<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                                    FORM 20-F


(Mark One)

[ ]  Registration statement pursuant to Section 12(b) or 12(g) of the Securities
     Exchange Act of 1934

                                       OR

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

                                       OR

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

          For the transition period from           to
                                         ---------    ---------

                         Commission file number 0-30530
                            KABUSHIKI KAISHA CRAYFISH
             (Exact Name of Registrant as Specified in Its Charter)
                               CRAYFISH CO., LTD.
                 (Translation of Registrant's Name into English)

<TABLE>
<S>                                                        <C>
                                                                  WICS BLDG., 6TH FLOOR 2-1,
                                                                      IKEBUKURO 2-CHOME
                  JAPAN                                        TOSHIMA-KU, TOKYO 171-0014 JAPAN
(Jurisdiction of Incorporation or Organization)            (Address of Principal Executive Offices)
</TABLE>

 Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Title of Each Class           Name of Each Exchange On Which Registered
-------------------           -----------------------------------------
<S>                           <C>
      NONE                                      NONE
</TABLE>

 Securities registered or to be registered pursuant to Section 12(g) of the Act

                          (1) COMMON STOCK ("SHARES")*
        (2) AMERICAN DEPOSITARY SHARES ("ADSs"), EACH OF WHICH REPRESENTS
                               1/500TH OF A SHARE
                                (Title of Class)
        Securities for which there is a reporting obligation pursuant to
                            Section 15(d) of the Act.
                                      NONE
                                (Title of Class)

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.

     As of September 30, 2001, 10,249 shares of common stock were outstanding,
comprised of 9,186 Shares and 531,500 ADSs (equivalent to 1,063 shares).**

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                Yes  X  No
                                    ---    ---

     Indicate by check mark which financial statement item the registrant has
elected to follow.

                           Item 17     Item 18  X
                                   ---         ---

================================================================================

*    NOT FOR TRADING, BUT ONLY IN CONNECTION WITH THE REGISTRATION OF THE ADSs.

**   AS OF NOVEMBER 21, 2000, THE ADS RATIO WAS CHANGED FROM 5,000 ADSs
     REPRESENTING ONE SHARE OF COMMON STOCK TO 500 ADSs REPRESENTING ONE SHARE
     OF COMMON STOCK.
<PAGE>
                            TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
Forward-looking Statements                                                                  3

                                             PART I

Item 1.   Identity of Directors, Senior Management and Advisers                             4
Item 2.   Offer Statistics and Expected Timetable                                           4
Item 3.   Key Information                                                                   4
Item 4.   Information on the Company                                                       14
Item 5.   Operating and Financial Review and Prospects                                     20
Item 6.   Directors, Senior Management and Employees                                       31
Item 7.   Major Shareholders and Related Party Transactions                                34
Item 8.   Financial Information                                                            36
Item 9.   The Offer and Listing                                                            37
Item 10.  Additional Information                                                           37
Item 11.  Quantitative and Qualitative Disclosures About Market Risk                       50
Item 12.  Description of Securities Other than Equity Securities                           50

                                            PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies                                  50
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds     50
Item 15.  [Reserved]                                                                       51
Item 16.  [Reserved]                                                                       51

                                           PART III

Item 17.  Financial Statements                                                             51
Item 18.  Financial Statements                                                             51

Exhibits Index                                                                             52
</TABLE>

                                     - 2 -
<PAGE>
Forward-looking Statements

     This annual report contains forward-looking statements based upon our
current expectations, assumptions, estimates and projections about our business
and industry in light of the information currently available to us. To the
extent that statements in this annual report on Form 20-F do not relate strictly
to historical or current facts, they may constitute forward-looking statements.
These statements discuss future expectations, identify strategies, discuss
market trends, contain projections of results of operations or of our financial
condition, or state other forward-looking information. Our actual actions or
results may differ materially from those discussed in any forward-looking
statement as a result of known and unknown risks, uncertainties and other
factors.

     Important risks and factors that could cause our actual results to differ
materially from our expectations are generally discussed in Item 3.D and
include, without limitation:

     *    that we may be unable to retain existing customers and expand the size
          of our customer base,

     *    that we may be unable to develop an effective marketing channel, and

     *    the outcome of securities class action litigation against us.

     We undertake no obligation to publicly update any forward-looking statement
after the date of this annual report, but investors are advised to consult any
further disclosures by us in our subsequent filings pursuant to the Securities
Exchange Act of 1934.

                                     - 3 -
<PAGE>
                                     PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

     Not applicable


ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.

     Not applicable


ITEM 3. KEY INFORMATION.

A.   SELECTED FINANCIAL DATA.

     The selected financial data below should be read together with our
financial statements and related notes beginning on page F-1 in response to Item
8 and Item 18 and the Operating and Financial Review and Prospects included as
Item 5. All amounts in this document are based on U.S. GAAP unless otherwise
noted Historical results are not necessarily indicative of results to be
expected for any future period.


     U.S. GAAP FINANCIAL DATA

     The statements of operations data below for the fiscal years ended
September 30, 1998, 1999, 2000, and 2001 and the balance sheet data as of
September 30, 1998, 1999, 2000, and 2001, that are identified as being prepared
in accordance with accounting principles generally accepted in the United
States, or U.S. GAAP, are derived from our audited financial statements prepared
in accordance with U.S. GAAP. The U.S. GAAP statements of operations data for
the fiscal years ended September 30, 1999, 2000 and 2001 and the U.S. GAAP
balance sheet data as of September 30, 2000 and 2001 were audited by BDO Sanyu &
Co., independent accountants. U.S. GAAP statements of operations data for the
years ended September 30, 1999, 2000 and 2001 and balance sheet data as of
September 30, 2000 and 2001 are included in our financial statements and related
notes beginning on page F-1.

     Reclassifications have been made to the statements of operations data for
the years ended September 30, 1998, 1999 and 2000 to conform to the presentation
for the year ended September 30, 2001. Historically, we have operated as three
separate segments for management and financial reporting purposes. In accordance
with our Business Revival Plan announced in July 2001, we have discontinued our
"Other Hosting Services" and "Systems Development Services" segments, leaving
only our "DESKWING Hosting Services" segment. As a result, we began reporting a
single segment for the year ended September 30, 2001. These reclassifications
have no effect on previously reported results of operations and shareholders'
equity.

     We have accounted for our discontinued operations in accordance with the
provisions of Statement of Accounting Principles Board Opinion ("APB") No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Accordingly, the discontinued segments' historical
results of operations together with losses attributable to the disposal of
related assets and settlement of related liabilities have been reflected as
discontinued operations in the statements of operations for the years ended
September 30, 1998, 1999, 2000 and 2001.

                                     - 4 -
<PAGE>
STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                             Year ended September 30,
                                                --------------------------------------------------------------------------------
                                                  1998(1)          1999(1)            2000(1)          2001(2)           2001
                                                ----------     --------------     --------------    --------------    ----------
                                                         (in thousands, except per share amounts and numbers of shares)
<S>                                             <C>            <C>                <C>               <C>               <C>
Revenues                                        Yen  4,743     Yen    811,687     Yen  6,728,865    Yen  5,311,814    $   44,551
Cost of revenues(3)                                 14,166            796,212          5,653,051         3,391,888        28,448
                                                ----------     --------------     --------------    --------------    ----------
Gross profit                                        (9,423)            15,475          1,075,814         1,919,926        16,103
                                                ----------     --------------     --------------    --------------    ----------
Operating expenses(3)                                1,610            448,929          2,079,314         9,273,622        77,779
                                                ----------     --------------     --------------    --------------    ----------
Loss from operations                               (11,033)          (433,454)        (1,003,320)       (7,353,696)      (61,677)
Other income (expense), net                          1,124            (19,090)             7,665        (1,047,112)       (8,783)
                                                ----------     --------------     --------------    --------------    ----------
Loss from continuing operations
 before provision for income taxes                  (9,909)          (452,544)          (995,655)       (8,400,808)      (70,460)
Provision for income taxes                           1,009              2,981              3,800             3,800            31
                                                ----------     --------------     --------------    --------------    ----------
Loss from continuing operations                    (10,918)          (455,525)          (999,455)       (8,404,608)      (70,491)
Gain (loss) from operations of
 discontinued business segments                     (8,955)            99,786           (542,129)       (1,164,113)       (9,764)
                                                ----------     --------------     --------------    --------------    ----------
Net loss                                           (19,873)    Yen   (355,739)    Yen (1,541,584)   Yen (9,568,721)   $  (80,254)
                                                ==========     ==============     ==============    ==============    ==========
Basic and diluted loss per common share
 Loss from continuing operations
 per share                                      Yen (8,523)    Yen(100,958.55)    Yen(106,859.30)   Yen(823,496.77)   $(6,906.79)
Gain (loss) from operations of discontinued
 business segments per share                        (6,991)         22,115.69         (57,963.11)      (114,061.63)      (956.65)
                                                ----------     --------------     --------------    --------------    ----------
Net loss per share                                 (15,514)    Yen (78,842.86)    Yen(164,822.41)   Yen(937,558.40)   $(7,863.44)
                                                ==========     ==============     ==============    ==============    ==========
Shares used in per share calculation
 - basic and diluted                                 1,281              4,512              9,353            10,206        10,206
</TABLE>

------------
(1)  Reclassifications have been made to conform to the presentation for the
     year ended September 30, 2001. We have accounted for our discontinued
     operations in accordance with the provisions of Accounting Principles Board
     Opinion ("APB") No. 30, "Reporting the Results of Operations -- Reporting
     the Effects of Disposal of a Segment of a Business, and Extraordinary,
     Unusual and Infrequently Occurring Events and Transactions." Accordingly,
     the discontinued segments' historical results of operations together with
     losses attributable to the disposal of related assets and settlement of
     related liabilities have been reflected as discontinued operations in our
     statements of operations.

(2)  As a result of the elimination of the "Other Hosting Services" and "Systems
     Development Services" segments for the year ended September 30, 2001, the
     presentation of statements of operations data has changed from previous
     fiscal years. We have accounted for our discontinued operations in
     accordance with the provisions of Accounting Principles Board Opinion
     ("APB") No. 30, "Reporting the Results of Operations -- Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
     and Infrequently Occurring Events and Transactions." Accordingly, the
     discontinued segments' historical results of operations together with
     losses attributable to the disposal of related assets and settlement of
     related liabilities have been reflected as discontinued operations in the
     statements of operations.

(3)  Service fees paid to Hikari Tsushin previously accounted for under
     operating expenses have been reclassified under cost of revenues for the
     years ended September 30, 1999, 2000 and 2001.


BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                                   As of September 30,
                                    -------------------------------------------------------------------------------
                                        1998              1999              2000             2001            2001
                                    -----------      -------------     --------------   --------------     --------
                                                                       (in thousands)
<S>                                 <C>              <C>               <C>              <C>                <C>
Cash and cash equivalents           Yen 111,702      Yen 4,179,770     Yen 23,017,011   Yen 14,429,199     $121,020
Total assets                            232,073          6,282,423         27,673,791       15,609,662      130,920
Total shareholders' equity               74,401          4,142,249         25,027,240       15,376,806      128,967
</TABLE>

                                     - 5 -
<PAGE>
     JAPANESE GAAP FINANCIAL DATA

     The statements of operations data for the fiscal year ended September 30,
1997 and the balance sheet data as of September 30, 1997 identified as being
prepared in accordance with generally accepted accounting principles in Japan,
or Japanese GAAP, are derived from our unaudited condensed financial statements
prepared in accordance with Japanese GAAP and are not included in this annual
report on Form 20-F. The unaudited Japanese GAAP data reflect all adjustments,
consisting of normal recurring adjustments that, in the opinion of management,
are necessary for fair presentation of the amounts involved, on a basis
consistent with selected financial data derived from the audited financial
statements.

     The Japanese GAAP statements of operations data for the fiscal years ended
September 30, 1998, 1999, 2000 and 2001 and the balance sheet audited data as of
September 30, 1998, 1999, 2000 and 2001 are derived from our condensed financial
statements prepared in accordance with Japanese GAAP and are not included in
this annual report on Form 20-F.

     We had no consolidated subsidiary under Japanese GAAP until the year ended
September 30, 2000.

     Information presented in Japanese GAAP differs in important ways from U.S.
GAAP.


STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                          Year ended September 30,
                                          -----------------------------------------------------------------------------------
                                             1997         1998           1999            2000            2001          2001
                                          -----------  -----------  -------------    -------------   -------------   --------
                                          (unaudited)
                                                                              (in thousands)
<S>                                       <C>          <C>          <C>              <C>             <C>             <C>
  Total revenues                          Yen 169,431  Yen 277,685  Yen 1,137,942    Yen 6,822,669   Yen 5,416,939   $ 45,433
  Total cost of revenues                       84,007      151,884        645,177        2,311,013       2,842,794     23,843
                                          -----------  -----------  -------------    -------------   -------------   --------
Gross profit                                   85,424      125,801        492,765        4,511,656       2,574,145     21,590
  Selling, general and administrative
   expenses                                    64,663      125,208        839,567        5,820,002       4,751,197     39,849
                                          -----------  -----------  -------------    -------------   -------------   --------
Operating profit (loss)                        20,761          593       (346,802)      (1,308,346)     (2,177,052)   (18,259)
Other income (expense), net                    (3,476)       1,017        (41,224)        (642,286)       (127,470)    (1,069)
Extraordinary loss                                  -            -              -                -      (7,499,090)   (62,896)
                                          -----------  -----------  -------------    -------------   -------------   --------
Income (loss) before provision for
 income taxes                                  17,285        1,610       (388,026)      (1,950,632)     (9,803,612)   (82,224)
Provision for income taxes                      4,900          779          2,981            3,800           4,171         35
Minority interest in loss                           -            -              -                -          79,761        669
                                          -----------  -----------  -------------    -------------   -------------   --------
Net income (loss)                         Yen  12,385  Yen     831  Yen  (391,007)   Yen(1,954,432)  Yen(9,728,022)  $(81,590)
                                          ===========  ===========  =============    =============   =============   ========
</TABLE>


BALANCE SHEET DATA:

<TABLE>
<CAPTION>

                                                                    As of September 30,
                                ------------------------------------------------------------------------------------------
                                    1997            1998            1999            2000            2001            2001
                                -----------     ------------    -------------  --------------   --------------    --------
                                (unaudited)
                                                                      (in thousands)
<S>                             <C>             <C>             <C>            <C>              <C>               <C>
Cash and cash equivalents        Yen 50,840      Yen 111,702    Yen 5,742,131  Yen 22,764,731   Yen 14,485,802    $121,495
Total assets                        113,330          235,914        6,243,078      25,563,597       15,820,206     132,686
Total liabilities                    43,554          142,107        2,110,282         446,104          271,629       2,278
Total shareholders' equity           69,776           93,807        4,132,796      25,117,493       15,402,657     129,184
</TABLE>

                                     - 6 -
<PAGE>
EXCHANGE RATES

     Fluctuations in exchange rates between the yen and dollar and other
currencies will affect the dollar and other currency equivalents of the yen
price of our shares and ADSs and the dollar amounts received on conversion of
any cash dividends. We have translated some yen amounts presented in this annual
report into dollars solely for your convenience.

     Unless otherwise noted, the rate used for the translations was Yen119.23 to
$1.00, which was the noon buying rate announced by the Federal Reserve Bank of
New York on September 30, 2001.

     The following table presents the noon buying rates for yen per $1.00 in New
York City for cable transfers in yen as certified for customs purposes by the
Federal Reserve Bank of New York for and as of the end of each period indicated.
These translations do not imply that the yen amounts actually represent, or have
been or could be converted into, equivalent amounts in dollars.

<TABLE>
<CAPTION>
YEAR ENDED/ENDING SEPTEMBER 30,                  HIGH              LOW          AVERAGE(1)      PERIOD-END
-------------------------------                ---------        ---------       ----------      ----------
<S>                                            <C>              <C>             <C>             <C>
1997                                           Yen127.03        Yen111.25       Yen117.97        Yen120.71
1998                                              147.14           119.87          130.26           136.59
1999                                              135.75           103.78          117.49           106.82
2000                                              111.11           101.53          106.43           107.90
2001                                              126.75           107.30          118.14           119.23
2002 (through March 31, 2002)                     134.77           107.30          121.39           132.70

CALENDAR YEAR 2001
September                                         121.08           115.89          118.61           119.23
October                                           122.99           120.20          121.45           122.54
November                                          124.44           119.98          122.41           123.22
December                                          131.47           123.90          127.59           131.04

CALENDAR YEAR 2002
January                                           134.64           130.93          132.68           134.06
February                                          134.77           132.66          133.70           133.96
March                                             134.77           120.07          132.42           132.70
</TABLE>

------------
(1)  Calculated from the average of the exchange rates on the last day of each
     month during the period.

     The noon buying rate for yen on April 5, 2002 was Yen131.73 per $1.00.


B.   CAPITALIZATION AND INDEBTEDNESS.

     Not applicable



C.   REASONS FOR THE OFFER AND USE OF PROCEEDS.

     Not applicable

                                     - 7 -
<PAGE>
D.   RISK FACTORS.

     You should be aware of the risks described below. Any of these risks could
adversely affect our business, financial condition or results of operations. As
a result, the trading price of our shares or ADSs could decline, and investors
may lose all or part of their investment. Other risks and uncertainties not now
known to us or that we think are immaterial may also impair our business.


OUR REVENUES WILL CONTINUE TO DECLINE IF WE DO NOT RETAIN CUSTOMERS.

     Our success depends on the retention of customers. The number of our
subscribers has declined from 59,372 as of September 30, 2000 to 31,257 as of
September 30, 2001 and to 19,021 as of March 31, 2002. We have lost customers
as a result of competitors offering comparable services at lower prices or
offering services targeting the same market niches as us, for dissatisfaction
with our customer support, for frustration or perceived difficulty with using
our services or the internet in general and inability to realize the expected
benefits from the use of our services or the internet in general.


IF WE ARE UNABLE TO DEVELOP AN EFFECTIVE MARKETING CHANNEL TO INCREASE THE
NUMBER OF SUBSCRIBERS FOR DESKWING, OUR BUSINESS WILL SUFFER.

     Until November 2000, we outsourced sales and marketing of our DESKWING
hosting service to Hikari Tsushin, Inc. After the November 2000 termination of
this arrangement, we began to build our own sales and marketing team, but
concluded that the costs associated with customer acquisition would continue to
exceed revenues from new customers for our current service offerings under
existing competitive conditions. As a result, we have reduced the size of our
sales and marketing team and are focusing primarily on customer retention. If we
are unable to develop cost-efficient and effective marketing channels, the size
of our customer base will likely continue to decline and we will not be able to
increase revenues and our ability to achieve profitability will be limited.


WE ARE PARTY TO SECURITIES CLASS ACTION LITIGATION WHICH MAY BE COSTLY TO DEFEND
AND THE OUTCOME OF WHICH IS UNCERTAIN AND MAY HARM OUR BUSINESS.

     On September 8, 2000, the first of eleven related class action lawsuits was
filed against us in the United States District Court for the Southern District
of New York. The lawsuits include allegations that during the course of our
March 8, 2000 public offering of American Depositary Shares, we failed to
disclose material facts about the decline in business of our principal
shareholder and former business partner, Hikari Tsushin.

     The lawsuits make similar allegations against the underwriters for the
offering and certain of our former officers and directors and Hikari Tsushin. As
alleged purchasers of our shares during the offering, the plaintiffs seek to
recover damages of an unspecified amount on behalf of the alleged class of
persons who purchased our shares in, or traceable to, the offering. The
plaintiffs also seek to recover attorneys fees, accountant and expert witness
fees as well as other expenses incidental to the litigation. Certain plaintiffs
moved to be appointed as lead plaintiffs and to consolidate all eleven actions.

     On September 26, 2001, the court entered an order consolidating all eleven
actions and appointed lead counsel for the plaintiffs. Certain of the plaintiffs
who sought the appointment of different lead counsel have moved for
reconsideration of the court's decision and for the appointment of a different
lead counsel. That motion is under consideration by the court. Plaintiffs have
forty-five days after the determination of this motion to file a consolidated

                                     - 8 -
<PAGE>
amended complaint. We are not required to respond to plaintiffs' original
complaint and will respond to the consolidated amended complaint after it is
served.

     Although we intend to vigorously defend against any actions that are
properly brought against us, conclusion of the litigation in a manner adverse to
us could have a material adverse effect on our business and financial condition.


WE OPERATE IN AN INCREASINGLY COMPETITIVE MARKET AND MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.

     The market for e-mail hosting services in Japan is increasingly
competitive. There are few substantial barriers to entry, and we expect to face
additional competition not only from existing competitors but also from new
market entrants in the future. Our current and potential competitors include:
Japanese and international telecommunications carriers and related internet
service providers such as NTT and KDDI; independent internet service providers
and other service companies such as Internet Initiative Japan and Global Media
Online; and large information technology service companies such as Fujitsu and
NEC. These competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the information
technology industry than us. Furthermore, some of our competitors have offered
services similar to ours at lower prices than ours or with incentives not
matched by us. Price-reductions may not be sufficient to retain and attract
customers and may substantially undercut our profitability. For example, we
introduced 50% discounts for long-term existing customers, but discontinued this
discounting as it was not effective in reducing the number of cancellations.


WEAK ECONOMIC CONDITIONS IN JAPAN MAY DEPRESS OUR REVENUES AND REDUCE OUR
ABILITY TO COLLECT FEES FROM SUBSCRIBERS.

     Japan's economy has experienced a prolonged recession that began in the
early 1990s. Despite the implementation of fiscal recovery programs and other
measures taken by the Japanese government, the current economic climate in Japan
may not improve significantly and may worsen in the near future. If economic
conditions in Japan do not improve, our business could be adversely affected. In
particular, collection of fees from our subscribers may be delayed or prevented
due to factors such as the worsening condition of the Japanese economy and the
businesses of our customers.


WE HAVE A HISTORY OF LOSSES AND MAY CONTINUE TO INCUR LOSSES IN THE FUTURE.

     We have not achieved profitability in any fiscal year since we began
offering our DESKWING e-mail hosting service in May 1998, which is now our main
business. We incurred net losses of Yen9,569 million for the year ended
September 30, 2001, Yen1,542 million for the year ended September 30, 2000 and
Yen356 million for the year ended September 30, 1999. We may continue to incur
net losses through the end of the current fiscal year and perhaps thereafter. In
addition, revenues have decreased in the past fiscal year due to a reduction in
the size of our customer base, and we believe that under present conditions the
size of our customer base will continue to decrease.


IF WE FAIL TO OFFER CUSTOMERS SERVICES WHICH MEET THEIR NEEDS IN A TIMELY AND
EFFICIENT MANNER, OUR BUSINESS WILL SUFFER.

     In order to succeed, we must accurately forecast, design and implement
service enhancements and new services that meet customer needs in a timely and
efficient manner. The e-mail hosting business and related businesses are
characterized by rapidly changing technology, industry standards and customer
needs, as well as by frequent new product introductions and terminations.
Enhancement of existing services or development of new ones may require
substantial time and expense and may not achieve sufficient market acceptance.
If we are unable to apply rapidly changing technology to evolving customer
needs, we will not be successful in increasing revenues and achieving
profitability.

                                     - 9 -
<PAGE>
WE COULD EXPERIENCE SYSTEM FAILURES, WHICH COULD AFFECT OUR ABILITY TO OFFER OUR
SERVICES.

     To succeed, we must operate our network infrastructure on a 24-hour,
7-days-a-week basis without interruption. Although we have attempted to ensure
that redundancy is built into these network and hosting facilities, these
facilities are currently subject to various independent points of failure. Our
operations depend upon our ability to protect our network infrastructure,
equipment and customer data against damage from:

     *    human errors;

     *    various natural disasters, such as earthquakes;

     *    power loss or telecommunications failures; and

     *    sabotage or other intentional acts of vandalism.

