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 February 12, 2004
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DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY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 2/12/2004 IIJ Announces Positive Quarterly Operating and Net
Income for Third 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: February 12, 2004 /s/ Koichi Suzuki
______________________________________
Koichi Suzuki
President, Chief Executive Officer and
Representative Director
Exhibit 1
IIJ Announces Positive Quarterly Operating and Net Income for
Third Quarter Results for the Year Ending March 31, 2004
NEW YORK--(BUSINESS WIRE)--Feb. 11, 2004--TOKYO, Feb. 12, 2004--
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 3rd quarter
of the fiscal year ending March 31, 2004 ("fiscal 2003").
Third Quarter 2003 Highlights(1)
3rd Quarter 2003:
-- IIJ recorded positive quarterly operating income for the first
time since 4Q01; and net income for the first time since its
Initial Public Offering ("IPO") in August 1999.
-- Revenues totaled JPY 9,633 million ($ 89.9 million), an
increase of 4.9% from JPY 9,185 million in 2Q03, though a
decrease of 8.8% compared to 3Q02. The increase from 2Q03 is
mainly due to increased revenues from SI and value-added
services.
-- Operating income was JPY 236 million ($ 2.2 million), a
significant improvement from the operating losses of 830
million in 2Q03 and JPY 567 million in 3Q02. This was mainly
due to increased SI profitability and reduced backbone costs.
-- Adjusted EBITDA(2) was JPY 1,218 million ($ 11.4 million), an
increase from an adjusted EBITDA of JPY 126 million in 2Q03
and JPY 349 million in 3Q02.
-- Income before income tax was JPY 1,806 million ($ 16.9
million), a substantial improvement from the loss before tax
of JPY 987 million in 2Q03. The improvement was primarily a
result of positive operating income of JPY 236 million, an
extraordinary gain of JPY 1,572 million that was generated by
the sale in the Company's stake in DLJdirect SFG Securities
Inc. ("DLJdirect SFG Securities") and a gain of JPY 89 million
that came from repurchasing and canceling a portion of IIJ's
convertible notes that are due in 2005.
-- Net income was JPY 1,979 million ($ 18.5 million), a marked
improvement from the net losses of JPY 278 million in 2Q03 and
JPY 2,266 million in 3Q02.
-- IIJ expects quarterly operating income in 4Q03 to remain
positive as a result of its efforts to increase the revenues
of high margin services and further reduce costs.
Overview of 3rd Quarter FY2003 Financial Results and Business
Outlook(3)
Financial Results and Business Outlook
"3Q03 was quite remarkable for us," said Koichi Suzuki, President
and CEO of IIJ. "We achieved both positive quarterly operating income
for the first time since 4Q01 and positive quarterly net income for
the first time since our IPO. Our breakthrough to profitability was
the result of our successful efforts at cutting costs while increasing
revenues from our more profitable services. Though the competition in
the Japanese market is still severe, we plan to capitalize on our
industry leading skills to continue to increase revenues and seek
higher profitability on a continuous basis by actively providing and
developing services that meet the demands of corporate customers for
advanced network solutions. We are receiving many sales leads,
particularly in our Network Integration business which we expect to
become one of the main drivers of our future growth."
"In this quarter, we were particularly successful at reducing our
backbone costs which contributed to improved connectivity service
profitability," said Yasuhiro Nishi, CFO of IIJ. "In our SI business,
revenue from operational outsourcing services increased steadily and
contributed to improved operating income. Operating income would have
turned positive even without the recovery related to a previously
reserved accounts receivable of Crosswave Communications Inc.,
formerly written-off but now became collectible. Net income turned
positive as a result of operating income turning positive and the
approximately JPY 1.6 billion of gain on the sale of shares of
DLJdirect SFG Securities. We expect operating income to remain
positive during 4Q03."
3rd Quarter FY2003 Financial Results
Revenues
Revenues in 3Q03 totaled JPY 9,633 million, a decrease of 8.8%
from JPY 10,564 million in 3Q02 and an increase of 4.9% from JPY 9,185
million in 2Q03.
Table 1. Revenues (JPY in millions)
----------------------------------------------------------------------
Revenues 3Q03 3Q02 YoY 2Q03 QoQ
% %
change change
----------------------------------------------------------------------
Connectivity and value-added
services:
----------------------------------------------------------------------
Dedicated access services 3,204 3,404 (5.9%) 3,236 (1.0%)
----------------------------------------------------------------------
Dial-up access services 780 776 0.4% 784 (0.5%)
----------------------------------------------------------------------
Total Connectivity Services 3,984 4,180 (4.7%) 4,020 (0.9%)
----------------------------------------------------------------------
Value-added services 1,125 913 23.2% 1,081 4.0%
----------------------------------------------------------------------
Other 525 468 12.3% 536 (2.1%)
----------------------------------------------------------------------
Total Connectivity and value-added
services 5,633 5,561 1.3% 5,637 (0.1%)
----------------------------------------------------------------------
Systems integration revenues 2,889 3,684 (21.6%) 2,549 13.3%
----------------------------------------------------------------------
Equipment sales 1,111 1,319 (15.8%) 999 11.2%
======================================================================
Total revenues 9,633 10,564 (8.8%) 9,185 4.9%
----------------------------------------------------------------------
Connectivity and value-added services revenues were JPY 5,633
million in 3Q03, an increase of 1.3% compared to 3Q02 and almost flat
compared to 2Q03.
