Internet Initiative Japan Inc.
http://www.iij.ad.jp/
2004 年 8 月 10 日
株式会社インターネットイニシアティブ
Tel: 03-5259-6500
Fax: 03-5259-6311
E-mail: ir@iij.ad.jp
本資料は日本の方々の便宜性のために作成した簡易版です。7 ページより正式決算発表資料（英文）が続きますので、そちらもあわせてご参照いただけますよう、お願い申し上げます。

2004 年度第 1 四半期（4-6 月）決算発表（抄訳）＜利益率は引続き改善傾向にあり、前年同期比大幅に業績改善＞

本決算発表に関するマネジメント・メッセージを 2004 年 8 月 11 日より弊社ホームページ上（URL: http://www.iij.ad.jp/IR/）にて公開予定です。

2004 年度第 1 四半期決算
・ 営業収益（売上高）は、前年同期比 4.0%増の 8,675 百万円（前期比は 25.3%減）。接続事業は、引続き単価の下落による減少傾向にありますが、ネットワーク・ソリューション事業への注力により、インターネット VPN 等の付加価値サービスの売上高がこれを補う形で増加しました。また、システム･インテグレーション（SI）も運用サービスの売上高が着実に増加し、前年同期の落ち込みから大幅に改善しました。
・ 営業利益は▲100 百万円と、前期の 350 百万円からは減少しましたが、前年同期の▲1,206 百万円から大きく改善しました。通常、第 1 四半期は、売上高、営業利益ともに年間で最も低くなる時期であり、今期も黒字化には一歩及びませんでしたが、昨年下半期から続く粗利益率の改善傾向は維持されております。
・ 償却前営業利益（Adjusted EBITDA）は 884 百万円と、前期 1,358 百万円からは 11.5%減少しましたが、前年同期の▲243 百万円からは増加しました。オペレーティング・キャッシュフローの源泉として堅調に推移しています。
・ 当期利益は 1,434 百万円で、前期 669 百万円、前年同期の▲2,475 百万円から増加しました。営業損失の改善と保有株式の含み益による税効果により 3 期連続の黒字を実現しました。

2004 年度第 2 四半期見通し
・ 第２四半期は、引続き企業のアウトソーシング需要に応えたセキュリティ、メール等の付加価値サービスやシステム
運用サービスという安定的な収益源を拡大して売上高の増加を図るとともに、バックボーン等のコスト削減に努めて、利益率の改善に取り組み、第１四半期の営業損失をカバーできる水準の営業利益の黒字を見込んでいます。通期の見通しに関しては、期初の見込み通り、営業利益、当期利益ともに黒字を目標としています。

経営の概況
ブロードバンドの普及に伴い、低価格競争が進む一方で､企業は、広帯域化・複雑化するネットワーク運用をマネージできる信頼性の高いサービスを求め始めています。このような環境変化の中で､ＩＩＪは自社の有する高い技術力が他社との差別化要素となると考え､技術力を活かしたネットワーク･ソリューション事業を推進し、顧客基盤の拡充に努めて参りました。特に､セキュリティ系サービス、サーバアウトソーシング系サービス、データセンター・サービス､SMF 等のネットワークアウトソース系サービス等顧客ネットワークを運用管理するマネージド型サービスである付加価値サービス
は、ハイエンド顧客から高い評価を受け､着実に実績を積み重ねております。セキュリティ系サービスユーザーは1,200 社を超え､インターネット VPN を用いた多拠点ネットワーク接続は､当期にて約 1,000 拠点を獲得しました。
このようなネットワーク･ソリューション戦略が功を奏し､IIJ の収益基盤は着実に向上してきています。2004 年度は、
現在の戦略を引続き推進し､ネットワーク・ソリューション・プロバイダーとして我国のインターネット市場を牽引していくとともに、企業体としての体質強化に努めていく所存でおります。

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/

第 1 四半期は、企業のＩＴ投資の季節変動要因より年度中の売上高が最も低くなる時期ですが、当期は前年同期比で営業赤字を大幅に縮小し、前年度下半期に引き続いて、着実な収益構造の改善基調を示すことができました。当
期利益は大幅な黒字となりました。想定どおりの結果であり、2004 年度第 1 四半期決算は、IIJ にとって良いスタートとなりました。接続サービスの顧客基盤をコアにした、市場ニーズに沿ったマネージド・サービスとしての付加価値サービス売上高が着実に増加する一方、バックボーン等のインターネット接続及び付加価値サービス売上原価は前四半期比減少しています。この傾向は第２四半期も続くと見込んでいます。SI サービスでは、安定的に売上計上される
運用サービスが着実に増加してきています。
第２四半期は、第１四半期の営業損失をカバーできる水準の営業利益を見込んでおり、2004 年度通期では、期初の見込みどおり、営業利益、当期利益双方での黒字を目標とします。

財務関連データ
表 1．インターネット接続及び付加価値サービス
専用線接続サービス
IP サービス*1
機能限定型*2
ブロードバンド対応型（B フレッツ、ADSL）*3
専用線接続サービス合計
ダイアルアップ接続サービス
自社提供*4OEM 提供*5
ダイヤルアップ接続サービス合計
付加価値サービス
その他
売上高合計
インターネット接続及び付加価値サービス原価
うちバックボーンコスト
粗利益
粗利益率

（百万円）

1Q04

1Q03

前年同期比

4Q03

前期比

2,279
275
364
2,918

2,534
513
274
3,321

(10.1%)(46.4%)
33.3%(12.1%)

2,423
331
346
3,100

(5.9%)(17.1%)
5.5%(5.9%)

509
243
752
1,187
592
5,450
4,811
985
638
11.7%

571
196
767
987
520
5,596
5,234
1,318
361
6.5%

(10.9%)
23.9%(2.0%)
20.2%
14.0%(2.6%)(8.1%)(25.3%)
76.6%

522
236
758
1,104
537
5,499
4,810
1,067
689
12.5%

(2.5%)
3.0%(0.8%)
7.5%
10.4%(0.9%)
0.0%(7.7%)(7.3%)*1 インターネットデータセンター接続サービスを含む（回線専有型、64kbps-1.2Gbps）。
*2 IIJ T1 スタンダードおよび IIJ エコノミー（回線専有型、割当 IP アドレス数等に制限あり、64kbps、128kbps、1.5Mbps）。1Q03 はイーサネットスタンダード（同スペック、10Mbps）を含む。
*3 IIJ FiberAccess/F および IIJ DSL/F（回線共有型、割当 IP アドレス数等に制限あり、最大 1.5Mbps-100Mbps）。
*4 各種法人向けおよび個人向けサービス（IIJ4U、IIJmio）。B フレッツ、ADSL 対応オプションも含む。
*5 他サービス事業者向け OEM サービス。

表 2. 専用線およびダイヤルアップ接続サービスの契約数および総帯域
IP サービス（低帯域：64kbps-768kbps）
IP サービス（中帯域：1Mbps-100Mbps）
IP サービス（高帯域：100Mbps 以上）*1
インターネットデータセンター接続サービス
IPv6 サービス
機能限定型
ブロードバンド対応型
専用線接続サービス合計

