1.  Risk Factors

Directors and executives of SE-EDUCATION Public Co., Ltd. are well aware
of the responsibility in supervision of good governance to maximize the
benefit of the Company’s shareholders by managing the business risk
which is operated in an systematic and continuous manner, making risk
factors at the acceptable level.

Directors and executives of the Company appointed Audit Committees to
supervise on the risk management and make sure that the management
follow the said policy and report directly to the Company’s directors,
and to ensure that the Company’s risk management is properly controlled.
However, risk factors may occur and effect the Company and stakeholders
which should be considered as follows:

Risk from errors of the distribution center : Most products sold in
SE-ED Book Center branches and book distributed for other publishers are
distributed from the Company’s distribution center. The distribution is,
therefore, very important fact in business operation. In the case
product distribution center becomes inoperable from natural causes,
accident, or other uncontrollable causes, the Company will, of course,
be affected.

However, the Company has sought to insure all the assets and product to
reduce unexpected risk related to disaster which might occur at the
distribution center.

Moreover, the Company is in the process of developing a back-up system
to substitute in case distribution center failed to operate properly,
which includes the opening of temporary distribution center to support
the receiving of products from publishers and distributors and then to
be delivered to the bookstores branches around the countries.

Risk from product loss : As the Company that operates in retail
bookstore business of over 320 branches nationwide, it has faced with
loss of products due to thief and other causes similar to what other
retail businesses have encountered.

The Company sees the importance of establishing proper product loss and
prevention effort. The Closed-Circuit Tele-Visions (CCTV) have gradually
been installed since the end of fourth quarter in 2006, and later
completed the installation in all said branches in the middle of 2007
and also established a department named Loss Prevention Department (LPD)
to address the issues of measures to deal with book loss specifically.
This results in the significant reduction of product loss at the
storefronts. Moreover, the Company has also tested on theft-screening
poles at a certain number of pilot branches along with the use of CCTV
cameras.

Risk from computers and information technology errors or mal-functions :
The Company installed varieties of computer and information technology
systems for all the work such as store front selling system,
distribution management system, purchasing system, accounting and
financial system, etc. All these computer and information technology are
regarded as crucial facts in supporting the effective Company’s
operation. Therefore, errors and mal-functions of computer systems may
have the effect over the Company’s management.

Therefore, to reduce the impact of such computer and technology system
errors and malfunctions at the branch distribution center and
headquarters levels, the Company has set up protection system and
back-up system at the generally accepted standard. It also creates
measures of preparedness for any uneventful circumstances and of back-up
plan. This also includes the regular training schedules and practice of
preventive measures.

In addition, the Company is currently developing a system that can
support “high availability” to provide an ever increasing sales
transaction and also help greater number of website visits by customers.

Risk in Distribution Channels : Currently, technological change is
happening very rapidly. The competition in retail business is
increasing. There is a competition to offer customers more choices,
causing consumer behavior to change all the time. The Company must make
certain that all Company’s available market channels are adequate enough
to facilitate the market behavior and the customer’s needs at all time,
and great enough, while allowing channel development to serve the
changes on a timely basis.

In the past, the Company has diversify risks of distribution channels
through several channels apart from existing traditional bookstores, by
opening up its own bookstores called “SE-ED Book Center” and Network
stores in the leading department stores, supercenters, local shopping
centers, IT centers, higher educational institutes, both in Bangkok and
other provinces, with the share of income of 83% out of the total
Company’s income in 2009.

In opening up new bookstore branches, the Company has the policy to
improve branches periodically to best suit and serve the market in each
locality, to prepare for greater competition at all time. The Company
also diversifies risk by not attaching itself or opening the bookstores
in only one particular group of shopping center. But it seeks to open
store through several different shopping center owners. Most of the
leasing contracts for bookstores are in long term period, to ensure
sales stability in each location. Therefore, if any department stores or
supercenters encounter problems or cannot operate for any reasons, or
changing the leasing policy, the Company’s income will not be
significantly affected.

The Company has acquired all the assets and products insurance to reduce
an unexpected risk that might occur.

In addition, the Company has developed the distribution channel through
the Company’s website called www.se-ed.com to support book trade in the
e-Commerce system to allow customers more convenient alternatives in
shopping for books and allow customers to find a greater varieties and
numbers of book titles. The Company expects that such channel will
create a larger revenue pool for the Company in the future as the
results of dramatically growing internet usage from general public, and
also aid the incoming change of trade via “e-Book” in the future.

Risk of outdated products damage and superseded by other media : At
present book business has grown quite a lot. There are more newly
released books, resulting in the competition for the already-limited
space, causing rising rate of returned books. The returned books become
more difficult to find selling channel and the rate of damaged books is
on the rise. Moreover, the computer technology has been developed
rapidly so the sales duration of computer books which the Company is one
of the leaders in this field is shorter than before. And the electronics
media has begun to replace books in some category and some application.
The Company has redirected the production by increasing the ratio of
books with long length of sales and have large volume sales in
production line, including the set up of Company website www.se-ed.com
for interested people to be informed more quickly about the new book
titles release.

