FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For February 13, 2003
Commission File Number: 0-30204
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Takebashi Yasuda Bldg., 3-13 Kanda Nishiki-cho,
Chiyoda-ku, Tokyo 101-0054, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F: Form 20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the reg-istrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
mate-rial event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- ________________
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATMENT ON FORM F-3 (FILE NO.
333-12696) OF INTERNET INITIATIVE JAPAN INC. AND TO BE A PART THEREOF FROM THE
DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
EXHIBIT INDEX
Exhibit Date Description of Exhibit
1-1 02/13/2003 IIJ Announces 3 rd Quarter 2002 Results
for the Quarter Ended December 31, 2002
-- IIJ continues pursuit of broadband strategies
for further growth --
EXHIBIT 1-1
Internet Initiative Japan Inc.
February 12, 2003
For inquiries please contact:
Junko Higasa
IIJ Investor/Media Relations Office
ir@iij.ad.jp or +81-3-5259-6500(Tel)
IIJ Announces 3rd Quarter 2002 Results for the Quarter Ended December 31, 2002
-- IIJ continues pursuit of broadband strategies for further growth --
Tokyo, February 13, 2003 / New York, February 12, 2003 - 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 3rd quarter of the fiscal year ending March 31, 2003
("fiscal 2002"). On February 13 at 9:00 am (EST), the Company will host a
conference call to discuss the results and its outlook. There will be a
simultaneous webcast available at www.vcall.com. A replay will also be available
at the same URL.
------------------------------------------------------------------------------
The 3rd Quarter of FY2002 Results Summary
----------------------------------------------------------------------------
-- In 3Q02, total revenues totaled to JPY10.6 billion ($89.0 million)
despite the prolonged sluggishness of Japan's economy. This represents
an increase of 6.3% compared to 3Q01 and no change from 2Q02.
-- IIJ reported an operating loss of JPY567 million ($4.8 million) in
3Q02. This represents a decrease from JPY151 million of operating profit
in 3Q01, and a decrease from the JPY194 million operating loss in 2Q02.
The results reflected IIJ's evolving strategic initiatives in Japan's
growing broadband market, which includes reinforcing IIJ's network
infrastructure for broadband transmission.
-- Adjusted EBITDA(1) was JPY349 million.
-- For 4Q02, IIJ expects total revenues to be between JPY12.5 billion
($105.3 million) and JPY13.0 billion ($109.5 million), the highest
amount of quarterly revenue in IIJ's history. The revenue growth is
expected to be driven by a strong Systems Integration (SI) business. The
Company expects its operating profitability to improve in 4Q02.
-- For the full 2002 fiscal year, IIJ expects total revenues to grow by
approximately 10% compared to fiscal 2001.
-- IIJ is currently preparing for a series of improvements to its
capital structure, which will be effective by the end of March 2003.
(1) Adjusted EBITDA represents operating income (loss) plus depreciation and
amortization. Adjusted EBITDA is provided because it is a measure commonly
used by investors to analyze and compare companies on the basis of
operating performance. Adjusted EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not
be construed as a substitute for operating income, net income or cash flows
from operating activities for purposes of analyzing our operating
performance, financial position and cash flows. Our adjusted EBITDA is not
necessarily comparable with similarly titled measures for other companies.
Note: 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 JPYX118.75 = US$1, the approximate exchange rate on December 31, 2002.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Overview of 3Q02 Results and Business Outlook
--------------------------------------------------------------------------------
Overview
"The 3Q02 results demonstrate that our strategic focus on the "broadband"
and "enterprise markets" is successfully contributing to our steady growth,
despite the prolonged sluggishness of Japan's economy," said Koichi Suzuki,
President and CEO of IIJ. "In the changing environment for IP-based technology,
the IIJ Group will continue to strengthen its position as a top IP engineering
company, while capitalizing on the demand in the high-end corporate market."
Recently, IIJ acquired various large-scale outsourcing contracts, including
contracts with Plala Networks- an affiliate of NTT East, Panasonic hi-ho of
Matsushita Electronic group, Hitachi group and Ricoh group.
Operating Profitability
Although IIJ expects improvements in its operating profitability in 4Q02,
it has posted operating losses for the past three consecutive quarters. "For our
revenues to grow further in fiscal 2003, we decided to pursue a strategy of
strengthening our network infrastructure through the construction of the CDN
(Content Delivery Network) platform, which is the primary cause of our increased
expenses," said Yasuhiro Nishi, CFO of IIJ. "We expect that there is
approximately a six to nine month time-lag until such broadband projects
becoming profitable. We believe that the current strategy will strengthen our
position as a leader in the broadband market in Japan."
Capital Improvement Plan
IIJ is currently preparing for a series of capital improvements that will
secure the financial means to allow IIJ to continue the implementation of its
growth strategy, which will be effective by the end of March 2003. Details for
the plan will be announced when finalized.
Discussion with PoweredCom
IIJ, its 37.9% affiliate Crosswave Communications ("Crosswave") and
PoweredCom, Inc. ("PoweredCom") agreed to extend the period for discussions
regarding a possible integration of their businesses until the end of March
2003.
