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IIJ Announces Nine Months Financial Results For The Fiscal Year Ending March 31, 2011

The Internet Initiative Japan Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4613

For inquiries, contact:

YUKO KAZAMA

IIJ Investor Relations Office

Tel: +81-3-5259-6500 E-mail: ir@iij.ad.jp URL: http://www.iij.ad.jp/en/IR

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 FY2008 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

Tables to follow

 
 
Internet Initiative Japan Inc.
Quarterly Consolidated Balance Sheets (Unaudited)
(As of March 31, 2010 and December 31, 2010)
 
  As of March 31, 2010 As of December 31, 2010
  Thousands of JPY % Thousands of U.S. Dollars Thousands of JPY %
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents 8,764,415   132,238 10,799,903  
Accounts receivable, net of allowance for  doubtful accounts of JPY 37,178 thousand and  JPY 33,315 thousand at March 31, 2010  and December 31, 2010, respectively 11,396,597   197,524 16,131,816  
Inventories 807,803   11,051 902,539  
Prepaid expenses 1,593,000   30,270 2,472,114  
Deferred tax assets —Current 1,570,746   11,871 969,505  
Other current assets, net of allowance for doubtful accounts of JPY 720 thousand and  JPY 48,780 thousand at March 31, 2010 and  December 31, 2010, respectively 762,081   12,518 1,022,326  
Total current assets 24,894,642 47.8 395,472 32,298,203 48.1
INVESTMENTS IN EQUITY METHOD INVESTEES 1,131,354 2.2 15,415 1,258,954 1.9
OTHER INVESTMENTS 2,581,610 5.0 35,927 2,934,146 4.4
PROPERTY AND EQUIPMENT, net of accumulated  depreciation and amortization of JPY 17,653,271  thousand and JPY 20,682,523 thousand at March  31, 2010 and December 31, 2010, respectively 12,970,152 24.9 177,967 14,534,536 21.6
GOODWILL 3,620,342 6.9 50,372 4,113,857 6.1
OTHER INTANGIBLE ASSETS —Net 2,819,187 5.4 91,023 7,433,843 11.1
GUARANTEE DEPOSITS 2,003,862 3.8 23,945 1,955,567 2.9
DEFERRED TAX ASSETS —Noncurrent 685,370 1.3 13,279 1,084,533 1.6
OTHER ASSETS, net of allowance for doubtful  accounts of JPY 91,319 thousand and JPY 80,986  thousand at March 31, 2010 and December 31, 2010,  respectively, and net of loan loss valuation  allowance of JPY 16,701 thousand at March 31, 2010  and December 31, 2010, respectively 1,389,954 2.7 18,749 1,531,260 2.3
TOTAL 52,096,473 100.0 822,149 67,144,899 100.0
     
  As of March 31, 2010 As of December 31, 2010
  Thousands of JPY % Thousands of U.S. Dollars Thousands of JPY %
LIABILITIES AND SHAREHOLDERS' EQUITY          
CURRENT LIABILITIES:          
Short-term borrowings 4,450,000   164,687 13,450,000  
Capital lease obligations — current portion 2,729,673   31,814 2,598,273  
Accounts payable 6,967,654   128,154 10,466,330  
Accrued expenses 1,184,483   26,542 2,167,714  
Accrued retirement and pension costs — current 14,539   178 14,539  
Deferred income — current 1,445,174   20,467 1,671,496  
Other current liabilities 922,345   11,817 965,056  
Total current liabilities 17,713,868 34.0 383,659 31,333,408 46.7
CAPITAL LEASE OBLIGATIONS — Noncurrent 3,657,657 7.0 37,729 3,081,304 4.6
ACCRUED RETIREMENT AND PENSION COSTS  — Noncurrent 1,302,054 2.5 18,410 1,503,550 2.2
DEFERRED TAX LIABILITIES — Noncurrent 1,193,796 2.3 14,198 1,159,559 1.7
DEFERRED INCOME — Noncurrent 560,677 1.1 13,194 1,077,516 1.6
OTHER NONCURRENT LIABILITIES 304,718 0.6 3,688 301,247 0.5
Total Liabilities 24,732,770 47.5 470,878 38,456,584 57.3
COMMITMENTS AND CONTINGENCIES          
           
