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 May 21, 2003
Commission File Number: 0-30204
-------
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Jinbocho Mitsui Bldg. 1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo 101-0051, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F: Form
20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the reg-istrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
mate-rial event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- -------------
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATMENT ON FORM F-3 (FILE NO.
333-12696) OF INTERNET INITIATIVE JAPAN INC. AND TO BE A PART THEREOF FROM THE
DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 05/21/2003 IIJ Announces 4th Quarter and Full Fiscal Year
2002 Results
- Record quarterly and annual revenues surpass
expectations - Expected continued revenue
growth and positive operating margin in 2003
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: May 21, 2003 By: /s/ Koichi Suzuki
--------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director
EXHIBIT 1
IIJ Announces 4th Quarter and Full Fiscal Year 2002 Results
Record Quarterly and Annual Revenues Surpass Expectations
TOKYO & NEW YORK--May 20, 2003--
Expected Continued Revenue Growth and Positive
Operating Margin in 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 4th quarter and full
fiscal year 2002, ending March 31, 2003 ("fiscal 2002").
On May 21 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 4th Quarter and full fiscal year 2002 Results Summary
----------------------------------------------------------------------
4th Quarter 2002:
Revenues totaled JPY 13 billion ($ 110 million), an increase of
7.7% compared to 4Q01 and 23.4% from 3Q02. Despite the lethargic
Japanese economy, IIJ was able to maintain its steady growth,
surpass guidance and achieve the highest total revenue amount in
the Company's history.
Operating loss narrowed to JPY 446 million ($ 3.8 million) from
JPY 567 million in 3Q02. This compares to a profit of JPY 186
million in 4Q01. The 4Q02 results include a non-recurring expense
related to the IIJ Group's move to its new headquarters in March.
Adjusted EBITDA(1) was JPY 459 million ($ 3.9 million), a
decrease of 52.6% compared to 4Q01 and an increase of 31.5% from
3Q02.
Full fiscal year 2002:
Revenues increased to JPY 44 billion ($ 373 million), a 10.3%
increase from the previous year, which was in line with our
guidance.
Operating loss was JPY 1.7 billion ($ 14 million).
Adjusted EBITDA was JPY 1.8 billion ($ 15 million).
Outlook:
For the 2003 fiscal year, IIJ expects total revenues to grow by
more than 10% compared to fiscal 2002. The Company also
anticipates that operating margins will move into positive
territory.
IIJ expects to raise additional equity capital on June 6, 2003.
We believe that the equity capital financing in a private
placement will provide IIJ with the financial means to continue
the implementation of its growth strategy.
(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 JPY118.07 = US$1, the approximate exchange rate on
March 31, 2003.
----------------------------------------------------------------------
Overview of 4Q02 and full fiscal year 2002 Results and Business
Outlook
Overview
"Despite a difficult economic climate in fiscal 2002, IIJ has
continued to implement its strategy for achieving greater shareholder
value," said Koichi Suzuki, President and CEO of IIJ. "Our strategy
for the Japanese corporate market has been validated with the addition
of several large-scale contracts, including the Ricoh Group, and we
have achieved a record level of revenues. In fiscal 2002, we invested
heavily in new services that will enable us to increase overall
revenues in fiscal 2003 and beyond. We also worked hard to control our
international and domestic backbone expenses through contract
renegotiations and the rationalization of our infrastructure; we
expect the full benefit of these efforts to generate significant cost
reductions in 2003 and beyond. Furthermore, we believe that the recent
establishment of our Network Integration Division will increase our
penetration in the corporate sector, stimulate corporate network
outsourcing demand and help improve our cross-selling efforts.
Finally, we will soon complete a capital increase that will strengthen
the Company's financial base. We are confident that these measures and
our increased focus on high margin products will position IIJ for
operating and financial success in 2003."
Operating Profitability
IIJ's revenues for the fourth quarter were the highest in IIJ's
history and surpassed the Company's guidance. Despite the
non-recurring expenses that were caused by the move to the new
headquarters in March, the operating loss in the fourth quarter
improved from the previous quarter's loss, but was worse than the
operating profit achieved in the same quarter of the previous fiscal
year. The moving expenses are considered an operating cost under US
GAAP.
