Internet Initiative Japan Inc.
http://www.iij.ad.jp/
2004 年 11 月 11 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。8 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 2 四半期（7-9 月）決算発表（抄訳）＜2004 年度上半期にて、増収・黒字転換を達成＞

本決算発表に関するマネジメント・メッセージを 2004 年 11 月 12 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 2 四半期決算
・

営業収益（売上高）は、前年同期比 14.4%増、前期比 21.2%増の 10,512 百万円となりました。付加価値サービ
ス及びシステム・インテグレーションを中心に好調に推移したことから、大幅な増収となりました。

・

営業利益は、282 百万円と、前年同期の▲830 百万円、前期の▲100 百万円から黒字転換を果たしました。営
業収益の増加に加えバックボーンコスト等の固定的売上原価が引続き低減したことから、大幅な改善となりました。

・ 上半期の業績は、季節変動要因により下半期に比べて低調となりますが、当上半期にて営業損益、当期損益ともに黒字化を達成しました。2004 年度上半期の営業収益（売上高）は、前年上半期比 9.5%増の 19,187 百万円、営業利益、当期利益は、それぞれ 182 百万円、1,162 百万円となりました。

2004 年度第 3 四半期見通し
・

第 3 四半期以降も、引続き増益基調が続くものと想定しています。

経営の概況
ネットワークが企業の基幹業務システムの重要な要素となり、より一層の信頼性が求められる中、IIJ は、インターネット
接続の技術をベースに、ネットワーク設計・構築、セキュリティ・コンサルティングといったインテグレーションサービスやネットワーク運用等のアウトソーシングサービスをトータルに提供する「ネットワーク・ソリューション事業」を戦略的に推進しております。企業の信頼性ニーズは確実に高まっており、こうしたニーズを的確に捉え IIJ の高い技術力を活かした品質の高いトータルソリューションを提案することで、着実に実績を積み重ねております。今四半期は、インターネッ
ト VPN を用いた多拠点ネットワーク接続を約 1,200 拠点（前期実績は約 1,000 拠点）獲得致しました。また IIJ が開発したネットワークサービス・オペレーティングシステム「SMF」を、これまでに約 3,000 拠点へ導入致しました。
「SMF」、「SEIL」については、エヌ・ティ・ティ・コミュニケーションズ㈱や九州通信ネットワーク㈱といった通信キャリアのインターネット VPN サービスの標準機能として採用が決まるなど、同業者からも高く評価されています。このような、ネットワーク・ソリューション戦略は着実に収益改善に寄与しはじめており、2004 年度上半期において、大幅増収、営業損益・当期損益の黒字化を達成することができました。
２００４年１０月には、㈱ヤマタネより証券会社向けシステムの開発・運用事業を譲り受け、その事業を運営する会社として「㈱アイアイジェイフィナンシャルシステムズ」を子会社㈱アイアイジェイテクノロジーの全額出資にて設立しました。
日本の金融業界は、銀行による証券仲介業の解禁といった規制緩和に加え、ネットワーク利用の高度化が進み始めており、こうした金融市場に対しても引続き注力して参ります。

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/
第 2 四半期は、付加価値サービス、システム・インテグレーションを中心とした営業収益の大幅な増加、及びバックボーン等の固定的売上原価の低減から、当初想定の通り、大幅な利益改善を果たしました。その結果、システム・インテ
グレーションの季節変動要因で下半期比低調である上半期において営業損益・当期損益ともに黒字化を達成し、継続的な利益構造を実現できたと考えております。
IIJ は引続き、現状のネットワーク・ソリューション戦略を推し進め、第 3 四半期以降の営業利益の増益基調を展望して参ります。

業績サマリー

（百万円）
2004
上半期

営業収益（売上高）
売上原価
販売管理費等
営業損益
当期損益

2003
上半期

19,187

17,52916,297
2,708

前年同期比

2Q04

2Q03

9.5%

10,512

9,185

16,206

0.6%

8,854

3,359

(19.4%)