     However, even if we take precautions, the occurrence of a natural disaster
or other unanticipated problem at our data centers could result in interruption
in the provision of our services.

     We have experienced interruptions in service in the past. Any future
interruptions could:

     *    require us to spend substantial amounts of money and time to replace
          existing equipment or add redundant facilities;

     *    damage our reputation for reliable service;

     *    cause existing end users, resellers and referral partners to cancel
          their contracts;

     *    cause end users to seek damages for losses incurred; or

     *    make it more difficult for us to attract new end users, resellers and
          referral partners.

     Any of these occurrences could adversely affect our business.


THE MARKET FOR OUR SERVICES MAY NOT GROW.

     Our success depends particularly on continued growth in the use of e-mail
hosting and other internet-related services, especially by small and
medium-sized enterprises in Japan. It is uncertain if this market will continue
to grow. If this market does not continue to grow, our business will be
adversely affected.


OUR BUSINESS MAY SUFFER IF WE LOSE THE SERVICES OF OUR EXECUTIVE OFFICERS.

     Our ability to achieve profitability also depends on the continued service
of our current executive officers. We rely on their experience in the operations
of our business and on their personal relationships with our shareholders and
business partners. The loss of their services could have a material adverse
effect on our business.


                                     - 10 -
<PAGE>
OUR BUSINESS MAY SUFFER IF WE CANNOT RETAIN QUALIFIED PERSONNEL.

     Through cost-reduction efforts and attrition, we have substantially reduced
our number of employees. As a result, we are increasingly dependent upon a small
number of key employees to operate our business. Retention of employees will
continue to be difficult as a result of more competitive market and operating
conditions for internet-related companies such as ourselves. In addition,
because we rely partially on stock options to recruit, retain and create
incentives for our employees, a decline in the market price of our stock can
influence our ability to recruit new employees and retain existing employees. If
we are unable to maintain qualified personnel in sufficient numbers, we may not
be able to maintain existing services or develop new ones.


WE ARE SUBJECT TO CONTROL BY HIKARI TSUSHIN.

     Hikari Tsushin currently directly and indirectly controls 72.9% of our
issued shares. As a result, Hikari Tsushin can exercise a controlling influence
over important decisions affecting our business and affairs. These decisions may
involve significant corporate transactions such as the sale of our company,
corporate restructuring, investment in other businesses or assets, or the terms
of future financings. The interests of Hikari Tsushin in these and other matters
may differ from yours. In addition, if Hikari Tsushin were to sell its holding
in us, it could negatively impact our stock price.


OUR COST STRUCTURE IS HIGHLY SENSITIVE TO THE RATE OF CUSTOMER ACQUISITION,
LENGTH OF CUSTOMER RETENTION AND THE OVERALL SIZE OF OUR CUSTOMER BASE.

     A large proportion of our costs are relatively fixed in the short term,
such as those relating to personnel, research and development, and our server
infrastructure. Although these costs also increase incrementally with an
expansion of our customer base, we believe our business is structured to benefit
from economies of scale.

     As a result of such economies of scale, an increase in the size of our
customer base over time generally decreases our fixed costs per customer while a
decrease in the size of our customer base increases our fixed costs per
customer. Decreases in, or an inability to increase, our customer base will
impact our ability to cover our fixed costs. We will be able to achieve
profitability only if we generate substantial revenues to cover our expenses,
including both fixed costs as well as variable costs such as customer
acquisition costs.

     Furthermore, some of the expenses incurred for our DESKWING and related
domain name maintenance services, such as acquisition of domain names for our
customers, are initial one-time expenses which can only be recouped over a
period of time by monthly subscriber fees after they cover ongoing expenses. If
the number of new subscriptions in a given period of time is large compared to
the size of the existing subscriber base, we may suffer large operating losses
for the period. In addition, the length of customer retention also influences
our ability to recoup initial expenses and the ability of these services to
become profitable. In recent periods, however, our total customer acquisition
costs have decreased significantly partially due to the fact that we have
reduced the size of our sales and marketing team and are focusing primarily on
customer retention. Our gross profit margins have improved as a result, but this
reflects primarily the fact that we continue to derive revenues from existing
customers and are not currently spending significant amounts on acquiring new
ones.

                                     - 11 -
<PAGE>
WE MAY BE ACCUSED OF INFRINGING THE PROPRIETARY RIGHTS OF OTHERS.

     Our business may be adversely affected by claims that we or our customers
are infringing the proprietary rights of others. While we are not aware of any
infringement by us of the proprietary rights of third parties, we might face
claims of infringement in the future. Any claim, whether meritorious or not,
could be time-consuming, result in costly litigation, cause service delays or
require us to enter into royalty or licensing agreements. Any royalty or
licensing agreements required might not be available at all or on terms
acceptable to us.


THE PROTECTION OF OUR PROPRIETARY INFORMATION IS LIMITED.

     We have no patented technology. Our technology may be misappropriated, or a
third party may independently develop similar technologies. We outsource some of
our programming development work to a number of independent software developers,
and in most of these cases, our agreements with these software developers do not
prohibit them from developing an application based on the knowledge of the
underlying operating software they acquire through providing their services to
us. We have applied to register "DESKWING" as a service mark. We rely on a
combination of copyright, trademark, service mark, trade secret and other
related laws and contractual restrictions to establish and protect certain
proprietary rights in our technology. The steps we have taken, or can take, to
protect our intellectual property may be insufficient to protect our assets.


WE MAY INCREASINGLY DEPEND UPON THIRD PARTIES TO MAINTAIN AND TO ENHANCE OUR
BUSINESSES.

     In the past, we have relied substantially on the services of third parties
to provide basic services, including marketing our services and provision of
servers and server maintenance. Following the restructuring of our business in
late 2000, we have substantially reduced our dependence on third-parties, but
still rely on third parties such as providers of Web-based news, weather and
stock information. In addition, in the future we may again outsource basic
business functions to other parties, including Hikari Tsushin and its
affiliates. Our ability to conduct our business may be disrupted and our
reputation damaged if such third parties fail to provide their services
appropriately.


OUR SHARES AND ADSs ARE LIKELY TO BE TREATED AS STOCK OF A PASSIVE FOREIGN
INVESTMENT COMPANY FOR U.S. FEDERAL INCOME TAX PURPOSES.

     We believe that our shares and ADSs are likely to be treated as stock of a
passive foreign investment company for U.S. federal income tax purposes. U.S.
persons who hold our shares or ADSs, either directly or indirectly, may be
subject to materially adverse U.S. federal income tax consequences. See "Item
10.E Taxation -- United States Taxation -- PFIC Rules."


WE MAY HAVE TO CONSTRAIN OUR BUSINESS ACTIVITIES TO AVOID BEING DEEMED AN
INVESTMENT COMPANY UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.

     In general, a company may be deemed to be an investment company under the
U.S. Investment Company Act of 1940 if it owns investment securities with a
value exceeding 40% of its total assets exclusive of cash and U.S. treasury
bonds. Because substantially all of our assets are bank deposits and other
liquid assets and we have few other assets, even a small additional allocation
of our assets into investment securities or appreciation of these securities
could cause us to be deemed an investment company for purposes of the Investment
Company Act. If we were to become an investment company, we would be prohibited
from issuing our securities in the United States and may have to terminate our
U.S. listing or other sponsorship promoting a U.S. trading market for our
securities. In order to avoid these prohibitions, we may be forced to maintain
our cash reserves in ordinary bank accounts or U.S. Treasury bonds and forego
opportunities to invest our cash reserves in instruments which may offer a
higher rate of return, potentially limiting our growth and our profitability.

                                     - 12 -
<PAGE>
DISRUPTION OF OUR SERVICES DUE TO ACCIDENTAL OR INTENTIONAL SECURITY BREACHES
MAY ADVERSELY IMPACT OUR BUSINESS.

     A significant barrier to the growth of e-commerce and communications over
the internet has been the need for secure transmission of confidential
information. Despite our design and implementation of a variety of network
security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We experienced three
instances of unauthorized access to data of our customers in December 1999. We
may incur significant costs to protect against the threat of security breaches
or to alleviate problems caused by such breaches. If a third person were able to
misappropriate our users' personal or proprietary information or credit card
information, we could be subject to claims, litigation or other potential
liabilities.


WE COULD FACE LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK.

     It is possible that claims could be made against e-mail and other
Web-related hosting service providers in connection with the nature or content
of the materials disseminated through their networks. Several private lawsuits
are pending in the United States which seek to impose liability upon service
providers as a result of the nature or content of materials disseminated over
the internet. It is possible that there may be similar lawsuits in Japan in the
future. If any of these actions succeed, we might be required to respond by
investing substantial resources or discontinuing some of our services. In
addition, the governments of Japan, the United States and other jurisdictions
could enact laws and regulations related to content distributed over the
internet that are more strict than those currently in place. The increased
attention focused upon liability as a result of these lawsuits and legislative
proposals could impact the growth of internet use.


NEW LAWS AND REGULATIONS WHICH IMPACT OUR INDUSTRY COULD HARM OUR BUSINESS.

     We are not currently subject to direct regulation by any governmental
agency, or laws or regulations, other than the Telecommunications Business Law
of Japan and regulations applicable to businesses in general. We will also be
subject to the Law concerning Limitation on Liability of Specified
Telecommunication Service Providers and Disclosure of Information on Senders of
Telecommunication of Japan, enacted on November 30, 2001, once it is
implemented. Our business could suffer depending on the extent to which our
activities are regulated or proposed to be regulated in the future.

                                     - 13 -
<PAGE>
ITEM 4. INFORMATION ON THE COMPANY.

A.   HISTORY AND DEVELOPMENT OF THE COMPANY.

     We were incorporated in October 1995 in Japan as a joint stock corporation
under the name Crayfish Co., Ltd. Our head office is located at WICS Bldg. 6th
Floor, 2-1, Ikebukuro 2-chome Toshima-ku, Tokyo 171-0014, Japan. Our telephone
number is 81-3-5957-0644. Our World Wide Web address is www.Crayfish.Co.Jp.
Information contained in our Web site does not constitute part of this annual
report on Form 20-F. Our agent for service of process in the United States is CT
Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011.

     Our business grew from our origins in internet-based hosting services.
These services involved the provision of server space and support operations for
internet-related applications for customers. In October 1995, we began operating
domestic Web-hosting services for internet service providers, but we have phased
out these services entirely in recent years. Using the business and technical
understanding we acquired through these services, we began offering our
"Hitmail" e-mail hosting service to small and medium-sized enterprises in Japan
in May 1998. As of February 1, 2001, we renamed "Hitmail" as "DESKWING".

     Hikari Tsushin became our exclusive sales agent for Hitmail in May 1998,
providing us with marketing and sales support. Hikari Tsushin acquired a
majority of our shares in March 1999. In December 2000, we terminated the
marketing contract with Hikari Tsushin and began to market our services alone.
In March 2000, we became a public company following the listing of our shares on
both the Nasdaq National Market in the United States and the MOTHERS market of
the Tokyo Stock Exchange in Japan. As a result of the public offering, Hikari
Tsushin's direct and indirect ownership was reduced to 46.29%.

     Following the resignation of our entire board of statutory auditors and our
previous independent accountants and the imposition of a temporary trading halt
in our ADSs on the Nasdaq National Market in April 2001, Hikari Tsushin issued a
written demand to our previous management, as permitted by the Japanese
Commercial Code, to elect new management and hold an extraordinary shareholders'
meeting.

     At an extraordinary shareholders general meeting on June 20, 2001, entirely
new directors and corporate auditors proposed by Hikari Tsushin were elected.

     The new management appointed at the shareholders' meeting held in June 2001
refocused our targets and reorganized our cost structures. In July 2001, we
announced our "Business Revival Plan."

     As part of our July 2001 Business Revival Plan, we eliminated the following
services in July and August 2001:

     -    Crayf!sh 2000, a system similar to DESKWING we began to market in
          December 2000 and launched on an OEM basis in November 2000;

     -    Crayf!sh 4000, a middle scale hosting service for small and
          medium-sized enterprises launched in May 2000;

     -    M27, a personal groupware service launched in April 2001; and

                                     - 14 -
<PAGE>

     -    System Development Services, design of Web sites and development of
          related system applications for large corporate customers.

     Nasdaq released our ADSs from the temporary trading halt on July 26, 2001.

     As a result of a public tender offer in Japan for our shares by Hikari
Tsushin from September 5 to 25, 2001, Hikari Tsushin's direct and indirect
shareholdings increased from 4,761 shares, or 46.7% of our outstanding shares,
to 7,469 shares, representing 72.9% of our outstanding shares. Hikari Tsushin
purchased 2,750 shares in the offering at a per share price of Yen900,000.


B.   BUSINESS OVERVIEW.

     We offer e-mail hosting services as well as Web-page hosting and other
internet-related services to small and medium-sized enterprises in Japan. We
seek to alleviate the intimidation that small and medium-sized enterprises may
feel about the cost, time or technology involved in establishing and maintaining
an internet presence. By subscribing to our services, our customers enjoy the
benefits of internet communications, productivity and e-commerce solutions which
cannot be achieved on their own without building and maintaining a costly
information-technology infrastructure.


OUR SERVICES

     BASIC SERVICE -- DESKWING

     DESKWING, which we first introduced as Hitmail in May 1998, is a
customizable and expandable hosting service targeted at small and medium-sized
enterprises. The standard DESKWING service package provides customers with a
domain name of their own choosing with up to 50 e-mail addresses and 100
megabytes of server capacity, and with an average daily transfer volume up to
800 megabytes.

     DESKWING has the following basic features:

     -    Service and Support -- We designed DESKWING to serve users with
          different experience levels. Depending on our customers' needs, we
          provide free advice on choosing personal computers and an internet
          service provider, and, for a fee, visit their offices to install the
          necessary hardware and software as well as to give tutorials.

     -    Client-Site Controllability -- Each DESKWING subscriber receives a
          log-in ID and password for access to its control panel. The control
          panel allows the subscriber to change, add and delete e-mail addresses
          under its domain name.

     -    Customer's Own Domain Name -- We register domain names in the
          customer's own name, such as "www.smallbusiness.com," rather than
          derivative or lower-level domain names provided by internet service
          providers, such as "www.isp.com/smallbusiness." This allows our
          customers to maintain online name recognition on the internet.

     -    Enhanceability -- For additional charges, we also provide a range of
          optional services, such as mailing list functions for efficient group
          communications and multiple sub-addresses under a particular domain
          name for use by different departments of the customer using that
          domain name.

                                     - 15 -
<PAGE>
     -    Expandability and Reliability -- If e-mail requirements increase, a
          customer can obtain additional e-mail addresses and server capacity
          for an additional charge. Our system can increase server capacity
          seamlessly without compromising system integrity. We also charge an
          additional fee if the average amount of daily data transfer exceeds
          800 megabytes.

     We charge an initial fee of Yen30,000 for our DESKWING service. Previously,
we waived the initial Yen30,000 payment for marketing purposes. However, we
generally no longer discount this fee to new subscribers. The basic monthly fee
for the standard DESKWING service package is currently Yen10,000.

     We provide customer support from 9:00 a.m. to 6:00 p.m., Tokyo time, 5 days
a week. We currently offer in-house telephone e-mail-based support services to
respond to and analyze customer needs.

     In order to maintain price competitiveness and retain long-term DESKWING
subscriptions, we introduced 50% discounts in April 2001 for customers who were
DESKWING subscribers for a period of 13 months or longer. In October 2001, we
discontinued the campaign because the discounted price was below cost and did
not reduce the decline in DESKWING subscription cancellations.

     We had 31,257 DESKWING customer accounts as of September 30, 2001 and
20,520 as of February 28, 2002.


     ADDITIONAL SERVICES

     Subscribers to our basic DESKWING service can also purchase the additional
services discussed below. Revenues from these additional services accounted for
approximately 10% of our average monthly revenue per customer for the year ended
September 30, 2001.

     Web.  This is our Web-page hosting service, which we started offering in
May 1998. As of September 30, 2001, approximately 90% of our customers for
DESKWING services subscribed to our Web service. Web allows a customer to
publish its own corporate Web page under its own domain name. A customer who
subscribes to DESKWING and Web may use for Web-hosting a portion of the 100
megabytes of capacity included in the DESKWING package. A customer may rent
additional server space as needed. A Web subscription gives customers access to
our easy-to-use Web-page designing application. Using this application,
accessible through the customer control panel, the customer may design Web pages
based on ready-made templates. For customers desiring more sophisticated
Web-page designs, we offer references to independent Web-page design service
providers. For an additional charge, we can host Web-page designs that customers
create with their own Microsoft FrontPage 2000 software. We currently charge
Yen1,000 per month for the standard Web service.

     Virus Check.  In January 2002, based on requests that we had obtained from
customers from our in-house call center, we began to offer a virus check service
on a trial basis through a partnership with Network Associates, Co., Ltd. The
virus check detects and exterminates computer viruses at the server side. The
300 available trial subscriptions to the service quickly sold out and in March
2002, we formally began to offer subscriptions to the service under two plans,
Virus-Check One, priced at Yen350 per account, and Virus-Check 50, priced at
Yen11,000 per 50 accounts.

     As part of our July 2001 Business Revival Plan, we terminated in August
2001 Shop, our business-to-consumer e-commerce enabling service introduced in
January 2000; Office, a personal information management service and information
sharing service introduced in April 2000; and Unified Messaging, a combination
of fax, voice and e-mail service.

                                     - 16 -
<PAGE>
     Other additional services we offer are the Nikkei Telecom 21, a news and
corporate database retrieval service, sub-domain name acquisition, domain
forwarding, coded data communication, bulletin board application, home page
construction tools and an automated Web-site access log analysis service.

     To access our services, the customer also needs computer equipment and
access to the internet provided by a third party internet service provider
through a conventional telephone line, a leased line, a digital subscriber line
(DSL), or cable (CATV), etc. Until November 2000, Hikari Tsushin, as our former
sales agent, helped some of our customers obtain these products and services.
After termination of our contract with Hikari Tsushin, our own sales and
marketing team began assisting customers with acquiring these products and
services. Also, we introduce a third party internet service provider to our
clients in return for a fee.


     SUBSCRIPTIONS

     When a customer subscribes to our services we process the application and
collect any applicable initial and monthly fees. We then configure a DESKWING
server to allocate disk space for the subscriber's data. Ordinarily, customers
are able to begin using our services one to two weeks from the time of
subscription.

     Acquisition of Domain Names.  We acquire domain names for our customers
upon their request. Approximately half of our customers request Japanese domain
names, which end with the extension ".jp." For these names, we apply to Japan
Network Information Center, or JPNIC, which is the sole administrator of the
registry for Japanese domain names and of which we are a member. Some of our
customers request United States domain names, which end with extensions such as
".com," ".org" or ".net," for which there are several registrars in the United
States.

     Our Contracts with Customers.  We enter into a standard contract with each
customer that subscribes to our services. Our standard DESKWING contract
describes the services we will provide and the rates for these services, as well
as additional charges for extra server capacity, excess data transfer and other
items.

     Our standard DESKWING contract also contains the following key terms:

     -    Minimum Subscription Period -- The minimum subscription period is
          currently twelve months. If the subscriber terminates the contract
          before the end of the minimum subscription period, the contract
          requires the customer to pay the balance of the fees for that period.

     -    Right to Terminate Subscription -- Subject to the minimum subscription
          period, the subscriber can terminate our services after two months
          written notice.

     -    Limitation of Our Liability -- If we fail to provide the services we
          promised, the contract limits our liability to the subscriber. If a
          failure continues for more than 12 hours after we have learned of it,
          the subscriber can demand a refund. The amount of refund the customer
          can demand is roughly proportional to the monthly fee, based on the
          duration of the failure beginning 12 hours after we learned of it. The
          contract further limits our liability if the failure is caused by the
          telephone company connecting the subscriber to our data center.

                                     - 17 -
<PAGE>
SALES AND MARKETING.

     Almost all of our customers belong to our core market, small and
medium-sized enterprises in Japan, particularly businesses with no more than 20
employees. We believe this sector has been underserved by other providers of
hosting services and that these potential customers have not yet fully taken
advantage of the internet.

     A staff of 12 as of March 15, 2002 (13 as of September 30, 2001) is
responsible for sales promotion activities, including developing products and
services. Our sales and marketing focus is currently on retention of existing
customers rather than on acquisition of new ones. After the November 2000
termination of our contract with Hikari Tsushin, we began to build our direct
sales and marketing force. However, following the July 2001 management change,
we concluded both direct marketing and outsourcing are not a cost-effective
means of customer acquisition for existing services offerings under current
competitive conditions. We are currently re-evaluating our customer acquisition
strategy.

     Until termination of our marketing agreement with Hikari Tsushin in
November 2000, we worked closely with Hikari Tsushin to market our services.
Hikari Tsushin conducted direct-marketing activities directly and through its
sales agents, including its Call to Web subsidiary. A department within Hikari
Tsushin promoted sales of our services and monitored and supervised these
agents' activities.

     Until the termination of our marketing agreement with Hikari Tsushin, we
paid Hikari Tsushin a sales commission for each subscription they or their sales
agents had obtained. Hikari Tsushin's sales agents also processed applications
for our services and collected fees on our behalf. The sales commission
consisted of the following two components:

     -    All or whatever portion we collected of the Yen30,000 start-up fee
          paid by the subscriber. We generally waived this fee for marketing
          purposes in the past.

     -    We also paid Hikari Tsushin a portion of the monthly fee paid by
          subscribers for our services. For subscriptions to the standard
          service, we paid Hikari Tsushin 50% of the monthly fee. For our
          additional services, we typically paid 50% of revenues net of the fees
          we paid to ITOCHU Technology Inc. for the use of its servers prior to
          our July 2000 termination of this arrangement.

     Hikari Tsushin no longer services our sales and no longer assists with
processing customer applications and providing customer service.


TECHNOLOGY

     We apply our internal experience to industry-standard advanced software and
hardware to create an advanced infrastructure for the operation of our services.
As discussed below in "-- D. Property, Plant and Equipment," we now own all of
the servers used for the DESKWING service following the termination of our sale
and leaseback arrangement with IBJ Leasing.

     The facilities that house the DESKWING servers have redundant systems for
power, fire protection, seismic reinforcement and 24-hour 7-days-a-week security
surveillance by system administrators. Cable & Wireless IDC owns the facility in
Tokyo that houses all DESKWING servers.

     Our security efforts focus on preventing unauthorized access to our
customers' e-mail and other databases, on protecting our hardware and software
from being tampered with by intruders, and on preventing service failure or
slowdown caused by such intruders. We perform security-related patches on our
operating system and other applications on a regular basis. We also monitor the
network to detect intrusion attempts, using current information obtained from a
Japanese affiliate of CERT, a group of computer internet security experts based
at Carnegie-Mellon University in the United States.

                                     - 18 -
<PAGE>
GOVERNMENT REGULATION

     We are not currently directly subject to national or local government laws
or regulations in Japan or other jurisdictions, other than the
Telecommunications Business Law of Japan and laws and regulations that apply to
businesses generally.

     The Telecommunications Business Law of Japan regulates two types of
telecommunications companies: Type I Carriers and Type II Carriers. In
connection with our Access service, as an internet-access provider, we fall
under the category of General Type II carriers. We formally notified the
Ministry of Public Management, Home Affairs, Posts and Telecommunications before
commencing General Type II business and specified the categories of service to
be provided. If matters written in the notification change, General Type II
Carriers must give a notification of the change to the Ministry of Public
Management, Home Affairs, Posts and Telecommunications.

     Other than the Telecommunications Business Law, only a small body of laws
and regulations currently applies specifically to e-mail hosting, Web-page
hosting, internet-access and other internet-related activities in Japan. Due to
the increasing popularity and use of the internet, however, it is possible that
laws and regulations with respect to the internet may be adopted in Japan or
other jurisdictions. Governmental agencies in Japan and elsewhere are currently
adopting or considering the adoption of such laws and regulations. These laws
and regulations could cover issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation, libel,
advertising, obscenity, intellectual property rights, information security and
the convergence of traditional telecommunications services with internet
communications. We cannot determine at this time the nature of future possible
legislation and regulation and the manner and impact of their interpretation or
enforcement.