Revenue from the full 2002 fiscal year also marked the highest
annual amount in the company's history. "Unfortunately, this was not
sufficient to deliver a full year operating profit. An increase in
certain connectivity services revenues was not sufficient to offset a
loss of connectivity service revenues. This was the result of contract
cancellations by the telecom service arm of regional electric power
company and by the shift of several smaller corporate clients from the
IIJ T1 Standard Service and the IIJ Economy Service to cheaper
services. We do not expect a repeat of such revenue losses and we
believe that we will continue to expand our connectivity revenues as
has been the case for many years. To make up for the loss of revenues,
IIJ launched the OEM service through the CDN (Content Delivery
Network) platform and IIJ VPN Standard, a VPN (Virtual Private
Network) service in the fiscal 2002 year. Though it will take some
time to acquire new customers, we believe that these new services will
contribute to make IIJ more profitable in fiscal year 2003. We expect
total revenues to grow by more than 10% compared to fiscal 2002," said
Yasuhiro Nishi, CFO of IIJ. In addition, we expect to continue to
increase the number of CATV customers. About fifty CATV operators were
connected to IIJ, which represents more than 60% of Japan's CATV
Internet market in the 2002 fiscal year.
Capital Improvement Plan
IIJ is planning to issue 8,400 new shares of common stock at a
price of JPY418,200 in a private placement to third parties. The
subscription and payment date for the new shares is expected to be
June 6, 2003. We believe that the capital improvement will secure the
financial means to allow IIJ to continue the implementation of its
growth strategy. "Demonstrating a significant vote of confidence in
IIJ's strategy, several major Japanese institutions will increase
their financial commitment to IIJ while others will contribute capital
for the first time," commented Yasuhiro Nishi. Details for the plan
will be announced when finalized.
Strategies for Enterprise Markets
IIJ's focus on the enterprise market, which is based on the
Company's Systems Integration(SI) business and is further supported by
company-wide cross-selling efforts, contributed to the Company's
steady growth in fiscal year 2002. Revenue from the SI business
increased 33% sequentially as a result of strong demand for network
solutions, equipment sales that were directed to the enterprise
market.
Cross-selling
IIJ has continued to successfully cross-sell its Value-added,
Systems Integration and Data Center Services to existing users of its
Dedicated Access Services. "With a strategic marketing focus on Data
Center Services and a base of 6,000 corporate customers that value the
quality of our technology and support services, IIJ is well positioned
to further increase our cross-selling rates in 2003," said Yasuhiro
Nishi, CFO of IIJ. In fiscal year 2002, revenues from IIJ's top 150
customers accounted for approximately half of the Company's total
revenues. Cross-selling rates for these customers in fiscal 2002 year
are detailed in the following table.
Approximate Cross-selling rates among Top 150 Customers in fiscal
2002
The following table shows the percentage of Dedicated Access
Service customers who also use our Value-added Service, our System
Integrations Service and our Data Center Service.
Value-added System Data Center
Service Integration Service
----------------------------------------------------------------------
Dedicated Access Service 2001 2002 2001 2002 2001 2002
----------------------------------------
69.7% 70.6% 49.2% 58.2% 30.4% 35.3%
----------------------------------------------------------------------
Change in the Organizational Structure
In an effort to continuously maintain our competitive advantage,
IIJ brought together parts of IIJ, Crosswave Communications, IIJ
Technology and NetCare in order to create a new division called the
"Network Integration (NI) Division," as of April 1, 2003. This
division groups all technology and information platforms, from the
planning and development to the maintenance and operation of various
services. This division will make it possible to rapidly respond to
demand in the construction of network communication systems for
enterprises.
Status of Overview and Business Outlook
This Overview and Business Outlook contains forward-looking
statements and projections, such as statements regarding future 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.
4th Quarter and full fiscal year 2002 Operating Highlights
Large-Scale Contracts
Several major Japanese companies awarded large-scale contracts to
IIJ during the 4th quarter, including the Ricoh Group and Japan
Leisure Channel. In February 2003, IIJ won a large-scale outsourcing
contract for email gateway solutions, "IIJ Mail Gateway service," from
the Ricoh Group, one of the world's leading suppliers of office
automation equipment. In March, the Japan Leisure Channel Co. Ltd.
(JLC) chose the IIJ Group to build and operate a large-scale broadband
motorboat racing site called "Kyotei B.B." where IIJ "CDN JAPAN"
service has been utilized.
Additionally, IIJ launched "IIJ Web Gateway Service," a new
security service that will be provided in cooperation with IIJ
Technology Inc. (IIJ-Tech), our 64.1% owned subsidiary. The service
meets a variety of enterprise needs by providing proxy-caching server
operation and management functions that boost Web access efficiency.
Service Development
IIJ has continued to develop new services. In 4Q02, IIJ developed
the IIJ SEIL Management Framework system (IIJ SMF), the world's first
network service operating system that enables corporations to
substantially automate network configuration, and realize
"plug-n-join" network services to control all networking processes,
including network construction and operation. Customers can enjoy
large cost reductions for the construction of network configurations
by using this system. In addition, IIJ recently launched a new
outsourcing solution of web-access filtering, "IIJ URL Filtering
Service," to enable corporate customers to block access from their
internal network to undesirable web sites in order to improve their
productivity. IIJ's subsidiary, Net Care, Inc., launched a new IP
(Internet Protocol) telephony solution service for enterprises. The
new service provides a comprehensive VoIP (Voice over IP) solution
that seamlessly integrates the operation of telephone and data
networks. The service includes consulting, equipment selection, system
construction and implementation, supervision, operation and
maintenance.