1Q04
73
638
35
224
6
421
6,679
8,076

1Q03
108
503
26
171
12
791
4,265
5,876

4Q03
88
606
35
196
9
504
5,788
7,226
IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/
73,225635,361
708,586
95.6Gbps

自社提供
OEM 提供ダイアルアップ接続サービス合計
契約総帯域83,327508,245591,572
51.4Gbps

75,136
620,731
695,867
80.1Gbps*1 うち 19 契約が 1Gbps 以上（1Q03 時点は 9 契約、4Q03 時点は 16 契約）

表 3. クロスセリング（顧客数）

総売上高上位 1,000 社におけるインターネット
接続サービス及び付加価値サービスの併用
顧客数
付加価値サービス・クロスセリング率

1Q04

1Q03

823

823

82.3%

82.3%

SI 売上高上位 100 社におけるインターネット
接続サービス利用顧客数

66
66.0%

SI クロスセリング率

前年同期比

0.0%

4Q03
795

システム・インテグレーション収入合計
システム･インテグレーション原価
粗利益
粗利益率
機器販売売上高機器販売原価
粗利益
粗利益率

75 (12.0%)
75.0%

66

0.0%

66.0%
（百万円）

1Q04

1Q03

1,040
1,655
2,695
2,157
538
20.0%
531
475
55
10.4%

1,211
1,197
2,408
2,323
85
3.5%
341
311
30
8.7%

前年同期比

4Q03

前期比

(14.1%)
38.3%
11.9%(7.2%)
536.5%

2,573
1,428
4,001
3,054
947
23.7%
2,117
2,051
66
3.1%

(59.6%)
15.8%(32.7%)(29.4%)(43.2%)

55.8%
52.9%
86.2%

表 5．粗利益率の推移(74.9%)(76.8%)(16.5%)（百万円）

インターネット接続及び付加価値サービス
システム・インテグレーション
機器販売
全体

1Q03
6.5%
3.5%
8.7%
5.7%

2Q03
9.1%
10.7%
6.4%
9.2%

3Q03
13.4%
23.9%
5.5%
15.7%

4Q03
12.5%
23.7%
3.1%
14.7%

表 6. その他
Adjusted EBITDA（償却前営業利益）
設備投資 （キャピタルリースを含む）
減価償却費*1

3.5%

79.5%

表 4．システム･インテグレーション及び機器販売
システム･インテグレーション
システム・インテグレーション・サービス
システム運用アウトソースサービス

前期比

1Q04
11.7%
20.0%
10.4%
14.2%
（百万円）

1Q04
884
1,300
1,004

1Q03
(243)
1,421
990

前年同期比

(463.7%)(8.5%)
1.4%

4Q03
1,358
1,014
1,030

前期比

(34.9%)
28.2%(2.5%)*1 転換社債発行費用の償却額を含む。
注意事項： この資料には、1995 年米国民事証券訴訟改革法（Private Securities Litigation Reform Act of 1995）の「セーフハーバー」
規定に定義する「将来性の見通しに関する記述（forward-looking statements）」に該当する情報が記載されています。このプレゼンテー
ション資料の記載のうち、過去または現在の事実に関するもの以外は、将来の見通しに関する記述に該当します。将来の見通しに関する記述は、現在入手可能な情報に基づく IIJ 経営陣の仮定および判断に基づくものであり、これには既知または未知のリスクおよび不確定性が内在しています。IIJ の実際の活動または業績は、今後、将来の見通しに関する記述に示されたところと大きく異なる可能性があります。投資家の皆様におかれましては、1934 年米国証券取引法（Securities Exchange Act of 1934）に基づく今後の報告書等において IIJ が行う開示をご参照ください。

IIJ 1Q04

株式会社 インターネットイニシアティブ
四半期連結損益計算書（米国会計基準未監査）

Appendix 1

2004年6月期、2003年6月期、2004年3月期
JPY/千円単位、USD/千米ドル単位 (1)
前年同四半期比較
2004年6月期
USD (1)
営業収益：
インターネット接続及び付加価値サービス収入：
専用線接続サービス
ダイヤルアップ接続サービス
付加価値サービス
その他
インターネット接続及び付加価値サービス収入合計

JPY

対営業収益
%

JPY

2003年6月期
対営業収益%

対前年同四半期%

JPY

前四半期比較
2004年3月期
対営業収益 対前四半期%%

26,6706,871
10,846
5,413
49,8002,918,488
751,933
1,186,837
592,3905,449,648

33.6%
8.7
13.7
6.8
62.8

3,321,229
767,418
987,198
519,7095,595,554

39.8%
9.2
11.9
6.2
67.1

(12.1%)
(2.0)
20.2
14.0
(2.6)

3,100,452
757,947
1,103,558
536,590
5,498,547

26.7%
6.5
9.5
4.6
47.3

(5.9%)
(0.8)
7.5
10.4
(0.9)

24,625
4,849
79,274

2,694,638
530,6218,674,907

31.1
6.1
100.0

2,407,923
340,569
8,344,046

28.8
4.1
100.0

11.9
55.8
4.0

4,001,449
2,117,006
11,617,002

34.5
18.2
100.0

(32.7)(74.9)(25.3)

43,967
19,7084,345
68,0204,811,341
2,156,620
475,466
7,443,427

55.5
24.8
5.5
85.8

5,234,158
2,323,392
310,946
7,868,496

62.7
27.9
3.7
94.3

(8.1)
(7.2)
52.9
(5.4)

4,809,831
3,053,962
2,050,923
9,914,716

41.4
26.3
17.6
85.3

0.0
(29.4)(76.8)(24.9)

6,058
5,672
442
80,192662,950
620,651
48,3688,775,396

7.6
7.2
0.6
101.2

973,054612,047
96,0989,549,695

11.7
7.3
1.2
114.5

(31.9)
1.4(49.7)(8.1)

755,928
517,884
78,786
11,267,314

6.5
4.5
0.7
97.0

(12.3)
19.8(38.6)(22.1)

営業利益（損失）(918)(100,489)(1.2)(1,205,649)(14.5)(91.7)

349,6883.0(128.7)

その他の費用

(1,377)(150,700)(1.7)(204,398)(2.4)(26.3)(226,045)(1.9)(33.3)

税引前当期利益（損失）(2,295)(251,189)(2.9)(1,410,047)(16.9)(82.2)

123,6431.1(303.2)

法人税等、住民税及び事業税
少数株主損益持分法による投資損失：持分法による投資損益
クロスウェイブに対する投資等評価損(15,145)358(1,657,335)
39,184(19.1)
0.4(390,035)
254,886

(4.7)
3.0

324.9
(84.6)(890,928)(157,295)

(7.7)
(1.4)

86.0
(124.9)(101)(10,995)(0.1)

10,559(1,719,981)

0.1(20.6)(204.1)0.0(188,577)(1.6)(94.2)

当期利益（損失）

13,107

1,434,335

16.5%(2,474,548)(29.7%)(158.0%)668,6995.8%

114.5%

システムインテグレーション
機器販売
営業収益合計営業費用：
インターネット接続及び付加価値サービス原価システムインテグレーション原価
機器販売原価
売上原価合計
販売費
一般管理費
研究開発費
営業費用合計

