3393 star english 2013 03 q2 report · 2 investments now. Q1 to Q2 results turned out to be much...

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URL: www.walden.co.jpWritten by Yoshiyuki MuroyaE-mail: yoshiyuki_muroya@walden.co.jpPhone +81 3 3553 3769

STARTIA (3393)Consolidated Fiscal Year Sales OP RP NP EPS DPS BPS(Million Yen) (Yen) (Yen) (Yen)FY03/2011 4,000 273 278 129 29.4 5.00 484.4FY03/2012 5,084 459 475 278 56.2 5.62 534.9FY03/2013CoE 6,039 600 600 300 60.5 6.05 -FY03/2012 YoY 27.1% 68.0% 71.1% 115.2% - - -FY03/2013CoE YoY 18.8% 30.7% 26.1% 7.7% - - -Consolidated Half Year Sales OP RP NP EPS DPS BPS(Million Yen) (Yen) (Yen) (Yen)Q1 to Q2 FY03/2012 2,296 89 102 57 - - -Q3 to Q4 FY03/2012 2,788 370 373 221 - - -Q1 to Q2 FY03/2013 3,090 276 283 167 - - -Q3 to Q4 FY03/2013CoE 2,949 324 317 133 - - -Q1 to Q2 FY03/2013 YoY 34.6% 210.3% 177.0% 191.7% - - -Q3 to Q4 FY03/2013CoE YoY 5.8% (12.5%) (15.0%) (39.7%) - - -Source: Company Data, WRJ Calculation

1.0 Executive Summary (29 November 2012)

Value-Added Web Solutions

STARTIA, providing mainly small-&-medium-sized corporate customers with total IT solutions, has a highpotential to see steady earnings growth in a long-term view. While sales of stock-based business model,which are stable sources of earnings, are increasing strongly, the Company is setting up a new 100%subsidiary in China, envisaging near future business developments in there on top of persistently increasingown sales network in Japan. The other thing is that sales of ActiBook, self-developed software to createE-book, as well as those of value-added web solutions (HP creations etc.), based on distinguished featurestemming from incorporation of ActiBook, are surging. Given increasing headcounts, corresponding toaggressive front-loaded investments for future business developments, the Company is also seeing increasesin costs. Still, the Company is seeing substantial improvements in earnings, as benefits from increasingstock sales and improving efficiency in own operations are far more than compensating.

In Q1 to Q2 FY03/2013, sales came in at ¥3,090m (up 34.6% YoY), operating profit ¥276m (up 210.3%),operating profit margin 8.9% (up 5.1% points) and ROE 12.6% (up 7.8% points). Gross profit marginremained almost unchanged, but suppressed increases in SG&A expenses made both operating profitmargin and profitability nicely improved. One of the factors for suppressed increases in SG&A expenses is,presumably, that stock sales are persistently increasing. As far as stock-based business model is concerned,costs to acquire customers are booked, intensively, at the beginning, while sales are booked on an ongoingbasis, depending on the usages of the Company’s products and/or services by customers. Over the past years,the Company intensively propelled stock sales, presumably withdrawing benefits of front-loaded

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investments now. Q1 to Q2 results turned out to be much better than expected, while full-year Companyforecasts have remained unchanged, potentially suggesting that earnings in H2 should come down over thelast year, superficially. The truth is, however, that the Company is currently scrutinizing the extent ofearnings growth during the same period.

On 18 September 2012, the Company made a move of office for its Fukuoka branch to more spacious one sothat the operations in there should be able to cope with future increases in demand, while newly setting up abranch, also in Fukuoka, for its 100% subsidiary, STARTIA Laboratory INC. in charge of Web Solutions atthe same time. Meanwhile, on 9 November, it was disclosed that the Company was going to set up a 100%subsidiary in Shanghai (scheduled in June 2013) in order to investigate potentials for businessdevelopments in China. On top of this, the Company has a growth driver, that is to say, long-termsubstitutions of conventional digital contents solutions with no log analysis capability by introducingvalue-added web solutions, incorporating ActiBook, self-developed software to create E-book, as thedistinguished feature, enabling digitalization for diversified paper-medium contents with log analysiscapability as well as with that of being viewed effectively by any devices.

IR representative: ir@startia.co.jp +81-3-5339-2162

2.0 Company Profile

Provider of IT Solutions and Office Facilities

CCompany Name STARTIA INC.Company WebsiteIR InformationShare Price

Established 21 February 1996Listing 20 December 2005 :TSE Mothers (Ticker : 3393)Capital ¥779m (As of the end of September 2012)No. of Shares 4,975,000 shares, including 114 treasury shares (As of the end of September 2012)Main Features Sales of IT-related devices for small-&-medium-sized corporate customers,

primarily in the Designated citiesDeveloped ActiBook, software to create E-bookEnhancing stock-based business model

Businesses . Web Solutions. Network Solutions. Business Solutions

Top Management President & CEO: Hideyuki HongouShareholders Hideyuki Hongou 44.7%, Akira Saiga 6.6%, Japan Trustee Services Bank 5.6% (As of

the end of September 2012)Headquarters Shinjuku-ku, Tokyo JAPANNo. of Employees Consolidated:373, Unconsolidated: 275 (As of the end of September 2012)

Source: Company Data

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3.0 Recent Trading & Prospects

FY03/2013 Q1 to Q2 Results

In Q1 to Q2 FY03/2013, sales came in at ¥3,090m (up 34.6% YoY), operating profit ¥276m (up 210.3%),recurring profit ¥283m (up 177.0%) and net profit ¥167m (up 191.7%). Operating profit margin came in at8.9% (up 5.1% points YoY), having improved substantially. Capital ratio stood at 73.3% (down 0.6% pointsYoY) and net cash ¥1,970m (up ¥370m), implying that the Company holds excess cash. Nevertheless, theCompany saw improving profitability as found in ROE12.6% (net profit, multiplied by two and divided byaverage equity capital in Q1 to Q2, up 7.8% points). Free cash flow came in at net outflow ¥119m, mainlyattributable to outflow ¥200m for depositing time deposit and thus it should be appropriate to understandthe Company effectively remains generating cash.

