FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For November 21, 2003
Commission File Number: 0-30204
-------
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Jinbocho Mitsui Bldg. 1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo 101-0051, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F:
Form 20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the reg-istrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
mate-rial event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- _________________
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATMENT ON FORM F-3 (FILE NO.
333-12696) OF INTERNET INITIATIVE JAPAN INC. AND TO BE A PART THEREOF FROM THE
DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 11/21/2003 IIJ Announces Second Quarter Results for the Year
Ending March 31, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Internet Initiative Japan Inc.
Date: November 21, 2003 By: /s/ Koichi Suzuki
-------------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director
Exhibit 1
IIJ Announces Second Quarter Results for the Year Ending March 31, 2004
TOKYO & NEW YORK--(BUSINESS WIRE)--Nov. 20, 2003--Internet
Initiative Japan Inc. (Nasdaq:IIJIE) ("IIJ"), one of Japan's leading
Internet access and comprehensive network solutions providers, today
announced its financial results for the 2nd quarter of the fiscal year
ending March 31, 2004 ("Fiscal Year 2003").
Second Quarter FY2003 Highlights(1)
2nd Quarter FY2003:
-- Revenues totaled JPY 9,185 million ($ 82.4 million), an
increase of 10.1% from JPY 8,344 million in 1Q03, though a
decrease of 13.1% compared to 2Q02. The increase from 1Q03 is
mainly due to revenue increases from Systems Integration
("SI"), Data Center and other value-added services.
-- Operating loss was JPY 830 million ($ 7.4 million), a decrease
from 1,206 million in 1Q03 and an increase from JPY 194
million in 2Q02. The loss includes accounts receivable
write-offs of JPY 287 million that related to transactions
with Crosswave Communications Inc. ("Crosswave"), a former
equity method affiliate of IIJ. The improvement in operating
loss from 1Q03 was mainly due to increased SI profitability
and a reduction of domestic backbone costs.
-- Adjusted EBITDA(2)was JPY 126 million ($ 1.1 million), an
increase from the JPY 243 million adjusted EBITDA loss in
1Q03, though a decrease from JPY 662 million in 2Q02.
-- On August 20, Crosswave filed a voluntary petition for the
commencement of corporate reorganization proceedings in Japan.
IIJ has written-off all of its investments in, deposits for,
loans to and accounts receivable due from Crosswave regarding
the above through the end of this quarter. As a result of
Crosswave no longer being accounted for under the equity
method, the net loss decreased from JPY 2,326 million in 2Q02
to JPY 278 million in 2Q03. IIJ will not have further equity
loss from Crosswave, which in the past had a significant
negative impact on IIJ's financial statements.
-- IIJ completed an approximately JPY 12 billion private
placement to NTT Group, Itochu Corporation, Sumitomo
Corporation and three other companies on September 17, 2003.
With this capital injection, the financial impact due to
Crosswave's reorganization proceedings has been offset. As a
result, IIJ's shareholders' equity has become positive.
-- IIJ received notice from Nasdaq that IIJ's American Depositary
Shares will continue to be listed on the Nasdaq National
Market, subject to requirements that IIJ file its annual
report on Form 20-F for the fiscal year ending March 31, 2004
with the U.S. Securities and Exchange Commission and Nasdaq on
or before September 30, 2004, and the IIJ demonstrate
compliance with all requirements for continued listing on the
Nasdaq National Market throughout this period. The fifth
character "E" will remain appended to IIJ's trading symbol
pending confirmation that IIJ has evidenced full compliance
with Nasdaq's filling requirement and all other requirements
for continued listing on the Nasdaq Stock Market.
Outlook:
-- By improving gross-margins and expanding SI service revenues,
IIJ expects to reach a break-even level of operating income in
3Q03 and to achieve positive operating income in 4Q03. In
addition, IIJ expects an additional one-time increase in
"other income" of approximately JPY 1.6 billion in 3Q03 from
the sales of our shares of DLJdirectSFG Securities Inc. and
approximately JPY 120 million by repurchasing and canceling a
portion of IIJ's convertible notes that are due in 2005.
Overview of 2nd Quarter FY2003 Financial Results and Business
Outlook(3)
Financial Results and Business Outlook
"As Japan's economy is beginning to show indications that it is in
a recovery phase, there seems to be an environment where Japanese
corporate customers are considering investing in their networks," said
Koichi Suzuki, President and CEO of IIJ. "With the rapid changes in
corporate networks, as expansion of broadband and increasing
complexity, Japanese corporate customers are focusing more on in-house
networks including the gateway to Internet. For example, Japanese
companies are starting to use the latest network technology to connect
branch offices or other sites at higher speeds with lower cost,
increasing security on Internet traffic and outsourcing the operations
of network equipment and servers. We are currently changing our SI
development and business to meet those demands rapidly. We call this
"Network Integration". Our strategy in the coming quarters is to seek
new source of revenue by cross-selling these new solutions to meet the
requirements of our current connectivity customers".
Koichi Suzuki continued, "On September 17, we completed the
private placement to third parties to improve our capital structure,
and NTT Group became our largest shareholder holding 31.6%. While we
will retain our operating independence even after the private
placement, we are going to have a collaborative relationship with NTT
in the technological development and sales partnership".
