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Mar. 31, 2022 TSE Designation of Security on Alert : EduLab,Inc.

 

TSE has designated the stock as a Security on Alert as follows.
*This decision is based on the results of the examination by Japan Exchange Regulation.

1.Issue Name EduLab,Inc.
(Code: 4427, Market Division: Mothers)
2.Date of Designation of Security on Alert Apr. 1, 2022 (Fri.)
Provision Securities Listing Regulations, Rule 501, Paragraph 1, Item (3)
(Due to TSE deeming that the listed company has violated the timely disclosure rules, and that the improvement of the internal management system, etc. of said listed company is highly necessary)
3.Reason EduLab,Inc. (hereinafter "the Company") disclosed about the establishment of a special investigation committee on Aug. 2, 2021, and on Oct. 15 the same year, disclosed about the receipt of an interim report from the committee concerning inappropriate accounting processing by the Company and the continuation of the investigation, in addition to corrections to financial results for past fiscal years. In response to the completion of the investigation by the special investigation committee, on Feb. 28, 2022, the Company disclosed the final report of the committee and corrections to the financial results for the past fiscal years again.
These disclosures revealed such facts as that provisions for business losses in joint operations with a business partner were not recorded, sales figures from an affiliated company of the Company were overstated, and the scope of consolidation of subsidiaries was adjusted, by the Company and its subsidiaries. In addition to such revelations, it was newly found that the Company brought forward the sales recognition for transactions relating to software requirements definition for the Company's proprietary software, email delivery, among other things.
As a result, the Company was found to have made false disclosures in violation of the listing rules for earnings reports, etc. from the fiscal year ended Sep. 2018, which was information disclosed for said initial listing, to the third quarter of the fiscal year ended Sep. 2021 and as a result of consequent corrections to past earnings reports, the Company's net income attributable to owners of the parent company was found to have decreased by at least 90% for the fiscal year ended Sep. 2018.
Also, as the Company further corrected the annual securities report at the time of initial listing and its past annual securities reports on the same day, the Company's net income attributable to owners of the parent company was found to have fallen into a deficit for the fiscal year ended Sep. 2017.
It was deemed that the following points contributed to the occurrence of these disclosures:
- Directors of the Company, including the former President and Chief Executive Officer were lacking in compliance awareness, attention to appropriate financial reporting, and knowledge about accounting as a corporate manager of a listed company, because, for instance, they had knowledge of the beginnings of the inappropriate accounting processing and could have prevented it, but there were no traces of questions being raised.
- The Company has yet to develop and operate its internal control system to prevent and detect inappropriate accounting processing, and the functions of the administrative units and internal audit unit were insufficient, as instanced by the fact that many sales transactions were corrected.
- The contract process undergone by the Company to consider economic rationality, price terms, among other things was inaccurate, as demonstrated by the fact that the Company group set prices unreasonable to actual transactions and backdated contracts in transactions between affiliated companies, with business partners, and others.

On Jan. 11, 2022, TSE requested the Company to submit an improvement report, imposed a listing agreement violation penalty, and changed its listing market from the 1st Section to Mothers. However, given that the final investigation results by the special investigation committee, among other things, revealed new facts and that the past earnings reports were recorrected based on said facts, TSE deems that this is a case of inappropriate disclosure that has considerable impact on investment decisions and that improvements to the Company's internal management system, etc. are highly necessary. As such, TSE designates its stock as a Security on Alert.
Please note that although the Company has submitted an improvement report to TSE on Jan. 25, 2022, since the Company's stock is now designated as Securities on Alert, TSE will deem that the Company has submitted a report (improvement status report) that indicates the execution of improvement measures and operating conditions if and when the Company discloses new improvement plans for the internal management system, etc. and then the status of the progress of the improvement plans immediately after six months has passed from the disclosure of the improvement plans.

DISCLAIMER: This translation may be used for reference purposes only. This English version is not an official translation of the original Japanese document. In cases where any differences occur between the English version and the original Japanese version, the Japanese version shall prevail. This translation is subject to change without notice. Tokyo Stock Exchange, Inc. and/or Japan Exchange Regulation shall individually or jointly accept no responsibility or liability for damage or loss caused by any error, inaccuracy, misunderstanding, or changes with regard to this translation.

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