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

TOKYO, Nov. 15, 2010 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its consolidated financial results for the first six months of Fiscal Year Ending March 31, 2011 (from April 1 to September 30, 2010, "1H10"). 1
   
Highlights of 1H FY2010 Financial Results  
   
    Actual Results Target Announced
Revenues JPY34,272 million ($410.3 million) JPY32,300 million
Operating Income JPY1,201 million ($14.4 million) JPY1,200 million
Net Income attributable to IIJ JPY859 million ($10.3 million) JPY800 million
  •  IIJ made IIJ Global Solutions Inc. ("IIJ-GS") its 100% owned subsidiary on Sep. 1, 2010
      • Purchase amount: JPY9.2 billion
      • Acquired approximately 1,600 corporate customers and 245 employees
      • 1H FY2010 revenue increased by 6.2% YoY followed by steady demands for outsourcing services and additional revenue of 1 month related to IIJ-GS.
      • 1H FY2010 operating income increased by 3.0% YoY mainly due to the increase in gross margin of network service revenues, operating income related to IIJ-GS of 1 month and the decrease in operating loss of ATM operation business.
      • Full FY2010 Financial targets remain unchanged.
      • FY2010 interim period cash dividend: JPY1,250 per share as planned  (IIJ's 1 common stock equivalent to 400 ADSs).
         
      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. 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 JPY83.53 per US$1.00, which was the noon buying rate on September 30, 2010.

      Overview of 1H FY2010 Financial Results and Business Outlook

      "Along with the increasing demands for outsourcing needs, we are finally starting to see the emergence of Cloud Computing in Japan," said Koichi Suzuki, President and CEO of IIJ. "Japanese companies are aggressively comparing their options for outsourcing services in the Japanese IT market. Our long experience of nearly fifteen years in this outsourcing service market, our pioneering technological skills to introduce new outsourcing services including cloud computing services and our strong customer relationship with over 6,500 corporate customers are what makes us strongly positioned in this particular outsourcing fields," continued Suzuki.

      "During the first half of this fiscal year, to further strengthen our position in the outsourcing market, we have introduced many new services and solutions. We have introduced series of cloud computing services, an ASP-based foreign exchange (FX) platform service, a new M2M module compatible with IIJ mobile service and many more. We also began the construction of Japan's first commercial data center using outside-air cooled container units in the outskirts of Japan. This new data center will be Japan's first container data center offering low-cost, high-server density, and scalability needed to meet the demands of the cloud computing era."

      "In addition, we have complete the transaction to acquire the subsidiary of AT&T Japan LLC and began its operation by the name 'IIJ Global Solutions Inc.' on September 1, 2010. To realize group synergy and enhance our cross selling strategy, IIJ will provide its network solution to the acquired approximately 1,600 clients and IIJ-GS will provide its WAN services to IIJ's over 6,500 corporate customers for further business growth. Revenues, cost of revenues, SG&A and operating income related to IIJ-GS of 1 month were JPY2,246 million, JPY1,761 million, JPY224 million and JPY261 million, respectively."

      "For our ATM operation business, the steady increase in revenues and the decrease in costs resulted in the decrease in operating loss related to ATM operation business. The preparation to introduce new ATMs are set and we expect to increase around 250 additional ATMs in around 3 months."

      "As a results, our 1H FY2010 revenue and profit increased year-over-year and exceeded its original target. During the latter half of FY2010, we will continue to seize outsourcing related demands and focus on achieving our full FY2010 target, which remain unchanged."

      1H FY2010 Financial Results Summary
      Operating Results Summary
        1H09 1H10 YoY % change
        JPY millions JPY millions  
      Total Revenues 32,275 34,272 6.2
      Network Services 2 18,304 20,686 13.0
      SI 13,624 12,987 (4.7)
      Equipment Sales 309 371 19.8
      ATM Operation Business 38 228 498.2
      Total Costs 26,037 27,431 5.4
      Network Services 15,311 16,803 9.7
      SI 10,050 9,859 (1.9)
      Equipment Sales 269 313 16.3
      ATM Operation Business 407 456 12.2
      SG&A Expenses and R&D 5,072 5,640 11.2
      Operating Income 1,166 1,201 3.0
      Income before Income Tax Expense 1,026 1,006 (1.9)
      Net income attributable to IIJ 715 859 20.1
       
       
      Segment Summary
        1H09 1H10
        JPY millions JPY millions
      Net Revenues 32,275 34,272
      Network services and SI business 32,443 34,264
      ATM operation business 38 228
      Elimination 206 220
      Operating Income (Loss) 1,166 1,201
      Network service and SI business 1,644 1,514
      ATM operation business (459) (301)
      Elimination 19 12

      We have omitted segment analysis because most of our revenues are dominated by Network services and systems integration business.
         
      2 From the second quarter of FY2010, "Connectivity and Outsourcing Services Revenues" has been renamed to "Network Services Revenues".

      1H FY2010 Results of Operation

      Revenues

      Revenues were JPY34,272 million, up 6.2% YoY. Additional revenues of 1 month related to IIJ-GS was JPY2,246 million.

      Network Services revenue were JPY20,686 million, up 13.0% YoY.

      Internet Connectivity services for corporate use were JPY6,941 million, up 0.8% YoY. IP service is going well. While there were affects from cancellation due to corporate merger and migration of contracted lines from certain large clients at the beginning of the fiscal year, we are getting new large contracts and the volume charge revenue which decreased in 4Q09 is recovering. Contracts of over 1Gbps IP service at the end of September 2010 increased by 22 contracts YoY. IIJ mobile increased its number of contracts as M2M projects using IIJ mobile increased. Broadband connectivity services also increased along with the increase in sales partners.

      Internet Connectivity services for home use revenue were JPY3,352 million, down 1.7% YoY.

      WAN Services revenue were JPY3,297 million, up 160.9% YoY. There were additional revenues related to IIJ-GS.