QQuarterly Sales & Operating Profit Margin

881

1,02

8

1,01

3

1,07

7

1,02

8

1,26

8

1,25

0

1,53

8

1,50

4

1,58

6

1,47

5

1,47

5

(4.7%)

15.5%

0.3%

14.1%

(6.5%)

12.3%7.9%

17.6%

6.2%11.5%11.0%11.0%

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

0

500

1,000

1,500

Q1FY03/2011

Q2FY03/2011

Q3FY03/2011

Q4FY03/2011

Q1FY03/2012

Q2FY03/2012

Q3FY03/2012

Q4FY03/2012

Q1FY03/2013

Q2FY03/2013

Q3FY03/2013

Q4FY03/2013

Sales (Million Yen) Operating Profit Margin (%)

Source: Company Data, WRJ Calculation

For the same old flow-based business model, sales came in at ¥2,017m (up 32.2% YoY), while ¥1,074m (up39.3%) for stock sales upon which the Company has been placing emphasis over the past years, exceedingthe growth rates of the former. The latter accounted for increased proportion of overall sales, i.e., 34.7% (up1.1% points YoY). Gross profit margin remained roughly stable at 52.5% (down 0.2% points), presumablygiven no major changes in product mix, while the ratio of SG&A expenses against sales came down sharplyto 43.6% (down 5.3% points), contributing to improvements in operating profit margin. In regards tostock-based business model, sales promotion expenses are tended to be booked on a front-loaded basis andthus increasing sales from here imply that the Company is withdrawing benefits of the front-loadedinvestments. Progresses in here, as well as improvements in operations as a whole, are estimated to havecontributed to decreasing ratio of SG&A expenses against sales.

As far as the same old flow-based business model is concerned, the Company’s products and/or services aresold on an outright basis and thus it periodically requires substantial sales promotion expenses to providethem with customers, on an ongoing basis. On stock-based business model, it is the same that sales

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promotion expenses are indispensable to start up, while the Company collects compensation on an ongoingbasis, depending on the usages of the Company’s products and/or services, making it easier to continue doingso in a long-term view, while additional sales promotion expenses are not incurred very much, according tothe Company. The fact that compensation is collected on an ongoing basis makes the Company spare salespromotion expenses on a front-loaded basis. Still, given exposure to increased 34.7% for stock sales out ofoverall sales in Q1 to Q2 results, the Company is now withdrawing benefits from the front-loadedinvestments over the past years, contributing to improvements of earnings.

By segment, Network Solutions (outright sales, maintenance & rental of network equipment, hosting etc.),where stock sales are estimated to account for increasing 60% or so, contributed most significantly to overallearnings with the Company. One of the key drivers here came from growth in “Secure SAMBA”, theCompany’s unique on-line storage service, belonging to hosting, while sales came in at ¥855m (up 27.5%YoY), operating profit ¥168m (up 173.5%) and operating profit margin 19.6% (up 10.5% points) for thissegment.

In Business Solutions, comprising the same old operations, sales were driven by OTOKU line (sales oflow-priced telephone lines), outright sales of MFPs (Multifunctional Peripherals) and Counter (billingincome, based on hard copy emission volume for MFPs, used by customers on a rental basis, etc.), improvingoperating profit margin to a large extent. Sales came in at ¥1,565m (up 32.7% YoY), operating profit ¥67m(up 639.7%) and operating profit margin 4.3% (up 3.5% points).

In Web Solutions, where the Company is involved with ActiBook, self-developed software to create E-book,as well as with value-added web solutions (HP creations etc.), incorporating solutions based on the software,sales came in at ¥671m (up 50.2% YoY), operating profit ¥60m (up 79.4%) and operating profit margin 8.9%(up 1.5% points). Sales of ActiBook, software to create E-book, were very strong, while sales of web solutions,incorporating adoptions of the software as distinguished feature, doubled from the last year. However,operating profit margin hardly improved as costs are increasing in line with the Company’s strategy to makeoperations here the key future growth driver with the Company, after intensive front-loaded investments byallocating increasing headcounts for enhancing R&D etc. in here.

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Income Statement (Cumulative, Quarterly)Income Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Sales 1,028 2,297 3,546 5,084 1,504 3,091 - - +794CoGS 509 1,085 1,662 2,305 739 1,468 - - +383Gross Profit 519 1,212 1,884 2,779 766 1,623 - - +411SG&A 586 1,123 1,696 2,320 672 1,347 - - +224

Operating Profit (67) 89 188 459 94 276 - - +187Non Operating Balance (1) 13 13 17 (8) 7 - - (6)

Recurring Profit (68) 102 201 476 86 283 - - +181Extraordinary Balance 1 (0) (1) 5 0 0 - - +0

Pretax Profit (67) 102 200 481 86 283 - - +181Tax Charges etc. (21) 45 95 202 42 116 - - +72

Net Profit (46) 57 105 279 44 167 - - +110Sales YoY +16.7% +20.3% +21.3% +27.1% +46.3% +34.6% - - -Operating Profit YoY - (24.6%) +54.6% +68.0% - +210.3% - - -Recurring Profit YoY - (18.0%) +51.8% +71.1% - +177.1% - - -Net Profit YoY - (11.9%) +51.7% +115.2% - +191.7% - - -Gross Profit Margin 50.5% 52.8% 53.1% 54.7% 50.9% 52.5% - - (0.2%)(SG&A / Sales) 57.0% 48.9% 47.8% 45.6% 44.6% 43.6% - - (5.3%)Operating Profit Margin (6.5%) 3.9% 5.3% 9.0% 6.3% 8.9% - - +5.1%Recurring Profit Margin (6.7%) 4.5% 5.7% 9.4% 5.7% 9.2% - - +4.7%Net Profit Margin (4.5%) 2.5% 3.0% 5.5% 2.9% 5.4% - - +2.9%Tax Charges etc. / Pretax Profit 31.8% 43.8% 47.3% 42.0% 48.7% 41.0% - - (2.8%)Income Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Sales 1,028 1,269 1,249 1,538 1,504 1,587 - - +318CoGS 509 576 577 643 739 729 - - +153Gross Profit 519 692 672 896 766 858 - - +165SG&A 586 536 573 624 672 675 - - +139

Operating Profit (67) 156 99 271 94 182 - - +26Non Operating Balance (1) 15 (1) 4 (8) 15 - - +1

Recurring Profit (68) 171 98 275 86 197 - - +27Extraordinary Balance 1 (1) (0) 5 0 0 - - +1

Pretax Profit (67) 169 98 281 86 197 - - +28Tax Charges etc. (21) 66 50 107 42 74 - - +8

Net Profit (46) 103 48 173 44 123 - - +20Sales YoY +16.7% +23.4% +23.3% +42.8% +46.3% +25.1% - - -Operating Profit YoY - (2.3%) +2,700.3% +78.8% - +16.7% - - -Recurring Profit YoY - +1.1% +1,226.6% +88.5% - +15.6% - - -Net Profit YoY - (7.2%) +992.0% +188.7% - +19.2% - - -Gross Profit Margin 50.5% 54.6% 53.8% 58.2% 50.9% 54.0% - - (0.5%)(SG&A / Sales) 57.0% 42.3% 45.9% 40.6% 44.6% 42.6% - - +0.3%Operating Profit Margin (6.5%) 12.3% 7.9% 17.6% 6.2% 11.5% - - (0.8%)Recurring Profit Margin (6.7%) 13.5% 7.9% 17.9% 5.7% 12.4% - - (1.0%)Net Profit Margin (4.5%) 8.1% 3.8% 11.3% 2.9% 7.8% - - (0.4%)Tax Charges etc. / Pretax Profit 31.8% 39.0% 51.0% 38.2% 48.7% 37.6% - - (1.4%)Source: Company Data, WRJ Calculation

