Corporate Vision and Business Information

In the contact lens industry where the Group conducts its business operation, it is expected that market will shrink and structures will change due to inevitable decline of Japanese population in the long-term perspective. The market environment has been increasingly severe also in the glass industry, where price competition has been increasingly fierce as the price of eyewear has been getting lower due to wide-spreading uniform pricing sales. In those situations, the Group has been operating its business activities to improve its performance through enlarging domestic market share and expanding overseas sales channels. However, any failure to precisely cope with unexpected changes in the market environment may cause significant effect to the operating results and financial status of the Group.
Revision or amendment of laws may also cause significant effect to the operating results and financial status of the Group, as its contact lens and contact lens care businesses are subject to control under the Pharmaceuticals and Medical Devices Law, because the contact lenses and contact lens care products respectively correspond to highly controlled medical device and quasi-drug.

The Group carries out research and development of devices in the ophthalmic field and their peripheral technologies. Through these activities, we strive to offer high-quality and high-value added products, which allow us to realize our fundamental policy to contribute to improvement of Quality of Life and Quality of Vision of the users. The products manufactured through these activities form the core business of the Group. In the event those products fail to accurately meet the market needs or our developing speed falls behind other companies, it may cause profound effect to the operating results and financial status of the Group.
The results of research do not always lead to the establishment of new technologies or new processes. The period of the research may be prolonged, causing the increase of development costs and loss of sales opportunities. There is no assurance that those new products and new production processes developed through painstaking research will be protected as proprietary intellectual property. In the event that initially-intended results or benefits are not delivered, it may affect the operating results and financial status of the Group.

The Group acquired approval for license application for marketing contact lenses through screening of the Pharmaceutical Affairs Council. The production of contact lenses is conducted in the Konosu Research Institute that acquired the license for Medical equipment manufacturing industry registration under the Pharmaceutical Equipment Act and ISO13485:2016 certificate. However, there is no assurance that the products will not cause various events (side effects for example) similarly with the cases observed in the medical goods markets even if the products are approved by the government. The products manufactured outside Japan conform to the international standards; however, there is no assurance that all products are free from defects.
We hold product liability insurance to cover the compensation liabilities; however, it is not likely the insurance will fully cover such liabilities. In the event of defective products that result in a large-scale product damage compensation, we will be required to bear significant costs for recalling the products, offering substitute products. Further, such incident will ruin our reputation and customer confidence, and may cause profound effect to the operating results and financial status of the Group.

The Group strives to protect intellectual properties by uniformly controlling the application, management and administration of intellectual property rights such as patent rights, design rights and trademark rights, including those of overseas subsidiaries and products for overseas markets. However, those efforts may not able to prevent third parties from manufacturing products similar to or superior to our products or technologies. Further, future technologies, processes, or products of the Group might infringe on intellectual property rights of a third party beyond our cognizance. In the event the third party exercises the right to claim damages or losses, it may cause significant effect to the operating results and financial status of the Group.

At SEED Konosu Research Institute, we periodically conduct inspections for accident prevention and facility inspection to prevent reduction of production capacity due to interruption to the manufacturing line and measures to ensure safety in the neighboring areas. We also installed emergency power generator to the laboratory to formulate thorough safety measures; however, there is no assurance that such risk is completely prevented or mitigated.
In the event of cessation of operation due to a large-scale earthquake or fire in neighboring areas, the capacity of contact lens production may be reduce.

The Group has set out strict management structure regarding the handling of confidential information including personal information and research and development information, by establishing and administering the Personal Information Protection Rules, Trade Secret Management Rules, Access Control Rules, and through performance of internal audit. However, in the event of information leakage incident from any cause, we may not only assume compensation liability but lose social credibility, which may cause profound effect to the operating results and financial status of the Group.

The Group conducts marketing business (wholesale) in Asia (China, Vietnam, Mongolia, Singapore and neighboring countries) and Europe through consolidated subsidiaries or local exclusive agencies. Unexpected changes in political, economic, or social conditions in those areas, or any statutory regulations imposed by the local authorities may cause significant effect to the operating results and financial status of the Group. In Europe, if there is an impact on the certification system that originates from the political factors caused by Brexit, there is a possibility that the supply system will be affected.

The Group performs settlement by foreign currency, because we purchase a part of contact lenses from overseas subcontracting plants, and also conduct marketing and other activities overseas. The closing figures denominated in the local currency of the respective overseas consolidated subsidiary are converted to yen in the process of preparing consolidated financial statements. We have taken introduced hedging techniques such as forex contract to mitigate exchange risks resulted from those activities. However, sharp exchange fluctuations may cause significant effect to the operating results and financial status of the Group.

The Group raises funds for facilities and operations through borrowings from financial institutions, and will be required to procure funds in accordance with the capital requirements in the future. We take measures to mitigate risks from short-term interest rate fluctuations by introducing fixed-rate for part of the borrowings. However, in the event of sharp rate hike due to changes in the financial situations in the future, it may affect the operating results and financial status of the Group.

The Group is required to obtain licenses for medical device marketing and medical device manufacturing, and license for marketing highly controlled medical device distribution under the Pharmaceuticals and Medical Devices Law, and has obtained required license in the business locations subject to those regulations. We strive to satisfy the requirements and comply with related laws and regulations in order to obtain or renew those licenses, and at present, we do not recognize any reason that may result in revocation of those licenses. However, in the event of violation of laws or regulations and revocation of licenses, we may be required to recall the products subject to the restriction; in addition, we may be required to cease marketing of the product and suspend the relevant businesses. It will not only cause loss related to recall of the products, but also comprise obstacle in contact lens and contact lens care product businesses, which is the core business lines, and subsequently cause profound effect to the operating results and financial status of the Group.

