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 August 10, 2004
Commission File Number: 0-30204
-------
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Jinbocho Mitsui Bldg. 1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo 101-0051, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F:
Form 20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(1):
----
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of
a Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as per-mitted by Regulation S-T Rule 101(b)(7):
----
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of
a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the reg-istrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
mate-rial event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
---------------
THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATMENT ON FORM F-3 (FILE NO.
333-12696) OF INTERNET INITIATIVE JAPAN INC. AND TO BE A PART THEREOF FROM THE
DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY
DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.
EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 8/10/2004 IIJ Announces Year-Over-Year Improvement in
Operating and Net Income for the First Quarter of
Fiscal Year 2004
- Sustaining Bottom Line Profitability -
EXHIBIT 1
---------
IIJ Announces Year-Over-Year Improvement in Operating and Net Income
for the First Quarter of Fiscal Year 2004
Sustaining Bottom Line Profitability
TOKYO & NEW YORK--(BUSINESS WIRE)--Aug. 9, 2004--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 first quarter of the fiscal
year ending March 31, 2005 ("FY 2004").(1)
Highlights of First Quarter FY2004 Results
-- Revenues totaled JPY 8,675 million ($79.3 million), an
increase of 4.0% compared to 1Q03 and a decrease of 25.3%
compared to 4Q03. Value-added service ("VAS") revenue growth,
including our internet virtual private networks ("VPNs")
service, made up for the decrease in connectivity revenue,
which has been declining due to a falling average revenue per
user. System integration ("SI") revenue increased 11.9%
compared to 1Q03 primarily due to the growth of our
operational outsource service.
-- Operating loss decreased significantly to JPY 100 million ($
0.9 million) from JPY 1,206 million in 1Q03, but decreased
from an operating income of JPY 350 million in 4Q03.
Historically, IIJ's first quarter has the lowest sales and
operating income of our fiscal year due to the seasonal nature
of completing and recording revenue for system integration
projects. While this quarter's revenue is consistent with that
trend, a relatively high level of profitability was sustained
from the two previous quarters.
-- Adjusted EBITDA(2) was JPY 884 million ($ 8.1 million), an
increase from an adjusted EBITDA loss of JPY 243 million in
1Q03 and a decrease from JPY 1,358 million in 4Q03. Adjusted
EBITDA as a source of operating cash has been stable.
-- Net income was JPY 1,434 million ($ 13.1 million), an
improvement from a net loss of JPY 2,475 million in 1Q03 and
net income of JPY 669 million in 4Q03. IIJ's positive net
income in the past three consecutive quarters was achieved due
to a substantial decrease in operating loss and the income tax
benefit due to the effects of unrealized gains on certain
available-for-sale securities during the quarters.
Outlook for Second Quarter FY2004
-- We expect positive operating income in 2Q04 to cover the 1Q04
operating loss as a result of ongoing efforts to increase
financial returns throughout the Company, which efforts
include increasing sales through the expansion of profitable
business lines, such as VAS and SI, including internet
security and mail outsourcing services, and further reducing
costs, in particular our backbone costs. As a result, IIJ's
annual operating and net income are expected to become
positive in FY2004.
(1)Unless otherwise stated, all financial figures discussed in
this announcement are prepared in accordance with U.S. GAAP. All
financial figures are unaudited and consolidated. For all 1Q04
results, translations of Japanese yen amounts into US dollars are
solely for the convenience of readers outside of Japan and have been
made at the rate of JPY 109.43 = US$1.00, the approximate exchange
rate on June 30, 2004.
(2)Please refer to the Reconciliation of Non-GAAP Financial
Measures on page 6.
Overview of 1st Quarter Financial Results and Business Outlook(3)
"With the rapid increase in broadband, Japanese enterprises are
beginning to demand reliable services capable of managing their
increasingly complicated network operations, although price
competition for internet connectivity services is intensifying," said
Koichi Suzuki, President and CEO of IIJ. "In this changing
environment, we believe that IIJ's advanced technology differentiate
us from our competitors, and we have been working to expand our
network solutions operations and customer base. In particular, IIJ's
managed VAS services, which are meeting and beating several notable
end-users' expectations, provide network operations management
including internet security services, server outsourcing services,
such as Mail Gateway, data center services, and network outsourcing
services, such as our highly rated, SMF(4). We currently have more
than 1,200 internet security service users and have taken on
approximately 1,000 additional customer location sites for internet
VPN multiple base network connectivity in 1Q04. IIJ's strategy to
promote and expand our network solutions is bearing fruit and our
profit base is steadily improving. In 2004, we will continue to pursue
our ongoing strategy of strengthening profits in order to continue to
be one of Japan's leading Internet network solution providers."
"Typically, our first quarter sales, which are adversely affected
by the seasonal variation of Japanese corporate IT investment, are the
lowest of the year," said Akihisa Watai, IIJ's new CFO. "The
quarter-over-quarter decrease in revenue in 1Q04 is consistent with
that trend. However, our operating loss in 1Q04 has decreased
dramatically as compared to 1Q03. This is evidenced by our ability to
sustain a relatively high level of profitability in 1Q04, as we did in
the two previous quarters. The results are in line with expectations
and represent a very promising start for the year."