     On November 30, 2001, the Law concerning Limitation on Liability of
Specified Telecommunication Service Providers and Disclosure of Information on
Senders of Telecommunication of Japan was enacted and is expected to soon come
into effect. We are classified as a "Telecommunication Service Provider" under
this law. Under this law, claims of infringement by third parties against
telecommunications service providers must meet certain conditions in order to
find telecommunication service providers liable. This law also provides that the
telecommunications service providers may have to disclose certain information
concerning the sender of the telecommunication to a third party alleging
infringement.


C.   ORGANIZATIONAL STRUCTURE.

     Hikari Tsushin directly and indirectly controls 72.9% of our outstanding
shares of common stock. As of January 31, 2002, seven employees were seconded to
us from Hikari Tsushin. In February 2002, these employees formally terminated
their employment with Hikari Tsushin and began their employment with us. Two of
them currently serve on our board of directors. We are considered part of the
Hikari Tsushin corporate group and accounted for as a consolidated subsidiary in
their financial statements.

                                     - 19 -
<PAGE>
     In December 2000, we acquired 47.1% of the outstanding shares of Intranets
K.K., a provider of free groupware functions including web-based scheduling, for
a total amount of Yen600 million. However, after review of our overall strategy
as outlined in our Business Revival Plan of June 2000, we determined that the
investment had not produced the positive synergistic value originally expected.
As a result of the completion in March 2002 of a share buyback and subsequent
retirement of shares repurchased by Intranets K.K. in connection with a capital
reduction of Intranets K.K., we currently own 22.8% of the outstanding shares of
Intranets K.K.

     In January 2001, we purchased 3,875 ordinary shares of MCC Holdings, Ltd.,
a developer of mobile communications technology and content for mobile
communication services, for a total amount of Yen194 million. After the
transaction, we held 60.0% of the 6,458 outstanding ordinary shares of MCC
Holdings. In September 2001, we sold all of our shares in MCC Holdings to a
representative director of MCC Holdings for a total amount of Yen7.75 million.
Accordingly, MCC Holdings would no longer be included as a consolidated
subsidiary in our consolidated financial results.


D.   PROPERTY, PLANT AND EQUIPMENT.

     The table below shows our capital expenditures, including a portion of
payments under capitalized leases for the last three years.

<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED SEPTEMBER 30,
                                                            --------------------------------
                                                            1999          2000         2001
                                                            -----       --------      ------
                                                                   (millions of yen)
<S>                                                         <C>         <C>           <C>
Capital expenditures, including a portion of payments
 under capitalized leases                                   Yen41       Yen3,361      Yen542
</TABLE>

     Our capital expenditures are difficult to plan given the rapid changes and
uncertainties in the market for e-mail hosting and related services. Most of our
past capital expenditures related to the expansion and improvement of our
hosting infrastructure, and the installation of servers necessary to offer
hosting and e-mail services. Although our capital expenditures plans may change
as new business opportunities arise, we expect future capital expenditures for
the year ending September 30, 2002 to be lower than those for the year ended
September 30, 2001 as we currently do not anticipate expanding our existing
hosting infrastructure.

     A wide ranging review of our operations and cost structure undertaken by
our new management revealed that most of our servers were operating at very low
capacity. At the same time, we were paying high fixed charges under our July 12,
2000 server leasing contract with IBJ Leasing for this underutilized server
capacity. As a result, we terminated the leasing contract on July 24, 2001 and
bought back all leased servers for a cost of Yen2,410 million. This amount
represented the remaining three years of payments outstanding under the leasing
contract. The servers had been assessed and valued at Yen80 million. As a result
of the transaction, we incurred a one-time charge of Yen2,110 million during our
fiscal year ended September 30, 2001.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     You should read the following discussion of our financial condition and
results of operations together with our financial statements and the
accompanying notes to those financial statements beginning on page F-1 in
response to Item 8. and Item 18. This discussion is based on U.S. GAAP financial
information except as noted otherwise. This section contains forward-looking
statements and you should read the discussion relating to forward-looking
statements appearing at the beginning of this annual report on Form 20-F.

                                     - 20 -
<PAGE>
OVERVIEW.

     We provide e-mail hosting services to small and medium-sized enterprises in
Japan. Starting with the launch of DESKWING in May 1998, we have focused on
DESKWING and related services. In the year ended September 30, 2001,
substantially all of our revenues came from DESKWING and related services.

     Previously, we also derived revenues from our prior hosting system "SSOS"
(from licensing and operating our server-hosting platform technology to internet
service providers) and system development (Web-site design and consulting). We
have been phasing these services out in recent years and, following the
implementation of our Business Revival Plan in July 2001, discontinued our
"Other Hosting Services" and "Systems Development Services" segments, leaving
only our "Deskwing Hosting Services" segment. Less than 1.4% of our revenues for
the year ended September 30, 2000 came from these discontinued services. In the
year ended September 30, 2001, we received no revenues from SSOS and only
nominal revenues from system development services.

     As a result, reclassifications have been made to the statements of
operations data for the years ended September 30, 1999 and 2000 to conform to
the presentation for the year ended September 30, 2001. We have accounted for
our discontinued operations in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." Accordingly, the
discontinued segments' historical results of operations together with losses
attributable to the disposal of related assets and settlement of related
liabilities have been reflected as discontinued operations in the statements of
operations.

     In addition, service fees, comprising primarily fees paid to Hikari Tsushin
for its services as sales agent prior to the November 2001 termination of our
agreement with Hikari Tsushin, have been included in cost of revenues. In
previous years, service fees were included under operating expenses. We have
reclassified these fees for each of the fiscal years ended September 30, 1999,
2000 and 2001.


     REVENUES

     Revenues consist primarily of fixed monthly fees paid by our customers to
us. The contract for basic DESKWING service provides for an initial payment of
Yen30,000 and a monthly fee of Yen10,000. Services commence on the first day of
the month following the month in which the subscription application is
processed. Previously, we waived the initial Yen30,000 payment for marketing
purposes. We generally no longer discount this fee for new subscribers.
Additional monthly fees for our Web hosting service, to which approximately 90%
of our customers subscribe, are Yen1,000. Fees for other services vary. Fees for
additional services comprised approximately 10% of our revenues for the year
ended September 30, 2001. Revenues are recognized on a monthly basis over the
contract period, beginning when the subscription fee for the first month is
collected. Cancellation fees are recognized when received, provided all
obligations under the contract have been fulfilled.

     The following table shows, for each of the quarters indicated, the number
of new DESKWING service customers, the number of customers that terminated our
services and the quarter-end number of current customers. Our contract with each
customer includes a restriction that the customer cannot terminate the contract
during the first year and must provide two-months' prior notification of
termination.

                                     - 21 -
<PAGE>
<TABLE>
<CAPTION>
                                              YEAR ENDED SEPTEMBER 30,
              ---------------------------------------------------------------------------------------
                   1999                       2000                                2001
              ---------------   ---------------------------------   ---------------------------------
                3Q       4Q       1Q       2Q       3Q       4Q       1Q       2Q       3Q       4Q
              ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
<S>           <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
New            6,783   11,779   18,024   28,055   15,784    6,480    2,010      321      923      597
Cancelled        185      651    1,308    3,840    8,879   16,552   10,919    9,691    6,648    4,651
              ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
Quarter-end
 Balance      10,480   21,608   38,324   62,539   69,444   59,372   50,463   41,093   35,310   31,257
              ======   ======   ======   ======   ======   ======   ======   ======   ======   ======
</TABLE>


     COST OF REVENUES

     We include expenses related to DESKWING and its related services either as
part of cost of revenues or as part of operating expenses. The principal expense
items related to DESKWING and its related services which are accounted for as
cost of revenues as they are incurred are as follows:

     -    Initial and Ongoing Fees for Acquisition and Maintenance of a Domain
          Name.  These fees are payable to the relevant administrator of the
          domain name registry as follows:

          For Japanese domain names, we pay Yen4,762 per name to Japan Network
          Information Center, or JPNIC, for the acquisition of a domain name. We
          also pay an annual JPNIC membership fee of Yen5,000 per registered
          name, based on the number of registered domain names we have obtained.
          From April 2001, the fee is Yen4,762 for the acquisition of a domain
          name and the first year of registration, with annual registration fees
          of Yen3,500 thereafter.

          We pay Yen3,500 to Japan Registry Service Co., Ltd. for the
          registration of a Japanese domain name. We also pay an annual fee of
          Yen3,500 per registered name, based on the number of registered domain
          names we have obtained after the first year from the registration.

          For U.S. domain names, we pay to Verisign $14.50 per top level domain
          name annually. Prior to November 2001, we had paid $70 per name for
          the first two years, and $35 for each year thereafter.

     -    Service fees.  Prior to November 2000, a service fee was payable to
          Hikari Tsushin for its services as our sales agent. This service fee
          was equal to 50% of monthly fees and 10% of fees from additional
          services. Information on related party transactions is provided in
          Item 7.A.

     -    Administrative Expenses for Application Processing.  These expenses
          include expenses we incur in inputting the subscriber's information in
          our database, processing and mailing documents to the subscriber and
          preparing a user's manual.

     -    Outsourcing Fees for Our Customer Support Services.  We terminated the
          contract with Telemarketing Japan, which previously provided our
          customer support services, in August 2001. The fees for these
          outsourced services are included in cost of revenues. Since September
          2001, we have been providing in-house customer support services and
          expenses related to such services are included in selling, general and
          administrative expenses.

     -    Initial Promotional Fees.  Prior to termination of our contract with
          ITOCHU Technology, Inc. in July 2000, a $30 promotional fee was
          payable to Hikari Tsushin for each new subscription.

                                     - 22 -
<PAGE>
     Some of our expenses are initial one-time expenses we incur only in the
month in which a new service application is processed. On the revenue side, we
generate monthly fees from our subscribers. Relatively large initial one-time
expenses can only be recouped over a period of time by the monthly fees after
they cover on-going expenses. If the number of new subscriptions in a given
period of time is large compared to the size of the existing subscriber base, we
may suffer large operating losses for such period.


     OPERATING EXPENSES

     Our operating expenses include the following:

     -    Selling, General and Administrative Expenses.  Our selling, general
          and administrative expenses include personnel expenses associated with
          our management and administrative functions, office rent for our
          headquarters, advertising expenses, depreciation and amortization
          expenses and expenses incurred in connection with in-house customer
          support.

     -    Research and Development Expenses.  In order to enhance the
          functionality of our services and develop new services, we incur
          research and development expenses for our in-house research and
          development activities for outsourcing technical work to third
          parties. Through July 2001, we incurred significant research and
          development costs to develop a new hosting service which we have
          discontinued. Subsequently, we have substantially scaled down our
          research and development plans though we could change this policy if
          we identify appropriate opportunities to grow our business.

     -    Loss on Impairment of Equipment.  A Yen2,111 million loss on
          impairment of equipment was incurred in connection with the
          termination of the Lease Contract with IBJ Leasing Co., Ltd. in July
          2001.

     -    Loss on Impairment of Purchased Intangible Servicing Asset.  A
          Yen3,500 million loss on impairment of purchased intangible servicing
          asset was recognized in the fiscal year ended September 30, 2001 in
          connection with the termination in November 2000 of our marketing
          agreement with Hikari Tsushin. Upon termination we paid Hikari
          Tsushin Yen3,500 million based on an independent valuation of the
          fair value of the expected future net revenues to be received by
          Hikari Tsushin under the agreement. The expected future revenues were
          based on pricing terms then in effect with customers and on estimated
          future cancellation rates. Subsequent to termination of the
          agreement, actual cancellation rates increased significantly from
          those projected and we implemented a 50% reduction in the monthly fee
          charged for our Deskwing hosting service.

                                     - 23 -
<PAGE>
RESULTS OF OPERATIONS

     As an aid to understanding our historical operating results, the following
table shows items from our statements of operations for the periods indicated in
yen amounts and as a percentage of total revenues. Our historical operating
results are not necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
                                                                           Year ended September 30,
                                               ------------------------------------------------------------------------------------
                                                   1999(1)                       2000(1)                     2001(2)
                                               --------------                 --------------              --------------
                                                    (in thousands, except percentages, per share amounts and numbers of shares)
<S>                                            <C>               <C>          <C>                <C>      <C>               <C>
STATEMENTS OF OPERATIONS DATA:

Revenues                                       Yen    811,687     100.0%      Yen  6,728,865     100.0%   Yen  5,311,814    100.0%
Cost of revenues(3)                                   796,212      98.1%           5,653,051      84.0%        3,391,888     63.9%
                                               --------------                 --------------              --------------
Gross profit                                           15,475       1.9%           1,075,814      16.1%        1,919,926     36.1%
                                               --------------                 --------------              --------------
Operating expenses(3)                                 448,929      55.3%           2,079,314      30.9%        9,273,622    174.6%
                                               --------------                 --------------              --------------
Loss from operations                                 (433,454)    (53.4)%         (1,003,320)    (14.9)%      (7,353,696)  (138.4)%
Other income (expense), net                           (19,090)     (2.4)%              7,665        .1%       (1,047,112)   (19.7)%
                                               --------------                 --------------              --------------
Loss from continuing operations before
 provision for income taxes                          (452,544)    (55.8)%           (995,655)    (14.8)%      (8,400,808)  (158.2)%
Provision for income taxes                              2,981       0.4%               3,800        --             3,800       --
                                               --------------                 --------------              --------------
Loss from continuing operations                      (455,525)    (56.1)%           (999,455)    (14.9)%      (8,400,808)  (158.2)%
Gain (loss) from operations of discontinued
 business segments                                     99,786      12.3%            (542,129)     (8.1)%      (1,164,113)   (21.9)%
                                               --------------                 --------------              --------------
Net loss                                       Yen   (355,739)    (43.8)%     Yen (1,541,584)    (22.9)%  Yen (9,568,721)  (180.1)%
                                               ==============                 ==============              ==============
Basic and diluted loss per common share loss
 from continuing operations per share          Yen(100,958.55)                Yen(106,859.30)             Yen(823,496.77)
Gain (loss) from operations of discontinued
 business segments per share                        22,115.69                     (57,963.11)                (114,061.63)
                                               --------------                 --------------              --------------
Net loss per share                             Yen (78,842.86)                Yen(164,822.41)             Yen(937,558.40)
                                               ==============                 ==============              ==============
Shares used in per share calculation - basic
 and diluted                                            4,512                          9,353                      10,206
</TABLE>

------------
(1)  Reclassifications have been made to conform to the presentation for the
     year ended September 30, 2001. We have accounted for our discontinued
     operations in accordance with the provisions of Accounting Principles Board
     Opinion ("APB") No. 30, "Reporting the Results of Operations -- Reporting
     the Effects of Disposal of a Segment of a Business, and Extraordinary,
     Unusual and Infrequently Occurring Events and Transactions." Accordingly,
     the discontinued segments' historical results of operations together with
     losses attributable to the disposal of related assets and settlement of
     related liabilities have been reflected as discontinued operations in our
     statements of operations.

(2)  As a result of the elimination of the "Other Hosting Services" and
     "Systems Development Services" segments for the year ended September 30,
     2001, the presentation of statements of operations data has changed from
     previous fiscal years. We have accounted for our discontinued operations in
     accordance with the provisions of Accounting Principles Board Opinion
     ("APB") No. 30, "Reporting the Results of Operations -- Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
     and Infrequently Occurring Events and Transactions." Accordingly, the
     discontinued segments' historical results of operations together with
     losses attributable to the disposal of related assets and settlement of
     related liabilities have been reflected as discontinued operations in the
     statements of operations.

(3)  Service fees paid to Hikari Tsushin previously included under operating
     expenses have been reclassified as part of cost of revenues for the years
     ended September 30, 1999, 2000 and 2001. Included in the reclassifications
     made to the 1999 and 2000 statements of operation are service fees paid to
     Hikari Tsushin of Yen364,477 thousand for the year ended September 30, 1999
     and Yen3,291,737 thousand for the year ended September 30, 2000.
     Previously, those amounts were included under operating expenses, but have
     been reclassified as part of revenues to conform with the 2001
     presentation.


     YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED SEPTEMBER 30, 2000

     REVENUES.  Revenues decreased 21.1% from Yen6,729 million in year ended
September 30, 2000 to Yen5,312 million in the year ended September 30, 2001. The
decrease in revenues was mainly attributable to a decline in net DESKWING
revenues as a result of a decrease in the number of DESKWING subscribers. In the
year ended September 30, 2001, DESKWING revenue accounted for 99.7% of total
revenue. There were 31,257 subscribers as of September 30, 2001, a 47.4%
decrease from 59,372 subscribers as of September 30, 2000.

                                     - 24 -
<PAGE>
     COST OF REVENUES.  Cost of revenues decreased 40.0% from Yen5,653 million
in the year ended September 30, 2000 to Yen3,392 million in the year ended
September 30, 2001. Cost of revenues decreased as a result of the decrease in
costs due to the decrease in DESKWING subscribers and lower service fees paid to
Hikari Tsushin. Service fees paid to related parties decreased by 79.9% to
Yen657 million in the year ended September 30, 2001 from Yen3,292 million in the
year ended September 30, 2000 due to the termination of our contract with Hikari
Tsushin.

     GROSS PROFIT.  Gross profit increased 78.4% from Yen1,076 million in the
year ended September 30, 2000 to Yen1,920 million in the year ended September
30, 2001, reflecting a decrease in cost of revenues. Gross profit margin
increased from 15.6% in the year ended September 30, 2000 to 36.1% in the year
ended September 30, 2001.

     OPERATING EXPENSES.  Operating expenses for the year ended September 30,
2001 increased by 346.1% from Yen2,079 million in the year ended September 30,
2000, to Yen9,274 million. The increase reflected an increase in selling,
general and administrative expenses, as a result of increases in employment
costs and commission fees, as well as the recognition of impairment of servers
and other equipment and intangibles in connection with our ongoing
restructuring.

     Selling, general and administrative expenses increased by 85.3% to Yen1,714
million in the year ended September 30, 2001 from Yen925 million in the year
ended September 30, 2000.

     As a result of increases in cancellations by subscribers, we recognized a
loss on impairment of purchased intangible service assets of Yen3,500 million in
connection with the termination of our marketing agreement with Hikari Tsushin.
We also recognized a loss on impairment of equipment of Yen2,111 million
relating to the termination of our contract with IBJ for leasing of servers and
related equipment.

     LOSS FROM OPERATIONS.  Operating loss of Yen7,354 million in the year ended
September 30, 2001 increased from operating loss of Yen1,003 million for the
year ended September 30, 2000, primarily due to the recognition of an impairment
for intangible assets acquired from Hikari Tsushin in connection with the
termination of the marketing agreement and the impairment of equipment.

     OTHER INCOME (EXPENSE), NET.  Other income (expense), net in the year ended
September 30, 2001 decreased to Yen1,047 million in net expense from net income
of Yen8 million in the year ended September 30, 2000. This decrease was
primarily due to a loss on devaluation of investments in Intranet K.K., loss on
sale of MCC Holdings shares and an allowance for uncollectable short-term loan.

     LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES.  Loss
from continuing operations before provision for income taxes increased to
Yen8,401 million for the year ended September 30, 2001 from Yen999 million for
the year ended September 30, 2000.

     PROVISIONS FOR INCOME TAXES.  For both the year ended September 30, 2000
and the year ended September 30, 2001 we incurred net losses for Japanese tax
purposes and have not recognized any tax provision or benefit. Operating loss
carryforwards for tax purposes for the year September 30, 2001 amounted to
approximately Yen4,841 million and are available to offset future taxable
income. We believe that it is more likely than not that the deferred tax assets
will not be realized so we have recorded a full valuation allowance for these
deferred tax assets. Provision for income taxes amounted to Yen3.8 million in
each of the year ended September 30,

                                     - 25 -
<PAGE>
2001 and the year ended September 30, 2000. In each of these years, we paid the
pro-rated portion of resident taxes.

     LOSS FROM CONTINUING OPERATIONS.  Loss from continuing operations increased
to Yen8,405 million for the year ended September 30, 2001 from Yen999 million
for the year ended September 30, 2000.

     GAIN (LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS SEGMENTS.  Loss
recorded from operations of discontinued business segments increased to Yen1,164
million for the year ended September 30, 2001 from Yen542 million for the year
ended September 30, 2000.

     NET LOSS.  As a result of these factors, net loss increased to Yen9,569
million in the year ended September 30, 2001 from a net loss of Yen1,542 million
in the year ended September 30, 2000.


     YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO YEAR ENDED SEPTEMBER 30, 1999

     REVENUES.  Total revenues increased by 728.7% from Yen812 million in the
year ended September 30, 1999 to Yen6,729 million in the year ended September
30, 2000. The growth of revenues was mainly attributable to the increase in
revenues from DESKWING and related services as a result of the increase in the
number of subscribers. This result was primarily attributable to a larger
customer base as the accumulated number of DESKWING subscribers increased 174.8%
from 21,608 as of September 30, 1999 to 59,372 as of September 30, 2000.

     COST OF REVENUES.  Cost of revenues increased 610.2% from Yen796 million
in the year ended September 30, 1999 to Yen5,653 million in the year ended
September 30, 2000, but decreased as a percentage of total revenues from 98.1%
to 84.0%. The increase was mainly associated with the cost of revenues resulting
from sales of DESKWING and related services.

     GROSS PROFIT.  Gross profit increased from Yen15.5 million in the year
ended September 30, 1999 to Yen1,076 million in the year ended September 30,
2000, reflecting strong growth in revenues. Gross profit margin improved from
1.9% to 16.0%. This improvement is mainly the result of lower cost of revenues
as a percentage of these revenues in the year ended September 30, 2000.

     OPERATING EXPENSES.  Operating expenses for the year ended September 30,
2000 increased by 363.0% from Yen449 million in the year September 30, 1999 to
Yen2,079 million in the year ended September 30, 2000. The increase primarily
reflected increases in research and development expenses as well as increased
expenses for sales promotion to related parties and selling, general and
administrative expenses as a result of increases in the size of our customer
base.

     Sales promotion expenses to related parties increased by 257.9% to Yen204
million in the year ended September 30, 2000 from Yen57 million in the year
ended September 30, 1999 due to the increase in customers primarily for Hitmail
and related services.

     Selling, general and administrative expenses increased by 174.5% to Yen925
million in the year ended September 30, 2000 from Yen337 million in the year
ended September 30, 1999, due to increases in recruiting expenses, higher salary
costs due to increased numbers of employees and higher office rent associated
with our expansion.

     Research and development expenses increased from Yen50 million in the year
ended September 30, 1999 to Yen945 million in the year ended September 30, 2000.
These expenses were

                                     - 26 -
<PAGE>
primarily associated with our R&D activities for the development of Crayfish
4000, an operations platform for larger businesses, and the development of
additional services for Crayfish 2000, our proprietary web-based operating
software.

     LOSS FROM OPERATIONS.  Operating loss of Yen1,003 million in year ended
September 30, 2000 increased from operating loss of Yen433 million for the year
ended September 30, 1999, primarily due to the increase in services fees and
sales promotion expenses paid to Hikari Tsushin and research and development
expenses.

     OTHER INCOME (EXPENSES), NET.  Other income (expenses), net in the year
ended September 30, 2000 increased to Yen8 million in net income from net
expenses of Yen19 million in the year ended September 30, 1999. This increase
was primarily due to a gain on foreign exchange recorded in the year ended
September 30, 2000.

     LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES.  Loss
from continuing operations before provision for income taxes increased to Yen996
million for the year ended September 30, 2000 from Yen453 million for the
year ended September 30, 1999.