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Segmented Information (Cumulative, Quarterly)Segmented Information Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Web Solutions 207 447 710 1,074 298 671 - - +224Network Solutions 316 671 1,029 1,425 419 855 - - +185Business Solutions 505 1,180 1,808 2,585 788 1,565 - - +386

Sales 1,028 2,297 3,546 5,084 1,504 3,091 - - +794Web Solutions +57.4% +44.5% +47.8% +53.1% +43.8% +50.2% - - -Network Solutions +12.1% +17.3% +13.1% +16.3% +32.4% +27.5% - - -Business Solutions +7.9% +14.6% +17.9% +24.7% +56.1% +32.7% - - -

Sales (YoY) +16.6% +20.3% +21.3% +27.1% +46.3% +34.6% - - -Web Solutions 20% 19% 20% 21% 20% 22% - - -Network Solutions 31% 29% 29% 28% 28% 28% - - -Business Solutions 49% 51% 51% 51% 52% 51% - - -

Sales (Composition) 100% 100% 100% 100% 100% 100% - - -Web Solutions (3) 33 94 221 7 60 - - +27Network Solutions 10 61 113 180 84 168 - - +107Business Solutions (67) 9 6 92 12 67 - - +58

Operating Profit (Before Elimination) (59) 104 213 493 103 295 - - +191Elimination (8) (15) (25) (34) (9) (19) - - (4)

Operating Profit (67) 89 188 459 94 276 - - +187Web Solutions - (28.0%) +74.8% +94.3% - +79.4% - - -Network Solutions +94.6% +36.2% +37.1% +64.5% +703.1% +173.5% - - -Business Solutions - (77.6%) +31.7% +31.7% - +639.7% - - -

Operating Profit YoY - (24.6%) +54.6% +68.0% - +210.3% - - -Web Solutions 4% 32% 44% 45% 6% 20% - - -Network Solutions (18%) 59% 53% 37% 82% 57% - - -Business Solutions 113% 9% 3% 19% 12% 23% - - -

Operating Profit (Composition) 100% 100% 100% 100% 100% 100% - - -Web Solutions (1.2%) 7.5% 13.2% 20.6% 2.2% 8.9% - - +1.5%Network Solutions 3.3% 9.2% 11.0% 12.6% 20.0% 19.6% - - +10.5%Business Solutions (13.3%) 0.8% 0.3% 3.6% 1.6% 4.3% - - +3.5%

Operating Profit Margin (6.5%) 3.9% 5.3% 9.0% 6.2% 8.9% - - +5.1%Segmented Information Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Web Solutions 207 239 263 364 298 373 - - +133Network Solutions 316 354 358 396 419 436 - - +82Business Solutions 505 675 628 778 788 778 - - +103

Sales 1,028 1,269 1,249 1,538 1,504 1,587 - - +318Web Solutions +57.4% +35.0% +53.8% +64.6% +43.8% +55.7% - - -Network Solutions +12.1% +22.4% +6.1% +25.2% +32.4% +23.1% - - -Business Solutions +7.9% +20.2% +24.5% +44.2% +56.1% +15.2% - - -

Sales (YoY) +16.6% +23.4% +23.3% +42.8% +46.3% +25.1% - - -Web Solutions 20% 19% 21% 24% 20% 23% - - -Network Solutions 31% 28% 29% 26% 28% 27% - - -Business Solutions 49% 53% 50% 51% 52% 49% - - -

Sales (Composition) 100% 100% 100% 100% 100% 100% - - -Web Solutions (3) 36 60 127 7 53 - - +17Network Solutions 10 51 52 66 84 84 - - +33Business Solutions (67) 76 (3) 86 12 55 - - (21)

Operating Profit (Before Elimination) (59) 163 109 280 103 192 - - +29Elimination (8) (7) (10) (9) (9) (10) - - (3)

Operating Profit (67) 156 99 271 94 182 - - +26Web Solutions - (19.5%) +742.6% +111.6% - +48.4% - - -Network Solutions +94.6% +28.3% +38.2% +149.9% +703.1% +64.8% - - -Business Solutions - (7.9%) (91.1%) +31.7% - (28.0%) - - -

Operating Profit YoY - (2.3%) +2,700.2% +78.8% - +16.7% - - -Web Solutions 4% 22% 55% 45% 6% 28% - - -Network Solutions (18%) 31% 48% 24% 82% 44% - - -Business Solutions 113% 47% (3%) 31% 12% 28% - - -

Operating Profit (Composition) 100% 100% 100% 100% 100% 100% - - -Web Solutions (1.2%) 15.0% 22.9% 34.9% 2.2% 14.3% - - (0.7%)Network Solutions 3.3% 14.4% 14.5% 16.8% 20.0% 19.2% - - +4.9%Business Solutions (13.3%) 11.3% (0.5%) 11.1% 1.6% 7.0% - - (4.2%)

Operating Profit Margin (6.5%) 12.3% 7.9% 17.6% 6.2% 11.5% - - (0.8%)Source: CompanyData, WRJ Calculation

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Cash Flow Statement (Cumulative, Quarterly)

Cash Flow Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.ActQ1 Q1 to Q2 Q1 to Q3 Q1 to Q4 Q1 Q1 to Q2 Q1 to Q3 Q1 to Q4 YoY

(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Operating Cash Flow (101) 24 192 461 (4) 226 - - +202Investing Cash Flow (65) (116) (170) (240) (257) (345) - - (229)

Operating CF + Investment CF (166) (93) 22 221 (261) (119) - - (26)Financing Cash Flow (83) (116) (147) (186) (318) (83) - - +33

Cash Flow Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.ActQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY

(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Operating Cash Flow (101) 125 168 269 (4) 230 - - +106Investing Cash Flow (65) (51) (54) (70) (257) (89) - - (37)

Operating CF + Investment CF (166) 73 115 199 (261) 142 - - +68Financing Cash Flow (83) (34) (30) (39) (318) 234 - - +268

Source: Company Data, WRJ Calculation

Balance Sheet (Quarterly)

Balance Sheet Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.ActQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YoY

(Million Yen) 03/2012 03/2012 03/2012 03/2012 03/2013 03/2013 03/2013 03/2013 Net Chg.Cash & Deposit 1,761 1,774 1,886 2,055 1,938 2,053 - - +278Accounts Receivables 566 674 602 838 730 743 - - +69Inventory 20 13 21 26 41 36 - - +23Other 118 153 73 174 101 227 - - +74