Market Prospects
Customer Base
In 3Q02, revenues from IIJ's top 150 customers accounted for approximately
half of total revenues. IIJ has been actively cross-selling its Value-added
Services, SI services and Data Center Services to existing users of its
Dedicated Access Services. Cross-selling rates for 3Q02 are detailed in the
following table. Going forward, IIJ expects its strategic marketing focus on
Data Center Services to further increase the cross-selling rates.
IIJ Approximate Cross-selling rates among Top150 Customers in 3Q02 (Unit: %)
Value-added Service SI Data Center
Service
============================================================================
Dedicated Access Service 67 53 25
----------------------------------------------------------------------------
For example, in 3Q02, 67% of customers who use IIJ's Dedicated Access
Service also signed up for IIJ's Value-added Service.
Broadband Solutions
In the ISP market, IIJ expects to continue acquiring network-outsourcing
contracts from major ISPs and network operators in Japan. In the CATV market,
IIJ expects to continue increasing the number of its CATV customers. As of
December 2002, the number of CATV operators connected to IIJ was 46, which
represents approximately 60% of Japan's CATV Internet market. In the SME (Small
and Medium-sized Enterprise) market, IIJ expects to increase the number of
contracts in second-tier package services with 10Mbps or 100Mbps access, such as
with IIJ Fiber Access/F service. The number of contracts for 3Q02 is provided in
Table 1 in the financial section.
Number of broadband subscribers in Japan (Unit: Thousand)
Type of broadband connectivity December 02 September 02 December 01
====================================================================================
ADSL (Asymmetric Digital Subscriber Line) 5,646 4,223 1,525
------------------------------------------------------------------------------------
CATV Internet 1,954 1,800 1,303
------------------------------------------------------------------------------------
FTTH (Fiber to The Home ) 206 114 n.a
------------------------------------------------------------------------------------
Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications.
WAN Solutions
In response to the growing demand in the enterprise WAN (Wide Area Network)
market, IIJ continues to maintain its marketing focus on IIJ VPN Standard, a VPN
(Virtual Private Network) service for SMEs. At the same time, IIJ is also
focusing on supporting sales activities of Crosswave's WAN solution, Wide-area
Ethernet Standard, which is for larger-scale customers.
Data Center Solutions
IIJ recently opened two data centers in Yokohama and Saitama. The Company
expects the new data centers to function as the hub for the IIJ Group's suite of
total network solution services, and to help differentiate the Company from
other conventional service providers. As operations for network applications
become more mission-critical, IIJ expects revenues from its application gateway
services that utilize data center facilities to grow. The IIJ Group's gateway
solutions include IIJ Mail Gateway Service (email virus check, email audit and
email archive), IIJ Web Filtering Service (web access control) and IIJ ID
Gateway Service (remote access to internal network). In February 2003, the IIJ
Group acquired a large-scale email-outsourcing contract from the Ricoh group.
Systems Integration (SI) Services
Drawing upon its accumulated experience in component-based SI service
offerings, IIJ Technology, IIJ's 64.0% subsidiary specializing in the SI
business, announced the development of a new data center service called the
Resource on Demand Data Center Service (see details in the "3rd Quarter FY2002
Operating Highlights" section). IIJ is positioning the new DC service as the key
feature for data center marketing for the IIJ Group.
Forecasted Financial Performance for 4Q02
For 4Q02, IIJ expects total revenues to be between JPY12.5 billion and
JPY13.0 billion, the highest amount of quarterly revenues in IIJ's history. The
revenue growth is expected to be driven by strength in the SI business. The
Company expects operating profitability to improve in 4Q02. For the full 2002
fiscal year, IIJ expects total revenues to grow by approximately 10% compared to
fiscal 2001.
Status of Overview and Business Outlook
This Overview and Business Outlook contains forward-looking statements and
projections such as statement regarding 4Q02 total revenues and operating
profitability that are subject to known and unknown risks and uncertainties that
could cause actual results to differ materially from those expressed or implied
by these statements. These risks and uncertainties include, but are not limited
to, the factors noted at the end of this release and to the risk factors and
other information contained in IIJ's filings on Form 20-F and Form 6-K, as well
as other filings and documents furnished to the Securities and Exchange
Commission. IIJ plans to keep this press release publicly available on its Web
site (www.iij.ad.jp), but may discontinue this practice at any time. IIJ intends
to publish its next Overview and Business Outlook in its 4Q02 earnings release,
presently scheduled for May 20, 2003. In conjunction with the 3Q02 earnings
announcement, IIJ will hold a webcasted conference made available to the public
at www.vcall.com.
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3rd Quarter FY2002 Operating Highlights
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Best Service Provider Award
In December 2002, IIJ was named the "best service provider of year 2002" in
a major annual survey conducted by Nikkei Communications, a leading telecom
industry trade magazine. According to the survey, which was based on responses
from 856 corporations in Japan, IIJ was ranked number one in three of the four
total qualifying categories, including "broadband service", "dedicated access
service" and "dialup access service."