Table 2. Connectivity Services (JPY in millions)
----------------------------------------------------------------------
Connectivity Services YoY QoQ
3Q03 3Q02 % 2Q03 %
change change
----------------------------------------------------------------------
Dedicated access services:
----------------------------------------------------------------------
IP Service + DC (connectivity) 2,485 2,548 (2.5%) 2,485 0.0%
----------------------------------------------------------------------
Others(4) 719 856 (16.0%) 751 (4.3%)
----------------------------------------------------------------------
Total Dedicated Access Services 3,204 3,404 (5.9%) 3,236 (1.0%)
----------------------------------------------------------------------
Dedicated access service revenues were JPY 3,204 million in 3Q03,
a decrease of 5.9% compared to 3Q02 and a slight decrease of 1.0%
compared to 2Q03. IP Service, including Data Center Connectivity
services, decreased by 2.5% in 3Q03 compared to 3Q02 but stayed nearly
flat compared to 2Q03. Customers continued to shift from dedicated
line-based connectivity services such as IIJ T1 Standard and IIJ
Economy Service to lower-cost broadband services such as IIJ
FiberAccess/F Service (Maximum 10-100Mbps), However, the increase in
IIJ FiberAccess/F Service did not offset the decrease in IIJ T1
Standard and IIJ Economy Service.
Table 3. Number of Contracts
----------------------------------------------------------------------
3Q03 3Q02 2Q03
----------------------------------------------------------------------
IP Services 64kbps - 128kbps 76 130 79
----------------------------------------------------------------------
192kbps - 768kbps 22 37 23
----------------------------------------------------------------------
1Mbps - 2Mbps 226 279 226
----------------------------------------------------------------------
3Mbps - 1.2Gbps 381 212 336
----------------------------------------------------------------------
Number of Contracts of DC Connectivity
Services 188 139 184
----------------------------------------------------------------------
Other 5,991 3,922 5,402
======================================================================
Total Dedicated Access Services 6,884 4,719 6,250
----------------------------------------------------------------------
IIJ4U (Dial-up access services for retail
market) 69,688 82,193 72,560
----------------------------------------------------------------------
Other Dial-Up Access Services 597,232 370,543 563,086
======================================================================
Total Dial-Up Access Services 666,920 452,736 635,646
======================================================================
Table 4. Number of Contract Bandwidth (Unit: Gbps)
----------------------------------------------------------------------
3Q03 3Q02 2Q03
----------------------------------------------------------------------
Dedicated Access Services 60.3 23.3 51.6
----------------------------------------------------------------------
DC Connectivity Services 15.5 7.0 15.1
======================================================================
Total Contract Bandwidth 75.8 30.3 66.7
======================================================================
Dial-up access service revenues were JPY 780 million in 3Q03, an
increase of 0.4% compared to 3Q02 and a decrease of 0.5% compared to
2Q03. The steady revenue growth of OEM services, including the CDN
platform and NTT's regional L-mode service, mostly offset the decrease
in IIJ4U service revenues.
Value-added service revenues were JPY 1,125 million in 3Q03, an
increase of 23.2% compared to 3Q02 and an increase of 4.0% compared to
2Q03. These increases were mainly due to revenue increases from
security related services and IIJ VPN standard services.
Table 5. Value-added Services (JPY in millions)
----------------------------------------------------------------------
Value-Added Services 3Q03 3Q02 YoY 2Q03 QoQ
% %
change change
----------------------------------------------------------------------
Internet Data Center services 373 359 3.7% 371 0.3%
----------------------------------------------------------------------
Other value-added services 752 554 35.8% 710 6.0%
======================================================================
Total Value-Added Service Revenues 1,125 913 23.2% 1,081 4.0%
----------------------------------------------------------------------
Systems integration services revenues decreased 21.6% to JPY 2,889
million in 3Q03 compared to 3Q02 but recovered 13.3% compared to 2Q03
due to an increase in recurring fees of outsourcing services such as
mail and web gateway services.
Equipment sales revenues were JPY 1,111 million in 3Q03, a
decrease of 15.8% compared to 3Q02 and an increase of 11.2% compared
to 2Q03.
Cost and expenses
Cost of total revenues was JPY 8,125 million in 3Q03, a decrease
of 15.4% compared to 3Q02, and a decrease of 2.5% compared to 2Q03.