"The sales of IIJ's managed VAS services are steadily increasing
due to the continued introduction of high margin products to our large
base of connectivity customers," continued Mr. Watai. "The cost of
connectivity and VAS, including backbone costs, decreased over the
last quarter. We expect this trend will continue in 2Q04. In our SI
business, the sales of outsourced Internet service operations, which
produce relatively stable income, are growing steadily. We expect
operating positive income in 2Q04 to cover 1Q04 operating loss. We are
aiming to be profitable at the operating and net income levels in
FY2004, which is in line with our previously stated annual goals."
1st Quarter FY2004 Financial Results
Revenues
Revenues in 1Q04 totaled JPY 8,675 million, an increase of 4.0%
from JPY 8,344 million in 1Q03 and a decrease of 25.3% from JPY 11,617
million in 4Q03.
Connectivity and VAS revenues were JPY 5,450 million in 1Q04, a
decrease of 2.6% from JPY 5,596 million in 1Q03 and a decrease of 0.9%
from JPY 5,499 million in 4Q03.
Dedicated access service revenues were JPY 2,918 million in 1Q04,
a decrease of 12.1% compared to 1Q03 and a decrease of 5.9% compared
to 4Q03. IP Service revenues decreased by 10.1% in 1Q04 compared to
1Q03 and decreased by 5.9% compared to 4Q03, mainly due to the
cancellation of service by a regional electric power company's telecom
service arm. Broadband Services(5)revenues substantially increased by
33.3% compared to 1Q03 and increased by 5.5% compared to 4Q03.
However, the increase did not offset the decreases in Limited
Functionality Services(6) revenues, which decreased by 46.4% compared
to 1Q03 and decreased by 17.1% compared to 4Q03 as a result of the
shift to Broadband Services.
Dial-up access service revenues were JPY 752 million in 1Q04, a
decrease of 2.0% compared to 1Q03 and a decrease of 0.8% compared to
4Q03. The declining trend in dial-up access service was reduced due to
the steady revenue growth of OEM services, including the CDN(7)
("Contents Delivery Network") platform and NTT's regional L-mode
service, which increased by 23.9% compared to 1Q03 and increased by
3.0% compared to 4Q03.
VAS revenues were JPY 1,187 million in 1Q04, an increase of 20.2%
compared to 1Q03 and an increase of 7.5% compared to 4Q03. Internet
Data Center service revenues increased by 10.5% compared to 1Q03 and
by 15.2% compared to 4Q03, due to the increase of large-scale
contracts for outsourcing services.
Systems Integration revenues increased 11.9% to JPY 2,695 million
in 1Q04 from JPY 2,408 million in 1Q03 and decreased 32.7% from JPY
4,001 million in 4Q03. The solid year-over-year growth reflects the
growing demand for network services. The quarter-over-quarter decrease
in SI revenues is due to seasonal variation within the SI business.
Equipment sales revenues were JPY 531 million in 1Q04, an increase
of 55.8% compared to 1Q03 and a decrease of 74.9% compared to 4Q03.
The year-over-year growth reflects the growing demand for network
services. The quarter-over-quarter decrease is due to seasonal
variation.
Cost and expenses
Cost of revenues was JPY 7,443 million in 1Q04, a decrease of 5.4%
compared to 1Q03 and a decrease of 24.9% compared to 4Q03.
Cost of Connectivity and VAS revenues was JPY 4,811 million, a
decrease of 8.1% compared to 1Q03 and almost flat compared to 4Q03.
The gross-margin ratio for Connectivity and VAS in 1Q04 was 11.7%,
compared to 6.5% in 1Q03 and 12.5% in 4Q03. The improvement in
gross-margin compared to 1Q03 was the result of our continuous efforts
to reduce backbone costs. Backbone costs were JPY 985 million in 1Q04,
a decrease of 25.3% compared to 1Q03 and a decrease of 7.7% compared
to 4Q03, which reflect the benefits of our on-going efforts to
optimize our network. The gross-margin ratio slightly decreased from
4Q03 to 1Q04 due to the increase in personnel expense in our
engineering division.
Cost of SI service revenues was JPY 2,157 million in 1Q04, a
decrease of 7.2% compared to 1Q03 and a decrease of 29.4% compared to
4Q03. The gross margin for SI was 20.0% in 1Q04 compared to 3.5% in
1Q03 and 23.7% in 4Q03. The year-over-year improvement in gross-margin
was due to improving profitability of SI development contracts and the
steady increase in operation and maintenance revenues.
Sales and marketing expenses were JPY 663 million in 1Q04, a
decrease of 31.9% compared to 1Q03 and a decrease of 12.3% compared to
4Q03. The year-over-year decrease was mainly due to the absence of bad
debt expenses for Crosswave, which had amounted to JPY 146 million in
1Q03.
General and administrative expenses were JPY 621 million in 1Q04,
an increase of 1.4% compared to 1Q03 and an increase of 19.8% compared
to 4Q03. The 1Q04 expenses included the newly introduced uniform
enterprise tax, which amounted to JPY 25 million, and the loss on the
disposal of fixed assets, which amounted to JPY 33 million. 1Q03
expenses include costs associate with the move to the new head office,
which amounted to JPY 70 million.
Operating income (loss)
Operating loss was JPY 100 million in 1Q04, compared to an
operating loss of JPY 1,206 million in 1Q03 and operating income of
JPY 350 million in 4Q03. The improvement from 1Q03 is mainly due to
increased profitability in Connectivity and SI services, and the
absence of bad debt expense attributable to Crosswave. In spite of the
substantial seasonal decrease in SI revenues, we reduced operating
loss in 1Q04 as was expected.