Data Center
In January 2003, Crosswave Communications Inc. (a company which
IIJ owns 37.9%) opened new data centers in Yokohama and Saitama.
Unlike conventional data centers, these two new data centers offer a
full range of integrated network and SI (Systems Integration) services
that use the IIJ Group's extensive range of network, system and
engineering resources. The two new data centers are linked to other
IIJ Group data centers nationwide, which help in dispersing capacity
while providing further system back-up.
Network Infrastructure Development
In 4Q02, IIJ increased the capacity of seven 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)
In March 2003, IIJ launched a new IPv6 (Internet Protocol Version
6) service called "IPv6 Gateway Service". The new service will target
leading companies in a variety of different industries. Besides
offering IPv6 connectivity through IIJ's network, the service provides
approximately 3 x 10 to the 26th power IP addresses (a block of /40)
per contract, which enables customers to roll out their own IPv6
services by assigning an IP address to each of their products or
services. Hitachi Ltd. has already contracted this service from IIJ.
Appointment of IIJ Engineers as IESG & IAB Members
In March 2003, two of IIJ's engineers were appointed as Members of
IESG* (Internet Engineering Steering Group) and IAB* (Internet
Architecture Board). Mr. Randy Bush, Chief Scientist of IIJ America,
has become a Member and Area Director of IESG and is responsible for
the Operations & Management area. Dr. Jun-ichiro Itojun Hagino, a
senior researcher in the IIJ Laboratory, is serving as a Member of
IAB. The assignments are two-year terms and are effective from March
2003 until February 2005.
*IESG and IAB are organizations which are part of the
IETF(Internet Engineering Task Force), which is a large open
international community of network designers, operators, vendors, and
researchers who are concerned with the evolution of the Internet's
architecture and the smooth overall operation of the Internet. The
IETF activities are grouped into eight areas, which are administered
by the IESG Area Directors. The IAB is an international organization
that provides architectural oversight and adjudicates appeals of
complaints.
4th Quarter of FY2002 Financial Results
Revenues
Revenue in 4Q02 totaled JPY13,036 million, an increase of 7.7%
compared to 4Q01, and an increase of 23.4% compared to 3Q02.
Connectivity and value-added services revenue was JPY5,419 million
in 4Q02, a decrease of 7.3% compared to 4Q01 and a decrease of 2.6%
compared to 3Q02.
Dedicated access services revenues were JPY3,341 million in 4Q02,
a decrease of 8.3% compared to 4Q01 and a decrease of 1.8% compared to
3Q02. The decrease in year-over-year comparison was mainly due to the
cancellation by the telecom service arm of a regional electric power
company, but in sequential comparison, the downward trend in dedicated
access services is being compensated by the rapid revenue growth of
IIJ FiberAccess/F service(10-100Mbps) and the steady growth of Data
center connectivity service.
Dial-up access service revenues were JPY765 million in 4Q02, a
decrease of 9.4% compared to 4Q01 and a decrease of 1.4% compared to
3Q02. The revenues of IIJ's various OEM services, which include NTT's
regional L-mode service and other network services that use the CDN
platform, increased steadily, which offset the decline of IIJ4U
service and other dial-up services for corporate customers.
Value-added services revenues increased 13.2% to JPY931 million in
4Q02 compared to 4Q01 and 2.0% compared to 3Q02. These increases were
mainly due to the revenue growth of security related services.
Systems integration service revenues decreased 8.0% to JPY4,905
million in 4Q02 compared to 4Q01, but increased 33.2% compared to
3Q02.
Equipment sales revenues were JPY2,712 million in 4Q02, an
increase of 190.4% compared to 4Q01 and an increase of 105.7% compared
to 3Q02. These revenues included sales of network equipment for the
educational industries and governmental agencies, which we expect to
develop as significant clients for our SI business.
