XML 28 R8.htm IDEA: XBRL DOCUMENT  v2.3.0.11
COMMITMENTS AND CONTINGENCIES:
 9 Months Ended
Jun. 30, 2011
COMMITMENTS AND CONTINGENCIES:  
COMMITMENTS AND CONTINGENCIES:

4)          COMMITMENTS AND CONTINGENCIES:

 

Payroll Taxes

 

TeamStaff has received notices from the Internal Revenue Service (“IRS”) claiming taxes, interest and penalties due related to payroll taxes predominantly from its former PEO operations which were sold in fiscal 2003. TeamStaff has also received notices from the IRS reporting overpayments of taxes. Management believes that these notices are predominantly the result of misapplication of payroll tax payments between its legal entities. If not resolved favorably, the Company may incur interest and penalties. Until the sale of certain assets related to the former PEO operations, TeamStaff operated through 17 subsidiaries, and management believes that the IRS has not correctly identified payments made through certain of the different entities, therefore leading to the notices. To date, TeamStaff has been working with the IRS to resolve these discrepancies and has had certain interest and penalty claims abated. TeamStaff has also received notices from the Social Security Administration claiming variances in wage reporting compared to IRS transcripts. TeamStaff believes the notices from the Social Security Administration are directly related to the IRS notices received. TeamStaff had retained the services of Ernst & Young LLP as a consultant to assist in resolving certain of these matters with the IRS and Social Security Administration. TeamStaff believes that after the IRS applies all the funds correctly, any significant interest and penalties will be abated; however, there can be no assurance that each of these matters will be resolved favorably. In settling various years for specific subsidiaries with the IRS, the Company has received refunds for those specific periods; however, as the process of settling and concluding on other periods and subsidiaries is not yet completed, the potential exists for related penalties and interest and the remaining liability ($1.3 million at June 30, 2011) has been recorded in accounts payable and includes estimated penalties and interest currently sought by the IRS totaling approximately $500,000.

 

The Company believes it has accrued for the entire estimated remaining liability, inclusive of interest and penalties through the date of the financial statements. The Company will incur additional interest and may incur possible additional penalties through the future date that this obligation is settled, however, it is not currently possible to estimate what, if any, additional amount(s) may be claimed in future, given the uncertain timing and nature of any future settlement negotiations. In fiscal 2009, the Company paid $1.1 million, related to this matter. No payments were made in fiscal 2010 or fiscal 2011.  Management believes that the ultimate resolution of these remaining payroll tax matters will not have a significant adverse effect on its financial position or future results of operations. The Company’s intention is that it will in due course seek to negotiate a mutually satisfactory payment plan with the IRS, but there is no assurance that it would be successful in doing so and the Company’s future cash flows and liquidity could therefore be materially affected by this matter.

 

Rent Subsidy from Advantage RN

 

In connection with our disposition of TeamStaff Rx, Advantage RN was obligated to make rent subsidy payments to TeamStaff Rx totaling $125,000, consisting of: (i) $25,000 paid at closing, and (ii) an additional $100,000 payable in 10 equal monthly installments beginning on March 1, 2010. The last rent payment received from Advantage RN was in July 2010. They have since vacated the premises and ceased making installment payments. While the landlord of these premises is seeking damages from the Company for unpaid amounts, the Company intends to pursue a claim against Advantage RN for amounts owed, which the Company presently estimates is $50,000. The Company has provided an allowance for the estimated uncollectible sub-lease funding. The Company has nevertheless accrued for the remaining rent payments.

 

Legal Proceedings

 

RS Staffing Services, Inc. Note

 

The Company originally acquired RS Staffing Services in June 2005. As part of the purchase price of the acquisition, the Company issued to the former owners of RS Staffing Services: (i) $3.0 million of promissory notes (“the Notes”), of which $1.5 million in principal and interest of $150,000 was paid in June 2006; and (ii) certain stock in the Company. On May 31, 2007, the Company sent a notice of indemnification claim to the former owners for costs that have been incurred in connection with an  investigation of the former owners for matters prior to the sale.  The Company was not a target of the investigation. The Company recognized expenses related to legal representation and costs incurred in connection with the investigation and dispute in the amount of $19,000 and $35,000 during the three months ended June 30, 2011 and 2010, respectively, as a component of other income (expense). The Company recognized expenses related to legal representation and costs incurred in connection with the investigation and dispute in the amount of $78,000 and $92,000 during the nine months ended June 30, 2011 and 2010, respectively, as a component of other income (expense). Cumulative costs related to this matter, which have all been expensed, approximate $1.8 million. Pursuant to the acquisition agreement with RS Staffing Services, the Company notified the former owners of RS Staffing Services of the Company’s intention to exercise its right to set off the payment of such expenses against the remaining principal and accrued interest due to the former owners of RS Staffing Services. The former owners of RS Staffing Services notified the Company of their disagreement with the Company’s course of action and of the existence of partial counter-claims in regard to allegations that the Company without due cause failed to permit them to sell certain of their stock in the Company. Subsequent to June 30, 2011, the parties have successfully negotiated a settlement following mediation, as provided for in the stock purchase agreement.