1株あたり当期利益（損失）
米国預託証券１単位あたり当期利益（損失）
期中平均発行済株式総数
期中平均発行済米国預託証券総数

37,43818.72
38,312
76,623,702

注記(1): 2004年6月期につきましては、米ドル換算レート109.43円=1米ドル(2004/6/30)にて参考表示しております。

(109,440)(54.72)
22,61145,222,494

17,4548.73
38,312
76,623,702

株式会社 インターネットイニシアティブ
四半期連結貸借対照表（米国会計基準未監査）

Appendix 2

2004年6月期、2003年6月期、2004年3月期
JPY/千円単位、USD/千米ドル単位 (1)USD (1)

2004年6月期
JPY

2003年6月期
JPY
%

資産の部
流動資産：
現金及び現金同等物
売掛金
棚卸資産
前払費用
その他流動資産97,114
49,139
3,778
8,518
4,179

10,627,203
5,377,230
413,477
932,097457,325

25.3%
12.8
1.0
2.2
1.1

2,819,007
5,889,315
347,971845,908
534,025

10.2%
21.3
1.3
3.1
1.9

12,284,239
8,994,156
438,435
557,703
325,422

28.7%
21.1
1.0
1.3
0.8

流動資産合計162,728

17,807,332

42.4

10,436,226

37.8

22,599,955

52.9

関連会社投資等
その他投資
有形固定資産等
敷金保証金
その他資産

7,031
108,92178,29018,8258,366

769,363
11,919,229
8,567,329
2,059,980
915,548

1.8
28.3
20.4
4.9
2.2

1,141,728
3,967,719
9,244,442
2,082,118
714,367

4.1
14.4
33.5
7.6
2.6

778,152
7,931,893
8,601,905
2,075,123
749,897

1.8
18.6
20.1
4.9
1.7

資産合計

384,161

42,038,781

100.0%

27,586,600

100.0%

42,736,925

100.0%

49,00834,307
4,394
6,656
14,157
101,325
21,964

5,363,001
3,754,214
480,824
728,386
1,549,189
11,088,000
2,403,477

12.8%
8.9
1.1
1.7
3.7
26.4
5.7

5,675,341
4,406,928
537,236542,538
1,545,452

20.6%
16.0
1.9
1.9
5.6

2,677,038

9.7

6,564,093
7,187,976
454,366
483,925
1,548,246
11,832,000
2,387,754

15.4%
16.8
1.1
1.1
3.6
27.7
5.6

231,81125,367,091

60.3

15,384,533

55.7

30,458,360

71.3

長期借入金
転換社債
長期リース債務退職給付引当金
その他固定負債

20,7472,270,366

5.4

5.4

3,123,878
89,037233,046

7.4
0.2
0.6

12.4
54.4
12.3
0.3
0.7

2,308,019

28,547814
2,129

3,419,555
15,000,000
3,407,735
74,764
187,5792,880,298
72,687
161,122

6.7
0.2
0.4

負債合計

284,048

31,083,418

73.9

37,474,166

135.8

35,880,486

84.0

少数株主持分8,234

901,0882.2

624,6092.3

642,311

1.5

125,792
216,007(304,817)
55,299(402)

13,765,372
23,637,628(33,356,095)
6,051,370(44,000)

32.7
56.2(79.3)
14.4(0.1)

7,765,048
17,751,065(37,159,839)
1,131,644
(93)

28.2
64.3
(134.7)4.1
0.0

13,765,372
23,637,628(34,790,430)
3,645,558(44,000)

32.2
55.3(81.4)
8.5
(0.1)

資本合計

91,87910,054,275

23.9(10,512,175)(38.1)

6,214,128

14.5

負債、少数株主持分及び資本合計

384,161

42,038,781

100.0%

27,586,600

100.0%

42,736,925

100.0%%

2004年3月期
JPY%

負債及び資本の部
流動負債：
短期借入金
買掛金及び未払金
未払費用
その他流動負債
1年以内に期限到来の長期借入金
転換社債
短期リース債務
流動負債合計

資本：
資本金
資本準備金
欠損金
その他有価証券評価差額金等
自己株式

注記(1): 2004年6月期につきましては、米ドル換算レート109.43円=1米ドル(2004/6/30)にて参考表示しております。

株式会社 インターネットイニシアティブ

Appendix 3

四半期連結キャッシュフロー計算書（米国会計基準未監査）
2004年6月期、2003年6月期、2004年3月期
JPY/千円単位、USD/千米ドル単位 (1)2004年6月期
USD (1)
JPY

2003年6月期

2004年3月期

JPY

JPY

営業活動によるキャッシュフロー：
当期利益（損失）

13,107

1,434,335

減価償却費等

9,176

貸倒引当金繰入（戻入）額(118)

持分法による投資損益

101

10,995

クロスウェイブに対する投資等評価損(2,474,548)

668,699

1,004,170

990,190

1,030,162(12,936)

149,378

27,587(10,559)

188,577--

1,719,981

少数株主損（益）(358)(39,184)(254,886)

157,295-

為替差損（差益）(69)(7,585)

3,245(13,682)

転換社債償還差損

48

5,195

その他投資に係る損失

25

2,749

-

-

37,57242,352

売掛金の減少（増加）額

33,1483,627,399

4,229,010(2,483,404)

買掛金及び未払金の増加（減少）額(28,281)(3,094,772)(3,671,049)

2,392,795

棚卸資産の減少（増加）額

22824,95869,689(245,201)

法人税等調整額(15,283)(1,672,424)(395,698)(904,221)

その他(2,331)(255,036)

264,043

395,710

営業活動によるキャッシュフロー

9,393

1,027,864

656,368

1,256,669(2,954)(323,210)(933,646)(236,028)

834

91,286

34,672

66,387

投資活動によるキャッシュフロー：有形固定資産等の取得による支出
その他投資の売却による収入
クロスウェイブに対する貸付--(1,719,981)-

その他投資の取得による支出(21)(2,290)(12,971)(2,138)

敷金保証金の返還(差入)133

14,528

123,632

(576)

その他

(44)

(4,851)

11(3,778)(2,052)(224,537)(2,508,283)(176,133)---

400,000

投資活動によるキャッシュフロー
財務活動によるキャッシュフロー：長期借入金による調達
長期借入金の返済(336)(36,710)(434,994)(436,477)

転換社債の償還(6,812)(745,488)--

リース債務元本の返済(6,114)(669,047)(697,830)(692,467)

短期借入金の純増減額(10,976)(1,201,093)

851,742(200,316)

1,724

188,632

子会社による普通株式の発行による収入
普通株式の発行による収入

-

-

-

-

1,365,424-

財務活動によるキャッシュフロー(22,514)(2,463,706)

1,084,342(929,260)

現金及び現金同等物に係る換算差額

30

3,343

(1,772)(7,632)

現金及び現金同等物の増加（減少）額(15,143)(1,657,036)(769,345)