Table 1. Number of Contracts
Internet Access Services 4Q02 3Q02 4Q01
======================================================================
IP Service 64kbps - 128kbps 112 130 142
----------------------------------------------------------------------
192kbps - 768kbps 35 37 42
----------------------------------------------------------------------
1Mbps - 2Mbps 268 279 270
----------------------------------------------------------------------
3Mbps - 1.2Gbps 248 212 156
----------------------------------------------------------------------
Internet Data Center Connectivity Services(2) 156 139 110
----------------------------------------------------------------------
Others(3) 4,489 3,922 2,900
======================================================================
Total Dedicated Access Services Contracts 5,308 4,719 3,620
======
(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) 79,464 82,193 89,213
----------------------------------------------------------------------
Others 450,320 370,543 171,363
======================================================================
Total Dial-up Access Services Contracts 529,784 452,736 260,576
======================================================================
Table 2. Revenue Breakdown in Dedicated Access Services
(JPY in millions)
4Q02 3Q02 4Q01
----------------------------------------------------------------------
Total IP Service + DC connectivity 2,518 2,548 2,651
----------------------------------------------------------------------
Others 823 856 992
----------------------------------------------------------------------
Table 3. Contracted Bandwidth (Unit: Giga bits per second)
4Q02 3Q02 4Q01
----------------------------------------------------------------------
Dedicated Access Services 32.1 23.3 9.4
----------------------------------------------------------------------
Internet Data Center Connectivity Service 9.9 7.0 2.0
======================================================================
Total Contracted Bandwidth 42.0 30.3 11.4
======================================================================
Cost and expenses
Cost of total revenues was JPY11,919 million in 4Q02, an increase
of 11.3% compared to 4Q01, and an increase of 24.1% compared to 3Q02.
Backbone Costs
International backbone costs were JPY315 million, a decrease of
28.8% compared to 4Q01 and a decrease of 27.0% compared to 3Q02.
Domestic backbone costs were JPY1,075 million, an increase of
28.6% compared to 4Q01 and an increase of 19.2% compared to 3Q02.
These increases were a result of an increase in connection fees with
NTT's regional access networks (FLET'S).
Table 4. Backbone Costs (JPY in millions)
4Q02 3Q02 4Q01
----------------------------------------------------------------------
International Backbone Costs 315 432 443
----------------------------------------------------------------------
Domestic Backbone Costs 1,075 902 836
----------------------------------------------------------------------
Cost of SI (Systems Integration) revenues
Cost of SI revenues was JPY 4,248 million in 4Q02, a decrease of
10.3% compared to 4Q01 and an increase of 33.9% compared to 3Q02. The
gross margin ratio for SI improved to 13.4% in 4Q02 compared to 11.2%
in 4Q01, and was almost flat compared to 3Q02.
Sales and Marketing Expenses
Sales and marketing expenses were JPY789 million in 4Q02, an
increase of 5.5% compared to 4Q01 and a decrease of 11.8% compared to
3Q02.
General and administrative expenses
General and administrative expenses were JPY662 million in 4Q02,
an increase of 37.7% compared to 4Q01 and an increase of 29.3%
compared to 3Q02. General and administrative expenses for 4Q02
included the cost of the move to new office.
Operating loss
The operating loss was JPY446 million in 4Q02 as compared to the
operating income of JPY186 million in 4Q01 and a loss of JPY567
million in 3Q02. The operating loss for 4Q02, net of the cost of the
move to the new headquarters, improved considerably from the previous
quarter due mainly to the steady growth of our SI business. The
operating income (loss)-to-revenue ratio for 4Q02 was (-)3.4%,
compared to 1.5% in 4Q01, and to (-)5.4% in 3Q02.
Other expenses
Other expenses for 4Q02 were JPY360 million, compared to JPY338
million in 4Q01 and JPY228 million in 3Q02. Other expenses for 4Q02
were mainly composed of a JPY175 million impairment loss on certain
equity security investments and a JPY190 million interest payment.
Equity in net loss of equity method investees
Equity in net loss of equity method investees amounted to JPY1,254
million in 4Q02, compared to JPY1,647 million in 4Q01, and JPY1,375
million in 3Q02. This is mostly attributed to the equity loss in
Crosswave.
Net loss
Net loss was JPY2,137 million in 4Q02, compared to JPY1,667
million in 4Q01 and JPY2,266 million in 3Q02. Basic net loss per ADS
equivalent was JPY(-)47.52 in 4Q02, compared to JPY(-)37.07 in 4Q01
and JPY(-)50.40 in 3Q02.
Table 5. Other Financial Statistics (JPY in millions)
4Q02 3Q02 4Q01
----------------------------------------------------------------------
Adjusted EBITDA 459 349 968
----------------------------------------------------------------------
CAPEX, including capitalized leases 936 1519 913
----------------------------------------------------------------------
Depreciation and amortization 933 943 812
----------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to operating income (loss) per the consolidated statements of
operations prepared and presented in accordance with the U.S.
generally accepted accounting principles in Appendices 1 and 2:
(JPY in millions)
4Q02 3Q02 4Q01 FY2002 FY2001
----------------------------------------------------------------------
Adjusted EBITDA 459 349 968 1,799 2,960
----------------------------------------------------------------------
Depreciation and amortization(4) -905 -916 -782 -3,470 -2,906
----------------------------------------------------------------------
Operating income(loss) -446 -567 186 -1,671 54
----------------------------------------------------------------------
(4) Depreciation and amortization excludes amortization of
issuance cost of convertible notes and of goodwill that were presented
as other expenses.
