Crayfish Announces Operating Results for the Fiscal Year Ended
September 30, 2003 (FY03) TOKYO and NEW YORK, Nov. 13
/PRNewswire-FirstCall/ -- Crayfish Co., Ltd. (Nasdaq: CRFH;
MOTHERS: 4747) (hereinafter "Crayfish" or the "Company"), a
provider of e-mail hosting services (trademark "DESKWING") and
other Internet- related services for small and medium-sized
enterprises, today announced the results of its operations for
fiscal year ended September 30, 2003. All figures are unaudited and
prepared in accordance with accounting principles generally
accepted in the United States for financial information. Fiscal
Year Ended September 30, 2002 Financial Highlights For the Year
Ended September 30, 2003 and 2002 (JPY) (JPY) (US$) FY2003 FY2002
FY2003 (Unaudited) (Audited) (Unaudited) Revenue 1,772 2,945 13,681
Income from Operations 563 1,331 5,050 Net (Loss) Income (228)
1,338 (2,044) Net Income (Loss) Per Share - Basic (22,192.15)
130,460.70 (199.16) - Diluted (22,187.82) 130,346.30 (199.12)
Notes: 1. In millions of yen and thousands of U.S. dollars except
per share data. 2. U.S. dollar amounts have been translated at the
rate of JPY 111.43 =US$1, the spot rate of the Federal Reserve Bank
in the U.S. on September 30, 2003. 4Q /FY03 in Review Highlights of
the Company's operating results and activities during 4Q/FY03 are
as follows: * Begin to market hardware * Establish new subsidiary *
Declining DESKWING subscriber cancellations Begin to market
hardware As part of the Company's goal to market a wide array of IT
product and services to small and medium sized enterprises, the
Company began to market PC hardware for Japanese small and medium
sized enterprises from September 1, 2003. Affiliates of Hikari
Tsushin, Inc. provide marketing support to the Company. The Company
projects revenues from the new business of JPY 100 million in the
next fiscal year ending September 30, 2004. Establish new
subsidiary Since March 2003, the Company has conducted Internet
advertising space business as part of its effort to increase
earnings. In connection with the start of Internet advertising
space business, the Company established a new subsidiary -- Cyber
Joy, Inc. ("Cyber Joy"). Cyber Joy will conduct sales of Internet
advertising space, and the Company projects the sales of Cyber Joy
to reach JPY50 million for its first fiscal year ending in
September 2003. Decline in DESKWING subscriber cancellations During
4Q/FY 2003, the Company acquired a total of 70 new DESKWING
subscribers, a decrease of 22.2% from 90 in 4Q/FY 2002 and a
decreased of 15.7% from 83 in 3Q/FY 2003. Cancellations during
4Q/FY 2003 declined to 645, a decrease of 78.5% from 2,999 in
4Q/FY2002 and 23.6% from 844 in 3Q/FY 2003. 4QFY03 3QFY03 2Q/FY03
1Q/FY03 4Q/FY02 New 70 83 59 54 90 Cancelled 645 844 1,230 2,202
2,999 Quarter-End Balance 8,209 8,784 9,545 10,716 12,864 Unaudited
Financial Results for the Fiscal Year Ended September 30, 2003
Results for 4Q/FY03 (presentation slides) will be available on the
Company's website ( http://www.crayfish.co.jp/eng/ir.html ) from
November 17, 2003. In addition, the Company will hold an earnings
call in the morning (United States, EST) on the same day regarding
results for 4Q/FY03 and the Company's mid-term and long-term
strategy. If you would like to join the call, please e-mail to and
include the words 'Earnings Call' in the e-mail message subject
header. Revenue Total revenues in FY2003 were JPY1,772 million,
down 39.8% from JPY2,945 million in FY2002. The decrease in total
revenues was mainly attributable to a decline in the number of
subscribers. Costs of Revenue Total cost of revenues for FY2003
increased 2.2% to JPY650 million from JPY636 million in FY2002. The
increase in cost of revenue is mainly attributable to the increase
in cost of revenue from new businesses. Gross Profit The Company
recorded gross profit of JPY1,122 million in FY 2003, a 51.4%
decrease from JPY2,309 million in FY2002. The decline in revenue
from DESKWING reflects decrease in gross profits. Operating
Expenses Total operating expenses in FY2003 declined by 42.7% to
JPY560 million from JPY978 million in FY2002. The decline is mainly
attributable to decrease in SG&A expense and net loss on
disposal of property and equipment. Selling, general and
administrative expense (SG&A) decreased to JPY512 million in
FY2003, down 36.5% from JPY806 million in FY2002. The decrease in
SG&A expense is mainly due to decrease in salaries as a result
of outsourcing call-center operations to CalltoWeb, Inc, and
decline in depreciation in connection with the sales of fixed
assets, as were announced on November 14, 2002. Income from
Operations As a result of the aforementioned factors, the Company
recorded an income from operation of JPY563 million in FY2003. This
figure compares with income of JPY1,331 million in FY2002. The
57.7% decline in income from operations from FY2003 to FY2002 is