Ranking of best service provider survey 2002
Broadband service Dedicated access service Dialup access service
---------------------------------------------------------------------------------------------
1 IIJ IIJ IIJ
---------------------------------------------------------------------------------------------
2 Nifty Poweredcom NEC
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3 NTT Communications Jens Nifty
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4 KDDI Cable & Wireless IDC AT&T
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5 Japan Telecom Fujitsu NTT Communications
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Source: Nikkei Communications December 2002
New Service Developments under the Total Network Solutions Approach
Broadband Solutions
In December 2002, IIJ won an outsourcing contract from Plala Networks Inc.
("Plala"), one of Japan's leading ISPs (Internet Service Provider), and an
affiliate of NTT East. By utilizing a part of the CDN platform, IIJ provides
network infrastructure and account management functions for Plala's new service
for the retail market. Revenues from CDN services are recognized as a part of
the "Connectivity and value-added services" and "Systems integration services"
categories in IIJ's financial statements, depending on the specific service
requirements.
WAN Solutions
In November 2002, IIJ launched an Internet-VPN service called "IIJ VPN
Standard", which enables corporate customers to construct private networks by
utilizing inexpensive broadband access lines such as ADSL and FTTH. Revenues
from this service are recognized as Value-added services in IIJ's financial
statements. In addition, IIJ expects revenues to increase for its Connectivity
Services since customers also need Internet connectivity for their VPN
constructions.
Data Center Solutions
In November 2002, IIJ announced that it would begin a new data center
service called "Resource on Demand DC Service" starting February 2003. The new
service will be comprised of various network, facility and engineering resources
that enable customers to utilize these resources as much as they need, whenever
they need. Fees for the service will depend on customer requirements.
Security Solutions
In December 2002, IIJ started a low-cost managed firewall service called
"IIJ Security Lite" that targets SMEs. Also in December 2002, IIJ started a free
security scanning service called "Network Sweep", which is a promotional service
and is available to all customers of IIJ's security services at no extra charge.
Revenues from IIJ security solutions are recognized under "Connectivity and
Value-added Services" in IIJ's financial statements.
Router Solutions
In November 2002, IIJ introduced a new router product called "SEIL/neu
ATM", which provides various control functions that are optimized for high
quality ATM (Asynchronous Transfer Mode)-based networks for enterprises and
telecom carriers. Revenue from SEIL/neu ATM is recognized as a part of the
"Equipment Sales" category in IIJ's financial statements.
Network Infrastructure Development
In 3Q02, IIJ increased the capacity of eleven of its domestic backbone
network lines. IIJ also upgraded its US backbone network that runs between Los
Angeles, California and Ashburn, Virginia.
R&D (IPv6)
With IPv6 multicast streaming technologies, IIJ broadcasted a part of the
Global IPv6 Summit programs in December 2002, which marked the first time in
Japan that the IPv6 multicast streaming technologies were used nationwide for
IPv6 users, including consumer households.
Key Developments of IIJ Group Companies
Asia Internet Holding Co., Ltd., the Company's 26.7% affiliate, has
completed a capacity increase for it's link with Malaysia's Jaring to 45Mbps.
Jaring is one of the largest ISPs in Malaysia.
IIJ America Inc., the Company's 91.3% owned subsidiary, launched a new
security monitoring service called "Security CheckUp" for companies in the U.S.
The new service scans for security holes in customers' servers and enterprise
networks.
IIJ Media Communications, the Company's 50.1% owned subsidiary, launched
"Easy Pack Live", an economical Internet broadcasting service. Revenues from the
IIJ-MC service are recognized as a part of the "Systems Integration" category in
IIJ's income statement.
Internet Multifeed Co., the Company's 26.0% owned affiliate, announced that
it would introduce Japan's first 10Gbps ethernet interface as a part of its
JPNAP Service, Japan's major distributed IX (Internet exchange) service,
starting in January 2003.
--------------------------------------------------------------------------------
3rd Quarter FY2002 Financial Results
--------------------------------------------------------------------------------
Revenues
Revenues in 3Q02 totaled JPY10,564 million, an increase of 6.3% compared to
3Q01, though flat compared to 2Q02.
Connectivity services and value-added services revenues were JPY5,561
million in 3Q02, a decrease of 1.0% compared to 3Q01 and a decrease of 2.4%
compared to 2Q02.
Dedicated access services revenues were JPY3,404 million in 3Q02, a
decrease of 3.8% compared to 3Q01 and a decrease of 4.0% compared to 2Q02. IP
services, including Data center connectivity services, decreased 4.1% in 3Q02
compared to 2Q02, due to the cancellation by a telecom service arm of a regional
electric power company. Conventional second-tier services, IIJ Economy Service
(64-128kbps) and IIJ T1 Standard Service (1.5Mbps), also decreased, because
customers in the category have gradually been migrating to new services such as
the IIJ FiberAccess/F service (10-100Mbps) and IIJ DSL/F service (1.5-12Mbps).