The following table summarizes the reconciliation of capital
expenditures to purchase of property and equipment per the
consolidated statements of cash flows prepared and presented in
accordance with the U.S. generally accepted accounting principles in
Appendices 4 and 5:
(JPY in millions)
4Q02 3Q02 4Q01
----------------------------------------------------------------------
Capital expenditures 936 1,519 913
----------------------------------------------------------------------
Acquisition of assets by entering into capital leases 772 1,014 411
----------------------------------------------------------------------
Purchase of property and equipment 164 505 502
----------------------------------------------------------------------
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.
INTERNET INITIATIVE JAPAN INC. Appendix 1
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For the Three Months Ended Mar 31, 2003, Mar 31, 2002 and Dec 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data) (1)
Year-over-year Comparison Sequential Comparison
Mar 31, 2003 Mar 31, 2002 Dec 31, 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) 28,299 3,341,255 25.6% 3,643,141 30.1% (8.3%) 3,404,016 32.2% (1.8%)
Dial-up access services 6,479 764,958 5.9 844,279 7.0 (9.4) 776,173 7.4 (1.4)
Value-added services(2) 7,888 931,399 7.2 823,137 6.8 13.2 913,152 8.6 2.0
Other 3,229 381,206 2.9 533,191 4.4 (28.5) 467,629 4.4 (18.5)
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Total connectivity and
value-added services 45,895 5,418,818 41.6 5,843,748 48.3 (7.3) 5,560,970 52.6 (2.6)
Systems integration revenues 41,547 4,905,429 37.6 5,331,986 44.0 (8.0) 3,683,978 34.9 33.2
Equipment sales 22,971 2,712,192 20.8 934,040 7.7 190.4 1,318,630 12.5 105.7
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Total revenues 110,413 13,036,439 100.0 12,109,774 100.0 7.7 10,563,578 100.0 23.4
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Costs and expenses:
Cost of connectivity and value-
added services 42,630 5,033,266 38.6 5,110,291 42.2 (1.5) 5,179,920 49.0 (2.8)
Cost of systems integration
revenues 35,976 4,247,690 32.6 4,734,363 39.1 (10.3) 3,173,211 30.0 33.9
Cost of equipment sales 22,345 2,638,334 20.2 865,354 7.1 204.9 1,254,073 11.9 110.4
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Total costs 100,951 11,919,290 91.4 10,710,008 88.4 11.3 9,607,204 90.9 24.1
Sales and marketing 6,684 789,234 6.0 665,204 5.5 18.6 894,340 8.5 (11.8)
General and administrative 5,603 661,502 5.1 480,376 4.0 37.7 511,604 4.9 29.3
Research and development 956 112,845 0.9 68,090 0.6 65.7 116,950 1.1 (3.5)
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Total costs and
expenses 114,194 13,482,871 103.4 11,923,678 98.5 13.1 11,130,098 105.4 21.1
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Operating income (loss) (3,781) (446,432) (3.4) 186,096 1.5 (339.9) (566,520) (5.4) (21.2)
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Other expenses (3,052) (360,292) (2.8) (337,694) (2.8) 6.7 (228,058) (2.1) 58.0
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Loss before income tax
expense(benefit) (6,833) (806,724) (6.2) (151,598) (1.3) 432.1 (794,578) (7.5) 1.5
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Income tax expense(benefit) 823 97,256 0.8 (140,381) (1.2) (169.3) 137,936 1.3 (29.5)
Minority interests in consolidated
subsidiaries 181 21,342 0.2 (8,849) (0.1) (341.2) 41,813 0.4 (49.0)
Equity in net loss of equity
method investees (10,620) (1,253,875) (9.6) (1,646,603) (13.6) (23.9) (1,375,338) (13.0) (8.8)
-------- ----------- -------- ----------- -------- ------- ----------- -------- ------
Net loss (18,095) (2,136,513) (16.4%) (1,666,669) (13.8%) 28.2% (2,266,039) (21.4%) (5.7%)
======== =========== ======== =========== ======== ======= =========== ======== ======
Basic Net Loss Per Share (95,041) (74,140) (100,802)
Basic Net Loss Per ADS Equivalent (47.52) (37.07) (50.40)
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 Mar 31, 2003 are included solely for
the convenience of readers outside Japan and have been made at the
rate of JPY 118.07 =$1, the approximate rate of exchange on Mar 31,
2003.
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 4th 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 Y257,599, as compared to the previous
classification method.
