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Oct. 03, 2022 TSE Designation of Security on Alert and Imposition of Listing Agreement Violation Penalty: DDS,Inc.
TSE has designated a stock as a Security on Alert and imposed a listing agreement violation penalty as follows.
*This decision is based on the results of the examination by Japan Exchange Regulation.
| １．Issue Name | DDS,Inc. stock (Code: 3782, Market Segment: Growth Market) |
| ２．Date of Designation of Security on Alert | Sep. 29, 2022 (Wed.) |
| Provision | Securities Listing Regulations, Rule 503, Paragraph 1, Item (3) (due to disclosed information containing false statements, and TSE deeming that the improvement of the internal management system, etc. of such listed company is highly necessary) |
| ３．Listing Agreement Violation Penalty Total | JPY 24 million |
| Provision | Securities Listing Regulations, Rule 509, Paragraph 1, Item (1) (due to disclosed information containing false statements, which is deemed to have undermined the confidence of shareholders and investors in the TSE market) |
| ４．Reason | DDS, Inc. (hereinafter the "Company") made disclosures regarding the establishment of a third-party committee on May 12, 2022, the investigation report of the third-party committee concerning inappropriate accounting processing at the Company on Aug. 8, 2022, corrections to its financial statements for previous fiscal years on Aug. 12, 2022, and further corrections to its financial statements for previous fiscal years on Sep. 2, 2022. These disclosures revealed that the Company, on the initiative of the former Representative Director and Chairperson and with the involvement of several directors, carried out inappropriate accounting processing such as: recording sales pertaining to software licensing and other transactions to achieve targets such as earnings forecasts, even though the relevant transactions did not satisfy criteria for revenue recognition; failing to record an allowance for doubtful accounts for a loan to the former Representative Director that was measured based on the loan's recoverability; and improperly recording sales to an overseas corporation, in which the former Representative Director and Chairperson was the effective controlling party, as well as failing to properly include this corporation in the scope of consolidation. As a result, the Company was found to have made disclosures deemed false in violation of the listing rules for quarterly earnings reports, etc., from the fiscal year ended Dec. 2017 through the first quarter of the fiscal year ended Dec. 2022. As a result of the subsequent corrections to past earnings reports, the Company has falsified as income each line of losses for the fiscal year ended Dec. 2016, disclosed as part of comparative financial information for the fiscal year ended Dec. 2017, and operating loss for the fiscal year ended Dec. 2018, thereby making disclosures omitting the statement of significant events, etc., relating to the premise of a going concern. As background to these disclosures, this case primarily recognized the following. ‐ Unattainable sales budgeting by the former Representative Director and Chairperson and his strict orders to meet the sales budget put pressure on officers and employees, leading to the recording of sales, etc., that were inappropriate in light of accounting standards. ‐ There was a lack of awareness of checks and balances, resulting in a constant dysfunctional governance system, as instanced by the fact that officers other than the former Representative Director and Chairperson approved proposals at meetings of the Board of Directors in compliance with the wishes of the former Representative Director and Chairperson without careful deliberation based on sufficient materials. ‐ The Company currently does not have a director in charge of administration and the internal audit department is understaffed, meaning that the structure of the administrative and internal audit departments is not well established. Further, the internal control systems, including a system to prevent sales and assets that do not correspond to the actual status from being recorded and a system for timely disclosure, are insufficient. TSE deems that this is a case of disclosure deemed false that has a considerable impact on the investors' 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. Moreover, this case involved the continued publication, over a long period, of incorrect financial information that is highly important for investment decision-making, and the disclosure of information omitting the statement of significant events, etc., related to the premise of a going concern. As such, TSE deems that this case has undermined the confidence of shareholders and investors in the TSE market and, therefore, shall impose a listing agreement violation penalty on the Company. |
Current Designations of Securities on Alert
Designation History of Designation of Securities on Alert
Listing Agreement Violation Penalty
Designation History of Designation of Securities on Alert
Listing Agreement Violation Penalty
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