2013 annual general meeting july 8, 2013. 2 audit committee report the audit committee of the board...
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2013 Annual General Meeting
July 8, 2013
2
Audit Committee Report
The Audit Committee of the Board of Directors (the “Committee”) is comprised of the one director named below. The Committee has adopted a written charter which has been approved by the Board of Directors. The Committee has reviewed and discussed the Company’s audited financial statements with management, which has primary responsibility for the financial statements. RSM Nelson Wheeler and Seiwa Audit Corporation, the Company’s outside auditors for 2012, are responsible for expressing an opinion on the conformity of the Company’s audited financial statements with international and Japanese generally accepted accounting principles respectively.
Based on the considerations referred to above, the Committee recommends to the Board of Directors that the audited financial statements be included in the Company’s Securities Report for 2012 and that RSM Nelson Wheeler and Seiwa Audit Corporation be appointed independent auditors for the Company for 2013. The foregoing report is provided by the following director, who constitute the Audit Committee.
Wu Ji Guang
June 6, 2013
Matters to be Reported - Item No.1
Report on the business report and consolidated income statements for the period from January 1, 2012 to December 31, 2012 and the consolidated balance sheet as of December 31, 2012
4
2012 Business Results: Consolidated Income Statements
2011（ Million Yen)
2012（ Million Yen ）
Increase/Decrease(Million Yen)
Net sales
19,577（ 1,693 ）
14,212（ 1,231 ）
△5,365（ △ 46
2 ）
Operating loss
△13,492（△ 1,16
8 ）△5,532
（△ 479 ）7,960
（ 689 ）
Ordinary loss
△7,590（△ 657 ）
△6,677（△ 578 ）
913（ 79 ）
Net loss for the year
△6,933（△ 600 ）
△8,389（△ 726 ）
△1,456（△ 126 ）
(Unit: Thousands of US Dollars) Due to the discontinuation of the education business and the deconsolidation of Tongxin.
Due to the decrease in selling, general and administrative expenses.
Due to the increase in the appraisal loss of goodwilll and tangible fixed assets.
5
2012 Business Results: Consolidated Balance Sheet
2011(Million Yen)
2012(Million Yen)
Increase/Decrease(Million Yen)
Total assets
23,026（ 1,994 ）
13,586（ 1,176 ）
△9,440（ △ 81
8 ）
Net assets14,711
（ 1,274 ）7,720
（ 668 ）
△ 6,991（ △ 60
6 ）
Total liabilities
8,315（ 720 ）
5,866（ 508 ）
△ 2,449（ △ 21
2 ）
Capital ratio 55.8% 37.8% △18%
(Unit: Thousands of US Dollars)Due to the decrease in cash and deposits and the goodwill appraisal loss.
Due to the decrease in trade accounts payable, the decrease in interest payable and the decrease in sales.
6
2012 Overview
The Company made efforts to reduce costs and raise funds by selling certain business, but could not fully draw a road map towards the achievement of business revitalization.
Matters to be Reported - Item No.2
Report on the resignation of Mr. Aloysius T. Lawn IV as a director of the Company and the appointment of Mr. Lian Yih Hann as a director, chairman of the board, CEO and CFO of the Company
Current Status, Issues/Challenges and Future Prospects
9
Changes in Business Results (2010 ～ 2012)
17,01819,557
14,212
-4,391-7,590 -6,677
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
2010 2011 2012
(Unit: Thousands of US Dollars)
Sales
Ordinary Loss
There has been no increase in sales over the past three years, and the Company has been facing hard times, posting ordinary loss three years in a row.
10
Major Efforts (2010 ～）
The Company failed to succeed in any of the new businesses, and also withdrew from, or conducted a scale-down of, each of the existing businesses. As such, the Company has not been able to achieve any results that would enable it to expand its business.
Education BusinessEducation Business
Environment/LifestyleEnvironment/Lifestyle
US BusinessUS Business
Chinese BusinessChinese Business
2010 2011 2012 2013
Withdrawal
Did not reach the stage of taking shape as a business.
New
Business
Existing B
usiness
Kijoon, GMS, U-Learning
WithdrawalMNI, SMRA, etc.
Withdrawal/Scale-down
FTSE, Fortune China, etc.
Entry
11
Last Chance for Self-Revitalization
47,532
23,026
13,586
27,628
14,7117,720
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2010 2011 2012
(Thousands of US Dollars)
Total assets
Net assets
The Company has been suffering from a decline in both total assets and net assets over the past three years, and 2013 may be the last chance for the Company to achieve revitalization on its own.
12
New Management TeamManagement change (on May 23)
Old team New team
Director & Chairman
Director
CEO
CFO & COO
Director & Chairman
Director
CEO
CFO
Wu Ji Guang
Aloysius T. Lawn, IV
Kung Yuen-Kao
Wang Bin
ResignedWu Ji Guang
Re-elected
Lian Yih Hann Newly elected
Lian Yih Hann
Lian Yih Hann
Personal History and Strengths ofNew CEO (Lian Yih Hann)
1994
1996 － 2000
2000 － 2001
2004 － 2007
2012 － 2013
2012 － 2013
Graduated from University of Pennsylvania
Nomura/JAFCO Investment
Inphomatch Asia (Founder/CEO)
BBMF Corporation (founder/CEO)
Inphosoft Pte. Ltd (director)
Ginsms Inc. (director)
Assumed other various positions
Strengths: Has substantial experience in establishing and operating the business of distributing applications for mobile terminals, and has an extensive network of personal contacts related thereto.