      Outsourcing services revenue were JPY7,096 million, up 5.2% YoY. Services such as data center related services, contents delivery services, anti-spam email related services and security services increased, respectively. Our cloud computing service "IIJ GIO" is growing and its revenue, including revenue which is recognized in systems operation and maintenance, has reached almost JPY50 million per month.
      Number of Contracts for Connectivity Services
        as of September 30, 2009 as of September 30, 2010 YoY Change
      Internet Connectivity Services  (Corporate Use) 3 57,200 69,145 11,945
       IP Service (-99Mbps) 926 919 (7)
       IP Service (100Mbps-999Mbps) 228 271 43
       IP Service (1Gbps--) 106 128 22
       IIJ Data Center Connectivity Service 295 307 12
       IIJ FiberAccess/F and IIJ DSL/F 26,865 32,257 5,392
       IIJ Mobile Service 4 27,327 33,906 6,579
      Others 1,453 1,357 (96)
      Internet Connectivity Services  (Home Use) 414,154 375,300 (38,854)
       Under IIJ Brand 48,263 44,243 (4,020)
       hi-ho 173,410 159,725 (13,685)
       OEM 192,481 171,332 (21,149)
      Total Contracted Bandwidth 619.8 Gbps 702.5 Gbps 82.7 Gbps
             
      3 From the second quarter of FY2010, "Connectivity Services" has been renamed to "Internet Connectivity Services ".
      4 Contracts of IIJ Mobile Service are of mobile data communication service for corporate use.
       
       
      Network Services Revenues Breakdown
        1H09 1H10 YoY % change
        JPY millions JPY millions  
      Internet Connectivity Service  (Corporate Use) 6,888 6,941 0.8%
       IP Service 5 4,648 4,479 (3.6%)
       IIJ FiberAccess/F and IIJ DSL/F 1,456 1,494 2.6%
       IIJ Mobile Service 6 634 837 32.2%
      Others 150 131 (12.7%)
      Internet Connectivity Service  (Home Use) 3,410 3,352 (1.7%)
       Under IIJ Brand 513 508 (1.0%)
       hi-ho 2,612 2,576 (1.4%)
       OEM 285 268 (6.1%)
      WAN Services 7 1,264 3,297 160.9%
      Outsourcing Services 6,742 7,096 5.2%
      Total Network Services 18,304 20,686 13.0%
             
      5 IP Service revenues include revenues from the Data Center Connectivity Service.
      6 Revenue from mobile data communication service for home use is included in Internet Connectivity service (home use).
      7 From the second quarter of FY2010, to reflect the acquisition of IIJ Global on September 1, 2010, "WAN services", which were components of "Outsourcing services revenues" were separately disclosed to clarify the contents of WAN services revenues.

      SI revenues were JPY12,987 million, down 4.7% YoY affected by the scale-down of a contract from a certain large client in 1Q10. As for systems construction, despite the forementioned scale-down from a certain large client, there were mid- to small sized network construction projects which resulted in the increased revenues of JPY4,499 million, up 8.5% YoY. As for systems operation and maintenance, its revenues were JPY8,488 million, down 10.4% YoY. While there were new operation and maintenance contracts, the forementioned scale-down from a certain large client affected its revenues.

      The order backlog for systems construction and equipment sales was JPY5,344 million, up 20.7% YoY. The order backlog for systems operation and maintenance was JPY11,055 million, down 6.4% YoY, affected by the forementioned scale-down from a certain large client.

      Equipment sales revenues were JPY371 million, up 19.8% YoY.

      ATM Operation Business revenues were JPY228 million. The ATM operation business is operated by trust Networks Inc., IIJ's consolidated subsidiary, and it receives a commission for each bank withdrawal transaction when a customer uses its serviced ATMs. The ATM operation business is currently in its phase of business start-up and is expected to introduce around 250 additional ATMs  in around 3 months. As of November 15, 2010, 148 ATMs are placed.

      Cost and expense

      Cost of revenues was JPY27,431 million, up  5.4% YoY. Cost of revenues related to IIJ-GS of 1 month were JPY1,761 million.

      Cost of Network Services revenue was JPY16,803 million, up 9.7% YoY mainly due to the increase in IIJ-GS related costs of 1 months. Gross margin for network services was JPY3,883 million, up 29.8% YoY and gross margin ratio was 18.8%, up 2.4% YoY.

      Cost of SI revenues was JPY9,859 million, down 1.9% YoY. While network operation related and personnel related costs increased, purchasing cost decreased. Gross margin for SI was JPY3,128 million, down 12.5% YoY and gross margin ratio was 24.1%, down 2.1% YoY.  

      Cost of Equipment Sales revenues was JPY313 million, up 16.3% YoY. Gross margin for equipment sales was JPY58 million and gross margin ratio was 15.5%, up 2.5% YoY.

      Cost of ATM Operation Business revenues was JPY456 million. Outsourcing costs were reduced.

      SG&A and R&D Expenses

      SG&A and R&D expenses were JPY5,640 million, up 11.2% YoY. SG&A and R&D expenses related to IIJ-GS of 1 month was JPY224 million.

      Sales and marketing expenses were JPY2,883 million, up 11.2% YoY mainly due to increase in personnel related expenses and depreciation and amortization.

      General and administrative expenses were JPY2,603 million, up 12.4% YoY mainly due to increase in depreciation and amortization and the one-time M&A related expenses for the acquisition of IIJ-GS of JPY56 million.

      Research and development expenses were JPY154 million, down 5.8% YoY.

      Operating income

      Operating income was JPY1,201 million, up 3.0% YoY as gross margin increased.

      Other income (expenses)

      Other income (expenses) was net other expense of JPY195 million as there were losses on write-down of other investments and interest expense. 1H09 was net other expense of JPY140 million.

      Income before income tax expenses

      Income before income tax expenses was JPY1,006 million, down 1.9% YoY (JPY1,026 million in 1H09).

      Net Income

      Income tax expense was JPY280 million (JPY528 million in 1H09). Deferred tax expenses was JPY164 million compared to expense of JPY373 million in 2Q09.