1,376

182

(2,035)(108.9%)1,162(2,753)(142.2%)

前年同期比

1Q04

前期比

14.4%

8,675

21.2%

8,337

6.2%

7,443

18.9%

1,678

(18.0%)

1,332

3.3%

282

(830)

(134.0%)(100)(380.8%)

(273)

(278)

(2.1%)

1,434(119.0%)

サービス別概況及び財務関連データ

インターネット接続サービスの契約数及び総帯域
専用線接続サービス合計
IP サービス（低帯域：64kbps-768kbps）*1
IP サービス（中帯域：1Mbps-100Mbps 未満）
IP サービス（高帯域：100Mbps 以上〜）
IIJ T1 スタンダードおよび IIJ エコノミー*2
インターネットデータセンター接続サービス
IIJ FiberAccess/F および IIJ DSL/F（ブロードバンド対応型）
ダイアルアップ接続サービス合計
自社提供
OEM 提供*3
契約総帯域

2Q04
8,880
71
597
93
358
225

2Q03
6,250
102
505
57
676
184

1Q04
8,076
76
594
82
421
224

7,536

4,726

6,679

711,637
70,629641, 008
104.9Gbps

635,646
80,216555, 430
66.7Gbps

708,586
73,225635,361
95.6Gbps*1 IPv6 サービスを含む*2 1Q04 では、「機能限定型」と表記していたもの（回線専有型、割当 IP アドレス数等に制限あり、64kbps、128kbps、1.5Mbps）*3 他サービス事業者向け OEM サービス

契約数は順調に増加しました。IP サービスでは、顧客がより広帯域のサービスにシフトをしていることから
100Mbps 以上の契約数が増加しています。1Gbps 以上の IP サービスの契約数は合計で 20 社となりました。
多拠点接続ソリューション等に利用されるブロードバンド対応型の契約数は、引続き急速に増加しています。
契約数の増加、顧客企業の広帯域サービスへのシフトにより契約総帯域は増加を続けており、当期末で100Gbps 超となりました。

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/
インターネット接続及び付加価値サービスの営業収益、売上原価及び粗利益率
インターネット接続サービス
専用線接続サービス
IP サービス*4
IIJ T1 スタンダードおよび IIJ エコノミー*5
IIJ FiberAccess/F および IIJ DSL/F（ブロードバンド対応型）
ダイアルアップ接続サービス
自社提供*6OEM 提供*7
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
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
粗利益率

（百万円）

2Q04

2Q03

前年同期比

1Q04

前期比

2,223
228

2,485
451

(10.6%)(49.5%)

2,279
275(2.5%)(17.2%)

382

300

27.2%

365

4.8%

501
239
1,220
716

566
218
1,081
536

(11.5%)
9.8%
12.9%
33.4%

509
243
1,187
592

(1.5%)(1.9%)
2.8%
20.8%

5,508

5,637

(2.3%)

5,450

1.1%

4,780
877
13.2%

5,127
1,240
9.1%

(6.8%)(29.3%)

4,811
985
11.7%

(0.6%)(10.9%)*4 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）*5 1Q04 では、「機能限定型」と表記していたもの（回線専有型、割当 IP アドレス数等に制限あり、64kbps、128kbps、1.5Mbps）*6 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*7 他サービス事業者向け OEM サービス

インターネット接続サービスの売上は、個別大口顧客の解約、及び安価なブロードバンド回線への移行に伴い前期比減少となりましたが、これらの要因は概ね収束傾向にあり、新規獲得による売上増加とあわせて、減収傾
向は 2004 年度内に底を打つものと想定しています。
付加価値サービスの売上は、セキュリティサービス、サーバアウトソーシング、データセンターサービス等の堅調な推移に加えて、多拠点接続ソリューション案件の増加に伴う SMF サービス、SEIL レンタルサービスの好調から、増収となりました。
粗利益率は、付加価値サービスの売上増加、バックボーンコスト等固定的な売上原価の低減により前期から改善し、13.2%となりました。固定的な売上原価は引続き低減基調にあり、第 3 四半期以降も利益率の改善傾向を展望しています。