Dial-up access service revenues were JPY776 million in 3Q02, a decrease of
12.2% compared to 3Q01 and a decrease of 2.0% compared to 2Q02. The decline in
revenues from Dial-up access services has been offset by the steady revenue
growth of IIJ's various OEM services, which include NTT's regional L-mode
service and other network services through the CDN platform.
Value-added services revenues increased 12.4% to JPY913 million in 3Q02
compared to 3Q01 and 2.2% compared to 2Q02. These increases were mainly due to
the revenue growth of security related services.
Systems integration services revenues increased 8.6% to JPY3,684 million in
3Q02 compared to 3Q01 and 19.1% compared to 2Q02, as revenues from customers in
the financial service sector continued to increase steadily.
Equipment sales revenues were JPY1,319 million in 3Q02, an increase of
42.2% compared to 3Q01 and a decrease of 25.7% compared to 2Q02.
Table 1. Number of Contracts
Internet Access Services 3Q02 2Q02 3Q01
===============================================================================================
IP Service 64kbps - 128kbps 130 111 176
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192kbps - 768kbps 37 30 46
-----------------------------------------------------------------------------------------------
1Mbps - 2Mbps 279 266 269
-----------------------------------------------------------------------------------------------
3Mbps - 1.2Gbps 212 205 131
-----------------------------------------------------------------------------------------------
Internet Data Center Connectivity Services(2) 139 129 100
-----------------------------------------------------------------------------------------------
Others(3) 3,922 3,568 2,516
===============================================================================================
Total Dedicated Access Services Contracts 4,719 4,309 3,238
===============================================================================================
(2) The figures of Internet data center connectivity services do not include
contracts for data center housing services.
(3) Others include, IIJ FiberAccess/F, IIJ Ethernet Standard, IIJ DSL/F, IIJT1
Standard and IIJ Economy.
-----------------------------------------------------------------------------------------------
IIJ4U (dialup services for individuals) 82,193 84,432 91,924
-----------------------------------------------------------------------------------------------
Others 370,543 309,950 114,676
===============================================================================================
Total Dial-up Access Services Contracts 452,736 394,382 206,600
===============================================================================================
Table 2. Revenue Breakdown in Dedicated Access Services (JPY in millions)
3Q02 2Q02 3Q01
------------------------------------------------------------------------------
Total IP Service + DC connectivity 2,548 2,657 2,520
------------------------------------------------------------------------------
Others 856 889 1,020
------------------------------------------------------------------------------
Table 3. Contracted Bandwidth (Unit: Giga bits per second)
3Q02 2Q02 3Q01
------------------------------------------------------------------------------
Dedicated Access Services 23.3 18.0 7.7
------------------------------------------------------------------------------
Internet Data Center Connectivity Service 7.0 4.7 0.7
==============================================================================
Total Contracted Bandwidth 30.3 22.7 8.4
==============================================================================
Cost and expenses
Cost of total revenues was JPY9,607 million in 3Q02, an increase of 13.4%
compared to 3Q01, and an increase of 2.1% compared to 2Q02.
Backbone Costs
International backbone costs were JPY432 million, a decrease of 19.4%
compared to 3Q01 and a decrease of 3.6% compared to 2Q02.
Domestic backbone costs were JPY902 million, an increase of 16.7% compared
to 3Q01 and an increase of 10.7% compared to 2Q02. These increases were a result
of an increase in connection fees with NTT's regional access networks (Flets),
along with the implementation of its broadband strategy to strengthen its
backbone network for providing various broadband network services and solutions
nationwide.
Table 4. Backbone Costs (JPY in millions)
3Q02 2Q02 3Q01
-------------------------------------------------------------------------
International Backbone Costs 432 448 536
-------------------------------------------------------------------------
Domestic Backbone Costs 902 815 772
-------------------------------------------------------------------------
Cost of SI (Systems Integration) revenues
Cost of SI revenues was JPY3,173 million in 3Q02, an increase of 10.7%
compared to 3Q01 and an increase of 18.3% compared to 2Q02. The gross margin
ratio for SI deteriorated to 13.9% in 3Q02 compared to 15.5% in 3Q01, but
improved from 13.3% in 2Q02.
Sales and Marketing Expenses
Sales and marketing expenses were JPY894 million in 3Q02, an increase of
21.7% compared to 3Q01 and an increase of 20.3% compared to 2Q02. These
increases were a result of the increase in promotional expenses for the CDN
platform services and bad debt expenses of JPY50 million for certain customers.
General and administrative expenses
General and administrative expenses were JPY512 million in 3Q02, an
increase of 3.7% compared to 3Q01 but a decrease of 0.5% compared to 2Q02.
Operating loss
Primarily as a result of the decrease of Dedicated access service revenues
and the increase of domestic backbone costs and sales and marketing expenses,
the operating loss increased to JPY567 million in 3Q02 compared to operating
income of JPY151 million in 3Q01 and a loss of JPY194 million in 2Q02. The
operating income (loss)-to-revenue ratio for 3Q02 was (-)5.4%, compared to 1.5%
in 3Q01, and to (-)1.8% in 2Q02.