143,644

現金及び現金同等物の期首残高

112,257

12,284,239

3,588,352

12,140,595

現金及び現金同等物の期末残高

97,114

10,627,203

2,819,007

12,284,239

注記(1):2004年6月期につきましては、米ドル換算レート109.43円=1米ドル(2004/6/30)にて参考表示しております。

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
For Immediate Release
For inquiries please contact:
Taisuke Ono/Hiroaki Tsuno
IIJ Investor/Media Relations Office
ir@iij.ad.jp or +81-3-5259-6500(Tel)

IIJ Announces Year-Over-Year Improvement in Operating and Net Income
for the First Quarter of Fiscal Year 2004
- Sustaining Bottom Line Profitability Tokyo, August 10, 2004 / New York, August 9, 2004 - Internet Initiative Japan Inc. (Nasdaq: IIJI) (“IIJ”),
one of Japan’s leading Internet-access and comprehensive network solutions providers, today
announced its financial results for the first quarter of the fiscal year ending March 31, 2005 (“FY 2004”).1

Highlights of First Quarter FY2004 Results
・ Revenues totaled JPY 8,675 million ($79.3 million), an increase of 4.0% compared to 1Q03 and adecrease of 25.3% compared to 4Q03. Value-added service (“VAS”) revenue growth, including ourinternet virtual private networks ("VPNs") service, made up for the decrease in connectivity revenue,
which has been declining due to a falling average revenue per user. System integration (“SI”)
revenue increased 11.9% compared to 1Q03 primarily due to the growth of our operational outsource
service.
・ Operating loss decreased significantly to JPY 100 million ($ 0.9 million) from JPY 1,206 million in
1Q03, but decreased from an operating income of JPY 350 million in 4Q03. Historically, IIJ’s firstquarter has the lowest sales and operating income of our fiscal year due to the seasonal nature ofcompleting and recording revenue for system integration projects. While this quarter’s revenue isconsistent with that trend, a relatively high level of profitability was sustained from the two previous
quarters.
・ Adjusted EBITDA2 was JPY 884 million ($ 8.1 million), an increase from an adjusted EBITDA loss of
JPY 243 million in 1Q03 and a decrease from JPY 1,358 million in 4Q03. Adjusted EBITDA as asource of operating cash has been stable.

・ Net income was JPY 1,434 million ($ 13.1 million), an improvement from a net loss of JPY 2,475
million in 1Q03 and net income of JPY 669 million in 4Q03. IIJ’s positive net income in the past threeconsecutive quarters was achieved due to a substantial decrease in operating loss and the income
tax benefit due to the effects of unrealized gains on certain available-for-sale securities during thequarters.

Outlook for Second Quarter FY2004
・ We expect positive operating income in 2Q04 to cover the 1Q04 operating loss as a result of ongoing
efforts to increase financial returns throughout the Company, which efforts include increasing sales
through the expansion of profitable business lines, such as VAS and SI, including internet security
and mail outsourcing services, and further reducing costs, in particular our backbone costs. As aresult, IIJ’s annual operating and net income are expected to become positive in FY2004.

1

Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All
financial figures are unaudited and consolidated. For all 1Q04 results, translations of Japanese yen amounts into US dollars aresolely for the convenience of readers outside of Japan and have been made at the rate of JPY 109.43 = US$1.00, theapproximate exchange rate on June 30, 2004.
2

Please refer to the Reconciliation of Non-GAAP Financial Measures on page 6.

Page 1 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
Overview of 1st Quarter Financial Results and Business Outlook3"With the rapid increase in broadband, Japanese enterprises are beginning to demand reliable services
capable of managing their increasingly complicated network operations, although price competition forinternet connectivity services is intensifying," said Koichi Suzuki, President and CEO of IIJ. "In thischanging environment, we believe that IIJ’s advanced technology differentiate us from our competitors,
and we have been working to expand our network solutions operations and customer base. In particular,
IIJ’s managed VAS services, which are meeting and beating several notable end-users’ expectations,provide network operations management including internet security services, server outsourcing
services, such as Mail Gateway, data center services, and network outsourcing services, such as ourhighly rated, SMF4. We currently have more than 1,200 internet security service users and have taken
on approximately 1,000 additional customer location sites for internet VPN multiple base network
connectivity in 1Q04. IIJ’s strategy to promote and expand our network solutions is bearing fruit and our
profit base is steadily improving. In 2004, we will continue to pursue our ongoing strategy ofstrengthening profits in order to continue to be one of Japan’s leading Internet network solution
providers.""Typically, our first quarter sales, which are adversely affected by the seasonal variation of Japanese
corporate IT investment, are the lowest of the year," said Akihisa Watai, IIJ’s new CFO. "The quarterover-quarter decrease in revenue in 1Q04 is consistent with that trend. However, our operating loss in
1Q04 has decreased dramatically as compared to 1Q03. This is evidenced by our ability to sustain arelatively high level of profitability in 1Q04, as we did in the two previous quarters. The results are in linewith expectations and represent a very promising start for the year.""The sales of IIJ’s managed VAS services are steadily increasing due to the continued introduction ofhigh margin products to our large base of connectivity customers," continued Mr. Watai. "The cost ofconnectivity and VAS, including backbone costs, decreased over the last quarter. We expect this trend
will continue in 2Q04. In our SI business, the sales of outsourced Internet service operations, which
produce relatively stable income, are growing steadily. We expect operating positive income in 2Q04 tocover 1Q04 operating loss. We are aiming to be profitable at the operating and net income levels in
FY2004, which is in line with our previously stated annual goals."

1st Quarter FY2004 Financial Results
Revenues
Revenues in 1Q04 totaled JPY 8,675 million, an increase of 4.0% from JPY 8,344 million in 1Q03 and adecrease of 25.3% from JPY 11,617 million in 4Q03.
Connectivity and VAS revenues were JPY 5,450 million in 1Q04, a decrease of 2.6% from JPY 5,596
million in 1Q03 and a decrease of 0.9% from JPY 5,499 million in 4Q03.

3This Overview and Business Outlook contains forward-looking statements and projections such as statements regarding
FY2004 operating and net profitability that are subject to known and unknown risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by these statements. These risks and uncertainties include, but are
not limited to, the factors noted at the end of this release and to the risk factors and other information contained in IIJ’s filings on
Form 20-F and Form 6-K, as well as other filings and documents furnished to the Securities and Exchange Commission. IIJ
plans to keep this press release publicly available on its Web site (www.iij.ad.jp), but may discontinue this practice at any time.
IIJ intends to publish its next Overview and Business Outlook in its 2Q04 earnings release, presently scheduled for November
2004.
4
SMF (“SEIL Management Framework”) is a network operating system that was introduced by IIJ in February 2003. By using itwith the SEIL Series service router that was also developed by IIJ, this system provides the following functionality that enables
customers to greatly reduce onsite engineering work and network administration costs.
- "Plug-and-Join": SEIL Series service routers automatically configure themselves for all network functions. The customer only
needs to distribute the routers to each location, connect it to the power plug and to the network.
- "Service-on-Demand": All network functions can be easily added, changed, or deleted from a system on the network.
- "Service Control": The status of SEIL Series routers at all customer locations can be monitored and operated 24 hours a day.

