TOKYO, Aug. 13, 2010 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its consolidated financial results for the three months ended June 30, 2010 ("1Q10"). 1

Highlights of First Quarter FY2010 Financial Results
  • Revenues were JPY15,813 million ($179 million), down 0.1% YoY. While connectivity and outsourcing services steadily grew, systems integration decreased mainly affected by the scale-down of a contract from a certain large contract.
  • Operating income was JP266 million ($3 million), down 24.3% YoY, mainly due to the increase in SG&A expenses. Operating loss related to the ATM operation business decreased to JPY160 million ($2 million).
  • Net income attributable to IIJ was JPY247 million ($3 million), up 36.8% YoY.

Overview of 1 st Quarter FY2010 Financial Results and Business Outlook

"We are seeing slight recovery in systems construction, however, the Japanese economy is still struggling for full recovery and is difficult to foresee," said Koichi Suzuki, President and CEO of IIJ.

"As for our operating results, connectivity and outsourcing service revenues steadily increased by 2.0% YoY followed by the continuous demands for outsourcing services for cost reduction purposes. For systems integration ("SI"), there were scale-down of a contract from a certain large client for both construction and operation and maintenance. Systems construction revenue increased YOY with carried over projects from 4Q09, systems operation and maintenance decreased YoY. As a result, our revenues were nearly the same as 1Q09. And SG&A expenses increased as there were increases in personnel related and other expenses which increases annually at the beginning of the fiscal year.

"For the coming quarters, we expect connectivity and outsourcing services to grow steadily as continuous demands for bandwidth and outsourcing are anticipated and demands for cloud computing are gradually growing. In addition, we would like to pursue getting more systems construction projects toward the latter half of FY2010, which we hope will increase along with the recovery of the Japanese economy. We aim to complete the transaction to acquire the subsidiary of AT&T Japan LLC on September 1, 2010. We believe this business acquisition will broaden the basis of our business growth.

"We will make sure to do our best to maintain our position as one of the leading total network solution provider in Japan."

1 st Quarter FY2010 Financial Results Summary      
       
Operating Results Summary
  1Q09 1Q10 YoY % change
  JPY millions JPY millions  
Total Revenues 15,835 15,813 (0.1%)
Connectivity and Outsourcing Services 9,126 9,304 2.0%
SI 6,565 6,259 (4.7%)
Equipment Sales 137 144 5.7%
ATM Operation Business 7 106 1,318.4%
Total Costs 12,837 12,788 (0.4%)
Connectivity and Outsourcing Services 7,650 7,647 0.0%
SI 4,876 4,793 (1.7%)
Equipment Sales 119 119 0.3%
ATM Operation Business 192 229 19.5%
SG&A Expenses and R&D 2,647 2,759 4.3%
Operating Income 351 266 (24.3%)
Income before Income Tax Expense 300 279 (6.9%)
Net income attributable to IIJ 180 247 36.8%
Segment Summary
  1Q09 1Q10
  JPY millions JPY millions
Net Revenues 15,835 15,813
Network services and SI business 15,922 15,816
ATM operation business 7 106
Elimination 94 109
Operating Income (Loss) 351 266
Network service and SI business 589 432
ATM operation business (233) (160)
Elimination 5 6

We have omitted segment analysis because most of our revenues are dominated by Network services and systems integration business.

1 st Quarter FY2010 Results of Operation

Revenues

Revenues were JPY15,813 million, down 0.1% YoY.

Connectivity and Outsourcing Services revenue were JPY9,304 million, up 2.0% YoY. Connectivity service for corporate use revenue was JPY3,466 million, up 0.5% YoY. While contracts over 1Gbps IP service increased by 21 contracts YoY, there were affects from cancellation due to corporate merger and migration of contracted lines from certain large clients that occurred during FY2009 and decrease in volume charge revenue which occurred in 4Q09. For IIJ mobile service, despite the cancellation from a large client during this first quarter, revenue steadily increased.