Other expenses
Other expenses for 3Q02 were JPY228 million, compared to JPY114 million in
3Q01 and JPY160 million in 2Q02. IIJ recorded a foreign exchange loss of JPY35
million on dollar denominated monetary assets due to the appreciation of the
Japanese Yen against the U.S. dollar in 3Q02. This compared to exchange gain of
JPY379 million in 3Q01 and to exchange gain of JPY54 million in 2Q02. In 3Q01,
IIJ recorded a JPY299 million of impairment loss on marketable equity security
investment, which offset a foreign exchange gain of JPY379 million.
Income tax expense
Income tax expense for 3Q02 was JPY138 million, compared to benefit of
JPY154 million in 3Q01 and an expense of JPY515 million in 2Q02. This is a
result of an increase in the valuation allowance for deferred tax assets
attributable primarily to the income tax effect of decreasing unrealized gains
during the quarter on certain available-for-sale-securities.
Equity in net loss of equity method investees
Equity in net loss of equity method investees amounted to JPY1,375 million
in 3Q02, compared to JPY1,218 million in 3Q01, and JPY1,480 million in 2Q02.
This is mostly attributed to the equity loss in Crosswave.
Net loss
Net loss was JPY2,266 million in 3Q02, compared to JPY1,030 million in 3Q01
and JPY2,326 million in 2Q02. Basic net loss per ADS equivalent was JPY(-)50.40
in 3Q02, compared to JPY(-)22.91 in 3Q01 and JPY(-)51.74 in 2Q02.
Table 5. Other Financial Statistics (JPY in millions)
3Q02 2Q02 3Q01
----------------------------------------------------------------------------
Adjusted EBITDA 349 662 904
----------------------------------------------------------------------------
CAPEX, including capitalized leases 1,519 1,504 804
----------------------------------------------------------------------------
Depreciation and amortization(4) 943 884 783
----------------------------------------------------------------------------
(4) Depreciation and amortization includes amortization of issuance cost of
convertible notes.
--------------------------------------------------------------------------------
Company Information
--------------------------------------------------------------------------------
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ: IIJI) is
Japan's leading Internet-access and comprehensive network solutions provider.
The company has built one of the largest Internet backbone networks in Japan,
and between Japan and the United States. IIJ and its group of companies provide
total network solutions that mainly cater to high-end corporate customers.
Services range from the delivery of new generation network services over an
optical-fiber infrastructure that is optimized for data communications, to the
construction of pan-Asian IP backbone networks. The company also offers
high-quality systems integration and security services, internet access,
hosting/housing, and content design.
Statements made in this press release regarding IIJ's or management's
intentions, beliefs, expectations, or predictions for the future are
forward-looking statements that are based on IIJ's and managements' current
expectations, assumptions, estimates and projections about its business and the
industry. These forward-looking statements, such as statements regarding 4Q02
and fiscal year 2002 total revenues and operating profitability, are subject to
various risks, uncertainties and other factors that could cause IIJ's actual
results to differ materially from those contained in any forward-looking
statement. These risks, uncertainties and other factors include: IIJ's
expectation that net losses will continue; IIJ's ability to raise additional
capital to cover its accumulated deficit; IIJ's ability to continue to increase
subscribers to its connectivity services, particularly at higher bandwidths;
IIJ's ability to generate significant revenues from its other services such as
systems integration; the success of IIJ's investments in Crosswave; the ability
to compete in a rapidly evolving and competitive marketplace; the impact of
technological changes in its industry; and other risks referred to from time to
time in IIJ's filings on Form 20F of its annual report and other filings with
the United States Securities and Exchange Commission.
Tables to follow
INTERNET INITIATIVE JAPAN INC. Appendix 1
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
For the Three Months Ended Dec 31, 2002, Dec 31, 2001 and Sept 30, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD) Except for Per Share and ADS Data) (1)
Year-over-year Comparison Sequential Comparison
Dec 31, 2002 Dec 31, 2001 Sept 30, 2002
--------------------------------- ------------------------------- ----------------------------------------
% of % of % of
Total Total YOY Total QOQ
USD (1) JPY Revenues JPY Revenues Chg % JPY Revenues Chg %
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Revenues:
Connectivity and
value-added
services:
Dedicated access