Other expenses for 1Q04 were JPY 151 million, compared to JPY 204
million in 1Q03 and JPY 226 million in 4Q03. Other expenses for 1Q04
included a JPY 48 million gain on the sale of an equity investment.
Income tax benefit for 1Q04 was JPY 1,657 million, compared to JPY
390 million in 1Q03 and JPY 891 million in 4Q03. The increases as
compared to 1Q03 and 4Q03 are due to a decrease in the valuation
allowance for deferred tax assets attributable primarily to the income
tax effect of increasing unrealized gains on certain
available-for-sale securities during the quarter.
Equity in net loss of equity method investees amounted to a loss
of JPY 11 million in 1Q04, compared to JPY 1,709 million in 1Q03 and
JPY 189 million in 4Q03.
Net income (loss) was JPY 1,434 million in 1Q04, compared to a net
loss of JPY 2,475 million in 1Q03 and net income of JPY 669 million in
4Q03. The improvement in net income reflects the improvement in
operating income and the income tax benefit due to the effect of
increases in unrealized gains on certain available-for-sale securities
during the quarter. Basic net income per ADS equivalent was JPY 18.72
in 1Q04, compared to a net loss of JPY 54.72 in 1Q03 and a net income
of JPY 8.73 in 4Q03.
Table 1. Revenues and Cost of Connectivity and Value-added
Services (JPY in millions)
YoY QoQ
1Q04 1Q03 % 4Q03 %
change change
----------------------------------------------------------------------
Connectivity Service Revenues
----------------------------------------------------------------------
IP Service (8) 2,279 2,534 (10.1%)2,423 (5.9%)
----------------------------------------------------------------------
Limited Functionality Services 275 513 (46.4%) 331 (17.1%)
----------------------------------------------------------------------
Broadband Services (FTTH, ADSL) 364 274 33.3% 346 5.5%
======================================================================
Total Dedicated Access Service
Revenues 2,918 3,321 (12.1%)3,100 (5.9%)
======================================================================
Dial-up Access Service Revenues
----------------------------------------------------------------------
Under IIJ brand (9) 509 571 (10.9%) 522 (2.5%)
----------------------------------------------------------------------
OEM (10) 243 196 23.9% 236 3.0%
======================================================================
Total Dial-up Service Revenues 752 767 (2.0%) 758 (0.8%)
======================================================================
Value-added Service Revenues 1,187 987 20.2%1,104 7.5%
----------------------------------------------------------------------
Other Revenues 592 520 14.0% 537 10.4%
======================================================================
Total Connectivity and Value-added
Service Revenues 5,450 5,596 (2.6%)5,499 (0.9%)
----------------------------------------------------------------------
Cost of Connectivity and Value-added
Services 4,811 5,234 (8.1%)4,810 0.0%
----------------------------------------------------------------------
Backbone Cost (included in the cost of
connectivity and value added
services) 985 1,318 (25.3%)1,067 (7.7%)
======================================================================
Gross Margin 638 361 76.6% 689 (7.3%)
======================================================================
Gross Margin Ratio 11.7% 6.5% 12.5%
======================================================================
Table 2. Number of Contracts for Connectivity Services and Total
Contracted Bandwidth
1Q04 1Q03 4Q03
======================================================================
IP Service (Low Bandwidth: 64kbps-768kbps) 73 108 88
----------------------------------------------------------------------
IP Service (Medium Bandwidth:1Mbps-100Mbps) 638 503 606
----------------------------------------------------------------------
IP Service (High Bandwidth: over 100Mbps)(11) 35 26 35
----------------------------------------------------------------------
IIJ Data Center Connectivity Service 224 171 196
----------------------------------------------------------------------
IPv6 Service 6 12 9
----------------------------------------------------------------------
Limited Functionality Services 421 791 504
----------------------------------------------------------------------
Broadband Services (FTTH, ADSL) 6,679 4,265 5,788
======================================================================
Total Dedicated Access Service Contracts 8,076 5,876 7,226
----------------------------------------------------------------------
Dial-up Access Services, under IIJ Brand 73,225 83,327 75,136
----------------------------------------------------------------------
Dial-up Access Services, OEM 635,361 508,245 620,731
======================================================================
Total Dial-up Access Service Contracts 708,586 591,572 695,867
======================================================================
Total Contracted Bandwidth 95.6Gbps51.4Gbps80.1Gbps
======================================================================
Table 3. Cross-selling
YoY QoQ
1Q04 1Q03 % 4Q03 %
change change
======================================================================
Number of Customers to use both of
Connectivity Service and Value-added
Services in largest 1,000 customers
only 823 823 0.0% 795 3.5%
======================================================================
VAS Cross-selling Rate 82.3% 82.3% 79.5%
======================================================================
Number of SI Customers to use
Connectivity Service in largest 100 SI
customers 66 75 (12.0%) 66 0.0%
======================================================================
SI Cross-selling Rate 66.0% 75.0% 66.0%
======================================================================
Table 4. Systems Integration and Equipment Sales (JPY in millions)
YoY QoQ
1Q04 1Q03 % 4Q03 %
change change
----------------------------------------------------------------------
Systems Integration Revenues
----------------------------------------------------------------------
Systems Integration Services 1,040 1,211 (14.1%)2,573 (59.6%)
----------------------------------------------------------------------
