SOS STAFFING SERVICES, INC. 401(k) PLAN
Financial Statements and Schedules
As Of December 31, 1999 and 1998
Together With Report of
Independent Public Accountants
<PAGE>
Report of Independent Public Accountants
To the Administrative Committee of the
SOS Staffing Services, Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of the SOS Staffing Services, Inc. 401(k) Plan as of December 31, 1999 and 1998
and the related statement of changes in net assets available for benefits for
the year ended December 31, 1999. These financial statements and the schedules
referred to below are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the SOS Staffing
Services, Inc. 401(k) Plan as of December 31, 1999 and 1998, and the changes in
its net assets available for benefits for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and nonexempt transactions are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated, in all material respects, in
relation to the basic financial statements taken as a whole.
By: /s/ Arthur Andersen LLP
---------------------------
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 28, 2000
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Index to Financial Statements and Schedules
-------------------------------------------
Statements of Net Assets Available for Benefits
as of December 31, 1999 and 1998 1
Statement of Changes in Net Assets Available for
Benefits for the Year Ended December 31, 1999 2
Notes to the Financial Statements 3-7
Schedule of Assets Held for Investment Purposes
as of December 31, 1999
8-9
Schedule of Nonexempt Transactions for the Year Ended
December 31, 1999 10
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Statement of Net Assets Available for Benefits
As of December 31, 1999 and 1998
1999 1998
---------- ----------
INVESTMENTS, at fair value:
Mutual Funds
Spartan U.S. Treasury Money Market Fund $ 937,901 $ 968,776
Fidelity U.S. Bond Index Fund 228,188 361,965
Loomis Sayles Bond Fund 195,900 143,136
Fidelity Puritan Fund 432,724 393,759
Fidelity Equity Income I Fund 631,250 488,514
Spartan U.S. Equity Index Fund 1,086,888 739,737
Dreyfus Appreciation Fund 958,129 655,376
Neuberger Berman Genesis Trust 295,916 326,565
Managers Special Equity Fund 575,733 292,061
Hotchkiss & Wiley International Fund 92,946 103,157
Templeton Developing Markets Trust 67,063 24,118
Cohen & Steers Realty Shares Fund 67,198 54,874
Fidelity Freedom 2030 Fund 31,859 --
Fidelity Freedom 2010 Fund 9,520 --
Fidelity Freedom 2020 Fund 13,977 --
SteinRoe Intermediate Bond Fund -- 79,060
Variable Annuity
Kemper Advantage III 34,419 83,972
Other Investments
SOS Staffing Services, Inc. Common Stock 143,930 148,241
Participant Loans 48,032 49,058
---------- ----------
Total investments 5,851,573 4,912,369
---------- ----------
CASH 69,908 18,495
RECEIVABLES:
Participant contributions 68,224 103,968
Employer contributions 278,515 347,511
---------- ----------
Total receivables 346,739 451,479
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS 6,268,220 $5,382,343
========== ==========
The accompanying notes to financial statements are
an integral part of these statements.
1
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
For The Year Ended December 31, 1999
ADDITIONS:
Contributions:
Participants $ 1,683,161
Employer 310,812
Rollovers into the Plan 337,637
-----------
Total contributions 2,331,610
-----------
Investment income:
Net unrealized appreciation in fair value of investments 183,335
Realized gains 37,400
Interest and dividends 263,209
-----------
Total investment income 483,944
-----------
Total additions 2,815,554
-----------
DEDUCTIONS:
Benefits paid to participants (1,929,677)
-----------
NET INCREASE (DECREASE) 885,877
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 5,382,343
-----------
End of year $ 6,268,220
===========
The accompanying notes to financial statements are
an integral part of these statements.
2
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Notes to the Financial Statements
1. Plan Description
The following description of the SOS Staffing Services, Inc. 401(k) Plan (the
"Plan") is provided for general information purposes only. More complete
information regarding the Plan's provisions may be found in the Plan document.