SHAREHOLDERS' EQUITY:          
Common-stock—authorized, 377,600 shares;  issued and outstanding, 206,478 shares at  March 31, 2010 and December 31, 2010 16,833,847 32.3 206,120 16,833,847 25.1
Additional paid-in capital 27,443,600 52.7 335,074 27,365,518 40.7
Accumulated deficit (16,720,092) (32.1) (186,476) (15,229,539) (22.7)
Accumulated other comprehensive income  168,769 0.3 1,447 118,188 0.2      
Treasury stock — 3,934 shares and 3,794 shares held  by the company at March 31, 2010 and  December 31, 2010 (406,547) (0.8) (4,801) (392,079) (0.6)
Total Internet Initiative Japan Inc. shareholders' equity 27,319,577 52.4 351,364 28,695,935 42.7
NONCONTROLLING INTERESTS 44,126 0.1 (93) (7,620) (0.0)
Total equity 27,363,703 52.5 351,271 28,688,315 42.7
TOTAL 52,096,473 100.0 822,149 67,144,899 100.0
 
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 81.67 which was the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York prevailing as of December 31, 2010.
           
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income (Unaudited)
(For the nine months ended December 31, 2009 and December 31, 2010)
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
  Thousands of JPY % of total revenues Thousands of U.S. Dollars Thousands of JPY % of total revenues
REVENUES:          
Network services:          
Internet Connectivity (corporate use) 10,367,448   127,743 10,432,772  
Internet Connectivity (home use) 5,133,887   60,908 4,974,360  
WAN services 1,906,695   118,796 9,702,110  
Outsourcing services 10,192,433   134,696 11,000,562  
Total 27,600,463   442,143 36,109,804  
Systems integration:          
Systems Construction 6,134,986   84,737 6,920,522  
Systems Operation and Maintenance 14,030,403   157,510 12,863,826  
Total 20,165,389   242,247 19,784,348  
Equipment sales 438,710   6,730 549,624  
ATM operation business 108,217   4,321 352,884  
Total revenues 48,312,779 100.0 695,441 56,796,660 100.0
COST AND EXPENSES:          
Cost of network services 22,878,358   357,590 29,204,323  
Cost of systems integration 14,751,253   182,148 14,876,036  
Cost of equipment sales 379,946   5,796 473,345  
Cost of ATM operation business 683,253   8,612 703,366  
Total cost 38,692,810 80.1 554,146 45,257,070 79.7
Sales and marketing 3,927,736 8.1 58,233 4,755,852 8.4
General and administrative 3,444,078 7.1 50,134 4,094,513 7.2
Research and development 240,924 0.5 3,173 259,158 0.4
Total cost and expenses 46,305,548 95.8 665,686 54,366,593 95.7
OPERATING INCOME 2,007,231 4.2 29,755 2,430,067 4.3
OTHER INCOME (EXPENSE):          
Interest income 17,990   208 16,952  
Interest expense (241,172)   (2,369) (193,504)  
Foreign exchange gains (losses) (3,804)   (358) (29,253)  
Net gains on sales of other investments 20,640   660 53,925  
Losses on write-down of other investments (49,441)   (2,105) (171,863)  
Other—net 31,762   837 68,328  
Other expense — net (224,025) (0.5) (3,127) (255,415) (0.5)
INCOME FROM OPERATIONS BEFORE INCOME  TAX EXPENSE AND EQUITY IN NET INCOME  OF EQUITY METHOD INVESTEES 1,783,206 3.7 26,628 2,174,652 3.8
INCOME TAX EXPENSE  1,042,191 2.2 5,626 459,409 0.8
EQUITY IN NET INCOME OF EQUITY METHOD  INVESTEES 127,164 0.3 1,584 129,359 0.2
NET INCOME 868,179 1.8 22,586 1,844,602 3.2
LESS: NET LOSS ATTRIBUTABLE TO  NONCONTROLLING INTERESTS 265,114 0.5 1,867 152,486 0.3
NET INCOME ATTRIBUTABLE TO INTERNET  INITIATIVE JAPAN INC. 1,133,293 2.3 24,453 1,997,088 3.5
     