     PROVISIONS FOR INCOME TAXES.  For both the years ended September 30, 2000
and 1999, we incurred net losses for Japanese tax purposes and have not
recognized any tax provision or benefit. Operating loss carryforwards for tax
purposes at September 30, 2000 amounted to approximately Yen965 million and are
available to offset future taxable income. We believe that it is more likely
than not that the deferred tax assets will not be realized so we have recorded a
full valuation allowance for these deferred tax assets. Provision for income
taxes amounted to Yen3.8 million in the year ended September 30, 2000 and Yen3.0
million in the year ended September 30, 1999. In each of these years, we paid
the pro-rated portion of resident taxes.

     LOSS FROM CONTINUING OPERATIONS.  Loss from continuing operations increased
to Yen999 million for the year ended September 30, 2000 from Yen456 million
for the year ended September 30, 1999.

     GAIN (LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS SEGMENTS.  Gain (loss)
recorded from operations of discontinued business segments decreased to a loss
of Yen542 million for the year ended September 30, 2000 as compared to a gain of
Yen100 million for the year ended September 30, 1999.

     NET LOSS.  As a result of these factors, net loss increased by Yen1,186
million to Yen1,542 million in the year ended September 30, 2000 from a net loss
of Yen356 million in the year ended September 30, 1999.


B.   LIQUIDITY AND CAPITAL RESOURCES.

     Our principal capital and liquidity needs have typically been for working
capital relating to our DESKWING business and the funding of our research and
development activities. We have met these needs primarily from issuances of our
shares. We expect that our future principal capital and liquidity needs will be
for the following:

     -    Working capital required for further expansion of our services;

     -    Research and development to enhance our services;

     -    Expansion of our operating infrastructure; and

                                     - 27 -
<PAGE>
     -    Possible investments in businesses that are complementary to ours.

     We also expect that future capital and liquidity needs will be for costs
for defending the class action litigation filed against us in the United States
in September 2000. We have incurred Yen150 million in legal costs through
September 30, 2001 as a result of this litigation and we expect to continue to
incur legal costs relating to our defense of this litigation in the future.

<TABLE>
<CAPTION>
                                                                                 Year ended September 30,
                                                             ---------------------------------------------------------------
                                                                 1999              2000              2001             2001
                                                             ------------     -------------     -------------       --------
                                                                                   (in thousands)
<S>                                                          <C>              <C>               <C>                 <C>
Net cash used in operating activities                        Yen  (35,552)    Yen(1,207,125)    Yen(5,506,783)      $(46,187)
Net cash used in investing activities                            (206,732)         (566,543)       (1,592,709)       (13,357)
Net cash provided by (used in) financing  activities            4,310,352        20,610,909        (1,488,320)       (12,483)
Net increase (decrease) in cash equivalents                     4,068,068        18,837,241        (8,587,812)       (72,027)
</TABLE>

     We incurred net losses of Yen1,542 million for the year ended September 30,
2000, and Yen9,569 million for the year ended September 30, 2001.

     Net cash used in operating activities was Yen1,207 million for the year
ended September 30, 2000, and Yen5,507 million for the year ended September 30,
2001. A Yen513 million increase in depreciation and amortization had an
offsetting effect on the amount of net cash used in operating activities for the
year ended September 30, 2001.

     Net cash used in investing activities was Yen567 million for the year ended
September 30, 2000 and Yen1,593 million for the year ended September 30, 2001.
Cash used in investing activities for the year ended September 30, 2001
consisted primarily of a Yen600 million investment in Intranets K.K., Yen542
million payment for purchase of equipment, and a Yen254 million investment in a
debt instruments to IB Web, Inc and MCC Holdings, Ltd.

     Net cash provided by financing activities was Yen20,611 million for the
year ended September 30, 2000 and net cash used in financing activities was
Yen1,488 million in the year ended September 30, 2001. Cash provided by
financing activities for the year ended September 30, 2000 consisted primarily
of proceeds from issuances of common stock in our global offering in Japan and
the United States while cash used by financing activities for the year ended
September 30, 2001 consisted primarily of payments on capital leases of Yen2,414
million.

     We currently do not have substantial outstanding short-term or long-term
borrowings with banks or other financial institutions. We currently do not have
any plans to seek additional debt or equity financing. We do not have in place
any bank lines of credit or other pre-arranged sources of liquidity. We believe
that our current cash levels will be adequate to meet all of our anticipated
obligations and capital expenditure requirements through the year ending
September 30, 2002.

     Our total capital lease obligations were Yen2,130 million as of September
30, 2000, and Yen342 million as of September 30, 2001.


C.   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

RESEARCH AND DEVELOPMENT

     We use a combination of internally-developed technologies and technologies
obtained from outside sources, such as freeware which we download from the
internet and software which we license from third parties. As of February 28,
2002, our sales promotion staff of 12 full time employees were also responsible
for the development of new products and services.

                                     - 28 -
<PAGE>
activities. We develop core technologies internally while outsourcing technical
work to third parties whenever we can efficiently and cost effectively acquire
the best available technology from an outside source. We are currently focusing
our in-house research and development efforts on offering varieties of products
responding to diversifying customers' needs. We spent Yen945 million and
Yen1,015 million on research and development in the years ended September 30,
2000 and 2001, respectively. For the year ending September 30, 2002, we expect
to decrease expenditures on research and development activities substantially,
however, such expenditures might increase in the future if we expand our
business and develop additional services.


PROPRIETARY RIGHTS

     We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights to our services. We have no patented technology that would preclude or
inhibit competitors from entering our market. The steps we have taken to protect
our intellectual property may not prove sufficient to prevent misappropriation
of our technology or to deter independent third-party development of similar
technologies. To the extent that our business may in the future extend to
regions outside Japan, the laws applicable in such regions may not protect our
services or intellectual property rights to the same extent as do the laws of
Japan. To the extent that we rely on technologies we license from third parties,
such licenses may not be available to us at all or on commercially reasonable
terms in the future. To date, we have received no notice that our services
infringe on the proprietary rights of third parties, but third parties could
claim that our current or future services infringe on their rights. We expect
that participants in our markets will be increasingly subject to infringement
claims as the number of services and competitors in our markets grows. We may
involuntarily become involved in such actions. Any of these claims, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service installation delays or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements might not be available on terms
acceptable to us or at all. As a result, any of these claims could have an
adverse effect on our business.


D.   TREND INFORMATION.

     Among the factors that influence the future profitability of our
operations, we believe that the following are significant and subject to
substantial uncertainties:

     THE SIZE OF OUR DESKWING SERVICE CUSTOMER BASE.  The size of our DESKWING
service customer base fundamentally determines our revenues. The size of our
DESKWING service customer base is affected by our ability to attract new
customers and retain existing ones as well as by changes in the size of the
market for e-mail hosting and related services for small and medium-sized
enterprises. We had 31,257 DESKWING subscribers at September 30, 2001, and
20,520 subscribers as of February 28, 2002. We expect the number of subscribers
to continue declining at least through the year ending September 30, 2002 and
potentially beyond. Although we believe substantial opportunity exists for
growth in the e-mailing hosting market for small and medium-sized enterprises,
we are currently focusing primarily upon customer retention.

     CUSTOMER ACQUISITION COSTS.  As we are focusing our current efforts on
customer retention, our overall customer acquisition costs are not increasing.
In the future, however, the level of customer acquisition costs will determine
our ability to grow revenues profitably. We are exploring other possibilities
for customer acquisition such as the use of sales agents and franchising, which
would allow us to benefit from increases in the number of customers without
bearing all of costs of customer acquisition. In order to do so, we may consider


                                     - 29 -
<PAGE>
the possibility of entering into arrangements with Hikari Tsushin and companies
affiliated with it.

     THE LEVELS OF FEES WE CHARGE FOR OUR DESKWING AND RELATED SERVICES.
Competition in the e-mail hosting market has created pressure to reduce pricing
on our DESKWING service. In an attempt to reduce potential cancellations
long-term DESKWING subscriptions, we introduced 50% discounts in April 2001 for
customers who continued to subscribe to DESKWING for a period of 13 months or
longer. However, in October 2001, we discontinued the campaign because the
discounted price was below cost and did not stem the decline in DESKWING
subscription cancellations. We currently plan to maintain pricing at current
levels.


     LITIGATION.

     We are party to securities class action litigation which may be costly to
defend and the outcome of which is uncertain and may harm our business.

     On September 8, 2000, the first of eleven related lawsuits was filed
against us in the United States District Court for the Southern District of New
York. The lawsuits include allegations that during the course of our March 8,
2000 public offering of American Depositary Shares, we failed to disclose
material facts about the decline in business of our principal shareholder and
former business partner, Hikari Tsushin.

     The lawsuits make similar allegations against the underwriters for the
offering and certain of our former officers and directors and Hikari Tsushin.
As alleged purchasers of our shares during the offering, the plaintiffs seek to
recover damages of an unspecified amount on behalf of the alleged class of
persons who purchased our shares in, or traceable to, the offering. The
plaintiffs also seek to recover attorneys fees, accountant and expert witness
fees as well as other expenses incidental to the litigation. Certain plaintiffs
moved to be appointed as lead plaintiffs and to consolidate all eleven actions.

     On September 26, 2001, the court entered an order consolidating all eleven
actions and appointed lead counsel for the plaintiffs. Certain of the plaintiffs
who sought the appointment of different lead counsel have moved for
reconsideration of the court's decision and for the appointment of a different
lead counsel. That motion is under consideration by the court. Plaintiffs have
forty-five days after the determination of this motion to file a consolidated
amended complaint. We are not required to respond to plaintiffs' original
complaint and will respond to the consolidated amended complaint after it is
served.

     Although we can provide no assurance as to the outcome of this litigation,
we do not believe the allegations against us have merit, and intend to
vigorously defend against any actions that are properly brought against us in an
appropriate forum. Conclusion of the litigation in a manner adverse to us could
have a material adverse effect on our business and financial condition.


     RESEARCH AND DEVELOPMENT EXPENSES.

     Although our research and development plans are subject to change, we
expect to reduce the level of research and development expenses for the year
ending September 30, 2002 as compared to previous years.

                                     - 30 -
<PAGE>
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.   DIRECTORS AND SENIOR MANAGEMENT.

     The following table provides information about our directors, executive
officers and corporate auditors. None of our directors or corporate auditors
beneficially owned shares of our common stock as of September 30, 2001, although
certain of our directors and corporate auditors have options to purchase our
shares.

     <TABLE>
<CAPTION>

                                                                            MONTH IN WHICH
NAME                    POSITION                    DATE OF BIRTH           CURRENT TERM EXPIRES
----                    --------                    -------------           --------------------
<S>                     <C>                         <C>                     <C>
Amane Horiuchi          Representative Director,    January 6, 1971         June 2002
                        President and Chief
                        Executive Officer
Koji Yamamoto           Director                    October 22, 1971        June 2002
Shinya Kinoshita        Director, Chief Financial   April 14, 1973          June 2002
                        Officer
Kazuhiko Yabe           Corporate Auditor           May 27, 1963            June 2004
Satoshi Suga            Corporate Auditor           September 7, 1955       June 2004
Junji Tsuge             Corporate Auditor           December 4, 1975        June 2004
Shunji Harane           Corporate Auditor           December 28, 1966       June 2004
</TABLE>

     AMANE HORIUCHI became an executive officer in July 2001 and a director in
December 2001. He worked seven years at Sophia Co., Ltd. and he established
Shamrock Research Institute Inc. in 1996. He also served as an executive
director of the computer department of Universal Trading Co., Ltd. in 1999.

     KOJI YAMAMOTO has been a director since June 2001. He served as our
president and representative director from June to November 2001. He has worked
for Hikari Tsushin since 1995 until present.

     SHINYA KINOSHITA became our chief financial officer and a director in
December 2001. His past experience includes two years at Nishi-Nippon Bank Co.,
Ltd. and one year at Hikari Tsushin.

     KAZUHIKO YABE became a corporate auditor in June 2001. His experience
includes over two years at Aoyama Audit Corporation (currently
PricewaterhouseCoopers), seven years at Nihon Tetra Pak K.K. and two years at
Konami Corporation and at Hikari Tsushin and its affiliate.

     SATOSHI SUGA became a corporate auditor in June 2001. His past experience
includes 11 years in Art Coffee Co., Ltd. and 9 years at Hikari Tsushin. He also
served as an auditor of Calltoweb, Inc., a subsidiary of Hikari Tsushin for
three years.

                                      -31-
<PAGE>

     JUNJI TSUGE became a corporate auditor in June 2001. He has also served as
a corporate auditor of Tsuri Vision and of Hikari Tsushin Capital. He has been
an employee of Hikari Tsushin since April 1999 until present.

     SHUNJI HARANE became a corporate auditor in December 2001. He has been a
certified public accountant since 1996 and worked at Tohmatsu & Co. and Nikko
Securities Co., Ltd. He currently runs his own private certified public
accounting office.


B.   COMPENSATION.

     For the year ended September 30, 2001, the aggregate compensation paid by
us to all directors and corporate auditors was Yen120 million. In addition, in
January 2001, options exercisable for an aggregate of 120 shares of common stock
were provided to five directors. The options under this grant are exercisable at
an exercise price of Yen400,000 per share of common stock and may be exercised
between December 2002 and December 2007.


C.   BOARD PRACTICES.

     DIRECTORS

     Directors are elected at a general meeting of shareholders, and the term of
office of directors under our articles of incorporation expires at the close of
the general meeting of shareholders first held five months from their assumption
of office, although they may serve any number of consecutive terms. As is
standard practice in Japan, we do not have an audit or recommendation committee.
We do not have any service contracts with any of our directors providing for
benefits upon termination of employment. We have not established a retirement
plan or corporate pension plan for our directors or employees.


     CORPORATE AUDITORS

     In accordance with the requirements of Japanese law and our articles of
incorporation, we must have at least three but less than six corporate auditors.
Corporate auditors, of whom at least one must be from outside of the company,
are elected at a general meeting of shareholders, and the normal term of office
of a corporate auditor is three years, although they may serve any number of
consecutive terms. Corporate auditors are under a statutory duty to oversee the
administration of our affairs by the directors, to examine our financial
statements and business reports to be submitted by the board of directors to the
general meetings of shareholders and to report their opinions thereon to the
shareholders. They are entitled to attend meetings of the board of directors and
to express their opinions, but they are not entitled to vote. Corporate auditors
also have a statutory duty to provide their report on the audit report prepared
by our independent certified public accountants to the board of corporate
auditors, which must submit its auditing report to the board of directors. The
board of corporate auditors will also determine matters relating to the duties
of the corporate auditors, such as audit policy and methods of investigation of
our affairs.


D.   EMPLOYEES.

     The following table shows the number of our full-time, temporary and
part-time employees on a consolidated basis:

                                      -32-
<PAGE>

<TABLE>
<CAPTION>
                                   As of September 30,
                              ----------------------------
                              1999       2000         2001
                              ----       ----         ----
                                     (in thousands)
<S>                           <C>        <C>          <C>
Full-time                      70         117          74
Temporary or Part-time         24          50          34
                               --         ---         ---
Total                          94         167         108
                               ==         ===         ===
</TABLE>



     All of our employees work at our headquarters in Tokyo, Japan.

     Of the 74 full-time employees at September 30, 2001, 12 were in
administrative positions, 9 were in business development positions, and 53 were
in hosting service support positions, consisting primarily of support positions,
customer contract positions, product and planning development positions, and
customer billing positions. Of the 117 full-time employees at September 30,
2000, 18 were in administrative positions, 10 were in sales and marketing
positions, 42 were in technical positions, 42 were in service positions and 5
were in business development positions. Of the 70 full-time employees at
September 30, 1999, 12 were in administrative positions, 9 were in sales
positions, 22 were in technical positions, 16 were in service positions and 11
were in business development positions.


E.   SHARE OWNERSHIP.

     Under the Commercial Code of Japan, we amended our articles of
incorporation to allow us to adopt a warrant option plan. In addition, special
resolutions of shareholders at the shareholders' meetings were adopted to grant
warrant options. The special resolution authorized the identity of directors or
employees to be granted the options, and the class and number of shares to be
newly issued on exercise and the exercise price, exercise period and other terms
of the options.

     We also issued warrants to directors by issuing bonds to financial
institutions with detachable warrants. The warrants were repurchased immediately
after issuance and then granted to our directors as a part of their
remuneration.

     At September 30, 2001, options or warrants to purchase a total of 685
shares were exercisable at weighted average exercise prices per share of Yen2.5
million.

     The options or warrants outstanding and currently exercisable by exercise
price at September 30, 2001 were as follows (whole amount):

<TABLE>
<CAPTION>
                                OPTIONS/WARRANTS OUTSTANDING                     OPTIONS/WARRANTS EXERCISABLE
                   -------------------------------------------------------     --------------------------------
                                     WEIGHTED AVERAGE
                                         REMAINING                                                 WEIGHTED
  EXERCISE           NUMBER          CONTRACTUAL LIFE     WEIGHTED AVERAGE       NUMBER             AVERAGE
   PRICES          OUTSTANDING           (IN YEAR)         EXERCISE PRICE      EXERCISABLE       EXERCISE PRICE
------------       -----------      ------------------    ----------------     -----------       --------------
<S>                <C>              <C>                   <C>                  <C>               <C>
Yen  250,000            10                  6.9             Yen  250,000            10            Yen  250,000
     400,000            36                  6.2                  400,000            --                      --
   2,500,000           675                  5.0                2,500,000           675               2,500,000
   3,776,250            28                  5.7                3,776,250            --                      --
                       ---                                                         ---
                       749                                                         685
                       ===                                                         ===
</TABLE>

                                      -33-
<PAGE>
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.   MAJOR SHAREHOLDERS.

     To our knowledge, the persons in the following table are the only owners or
beneficial owners or holders of 5% or more of our outstanding common stock as of
September 30, 2001. We are not required by Japanese law to disclose beneficial
ownership of our common stock. As explained in Item 10.B any person who
becomes, beneficially and solely or jointly, a holder of more than 5% of our
outstanding common stock must file a report with the relevant local finance
bureau of the Ministry of Finance. The information in this table is based upon
our shareholders of record and reports filed with the Financial Services Agency
and the U.S. Securities and Exchange Commission.

<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, 2001
                                                   -------------------------
NAME OF BENEFICIAL OWNER                           NUMBER         PERCENTAGE
------------------------                           ------         ----------
<S>                                                <C>            <C>
Hikari Tsushin(1)                                   6,869            67.02
Hikari Tsushin Partners L.P.(2)                       600              5.9
Directors and executive officers as a group             0                0
</TABLE>

------------
(1)  If the shares held by Hikari Tsushin Partners, L.P. and separately
     identified in this table are included, Hikari Tsushin directly or
     indirectly controlled 7,469 shares or 72.9% of our common stock as of
     September 30, 2001.

(2)  Hikari Tsushin Partners, L.P. is a private equity fund established in the
     Cayman Islands. A wholly-owned subsidiary of Hikari Tsushin, Inc, is the
     general partner of the fund as well as an investor in the fund.

     As of September 30, 2001, Hikari Tsushin owned 40.8% of our outstanding
shares and Hikari Tsushin Partners L.P. had no shareholding. As a result of a
public tender offer in Japan for our shares by Hikari Tsushin from September 5
to 25, 2001, Hikari Tsushin's shareholdings increased to 6,869 shares,
representing 67.02% of our outstanding shares and Hikari Tsushin Partners L.P.
acquired 600 shares, representing 5.9% of our outstanding shares.

     Our ADSs are traded only on the Nasdaq National Market. Our common stock is
listed on the Mothers market of the Tokyo Stock Exchange. Of the 10,249 shares
of common stock outstanding as of September 30, 2001, 1,063 shares were held in
the form of ADS, which at the then applicable conversion ratio was equal to
531,500 ADS. As of November 21, 2000, the conversion ratio was changed from
5,000 ADS representing one share of common stock to 500 ADS representing one
share of common stock and consequently the 9,225,000 outstanding ADS were
redenominated as 922,500 ADSs. The 1,063 shares of common stock underlying the
531,500 ADSs outstanding as of September 30, 2001 were held by Hero & Company, a
subsidiary of the depositary for our ADSs, for the account of the ultimate
beneficial owners of the ADSs.

     Our major shareholders have the same voting rights as other holders of our
common stock. Hikari Tsushin directly or indirectly controls 72.9% of our shares
and we are accordingly subject to control by Hikari Tsushin. We know of no
current arrangements the operation of which may at a later time result in a
change of control of us.


B.   RELATED PARTY TRANSACTIONS.

     Since September 30, 1998, except as described below, there have been no
material transactions between us and our directors, officers, corporate auditors
or their respective family members or enterprises over which they can exert
significant influence.

                                      -34-
<PAGE>
     TRANSACTIONS BETWEEN US AND OUR PRINCIPAL SHAREHOLDERS, SUBSIDIARIES AND
     AFFILIATES

     We entered into a marketing agreement with Hikari Tsushin in February,
2000, a related party owning a 50.1%, 40.4% and 67.0% interest in us as of
September 30, 1999, 2000 and 2001, respectively. Pursuant to the marketing
agreement, Hikari Tsushin marketed DESKWING and related services, processed
applications for service subscriptions, collected fees on behalf of us and
provided certain DESKWING customer support services. In exchange for providing
these services, Hikari Tsushin was entitled to a monthly commission based on
fifty percent of the DESKWING monthly subscription fee. At the end of the month,
Hikari Tsushin remitted fees collected on behalf of us net of commissions
earned. These services fees have been reflected as a component of cost of
revenues in the statements of operations.

     We cancelled the foregoing agreement with Hikari Tsushin under a
termination agreement in November 1, 2000 and we paid Yen3.5 billion to Hikari
Tsushin in connection with the termination of the marketing agreement on
November 6, 2000. The amount of the payment to Hikari Tsushin was determined by
us in consultation with independent professionals who assessed the value to us
of the termination agreement and the transfer of Hikari Tsushin's interest in
the DESKWING subscriber base. Under the termination agreement:

     -    We received sole rights to the revenue stream from DESKWING
          subscribers and are no longer required to make payments to Hikari
          Tsushin in connection with those subscribers;

     -    Hikari Tsushin transferred to us all rights and information relating
          to the DESKWING subscriber base;

     -    We became able to begin providing services directly to DESKWING
          subscribers and collecting subscription fees directly from
          subscribers; and

     -    We retained the right to use the Hitmail service mark, though we have
          since rebranded the Hitmail Service as DESKWING.

     Also, to promote Hikari Tsushin's marketing of our services, we paid Hikari
Tsushin the entire amount of the incentive discount that we received from ITOCHU
Technology, Inc. for each new customer in excess of a stated minimum number that
subscribed to our services. This arrangement was terminated as of June 2000.

                                      -35-
<PAGE>
     Account balances and transactions with Hikari Tsushin are as follows:

<TABLE>
<CAPTION>
                                                        September 30,
                                        ----------------------------------------------
                                           1999             2000              2001
                                        ----------      ------------      ------------
                                                       (in thousands)
<S>                                     <C>             <C>               <C>
Account receivables                     Yen  8,950      Yen   14,016      Yen       --
Account payable                             42,053            30,366             6,964
Service revenue                             44,884            11,540                --
Service fee                                364,477         3,291,737           656,949
Sales promotion expenses                    57,161           204,209                --
Support expenses                             2,449                --                --
Other expenses                                  --             1,067                --
Purchase of fixed assets                       270             4,300                --
Fee paid to Hikari Tsushin in
 connection with the termination of
 marketing agreement                            --                --         3,500,000
Compensation expenses                           --                --            10,607
</TABLE>


C.   INTEREST OF EXPERTS AND COUNSEL.

     Not applicable


ITEM 8. FINANCIAL INFORMATION.

     The information required by this item has been provided beginning on page
F-1.

                                      -36-
<PAGE>
ITEM 9. THE OFFER AND LISTING.

     ADS representing our common stock have been quoted on the Nasdaq National
Market since March 8, 2000 and our common stock has been listed on the Mothers
market of the Tokyo Stock Exchange since March 10, 2000.

