Mercari, Inc.

Merpay is subject to the Payment Services Act, the Installment Sales Act, and the Money Lending Business Act; Mercoin is subject to registration as a crypto asset exchange operator; and Mercari Hallo is subject to the Employment Security Act, among a wide range of other laws and regulations. It is difficult to accurately predict in advance the direction of regulatory authorities or legal amendments, and if the Group's response is delayed, there is a risk of being forced to undergo administrative disposition, business suspension orders, or service changes. In particular, in the payment and financial businesses, if a violation of obligations such as anti-money laundering measures is found, it could have a material impact on the Group's business, results of operations, and financial condition.

In the CtoC and secondhand goods markets, competition exists with internet auctions and recycle shops; in the payment and financial fields, competition exists with multiple electronic payment and credit card operators; and in the spot work market, which the Group entered in March 2024, competition is intensifying alongside rapid growth. The emergence of competitors offering more attractive or innovative services or more competitive terms could result in user attrition, a decline in listings, and lower fee levels. While the Group aims to respond to customer needs and enhance its services, if these efforts do not achieve the expected results, this could affect the Group's results of operations and financial condition.

The Group actively utilizes AI technology, but competitors are also advancing its adoption, and if the Group's utilization falls behind, this could lead to a decline in service competitiveness, user attrition, and a decrease in gross merchandise value. Effective operation of AI technology requires securing and developing specialized personnel and preparing high-quality data, and a shortage of these resources could delay AI adoption and improvement. Furthermore, if technical and ethical risks such as security vulnerabilities, privacy infringement, output containing misinformation or bias, and intellectual property infringement materialize, this could damage trust and brand value.

The CtoC marketplace "Mercari (flea market app)" and other services are highly dependent on IT systems, and if the system goes down due to overload, power outage, software malfunction, malware, unauthorized external intrusion, natural disaster, or other causes, this could disrupt service provision and affect the Group's results of operations, financial condition, and appropriate financial reporting framework. Additional investment may also be required in the event of a rapid expansion in user traffic or the need to strengthen security. The Group thoroughly strengthens its systems and security for stable operations and has established a framework for rapid recovery, but unpredictable factors cannot be completely eliminated.

The Group acquires and manages large volumes of personal information such as addresses, names, and phone numbers, and the possibility of information leakage or misuse due to unauthorized access cannot be entirely ruled out. If an information leak occurs, in addition to affecting the Group's results of operations and financial condition, it could significantly damage the Group's social credibility as a company. While the Group has established privacy policies and personal information protection regulations, conducted internal training, and built management systems, it is also continuously required to respond to amendments to personal information protection laws and regulations in each jurisdiction.

Credit card payment is offered on the marketplace, and there is a risk of account takeover through phishing scams and unauthorized use of credit cards by third parties. Although the Group takes measures such as multi-factor authentication, EMV 3-D Secure, and human and system monitoring, if fraudulent transactions cannot be prevented, this could result in costs to compensate users and losses due to reduced trust, potentially affecting the Group's results of operations and business development. In the crypto asset exchange business as well, there is a risk of crypto asset outflow due to unauthorized external access, and if this materializes, it could have a material impact on the Group's results of operations and financial condition.

The Group's app offerings depend on the platforms of Apple Inc. and Google LLC, and changes in these companies' trends, business strategies, or policies could affect the Group's business, results of operations, and financial condition. Delivery services depend on companies such as Yamato Transport Co., Ltd. and Japan Post Co., Ltd., and changes in transaction terms or delivery conditions could also affect the Group. In addition, user information is stored in data centers managed by third parties, and in the event of an emergency, there is a risk of partial or total loss of information, legal liability, and damage to brand image.

Along with the expansion of "Mercari" in the US and the growth of Cross-Border Trade, substantial and continuous investment in advertising expenses, personnel costs, and other areas is required. There are various potential risks, including language and geographic factors, legal and tax systems, economic and political instability, differences in culture and business practices, exchange rate fluctuations, and competition with local competitors. If the Group is unable to address these risks, this could affect the progress and profitability of its overseas expansion.

The Group is promoting the expansion of its business foundation through building an ecosystem based on the Mercari ID, new business development, M&A, joint ventures, and capital and business alliances, but the ecosystem concept is still in its early stages and involves many uncertainties. There is a risk that progress will not proceed as planned, that expected synergies will not be achieved, that unexpected costs or goodwill impairment may occur, and that unexpected events may arise due to the limitations of due diligence. If these risks materialize, they could affect the Group's results of operations and financial condition.

The Group grants stock acquisition rights and RSUs as incentives to officers and employees, and may continue to use these to secure talented personnel in the future. The Group has also issued convertible bond-type bonds with stock acquisition rights subject to a call provision, and if the stock acquisition rights are exercised, RSUs vest, or the convertible bonds are converted into shares, the value of shares held by existing shareholders and their voting rights ratio may be diluted.