Connectivity service for home use revenue was JPY1,694 million, down 0.2% YoY. OEM service revenue decreased as one of our OEM clients terminated their service as planned which resulted in the decrease in our OEM service revenues.

Outsourcing service revenue was JPY4,144 million, up 4.1% YoY. Services such as email related services, services that prevent virus infection through a web browser and data center related services increased, respectively.
Number of Contracts for Connectivity Services
  as of  June 30, 2009 as of  June 30, 2010 YoY Change
Connectivity Services (Corporate Use) 53,513 64,118 10,605
IP Service (-99Mbps) 925 904 (21)
IP Service (100Mbps-999Mbps) 227 269 42
IP Service (1Gbps-) 102 123 21
IIJ Data Center Connectivity Service 298 301 3
IIJ FiberAccess/F and IIJ DSL/F 26,274 28,691 2,417
IIJ Mobile Service 24,201 32,466 8,265
Others 1,486 1,364 (122)
Connectivity Services (Home Use) 428,171 377,612 (50,559)
Under IIJ Brand 48,053 45,790 (2,263)
hi-ho 176,225 163,922 (12,303)
OEM 203,893 167,900 (35,993)
Total Contracted Bandwidth 584.7 Gbps 660.9 Gbps 76.2 Gbps
       
Connectivity and Outsourcing Services Revenues Breakdown
  1Q09 1Q10 YoY % change
  JPY millions JPY millions  
Connectivity Service (Corporate Use) 3,448 3,466 0.5%
IP Service 3 2,347 2,238 (4.7%)
IIJ FiberAccess/F and IIJ DSL/F 726 740 1.9%
IIJ Mobile Service 4 299 422 41.1%
Others 76 66 (13.0%)
Connectivity Service (Home Use) 1,698 1,694 (0.2%)
Under IIJ Brand 253 257 1.7%
hi-ho 1,302 1,303 0.1%
OEM 143 134 (6.1%)
Outsourcing Services 3,980 4,144 4.1%
Total Connectivity and Outsourcing Services 9,126 9,304 2.0%

SI revenues were JPY6,259 million, down 4.7% YoY. SI transactions during the first quarter are seasonally low and there were scale-down of a contract from a certain large client (decrease of JPY0.6 billion in systems construction revenue and JPY0.7 billion in systems operation and maintenance revenue YoY, respectively). Systems construction revenue, a one-time revenue, was JPY2,011 million, up 11.5% YoY with carried over projects from 4Q09. Systems operation and maintenance, a recurring revenue, was JPY4,248 million, down 10.8% YoY as a result of scale-down in contract from a certain large client.

The order backlog for systems construction and equipment sales was JPY4,580 million, up 19.1% YoY and order backlog for systems operation and maintenance was JPY12,258 million, down 1.9% YoY as of June 30, 2010, respectively.

Equipment sales revenues were JPY144 million, up 5.7% YoY.

ATM Operation Business revenues were JPY106 million.

Cost and expense

Cost of revenues was JPY12,788 million, down 0.4% YoY.

Cost of Connectivity and Outsourcing Services revenue was JPY7,647 million, nearly the same as 1Q09. While personnel related and outsourcing related costs increased, circuit related cost decreased. Gross margin for connectivity and outsourcing service was JPY1,657 million, up 12.3% YoY and gross margin ratio was 17.8%, up 1.6% YoY.

Cost of SI revenues was JPY4,793 million, down 1.7% YoY. While network operation related and outsourcing related costs increased, purchasing cost decreased. Gross margin for SI was JPY1,466 million, down 13.2% YoY and gross margin ratio was 23.4%, down 2.3% YoY.

Cost of Equipment Sales revenues was JPY119 million, up 0.3% YoY. Gross margin for equipment sales was JPY25 million and gross margin ratio was 17.4%, up 4.5% YoY.

