For the year ended December 31, 2010, the Company expects cost of goods sold to be $99.8 million and selling, general and administrative expenses to be $14.0 million. As a result, the Company expects to have an operating loss of $7.3 million for the year ended December 31, 2010 as compared to operating income of $5.5 million for the year ended December 31, 2009. The Company expects total stockholders' equity for the year ended December 31, 2010 to be approximately $92.1 million compared to $83.8 million for the year ended December 31, 2009.
The determination as to whether a write-down of goodwill is necessary involves significant judgment based on the short-term and long-term projections of the future performance of the reporting unit to which the goodwill is attributed. To the extent that the Company incurs such an impairment charge, it will be non-cash in nature. The Company expects to complete the impairment evaluation of its goodwill and intangible assets by September 30, 2011.
The Company expects to file its Annual Report on Form 20-F for the fiscal year ended December 31, 2010 and its Annual Report on Form 20-F for its fiscal year ended December 31, 2009 as soon as reasonably possible.
While we have made considerable efforts in the past year to strengthen our internal operations, we have also maintained our market position as the largest independent Chinese supplier of commercial EVBS. The Hunan Tongxin brand is well established and recognized for its high quality and reliable products, and we enjoy both brand name and trademark protection in the PRC. Our new management team intends to vigorously maintain our market leadership, even as we anticipate lower revenues for 2010. In 2009, we increased the number of our product programs and we intend to expand further the diversity of our products, while curbing our costs and expenses. Going forward, we are targeting the North American and European collision-parts after-markets, leveraging the cost advantages of our high quality components versus those of other international OEM suppliers.
In her capacity as CFO for TXIC, Ms. Chang learned of possibly unsubstantiated transactions in China between a subsidiary of TXIC and a related company in the amount of $7.7 million. As required by law, Ms. Chang asked the company's audit committee to pursue an audit and forensic procedures. TXIC's forensic accountant KPMG concluded that the documentary support for the transactions was contradictory, insufficient and lacking in substantive details and/or accuracy, thus calling in question the validity of the related party transactions. As a result, Ms. Chang declined to sign a representation letter, drafted by the company's statutory auditor, stating that the related party transactions were appropriately recorded, accurate, and complete.
On November 17, 2010, Ms. Chang was contacted by and interviewed by the Enforcement Division for the Securities and Exchange Commission, which had initiated its own investigation of TXIC. Two days later, the Board of Directors of TXIC terminated Ms. Chang's employment without providing a reason although she had a written employment contract through 2012. Ms. Chang's employment agreement with TXIC, as amended, requires the payment of 24 months salary to Ms. Chang within 15 days of termination without cause and issuance of 56,250 shares of company stock to her. Before she was terminated, the company's CEO authorized the establishment of a reserve account to ensure that Ms. Chang was paid in accordance with her employment agreement. TXIC has refused to comply with the terms of Ms. Chang's employment agreement. Ms. Chang has filed an arbitration claim against TXIC with AAA in Michigan. She is seeking damages including punitive damages for wrongful termination, defamation and other wrongful conduct.
Effective immediately, we are terminating coverage on Tongxin International due to the restructuring of our coverage universe. We currently have the company under review from a ratings stand point.
Rodman & Renshaw
We are putting our rating on TXIC under review from a Market Outperform rating previously. This rating change is mainly due to the unavailability of financial statements from the company for over six months due to auditing related delays. We are also removing our financial projections for 2010. We will revisit our financial projections and rating once management finishes the auditing process and files its 10-K/10-Q forms with SEC.
Rodman & Renshaw
In February 2010, the company announced a preliminary unaudited FY09 revenue for $121MM to $124MM, with 4Q09 revenue ranging from $29.5MM ~ $32.5MM. This compares to the company’s previous FY09 guidance of $120MM. We are updating our model for TXIC accordingly. We are now expecting TXIC to report 4Q09 and FY2009 revenues of $30.6MM and $122.1MM, respectively, while we maintain our assumptions for gross margin, operating expense, tax rate, and share count. As a result, we are projecting $4.8 MM and $17.1 MM in net income for 4Q09 and full year 2009, slightly higher than our previous projections of $4.5MM and $16.8MM, respectively. We are increasing our FY09 EPS estimate by two cents to $1.29. TXIC also updated its FY2010 revenue guidance to the range of $150MM ~ $160MM, an approximately 25% growth from FY2009. We increased our FY2010 revenue estimates to $153MM, representing a 25.3% increase from FY2009. EPS for FY2010 is forecasted to be $1.36 compared to $1.29 in our previous projection.
Rodman & Renshaw
We are comfortable maintaining our $17 price target, which translates into P/E multiple of ~15x to our estimates for 2010. This compares to an average forward P/E multiple of ~22x for similar companies listed in Shanghai and ~17.5x for those listed in the US. We believe 15x forward P/E is a reasonable multiple for a company that should grow at a healthy pace, has exposure to both the Chinese and international commercial vehicle market and a healthy balance sheet.