Operational Outsource Service 1,655 1,197 38.3%1,428 15.8%
======================================================================
Systems Integration Revenues 2,695 2,408 11.9%4,001 (32.7%)
----------------------------------------------------------------------
Cost of Systems Integration 2,157 2,323 (7.2%)3,054 (29.4%)
======================================================================
Systems Integration Gross Margin 538 85 536.5% 947 (43.2%)
======================================================================
Systems Integration Gross Margin Ratio 20.0% 3.5% 23.7%
----------------------------------------------------------------------
Equipment Sales Revenues 531 341 55.8%2,117 (74.9%)
----------------------------------------------------------------------
Cost of Equipment Sales 475 311 52.9%2,051 (76.8%)
======================================================================
Equipment Sales Gross Margin 55 30 86.2% 66 (16.5%)
======================================================================
Equipment Sales Gross Margin Ratio 10.4% 8.7% 3.1%
======================================================================
Table 5. Gross Margins
1Q032Q03 3Q03 4Q03 1Q04
======================================================================
Connectivity and Value-added Services 6.5% 9.1%13.4%12.5%11.7%
----------------------------------------------------------------------
Systems Integration 3.5%10.7%23.9%23.7%20.0%
----------------------------------------------------------------------
Equipment Sales 8.7% 6.4% 5.5% 3.1%10.4%
======================================================================
Total 5.7% 9.2%15.7%14.7%14.2%
======================================================================
Table 6. Other Financial Statistics (JPY in millions)
YoY QoQ
1Q04 1Q03 % 4Q03 %
Change Change
======================================================================
Adjusted EBITDA(12) 884 (243)(463.7%)1,358 (34.9%)
----------------------------------------------------------------------
CAPEX, including capital leases(13) 1,300 1,421 (8.5%)1,014 28.2%
----------------------------------------------------------------------
Depreciation and amortization(14) 1,004 990 1.4% 1,030 (2.5%)
----------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to net income according to the consolidated statements of
operations that are prepared in accordance with U.S. generally
accepted accounting principles and presented in Appendix 1:
Table 7. Adjusted EBITDA (JPY in millions)
1Q04 1Q03 4Q03
======================================================================
Adjusted EBITDA 884 (243) 1,358
----------------------------------------------------------------------
Depreciation and amortization(15) (984) (963)(1,008)
----------------------------------------------------------------------
Operating income (loss) (100)(1,206) 350
======================================================================
Other expenses (151) (204) (226)
----------------------------------------------------------------------
Income tax benefit (1,657) (390) (891)
----------------------------------------------------------------------
Minority interests in consolidated subsidiaries 39 254 (157)
----------------------------------------------------------------------
Equity in net loss of equity method investees (11)(1,709) (189)
======================================================================
Net income (loss) 1,434 (2,475) 669
----------------------------------------------------------------------
The following table summarizes the reconciliation of capital
expenditures to the purchase of property and equipment according to
the consolidated statements of cash flows that are prepared and
presented in accordance with U.S. generally accepted accounting
principles in Appendix 3:
Table 8. CAPEX (JPY in millions)
1Q04 1Q03 4Q03
======================================================================
Capital expenditures 1,300 1,421 1,014
----------------------------------------------------------------------
Acquisition of assets by entering into capital
leases 977 487 778
----------------------------------------------------------------------
Purchase of property and equipment 323 934 236
----------------------------------------------------------------------
1st Quarter FY2004 Business Review
Key Service Developments
Enhancement of security solutions:
In June 2004, IIJ Technology Inc. ("IIJ-Tech"), IIJ's 67.9% owned
subsidiary, launched the Security Alert Service which provides
security information customized to the architecture of customer
systems. In an environment where new vulnerabilities and security
holes are disclosed on an almost daily basis, the security
professionals of IIJ-Tech are identifying issues that are directly
related to our customer's system architecture. The Security Alert
Service evaluates the security issues' impact, updates the customers
in daily and monthly reports and provides information on how to take
effective countermeasures.
Auto ID:
In July 2004, IIJ became a member in EPCglobal, the international
standards body for network RFID system (Auto-ID) technology. EPCglobal
was established in 2003 and is the world's largest such standards
organization, with 191 member companies, including huge international
distributors, such as Wal-Mart, Inc., as well as SI vendors, and
telecommunication carriers. In addition to creating global standards,
they issue and administer EPCs, which are identifiers recorded in RFID
systems, and are driving the adoption of Auto-ID in the global market.
Major Contracts
Providing SMF to KCOM:
In April 2004, IIJ's next generation network operation service,
"IIJ SMF Service" was selected to be the platform for "KCOM SMF
Service" by KCOM Corporation ("KCOM"). KCOM is a leading ISP and a
group company of KDDI. By providing SMF to KCOM, IIJ has taken a
further step to introducing this pioneering technology to other ISPs
and System Integrators.
Assisting Sharp in Constructing "BB Space Town":
In May 2004, IIJ and IIJ-Tech announced that both companies will
provide SMF and CDN JAPAN solution services to Sharp Corporation
("Sharp") for use in their broadband connectivity service, "BB Space
Town", the latest addition to the Sharp Space Town series of services.