Current Assets 2,464 2,615 2,581 3,092 2,810 3,059 - - +444Tangible Assets 111 122 116 109 104 117 - - (6)Intangible Assets 246 240 236 258 257 281 - - +41LT Investment Securities etc. 287 293 297 309 311 343 - - +50

Fixed Assets 645 655 649 676 671 741 - - +86Assets Carried Forward 13 12 11 10 8 7 - - (5)Total Assets 3,122 3,282 3,241 3,778 3,489 3,807 - - +525Accounts Payable 261 310 266 354 312 340 - - +31Short Term Debt 123 92 117 141 112 83 - - (9)Other 294 371 323 631 399 591 - - +220

Current Liabilities 678 772 706 1,126 822 1,014 - - +242Long Term Debt 112 83 54 0 0 0 - - (83)Other 0 0 0 1 1 1 - - +1

Fixed Liabilities 112 83 54 1 1 1 - - (83)Total Liabilities 790 855 760 1,127 823 1,015 - - +160Shareholders' Equity 2,333 2,436 2,485 2,658 2,674 2,800 - - +364Other (1) (10) (4) (7) (8) (8) - - +2Net Assets 2,332 2,427 2,481 2,651 2,666 2,792 - - +366Total Liabilities & Net Assets 3,122 3,282 3,241 3,778 3,489 3,807 - - +525Equity Capital 2,331 2,426 2,480 2,650 2,666 2,666 - - +240Interest Bearing Debt 235 175 171 141 112 83 - - (92)Net Debt (1,526) (1,600) (1,715) (1,914) (1,825) (1,970) - - (370)Capital Ratio 74.7% 73.9% 76.5% 70.2% 76.4% 73.3% - - (0.6%)Net Debt Equity Ratio (65.4%) (65.7%) (69.0%) (72.0%) (68.2%) (70.3%) - - (4.7%)ROE (Net Profit / Equity) (7.8%) 4.7% 5.8% 11.0% 6.6% 12.6% - - +7.8%ROA (Net Profit / Total Assets) (8.3%) 6.1% 8.0% 13.2% 9.5% 14.9% - - +8.9%Quick Ratio 343% 317% 352% 257% 324% 276% - - (41.5%)Current Ratio 363% 339% 365% 275% 342% 302% - - (37.0%)Source: Company Data, WRJ Calculation

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FY03/2013 Company Forecasts

In FY03/2013, Company forecasts are going for sales ¥6,039m (up 18.8% YoY), operating profit ¥600m (up30.7%), recurring profit ¥600m (up 26.1%) and net profit ¥300m (up 7.7%). Dividend per share is expected tobe ¥6.05, implying payout ratio 10.0%. Although Company forecasts in Q1 to Q2 were exceeded ¥320m insales, ¥147m in operating profit, ¥154m in recurring profit and ¥103m in net profit, full-year Companyforecasts (as of 11 May 2012) have remained unchanged to date. It could be the case, just simply thinking,that H2 prospects have been downgraded, but the truth is that the Company is currently in the process ofscrutinizing for prospective earnings in a rational manner.

As found in the fact that operating profit in Q4 accounted for 59.1% of full-year operating profit inFY03/2012, the Company’s earnings, on a quarterly basis, are heavily influenced by seasonal factors, bothsales and earnings being concentrated in Q4 to a large extent. In regards to performance in FY03/2013, thisis not expected to be exceptional and thus the concentration in Q4 is to take place, while Q3 performance toadjust as in the same way. The Company is now aggressively getting ready for sequential sales enhancementtowards coming Q4, according to itself.

On 18 September, the Company made a move of office for its Fukuoka branch to more spacious one in orderto be prepared with near-future business expansion. At the same time, the Company newly set up office forits STARTIA Laboratory INC., a 100% subsidiary in charge of Web Solutions, also in Fukuoka. On top ofthese, the Company newly set up its Yokohama branch, on 1 October. As recognized here, the Company hasbeen trying to enhance business scale through expanding own sales network and this will be a driver forsales in H2. In particular, as contributions from Fukuoka branch for STARTIA Laboratory INC. andYokohama branch have not been incorporated in Company forecasts, these are to bring some unexpectedadd-ons in FY03/2013.

Meanwhile, another issue is that the Company disclosed a plan to newly set up a 100% subsidiary inShanghai (scheduled in June 2013) in order to estimate opportunities to start up businesses in China,although this is unlikely to make meaningful impacts in FY03/2013. For some time, the Company has beeninvolved with human resource developments, for future developments overseas, as found in new graduateshiring as many as 65 in April 2012, exceeding the historical high. Prospects for April 2013 are some 80, atthe moment.

Changeover to stock-based business model from flow-based one is expected to continue feeding through as inthe past years. Stock sales are anticipated to account for 36.8% (up 4.1% points YoY) out of total. From aviewpoint of customers, changeover like this, “owning to using (managed rental)”, is something that shouldemerge further and thus the Company is to steadily enclose customers and to set up increasing stablesources for future earnings.

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CChanges in Company Forecasts in FY03/2013 and Results

Consolidated Fisal Year Date Event Sales OP RP NP(Million Yen)FY03/2013CoE 11-May-12 Q4 Results 6,039 600 600 300FY03/2013CoE 31-Jul-12 Q1 Results 6,039 600 600 300FY03/2013CoE 19-Oct-12 Revision 6,039 600 600 300FY03/2013CoE 29-Oct-12 Q2 Results 6,039 600 600 300

Amount of Gap 0 0 0 0Rate of Gap 0.0% 0.0% 0.0% 0.0%

Consolidated Half Year Date Event Sales OP RP NP(Million Yen)Q1 to Q2 FY03/2013CoE 11-May-12 Q4 Results 2,770 129 129 64Q1 to Q2 FY03/2013CoE 31-Jul-12 Q1 Results 2,770 129 129 64Q1 to Q2 FY03/2013CoE 19-Oct-12 Revision 3,090 276 283 167

Amount of Gap 320 147 154 103Rate of Gap 11.6% 114.0% 119.4% 160.9%

Q1 to Q2 FY03/2013Act 29-Oct-12 Q2 Results 3,090 276 283 167Amount of Gap 0 0 0 0Rate of Gap 0.0% 0.0% 0.0% 0.0%

Consolidated Half Year Date Event Sales OP RP NP(Million Yen)Q3 to Q4 FY03/2013CoE 11-May-12 Q4 Results 3,269 471 471 236Q3 to Q4 FY03/2013CoE 31-Jul-12 Q1 Results 3,269 471 471 236Q3 to Q4 FY03/2014CoE 19-Oct-12 Revision 2,949 324 317 133

Amount of Gap (320) (147) (154) (103)Rate of Gap (9.8%) (31.2%) (32.7%) (43.6%)

Q3 to Q4 FY03/2014CoE 29-Oct-12 Q2 Results 2,949 324 317 133Amount of Gap 0 0 0 0Rate of Gap 0.0% 0.0% 0.0% 0.0%

