e-LogiT co.,ltd.

The Company has continued to record operating losses since the fiscal year ended March 2022, and operating cash flow has also been negative for three consecutive fiscal years, giving rise to material doubt about the going concern assumption. Losses have expanded due to a decrease in sales of the core Fulfillment Service, the loss of business opportunities stemming from uncertainty surrounding the governance structure, and increased launch costs for the new mail order business "Northmall." As countermeasures, the Company has implemented fundraising through stock acquisition rights and a capital and business alliance, but these measures are still in progress, and material uncertainty continued to exist as of the end of the fiscal year under review.

The job openings-to-applicants ratio in the logistics industry remains high, and labor-related costs are trending upward due to rising minimum wages and increases in temporary staffing rates. The Company continuously reviews its wage levels, but if it is unable to appropriately pass on increases in recruitment costs, labor costs, outsourcing expenses, and the like to selling prices, this may affect business performance and financial condition. The difficulty of securing personnel in the logistics industry persists, and upward pressure on costs has become a structural feature.

The Company's BPO Service is heavily dependent on the procurement of delivery materials and outsourcing to major delivery carriers, and continues to be affected by cost increases due to rising energy and raw material prices and labor shortages. The proportion of business outsourced to major delivery carriers is relatively large, and there remains a non-zero risk that such carriers could become unable to conduct delivery operations for some reason. The Company strives to continuously negotiate with existing carriers and develop alternative means, but if it cannot avoid the impact of freight rate increases or delivery volume restrictions, this may have a material effect on business performance.

Against the backdrop of a declining working population, difficulty in securing personnel continues across the logistics industry as a whole, making the recruitment, development, and retention of personnel necessary for the Company's sustainable growth a key challenge. The Company is strengthening recruitment activities and working to improve human resource development and retention rates, but if it is unable to steadily secure necessary personnel or retain trained employees, this may lead to a decline in operational quality or hinder business operations. Securing highly specialized personnel is also recognized as an important challenge from the perspective of strengthening the governance structure.

The Company holds vast amounts of order information, including personal information of purchasers, for mail order operators, making information leakage risk an important business challenge. The Company has obtained ISMS certification (ISO 27001) and the Privacy Mark, and is working to develop personal information protection policies and internal regulations and strengthen the operation of its information management system, but if personal information is lost or leaked externally due to unforeseen circumstances, this may result in claims for damages or loss of customers due to reputational damage, potentially having a material effect on business performance and financial condition.

In the logistics industry, amendments to labor-related laws, logistics-related laws, and the Act on Promoting the Appropriateness of Subcontracting Transactions Involving Small and Medium-sized Enterprises (Toriteki-ho) require strengthening of labor management systems, safety and health measures, and management systems for outsourcing partners. If business operating costs such as labor costs, outsourcing expenses, and capital investment costs increase due to these legal amendments, or if the Company is unable to appropriately pass on such increases to selling prices, this may affect business performance and financial condition. Continuous compliance with existing regulations such as the Warehousing Business Act, the Act on Consignment of Freight Forwarding Business, and the Personal Information Protection Act is also required.

As the expansion of the EC market presents an opportunity, the number of companies entering the mail order logistics industry has increased, and quality and price competition with competitors in logistics outsourcing and operations outsourcing services is intensifying. The Company strives to maintain service quality and price competitiveness, but if it becomes difficult to optimize unit prices due to intensifying competition, this may affect business performance and financial condition. Sales of the core Fulfillment Service are already on a declining trend, and the deteriorating competitive environment is becoming a barrier to profit recovery.

The Company leases the Fulfillment Centers (FCs) that serve as its business locations, and difficulty in continued use for some reason or an increase in rent upon contract renewal may affect business performance. When opening a new FC, upfront investments occur during the period until the utilization rate reaches the planned level, including increased rent burden and increased labor costs from staffing reinforcement, which tends to be a factor in temporary declines in operating income. In the previous fiscal year, the Company implemented fixed cost reduction through FC closures and consolidation, resulting in a structure in which the skill of the location strategy directly affects financial condition.

The Company's business operations depend on systems processed via the internet, such as the WMS (Warehouse Management System), and if a large-scale system failure occurs due to cyberattacks, natural disasters, unforeseen accidents, or operational errors, business operations may stagnate, potentially affecting business performance and financial condition. Given the nature of logistics operations, system downtime carries risks directly linked to shipment delays to customers and reputational damage. Specific details of redundancy and backup systems as of the current time are not disclosed in the annual securities report.

If an FC is damaged by a large-scale earthquake, storm or flood damage, fire, or the like, or if transportation routes are disrupted, logistics operations may stagnate, potentially affecting business performance and financial condition. In addition, if the spread of an infectious disease becomes prolonged, this may result in reduced FC operations due to infections among employees, or delays in receivable collection due to deterioration in customers' business performance. Since the Company concentrates the storage and shipping of customer products at its FCs, the business continuity risk in the event of a disaster affecting a facility is structurally relatively high.