      Equity in net income of equity method investees was JPY32 million (JPY42 million in 1H09).

      Net income was JPY758 million, up 40.3% YoY (JPY540 million in 1H09).

      Net income attributable to IIJ

      Net loss attributable to noncontrolling interests was JPY101 million (JPY175 million in 1H09), related to GDX Japan Inc. and Trust Networks Inc.

      Net income attributable to IIJ was JPY859 million, up 20.1% YoY (JPY715 million in 1H09). 1H FY2010 Financial Condition

      Balance Sheets

      As of September 30, 2010, the balance of total assets was JPY65,923 million, an increase of JPY14,807 million from the balance as of March 31, 2010 as a result of the acquisition of IIJ-GS.

      Due to the acquisition of IIJ-GS, the balance of assets and liabilities increased respectively. The balance of assets and liabilities as of September 2010 was as follows: current assets was JPY9,191 million (mainly accounts receivables), noncurrent assets was JPY7,986 million (mainly intangible assets and property and equipment), current liabilities was JPY7,767 million (mainly accounts payable and accrued expenses) and noncurrent liabilities was JPY78 million. The measurement of the assets acquired and liabilities assumed related to the acquisition of IIJ-GS is to be completed within a year from the acquisition date. The measurement has not yet been completed as of the end of September 2010, and therefore, the preliminary estimates are subject to revisions.

      For current assets, as compared to each of the respective balances as of March 31, 2010, accounts receivable increased by JPY6,227 million and prepaid expenses increased by JPY690 million. As of noncurrent assets, other intangible assets (net) increased by JPY4,772 million, goodwill increased by JPY757 million and property and equipments increased by JPY1,836 million. As for current liabilities, as compared to each of the respective balances as of March 31, 2010, short-term borrowings increased by JPY9,000 million mainly for the acquisition of IIJ-GS, accrued expenses increased by JPY5,910 million. Noncurrent capital lease obligations decreased by JPY493 million to JPY3,164 million.

      The balance of other investments as of September 30, 2010 was JPY2,796 million, an increase of JPY214 million from the balance as of March 31, 2010. The breakdown of other investments were JPY1,796 million in nonmarketable equity securities, JPY791 million in available-for-sale securities and JPY209 million in other.

      As of September 30, 2010, the balance of non-amortized intangible assets (excluding telephone rights) such as goodwill was JPY3,589 million and the balance of amortized intangible assets was JPY7,385 million. The breakdown of non-amortized intangible assets were JPY3,397 million in goodwill (JPY857 million related to IIJ-GS) and JPY192 million in trademark. The breakdown of amortized intangible assets were JPY7,312 million in customer relationships (JPY4,856 million related to IIJ-GS) and JPY73 million in licenses.

      Total IIJ shareholders' equity as of September 30, 2010 was JPY27,765 million, a crease of JPY446 million from the balance as of March 31, 2010. IIJ Shareholders' equity ratio (IIJ shareholders' equity/total assets) as of September 30, 2010 was 42.1%.

      Cash Flows

      Cash and cash equivalents as of September 30, 2010 were JPY9,408 million compared to JPY10,789 million as of September 30, 2009. The cash flow of IIJ-GS did not have a material effect on consolidated cash flows for 1H10 because under the agreement between AT&T Japan LLC and IIJ, AT&T Japan LLC collected accounts receivables and paid accounts payable on behalf of IIJ-GS.

      Net cash provided by operating activities for 1H10 was JPY5,109 million compared to net cash provided by operating activities of JPY4,792 million in 1H09. Operating income increased YoY. While operating income increased YoY, there were changes in operating assets and liabilities during 1H10, mainly resulting from the increase in accounts receivable of JPY754 million and increase in accrued expenses, other current and noncurrent liabilities of JPY2,260 million. 

      Net cash used in investing activities for 1H10 was JPY11,737 million compared to net cash used in investing activities of JPY2,105 million in 1H09, mainly due to the acquisition of IIJ-GS for JPY9,170 million and the purchase of property and equipment of JPY2,164 million.

      Net cash provided by financing activities for 1H10 was JPY7,304 million compared to net cash used in financing activities of JPY2,063 million in 1H09, mainly due to net increase in short-term borrowings (net) of JPY9,000 million, principal payments under capital leases of JPY1,480 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:
               
        Revenues Operating Income Income before Income Tax Expense (Benefit) Net Income attributable to IIJ
      Full FY2010 84,500 4,800 4,100 3,000

      The Japanese economy is currently at a standstill and is expected to continue to be weak for a while. However, for the first half of this fiscal year ("1H10"), we have seen a recovery in the overall results in the Japanese corporate sector.

      For our 1H10 financial results, total revenues exceeded our original target as there were additional revenue from IIJ-GS of 1 month and the results for operating income was as originally targeted. Generally speaking, revenue and profit for the first half of the year are smaller compared to the latter half of the year and whether achieving our full year target largely depends on the continuous increase in recurring revenues and the revenues from systems construction for the fourth quarter of the fiscal year which becomes the largest due to seasonal factors. For the latter half of FY2010, we will continue to focus on increasing stock revenue such as cloud computing related services, accumulate SI contracts towards the end of fiscal year and also continue to manage tight cost control. Considering the above, we have not changed our full FY2010 financial target 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
        1H09 1H10
        JPY millions JPY millions
      Adjusted EBITDA 3,810 3,920
      Depreciation and Amortization 8 2,644 2,619
      Impairment loss on other intangible assets -- 100
      Operating Income 1,166 1,201
      Other Income (Expense) (140) (195)
      Income Tax Expense 528 280
      Equity in Net Income of Equity  Method Investees 42 32
      Net income 540 758
      Net loss attributable to  noncontrolling interests 175 101
      Net Income attributable to IIJ 715 859
       
       
      CAPEX
        1H09 1H10
        JPY millions JPY millions
      CAPEX, including capital leases 2,613 3,025
      Acquisition of Assets by Entering into Capital Leases 664 861
      Purchase of Property and Equipment 1,949 2,164
           
       8 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details).

