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 9, 2005
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-
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EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 2005/11/09 IIJ to List on the Mothers market of the Tokyo
Stock Exchange
2 2005/11/09 Notice on the Board of Directors' Resolution
regarding the Issuance of New Shares and Secondary
Offering
3 2005/11/09 IIJ Announces Forecasts for the Interim Period
Ended September 30, 2005 and Targets for the Fiscal
Year Ending March 31, 2006
4 2005/11/09 Condensed Consolidated Financial Results for the
First Quarter of the Fiscal Year Ended March 31,
2006
5 2005/11/09 IIJ Announces Second Quarter Results for the Year
Ending March 31, 2006 - Revenues and profits
increased significantly in favorable progress
towards our initial annual target -
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 9, 2005 By: /s/ Koichi Suzuki
--------------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director
Exhibit 1
IIJ to List on the Mothers Market of the Tokyo Stock Exchange
TOKYO--(BUSINESS WIRE)--Nov. 9, 2005--Internet Initiative Japan
Inc. ("IIJ", NASDAQ: IIJI), one of Japan's leading Internet access and
comprehensive network solutions providers, today announced that it
received notification that the Tokyo Stock Exchange has approved the
listing of its shares of common stock on the Mothers market of the
Tokyo Stock Exchange. Pricing is expected to occur on a date between
November 24 and November 28, 2005. The expected listing date is
December 2, 2005.
In connection with the Mothers listing, IIJ plans to issue 12,500
new shares (equivalent to 5,000,000 American Depository Receipts
("ADRs")) and two shareholders, NIF SMBC Ventures Co., Ltd. and JAFCO
Co., Ltd., which are Japanese venture capital firms, plan to sell
7,500 existing shares in an underwritten public offering in Japan. In
addition, the lead underwriter will be provided by the selling
shareholders with the option to purchase up to 3,000 additional shares
to cover over-allotments, if any. The newly issued shares will
comprise approximately 6.1% of IIJ's total shares after giving effect
to the issuance. IIJ plans to use the proceeds from the issuance of
the new shares for ongoing capital investment in operations and
research and development.
The offer price for the public offering in Japan will be based on
the average of the closing price of ADRs on the NASDAQ National market
for five days prior to the pricing date subject to a discount
determined in accordance with market demand under the Japanese market
practice. In the case the average is higher than the closing price on
the date prior to the pricing date, the closing price on the date
prior to the pricing date will be used for calculation of the price.
IIJ has been advised by the prospective lead underwriter for the
offering that the underwriters may conduct stabilizing and other
activities in connection with the offering, in accordance with
applicable laws. The closing of the offering requires the satisfaction
of various conditions, including fulfilling the listing requirements
of the Mothers market of the Tokyo Stock Exchange.
Any shares sold in connection with the proposed offering have not
been and will not be registered under the U.S. Securities Exchange Act
of 1933, as amended (the "Securities Act") and may not be offered or
sold in the United States absent registration under the Securities Act
or an applicable exemption from the registration requirements of the
Securities Act.
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 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.
CONTACT: Internet Initiative Japan Inc.
IIJ Corporate Communications, +81-3-5259-6500
ir@iij.ad.jp
http://www.iij.ad.jp/
Exhibit 2
[English Translation]
November 9, 2005
Koichi Suzuki
President, Chief Executive Officer and
Representative Director
Internet Initiative Japan Inc.
1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo
Japan
(Code Number: 3774 TSE Mothers)
Contact: Akihisa Watai
Director, Chief Financial Officer and
Chief Accounting Officer
Telephone: +81-3-5259-6500
Notice on the Board of Directors' Resolution regarding
the Issuance of New Shares and Secondary Offering
Internet Initiative Japan Inc. (the "Company") would like to announce that at
the meeting of the Board of Directors held on November 9, 2005, the issuance of
new shares and secondary offering accompanying the proposed listing of its
shares on the Mothers of the Tokyo Stock Exchange was resolved. The details of
the resolution are as follows:
1. Public offering of new shares
(1) Number of new shares to be issued
12,500 shares of common stock
(2) Issue price
To be determined on a date between Thursday, November 24, 2005 to
Monday, November 28, 2005 (the "pricing date") by the method
prescribed in Article 7-2 of No.14 Rules of Fair Practice of the Japan
Securities Dealers Association.
(3) Amount of issue price not to be included in stated capital
Amount of the issue price determined pursuant to Item (2) above, less
the amount to be incorporated into the stated capital. The amount to
be incorporated into the stated capital means one half of the issue
price, and any fraction less than one yen remaining after the
calculation shall be rounded up to the nearest yen.
(4) Method of offering
Public underwriting offering. Nomura Securities Co., Ltd., SMBC Friend
Securities Co., Ltd., Mizuho Securities Co., Ltd., Mitsubishi UFJ
Securities Co., Ltd., Shinko Securities Co., Ltd., Okasan Securities
Co., Ltd., Goldman Sachs (Japan) Ltd., Nikko Citigroup Limited,
Merrill Lynch Japan Securities Co., Ltd., Takagi Securities Co., Ltd.,
Maruhachi Securities Co., Ltd., E*TRADE Securities Co., Ltd., MONEX
BEANS, Inc., Rakuten Securities, Inc., Retela Crea Securities Co.,
Ltd. and Lehman Brothers Japan Inc. (collectively, the "underwriters")
will underwrite all shares. The offer price for the general public
offering ("offer price") will be determined by the method prescribed
in Article 7-2 of No.14 Rules of Fair Practice of the Japan Securities
Dealers Association. The offer price will be based on the average of
the closing prices of the Company's American Depository Receipts
representing the Company's shares of common stock ("the Company's
ADRs") on the U.S. NASDAQ National Market (less than one cent will be
--------------------------------------------------------------------------------
Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-1-
omitted) for the five trading days before the pricing date (days
without a closing price are not included), multiplied by 400 (the
stock-ADR conversion ratio) and the dollar-yen exchange rate of the
Bank of Tokyo Mitsubishi's telegraphic transfer middle rate on the
pricing date, and multiplied by a rate between 0.90 to 1.00 (less than
one yen will be omitted). In the event that the closing price on the
day before the pricing date (when there is no closing price, the
nearest day with a closing price) is below the average price above,
the offer price will be based on the closing price on the previous day
(or the nearest day), calculated as above and multiplied by a rate
between 0.90 to 1.00 (less than one yen to be omitted) and determined
in consideration of demand conditions.
(5) Compensation to the Underwriters
No underwriting fees will be paid. Instead, the total amount of the
difference between the offer price and the issue price paid by the
underwriters to the Company will be retained by the underwriters.
(6) Subscription period
From the next business day after the pricing date through two business
days after the pricing date
(7) Payment date
Thursday, December 1, 2005
(8) Commencement date for accrual of dividends
Saturday, October 1, 2005
(9) Minimum subscription unit
1 share
(10) The issue price, the amount of the issue price not to be included in stated
capital, and all the other matters required for the issuance of new shares
will be decided by Koichi Suzuki, the Company's president and
representative director.
(11) Each of the above items shall be conditional on the effectiveness of
registration under the Securities and Exchange Law of Japan.
2. Secondary offering (of shares sold through underwriting by the underwriter)
(1) Number of shares to be sold
7,500 shares of common stock
(2) Sellers and the number of shares to be sold
NIF SMBC Ventures Co.,Ltd.: 3,750 shares JAFCO Co., Ltd.: 3,750 shares
(3) Offer price
The offer price will be determined by the method as prescribed in
Article 7-2 of No.14 Rules of Fair Practice of the Japan Securities
Dealers Association. The offer price is based on the average of
closing price of the Company's ADRs on the U.S. NASDAQ National Market
(less than one cent will be omitted) for the five trading days before
the pricing date (days without a closing price are not included),
multiplied by 400 (the stock-ADR conversion ratio) and the dollar-yen
exchange rate of the Bank of Tokyo Mitsubishi's telegraphic transfer
middle rate on the pricing date, and multiplied by a rate between 0.90
to 1.00 (less than one yen will be omitted). In the event that the
closing price on the day before the pricing date (when there is no
closing price, the nearest day with a closing price) is below the
average price above, the offer price is based on the closing price on
the previous day (or the nearest date), calculated as above and
multiplied by a rate between 0.90 to 1.00 (less than one yen to be
omitted) and determined in consideration of demand conditions.
(4) Sales method
Nomura Securities Co., Ltd. (the "underwriter of secondary offering")
will underwrite all shares. Compensation to the underwriter of the
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Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-2-
secondary offering will consist of the total amount of the difference
between the offer price and the underwriting price, which is the price
paid by the underwriter of the secondary offering to the Company.
(5) Subscription period
From the next business day after the pricing date through two business
days after the pricing date
(6) Transfer date
Friday, December 2, 2005
(7) Minimum subscription unit
1 share
(8) The offer price and all the other matters required for the secondary
offering of shares sold through underwriting by the underwriter will be
decided by Koichi Suzuki, the Company's president and representative
director.
(9) Each of the above items shall be conditional on the effectiveness of
registration under the Securities and Exchange Law of Japan.
3. Secondary offering (of shares sold through over-allotment)
(1) Number of shares to be sold
3,000 shares of common stock. The above shows the maximum number.
Depending on demand conditions, it may decrease, or the secondary
offering of shares sold through over-allotment itself may not be
conducted at all. The number will be determined on the pricing date in
consideration of demand conditions.
(2) Seller and the number of shares to be sold
Nomura Securities Co., Ltd.: 3,000 shares
(3) Offer price
Undetermined (the same as the offer price for the secondary offering
of shares sold through underwriting by the underwriter)
(4) Sales method
After taking into consideration the demand conditions for the public
offering of new shares and secondary offering of shares sold through
underwriting by the underwriter, Nomura Securities Co., Ltd. will
offer a maximum of 3,000 shares of the Company's shares of common
stock that it plans to borrow from the Company's shareholders.
(5) Subscription period
Same as the subscription period for secondary offering of shares sold
through underwriting by the underwriter.
(6) Minimum subscription unit
1 share
(7) Transfer date
Friday, December 2, 2005
(8) The offer price and all the other matters required for the secondary
offering of shares sold through underwriting by the underwriter will be
decided by Koichi Suzuki, the Company's president and representative
director.
(9) Each of the above items shall be conditional on the effectiveness of
registration under the Securities and Exchange Law of Japan. In addition,
if the public offering of new shares is cancelled, the secondary offering
of shares sold through over-allotment will be also cancelled.
--------------------------------------------------------------------------------
Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-3-
(Reference)
1. American Depository Receipts
(1) American Depository Receipts being traded on the U.S. NASDAQ National Market
The Company's ADRs are being traded on the U.S. NASDAQ National Market.
Therefore, the market price per one share of the Company's common stock with
reference to the price of the Company's ADRs (the Company's ADR price multiplied
by 400, the stock-ADR conversion ratio and an exchange rate) will fluctuate
along with the fluctuation of the market price of the Company's ADRs and the
dollar-yen exchange rate even in the period after determination of the offer
price for the public offering of new shares, secondary offering of shares sold
through underwriting by the underwriter and the secondary offering of shares
sold through over-allotment ("the public and secondary offering") until the date
of commencement of the Company's shares to be traded on the Mothers market of
the Tokyo Stock Exchange.
The closing of the offering requires the satisfaction of various conditions,
including fulfilling the listing requirements of the Mothers market of the Tokyo
Stock Exchange.
(2) Suspension of deposit procedures under the deposit program of American
Depository Receipts
The deposit procedures under the deposit program of the Company's American
Depository Receipts will be suspended from the pricing date through 40 days
after listing of the Company's shares of common stock offered in the public and
secondary offering (Tuesday, January 10, 2005).
2. Stabilization transactions in the United States
IIJ has been advised by the prospective lead underwriter for the offering that
the underwriters may conduct stabilizing and other activities in connection with
the offering, in accordance with applicable laws.
The period when stabilization transactions in the United States may be conducted
will be as the follows, depending on the pricing date (Japan time):
1. Friday, November 25, 2005 in the United States (Eastern Standard Time)
if the pricing date is Thursday, November 24, 2005 (the market is
closed on Thursday, November 24, 2005).
2. From Friday, November 25, 2005 through Monday, November 28, 2005 in
the United States (Eastern Standard Time) if the pricing date is
Friday, November 25, 2005.
3. From Monday, November 28 through Tuesday, November 29, 2005 in the
United States (Eastern Standard Time) if the pricing date is Monday,
November 28, 2005.
3. Method of determination of the offer price
The offer price for the public and secondary offering will be determined on the
pricing date, in accordance with the method prescribed in Article 7-2 of No.14
Rules of Fair Practice of the Japan Securities Dealers Association, based on the
follows and in consideration of demand conditions.
(The base for determination of offer price)
The average of the closing price of the Company's ADRs on the U.S. NASDAQ
National Market (less than one cent is omitted) for the five trading days before
the pricing date (days without a closing price are not included), multiplied by
400 (the stock-ADR conversion ratio) and the dollar-yen exchange rate of the
Bank of Tokyo Mitsubishi's telegraphic transfer middle rate on the pricing date,
and multiplied by a rate between 0.90 to 1.00 (less than one yen is omitted). In
the event that the closing price on the previous day of pricing date (when there
is no closing price, the nearest day with closing price) is below the average
price above, the closing price on the previous day (or the nearest day),
calculated as above and multiplied by a rate between 0.90 to 1.00 (less than one
yen to be omitted) and determined in consideration of demand conditions.
--------------------------------------------------------------------------------
Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-4-
4. Secondary offering of shares sold through over-allotment
For the secondary offering of shares sold through over-allotment described in
"3. Secondary offering (of shares sold through over-allotment)" above, the lead
underwriter may conduct a secondary offering of shares sold through
over-allotment up to a maximum of 3,000 shares that it plans to borrow from
Company shareholders, after taking into consideration the demand conditions for
the public offering of new shares described in "1. Public offering of new
shares" and the secondary offering of shares sold through underwriting by the
underwriter described in "2. Secondary offering (of shares sold through
underwriting by the underwriter)" above. Though the number of shares sold
through over-allotment is planned to be 3,000, the number is the maximum and it
may decrease, or the secondary offering of shares sold through over-allotment
itself may not be conducted at all.
In the case that the secondary offering of shares sold through over-allotment is
conducted, the lead underwriter will be granted an option to acquire additional
shares of the Company's common stock up to the number of shares sold through
over-allotment ("green-shoe option"), from Company shareholders with the
exercise period from Friday, December 2, 2005 through Wednesday, December 28,
2005. The lead underwriter may also purchase shares of the Company's common
stock on the Mothers market of the Tokyo Stock Exchange up to the number of
shares sold through over-allotment (the "syndicate cover transactions") for the
purpose of returning the shares that it borrowed from the Company shareholders
(the "borrowed shares") from Friday, December 2, 2005 to Thursday, December 22,
2005 (the "syndicate cover transaction period"), and all of the shares purchased
by the syndicate cover transactions will be used for the lead underwriter to
return the borrowed shares to the Company shareholders. In the syndicate cover
transaction period, the lead underwriter may not conduct syndicate cover
transactions at all on its decision, or finish the syndicate cover transactions
before purchasing the number of shares sold through over-allotment.
IIJ has been advised by the prospective lead underwriter for the offering that
the underwriters may conduct stabilizing and other activities in connection with
the offering, in accordance with applicable laws as described in "2.