"In 2Q03, revenues recovered compared to 1Q03, mainly driven by
sales of SI, Data Center Services and other value-added services",
said Yasuhiro Nishi, CFO of IIJ. "We have succeeded in acquiring new
customers for network integration services, and the revenue from these
cases will be accounted for in 3Q03. By continuing to expand in the
higher-margin SI area and cross-selling to customers as well as
reducing costs, we will keep on track for a recovery in profitability
and hopefully achieve positive operating income in the second half of
the year".
Yasuhiro Nishi also stated, "As for Crosswave's commencement of
reorganization proceedings, we have written off all investments in,
deposits for, loans to and accounts receivable due from Crosswave
regarding the above through this quarter. We believe that the private
placement on September 17 will cover the financial impact of
Crosswave's reorganization, and we will not have further equity losses
from Crosswave, which in the past had a significant negative impact on
IIJ's financial statements".
Recent Trends in Major Services and Contracts
As for connectivity services, there appears to be new demand for
broadband services such as using these services for access lines for
site connectivity utilizing Internet VPN technology. IIJ has already
acquired several customers for these services connecting over 100
sites. In addition to proposing bandwidth upgrades to existing
customers and approaching new customers, we expect these new demands
might help us to maintain current levels of revenue of connectivity
services, as well as related network integration and equipment sales.
Revenues for SI services benefited as IIJ won several network
integration customers from the manufacturing and financial sectors.
The major contents of the integration work was mail and web gateway
services that control outgoing and incoming e-mails and web access,
server housing in Data Centers and outsourcing of operation and
network consultation for disaster recovery. Also, we increased
revenues from equipment sales, such as database servers, web servers,
data storage and firewall equipment.
2nd Quarter FY2003 Financial Results
Revenues
Revenues in 2Q03 totaled JPY 9,185 million, a decrease of 13.1%
compared to 2Q02 and an increase of 10.1% from JPY 8,344 million in
1Q03.
Table 1. Revenues (JPY in millions)
----------------------------------------------------------------------
Revenues YoY QoQ
% %
2Q03 2Q02 change 1Q03 change
----------------------------------------------------------------------
Connectivity and value-added
services:
----------------------------------------------------------------------
Dedicated access services 3,236 3,546 (8.7%) 3,321 (2.6%)
----------------------------------------------------------------------
Dial-up access services 784 792 (1.0%) 768 2.1%
----------------------------------------------------------------------
Total Connectivity
Services 4,020 4,338 (7.3%) 4,089 (1.7%)
----------------------------------------------------------------------
Value-added services 1,081 893 21.0% 987 9.5%
----------------------------------------------------------------------
Other 536 468 14.6% 520 3.2%
----------------------------------------------------------------------
Total Connectivity and
value-added services 5,637 5,699 (1.1%) 5,596 0.7%
----------------------------------------------------------------------
Systems integration revenues 2,549 3,094 (17.6%) 2,408 5.9%
----------------------------------------------------------------------
Equipment sales 999 1,775 (43.7%) 340 193.2%
======================================================================
Total revenues 9,185 10,568 (13.1%) 8,344 10.1%
----------------------------------------------------------------------
Connectivity and value-added services revenues were JPY 5,637
million in 2Q03, a decrease of 1.1% compared to 2Q02, but an increase
of 0.7% compared to 1Q03.
Table 2. Connectivity Services (JPY in millions)
----------------------------------------------------------------------
Connectivity Services YoY QoQ
% %
2Q03 2Q02 change 1Q03 change
----------------------------------------------------------------------
Dedicated access services:
----------------------------------------------------------------------
IP Service + DC
(connectivity) 2,485 2,657 (6.5%) 2,534 (2.0%)
----------------------------------------------------------------------
Others(4) 751 889 (15.4%) 787 (4.5%)
----------------------------------------------------------------------
Total Dedicated Access Services 3,236 3,546 (8.7%) 3,321 (2.6%)
----------------------------------------------------------------------
Dedicated access services revenues were JPY 3,236 million in 2Q03,
a decrease of 8.7% compared to 2Q02 and a decrease of 2.6% compared to
1Q03. IP Service, including Data Center Connectivity services,
decreased by 6.5% in 2Q03 compared to 2Q02 and decreased by 2.0%
compared to 1Q03, mainly due to the decline of unit prices despite an
increase in the number of contracts. Customers continued to shift from
dedicated line-based connectivity services such as IIJ T1 Standard and
IIJ Economy, to lower-cost broadband services such as IIJ
FiberAccess/F service (Maximum 10-100Mbps), and the increase in IIJ
FiberAccess/F service did not offset the decrease in IIJ T1 Standard
and IIJ Economy.