クロスセリング

2Q04
インターネット接続サービス・付加価値サービス
クロスセリング率*8システム・インテグレーション・インターネット接続サービス
クロスセリング率*9

1Q04

86.9%

86.8%

80.0%

66.0%

*8 インターネット接続サービス売上高上位１，０００社の内、付加価値サービスを併用している顧客の割合*9 システム・インテグレーション売上高上位１００社の内、インターネット接続サービスを併用している顧客の割合

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/
システム・インテグレーションの営業収益、売上原価及び粗利益率システム・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・サービス
システム運用アウトソースサービス
システム･インテグレーション原価
粗利益率

2Q04
3,838
2,101
1,737
2,983
22.3%

2Q03
2,549
1,333
1,216
2,276
10.7%

（百万円）
前年同期比

50.5%
57.5%
42.8%
31.1%

1Q04
2,695
1,040
1,655
2,157
20.0%

前期比

42.4%
102.0%
5.0%
38.3%

システム・インテグレーションの売上は、インターネット VPN 等を利用した多拠点接続案件の増加により、前年同期比、前期比ともに大幅増収となりました。
安定した収益基盤である運用アウトソースサービスが引続き好調であること、ソリューション提案によるネットワーク
設計、セキュリティ・コンサルティング、プロジェクト管理等の内製比率の高い売上が増加したことから、粗利益率は改善しました。

機器販売の営業収益、売上原価及び粗利益率
機器販売売上高機器販売原価
粗利益率

2Q04
1,167
1,091
6.5%

（百万円）

2Q03
999
935
6.4%

前年同期比

16.8%
16.7%

1Q04
531
475
10.4%

前期比

119.8%
129.4%

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*10

2Q04
1,275
1,345
1,012

2Q03
126
579
984

前年同期比

909.0%
132.2%
2.8%

1Q04
884
1,300
1,004

前期比

44.3%
3.5%
0.7%

*10 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 2Q04

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9月期、2003年9月期、2004年6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9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9月期
対営業収益%

対前年同四半期%

JPY

前四半期比較
2004年6月期
対営業収益 対前四半期%%

25,702
6,714
11,072
6,494
49,982

2,832,355
739,957
1,220,119
715,617
5,508,048

27.0%
7.0
11.6
6.8
52.4

3,236,405
783,589
1,080,876
536,389
5,637,259

35.2%
8.5
11.8
5.9
61.4

(12.5%)
(5.6)
12.9
33.4
(2.3)

2,918,488
751,933
1,186,837
592,3905,449,648

33.6%
8.7
13.7
6.8
62.8

(3.0%)
(1.6)
2.8
20.8
1.1

34,825
10,586
95,393

3,837,711
1,166,569
10,512,328

36.5
11.1
100.0

2,549,379
998,6219,185,259

27.7
10.9
100.0

50.5
16.8
14.4

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

31.1
6.1
100.0

42.4
119.8
21.2

43,37827,065
9,899
80,3424,780,268
2,982,577
1,090,870
8,853,715

45.5
28.3
10.4
84.2

5,126,708
2,275,704
934,7118,337,123

55.8
24.8
10.2
90.8

(6.8)
31.1
16.7
6.2

4,811,341
2,156,620
475,466
7,443,427

55.5
24.8
5.5
85.8

(0.6)
38.3
129.4
18.9

6,458
5,558
474
92,832

711,661
612,526
52,237
10,230,139

6.8
5.8
0.5
97.3

1,099,560
482,218
96,11810,015,019

12.0
5.2
1.0
109.0

(35.3)
27.0(45.7)
2.1

662,950
620,651
48,3688,775,396

7.6
7.2
0.6
101.2

7.3
(1.3)
8.0
16.6

営業利益（損失）

2,561

282,189

2.7(829,760)(9.0)(134.0)(100,489)(1.2)(380.8)