Stabilization transactions in the United States", and may convert ADRs that it
purchased by the stabilization transactions into the Company's shares of common
stock and use all or a portion of the converted shares to return the borrowed
shares.
The remaining shares of the borrowed shares that the lead underwriter purchased
by the syndicate cover transactions and stabilization transactions above and
return, will be returned to the lead underwriter by green-shoe option.
5. United States Securities Act of 1933, as amended
Any shares sold in connection with the proposed offering have not been and will
not be registered to the United States Securities and Exchange Commission
("SEC") under the United States Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold in the United States as
defined in SEC Rule 902 (l) under the Securities Act to U.S. persons as defined
in SEC Rule 902 (k) or for the account or benefit of a U.S. person (excluding
distributors) (collectively, "U.S. persons") absent registration under the
Securities Act or an applicable exemption from the registration requirements of
the Securities Act.
The underwriters (including Nomura Securities Co., Ltd., as the underwriter of
secondary offering of shares sold through over-allotment. The same in 5. United
States Securities Act of 1933, as amended) have agreed not to offer or sell the
shares sold in connection with the proposed offering in the United States or to
any U.S. persons in relation to the shares sold in the connection with the
proposed offering through 40 days after the listing of shares offered in the
proposed listing (Tuesday, January 10, 2005) or, for any remaining shares, until
the sale of such shares is completed, and prior to the expiration of this
period, to send a confirmation or other notice to any underwriter, dealer, or
other person who participates, pursuant to a contractual arrangement, in the
proposed offering, stating that the purchaser is subject to the same
restrictions on offers and sales that apply to distributors.
--------------------------------------------------------------------------------
Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
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-5-
In addition, until 40 days after the later of the commencement of the offering
and the closing date, an offer or sale of the shares within the United States by
a dealer (whether or not participating in the offerings) may violate the
registration requirements of the Securities Act if such offer or sale is made
otherwise than in accordance with Rule 144a or pursuant to another exemption
from registration under the Securities Act.
Each purchaser of shares in connection with the proposed offering will be deemed
to have represented and agreed as follows:
(a) It is a non-U.S. person who is acquiring such shares in an
offshore transaction in accordance with Rule 903 or Rule 904 of
Regulation S under the Securities Act.
(b) It understands that such shares have not been and will not be
registered under the Securities Act and, through 40 days after
the listing of the shares, may not be offered, resold, pledged or
transferred within the United States or to, or for the account or
benefit of U.S. Persons.
(c) The purchaser will not deposit or cause to be deposited shares
into any unrestricted depositary receipt facility established or
maintained by a depositary bank relating to the shares, unless or
until the shares are no longer deemed restricted securities
within the meaning of Rule 144(a)(3) under the Securities Act.
6. Overview of public offering of new shares and secondary offering
(1) Number of new shares to be issued and number of shares to be sold
Number of new shares to be issued
12,500 shares of common stock
Number of shares to be sold
(1) Sold through underwriting by the underwriter 7,500 shares of common
stock (2) Sold through over-allotment 3,000 shares of common stock (maximum)
(2) Pricing Date
Any date from Thursday, November 24, 2005 through Monday, November 28,
2005 (Please see "3. Method of determination of the offer price")
(3) Subscription period
From the next business day after the pricing date through two business
days after the pricing date
(4) Payment date
Thursday, December 1, 2005
(5) Share transfer date
Friday, December 2, 2005
(6) Commencement date for accrual of dividends
Saturday, October 1, 2005
7. Change in number of shares in issuance as a result of the issuance of new
shares:
Current number of shares in issuance
191,800 shares (as of October 31, 2005)
Increase in number of shares in issuance by the issuance of new shares
12,500 shares
Number of shares in issuance after the issuance of new shares
204,300 shares
8. Use of proceeds
Of the proceeds of 4,449,000,000 yen raised from the issuance of new
shares, 1,231,493,000 yen will be allocated to capital investment in the
fiscal year ending March 2006, 600,000,000 yen will be allocated to research
and development for seeable future and the remaining amount will be
allocated to capital requirements for the future operational development
(including capital investment and research and development).
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Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-6-
The newly introduced material equipment as of September 30, 2005 was as follows:
Start and planned
Name of the company Purpose of Planned amount of Type of completion date of
and office (location) Details introduction investment proceeds project
Total Already Start Completion
paid
The
Expansion of Company's
The Company - functions of own proceeds
Headquarter Back-office account and April March
(Chiyoda-ku, Tokyo) system (*) authentication 781,000 371,507 increased 2004 2006
etc. proceeds
The Company -
Headquarter Business Expansion of 120,000 - Increased April March
(Chiyoda-ku, Tokyo) system functions proceeds 2005 2006
The Company and IIJ System for Service Increased April March
Technology Inc. service development and 702,000 - proceeds 2005 2006
(Chiyoda-ku, Tokyo) provisioning expansion of
Total functions 1,603,000 371,507
(Note) The Company and its group have lease agreements to acquire the
telecommunications equipment such as network equipment, not to purchase
equipment as capital investment. The above mainly shows the details of items
such as systems development, software and tools.
9. Distribution of profits to shareholders
(1) Basic policy on the distribution of profits
The Company has not paid dividends in the past years. The Company
considers the payment of dividends to shareholders to be an important
management issue. However, at the current time, the Company's policy
is to give priority to securing funds to strengthen its financial
position and to use funds for operational development. Therefore,
there is a possibility that the Company will not pay dividends in the
near future.
(2) Actual results of payment of dividends in the last three fiscal years
Fiscal year ended Fiscal year ended Fiscal year ended
March 2003 March 2004 March 2005
Basic and diluted net income (loss) (1,021,057.92) (60,841.46) 70,270.65
per share
Dividend per share - - -
(Interim dividend per share) (-) (-) (-)
Payout ratio - - -
Net income / shareholders' equity - - 38.3%
Dividend / shareholders' equity - - -
Though the Company made a 1 to 5 stock split with a payable date of
October 11, 2005, the basic and diluted net income (loss) per share
above is shown as net income loss that the split is not reflected to.
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Note:This notice is intended as a press release for a general announcement
concerning IIJ's issuance and sale of new shares. It is not intended as a
solicitation of investment. Any investments should be made at the
discretion of individual investors after reading IIJ's prospectus on the
issuance and sale of shares and any revisions thereto. The shares subject
to the aforementioned new share offering and secondary offering have not
been and will not be registered under the United States Securities Act of
1933, as amended ("the Securities Act") and may not be offered or sold in
the United States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements of the
Securities Act.
--------------------------------------------------------------------------------
-7-
10. Information on dilution by the potential common shares
The Company granted its directors and employees stock options to acquire
new shares in April 2000 and June 2001 based on Clause 2, Article 280-19 of
the pre-revised Commercial Code of Japan. The number of shares in issuance
was 191,800 and the total number of the potential common shares was 2,700,
1.4% of the number of shares in issuance as of October 2005.
###
The above represents a translation of the original version in the Japanese
language.
--------------------------------------------------------------------------------
Note: This notice is intended as a press release for a general
announcement concerning IIJ's issuance and sale of new shares. It
is not intended as a solicitation of investment. Any investments
should be made at the discretion of individual investors after
reading IIJ's prospectus on the issuance and sale of shares and
any revisions thereto.
The shares subject to the aforementioned new share offering and
secondary offering have not been and will not be registered under
the United States Securities Act of 1933, as amended ("the
Securities Act") and may not be offered or sold in the United
States or to US persons absent registration under the Securities
Act or an applicable exemption from the registration requirements
of the Securities Act.
--------------------------------------------------------------------------------
-8-
Exhibit 3
IIJ Announces Forecasts for the Interim Period Ended September 30, 2005
and Targets for the Fiscal Year Ending March 31, 2006
TOKYO--(BUSINESS WIRE)--Nov. 9, 2005--Internet Initiative Japan
Inc. ("IIJ") today announced that the forecasts for consolidated and
non-consolidated financial results for the interim period ended
September 30, 2005 (from April 1, 2005 to September 30, 2005) and the
targets for consolidated and non-consolidated financial results for
the fiscal year ending March 31, 2006 (from April 1, 2005 to March 31,
2006) are as follows:
Consolidated (Under U.S. GAAP)
----------------------------------------------------------------------
For the fiscal year or period ending or ended
(Expressed in millions of Japanese Yen ("JPY") except per share,
amounts less than JPY one million is omitted)
----------------------------------------------------------------------
March 31, 2006
(Annual target)
----------------------
% of
JPY Total YoY %
Revenues
----------------------------------------------------------------------
Revenues 46,330 100.0 111.1
----------------------------------------------------------------------
Operating income 2,320 5.0 185.9
----------------------------------------------------------------------
Income before income tax expense,
minority interests and equity in net
income of equity method investees 3,990 8.6 126.7
----------------------------------------------------------------------
Net income 3,700 8.0 127.3
----------------------------------------------------------------------
Basic and diluted net income per
share 18,111
----------------------------------------------------------------------
----------------------------------------------------------------------
September 30, 2005 March 31, 2005
(Semi-annual forecast) (Actual)
------------------ --------------------
% of % of
JPY Total YoY % JPY Total YoY %
Revenues Revenues
----------------------------------------------------------------------
Revenues 21,808 100.0 113.7 41,702 100.0 107.5
----------------------------------------------------------------------
Operating
income 753 3.5 415.0 1,247 3.0 -
----------------------------------------------------------------------
Income before
income tax
expense,
minority
interests and
equity in net
income of
equity method
investees 1,778 8.2 8,547.1 3,148 7.6 -
----------------------------------------------------------------------
Net income 1,623 7.4 - 2,906 7.0 -
----------------------------------------------------------------------
Basic and
diluted net
income per
share 42,380 75,858
----------------------------------------------------------------------
Non-consolidated (Under Japanese GAAP)
----------------------------------------------------------------------
For the fiscal year or period ending or ended
(Expressed in millions of JPY except per share, amounts less than JPY
one million is omitted)
----------------------------------------------------------------------
March 31, 2006
(Annual target)
----------------------
% of
JPY Total YoY %
Revenues
----------------------------------------------------------------------
Revenues 37,000 100.0 109.8
----------------------------------------------------------------------
Operating income 1,300 3.5 203.7
----------------------------------------------------------------------
Ordinary income 1,260 3.4 294.7
----------------------------------------------------------------------
Net income 3,210 8.7 119.1
----------------------------------------------------------------------
Basic and diluted net income per
share 15,712.19
----------------------------------------------------------------------
Annual dividend per share -
----------------------------------------------------------------------
----------------------------------------------------------------------
September 30, 2005 March 31, 2005
(Semi-annual forecast) (Actual)
------------------ ----------------
% of % of
JPY Total YoY % JPY Total YoY %
Revenues Revenues
----------------------------------------------------------------------
Revenues 17,274 100.0 111.7 33,711 100.0 108.1
----------------------------------------------------------------------
Operating income 180 1.0 - 638 1.9 -
----------------------------------------------------------------------
Ordinary income 158 0.9 - 427 1.3 -
----------------------------------------------------------------------
Net income 1,246 7.2 - 2,695 8.0 -
----------------------------------------------------------------------
Basic and diluted net
income per share 32,495.72 70,270.65
---------------------- -----------------------------------------------
Annual dividend per
share - -
---------------------- -----------------------------------------------
Notes:
1. Basic and diluted net income per share in the consolidated
financial results for the fiscal year ended March 31, 2005 and the
interim period ended September 30, 2005 (under U.S. GAAP) are
computed using the weighted-average number of shares of common
stock outstanding during the fiscal year or period. Basic and
diluted net income per share in the non-consolidated financial
results for the fiscal year ended March 31, 2005 and the interim
period ended September 30, 2005 (under Japanese GAAP) are computed
using the weighted-avarage number of shares of common stock in
issuance during the fiscal year or period.
2. Consolidated (under U.S. GAAP) and non-consolidated (under Japanese
GAAP) basic and diluted net income per share for the fiscal year
ending March 31, 2006 is calculated assuming that 204,300 shares
are issued as of period end, after the 1 to 5 stock spilt that IIJ
made with the payable date of October 11, 2005 and including the
12,500 shares proposed to be issued in connection with the
contemplated listing.
3. For reference, the figures per share when the stock split on
October 11, 2005 is reflected are the following:
Figures when the stock split is reflected
Consolidated (Under U.S. GAAP)
----------------------------------------------------------------------
For the fiscal year or period ending or ended (Expressed in JPY)
----------------------------------------------------------------------
March 31, 2006 September 30, 2005 March 31, 2005
(Annual target) (Semi-annual forecast) (Actual)
----------------------------------------------------------------------
Basic and
diluted net
income per
share 18,111 8,476 15,172
----------------------------------------------------------------------
Non-consolidated (Under Japanese GAAP)
----------------------------------------------------------------------
For the fiscal year or period ending or ended (Expressed in JPY)
----------------------------------------------------------------------
March 31, 2006 September 30, 2005 March 31, 2005
(Annual target) (Semi-annual forecast) (Actual)
----------------------------------------------------------------------
Basic and
diluted net
income per
share 15,712.19 6,499.14 14,054.13
----------------------------------------------------------------------
Annual dividend
per share - - -
----------------------------------------------------------------------
4. 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 targeted financial results,
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 ability to maintain
and increase revenues from higher margin services such as systems
integration and value-added services; the possibility that
revenues from connectivity services may decline substantially as a
result of competition and other factors; the ability to compete in
a rapidly evolving and competitive marketplace; the impact on
IIJ's profits of fluctuations in costs such as backbone costs and
subcontractor costs; the impact on IIJ's profits of fluctuations
in the price of available-for-sale securities; the impact of
technological changes in its industry; IIJ's ability to raise
additional capital to cover its indebtedness; the possibility that
NTT, IIJ's largest shareholder, may decide to exercise substantial
influence over IIJ; 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.
CONTACT: Internet Initiative Japan Inc.
Akihisa Watai, +81-3-5259-6500
Exhibit 4
[English Translation]
November 9, 2005
Condensed Consolidated Financial Results for the First Quarter
of the Fiscal Year Ended March 31, 2006
("FY2005") (Prepared in accordance with accounting
principles generally accepted
in the United States of America ("U.S. GAAP"))
Company name: Internet Initiative Japan Inc.
(Code Number: 3774, Tokyo Stock Exchange Mothers in Japan)
(URL: http://www.iij.ad.jp)
Representative: Koichi Suzuki, President, Chief Executive Officer and
Representative Director
Contact person: Akihisa Watai, Director, Chief Financial Officer and Chief
Accounting Officer
TEL: (03) 5259-6500
1. Items on presentation of quarterly consolidated financial results
1) Basis of presenting quarterly consolidated financial statements:
Basis of presenting interim consolidated financial statements
2) Difference in the method of accounting recognition from the most recent
fiscal year: None
3) Changes in scope of consolidation and equity method of accounting: None
There is no change in scope of consolidation and equity method accounting
in the first quarter of FY2005.
In August 2005, IIJ Media Communications Inc. ("IIJ-MC"), our consolidated
subsidiary, became our wholly-owned subsidiary and a portion of the
business of IIJ-MC was spun off to IIJ Technology Inc. ("IIJ-Tech") on
October 1, 2005. IIJ-MC was merged into IIJ on October 1, 2005 with IIJ as
the surviving company. In September 2005, Asia Internet Holding Co., Ltd.