Consolidated Quarter Date Event Sales OP RP NP(Million Yen)Q1 FY03/2013CoE 11-May-12 Q4 Results 1,329 20 20 -Q1 FY03/2013Act 31-Jul-12 Q1 Results 1,504 93 85 44

Amount of Gap 175 73 65 -Rate of Gap 13.2% 365.0% 325.0% -

Consolidated Quarter Date Event Sales OP RP NP(Million Yen)Q2 FY03/2013CoE 11-May-12 Q4 Results 1,441 108 108 -Q2 FY03/2013Act 29-Oct-12 Q2 Results 1,586 183 198 123

Amount of Gap 145 75 90 -Rate of Gap 10.1% 69.4% 83.3% -

Consolidated Quarter Date Event Sales OP RP NP(Million Yen)Q3 FY03/2013CoE 11-May-12 Q4 Results 1,573 153 153 -Consolidated Quarter Date Event Sales OP RP NP(Million Yen)Q4 FY03/2013CoE 11-May-12 Q4 Results 1,694 318 318 -

Source: Company Data, WRJ Calculation

10

Long-Term Prospects

In the Company’s 3-year projections (FY03/2012 to FY03/2014), released on 25 May 2011, prospective sales¥6,800m, operating profit ¥800m and operating profit margin 11.8% are anticipated in the final year, i.e.,FY03/2014. In FY03/2012, sales came in at ¥5,084m and operating profit ¥459m, implying operating profitmargin 9.0%. Based on these figures, prospective growth rates in sales and operating profit over the nexttwo years are suggested at 15.7% (pa, CAGR) and 32.0%, respectively, while operating profit margin issuggested to rise 2.8% points during the same period.

LLong-Term Prospects

4,188

4,768

3,354

4,000

5,084

6,039

6,8001.0%

3.2%

5.1% 4.8%

6.8%

9.0%9.9%

11.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

03/2007

03/2008

03/2009

03/2010

03/2011

03/2012

03/2013

03/2014

Sales (Million Yen)

OperatingProfitMargin (%)

Source: Company Data, WRJ Calculation

In FY03/2012, the first year of the 3-year projections, sales were exceeded 8.2% and operating profit 14.8%compared with assumptions in the 3-year projections. Given stronger-than-expected momentum like thisprospective sales in FY03/2013 were revised up 5.9% to ¥6,039m, compared with initial forecasts ¥5,700min the 3-year projections. Still, prospective operating profit ¥600m has remained unchanged to date,implying operating profit margin 9.9%. Q1 to Q2 FY03/2013 results were better than assumptions here, butfull-year Company forecasts have remained unchanged, as mentioned earlier. In regards to prospects forFY03/2014, the Company has not made any particular mentioning to date.

Business portfolio with the Company, having had experienced reorganization in FY03/2010, exclusivelycomprises businesses with high growth potentials in the future. In particular, the contents of Web Solutions,comprising ActiBook, self-developed software to create E-book and valued-added web solutions (HPcreations etc.) incorporating distinguished solutions based on ActiBook, has the highest growth potential inthe future. While ActiBook, software to create E-book, has been adopted in diversified major corporatecustomers belonging to publishing and newspaper industries, it appears that the same old customer base,i.e., small-&- medium-sized corporate customers are starting to do so in the form of adopting the Company’sweb solutions (HP creations etc.) incorporating distinguished solutions based on ActiBook.

11

The software is adopted for digitalization of free paper-medium contents etc. Meanwhile, the Companycollects compensation fees for the usages of the software as tools to do so, in the form of outright sales, rentalfees, fees for maintenances and/or version-ups etc. Detailed objects for digitalization include “catalogues”,“brochures”, “manuals”, “house newsletters”, “agreements” etc. All of them are contents that used to bedistributed as printed paper-medium materials while the Company copes with needs to digitalize them sothat they should be viewed on web pages, just like by means of printed paper-medium materials.

Thus, the Company is involved with a different market. The market for E-book, in a general sense, relates toone where the operations mainly relate to retailing of digitalized pay paper-medium contents to consumersand therefore the Company is not exposed to head-on competition with the largest players in there.Meanwhile, the Company is eager to improve quality, functionalities and integration with websites than thecurrent levels, trying to set up de facto standards in the market to which it is exposed.

For example, one of the characteristics with the software is a functionality called “one authoring multidevices”, by which anybody can easily create E-book, while distributing the contents to diversified channelswith low costs. This means that a single operation to create E-book makes it possible for the contents to beviewed through personal computers, Smartphone, tablet computers as well as almost all the rest of thedevices. This is one of the distinguished features with the Company’s software. On top of this, the softwareincorporates diversified functionalities such as log analysis etc., and thus accesses within the contents areanalyzed just like on the websites.

On the other hand, changeover from , “owning to using (managed rental)” is an issue that is likely makingsteady progress, going forward, in IT industry to which the Company belongs. In line with this move, theCompany is likely achieving steady changeover to stock-based business model in a long-term view, resultingin establishment of increased sources for future earnings with the Company.

On top of the issues discussed here, it should be noted that the Company has ample room to expand its salesnetwork in Japan as well as high opportunities to further cultivate new customers in regions alreadycovered by the existing sales network. As for the existing customer bases, it should be possible to furtherenhance sales per customer by aggressively promoting products and/or services in Web Solutions, while thepursuit of stock-based business model should make further increases in sources for stable earnings.Eventually, all such strategies will be applied in new customers, as well.

4.0 Business Model

STARTIA Group to Expand

STARTIA group, headed by the Company, is in the process of expansion of its businesses for long-termgrowth. The Company is based in Shinjuku, while it has been running own bases in Osaka and Fukuoka,seeing a new opening of a branch in Nagoya in October 2011 and another one in Yokohama in October 2012,implying increasing potentials for new customer developments, region-wise, as well as increasing sales fromhere. Meanwhile, on top of existing consolidated subsidiaries, i.e., STARTIA Laboratory INC. (100% owned)and MAC Office INC. (38.6% owned), the Company implemented capital injections to Urban Plan INC.

12

(34.2% owned) in January 2012, while having completed registration of STRATIA SOFT INC. (30.0% owned)in China. More recently, it was accounted that the Company was to set up a 100% subsidiary in Shanghai(STARTIA SHAGHAI INC., capital ¥35m), in June 2013, in order to envisage opportunities to start upbusinesses in China.

