Starts Publishing Corporation

Under the consignment sales system that is customary in the publishing industry, the Company is obligated to accept returns from distributors and bookstores within the contracted period, and there is a persistent risk of losses due to returns. The Company records estimated future returns based on past return performance as a refund liability. As a countermeasure, the Company is working to reduce the return rate through planned publishing and expansion of e-book sales.

Publications are exempted from Article 23 of the Antimonopoly Act, allowing the resale price maintenance system, which maintains fixed-price sales at bookstores. However, the Japan Fair Trade Commission continues to request flexible operation of the current system from the industry. If this system is abolished, intensified competition in publishing may affect the Company's business performance. As a countermeasure, the Company is closely monitoring the Japan Fair Trade Commission's actions while striving to expand e-book sales, which are not affected by the resale price maintenance system.

Against the backdrop of diversification and proliferation of digital devices, faster networks, and the declining birthrate and aging population, sales of both paper books and magazines continue to decline, accompanied by a decrease in the number of bookstores, persistently high return rates, and rising logistics and printing costs. If the overall downturn in the publishing industry continues, it may adversely affect the Company's business results and financial condition. As a countermeasure, the Company is engaged in rapid content development through detailed market research and expansion of e-book sales.

The Company's novels and comics are published starting from its own novel posting sites, but competition is intensifying with competitors offering similar business models and content in the same genres, and the entry of major capital from other industries may further increase competition. Increased competition may adversely affect the Company's business performance. As a countermeasure, the Company is promoting content development that captures reader preferences, author discovery contests, and awareness-raising measures utilizing social media.

Advertising revenue accounted for approximately 13% of total sales in FY2025, and since many advertisers treat advertising costs as variable expenses, advertising spending tends to be reduced during economic downturns. A sharp economic downturn may adversely affect the Company's business performance. As a countermeasure, the Company aims to differentiate itself and enhance product competitiveness by focusing on solution proposals to clients that combine magazines, websites, social media, and marketing.

Operations have been strengthened due to amendments to related laws such as the Act on the Protection of Personal Information and the Act against Unjustifiable Premiums and Misleading Representations, and further additions, amendments, or tightening of related regulations may occur in the future. If new laws and regulations are enacted, strengthening the content management system and system modifications may become necessary, potentially affecting the Company's internet business operations to some extent. As a countermeasure, the Company strives to identify and address issues early by closely monitoring trends in legal regulations and new technologies.

The Company's internet business faces intense competition, with a very large number of domestic operators offering similar services and successive new entrants. If industry-wide competition intensifies, leading to price competition or further entry of major capital, it may have a material impact on the Company's business performance. As a countermeasure, the Company is focusing on providing highly reliable information and articles leveraging the brand strength accumulated in its publishing business, as well as offering projects and services linked to its publications.

The Company's internet business depends on communication networks and server systems, and service provision may become temporarily difficult due to natural disasters, failures at telecommunications carriers, cloud service outages, or cyberattacks such as ransomware or DDoS attacks. In the event of a failure, in addition to direct damage, the Company's business may be affected by a loss of trust from users and business partners. As a countermeasure, the Company has established technical response measures and implemented access restrictions to important databases.

In the publishing business and internet business, it is difficult to accurately anticipate in advance how intellectual property rights such as patent rights, utility model rights, trademark rights, and copyrights may apply, and if third-party patent rights of which the Company is unaware are established, the Company may face claims for damages or injunctions to cease use. Even if the use of another company's patent is permitted, the payment of royalties, etc. may adversely affect business performance. As a countermeasure, the Company strives to proactively acquire trademark rights and other rights, taking into account the future potential of its products.

The Company acquires and holds personal information through user membership registration in the operation of its websites, and if customer information is leaked outside the Company due to unforeseen circumstances, it may affect business performance due to a decline in customer trust and costs incurred to resolve related issues. As a countermeasure, the Company works to establish, strengthen, and continuously improve its security management system, and conducts study sessions for employees, requires the submission of pledges regarding the handling of personal information, and establishes rules for password management and access authorization.