     The price history of our common stock and ADSs is reflected in the table
below:

<TABLE>
<CAPTION>
                                                               MOTHERS(YEN)                        NASDAQ($)(1)
                                                      -----------------------------            --------------------
                                                         HIGH                LOW                HIGH           LOW
                                                      ----------         ----------            ------         -----
<S>                                                   <C>                <C>                   <C>            <C>
YEAR ENDED/ENDING SEPTEMBER 30,
2000(2)                                               32,800,000          2,100,000            166.00          3.25
  Quarter ended March 31, 2000(2)                     32,800,000         22,000,000            166.00         32.00
  Quarter ended June 30, 2000                         16,000,000          4,300,000             39.00          6.75
  Quarter ended September 30, 2000                     4,600,000          2,100,000              9.88          3.25
2001                                                   1,420,000            351,000             13.55          1.13
  Quarter ended December 31, 2000                      1,420,000            351,000             13.50          1.13
  Quarter ended March 31, 2001                           909,000            440,000             16.25          6.75
  Quarter ended June 30, 2001                            890,000            466,000             11.39          5.31
  Quarter ended September 30, 2001                       833,000            415,000             13.55          6.54
2002 (Through March 25)                                  710,000            500,000             11.49          7.04
  Quarter ended December 31, 2001                        710,000            471,000             11.49          7.45
  Quarter ended March 31, 2002 (through March 25)        710,000            471,000             11.49          7.54

CALENDAR YEAR 2001
September                                                833,000            429,000             13.55          6.54
October                                                  710,000            471,000             11.49          7.45
November                                                 620,000            580,000             10.00          8.87
December                                                 609,000            500,000              9.62          8.40

CALENDAR YEAR 2002
January                                                  580,000            580,000              8.75          7.04
February                                                 640,000            530,000              8.90          7.04
March (through March 25)                                 650,000            530,000              9.36          7.75
</TABLE>

------------
(1)  Nasdaq Share price information has been retroactively adjusted to reflect
     the November 21, 2000 change in the ADS ratio to common stock from 5,000
     ADSs representing one share of common stock to 500 ADSs representing one
     share of common stock.

(2)  Since our initial public offering in March 2000.


ITEM 10. ADDITIONAL INFORMATION.

A.   SHARE CAPITAL.

     Not applicable


B.   MEMORANDUM AND ARTICLES OF ASSOCIATION.

     CORPORATE OBJECTS AND PURPOSES IN OUR ARTICLES OF INCORPORATION

     Article 2 of our articles of incorporation states our corporate objectives
and purposes:

     -    Data gathering, analyzing, processing and providing by use of computer
          telecommunications networks and the internet;

                                      -37-
<PAGE>
     -    Research and development related to data processing, and development,
          production, sale and technical guidance of and consulting service for
          software and hardware;

     -    Development, manufacture, sale and technical guidance of and
          consulting service for computers and peripheral equipment;

     -    Analyzing and designing computer systems;

     -    Training computer operating staff;

     -    Advertising-related business, and planning for and operation of
          promotional gatherings and events;

     -    Planning for and production of commercial and industrial designs;

     -    Photographing;

     -    Publishing, production and sale of books and magazines;

     -    Mail order sales;

     -    Provision of goods information on consignment from mail order dealers,
          acceptance of orders and delivery of goods;

     -    Electric and telecommunications works;

     -    Contracting for maintenance for electric and telecommunications
          facilities;

     -    Manufacture of, maintenance for, purchase, sale, rental, lease, import
          and export of systems and software for electric and telecommunications
          equipment and telecommunications;

     -    Planning, development, maintenance, consulting, education for and sale
          of telecommunications network systems;

     -    Contracting for surveys and researches of telecommunications,
          computers and the internet;

     -    Agency and mediation service concerning subscription for
          telecommunication service and broadcasting service;

     -    Planning and designing for data communications systems, and
          introduction of and guidance for operational management thereof and
          agent business therefor;

     -    Sale, lease, installation and maintenance of office automation
          equipment, annexed equipment, annexed material, office equipment and
          office-use products;

     -    Market research and marketing research services;

     -    Consulting service concerning general management; and

     -    Any and all businesses incidental to each of the preceding items.

                                      -38-
<PAGE>
     PROVISIONS REGARDING DIRECTORS.

     There is no provision in our articles as to a director's power to vote on a
proposal, arrangement or contract in which the director is materially
interested, but the Commercial Code of Japan provides that an interested
director is required to refrain from voting on these matters at board of
directors meetings.

     The Commercial Code of Japan as well as our articles of incorporation
provide that the compensation for directors is to be determined at a general
meeting of shareholders of a company. Within the limit approved by the
shareholders' meeting, the board of directors will determine the amount of
compensation for each director. The board of directors may, by resolution, leave
such decision to the president's discretion.

     The Commercial Code of Japan provides that a significant loan from third
party by a company should be approved by the board of directors. Our regulations
of the board of directors have adopted this policy.

     There is no mandatory retirement age for directors under the Commercial
Code of Japan or our articles of incorporation.

     There is no requirement concerning the number of shares one individual must
hold in order to qualify him or her as a director under the Commercial Code of
Japan or our articles of incorporation.


     RIGHTS OF HOLDERS OF ADSS.

     For a description of rights of holders of ADSs, please see the "Description
of American Depositary Receipts" section in our F-1 Registration Statement (File
No.333-11448), declared effective on March 3, 2000, as amended, hereby
incorporated by reference.


     RIGHTS OF SHAREHOLDERS OF OUR COMMON STOCK.

     Our common stock is the only class of shares we have issued. Rights of
shareholders of our common stock under the Commercial Code of Japan and our
articles of incorporation include:

     -    the right to receive dividends when the payment of dividends has been
          approved at a shareholders' meeting, with this right lapsing three
          full years after the due date for payment according to a provision in
          our articles of incorporation;

     -    the right to receive interim dividends as provided for in our articles
          of incorporation, with this right lapsing three full years after the
          due date for payment according to a provision in our articles of
          incorporation;

     -    the right to vote at a shareholder's meeting (cumulative voting is not
          allowed under our articles of incorporation);

     -    the right to receive surplus in the event of liquidation; and

     -    the right to require us to purchase shares when a shareholder opposes
          (1) the transfer of all or a material part of the business, (2) an
          amendment of our articles of incorporation to establish a restriction
          on share transfer, (3) exchange of stock for stock in a company in
          existence or to be newly incorporated, (4) corporate separation or (5)
          a merger or consolidation.

                                      -39-
<PAGE>
     The Commercial Code of Japan provides additional specific rights for
shareholders owning a substantial number of shares.

     Shareholders holding 10% or more of the outstanding shares with voting
rights have the right to apply to a court of competent jurisdiction, or
competent court for:

     -    dissolution, and

     -    commencement of reorganization proceedings as provided for in the
          Company Reorganization Law of Japan.

     Shareholders who have held 3% or more of the outstanding shares with voting
rights for six months or more have the right to:

     -    demand the convening of a general meeting of shareholders,

     -    apply to a competent court for removal of a director or statutory
          auditor,

     -    apply to a competent court for removal of a liquidator,

     -    apply to a competent court for reorganization of the company, and

     -    apply to a competent court for an order to inspect our business and
          assets in a special liquidation proceeding.

     Shareholders holding 3% or more of the outstanding shares with voting
rights have the right to:

     -    examine our accounting books and documents and make copies of them,

     -    apply to a competent court for permission to examine accounting books
          and documents of a subsidiary and make copies of them, and

     -    appointment of an inspector to inspect our operation or financial
          condition.

     Shareholders who have held 1% or more of the outstanding shares with voting
rights for six months or more have the right to:

     -    demand that certain matters be made agenda items at a general meeting
          of shareholders, and

     -    apply to a competent court for appointment of an inspector to review
          the correctness of the convocation and voting procedures of general
          meeting of shareholders.

     Shareholders who have held 300 voting rights for six months or more have
the right to demand that certain matters be made agenda items at a general
meeting of shareholders.

     Shareholders who have held any number of shares for six months or more have
the right to demand:

                                      -40-
<PAGE>
     -    us to institute an action to enforce the liability of one of our
          directors or statutory auditors,

     -    us to institute an action to recover from a recipient the benefit of a
          proprietary nature given in relation to exercising the right of a
          shareholder, and

     -    a director on our behalf for the cessation of an illegal or ultra
          vires action

     There is no provision under the Commercial Code of Japan or our articles
with regards to any sinking fund.

     There is no provision under the Commercial Code of Japan or our articles
which requires shareholders to make additional contributions when requested by
us.

     Under the Commercial Code of Japan, in order to change the rights of
stockholders which are stipulated and defined in our articles, we must amend our
articles. Amendment must be approved by a special resolation of shareholders
meeting which requires a quorum of shareholders having a majority of the
outstanding shares with voting rights present and two thirds or more approval of
the votes represented by the shares present.

     Annual general meetings and extraordinary general meetings of shareholders
are convened by a representative director based on the determination to convene
it by the board of directors. Shareholders having held 3% or more of the
outstanding shares with voting rights for six months or more are entitled to
demand the board of directors to convene a shareholders' meeting under the
Commercial Code of Japan. Under our articles, shareholders of record as of
September 30 of each year or other dates as decided by the board of directors
from time to time, have the right to attend the annual general meeting of our
shareholders. In order to determine the shareholders entitled to attend annual
general meetings and extraordinary general meetings of shareholders, we are
required to make public notice of the record date at least two weeks prior to
the record date. A convocation notice will be sent to these shareholders at
least two weeks prior to the date of the shareholders' meeting.


     RESTRICTIONS ON HOLDERS OF OUR COMMON STOCK.

     There is no restriction on non-resident or foreign shareholders on the
holding of our shares or on the exercise of voting rights. However, pursuant to
a provision of our regulations with regard to our shares of common stock, a
shareholder who does not have an address or residence in Japan is required to
file its temporary address in Japan or that of a standing proxy having any
address or residence in Japan with our transfer agent.

     There is no provision in our articles of incorporation that would have the
effect of delaying, deferring or preventing a change in control that would
operate only with respect to a merger, acquisition or corporate restructuring
involving us.

     There is no provision in our articles of incorporation or other
subordinated rules regarding the ownership threshold above which shareholder
ownership must be disclosed. A shareholder holding more than 5% of the shares of
a public company in Japan is required to disclose the shareholding pursuant to
the Securities Exchange Law of Japan.

     There is no provision in our articles of incorporation governing changes in
capital more stringent than required by law.

                                      -41-
<PAGE>
C.   MATERIAL CONTRACTS.

     Under the Memorandum on Microsoft Hosting Deployment Program, dated
September 17, 1999, between Microsoft Co., Ltd. and us, we are allowed, as one
of four "Premier Hosting Partners" in Japan, to advertise our e-mail, Web-page
hosting, and our future services through CD-ROMs and pamphlets included in
Microsoft's "Office Internet Package 2000" bundles distributed in Japan and
through banner announcements on Microsoft Network's Japanese-language Website.
In return for this advertising, we provide commercial hosting services to the
public for which we are required to purchase software and systems provided by
Microsoft.

     Under the Master Agreement of Business Arrangements, in 1997, between
ITOCHU Technology, Inc., or ITI and us, we licensed to ITI internet
server-related software for the internet server hosting business provided by
ITI. The license fee was the higher of (a) the monthly charge which was based on
25% of the wholesale price multiplied by the number of users of the relevant
service, or (b) $1,000 per one server per month, and monthly compensation to be
received by us for any work operation was more than $5 per such work operation
multiplied by the number of times of such work operation, both of which may be
free for the first month of each service provided by ITI or otherwise subject to
a discount rate. The term for this agreement was one year, automatically
renewable unless otherwise notified by either party. The agreement was
terminated as of November 30, 2000.

     Under the Agreement on Delegation of Intermediary Business relating to
Application for the Registration of Organizational type and Geographical type JP
Domain Names, dated April 1, 2001 between JPNIC and us, which restates and
amends the Agreement on Delegation of Intermediary Business relating to
Application for the Registration of Domain Names, dated March 8, 1999, JPNIC
delegates to us the intermediary business with respect to the application for
the registration of organizational type and geographical type JP domain names
and other related matters. This agreement expires on March 31, 2002 but is
automatically renewable for another year unless otherwise notified by either
party at least three months prior to the termination date. According to this
provision, this agreement was automatically renewed for one year as neither
party gave a termination notice to the other by December 31, 2001.

     Under the Lease Contract, dated July 12, 2000, between IBJ Leasing Co.,
Ltd. and us, IBJ Leasing purchased from us newly purchased equipment as well as
equipment and software licenses that we had purchased from ITI in accordance
with the termination agreement between ITI and us, for a total price including a
fee in connection with the termination agreement of approximately Yen2,921
million (and consumption tax of 5%). In turn, we rented this equipment and
licenses from IBJ Leasing for an annual lease fee of Yen796.5 million for 4
years (total lease fee of Yen3,186 million), which is to be automatically
renewed for another year for an annual lease fee of Yen66,375 thousand unless
terminated by us. The Lease Contract was terminated pursuant to a Lease
Termination Agreement, dated July 24, 2001.

     Under the Amended and Restated Agreement on Delegation of Business
originally dated May 1, 1998, as amended and restated on February 1, 2000
between Hikari Tsushin and us, we authorized Hikari Tsushin to serve as sales
agent for subscriptions of Hitmail hosting services for an initial commission of
Yen30,000 per subscriber and 50% of the monthly subscription fee payable to us.
The agreement was terminated by us effective October 31, 2000 in an Agreement on
Agreed Termination and Transfer of Business. The termination agreement provided
that we were to pay Yen3.5 billion to Hikari Tsushin by November 6, 2000. We
were relieved from the obligation to pay commissions to Hikari Tsushin, except
for commissions of Yen100,000 per new application for certain subscriptions
accepted by Hikari Tsushin for the month

                                      -42-
<PAGE>
of November 2000, subject to pro-rata payback in the event of cancellation of
such subscription within 20 months of such application. Hikari Tsushin was to
make best efforts to transfer some contracts necessary for us to continue
Hitmail hosting services and second its personnel in charge of Hitmail hosting
services for the term ending December 1, 2000. We retained the right to use the
service mark for Hitmail in connection with Hitmail hosting services after the
termination date, but the other party's consent is still required for the use of
the service mark for other purposes.

     Under the Software License Contract dated March 4, 2002 between Network
Associates Co., Ltd. and us, we license computer software and products with
virus alert function which were designed, developed and sold by Network
Associates Inc., a Delaware corporation. We shall pay a monthly fee to Network
Associates depending on service usage.

     On July 24, 2001, we entered into a Lease Termination Agreement and a Sales
Agreement with IBJ Leasing Co., Ltd. pursuant to which we would terminate the
July 12, 2000 Lease Contract, return server equipment and software licenses
leased under the Lease Contract to IBJ Leasing and repurchase from IBJ Leasing
these server equipment and software licenses for Yen2,410 million (excluding
sales tax). The repurchase price of Yen2,410 million (excluding sales tax) was
paid to IBJ Leasing in lieu of paying to IBJ Leasing a lease termination
penalty of Yen2,410 million (excluding sales tax) pursuant to the Lease
Termination Agreement.

     On March 31, 2001, we entered into an agreement with Japan Network
Information Center pursuant to which we manage an IP address that has JPNIC has
assigned to us. The agreement requires us to pay fees for end users' assigned IP
addresses, an annual domain maintenance fee, and not to disclose end users'
confidential information.


D.   EXCHANGE CONTROLS.

     JAPANESE FOREIGN EXCHANGE REGULATIONS

     The Foreign Exchange and Foreign Trade Law of Japan, frequently referred to
as the Foreign Exchange Law, and related cabinet orders and ministerial
ordinances govern the issuance of shares by companies and the acquisition and
holding of shares by "exchange non-residents" and "foreign investors" under the
Foreign Exchange Law.

     Exchange non-residents are:

     -    individuals who do not reside in Japan; and

     -    corporations whose principal offices are not in Japan.

     Generally, branches and other offices located within Japan of non-resident
corporations are regarded as exchange residents of Japan and branches and other
offices of Japanese corporations located outside Japan are regarded as exchange
non-residents of Japan.

     Foreign investors are:

     -    individuals who do not reside in Japan;

     -    corporations which are organized under the laws of foreign countries
          or whose principal offices are located outside Japan; and

                                      -43-
<PAGE>
     -    corporations in which more than 50% of the shares are held by
          individuals who do not reside in Japan and/or corporations which are
          organized under the laws of foreign countries or whose principal
          offices are located outside Japan or a majority of the officers (or
          officers having the power of representation) are persons who do not
          reside in Japan.

     Under the Foreign Exchange Law, with minor exceptions, all aspects of
foreign exchange and foreign trade transactions by exchange non-residents and
foreign investors require post-transaction reporting. The Minister of Finance of
Japan also has the power to impose licensing requirements for transactions in
limited circumstances.


     POTENTIAL CONSEQUENCES RESULTING FROM AN ACQUISITION OF LISTED SHARES

     If a foreign investor acquires our shares and if the foreign investor's
direct and indirect total holdings are 10% or more of our issued shares after
the acquisition, the foreign investor must file a report of the acquisition with
the Minister of Finance and any other competent Minister within 15 days from and
including the date of such acquisition. However, in certain limited
circumstances (including the case where the acquisition of our shares reaches
10%), a prior notification of such acquisition must be filed with the Minister
of Finance and any other competent Minister, who may then modify or prohibit the
proposed acquisition. The acquisition of shares by exchange non-residents as a
result of stock splits is not subject to any of the foregoing requirements.


     POTENTIAL CONSEQUENCES RESULTING FROM THE SALE OF SECURITIES TO EXCHANGE
     NON-RESIDENT

     A Japanese resident is required to file a report with the Minister of
Finance concerning the transfer of securities for value exceeding Yen100 million
to an exchange non-resident within 20 days of the date of the transfer.


     POTENTIAL CONSEQUENCES RESULTING FROM DIVIDENDS AND PROCEEDS OF SALES

     Under the current Foreign Exchange Law, dividends paid on, and the proceeds
of sales in Japan of shares held by exchange non-residents generally may be
converted into any foreign currency and repatriated abroad.

     In general, there is no restriction imposed with regard to the import or
export of capital, including the availability of cash and cash equivalents for
our use.


E.   TAXATION.

JAPANESE TAXATION

     The following is a summary of the principal Japanese tax consequences to an
owner of shares or ADSs who is a non-resident of Japan or a non-Japanese
corporation without a permanent establishment in Japan to which the relevant
income is attributable. The statements regarding Japanese tax laws below are
based on the laws in force and as interpreted by the Japanese taxation
authorities as at the date of this annual report on Form 20-F. These statements
are subject to changes in the applicable Japanese laws or double taxation
conventions occurring after that date. This summary is not exhaustive of all
possible tax considerations which may apply to a particular investor. Investors
should satisfy themselves by consulting their own tax advisers as to the overall
tax consequences of the ownership and disposition of shares or ADSs,

                                      -44-
<PAGE>
including specifically the tax consequences under Japanese law, the laws of the
jurisdiction of which they are resident, and any tax treaty between Japan and
their country of residence.

     Generally, a non-resident of Japan or a non-Japanese corporation is subject
to Japanese withholding tax on dividends paid by Japanese corporations. Stock
splits by transferring retained earnings or legal reserve to stated capital are
not treated as a dividend payment to shareholders for Japanese tax purposes and
are not, in general, subject to Japanese income tax. This is true whether or not
the transfer is made in connection with a stock split or otherwise. In general,
a transfer of additional paid-in capital to stated capital is not treated as a
dividend. No transfer of retained earnings or legal reserve to stated capital
would be necessary in connection with a stock split if the total par value of
shares in issue after the stock split had not exceeded the stated capital before
October 1, 2001. This is no longer in effect after October 1, 2001 as no
distinction is made between par value stock and non-par value stock due to the
change in the Commercial Code of Japan.

     The Convention Between the United States of America and Japan for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income (the "Treaty") establishes the maximum rate of Japanese
withholding tax which may be imposed on dividends paid to a United States
resident or corporation not having a "permanent establishment" in Japan. A
"permanent establishment" in Japan is generally a fixed place of business for
industrial or commercial activity in Japan. Under this treaty, the maximum
withholding rate for most U.S. shareholders is limited to 15% of the gross
amount actually distributed. However, the maximum rate is 10% of the gross
amount actually distributed, if the recipient is a corporation and

     -    during the part of the paying corporation's taxable year, which
          precedes the date of payment of the dividend and during the whole of
          its prior taxable year, if any, at least 10% of the voting shares of
          the paying corporation were owned by the recipient corporation, and

     -    not more than 25% of the gross income of the paying corporation for
          such prior taxable year, if any, consists of interest or dividends as
          defined in the treaty.

     For purpose of the treaty and Japanese tax law, U.S. holders of ADRs will
be treated as the owners of the shares underlying the ADSs evidenced by the
ADRs.

     Without an applicable tax treaty, convention or agreement to the rate of
Japanese withholding tax applicable to dividends paid by Japanese corporations
to a non-resident or non-Japanese corporation, the maximum rate of withholding
tax is 20%. Japan has entered into income tax treaties, conventions or
agreements with a number of countries, reducing the above-mentioned withholding
tax rate generally to 15% for investors. These countries include, among others,
Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Luxembourg, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom and the United States of America. The
withholding tax rate is further reduced if investors and we have some capital
relationship as provided for in an applicable tax treaty.

     Non-resident holders who are entitled to a reduced rate of Japanese
withholding tax on payment of dividends by us must submit the required form in
advance through us to the relevant tax authority before payment of dividends.
The required form is the Application Form for Income Tax Convention regarding
Relief from Japanese Income Tax on Dividends. A standing proxy for non-resident
holders may provide such application service. With respect to ADSs, the

                                      -45-
<PAGE>
reduced rate is applicable if The Bank of New York, as depositary or its agent,
submits two Application Forms for Income Tax Convention - one form must be
submitted before payment of dividends, and the other form must be submitted
within eight months after our fiscal year-end. To claim the reduced rate, a
non-resident holder of ADSs will be required to file proof of taxpayer status,
residence and beneficial ownership as applicable. The non-resident holder will
also be required to provide information or documents clarifying its entitlement
to the tax reduction as may be required by the depositary.

     Capital gain from sales of shares or ADSs earned by a non-resident of Japan
or a non-Japanese corporation are not subject to Japanese income tax. However, a
Japanese company repurchases its shares or ADSs by using retained earnings or
legal reserve to retire these shares or ADRs, and cash paid is treated as a
dividend payment to share holders for Japanese tax purposes.

     A non-resident holder of shares or ADSs who does not submit an application
in advance will be entitled to claim from the relevant Japanese tax authority a
refund of withholding taxes withheld in excess of the rate of an applicable tax
treaty.

     Gains derived from the sale outside Japan of the shares or ADSs by a
non-resident of Japan or a non-Japanese corporation are in general not subject
to Japanese income or corporation taxes. In addition, gains derived from the
sale of shares or ADSs within Japan by a non-resident of Japan or a non-Japanese
corporation not having a permanent establishment in Japan are in general not
subject to Japanese income or corporation taxes. An individual who has acquired
shares or ADSs as a distributee, legatee or donee may have to pay Japanese
inheritance and gift taxes at progressive rates.

     We have paid or will pay any stamp, registration or similar tax imposed by
Japan in connection with the issue of our shares, except that we will not pay
any tax payable in connection with the transfer or sale of the shares by a
holder of the shares.


UNITED STATES TAXATION

     The following discusses the material United States federal income tax
consequences of the ownership of shares or ADSs. It applies to you only if you
are a U.S. holder, as defined below, and you hold your shares or ADSs as capital
assets. It does not address the tax treatment to special classes of holders,
some of whom may be subject to other rules including:

     -    tax-exempt entities,

     -    certain insurance companies,

     -    broker-dealers,

     -    traders in securities that elect to mark to market,

     -    investors liable for alternative minimum tax,

     -    investors that actually or constructively own 10% or more of our
          voting stock,

     -    investors that hold shares or ADSs as part of a straddle or a hedging
          or conversion transaction, or

     -    investors whose functional currency is not the U.S. dollar.

