E> 5093387
<DEPRECIATION> (2478660)
<TOTAL-ASSETS> 53590428
<CURRENT-LIABILITIES> 10222767
<BONDS> 0
0
0
<COMMON> 90403
<OTHER-SE> 42734748
<TOTAL-LIABILITY-AND-EQUITY> 53590428
<SALES> 0
<TOTAL-REVENUES> 46518025
<CGS> 0
<TOTAL-COSTS> 36308265
<OTHER-EXPENSES> 7242264
<LOSS-PROVISION> 151766
<INTEREST-EXPENSE> 37209
<INCOME-PRETAX> 2778521
<INCOME-TAX> 1139392
<INCOME-CONTINUING> 1639129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1639129
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
