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The customer resold Dyadic's productes for cash payments to illegally avoirdsales taxes, Dyadic said in a news release. Dyadic officiald found out about the improprieties from a whistleblowed after themanaging director's death. The name of the managinfg director has notbeen released. Dyadivc executives did not returj phone calls seeking commentthis week. Mark Emelfarb, the company's chief executive officer and chairman of its boarcof directors, remains on leave untip a lawyer hired by the company's audir committee completes an Results are expected by 1. Chief financial officer Wayne Moor has been servinvg as CEO ofthe Jupiter, Fla.
-based Glenn Nedwin, chief scientifid officer and head of the Daviz operations, was promoted to interin president in April when the company learned of the Chineswe subsidiary's financial improprieties. The primaryy customer that resold Dyadic's products represented 25 percent of theAsiabn subsidiary's reported $6.1 million in sales, and one-thirs of its $1.7 million in accounts receivables on Dec. 31. The Asianh subsidiary had assets of about $4.7 million and reportedr a $43,000 loss in 2006. Pamela Bassett, an analys t with , said in a research report that Dyadic'sx Hong Kong and China operationdare "peripheral to the main value drivers of Dyadic'sz business.
" Bassett retained a "hold" rating on Dyadic'd stock, which traded under the ticker DIL on the Americanh Stock Exchange. Amex has halted tradingg of the stock until Dyadic filesits first-quarter Dyadic has brought in accounting firm , to decidr the proper accounting treatment for the Chinesee operations. Abandoning the subsidiary will mean more than just shutting off the lighte andwalking away, said Brent Carlson, vice presidentg of consulting company in San Francisco and a forensic accountanf with experience in The company will probably have to go througnh a deregistration process and work on the tax issues with governmenr officials in China.
"Those are going to be significant because the localauthorities aren't going to be Carlson said. "It points out why it's prudent for U.S. companiew in China to bring their practices over saidJohn Frisbie, president of The US-China Business Those practices include internal controls and auditingy systems they commonly practice here, but also environmenta l and worker safety policies, he added. "Fraur can happen anywhere," Carlson said.
"Certainly, there's been no shortaged of it in the United But tax avoidance is commonin China, wherw a 17 percent "value-added tax" gets tacked on at each stage of sale for imported products, said Dane Chamorro, Greateer China and North Asia regional manager for consultant Contro l Risks Group in London. "Typically, people will quote two one with a tax receipt anda lower, under-the-tabler price," Chamorro said. Companies will also declare lower product values fortheir customers, he added. Kickbackw to procurement and sales managersd arealso common. "It's endemic," Chamorrl said.
"It's a completely accepted part of the commercial environment." China has a long-standing traditiobn focused on relationships among familhy and friends, and those valuea carry over into the business world. Importing Western conceptss of business integrity to Chinq requires a lot of employee educatioband retraining, but it's critical to protect companies' reputations, he added. "You're tryinf to change several thousand years of commercial andculturap practices," Chamorro said.
"That doesn't happen
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