("AIH") became IIJ's wholly-owned subsidiary and was merged into IIJ on
October 1, with IIJ as the surviving company.
4) Comparisons with the first quarter of the previous fiscal year have not
been included in this document because we began disclosure of consolidated
financial results in the first quarter of this fiscal year in accordance
with the "Supplementary Rules to Timely Disclosure of Corporate Information
by Issuer of Listed Security" of TSE.
2. Financial Results for the first quarter of FY2005 (April 1, 2005 to June 30,
2005)
(1) Consolidated operating results (Amounts less than one million yen are rounded)
-------------------------- --------------------- ---------------------- --------------------- ----------------------
Total revenues Operating income Income before Net income
income tax expense
-------------------------- ------------- ------- -------------- ------- ------------- ------- -------------- -------
Millions of % Millions of % Millions of % Millions of %
Yen Yen Yen Yen
First quarter of FY2005 9,880 - 247 - 682 - 623 -
First quarter of FY2004 - - - - - - - -
-------------------------- ------------- ------- -------------- ------- ------------- ------- -------------- -------
(Reference) Full FY 2004 41,703 1,248 3,149 2,906
-------------------------- ------------- ------- -------------- ------- ------------- ------- -------------- -------
-------------------------- --------------------- ----------------------
Basic net income Diluted net income
per share per share
-------------------------- --------------------- ----------------------
Yen Yen
First quarter of FY2005 16,254 -
First quarter of FY2004 - -
-------------------------- --------------------- ----------------------
(Reference) Full FY 2004 75,858 -
-------------------------- --------------------- ----------------------
-1-
(Notes)
1) Equity in net income (loss) of equity method investees
First quarter of FY2005: Equity in net income of JPY 3 million
First quarter of FY2004: Equity in net income of JPY - million
Full FY2004: Equity in net loss of JPY 33 million
2) Weighted-average number of shares of common stock outstanding
(consolidated)
First quarter of FY2005: 38,309
First quarter of FY2004: - Full FY2004: 38,312
3) For figures such as total revenues and operating income, percentage
indicates change from corresponding figures for the same quarter of
the previous fiscal year.
4) Diluted net income per share in the first quarter of FY2005 and full
FY2004 are not shown since the residual securities does not have an
effect on dilutive securities.
5) Income before income tax expense in the first quarter of FY2005 and
full FY2004 represents income from operations before income tax
expense, minority interests and equity in net income (loss) of equity
method investees in the first quarter of FY2005 and full FY2004 in our
group's consolidated financial statements.
[Qualitative explanations regarding the consolidated operating results]
(1) Overview
In the first quarter of FY2005, Japan's economy showed signs of a gentle
recovery, such as improved corporate earnings and increased private capital
spending, though there were uncertain factors such as long-term rising crude oil
prices.
In this environment, utilization of Internet-related technologies in
corporate internal networks and business systems has been proceeding, traffic in
business has been increasing and networks are becoming increasingly complex for
our primary customer segment, large-sized corporation and public organizations.
Our group continued to meet the outsourcing needs of these customers and provide
them with reliable total network solutions.
In the consolidated operating results for the first quarter of FY2005 of our
group, total revenues amounted to JPY 9,880 million, operating income amounted
to JPY 247 million, income before income tax expense amounted to JPY 682 million
and net income amounted to JPY 623 million.
Operating results by service were as follows:
1) Internet connectivity and value-added services
For dedicated access services, while corporate customers shifted to higher
bandwidth and the number of contracts for broadband services increased with
expansion of multi-site connectivity projects, revenues decreased due to network
reorganization of some of our large customers and amounted to JPY 2,747 million.
For dial-up access services, revenues from the services for retail customers,
such as IIJ4U were in the declining trend and amounted to JPY 699 million.
For value-added services, with growing corporate outsourcing needs, revenues
amounted to JPY 1,388 million due to growing revenues from data center related
services, server outsourcing services such as e-mail servers, and network
outsourcing services such as SEIL, SMF used for multi-site connectivity projects
and others.
For other services, revenues amounted to JPY 933 million, due to steadily
growing sales of Wide-area Ethernet Services.
As a result of the above, revenues from Internet connectivity and value-added
services in the first quarter of FY2005 amounted to JPY 5,767 million. Due to an
increase in revenues from higher-margin value-added services and suppression of
fixed cost of revenues (mainly backbone costs), the gross margin from Internet
connectivity and value-added services amounted to JPY 803 million, and the gross
margin ratio was 13.9%.
2) Systems Integration
In the first quarter of FY2005, revenues from systems integration amounted to
JPY 3,840 million, including revenues related to outsourced operations which are
expected to be incoming on a ongoing basis, amounted to JPY 2,647 million.
-2-
The gross margin from systems integration amounted to JPY 930 million, and the
gross margin ratio was 24.2%, due to increased revenues from higher-margin
outsourced operations.
3) Equipment sales
Revenues from equipment sales in the first quarter of FY2005 amounted to JPY
273 million. The gross margin amounted to JPY 30 million, and the gross margin
ratio was 10.9%.
(2) Consolidated financial position (Amounts less than one million yen are rounded)
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Total assets Shareholders' equity Shareholders' equity Shareholders' equity
as a percentage of per share
total assets
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Millions of Yen Millions of Yen % Millions of Yen
First quarter of FY2005 33,744 10,187 30.2 265,916
First quarter of FY2004 - - - -
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
(Reference) Full FY 2004 37,116 11,615 31.3 303,171
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
(Note) 1) Number of shares of common stock outstanding, end of period (consolidated)
First quarter of FY2005: 38,309 First quarter of FY2004: -
Full FY2004: 38,312
(3) Consolidated cash flows (Amounts less than one million yen are rounded)
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net cash provided Net cash provided Cash and cash
by operating by (used in) Net cash used in equivalents, end of
activities investing activities financing activities period
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Millions of Yen Millions of Yen % Millions of Yen
First quarter of FY2005 1,027 (43) (1,176) 5,106
First quarter of FY2004 - - - -
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
(Reference) Full FY 2004 5,238 1,974 (14,213) 5,286
-------------------------- ---------------------- ---------------------- ---------------------- ----------------------
(Note) The effect by exchange ratio change on cash and deposits in the first
quarter of FY2005 and full FY2004 was JPY 11 million and JPY 2
million, respectively.
[Qualitative explanations regarding the consolidated financial position]
Cash and cash equivalents, at the end of the first quarter of FY2005 was JPY
5,106 million, a decrease of JPY 180 million compared to the end of full FY2004.
(Net cash provided by operating activities)
Net cash provided by operating activities was JPY 1,027 million in the first
quarter of FY2005. (Net cash used by investing activities)
Net cash used by investing activities was JPY 43 million in the first quarter
of FY2005. Purchase of property and equipment of JPY 213 million and purchase of
short-term and other investments of JPY 299 million offset proceeds from sales
of other investments such as available-for-sale securities of JPY 514 million.
(Net cash used in financing activities)
Net cash used in financing activities was JPY 1,176 million in the first
quarter of FY2005, due to repayments of long and short-term borrowings of JPY
210 million, repayments of securities loan agreement of JPY 199 million and
principal payments under capital leases of JPY 767 million.
-3-
3. Targets for FY2005 (From April 1, 2005 to March 31, 2006)
(Amounts less than one million yen are rounded)
-------------------- ----------------------- ----------------------- ----------------------- -----------------------
Total revenues Operating income Income before income Net income
tax expense
-------------------- ----------------------- ----------------------- ----------------------- -----------------------
Millions of Yen Millions of Yen Millions of Yen Millions of Yen
First half of 21,809 754 1,779 1,623
FY2005
Full FY2005 46,330 2,320 3,990 3,770
-------------------- ----------------------- ----------------------- ----------------------- -----------------------
(Reference) Target for consolidated net income per share for full FY2005: JPY 18,111
(Notes)
1. We made a 1 to 5 stock split with a payable date of October 11,
2005. As a result, the number of shares outstanding was 191,800
(38,360 before the stock split) on the date of release of this
document. We also plan to issue 12,500 new shares in December 2005.
For our target of consolidated net income per share for full FY2005 in
this document, we indicate the figure calculated with the estimated
number of shares outstanding of 204,300.
2. Statements made in this press documents 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 FY2005 revenues and operating
and net 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 ability to
maintain and increase revenues from higher margin services such as
system integration and value-added services; the possibility that
revenues from connectivity services may decline substantially as a
result of competition and other factors; the ability to compete in a
rapidly evolving and competitive marketplace; the impact on IIJ's
profits of fluctuations in costs such as backbone costs and
subcontractor costs; the impact on IIJ's profits of fluctuations in
the price of available-for-sale securities; the impact of
technological changes in its industry; IIJ's ability to raise
additional capital to cover its indebtedness; the possibility that
NTT, IIJ's largest shareholder, may decide to exercise substantial
influence over IIJ; 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.
[Qualitative explanations regarding outlook of financial results]
As of the date of release of this document, there is no change in the target
financial results of our group for FY2005.
-4-
4. Consolidated quarterly financial statements (from April 1, 2005 to June 30, 2005)
(1) Quarterly consolidated balance sheets (unaudited)
-----------------------------------------------------------------------------------------------------------------
At the end of the first quarter of Consolidated balance sheets at
FY2005 the end of FY2004
(June 30, 2005) (March 31, 2005)
-----------------------------------------------------------------------------------------------------------------
Note(s) Thousands of Yen % of Thousands of Yen % of
total total
-----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents 5,106,388 5,286,477
Short-term investments 304,628 -
Accounts receivable, net of
allowance for doubtful
accounts of JPY 35,482
thousand and JPY 41,400 3 5,792,808 7,407,439
thousand at June 30, 2005 and
March 31, 2005 respectively
Inventories 265,286 140,096
Prepaid expenses 1,263,409 604,935
Other current assets 80,797 108,228
---------------------------- -------------------------
Total current assets 12,813,316 38.0 13,547,175 36.5
Investments in and Advances to
Equity Method Investees, net of
loan loss valuation allowance of
JPY 31,378 thousand and JPY
31,378 thousand at June 30, 2005 3 677,035 2.0 713,607 1.9
and March 31, 2005 respectively
Other Investments 2, 5 7,882,229 23.3 9,930,781 26.8
Property and Equipment, net 4 9,155,981 27.1 9,722,366 26.2
Intangible Assets, net 560,288 1.7 561,211 1.5
Guarantee Deposits 4, 5 2,091,237 6.2 2,050,665 5.5
Other Assets, net of allowance for
doubtful accounts of JPY 375,989
thousand and JPY 376,092 thousand
at June 30, 2005 and March 31, 564,153 1.7 590,666 1.6
2005, respectively
---------------------------- -------------------------
Total assets 33,744,239 100.0 37,116,471 100.0
---------------------------- -------------------------
-5-
-----------------------------------------------------------------------------------------------------------------
At the end of the first quarter of Consolidated balance sheets at
FY2005 the end of FY2004
(June 30, 2005) (March 31, 2005)
-----------------------------------------------------------------------------------------------------------------
Note(s) Thousands of Yen % of Thousands of Yen % of
total total
-----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Short-term borrowings 5 4,723,387 4,724,633
Payable under securities loan 5 1,530,400 1,729,520
agreement
Long-term borrowings --current 5 3,187,023 2,736,056
portion
Capital lease obligations 4 2,718,759 2,774,974
--current portion
Accounts payable 3 3,665,233 4,860,733
Accrued expenses 523,478 541,118
Other current liabilities 7 918,829 817,517
---------------------------- ------------------------
Total current liabilities 17,267,109 51.2 18,184,551 49.0
Long-Term Borrowings 5 870,342 2.6 1,529,963 4.1
Capital Lease Obligations 4 3,950,359 11.7 4,339,028 11.7
--Noncurrent
Accrued Retirement and Pension 169,460 0.5 143,346 0.4
Costs
Other Noncurrent Liabilities 246,818 0.7 275,533 0.7
---------------------------- ------------------------
Total Liabilities 22,504,088 66.7 24,472,421 65.9
---------------------------- ------------------------
MINORITY INTEREST 1,053,212 3.1 1,028,977 2.8
---------------------------- ------------------------
COMMITMENTS AND CONTINGENCIES 3, 6 - -
SHAREHOLDERS' EQUITY
Common-stock --authorized,
75,520 shares; issued and
outstanding, 38,360 shares at
June 30, 2005 and March 31, 13,765,372 40.8 13,765,372 37.1
2005
Additional paid-in capital 23,637,628 70.0 23,637,628 63.7
Accumulated deficit (33,811,378) (100.2) (34,434,052) (92.8)
Accumulated other 6,679,555 19.8 8,690,125 23.4
comprehensive income
Treasury stock --155 shares and
120 shares held by an equity
method investee at June 30,
2005 and March 31, 2005 (84,238) (0.2) (44,000) (0.1)
respectively
---------------------------- ------------------------
Total Shareholders' Equity 10,186,939 30.2 11,615,073 31.3
---------------------------- ------------------------
Total liabilities and 33,744,239 100.0 37,116,471 100.0
shareholders' equity
---------------------------- ------------------------
-----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the first quarter of FY2005.
-6-
(2) Quarterly consolidated statements of operations (unaudited)
--------------------------------------------------------------------------------------------------------------
First quarter of FY2005 Consolidated statements of
operations of FY2004
(from April 1, 2005 to (from April 1, 2004 to
June 30, 2005) March 31, 2005)
-----------------------------------------------------------------------------------------------------------------
Note(s) Thousands of Yen % of Thousands of Yen % of
total total
revenues revenues
-----------------------------------------------------------------------------------------------------------------
Revenues: 3
Connectivity and
value-added services:
Dedicated access 2,746,900 11,372,701
Dial-up access 698,670 2,936,973
Value-added services 1,387,893 5,004,730
Other 933,120 3,169,413
---------------------- -----------------------
Total 5,766,583 22,483,817
Systems integration 3,840,075 15,853,824
Equipment sales 273,438 3,364,926
---------------------- -----------------------
Total revenues 9,880,096 100.0 41,702,567 100.0
---------------------- -----------------------
Cost and Expenses:
Cost of connectivity and 3, 4 4,963,835 19,483,890
value-added services
Cost of systems integration 2,910,262 12,200,137
Cost of equipment sales 243,699 3,111,369
---------------------- -----------------------
Total cost 8,117,796 82.2 34,795,396 83.4
Sales and marketing 767,801 7.8 2,794,561 6.7
General and administrative 713,917 7.2 2,665,980 6.4
Research and development 33,904 0.3 198,979 0.5
---------------------- -----------------------
Total cost and expenses 9,633,418 97.5 40,454,916 97.0
---------------------- -----------------------
Operating Income 246,678 2.5 1,247,651 3.0
---------------------- -----------------------
Other Income (Expenses):
Interest income 2,101 12,877
Interest expense (109,377) (685,857)
Foreign exchange gains 8,030 5,958
Gain on other investments 2 488,758 2,439,330
Gain arising from issuance
of equity method
investee's share - 25,933
Other - net 45,721 102,616
-7-
--------------------------------------------------------------------------------------------------------------
First quarter of FY2005 Consolidated statements of
operations of FY2004
(from April 1, 2005 to (from April 1, 2004 to
June 30, 2005) March 31, 2005)
-----------------------------------------------------------------------------------------------------------------
Note(s) Thousands of Yen % of Thousands of Yen % of
total total
revenues revenues
-----------------------------------------------------------------------------------------------------------------
Other income - net 435,233 4.4 1,900,857 4.6
---------------------- -----------------------
Income from operations 681,911 6.9 3,148,508 7.6
before Income Tax Expense,
Minority Interests and
Equity in Net Income (Loss)
of Equity Method Investees
Income Tax Expense 38,111 0.4 99,870 0.2
Minority Interests in (23,855) (0.2) (109,161) (0.3)
Earnings of Subsidiaries
Equity in Net Income (Loss) 2,729 0.0 (33,208) (0.1)
of Equity Method Investees:
---------------------- -----------------------
Net Income 622,674 6.3 2,906,269 7.0
---------------------- -----------------------
-8-
---------------------------------------------------------------------------------------------------------------
Note(s) First quarter of Consolidated statements
FY2005 (from April 1, 2005 of operations of FY2004
to June 30, 2005) (from April 1, 2004 to
March 31, 2005)
---------------------------------------------------------------------------------------------------------------
Weighted-Average Number of 38,309 38,312
Common Shares Outstanding
Basic and Diluted Net Income 16,254 75,858
per Common Share
---------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the first quarter of FY2005.