Table 6. Costs and Expenses (JPY in millions)
----------------------------------------------------------------------
Costs and expenses: 3Q03 3Q02 YoY 2Q03 QoQ
% %
change change
----------------------------------------------------------------------
Cost of Revenues:
----------------------------------------------------------------------
Cost of connectivity and value-
added
services 4,877 5,180 (5.9%) 5,127 (4.9%)
----------------------------------------------------------------------
Cost of systems integration 2,198 3,173 (30.7%) 2,275 (3.4%)
----------------------------------------------------------------------
Cost of equipment sales 1,050 1,254 (16.3%) 935 12.3%
----------------------------------------------------------------------
Total of Cost of Revenues 8,125 9,607 (15.4%) 8,337 (2.5%)
----------------------------------------------------------------------
Sales and marketing 699 894 (21.8%) 1,100 (36.4%)
----------------------------------------------------------------------
General and administrative 486 512 (4.9%) 482 0.9%
----------------------------------------------------------------------
Research and development 87 117 (25.6%) 96 (9.5%)
======================================================================
Total costs and expenses 9,397 11,130 (15.6%) 10,015 (6.2%)
----------------------------------------------------------------------
Cost of connectivity and value-added services was JPY 4,877
million, a decrease of 5.9% compared to 3Q02 and a decrease of 4.9%
compared to 2Q03. The gross margin ratio for connectivity and
value-added services in 3Q03 was 13.4%, compared to 6.9% in 3Q02 and
9.1% in 2Q03. The improvement in gross margin compared to 2Q03 was a
result of our continuous efforts to reduce backbone costs.
Table 7. Backbone Costs (JPY in millions)
----------------------------------------------------------------------
Backbone Costs 3Q03 3Q02 YoY 2Q03 QoQ
% %
Change Change
----------------------------------------------------------------------
International Backbone Costs 156 432 (63.9%) 247 (36.9%)
----------------------------------------------------------------------
Domestic Backbone Costs 939 902 4.1% 993 (5.5%)
----------------------------------------------------------------------
International backbone costs were JPY 156 million, a decrease of
63.9% compared to 3Q02 and a decrease of 36.9% compared to 2Q03 as we
continued to benefit from our efforts to optimize our network.
Domestic backbone costs were JPY 939 million, an increase of 4.1%
compared to 3Q02 and a decrease of 5.5% compared to 2Q03. 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 of strengthening our backbone network to provide various
broadband network services and solutions nationwide. The
quarter-over-quarter decrease reflects a decline in backbone prices,
which offset an increase in connection fees with FLET'S.
Cost of SI Revenues was JPY 2,199 million in 3Q03, a decrease of
30.7% compared to 3Q02 and a decrease of 3.4% compared to 2Q03. The
gross margin for SI improved to 23.9% in 3Q03 compared to 13.9% in
3Q02 and 10.7% in 2Q03. The gross margin in 3Q03 improved compared to
2Q03 because of an improvement in profitability in SI development
contracts and an increase in outsourcing service revenues.
Sales and Marketing Expenses were JPY 699 million in 3Q03, a
decrease of 21.8% compared to 3Q02 and a decrease of 36.4% compared to
2Q03. The 2Q03 expenses included the write-off of JPY 287 million in
accounts receivable from Crosswave Communications Inc. ("Crosswave").
In 3Q03, JPY 71 million of the amount that was written-off became
collectible. This amount was recorded as income as a result of the
reversal of allowance for doubtful receivables from Crosswave.
General and administrative expenses were JPY 486 million in 3Q03,
a decrease of 4.9% compared to 3Q02 and an increase of 0.9% compared
to 2Q03.
Operating income (loss)
Operating income increased to JPY 236 million in 3Q03 compared to
a loss of JPY 567 million in 3Q02 and a loss of JPY 830 million in
2Q03. The improvement from 2Q03 is due to improved profitability in
SI, cost reduction for international and domestic backbones and the
expected collection of a portion of accounts receivable from Crosswave
which required the reversal of related services, that were previously
written-off.
Other income for 3Q03 was JPY 1,570 million, compared to other
expenses of JPY 228 million in 3Q02 and JPY 157 million in 2Q03. IIJ
recorded a gain on the sale of its shares of DLJdirect SFG Securities,
which amounted to JPY 1,572 million and gains from the repurchase and
subsequent retirement before maturity of convertible notes, which
amounted to JPY 89 million in 3Q03.
Income tax benefit (expense) for 3Q03 was a benefit of JPY 280
million, compared to an expense of JPY 138 million in 3Q02 and a
benefit of JPY 572 million in 2Q03. 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 58
million in 3Q03, compared to JPY 1,375 million in 3Q02, and JPY 50
million in 2Q03.
Net income was JPY 1,979 million in 3Q03, compared to net losses
of JPY 2,266 million in 3Q02 and JPY 278 million in 2Q03. The
improvement from 3Q02 is primarily due to the absence in equity method
net loss in Crosswave, and the improvement from 2Q03 is due to the
return of positive operating income, the gain on the sale of the
shares of DLJdirect SFG Securities and the retirement of convertible
notes. Basic net income per ADS equivalent was JPY 25.83 in 3Q03,
compared to a net loss of JPY 50.40 in 3Q02 and JPY 5.04 in 2Q03.