Table 3. Number of Contracts
----------------------------------------------------------------------
2Q03 2Q02 1Q03
----------------------------------------------------------------------
IP Services 64kbps - 128kbps 79 111 90
----------------------------------------------------------------------
192kbps - 768kbps 23 30 26
----------------------------------------------------------------------
1Mbps - 2Mbps 226 266 239
----------------------------------------------------------------------
3Mbps - 1.2Gbps 336 205 294
----------------------------------------------------------------------
Number of Contracts of DC Connectivity
Services 184 129 171
----------------------------------------------------------------------
Other 5,402 3,568 5,056
======================================================================
Total Dedicated Access Services 6,250 4,309 5,876
----------------------------------------------------------------------
IIJ4U (Dial-up access services for retail
market) 72,560 84,432 76,209
----------------------------------------------------------------------
Other Dial-Up Access Services 563,086 309,950 515,363
======================================================================
Total Dial-Up Access Services 635,646 394,382 591,572
======================================================================
Dial-up access service revenues were JPY 784 million in 2Q03, a
decrease of 1.0% compared to 2Q02 and an increase of 2.1% compared to
1Q03. The revenue increased sequentially because of continued revenue
increases of OEM services including CDN platform and NTT's regional
L-mode service.
Table 4. Number of Contract Bandwidth (Unit: Gbps)
----------------------------------------------------------------------
2Q03 2Q02 1Q03
----------------------------------------------------------------------
Dedicated Access Services 51.6 18.0 41.1
----------------------------------------------------------------------
DC Connectivity Services 15.1 4.7 10.3
======================================================================
Total Contract Bandwidth 66.7 22.7 51.4
======================================================================
Value-added service revenues were JPY 1,081 million in 2Q03, an
increase of 21.0% compared to 2Q02 and an increase of 9.5% compared to
1Q03. These increases were mainly due to revenue increases from Data
Center services and security related services, including mail gateway
service.
Table 5. Value-added Services (JPY in millions)
----------------------------------------------------------------------
Value-Added Services YoY QoQ
% %
2Q03 2Q02 change 1Q03 change
----------------------------------------------------------------------
Internet Data Center services 371 371 0.0% 337 10.1%
----------------------------------------------------------------------
Other value-added services 710 522 36.0% 650 9.2%
======================================================================
Total Value-Added Service Revenues 1,081 893 21.0% 987 9.5%
----------------------------------------------------------------------
Systems integration services revenues decreased 17.6% to JPY 2,549
million in 2Q03 compared to 2Q02 but recovered 5.9% compared to 1Q03
due to increase of new network integration contracts.
Equipment sales revenues were JPY 999 million in 2Q03, a decrease
of 43.7% compared to 2Q02 but an increase of 193.2% compared to 1Q03.
Cost and expenses
Cost of total revenues was JPY 8,337 million in 2Q03, a decrease
of 11.4% compared to 2Q02, and an increase of 6.0% compared to 1Q03.
Table 6. Costs and Expenses (JPY in millions)
----------------------------------------------------------------------
Costs and expenses: YoY QoQ
% %
2Q03 2Q02 change 1Q03 change
----------------------------------------------------------------------
Cost of Revenues:
----------------------------------------------------------------------
Cost of connectivity and
value-added services 5,127 5,081 0.9% 5,234 (2.1%)
----------------------------------------------------------------------
Cost of systems integration 2,275 2,682 (15.1%) 2,324 (2.1%)
----------------------------------------------------------------------
Cost of equipment sales 935 1,648 (43.3%) 311 200.6%
----------------------------------------------------------------------
Total of Cost of Revenues 8,337 9,411 (11.4%) 7,869 6.0%
----------------------------------------------------------------------
Sales and marketing 1,100 743 47.9% 973 13.0%
----------------------------------------------------------------------
General and administrative 482 514 (6.2%) 612 (21.2%)
----------------------------------------------------------------------
Research and development 96 94 2.7% 96 0.0%
======================================================================
Total costs and expenses 10,015 10,762 (6.9%) 9,550 4.9%
----------------------------------------------------------------------
Cost of connectivity and value-added services was JPY 5,127
million, an increase of 0.9% compared to 2Q02 and a decrease of 2.1%
compared to 1Q03. The gross margin ratio for connectivity and
value-added services in 2Q03 was 9.1%, compared to 10.8% in 2Q02 and
6.5% in 1Q03. The improvement of the gross margin ratio compared to
1Q03 was as a result of our effort for overall cost reduction such as
backbone costs, the expense for network nodes and office rent
expenses.
International backbone costs were JPY 247 million, a decrease of
44.8% compared to 2Q02 and a decrease of 5.2% compared to 1Q03. The
monthly unit backbone costs per Mbps declined by 61% compared to 2Q02
and by 29% compared to 1Q03.
Table 7. Backbone Costs (JPY in millions)
----------------------------------------------------------------------
Backbone Costs YoY QoQ
% %
2Q03 2Q02 Change 1Q03 Change
----------------------------------------------------------------------
International Backbone Costs 247 448 (44.8%) 261 (5.2%)
----------------------------------------------------------------------
Domestic Backbone Costs 993 815 21.9% 1,057 (6.0%)
----------------------------------------------------------------------
Domestic backbone costs were JPY 993 million, an increase of 21.9%
compared to 2Q02 and a decrease of 6.0% compared to 1Q03. The
year-over-year increase was due to an increase in connection fees with
NTT's regional access networks (FLET'S), along with our broadband
strategy to strengthen our backbone network to provide various
broadband network services and solutions nationwide.
Cost of SI Revenues was JPY 2,275 million in 2Q03, a decrease of
15.1% compared to 2Q02 and a decrease of 2.1% compared to 1Q03. The
gross margin for SI deteriorated to 10.7% in 2Q03 compared to 13.3% in
2Q02 but improved from 3.5% in 1Q03. The gross margin ratio in 2Q03
improved compared to 1Q03 because of improvement of profitability in
SI development contracts.