INTERNET INITIATIVE JAPAN INC. Appendix 2
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
For the Years Ended Dec 31, 2003 and Mar 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Mar 31, 2003 Mar 31, 2002
--------------------------------- -------------------------------
% of % of
Total Total YoY
USD (1) JPY Revenues JPY Revenues Chg %
---------- ----------- ---------- ------------ -------- ---------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 117,007 13,814,977 31.4% 14,303,342 35.8% (3.4%)
Dial-up access services 26,723 3,155,137 7.2 3,644,091 9.1 (13.4)
Value-added services(2) 30,514 3,602,847 8.2 3,099,791 7.8 16.2
Other 14,616 1,725,736 3.9 1,667,986 4.2 3.5
---------- ----------- ---------- ------------ -------- ---------
Total connectivity and value-
added services 188,860 22,298,697 50.7 22,715,210 56.9 (1.8)
Systems integration revenues 127,150 15,012,633 34.1 14,355,325 36.0 4.6
Equipment sales 56,799 6,706,231 15.2 2,834,078 7.1 136.6
---------- ----------- ---------- ------------ -------- ---------
Total
revenues 372,809 44,017,561 100.0 39,904,613 100.0 10.3
---------- ----------- ---------- ------------ -------- ---------
Costs and expenses:
Cost of connectivity and value-added
services 172,668 20,386,887 46.3 19,799,402 49.6 3.0
Cost of systems integration revenues 110,868 13,090,220 29.7 12,314,158 30.9 6.3
Cost of other equipment sales 54,345 6,416,525 14.6 2,540,089 6.4 152.6
---------- ----------- ---------- ------------ -------- ---------
Total costs 337,881 39,893,632 90.6 34,653,649 86.9 15.1
Sales and marketing 26,901 3,176,165 7.2 3,038,412 7.6 4.5
General and administrative 18,671 2,204,504 5.0 1,839,525 4.6 19.8
Research and development 3,508 414,149 1.0 319,370 0.8 29.7
---------- ----------- ---------- ------------ -------- ---------
Total costs and expenses 386,961 45,688,450 103.8 39,850,956 99.9 14.6
---------- ----------- ---------- ------------ -------- ---------
Operating income(loss) (14,152) (1,670,889) (3.8) 53,657 0.1 (3,214.0)
---------- ----------- ---------- ------------ -------- ---------
Other expenses (10,751) (1,269,433) (2.9) (943,142) (2.3) 34.6
---------- ----------- ---------- ------------ -------- ---------
Loss before income tax expense (24,903) (2,940,322) (6.7) (889,485) (2.2) 230.6
---------- ----------- ---------- ------------ -------- ---------
Income tax expense 7,719 911,365 2.1 1,099,035 2.8 (17.1)
Minority interests in consolidated
subsidiaries 1,298 153,251 0.4 24,467 0.1 526.4
Equity in net loss of affiliated companies (47,644) (5,625,299) (12.8) (5,482,082) (13.8) 2.6
---------- ----------- ---------- ------------ -------- ---------
Net loss (78,968) (9,323,735) (21.2%) (7,446,135) (18.7%) 25.2%
========== =========== ========== ============ ======== =========
Basic Net Loss Per Share (414,757) (331,234)
Basic Net Loss Per ADS Equivalent (207.38) (165.62)
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 Mar 31, 2003 are included solely for the
convenience of readers outside Japan and have been made at the rate
of JPY 118.07 =$1, the approximate rate of exchange on Mar 31, 2003.
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 4th 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 Y761,362, as compared to the previous
classification method.
INTERNET INITIATIVE JAPAN INC. Appendix 3
------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
As of Mar 31, 2003, Mar 31, 2002 and Dec 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
Mar 31, 2003 Mar 31, 2002 Dec 31, 2002
----------------------------- ------------------- -------------------
USD (1) JPY % JPY % JPY %
--------- ------------ ------ ------------ ------ ------------ ------
ASSETS
--------------------------------------------------
Current Assets:
Cash 30,392 3,588,352 9.2% 11,045,919 24.4% 4,270,613 11.4%
Accounts receivable, net 86,839 10,253,096 26.1 8,981,912 19.9 7,305,169 19.5
Inventories 3,537 417,666 1.1 620,409 1.4 813,863 2.2
Prepaid expenses 4,781 564,501 1.4 416,945 0.9 882,854 2.4
Other current assets 7,901 932,873 2.4 143,798 0.3 135,828 0.4
--------- ------------ ------ ------------ ------ ------------ ------
Total current assets 133,450 15,756,488 40.2 21,208,983 46.9 13,408,327 35.9
Investments in and Advances to Equity Method
Investees 27,704 3,271,032 8.3 8,854,028 19.6 4,522,602 12.1
Other Investments 25,749 3,040,189 7.8 5,406,065 11.9 3,461,695 9.2
Property and Equipment, net 77,510 9,151,572 23.3 7,755,426 17.1 8,898,123 23.8
Restricted Cash 42,348 5,000,000 12.8 0 0.0 5,000,000 13.4