Table 8. Other Financial Statistics (JPY in millions)
----------------------------------------------------------------------
Other Financial Statistics 3Q03 3Q02 YoY 2Q03 QoQ
% %
Change Change
----------------------------------------------------------------------
Adjusted EBITDA(5) 1,218 349 249.2% 126 863.5%
----------------------------------------------------------------------
CAPEX, including capitalized
leases(6) 508 1,519 (66.5%) 579 (12.3%)
----------------------------------------------------------------------
Depreciation and amortization(7) 1,004 943 6.5% 984 2.1%
======================================================================
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to net income according to the consolidated statements of
operations that are prepared and presented in accordance with U.S.
generally accepted accounting principles in Appendix 1:
Table 9. Adjusted EBITDA (JPY in millions)
----------------------------------------------------------------------
3Q03 3Q02 2Q03
----------------------------------------------------------------------
Adjusted EBITDA 1,218 349 126
----------------------------------------------------------------------
Depreciation and amortization(8) (982) (916)(956)
----------------------------------------------------------------------
Operating income (loss) 236 (567)(830)
======================================================================
Other income (expenses) 1,570 (228)(157)
----------------------------------------------------------------------
Income tax expense (benefit) (280) 138 (572)
----------------------------------------------------------------------
Minority interests in consolidated
subsidiaries (49) 42 187
----------------------------------------------------------------------
Equity in net income (loss) of equity method
investees (58)(1,375) (50)
======================================================================
Net income (loss) 1,979 (2,266)(278)
----------------------------------------------------------------------
The following table summarizes the reconciliation of capital
expenditures to purchase of property and equipment according to the
consolidated statements of cash flows that are prepared and presented
in accordance with U.S. generally accepted accounting principles in
Appendix 4:
Table 10. CAPEX (JPY in millions)
----------------------------------------------------------------------
3Q03 3Q02 2Q03
----------------------------------------------------------------------
Capital expenditures 508 1,519 579
----------------------------------------------------------------------
Acquisition of assets by entering into
capital leases 168 1,014 431
----------------------------------------------------------------------
Purchase of property and equipment 340 505 148
----------------------------------------------------------------------
3rd Quarter FY2003 Business Review
Service Development
Development of new high-performance routers for cost effective
site connectivity network:
In November 2003, IIJ announced the development of the latest
model of the SEIL series of high-performance routers. The router
supports higher throughput to maximize utilization of broadband
circuits and enhanced VPN functionality with hardware processing to
help customers build more cost effective site connectivity networks
over the Internet.
New movement against spam:
In January 2004, IIJ and IIJ America Inc. started to move against
email message abuse. IIJ and IIJ America participated in founding a
working group against spam with 19 other international
telecommunications companies, Internet Service Providers (ISPs) and
related businesses. The kick-off meeting was held in December 2003,
and it aims to develop measures that will combat spam emails and other
unethical uses of the Internet.
Introducing new technology to JP DNS Service in cooperation with
JPRS:
In January 2004, IIJ announced the introduction of IP Anycast
technology to JP Domain Name System (DNS) Service with Japan Registry
Service (JPRS). This is the first case of this technology being
applied to JP DNS Service and it enables more redundancy and
effectiveness for users to access the mail servers and websites with
".jp" domain names.
Network Infrastructure Development
In 3Q03, IIJ continued to enhance its Internet backbone to
maintain the network quality that it provides to its customers. This
quarter, IIJ installed one new circuit and upgraded one circuit for
the international backbone, and installed one new circuit and upgraded
three circuits for the domestic backbone. IIJ is considering cost
effectiveness and overall profitability in undertaking the upgrades.
Finance
Repurchase and cancellation of convertible notes:
On November 19, 2003, IIJ announced that it had repurchased a
portion of its convertible notes that were to be due in 2005 and
cancelled them. As a result, IIJ recorded a one-time gain of JPY 89
million.
Key Developments of the IIJ Group
Outsourcing Solutions:
In 3Q03, IIJ Technology continued to expand its variety of
outsourcing solutions. "SoMail" is a large-scale mail system solution
that helps customers with more than thousand employees to build a mail
server with system extensibility, reliability and stability by
adapting open-source-based software. Enhanced Version of Data
Integration Service is the world's first platform service that serves
as an Internet-based purchasing system (IBPS) top layer and EAI
service provider. IBPS Web Application Inspection Service is a service
that checks the security vulnerabilities that occur when implementing
Web applications. These solutions are provided in cooperation with the
vendors with each area's specialty.
Teleconference/Webcast
On February 12 at 9:00 am (EST), IIJ will host a conference call
to discuss the Company's results and 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 one of Japan's leading Internet-access and comprehensive
network solutions providers. 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 4Q03 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 20-F 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 December 31, 2003,
and the equivalent three-month period ended December 31, 2002. For all
3Q03 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 JPY 107.13 = US$1.00, the approximate exchange
rate on December 31, 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 4Q03 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 4Q03 earnings release, presently
scheduled for May 2004.
(4)Others are IIJ FiberAccess/F Service, IIJ Ether Standard, IIJ
DSL/F Service, IIJ T1 Standard and IIJ Economy Service.