For example, one of the key operations with STARTIA Laboratory INC., in charge of Web Solutions, relatesto developments of ActiBook, software to create E-book. Meanwhile, the Company carried out capitalinjections in STARTIA SOFT which is involved with planning and developing for software, based in China,in order to pursue efficiency for developing the software. The levels of efficiency for developing software herefar exceeds those in Japan, and the costs for the developments are roughly halved compared with those inJapan. Given favorable developments of operations, the Company is planning to increase the number ofengineers with STARTIA SOFT, although already up to some 45 to date from some 10 at the time of theestablishment. As a whole, it should be spotted that the Company is hurrying expansion region-wise as wellas implementing measures to pursue efficiency.

Proposing Total IT Solutions for Corporate Customers with Headcounts Fewer Than 300

The Company mentions its mission is "to eliminate the digital divide (disparity of information) and to helpcustomers to become a vibrant entity” through its businesses of “proposing Total IT solutions for corporatecustomers with headcounts fewer than 300”. In corporate customers with headcounts fewer than 300, it isincreasingly needed to get equipped with decent IT environment just like larger peers, but they often cannotafford running dedicated team for this, while the largest system integrators and dealers of network devicesare not so active in marketing to them due to inefficiency, stemming from small headcounts fewer than 300,according to the Company. Now, for the advantage of the fact, the Company’s idea is to set this domain as thecore part to develop. It could be said that the Company is mainly in charge of outsourcing for IT operationsof corporate customers with headcounts fewer than 300.

TThe Number of Business Operators (6.01m in Total) with Headcounts Fewer than 300 by Region

1,476

820

356543

2,815

Kanto Region

Kansai Region

Kyusyu Region

Toukai Region

Other Regions

(thousand)

Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications, 2009 Economic Consensus

13

The number of business operators with headcounts fewer than 300 is estimated at 6.01m, nation-wide, ofwhich almost half has been covered by the Company’s own bases in Tokyo, Osaka and Fukuoka as potentialcustomer bases (although the real potential customer bases should be smaller, when taking into accountsthe Company’s dominant area strategy to be mentioned later). They, respectively, cover Kanto region (Tokyo,Kanagawa, Saitama and Chiba), Kansai region (Osaka, Hyogo and Kyoto) and Kyushu region (Fukuoka,Kumamoto and Saga). In these existing areas, there should be potentials to cultivate and/or develop morecustomers, while new opening of Nagoya branch, in October 2011, created a new base for the Company tocover Tokai region (Aichi, Gifu and Mie), having made it exposed to potential customers as many as 3.2m,which is more than half of total 6.01m. The new opening of Yokohama branch in October 2012 is tosubstantially contribute to sales network enhancement in Kanto region. Going forward, the Company isplanning to set up new bases in Ordinance-Designated Cities like Sendai, Sapporo and Hiroshima in thenear future in order to further expand its potential customer coverage.

The characteristics of sales activities with the Company are that they are based on cross selling and upselling. It is almost always the case that sales activities with new customers start up with opening newaccounts with them by offering some specific products and/or services as hooks to start up. Such salesactivities are not supposed to be done in order to increase the number of customers who buy in those specificproducts and/or services but to make them eventually buy in diversified products and/or services afterwardswhile pursuing improving businesses with them in a long-term view so that the Company should maximizesales per customer. One of the ways to pursue this is to make progress in changeover to stock-based businessmodel from flow-based business model, and the Company’s measures to do so have been working very well,resulting in persistent increases in exposure to stock-based business model.

SStock Sales

8651,149

1,664

2,22125.8%

28.7%32.7%

36.8%

0.0%

10.0%

20.0%

30.0%

40.0%

0

1,000

2,000

3,000

03/2010 03/2011 03/2012 03/2013

Stock Sales (Million Yen) Ratio to Total (%)

Source: Company Data, WRJ Calculation

The Company has abundant in-house engineers in diversified fields, while they speak to each customer, faceto face, and thus distance with customers is set to be the shortest physically and psychologically, enablingthe Company to offer appropriate products and/or services for customers. On top of this, the Company

14

introduces unified inquiry-responding system as well as unified billing system, in order to facilitatecustomer enclosure. Providing customers with such high quality solutions requires them to be physicallylocated near the Company’s sales bases, and thus the Company adopts dominant area strategy where theCompany mainly deals with customers which are based in areas where it takes within 60 to 90 minutes toarrive by travelling.

Business Segments

The Company’s business comprises three business segments, Web Solutions (21% of sales and 45% ofoperating profit in FY03/2012), Network Solutions (28% and 37%) and Business Solutions (51% and 19%). InFY03/2012, all the three business segments saw year-on-year increases in both sales and operating profit.Business Solutions effectively relate to the same old businesses, and they carry low profit margin, givinglimited impacts to overall earnings with the Company, although both sales and operating profit are on thesteady rise. On the other hand, Web Solutions are the key driver for overall earnings, in FY03/2013,comprising ActiBook, software to create E-book as well as web solutions (HP creations etc.) incorporatingActiBook as the distinguished feature. Network Solutions, seeing increasing exposure to stock-basedbusiness model, also contributed to overall earnings to a large extent.

SSales and Operating Profit by Business Segment

Sales Operating Profit

444701

1,074

1,0491,226

1,425

1,8612,073

2,585

0

500

1,000

1,500

2,000

2,500

3,000

03/2010 03/2011 03/2012

WebSolutions

Network Solutions

Business Solutions

MillionYen

137114

221

4

109

180

6670

92

0

50

100

150

200

250

03/2010 03/2011 03/2012

WebSolutionsNetwork SolutionsBusiness Solutions

MillionYen

Source: Company Data, WRJ Calculation

Web Solutions

Web Solutions comprises businesses related to E-book and those to web-related business. The formerincludes developments and sales of ActiBook, software to create E-book, while the latter to value-added websolutions (HP creations etc.) incorporating the former as the distinguished feature. In FY03/2012, salesrelated to E-book accounted for some three fourth of total. As mentioned earlier, ActiBook, software to createE-book, is anticipated to be the key driver for long-term earnings with the Company, and the Company plansto set up de facto standards, sooner or later, in the market to which it is exposed. It appears that thesoftware carries high profit margin, and this made Web Solutions to see the highest profit margin out of thethree business segments.

15

WWeb Solutions: Sales Breakdown in FY03/2012

E-book-Related

Web-Related

Source: Company Data, WRJ Calculation

Network Solutions

Network Solutions mainly comprises network devices, managed gate and hosting, constituting the threemajor businesses in FY03/2012. The Company is also involved with ISP. The key characteristics with thisbusiness segment are its high exposure to stock-based business model, presumably at 60% in terms of sales.

Network Solutions: Sales Breakdown in FY03/2012

NetworkDevices

ManagedGate

ISP

Hosting

Source: Company Data, WRJ Calculation

Network devices, one of the three major businesses here in this segment, relate to outright sales of majormakers’ routers etc., including sales through leasing contracts. On the other hand, managed gate relates tooffering of the same devices on a rental basis. In this operation, the Company is not only involved withrental of such devices but also with 24-hour maintenance (managed) services. At the same time, theCompany is in charge of rental of peripheral software such as firewalls and sales stemming from here areincluded in sales of managed gate.