BB Space Town will give users access to a plug-and-play network
service that allows information devices to plug into a low-cost
broadband network in a non-PC environment.
Received mandate to renovate and operate Japan's Largest Campus
Network, Rikkyo V-Campus:
In May 2004, IIJ and IIJ-Tech successfully received a mandate to
renovate and continue operating the Internet connectivity and campus
IT infrastructure for "Rikkyo V-Campus", which is Rikkyo University's
main campus network.
Provided Downloading Environment for Online Game "Lineage II":
IIJ provided the download environment for the commercial release
of the online game "Lineage II" to be released by NC Japan K.K. on
June 25, 2004.
Licensed SMF to NESIC for its "SMF SETTERFREE" Service:
In June 2004, IIJ has licensed SMF to NEC System Integration &
Construction, Ltd. ("NESIC"), as the base system for "SMF SETTERFREE",
the network management service that NESIC started to provide.
Management Message/Webcast
From August 11, IIJ will webcast its management message regarding
the Company's results and outlook. For details, please access the
following URL: http://www.iij.ad.jp/en/IR/
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ:
IIJI) is one of Japan's leading Internet-access and comprehensive
network solutions providers. The company has built one of the largest
Internet backbone networks in Japan, and between Japan and the United
States. IIJ and its group of companies provide total network solutions
that mainly cater to high-end corporate customers. 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 FY2004 operating and net
profitability, are subject to various risks, uncertainties and other
factors that could cause IIJ's actual results to differ materially
from those contained in any forward-looking statement. These risks,
uncertainties and other factors include: IIJ's expectation that net
losses will continue or may increase; IIJ's ability to raise
additional capital to cover its indebtedness; the possibility that
NTT, IIJ's largest shareholder, may decide to exercise substantial
influence over IIJ; IIJ's ability to generate significant revenues
from its other services such as systems integration; the ability to
compete in a rapidly evolving and competitive marketplace; the impact
of technological changes in its industry; and other risks referred to
from time to time in IIJ's filings on Form 20-F of its annual report
and other filings with the United States Securities and Exchange
Commission.
Tables to follow
(3)This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding FY2004
operating and net 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 2Q04 earnings release, presently scheduled for
November 2004.
(4) SMF ("SEIL Management Framework") is a network operating
system that was introduced by IIJ in February 2003. By using it with
the SEIL Series service router that was also developed by IIJ, this
system provides the following functionality that enables customers to
greatly reduce onsite engineering work and network administration
costs.
- "Plug-and-Join": SEIL Series service routers automatically
configure themselves for all network functions. The customer only
needs to distribute the routers to each location, connect it to the
power plug and to the network.
- "Service-on-Demand": All network functions can be easily added,
changed, or deleted from a system on the network.
- "Service Control": The status of SEIL Series routers at all
customer locations can be monitored and operated 24 hours a day.
(5)IIJ FiberAccess/F and IIJ DSL/F (shared access using NTT's
Flet's ADSL and B Flet's for local access, maximum speed from 1.5Mbps
to 100Mbps).
(6)IIJ T1 Standard and IIJ Economy (local access not shared,
limited on several functionality compared to IP Service such as number
of IP addresses allocated, and fixed speed of 64kbps, 128kbps or
1.5Mbps).
(7)CDN JAPAN is a platform developed for broadband content
providers. It provides capabilities for distributing high-volume
multi-media content, managing broadband user accounts, and protecting
content against unauthorized use, without using the Internet.
(8)Including IIJ Data Center Connectivity Service (local access
not shared, and fixed speed from 64kbps to 1.2Gbps).
(9)Services marketed and provided to corporate and individual
customers under IIJ brand name (IIJ4U and IIJmio). Including contracts
with options for FTTH and ADSL services.
(10)Service marketing and provided as other companies' brand name
- Original Equipment Manufacturer ("OEM").
(11)In IP Service over 100Mbps, we had 19 contracts for over 1Gbps
in 1Q04. We had 9 contracts in 1Q03 and 16 contracts in 4Q03 for over
1Gbps.
(12)Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
(13)Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
(14)Depreciation and amortization includes amortization of
issuance cost of convertible notes.
(15)Depreciation and amortization excludes amortization of
issuance cost of convertible notes that was presented as other
expenses.
Appendix 1
INTERNET INITIATIVE JAPAN INC.