      Presentation Presentation Materials will be posted on our web site ( http://www.iij.ad.jp/en/IR/) on November 15, 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.
       
      Internet Initiative Japan, Inc.
      Quarterly Consolidated Balance Sheets (Unaudited)
      (As of March 31, 2010 and September 30, 2010)
           
        As of March 31, 2010 As of September 30, 2010
        Thousands of JPY % Thousands of U.S. Dollars Thousands of JPY %
      ASSETS          
      CURRENT ASSETS:          
      Cash and cash equivalents 8,764,415   112,631 9,408,031  
      Accounts receivable, net of allowance for doubtful accounts of JPY 37,178 thousand and JPY 56,787 thousand at March 31, 2010 and September 30, 2010, respectively 11,396,597   210,985 17,623,610  
      Inventories 807,803   6,235 520,789  
      Prepaid expenses 1,593,000   27,334 2,283,210  
      Deferred tax assets —Current 1,570,746   14,935 1,247,528  
      Other current assets, net of allowance for doubtful accounts of JPY 720 thousand  at March 31, 2010 and September 30, 2010, respectively 762,081   7,211 602,379  
                 
      Total current assets 24,894,642 48.7 379,331 31,685,547 48.1
                 
      INVESTMENTS IN EQUITY METHOD INVESTEES 1,131,354 2.2 13,903 1,161,302 1.8
                 
      OTHER INVESTMENTS 2,581,610 5.1 33,473 2,795,989 4.2
                 
      PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 17,653,271 thousand and JPY 19,564,943 thousand at March 31, 2010 and September 30, 2010, respectively 12,970,152 25.4 177,254 14,805,994 22.5
                 
      GOODWILL 2,639,319 5.2 40,662 3,396,507 5.1
                 
      OTHER INTANGIBLE ASSETS —Net 2,819,187 5.5 90,876 7,590,856 11.5
                 
      GUARANTEE DEPOSITS 2,003,862 3.9 27,644 2,309,090 3.5
                 
      DEFERRED TAX ASSETS —Noncurrent 685,370 1.3 10,877 908,558 1.4
                 
      OTHER ASSETS, net of allowance for doubtful accounts of JPY91,319 thousand and JPY81,094 thousand at March 31, 2010 and September 30, 2010, respectively, and net of loan loss valuation allowance of JPY16,701thousand at March 31, 2010 and September 30 2010, respectively 1,389,954 2.7 15,191 1,268,944 1.9
                 
      TOTAL 51,115,450 100.0 789,211 65,922,787 100.0
           
        As of March 31, 2010 As of September 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   161,020 13,450,000  
      Capital lease obligations —current portion 2,729,673   31,174 2,603,958  
      Accounts payable 6,967,654   79,439 6,635,539  
      Accrued expenses 1,184,483   84,932 7,094,399  
      Accrued retirement and pension costs —current 14,539   174 14,539  
      Deferred income -- current 1,445,174   19,725 1,647,614  
      Other current liabilities 922,345   8,709 727,442  
      Total current liabilities 17,713,868 34.7 385,173 32,173,491 48.8
      CAPITAL LEASE OBLIGATIONS — Noncurrent 3,657,657 7.2 37,881 3,164,234 4.8
      ACCRUED RETIREMENT AND PENSION COSTS —Noncurrent 1,302,054 2.5 17,081 1,426,759 2.2
      DEFERRED TAX LIABILITIES — Noncurrent 212,773 0.4 2,425 202,577 0.3
      DEFERRED INCOME —Noncurrent 560,677 1.1 10,737 896,863 1.4
      OTHER NONCURRENT LIABILITIES 304,718 0.6 3,505 292,725 0.4
      Total Liabilities 23,751,747 46.5 456,802 38,156,649 57.9
      COMMITMENTS AND CONTINGENCIES          
                 
      SHAREHOLDERS' EQUITY:          
      Common-stock—authorized, 377,600 shares; issued and outstanding, 206,478 shares at March 31, 2010 and September 30, 2010 16,833,847 32.9 201,531 16,833,847 25.5
      Additional paid-in capital 27,443,600 53.7 328,117 27,407,636 41.6
      Accumulated deficit (16,720,092) (32.7) (192,913) (16,113,995) (24.4)
      Accumulated other comprehensive income  168,769 0.3 355 29,683 0.0
      Treasury stock—3,934 shares and 3,794 shares held by the company at March 31, 2010 and September 30, 2010 (406,547) (0.8) (4,694) (392,079) (0.6)
      Total Internet Initiative Japan Inc. shareholders' equity 27,319,577 53.4 332,396 27,765,092 42.1
                 
      NONCONTROLLING INTERESTS 44,126 0.1 13 1,046 0.0
                 
      Total equity 27,363,703 53.5 332,409 27,766,138 42.1
                 
      TOTAL 51,115,450 100.0 789,211 65,922,787 100.0
       
      (Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 83.53 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 September 30, 2010.
       
      Internet Initiative Japan Inc.
      Quarterly Consolidated Statements of Income (Unaudited)
      (For the six months ended September 30, 2009 and September 30, 2010)
                 