attributable to a decrease in revenue. Net income In FY2003, the
Company posted net loss of JPY 228 million. The net loss is mainly
due to expenses recognized in accordance with the agreement
regarding the settlement of all pending class actions, as was
announced on August 8, 2003. This figure compares with net income
of JPY1,338 million in FY2002. Business Outlook The Company will
continue to aim to achieve positive results by operational
improvements, strengthening marketing and providing products and
services to address the needs of small and medium sized enterprises
in Japan. The Company will continue to aim to stabilize profit by
reducing cancellation rates in its server business including
DESKWING by increasing customer satisfaction levels. The Company
will continue to expand software business by marketing and
providing products and services in software business. For the
Internet advertising space business, the Company has established a
wholly owned subsidiary, Cyber Joy, to market and sell Internet
advertising space. The Company will aim to expand profit by
increasing the number of partners providing Internet advertising
space and increasing sales of Internet advertising space through
Cyber Joy. The Company is also creating advertising media for the
Internet. By the above strategy, and taking into consideration
litigation settlement fees and the previously announced capital
reduction, the Company forecasts JPY 1,500 million of total
revenue, JPY 200 million of ordinary income, and JPY 180 million of
net loss for Fiscal Year 2004 in accordance with Japan GAAP. There
is no material difference between Japan GAAP and the U.S. GAAP in
accounting treatment applied to financial projections of the
Company. Company Information The Company was incorporated in Japan
on October 16, 1995 for the purpose of engaging in business related
to information technology. The Company's main operation is to
provide e-mail hosting services (trademark 'DESKWING') to small and
medium-sized enterprises. DESKWING hosting service provides
customers with e-mail addresses with their own domain extensions.
Corporate Headquarters: Crayfish Co., Ltd. 5th Floor, Minami
Ikebukuro 1-16-15 Minami Ikebukuro Toshima-ku, Tokyo 171-0022 Japan
Tel: 81-3-5951-7192 Safe Harbor This release contains
forward-looking statements based upon the Company's current
expectations, assumptions, estimates and projections about the
Company's business and industry in light of the information
currently available to it. To the extent that statements in this
release do not relate strictly to historical or current facts, they
may constitute forward-looking statements. These forward-looking
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. The Company's 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 the Company's
actual results to differ materially from its expectations are
generally discussed in the Company's annual report on its most
recent Form 20-F and other filings with the U.S. Securities and
Exchange Commission and include, without limitation, (i)
competition from other providers in the Japanese email and
web-hosting market; (ii) Crayfish's limited operating history;
(iii) failure to maintain the reliability and security of its
services; (iv) Crayfish's ability to maintain and expand its
customer base; (v) an unforeseen decline in earnings as a result of
an unforeseen decline in Crayfish's customer base; (vi) an
unforeseen change in the prices of the Company's services in
response to changes in market demand for its services; (vii) an
unforeseen decline in earnings as a result of corporate changes
carried out by major shareholders of Crayfish; (viii) an unforeseen
change in the technology underlying its products and services; and
(ix) market acceptance of new products and services. The Company
undertakes no obligation to publicly update any forward- looking
statement after the date of this release, but investors are advised
to consult any further disclosures by the Company in its subsequent
filings pursuant to the Securities Exchange Act of 1934. All
figures are unaudited and prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information. CRAYFISH CO., LTD. CONDENSED BALANCE SHEETS
(in thousands) September 30, September 30, 2003 2002 (Unaudited)
(Audited) US$ (Note3) JPY JPY ASSETS Current assets: Cash and cash
equivalents 17,332 1,931,316 16,412,076 Time deposit in banks 1,795
200,000 200,000 Accounts receivable, net of allowance for doubtful
accounts 294 32,799 14,751 Accounts receivable due from related
parties 748 83,328 21,436 Deposit paid for litigation settlement
7,019 782,081 -- Prepaid expense and other current assets 464
51,708 61,017 Total current assets 27,652 3,081,232 16,709,280
Property and equipment, net of accumulated depreciation 175 19,529
159,390 Deposits paid for rental offices 4 500 4,630 Deposits paid
for rental offices due from related parties 16 1,789 24,751 Deposit