---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
---------------------------------------------------
For the Three Months Ended Jun 30, 2004, Jun 30,
2003 and Mar 31, 2004
(Expressed in Thousands of Japanese Yen (JPY) and
U.S. Dollars (USD) Except for Per Share and ADS
Data) (1)
Year-over-year Comparison
Jun 30, 2004
---------------------------
% of
Total
USD (1) JPY Revenues
-------- ------- ----------
Revenues:
Connectivity and value-added
services:
Dedicated access services 26,670 2,918,488 33.6%
Dial-up access services 6,871 751,933 8.7
Value-added services 10,846 1,186,837 13.7
Other 5,413 592,390 6.8
-------- --------- --------
Total connectivity and value-
added services 49,800 5,449,648 62.8
Systems integration revenues 24,625 2,694,638 31.1
Equipment sales 4,849 530,621 6.1
------- ---------- --------
Total revenues 79,274 8,674,907 100.0
------- ---------- --------
Costs and expenses:
Cost of connectivity and value-added
services 43,967 4,811,341 55.5
Cost of systems integration revenues 19,708 2,156,620 24.8
Cost of equipment sales 4,345 475,466 5.5
------- ----------- -------
Total costs 68,020 7,443,427 85.8
Sales and marketing 6,058 662,950 7.6
General and administrative 5,672 620,651 7.2
Research and development 442 48,368 0.6
-------- ---------- -------
Total costs and expenses 80,192 8,775,396 101.2
-------- ----------- ------
Operating income(loss) (918) (100,489) (1.2)
-------- ----------- ------
Other expenses (1,377) (150,700) (1.7)
-------- ---------- -------
Income(Loss) before income tax benefit (2,295) (251,189) (2.9)
--------- ----------- -----
Income tax benefit (15,145)(1,657,335) (19.1)
Minority interests in consolidated
subsidiaries 358 39,184 0.4
Equity in net loss of equity method
investees:
Equity method net income(loss) (101) (10,995) (0.1)
Impairment loss on investment in and
advances to Crosswave
-------- ---------- -------
Net income(loss) 13,107 1,434,335 16.5%
======= =========== =======
Basic Net Income(Loss) Per Share 37,438
Basic Net Income(Loss) Per ADS Equivalent 18.72
Weighted Average Number of Shares 38,312
Weighted Average Number of ADS Equivalents 76,623,702
Jun 30, 2003
---------------------------
% of
Total YOY
JPY Revenues Chg %
-------- ----------- ------
Revenues:
Connectivity and value-added
services:
Dedicated access services 3,321,229 39.8% (12.1%)
Dial-up access services 767,418 9.2 (2.0)
Value-added services 987,198 11.9 20.2
Other 519,709 6.2 14.0
----------- -------- ------
Total connectivity and value-
added services 5,595,554 67.1 (2.6)
Systems integration revenues 2,407,923 28.8 11.9
Equipment sales 340,569 4.1 55.8
----------- -------- ------
Total revenues 8,344,046 100.0 4.0
----------- -------- ------
Costs and expenses:
Cost of connectivity and value-added
services 5,234,158 62.7 (8.1)
Cost of systems integration revenues 2,323,392 27.9 (7.2)
Cost of equipment sales 310,946 3.7 52.9
------------ ------- ------
Total costs 7,868,496 94.3 (5.4)
Sales and marketing 973,054 11.7 (31.9)
General and administrative 612,047 7.3 1.4
Research and development 96,098 1.2 (49.7)
----------- ------- -------
Total costs and expenses 9,549,695 114.5 (8.1)
----------- ------- -------
Operating income(loss) (1,205,649) (14.5) (91.7)
----------- ------- -------
Other expenses (204,398) (2.4) (26.3)
----------- -------- ------
Income(Loss) before income tax benefit (1,410,047) (16.9) (82.2)
----------- -------- ------
Income tax benefit (390,035) (4.7) 324.9
Minority interests in consolidated
subsidiaries 254,886 3.0 (84.6)
Equity in net loss of equity method
investees:
Equity method net income(loss) 10,559 0.1 (204.1)
Impairment loss on investment in and
advances to Crosswave (1,719,981) (20.6) 0.0
----------- ------- -------
Net income(loss) (2,474,548) (29.7%)(158.0%)
=========== ======= =======
Basic Net Income(Loss) Per Share (109,440)
Basic Net Income(Loss) Per ADS Equivalent (54.72)
Weighted Average Number of Shares 22,611
Weighted Average Number of ADS Equivalents 45,222,494
Sequential Comparison
Mar 31, 2004
--------------------------
% of
Total QOQ
JPY Revenues Chg %
--------------------------
Revenues:
Connectivity and value-added services:
Dedicated access services 3,100,452 26.7% (5.9%)
Dial-up access services 757,947 6.5 (0.8)
Value-added services 1,103,558 9.5 7.5
Other 536,590 4.6 10.4
----------- ------- ------
Total connectivity and value-
added services 5,498,547 47.3 (0.9)
Systems integration revenues 4,001,449 34.5 (32.7)
Equipment sales 2,117,006 18.2 (74.9)
--------------------------
Total revenues 11,617,002 100.0 (25.3)
----------- ------- ------
Costs and expenses:
Cost of connectivity and value-added
services 4,809,831 41.4 0.0
Cost of systems integration revenues 3,053,962 26.3 (29.4)
Cost of equipment sales 2,050,923 17.6 (76.8)
-------------- ---- ------
Total costs 9,914,716 85.3 (24.9)
Sales and marketing 755,928 6.5 (12.3)
General and administrative 517,884 4.5 19.8
Research and development 78,786 0.7 (38.6)
-------------- ---- ------
Total costs and expenses 11,267,314 97.0 (22.1)
------------- ----- ------
Operating income(loss) 349,688 3.0 (128.7)
-------------- --- -------
Other expenses (226,045) (1.9) (33.3)
-------------- ---- ------
Income(Loss) before income tax benefit 123,643 1.1 (303.2)
-------------- ---- ------
Income tax benefit (890,928) (7.7) 86.0
Minority interests in consolidated
subsidiaries (157,295) (1.4)(124.9)
Equity in net loss of equity method
investees:
Equity method net income(loss) (188,577) (1.6) (94.2)
Impairment loss on investment in and
advances to Crosswave
-------------- -----------
Net income(loss) 668,699 5.8% 114.5%
============= ============
Basic Net Income(Loss) Per Share 17,454
Basic Net Income(Loss) Per ADS Equivalent 8.73
Weighted Average Number of Shares 38,312
Weighted Average Number of ADS Equivalents 76,623,702
Note (1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Jun 30, 2004 are
included solely for the convenience of readers outside Japan and have
been made at the rate of JPY109.43 =$1, the approximate rate of
exchange on Jun 30, 2004.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
---------------------------------
CONSOLIDATED BALANCE
SHEETS(UNAUDITED)
---------------------------------
As of Jun 30, 2004, Jun 30, 2003
and Mar 31, 2004
(Expressed in Thousands of
Japanese Yen (JPY) and U.S.