その他の費用(93)(10,188)(0.1)(157,294)(1.7)(93.5)(150,700)(1.7)(93.2)

税引前当期利益（損失）2,468

272,001

2.6(987,054)(10.7)(127.6)(251,189)(2.9)(208.3)

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益

4,695
(388)
141

517,379(42,837)
15,548

4.9
(0.4)
0.1

(571,642)
186,931(49,945)

(6.2)
2.0
(0.5)

(190.5)(122.9)(131.1)(1,657,335)
39,184(10,995)(19.1)
0.4(0.1)(131.2)(209.3)(241.4)

当期利益（損失）(2,474)(272,667)(2.6%)(278,426)(3.0%)

1,434,335

16.5%(119.0%)

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(7,117)(3.56)
38,312
76,623,702

注記(1): 2004年9月期につきましては、米ドル換算レート110.20円=1米ドル(2004/9/30)にて参考表示しております。

(10,082)(5.04)
27,61755,233,050(2.1%)

37,43818.72
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9月期、2003年9月期、2004年6月期
JPY/千円単位、USD/千米ドル単位(1)USD (1)

2004年9月期
JPY

2003年9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107,098
61,152
2,379
5,917
965

11,802,165
6,739,000
262,180
652,061
106,364

27.4%
15.6
0.6
1.5
0.3

11,782,935
6,726,563
268,519654,269
464,418

30.7%
17.5
0.7
1.7
1.2

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

25.3%
12.8
1.0
2.2
1.1

流動資産合計177,511

19,561,770

45.4

19,896,704

51.8

17,807,332

42.4

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

7,114
96,70782,081
18,878
8,747

783,933
10,657,082
9,045,349
2,080,345
963,895

1.8
24.7
21.0
4.8
2.3

1,106,062
5,513,137
9,108,783
2,080,764
728,580

2.9
14.3
23.7
5.4
1.9

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

1.8
28.3
20.4
4.9
2.2

資産合計

391,038

43,092,374

100.0%

38,434,030

100.0%

42,038,781

100.0%

52,016
7,412
40,856
4,071
5,489
14,974
100,617
22,6055,732,204
816,800
4,502,356
448,585
604,868
1,650,139
11,088,000
2,491,070

13.3%
1.9
10.5
1.0
1.4
3.8
25.7
5.8

4,304,906

11.2%

5,363,001

12.8%

4,856,325
489,568
410,577
2,946,377

12.6
1.3
1.1
7.7

2,588,505

6.7

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

8.9
1.1
1.7
3.7
26.4
5.7

248,040

27,334,022

63.4

15,596,258

40.6

25,367,091

60.3

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

15,721

1,732,473

4.0

5.4

3,620,613
102,224
300,190

8.4
0.3
0.7

5.2
39.0
8.3
0.2
0.5

2,270,366

32,855928
2,724

1,982,612
15,000,000
3,198,073
69,794
193,043

3,123,878
89,037233,046

7.4
0.2
0.6

負債合計

300,268

33,089,522

76.8

36,039,780

93.8

31,083,41873.9

少数株主持分

8,581

945,572

2.2

437,678

1.1

901,088

2.2

124,912214,497(305,161)
48,340(399)

13,765,372
23,637,628(33,628,762)
5,327,042(44,000)

31.9
54.8(78.0)
12.4(0.1)

13,765,372
23,637,628(37,438,265)
1,991,900
(63)

35.8
61.5
(97.4)
5.2
0.0

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

32.7
56.2(79.3)
14.4
(0.1)