Sales and Marketing Expenses were JPY 1,100 million in 2Q03, an
increase of 47.9% compared to 2Q02 and an increase of 13.0% compared
to 1Q03. The 2Q03 expenses include the written-off accounts receivable
due from Crosswave, which amounted to JPY 287 million.
General and administrative expenses were JPY 482 million in 2Q03,
a decrease of 6.2% compared to 2Q02 and a decrease of 21.2% compared
to 1Q03. The 1Q03 expenses included the cost of the move to new
headquarters.
Operating loss
Operating loss increased to JPY 830 million in 2Q03 compared to a
loss of JPY 194 million in 2Q02. The increase is primarily due to the
write-off of accounts receivable from Crosswave and a decrease in
connectivity service revenues. The operating loss in 2Q03 declined
compared to a loss of JPY 1,206 million in 1Q03, due to improved
profitability in IIJ's SI business.
Other expenses for 2Q03 were JPY 157 million, compared to JPY 160
million in 2Q02 and JPY 204 million in 1Q03. IIJ recorded a gain on
sales of available-for-securities, which amounted to JPY 47 million in
2Q03.
Income tax benefit (expense) for 2Q03 was a benefit of JPY 572
million, compared to an expense of JPY 515 million in 2Q02 and a
benefit of JPY 390 million in 1Q03. This is due to a decrease in the
valuation allowance for deferred tax assets attributable primarily to
the income tax effect of increasing unrealized gains during the
quarter on certain available-for-sale securities.
Equity in net loss of equity method investees amounted to JPY 50
million in 2Q03, compared to JPY 1,480 million in 2Q02, and JPY 1,709
million in 1Q03. The equity in net loss of Crosswave is included in
the equity in net loss of equity method investees in 1Q03 and 2Q02,
but not included in 2Q03.
Net loss was JPY 278 million in 2Q03, compared to JPY 2,326
million in 2Q02 and JPY 2,475 million in 1Q03. The decreases in net
loss was a result of the increasing income tax benefit reflecting the
increasing unrealized gains on available-for-sale securities and the
absence of equity method loss in Crosswave due to the full write-down
of IIJ's equity investment in Crosswave. Basic net loss per ADS
equivalent was JPY -5.04 in 2Q03, compared to JPY -51.74 in 2Q02 and
JPY -54.72 in 1Q03.
Table 8. Other Financial Statistics (JPY in millions)
----------------------------------------------------------------------
YoY
% QoQ
Other Financial Statistics 2Q03 2Q02 Change 1Q03 % Change
----------------------------------------------------------------------
Adjusted EBITDA(5) 126 662 81.0% (243) (152.0%)
----------------------------------------------------------------------
CAPEX, including capitalized
leases(6) 579 1,504 (61.5%) 1,421 (59.2%)
----------------------------------------------------------------------
Depreciation and amortization(7) 984 884 11.3% 990 (0.7%)
======================================================================
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to net loss per the consolidated statements of operations
prepared and presented in accordance with U.S. generally accepted
accounting principles in Appendices 1:
Table 9. Adjusted EBITDA (JPY in millions)
----------------------------------------------------------------------
2Q03 2Q02 1Q03
----------------------------------------------------------------------
Adjusted EBITDA 126 662 (243)
----------------------------------------------------------------------
Depreciation and amortization(8) (956) (856) (963)
----------------------------------------------------------------------
Operating loss (830) (194) (1,206)
======================================================================
Other expenses (157) (160) (204)
----------------------------------------------------------------------
Income tax expense (benefit) (572) 515 (390)
----------------------------------------------------------------------
Minority interests in consolidated subsidiaries 187 23 254
----------------------------------------------------------------------
Equity in net loss of equity method investees (50) (1,480) (1,709)
======================================================================
Net loss (278) (2,326) (2,475)
----------------------------------------------------------------------
The following table summarizes the reconciliation of capital
expenditures to purchase of property and equipment per the
consolidated statements of cash flows prepared and presented in
accordance with the U.S. generally accepted accounting principles in
Appendices 3:
Table 10. CAPEX (JPY in millions)
----------------------------------------------------------------------
2Q03 2Q02 1Q03
----------------------------------------------------------------------
Capital expenditures 579 1,504 1,421
----------------------------------------------------------------------
Acquisition of assets by entering into capital
leases 431 1,282 487
----------------------------------------------------------------------
Purchase of property and equipment 148 222 934
----------------------------------------------------------------------
2nd Quarter FY2003 Business Review
Service Development
Outsourcing Solutions: Under IIJ Technology, the IIJ Group further
expanded its Integration & Business Platform Service (IBPS) product
line. IBPS is a service offered to corporate customers which allows
them to combine ready-made network service components with
integration. These components include network equipment, controlling
functions of outgoing and incoming Internet traffic (virus check,
auditing and archiving e-mails and controlling web-access), data
storage, operational resources, etc. By providing these components on
demand at the Group's data centers and allowing customers to use these
network components without having to purchase them, IIJ's corporate
customers can launch the network systems more smoothly and cost
effectively. In October 2003, IIJ Technology started to provide over
40 terabyte storage service.