Although electronic media have rapidly been developed and the market
trend of “e-book” and “e-book reader” has arrived, the Company still
believe that the market will take a considerable time to change majority
of Thais behavior who is not used to reading through electronic media to
that point that it is strong enough to effect the book business in
significant way. When the time for such trend arrive, the Company is
certain that it will be able to adapt to the trend very quickly, due to
a certain level of supporting structure the Company already have in
place.

Risk from foreign currency exchange : As the Company has signed the
agreement to be the sole distributor for all Oxford University Press
(OUP) English Language Teaching (ELT) books in Thailand and also holds
the right to sell in the territory of Cambodia, Laos, Myanmar, and
Indonesia in the effort to push forward the English language education
in Thailand as well as the neighboring countries, resulting in problem
of currency fluctuation caused by the purchase of books in foreign
currency. Thus, to minimize the risk at the acceptable and optimal
level, the Company employs the financial instrumental policy towards
risks by using the forward buying currency with commercial banks to
prevent unpredictable currency risk when payment of debt owed to foreign
publisher is due, whereby the forward period is set at no more than 6
months.

Risk in specialist shortage : Expert employees and specialized
personnels in each field are the most important resources in the Company
academic books and magazines production including creative artwork
staffs in the Company business line which most of them are the pioneer
in business.

Though, the Company must confront the economic crisis as well as the
problem of high fuel price and inflation that immediately ensued in the
past year, which causes a great burden for the Company’s staffs to
encounter higher living expense, particularly foods and travel expenses.

From the above-mentioned problems, the Company’s management saw the
importance of keeping the staffs in a long term basis, by organizing a
meeting to find ways to help staffs so that the impact will be lessen
affected from rising inflation which continues to increase continuously.
The Company initiated a review of readjustment of compensation
structures for the Company’s staffs in the areas of living expenses,
per-dium to alleviate the economic burden for all the staffs, so that it
is commensurate with the increasing cost of living while able to compete
in labor market at large.

Besides, the Company determines to recruit the best potential staffs to
support the future growth, to develop the academic knowledge, and to
develop minds for staffs and team-works in a continuous manner. This
includes the improvement of several welfares system such as annual
checkup life insurance, health insurance, accident insurance and
increasing the insurance coverage at the adequate level for better
stability and security of the employees and their families. Furthermore,
the Company determines to develop human resources and teamwork at the
unrelentless pace and offers opportunity for staffs who wants to grow
with the Company.

Risk from reselling censored and pirated books : As some of the products
such as tape, CD, and published materials may be stipulated and
restricted by laws. Some products must first obtain the permission
before sales and some are directly related to the copyright. This causes
the Company to be relatively cautious towards the production and
acceptance of product distribution both for retail and wholesale market,
so as to avoid any illegal practice, any violation of others’
copyrights, or any arising conflicts that may lead to the court cases,
and any possibility of protests.

The Company’s editorial staffs have to select the original manuscripts
more carefully and cautiously in order to avoid the problem of copyright
infringement. Besides, the Company has specified in the contract with
authors or manuscript owners that they have confirmed that their works
or products belong to them and did not infringe upon any copyright and
will fully compensate all damages happened to the Company if the
copyright infringement occurred. This will reduce the probability of any
damages caused by this problem.

However, very few problems occur and the affected value is not
significant.

Risk from raw materials and product deficiency : Paper is the important
raw material in books production and price has changed variously
according to market demand and production quantity all the time. But the
books published by the Company have target group with purchasing power
and are well educated enough for the Company to use the policy to set
price in accordance with the real cost in that period, and this does not
cause a considerable impact to the Company.

As the Company has the major revenue in being a publisher, a
distributor, and a retailer, the Company tries at best to maintain the
role as respectable neutral element who sells books for every publisher
which is in demand by the market, and the Company business policy is
determined on the basis of good ethical standard in business practices.
The Company has its duty to adhere to the ethical standard of business
conduct. The cause of trouble or injustice occurring from the Company
business conducts aiming towards any interest groups will not be
tolerated. Owing to this, the Company has evidently long been supported
by most suppliers in book industry, and it also makes the Company less
dependent on the revenue from one particular supplier.

Risk from printing industry : As the Company has not invested in
printers so there is no risk and does not adversely affect from price
war in printing industry. The Company chooses several printers to
support productions so that the Company can control expense properly to
the competitive printing price offer all the time and can fix the
production time duration definitely.

Risk from economic slowdown affecting the growth of advertising industry
: Risk from economic slowdown affecting the growth of advertising
industry may actually affect the total revenue of the Company as
magazine published by the Company has it main staple from advertisement.
However, the Company is aware of its effect. Thus, the Company seeks to
develop new publications that focuses on certain area and has a policy
of securing long-term advertising contract from and employ the sales
promotion strategy by stressing special promotion as an incentive for
customers to invest in advertising with the Company, such as deployment
of barter system for product-in-exchange-of-advertising to expand
customer base and support the business growth and reduce the effect of
risk from media advertising industry which may periodically slowdown.
Moreover, the Company also made profits from organizing seminars and
selling IT products to compensate the missing revenue.