Dollars (USD)) (1)
Jun 30, 2004
---------------------------
USD (1) JPY %
-------- --------- --------
ASSETS
-------------------------------------------
Current Assets:
Cash and cash equivalent 97,114 10,627,203 25.3%
Accounts receivable, net 49,139 5,377,230 12.8
Inventories 3,778 413,477 1.0
Prepaid expenses 8,518 932,097 2.2
Other current assets 4,179 457,325 1.1
--------- ----------- -----
Total current assets 162,728 17,807,332 42.4
Investments in and Advances to Equity
Method Investees 7,031 769,363 1.8
Other Investments 108,921 11,919,229 28.3
Property and Equipment, net 78,290 8,567,329 20.4
Guarantee Deposits 18,825 2,059,980 4.9
Other Assets 8,366 915,548 2.2
--------- ---------- ------
Total assets 384,161 42,038,781 100.0%
======== =========== ======
LIABILITIES AND
-------------------------------------------
SHAREHOLDERS' EQUITY(CAPITAL DEFICIENCY)
-------------------------------------------
Current Liabilities:
Short-term borrowings 49,008 5,363,001 12.8%
Accounts payable 34,307 3,754,214 8.9
Accrued expenses 4,394 480,824 1.1
Other current liabilities 6,656 728,386 1.7
Long-term borrowings-current portion 14,157 1,549,189 3.7
Convertible Notes 101,325 11,088,000 26.4
Capital lease obligations-current portion 21,964 2,403,477 5.7
--------- ----------- -----
Total current liabilities 231,811 25,367,091 60.3
Long-term Borrowings 20,747 2,270,366 5.4
Convertible Notes
Capital Lease Obligations-Noncurrent 28,547 3,123,878 7.4
Accrued Retirement and Pension Costs 814 89,037 0.2
Other Noncurrent Liabilities 2,129 233,046 0.6
--------- ----------- -----
Total liabilities 284,048 31,083,418 73.9
--------- ---------- ------
Minority Interest 8,234 901,088 2.2
--------- ----------- -----
Shareholders' Equity(Capital Deficiency):
Common stock 125,792 13,765,372 32.7
Additional paid-in capital 216,007 23,637,628 56.2
Accumulated deficit (304,817)(33,356,095)(79.3)
Accumulated other comprehensive income 55,299 6,051,370 14.4
Treasury stock (402) (44,000) (0.1)
--------- ----------- -----
Total shareholders'
equity(capital deficiency) 91,879 10,054,275 23.9
Total liabilities and -------- ----------- ------
shareholders' equity(capital deficiency) 384,161 42,038,781 100.0%
======== =========== ======
Jun 30, 2003 Mar 31, 2004
-------------------------------------
JPY % JPY %
----------- -------- ------- --------
ASSETS
---------------------------------
Current Assets:
Cash and cash equivalent 2,819,007 10.2% 12,284,239 28.7%
Accounts receivable, net 5,889,315 21.3 8,994,156 21.1
Inventories 347,971 1.3 438,435 1.0
Prepaid expenses 845,908 3.1 557,703 1.3
Other current assets 534,025 1.9 325,422 0.8
------------ -------- ---------- ----
Total current assets 10,436,226 37.8 22,599,955 52.9
Investments in and Advances to
Equity Method Investees 1,141,728 4.1 778,152 1.8
Other Investments 3,967,719 14.4 7,931,893 18.6
Property and Equipment, net 9,244,442 33.5 8,601,905 20.1
Guarantee Deposits 2,082,118 7.6 2,075,123 4.9
Other Assets 714,367 2.6 749,897 1.7
----------- ------- --------- -------
Total assets 27,586,600 100.0% 42,736,925 100.0%
============ ======= ========= ======
LIABILITIES AND
---------------------------------
SHAREHOLDERS' EQUITY(CAPITAL
DEFICIENCY)
---------------------------------
Current Liabilities:
Short-term borrowings 5,675,341 20.6% 6,564,093 15.4%
Accounts payable 4,406,928 16.0 7,187,976 16.8
Accrued expenses 537,236 1.9 454,366 1.1
Other current liabilities 542,538 1.9 483,925 1.1
Long-term borrowings-current
portion 1,545,452 5.6 1,548,246 3.6
Convertible Notes 11,832,000 27.7
Capital lease obligations-current
portion 2,677,038 9.7 2,387,754 5.6
------------- ----- ----------- -----
Total current
liabilities 15,384,533 55.7 30,458,360 71.3
Long-term Borrowings 3,419,555 12.4 2,308,019 5.4
Convertible Notes 15,000,000 54.4
Capital Lease Obligations-
Noncurrent 3,407,735 12.3 2,880,298 6.7
Accrued Retirement and Pension
Costs 74,764 0.3 72,687 0.2
Other Noncurrent Liabilities 187,579 0.7 161,122 0.4
------------- ------ ---------- -----
Total liabilities 37,474,166 135.8 35,880,486 84.0
------------ ------ ----------- -----
Minority Interest 624,609 2.3 642,311 1.5
------------- ------ ---------- -----
Shareholders' Equity(Capital
Deficiency):
Common stock 7,765,048 28.2 13,765,372 32.2
Additional paid-in capital 17,751,065 64.3 23,637,628 55.3
Accumulated deficit (37,159,839)(134.7)(34,790,430)(81.4)