           
        Six Months Ended September 30, 2009 Six Months Ended September 30, 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) 6,887,207   83,095 6,940,955  
      Internet Connectivity (home use) 3,410,051   40,127 3,351,827  
      WAN services 1,264,027   39,476 3,297,421  
      Outsourcing services 6,742,413   84,949 7,095,752  
      Total 18,303,698   247,647 20,685,955  
      Systems integration:          
      Systems Construction 4,148,014   53,858 4,498,738  
      Systems Operation and Maintenance 9,475,548   101,619 8,488,261  
      Total 13,623,562   155,477 12,986,999  
      Equipment sales 309,586   4,439 370,750  
      ATM operation business 38,178   2,734 228,376  
      Total revenues 32,275,024 100.0 410,297 34,272,080 100.0
      COST AND EXPENSES:          
      Cost of network services 15,311,269   201,156 16,802,569  
      Cost of systems integration 10,049,470   118,026 9,858,693  
      Cost of equipment sales 269,315   3,749 313,161  
      Cost of ATM operation business 406,517   5,461 456,118  
      Total cost 26,036,571 80.7 328,392 27,430,541 80.0
      Sales and marketing 2,593,637 8.0 34,515 2,883,026 8.4
      General and administrative 2,315,698 7.2 31,172 2,603,796 7.6
      Research and development 163,035 0.5 1,839 153,626 0.5
      Total cost and expenses 31,108,941 96.4 395,918 33,070,989 96.5
      OPERATING INCOME 1,166,083 3.6 14,379 1,201,091 3.5
      OTHER INCOME (EXPENSE):          
      Interest income 13,086   149 12,431  
      Interest expense (168,189)   (1,417) (118,348)  
      Foreign exchange gains (losses) 4,619   (209) (17,448)  
      Net gains on sales of other investments 11,302   389 32,503  
      Losses on write-down of other investments (31,172)   (2,036) (170,091)  
      Other—net 29,884   788 65,826  
      Other expense — net (140,470) (0.4) (2,336) (195,127) (0.6)
      INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 1,025,613 3.2 12,043 1,005,964 2.9
      INCOME TAX EXPENSE  527,809 1.6 3,355 280,210 0.8
      EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 42,147 0.1 381 31,821 0.1
      NET INCOME 539,951 1.7 9,069 757,575 2.2
      LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 175,436 0.5 1,218 101,702 0.3
      NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. 715,387 2.2 10,287 859,277 2.5
                 
           
        Six Months Ended September 30, 2009 Six Months Ended September 30, 2010
      NET INCOME PER SHARE      
      BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 202,544   202,605
      DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 202,544   202,605
      BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 81,017,600   81,042,000
      DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 81,017,600   81,042,000
      BASIC NET INCOME PER SHARE (JPY / U.S. Dollars / JPY) 3,532.01 50.77 4,241.14
      DILUTED NET INCOME PER SHARE (JPY / U.S. Dollars / JPY) 3,532.01 50.77 4,241.14
      BASIC NET INCOME PER ADS EQUIVALENT (JPY / U.S. Dollars / JPY) 8.83 0.13 10.60
      DILUTED NET INCOME PER ADS EQUIVALENT (JPY / U.S. Dollars / JPY) 8.83 0.13 10.60
                 
      (Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 83.53 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 September 30, 2010.
      (Note2) The above presentation for the six months ended September 30, 2010 has been changed to conform to the presentation for the six months ended September 30, 2010. 
       
      Internet Initiative Japan Inc.
      Quarterly Consolidated Statements of Cash Flows (Unaudited)
      (For the six months ended September 30, 2009 and September 30, 2010)
             
           
        Six Months Ended September 30, 2009 Six Months Ended September 30, 2010
        Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
      OPERATING ACTIVITIES:      
      Net income 539,951 9,069 757,575
      Adjustments to reconcile net income to net cash provided by operating activities:      
      Depreciation and amortization 2,643,516 31,356 2,619,123
      Impairment loss on other intangible assets -- 1,197 100,000
      Provision for retirement and pension costs, less payments 146,369 1,493 124,705
      Reversal of allowance for doubtful accounts and advances (646) (178) (14,843)
      Loss on disposal of property and equipment 18,251 66 5,513
      Net gains on sales of other investments (11,302) (389) (32,503)
      Losses on write-down of other investments 31,172 2,036 170,091
      Gain on receipt of investment securities -- (216) (18,060)
      Foreign exchange losses 18,212 310 25,895
      Equity in net income of equity method investees (42,147) (381) (31,821)
      Deferred income tax expense 372,865 1,960 163,698
      Others -- 293 24,458
      Changes in operating assets and liabilities net of effects from acquisition of business and a company:      
      Decrease (increase) in accounts receivable 1,535,228 (9,032) (754,484)
      Decrease (increase) in inventories, prepaid expenses and other current and noncurrent assets (236,630) 803 67,088
      Decrease in accounts payable (515,033) (2,122) (177,221)
      Decrease in income taxes payable (44,001) (2,157) (180,214)
      Increase in accrued expenses, other current and noncurrent liabilities 336,409 27,051 2,259,574
      Net cash provided by operating activities 4,792,214 61,159 5,108,574
      INVESTING ACTIVITIES:      
      Purchase of property and equipment (1,949,051) (25,904) (2,163,732)
      Proceeds from sales of property and equipment -- 50 4,147
      Purchase of available-for-sale securities (16,367) (556) (46,468)
      Purchase of other investments (200,016) (1,197) (100,000)
      Investment in equity method investees (22,834) -- --
      Proceeds from sales of available-for-sale securities 32,792 334 27,931
      Proceeds from sales and redemption of other investments 47,131 240 20,020
      Acquisition of a newly controlled company -- (109,781) (9,170,000)
      Payments of guarantee deposits (44,643) (5,126) (428,214)
      Refund of guarantee deposits 36,562 1,468 122,617
      Payments for refundable insurance policies (28,930) (146) (12,175)
      Refund from insurance policies 39,959 355 29,642
      Other 319 (248) (20,622)
      Net cash used in investing activities (2,105,078) (140,511) (11,736,854)
           
        Six Months Ended September 30, 2009 Six Months Ended September 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 4,190 350,000
      Repayments of short-term borrowings with initial  maturities over three months (5,350,000) (3,592) (300,000)
      Principal payments under capital leases (1,710,091) (17,720) (1,480,134)
      Net increase in short-term borrowings with initial  maturities less than three months 100,000 107,148 8,950,000
      Dividends paid (202,544) (3,031) (253,180)
      Proceeds from sales of treasury stock -- 444 37,126
      Net cash provided by (used in) financing activities (2,062,635) 87,439 7,303,812
             
      EFFECT OF EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS (23,208) (382) (31,916)
             