                                      -46-
<PAGE>
     This discussion is based on the tax laws of the United States, including
the Internal Revenue Code of 1986, as amended, its legislative history, existing
and proposed regulations, and administrative and judicial interpretations, as
currently in effect, as well as on the Treaty. These laws are subject to change,
possibly on a retroactive basis. In addition, this discussion is based in part
upon the representations of the depositary and the assumption that each
obligation in the deposit agreement relating to the ADRs and any related
agreement will be performed in accordance with its terms.

     For purposes of this discussion, a "U.S. holder" is a beneficial owner of
shares or ADSs that is:

     -    a citizen or resident of the United States,

     -    a corporation organized under the laws of the United States or any
          political subdivision thereof,

     -    an estate whose income is subject to United States federal income tax
          regardless of its source, or

     -    a trust if a United States court can exercise primary supervision over
          the trust's administration and one or more United States persons are
          authorized to control all substantial decisions of the trust.

     This discussion addresses only United States federal income taxation. You
should consult your own tax advisor regarding the United States federal, state
and local and other tax consequences of owning and disposing of shares and ADSs
in your particular circumstances.

     In general, and taking into account the earlier assumptions, for United
States federal income tax purposes, if you hold ADRs evidencing ADSs, you will
be treated as the owner of the shares represented by those ADSs. Exchanges of
shares for ADSs, and ADSs for shares, generally will not be subject to United
States federal income tax.

         WE BELIEVE THAT THE SHARES OR ADSs ARE LIKELY TO BE TREATED AS STOCK OF
    A PASSIVE FOREIGN INVESTMENT COMPANY (A "PFIC") FOR UNITED STATES FEDERAL
    INCOME TAX PURPOSES AND THIS DISCUSSION SO ASSUMES. AS A RESULT, U.S.
    HOLDERS MAY BE SUBJECT TO ADVERSE TAX CONSEQUENCES, AS DESCRIBED BELOW. U.S.
    HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THEIR TAX
    CONSEQUENCES OF OWNING SHARES IN A PFIC.


     PFIC RULES

     In general, we will be a PFIC with respect to you if for any of our taxable
years in which you held our ADSs or shares:

     -    at least 75% of our gross income for the taxable year is passive
          income or

     -    at least 50% of the value, determined on the basis of a quarterly
          average, of our assets are attributable to assets that produce or are
          held for the production of passive income.

     Passive income generally includes dividends, interest, royalties, rents,
other than certain rents and royalties derived in the active conduct of a trade
or business, annuities and gains from assets that produce passive income. If a
foreign corporation owns at least 25% by value of the stock of another
corporation, the foreign corporation is treated for purposes of the PFIC tests
as

                                      -47-
<PAGE>
owning its proportionate share of the assets of the other corporation, and as
receiving directly its proportionate share of the other corporation's income.

     If you do not make a mark-to-market election, as described below, you will
be subject to special rules with respect to:

     -    any gain you realize on the sale or other disposition of your shares
          or ADSs and

     -    any "excess distribution" that we make to you, generally, any
          distributions to you during a single taxable year that are greater
          than 125% of the average annual distributions received by you in
          respect of the shares or ADSs during the three preceding taxable years
          or, if shorter, your holding period for the shares or ADSs.

     Under these rules:

     -    the gain or excess distribution will be allocated ratably over your
          holding period for the shares or ADSs,

     -    the amount allocated to the taxable year in which you realized the
          gain or excess distribution will be taxed as ordinary income,

     -    the amount allocated to each prior year, with certain exceptions, will
          be taxed at the highest tax rate in effect for that year, and

     -    the interest charge generally applicable to underpayments of tax will
          be imposed in respect of the tax attributable to each such year.

     Amounts subject to these rules will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations.

     If the shares or ADSs are regularly traded on NASDAQ they will be treated
as "marketable stock" and you may make a mark-to-market election. If you make
this election, you will not be subject to the PFIC rules described above.
Instead, in general, you will include as ordinary income each year the excess,
if any, of the fair market value of your shares or ADSs at the end of the
taxable year over your adjusted basis in your shares or ADSs, and you will
recognize the additional gain, if any, on sale or other disposition of your
shares or ADSs as ordinary income for that taxable year. You will also be
allowed to take an ordinary loss in respect of the excess, if any, of the
adjusted basis of your shares or ADSs over their fair market value at the end of
the taxable year or over their final sale or disposition prices, but only to the
extent of the net amount of previously included income as a result of the
mark-to-market election. Your basis in the shares or ADSs will be adjusted to
reflect any such income or loss amounts. If you make this election after the
first year of your holding period in the shares or ADSs, any distributions or
dispositions of such shares or ADSs in the year for which such election is made
will be subject to the PFIC rules described above and all mark-to-market gain
with respect to such taxable year will be treated as gain from the disposition
of such shares or ADSs that is subject to the PFIC rules.

     If you own shares or ADSs during any year that we are a PFIC you must file
Internal Revenue Service Form 8621.

                                      -48-
<PAGE>
     TAXATION OF DIVIDENDS

     If you receive distributions that are not subject to the PFIC rules
described above, you must include in your gross income the gross amount of any
dividend paid by us out of our current or accumulated earnings and profits, as
determined for United States federal income tax purposes. You must include any
Japanese tax withheld from the dividend payment in this gross amount even though
you do not in fact receive it.

     The dividend is ordinary income that you must include in income when you,
in the case of shares, or the depositary, in the case of ADSs, receive the
dividend, actually or constructively. The dividend will not be eligible for the
dividends-received deduction.

     The amount of the dividend distribution that you must include in your
income as a U.S. holder will be the U.S. dollar value of the Japanese yen
payments made, determined at the spot Japanese yen/U.S. dollar rate on the date
the dividend distribution is includible in your income, regardless of whether
the payment is in fact converted into U.S. dollars. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
you include the dividend payment in income to the date you convert the payment
into U.S. dollars will be treated as ordinary income or loss. Such gain or loss
generally will be from sources within the United States for foreign tax credit
limitation purposes.

     Distributions in excess of current and accumulated earnings and profits, as
determined for United States federal income tax purposes, will be treated as a
return of capital to the extent of your basis in the shares or ADSs and
thereafter as capital gain and will be subject to the PFIC rules described
above.

     Subject to general limitations that apply to the creditablility of foreign
taxes, the Japanese tax withheld in accordance with the Treaty and paid over to
Japan will be creditable against your United States federal income tax
liability. To the extent a refund of the tax withheld is available to you under
Japanese law or under the Treaty, the amount of tax withheld that is refundable
will not be eligible for credit against your United States federal income tax
liability. See "Japanese Taxation", above, for the procedures for obtaining a
reduced withholding rate under a treaty or a tax refund.

     Special rules apply for calculating the amount of the foreign tax credit
with respect to excess distributions subject to the PFIC rules described above.
For example, if you do not make a mark-to-market election, the section 904 tax
credit limitations would be applied separately with respect to the amount of
excess distribution allocable to each such taxable year and carryovers, if any,
are not allowed.

     Dividends from us will constitute income from sources outside the United
States, but generally will be "passive income" or, if received by certain
financial institutions, "financial services income". Passive income or financial
services income must be treated separately from other types of income for
purposes of computing the foreign tax credit allowable to you.

     Distributions of additional shares to you with respect to shares or ADSs
that are made as part of a pro rata distribution to all of our shareholders
generally will not be subject to United States federal income tax.


F.   DIVIDENDS AND PAYING AGENTS.

     Not applicable

                                      -49-
<PAGE>
G.   STATEMENT BY EXPERTS.

     Not applicable


H.   DOCUMENTS ON DISPLAY.

     Our annual reports on Form 20-F, periodic reports on Form 6-K, Registration
Statement on Form F-6 relating to our ADSs and other filings with the SEC can be
inspected and copied without charge at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may also get copies by calling
the SEC at 1-800-SEC-0330 or by writing the SEC upon payment of a prescribed
fee.

     In addition, documents referred to in this 20-F filing may be inspected at
our Tokyo headquarters, located at WICS Bldg., 6th Floor, 2-1, Ikebukuro 2-chome
Toshima-ku, Tokyo 171-0014, Japan.


I.   SUBSIDIARY INFORMATION.

     Not applicable.


ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Our primary market risks exposures are to changes in foreign exchange rate
fluctuations.

     Our periodic payment obligations for U.S. domain name registrations are
denominated in U.S. dollars. We do not have any material periodic U.S. dollar
revenue to match the dollar payments, and thus we are exposed to fluctuations in
the yen-dollar exchange rate to the extent the dollar-denominated payments are
not hedged. From time to time, we have entered into foreign currency forward
contracts to hedge against the risk of foreign exchange rate fluctuation. At
September 30, 2001, we had no foreign currency contracts outstanding.


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not applicable


                                     PART II


ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     Not applicable


ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

     We received approximately Yen10.7 billion in net proceeds from the sale of
ADSs in our March 2000 initial public offering. As of September 30, 2000, we had
used approximately Yen796 million of the net proceeds for payment for
capitalized server and related equipment leases to IBJ Leasing Co., Ltd., Yen209
million on capital expenditures, Yen311 million on research and development and
Yen135 million as general working capital. As of September 30, 2001, we had used
an additional Yen2.4 billion of the proceeds on the fee in connection with the
termination of the lease contract with IBJ Leasing Co., Ltd, Yen3.5 billion on
the fee in connection with the termination of the marketing contract with Hikari
Tsushin, and an additional Yen130 million as general working capital.

                                      -50-
<PAGE>
ITEM 15. [RESERVED]


ITEM 16. [RESERVED]


                                    PART III


ITEM 17. FINANCIAL STATEMENTS.

     Not applicable


ITEM 18. FINANCIAL STATEMENTS.

     See our financial statements attached hereto beginning on page F-1.

                                      -51-
<PAGE>
                                 EXHIBITS INDEX

<TABLE>
<CAPTION>
EXHIBIT      DESCRIPTION                                                                               PAGE
-------      -----------                                                                               ----
<S>          <C>                                                                                       <C>
1.1          Articles of Incorporation of the Registrant, as amended (English translation).
1.2          Share Handling Regulations of the Registrant, as amended (with English translation)*
1.3          Regulations of the Board of Directors of the Registrant, as amended (English
             translation)
1.4          Regulations of the Board of Corporate Auditors of the Registrant, as amended
             (English translation)
2.1          Specimen Common Stock certificates of the Registrant*
2.2          Form of Deposit Agreement among the Registrant, The Bank of New York as depositary
             and all owners and holders from time to time of American Depositary Receipts,
             including the form of American Depositary Receipt.*
4.1          Memorandum on Microsoft Hosting Deployment Program dated September 17, 1999 between
             Microsoft Co., Ltd and the Registrant (with English translation)*
4.2          Agreement on Delegation of Intermediary Business relating to
             Application for the Registration of the Organizational
             Type/Geographical Type JP Domain Name dated April 1, 2001 between
             Shadan Hojin Japan Network Information Center and the Registrant
             (with English translation)*
4.3          Amended and Restated Agreement on Delegation of Business dated February 1, 2000
             between the Registrant and Hikari Tsushin, Inc (with English translation)*
4.4          Agreement on Agreed Termination and Transfer of Business dated
             November 1, 2000 between the Registrant and Hikari Tsushin, Inc
             (with English translation)**
4.5          Order Sheet and Receipt of Order date July 12, 2000 between the Registrant and IBJ
             Leasing, Co., Ltd. (with English translation)**
4.6          Lease Contract dated July 12, 2000 between the Registrant and IBJ Leasing, Co., Ltd.
             (with English translation)**
4.7          Agreement on Agreed Termination of Lease Contract dated July 24, 2001 between the
             Registrant and IBJ Leasing Co., Ltd. (English translation)
4.8          Sales Contract dated July 24, 2001 between the Registrant and IBJ Leasing Co., Ltd.
             (English translation)
4.9          Software License Agreement dated March 4, 2002 between the Registrant and Network
             Associates Co., Ltd. (English translation)
4.10         Agreement on Delegation of Business relating to the specified
             Administration Company of IP address dated March 31, 2001 between
             Shadan Hojin Japan Network Information Center and the Registrant
             (English translation)
</TABLE>

------------
*    Previously filed and hereby incorporated by reference to the corresponding
     exhibit to our Registration Statement on Form F-1 (File No. 333-11448)
     declared effective on March 3, 2000.

**   Previously filed and hereby incorporated by reference to the corresponding
     exhibit to our Registration Statement on Form 20-F (File No. 0-30530) filed
     on March 30, 2001.

                                      -52-
<PAGE>
                                   SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this amendment to the annual report on its behalf.



                                    Crayfish Co., Ltd.


                                    By  /s/  Amane Horiuchi
                                       ---------------------------------------
                                    Name:  Amane Horiuchi
                                    Title: President, Chief Executive
                                           Officer and Representative Director


Date: April 12, 2002


                                      -53-

<PAGE>

                               CRAYFISH CO., LTD.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE IN FORM 20-F
                                                                                                            -----------------
<S>                                                                                                         <C>
Report of Independent Accountants.....................................................................             F-3

Balance Sheets as of September 30, 2000 and 2001......................................................             F-4

Statements of Operations for the years ended September 30, 1999, 2000 and 2001........................             F-5

Statements of Shareholders' Equity for the years ended September 30, 1999, 2000 and 2001..............             F-6

Statements of Cash Flows for the years ended September 30, 1999, 2000 and 2001........................             F-7

Notes to the Financial Statements.....................................................................             F-8
</TABLE>

All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.

                                      F-1

<PAGE>



                      (This page intentionally left blank)

                                      F-2

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders of
Crayfish Co., Ltd.


         We have audited the accompanying balance sheets of Crayfish Co., Ltd.
(a Japanese corporation) as of September 30, 2000 and 2001 and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended September 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Crayfish Co., Ltd.
as of September 30, 2000 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 2001,
in conformity with accounting principles generally accepted in the United
States.















BDO Sanyu & Co.
Tokyo, Japan

April 12, 2002

                                      F-3
<PAGE>

                               CRAYFISH CO., LTD.

                                 BALANCE SHEETS

                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                           September 30,
                                                               --------------------------------------    September 30,
                                                                    2000              2001                    2001
                                                               ------------------   -----------------    -------------
                                                                                                            (NOTE 3)
<S>                                                            <C>                  <C>                  <C>
ASSETS
Current assets:
   Cash and cash equivalents..............................     Yen     23,017,011   Yen    14,429,199      $  121,020
   Restricted cash........................................                950,000                  --              --
   Time deposit in bank                                                        --             200,000           1,677
   Accounts receivable, net of allowance for doubtful
      accounts of Yen 40 and Yen 6,860 ($57) in 2000
      and  2001, respectively.............................                 13,176              30,714             258
   Accounts receivable due from related parties...........                 14,016                  --              --
   Consumption tax refund receivable......................                 68,049             113,606             953
   Prepaid expenses and other current assets..............                218,834             269,729           2,262
                                                               ------------------   -----------------    -------------
        Total current assets..............................             24,281,086          15,043,248         126,170
Investment in an affiliate................................                     --             127,374           1,068
Investments in equity stock...............................                 31,900              33,250             279
Property and equipment, net...............................              3,125,293             323,624           2,714
Deposits..................................................                232,687              55,636             467
Other assets..............................................                  2,825              26,530             222
                                                               ------------------   -----------------    -------------
        Total assets......................................     Yen     27,673,791   Yen    15,609,662      $  130,920
                                                               ==================   =================    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt......................     Yen        663,547   Yen           127      $        1
   Accounts payable.......................................                267,164             174,369           1,463
   Accounts payable due to related parties................                 30,366               6,964              58
   Deferred initial contract fees.........................                     --               9,556              80
   Accrued liabilities....................................                181,157              41,625             349
                                                               ------------------   -----------------    -------------
        Total current liabilities.........................              1,142,234             232,641           1,951

Long-term debt............................................              1,504,317                 215               2

Commitments and contingencies.............................

Common stock, Yen 50,000 ($419) par value: 40,700 shares
   authorized and 10,186 and 10,249 shares issued and
   outstanding at September 30, 2000 and 2001,
   respectively...........................................              8,044,887           8,058,075          67,584
Additional paid-in capital................................             19,026,170          18,805,670         157,725
Accumulated deficit.......................................             (1,918,398)        (11,487,119)        (96,344)
Legal reserve.............................................                    180                 180               2
Deferred stock compensation...............................               (125,599)                 --              --
                                                               ------------------   -----------------    -------------
        Total shareholders' equity........................             25,027,240          15,376,806         128,967
                                                               ------------------   -----------------    -------------
        Total liabilities and shareholders' equity........     Yen     27,673,791   Yen    15,609,662      $  130,920
                                                               ==================   =================    =============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-4

<PAGE>

                               CRAYFISH CO., LTD.

                            STATEMENTS OF OPERATIONS

               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                             -------------------------------------------------------  September 30,
                                                                  1999                 2000                2001          2001
                                                             ----------------   ----------------    ----------------  -------------
                                                                                                                         (Note 3)
<S>                                                          <C>                <C>                 <C>               <C>
Revenues..................................................   Yen      811,687   Yen    6,728,865    Yen    5,311,814  $    44,551
Cost of revenues..........................................            796,212          5,653,051           3,391,888       28,448
                                                             ----------------   ----------------    ----------------  -------------

Gross profit..............................................             15,475          1,075,814           1,919,926       16,103

Operating expenses:
   Sales promotion expenses to related parties ...........             57,161            204,209                  --           --
   Selling, general and administrative ...................            337,164            925,008           1,713,717       14,373
   Research and development ..............................             50,115            944,942           1,014,774        8,511
   Loss on disposal of equipment .........................              4,489              4,975             332,452        2,788
   Loss on impairment of equipment .......................                 --                 --           2,110,529       17,701
   Loss on termination of lease contracts ................                 --                 --              91,616          769
   Expenses related to litigation ........................                 --                 --             150,211        1,260
   Expenses related to business restructuring ............                 --                 --             360,323        3,023
   Loss on impairment of purchased intangible
     servicing asset .......................................               --                 --           3,500,000       29,355
                                                             ----------------   ----------------    ----------------  -------------
     Total operating expenses.............................            448,929          2,079,134           9,273,622       77,780

                                                             ----------------   ----------------    ----------------  -------------
Loss from operations......................................           (433,454)        (1,003,320)         (7,353,696)     (61,677)

Other income (expenses):
   Interest income........................................              1,633             20,866              32,240          270
   Interest expense.......................................             (1,656)           (40,636)           (161,930)      (1,358)
   Foreign exchange (loss) gain, net......................            (17,491)            12,351              24,690          207
   Loss on devaluation of investment in an
     affiliate............................................                 --                 --            (399,377)      (3,350)
   Loss on sale and write-off of investments..............                 --                 --            (440,000)      (3,690)
   Equity in losses of an affiliate.......................                 --                 --             (73,249)        (614)
   Other, net.............................................             (1,576)            15,084             (29,486)        (248)
                                                             ----------------   ----------------    ----------------  -------------
     Other income (expense), net..........................            (19,090)             7,665          (1,047,112)      (8,783)
                                                             ----------------   ----------------    ----------------  -------------
Loss from continuing operations before provision for
     income taxes.........................................           (452,544)          (995,655)         (8,400,808)     (70,460)
Provision for income taxes................................              2,981              3,800               3,800           31
                                                             ----------------   ----------------    ----------------  -------------
Loss from continuing operations...........................           (455,525)          (999,455)         (8,404,608)     (70,491)
Gain (loss) from operations of discontinued business
   segments...............................................             99,786           (542,129)         (1,164,113)      (9,763)
                                                             ----------------   ----------------    ----------------  -------------
Net loss..................................................   Yen     (355,739)  Yen   (1,541,584)   Yen   (9,568,721) $   (80,254)
                                                             ================   ================    ================  =============

 Basic and diluted loss per common share
   Loss from continuing operations........................   Yen  (100,958.55)  Yen  (106,859.30)   Yen  (823,496.77) $ (6,906.82)
   Gain (Loss) from operations of discontinued
     business segments....................................          22,115.69         (57,963.11)        (114,061.63)     (956.59)
                                                             ----------------   ----------------    ----------------  -------------
   Net loss...............................................   Yen   (78,842.86)  Yen  (164,822.41)   Yen  (937,558.40) $ (7,863.41)
                                                             ================   ================    ================  =============
Shares used in per share calculation
   - basic and diluted....................................              4,512              9,353              10,206       10,206
</TABLE>

    The accompany notes are an integral part of these financial statements.

                                      F-5

<PAGE>

                               CRAYFISH CO., LTD.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                     Common Stock        Additional                                                      Total
                                ----------------------    Paid-in          Accumulated       Legal   Deferred Stock   Shareholders'
                                 Shares     Amount        Capital            Deficit        Reserve   Compensation       Equity
                                ------- -------------- ---------------  ----------------   --------  -------------- ---------------
<S>                             <C>     <C>            <C>              <C>                <C>       <C>            <C>
Balances, September 30, 1998      1,530 Yen     76,500 Yen      18,796  Yen      (21,075)  Yen  180  Yen        --  Yen      74,401
Stock warrants exercised......    2,360        118,000          56,500                                                      174,500
Deferred stock compensation...                                 329,000                                    (313,007)          15,993
Issuance of stock, net of
  Yen 20,656 issuance costs..     4,415      2,126,875       2,106,219                                                    4,233,094
Net loss......................                                                  (355,739)                                  (355,739)
                                ------- -------------- ---------------  ----------------   --------  -------------  ---------------

Balances, September 30, 1999      8,305      2,321,375       2,510,515          (376,814)       180       (313,007)       4,142,249
Stock warrants exercised.....        11          1,312                                                                        1,312
Deferred stock compensation..                                  (50,750)                                    187,408          136,658
Issuance of stock, net of
  Yen 649,212 issuance costs      1,870      5,722,200      16,566,405                                                   22,288,605
Net loss.....................                                                 (1,541,584)                                (1,541,584)
                                ------- -------------- ---------------  ----------------   --------  -------------  ---------------

Balances, September 30, 2000     10,186      8,044,887      19,026,170        (1,918,398)       180       (125,599)      25,027,240
Stock options exercised......        63         13,188                                                                       13,188
Stock options forfeited......                                 (220,500)                                                    (220,500)
Deferred stock compensation.                                                                               125,599          125,599
Net loss....................                                                  (9,568,721)                                (9,568,721)
                                ------- -------------- ---------------  ----------------   --------  -------------  ---------------
Balances, September 30, 2001     10,249 Yen  8,058,075 Yen  18,805,670  Yen  (11,487,119)  Yen  180  Yen         0  Yen  15,376,806
                                ======= ============== ===============  ================   ========  =============  ===============

Balances, September 30, 2000
 (Note 3)....................    10,186 $       67,473 $       159,574  $        (16,090)  $      2  $      (1,053) $       209,906
Stock options exercised......        63            111                                                                          111
Stock options forfeited......                                   (1,849)                                                      (1,849)
Deferred stock compensation..                                                                                1,053            1,053
Net loss.....................                                                    (80,254)                                   (80,254)
                                ------- -------------- ---------------  ----------------   --------  -------------  ---------------
Balances, September 30, 2001     10,249 $       67,584 $       157,725  $        (96,344)  $      2  $           0  $       128,967
                                ======= ============== ===============  ================   ========  =============  ===============

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6

<PAGE>

                               CRAYFISH CO., LTD.