Accumulated other comprehensive
income 1,131,644 4.1 3,645,558 8.5
Treasury stock (93) 0.0 (44,000) (0.1)
------------- ----- ----------- -----
Total shareholders'
equity(capital
deficiency) (10,512,175) (38.1) 6,214,128 14.5
Total liabilities and
------------ ------ ----------- -----
shareholders' equity(capital
deficiency) 27,586,600 100.0% 42,736,925 100.0%
============ ======= ========== =====
Note (1): The translation of Japanese yen amounts into US dollar
amounts with respect to Jun 30, 2004 are included solely for the
convenience of readers outside Japan and have been made at the rate
of JPY109.43 =$1, the approximate rate of exchange on Jun 30, 2004.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
--------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS(UNAUDITED)
--------------------------------------
For the Three Months Ended Jun 30,
2004, Jun 30, 2003 and Mar 31, 2004
(Expressed in Thousands of Japanese
Yen (JPY) and U.S. Dollars (USD))(1)
Jun 30, Jun 30, Mar 31,
2004 2003 2004
----------------- ----------- -----------
USD (1) JPY JPY JPY
------- ---------- ---------- -----------
Operating Activities:
Net income (loss) 13,107 1,434,335 (2,474,548) 668,699
Depreciation and
amortization 9,176 1,004,170 990,190 1,030,162
Provision for
doubtful accounts (118) (12,936) 149,378 27,587
Equity method net
loss (income) 101 10,995 (10,559) 188,577
Impairment loss on
advances to
Crosswave - - 1,719,981 -
Minority interests in
net income (loss) of
consolidated subsidiaries (358) (39,184) (254,886) 157,295
Foreign exchange
losses (gains) (69) (7,585) 3,245 (13,682)
Loss on retirement of
convertible notes 48 5,195 - -
Net losses on other
investments 25 2,749 37,572 42,352
Decrease (increase)
in accounts receivable 33,148 3,627,399 4,229,010 (2,483,404)
Increase (decrease)
in accounts payable (28,281)(3,094,772)(3,671,049) 2,392,795
Decrease (increase)
in inventories 228 24,958 69,689 (245,201)
Deferred income taxes (15,283)(1,672,424) (395,698) (904,221)
Other (2,331) (255,036) 264,043 395,710
-------- ---------- ---------- ----------
Net cash provided by
operating activities 9,393 1,027,864 656,368 1,256,669
-------- ---------- ---------- ----------
Investing Activities:
Purchase of property
and equipment (2,954) (323,210) (933,646) (236,028)
Proceeds from sales
of other investment 834 91,286 34,672 66,387
Advances to Crosswave - - (1,719,981) -
Purchase of other
investments (21) (2,290) (12,971) (2,138)
Refund (payment) of
guarantee deposits-
net 133 14,528 123,632 (576)
Other (44) (4,851) 11 (3,778)
-------- ----------- --------- ----------
Net cash used in
investing activities (2,052) (224,537)(2,508,283) (176,133)
-------- ---------- ---------- ----------
Financing Activities:
Proceeds from long-
term borrowings - - - 400,000
Repayments of long-
term borrowings (336) (36,710) (434,994) (436,477)
Repurchase of
convertible notes (6,812) (745,488) - -
Principal payments
under capital leases (6,114) (669,047) (697,830) (692,467)
Net increase
(decrease) in short-
term borrowings (10,976)(1,201,093) 851,742 (200,316)
Proceeds from
issuance of common
stock of a
subsidiary 1,724 188,632 - -
Proceeds from
issuance of common
stock - - 1,365,424 -
-------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities (22,514)(2,463,706) 1,084,342 (929,260)
-------- ---------- --------- -----------
Effect of Exchange Rate
Changes on Cash 30 3,343 (1,772) (7,632)
-------- ---------- ----------- ---------
Net Increase (Decrease) in
Cash and Cash Equivalents (15,143)(1,657,036) (769,345) 143,644
-------- ---------- ----------- ---------
Cash and Cash Equivalents,
Beginning of Period 112,257 12,284,239 3,588,352 12,140,595
------- ----------- ---------- ----------
Cash and Cash Equivalents,
End of Period 97,114 10,627,203 2,819,007 12,284,239
======= ========== ========== ===========
Note (1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Jun 30, 2004 are
included solely for the convenience of readers outside Japan and have
been made at the rate of JPY109.43 =$1, the approximate rate of
exchange on Jun 30, 2004.
CONTACT: IIJ Investor/Media Relations Office
Taisuke Ono/Hiroaki Tsuno, +81-3-5259-6500
ir@iij.ad.jp
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: August 10, 2004 BY: /s/ Koichi Suzuki
----------------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director