Research and Trading Portal for US-listed China Stocks · March 29, 2017
China Tracker - Details for Tongxin International (TXIC)
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.
Tongxin International today announced that it has commenced legal proceedings against its former Chief Financial Officer and Chief Accounting Officer, Jackie Chang, after an internal investigation uncovered the wrongful transfer of funds as well as other questionable actions. The investigation into Ms. Chang's activities is continuing. With the approval of the Audit Committee of its Board of Directors, the Company has retained the accounting firm of KPMG and the law firm of Squire Sanders & Dempsey to assist in conducting the investigation and legal proceedings.
Lowered revenue guidance of $100 million - $110 million for the fiscal year ended December 31, 2010. The previous revenue guidance was $150 million -$160 million provided on February 23, 2010. Tongxin previously announced on September 17, 2010 unaudited revenues of $121.6 million for the fiscal year ended December 31, 2009.
The lowered revenue guidance is based on a decrease in market share due to in-house production of cabs, and anticipated drop in orders from international customers in Vietnam. Additionally, the impact of the cessation of certain government sponsored stimulus programs throughout 2010, the slower than anticipated startup of the new medium duty model (Model 1120 Tianrui) with substantially higher content than conventional cabs, and a drop in sales especially in the mini and light commercial truck segments contributed to the revised revenue guidance. The Company also anticipates a later than anticipated start-up on its new medium-heavy duty model (Model 1260 Tianjiao).
Rudy Wilson was removed as Chief Executive Officer (although he remains as a director) of the Company, and Jackie Chang was removed as Chief Financial Officer and Chief Accounting Officer of the Company. There was no truth to the rumors that the Board of Directors was currently considering a "going private" transaction.
The Company's securities will be delisted from the NASDAQ Stock Market and will be suspended on the opening of the business day October 14, 2010. The company anticipates it securities will become able to be traded on the "pink sheets". The Company also anticipates re-applying for trading on NASDAQ after the audit committee completes its investigation and after filing its Form 20-F.
Tongxin International is providing revenue guidance of $150 - $160 million for the fiscal year ended December 31, 2010. Guidance is based on anticipated orders and shipments of the Company's new medium and heavy-duty cab models, a further increase in market share, and incremental orders from international customers during 2010.
For the calendar year 2009 year and through 2011, Tongxin International's effective income tax rate will be reduced to 15% from the standard tax rate of 25%. Tongxin has completed its mandatory 15-day waiting period after its conditional certification as a New and High Technology Enterprise on October 29, 2009 and recently received formal notification of their new status from the local tax authorities. Tongxin's new tax rate will be calculated for the Company's 2009 full year earnings and thus management anticipates approximately $2.0 million in incremental earnings as a result of the adjustment. As a result, calendar 2009 net income guidance is increased to $16.7 million.