Hosting relates to the Company’s hosting services for own customers. In here, sales of self-developedservices, called, “Secure SAMBA”, are included, and adoptions of the services among customers arefavorably increasing, providing high convenience with them. “Secure SAMBA” relates to unique on-linestorage services on a SaaS basis by which customers are able to share files among different bases as if theywere running an internal file server in an office. For example, instead of getting hard copy of a facsimilemessage received by MFPs, the services make it possible to store the message as digital data in file server, sothat it should be viewed at any convenience in terms of timing and the format. Meanwhile, ISP relates to

16

sales of Internet access services for customers.

Business Solutions

Business Solutions mainly comprises business phones, MFPs, counter and OTOKU line. In FY03/2012,collective sales of these four main constituents were almost equal to total sales in this segment, while therest of this segment related to managed telephony and rental MFPs.

All these constituents here in this segment are basically the same old businesses with which the Companyhas been involved since its inception. Network Solutions and Web Solutions, more recently set up, havegrown more rapidly over the past years in terms of sales and particularly in earnings, and this segment isbecoming increasingly less important as a contributor to overall earnings with the Company. Nevertheless,OTOKU line is very important as a hook to cultivate new customers from scratch. The Company is in chargeof cross selling and up selling at new customers, first acquired by this, implying this is an indispensablestepping stone.

BBusiness Solutions: Sales Breakdown in FY03/2012

Business Phones

ManagedTelephony

MFPs

RentalMFPs

Counter

OTOKU line

Source: Company Data, WRJ Calculation

Business phones relate to sales, installation work, maintenance etc. for business phones. MFPs relate tooutright sales of multifunctional peripherals (including those through leasing contracts), as a multi vendor.Counter relates to fees for maintenance services for MFPs to have been sold and/or rented to customers, ofwhich the bulk is billing in line with the volume of emissions for hard copy.

OTOKU line relates to sales of low-cost telephone line services for intra-city and/or international callsthrough the metal lines of SOFTBANK TELECOM Corp. Originally, this is a business model for theCompany to cultivate new customers for the operator of the services and to make them adopt the services,eventually, collecting fees associated with these activities from the operator, but the Company encloses someof them (as far as they have potentials to become own customers in the future) by means of introducing asystem called “slim billing” with which they receive invoices for the services as the Company’s customers. Asmentioned earlier, this is the hook for the Company to start up cross selling and up selling with customers,which is the key of the Company’s sales activities. Managed telephony relates to IP business phone rental,incorporating maintenance services, while rental MFPs literally relates to rentals of MFPs for customers.

17

5.0 Financial Statements

Income StatementIncome Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoE

FY FY FY FY FY FY YoY(Million Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.Sales 4,188 4,768 3,354 4,000 5,084 6,039 +955CoGS 2,336 2,668 1,387 1,742 2,305 - -Gross Profit 1,852 2,100 1,967 2,258 2,779 - -SG&A 1,716 1,858 1,807 1,984 2,320 - -

Operating Profit 136 242 160 273 459 600 +141Non Operating Balance 5 11 5 5 17 0 (17)

Recurring Profit 140 253 165 278 476 600 +124Extraordinary Balance 18 (57) (4) (20) 5 - -

Pretax Profit 158 196 161 258 481 - -Tax Charges etc. 57 102 46 128 202 - -

Net Profit 101 94 115 129 279 300 +21Sales YoY +27.8% +13.8% (29.7%) +19.3% +27.1% +18.8% -Operating Profit YoY +297.6% +78.0% (33.8%) +70.8% +68.0% +30.7% -Recurring Profit YoY +301.3% +80.1% (34.8%) +68.7% +71.1% +26.1% -Net Profit YoY - (7.1%) +22.5% +12.3% +115.2% +7.7% -Gross Profit Margins 44.2% 44.0% 58.6% 56.4% 54.7% - -(SG&A / Sales) 41.0% 39.0% 53.9% 49.6% 45.6% - -Operating Profit Margins 3.2% 5.1% 4.8% 6.8% 9.0% 9.9% +0.9%Recurring Profit Margins 3.4% 5.3% 4.9% 7.0% 9.4% 9.9% +0.6%Net Profit Margins 2.4% 2.0% 3.4% 3.2% 5.5% 5.0% (0.5%)Tax Charges etc. / Pretax Profit 35.9% 52.0% 28.4% 49.8% 42.0% - -Source: Company Data, WRJ Calculation

18

Segmented InformationSegmented Information Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoE

FY FY FY FY FY FY YoY(Million Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.Web Solutions - - 444 701 1,074 1,604 +530Network Solutions - - 1,049 1,226 1,425 1,445 +20Business Solutions - - 1,861 2,073 2,585 2,990 +405

Sales 4,188 4,768 3,354 4,000 5,084 6,039 +955Web Solutions - - - +57.9% +53.1% +49.4% -Network Solutions - - - +16.9% +16.3% +1.4% -Business Solutions - - - +11.4% +24.7% +15.6% -

Sales (YoY) +27.8% +13.8% (29.7%) +19.3% +27.1% +18.8% -Web Solutions - - 13% 18% 21% 27% -Network Solutions - - 31% 31% 28% 24% -Business Solutions - - 55% 52% 51% 50% -

Sales (Composition) 100% 100% 100% 100% 100% 100% -Web Solutions - - 137 114 221 - -Network Solutions - - 4 109 180 - -Business Solutions - - 66 70 92 - -

Operating Profit (Before Elimination) - - 207 293 493 - -Elimination - - (47) (20) (34) - -

Operating Profit 136 242 160 273 459 600 +141Web Solutions - - - (16.7%) +94.3% - -Network Solutions - - - +2,374.0% +64.5% - -Business Solutions - - - +5.2% +31.7% - -

Operating Profit YoY +297.6% +78.0% (33.8%) +70.8% +68.0% +30.7% -Web Solutions - - 66% 39% 45% - -Network Solutions - - 2% 37% 37% - -Business Solutions - - 32% 24% 19% - -

Operating Profit (Composition) 100% 100% 100% 100% 100% 100% -Web Solutions - - 30.8% 16.2% 20.6% - -Network Solutions - - 0.4% 8.9% 12.6% - -Business Solutions - - 3.6% 3.4% 3.6% - -

Operating Profit Margin 3.2% 5.1% 4.8% 6.8% 9.0% 9.9% +0.9%Source: CompanyData, WRJ Calculation

Per Share DataPer Share Data Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoE(Before Adjustments for Split) FY FY FY FY FY FY YoY(Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.No. of Shares FY End (-000 Shares) 22.1 22.1 22.1 4,953 4,956 - -Net Profit / EPS (-000 Shares) 22.0 21.6 21.4 4,401 4,954 - -