Cost of ATM Operation Business revenues was JPY229 million. Outsourcing costs were reduced.

SG&A and R&D Expenses

SG&A and R&D expenses were JPY2,759 million, up 4.3% YoY.

Sales and marketing expenses were JPY1,406 million, up 6.2% YoY mainly due to continuous increase in personnel related expenses.

General and administrative expenses were JPY1,265 million, up 1.6% YoY mainly due to the increase in depreciation expenses.

Research and development expenses were JPY88 million, up 15.1% YoY.

Operating income

Operating income was JPY266 million, down 24.3% YoY. While gross margin was almost the same as 1Q09, there were increases in SG&A and R&D expenses.

Other income (expenses)

Other income (expenses) was net other income of JPY14 million as dividends received and gains on sales of other investments increased and interest expense decreased.

Income before income tax expenses

Income before income tax expenses was JPY279 million, down 6.9% YoY.

Net Income

Income tax expense was JPY120 million. Deferred tax expenses was JPY88 million compared to expense of JPY186 million in 1Q09.

Equity in net income of equity method investees was JPY34 million.

Net income was JPY193 million, up 121.1% YoY.

Net income attributable to IIJ

Net loss attributable to noncontrolling interests was JPY54 million, related to GDX Japan Inc. and Trust Networks Inc.

Net income attributable to IIJ was JPY247 million, up 36.8% YoY.

Full FY2009 Financial Condition

Balance Sheets

As of June 30, 2010, the balance of total assets was JPY50,805 million, a decrease of JPY310 million from the balance as of March 31, 2010.

For current assets, as compared to each of the respective balances as of March 31, 2010, prepaid expense increased by JPY1,426 million, accounts receivables decreased by JPY1,761 million and inventories decreased by JPY169 million. As for current liabilities, as compared to each of the respective balances as of March 31, 2010, deferred income increased by JPY466 million and accounts payable decreased by JPY547 million. Noncurrent capital lease obligations decreased by JPY351 million to JPY3,306 million.

The balance of other investments as of June 30, 2010 was JPY2,642 million, an increase of JPY60 million from the balance as of March 31, 2010. The breakdown of other investments were JPY1,486 million in nonmarketable equity securities, JPY888 million in available-for-sale securities and JPY268 million in other.

As of June 30, 2010, the balance of non-amortized intangible assets (excluding telephone rights) such as goodwill was JPY2,806 million and the balance of amortized intangible assets was JPY2,560 million. The breakdown of non-amortized intangible assets were JPY2,614 million in goodwill and JPY192 million in trademark. The breakdown of amortized intangible assets were JPY2,486 million in customer relationships and JPY74 million in licenses.

Total IIJ shareholders' equity as of June 30, 2010 was JPY27,288 million, a decrease of JPY31 million from the balance as of March 31, 2010. IIJ Shareholders' equity ratio (IIJ shareholders' equity/total assets) as of June 30, 2010 was 53.7%.

Cash Flows

Cash and cash equivalents as of June 30, 2010 were JPY9,137 million compared to JPY9,897 million as of June 30, 2009.

Net cash provided by operating activities for 1Q10 was JPY2,274 million. While operating income was JPY266 million, decreased compared to 1Q09, there were changes in operating assets and liabilities during 1Q09, mainly resulting from the decrease in accounts receivable of JPY1,768 million, increase in inventories, prepaid expenses and other current and noncurrent assets of JPY1,084 million, increase in accrued expenses, other current and noncurrent liabilities of JPY1,085 million and decrease in accounts payable of JPY812 million.

Net cash used in investing activities for 1Q10 was JPY955 million mainly due to purchase of property and equipment of JPY913 million.

Net cash used in financing activities for 1Q10 was JPY928 million mainly due to principal payments under capital leases of JPY745 million and payments of JPY253 million for FY2009 year-end dividends.