Guarantee Deposits 18,681 2,205,652 5.6 1,266,055 2.8 1,369,596 3.7
Other Assets 6,729 794,455 2.0 772,226 1.7 699,998 1.9
--------- ------------ ------ ------------ ------ ------------ ------
Total assets 332,171 39,219,388 100.0% 45,262,783 100.0% 37,360,341 100.0%
========= ============ ====== ============ ====== ============ ======
LIABILITIES AND
--------------------------------------------------
SHAREHOLDERS' EQUITY
--------------------------------------------------
Current Liabilities:
Short-term borrowings 40,854 4,823,599 12.3% 3,820,232 8.4% 4,510,000 12.1%
Accounts payable 71,196 8,406,170 21.4 7,085,579 15.7 5,852,779 15.7
Accrued expenses 3,299 389,495 1.0 247,606 0.5 364,366 1.0
Other current liabilities 4,675 551,985 1.4 506,797 1.1 570,719 1.5
Long-term borrowings-current portion 16,462 1,943,735 5.0 1,400,000 3.1 1,200,000 3.2
Capital lease obligations-current portion 23,007 2,716,386 6.9 1,973,769 4.4 2,424,701 6.5
--------- ------------ ------ ------------ ------ ------------ ------
Total current liabilities 159,493 18,831,370 48.0 15,033,983 33.2 14,922,565 40.0
Long-term Borrowings 29,273 3,456,265 8.8 3,400,000 7.5 3,400,000 9.1
Convertible Notes 127,043 15,000,000 38.2 15,000,000 33.2 15,000,000 40.1
Capital Lease Obligations-Noncurrent 30,793 3,635,780 9.3 2,861,556 6.3 3,463,132 9.3
Accrued Retirement and Pension Costs 683 80,601 0.2 100,841 0.2 75,047 0.2
Other Noncurrent Liabilities 1,569 185,201 0.5 108,376 0.2 184,847 0.5
--------- ------------ ------ ------------ ------ ------------ ------
Total liabilities 348,854 41,189,217 105.0 36,504,756 80.6 37,045,591 99.2
--------- ------------ ------ ------------ ------ ------------ ------
Minority Interest 7,449 879,495 2.3 1,032,746 2.3 900,837 2.4
--------- ------------ ------ ------------ ------ ------------ ------
Shareholders' Equity:
Common stock 59,984 7,082,336 18.1 7,082,336 15.7 7,082,336 18.9
Additional paid-in capital 144,561 17,068,353 43.5 17,068,353 37.7 17,068,353 45.7
Accumulated deficit (233,185) (27,532,204) (70.2) (18,208,469) (40.2) (25,395,691) (68.0)
Accumulated other comprehensive income 4,508 532,191 1.3 1,783,061 3.9 658,915 1.8
--------- ------------ ------ ------------ ------ ------------ ------
Total shareholders' equity (24,132) (2,849,324) (7.3) 7,725,281 17.1 (586,087) (1.6)
--------- ------------ ------ ------------ ------ ------------ ------
Total liabilities and shareholders'
equity 332,171 39,219,388 100.0% 45,262,783 100.0% 37,360,341 100.0%
========= ============ ====== ============ ====== ============ ======
Note (1): The translations of Japanese yen amounts into US dollar amounts with
respect to Mar 31, 2003 are included solely for the convenience of
readers outside Japan and have been made at the rate of JPY118.07 =$1,
the approximate rate of exchange on Mar 31, 2003.
INTERNET INITIATIVE JAPAN INC. Appendix 4
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
For the Three Months Ended Marach 31, 2003, March 31, 2002 and Dec 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
March 31, 2003 March 31, 2002 Dec 31, 2002
------------------------- --------------- --------------
USD (1) JPY JPY JPY
------------ ----------- --------------- --------------
Operating Activities:
Net
loss (18,095) (2,136,513) (1,666,669) (2,266,039)
Depreciation and amortization 7,905 933,374 811,652 942,854
Equity in net loss of equity method investees 10,620 1,253,875 1,646,603 1,375,338
Minority interests in net (loss) income of
consolidated subsidiaries (181) (21,342) 8,849 (41,813)
Foreign exchange losses 1,264 149,262 3,990 32,834
Losses on other investments 1,565 184,723 104,700 -
Decrease (increase) in accounts receivable (25,267) (2,983,254) (3,183,806) 493,961
Increase in accounts payable 18,636 2,200,392 3,696,329 1,033,939
Decrease (increase) in inventories 3,321 392,051 (398,876) (398,092)
Deferred income taxes 771 91,033 (145,560) 132,230
Other 3,614 426,737 214,793 (52,956)
------------ ----------- --------------- --------------
Net cash provided by operating activities 4,153 490,338 1,092,005 1,252,256
------------ ----------- --------------- --------------
Investing Activities:
Purchase of property and equipment (1,385) (163,592) (501,667) (505,169)
Proceeds from sale-leaseback 567 66,940 - -
Investments in and advances to equity method
investees - - (24,123) -
Purchase of other investments - - (350,000) (28,377)
(Payment) refund of guarantee deposits-net (11,749) (1,387,210) (2,007) 22,972