Network Management Solutions: In 2Q03, we began "IIJ
NetLightning", based on Netli, Inc's technology which improves web
application performance. By using IIJ NetLightning, end users can more
quickly access to customer websites and customers can reduce the cost
to set up mirror sites.
Also in June 2003, IIJ launched IIJ SMF (SEIL Management
Framework), a service which provides remote configuration and
monitoring features for IIJ's high-end SEIL/neu Series routers at
customer remote sites from central management servers at IIJ and
customer main office/data center. SMF, the technology used for this
service is patent pending.
Hosting Services: In 2Q03, we began "IIJ Document Exchange
Service" for medium and small-sized corporate customers. This service
allows the creation of virtual folders on Internet, and customers to
share files with workers outside the office or with commercial
partners.
Network Infrastructure Development and Optimization
In 2Q03, IIJ increased the capacity of ten of its domestic
backbone network lines and also established two new lines. IIJ also
increased the capacity of three U.S. backbone network lines and
established one additional U.S. backbone network line to maintain
current throughput and quality. At the same time, from a cost point of
view, IIJ is now trying to optimize the network in accordance with the
number of customers connected to the network nodes, and has ceased the
operations of several network nodes for dedicated line-based Internet
connectivity services.
Finance
Financial Impact of Crosswave's Commencement of Reorganization
Proceedings:
On August 20, Crosswave filed a voluntary petition for the
commencement of corporate reorganization. In light of Crosswave's
reorganization, IIJ has fully written-off the accounts receivable due
from Crosswave prior to entering corporate reorganization, amounting
to JPY 287 million in 2Q03. As a result, IIJ has fully written-off the
remaining value of its investment in and deposits for, loans to and
accounts receivable due from Crosswave through the end of this
quarter.
Capital Improvement Plan:
On September 17, 2003, IIJ completed a private placement to NTT
Group, Itochu Corporation, Sumitomo Corporation and three other
companies for a total amount of approximately JPY 12 billion. With
this capital injection, the financial impact of Crosswave's
commencement of reorganization has been offset and IIJ's shareholders'
equity has turned positive.
Key Developments of the IIJ Group
IP*VLAN
In November 2003, IIJ developed and announced a new technology
called, IP*VLAN (Internet Protocol-Virtual Local Area Network). This
technology is for the construction and management of layer 2 networks
over existing IP networks (layer 3) for Internet or corporate users.
It enables PCs and other client devices to connect to the same LAN,
regardless of distances between offices, and it enables access control
for all services without requiring client certification (patent
pending).
Teleconference/Webcast
On November 21 at 9:00 am (EST), IIJ will host a conference call
to discuss the results and the Company's outlook. There will be a
simultaneous webcast available at www.vcall.com. A replay will also be
available at the same URL.
Company Information
Founded in 1992, Internet Initiative Japan Inc. (IIJ,
NASDAQ:IIJIE) is Japan's leading Internet-access and comprehensive
network solutions provider. The company has built one of the largest
Internet backbone networks in Japan, and between Japan and the United
States. IIJ and its group of companies provide total network solutions
that mainly cater to high-end corporate customers. Services range from
the delivery of new generation network services over an optical-fiber
infrastructure that is optimized for data communications, to the
construction of pan-Asian IP backbone networks. The company also
offers high-quality systems integration and security services,
internet access, hosting/housing, and content design.
Statements made in this press release regarding IIJ's or
management's intentions, beliefs, expectations, or predictions for the
future are forward-looking statements that are based on IIJ's and
managements' current expectations, assumptions, estimates and
projections about its business and the industry. These forward-looking
statements, such as statements regarding 3Q03 total revenues and
operating profitability, are subject to various risks, uncertainties
and other factors that could cause IIJ's actual results to differ
materially from those contained in any forward-looking statement.
These risks, uncertainties and other factors include: IIJ's
expectation that net losses will continue or may increase; IIJ's
ability to raise additional capital to cover its accumulated deficit;
IIJ's ability to continue to increase subscribers to its connectivity
services, particularly at higher bandwidths; IIJ's ability to generate
significant revenues from its other services such as systems
integration; the ability to compete in a rapidly evolving and
competitive marketplace; the impact of technological changes in its
industry; and other risks referred to from time to time in IIJ's
filings on Form 20F of its annual report and other filings with the
United States Securities and Exchange Commission.
Tables to follow
(1) Unless otherwise stated, all financial figures discussed in
this announcement are prepared in accordance with U.S. GAAP.
All financial figures are unaudited, consolidated, and
represent comparisons between the three-month period ended
September 300, 2003, and the equivalent three-month period
ended September 30, 2002. For all 2Q03 results, translations
of Japanese yen amounts into US dollars are solely for the
convenience of readers outside of Japan and have been made at
the rate of JPY111.43 = US$1., the approximate exchange rate
on September 30, 2003.
(2) Please refer to the Reconciliation of Non-GAAP Financial
Measures on page 6.
(3) This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding 3Q03
total revenues and operating profitability that are subject to
known and unknown risks and uncertainties that could cause
actual results to differ materially from those expressed or
implied by these statements. These risks and uncertainties
include, but are not limited to, the factors noted at the end
of this release and to the risk factors and other information
contained in IIJ's filings on Form 20-F and Form 6-K, as well
as other filings and documents furnished to the Securities and
Exchange Commission. IIJ plans to keep this press release
publicly available on its Web site (www.iij.ad.jp), but may
discontinue this practice at any time. IIJ intends to publish
its next Overview and Business Outlook in its 3Q03 earnings
release, presently scheduled for February 12, 2004.