FY2010 Financial Targets (announced on June 1, 2010)

Our targets for the fiscal year ending March 31, 2011 are as follows:
         (JPY in millions)
         
  Revenues Operating Income Income before Income Tax Expense (Benefit) Net Income attributable to IIJ
1H FY2010 32,300 1,200 1,100 800
Full FY2010 84,500 4,800 4,100 3,000

Our financial results tend to be weak in the fist quarter of every fiscal year due to seasonal factor. For 1Q10, operating income level slightly decreased YoY as revenue and gross margin were almost the same but SG&A expenses increased as there were annual increases in personnel related and other expenses at the beginning of the fiscal year. Towards 4Q10 when revenue and income level become the largest, we will focus on getting more systems construction projects which we hope will gradually recover and accumulate recurring revenues followed by steady demands while keeping our control costs and expenses at an adequate level.

Considering the above, we have not changed our FY2010 financial targets announced on June 1, 2010.

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.
Adjusted EBITDA
  1Q09 1Q10
  JPY millions JPY millions
Adjusted EBITDA 1,711 1,517
Depreciation and Amortization 5 1,360 1,251
Operating Income 351 266
Other Income (Expense) (51) 14
Income Tax Expense 244 121
Equity in Net Income of Equity Method Investees 31 34
Net income 87 193
Net loss attributable to noncontrolling interests 93 54
Net Income attributable to IIJ 180 247
     
CAPEX
  1Q09 1Q10
  JPY millions JPY millions
CAPEX, including capital leases 1,489 1,221
Acquisition of Assets by Entering into Capital Leases 395 308
Purchase of Property and Equipment 1,094 913

Presentation

Presentation Materials will be posted on our web site ( http://www.iij.ad.jp/en/IR/) on August 13, 2010.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group of companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality systems integration and security services, Internet access, hosting/housing, and content design. Moreover, IIJ has built one of the largest Internet backbone networks in Japan, and between Japan and the United States. IIJ was listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

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

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.

1Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated. The translation of Japanese yen into U.S. dollars is solely for the convenience of readers outside of Japan. The rate used for the translation was JPY88.49 per US$1.00, which was the noon buying rate on June 30, 2010.

2Contracts of IIJ Mobile Service are of mobile data communication service for corporate use.

3IP Service revenues include revenues from the Data Center Connectivity Service.

4Revenue from mobile data communication service for home use is included in Connectivity service (home use).

5Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details).
Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2010 and June 30, 2010)
     
  As of March 31, 2010 As of June 30, 2010
  Thousands of JPY % Thousands of U.S. Dollars Thousands of JPY %
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents 8,764,415   103,256 9,137,145  
Accounts receivable, net of allowance for  doubtful accounts of JPY 37,178 thousand and  JPY 29,583 thousand at March 31, 2010  and June 30, 2010, respectively 11,396,597   108,884 9,635,137  
Inventories 807,803   7,216 638,528  
Prepaid expenses 1,593,000   34,117 3,019,030  
Deferred tax assets —Current 1,570,746   16,339 1,445,824  
Other current assets, net of allowance for doubtful accounts of JPY 720 thousand at March 31, 2010 and June 30, 2010, respectively 762,081   8,530 754,808  
Total current assets 24,894,642 48.7 278,342 24,630,472 48.5
INVESTMENTS IN EQUITY METHOD INVESTEES 1,131,354 2.2 13,184 1,166,709 2.3
OTHER INVESTMENTS 2,581,610 5.1 29,854 2,641,754 5.2
PROPERTY AND EQUIPMENT, net of accumulated  depreciation and amortization of JPY 17,653,271  thousand and JPY 18,452,419 thousand at March  31, 2010 and June 30, 2010, respectively 12,970,152 25.4 149,410 13,221,294 26.0
GOODWILL 2,639,319 5.2 29,544 2,614,319 5.1
OTHER INTANGIBLE ASSETS —Net 2,819,187 5.5 31,201 2,761,016 5.4
GUARANTEE DEPOSITS 2,003,862 3.9 22,675 2,006,504 4.0
DEFERRED TAX ASSETS —Noncurrent 685,370 1.3 6,480 573,454 1.1
OTHER ASSETS, net of allowance for doubtful  accounts of JPY91,319 thousand and JPY88,722  thousand at March 31, 2010 and June 30, 2010,  respectively, and net of loan loss valuation  allowance of JPY 720 thousand at March 31,  2010 and June 30 2010, respectively 1,389,954 2.7 13,446 1,189,807 2.4
TOTAL 51,115,450 100.0 574,136 50,805,329 100.0
           