Page 2 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
Dedicated access service revenues were JPY 2,918 million in 1Q04, a decrease of 12.1% compared to
1Q03 and a decrease of 5.9% compared to 4Q03. IP Service revenues decreased by 10.1% in 1Q04
compared to 1Q03 and decreased by 5.9% compared to 4Q03, mainly due to the cancellation of service
by a regional electric power company's telecom service arm. Broadband Services5revenues
substantially increased by 33.3% compared to 1Q03 and increased by 5.5% compared to 4Q03.
However, the increase did not offset the decreases in Limited Functionality Services6 revenues, which
decreased by 46.4% compared to 1Q03 and decreased by 17.1% compared to 4Q03 as a result of theshift to Broadband Services.
Dial-up access service revenues were JPY 752 million in 1Q04, a decrease of 2.0% compared to 1Q03
and a decrease of 0.8% compared to 4Q03. The declining trend in dial-up access service was reduced
due to the steady revenue growth of OEM services, including the CDN7 ("Contents Delivery Network")
platform and NTT's regional L-mode service, which increased by 23.9% compared to 1Q03 andincreased by 3.0% compared to 4Q03.
VAS revenues were JPY 1,187 million in 1Q04, an increase of 20.2% compared to 1Q03 and anincrease of 7.5% compared to 4Q03. Internet Data Center service revenues increased by 10.5%
compared to 1Q03 and by 15.2% compared to 4Q03, due to the increase of large-scale contracts foroutsourcing services.
Systems Integration revenues increased 11.9% to JPY 2,695 million in 1Q04 from JPY 2,408 million
in 1Q03 and decreased 32.7% from JPY 4,001 million in 4Q03. The solid year-over-year growth reflects
the growing demand for network services. The quarter-over-quarter decrease in SI revenues is due toseasonal variation within the SI business.
Equipment sales revenues were JPY 531 million in 1Q04, an increase of 55.8% compared to 1Q03
and a decrease of 74.9% compared to 4Q03. The year-over-year growth reflects the growing demand
for network services. The quarter-over-quarter decrease is due to seasonal variation.
Cost and expenses
Cost of revenues was JPY 7,443 million in 1Q04, a decrease of 5.4% compared to 1Q03 and a decreaseof 24.9% compared to 4Q03.
Cost of Connectivity and VAS revenues was JPY 4,811 million, a decrease of 8.1% compared to
1Q03 and almost flat compared to 4Q03. The gross-margin ratio for Connectivity and VAS in 1Q04 was
11.7%, compared to 6.5% in 1Q03 and 12.5% in 4Q03. The improvement in gross-margin compared to
1Q03 was the result of our continuous efforts to reduce backbone costs. Backbone costs were JPY 985
million in 1Q04, a decrease of 25.3% compared to 1Q03 and a decrease of 7.7% compared to 4Q03,
which reflect the benefits of our on-going efforts to optimize our network. The gross-margin ratio slightly
decreased from 4Q03 to 1Q04 due to the increase in personnel expense in our engineering division.
Cost of SI service revenues was JPY 2,157 million in 1Q04, a decrease of 7.2% compared to 1Q03
and a decrease of 29.4% compared to 4Q03. The gross margin for SI was 20.0% in 1Q04 compared to
3.5% in 1Q03 and 23.7% in 4Q03. The year-over-year improvement in gross-margin was due toimproving profitability of SI development contracts and the steady increase in operation andmaintenance revenues.

5
IIJ FiberAccess/F and IIJ DSL/F (shared access using NTT's Flet's ADSL and B Flet's for local access, maximum speed from
1.5Mbps to 100Mbps).
6
IIJ T1 Standard and IIJ Economy (local access not shared, limited on several functionality compared to IP Service such as
number of IP addresses allocated, and fixed speed of 64kbps, 128kbps or 1.5Mbps).
7
CDN JAPAN is a platform developed for broadband content providers. It provides capabilities for distributing high-volume
multi-media content, managing broadband user accounts, and protecting content against unauthorized use, without using theInternet.

Page 3 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
Sales and marketing expenses were JPY 663 million in 1Q04, a decrease of 31.9% compared to
1Q03 and a decrease of 12.3% compared to 4Q03. The year-over-year decrease was mainly due to theabsence of bad debt expenses for Crosswave, which had amounted to JPY 146 million in 1Q03.
General and administrative expenses were JPY 621 million in 1Q04, an increase of 1.4% comparedto 1Q03 and an increase of 19.8% compared to 4Q03. The 1Q04 expenses included the newly
introduced uniform enterprise tax, which amounted to JPY 25 million, and the loss on the disposal of
fixed assets, which amounted to JPY 33 million. 1Q03 expenses include costs associate with the moveto the new head office, which amounted to JPY 70 million.
Operating income (loss)
Operating loss was JPY 100 million in 1Q04, compared to an operating loss of JPY 1,206 million in 1Q03
and operating income of JPY 350 million in 4Q03. The improvement from 1Q03 is mainly due toincreased profitability in Connectivity and SI services, and the absence of bad debt expense attributable
to Crosswave. In spite of the substantial seasonal decrease in SI revenues, we reduced operating loss
in 1Q04 as was expected.
Other expenses for 1Q04 were JPY 151 million, compared to JPY 204 million in 1Q03 and JPY 226
million in 4Q03. Other expenses for 1Q04 included a JPY 48 million gain on the sale of an equity
investment.
Income tax benefit for 1Q04 was JPY 1,657 million, compared to JPY 390 million in 1Q03 and JPY 891
million in 4Q03. The increases as compared to 1Q03 and 4Q03 are due to a decrease in the valuation
allowance for deferred tax assets attributable primarily to the income tax effect of increasing unrealized
gains on certain available-for-sale securities during the quarter.
Equity in net loss of equity method investees amounted to a loss of JPY 11 million in 1Q04,
compared to JPY 1,709 million in 1Q03 and JPY 189 million in 4Q03.
Net income (loss) was JPY 1,434 million in 1Q04, compared to a net loss of JPY 2,475 million in 1Q03
and net income of JPY 669 million in 4Q03. The improvement in net income reflects the improvement in
operating income and the income tax benefit due to the effect of increases in unrealized gains on certain
available-for-sale securities during the quarter. Basic net income per ADS equivalent was JPY 18.72 in
1Q04, compared to a net loss of JPY 54.72 in 1Q03 and a net income of JPY 8.73 in 4Q03.
Table 1. Revenues and Cost of Connectivity and Value-added Services (JPY in millions)

1Q04
Connectivity Service Revenues
IP Service 8
Limited Functionality Services
Broadband Services (FTTH, ADSL)
Total Dedicated Access Service Revenues
Dial-up Access Service Revenues
Under IIJ brand 9
OEM 10Total Dial-up Service Revenues
Value-added Service Revenues
Other Revenues
Total Connectivity and Value-added Service
Revenues

YoY
1Q03 % change

4Q03

QoQ
% change

2,279 2,534
275
513
364
274
2,918 3,321(10.1%)(46.4%)
33.3%(12.1%)

2,423
331
346
3,100

(5.9%)(17.1%)
5.5%(5.9%)

509
243
752
1,187
592

571
196
767
987
520

(10.9%)
23.9%(2.0%)
20.2%
14.0%

522
236
758
1,104
537

(2.5%)
3.0%(0.8%)
7.5%
10.4%

5,450

5,596

(2.6%)