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
NET INCOME PER SHARE        
BASIC WEIGHTED-AVERAGE NUMBER OF  SHARES (shares) 202,544     202,632
DILUTED WEIGHTED-AVERAGE NUMBER  OF SHARES (shares) 202,544     202,632
BASIC WEIGHTED-AVERAGE NUMBER OF  ADS EQUIVALENTS (ADSs) 81,017,600     81,052,800
DILUTED WEIGHTED-AVERAGE NUMBER  OF ADS EQUIVALENTS (ADSs) 81,017,600     81,052,800
BASIC NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 5,595.29   120.68 9,855.74
DILUTED NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 5,595.29   120.68 9,855.74
BASIC NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 13.99   0.30 24.64
DILUTED NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 13.99   0.30 24.64
         
(Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 81.67 which was the noon buying rate in New  York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York  prevailing as of December 31, 2010.
(Note2) The above presentation for the nine months ended December 31, 2009 has been changed to conform to the presentation for   the nine months ended December 31, 2010. 
 
       
Internet Initiative Japan Inc
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(For the nine months ended December 31, 2009 and December 31, 2010)
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
  Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
OPERATING ACTIVITIES:      
Net income 868,179 22,586 1,844,602
Adjustments to reconcile net income to net cash  provided by operating activities:      
Depreciation and amortization 3,934,464 50,653 4,136,853
Impairment loss on other intangible assets -- 1,224 100,000
Provision for retirement and pension costs,  less payments 238,421 2,467 201,496
Provision for (reversal of) allowance for doubtful  accounts and advances 27,074 (271) (22,171)
Loss on disposal of property and equipment 22,750 189 15,402
Net gains on sales of other investments (20,640) (660) (53,925)
Losses on write-down of other investments 49,441 2,104 171,863
Gain on receipt of investment securities -- (221) (18,060)
Foreign exchange losses 16,213 354 28,938
Equity in net income of equity method investees (127,164) (1,584) (129,359)
Deferred income tax expense 790,481 2,960 241,704
Others -- 757 61,777
Changes in operating assets and liabilities net of effects  from acquisition of business and a company:      
Decrease in accounts receivable 1,657,103 9,079 741,476
Increase in inventories, prepaid expenses  and other current and noncurrent assets (638,113) (8,838) (721,771)
Increase (decrease) in accounts payable (669,050) 48,364 3,949,881
Decrease in income taxes payable (113,578) (1,604) (130,985)
Increase (decrease) in accrued expenses, other  current and noncurrent liabilities 225,018 (24,863) (2,030,560)
Net cash provided by operating activities 6,260,599 102,696 8,387,161
INVESTING ACTIVITIES:      
Purchase of property and equipment (2,802,777) (37,187) (3,037,071)
Proceeds from sales of property and equipment 178,270 51 4,147
Purchase of available-for-sale securities (29,184) (569) (46,468)
Purchase of other investments (250,016) (1,837) (150,000)
Investment in equity method investees (22,834) -- --
Proceeds from sales of available-for-sale securities 67,592 656 53,605
Proceeds from sales and redemption of other investments 56,824 366 29,901
Acquisition of a newly controlled company -- (112,281) (9,170,000)
Payments of guarantee deposits (60,250) (5,247) (428,529)
Refund of guarantee deposits 64,750 1,511 123,425
Payments for refundable insurance policies (41,866) (210) (17,190)
Refund from insurance policies 39,959 363 29,642
Other 1,498 (252) (20,622)
Net cash used in investing activities (2,798,034) (154,636) (12,629,160)
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
  Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
FINANCING ACTIVITIES:      
Proceeds from issuance of short-term borrowings  with initial maturities over three months 5,750,000 15,918 1,300,000
Repayments of short-term borrowings with initial  maturities over three months (10,450,000) (3,674) (300,000)
Principal payments under capital leases (2,658,062) (27,056) (2,209,641)
Net increase in short-term borrowings with initial  maturities less than three months 2,450,000 97,955 8,000,000
Proceeds from issuance of subsidiary stock to  minority shareholders 150,000 -- --
Dividends paid (405,088) (6,202) (506,535)
Proceeds from sales of treasury stock -- 455 37,126
Net cash provided by (used in) financing activities (5,163,150) 77,396 6,320,950
       