Newly elected
Newly elected
Resigned
Resigned
13
Procurement of Necessary Funds
The CEO of the Company (Lian Yih Hann) provided a loan of US$1,000,000 in total to the Company, as the initial operating funds, restructuring costs, etc.
CEO of the Company (Lian Yih Hann)CEO of the Company (Lian Yih Hann)
Xinhua Holdings LimitedXinhua Holdings Limited
US$500,000 US$500,000
First loan Second loanTotal: US$1,000,000
14
Issues Found by On-Site Inspection (Examples)
ShanghaiShanghai
Hong KongHong Kong
PekingPeking
TokyoTokyo
・・・
Ch
ina
Japa
n
Holding company Major group companies
Headquarters
Finance/Legal
IR
Shanghai Tongxin
BOABC
Fortune C
hina
From the perspective of an efficient use of offices, the decrease in the amount of rent to be paid and the integration of functions and facilities to streamline operations would likely result in cost reduction. There are also other areas where improvements can be made.
As of Dec 31, 2012
132 Employees
(Decrease by 198)
Number of employees
15
Issues that the Major Group Companies are Facing
Xinhua Holdings
Xinhua Financial Network
Fortune China
XFN(Shanghai)
Top Sky
Shanghai Tongxin
BOABC
(Deconsolidated)
Making LossesMaking Losses
Financial services
Agriculture-related
services
Issues an
d cu
rrent s
tatus
Competitive power issuesCompetitive power issues
Market share issuesMarket share issues
・
・
・
Internal operations issuesInternal operations issues
Many issues must be resolved to improve profitability.
16
Litigation and Other Proceedings
Dispute with TopSky Nominee(Arbiration)
Dispute with TopSky Nominee(Arbiration)
Criminal Litigation againstMr. Andrew Kim
Criminal Litigation againstMr. Andrew Kim
Notice from the Hong Kong tax authorities
Notice from the Hong Kong tax authorities
Litigation against ex-directorsin the U.S.
Litigation against ex-directorsin the U.S.
Awaiting decision
Affected area
determined and
measures already taken
In 2011, three ex-directors were prosecuted in the US for fraud, etc., but most of the charges were later dismissed and the case was concluded in April 29, 2013. The Company was not affected by the litigation.
The Company received a notice of additional tax from the Hong Kong tax authorities for 2006/2007. The negotiations that followed such notice resulted in a considerable reduction of the amount of such additional tax. The Company made a public announcement that it will pay the negotiated amount as the relevant additional tax.
The Company won the civil litigation involving the repayment of the loan that it provided to Mr. Kim (ex-employee), but lost the criminal litigation at the court of first instance. The case is now pending in the court of appeals. The full amount of the loan, etc. has already been accounted for as “reserves”.
A third party arbitration system was used to resolve the dispute with one of the TopSky nominees (Ms.Yang). Consequently, Tongxin (one of the group companies) was deconsolidated. This greatly affected the Company’s policies relating to the handling of its group companies.
17
New Approach (Option 1)
China
Other countries
Japan
Xinhua
Manga(comic)
Manga(comic)
GameGame
AnimationAnimation
Distribution Processing Procurement
・・・
Strong demand High quality
For example, the Company places itself between China which has strong demand for mobile contents and Japan which creates high-quality mobile contents, and handles the whole process from procurement to processing to distribution.
18
New Approach (Option 2)
For example, the Company handles the procurement (assessment) of, manages the licenses related to, and makes proposals for the actual use of (maximization of the value of), mobile contents.
GameGameManga(comic)
Manga(comic)
MangaMangaAnimationAnimation
GameGame
Publisher/Author/Agent Major amusement companyGame creation company
Xinhua
Ability to Assess
Flow
of contents
Chinesecompany
Partner
Joint proposal
Contents creationcompany
Sublicense
19
Improvements and reform
Future Roadmap
Solving issuesSolving issues
New approachNew approach
Second half First half Second half First half Second half
2013 2014 2015
Organizing issues
Improvements and reform
High-Priority Issues
Other issues
Classify issues based on priority and aim for the prompt resolution of material (high-priority) issues
Get the business on track Business
startup period
Devise Business strategy
Followed by the second wave, the third wave…
Each of the high-priority issues will be treated as a matter of overriding concern. In the meantime, a new approach will be adopted from the second half of 2013 in order to achieve future growth.
Matters to be Resolved
Agenda 1
Election of two directors (Ms. Chang Tzu-Ing and Mr. Naoya Harano)
22
Outcome of the Vote
Agenda 1Election of two directors (Ms. Chang Tsu-Ing andMr. Naoya Hara)
Approved