services(2) 28,665 3,404,016 32.2% 3,539,924 35.6% (3.8%) 3,546,372 33.6% (4.0%)
Dial-up access
services 6,536 776,173 7.4 883,698 8.9 (12.2) 791,738 7.5 (2.0)
Value-added
services(2) 7,690 913,152 8.6 812,157 8.2 12.4 893,135 8.4 2.2
Other 3,938 467,629 4.4 379,188 3.8 23.3 467,976 4.4 (0.1)
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Total
connectivity
and value-
added
services 46,829 5,560,970 52.6 5,614,967 56.5 (1.0) 5,699,221 53.9 (2.4)
Systems integration
revenues 31,023 3,683,978 34.9 3,391,122 34.2 8.6 3,094,168 29.3 19.1
Equipment sales 11,104 1,318,630 12.5 927,545 9.3 42.2 1,774,953 16.8 (25.7)
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Total revenues 88,956 10,563,578 100.0 9,933,634 100.0 6.3 10,568,342 100.0 0.0
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Costs and expenses:
Cost of connectivity and
value-added services 43,620 5,179,920 49.0 4,774,788 48.1 8.5 5,081,186 48.1 1.9
Cost of systems
integration revenues 26,722 3,173,211 30.0 2,865,601 28.8 10.7 2,681,946 25.3 18.3
Cost of equipment sales 10,561 1,254,073 11.9 832,972 8.4 50.6 1,648,106 15.6 (23.9)
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Total costs 80,903 9,607,204 90.9 8,473,361 85.3 13.4 9,411,238 89.0 2.1
Sales and marketing 7,531 894,340 8.5 734,623 7.4 21.7 743,230 7.0 20.3
General and
administrative 4,308 511,604 4.9 493,327 5.0 3.7 514,082 4.9 (0.5)
Research and development 985 116,950 1.1 80,946 0.8 44.5 93,574 0.9 25.0
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Total costs
and expenses 93,727 11,130,098 105.4 9,782,257 98.5 13.8 10,762,124 101.8 3.4
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Operating income (loss) (4,771) (566,520) (5.4) 151,377 1.5 (474.2) (193,782) (1.8) 192.3
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Other expenses (1,920) (228,058) (2.1) (113,705) (1.1) 100.6 (160,247) (1.5) 42.3
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Income(Loss) before
income tax
expense(benefit) (6,691) (794,578) (7.5) 37,672 0.4 (2,209.2) (354,029) (3.3) 124.4
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Income tax
expense(benefit) 1,161 137,936 1.3 (154,239) (1.5) (189.4) 514,872 4.9 (73.2)
Minority interests in
consolidated
subsidiaries 352 41,813 0.4 (3,985) 0.0 (1,149.3) 23,146 0.2 80.6
Equity in net loss of
equity method investees (11,582) (1,375,338) (13.0) (1,217,755) (12.3) 12.9 (1,480,411) (14.0) (7.1)
------------ ----------- -------- ----------- --------- --------- ------------ ----------- ---------------
Net loss (19,082) (2,266,039) (21.4%) (1,029,829) (10.4%) 120.0% (2,326,166) (22.0%) (2.6%)
============ =========== ======== =========== ========= ========= ============ =========== ===============
Basic Net Loss Per Share (100,802) (45,811) (103,477)
Basic Net Loss Per ADS
Equivalent (50.40) (22.91) (51.74)
Weighted Average Number
of Shares 22,480 22,480 22,480
Weighted Average Number
of ADS Equivalents 44,960,000 44,960,000 44,960,000
Note (1): The translations of Japanese yen amounts into US dollar amounts with respect to the three months ended Dec 31, 2002 are
included solely for the convenience of readers outside Japan and have been made at the rate of JPY 118.75 =$1, the
approximate rate of exchange on Dec 31, 2002.
Note (2): IIJ datacenter connectivity services revenues have been reclassified from value added services revenues into dedicated
access services revenues since the 1st quarter of FY2002. The 3rd quarter of FY2001 presented has been reclassified to
conform to the current presentation and such reclassification resulted in an increase of dedicated access services
revenues by Y201,554, as compared to the previous classification method.
INTERNET INITIATIVE JAPAN INC. Appendix 2
------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended Dec 31, 2002 and Dec 31, 2001
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD) Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Dec 31, 2002 Dec 31, 2001
-----------------------------------------------------------------
% of % of
Total Total YoY
USD (1) JPY Revenues JPY Revenues Chg %
-----------------------------------------------------------------
Revenues:
Connectivity and value-added services:
Dedicated access services(2) 88,200 10,473,722 33.8% 10,660,201 38.3% (1.7%)
Dial-up access services 20,128 2,390,179 7.7 2,799,812 10.1 (14.6)
Value-added services(2) 22,497 2,671,448 8.6 2,276,654 8.2 17.3
Other 11,322 1,344,530 4.4 1,134,795 4.1 18.5
-----------------------------------------------------------------
Total connectivity and value-added services 142,147 16,879,879 54.5 16,871,462 60.7 0.0
Systems integration revenues 85,113 10,107,204 32.6 9,023,339 32.5 12.0
Equipment sales 33,634 3,994,039 12.9 1,900,038 6.8 110.2
-----------------------------------------------------------------
Total revenues 260,894 30,981,122 100.0 27,794,839 100.0 11.5
-----------------------------------------------------------------
Costs and expenses:
Cost of connectivity and value-added services 129,294 15,353,621 49.6 14,689,111 52.9 4.5
Cost of systems integration revenues 74,463 8,842,530 28.5 7,579,795 27.3 16.7
Cost of other equipment sales 31,816 3,778,191 12.2 1,674,735 6.0 125.6
-----------------------------------------------------------------
Total costs 235,573 27,974,342 90.3 23,943,641 86.2 16.8
Sales and marketing 20,101 2,386,931 7.7 2,373,208 8.5 0.6
General and administrative 12,994 1,543,002 5.0 1,359,149 4.9 13.5
Research and development 2,537 301,304 1.0 251,280 0.9 19.9
-----------------------------------------------------------------
Total costs and expenses 271,205 32,205,579 104.0 27,927,278 100.5 15.3
-----------------------------------------------------------------
Operating loss (10,311) (1,224,457) (4.0) (132,439) (0.5) 824.5
-----------------------------------------------------------------
Other expenses (7,656) (909,141) (2.9) (605,448) (2.2) 50.2
-----------------------------------------------------------------
Loss before income tax expense (17,967) (2,133,598) (6.9) (737,887) (2.7) 189.1
-----------------------------------------------------------------
Income tax expense 6,856 814,109 2.6 1,239,416 4.4 (34.3)
Minority interests in consolidated subsidiaries 1,111 131,909 0.4 33,316 0.1 295.9
Equity in net loss of affiliated companies (36,812) (4,371,424) (14.1) (3,835,479) (13.8) 14.0
-----------------------------------------------------------------
Net loss (60,524) (7,187,222) (23.2%) (5,779,466) (20.8%) 24.4%
=================================================================
Basic Net Loss Per Share (319,716) (257,094)
Basic Net Loss Per ADS Equivalent (159.86) (128.55)
Weighted Average Number of Shares 22,480 22,480
Weighted Average Number of ADS Equivalents 44,960,000 44,960,000
Note (1): The translations of Japanese yen amounts into US dollar amounts with
respect to the year ended Dec 31, 2002 are included solely for the
convenience of readers outside Japan and have been made at the rate of JPY
118.75 =$1, the approximate rate of exchange on Dec 31, 2002.
Note (2): IIJ datacenter connectivity services revenues have been reclassified
from value added services revenues into dedicated access services revenues
since the 1st quarter of FY2002. The 3rd quarter of FY2001 presented has
been reclassified to conform to the current presentation and such
reclassification resulted in an increase of dedicated access services
revenues by Y503,763, as compared to the previous classification method. *T
INTERNET INITIATIVE JAPAN INC. Appendix 3
------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------
As of Dec 31, 2002, Dec 31, 2001 and Sept 30, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
Dec 31, 2002 Dec 31, 2001 Sept 30, 2002
--------------------------------- ------------------- --------------------
USD (1) JPY % JPY % JPY %
------------- ------------ ------ ------------ ------ ------------- ------
ASSETS
------
Current Assets:
Cash 35,963 4,270,613 11.4% 11,166,077 25.9% 4,772,753 12.2%
Accounts receivable, net 61,517 7,305,169 19.5 5,830,688 13.5 7,844,256 20.1
Inventories 6,854 813,863 2.2 228,063 0.5 415,771 1.1
Prepaid expenses 7,434 882,854 2.4 806,515 1.9 498,668 1.3
Other current assets 1,144 135,828 0.4 425,411 1.0 141,923 0.3
------------- ------------ ------ ------------ ------ ------------- ------
Total current assets 112,912 13,408,327 35.9 18,456,754 42.8 13,673,371 35.0
Investments in and Advances to Equity Method
Investees 38,085 4,522,602 12.1 10,386,964 24.1 5,896,219 15.1
Other Investments 29,151 3,461,695 9.2 4,814,114 11.1 3,751,532 9.6
Property and Equipment, net 74,932 8,898,123 23.8 7,609,238 17.6 8,617,873 22.1
Restricted Cash(2) 42,105 5,000,000 13.4 0 0.0 5,000,000 12.8
Guarantee Deposits 11,533 1,369,596 3.7 1,263,819 2.9 1,392,519 3.6
Other Assets 5,895 699,998 1.9 638,652 1.5 706,828 1.8
------------- ------------ ------ ------------ ------ ------------- ------
Total assets 314,613 37,360,341 100.0% 43,169,541 100.0% 39,038,342 100.0%
============= ============ ====== ============ ====== ============= ======
LIABILITIES AND
---------------
SHAREHOLDERS' EQUITY
--------------------
Current Liabilities:
Short-term borrowings 37,979 4,510,000 12.1% 3,700,214 8.6% 4,832,286 12.4%
Accounts payable 49,287 5,852,779 15.7 3,428,098 7.9 5,131,068 13.1
Accrued expenses 3,068 364,366 1.0 292,996 0.7 271,557 0.7
Other current liabilities 4,806 570,719 1.5 696,682 1.6 442,564 1.1
Long-term borrowings-current portion 10,105 1,200,000 3.2 1,200,000 2.8 1,400,000 3.6
Capital lease obligations-current portion 20,419 2,424,701 6.5 1,928,505 4.5 2,271,145 5.8
------------- ------------ ------ ------------ ------ ------------- ------
Total current liabilities 125,664 14,922,565 40.0 11,246,495 26.1 14,348,620 36.7
Long-term Borrowings 28,631 3,400,000 9.1 3,600,000 8.3 3,400,000 8.7
Convertible Notes 126,316 15,000,000 40.1 15,000,000 34.7 15,000,000 38.4
Capital Lease Obligations-Noncurrent 29,163 3,463,132 9.3 2,969,253 6.9 3,250,922 8.4