EFFECT OF EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS (21,037) (532) (43,463)
       
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,721,622) 24,924 2,035,488
CASH AND CASH EQUIVALENTS, BEGINNING OF  THE PERIOD 10,187,724 107,314 8,764,415
CASH AND CASH EQUIVALENTS, END OF  THE PERIOD 8,466,102 132,238 10,799,903
 
ADDITIONAL CASH FLOW INFORMATION:
Interest paid 243,173 2,363 192,977
Income tax paid 160,263 4,284 349,843
       
NONCASH INVESTING AND FINANCING ACTIVITIES:      
Acquisition of assets by entering into capital leases 1,562,959 18,396 1,502,423
Facilities purchase liabilities 174,722 2,228 181,945
Acquisition of business and a company:      
Assets acquired -- 160,577 13,114,284
Cash paid -- (112,281) (9,170,000)
Liabilities assumed -- 48,296 3,944,284
       
       
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 81.67 which was the noon buying rate in   New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York  prevailing as of December 31, 2010.  
Going Concern Assumption (Unaudited)
Nothing to be reported.    
     
     
Segment Information (Unaudited)
Business Segments:
Revenues:
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
  Thousands of JPY Thousands of JPY
Network service and systems integration business 48,524,786 56,776,195
Customers 48,204,562 56,443,776
Intersegment 320,224 332,419
ATM operation business 108,217 352,884
Customers 108,217 352,884
Intersegment -- --
Elimination 320,224 332,419
Consolidated total 48,312,779 56,796,660
Segment profit or loss:    
 
  Nine Months Ended December 31, 2009 Nine Months Ended December 31, 2010
  Thousands of JPY Thousands of JPY
Network service and systems integration business 2,753,891 2,922,142
ATM operation business (730,462) (465,460)
Elimination 16,198 26,615
Consolidated operating income 2,007,231 2,430,067
     
Substantially all revenues are from customers operating in Japan. Geographic information is not presented due to immateriality of revenue attributable to international operations.
     
Material Changes In Shareholders' Equity (Unaudited)
Nothing to be reported.    

3rd Quarter FY2010 Consolidated Financial Results (3 months)

The following tables are highlight data of 3rd Quarter FY2010 consolidated financial results (unaudited, from October 1, 2010 to December 31, 2010).

Operating Results Summary
  3Q09 3Q10 YoY % Change
  JPY millions JPY millions  
Total Revenues: 16,038 22,525 40.4
Network Services 9,297 15,424 65.9
SI 6,542 6,797 3.9
Equipment Sales 129 179 38.5
ATM Operation Business 70 125 77.8
Cost of Revenues: 12,656 17,827 40.9
Network Services 7,567 12,402 63.9
SI 4,702 5,017 6.7
Equipment Sales 111 160 44.8
ATM Operation Business 276 248 (10.7)
SG&A Expenses and R&D 2,541 3,469 36.6
Operating Income 841 1,229 46.1
Income before Income Tax Expense 758 1,169 54.3
Net Income attributable to IIJ 418 1,138 172.3
Connectivity and Outsourcing Services Revenues Breakdown and Cost
  3Q09 3Q10 YoY % Change
  JPY millions JPY millions  
Internet Connectivity Service (Corporate Use) 3,480 3,492 0.3
 IP Service 2,308 2,227 (3.5)
 IIJ FiberAccess/F and IIJ DSL/F 740 771 4.2
 IIJ Mobile Service 361 430 19.2
Others 71 64 (9.8)
Internet Connectivity Service (Home Use) 1,724 1,622 (5.9)
Under IIJ Brand 262 245 (6.3)
hi-ho 1,322 1,241 (6.1)
OEM 140 136 (3.2)
WAN Services 643 6,405 896.6
Outsourcing Services 3,450 3,905 13.2
Network Services Revenues 9,297 15,424 65.9

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
  3Q09 3Q10
  JPY millions JPY millions
Adjusted EBITDA 2,132 2,747
Depreciation and Amortization 1,291 1,518
Operating Income 841 1,229
Other Income (Expense) (84) (60)
Income Tax Expense 514 179
Equity in Net Income (Loss) of Equity Method Investees 85 97
Net income 328 1,087
Net income attributable to noncontrolling interests 90 51
Net Income attributable to IIJ 418 1,138

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.