General
The Plan is a defined contribution plan established by SOS Staffing Services,
Inc. (the "Company") under the provisions of Section 401(a) of the Internal
Revenue Code ("IRC"), which includes a qualified cash or deferred arrangement as
described in Section 401(k) of the IRC, for the benefit of eligible employees of
the Company. The Plan was established to provide employees with an opportunity
to accumulate funds for retirement or disability and to provide death benefits
for employees' dependents and beneficiaries. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended. The trustee of the Plan is Reliance Trust Company.
Employees of SOS Staffing Services, Inc. who complete 1,000 hours of service
during a 12-month period and who have reached the age of 21 are eligible to
participate in the Plan. Inteliant employees who have reached the age of 21 are
eligible to participate in the Plan as of the ninety-first day following the day
on which the employee first performs an hour of service for Inteliant. The Plan
excludes all employees who are highly compensated as defined by the Internal
Revenue Service ("IRS").
Contributions
Eligible employees can elect to make contributions to the Plan and such
contribution amounts are subject to certain limitations under the IRC. The
Company can elect to make discretionary matching contributions to the Plan. For
the year ended December 31, 1999, the Company provided a matching contribution
equal to 33-1/3 percent of each non-highly compensated staff employee
participant's contribution up to a maximum matching contribution of $2,000 per
each such participant.
Vesting
Participants are fully vested in their contributions and the earnings thereon.
Vesting in employer matching contributions is based on years of continuous
service as defined by the Plan. A participant vests according to the following
schedule:
Less than three years 0%
Three years 50
Four years 75
Five years or more 100%
3
<PAGE>
Forfeitures
At December 31, 1999, forfeited nonvested accounts totaled approximately
$69,517. These amounts will be used to reduce future employer contributions.
Benefits
Upon termination of service due to death, disability, or retirement, a
participant may elect to receive an amount equal to the value of the
participant's vested interest in his or her account. The form of payment is a
lump sum distribution or an annuity to be paid in monthly installments.
Participant Accounts
Individual accounts are maintained for each of the Plan's participants to
reflect the participant's contributions and related employer matching
contributions, as well as the participant's share of the Plan's income and any
related administrative expenses. Allocations are based on the proportion that
each participant's account balance has to the total of all participants' account
balances.
Investment Options
As of December 31, 1999, participants may direct their contributions, the
employer matching contributions and any related earnings into several investment
options. Participants may change their investment elections on a daily basis. A
brief description of each investment option is provided below:
Spartan U.S. Treasury Money Market Fund
---------------------------------------
This fund's objective is to seek high current income while maintaining
a stable share price by investing in high quality, short-term money
market securities, such as US Treasury securities.
Fidelity U.S. Bond Index Fund
-----------------------------
This fund's objective is to track, rather than beat, the performance of
the Lehman Brothers Aggregate Bond Index by investing in various types
of medium to high-quality debt obligations.
Loomis Sayles Bond Fund
-----------------------
This fund's objective is to obtain high total investment return through
a combination of current income and capital appreciation. The fund
normally invests all of its assets in fixed income securities, although
up to 20 percent of its total assets may be invested in preferred
stocks.
Fidelity Puritan Fund
---------------------
This fund's objective is to seek income consistent with preservation of
capital. The fund invests in a broadly diversified portfolio of
high-yielding common stocks, preferred stocks and bonds of any quality.
Fidelity Equity Income I Fund
-----------------------------
This fund's objective is to seek reasonable income by investing mainly
in income-producing equity securities and those that offer potential
for capital appreciation.
Dreyfus S&P 500 Index Fund
--------------------------
This fund's objective is to provide investment results that correspond
to the price and yield performance of publicly traded common stocks in
the aggregate as represented by the Standard & Poor's 500 Composite
Stock Price Index.
4
<PAGE>
Dreyfus Appreciation Fund
-------------------------
This fund's primary objective is to seek long-term capital growth
consistent with the preservation of capital with a secondary goal of
current income. The fund generally invests at 80 percent of net assets
in the common stock of U.S. and foreign companies.