Accrued Retirement and Pension Costs 632 75,047 0.2 126,085 0.3 83,058 0.2
Other Noncurrent Liabilities 1,557 184,847 0.5 34,238 0.1 153,993 0.4
------------- ------------ ------ ------------ ------ ------------- ------
Total liabilities 311,963 37,045,591 99.2 32,976,071 76.4 36,236,593 92.8
------------- ------------ ------ ------------ ------ ------------- ------
Minority Interest 7,586 900,837 2.4 1,023,897 2.4 942,650 2.4
------------- ------------ ------ ------------ ------ ------------- ------
Shareholders' Equity:
Common stock 59,641 7,082,336 18.9 7,082,336 16.4 7,082,336 18.1
Additional paid-in capital 143,733 17,068,353 45.7 17,068,353 39.5 17,068,353 43.7
Accumulated deficit (213,859) (25,395,691) (68.0) (16,541,800) (38.3) (23,129,652) (59.2)
Accumulated other comprehensive income 5,549 658,915 1.8 1,560,684 3.6 838,062 2.2
------------- ------------ ------ ------------ ------ ------------- ------
Total shareholders' equity (4,936) (586,087) (1.6) 9,169,573 21.2 1,859,099 4.8
------------- ------------ ------ ------------ ------ ------------- ------
Total liabilities and
shareholders' equity 314,613 37,360,341 100.0% 43,169,541 100.0% 39,038,342 100.0%
============= ============ ====== ============ ====== ============= ======
Note (1): The translations of Japanese yen amounts into US dollar amounts with respect to Dec 31, 2002 are included
solely for the convenience of readers outside Japan and have been made at the rate of JPY118.75 =$1, the
approximate rate of exchange on Dec 31, 2002.
Note (2): At the end of May, 2002, IIJ deposited Y5 billion into a restricted account with a participating bank under
Cash Deficiency Support Agreement with Crosswave and four Japanese commercial banks.
INTERNET INITIATIVE JAPAN INC. Appendix 4
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
For the Three Months Ended Dec 31, 2002, Dec 31, 2001 and Sept 30, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
Dec 31, 2002 Dec 31, 2001 Sept 30, 2002
------------------------- ----------------------------
USD (1) JPY JPY JPY
------------ ----------- -------------- -------------
Operating Activities:
Net loss (19,083) (2,266,039) (1,029,829) (2,326,166)
Depreciation and amortization 7,940 942,854 783,194 883,732
Equity in net loss of equity method investees 11,582 1,375,338 1,217,755 1,480,411
Minority interests in net (loss) income of
consolidated subsidiaries (352) (41,813) 3,985 (23,146)
Foreign exchange losses (gains) 276 32,834 (379,315) (39,060)
Losses on other investments - - 299,428 13,620
Decrease (increase) in accounts receivable 4,160 493,961 175,291 (972,056)
Increase (decrease) in accounts payable 8,707 1,033,939 (1,103,244) 7,462
Decrease (increase) in inventories (3,352) (398,092) 784,340 (142,950)
Deferred income taxes 1,113 132,230 (159,611) 509,228
Other (446) (52,956) (8,113) (8,051)
------------ ----------- -------------- -------------
Net cash provided by (used in) operating
activities 10,545 1,252,256 583,881 (616,976)
------------ ----------- -------------- -------------
Investing Activities:
Purchase of property and equipment (4,254) (505,169) (162,852) (222,308)
Investments in and advances to equity method
investees - - (17,497) -
Purchase of other investments (239) (28,377) - (33,294)
(Payment) refund of guarantee deposits-net 194 22,972 (373,471) (87,518)
Other (257) (30,506) (7,718) 2,953
------------ ----------- -------------- -------------
Net cash used in investing activities (4,556) (541,080) (561,538) (340,167)
------------ ----------- -------------- -------------
Financing Activities:
Repayments of long-term borrowings (1,684) (200,000) - -
Principal payments under capital leases (5,487) (651,546) (530,423) (601,144)
Net increase (decrease) in short-term borrowings (2,714) (322,254) (70,231) 282,164
------------ ----------- -------------- -------------
Net cash used in financing activities (9,885) (1,173,800) (600,654) (318,980)
------------ ----------- -------------- -------------
Effect of Exchange Rate Changes on Cash (333) (39,516) 332,421 34,183
------------ ----------- -------------- -------------
Net Decrease in Cash (4,229) (502,140) (245,890) (1,241,940)
------------ ----------- -------------- -------------
Cash, Beginning of Period 40,192 4,772,753 11,411,967 6,014,693
------------ ----------- -------------- -------------
Cash, End of Period 35,963 4,270,613 11,166,077 4,772,753
============ =========== ============== =============
Note (1): The translations of Japanese yen amounts into US dollar amounts with respect to the three months ended
Dec 31, 2002 are included solely for the convenience of readers outside Japan and have been made at the
rate of JPY118.75 =$1, the approximate rate of exchange on Dec 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Internet Initiative Japan Inc.
Date: February 13, 2002 By: /s/ Koichi Suzuki
--------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director