      NET INCREASE IN CASH AND CASH EQUIVALENTS 601,293 7,705 643,616
      CASH AND CASH EQUIVALENTS, BEGINNING OF  THE PERIOD 10,187,724 104,926 8,764,415
      CASH AND CASH EQUIVALENTS, END OF  THE PERIOD 10,789,017 112,631 9,408,031
             
      ADDITIONAL CASH FLOW INFORMATION:      
      Interest paid 172,311 1,419 118,561
      Income tax paid (refund) (17,350) 3,673 306,784
             
      NONCASH INVESTING AND FINANCING ACTIVITIES:      
      Acquisition of assets by entering into capital leases 664,353 10,310 861,200
      Facilities purchase liabilities 370,203 5,698 475,942
      Acquisition of business and a company:      
      Assets acquired -- 159,795 13,347,671
      Cash paid -- (109,781) (9,170,000)
      Liabilities assumed -- 50,014 4,177,671
       
      (Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 83.53 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 September 30, 2010.
       
      Going Concern Assumption (Unaudited)
      Nothing to be reported.
           
      Segment Information (Unaudited)
      Business Segments:
      Revenues:    
           
        Six Months Ended September 30, 2009 Six Months Ended September 30, 2010
        Thousands of JPY Thousands of JPY
      Network service and systems integration business 32,443,033 34,263,534
      Customers 32,236,846 34,043,704
      Intersegment 206,187 219,830
      ATM operation business 38,178 228,376
      Customers 38,178 228,376
      Intersegment -- --
      Elimination 206,187 219,830
      Consolidated total 32,275,024 34,272,080
      Segment profit or loss:    
        Six Months Ended September 30, 2009 Six Months Ended September 30, 2010
        Thousands of JPY Thousands of JPY
      Network service and systems integration business 1,644,563 1,513,808
      ATM operation business (459,262) (300,582)
      Elimination 19,218 12,135
      Consolidated operating income 1,166,083 1,201,091
           
      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.

      2nd Quarter FY2010 Consolidated Financial Results (3 months)

      The following tables are highlight data of 2nd Quarter FY2010 consolidated financial results (unaudited, from July 1, 2010 to September 30, 2010).
      Operating Results Summary
        2Q09 2Q10 YoY % Change
        JPY millions JPY millions  
      Total Revenues: 16,441 18,459 12.3
      Network Services 9,178 11,382 24.0
      SI 7,059 6,728 (4.7)
      Equipment Sales 173 226 30.8
      ATM Operation Business 31 123 299.0
      Cost of Revenues: 13,200 14,643 10.9
      Network Services 7,661 9,156 19.5
      SI 5,174 5,066 (2.1)
      Equipment Sales 150 194 28.9
      ATM Operation Business 215 227 5.7
      SG&A Expenses and R&D 2,426 2,881 18.8
      Operating Income 815 935 14.7
      Income before Income Tax Expense 726 727 0.1
      Net Income attributable to IIJ 535 612 14.5
       
      Connectivity and Outsourcing Services Revenues Breakdown and Cost
        2Q09 2Q10 YoY % Change
        JPY millions JPY millions  
      Internet Connectivity Service (Corporate Use) 3,439 3,475 1.1
       IP Service 2,301 2,240 (2.6)
       IIJ FiberAccess/F and IIJ DSL/F 729 754 3.4
       IIJ Mobile Service 335 416 24.2
      Others 74 65 (12.3)
      Internet Connectivity Service (Home Use) 1,712 1,657 (3.2)
      Under IIJ Brand 260 251 (3.6)
      hi-ho 1,310 1,273 (2.8)
      OEM 142 133 (6.0)
      WAN Services 633 2,645 317.5
      Outsourcing Services 3,394 3,605 6.2
      Network Services Revenues 9,178 11,382 24.0

      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
        2Q09 2Q10
        JPY millions JPY millions
      Adjusted EBITDA 2,099 2,403
      Depreciation and Amortization 1,284 1,368
      Impairment loss on other intangible assets -- 100
      Operating Income 815 935
      Other Income (Expense) (89) (208)
      Income Tax Expense 284 160
      Equity in Net Income (Loss) of Equity Method Investees 11 (3)
      Net income 453 564
      Net income attributable to noncontrolling interests 82 48
      Net Income attributable to IIJ 535 612

      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
        2Q09 2Q10
        JPY millions JPY millions
      CAPEX, including capital leases 1,124 1,804
      Acquisition of Assets by Entering into Capital Leases 269 553
      Purchase of Property and Equipment 855 1,251

      Reference Information

      The following data for the past two fiscal years and the six months ended September 30, 2010 are reference information.

      "WAN services", which were components of "Outsourcing services revenues" were separately disclosed to reflect the acquisition of IIJ Global Solutions Inc. on September 2010.

       [Old Classification] (Thousands of Yen)
        Fiscal Year ended March 31, 2009
        1Q08 2Q08 3Q08 4Q08 FY2008
      Outsourcing Service 3,690,496 3,771,761 3,913,676 4,019,900 15,395,833
         
        Fiscal Year ended March 31, 2010
        1Q09 2Q09 3Q09 4Q09 FY2009
      Outsourcing Service 3,979,443 4,026,997 4,092,688 4,172,128 16,271,256
         
        Fiscal Year ended March 31, 2011
        1Q10 2Q10
      Outsourcing Service 4,143,759 6,249,414
         
      [New Classification]  
        Fiscal Year ended March 31, 2009
        1Q08 2Q08 3Q08 4Q08 FY2008
      WAN Service 561,931 590,815 639,686 662,495 2,454,927
      Outsourcing Service 3,128,565 3,180,946 3,273,990 3,357,405 12,940,906
         
        Fiscal Year ended March 31, 2010
        1Q09 2Q09 3Q09 4Q09 FY2009
      WAN Service 630,663 633,364 642,668 646,856 2,553,551
      Outsourcing Service 3,348,780 3,393,633 3,450,020 3,525,272 13,717,705
         
