Market News
Dec. 13, 2024 TSE Request for Improvement Report and Imposition of Listing Agreement Violation Penalty: GALA INCORPORATED
TSE has requested an Improvement Report and imposed a listing agreement violation penalty as follows.
*This decision is based on the results of the examination by Japan Exchange Regulation.
| １．Company Name | GALA INCORPORATED (Code: 4777, Market Segment: Standard Market) |
| ２．Improvement Report Submission Deadline |
Jan. 20, 2025 (Mon.) |
| Reason (Related Clause) |
Due to disclosed information containing false statements and improvements being deemed highly necessary (Securities Listing Regulations, Rule 504, Paragraph 1, Item (1)) |
| ３．Listing Agreement Violation Penalty Total |
JPY 20 million (Note 1) |
| Reason (Related Clause) |
Due to falling under a case where TSE deems that the listed company has violated the provisions of timely disclosure and has undermined the confidence of shareholders and investors in the TSE market (Securities Listing Regulations, Rule 509, Paragraph 1, Item (1)) |
| ４．Details of Reason | GALA INCORPORATED (hereinafter "the Company") disclosed an investigation report of the special investigation committee concerning inappropriate accounting processing at the Company group on Sep. 9, 2024, and disclosed corrections to its financial results for past fiscal years on Nov. 12 of the same year. These disclosures revealed that the Company had incorrectly applied accounting standards and recorded game development costs as software, an asset, instead of expenses. As a result, the Company was found to have made false disclosures in violation of the listing rules for earnings reports and other timely disclosure materials from the fiscal year ended Mar. 2019 to the first quarter of the fiscal year ending Dec. 2024, and as a result of the subsequent corrections to earnings reports, net assets were found to have been negative from the fiscal year ended Mar. 2019 to the fiscal year ended Mar. 2020. The following points were identified as the main reasons for these disclosures. - The accounting processes and accounting system were not adequately developed. For example, despite the fact that the Company's main business is gaming, there was no accounting policy for game development costs. Also, the management team had no awareness of the possibility of making mistakes in accounting processing decisions, leaving the accounting manager to make all decisions on the recording of game development costs as assets, where the accounting manager was the only person considering such recording in accordance with the accounting auditor's judgment. - The Company’s board of directors did not sufficiently discuss or consider decisions or important accounting processes regarding the gaming business. In addition, monitoring of and checks and balances for accounting and its processing by the board of directors did not adequately function, as instanced by the fact that when deciding whether or not to record software as an asset, the board of directors did not fully discuss the uncertainty of the budget and business plans, and after that, did not appropriately review them in accordance with the development status. - The representative director and other members of the management team lacked an understanding of important accounting issues and awareness of the need for compliance with accounting standards and other rules. - The management system and processes for development projects and contracts were not adequately developed, as for instance, there were no internal rules for managing development projects, and the details of contracts were agreed upon orally without any records being kept internally. As described above, this case involves the disclosure of false information as a result of the Company not having adequate accounting processing and systems in place and the board of directors not adequately exercising its monitoring and checks and balances functions, leading to insufficient examination of the appropriateness of recording costs as software (i.e., assets). As such, improvements in the Company's system for timely disclosure are deemed highly necessary. Based on the investigation results issued by the special investigation committee and its proposals, among other things, the Company disclosed recurrence prevention measures on Oct. 30, 2024, and progress has already been made to some extent. However, TSE has decided to require the Company to submit a report that includes the circumstances behind the incident and the Company's measures for improvement in order to encourage the Company to thoroughly implement such measures. Moreover, this case involved the continued publication, over a long period, of incorrect information with regards to financial information that is highly important for investment decision-making, as instanced by the fact that the Company has fallen into insolvency for two consecutive terms as a result of the corrections to the past earnings reports due to the Company's inadequate systems. 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. |
(Note 1) In accordance with the provisions of Paragraph 4 of the supplementary provisions for the Apr. 4, 2022 revisions to the Enforcement Rules for the Securities Listing Regulations, which relate to the “Partial Revisions to the Securities Listing Regulations, etc. pertaining to Partial Revision of Japan’s Corporate Governance Code (Third set of revisions pertaining to cash equity market restructuring),” as the acts in this case were conducted while the Company was listed on the JASDAQ market before the date of enforcement (Apr. 4, 2022), the amount specified in Rule 504, Paragraph 1, Item 1 of the Enforcement Rules for Securities Listing Regulations prior to the amendment has been applied.
(Note 2) After submission of the Improvement Report by the Company, it will be made available on the JPX website (https://www.jpx.co.jp/listing/measures/improvement-reports/index.html) and through the TDnet database service (both available only in Japanese).
Listing Agreement Violation Penalty
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