           
     
  As of March 31, 2010 As of June 30, 2010
  Thousands of JPY % Thousands of U.S. Dollars Thousands of JPY %
LIABILITIES AND SHAREHOLDERS' EQUITY          
CURRENT LIABILITIES:          
Short-term borrowings 4,450,000   51,079 4,520,000  
Capital lease obligations —current portion 2,729,673   29,887 2,644,694  
Accounts payable 6,967,654   72,554 6,420,305  
Accrued expenses 1,184,483   14,890 1,317,647  
Accrued retirement and pension costs —current 14,539   165 14,539  
Deferred income —current 1,445,174   21,592 1,910,711  
Other current liabilities 922,345   8,363 740,031  
Total current liabilities 17,713,868 34.7 198,530 17,567,927 34.6
CAPITAL LEASE OBLIGATIONS —Noncurrent 3,657,657 7.2 37,363 3,306,208 6.5
ACCRUED RETIREMENT AND PENSION COSTS  —Noncurrent 1,302,054 2.5 15,395 1,362,297 2.7
DEFERRED TAX ASSETS —Noncurrent 212,773 0.4 574 50,766 0.1
DEFERRED INCOME—Noncurrent 560,677 1.1 10,768 952,856 1.8
OTHER NONCURRENT LIABILITIES 304,718 0.6 3,238 286,563 0.6
Total Liabilities 23,751,747 46.5 265,868 23,526,617 46.3
COMMITMENTS AND CONTINGENCIES          
           
SHAREHOLDERS' EQUITY:          
Common-stock—authorized, 377,600 shares;  issued and outstanding, 206,478 shares at  March 31, 2010 and June 30, 2010 16,833,847 32.9 190,235 16,833,847 33.1
Additional paid-in capital 27,443,600 53.7 310,132 27,443,600 54.0
Accumulated deficit (16,720,092) (32.7) (189,019) (16,726,308) (32.9)
Accumulated other comprehensive income 168,769 0.3 1,623 143,654 0.3
Treasury stock—3,934 shares held by  the company at March 31, 2010 and June 30, 2010 (406,547) (0.8) (4,594) (406,547) (0.8)
Total Internet Initiative Japan Inc. shareholders' equity 27,319,577 53.4 308,377 27,288,246 53.7
NONCONTROLLING INTERESTS 44,126 0.1 (109) (9,534) (0.0)
Total equity 27,363,703 53.5 308,268 27,278,712 53.7
TOTAL 51,115,450 100.0 574,136 50,805,329 100.0
           
 
(Note1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 88.49 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 June 30, 2010.  
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income (Unaudited)
(Three Months ended June 30, 2009 and June 30, 2010)
 