Treasury Stocks FY End (-000 Shares) 0.2 0.7 0.7 0 0 - -Earnings Per Share 4,597 4,346 5,376 29.4 56.2 60.5 -Earnings Per Share (Fully Diluted) 4,462 4,245 5,266 28.6 53.4 - -Book Value Per Share 54,955 58,658 61,579 484.4 534.9 - -Dividend Per Share 350.00 350.00 350.00 5.00 5.62 6.05 -Payout ratio 7.6% 8.1% 6.5% 17.0% 10.0% 10.0% -

Per Share Data Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoE(After Adjustments for Split) FY FY FY FY FY FY YoY(Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.Stock Split Factor 200 200 200 1 1 - -Earnings Per Share 23.0 21.7 26.9 29.4 56.2 60.5 -Book Value Per Share 274.8 293.3 307.9 484.4 534.9 - -Dividend Per Share 1.8 1.8 1.8 5.0 5.6 6.1 -

Source: Company Data, WRJ Calculation

19

Cash Flow Statement

Cash Flow Statement Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoEFY FY FY FY FY FY YoY

(Million Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.Operating Cash Flow 292 243 116 411 461 - -Investing Cash Flow (329) (183) (140) (215) (240) - -

Operating CF + Investment CF (37) 61 (24) 196 221 - -Financing Cash Flow 457 (49) 158 597 (186) - -

Source: Company Data, WRJ Calculation

Balance Sheet

Balance Sheet Cons.Act Cons.Act Cons.Act Cons.Act Cons.Act Cons.CoEFY FY FY FY FY FY YoY

(Million Yen) 03/2008 03/2009 03/2010 03/2011 03/2012 03/2013 Net Chg.Cash & Deposit 1,071 1,083 1,217 2,010 2,055 - -Accounts Receivables 603 543 604 631 838 - -Inventory 13 25 15 21 26 - -Other 59 177 169 146 174 - -

Current Assets 1,747 1,828 2,005 2,808 3,092 - -Tangible Assets 72 64 65 98 109 - -Intangible Assets 257 241 199 241 258 - -LT Investment Securities etc. 262 163 274 278 309 - -

Fixed Assets 590 468 538 616 676 - -Assets Carried Forward 0 0 0 15 10 - -Total Assets 2,337 2,296 2,543 3,439 3,778 - -Accounts Payable 276 274 247 292 354 - -Short Term Debt 347 145 299 152 141 - -Other 376 377 340 454 631 - -

Current Liabilities 999 796 887 898 1,126 - -Long Term Debt 133 243 293 141 0 - -Other 0 0 0 0 1 - -

Fixed Liabilities 133 243 293 141 1 - -Total Liabilities 1,132 1,039 1,180 1,039 1,127 - -Shareholders' Equity 1,197 1,257 1,363 2,404 2,658 - -Other 8 0 0 (5) (7) - -Net Assets 1,205 1,257 1,363 2,400 2,651 - -Total Liabilities & Net Assets 2,337 2,296 2,543 3,439 3,778 - -Equity Capital 1,196 1,256 1,363 2,399 2,650 - -Interest Bearing Debt 480 388 593 293 141 - -Net Debt (591) (695) (624) (1,717) (1,914) - -Capital Ratio 51.6% 54.8% 53.6% 69.8% 70.2% - -Net Debt Equity Ratio (49.4%) (55.3%) (45.8%) (71.4%) (72.0%) - -ROE (Net Profit / Equity) 8.1% 7.7% 8.8% 6.9% 11.0% - -ROA (Net Profit / Total Assets) 6.0% 10.9% 6.8% 9.3% 13.2% - -Quick Ratio 168% 204% 205% 294% 257% - -Current Ratio 175% 230% 226% 313% 275% - -Source: Company Data, WRJ Calculation

20

6.0 Other Information

Founded in 1996

The Company was founded on 21 February 1996, as Telecomnet Co. Ltd. in Tokorozawa, Saitama Prefecture.In those days, the Company was mainly involved with businesses, currently included in the segment ofBusiness Solutions. Company name was changed to STARTIA INC. in April 2004 and the Company’s shareswere listed in Mothers of Tokyo Stock Exchange, in December 2005. To date, the Company has been alsoinvolved with Network Solutions and Web Solutions. In FY03/2012, all the three segments with theCompany saw increases in sales and earnings, while prospective growth is promising for the Company.

Top management with the Company is Mr. Hideyuki Hongo (born in 1966), who is the current president &CEO and is the founder. Mr. Hongo is the top shareholder with the Company, holding 44.7% of the sharesoutstanding as of the end September 2012. He believes that human resource developments are the key forthe Company to achieve long-term growth, and thus trying hard to hire promising new graduates as manyas possible, sparing own resources as much as possible for this.

21

Company History

Date Events

February 1996 Established as Telecomnet Co. Ltd. with capital ¥3.0mOctober 1996 Company name, changed to ND Telecom Co., Ltd.

September 1997Submitted written notice for general Type II telecommunications business and accepted[A-09-2462]

January 2000 Starting up a hosting service “Digit@Link Rental Server"May 2002 Opening a branch in ShinjukuNovember 2002 Opening a branch in OsakaApril 2004 Company name, changed to STARTIA INC.December 2005 Listed on the Tokyo Stock Exchange MothersJuly 2006 Opening a branch in FukuokaApril 2007 Branch in Osaka to become the second headquarter officeJuly 2007 Starting to offer services of rental network devices, i.e., "managed gate”October 2007 Acquired MFP customers and counter business from Arest Inc.

April 2009Established STARTIA Laboratory INC. as subsidiary to be in charge of developingwebsites and software to create E-book.

June 2009MAC Office INC. to become an equity-accounted affiliate by underwriting third-partyallotment

July 2009 Facility Division, succeeded by MAC Office INC.October 2011 Opening a branch in NagoyaOctober 2011 STARTIA SOFT INC., based in China, established as an equity-accounted affiliate

December 2011STARTIA INC. and STARTIA Laboratory INC., authorized by ISMA (InformationSecurity Management System)

January 2012Urban Plan INC. to become an equity method affiliate by underwriting third-partyallotment.

October 2012 Opening a branch in Yokohama

DDisclaimer

Information here is a summary of “IR Information” of the Company, compiled by Walden Research Japan,from a neutral and professional standing point, in the form of a report. “IR Information” of the Companycomprises a) contents of our interview with the Company, b) contents of presentations for institutionalinvestors, c) contents of timely disclosed information and d) contents of the homepage etc.

Company name: Walden Research Japan IncorporatedHeadquarters #1110 4-12-4 Hatchobori, Chuo-ku, Tokyo 104-0032, JAPANURL: www.walden.co.jpE-mail: info@walden.co.jpPhone +81 3 3553 3769

Copyright 2012 Walden Research Japan Incorporated