-9-
(3) Consolidated statements of shareholders' equity (unaudited)
Consolidated statements of shareholders' equity for the first quarter of FY2005
(Unit: Thousands of yen)
------------------------------------------------------------------------------------------------------------------------
Shares of Common stock Additional Accumulated Accumulated Treasury Total
common paid-in deficit other stock
stock capital comprehensive
Outstanding income
(including
treasury
stock)
(shares)
------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 2005 38,360 13,765,372 23,637,628 (34,434,052) 8,690,125 (44,000) 11,615,073
Net income for the
first quarter of
FY2005 622,674 622,674
Other comprehensive (2,010,570) (2,010,570)
loss, net of tax ---------------
Total comprehensive (1,387,896)
loss
Purchase of common
stock by an equity
method investee (40,238) (40,238)
----------------------------------------------------------------------------------------------
Balance, June 30, 2005 38,360 13,765,372 23,637,628 (33,811,378) 6,679,555 (84,238) 10,186,939
----------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the first quarter of FY2005.
Consolidated statements of shareholders' equity for FY2004
(Unit: Thousands of yen)
------------------------------------------------------------------------------------------------------------------------
Shares of Common stock Additional Accumulated Accumulated Treasury Total
common paid-in deficit other stock
stock capital comprehensive
Outstanding income
(including
treasury
stock)
(shares)
------------------------------------------------------------------------------------------------------------------------
Balance, April 1, 2004 38,360 13,765,372 23,637,628 (37,340,321) 6,195,449 (44,000) 6,214,128
Net income for FY 2004 2,906,269 2,906,269
Other comprehensive 2,494,676 2,494,676
income, net of tax ---------------
Total comprehensive 5,400,945
income
----------------------------------------------------------------------------------------------
Balance, March 31, 38,360 13,765,372 23,637,628 (34,434,052) 8,690,125 (44,000) 11,615,073
2005
----------------------------------------------------------------------------------------------
-10-
(4) Quarterly consolidated statements of cash flows (unaudited)
--------------------------------------------------------------------------------------------------------------------
First quarter of FY2005 Condensed statements of
cash flows of FY2004
(from April 1, 2005 to (from April 1, 2004 to
June 30, 2005) March 31, 2005)
------------------------------------------------------------------------
Thousands of yen Thousands of yen
--------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income 622,674 2,906,269
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,013,745 4,193,093
Provision for doubtful accounts and (5,339) 24,781
advances
Gains on other investments (488,758) (2,439,330)
Foreign exchange gains (6,278) (15,466)
Loss on retirement of convertible - 5,195
notes
Equity method net loss (income) (2,729) 33,208
Minority interests in earnings of 23,855 109,161
subsidiaries
Deferred income tax expense 18,343 (11,023)
(benefit)
Others 51,618 366,935
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,621,419 1,607,692
Decrease (increase) in inventories (125,190) 286,751
Decrease in accounts payable (1,132,992) (2,307,729)
Others (562,870) 478,960
------------------------------------------------------------------------
Net cash provided by operating 1,027,498 5,238,497
activities
------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment (213,485) (577,133)
Purchase of short-term and other (299,311) (12,566)
investments
Purchase of subsidiary stock from - (61,680)
minority shareholders
Proceeds from sales of other 514,460 2,976,017
investments
Refund (payment) of guarantee (39,210) 23,167
deposits - net
Acquisition of business - (375,123)
Other (5,450) 1,321
------------------------------------------------------------------------
Net cash provided by (used in) (42,996) 1,974,003
investing activities
-11-
--------------------------------------------------------------------------------------------------------------------
First quarter of FY2005 Condensed statements of
cash flows of FY2004
(from April 1, 2005 to (from April 1, 2004 to
June 30, 2005) March 31, 2005)
------------------------------------------------------------------------
Thousands of yen Thousands of yen
------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term - 2,250,000
borrowings
Repayments of long-term borrowings (208,654) (1,840,246)
Proceeds from securities loan - 2,546,320
agreement
Repayments of securities loan (199,120) (816,800)
agreement
Principal payments under capital (766,807) (2,867,625)
leases
Net increase (decrease) in short-term (1,246) (1,839,460)
borrowings
Repurchase of convertible notes - (745,488)
Redemption of convertible notes - (11,088,000)
Proceeds from issuance of subsidiary - 188,632
stock to minority shareholders
------------------------------------------------------------------------
Net cash used in financing (1,175,827) (14,212,667)
activities
------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 11,236 2,405
Net Decrease in Cash and Cash Equivalents (180,089) (6,997,762)
Cash and Cash Equivalents, Beginning of 5,286,477 12,284,239
Quarter (Year)
------------------------------------------------------------------------
Cash and Cash Equivalents, End of 5,106,388 5,286,477
Quarter (Year)
------------------------------------------------------------------------
Additional Cash Flow Information:
Interest paid 95,390 613,817
Income taxes paid 128,764 29,227
Noncash Investing and Financing
Activities:
Acquisition of assets by entering 319,828 4,433,906
into capital leases
Exchange of common stock investment due to merger:
Market value of common shares - 37,950
acquired
Cost of investment - 2,500
Acquisition of business:
Assets acquired:
Capital lease assets - 808,719
Goodwill and intangible assets - 370,741
Other assets - 22,547
Liabilities assumed:
Capital lease obligations - 826,884
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the first quarter of FY2005.
-12-
Basis of Presenting Consolidated Financial Statements for the First Quarter of
FY2004
1. The Terminology, Form, and Preparation Methods for Consolidated Financial
Statements for the First Quarter of FY2005
The financial statements for the first quarter of FY2005 have been prepared
in accordance with the provisions of article 81 "provisions for the terminology,
form, and preparation methods for interim consolidated financial statements"
(Ministry of Finance, ordinance No. 24, 1999), and based on the accounting
treatment principles and procedures and disclosure methods required in relation
to the issuance of American Depository Receipts ("ADRs") (U.S. GAAP including
Accounting Research Bulletins ("ARB"), Accounting Principles Board ("APB")
Opinions, Statement of Financial Accounting Standards ("SFAS") and related
interpretation guidelines).
IIJ registered the sale of ADRs with the Securities and Exchange Commission
("SEC") of the United States of America under the Securities and Exchange Act of
1933, as amended and registered the quotation of the ADRs on the NASDAQ National
Market of the United States of America in August 1999. Further, in accordance
with Rule 13 of the U.S. Securities Exchange Act of 1934, as amended, IIJ
regularly files with the SEC an annual report on Form 20-F which includes
consolidated financial statements prepared in accordance with U.S. GAAP.
2. Main Differences from Preparation in Accordance with Provisions and
Principles for Interim Consolidated Financial Statements
The main differences between consolidated financial statements for the first
quarter of FY2005 prepared in accordance with U.S accounting standards and those
prepared in accordance with Japan's provisions and principles for interim
consolidated financial statements and the effect by important monetary items on
income from operations before income tax expense, minority interests and equity
in net income of equity method investees in the first quarter of FY2005 are
given below.
(1) Differences Regarding the Composition of Quarterly Consolidated Financial
Statements
Quarterly consolidated financial statements have been prepared based on
U.S. GAAP comprise quarterly consolidated balance sheets, quarterly consolidated
statements of operations, quarterly consolidated statements of shareholders'
equity, quarterly consolidated statements of cash flows, and notes to quarterly
consolidated financial statements.
(2) Differences Regarding Disclosure in Quarterly Consolidated Financial
Statements
In quarterly consolidated statements of operations, equity in net income of
equity method investees is shown as a separate item after income from operations
before income tax expense.
(3) Differences Regarding Accounting Treatment Standards
1) Income taxes
Income taxes are accounted for in accordance with SFAS No. 109. Changes in
the deferred income tax asset valuation allowance that relate to the tax effect
of unrealized gains and losses on available-for-sale securities have been
recorded as a separate component of other comprehensive income.
2) Accounting treatment of lease transactions
The Company accounts for significant lease transaction agreements that
fulfill the requirements for capitalized leases as stipulated by SFAS No. 13, in
accordance with SFAS. As a result, finance lease transactions, other than those
that recognize transfer of ownership to the lessee, are treated as purchases. In
the first quarter of FY2005, this accounting treatment of lease transactions
resulted in a JPY 305 thousand reduction in income from operations before income
tax expense.
3) Stock issuance cost
Stock issuance cost is accounted for as expenses related to capital
transactions and deducted from additional paid-in capital. In the first quarter
of FY2005, this accounting treatment resulted in a JPY 9,480 thousand increase
in income from operations before income tax expense.
4) Retirement benefit accounting
Unfunded retirement benefits and noncontributory defined benefit pension
plans are accounted for in accordance with SFAS No. 87. In the first quarter of
FY2005, this accounting treatment resulted in a JPY5,215 thousand reduction in
income from operations before income tax expense.
5) Comprehensive income
Comprehensive income is accounted for in accordance with SFAS No. 130
"reporting comprehensive income." SFAS requires additional disclosure of
information in consolidated financial statements. In the first quarter of
FY2005, this accounting treatment did not result in any change in income from
operations before income tax expense.
-13-
Notes to Quarterly Consolidated Financial Statements for the first quarter of
FY2005
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Internet Initiative Japan Inc. ("IIJ"), a Japanese corporation, was founded
in December 1992 to develop and operate Internet access services and other
Internet-related services in Japan and is 31.6 percent owned by Nippon Telegraph
and Telephone Corporation ("NTT") and its subsidiary, NTT Communications, Inc.
as of June 30, 2005. IIJ and consolidated subsidiaries (collectively, the
"Company") provide Internet access services throughout Japan, into the United
States of America and into the rest of Asia, and value-added services. The
Company also provides systems integration, which mainly comprise consultation,
design, development, construction, operation and maintenance for
Internet-related systems; equipment sales in relation to equipment procurement
for the construction of systems; and other Internet-related services.
The Company manages its business and measures results based on a single
Internet-related services industry segment including revenues from systems
integration. Substantially all revenues are from customers operating in Japan.
The accompanying quarterly consolidated financial statements for the first
quarter of FY2005 have been prepared on a going-concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Although the Company recorded operating income in
the first quarter of FY2005, the Company has incurred operating losses and net
losses in each of the past six fiscal years ended March 31, 2004, with the
exception of operating income for FY2001.
At June 30, 2005, the Company had indebtedness of JPY 16,980,270 thousand.
For the first quarter of FY2005 and full FY2004, the Company recorded operating
income of JPY 1,247,651 thousand and JPY 246,678 thousand and net income of JPY
2,906,269 thousand and JPY 622,674 thousand, respectively. Although the Company
had negative working capital of JPY 4,453,793 thousand as of June 30, 2005, the
management considered various alternatives to increase working capital such as
increasing operating income and liquidating certain available-for-sale
securities of JPY 6,920,858 thousand as of June 30, 2005.
Certain Significant Risks and Uncertainties
The Company has available-for-sale securities of JPY 6,920,858 thousand at
June 30, 2005, and believes that the fluctuations in stock price of
available-for-sale securities could have a material adverse effect on the
Company's future financial position, results of operations or cash flows.
The Company relies on telecommunications carriers for a significant portion
of network backbone, and Nippon Telegraph and Telephone East Corporation, Nippon
Telegraph and Telephone West Corporation, electric power companies and their
affiliates for local connections to customers. The Company believes that its use
of multiple carriers and suppliers significantly mitigates concentrations of
credit risk. However, any disruption of telecommunication services could have an
adverse effect on operating results.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash investments, accounts receivable and
guarantee deposits. The Company's management believes that the risks associated
with accounts receivable is mitigated by the large number of customers
comprising its customer base.
Summary of Significant Accounting Policies
Basis of Presentation
IIJ maintains its record in accordance with generally accepted accounting
principles in Japan. Certain adjustment and reclassifications have been
incorporated in the accompanying consolidated financial statements to conform to
U.S. GAAP. These adjustments were not recorded in the statutory accounts.
Consolidation
The consolidated financial statements for the first quarter of FY2005 include
the accounts of IIJ and all of its subsidiaries, Net Care, Inc. ("Net Care"),
IIJ-Tech, IIJ-MC, IIJ Financial Systems, Inc. ("IIJ-FS"), and IIJ America, Inc.
("IIJ America"), which have first quarters ending June 30, except for IIJ
America. IIJ America's first quarter end is March 31 and such date was used for
purposes of preparing the consolidated financial statements as it is not
practicable for the subsidiary to report its financial results as of June 30.
There were no significant events that occurred during the intervening period
that would require adjustment to or disclosure in the accompanying consolidated
financial statements. Significant intercompany transactions and balances have
been eliminated in consolidation. Investments in companies over which IIJ has
significant influence but not control are accounted for by the equity method.
For other than a temporary decline in the value of investments in equity method
investees below the carrying amount, the investment is reduced to fair value and
an impairment loss is recognized.
-14-
A subsidiary or equity method investee may issue its shares to third parties
at amounts per share in excess of or less than the Company's average per share
carrying value. With respect to such transactions, the resulting gains or losses
arising from the change in ownership are recorded in income for the year in
which such shares are issued.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Significant estimates and assumptions used
are primarily in the areas of impairment loss on investment in and advances to
equity method investees, valuation allowances for deferred tax assets, allowance
for doubtful accounts, and estimated lives of fixed assets. Actual results could
differ from those estimates.
Revenue Recognition
Revenues from customer connectivity services consist principally of dedicated
Internet access services and dial-up Internet access services. Dedicated
Internet access services represent full-line IP services and standard-level IP
services (T1 Standard and IIJ FiberAccess/F Service). Dial-up Internet access
services are provided to both enterprises and individuals (IIJ4U). The term of
these contracts is one year for dedicated Internet access services and generally
one month for dial-up Internet access services. All these services are billed
and recognized monthly on a straight-line basis.