for subscription of equity stock 90 10,000 -- Other assets 2 227
16,851 Total assets 27,939 3,113,277 16,914,902 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 1,394
155,287 74,160 Accounts payable due to related parties 226 25,237
9,110 Accrual for litigation settlement 7,019 782,081 --
Consumption tax payable -- -- 88,819 Deferred initial contract fees
2 251 4,004 Accrued liabilities and other current liabilities 292
32,579 22,009 Total current liabilities 8,933 995,435 198,102
Common stock 3,798 423,219 8,060,325 Additional paid-in capital --
-- 6,734,094 Retained earnings, since October 1, 2001 15,208
1,694,623 1,922,381 Total shareholders' equity 19,006 2,117,842
16,716,800 Total liabilities and shareholders' equity 27,939
3,113,277 16,914,902 CRAYFISH CO., LTD. CONDENSED STATEMENTS OF
INCOME (in thousands, except per share data) Three months ended
September 30, 2002 2003 (Unaudited) (Unaudited) US$ JPY JPY (Note3)
Revenue from third parties 3,560 396,694 533,909 Revenue from
related parties 644 71,746 9,069 Cost of revenue 1,823 203,157
156,006 Gross profit 2,381 265,283 377,903 Operating expenses:
Selling, general and administrative expense 1,442 160,597 147,345
Research and development -- -- 7,403 (Gain) loss on disposal of
property and equipment, net 18 2,058 (372) Expenses related to
litigation 64 7,113 12,839 Total operating expenses 1,524 169,768
167,215 (Loss) income from Operations 857 95,515 210,688 Other
income (expense) : Interest income, net 1 52 219 Foreign exchange
(loss) gain, net 2 235 62 Gain on sale of long-term investments --
-- -- Gain on sale of investment in an affiliate -- -- -- Expense
for litigation settlement -- -- -- Other, net (121) (13,466)
(11,654) Income before provisions for income taxes 739 82,336
199,315 Provisions for income taxes 3 302 950 Net income (loss) 736
82,034 198,365 US$ JPY JPY Net income (loss) per share - basic
71.70 7,989.29 20,221.68 - diluted -- -- 20,211.83 Shares used in
per share calculation- - basic 10,268 10,268 10,258 - diluted -- --
10,263 CRAYFISH CO., LTD. CONDENSED STATEMENTS OF INCOME (in
thousands, except per share data) Twelve months ended September 30,
2003 (Unaudited) 2002 (Audited) US$ JPY JPY (Note3) Revenue from
third parties 13,681 1,524,498 2,936,291 Revenue from related
parties 2,220 247,420 9,069 Cost of revenue 5,829 649,620 636,174
Gross profit 10,072 1,122,298 2,300,117 Operating expenses:
Selling, general and administrative expense 4,591 511,581 806,258
Research and development 4 500 51,031 (Gain) loss on disposal of
property and equipment, net 212 23,583 97,050 Expenses related to
litigation 215 23,908 23,845 Total operating expenses 5,022 559,572
978,184 (Loss) income from Operations 5,050 562,726 1,321,933 Other
income (expense) : Interest income, net 3 340 2,667 Foreign
exchange (loss) gain, net 2 235 (3,357) Gain on sale of long-term
investments -- -- 9,975 Gain on sale of investment in an affiliate
-- -- 32,646 Expense for litigation settlement (7,019) (782,081) --
Other, net (69) (7,768) (31,389) Income before provisions for
income taxes (2,033) (226,548) 1,332,475 Provisions for income
taxes 11 1,210 3,800 Net income (loss) (2,044) (227,758) 1,328,675
US$ JPY JPY Net income (loss) per share - basic (199.16)
(22,192.15) 130,460.70 - diluted (199.12) (22,187.82) 130,346.30
Shares used in per share calculation- - basic 10,263 10,263 10,254
- diluted 10,265 10,265 10,263 CRAYFISH CO., LTD. CONDENSED
STATEMENTS OF CASH FLOWS (in thousands) Twelve months ended
September 30, 2002 2003 (Unaudited) (Audited) US$ (NOTE 3) JPY JPY
Cash flows from operating activities: Net (loss) income (2,044)
(227,758) 1,337,744 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization 376
41,940 136,932 Loss on sale and disposal of property and equipment
212 23,583 97,050 Allowance for doubtful accounts 8 920 1,287 Gain
on sale of long-term investments -- -- (9,975) Gain on sale of
investment in an affiliate, net -- -- (32,646) Changes in operating
assets and liabilities: Accounts receivable (726) (80,860) (6,759)
Prepaid expenses and other current assets 84 9,309 322,318 Other
assets -- (1) 4,601 Accounts payable 874 97,404 (98,063)
Consumption tax payable (797) (88,819) 88,819 Deferred initial
contract fees (34) (3,753) (5,552) Accrued liabilities and other
current liabilities 95 10,570 (58,293) Net cash provided by
operating activities (1,952) (217,465) 1,777,463 Cash flows from
investing activities: Proceeds from sale of investment in an
affiliate -- -- 160,020 Proceeds from sale of property and
equipment 858 95,585 10,484 Proceeds from sale of investment in
equity securities -- -- 43,225 Payment for subscription of equity
stock (90) (10,000) -- Acquisition of property and equipment (41)
(4,622) (36,681) Deposits returned 243 27,092 26,255 Net cash
provided by investing activities 970 108,055 203,303 Cash flows