(5)Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
(6)Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
(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 Dec 31, 2003, Dec 31, 2002 and
Sept 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
Dec 31, 2003
-------------------------------
% of
Total
USD (1) JPY Revenues
-------------------------------
Revenues:
Connectivity and value-added
services:
Dedicated access services 29,908 3,204,046 33.3%
Dial-up access services 7,277 779,544 8.1
Value-added services 10,497 1,124,596 11.7
Other 4,902 525,106 5.4
-------------------------------
Total connectivity and
value-added services 52,584 5,633,292 58.5
Systems integration revenues 26,966 2,888,936 30.0
Equipment sales 10,370 1,110,927 11.5
-------------------------------
Total revenues 89,920 9,633,155 100.0
-------------------------------
Costs and expenses:
Cost of connectivity and value-added
services 45,522 4,876,741 50.6
Cost of systems integration revenues 20,523 2,198,668 22.8
Cost of equipment sales 9,798 1,049,663 10.9
-------------------------------
Total costs 75,843 8,125,072 84.3
Sales and marketing 6,524 698,948 7.3
General and administrative 4,540 486,332 5.1
Research and development 812 86,966 0.9
-------------------------------
Total costs and
expenses 87,719 9,397,318 97.6
-------------------------------
Operating income(loss) 2,201 235,837 2.4
-------------------------------
Other income(expenses) 14,655 1,569,957 16.3
-------------------------------
Income(Loss) before income tax
expense(benefit) 16,856 1,805,794 18.7
-------------------------------
Income tax expense(benefit) (2,618) (280,406) (2.9)
Minority interests in consolidated
subsidiaries (455) (48,710) (0.5)
Equity in net loss of equity method
investees (545) (58,354) (0.6)
-------------------------------
Net income(loss) 18,474 1,979,136 20.5%
===============================
Basic Net Income(Loss) Per Share 51,658
Basic Net Income(Loss) Per ADS
Equivalent 25.83
Weighted Average Number of Shares 38,312
Weighted Average Number of ADS
Equivalents 76,623,702
Year-over-year Comparison
Dec 30, 2002
-------------------------------
% of
Total YOY
JPY Revenues Chg %
-------------------------------
Revenues:
Connectivity and value-added
services:
Dedicated access services 3,404,016 32.2% (5.9%)
Dial-up access services 776,173 7.4 0.4
Value-added services 913,152 8.6 23.2
Other 467,629 4.4 12.3
-------------------------------
Total connectivity and
value-added services 5,560,970 52.6 1.3
Systems integration revenues 3,683,978 34.9 (21.6)
Equipment sales 1,318,630 12.5 (15.8)
-------------------------------
Total revenues 10,563,578 100.0 (8.8)
-------------------------------
Costs and expenses:
Cost of connectivity and value-added
services 5,179,920 49.0 (5.9)
Cost of systems integration revenues 3,173,211 30.0 (30.7)
Cost of equipment sales 1,254,073 11.9 (16.3)
-------------------------------
Total costs 9,607,204 90.9 (15.4)
Sales and marketing 894,340 8.5 (21.8)
General and administrative 511,604 4.9 (4.9)
Research and development 116,950 1.1 (25.6)
-------------------------------
Total costs and
expenses 11,130,098 105.4 (15.6)
-------------------------------
Operating income(loss) (566,520) (5.4) (141.6)
-------------------------------
Other income(expenses) (228,058) (2.1) (788.4)
-------------------------------
Income(Loss) before income tax
expense(benefit) (794,578) (7.5) (327.3)
-------------------------------
Income tax expense(benefit) 137,936 1.3 (303.3)
Minority interests in consolidated
subsidiaries 41,813 0.4 (216.5)
Equity in net loss of equity method
investees (1,375,338) (13.0) (95.8)
-------------------------------
Net income(loss) (2,266,039) (21.4%)(187.3%)
===============================
Basic Net Income(Loss) Per Share (100,802)
Basic Net Income(Loss) Per ADS
Equivalent (50.40)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Sequential Comparison
Sep 30, 2003
-------------------------------
% of
Total QOQ
JPY Revenues Chg %
-------------------------------
Revenues:
Connectivity and value-added
services:
Dedicated access services 3,236,405 35.2% (1.0%)
Dial-up access services 783,589 8.5 (0.5)
Value-added services 1,080,876 11.8 4.0
Other 536,389 5.9 (2.1)
-------------------------------
Total connectivity and
value-added services 5,637,259 61.4 (0.1)
Systems integration revenues 2,549,379 27.7 13.3
Equipment sales 998,621 10.9 11.2
-------------------------------
Total revenues 9,185,259 100.0 4.9
-------------------------------
Costs and expenses:
Cost of connectivity and value-added
services 5,126,708 55.8 (4.9)
Cost of systems integration revenues 2,275,704 24.8 (3.4)
Cost of equipment sales 934,711 10.2 12.3
-------------------------------
Total costs 8,337,123 90.8 (2.5)
Sales and marketing 1,099,560 12.0 (36.4)
General and administrative 482,218 5.2 0.9
Research and development 96,118 1.0 (9.5)
-------------------------------
Total costs and
expenses 10,015,019 109.0 (6.2)
-------------------------------
Operating income(loss) (829,760) (9.0) (128.4)
-------------------------------
Other income(expenses) (157,294) (1.7)(1,098.1)
-------------------------------
Income(Loss) before income tax
expense(benefit) (987,054) (10.7) (282.9)
-------------------------------
Income tax expense(benefit) (571,642) (6.2) (50.9)
Minority interests in consolidated
subsidiaries 186,931 2.0 (126.1)
Equity in net loss of equity method
investees (49,945) (0.5) 16.8
-------------------------------
Net income(loss) (278,426) (3.0%) (810.8%)
===============================
Basic Net Income(Loss) Per Share (10,082)
Basic Net Income(Loss) Per ADS
Equivalent (5.04)
Weighted Average Number of Shares 27,617
Weighted Average Number of ADS
Equivalents 55,233,050
Note (1):The translation of Japanese yen amounts into US dollar
amounts with respect to the three months ended Dec 31, 2003 are
included solely for the convenience of readers outside Japan
and have been made at the rate of JPY 107.13 =$1, the approximate
rate of exchange on Dec 31, 2003.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
-----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
------------------------------------------------
For the Nine Months Ended Dec 31, 2003 and Dec 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S.