 

Pursuant to the final  agreement relating to this matter (the “Agreement”), the Company has paid $200,000 in cash to the former owners of RS Staffing (the “Former Owners”), issued them an aggregate of 300,000 shares of Company common stock , and agreed to permit the Former Owners to resell an aggregate of 201,724 other shares of common stock of TeamStaff, Inc. presently held by them, against which the Company had previously placed a stop order preventing their resale. The Former Owners agreed to orderly sale limitations with respect to their ability to resell all their shares of common stock. In accordance with these limits, during the 90-day period commencing on the effective date of the Agreement, neither Former Owner will resell in excess of 33,000 shares of TeamStaff common stock previously held by them during any 30-day period without the consent of TeamStaff. With respect to the new shares of TeamStaff common stock to be issued pursuant to the Agreement, commencing on the six-month anniversary of the effective date of the Agreement, neither Former Owner will resell in excess of 25,000 shares during any 30-day period without the consent of TeamStaff.

 

In addition, TeamStaff provided guarantees to the Former Owners that the net proceeds to be received by them from the resale of all of the shares of common stock of TeamStaff, Inc. sold by them pursuant to the Agreement would not be less than certain minimum guarantees. With respect to the shares of common stock owned by them prior to the effective date of the Agreement (the “Old TeamStaff Shares”), TeamStaff guaranteed to the Former Owners, aggregate net proceeds totaling $200,000 and with respect to the shares of common stock of TeamStaff  issued under the Agreement (the “New TeamStaff Shares”), TeamStaff guaranteed net proceeds totaling $750,000.

 

The payments of all amounts under the Agreement are secured by the Notes. Upon receipt by the Former Owners of (i) the payment of $200,000 made on July 29, 2011 by TeamStaff following the execution of the Agreement and (ii) the proceeds realized from the sale of the Old TeamStaff Shares and New TeamStaff Shares, or the guarantees, the Notes shall be deemed satisfied in full. In addition, the parties agreed to release each other from any further claims that either may have against the other, except to enforce the Agreement.

 

In accounting for the Agreement, the fair value ascribed to the New TeamStaff Shares was based on the closing price of the common stock on July 29, 2011, the date of the Agreement.  The effects of this settlement, which will consider the impact and extent of the Company’s guarantee, will be assessed and accounted for in the Company’s quarter ending September 30, 2011. The June 30, 2011 consolidated balance sheet reflects the payment and likely settlement of the Agreement; as a result, the recorded amounts of the $1.5 million promissory note and the related accrued interest payable have been reclassified to reflect the timing of cash payments.

 

Other Matters

 

As a commercial enterprise and employer, we are subject to various claims and legal actions in the ordinary course of business. These matters can include professional liability, employment-relations issues, workers’ compensation, tax, payroll and employee-related matters and inquiries and investigations by governmental agencies regarding our employment practices or other matters. We are not aware of any pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on our results of operations, financial position or cash flows.

 

In connection with its medical staffing business, TeamStaff is exposed to potential liability for the acts, errors or omissions of its contract medical employees. The professional liability insurance policy provides up to $5,000,000 aggregate coverage with a $2,000,000 per occurrence limit. Although TeamStaff believes the liability insurance is reasonable under the circumstances to protect it from liability for such claims, there can be no assurance that such insurance will be adequate to cover all potential claims.

 

TeamStaff is engaged in no other litigation, the effect of which is expected to have a material adverse impact on TeamStaff’s results of operations, financial position or cash flows.

 

Leases

 

On June 29, 2011, TeamStaff, Inc. entered into a lease agreement (the “New Lease”) for property located at 1776 Peachtree Street, NW, Atlanta, Georgia (the “New Premises”) with an affiliate of the Landlord of its existing offices at 1 Executive Drive, Somerset, New Jersey (the “Somerset Offices”).   Payment of rent under the New Lease will commence 90 days after certain remodeling is completed and the New Premises are ready to be occupied.  The New Premises consist of approximately 4,000 square feet and the annual base rent under the New Lease is initially approximately $75,500 and will periodically increase to a maximum of approximately $88,700. Pending the Company’s occupancy of the New Premises, the Company is being provided with interim premises at the same location by its landlord at no additional charge to its lease payment in respect of the Somerset Offices.  The lease for the Somerset Offices will remain in effect until the New Premises are ready to be occupied, at which time the Landlord and the Company have agreed in a lease surrender agreement executed in conjunction with the New Lease that the Somerset Offices may be immediately surrendered at no charge.  The term of the New Lease is for a period of 68 months commencing upon the New Premises being ready for occupancy.