                            STATEMENTS OF CASH FLOWS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                             -----------------------------------------------------   September 30,
                                                                   1999               2000             2001              2001
                                                             ----------------   ----------------   ---------------   -------------
                                                                                                                       (Note 3)
<S>                                                          <C>                <C>                <C>               <C>
Cash flows from operating activities:
  Net loss................................................   Yen     (355,739)  Yen   (1,541,584)  Yen  (9,568,721)   $ (80,254)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Amortization (reversal) of deferred stock
       compensation.......................................             15,993            136,658           (94,901)        (796)
     Depreciation and amortization........................             16,454            276,723           789,421        6,621
     Allowance for doubtful accounts......................             (4,630)              (181)            6,820           57
     Loss on devaluation on an investment in an
       affiliate..........................................                 --                 --           399,377        3,350
     Loss on impairment and disposal of equipment.........             16,626              6,842         2,514,891       21,093
     Loss on termination of lease contracts...............                 --                 --            91,616          768
     Loss on sale of long-term investments................                 --                 --           186,000        1,560
     Write-off of investment in debt instrument                            --                 --           254,000        2,130
     Equity in loss of an affiliate.......................                 --                 --            73,249          614
     Changes in operating assets and liabilities:
       Interest payable...................................                 --             33,805                --           --
       Accounts receivable................................             30,391             17,356           (55,899)        (469)
       Prepaid expenses and other current assets..........            (61,162)          (218,709)          141,475        1,187
       Accounts payable...................................            239,199             36,024          (116,197)        (975)
       Accrued  liabilities...............................             65,409             47,021          (139,532)      (1,170)
       Deferred initial contract fees.....................                 --                 --             9,556           80
       Other..............................................             (1,907)            (1,080)            2,062           17
                                                             ----------------   ----------------   ---------------    ------------
          Net cash used in operating activities...........            (35,552)        (1,207,125)       (5,506,783)     (46,187)
Cash flows from investing activities:
  Purchase of time deposit in bank........................                 --                 --          (200,000)      (1,677)
  Investment in an affiliate..............................                 --                 --          (600,000)      (5,032)
  Purchase of investments in equity securities............            (31,900)                --          (197,000)      (1,652)
  Payment for purchase of equipment.......................            (41,059)        (3,360,967)         (542,232)      (4,548)
  Investment in debt instrument...........................                 --                 --          (254,000)      (2,130)
  Proceeds from sale of equipment.........................                 --          2,885,500            13,822          116
  Proceeds from sale of investments in equity
    securities............................................                 --                 --             9,650           81
  Deposits................................................           (133,773)           (91,076)          177,051        1,485
                                                             ----------------   ----------------   ---------------    ------------
          Net cash used in investing activities...........           (206,732)          (566,543)       (1,592,709)     (13,357)
Cash flows from financing activities:
  Proceeds from issuance of common stock..................          4,233,094         22,288,605                --           --
  Proceeds from issuance of long-term debt................          1,762,500             35,135                --           --
  Repayment of long-term debt.............................            (94,831)        (1,727,342)          (37,500)        (315)
  Principal payments on capital leases....................             (2,411)          (799,301)       (2,414,008)     (20,247)
  Proceeds from exercise of stock options.................            174,500              1,312            13,188          111
  Change in restricted cash...............................         (1,762,500)           812,500           950,000        7,968
                                                             ----------------   ----------------   ---------------    ------------
          Net cash provided by (used in) financing
             activities...................................          4,310,352         20,610,909        (1,488,320)     (12,483)
          Net increase (decrease) in cash equivalents.....          4,068,068         18,837,241        (8,587,812)     (72,027)
Cash and cash equivalents at beginning of period..........            111,702          4,179,770        23,017,011      193,047
                                                             ----------------   ----------------   ---------------    ------------
Cash and cash equivalents at end of period................   Yen    4,179,770   Yen   23,017,011   Yen  14,429,199    $ 121,020
                                                             ================   ================   ===============    ============
Supplemental Cash Flows Information.......................
  Cash transactions.......................................
          Cash paid for income taxes......................   Yen          854   Yen        4,400   Yen       4,037    $      34
          Cash paid for interest..........................              1,324              7,016            82,439          691
  Non-cash transactions............................... ...
          Capitalized lease obligations incurred..........   Yen       14,637   Yen    2,887,188   Yen          --    $      --
          Capitalized lease obligation cancelled..........                 --              6,153                --           --
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      F-7



<PAGE>

                        NOTES TO THE FINANCIAL STATEMENTS

1. BUSINESS ORGANIZATION AND RESTRUCTURING

Nature of Operations

         Crayfish Co., Ltd. (the "Company") was incorporated in Japan on October
16, 1995. The Company provides e-mail hosting services "Deskwing" to small and
medium-sized businesses in Japan. The Deskwing hosting service provides
customers with e-mail addresses with their own domain extensions (see Risk of
business concentration in Note 2).

Discontinued Operations and Business Restructuring

         At a June 20, 2001 special shareholders' meeting, shareholders approved
the election of new management of the Company. This management performed a
strategic review of business operations, and on July 25, 2001, announced a
"Business Revival Plan" (the "Plan") to restructure the Company. Historically,
the Company had operated as three separate segments for management and financial
reporting purposes. In accordance with the Plan, the Company discontinued its
"Other Hosting Services" and "Systems Development Services" segments, leaving
only its "Deskwing Hosting Services" segment. In addition, the Company
terminated several ongoing research and development projects.

         The Company has accounted for its discontinued operations in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Accordingly, the results of operations for 1999 and
2000 have been revised to reclassify activities attributable to the discontinued
segments to "Gain (loss) from operations of discontinued business segments" in
the statements of operations. A summary of the components of discontinued
operations is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       September 30,
                                             --------------------------------------------------------        September 30,
                                                 1999                2000                 2001                   2001
                                             ------------       -------------         ---------------       --------------
<S>                                          <C>                <C>                   <C>                   <C>
Income (loss) from operations............    Yen  111,923       Yen  (540,261)        Yen  (1,026,180)       $  (8,607)
Loss on disposal of equipment............         (12,137)             (1,868)                (71,910)            (603)
Loss on termination of contracts with
third parties............................              --                  --                 (61,848)            (518)
Facility expenses........................              --                  --                  (4,175)             (35)
                                             ------------       -------------         ---------------       --------------
Gain (loss) from discontinued segments...    Yen   99,786       Yen  (542,129)        Yen  (1,164,113)       $  (9,763)
                                             ============       =============         ===============       ==============
</TABLE>


         Termination of Lease Contracts and Impairment of Equipment:

         The Company terminated a majority of its capital lease contracts, most
of which were for computer servers and their related peripherals used for
discontinued services and projects of the Deskwing segment. Upon termination,
the Company paid Yen 2,414,008 thousand ($20,247 thousand) to settle the
remaining balance of the lease obligations and early termination penalties, and
recorded a loss on termination of Yen 91,616 thousand ($769 thousand) , which
was attributable to the Deskwing segment, and is reported in continuing
operations.

         Prior to termination of the leases, the net book value of property
subject to the cancelled leases was Yen 2,191,425 thousand ($18,380 thousand),
Yen 2,110,529 thousand ($17,701 thousand) of which was for 68 servers. Due to
low actual and forecast utilization of those servers, and high maintenance fees,
the Company decided to sell the servers. In accordance with a third party
evaluation, the Company wrote down the servers to their

                                      F-8

<PAGE>

estimated net realizable value of Yen80,000 thousand ($671 thousand). As a
result of the write-down, the Company recognized an impairment loss of
Yen2,110,529 thousand ($17,701 thousand). See Note 6 "Capitalized leases" for
more information. The Company also recognized Yen404,362 thousand ($3,391
thousand) of additional loss on disposal of other property and equipment
including leased equipment other than the 68 servers. Yen71,910 thousand ($603
thousand) of these losses related to the discontinued businesses, and the
remaining balance of Yen332,452 thousand ($2,788 thousand) was attributable to
the Deskwing segment, and is reported in continuing operations.

         Termination of Contracts with Third Parties:

         The Company terminated certain third party service contracts relating
to cancelled projects. In order to terminate these contracts, the Company paid
Yen370,346 thousand (Yen3,106 thousand). Yen61,848 thousand ($518
thousand) of this expense related to the discontinued business, and the
remaining balance of Yen308,498 thousand ($2,588 thousand) was attributable to
the Deskwing segment, and is reported in continuing operations.

         Personnel Expenses:

         The Company terminated 177 full-time employees through September 30,
2001, and recorded Yen31,000 thousand ($260 thousand) in severance paid to
those employees, which was attributable to the Deskwing segment and recorded in
continuing operations.

         Facility Expenses:

         The Company rented four floors in a building under a cancelable
operating lease contract. In September 2001, the Company cancelled the lease of
three floors and recorded Yen25,000 thousand ($210 thousand) of clean-up
expense paid to the lessor as a restructuring expense. Yen4,175 thousand ($35
thousand) of this expense related to the discontinued businesses, and the
remaining balance of Yen20,825 thousand ($175 thousand) was attributable to
the Deskwing segment, and is reported in continuing operations.

         As of September 30, 2001, all restructuring activities under the Plan
were completed and all liabilities and costs incurred under the Plan were
settled. Accordingly, as mentioned in Note 15, on December 20, 2001,
shareholders approved, pursuant to the Commercial Code of Japan (the Code), the
elimination of the accumulated deficit as of September 30, 2001, as recorded in
the statutory books on account.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

         The Company maintains its records and prepares its financial statements
in accordance with generally accepted accounting principles in Japan. Certain
adjustments and reclassifications, including those relating to stock
compensation expenses, accounting for leases and accrual of certain expenses,
and impairment of long-lived assets have been incorporated in the accompanying
financial statements to conform with generally accepted accounting principles in
the United States of America ("U.S. GAAP"). These adjustments were not recorded
in the statutory accounts.

         Accounts denominated in foreign currencies have been re-measured into
Japanese yen, the Company's functional currency. Foreign currency gains and
losses from re-measurement, which have been insignificant to date, are included
in the statements of operations.

Financial Instruments

         Cash equivalents are highly liquid investments with original maturities
of three months or less as of the

                                      F-9

<PAGE>

date of purchase. Investments, which consist of time deposits and money
management funds invested in bonds are recorded at cost, which approximates
market value.

         The amounts reported for cash equivalents, receivables and other
financial instruments are considered to approximate fair values based upon
comparable market information available at the respective balance sheet dates
and their short-term nature. Financial instruments that potentially subject the
Company to concentrations of credit risk comprise principally cash, investments
and accounts receivable. The Company maintains its cash balances at financial
institutions and has not experienced any material losses relating to such
instruments. The Company invests its excess cash in accordance with an
investment policy which authorizes the investment of excess cash in money market
funds and time deposits. Concentration of credit risk with respect to accounts
receivable is limited due to the large number of customers comprising the
Company's customer base.

         At September 30, 2000, the Company had Yen950,000 thousand on deposit
in banks, which amount was restricted to use under certain lease agreements and
under an overdraft agreement with a bank. Due to termination of those agreements
during fiscal 2000, these funds are no longer restricted as of September 30,
2001.

Derivative Financial Instruments

         Derivative financial instruments are occasionally utilized by the
Company to manage risk exposure to movements in foreign exchange rates. The
Company enters into forward exchange contracts to obtain foreign currencies,
mainly the U.S. dollar (US$), at specified rates based on expected future cash
flows for each currency. The Company does not hold derivative financial
instruments for trading purposes.

         Prior to the adoption of Statement of Financial Accounting Standards
(SFAS) No.133, "Accounting for Derivative Instruments and Heading Activities,"
forward contracts were accounted for on an accrual basis with cash settlements
recorded as an adjustment to foreign exchange gains and losses. The premium or
discount on the contracts was charged to expense as incurred. Foreign exchange
forward contracts not settled by the period end were marked to market and
included in income as an offset to foreign exchange gains/losses recorded on the
existing assets and liabilities. The total nominal value of forward exchange
contracts to buy foreign currencies outstanding as of September 30, 2000, which
the Company entered into in August, 2000 and were settled by March, 2001, was
US$2,400 thousand, and an unrealized gain of Yen1,556 thousand was recorded on
these forward US dollar contracts to reflect the impact of marking these
contracts to market. Effective October 1, 2000, the Company adopted SFAS 133. In
accordance with SFAS 133, derivative instruments are measured at their fair
value on the balance sheet, and changes in the value of derivative financial
instruments are recognized in current earnings or other comprehensive income
depending on whether the derivative is designated as part of a hedge transaction
and, if it is, the type of transaction. The Company has not entered into any
derivative contracts since August 2000 and as of September 30, 2001, the Company
had no outstanding derivative contracts.

Property and Equipment

         Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization for property and equipment is
provided using the straight-line method over the estimated useful lives of the
respective assets, which are generally three years for office equipment,
leasehold improvements and purchased software. Depreciation for capitalized
leases is provided using the straight-line method over the shorter of the
estimated useful lives of the respective assets or the remaining lease term,
generally 3 to 7 years. Maintenance and repairs are charged to expense as
incurred. Major repairs and improvements, which extend the lives of the related
assets, are capitalized and depreciated at applicable straight-line rates.

                                      F-10

<PAGE>

Long-Lived Assets

         Whenever circumstances indicate, the Company assesses the
recoverability of long-lived assets by determining whether the amortization of
the asset balance over its remaining life can be recovered through undiscounted
future operating cash flows of the long-lived assets. The amount of impairment,
if any, is measured based on projected discounted future operating cash flow and
is recognized as a write-down of the asset to a net realizable value.

Risks and Uncertainties

         Risk of business concentration:

         As mentioned in "Nature of Operations" in Note 1, the Company's current
main operation is to provide e-mail hosting services "Deskwing" to small and
medium-sized businesses. The Company previously had three main revenue
generating businesses: The Deskwing hosting service, Other hosting services, and
System development services:

         The Deskwing hosting service provide customers with e-mail addresses
         with their own domain extensions.

         Other hosting services were based on a proprietary software operating
         system, which the Company had internally developed to run its e-mail
         hosting and other Internet-related applications.

         System development services generated revenue by contracting directly
         with customers for the creation of Internet Web pages.

         The Company has concentrated its resources on Deskwing and its related
services and the Company's business is concentrated in the Deskwing hosting
service. Revenues from the Deskwing hosting service comprised 71.1%, 98.6% and
99.7% of total revenues in the fiscal year ended September 30, 1999, 2000 and
2001, respectively. Gross profits from the Deskwing hosting service generated
70.9%, 99.3% and 102.5% of gross profit in the fiscal year ended September 30,
1999, 2000 and 2001, respectively (see "Segment information" in Note 14). As
mentioned in Note 1, the Company announced the "Business Revival Plan" on July
25, 2001 to withdraw from "Other hosting services" and "System development
services".

         Risk of Cash Concentration:

         At September 30, 2001, the Company maintained Yen 14,428 million ($121
million) in deposits with banks, which represented 92.4% of total assets of the
Company, and included a Yen 200 million ($1.7 million) time deposit. The Deposit
Insurance Corporation of Japan, a government agent, will guarantee only up to
Yen 10 million and related unpaid interest per customer per bank, for time
deposits starting from April 2002 and for savings and checking starting from
April, 2003. Amounts in excess of this guaranteed amount are not insured or
guaranteed.

Revenue Recognition

         As mentioned in Note 1, the Company announced the "Business Revival
Plan" on July 25, 2001 to withdraw from "Other hosting services" and "System
development services", and as of September 30, 2001, the Company had completely
withdrawn from those services. The Company's revenue recognition policy for each
type of service is as follows:

         Deskwing Hosting Service:

         The Deskwing hosting service is provided based on one-year contractual
rates per customer domain name

                                      F-11

<PAGE>

for the first-time customer. At the end of the first year, the contract is
automatically extended, but can be cancelled by the customer anytime with a
two-month advance notice. The first month subscription fee is collected together
with the second month fee at the beginning of the second month and, thereafter,
the monthly fee is collected at the beginning of each month. Revenues are
recognized on a monthly basis over the contract period for each customer domain
name covered by a valid contract, beginning when the initial subscription fee is
collected. Cancellation fees are recognized when received, provided all
obligations under the contract have been fulfilled.

         The Company receives initial contract fees related to the Deskwing
hosting services from its first-time customers, which are deferred as received
and recognized over an estimated service term of 18 months.

         As of September 30, 2001, initial contract fees of Yen 9,556 thousand
($80 thousand) were deferred.

         The Company performs on-going credit evaluations of its customers'
creditworthiness and does not require collateral. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations.

         Other Hosting Services:

         Other hosting service contracts were one-year contracts with variable
payment terms. The Company recognized revenues on a month basis over the
contract period when the following three criteria had been met: (1) a contract
had been signed; (2) the fee had been fixed or was determinable; and (3) the
collection of resulting receivables was probable.

         System Development Services:

         System development revenue consisted of Web-page customization services
provided on a project basis, which were usually completed within one month.
Revenues were recognized when the projects were completed, provided the fee was
fixed or was determinable; and the collection of resulting receivables was
probable.

Research and Development Costs

         Research and development costs incurred related to internet-based
services are expensed as incurred.

Stock-Based Compensation

         As permitted by SFAS No. 123 "Accounting for Stock-based Compensation",
the Company has elected to account for its stock-based compensation arrangements
in accordance with Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees". Under this method, the excess, if
any, of the quoted market price of the stock at the grant date of the award or
other measurement date over the stated exercise price of the award is recognized
as deferred stock-based compensation cost which is amortized over the vesting
period of the award.

Income Taxes

         The Company accounts for income taxes under the asset and liability
method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and tax basis of the underlying assets and liabilities as well
as operating loss and tax credit carry-forwards. A valuation allowance is
recognized if it is anticipated that some or all of a deferred tax asset may not
be realized.


                                      F-12

<PAGE>

Advertising and Promotional Costs

         The Company expenses advertising and promotional costs as they are
incurred. Advertising expense for the years ended September 30, 1999, 2000 and
2001 were Yen62,311 thousand, Yen437,665 thousand and Yen117,883 thousand
($988 thousand), respectively.

Computation of Earnings Per Share

         Basic net loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Since the Company has incurred losses for consecutive periods
presented in the statements of operations, options and warrants were not
included in the computation of diluted earnings per share, as such options and
warrants were antidilutive. The effect of the assumed exercise of options and
warrants that would have potentially diluted basic loss per share as of
September 30, 1999, 2000 and 2001 were 45 shares, 594 shares and 112 shares,
respectively.

Comprehensive Income

         The Company accounts for comprehensive income in accordance with SFAS
No. 130 "Reporting Comprehensive Income". SFAS No. 130 established standards for
the reporting and presentation of comprehensive income and its components (other
comprehensive income) in the financial statements. The Company had no amounts
categorized as other comprehensive income in any of years ended September 30,
1999, 2000 or 2001.

Use of Estimates

         The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Reclassifications

         Certain reclassifications have been made to conform to the presentation
of the year ended September 30, 2001. These reclassifications have no effect on
previously reported net loss and shareholders' equity.

3. U.S. DOLLAR AMOUNTS

         U.S. dollar amounts presented in the accompanying financial statements
are included solely for the convenience of the reader, using the spot rate of
the Federal Reserve Bank in the U.S. at September 28, 2001, which was
Yen119.23 to U.S.$1.00. The convenience translations should not be construed
as representations that the Japanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at this or any other rate of
exchange.

4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets", which require that all business combinations initiated
after June 30, 2001 be accounted for under the purchase method. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized, but will be subject to annual impairments tests. Other
intangible assets will continue to be amortized over their useful lives. The
nonamortization provisions of the new rules are effective for fiscal years
beginning after December 15, 2001, and immediately for any purchase business
combinations after June 30, 2001. The Company does not

                                      F-13

<PAGE>

have goodwill or significant intangible assets recorded in its financial
statements, and as a result, the adoption of these standards is not expected to
result in significant changes to earnings or financial position of the Company.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". SFAS No. 144 establishes
additional criteria as compared to existing generally accepted accounting
principles to determine when a long-lived asset is held for sale. It also
broadens the definition of "discontinued operations", but does not allow for the
accrual of future operating losses, as was previously permitted. The Company
plans to adopt SFAS No. 144 in its fiscal year beginning on October 1, 2002, and
does not expect that adoption will result in significant changes to earnings or
financial position of the Company.

5. BALANCE SHEET DETAIL

         Property and Equipment, net (in thousands):

<TABLE>
<CAPTION>
                                                               September 30,
                                                   ----------------------------------    September 30,
                                                        2000                2001             2001
                                                   ---------------      -------------    -------------
         <S>                                       <C>                  <C>              <C>
         Office equipment.......................   Yen   3,256,875      Yen   390,533       $ 3,275
         Leasehold improvements.................            88,361             52,818           443
         Purchased software.....................            74,049             25,482           214
                                                   ---------------      -------------    -------------
                                                         3,419,285            468,833         3,932
         Less:  Accumulated depreciation and
            amortization........................   Yen    (293,992)     Yen  (145,209)       (1,218)
                                                   ---------------      -------------    -------------
         Property and equipment, net............   Yen   3,125,293      Yen   323,624       $ 2,714
                                                   ===============      =============    =============
</TABLE>

         As discussed in "Restructuring and impairment charges" in Note 1, the
decrease of property and equipment is due to the write-down of impaired
equipment, and subsequent sale or transfer of this equipment to other assets on
the balance sheet. Servers held for sale of Yen 25,767 thousand ($216 thousand)
as of September 30, 2001 are included in other assets on the balance sheet.

         Depreciation and amortization expense for the years ended September 30,
1999, 2000 and 2001 was Yen 16,454 thousand, Yen 276,723 thousand and
Yen 789,421 thousand ($6,621 thousand), respectively. Included in depreciation
and amortization expense is depreciation expense relating to assets subject to
capital leases of Yen 4,533 thousand, Yen 184,739 thousand and Yen 550,470
thousand ($4,617 thousand) for the years ended September 30, 1999, 2000 and
2001, respectively.

         Accrued Liabilities (in thousands):

<TABLE>
<CAPTION>
                                                               September 30,
                                                   ----------------------------------    September 30,
                                                        2000                2001             2001
                                                   ---------------      -------------    -------------
         <S>                                       <C>                  <C>              <C>
         Compensated absences.................     Yen      44,716      Yen     7,160        $  60
         Bonuses..............................              81,721             19,804          166
         Other................................              54,720             14,661          123
                                                   ---------------      -------------    -------------
         Accrued liabilities..................     Yen     181,157      Yen    41,625        $ 349
                                                   ===============      =============    =============
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

         Capitalized Leases

         The Company had leased certain servers and office equipment under
capital lease agreements. In accordance with the Business Revival Plan, in July
2001, the Company terminated its lease contract with IBJ

                                      F-14


<PAGE>

leasing Co., Ltd. for 68 severs used for the Deskwing hosting services. In
addition, almost all other capital leases of office equipment were also
terminated between July 2001 and September 30, 2001. Upon termination, the
Company paid Yen 2,414,008 thousand ($20,247 thousand) to settle the remaining
balance of the lease obligations of Yen 2,322,393 thousand ($19,478 thousand),
net of Yen 517,452 thousand ($4,340 thousand) of prepaid lease payments, and
early termination penalties of Yen 91,616 thousand ($769 thousand), which is
recorded as a loss on termination.

         As of September 30, 2001, leased assets consist only of office
equipment with a carrying value of Yen 74 thousand ($1 thousand), and the
related remaining lease obligation is Yen 342 thousand ($3 thousand) at
September 30, 2001. This obligation is repayable through September 30, 2004.

         Operating Lease

         The Company also leases its office facilities under a cancelable
lease contract. Rental expense under operating leases for the years ended
September 30, 1999, 2000 and 2001 was Yen 22,580 thousand, Yen 196,048
thousand and Yen 123,173 thousand ($1,033 thousand), respectively.

Legal Proceedings

         The Company is a party to securities class action litigation which may
be costly to defend and the outcome of which is uncertain and may harm its
business.

         On September 8, 2000, the first of eleven related class action lawsuits
was filed against the Company in the United States District Court for the
Southern District of New York. The lawsuits include allegations that during the
course of the Company's March 8, 2000 public offering of American Depositary
Shares, the Company failed to disclose material facts about the decline in
business of its principal shareholder and former business partner, Hikari
Tsushin.