Dollars (USD) Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Dec 31, 2003
-------------------------------
% of
Total
USD (1) JPY Revenues
-------------------------------
Revenues:
Connectivity and value-added
services:
Dedicated access services 91,120 9,761,680 35.9%
Dial-up access services 21,754 2,330,551 8.6
Value-added services 29,802 3,192,670 11.8
Other 14,760 1,581,204 5.8
-------------------------------
Total connectivity and
value-added services 157,436 16,866,105 62.1
Systems integration revenues 73,240 7,846,238 28.9
Equipment sales 22,871 2,450,117 9.0
-------------------------------
Total revenues 253,547 27,162,460 100.0
-------------------------------
Costs and expenses:
Cost of connectivity and value-added
services 142,235 15,237,607 56.1
Cost of systems integration revenues 63,453 6,797,764 25.0
Cost of other equipment sales 21,426 2,295,320 8.5
-------------------------------
Total costs 227,114 24,330,691 89.6
Sales and marketing 25,871 2,771,562 10.2
General and administrative 14,754 1,580,597 5.8
Research and development 2,606 279,182 1.0
-------------------------------
Total costs and expenses 270,345 28,962,032 106.6
-------------------------------
Operating loss (16,798)(1,799,572) (6.6)
-------------------------------
Other income(expenses) 11,278 1,208,265 4.4
-------------------------------
Loss before income tax expense(benefit) (5,520) (591,307) (2.2)
-------------------------------
Income tax expense(benefit) (11,594)(1,242,083) (4.6)
Minority interests in consolidated
subsidiaries 3,670 393,107 1.5
Equity in net loss of equity method
investees:
Equity method net loss (912) (97,740) (0.4)
Impairment loss on investment,
advances and deposits for
Crosswave (16,055)(1,719,981) (6.3)
-------------------------------
Net loss (7,223) (773,838) (2.8%)
===============================
Basic Net Loss Per Share (26,198)
Basic Net Loss Per ADS Equivalent (13.10)
Weighted Average Number of Shares 29,538
Weighted Average Number of ADS
Equivalents 59,076,611
Year-over-year Comparison
Dec 31, 2002
-------------------------------
% of
Total YoY
JPY Revenues Chg %
-------------------------------
Revenues:
Connectivity and value-added
services:
Dedicated access services 10,473,722 33.8% (6.8%)
Dial-up access services 2,390,179 7.7 (2.5)
Value-added services 2,671,448 8.6 19.5
Other 1,344,530 4.4 17.6
-------------------------------
Total connectivity and
value-added services 16,879,879 54.5 (0.1)
Systems integration revenues 10,107,204 32.6 (22.4)
Equipment sales 3,994,039 12.9 (38.7)
-------------------------------
Total revenues 30,981,122 100.0 (12.3)
-------------------------------
Costs and expenses:
Cost of connectivity and value-added
services 15,353,621 49.6 (0.8)
Cost of systems integration revenues 8,842,530 28.5 (23.1)
Cost of other equipment sales 3,778,191 12.2 (39.2)
-------------------------------
Total costs 27,974,342 90.3 (13.0)
Sales and marketing 2,386,931 7.7 16.1
General and administrative 1,543,002 5.0 2.4
Research and development 301,304 1.0 (7.3)
-------------------------------
Total costs and expenses 32,205,579 104.0 (10.1)
-------------------------------
Operating loss (1,224,457) (4.0) 47.0
-------------------------------
Other income(expenses) (909,141) (2.9)(232.9)
-------------------------------
Loss before income tax expense(benefit) (2,133,598) (6.9) (72.3)
-------------------------------
Income tax expense(benefit) 814,109 2.6 (252.6)
Minority interests in consolidated
subsidiaries 131,909 0.4 198.0
Equity in net loss of equity method
investees:
Equity method net loss (4,371,424) (14.1) (97.8)
Impairment loss on investment,
advances and deposits for
Crosswave
-------------------------------
Net loss (7,187,222) (23.2%)(89.2%)
===============================
Basic Net Loss Per Share (319,716)
Basic Net Loss Per ADS Equivalent (159.86)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Note (1):The translations of Japanese yen amounts into US dollar
amounts with respect to the year ended Dec 31, 2003 are included
solely for the convenience of readers outside Japan and have been
made at the rate of JPY 107.13 =$1, the approximate rate of exchange
on Dec 31, 2003.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONSOLIDATED BALANCE SHEETS(UNAUDITED)
---------------------------------------
As of Dec 31, 2003, Dec 31, 2002 and Sept 30, 2003
(Expressed in Thousands of Japanese Yen (JPY) and U.S.