CAPEX
  3Q09 3Q10
  JPY millions JPY millions
CAPEX, including capital leases 1,752 1,515
Acquisition of Assets by Entering into Capital Leases 899 641
Purchase of Property and Equipment 853 874
           
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income (Unaudited)
(Three Months ended December 31, 2009 and December 31, 2010)
 
  Three Months Ended December 31, 2009 Three Months Ended December 31, 2010
  Thousands of JPY % of total revenues Thousands of U.S. Dollars Thousands of JPY % of total revenues
REVENUES:          
Network services:          
Internet Connectivity (corporate use) 3,480,241   42,755 3,491,817  
Internet Connectivity (home use) 1,723,836   19,867 1,622,533  
WAN services 642,668   78,422 6,404,689  
Outsourcing services 3,450,020   47,812 3,904,810  
Total 9,296,765   188,856 15,423,849  
Systems integration:          
Systems Construction 1,986,972   29,653 2,421,784  
Systems Operation and Maintenance 4,554,855   53,576 4,375,565  
Total 6,541,827   83,229 6,797,349  
Equipment sales 129,124   2,190 178,874  
ATM operation business 70,039   1,525 124,508  
Total revenues 16,037,755 100.0 275,800 22,524,580 100.0
COST AND EXPENSES:          
Cost of network services 7,567,089   151,852 12,401,754  
Cost of systems integration 4,701,783   61,434 5,017,343  
Cost of equipment sales 110,631   1,961 160,184  
Cost of ATM operation business 276,736   3,028 247,248  
Total cost 12,656,239 78.9 218,275 17,826,529 79.1
Sales and marketing 1,334,099 8.3 22,932 1,872,826 8.3
General and administrative 1,128,380 7.1 18,253 1,490,717 6.6
Research and development 77,889 0.5 1,292 105,532 0.5
Total cost and expenses 15,196,607 94.8 260,752 21,295,604 94.5
OPERATING INCOME 841,148 5.2 15,048 1,228,976 5.5
OTHER INCOME (EXPENSE):          
Interest income 4,904   55 4,521  
Interest expense (72,983)   (920) (75,156)  
Foreign exchange losses (8,423)   (145) (11,805)  
Net gains on sales of other investments 9,338   262 21,422  
Losses on write-down of other investments (18,269)   (21) (1,772)  
Other—net 1,878   31 2,502  
Other expense — net (83,555) (0.5) (738) (60,288) (0.3)
INCOME FROM OPERATIONS BEFORE INCOME  TAX EXPENSE AND EQUITY IN NET INCOME  IN EQUITY METHOD INVESTEES 757,593 4.7 14,310 1,168,688 5.2
INCOME TAX EXPENSE 514,382 3.2 2,194 179,199 0.8
EQUITY IN NET INCOME (LOSS) OF EQUITY  METHOD INVESTEES 85,017 0.5 1,194 97,538 0.4
NET INCOME 328,228 2.0 13,310 1,087,027 4.8
LESS: NET LOSS ATTRIBUTABLE TO  NONCONTROLLING INTERESTS 89,678 0.6 622 50,784 0.3
NET INCOME ATTRIBUTABLE TO  INTERNET INITIATIVE JAPAN INC. 417,906 2.6 13,932 1,137,811 5.1
 
  Three Months Ended December 31, 2009 Three Months Ended December 31, 2010
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF  SHARES (shares) 202,544   202,684
DILUTED WEIGHTED-AVERAGE NUMBER  OF SHARES (shares) 202,544   202,684
BASIC WEIGHTED-AVERAGE NUMBER OF  ADS EQUIVALENTS (ADSs) 81,017,600   81,073,600
DILUTED WEIGHTED-AVERAGE NUMBER  OF ADS EQUIVALENTS (ADSs) 81,017,600   81,073,600
BASIC NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 2,063.29 68.74 5,613.72
DILUTED NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 2,063.29 68.74 5,613.72
BASIC NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 5.16 0.17 14.03
DILUTED NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 5.16 0.17 14.03
       
(Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 81.67 which was the noon buying rate in New  York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York  prevailing as of December 31, 2010.
(Note2) The above presentation for the three months ended December 31, 2009 has been changed to conform to the presentation for   the three months ended December 31, 2010. 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended December 31, 2009 and December 31, 2010)
       
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended December 31, 2009 and December 31, 2010)
 
  Three Months Ended December 31, 2009 Three Months Ended December 31, 2010
  Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
OPERATING ACTIVITIES:      
Net income 328,228 13,310 1,087,027
Adjustments to reconcile net income to net cash  provided by operating activities:      
Depreciation and amortization 1,290,948 18,583 1,517,730
Provision for retirement and pension  costs, less payments 92,052 940 76,791
Provision for (reversal of) allowance for doubtful   accounts and advances 27,720 (90) (7,328)
Loss on disposal of property and equipment 4,499 121 9,889
Net gains on sales of other investments (9,338) (262) (21,422)
Losses on write-down of other investments 18,269 22 1,772
Foreign exchange losses (gains) (1,999) 37 3,043
Equity in net income of equity method investees (85,017) (1,194) (97,538)
Deferred income tax expense 417,616 955 78,006
Others -- 457 37,319
Changes in operating assets and liabilities net of effects  from acquisition of business and a company:      
Decrease in accounts receivable 121,875 18,317 1,495,960
Increase in inventories, prepaid expenses  and other current and noncurrent assets (401,483) (9,659) (788,859)
Increase (decrease) in accounts payable (154,017) 50,534 4,127,102
Increase (decrease) in income taxes payable (69,577) 603 49,229
Decrease in accrued expenses, other current  and noncurrent liabilities -net (111,391) (52,530) (4,290,134)
Net cash provided by operating activities 1,468,385 40,144 3,278,587
INVESTING ACTIVITIES:      
Purchase of property and equipment (853,726) (10,694) (873,339)
Proceeds from sales of property and equipment 178,270 -- --
Purchase of available-for-sale securities (12,817) -- --
Purchase of other investments (50,000) (612) (50,000)
Proceeds from sales of available-for-sale securities 34,800 314 25,674
Proceeds from sales and redemption of other investments 9,693 121 9,881
Payments of guarantee deposits (15,607) (4) (315)
Refund of guarantee deposits 28,188 10 808
Payments for refundable insurance policies (12,936) (61) (5,015)
Other 1,179 -- --
Net cash used in investing activities (692,956) (10,926) (892,306)
 
  Three Months Ended December 31, 2009 Three Months Ended December 31, 2010
  Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
FINANCING ACTIVITIES:      
Proceeds from issuance of short-term borrowings  with initial maturities over three months 650,000 11,632 950,000
Repayments of short-term borrowings with initial  maturities over three months (5,100,000) -- --
Principal payments under capital leases (947,971) (8,932) (729,507)
Net Increase (decrease) in short-term borrowings  with initial maturities less than three months 2,350,000 (11,632) (950,000)
Proceeds from issuance of subsidiary stock to  minority shareholders 150,000 -- --
Dividends paid (202,544) (3,102) (253,355)
Net cash used in financing activities (3,100,515) (12,034) (982,862)
       
EFFECT OF EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS 2,171 (141) (11,547)
       
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,322,915) 17,043 1,391,872
CASH AND CASH EQUIVALENTS, BEGINNING OF  THE PERIOD 10,789,017 115,195 9,408,031
CASH AND CASH EQUIVALENTS, END OF  THE PERIOD 8,466,102 132,238 10,799,903
       
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 81.67 which was the noon buying rate in   New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of  New York prevailing as of December 31, 2010.

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the nine months of Fiscal Year Ending March 31, 2011(from April 1 to December 31, 2010) in the form defined by the Tokyo Stock Exchange.

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