Value-added service revenues consist principally of sales of various Internet
access-related services such as firewall services. Value-added services also
include monthly fees from data center services such as housing, monitoring, and
security services. Other revenues under connectivity and value-added services
consist principally of call-center customer support and Wide-area Ethernet
services, which offer connectivity services for the construction of networks
connecting a customer's multiple operational sites. The terms of these services
are generally for one year and revenues are recognized on a straight-line basis
during the service period.
Initial set up fees received in connection with connectivity services and
value-added services are deferred and recognized over the contract period.
Systems integration revenues consist principally of consultation, design,
development, construction and related maintenance, monitoring and other
operating services of Internet network systems. The period for the development
of the systems or designs is less than one year and revenues are recognized when
network systems and equipment are delivered and accepted by the customer under
the completed contract method. The development of the Internet network systems
or design includes multiple element arrangements such as consultation, systems
design, planning, development and construction services, and equipment and
software purchased from third parties. When the equipment or system is delivered
prior to other elements of the arrangement, revenue is deferred until other
service elements are completed and accepted by the customer. Maintenance,
monitoring, and operating service revenues are recognized ratably over the
separate contract period, which is generally for one year.
Systems integration service is subject to the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board ("FASB") Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables" which was adopted as of April
1, 2004.
Equipment sales represent revenues earned in which the Company acts as
principal in the transaction, takes title to the equipment and has risks and
rewards of ownership while in inventory and are reported gross as the indicators
outlined in the provisions of the EITF Issue No. 99-19 "Reporting Revenue Gross
as a Principal versus Net as an Agent" are met.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and readily marketable
securities with original maturities of three months or less.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is established in amounts considered to
be appropriate based primarily upon the Company's past credit loss experience
and an evaluation of potential losses in the receivables outstanding.
Other Investments
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," all
marketable equity securities are classified as available-for-sale securities,
which are accounted for at fair value with unrealized gains and losses excluded
from earnings and reported in accumulated other comprehensive income. The cost
of securities sold is determined based on average cost.
-15-
The Company reviews the fair value of available-for-sale investments on a
regular basis to determine if the fair value of any individual investment has
declined below its cost and if such decline is other than temporary. If the
decline in value is judged to be other than temporary, the cost basis of the
investment is written down to fair value. Other than temporary declines in value
are determined taking into consideration the extent of decline in fair value,
the length of time that the decline in fair value below cost has existed and
events that might accelerate the recognition of impairment. The resulting
realized loss is included in the consolidated statements of operations in the
period in which the decline was deemed to be other than temporary.
Non-marketable equity securities are carried at cost as fair value is not
readily determinable. If the value of a security is estimated to have declined
and such decline is judged to be other than temporary, the security is written
down to the fair value. Determination of impairment is based on the
consideration of such factors as operating results, business plans and change in
the regulatory, economic or technological environment of the investees. Fair
value is determined as the Company's interest in the net assets of investees.
Inventories
Inventories consist mainly of network equipment purchased for resale and
work-in-process for development of Internet network systems. Network equipment
purchased for resale is stated at the lower of cost, which is determined by the
average-cost method, or market. Work-in-process for development of network
systems is stated at the lower of actual production costs, including overhead
cost, or market. Inventories are reviewed periodically and items considered to
be slow-moving or obsolete are written down to their estimated net realizable
value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment, including purchased software and capitalized leases, are
computed principally using the straight-line method based on either the
estimated useful lives of assets or the lease period, whichever is shorter. The
useful lives for depreciation and amortization by major asset classes are as
follows:
----------------------------------------------------------------------------
Range of useful lives
----------------------------------------------------------------------------
Data communications, office and other equipment 2 to 15 years
Leasehold improvements 3 to 15 years
Purchased software 5 years
Capitalized leases 4 to 7 years
----------------------------------------------------------------------------
Impairment of Long-Lived Assets
Long-lived assets consist principally of property and equipment, including
those items leased under capital leases. In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
evaluates the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There was no impairment loss for long-lived assets in the first
quarter of FY2005.
Goodwill and Intangible Assets
Under SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
(including equity-method goodwill) and intangible assets that are deemed to have
indefinite useful lives are not amortized, but are subject to impairment
testing. Impairment testing is required to be performed at adoption and annually
or more frequently if events or changes in circumstances indicate that the asset
might be impaired. The Company selected March 31 as its annual impairment
testing date.
Income Taxes
The provision for income taxes is based on earnings before income taxes and
includes the effects of temporary differences between assets and liabilities
recognized for financial reporting purposes and income tax purposes and
operating loss carryforwards. Valuation allowances are provided against assets
that are not likely to be realized.
Foreign Currency Transactions
Foreign currency assets and liabilities, which consist substantially of cash
and accounts payable for connectivity leases to international carriers
denominated in U.S. dollars, are stated at the amount as computed by using
exchange rates at the end of the quarter and the resulting transaction gain or
loss is recognized in earnings.
-16-
Derivative Financial Instruments
All derivatives are recorded at fair value as either assets or liabilities in
the balance sheet in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138 and No. 149
(collectively, "SFAS No. 133"). In accordance with SFAS No. 133, the Company
designated interest swap contracts as a hedge of the variability of cash flows
to be paid related to interest on floating rate borrowings (cash flow hedge) and
an effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the underlying transaction affects earnings. An ineffective
portion of the gain or loss is reported in earnings immediately.
The Company enters into contracts to hedge interest rate risks and does not
enter into contracts or utilize derivatives for trading purposes.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accordingly, the Company
recognizes compensation expense in an amount equal to the excess of the quoted
market price over the exercise price of the option at the grant date. For
options with a vesting period, the compensation expense is charged to operations
ratably over the vesting period. The Company has not recognized any stock-based
compensation expense for the first quarter of FY2005.
Advertising
Advertising costs are expensed as incurred.
Basic and Diluted Net Income per Share
Basic and diluted net income per share are computed using the
weighted-average number of shares of common stock outstanding during the first
quarter of FY2005. For the first quarter of FY2005, all potential common shares,
shares issuable upon exercise of stock options, have been excluded from the
computation of diluted net income because the exercise prices of the options
were greater than the average market price of common shares. Diluted net income
per share does not include the effects of the following potential common shares:
--------------------------------------------------------------------------------
At the end of the first quarter
of FY2005 (June 30, 2005)
--------------------------------------------------------------------------------
Shares issuable under stock options 540
--------------------------------------------------------------------------------
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of translation adjustments
resulting from the translation of financial statements of a foreign subsidiary,
unrealized gains or losses on available-for-sale securities and gains or losses
on cash flow hedging derivative instruments.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments. Operating segments are defined as components of an enterprise that
engages in business activities from which it may earn revenues and incur expense
and for which separate financial information is available that is evaluated
regularly by the chief operation decision maker in deciding how to allocate
resources and in assessing performance.
The Company provides a comprehensive range of network solutions to meet its
customers' needs by cross-selling a variety of services, including Internet
connectivity services, value-added services, systems integration and sales of
network-related equipment. The Company's chief operating decision maker, who is
the Company's Chief Executive Officer, regularly reviews the revenue and cost of
sales on a consolidated basis and makes decisions regarding how to allocate
resources and assess performance based on a single operating unit.
2. OTHER INVESTMENTS
Pursuant to SFAS No. 115, all of the Company's marketable equity securities,
principally marketable shares of common stock of Japanese companies, were
classified as available-for-sale securities. Information regarding the
securities classified as available-for-sale at June 30, 2005, and at March 31,
2005, is as follows:
-17-
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
At the end of the first quarter of FY2005 At the end of FY2004
(June 30, 2005) (March 31, 2005)
--------------------------------------------------------------------------------------------------------------------
Cost Unrealized Unrealized Fair value Cost Unrealized Unrealized Fair value
gains losses gains losses
--------------------------------------------------------------------------------------------------------------------
212,219 6,711,169 2,530 6,920,858 215,258 8,738,792 5,882 8,948,168
Available-for-sale
-Equity
securities
--------------------------------------------------------------------------------------------------------------------
The following table provides the fair value and gross unrealized losses of
the Company's investments, which have been deemed to be temporarily impaired,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, as of June 30, 2005:
(Unit: Thousands of yen)
--------------------- ------------------------------- ------------------------------- -------------------------------
Less than 12 months 12 months or more Total
--------------------- ------------------------------- ------------------------------- -------------------------------
Fair value Unrealized Fair value Unrealized Fair value Unrealized
losses losses losses
--------------------- --------------- --------------- --------------- --------------- --------------- ---------------
Marketable equity 47,200 2,530 - - 47,200 2,530
securities
--------------------- --------------- --------------- --------------- --------------- --------------- ---------------
The Company regularly reviews all of the Company's investments to determine
if any are other-than-temporarily impaired. The analysis includes reviewing
industry analyst reports, sector credit ratings and volatility of the security's
market price.
Proceeds from the sale of available-for-sale securities were JPY 514,460
thousand and JPY 2,614,768 thousand for the first quarter of FY2005 and full
FY2004, respectively. Gross realized gain of JPY 511,421 thousand and JPY
2,477,607 thousand were included in other income (expense) for the first quarter
of FY2005 and full FY2004, respectively.
The aggregate cost of the Company's cost method investments totaled JPY
961,371 thousand and JPY 982,613 thousand at June 30, 2005, and March 31, 2005,
respectively.
Losses on write-down of investments in certain marketable and nonmarketable
equity securities, included in other income (expense), were recognized to
reflect the decline in value considered to be other than temporary, totaled JPY
22,663 thousand and JPY 118,076 thousand for the first quarter of FY2005 and
full FY2004, respectively. Gain on exchange of securities of 35,450 thousand,
included in other income (expense) for FY2004, represented a non-monetary gain
upon the exchange of marketable common shares in a merger transaction.
3. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTEES
IIJ utilizes various companies in Japan and neighboring countries to form and
operate its Internet business. Businesses operated by its equity method
investees include connectivity services in Asian countries (AIH), multifeed
technology services and location facilities for connecting high-speed Internet
backbones (Internet Multifeed Co., "Multifeed"), Web page design services (atom
Co., Ltd.), and data center services in South Korea (i-Heart Inc., "i-Heart").
The Company had no guarantees or commitments to equity method investees as of
June 30, 2005, or as of March 31, 2005.
The aggregate amounts of balances and transactions of the Company with these
equity method investees as of June 30, 2005 and March 31, 2005 are summarized as
follows.
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
First quarter of FY2005 Full FY2004
--------------------------------------------------------------------------------------------------------------------
(as of June 30, 2005) (as of March 31, 2005)
Accounts receivable 110,435 118,130
Accounts payable 94,810 96,727
(from April 1, 2005 to (from April 1, 2004 to
June 30, 2005) March 31, 2005)
Revenues 308,627 1,245,361
Costs and expenses 283,200 1,145,834
--------------------------------------------------------------------------------------------------------------------
-18-
During the first quarter of FY2005 and full FY2004, the Company did not
receive any dividends from its equity method investees.
The Company's investments in and advances to these equity method investees
and respective ownership percentage at June 30, 2005 and March 31, 2005
consisted of the following:
--------------------------------------------------------------------------------------------------------------------
At the end of the first quarter of FY2005 At the end of FY2004
(June 30, 2005) (March 31, 2005)
--------------------------------------------------------------------------------------------------------------------
Ownership (%) Thousands of yen Ownership (%) Thousands of yen
--------------------------------------------------------------------------------------------------------------------
AIH 26.69 265,460 26.69 275,386
Multifeed 28.58 264,219 28.58 242,719
atom 40.00 106,521 40.00 155,837
Other 40,835 39,665
--------------------------------------------------------------------------------------------------------------------
Total 677,035 713,607
--------------------------------------------------------------------------------------------------------------------
Advances of JPY 19,868 thousand to an equity method investees, net of loan
loss valuation allowance was included in the balances, as of June 30, 2005 and
March 31, 2005.
4. LEASES
The Company enters into, in the normal course of business, various leases
for domestic and international backbone services, office premises, network
operation centers and data communications and other equipment. Certain leases
that meet one or more of the criteria set forth in the provision of SFAS No. 13,
"Accounting for leases" have been classified as capital leases and the others
have been classified as operating leases.
Operating Leases
The Company has operating lease agreements with telecommunications carriers
and others for the use of connectivity lines, including local access lines that
customers use to connect to IIJ's network. The leases for domestic backbone
connectivity as of June 30, 2005 are generally either non-cancelable for a
minimum one-year lease period or cancelable during a lease period of three
years, with a significant penalty for cancellation (35% of the aggregate lease
expenses). The leases for international backbone connectivity as of June 30,
2005 and March 31, 2005 are entered into with carriers for lease periods ranging
from one to two years and are substantially non-cancelable. The Company also
leases its office premises, for which refundable lease deposits are capitalized
as guarantee deposits, and certain office equipment under non-cancelable
operating leases which expire on various dates through the year 2007 and also
leases its network operation centers under non-cancelable operating leases.
Refundable guarantee deposits as of June 30, 2005 and March 31, 2005
consist of as follows:
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
At the end of the first quarter At the end of FY2004
of FY2005 (March 31, 2005)
(June 30, 2005)
--------------------------------------------------------------------------------------------------------------------
Head office 1,744,949 1,705,036
Sales and subsidiaries offices 298,457 296,971
Others 47,831 48,658
--------------------------------------------------------------------------------------------------------------------
Total refundable guarantee deposits 2,091,237 2,050,665
--------------------------------------------------------------------------------------------------------------------
Lease expenses related to backbone lines for the first quarter of FY2005 and
full FY2004 amounted to JPY 863,705 thousand and JPY 3,550,885 thousand,
respectively. Lease expenses for local access lines for the first quarter of
FY2005 and full FY2004, which are only attributable to dedicated access
revenues, amounted to JPY 1,131,358 thousand and JPY 4,040,192 thousand,
respectively. Other lease expenses for the first quarter of FY2005 and full
FY2004 amounted to JPY 871,848 thousand and JPY 3,307,717 thousand,
respectively.
-19-
The Company has subleased a part of its office premises. Lease expenses
mentioned above have been reduced by sublease revenues totaling JPY 111,021
thousand and JPY 406,451 thousand for the first quarter of FY2005 and full
FY2004, respectively.
Capital Leases
The Company conducts its connectivity and other Internet-related services by
using data communications and other equipment leased under capital lease
arrangements. The fair values of the assets upon execution of the capital lease
agreements and accumulated depreciation amounted to JPY 12,740,593 thousand and
JPY 6,265,906 thousand at June 30, 2005, and JPY 13,251,657 thousand and JPY
6,336,386 thousand at March 31, 2005, respectively.
As of June 30, 2005, future lease payments under non-cancelable operating
leases, including the aforementioned non-cancelable connectivity lease
agreements (but excluding dedicated access lines which the Company charges
outright to customers), and capital leases were as follows:
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
Connectivity lines Other operating leases Capital leases
operating leases
--------------------------------------------------------------------------------------------------------------------
Through June 30, 2006 51,192 1,481,514 2,718,759
July 1, 2006 and thereafter 12,798 689,409 3,950,359
--------------------------------------------------------------------------------------------------------------------
As of March 31, 2005, future lease payments under non-cancelable operating
leases, including the aforementioned non-cancelable connectivity lease
agreements (but excluding dedicated access lines which the Company charges
outright to customers), and capital leases were as follows:
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
Connectivity lines Other operating leases Capital leases
operating leases
--------------------------------------------------------------------------------------------------------------------
Through March 31, 2006 86,804 1,764,205 2,774,974
April 1, 2006 and thereafter 29,491 567,495 4,339,028
--------------------------------------------------------------------------------------------------------------------
-20-
5. BORROWINGS AND CONVERTIBLE NOTES
Short-term borrowings at June 30, 2005 and March 31, 2005 consist of bank
overdrafts. Short-term borrowings bear fixed-rate interest and their weighted
average rates at June 30, 2005 and March 31, 2005 were 1.375 % and 1.375 %,
respectively.