Neuberger Berman Genesis Trust
------------------------------
This fund's investment objective is capital appreciation. The fund
invests primarily in common stocks and securities convertible into or
exchangeable for common stocks of companies with small-to-medium market
capitalization.
Manager's Special Equity Fund
-----------------------------
This fund's objective is to seek long-term capital appreciation from
investments in companies with the potential for long-term growth as
well as undervalued investments. The fund invests principally in equity
securities of small- to medium-sized U.S. companies.
Hotchkiss & Wiley International Fund
------------------------------------
This fund's objective is to seek to provide current income and
long-term growth of income, accompanied by growth of capital. The fund
invests primarily in international equity securities.
Templeton Developing Markets Trust
----------------------------------
This fund's objective is to seek long-term capital growth by investing
primarily in equity securities of companies in countries that have
developing markets. The fund invests at least 65 percent of its total
assets in equity securities of developing market issuers in at least
three different developing markets.
Cohen & Steers Realty Shares Fund
---------------------------------
This fund's objective is to seek maximum total return through both
current income and capital appreciation. This fund invests primarily in
real estate investment trusts.
SOS Staffing Services, Inc. Common Stock
----------------------------------------
This fund is a non-diversified investment in the outstanding public
shares of SOS Staffing Services, Inc.
Kemper Advantage III
--------------------
This fund's objective is to offer both a guaranteed option under its
fixed accounts and 26 variable investment options through its separate
account. Advantage III is a variable annuity offered by Kemper Investor
Life Insurance Company. This fund was an investment option offered by
the former trustee. When the funds were transferred from the former
trustee to the current trustee, participants were no longer allowed to
contribute to this investment. However, funds that were invested in
this option were allowed to remain in this investment and earn money
until the participant elects to have the funds withdrawn or transferred
to another investment option.
Participant Loans
-----------------
The Participant Loan Fund is invested solely in promissory notes
executed by participants. The Plan document does not allow for
participant loans. However, a retirement plan of one of the Company's
subsidiaries allowed for participant loans prior to merging with the
Plan. All loans outstanding from the subsidiary's plan at the time of
the merger remained outstanding subsequent to the merger.
5
<PAGE>
2. Summary Of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Plan's management to use estimates
and assumptions that affect the accompanying financial statements and
disclosures. Actual results could differ from these estimates.
New Accounting Pronouncement
The Accounting Standards Executive Committee issued Statement of Position 99-3,
"Accounting For and Reporting of Certain Defined Contribution Plan Investments
and Other Disclosure Matters" ("SOP No. 99-3") which eliminates the requirement
for a defined contribution plan to disclose participant directed investment
programs. SOP No. 99-3 was adopted for the 1999 financial statements and as
such, the financial statements have been reclassified to eliminate the
participant directed fund investment program disclosures.
Interest and Dividend Income
Interest income is recorded as earned on the accrual basis. Dividend income is
recorded on the ex-dividend date.
Investment Valuation
The fair market values of all investments are determined at the end of each Plan
year. Unrealized appreciation or depreciation of investment is determined by
comparing the fair market value of each investment at the beginning of the Plan
year (or at the date of purchase for investment acquired during the current Plan
year) with the fair market value at the end of the Plan year.
Realized gains or losses are determined by comparing the sales price of each
investment as of disposition date with the fair market value at the beginning of
the Plan year (or at the date of purchase for investments acquired during the
current Plan year.)
Net Appreciation (Depreciation) in Fair Value of Investments
Net realized and unrealized appreciation (depreciation) is recorded in the
accompanying statement of changes in net assets available for benefits as net
appreciation (depreciation) in fair value of investments.
Benefits
Payments of benefits to participants are recorded when paid.
Administrative Expenses
The Company pays all administrative expenses of the Plan.
6
<PAGE>
3. Tax Status
The IRS has determined and informed the Company by a letter dated September 23,
1996 that the Plan and related trust are designed in accordance with applicable
sections of the IRC. The Plan administrator believes that the Plan, as amended,
is designed and is currently being operated in compliance with the applicable
requirements of the IRC.
4. Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of termination,
participants will become fully vested in their account balances.
5. Nonexempt Transactions
For the year ended December 31, 1999, the Company's failure to remit participant
employee contributions to the Plan no later than the 15th business day of the
month following the month in which the contribution was withheld by the employer
constituted a lending of such monies (bearing interest at approximately 16.5
percent) to the Company. As such, this transaction between the Company and the
Plan represented a nonexempt transaction as described in the Schedule of
Nonexempt Transactions. The deemed loans were repaid to the Plan on June 28,
2000.
6. Subsequent Event
Effective January 1, 2000, the Company amended the Plan to treat the employees
of its Inteliant subsidiary as a separate line of business for purposes of
operational testing. In addition, this amendment allows highly compensated
employees of its Inteliant subsidiary to participate in the Plan. Highly
compensated employees of SOS and its other subsidiaries will remain ineligible
to participate in the Plan.
7
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Schedule of Assets Held for Investment Purposes
As Of December 31, 1999
<TABLE>
<CAPTION>
(b) Identity of Issuer,
Borrower, Lessor (c) Description
(a) or Similar Party of Investment (d)Current Value
--- ---------------- ------------- ----------------
<S> <C> <C> <C>
Fidelity Spartan U.S. Treasury Market Fund 937,901 shares of $ 937,901
money market fund
Fidelity U.S. Bond Index Fund 22,393 shares of 228,188
mutual fund
Loomis Sayles Bond Fund 17,005 shares of 195,900
mutual fund
Fidelity Puritan Fund 22,739 shares of 432,724
mutual fund
Fidelity Equity Income I Fund 11,803 shares of 631,250
mutual fund
Dreyfus S&P 500 Index Fund 20,866 shares of 1,086,888
mutual fund
Dreyfus Appreciation Fund 20,952 shares of 958,129
mutual fund
Neuberger & Berman Genesis Trust 14,064 shares of 295,916
mutual fund
Managers Special Equity Fund 6,297 shares of 575,733
mutual fund
Hotchkiss & Wiley International Fund 3,521 shares of 92,946
mutual fund
</TABLE>
8
<PAGE>
SOS Staffing Services, Inc. 401(k) Plan
Schedule of Assets Held for Investment Purposes (Continued)
As Of December 31, 1999
<TABLE>
<CAPTION>
(b) Identity of Issuer,
Borrower, Lessor (c) Description
(a) or Similar Party of Investment (d)Current Value
--- ---------------- ------------- ----------------
<S> <C> <C> <C>
Templeton Developing Markets Trust 4,296 shares of $ 67,063
mutual fund
Cohen & Steers Realty Shares Fund 1,821 shares of 67,198
mutual fund
Fidelity Freedom 2010 Fund 640 shares of a 9,520
mutual fund
Fidelity Freedom 2020 Fund 853 shares of a 13,977
mutual fund
Fidelity Freedom 2030 Fund 1,877 shares of a 31,859
mutual fund
* SOS Staffing Services, Inc. 32,870 shares of 143,930
common stock
Kemper Investors Life Advantage III 34,419
Insurance Company Investment option
Participant loans Interest rates
ranging from 48,032
8.75% to 9.5%
</TABLE>
* Denotes party-in-interest
9
<PAGE>
SOS STAFFING SERVICES, INC. 401(k) PLAN
Schedule of NonExempt Transactions
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Description of Transactions, Including Maturity
Identity of Party Relationship to Plan, Employer or Date, Rate of Interest, Collateral and Maturity
Involved Other Party in Interest
----------------------- -------------------------------------- -----------------------------------------------------
<S> <C> <C>
Lending of monies from the Plan to the employer
(contributions not timely remitted to the Plan) as
follows-
SOS Staffing Deemed loan dated July 1, 1998, maturity June 29,
Services, Inc. Employer 2000 with interest at 16.5%
</TABLE>
Interest Incurred On
Amount Loaned Loan
---------------------- ----------------------
$9,627 $3,430(a)
(a) Interest of $3,430 was remitted to the Plan on June 28, 2000