        Fiscal Year ended March 31, 2011
        1Q10 2Q10
      WAN Service 653,101 2,644,320
      Outsourcing Service 3,490,658 3,605,094
       
       
      Internet Initiative Japan Inc.
      Quarterly Consolidated Statements of Income (Unaudited)
      (Three Months ended September 30, 2009 and September 30, 2010)
                 
           
        Three Months Ended September 30, 2009 Three Months Ended September 30, 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) 3,438,714   41,603 3,475,135  
      Internet Connectivity (home use) 1,712,157   19,842 1,657,391  
      WAN services 633,364   31,657 2,644,320  
      Outsourcing services 3,393,633   43,159 3,605,094  
      Total 9,177,868   136,261 11,381,940  
      Systems integration:          
      Systems Construction 2,344,379   29,777 2,487,243  
      Systems Operation and Maintenance 4,714,537   50,769 4,240,732  
      Total 7,058,916   80,546 6,727,975  
      Equipment sales 173,011   2,710 226,327  
      ATM operation business 30,719   1,467 122,575  
      Total revenues 16,440,514 100.0 220,984 18,458,817 100.0
      COST AND EXPENSES:          
      Cost of network services 7,660,765   109,611 9,155,771  
      Cost of systems integration 5,173,745   60,647 5,065,821  
      Cost of equipment sales 150,388   2,321 193,876  
      Cost of ATM operation business 214,748   2,717 226,970  
      Total cost 13,199,646 80.3 175,296 14,642,438 79.3
      Sales and marketing 1,268,757 7.7 17,678 1,476,655 8.0
      General and administrative 1,070,553 6.5 16,029 1,338,928 7.2
      Research and development 86,353 0.6 783 65,384 0.4
      Total cost and expenses 15,625,309 95.1 209,786 17,523,405 94.9
      OPERATING INCOME 815,205 4.9 11,198 935,412 5.1
      OTHER INCOME (EXPENSE):          
      Interest income 7,372   82 6,863  
      Interest expense (81,165)   (728) (60,835)  
      Foreign exchange losses (5,044)   (171) (14,275)  
      Net gains on sales of other investments 11,302   197 16,484  
      Losses on write-down of other investments (29,668)   (1,966) (164,204)  
      Other—net 7,755   88 7,337  
      Other expense — net (89,448) (0.5) (2,498) (208,630) (1.1)
      INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME IN EQUITY METHOD INVESTEES 725,757 4.4 8,700 726,782 4.0
                 
      INCOME TAX EXPENSE 283,866 1.7 1,913 159,854 0.9
      EQUITY IN NET INCOME (LOSS) OF EQUITY METHOD INVESTEES 10,634 0.1 (32) (2,657) 0.0
      NET INCOME 452,525 2.8 6,755 564,271 3.1
      LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS 82,384 0.5 575 48,042 0.2
      NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. 534,909 3.3 7,330 612,313 3.3
                 
           
        Three Months Ended September 30, 2009 Three Months Ended September 30, 2010
      NET INCOME PER SHARE      
      BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 202,544   202,666
      DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 202,544   202,666
      BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 81,017,600   81,066,400
      DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 81,017,600   81,066,400
      BASIC NET INCOME PER SHARE (JPY / U.S. Dollars / JPY) 2,640.95 36.17 3,021.29
      DILUTED NET INCOME PER SHARE (JPY / U.S. Dollars / JPY) 2,640.95 36.17 3,021.29
      BASIC NET INCOME PER ADS EQUIVALENT (JPY / U.S. Dollars / JPY) 6.60 0.09 7.55
      DILUTED NET INCOME PER ADS EQUIVALENT (JPY / U.S. Dollars / JPY) 6.60 0.09 7.55
       
      (Note 1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 83.53 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 September 30, 2010.
      (Note2) The above presentation for the six months ended September 30, 2010 has been changed to conform to the presentation for the six months ended September 30, 2010. 
       
       
      Internet Initiative Japan Inc.
      Quarterly Consolidated Statements of Cash Flows (Unaudited)
      (Three Months ended September 30, 2009 and September 30, 2010)
             
           
        Three Months Ended September 30, 2009 Three Months Ended September 30, 2010
        Thousands of JPY Thousands of U.S. Dollars Thousands of JPY
      OPERATING ACTIVITIES:      
      Net income 452,525 6,755 564,271
      Adjustments to reconcile net income to net cash provided by operating activities:      
      Depreciation and amortization 1,283,696 16,378 1,368,079
      Impairment loss on other intangible assets -- 1,197 100,000
      Provision for retirement and pension costs, less payments 87,687 772 64,462
      Provision for (reversal of) allowance for doubtful accounts and advances 4,403 (114) (9,526)
      Loss on disposal of property and equipment 9,286 3 225
      Net gains on sales of other investments (11,302) (197) (16,484)
      Losses on write-down of other investments 29,668 1,966 164,204
      Foreign exchange losses 6,294 68 5,649
      Equity in net loss (income) of equity method investees (10,634) 32 2,657
      Deferred income tax expense 186,883 902 75,385
      Others -- (291) (24,340)
      Changes in operating assets and liabilities net of effects from acquisition of business and a company:      
      Increase in accounts receivable (199,373) (30,194) (2,522,098)
      Decrease in inventories, prepaid expenses and other current and noncurrent assets 264,303 13,783 1,151,302
      Increase in accounts payable 421,485 7,599 634,788
      Increase in income taxes payable 111,466 1,221 102,005
      Increase (decrease) in accrued expenses, other current and noncurrent liabilities -net (8,053) 14,059 1,174,378
      Net cash provided by operating activities 2,628,334 33,939 2,834,957
      INVESTING ACTIVITIES:      
      Purchase of property and equipment (854,753) (14,978) (1,251,145)
      Proceeds from sales of property and equipment -- 50 4,147
      Purchase of available-for-sale securities (9,617) (122) (10,185)
      Purchase of other investments (200,016) (599) (50,000)
      Investment in equity method investee (22,834) -- --
      Proceeds from sales of available-for-sale securities 32,792 280 23,352
      Proceeds from sales and redemption of other investments 33,631 0 20
      Acquisition of a newly controlled company -- (109,781) (9,170,000)
      Payments of guarantee deposits (10,414) (5,073) (423,711)
      Refund of guarantee deposits 34,225 1,444 120,632
      Payments for refundable insurance policies (15,315) (57) (4,784)
      Refund from insurance policies 12,346 -- --
      Other 319 (247) (20,622)
      Net cash used in investing activities (999,636) (129,083) (10,782,296)
           