(4) Others are IIJ FiberAccess/F service, IIJ Ether Standard, IIJ
DSL/F service, IIJ T1 Standard and IIJ Economy.
(5) Please refer to the Reconciliation of Non-GAAP Financial
Measures on this page.
(6) Please refer to the Reconciliation of Non-GAAP Financial
Measures on this page.
(7) Depreciation and amortization includes amortization of
issuance cost of convertible notes.
(8) Depreciation and amortization excludes amortization of
issuance cost of convertible notes that was presented as other
expenses.
Appendix 1
INTERNET INITIATIVE JAPAN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
For the Three Months Ended Sept 30, 2003, Sept 30, 2002
and Jun 30, 2003
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Sept 30, 2003 Sept 30, 2002
-------------------------- -------------------------
% of % of
Total Total YOY
USD (1) JPY Revenues JPY Revenues Chg %
------- --------- -------- --------- -------- ------
Revenues:
Connectivity
and value-
added
services:
Dedicated
access
services 29,044 3,236,405 35.2% 3,546,372 33.6% (8.7%)
Dial-up
access
services 7,032 783,589 8.5 791,738 7.5 (1.0)
Value-added
services 9,700 1,080,876 11.8 893,135 8.4 21.0
Other 4,814 536,389 5.9 467,976 4.4 14.6
------- --------- -------- --------- -------- ------
Total
connectivity
and value-
added
services 50,590 5,637,259 61.4 5,699,221 53.9 (1.1)
Systems
integration
revenues 22,879 2,549,379 27.7 3,094,168 29.3 (17.6)
Equipment
sales 8,962 998,621 10.9 1,774,953 16.8 (43.7)
------- --------- -------- --------- -------- ------
Total
revenues 82,431 9,185,259 100.0 10,568,342 100.0 (13.1)
------- --------- -------- --------- -------- ------
Costs and
expenses:
Cost of
connectivity
and value-
added
services 46,008 5,126,708 55.8 5,081,186 48.1 0.9
Cost of
systems
integration
revenues 20,423 2,275,704 24.8 2,681,946 25.3 (15.1)
Cost of
equipment
sales 8,388 934,711 10.2 1,648,106 15.6 (43.3)
------- --------- -------- --------- -------- ------
Total
costs 74,819 8,337,123 90.8 9,411,238 89.0 (11.4)
Sales and
marketing 9,868 1,099,560 12.0 743,230 7.0 47.9
General and
administrative 4,327 482,218 5.2 514,082 4.9 (6.2)
Research and
development 863 96,118 1.0 93,574 0.9 2.7
------- --------- -------- --------- -------- ------
Total costs
and
expenses 89,877 10,015,019 109.0 10,762,124 101.8 (6.9)
------- --------- -------- --------- -------- ------
Operating loss (7,446) (829,760) (9.0) (193,782) (1.8) 328.2
------- --------- -------- --------- -------- ------
Other expenses (1,412) (157,294) (1.7) (160,247) (1.5) (1.8)
------- --------- -------- --------- -------- ------
Loss before income
tax expense
(benefit) (8,858) (987,054) (10.7) (354,029) (3.3) 178.8
------- --------- -------- --------- -------- ------
Income tax
expense(benefit) (5,130) (571,642) (6.2) 514,872 4.9 (211.0)
Minority interests
in consolidated
subsidiaries 1,677 186,931 2.0 23,146 0.2 707.6
Equity in net loss
of equity method
investees:
Equity method
net income
(loss) (448) (49,945) (0.5)(1,480,411) (14.0) (96.6)
Impairment loss
on investment
in and advances
to Crosswave
------- --------- -------- --------- -------- ------
Net loss (2,499) (278,426) (3.0%)(2,326,166) (22.0%)(88.0%)
======= ========= ======== ========= ======== ======
Basic Net Loss Per
Share (10,082) (103,477)
Basic Net Loss Per
ADS Equivalent (5.04) (51.74)
Weighted Average
Number of Shares 27,617 22,480
Weighted Average
Number of ADS
Equivalents 55,233,050 44,960,000
Sequential Comparison
Jun 30, 2003
--------------------------
% of
Total QOQ
JPY Revenues Chg %
---------- -------- ------
Revenues:
Connectivity and value-added services:
Dedicated access services 3,321,229 39.8% (2.6%)
Dial-up access services 767,418 9.2 2.1
Value-added services 987,198 11.9 9.5
Other 519,709 6.2 3.2
---------- -------- ------
Total connectivity and value-
added services 5,595,554 67.1 0.7
Systems integration revenues 2,407,923 28.8 5.9
Equipment sales 340,569 4.1 193.2
---------- -------- ------
Total revenues 8,344,046 100.0 10.1
---------- -------- ------
Costs and expenses:
Cost of connectivity and value-added
services 5,234,158 62.7 (2.1)
Cost of systems integration revenues 2,323,392 27.9 (2.1)
Cost of equipment sales 310,946 3.7 200.6
---------- -------- ------
Total costs 7,868,496 94.3 6.0
Sales and marketing 973,054 11.7 13.0
General and administrative 612,047 7.3 (21.2)
Research and development 96,098 1.2 0.0
---------- -------- ------
Total costs
and expenses 9,549,695 114.5 4.9
---------- -------- ------
Operating loss (1,205,649) (14.5) (31.2)
---------- -------- ------
Other expenses (204,398) (2.4) (23.0)