     
  Three Months Ended  June 30, 2009 Three Months Ended June 30, 2010
  Thousands of JPY % of total revenues Thousands of U.S. Dollars Thousands of JPY % of total revenues
REVENUES:          
Connectivity and outsourcing services:          
Connectivity (corporate use) 3,448,493   39,166 3,465,820  
Connectivity (home use) 1,697,894   19,148 1,694,436  
Outsourcing services 3,979,443   46,828 4,143,759  
Total 9,125,830   105,142 9,304,015  
Systems integration:          
Systems construction 1,803,635   22,731 2,011,495  
Systems operation and maintenance 4,761,011   48,000 4,247,529  
Total 6,564,646   70,731 6,259,024  
Equipment sales 136,575   1,632 144,423  
ATM operation business 7,459   1,196 105,801  
Total revenues 15,834,510 100.0 178,701 15,813,263 100.0
COST AND EXPENSES:          
Cost of connectivity and outsourcing services 7,650,504   86,414 7,646,798  
Cost of systems integration 4,875,725   54,163 4,792,872  
Cost of equipment sales 118,927   1,348 119,285  
Cost of ATM operation business 191,769   2,590 229,148  
Total cost 12,836,925 81.1 144,515 12,788,103 80.9
Sales and marketing 1,324,880 8.4 15,893 1,406,371 8.9
General and administrative 1,245,145 7.9 14,294 1,264,868 8.0
Research and development 76,682 0.4 997 88,242 0.5
Total cost and expenses 15,483,632 97.8 175,699 15,547,584 98.3
OPERATING INCOME 350,878 2.2 3,002 265,679 1.7
OTHER INCOME (EXPENSE):          
Interest income 5,714   63 5,568  
Interest expense (87,024)   (650) (57,513)  
Foreign exchange gains (loss) 9,663   (36) (3,173)  
Net gains on sales of other investments --   181 16,019  
Losses on write-down of other investments (1,504)   (66) (5,887)  
Other—net 22,129   661 58,489  
Other income (expense) — net (51,022) (0.3) 153 13,503 0.1
INCOME FROM OPERATIONS BEFORE INCOME  TAX EXPENSE AND EQUITY IN NET INCOME  IN EQUITY METHOD INVESTEES 299,856 1.9 3,155 279,182 1.8
           
INCOME TAX EXPENSE 243,943 1.5 1,360 120,356 0.8
EQUITY IN NET INCOME OF EQUITY  METHOD INVESTEES 31,513 0.2 389 34,478 0.2
NET INCOME 87,426 0.6 2,184 193,304 1.2
LESS: NET LOSS ATTRIBUTABLE TO  NONCONTROLLING INTERESTS 93,052 0.5 607 53,660 0.4
NET INCOME ATTRIBUTABLE TO  INTERNET INITIATIVE JAPAN INC. 180,478 1.1 2,791 246,964 1.6
           
     
  Three Months Ended  June 30, 2009 Three Months Ended June 30, 2010
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF  SHARES (shares) 202,544   202,544
DILUTED WEIGHTED-AVERAGE NUMBER  OF SHARES (shares) 202,544   202,544
BASIC WEIGHTED-AVERAGE NUMBER OF  ADS EQUIVALENTS (ADSs) 81,017,600   81,017,600
DILUTED WEIGHTED-AVERAGE NUMBER  OF ADS EQUIVALENTS (ADSs) 81,017,600   81,017,600
BASIC NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 891.06 13.78 1,219.31
DILUTED NET INCOME PER SHARE  (JPY / U.S. Dollars / JPY) 891.06 13.78 1,219.31
BASIC NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 2.23 0.03 3.05
DILUTED NET INCOME PER ADS  EQUIVALENT (JPY / U.S. Dollars / JPY) 2.23 0.03 3.05
(Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 88.49 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 June 30, 2010.
 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended June 30, 2009 and June 30, 2010)
       