5,499(0.9%)

8

Including IIJ Data Center Connectivity Service (local access not shared, and fixed speed from 64kbps to 1.2Gbps).
Services marketed and provided to corporate and individual customers under IIJ brand name (IIJ4U and IIJmio). Including
contracts with options for FTTH and ADSL services.
10
Service marketing and provided as other companies' brand name - Original Equipment Manufacturer ("OEM").
9Page 4 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
Cost of Connectivity and Value-added Services
Backbone Cost (included in the cost ofconnectivity and value added services)
Gross Margin
Gross Margin Ratio

4,811 5,234
985 1,318(8.1%)(25.3%)

4,810
1,067

0.0%
(7.7%)

638
11.7%

76.6%

689
12.5%

(7.3%)

361
6.5%

Table 2. Number of Contracts for Connectivity Services and Total Contracted Bandwidth

1Q04
73
638
35
224
6
421
6,679
8,076
73,225635,361
708,586
95.6Gbps

IP Service (Low Bandwidth: 64kbps-768kbps)
IP Service (Medium Bandwidth:1Mbps-100Mbps)
IP Service (High Bandwidth: over 100Mbps)11
IIJ Data Center Connectivity Service
IPv6 Service
Limited Functionality Services
Broadband Services (FTTH, ADSL)
Total Dedicated Access Service Contracts
Dial-up Access Services, under IIJ Brand
Dial-up Access Services, OEM
Total Dial-up Access Service Contracts
Total Contracted Bandwidth

1Q03
108
503
26
171
12
791
4,265
5,876
83,327508,245591,572
51.4Gbps

4Q03
88
606
35
196
9
504
5,788
7,226
75,136
620,731
695,867
80.1Gbps

Table 3. Cross-sellingNumber of Customers to use both ofConnectivity Service and Value-added
Services in largest 1,000 customers only
VAS Cross-selling Rate
Number of SI Customers to use Connectivity
Service in largest 100 SI customers
SI Cross-selling Rate

1Q04

1Q03

YoY
% change

4Q03

QoQ% change

823

823

0.0%

795

3.5%

82.3%

82.3%

66

75

66.0%

75.0%

79.5%
(12.0%)

66

0.0%

66.0%

Table 4. Systems Integration and Equipment Sales (JPY in millions)

Systems Integration Revenues
Systems Integration Services
Operational Outsource Service
Systems Integration Revenues
Cost of Systems Integration
Systems Integration Gross Margin
Systems Integration Gross Margin Ratio
Equipment Sales Revenues
Cost of Equipment Sales
Equipment Sales Gross Margin
Equipment Sales Gross Margin Ratio

1Q04

1Q03

YoY
% change

4Q03

QoQ% change

1,040
1,655
2,695
2,157
538
20.0%
531
475
55
10.4%

1,211
1,197
2,408
2,323
85
3.5%
341
311
30
8.7%

(14.1%)
38.3%
11.9%(7.2%)
536.5%

2,573
1,428
4,001
3,054
947
23.7%
2,117
2,051
66
3.1%

(59.6%)
15.8%(32.7%)(29.4%)(43.2%)

55.8%
52.9%
86.2%

(74.9%)(76.8%)(16.5%)

11

In IP Service over 100Mbps, we had 19 contracts for over 1Gbps in 1Q04. We had 9 contracts in 1Q03 and 16 contracts in
4Q03 for over 1Gbps.

Page 5 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
Table 5. Gross Margins

Connectivity and Value-added Services
Systems Integration
Equipment Sales
Total

1Q03
6.5%
3.5%
8.7%
5.7%

2Q03
9.1%
10.7%
6.4%
9.2%

3Q03
13.4%
23.9%
5.5%
15.7%

4Q03
12.5%
23.7%
3.1%
14.7%

1Q04
11.7%
20.0%
10.4%
14.2%

1Q04

1Q03

YoY
% Change

4Q03

QoQ% Change

884
1,300
1,004

(243)
1,421
990

(463.7%) 1,358(8.5%) 1,014
1.4% 1,030(34.9%)
28.2%(2.5%)

Table 6. Other Financial Statistics (JPY in millions)

Adjusted EBITDA12CAPEX, including capital leases13
Depreciation and amortization14

Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted EBITDA to net income according to theconsolidated statements of operations that are prepared in accordance with U.S. generally accepted
accounting principles and presented in Appendix 1:
Table 7. Adjusted EBITDA (JPY in millions)

Adjusted EBITDA
Depreciation and amortization15
Operating income (loss)
Other expenses
Income tax benefit
Minority interests in consolidated subsidiaries
Equity in net loss of equity method investees
Net income (loss)

1Q04
884
(984)
(100)
(151)
(1,657)
39
(11)
1,434

1Q03
(243)
(963)
(1,206)
(204)
(390)
254
(1,709)(2,475)

4Q03
1,358(1,008)
350
(226)
(891)
(157)
(189)
669

The following table summarizes the reconciliation of capital expenditures to the purchase of property
and equipment according to the consolidated statements of cash flows that are prepared and presented
in accordance with U.S. generally accepted accounting principles in Appendix 3:
Table 8. CAPEX (JPY in millions)

Capital expenditures
Acquisition of assets by entering into capital leases
Purchase of property and equipment

1Q04
1,300
977
323

1Q03
1,421
487
934

4Q03
1,014
778
236

12

Please refer to the Reconciliation of Non-GAAP Financial Measures below.
Please refer to the Reconciliation of Non-GAAP Financial Measures below.
14
Depreciation and amortization includes amortization of issuance cost of convertible notes.
15
Depreciation and amortization excludes amortization of issuance cost of convertible notes that was presented as otherexpenses.
13

Page 6 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
1st Quarter FY2004 Business Review
Key Service Developments
Enhancement of security solutions:
In June 2004, IIJ Technology Inc. ("IIJ-Tech"), IIJ’s 67.9% owned subsidiary, launched the Security Alert
Service which provides security information customized to the architecture of customer systems. In an
environment where new vulnerabilities and security holes are disclosed on an almost daily basis, thesecurity professionals of IIJ-Tech are identifying issues that are directly related to our customer's systemarchitecture. The Security Alert Service evaluates the security issues’ impact, updates the customers indaily and monthly reports and provides information on how to take effective countermeasures.
Auto ID:
In July 2004, IIJ became a member in EPCglobal, the international standards body for network RFID
system (Auto-ID) technology. EPCglobal was established in 2003 and is the world's largest suchstandards organization, with 191 member companies, including huge international distributors, such as
Wal-Mart, Inc., as well as SI vendors, and telecommunication carriers. In addition to creating global
standards, they issue and administer EPCs, which are identifiers recorded in RFID systems, and are
driving the adoption of Auto-ID in the global market.
Major Contracts
Providing SMF to KCOM:In April 2004, IIJ's next generation network operation service, "IIJ SMF Service" was selected to be theplatform for "KCOM SMF Service" by KCOM Corporation ("KCOM"). KCOM is a leading ISP and a groupcompany of KDDI. By providing SMF to KCOM, IIJ has taken a further step to introducing this pioneering
technology to other ISPs and System Integrators.
Assisting Sharp in Constructing "BB Space Town":
In May 2004, IIJ and IIJ-Tech announced that both companies will provide SMF and CDN JAPANsolution services to Sharp Corporation ("Sharp") for use in their broadband connectivity service, "BBSpace Town", the latest addition to the Sharp Space Town series of services. BB Space Town will give
users access to a plug-and-play network service that allows information devices to plug into a low-costbroadband network in a non-PC environment.
Received mandate to renovate and operate Japan's Largest Campus Network, Rikkyo
V-Campus:
In May 2004, IIJ and IIJ-Tech successfully received a mandate to renovate and continue operating theInternet connectivity and campus IT infrastructure for "Rikkyo V-Campus", which is Rikkyo University's
main campus network.
Provided Downloading Environment for Online Game "Lineage II":
IIJ provided the download environment for the commercial release of the online game "Lineage II" to bereleased by NC Japan K.K. on June 25, 2004.
Licensed SMF to NESIC for its "SMF SETTERFREE" Service:
In June 2004, IIJ has licensed SMF to NEC System Integration & Construction, Ltd. ("NESIC"), as thebase system for "SMF SETTERFREE", the network management service that NESIC started to provide.