(Major approvals, licenses and registrations pertaining to contact lens and contact lens care products businesses)

Month and Year of the Acquisition	(Initial) April 2005 (Latest) January 2018	(Initial) November 2011 (Latest) November 2016
Name of the License or Approval	Medical Devices Marketing Business	Quasi-drug Marketing Business
Name of Marketing Authorization Holder	SEED Co., Ltd.	SEED Co., Ltd.
Supervisory Agency, etc.	Tokyo Metropolitan Government	Tokyo Metropolitan Government
Description of the License or Approval	Ensure quality of conformance for medical device and post-marketing surveillance on safety information	Ensure quality of conformance for quasi-drug and post-marketing surveillance on safety information
Expiration Date	January 2023	November 2021
Acts constituting a legal violation and major reason for revocation of approval and license	To falsify judgment in the review for releasing product that is different from the application for the license, and thereby approve shipment of the product. To make false report or conceal severe incidents, etc.

Month and Year of the Acquisition	(Initial) January 2007 (Latest) October 2017	(Initial) April 2005 (Latest) April 2017
Name of the License or Approval	Medical Device Manufacturing Business	Highly Controlled Medical Device Distribution Business
Name of the Manufacturing Site	Konosu Research Institute, SEED Co., Ltd.	SEED Co., Ltd.
Supervisory Agency, etc.	Saitama Prefecture	Tokyo Metropolitan Government
Description of the License or Approval	Manufacturing of Medical Device (Contact Lenses)）	Marking of Medical Device
Expiration Date	October 2022	March 2023
Acts constituting a legal violation and major reason for revocation of approval and license	To manufacture product that is different from the application for the license.	To neglect efforts to ensure quality and traceablilty of medical device, etc.

1. (Note) Each sales office has acquired License for Highly Controlled Medical Device Distribution Business.

The Group procures materials and raw materials necessary for manufacturing and processing products, and takes measures to ensure stable supply by constantly sharing changes in production volume and supply system with the suppliers. However, in the event of unexpected situations due to external factors, it may be difficult to procure necessary materials and raw materials, causing significant effect to the operating results and financial status of the Group.

The products of the Group have expiration dates. The stock of the Group is at relatively low level; however, in the case the inventory asset will be retained for a long time due to changes in marketing environment caused by sudden changes in the market environment and entry of competitive products, etc., expiration dates may arrive to some inventory assets. It is necessary to report loss on valuation of inventory in such situations, which may affect the operating results and financial status of the Group.

The Group records tangible fixed assets as factory assets and retail store assets, etc., as well as goodwill and intangible assets as a result of business acquisitions. In addition, we have made continuous investments and have recorded investment securities. However, if the profitability of the above assets declines due to changes in the business environment, etc., and an impairment loss is recorded, it may have an impact on the Group's business results and financial position.

Contact lenses are classified as highly controlled medical device, but purchase of contact lenses does not require doctor's prescription. However, under the legal regulation by the Pharmaceuticals and Medical Devices Law, the Group strives to ensure correct and safe use by the contact lens users by observing respective laws and regulations and by complying with the "Voluntary Standards on Contact Lens Distribution" established by Japan Contact Lens Association.
The consolidated subsidiaries conducting the distribution business (retail) as their core business put the highest priority to the safety of eyes of users. They tie up with eye doctors or ophthalmic clinic practicing in the neighboring areas, and offer the contact lenses best suited for each user based on the prescription (formulation order) issued by the doctors. However, in the event of medical accident causing serious eye conditions resulted from incorrect prescription or explanations by the ophthalmic clinic or shop, it will ruin social credibility of the Group, and may affect the operating results and financial status of the Group.
The consolidated subsidiaries of the Group dispatch their employees to the partnering doctors or medical clinics, or offer loans on start-up capitals. Through these activities, we provide support to the operation of ophthalmic clinics to the extent not corresponding to the matters prohibited by the Medical Practitioners Act, which include prohibition of performance of medical practice outside of medical institution and securing nonprofit nature of medical institution. In particular, ocular examination, issuance of formulation order, and guidance of use are defined as the act to be performed only by doctors based on the Medical Practitioners Act. Therefore, we instruct our employees dispatched to the shops will not perform such medical practice; in addition, we clearly state in the personnel dispatch contracts that the employees will not engage in such acts. We have built good relationship with medical institutions, and ensure that no question or doubt will arise pertaining to laws and regulations. Provided however, in case we will be required to change the current support activities or system due to the legal revision or changes in legal interpretation, or in case medical corporations fail to keep up the repayment schedule, or we will be required to cope with unexpected operational or accounting matters with doctors or medical corporations, we will need to take operational measures in the retail distribution business, which may affect the operating results and financial status of the Group.
We may invite doctors or medical corporation willing to start ophthalmic clinic in the neighboring areas to open their clinics in time with the startup of new shop by consolidated subsidiaries. However, in case we fail to invite such clinic or in case of unexpected closure of the invited clinic may affect the operating results and financial status of the Group.

In the current consolidated accounting year, no action has been brought against the Group, which will cause significant effect to the Group. We are no aware of any such action to be brought against the Group; however, in the event the Group faces significant action and receives unfavorable judgment, it may cause profound effect on the operating results and financial status of the Group.