           
        Three Months Ended September 30, 2009 Three Months Ended September 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 -- 3,592 300,000
      Repayments of short-term borrowings with initial maturities over three months (250,000) (3,592) (300,000)
      Principal payments under capital leases (780,466) (8,804) (735,377)
      Net Increase in short-term borrowings with initial maturities less than three months 300,000 106,908 8,930,000
      Proceeds from sales of treasury stock -- 445 37,126
      Net cash provided by (used in) financing activities (730,466) 98,549 8,231,749
             
      EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (6,651) (162) (13,524)
             
      NET INCREASE IN CASH AND CASH EQUIVALENTS 891,581 3,243 270,886
      CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 9,897,436 109,388 9,137,145
      CASH AND CASH EQUIVALENTS, END OF THE PERIOD 10,789,017 112,631 9,408,031
             
      (Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY 83.53 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 September 30, 2010.

      Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the first six months of Fiscal Year Ending March 31, 2011(from April 1 to September 30, 2010) in the form defined by the Tokyo Stock Exchange.

      Consolidated Financial Results for the Six Months Ended September 30, 2010 [Under accounting principles generally accepted in the United States ("U.S. GAAP")]

      November 15, 2010

      Company name: Internet Initiative Japan Inc.       Exchange listed: Tokyo Stock Exchange First Section

      Stock code number: 3774                                  URL: http://www.iij.ad.jp/

      Representative: Koichi Suzuki, President and Representative Director

      Contact: Akihisa Watai, Managing Director and CFO       TEL: (03) 5259-6500

      Schedule date for filing of quarterly report: scheduled on November 15, 2010

      Scheduled date for dividend payment: December 6, 2010

      Supplemental material on quarterly results: Yes

      Presentation on quarterly results: Yes (for institutional investors and analysts)

       (Amounts of less than JPY one million are rounded)

       
      1. Consolidated Financial Results for the Six Months Ended September 30, 2010
      (April 1, 2010 to September 30, 2010)
      (1) Consolidated Results of Operations     (% shown is YoY change)
        Total Revenues Operating Income Income before Income Tax Expense Net Income attributable to IIJ
        JPY millions JPY millions JPY millions JPY millions
      Six months ended September 30, 2010 34,272 6.2 1,201 3.0 1,006 (1.9) 859 20.1
      Six months ended September 30, 2009 32,275 (2.9) 1,166 16.0 1,026 33.9 715 94.6

       
           
        Basic Net Income attributable to IIJ per Share Diluted Net Income attributable to IIJ per Share
        JPY JPY
      Six months ended September 30, 2010 4,241.14 4,241.14
      Six months ended September 30, 2009 3,532.01 3,532.01

       
       (2) Consolidated Financial Position
        Total Assets Total Equity Shareholders' Equity Shareholders' Equity as a percentage of Total Assets Shareholders' Equity per share
        JPY millions JPY millions JPY millions % JPY
      September 30, 2010 65,923 27,766 27,765 42.1 136,987.09
      March 31, 2010 51,115 27,364 27,320 53.4 134,882.18

       
      2. Dividends
        Dividend per Shares
        1st quarter- end 2nd quarter- end 3rd quarter- end Year-end Total
        Yen Yen Yen Yen Yen
      Fiscal year ended March 31, 2010 -- 1,000.00 -- 1,250.00 2,250.00
      Fiscal year ending March 31, 2011 -- 1,250.00      
      Fiscal year ending March 31, 2011 (Target)     -- 1,250.00 2,500.00
      Changes in dividends forecasts during the three months ended September 30 ,2010: None

       
      3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2011      
      (April 1, 2010 through March 31, 2011) (% shown is YoY change)  
        Total Revenues Operating Income Income before Income Tax Expense (Benefit) Net Income Attributable to IIJ Basic Net Income attributable to IIJ per Share
        JPY millions % JPY millions % JPY millions % JPY millions % JPY
      Fiscal year ending March 31, 2011 84,500 24.3 4,800 40.7 4,100 43.4 3,000 34.3 14,801.37
      Changes in earnings forecasts during the three months ended September 30, 2010: None        

      4. Others

      (1) Change in significant subsidiaries for the three months ended September 30, 2010

      (Change in significant subsidiaries for the three months ended September 30, 2010 which resulted in changes in scope of consolidation): Yes

      Newly Consolidated (Name: IIJ Global Solutions Inc.) Excluded: ( - )

      (2) Application of simplified or exceptional accounting: None

      (Application of simplified or exceptional accounting for quarterly consolidated financial statements):

      (3) Changes in Significant Accounting and Reporting Policies for Consolidated Financial Statements

      1) Changes duet to the revision of accounting standards: Yes

      2) Others: Yes

      (4) Number of Shares Outstanding (Shares of Common Stock)

      1) The number of shares outstanding (inclusive of treasury stock):

           As of September 30, 2010:          206,478 shares

           As of March 31, 2010:     206,478 shares

      2) The number of treasury stock:

           As of September 30, 2010:          3,794 shares

           As of March 31, 2010:     3,934 shares

      3) The weighted average number of shares outstanding:

           For the three months ended September 30, 2010: 202,605shares

           For the three months ended September 30, 2009: 202,544 shares
      CONTACT:  Internet Initiative Japan Inc.           Investor Relations Office          Yuko Kazama          +81-3-5259-6500          ir@iij.ad.jp          http://www.iij.ad.jp/en/IR

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