Long-term borrowings as of June 30, 2005 and March 31, 2005 consisted of the
following:
(Unit: Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
At the end of the first At the end of FY2004
quarter of FY2005 (March 31, 2005)
(June 30, 2005)
--------------------------------------------------------------------------------------------------------------------
Unsecured long-term loans payable to banks, 187,000 208,000
maturing at various dates through 2007. Weighted
average interest rates were 3.235 % and 3.255 % at
June 30, 2005 and March 31, 2005, respectively.
Secured long-term loans payable to banks, 2,200,000 2,350,000
maturing at various dates through 2006. Weighted
average interest rates were 1.778 % and 1.789 %
at June 30, 2005 and March 31, 2005, respectively.
Secured long-term loans payable to banks, 1,400,000 1,400,000
maturing at various dates through 2007.
Interest is payable at a variable rate based
on TIBOR. All interest is converted to a
fixed interest rate through interest rate
swap contracts. Weighted average fixed
interest rates were 1.132 % and 1.137 % at
June 30, 2005 and March 31, 2005,
respectively.
Long-term installments loans payable at various 270,365 308,019
dates through 2007. Weighted average interest
rates were 2.55 % and 2.55 % at June 30, 2005
and March 31, 2005, respectively.
--------------------------------------------------------------------------------------------------------------------
Total 4,057,365 4,266,019
--------------------------------------------------------------------------------------------------------------------
Less current portion (3,187,023) (2,736,056)
--------------------------------------------------------------------------------------------------------------------
Long-term borrowings, less current portion 870,342 1,529,963
--------------------------------------------------------------------------------------------------------------------
The Company entered into interest rate swap contracts to manage its interest
rate exposure resulting in a fixed interest rate for a portion of its long-term
debt.
On March 14, 2003, the Company entered into a long-term installment loan
agreement with a leasing company to finance the payment for rental deposits
given to other lessor for its new head office. The principal of the loan was JPY
270,365 thousand and JPY 308,019 thousand at June 30, 2005 and March 31, 2005,
respectively, and the loan is secured by a first priority pledge against a claim
for the guarantee deposits of JPY 1,705,036 thousand.
Also, the Company provided banks with collateral for outstanding loans by
means of establishing a second priority pledge against the refundable guarantee
deposits.
The Company entered into bank overdraft agreements with certain Japanese
banks for which the unused balance outstanding as of June 30, 2005 and March 31,
2005, were JPY 1,891,613 thousand and JPY 1,890,367 thousand, respectively.
The Company entered into a securities loan agreement with a financial
institution in August 2004 and received JPY 1,530,400 thousand of cash in return
of lent of securities as of June 30, 2005. These transactions were accounted for
as secured borrowings and the cash received was recorded as payables under
securities loan agreement and securities lent were recorded as other
investments. The Company paid the interest on the payables with a variable rate
of LIBOR plus 0.56%. The interest rate was 0.6349% as of June 30, 2005.
The Company provided available-for-sale securities of JPY 1,910,200 thousand
as stock lent for the securities loan agreement as of June 30, 2005.
-21-
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company adopted FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures to be
made by a guarantor about its obligations under certain guarantees. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee.
In December 2001, a class action complaint alleging violations of the federal
securities laws was filed against the Company, naming IIJ, certain of its
officers and directors as defendants, and underwriters of IIJ's initial public
offering. Similar complaints have been filed against over 300 other issuers that
have had initial public offerings since 1998 and such actions have been included
in a single coordinate proceeding in the Southern District of New York. An
amended complaint was filed on April 24, 2002 alleging, among other things, that
the underwriters of IIJ's initial public offering violated the securities laws
(i) by failing to disclose in the offering's registration statement certain
alleged compensation arrangements entered into with the underwriters' clients,
such as undisclosed commissions or tie-in agreements to purchase stock in the
after-market, and (ii) by engaging in manipulative practices to artificially
inflate the price of IIJ's stock in the after-market subsequent to the initial
public offering. On July 15, 2002, the Company joined in an `omnibus' motion to
dismiss the amended complaint filed by the issuers and individuals named in the
various coordinated cases. In June 2003, the Company approved a settlement with
the plaintiffs in this matter. In June 2004, the Company along with the
plaintiffs, the insurers, and virtually all of the other District Court for the
Southern District of New York for preliminary approval. The settlement releases
IIJ and the individual defendants for liability for the conduct alleged in the
action. Under the settlement, the Company agreed to assign away, not assert, or
release certain potential claims the Company may have against IIJ's
underwriters. Approximately 260 defendant issuers participated in this
settlement. As to financial impact on the Company, the settlement provides that
the class members will be guaranteed $1 billion in recoveries by the insurers of
the issuers. In addition to IIJ's portion of the proposed settlement, some of
the continuing legal expenses incurred in connection with the partial settlement
would be borne by IIJ's insurer based on the settlement agreement and an
individual agreement between IIJ and IIJ's insurer. Consequently, the Company
believes that there will be no significant financial impact on the Company as a
result of this matter. This settlement requires final approval from United
States of America district court.
In addition to the foregoing, the Company is a party to other suits and
claims that arise in the normal course of business. The negative adverse outcome
of such suits and claims would not have a significant impact on the financial
statements.
7. DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Interest Rate Swap Agreement
The Company is exposed to changes in interest rates that are associated with
long-term bank borrowings. The Company's policy on managing the interest rate
risk is to hedge the exposure to variability in future cash flows of floating
rate interest payments on the long-term bank borrowings. In order to reduce cash
flow risk exposures on floating rate borrowings, the Company utilizes interest
rate swap agreements to convert a floating rate borrowing to a fixed rate
borrowing.
The Company is also exposed to credit-related losses in the event of
non-performance by counterparties to interest rate swaps, but it is not expected
that any counterparties will fail to meet their obligations, because
counterparties are internationally recognized financial institution.
Changes in fair value of interest rate swaps designated as hedging
instruments is reported in accumulated other comprehensive income during the
first quarter of FY2005, and full FY2004. These amounts subsequently are
reclassified into interest expense as a yield adjustment in the same period in
which the hedged bank borrowings affect earnings. The term, notional amount, and
repricing date of interest rate swaps exactly match those of the long-term
borrowings. The swap terms are "at the market," so they have zero value at
inception. Thus, there was no ineffectiveness recognized in earning for the
first quarter of FY2005 and full FY2004. At June 30, 2005, the notional amount
of interest rate swap contracts amounted to JPY 1,400,000 thousand, and net
derivative loss on those contracts totaled JPY 9,347 thousand.
8. SUBSEQUENT EVENTS
(For the first quarter of FY2005)
-22-
On August 4, 2005, IIJ's board of directors resolved that IIJ would make a 1
to 5 stock split for shareholders of record listed in the register of
shareholders as of the end of business on August 31, 2005, with the payable date
of October 11, 2005. As a result of the split, we issued 153,440 shares of
common stock.
On July 7, 2005, IIJ's board of directors resolved that IIJ would purchase
the stock of AIH, an equity method investee, from minority shareholders to
acquire a 100% interest in AIH. On August 4, 2005, IIJ's board of directors
resolved that IIJ would conclude a merger contract. IIJ merged with AIH in
accordance to the contract of merger on October 1, 2005.
On July 7, 2005, IIJ's board of directors resolved that IIJ would purchase
the stock of MC, a majority-owned consolidated subsidiary, from minority
shareholders to acquire a 100% interest in MC. On August 4, 2005, IIJ's board of
directors resolved that IIJ would enter into a contract to transfer MC's systems
integration business to IIJ-Tech, IIJ's majority-owned subsidiary, and merge MC
into IIJ. IIJ merged MC in accordance with the merger contract on October 1,
2005. MC acquired 1,235 shares of IIJ-Tech newly issued upon the transfer of its
systems integration business to IIJ-Tech, and the shares were transferred to IIJ
in accordance to the merger.
(5) Other
There are no applicable items.
[The document is a translation of the original version in the Japanese language]
-23-
Exhibit 5
IIJ Announces Second Quarter Results for the Year Ending
March 31, 2006; Revenues and Profits Increased Significantly in
Favorable Progress towards Our Initial Annual Target
TOKYO & NEW YORK--(BUSINESS WIRE)--Nov. 9, 2005--Internet
Initiative Japan Inc. (Nasdaq: IIJI) ("IIJ"), one of Japan's leading
Internet-access and comprehensive network solutions providers, today
announced its financial results for the second quarter of the fiscal
year ending March 31, 2006 ("FY2005").(1)
Highlights of Second Quarter FY2005 Results
-- Revenue totaled JPY 11,929 million ($105.3 million), an
increase of 13.5% from 2Q04.
-- Operating income was JPY 507 million ($4.5 million), an
increase of 79.8% from 2Q04.
-- Net income was JPY 1,001 million ($8.8 million), an increase
of 336.6% from 2Q04.
-- Results for the first half of FY2005 were as follows, and
exceeded our initial targets. Revenues: JPY 21,809 million
($192.5 million), an increase of 13.7% compared to 1H04.
Operating income: JPY 754 million ($6.7 million), an increase
of 315.0% compared to 1H04.
Net income: Turned positive to JPY 1,623 million ($14.3
million) from a loss of JPY 9 million in 1H04.
Target for FY2005(2)
-- We maintain the target for FY2005 that we announced on May 27,
2005.
Overview of 2nd Quarter of FY2005 Financial Results and Business
Outlook(2)
----------------------------------------------------------------------
"The favorable trend of increasing revenues and profits continued
in 2Q05," said Koichi Suzuki, President and CEO of IIJ. "Total
revenues jumped 13.5% compared to the same period last year and 20.7%
sequentially mainly due to continued increases in sales of
higher-margin network outsourcing and systems integration ("SI"). This
was largely a reflection of the direction that we see the market and
our business heading. Corporate customers are continuously requiring
ever higher quality IP engineering skills and resources due to the
constantly increasing volume of Internet traffic, escalating network
and security threats, and expansion of internal network systems that
are integrated with the Internet. In particular, SI in 2Q05 increased
significantly because we succeeded in acquiring a number of new
systems integration projects, including the connection of customers'
sites with broadband lines, the construction and operation of a new
mail server to assist customers with their continuously increasing
number of e-mails, and the construction and operation of security
systems for several customers to bolster their efforts at fighting
spam and external attacks."
"We are pleased that we successfully exceeded our initial targets
for the first half of the fiscal year," said Akihisa Watai, CFO of
IIJ. "We maintain our initial targets at this moment since we
generally receive the largest portion of our SI revenues in the fourth
quarter of our fiscal year."
2nd Quarter FY2005 Financial Results
Operating Result Summary (JPY in millions)
1H05 1H04 YoY % 2Q05
change
----------------------------------------------------------------------
Total Revenues 21,809 19,187 13.7% 11,929
----------------------------------------------------------------------
Total Costs 17,991 16,297 10.4% 9,873
----------------------------------------------------------------------
SG&A Expenses and R&D 3,064 2,708 13.1% 1,549
----------------------------------------------------------------------
Operating Income 754 182 315.0% 507
----------------------------------------------------------------------
Net Income 1,623 (9) (18374.4%) 1,001
----------------------------------------------------------------------
2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Revenues 10,512 13.5% 9,880 20.7%
----------------------------------------------------------------------
Total Costs 8,854 11.5% 8,118 21.6%
----------------------------------------------------------------------
SG&A Expenses and R&D 1,376 12.5% 1,516 2.2%
----------------------------------------------------------------------
Operating Income 282 79.8% 247 105.7%
----------------------------------------------------------------------
Net Income 229 336.6% 623 60.7%
----------------------------------------------------------------------
Revenues
--------
Revenues in 2Q05 totaled JPY 11,929 million, an increase of 13.5%
from JPY 10,512 million in 2Q04 and an increase of 20.7% from
JPY 9880 million in 1Q05.
Revenues (JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Revenues 11,929 10,512 13.5% 9,880 20.7%
----------------------------------------------------------------------
Connectivity & VAS 5,767 5,508 4.7% 5,767 0.0%
----------------------------------------------------------------------
SI 5,162 3,838 34.5% 3,840 34.4%
---------------------------------------------------------------------
Equipment Sales 1,000 1,166 (14.2%) 273 266.0%
----------------------------------------------------------------------
Connectivity and Value-added Services ("VAS") revenues were JPY
5,767 million in 2Q05, an increase of 4.7 % from JPY 5,508 million in
2Q04 and almost flat compared to JPY 5,767 million in 1Q05.
Dedicated access service revenues were JPY 2,695 million in 2Q05,
a decrease of 4.8% compared to 2Q04 and a decrease of 1.9% compared to
1Q05. The decrease was mainly due to the failure of an increase in
revenues from broadband services to offset a decrease in revenues from
T1 Standard or IIJ Economy.
Dial-up access service revenues were JPY 683 million in 2Q05, a
decrease of 7.8% compared to 2Q04 and a decrease of 2.3% compared to
1Q05. The decrease from 2Q04 and 1Q05 is mainly due to the decrease in
revenues from IIJ4U and OEM service revenues.
VAS revenues were JPY 1,459 million in 2Q05, an increase of 19.5%
compared to 2Q04 and an increase of 5.1% compared to 1Q05. The
increase compared to 2Q04 and 1Q05 is mainly due to an increase in
revenues from various types of packaged outsource services, such as
security, e-mail and web hosting and network services such as managed
router services.
Other revenues were JPY 930 million in 2Q05, an increase of 30.0%
compared to 2Q04 and a decrease of 0.3% compared to 1Q05. The increase
from 2Q04 is mainly due to an increase in revenues from Wide-area
Ethernet Services.
SI revenues increased 34.5% to JPY 5,162 million in 2Q05 from JPY
3,838 million in 2Q04 and increased 34.4% from JPY 3,840 million in
1Q05. The increase from 2Q04 is mainly due to additional revenues from
the purchase of the security system business operations of Yamatane
Co. Ltd. in October 2004 and solid growth of revenues from outsourced
operations. The increase from 1Q05 is mainly due to the significant
increase in revenues from systems development projects and solid
increase of revenues from outsourced operations.
Equipment sales revenues were JPY 1,000 million in 2Q05, a
decrease of 14.2% compared to 2Q04 and an increase of 266.0% compared
to 1Q05. The increase from 1Q05 is due to the increase of sales of
network equipment related to new system integration projects.
Cost and expense
----------------
Cost of revenues was JPY 9,873 million in 2Q05, an increase of
11.5% compared to 2Q04 and an increase of 21.6% compared to
1Q05.
Cost of Revenues (JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Costs: 9,873 8,854 11.5% 8,118 21.6%
----------------------------------------------------------------------
Connectivity & VAS 4,988 4,780 4.3% 4,964 0.5%
----------------------------------------------------------------------
SI 3,919 2,983 31.4% 2,910 34.7%
----------------------------------------------------------------------
Equipment Sales 966 1,091 (11.4%) 244 296.4%
----------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY 4,988 million, an
increase of 4.3% compared to 2Q04 and almost flat compared to 1Q05.