from financing activities: Principal payments on capital leases (1)
(150) (139) Proceeds from exercise of stock options 36 4,000 2,250
Cash distribution to shareholders with capital reduction (129,007)
(14,375,200) -- Net cash provided by (used in) financing activities
(128,972) (14,371,350) 2,111 Net (decrease) increase in cash and
cash equivalents (129,954) (14,480,760) 1,982,877 Cash and cash
equivalents at beginning of period 147,286 16,412,076 14,429,199
Cash and cash equivalents at end of period 17,332 1,931,316
16,412,076 Supplemental Cash Flows Information: Cash paid for: US$
JPY JPY Income taxes 33 3,653 531 Interest -- 10 21 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 the 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. All
restructuring activities under the Plan were completed and all
liabilities and costs incurred under the Plan were settled by
September 30, 2001 and, accordingly, shareholders at the regular
shareholders' meeting held on December 20, 2001 approved, pursuant
to the Commercial Code of Japan (the "Code"), elimination of the
accumulated deficit of JPY12,071,756 thousand as of September 30,
2001, as recorded in the statutory book of accounts, transferring
JPY12,071,576 thousand of additional paid-in capital ("APIC") and
JPY180 thousand of legal reserve. As a result, the entire
accumulated deficit as of October 1, 2001 recorded in the statutory
book kept under accounting principles generally accepted ("GAAP")
in Japan ("Japan GAAP") was eliminated. As a result of differences
between U.S. GAAP and Japan GAAP, the accumulated deficit under
U.S. GAAP as of September 30, 2001 was JPY584,637 thousand less
than that based on Japan GAAP, mainly due to the accounting for
stock issuance costs. Stock issuance costs are deducted from APIC
under U.S. GAAP whereas they are expensed as incurred under Japan
GAAP. Therefore, the transfer of APIC and legal reserve to the
accumulated deficit account resulted in retained earnings of
JPY584,637 thousand which will be carried forward under U. S. GAAP.
2. Summary of Significant Accounting Policies Basis of Presentation
The Company maintains its records and prepares its financial
statements in accordance with Japan GAAP. 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 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 income. Financial
Instruments Cash equivalents are highly liquid investments with
original maturities of three months or less as of the 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. Derivative
Financial Instruments Effective October 1, 2000, the Company
adopted Statement of Financial Accounting Standard ("SFAS") No.
133. In accordance with SFAS No 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. Derivative financial instruments
are, when necessary, utilized by the Company to manage risk
exposure to movements in foreign exchange rates. The Company does
not hold derivative financial instruments for trading purposes. The
Company has not entered into any derivative contracts since August
2000 and at September 30, 2002 and 2003, the Company had no
outstanding derivative contracts. 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. 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. 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. 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 Business
Concentration: As discussed above in "Nature of Operations" in Note
1, the Company previously had three main businesses generating
revenue and, currently, the Company concentrates its resources only
on its Deskwing hosting service. The Company has developing several
businesses such as computer software sales and marketing and
Internet advertising space business but most revenue for the forth
quarter and the year ended September 30, 2003 still came from the
Deskwing hosting service. Cash Concentration: At September 30,
2003, the Company maintains JPY2,131 million ($119,127 thousand) in
banks including a JPY200 million ($1,795 thousand) time deposit
with a maturity of greater than three months, which represented
68.5% of total assets of the Company. The Deposit Insurance
Corporation of Japan, a government agent, guarantees up to JPY10
million and its related unpaid interest, for time deposits starting
from April 1 2002 and for savings and checking accounts starting
from April 1, 2005, which was originally announced to be effective
April 1, 2003. Amounts in excess of this guaranteed amount are not
insured or guaranteed. Revenue recognition The Deskwing hosting
service is provided based on one-year contractual rates per
customer domain name 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 17
months. 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. 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 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. Advertising and promotional costs The Company
expenses advertising and promotional costs as they are incurred.