         The lawsuits make similar allegations against the underwriters for the
offering and certain of the Company's former officers and directors of Crayfish
and Hikari Tsushin. As alleged purchasers of the Company's shares during the
offering, the plaintiffs seek to recover damages of an unspecified amount on
behalf of the alleged class of persons who purchased our shares in, or traceable
to, the offering. The plaintiffs also seek to recover attorneys fees, accountant
and expert witness fees as well as other expenses incidental to the litigation.
Certain plaintiffs moved to be appointed as lead plaintiffs and to consolidate
all eleven actions.

         On September 26, 2001 the court entered an order consolidating all
eleven actions and appointed lead counsel for the plaintiffs. Certain of the
plaintiffs who sought the appointment of different lead counsel have moved for
reconsideration of the court's decision and for the appointment of a different
lead counsel. That motion is under consideration by the court. Plaintiffs have
forty-five days after the determination of this motion to file a consolidated
amended complaint. The Company is not required to respond to plaintiffs'
original complaint and will respond to the consolidated amended complaint when
it is served.

         Although the Company intends to vigorously defend against any actions
that are properly brought against the Company, conclusion of the litigation in a
manner adverse to the Company could have a material adverse effect on its
business, prospects, financial condition and results of operations. The Company
has incurred Yen 150,211 thousand ($1,260 thousand) in legal costs through
September 30, 2001 as a result of this litigation. Even if all of the litigation
is resolved in the Company's favor, defense of this litigation may entail
considerable additional cost and the significant diversion of efforts of
management.

7. INVESTMENTS

         Investment in Equity Stock

                                      F-15

<PAGE>

         Investments in equity stock are comprised of non-marketable equity
securities that do not have an active market for their purchase or sale. The
Company's ownership in these investments is less than 20% and the Company cannot
exert significant influence over the operations of the companies. Accordingly,
these investments are stated at cost. Management regularly reviews the
assumptions underlying related sales, net income and cash flow forecasts and
other factors used in assessing the carrying values of such investments, and
records write-downs to such investments when necessary.

         Investment in an affiliate

         On December 22, 2000, the Company acquired a 47.1% interest in
Intranets K.K (IKK), a privately held internet based application service
provider (ASP), for Yen 600,000 thousand. This investment is being accounted for
using the equity method. At the time of the acquisition, the net book value of
IKK was Yen 471,763 thousand ($3,957 thousand) and unrecorded goodwill was Yen
377,800 thousand ($3,169 thousand). The Company has been recording its share of
assumed amortization of the unrecorded goodwill based on an estimated five year
life. Toward the end of the fiscal year September 30, 2001, new management
decided to sell its interest in IKK. In connection with this decision, the
Company obtained a third party valuation of its ownership interest in IKK, and
based on the valuation, wrote down its interest to Yen 128,000 thousand. As a
result, the Company recognized a devaluation loss of Yen 399,377 thousand
($3,350 thousand) in addition to an equity loss from IKK of Yen 73,249 thousand
($614 thousand) in the year ended September 30, 2001.

8. TRANSACTIONS WITH RELATED PARTIES

         In February 2000, the Company entered into a marketing agreement with
Hikari Tsushin, Inc. ("HT"), a related party owning a 50.1%, 40.4% and 67.0%
interest in the Company as of September 30, 1999, 2000 and 2001, respectively.
Pursuant to the marketing agreement, HT marketed Deskwing and related services,
and processed applications for service subscriptions, collected fees on behalf
of the Company and provided certain Deskwing customer support services. In
exchange for providing these services, HT was entitled to a monthly commission
based on fifty percent of the Deskwing monthly subscription fee. At the end of
the month, HT remitted fees collected on behalf of the Company net of
commissions earned. These service fees have been reflected as a component of
cost of revenues in the statements of operations.

         On November 1, 2000, the Company paid HT Yen 3.5 billion ($29 million)
to terminate the foregoing agreement. The amount paid under the termination
agreement was based on an independent valuation of the fair value of the
expected future net revenues to be received by HT under the agreement. The
expected future revenues were based on terms then in effect with customers, and
on estimated projected cancellation rates. Subsequent to termination of the
agreement, actual cancellation rates increased significantly from those
projected, and the Company implemented a 50% reduction in the monthly fee
charged for its Deskwing hosting service. Accordingly, the Yen 3.5 billion ($29
million) termination payment has been reflected as an operating expense in the
statement of operations.

         On June 20, 2001, new management was approved at a special
shareholder's meeting. Pursuant to the approval, HT sent two directors and
several employees to the Company and the Company reimbursed HT for compensation
expense for the directors and employees paid by HT.

         Account balances and transactions with HT are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                        September 30,
                                                    ----------------------------------------------------     September 30,
                                                         1999               2000             2001                2001
                                                    -------------     ---------------    ---------------     -------------
         <S>                                        <C>               <C>                <C>                 <C>
         Accounts receivable..................      Yen     8,950     Yen      14,016    Yen          --        $    --
         Accounts payable.....................             42,053              30,366              6,964             58
         Service revenue......................             44,884              11,540                 --             --
         Service fee..........................            364,477           3,291,737            656,949          5,510
</TABLE>

                                       F-16

<PAGE>

<TABLE>
         <S>                                        <C>               <C>                <C>                 <C>
         Sales promotion expenses.............             57,161             204,209                 --             --
         Support expenses.....................              2,449                  --                 --             --
         Other expenses.......................                 --               1,067                 --             --
         Purchase of fixed assets.............                270               4,300                 --             --
         Termination fee......................                 --                  --          3,500,000         29,355
         Compensation expenses................                 --                  --             10,607             89
</TABLE>

9. LONG-TERM DEBT

         Long-term debt as of September 30, 2000 and 2001, consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                               September 30,
                                                   ----------------------------------    September 30,
                                                        2000                2001             2001
                                                   ---------------      -------------    -------------
         <S>                                       <C>                  <C>              <C>
         Unsecured bonds, due 2006 with
            detachable warrants, redeemable
             before due date...................    Yen      37,500      Yen        --       $     --
         Capital lease obligations.............          2,130,364                342              3
                                                   ---------------      -------------    -------------
                                                         2,167,864                342              3
         Less current portion..................           (663,547)              (127)            (1)
                                                   ---------------      -------------    -------------
         Long-term debt, less current portion..    Yen   1,504,317      Yen       215       $      2
                                                   ===============      =============    =============
</TABLE>

         On September 27, 1999, the Company issued Yen 1,762,500 thousand of
bonds with an interest rate equal to the prime rate in Japan plus 1% per annum
with 705 detachable warrants, 675 of which are still outstanding as of September
30, 2001. The warrants, which became exercisable on September 28, 1999 and will
expire on September 26, 2006, entitle the holders to subscribe to shares of the
Company at Yen 2,500 thousand ($21 thousand) per share. The Company redeemed
Yen 1,725,000 thousand of the bonds in November 1999 and the remainder of
Yen 37,500 thousand in September 2001. Interest was paid twice a year in March
and September and the average interest rate during the year ended September 30,
2001 was 3.15%.

10. SHAREHOLDERS' EQUITY

         Under the Japanese Commercial Code (the "Code"), at least 50% of the
issue price of new shares, with a minimum of the par value of those shares, is
required to be designated as common stock. The amount designated as common stock
is determined by resolution of the board of directors. Proceeds in excess of the
amount designated as common stock are accounted for as additional paid-in
capital. The Company may transfer portion of additional paid-in capital and
legal reserve to the common stock account by resolution of the board of
directors.

         The Code provides that an amount equal to at least 10% of cash
dividends and other distributions from retained earnings paid by the Company be
appropriated as a legal reserve. No further appropriation is required when the
legal reserve equals 25% of the common stock account. The Company may transfer
amounts of additional paid-in capital and legal reserves to the common stock
account by resolution of the board of directors.

         With the Company's global initial public offering on March 10, 2000,
the Company issued 1,870 shares of common stock for proceeds of Yen 22,288,605
thousand, net of issuance costs of Yen 649,212 thousand. In compliance with the
Code, Yen 5,722,200 thousand of the net proceeds was designated as common
stock, and the remaining amount of Yen 16,566,405 thousand was designated as
additional paid-in capital.

11. STOCK-BASED COMPENSATION

         The Company issues both stock options and warrants at the discretion of
the board of directors, but subject to the provisions of the articles of
incorporation and shareholder approval.

                                      F-17

<PAGE>
          Options may be granted only to the Company's employees and directors.
At the shareholders meetings, the shareholders approve the amount of stock
options granted to each employee or director, the exercise price of each grant,
the vesting period and the life of each option. Options typically vest after two
years and have a life ranging from seven to nine years. In August 1999, the
Company issued options to employees and directors with exercise prices below the
fair market value of the Company's common stock and recorded a deferred stock
compensation charge of approximately Yen 329,000 thousand to be amortized over
the vesting period of the options of two years. On July 30, 2000, the Company
issued stock options to employees at fair market value. No compensation charge
was recorded for these options. In the years ended September 30, 1999, 2000 and
2001, the Company recognized Yen 15,993 thousand, Yen 187,408 thousand, and Yen
125,599 thousand ($1,053 thousand) respectively of compensation expense from
amortization of deferred stock compensation. In the year ended September 30,
2000, the Company reversed Yen 50,750 of deferred compensation expense relating
to the forfeiture of unvested options, and in the year ended September 30, 2001,
the Company reversed Yen 220,500 thousand ($1,849 thousand) of compensation
expense relating to the forfeiture of unvested options including Yen 94,901
thousand ($796 thousand) in compensation expense recognized in previous years.

          The Company also issues warrants to its directors by issuing bonds to
financial institutions with detachable warrants. The warrants are repurchased
immediately after issuance and then granted to the directors of the Company as a
part of their remuneration. Under the Code, companies can only issue stock
options in amounts up to 10% of a company's outstanding stock. Warrants are used
to bypass the Code limiting the amount of stock options that can be granted. On
September 27, 1999, the Company issued Yen 1,762,500 thousand bonds with
detachable warrants to purchase 705 shares of common stock. The Company
immediately repurchased all warrants and then granted these warrants to
directors. Warrants to purchase 675 shares of common stock remained outstanding
as of September 30, 2001.

   The following is a summary of option/warrant activity (whole amounts):

<TABLE>
<CAPTION>
                                                                 Weighted Average
                                                   Number of      Exercise Price              Options/Warrants
                                                     Shares         Per Share               Price Range Per Share
                                                   ----------    ----------------    ----------------------------------
<S>                                                <C>           <C>                 <C>                <C>
Outstanding at September 30, 1998...........         2,404       Yen      74,407     Yen     62,500     Yen     125,000
                                                   ----------    ---------------     --------------     ---------------
Options/warrants granted....................           977             1,873,593            250,000           2,500,000
Options/warrants exercised..................        (2,360)               73,941             62,500             100,000
Options/warrants canceled...................           (22)              181,818             62,500             125,000
                                                   ----------    ---------------     --------------     ---------------
Outstanding at September 30, 1999...........           999             1,832,708             62,500           2,500,000
                                                   ----------     --------------     --------------     ---------------
Options/warrants granted....................           322             3,776,250                 --           3,776,250
Options/warrants exercised..................           (11)              119,318             62,500             125,000
Options/warrants canceled...................          (111)            1,158,739             62,500           3,776,250
                                                   ----------    ---------------     --------------     ---------------
Outstanding at September 30, 2000...........         1,199             2,443,688             62,500           3,776,250
                                                   ----------    ---------------     --------------     ---------------
Options/warrants granted....................           333               400,000            400,000             400,000
Options/warrants exercised..................           (63)              209,325             62,500             250,000
Options/warrants canceled...................          (720)            1,898,196            250,000           3,776,250
                                                   ----------    ---------------     --------------     ---------------
Outstanding at September 30, 2001...........           749       Yen   2,473,645     Yen    250,000     Yen   3,776,250
                                                   ----------    ---------------     --------------     ---------------
</TABLE>

         At September 30, 1999, 2000 and 2001, 705, 877 and 685 options/warrants
were exercisable at weighted average exercise prices per share of Yen 2.5
million, Yen 2.7 million and Yen 2.5 million ($21 thousand), respectively.

         The options/warrants outstanding and currently exercisable by exercise
price at September 30, 2001 were as follows (whole amount):

                                      F-18

<PAGE>

<TABLE>
<CAPTION>
                                Options/Warrants Outstanding                    Options/Warrants Exercisable
                     ------------------------------------------------------   ----------------------------------
                                     Weighted Average
                                         Remaining
    Exercise            Number        Contractual Life     Weighted Average     Number          Weighted Average
     Prices          Outstanding         (in years)        Exercise Price     Exercisable       Exercise Price
---------------      -----------    -----------------      ----------------   -----------       ----------------
<S>                  <C>            <C>                    <C>                <C>               <C>
Yen     250,000           10               6.9             Yen    250,000           10          Yen      250,000
        400,000           36               6.2                    400,000           --                        --
      2,500,000          675               5.0                  2,500,000          675                 2,500,000
      3,776,250           28               5.7                  3,776,250           --                        --
                     -----------                                              -----------
                         749                                                       685
                     ===========                                              ===========
</TABLE>

         The Company has elected to continue to follow the provisions of APB 25
for financial reporting purposes and has adopted the disclosure-only provisions
of SFAS No.123, "Accounting for Stock-Based Compensation." The fair value of the
Company's stock options/warrants was estimated using a Black-Scholes
option-pricing model. The Black-Scholes option-pricing model was developed for
use in estimating the fair value of traded options/warrants that have no vesting
restrictions and are fully transferable. In addition, the Black-Scholes model
requires the input of highly subjective assumptions including the expected share
price volatility. Since the Company's stock options and warrants granted to
employees and directors have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reasonable single measure of the fair value
of its stock options/warrants. The fair value of each option/warrant granted is
estimated on the date of grant using a type of Black-Scholes option-pricing
model with the following assumptions used for grants:

<TABLE>
<CAPTION>
                                             September 30, 1999         September 30, 2000        September 30, 2001
                                             ------------------         ------------------        ------------------
<S>                                          <C>                        <C>                       <C>
Expected volatility.................                  90%                      168.5%                    138.6%
Weighted-average risk-free
   interest rate....................                0.51%                       0.50%                     0.50%
Expected life (in years)............                 2.5                         2.5                       2.5
Expected dividends..................                  --%                         --%                       --%
</TABLE>

         Weighted average fair value of options/warrants granted during the
period (whole amount):

<TABLE>
<CAPTION>
                                                                    September 30, 2000                September 30, 2001
                                                            ----------------------------------  ------------------------------
                                                                Weighted                           Weighted
            Option and/or Warrant Granted                       Average          Weighted Fair      Average      Weighted Fair
                   During the Year                          Exercise Price       Market Value   Exercise Price   Market Value
-------------------------------------------------------     ---------------     --------------  --------------   -------------
<S>                                                         <C>                 <C>             <C>              <C>
Option/Warrant price > fair market value of stock           Yen        --       Yen        --   Yen         --   Yen        --
Option/Warrant price = fair market value of stock           Yen 3,776,250       Yen 3,776,250   Yen         --   Yen        --
Option/Warrant price < fair market value of stock           Yen        --       Yen        --   Yen         --   Yen        --
</TABLE>

         For pro forma purposes, had compensation cost for the plan been
determined based on the fair value at the grant date for awards in 1999, 2000
and 2001 consistent with the provisions of SFAS 123, the Company's net loss
would have been (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                              September 30,
                                     ------------------------------------------------------------      September 30,
                                            1999                  2000                 2001                2001
                                     ----------------      ----------------      ----------------      -------------
<S>                                  <C>                   <C>                   <C>                   <C>
Net loss
   As reported                       Yen     (355,739)     Yen   (1,541,584)     Yen   (9,568,721)      $  (80,254)
   Pro forma                               (1,285,631)           (1,781,610)           (9,584,751)         (80,389)
</TABLE>

                                      F-19

<PAGE>

<TABLE>
<S>                                  <C>                   <C>                   <C>                   <C>
Basic and diluted net loss
   per common share
      As reported                    Yen   (78,842.86)     Yen  (164,822.41)     Yen  (937,558.40)      $(7,863.41)
      Pro forma                           (284,935.95)          (190,485.61)          (939,128.50)       (7,876.61)
</TABLE>

12. INCOME TAXES

         The provision for income taxes consisted of the following components
(in thousands):

<TABLE>
<CAPTION>
                                                                         September 30,
                                                      -----------------------------------------------   September 30,
                                                         1999                2000             2001          2001
                                                      -----------        -----------      -----------   -------------
         <S>                                          <C>                <C>              <C>           <C>
         Current..............................        Yen   2,981        Yen   3,800      Yen   3,800   $          31
         Deferred.............................                 --                 --               --              --
                                                      -----------        -----------      -----------   -------------
         Provision for income taxes..............     Yen   2,981        Yen   3,800      Yen   3,800   $          31
                                                      ===========        ===========      ===========   =============
</TABLE>

         The Company is subject to a number of different income taxes that, in
aggregate, indicate a statutory tax rate in Japan of approximately 48% for the
fiscal 1998, and 42% for fiscal 1999 and 2000.

         Reconciliation of the differences between the amount of reported income
taxes and the amount of income taxes computed using the normal statutory tax
rate for the years ended September 30, 1999, 2000 and 2001 is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              September 30,
                                        ---------------------------------------------------------       September 30,
                                             1999                 2000                 2001                  2001
                                        --------------       --------------      ----------------       -------------
<S>                                     <C>                  <C>                 <C>                    <C>
Amount computed by using
normal Japanese statutory
tax rate...........................     Yen   (173,656)      Yen   (646,637)     Yen   (4,019,629)      $     (33,713)
Increase (decrease) in taxes
resulting from:
   Expense not deductible for
   tax purposes....................             21,528               59,427               140,520               1,178
   Tax deductible stock
   issuance expenses...............             (9,853)            (272,994)                   --                  --
   Increase in valuation
   allowance.......................            142,089              864,291             3,848,304              32,277
   Effect of effective tax rate
   changes.........................             20,376                   --                    --                  --
   Equity in losses of an
   affiliate.......................                 --                   --                30,538                 256
   Per-capita resident taxes.......              2,290                3,800                 3,800                  31
   Others-net......................                207               (4,087)                  267                   2
                                        --------------       --------------      ----------------       -------------
Income taxes as reported...........     Yen      2,981       Yen      3,800      Yen        3,800       $          31
                                        ==============       ==============      ================       =============
</TABLE>

         The significant components of deferred income tax assets and
liabilities at September 30, 1999, 2000 and 2001 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            September 30,
                                                       --------------------------------------------------------   September 30,
                                                             1999               2000                2001              2001
                                                       --------------     ----------------     ----------------   -------------
<S>                                                    <C>                <C>                  <C>                <C>
Deferred tax assets:
Operating loss carry forward......................     Yen    139,286     Yen      964,831     Yen    4,840,675        $ 40,599
Accrued expenses..................................             21,619               25,489                3,011              25
</TABLE>

                                      F-20

<PAGE>

<TABLE>
<S>                                                    <C>                 <C>                 <C>                <C>
Depreciation in excess of tax-deductible
amount............................................             12,836               18,810                6,803           57
Allowance for bad debts in excess of
tax-deductible amount.............................                867                  367                2,950           24
Allowance for moving expense not deductible
for tax purposes..................................                 --                   --               11,453           96
Other.............................................              1,470               13,799                  885            7
                                                       --------------     ----------------     ----------------     --------
    Gross deferred tax assets.....................            176,078            1,023,296            4,865,777       40,808
                                                       --------------     ----------------     ----------------     --------
    Less: Valuation allowance.....................           (153,182)          (1,017,473)          (4,865,777)     (40,808)
                                                       --------------     ----------------     ----------------     --------
                                                               22,896                5,823                   --           --
Deferred tax liabilities: Prepaid expenses                    (22,776)              (5,168)                  --           --
    Other.........................................               (120)                (655)                  --           --
                                                       --------------     ----------------     ----------------     --------
                                                              (22,896)              (5,823)                  --           --
                                                       --------------     ----------------     ----------------     --------
Net deferred tax assets...........................     Yen         --     Yen           --     Yen           --     $     --
                                                       ==============     ================     ================     ========
</TABLE>

         Operating loss carry-forwards for tax purposes at September 30, 2001
amounted to approximately Yen 11,997 million which is available to offset
future taxable income. Approximately Yen 335 million, Yen 1,960 million and
Yen 9,702 million of operating loss carry-forwards will expire in the periods
ending September 30, 2004, 2005 and 2006, respectively, unless utilized prior to
that date. A full valuation allowance has been recorded due to the uncertainty
whether the deferred tax asset will be realized.

         The net changes in the valuation allowance for deferred tax assets
during the years ended September 30, 1999, 2000 and 2001 were increases of
Yen 142,089 thousand, Yen 864,291 thousand and Yen3,848,304 thousand
respectively.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

         SFAS No. 107, "Disclosure about Fair Value of Financial Instruments"
requires disclosures of the fair value of financial instruments, including both
assets and liabilities recognized and not recognized in the Company's balance
sheet. The estimated fair value amounts of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. Considerable judgments is required in estimating fair values and the
estimates presented are not necessarily indicative of the amounts the Company
could realize in a current market exchange.

         The Company enters into foreign currency contracts with investment
grade rated financial institutions and requires no collateral from these
institutions.

         Foreign Currency Forward Contacts - At September 30, 2000, the Company
had six foreign currency forward exchange contracts outstanding for delivery of
an aggregate nominal value of $2,234 thousand, which were entered into during
August 2000 in order to cover future anticipated cash flows. The carrying
amounts of financial assets and liabilities, which are comprised of cash and
cash equivalents, short-term debt and long-term debt, approximate fair value. At
September 30, 2001, the Company has no foreign currency contracts outstanding.

         The Company is exposed to credit risk in the case of non-performance by
the counter-party. No credit risk related losses have been recognized with
respect to foreign currency contracts.

         Foreign exchange contracts - The fair value of forward exchange
contacts is based on the rate of exchange between the US$ and the Japanese Yen
on September 30, 2000 of Yen107.9 per $1.

         The estimated fair value of the Company's financial instruments is as
follows (in thousands):

                                      F-21

<PAGE>

<TABLE>
<CAPTION>
                                          September 30, 2000                          September 30, 2001
                                  ---------------------------------   ------------------------------------------------
                                      Carrying          Fair           Carrying        Fair        Carrying      Fair
                                       Amount           Value           Amount         Value        Amount      Value
                                  ---------------   ---------------   ----------    ----------     --------     ------
<S>                               <C>               <C>               <C>           <C>            <C>          <C>
Long-term debt                    Yen   1,504,317   Yen   1,504,317   Yen    215    Yen    215      $   2        $   2
Foreign Currency Contract         $            --   $            55   $       --    $      ---      $  --        $  --
</TABLE>

14. SEGMENT INFORMATION

As mentioned in "Risk of business concentration" in the Note 2, the Company had
three reportable segments: Deskwing, Other Hosting service, and System
Development services, as reviewed by the Company's management. All product
segments used common assets and management did not review this information
separately. The Company has changed its business strategy and now offers
Deskwing and its related services as only one business. As mentioned in Note 1,
all of the Company's long-lived assets are located in Japan.

15. SUBSEQUENT EVENTS

         At the regular shareholders' meeting held on December 20, 2001,
shareholders approved, pursuant to the Code, elimination of the accumulated
deficit of Yen 12,071,755 thousand ($101,248 thousand) as of September 30,
2001, as recorded in the statutory book of accounts, using Yen 12,071,575
thousand ($101,246 thousand) of additional paid-in capital and Yen 180 thousand
($2 thousand) of legal reserves. As a result, the entire deficit as of September
30, 2001 recorded in the statutory book was eliminated.

         Effective October 1, 2001, there is no distinction between par value
stock and non-par value stock in accordance with change in the Code. As a
result, all of the Company's par value stock became non-par value stock.

                                      F-22