The increase from 2Q04 is mainly due to an increase in personnel
expenses and cost for local access lines for Wide-area Ethernet
Services. The gross-margin ratio for Connectivity and VAS in 2Q05 was
13.5%, compared to 13.2% in 2Q04 and 13.9% in 1Q05. The improvement
from 2Q04 was mainly due to an increase in revenues from higher-margin
VAS, and a decrease in backbone costs.
Cost of SI revenues was JPY 3,919 million in 2Q05, an increase of
31.4% compared to 2Q04 and an increase of 34.7% compared to 1Q05. The
gross margin ratio for SI in 2Q05 was 24.1%, compared to 22.3% in 2Q04
and 24.2% in 1Q05. The improvement in margin compared to 2Q04 was
mainly due to the increase in higher-margin systems integration
contracts.
Sales and marketing expenses were JPY 800 million in 2Q05, an
increase of 12.4% compared to 2Q04 and an increase of 4.1% compared to
1Q05. The increase from 2Q04 is mainly due to an increase in
advertising and personnel expenses. The increase from 1Q05 is mainly
due to an increase in advertising expenses.
General and administrative expenses were JPY 699 million in 2Q05,
an increase of 14.1% compared to 2Q04 and a decrease of 2.1% compared
to 1Q05. The increase from 2Q04 is mainly due to an increase in
personnel expenses.
Operating income
----------------
Operating income was JPY 507 million in 2Q05, compared to JPY 282
million in 2Q04 and JPY 247 million in 1Q05. The increase from 2Q04
and 1Q05 was mainly due to increased gross-margins in Connectivity,
VAS and SI.
Other income (expenses) in 2Q05 was other income of JPY 590
million, compared to other expenses of JPY 10 million in 2Q04 and
other income of JPY 435 million in 1Q05. The increase from 2Q04 and
1Q05 is mainly due to an increase in gain from sale of
available-for-sale securities. The differences from 2Q04 also include
the absence of interest payments for the convertible notes due March
31, 2005.
Income tax expense for 2Q05 was JPY 44 million, compared to JPY 16
million in 2Q04 and JPY 38 million in 1Q05.
Equity in net income of equity method investees amounted to JPY 30
million in 2Q05, compared to JPY 16 million in 2Q04 and JPY 3 million
in 1Q05.
Net income was JPY 1,001 million in 2Q05, compared to JPY 229
million in 2Q04 and JPY 623 million in 1Q05. The increase from 2Q04
and 1Q05 is mainly due to the increase in operating income, and an
increase in gain from sale of available-for-sale securities.
2nd Quarter FY2005 Business Review
----------------------------------
Analysis by Service
-------------------
Connectivity and Value-added Services
Number of Contracts for Connectivity Services
2Q05 2Q04 1Q05
------------------------------------------------ --------- ----------
Dedicated Access Service Contracts 12,702 8,880 12,274
------------------------------------------------ --------- ----------
IP Service (Low Bandwidth: 64kbps-
768kbps)(3) 61 71 65
------------------------------------------------ --------- ----------
IP Service (Medium Bandwidth:
1Mbps-99Mbps)(3) 637 597 637
------------------------------------------------ --------- ----------
IP Service (High Bandwidth: 100Mbps-) 143 93 131
------------------------------------------------ --------- ----------
IIJ T1 Standard and IIJ Economy 182 358 208
------------------------------------------------ --------- ----------
IIJ Data Center Connectivity Service 234 225 234
------------------------------------------------ --------- ----------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 11,445 7,536 10,999
------------------------------------------------ --------- ----------
Dial-up Access Service Contracts 663,527 711,637 677,207
------------------------------------------------ --------- ----------
Dial-up Access Services, under IIJ
Brand 64,810 70,629 66,125
------------------------------------------------ --------- ----------
Dial-up Access Services, OEM(4) 598,717 641,008 611,082
------------------------------------------------ --------- ----------
Total Contracted Bandwidth 151.0Gbps 104.9Gbps 140.9Gbps
------------------------------------------------ --------- ----------
For the total number of contracts for dedicated access services,
we continued a growth trend in 2Q05. In IP Services, which are
mainly used for critical services for corporate customers,
contracts for 100Mbps and higher increased significantly, and
we increased the number of contracts for 1Gbps to 43 in 1Q05,
from 33 in the previous quarter. The number of contracts for
broadband services also continued to increase along with the
increased systems integration projects for site connectivity.
Connectivity and VAS Revenue Breakdown and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
Change change
--------------------------------------- ------ ------- ------ -------
Connectivity Service Revenues 3,378 3,572 (5.4%) 3,446 (2.0%)
--------------------------------------- ------ ------- ------ -------
Dedicated Access Service
Revenues 2,695 2,832 (4.8%) 2,747 (1.9%)
--------------------------------------- ------ ------- ------ -------
IP Service(5) 2,121 2,222 (4.6%) 2,166 (2.1%)
--------------------------------------- ------ ------- ------ -------
IIJ T1 Standard and IIJ
Economy 113 228 (50.3%) 134 (15.7%)
--------------------------------------- ------ ------- ------ -------
IIJ FiberAccess/F and IIJ
DSL/F (Broadband Services) 461 382 20.7% 447 3.3%
--------------------------------------- ------ ------- ------ -------
Dial-up Access Service Revenues 683 740 (7.8%) 699 (2.3%)
--------------------------------------- ------ ------- ------ -------
Under IIJ Brand 457 501 (8.9%) 466 (2.0%)
--------------------------------------- ------ ------- ------ -------
OEM 226 239 (5.4%) 233 (3.0%)
--------------------------------------- ------ ------- ------ -------
VAS Revenues 1,459 1,220 19.5% 1,388 5.1%
--------------------------------------- ------ ------- ------ -------
Other Revenues 930 716 30.0% 933 (0.3%)
--------------------------------------- ------ ------- ------ -------
Total Connectivity and
VAS Revenues 5,767 5,508 4.7% 5,767 0.0%
--------------------------------------- ------ ------- ------ -------
Cost of Connectivity and VAS 4,988 4,780 4.3% 4,964 0.5%
--------------------------------------- ------ ------- ------ -------
Backbone Cost (included in the
cost of Connectivity and VAS) 846 877 (3.5%) 864 (2.0%)
--------------------------------------- ------ ------- ------ -------
Connectivity and VAS Gross
Margin Ratio 13.5% 13.2% 13.9%
--------------------------------------- ------ ------- ------ -------
VAS revenues increased reflecting an increase in revenues from
various types of packaged outsource services.
Other revenues also increased steadily, mainly due to an increase
in revenue from Wide-area Ethernet services in year-over-year
comparison.
Backbone costs declined in 2Q05 by 3.5% compared to 2Q04 and by
2.0% compared to 1Q05.
Systems Integration
Systems Integration
Revenue Breakdown and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
Change change
---------------------------------- ------ ------ ------ ------ ------
Systems Integration Revenues 5,162 3,838 34.5% 3,840 34.4%
---------------------------------- ------ ------ ------ ------ ------
Systems Integration 2,405 2,101 14.5% 1,193 101.5%
---------------------------------- ------ ------ ------ ------ ------
Outsourced Operation 2,757 1,737 58.7% 2,647 4.2%
---------------------------------- ------ ------ ------ ------ ------
Cost of Systems Integration 3,919 2,983 31.4% 2,910 34.7%
---------------------------------- ------ ------ ------ ------ ------
Systems Integration Gross Margin
Ratio 24.1% 22.3% 24.2%
---------------------------------- ------ ------ ------ ------ ------
Our SI projects are becoming bigger in scale as we include the
whole stream of consulting, design, project management,
implementation and operation. In 2Q05, SI revenues increased
significantly due to an increase in SI development, and
revenues from outsourced operations continued to increase
steadily. In addition, the increase from 2Q04 reflected
additional revenues from the purchase of the security system
business operations of Yamatane Co. Ltd. ("Yamatane").
Equipment Sales
Equipment Sales Revenue and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
---------------------------------- ------ ------ ------- ----- ------
Equipment Sales Revenues 1,000 1,166 (14.2%) 273 266.0%
---------------------------------- ------ ------ ------- ----- ------
Cost of Equipment Sales 966 1,091 (11.4%) 244 296.4%
---------------------------------- ------ ------ ------- ----- ------
Equipment Sales Gross Margin Ratio 3.5% 6.5% 10.9%
---------------------------------- ------ ------ ------- ----- ------
Other Financial Statistics
Other Financial Statistics
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change Change
--------------------------------- ------ ------ ------- ------ ------
Adjusted EBITDA(6) 1,517 1,275 19.0% 1,261 20.4%
--------------------------------- ------ ------ ------- ------ ------
CAPEX, including capital leases(7) 795 1,345 (40.9%) 533 49.1%
--------------------------------- ------ ------ ------- ------ ------
Depreciation and amortization(8) 1,010 1,012 (0.1%) 1,014 (0.4%)
--------------------------------- ------ ------ ------- ------ ------
Major Topics
------------
ADS ratio change and stock split:
On October 11, 2005, IIJ conducted a change in the ratio of its
American Depositary Shares ("ADSs") to the shares of common stock of
IIJ ("Shares") from 1 ADS = 1 / 2,000 of a Share to 1 ADS = 1 / 400 of
a Share. IIJ also conducted a stock split (1 to 5) of Shares on the
same day as the payable date.
IIJ Group to complete corporate reorganization:
In August 2005, IIJ Group announced a corporate reorganization to
streamline its delivery of total network solutions. With the
reorganization, IIJ Media Communications Inc. transferred its systems
integration business to IIJ Technology Inc ("IIJ-Tech") and integrated
its broadcasting business and application hosting business with IIJ
through a merger. At the same time, Asia Internet Holding Co., Ltd.
merged with IIJ. In October 2005, IIJ Group announced that the
reorganization had been completed.
Introduction of RFID Solution:
In September 2005, IIJ announced the October 2005 release of the
IIJ EPC Network Service that is based on the EPCglobal Network
international standard. Radio Frequency Identification ("RFID") is an
information exchange technology that uses radio IC tags. It provides
the system components necessary to record, reference, and update RFID
tag information over the Internet.
IIJ-Tech to make investment in IPMobile incorporated:
In September 2005, IIJ announced that the Board of Directors of
IIJ-Tech decided to purchase stock from IPMobile Incorporated
("IPMobile") as part of a private placement to third-parties.
IIJ-Tech's participation was JPY 50 million, of the total value of the
third-party stock allocation by IPMobile of JPY 875 million.
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 in accordance with accounting
principles generally accepted in the U.S. and presented in
Appendix 1:
Adjusted EBITDA
(JPY in millions)
2Q05 2Q04 1Q05
---------------------------------------------- ------- ------ -------
Adjusted EBITDA 1,517 1,275 1,261
---------------------------------------------- ------- ------ -------
Depreciation and Amortization(9) (1,010) (993) (1,014)
---------------------------------------------- ------- ------ -------
Operating Income 507 282 247
---------------------------------------------- ------- ------ -------
Other Income (Expenses) 590 (10) 435
---------------------------------------------- ------- ------ -------
Income Tax Expense 44 16 38
---------------------------------------------- ------- ------ -------
Minority Interests in (Earnings) Losses of
Subsidiaries (82) (43) (24)
---------------------------------------------- ------- ------ -------
Equity in Net Income (Loss) of Equity Method
Investees 30 16 3
---------------------------------------------- ------- ------ -------
Net Income (Loss) 1,001 229 623
---------------------------------------------- ------- ------ -------
The following table summarizes the reconciliation of capital
expenditures to the purchase of property and equipment
according to the consolidated statements of cash flows that
are prepared and presented in accordance with accounting
principles generally accepted in the U.S. in Appendix 3:
CAPEX
(JPY in millions)
2Q05 2Q04 1Q05
---------------------------------------------------- ---- ------ ----
Capital Expenditures 795 1,345 533
---------------------------------------------------- ---- ------ ----
Acquisition of Assets by Entering into
Capital Leases 681 1,294 320
---------------------------------------------------- ---- ------ ----
Purchase of Property and Equipment 114 51 213
---------------------------------------------------- ---- ------ ----
Target
------
Our initial target for the interim and annual fiscal year and the
interim results were as follows:
Target
Announced 1H05 Annual
on May 27, Target
2005
------------------------------------------ ---------- ------- -------
Total Revenues 19,980 21,809 46,330
------------------------------------------ ---------- ------- -------
Operating Income 550 754 2,320
------------------------------------------ ---------- ------- -------
Net Income 1,320 1,623 3,700
------------------------------------------ ---------- ------- -------
Since we generally receive the largest portion of our SI revenues
in the fourth quarter of our fiscal year, we maintain the initial
annual target we announced on May 27, 2005.
Presentation
------------
On November 9, 2005, IIJ will put a presentation of its results on
its website. For details, please access the following URL:
http://www.iij.ad.jp/en/IR/.
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ:
IIJI) 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. The company's
services include 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 FY2005 revenues and operating
and net 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 ability to
maintain and increase revenues from higher margin services such as
system integration and value-added services; the possibility that
revenues from connectivity services may decline substantially as a
result of competition and other factors; the ability to compete in a
rapidly evolving and competitive marketplace; the impact on IIJ's
profits of fluctuations in costs such as backbone costs and
subcontractor costs; the impact on IIJ's profits of fluctuations in
the price of available-for-sale securities; the impact of
technological changes in its industry; IIJ's ability to raise
additional capital to cover its indebtedness; the possibility that
NTT, IIJ's largest shareholder, may decide to exercise substantial
influence over IIJ; 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.
(1) Unless otherwise stated, all financial figures discussed in this
announcement are prepared in accordance with U.S. GAAP. All
financial figures are unaudited and consolidated. For all 2Q05 and
1H05 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 113.29 = US$1.00, the
approximate exchange rate on September 30, 2005. 2Q04 and 1H04
figures have been restated to reflect the change in income tax
expense (benefit) previously announced by IIJ in its press release
dated April 11, 2005.
(2) This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding FY2005
revenues and operating and net income 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 included in IIJ's annual
report on Form 20-F, filed with the SEC on August 3, 2005, 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 3Q05 earnings release,
presently scheduled for release in February 2006.
(3) Including IPv6 Services.
(4) OEM indicates Original Equipment Manufacturer.
(5) IP Service revenues includes revenues from Data Center
Connectivity Service.
(6) Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(7) Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(8) Depreciation and amortization includes amortization of issuance
cost of convertible notes in 2Q04.
(9) Depreciation and amortization excludes amortization of issuance
cost of convertible notes that was included in other expenses in
2Q04.