---------- -------- ------
Loss before income tax expense(benefit) (1,410,047) (16.9) (30.0)
---------- -------- ------
Income tax expense(benefit) (390,035) (4.7) 46.6
Minority interests in consolidated
subsidiaries 254,886 3.0 (26.7)
Equity in net loss of equity method
investees:
Equity method net income(loss) 10,559 0.1 (573.0)
Impairment loss on investment in and
advances to Crosswave (1,719,981) (20.6)(100.0)
---------- -------- ------
Net loss (2,474,548) (29.7%)(88.7%)
========== ======== ======
Basic Net Loss Per Share (109,440)
Basic Net Loss Per ADS Equivalent (54.72)
Weighted Average Number of Shares 22,611
Weighted Average Number of ADS Equivalents 45,222,494
Note (1):The translation of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2003
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY 111.43 =$1, the
approximate rate of exchange on Sept 30, 2003.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
CONSOLIDATED BALANCE SHEETS(UNAUDITED)
As of Sept 30, 2003, Sept 30,2002 and Jun 30, 2003
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sept 30, 2003
-------------------------------
USD (1) JPY %
-------------------------------
ASSETS
------
Current Assets:
Cash and cash equivalent 105,743 11,782,935 30.7%
Accounts receivable, net 60,366 6,726,563 17.5
Inventories 2,410 268,519 0.7
Prepaid expenses 5,871 654,269 1.7
Other current assets 4,168 464,418 1.2
-------------------------------
Total current assets 178,558 19,896,704 51.8
Investments in and Advances to Equity
Method Investees 9,926 1,106,062 2.9
Other Investments 49,476 5,513,137 14.3
Property and Equipment, net 81,744 9,108,783 23.7
Restricted Cash
Guarantee Deposits 18,673 2,080,764 5.4
Other Assets 6,539 728,580 1.9
-------------------------------
Total assets 344,916 38,434,030 100.0%
===============================
LIABILITIES AND SHAREHOLDERS'
EQUITY (CAPITAL DEFICIENCY)
-----------------------------
Current Liabilities:
Short-term borrowings 38,633 4,304,906 11.2%
Accounts payable 43,582 4,856,325 12.6
Accrued expenses 4,393 489,568 1.3
Other current liabilities 3,685 410,577 1.1
Long-term borrowings-current portion 26,442 2,946,377 7.7
Capital lease obligations-current
portion 23,230 2,588,505 6.7
-------------------------------
Total current liabilities 139,965 15,596,258 40.6
Long-term Borrowings 17,793 1,982,612 5.2
Convertible Notes 134,614 15,000,000 39.0
Capital Lease Obligations-Noncurrent 28,700 3,198,073 8.3
Accrued Retirement and Pension Costs 626 69,794 0.2
Other Noncurrent Liabilities 1,732 193,043 0.5
-------------------------------
Total liabilities 323,430 36,039,780 93.8
-------------------------------
Minority Interest 3,928 437,678 1.1
-------------------------------
Shareholders' Equity(Capital
Deficiency):
Common stock(2) 123,534 13,765,372 35.8
Additional paid-in capital(2) 212,130 23,637,628 61.5
Accumulated deficit (335,980)(37,438,265)(97.4)
Accumulated other comprehensive income 17,875 1,991,900 5.2
Treasury stock (1) (63) 0.0
-------------------------------
Total shareholders'
equity(capital deficiency) 17,558 1,956,572 5.1
Total liabilities and --------------------------------
shareholders' equity(capital
deficiency) 344,916 38,434,030 100.0%
================================
Sept. 30, 2002 Jun 30, 2002
JPY % JPY %
-------------------------------------
ASSETS
------
Current Assets:
Cash and cash equivalent 4,772,753 12.2% 2,819,007 10.2%
Accounts receivable, net 7,844,256 20.1 5,889,315 21.3
Inventories 415,771 1.1 347,971 1.3
Prepaid expenses 498,668 1.3 845,908 3.1
Other current assets 141,923 0.3 534,025 1.9
-------------------------------------
Total current assets 13,673,371 35.0 10,436,226 37.8
Investments in and Advances
to Equity Method Investees 5,896,219 15.1 1,141,728 4.1
Other Investments 3,751,532 9.6 3,967,719 14.4
Property and Equipment, net 8,617,873 22.1 9,244,442 33.5
Restricted Cash 5,000,000 12.8
Guarantee Deposits 1,392,519 3.6 2,082,118 7.6
Other Assets 706,828 1.8 714,367 2.6
-------------------------------------
Total assets 39,038,342 100.0% 27,586,600 100.0%
=====================================
LIABILITIES AND SHAREHOLDERS'
EQUITY (CAPITAL DEFICIENCY)
-----------------------------
Current Liabilities:
Short-term borrowings 4,832,286 12.4% 5,675,341 20.6%
Accounts payable 5,131,068 13.1 4,406,928 16.0
Accrued expenses 271,557 0.7 537,236 1.9
Other current liabilities 442,564 1.1 542,538 1.9
Long-term borrowings-
current portion 1,400,000 3.6 1,545,452 5.6
Capital lease obligations-
current portion 2,271,145 5.8 2,677,038 9.7