     
  Three Months Ended June 30, 2009 Three Months Ended June 30, 2010
  Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
OPERATING ACTIVITIES:      
Net income 87,426 2,184 193,304
Adjustments to reconcile net income to net cash  provided by operating activities:      
Depreciation and amortization 1,359,820 14,138 1,251,044
Provision for retirement and pension  costs, less payments 58,682 681 60,243
Reversal of allowance for doubtful accounts and advances (5,049) (60) (5,317)
Loss on disposal of property and equipment 8,965 59 5,288
Net gains on sales of other investments -- (181) (16,019)
Losses on write-down of other investments 1,504 67 5,887
Gain on receipt of investment securities -- (204) (18,060)
Foreign exchange losses 11,918 229 20,246
Equity in net income of equity method investees (31,513) (390) (34,478)
Deferred income tax expense 185,982 998 88,313
Others -- 551 48,798
Changes in operating assets and liabilities net of effects  from acquisition of business and a company:      
Decrease in accounts receivable 1,734,601 19,975 1,767,614
Increase in inventories, prepaid expenses  and other current and noncurrent assets (500,933) (12,252) (1,084,214)
Decrease in accounts payable (936,518) (9,176) (812,009)
Decrease in income taxes payable (155,467) (3,189) (282,219)
Increase in accrued expenses, other  current and noncurrent liabilities 344,462 12,263 1,085,196
Net cash provided by operating activities 2,163,880 25,693 2,273,617
INVESTING ACTIVITIES:      
Purchase of property and equipment (1,094,298) (10,313) (912,587)
Purchase of available-for-sale securities (6,750) (410) (36,283)
Purchase of other investments -- (565) (50,000)
Proceeds from sales of available-for-sale securities -- 52 4,579
Proceeds from sales and redemption of other investments 13,500 226 20,000
Payments of guarantee deposits (34,229) (51) (4,503)
Refund of guarantee deposits 2,337 23 1,985
Payments for refundable insurance policies (13,615) (84) (7,391)
Refund from insurance policies 27,613 335 29,642
Net cash used in investing activities (1,105,442) (10,787) (954,558)
       
     
  Three Months Ended June 30, 2009 Three Months Ended June 30, 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 5,100,000 565 50,000
Repayments of short-term borrowings with initial  maturities over three months (5,100,000) -- --
Principal payments under capital leases (929,625) (8,416) (744,757)
Net Increase (decrease) in short-term borrowings with initial  maturities less than three months (200,000) 226 20,000
Dividends paid (202,544) (2,861) (253,180)
Net cash used in financing activities (1,332,169) (10,486) (927,937)
       
EFFECT OF EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS (16,557) (208) (18,392)
       
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (290,288) 4,212 372,730
CASH AND CASH EQUIVALENTS, BEGINNING OF  THE PERIOD 10,187,724 99,044 8,764,415
CASH AND CASH EQUIVALENTS, END OF  THE PERIOD 9,897,436 103,256 9,137,145
       
ADDITIONAL CASH FLOW INFORMATION:      
Interest paid 95,241 643 56,889
Income tax paid 207,572 3,542 313,436
       
NONCASH INVESTING AND FINANCING ACTIVITIES:      
Acquisition of assets by entering into capital leases 395,145 3,485 308,411
Facilities purchase liabilities 355,442 10,098 893,569
       
 
(Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 88.49 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 June 30, 2010.
 
Going Concern Assumption (Unaudited)    
Nothing to be reported.    
     
     
Segment Information (Unaudited)    
Business Segments:    
Revenues:    
     
  Three Months Ended June 30, 2009 Three Months Ended June 30, 2010
  Thousands of JPY Thousands of JPY
Network service and systems integration business 15,921,322 15,815,529
Customers 15,827,051 15,707,462
Intersegment 94,271 108,067
ATM operation business 7,459 105,801
Customers 7,459 105,801
Intersegment -- --
Elimination 94,271 108,067
Consolidated total 15,834,510 15,813,263
Segment profit or loss:    
     
  Three Months Ended June 30, 2009 Three Months Ended June 30, 2010
  Thousands of JPY Thousands of JPY
Network service and systems integration business 588,834 432,091
ATM operation business (232,912) (160,492)
Elimination 5,044 5,920
Consolidated operating income 350,878 265,679
     
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.    
CONTACT:  IIJ Investor Relations Office          Yuko Kazama          +81-3-5259-6500          ir@iij.ad.jp           http://www.iij.ad.jp/en/IR

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