Computation of earnings per share The Company calculates earnings
per share in accordance with SFAS No.128, "Earnings Per Share".
Basic earnings per share is calculated by dividing net earnings
available to common shares by average common shares outstanding.
Diluted earnings per share is calculated similarly, except that it
includes the dilutive effect of the assumed exercise of securities,
including the effect of the shares issuable under the Company's
incentive plans when the Company earned net earnings. When the
Company incurs net losses, options and warrants are not included in
the computation of diluted earnings per share, as such options and
warrants would be considered antidilutive. The effect of the
assumed exercise of options and warrants that would have
potentially diluted basic income or loss per share for the three
months and the twelve months ended September 30, 2003 were none and
three 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 has had no amounts categorized as
other comprehensive income since its inception. 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 prior forth quarter
amounts in the financial statements have been reclassified to
confirm with the current fourth quarter presentation. These
reclassifications had no effect on reported earnings. 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 30, 2003, which was JPY 111.43 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. Litigation On and after September 8, 2000,
class actions were filed in the United States District Court for
the Southern District of New York against (i) the Company, (ii) its
CEO at the time, (iii) its underwriters Morgan Stanley Dean Witter,
Nomura Securities International Inc. and Merrill Lynch & Co.
and (iv) Hikari Tsushin, Inc. The complaints included allegations
that, during the course of its March 8, 2000 public offering of
American Depositary Shares, the Company violated U.S. securities
law by making inaccurate and misleading statements. The complaints
included related allegations against the other defendants based on
U.S. securities law. Eleven class actions were initially filed. On
September 26, 2001, the court entered an order consolidating all
eleven actions and appointed lead plaintiff and lead counsel for
the plaintiffs. On June 4, 2002, the court entered an order
appointing a new lead plaintiff and new lead counsel for the
plaintiffs. A consolidated amended class action complaint was
served and filed on July 19, 2002. The Company negotiated with the
plaintiffs and all parties have entered into a memorandum of
understanding regarding the settlement of the class actions,
subject to the execution of a final settlement agreement and
approval by the Court. The executed memorandum of understanding was
received by the Company from its litigation counsel on the morning
of June 7, 2003 (Japan Time). Pursuant to the memorandum of
understanding, defendants in the class actions, Crayfish, Hikari
Tsushin, Inc., and Isao Matsushima, the Company's CEO at the time
of the Company's public offering, have reached a settlement with
the plaintiffs to settle and discontinue all pending class actions
for (JPY782,081 thousand). This amount has been paid by the Company
into an escrow account for expected future payment. This settlement
will not become final until approved by the court after notice and
hearing by the Court. 5. Capital reduction with cash distribution
The shareholders, at an extraordinary shareholders' meeting held on
July 31, 2003, approved a distribution of cash to the Company'
shareholders in connection with reduction of common stock and
additional paid-in capital pursuant to Japanese Commercial Code. In
the light of factors including present conditions; the size of its
business at present or anticipated future, margin of safety and
operational efficiency, the Company has concluded that it has
excessive amount of funds in comparison with the appropriate level
for the size of its business. The total cash distribution was
JPY14,375,200 thousand ($129,007 thousand) and the reduction of
capital was effective on September 9, 2003. Amount to be reduced in
common stock and additional paid-in capital are JPY7,495,640
thousand ($67,268 thousand) and JPY6,879,560 thousand ($61,739
thousand), respectively, based on Japan GAAP. As discussed in note
1, APIC under Japan GAAP is different from that under U.S. GAAP.
Based on U.S. GAAP, amount to be reduced in common stock and
additional paid-in capital were JPY7,639,106 thousand ($68,556
thousand) and JPY6,736,094 thousand ($60,451 thousand),
respectively. 6. Subsequent event The Company listed American
Depositary Shares ("ADR") on Nasdaq on March 8, 2000. The Company
delists from Nasdaq effective on November 24, 2003 and terminates
its ADR program on the same day. DATASOURCE: Crayfish Co., Ltd.
CONTACT: Kazuhiko Muraki, Chief Executive Officer of Crayfish,
+81-3-5951-7192, Web Site: http://www.crayfish.co.jp/eng/ir.html
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