Dollars (USD))(1)
Dec 31, 2003
-------------------------------------------
USD (1) JPY %
-------------------------------------------
ASSETS
---------------------------
Current Assets:
Cash and cash equivalent 113,326 12,140,595 31.5%
Accounts receivable, net 61,982 6,640,226 17.3
Inventories 1,832 196,252 0.5
Prepaid expenses 8,171 875,338 2.3
Other current assets 3,657 391,766 1.0
-------------------------------------------
Total current assets 188,968 20,244,177 52.6
Investments in and Advances
to Equity Method Investees 9,560 1,024,126 2.7
Other Investments 54,344 5,821,912 15.1
Property and Equipment, net 78,861 8,448,327 22.0
Restricted Cash
Guarantee Deposits 19,382 2,076,387 5.4
Other Assets 7,934 849,954 2.2
-------------------------------------------
Total assets 359,049 38,464,883 100.0%
===========================================
LIABILITIES AND
---------------------------
SHAREHOLDERS'
EQUITY(CAPITAL DEFICIENCY)
---------------------------
Current Liabilities:
Short-term borrowings 63,142 6,764,410 17.6%
Accounts payable 43,047 4,611,586 12.0
Accrued expenses 4,798 513,996 1.3
Other current liabilities 5,554 594,974 1.5
Long-term borrowings-
current portion 18,177 1,947,309 5.1
Capital lease obligations-
current portion 22,548 2,415,596 6.3
-------------------------------------------
Total current liabilities 157,266 16,847,871 43.8
Long-term Borrowings 18,160 1,945,434 5.0
Convertible Notes 110,445 11,832,000 30.7
Capital Lease Obligations-
Noncurrent 26,155 2,801,993 7.3
Accrued Retirement and
Pension Costs 631 67,557 0.2
Other Noncurrent
Liabilities 1,683 180,329 0.5
-------------------------------------------
Total liabilities 314,340 33,675,184 87.5
-------------------------------------------
Minority Interest 4,540 486,388 1.3
-------------------------------------------
Shareholders' Equity(Capital
Deficiency):
Common stock(2) 128,492 13,765,372 35.8
Additional paid-in
capital(2) 220,645 23,637,628 61.5
Accumulated deficit (330,992)(35,459,129) (92.2)
Accumulated other
comprehensive income 22,025 2,359,503 6.1
Treasury stock (1) (63) 0.0
-------------------------------------------
Total shareholders'
equity(capital deficiency) 40,169 4,303,311 11.2
Total liabilities
and shareholders'
equity(capital deficiency) 359,049 38,464,883 100.0%
========= =========== ==============
Dec 31, 2002 Sep 30, 2003
-------------------------------------------
JPY % JPY %
-------------------------------------------
ASSETS
---------------------------
Current Assets:
Cash and cash equivalent 4,270,613 11.4% 11,782,935 30.7%
Accounts receivable, net 7,305,169 19.5 6,726,563 17.5
Inventories 813,863 2.2 268,519 0.7
Prepaid expenses 882,854 2.4 654,269 1.7
Other current assets 135,828 0.4 464,418 1.2
-------------------------------------------
Total current assets 13,408,327 35.9 19,896,704 51.8
Investments in and Advances
to Equity Method Investees 4,522,602 12.1 1,106,062 2.9
Other Investments 3,461,695 9.2 5,513,137 14.3
Property and Equipment, net 8,898,123 23.8 9,108,783 23.7
Restricted Cash 5,000,000 13.4
Guarantee Deposits 1,369,596 3.7 2,080,764 5.4
Other Assets 699,998 1.9 728,580 1.9
-------------------------------------------
Total assets 37,360,341 100.0% 38,434,030 100.0%
===========================================
LIABILITIES AND
---------------------------
SHAREHOLDERS'
EQUITY(CAPITAL DEFICIENCY)
---------------------------
Current Liabilities:
Short-term borrowings 4,510,000 12.1% 4,304,906 11.2%
Accounts payable 5,852,779 15.7 4,856,325 12.6
Accrued expenses 364,366 1.0 489,568 1.3
Other current liabilities 570,719 1.5 410,577 1.1
Long-term borrowings-
current portion 1,200,000 3.2 2,946,377 7.7
Capital lease obligations-
current portion 2,424,701 6.5 2,588,505 6.7
-------------------------------------------
Total current liabilities 14,922,565 40.0 15,596,258 40.6
Long-term Borrowings 3,400,000 9.1 1,982,612 5.2
Convertible Notes 15,000,000 40.1 15,000,000 39.0
Capital Lease Obligations-
Noncurrent 3,463,132 9.3 3,198,073 8.3
Accrued Retirement and
Pension Costs 75,047 0.2 69,794 0.2
Other Noncurrent
Liabilities 184,847 0.5 193,043 0.5
-------------------------------------------
Total liabilities 37,045,591 99.2 36,039,780 93.8
-------------------------------------------