-----------------------------------------
Total current liabilities 14,348,620 36.7 15,384,533 55.7
Long-term Borrowings 3,400,000 8.7 3,419,555 12.4
Convertible Notes 15,000,000 38.4 15,000,000 54.4
Capital Lease Obligations-
Noncurrent 3,250,922 8.4 3,407,735 12.3
Accrued Retirement and
Pension Costs 83,058 0.2 74,764 0.3
Other Noncurrent
Liabilities 153,993 0.4 187,579 0.7
-------------------------------------------
Total liabilities 36,236,593 92.8 37,474,166 135.8
-------------------------------------------
Minority Interest 942,650 2.4 624,609 2.3
-------------------------------------------
Shareholders' Equity(Capital
Deficiency):
Common stock(2) 7,082,336 18.1 7,765,048 28.2
Additional paid-in capital(2) 17,068,353 43.7 17,751,065 64.3
Accumulated deficit (23,129,652)(59.2)(37,159,839)(134.7)
Accumulated other
comprehensive income 838,062 2.2 1,131,644 4.1
Treasury stock (93) 0.0
-------------------------------------------
Total shareholders'
equity(capital
deficiency) 1,859,099 4.8 (10,512,175) (38.1)
-------------------------------------------
Total liabilities and
shareholders' equity
(capital deficiency) 39,038,342 100.0% 27,586,600 100.0%
====================================
Note (1): The translation of Japanese yen amounts into US dollar
amounts with respect to Sept 30, 2003 are included solely for
the convenience of readers outside Japan and have been made at
the rate of JPY111.43 =$1, the approximate rate of exchange on
Sept 30, 2003.
Note (2): New 12,615 shares have been issued on Sept 17, 2003, in
the net proceeds of JPY11,886,887.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended Sept 30, 2003, Sept 30, 2002
and Jun 30, 2003
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sept 30, Jun 30,
Sept 30, 2003 2002 2003
-------------------- ----------- -----------
USD (1) JPY JPY JPY
-------- ----------- ----------- -----------
Operating Activities:
Net loss (2,499) (278,426) (2,326,166) (2,474,548)
Depreciation and
amortization 8,828 983,736 883,732 990,190
Provision for
doubtful
accounts 2,818 313,968 (5,048) 149,378
Equity method net
loss (income) 448 49,945 1,480,411 (10,559)
Impairment loss
on investment in
and advances to
Crosswave - - - 1,719,981
Minority
interests in net
loss of
consolidated
subsidiaries (1,677) (186,931) (23,146) (254,886)
Foreign exchange
losses (gains) 30 3,282 (39,060) 3,245
Losses on other
investments 875 97,530 13,620 37,572
Decrease
(increase) in
accounts
receivable (9,878) (1,100,671) (972,056) 4,229,010
Increase
(decrease) in
accounts payable 1,941 216,306 7,462 (3,671,049)
Decrease
(increase) in
inventories 650 72,432 (142,950) 69,689
Deferred income
taxes (5,182) (577,444) 509,228 (395,698)
Other (1,078) (120,151) (3,003) 264,043
-------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities (4,724) (526,424) (616,976) 656,368
-------- ----------- ----------- -----------
Investing Activities:
Purchase of
property and
equipment (1,328) (148,007) (222,308) (933,646)
Proceeds from
sales of other
investment 1,101 122,650 480 34,672
Investments in
and advances to
equity method
investees - - - (1,719,981)
Purchase of other
investments (2,733) (304,517) (33,294) (12,971)
Refund (payment)
of guarantee
deposits-net 11 1,199 (87,518) 123,632
Other 88 9,875 2,473 11
-------- ----------- ----------- -----------
Net cash used in
investing
activities (2,861) (318,800) (340,167) (2,508,283)
-------- ----------- ----------- -----------
Financing Activities:
Repayments of
long-term
borrowings (323) (36,017) - (434,994)
Principal
payments under
capital leases (6,025) (671,376) (601,144) (697,830)
Net increase
(decrease) in
short-term
borrowings (12,299) (1,370,436) 282,164 851,742
Proceeds from
issuance of
common stock 106,676 11,886,887 - 1,365,424
-------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities 88,029 9,809,058 (318,980) 1,084,342
-------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash 1 94 34,183 (1,772)
-------- ----------- ----------- -----------
Net Increase (Decrease)
in Cash 80,445 8,963,928 (1,241,940) (769,345)
-------- ----------- ----------- -----------
Cash, Beginning of Period 25,298 2,819,007 6,014,693 3,588,352
-------- ----------- ----------- -----------
Cash, End of Period 105,743 11,782,935 4,772,753 2,819,007
======== =========== =========== ===========
Note (1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2003
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY111.43 =$1, the
approximate rate of exchange on Sept 30, 2003.
CONTACT: Internet Initiative Japan Inc.
Taisuke Ono or Hiroaki Tsuno, +81-3-5259-6500
ir@iij.ad.jp