Other 51 6,057 22,299 (30,506)
------------ ----------- --------------- --------------
Net cash used in investing activities (12,516) (1,477,805) (855,498) (541,080)
------------ ----------- --------------- --------------
Financing Activities:
Proceeds from long-term borrowings 16,939 2,000,000 - -
Repayments of long-term borrowings (10,164) (1,200,000) - (200,000)
Principal payments under capital leases (5,558) (656,238) (535,906) (651,546)
Net increase (decrease) in short-term borrowings 2,650 312,854 120,018 (322,254)
------------ ----------- --------------- --------------
Net cash provided by (used in) financing
activities 3,867 456,616 (415,888) (1,173,800)
------------ ----------- --------------- --------------
Effect of Exchange Rate Changes on Cash (1,282) (151,410) 59,223 (39,516)
------------ ----------- --------------- --------------
Net Decrease in Cash (5,778) (682,261) (120,158) (502,140)
------------ ----------- --------------- --------------
Cash, Beginning of Period 36,170 4,270,613 11,166,077 4,772,753
------------ ----------- --------------- --------------
Cash, End of Period 30,392 3,588,352 11,045,919 4,270,613
============ =========== =============== ==============
Note (1): The translations of Japanese yen amounts into US dollar amounts with
respect to the three months ended Mar 31, 2003 are included solely for
the convenience of readers outside Japan and have been made at the
rate of JPY118.07 =$1, the approximate rate of exchange on Mar 31,
2003.
INTERNET INITIATIVE JAPAN INC. Appendix 5
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
For the Year Ended Marach 31, 2003, March 31, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
March 31, 2003 March 31, 2002
----------------------------- ---------------
USD (1) JPY JPY
-------------- -------------- ---------------
Operating Activities:
Net loss (78,968) (9,323,735) (7,446,135)
Depreciation and amortization 30,323 3,580,212 3,027,587
Equity in net loss of equity method investees 47,644 5,625,299 5,482,082
Minority interests in net loss of consolidated subsidiaries (1,298) (153,251) (24,467)
Foreign exchange losses (gains) 2,353 277,856 (219,524)
Losses on other investments 2,348 277,162 432,952
Increase in accounts receivable (11,446) (1,351,380) (3,559,335)
Increase in accounts payable 10,548 1,245,431 2,808,704
Decrease (increase) in inventories 1,682 198,597 (671,177)
Deferred income taxes 7,498 885,331 1,081,241
Other 2,712 320,170 249,285
-------------- -------------- ---------------
Net cash provided by operating activities 13,396 1,581,692 1,161,213
-------------- -------------- ---------------
Investing Activities:
Purchase of property and equipment (11,141) (1,315,390) (1,237,434)
Proceeds from sale-leaseback 567 66,940 -
Investments in and advances to equity method investees (476) (56,250) (362,714)
Purchase of other investments (437) (51,671) (399,600)
Deposit to restricted cash (42,348) (5,000,000) -
Payment of guarantee deposits-net (12,602) (1,487,911) (430,455)
Other (285) (33,639) (26,995)
-------------- -------------- ---------------
Net cash used in investing activities (66,722) (7,877,921) (2,457,198)
-------------- -------------- ---------------
Financing Activities:
Proceeds from long-term borrowings 16,939 2,000,000 2,000,000
Repayments of long-term borrowings (11,857) (1,400,000) -
Principal payments under capital leases (20,966) (2,475,433) (2,037,133)
Net increase (decrease) in short-term borrowings 8,498 1,003,367 (1,799,768)
Proceeds from issuance of common stock of a subsidiary - - 375,000
-------------- -------------- ---------------
Net cash used in financing activities (7,386) (872,066) (1,461,901)
-------------- -------------- ---------------
Effect of Exchange Rate Changes on Cash (2,450) (289,272) 233,098
-------------- -------------- ---------------
Net Decrease in Cash (63,162) (7,457,567) (2,524,788)
-------------- -------------- ---------------
Cash, Beginning of Period 93,554 11,045,919 13,570,707
-------------- -------------- ---------------
Cash, End of Period 30,392 3,588,352 11,045,919
============== ============== ===============
Note (1): The translations of Japanese yen amounts into US dollar amounts with
respect to the year ended Mar 31, 2003 are included solely for the
convenience of readers outside Japan and have been made at the rate of
JPY118.07 =$1, the approximate rate of exchange on Mar 31, 2003.
CONTACT: Internet Initiative Japan Inc.
IIJ Investor Relations Office:
Akari Sato, +81-3-5259-6500(Tel)
ir@iij.ad.jp