Management Message/Webcast
From August 11, IIJ will webcast its management message regarding the Company's results and outlook.
For details, please access the following URL: http://www.iij.ad.jp/en/IR/

Page 7 of 8

IIJ 1Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ: IIJI) is one of Japan's leading Internetaccess and comprehensive network solutions providers. The company has built one of the largest
Internet backbone networks in Japan, and between Japan and the United States. IIJ and its group ofcompanies provide total network solutions that mainly cater to high-end corporate customers. Services
range from the delivery of new generation network services over an optical-fiber infrastructure that is
optimized for data communications, to the construction of pan-Asian IP backbone networks. The
company also offers high-quality systems integration and security services, Internet access,hosting/housing, and content design.
Statements made in this press release regarding IIJ’s or management’s intentions, beliefs, expectations, orpredictions 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 forwardlooking statements, such as statements regarding FY2004 operating and net profitability, are subject tovarious risks, uncertainties and other factors that could cause IIJ’s actual results to differ materially fromthose contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ’s
expectation that net losses will continue or may increase; IIJ’s ability to raise additional capital to cover its
indebtedness; the possibility that NTT, IIJ’s largest shareholder, may decide to exercise substantial influence
over IIJ; IIJ’s ability to generate significant revenues from its other services such as systems integration; theability to compete in a rapidly evolving and competitive marketplace; the impact of technological changes in
its industry; and other risks referred to from time to time in IIJ’s filings on Form 20-F of its annual report andother filings with the United States Securities and Exchange Commission.

Tables to follow

Page 8 of 8

IIJ 1Q04

INTERNET INITIATIVE JAPAN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)Appendix 1

For the Three Months Ended Jun 30, 2004, Jun 30, 2003 and Mar 31, 2004
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD) Except for Per Share and ADS Data) (1)Year-over-year Comparison
Jun 30, 2004
USD (1)
Revenues:
Connectivity and value-added services:
Dedicated access services
Dial-up access services
Value-added services
Other
Total connectivity and value-added services

JPY

% of
Total
Revenues

JPY

Jun 30, 2003
% of
Total
Revenues

YOY
Chg %

Sequential Comparison
Mar 31, 2004
% of
Total
QOQ
JPY
RevenuesChg %26,6706,871
10,846
5,413
49,8002,918,488
751,933
1,186,837
592,3905,449,648

33.6%
8.7
13.7
6.8
62.8

3,321,229
767,418
987,198
519,7095,595,554

39.8%
9.2
11.9
6.2
67.1

(12.1%)
(2.0)
20.2
14.0
(2.6)

3,100,452
757,947
1,103,558
536,590
5,498,547

26.7%
6.5
9.5
4.6
47.3

(5.9%)
(0.8)
7.5
10.4
(0.9)

24,625
4,849
79,274

2,694,638
530,6218,674,907

31.1
6.1
100.0

2,407,923
340,569
8,344,046

28.8
4.1
100.0

11.9
55.8
4.0

4,001,449
2,117,006
11,617,002

34.5
18.2
100.0

(32.7)(74.9)(25.3)

Costs and expenses:
Cost of connectivity and value-added services
Cost of systems integration revenues
Cost of equipment sales
Total costs

43,967
19,7084,345
68,0204,811,341
2,156,620
475,466
7,443,427

55.5
24.8
5.5
85.8

5,234,158
2,323,392
310,946
7,868,496

62.7
27.9
3.7
94.3

(8.1)
(7.2)
52.9
(5.4)

4,809,831
3,053,962
2,050,923
9,914,716

41.4
26.3
17.6
85.3

0.0
(29.4)(76.8)(24.9)

Sales and marketing
General and administrative
Research and development
Total costs and expenses

6,058
5,672
442
80,192662,950
620,651
48,3688,775,396

7.6
7.2
0.6
101.2

973,054612,047
96,0989,549,695

11.7
7.3
1.2
114.5

(31.9)
1.4(49.7)(8.1)

755,928
517,884
78,786
11,267,314

6.5
4.5
0.7
97.0

(12.3)
19.8(38.6)(22.1)(918)(100,489)(1.2)(1,205,649)(14.5)(91.7)

349,6883.0(128.7)

Other expenses(1,377)(150,700)(1.7)(204,398)(2.4)(26.3)(226,045)(1.9)(33.3)

Income(Loss) before income tax benefit(2,295)(251,189)(2.9)(1,410,047)(16.9)(82.2)

123,6431.1(303.2)

Income tax benefit
Minority interests in consolidated subsidiaries
Equity in net loss of equity method investees:
Equity method net income(loss)
Impairment loss on investment in and advances to Crosswave(15,145)358(1,657,335)
39,184(19.1)
0.4(390,035)
254,886

(4.7)
3.0

324.9
(84.6)(890,928)(157,295)

(7.7)
(1.4)

86.0
(124.9)(101)(10,995)(0.1)

10,559(1,719,981)

0.1(20.6)(204.1)0.0(188,577)(1.6)(94.2)Net income(loss)

13,107

1,434,335

16.5%(2,474,548)(29.7%)(158.0%)668,6995.8%

114.5%

Systems integration revenues
Equipment sales
Total revenues

Operating income(loss)

Basic Net Income(Loss) Per Share
Basic Net Income(Loss) Per ADS Equivalent
Weighted Average Number of Shares
Weighted Average Number of ADS Equivalents

37,43818.72
38,312
76,623,702(109,440)(54.72)
22,61145,222,494

17,4548.73
38,312
76,623,702

Note (1):The translation of Japanese yen amounts into US dollar amounts with respect to the three months ended Jun 30, 2004 are included solely for the convenience of readers outside Japanand have been made at the rate of JPY 109.43 =$1, the approximate rate of exchange on Jun 30, 2004.