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
------------------------------------------------
For the Three Months Ended
Sep 30, 2005, Sep 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data)(1)
Year-over-year Comparison
Sep 30, 2005
-----------------------------
% of
Total
USD(1) JPY Revenues
-------- ----------- --------
Revenues:
Connectivity and value-added services:
Dedicated access services 23,791 2,695,325 22.6%
Dial-up access services 6,024 682,439 5.7
Value-added services 12,875 1,458,557 12.2
Other 8,211 930,205 7.8
-------- ----------- --------
Total connectivity and
value-added services 50,901 5,766,526 48.3
Systems integration revenues 45,561 5,161,600 43.3
Equipment sales 8,833 1,000,701 8.4
-------- ----------- --------
Total revenues 105,295 11,928,827 100.0
-------- ----------- --------
Costs and expenses:
Cost of connectivity and value-added
services 44,029 4,987,986 41.8
Cost of systems integration revenues 34,591 3,918,774 32.9
Cost of equipment sales 8,527 966,095 8.1
-------- ----------- --------
Total costs 87,147 9,872,855 82.8
Sales and marketing 7,058 799,562 6.7
General and administrative 6,171 699,166 5.8
Research and development 441 49,947 0.4
-------- ----------- --------
Total costs and expenses 100,817 11,421,530 95.7
-------- ----------- --------
Operating income 4,478 507,297 4.3
-------- ----------- --------
Other income (expenses) 5,204 589,617 4.9
-------- ----------- --------
Income before income tax expense,
minority interests and equity in net
income of equity method investees 9,682 1,096,914 9.2
-------- ----------- --------
Income tax expense 387 43,900 0.4
Minority interests in earnings of
subsidiaries (722) (81,777) (0.7)
Equity in net income of equity method
investees 260 29,403 0.3
-------- ----------- --------
Net income 8,833 1,000,640 8.4%
======== =========== ========
Basic Net Income Per Share 26,128
Diluted Net Income Per Share 26,087
Basic Net Income Per ADS Equivalent 13.06
Diluted Net Income Per ADS Equivalent 13.04
Weighted Average Number of Shares 38,298
Weighted Average Number of Shares
(including potential shares) 38,358
Weighted Average Number of ADS
Equivalents 76,595,702
Weighted Average Number of ADS Equivalents
(including potential shares) 76,715,032
Year-over-year Comparison
Sep 30, 2004
------------------------------
% of
Total YOY
JPY Revenues Chg %
----------- -------- ---------
Revenues:
Connectivity and value-added services:
Dedicated access services 2,832,355 27.0% (4.8%)
Dial-up access services 739,957 7.0 (7.8)
Value-added services 1,220,119 11.6 19.5
Other 715,617 6.8 30.0
----------- -------- ---------
Total connectivity and
value-added services 5,508,048 52.4 4.7
Systems integration revenues 3,837,711 36.5 34.5
Equipment sales 1,166,569 11.1 (14.2)
----------- -------- ---------
Total revenues 10,512,328 100.0 13.5
----------- -------- ---------
Costs and expenses:
Cost of connectivity and value-added
services 4,780,268 45.5 4.3
Cost of systems integration revenues 2,982,577 28.3 31.4
Cost of equipment sales 1,090,870 10.4 (11.4)
----------- -------- ---------
Total costs 8,853,715 84.2 11.5
Sales and marketing 711,661 6.8 12.4
General and administrative 612,526 5.8 14.1
Research and development 52,237 0.5 (4.4)
----------- -------- ---------
Total costs and expenses 10,230,139 97.3 11.6
----------- -------- ---------
Operating income 282,189 2.7 79.8
----------- -------- ---------
Other income (expenses) (10,188) (0.1) (5,887.4)
----------- -------- ---------
Income before income tax expense,
minority interests and equity in
net income of equity method investees 272,001 2.6 303.3
----------- -------- ---------
Income tax expense 15,506 0.1 183.1
Minority interests in earnings of
subsidiaries (42,837) (0.4) 90.9
Equity in net income of equity method
investees 15,548 0.1 89.1
----------- -------- ---------
Net income 229,206 2.2% 336.6%
=========== ======== =========
Basic Net Income Per Share 5,983
Diluted Net Income Per Share
Basic Net Income Per ADS Equivalent 2.99
Diluted Net Income Per ADS Equivalent
Weighted Average Number of Shares 38,312
Weighted Average Number of Shares
(including potential shares)
Weighted Average Number of ADS
Equivalents 76,623,702
Weighted Average Number of ADS
Equivalents (including potential
shares)
Sequential Comparison
June 30, 2005
---------------------------
% of
Total QOQ
JPY Revenues Chg %
----------- -------- ------
Revenues:
Connectivity and value-added services:
Dedicated access services 2,746,900 27.8% (1.9%)
Dial-up access services 698,670 7.1 (2.3)
Value-added services 1,387,893 14.1 5.1
Other 933,120 9.4 (0.3)
----------- -------- ------
Total connectivity and value-
added services 5,766,583 58.4 (0.0)
Systems integration revenues 3,840,075 38.9 34.4
Equipment sales 273,438 2.7 266.0
----------- -------- ------
Total revenues 9,880,096 100.0 20.7
----------- -------- ------
Costs and expenses:
Cost of connectivity and value-added
services 4,963,835 50.2 0.5
Cost of systems integration revenues 2,910,262 29.5 34.7
Cost of equipment sales 243,699 2.5 296.4
----------- -------- ------
Total costs 8,117,796 82.2 21.6
Sales and marketing 767,801 7.8 4.1
General and administrative 713,917 7.2 (2.1)
Research and development 33,904 0.3 47.3
----------- -------- ------
Total costs and expenses 9,633,418 97.5 18.6
----------- -------- ------
Operating income 246,678 2.5 105.7
----------- -------- ------
Other income (expenses) 435,233 4.4 35.5
----------- -------- ------
Income before income tax expense,
minority interests and equity in
net income of equity method investees 681,911 6.9 60.9
----------- -------- ------
Income tax expense 38,111 0.4 15.2
Minority interests in earnings of
subsidiaries (23,855) (0.2) 242.8
Equity in net income of equity method
investees 2,729 0.0 977.4
----------- -------- ------
Net income 622,674 6.3% 60.7%
=========== ======== ======
Basic Net Income Per Share 16,254
Diluted Net Income Per Share
Basic Net Income Per ADS Equivalent 8.13
Diluted Net Income Per ADS Equivalent
Weighted Average Number of Shares 38,309
Weighted Average Number of Shares
(including potential shares)
Weighted Average Number of ADS
Equivalents 76,618,779
Weighted Average Number of ADS
Equivalents (including potential shares)
Note(1):The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sep 30, 2005
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY 113.29 =$1, the
approximate rate of exchange on Sep 30, 2005.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
---------------------------------
CONSOLIDATED BALANCE
SHEETS(UNAUDITED)
---------------------------------
As of Sep 30, 2005, Sep 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sep 30, 2005
-------------------------------------------
USD (1) JPY %
--------- ------------ --------------------
ASSETS
------
Current Assets:
Cash and cash equivalents 61,378 6,953,496 19.3%
Short-term investments - - -
Accounts receivable, net 59,007 6,684,910 18.5
Inventories 2,527 286,367 0.8
Prepaid expenses 8,737 989,785 2.7
Other current assets 1,282 145,243 0.4
--------- ------------ --------------------
Total current assets 132,931 15,059,801 41.7
Investments in and Advances
to Equity Method Investees 3,996 452,702 1.3
Other Investments 71,044 8,048,512 22.3
Property and Equipment,
net 80,704 9,142,951 25.3
Guarantee Deposits 18,537 2,100,008 5.8
Other Assets 11,621 1,316,561 3.6
--------- ------------ --------------------
Total assets 318,833 36,120,535 100.0%
========= ============ ====================
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current Liabilities:
Short-term borrowings 43,447 4,922,177 13.6%
Payable under securities
loan agreement 13,403 1,518,400 4.2
Accounts payable 45,953 5,205,982 14.4
Accrued expenses 4,554 515,976 1.5
Other current liabilities 6,975 790,194 2.2
Long-term borrowings-
current portion 22,403 2,537,997 7.0
Convertible notes - - -
Capital lease obligations-
current portion 23,974 2,716,030 7.5
--------- ------------ --------------------
Total current liabilities 160,709 18,206,756 50.4
Long-term Borrowings 9,361 1,060,476 2.9
Capital Lease Obligations-
Noncurrent 34,397 3,896,848 10.8
Accrued Retirement and
Pension Costs 1,600 181,289 0.5
Other Noncurrent
Liabilities 3,418 387,259 1.1
--------- ------------ --------------------
Total liabilities 209,485 23,732,628 65.7
--------- ------------ --------------------
Minority Interest 8,896 1,007,787 2.8
--------- ------------ --------------------
Shareholders' Equity:
Common stock 121,506 13,765,372 38.1
Additional paid-in capital 208,647 23,637,628 65.4
Accumulated deficit (289,617) (32,810,738) (90.8)
Accumulated other
comprehensive income 60,659 6,872,096 19.0
Treasury stock (743) (84,238) (0.2)
--------- ------------ --------------------
Total shareholders'
equity 100,452 11,380,120 31.5
--------- ------------ --------------------
Total liabilities
and shareholders'
equity 318,833 36,120,535 100.0%
========= ============ ====================
Sep 30, 2004 June 30, 2005
------------------- ---------------------
JPY % JPY %
------------ ------ ------------ --------
ASSETS
------
Current Assets:
Cash and cash equivalents 11,802,165 27.4% 5,106,388 15.1%
Short-term investments - - 304,628 0.9
Accounts receivable, net 6,739,000 15.6 5,792,808 17.2
Inventories 262,180 0.6 265,286 0.8
Prepaid expenses 652,061 1.5 1,263,409 3.8
Other current assets 106,364 0.3 80,797 0.2
------------ ------ ------------ --------
Total current assets 19,561,770 45.4 12,813,316 38.0
Investments in and Advances
to Equity Method Investees 783,933 1.8 677,035 2.0
Other Investments 10,657,082 24.7 7,882,229 23.4
Property and Equipment,
net 9,045,349 21.0 9,155,981 27.1
Guarantee Deposits 2,080,345 4.8 2,091,237 6.2
Other Assets 963,895 2.3 1,124,441 3.3
------------ ------ ------------ --------
Total assets 43,092,374 100.0% 33,744,239 100.0%
============ ====== ============ ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current Liabilities:
Short-term borrowings 5,732,204 13.3% 4,723,387 14.0%
Payable under securities
loan agreement 816,800 1.9 1,530,400 4.5
Accounts payable 4,502,356 10.5 3,665,233 10.9
Accrued expenses 448,585 1.0 523,478 1.6
Other current liabilities 604,868 1.4 918,829 2.7
Long-term borrowings-
current portion 1,650,139 3.8 3,187,023 9.4
Convertible notes 11,088,000 25.7 - -
Capital lease obligations-
current portion 2,491,070 5.8 2,718,759 8.1
------------ ------ ------------ --------
Total current
liabilities 27,334,022 63.4 17,267,109 51.2
Long-term Borrowings 1,732,473 4.0 870,342 2.6
Capital Lease Obligations-
Noncurrent 3,620,613 8.4 3,950,359 11.7
Accrued Retirement and
Pension Costs 102,224 0.3 169,460 0.5
Other Noncurrent
Liabilities 300,190 0.7 246,818 0.7
------------ ------ ------------ --------
Total liabilities 33,089,522 76.8 22,504,088 66.7
------------ ------ ------------ --------
Minority Interest 945,572 2.2 1,053,212 3.1
------------ ------ ------------ --------
Shareholders' Equity:
Common stock 13,765,372 31.9 13,765,372 40.8
Additional paid-in capital 23,637,628 54.9 23,637,628 70.0
Accumulated deficit (37,349,204) (86.7) (33,811,378) (100.2)
Accumulated other
comprehensive income 9,047,484 21.0 6,679,555 19.8
Treasury stock (44,000) (0.1) (84,238) (0.2)
------------ ------ ------------ --------
Total shareholders'
equity 9,057,280 21.0 10,186,939 30.2
------------ ------ ------------ --------
Total liabilities and
shareholders' equity 43,092,374 100.0% 33,744,239 100.0%
============ ====== ============ ========
Note(1):The translations of Japanese yen amounts into US dollar
amounts with respect to Sep 30, 2005 are included solely for
the convenience of readers outside Japan and have been made at
the rate of JPY 113.29 =$1, the approximate rate of exchange
on Sep 30, 2005.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
--------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
For the Three Months Ended
Sept 30, 2005, Sept 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sept 30, Sept 30, June 30,
2005 2004 2005
-------------------- ----------- -----------
USD (1) JPY JPY JPY
-------- ----------- ----------- -----------
Operating Activities:
Net income 8,832 1,000,640 229,206 622,674
Depreciation and
amortization 8,916 1,010,139 1,011,532 1,013,745
Provision for (reversal
of) doubtful accounts (15) (1,673) 19,968 (5,339)
Equity in net income of
equity method investees (260) (29,403) (15,548) (2,729)
Minority interests in
earnings of
subsidiaries 722 81,777 42,837 23,855
Foreign exchange gains (36) (4,131) (14,152) (6,278)
Net gains on other
investments (5,826) (660,039) (98,103) (488,758)
Decrease (increase) in
accounts receivable (7,033) (796,785) (1,396,506) 1,621,419
Increase (decrease) in
accounts payable 11,228 1,272,038 566,837 (1,132,992)
Decrease (increase) in
inventories (186) (21,081) 149,969 (125,190)
Deferred income taxes (94) (10,681) - 18,343
Other 1,136 128,646 542,953 (511,252)
-------- ----------- ----------- -----------
Net cash provided by
operating activities 17,384 1,969,447 1,038,993 1,027,498
-------- ----------- ----------- -----------
Investing Activities:
Purchase of property
and equipment (1,008) (114,208) (51,435) (213,485)
Purchase of subsidiary
stock (1,696) (192,142) - -
Proceeds from sales and
redemption of short-
term and other
investments 8,663 981,420 125,281 514,460
Acquisition of a newly
controlled company, net
of cash acquired 2,025 229,457 - -
Purchase of short-term
and other investment (7) (844) (3,083) (299,311)
Payment of guarantee
deposits-net (64) (7,256) (19,193) (39,210)
Other (68) (7,655) 904 (5,450)
-------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities 7,845 888,772 52,474 (42,996)
-------- ----------- ----------- -----------
Financing Activities:
Proceeds from long-term
borrowings 8,827 1,000,000 1,000,000 -
Repayments of long-term
borrowings (12,878) (1,458,892) (1,436,943) (208,654)
Proceeds from securities
loan agreement 15,313 1,734,800 816,800 -
Repayments of securities
loan agreement (15,419) (1,746,800) - (199,120)
Principal payments under
capital leases (6,609) (748,762) (688,418) (766,807)
Net increase (decrease)
in short-term
borrowings 1,755 198,790 369,203 (1,246)
-------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities (9,011) (1,020,864) 60,642 (1,175,827)
-------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash 86 9,753 22,853 11,236
-------- ----------- ----------- -----------
Net Increase (Decrease) in
Cash 16,304 1,847,108 1,174,962 (180,089)
-------- ----------- ----------- -----------
Cash , Beginning of Period 45,074 5,106,388 10,627,203 5,286,477
-------- ----------- ----------- -----------
Cash, End of Period 61,378 6,953,496 11,802,165 5,106,388
======== =========== =========== ===========
Note(1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2005
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY113.29 =$1, the
approximate rate of exchange on Sept 30, 2005.
CONTACT: Internet Initiative Japan Inc.
Corporate Communications:
Taisuke Ono or Naoshi Yoneyama
+81-3-5259-6500
E-mail: ir@iij.ad.jp
http://www.iij.ad.jp/