Minority Interest 900,837 2.4 437,678 1.1
-------------------------------------------
Shareholders' Equity(Capital
Deficiency):
Common stock(2) 7,082,336 18.9 13,765,372 35.8
Additional paid-in
capital(2) 17,068,353 45.7 23,637,628 61.5
Accumulated deficit (25,395,691)(68.0)(37,438,265)(97.4)
Accumulated other
comprehensive income 658,915 1.8 1,991,900 5.2
Treasury stock (63) 0.0
-------------------------------------------
Total shareholders'
equity(capital deficiency) (586,087) (1.6) 1,956,572 5.1
Total liabilities
and shareholders'
equity(capital deficiency) 37,360,341 100.0% 38,434,030 100.0%
===================================
Note (1): The translation of Japanese yen amounts into US dollar
amounts with respect to Dec 31, 2003 are included solely for the
convenience of readers outside Japan and have been made at the rate
of JPY107.13 =$1, the approximate rate of exchange on Dec 31, 2003.
Note (2): New 12,615 shares have been issued on Sep 17, 2003, in
the net proceeds of JPY11,886,887.
Appendix 4
INTERNET INITIATIVE JAPAN INC.
--------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
------------------------------------------------------------
For the Three Months Ended Dec 31, 2003, Dec 31, 2002 and
Sept 30, 2003 (Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Dec 31, Dec 31, Sept 30,
2003 2002 2003
----------------- -------- ----------
USD (1) JPY JPY JPY
------------------- ---------- -----------
Operating Activities:
Net income (loss) 18,474 1,979,136 (2,266,039) (278,426)
Depreciation and
amortization 9,374 1,004,236 942,854 983,736
Provision for
doubtful accounts (377) (40,428) 59,019 313,968
Equity method net
loss 545 58,354 1,375,338 49,945
Minority interests in
net income (loss) of
consolidated
subsidiaries 455 48,710 (41,813) (186,931)
Foreign exchange
losses 115 12,279 32,834 3,282
Gain on retirement of
convertible bonds (830) (88,975) - -
Net losses (gains) on
other investments (14,301)(1,532,033) - 50,490
Decrease (increase)
in accounts
receivable 1,292 138,452 493,961 (1,100,671)
Increase (decrease)
in accounts payable (656) (70,261) 1,033,939 216,306
Decrease (increase)
in inventories 674 72,267 (398,092) 72,432
Deferred income taxes (2,672) (286,208) 132,230 (577,444)
Other (1,957) (209,740) (111,975) (73,111)
-----------------------------------------
Net cash provided by
(used in) operating
activities 10,136 1,085,789 1,252,256 (526,424)
-----------------------------------------
Investing Activities:
Purchase of property
and equipment (3,170) (339,621) (505,169) (148,007)
Proceeds from sales
of other investment 18,173 1,946,875 - 122,650
Purchase of other
investments (56) (6,039) (28,377) (304,517)
Refund of guarantee
deposits-net 6 727 22,972 1,199
Other (2) (225) (30,506) 9,875
-----------------------------------------
Net cash provided by
(used in) investing
activities 14,951 1,601,717 (541,080) (318,800)
-----------------------------------------
Financing Activities:
Repayments of long-
term borrowings (9,673)(1,036,247) (200,000) (36,017)
Repurchase of
convertible notes (28,446)(3,047,460) - -
Principal payments
under capital leases (6,267) (671,339) (651,546) (671,376)
Net increase
(decrease) in short-
term borrowings 22,958 2,459,505 (322,254)(1,370,436)
Proceeds from
issuance of common
stock - - - 11,886,887
-----------------------------------------
Net cash provided by
(used in) financing
activities (21,428)(2,295,541)(1,173,800) 9,809,058
-----------------------------------------
Effect of Exchange Rate
Changes on Cash (320) (34,305) (39,516) 94
-----------------------------------------
Net Increase (Decrease) in
Cash 3,339 357,660 (502,140) 8,963,928
-----------------------------------------
Cash, Beginning of Period 109,987 11,782,935 4,772,753 2,819,007
-----------------------------------------
Cash, End of Period 113,326 12,140,595 4,270,613 11,782,935
=========================================
Note (1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Dec 31, 2003 are
included solely for the convenience of readers outside Japan and
have been made at the rate of JPY107.13 =$1, the approximate rate of
exchange on Dec 31, 2003.
CONTACT: Internet Initiative Japan Inc.
Taisuke Ono/Hiroaki Tsuno, 81-3-5259-6500
ir@iij.ad.jp