INTERNET INITIATIVE JAPAN INC.
CONSOLIDATED BALANCE SHEETS(UNAUDITED)Appendix 2

As of Jun 30, 2004, Jun 30, 2003 and Mar 31, 2004
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)USD (1)ASSETS
Current Assets:
Cash and cash equivalent
Accounts receivable, net
Inventories
Prepaid expenses
Other current assets

Jun 30, 2004
JPY%

Jun 30, 2003
JPY%

Mar 31, 2004
JPY%

97,114
49,139
3,778
8,518
4,179

10,627,203
5,377,230
413,477
932,097457,325

25.3%
12.8
1.0
2.2
1.1

2,819,007
5,889,315
347,971845,908
534,025

10.2%
21.3
1.3
3.1
1.9

12,284,239
8,994,156
438,435
557,703
325,422

28.7%
21.1
1.0
1.3
0.8

162,728

17,807,332

42.4

10,436,226

37.8

22,599,955

52.9

7,031
108,92178,29018,8258,366

769,363
11,919,229
8,567,329
2,059,980
915,548

1.8
28.3
20.4
4.9
2.2

1,141,728
3,967,719
9,244,442
2,082,118
714,367

4.1
14.4
33.5
7.6
2.6

778,152
7,931,893
8,601,905
2,075,123
749,897

1.8
18.6
20.1
4.9
1.7

384,161

42,038,781

100.0%

27,586,600

100.0%

42,736,925

100.0%

Short-term borrowings
Accounts payable
Accrued expenses
Other current liabilities
Long-term borrowings-current portion
Convertible Notes
Capital lease obligations-current portion

49,00834,307
4,394
6,656
14,157
101,325
21,964

5,363,001
3,754,214
480,824
728,386
1,549,189
11,088,000
2,403,477

12.8%
8.9
1.1
1.7
3.7
26.4
5.7

5,675,341
4,406,928
537,236542,538
1,545,452

20.6%
16.0
1.9
1.9
5.6

2,677,038

9.7

6,564,093
7,187,976
454,366
483,925
1,548,246
11,832,000
2,387,754

15.4%
16.8
1.1
1.1
3.6
27.7
5.6

Total current liabilities

231,81125,367,091

60.3

15,384,533

55.7

30,458,360

71.3

Long-term Borrowings
Convertible Notes
Capital Lease Obligations-Noncurrent
Accrued Retirement and Pension Costs
Other Noncurrent Liabilities

20,7472,270,366

5.4

5.4

3,123,878
89,037233,046

7.4
0.2
0.6

12.4
54.4
12.3
0.3
0.7

2,308,019

28,547814
2,129

3,419,555
15,000,000
3,407,735
74,764
187,5792,880,298
72,687
161,122

6.7
0.2
0.4

284,048

31,083,418

73.9

37,474,166

135.8

35,880,486

84.0

8,234

901,0882.2

624,6092.3

642,311

1.5

125,792
216,007(304,817)
55,299(402)

13,765,372
23,637,628(33,356,095)
6,051,370(44,000)

32.7
56.2(79.3)
14.4(0.1)

7,765,048
17,751,065(37,159,839)
1,131,644
(93)

28.2
64.3
(134.7)4.1
0.0

13,765,372
23,637,628(34,790,430)
3,645,558(44,000)

32.2
55.3(81.4)
8.5(0.1)

Total shareholders' equity(capital deficiency)

91,87910,054,275

23.9(10,512,175)(38.1)

6,214,128

14.5

Total liabilities andshareholders' equity(capital deficiency)

384,161

42,038,781

100.0%

27,586,600

100.0%

42,736,925

100.0%

Total current assets
Investments in and Advances to Equity Method Investees
Other Investments
Property and Equipment, net
Guarantee Deposits
Other Assets
Total assets
LIABILITIES ANDSHAREHOLDERS' EQUITY(CAPITAL DEFICIENCY)
Current Liabilities:

Total liabilities
Minority Interest
Shareholders' Equity(Capital Deficiency):
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Treasury stock

Note (1): The translation of Japanese yen amounts into US dollar amounts with respect to Jun 30, 2004 are included solely for the convenience of readers outside Japanand have been made at the rate of JPY109.43 =$1, the approximate rate of exchange on Jun 30, 2004.

INTERNET INITIATIVE JAPAN INC.

Appendix 3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS（UNAUDITED）
For the Three Months Ended Jun 30, 2004, Jun 30, 2003 and Mar 31, 2004
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)) (1)
Jun 30, 2004
USD (1)

Jun 30, 2003

Mar 31, 2004

JPY

JPY

JPY

(2,474,548)

668,699

Operating Activities:
Net income (loss)

13,107

1,434,335

Depreciation and amortization

9,176

1,004,170

990,190

1,030,162

Provision for doubtful accounts(118)(12,936)

149,378

27,587

Equity method net loss (income)101

10,995(10,559)

188,577

Impairment loss on advances to Crosswave--

1,719,981

Minority interests in net income (loss) of consolidated subsidiaries(358)(39,184)(254,886)

157,295

Foreign exchange losses (gains)(69)(7,585)

3,245(13,682)

Loss on retirement of convertible notes

48

5,195

Net losses on other investments

-

-

-

25

2,749

37,57242,352

Decrease (increase) in accounts receivable

33,1483,627,399

4,229,010(2,483,404)

Increase (decrease) in accounts payable(28,281)(3,094,772)(3,671,049)

2,392,795

Decrease (increase) in inventories

228

24,95869,689(245,201)

Deferred income taxes(15,283)(1,672,424)(395,698)(904,221)

Other(2,331)(255,036)

264,043

395,710

Net cash provided by operating activities

9,393

1,027,864

656,368

1,256,669(2,954)(323,210)(933,646)(236,028)

834

91,286

34,672

66,387

Investing Activities:
Purchase of property and equipment
Proceeds from sales of other investment
Advances to Crosswave--(1,719,981)-

Purchase of other investments(21)(2,290)(12,971)(2,138)

Refund (payment) of guarantee deposits-net

133

14,528

123,632

(576)

Other

(44)

(4,851)

11(3,778)(2,052)(224,537)(2,508,283)(176,133)---

400,000(336)(36,710)(434,994)(436,477)(6,812)(745,488)--

Net cash used in investing activities
Financing Activities:
Proceeds from long-term borrowings
Repayments of long-term borrowings
Repurchase of convertible notes
Principal payments under capital leases(6,114)(669,047)(697,830)(692,467)

Net increase (decrease) in short-term borrowings(10,976)(1,201,093)

851,742(200,316)

1,724

188,632

Proceeds from issuance of common stock of a subsidiary
Proceeds from issuance of common stock

-

-

-

-

1,365,424-(22,514)(2,463,706)

1,084,342(929,260)

30

3,343

(1,772)(7,632)Net Increase (Decrease) in Cash and Cash Equivalents(15,143)(1,657,036)(769,345)

143,644

Cash and Cash Equivalents, Beginning of Period

112,257

12,284,239

3,588,352

12,140,595

Cash and Cash Equivalents, End of Period

97,114

10,627,203

2,819,007

12,284,239

Net cash provided by (used in) financing activities
Effect of Exchange Rate Changes on Cash

Note (1): The translations of Japanese yen amounts into US dollar amounts with respect to the three months ended Jun 30, 2004 are included
solely for the convenience of readers outside Japan and have been made at the rate of JPY109.43 =$1, the approximate rate ofexchange on Jun 30, 2004.