資本合計

82,1899,057,280

21.0

1,956,572

5.1

10,054,27523.9

負債、少数株主持分及び資本合計

391,038

43,092,374

100.0%

38,434,030

100.0%

42,038,781

100.0%%

2004年6月期
JPY%

負債及び資本の部
流動負債：
短期借入金
有価証券貸借取引に伴う債務買掛金及び未払金
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9月期につきましては、米ドル換算レート110.20円=1米ドル(2004/9/30)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9月期、2003年9月期、2004年6月期
JPY/千円単位、USD/千米ドル単位 (1)2004年9月期
USD (1)

2003年9月期

2004年6月期

JPY

JPY

JPY

(278,426)

1,434,335

営業活動によるキャッシュフロー：
当期利益（損失）(2,474)(272,667)

減価償却費等

9,179

1,011,532

983,736

1,004,170

貸倒引当金繰入（戻入）額181

19,968313,968(12,936)

持分法による投資損益(141)(15,548)

49,945

10,995

少数株主損（益）389

42,837(186,931)(39,184)

為替差損（差益）(129)(14,152)

3,282(7,585)

転換社債償還差損

-

-

-

5,195

その他投資に係る損益(890)(98,103)

97,5302,749

売掛金の減少（増加）額(12,673)(1,396,506)(1,100,671)

3,627,399

買掛金及び未払金の増加（減少）額

5,144

566,837

216,306(3,094,772)

棚卸資産の減少（増加）額

1,361

149,969

72,432

24,958

法人税等調整額

4,554

501,873(577,444)(1,672,424)

その他

4,927

542,953(120,151)(255,036)

営業活動によるキャッシュフロー

9,428

1,038,993(526,424)

1,027,864

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(467)(51,435)(148,007)(323,210)

その他投資の売却による収入

1,137

125,281

122,650

91,286

その他投資の取得による支出(28)(3,083)(304,517)(2,290)

敷金保証金の返還(差入)(174)(19,193)

1,199

14,528

8

904

9,875

(4,851)476

52,474(318,800)(224,537)

その他
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
有価証券貸借取引による担保金預り収入

9,074

1,000,000--(13,039)(1,436,943)(36,017)(36,710)

7,412

816,800--

転換社債の償還---(745,488)

リース債務元本の返済(6,247)(688,418)(671,376)(669,047)

短期借入金の純増減額

3,350

369,203(1,370,436)(1,201,093)-

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--

11,886,887-

財務活動によるキャッシュフロー

550

60,6429,809,058(2,463,706)

現金及び現金同等物に係る換算差額

208

22,85394

3,343

現金及び現金同等物の増加（減少）額

10,662

1,174,962

8,963,928(1,657,036)

現金及び現金同等物の期首残高

96,436

10,627,203

2,819,007

12,284,239

現金及び現金同等物の期末残高

107,098

11,802,165

11,782,935

10,627,203

注記(1):2004年9月期につきましては、米ドル換算レート110.20円=1米ドル(2004/9/30)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/Naoshi Yoneyama
IIJ Investor/Media Relations Office
ir@iij.ad.jp or +81-3-5259-6500(Tel)

IIJ Achieves Increased Revenues and Substantially Improved
Profits in the First Half of FY2004- Growth Expected to Continue in Total Network Solutions Tokyo and New York, November 11, 2004 - Internet Initiative Japan Inc. (Nasdaq: IIJI) (“IIJ”), one ofJapan’s leading Internet-access and comprehensive network solutions providers, today announced its
financial results for the second quarter of the fiscal year ending March 31, 2005 (“FY2004”).1

Highlights of Second Quarter FY2004 Results
・ Revenue totaled JPY 10,512 million ($95.4 million), an increase of 14.4% from JPY 9,185
million in 2Q03 and an increase of 21.2% from JPY 8,675 million in 1Q04.
・ Operating income turned positive to JPY 282 million ($2.6 million) from an operating loss of
JPY 830 million in 2Q03 and JPY 100 million in 1Q04.
・ Revenue in the first half of FY2004 ("1H04") increased by 9.5% compared to 1H03.
Operating and net income turned positive in the first half of the fiscal year, which is usually
weaker part of the fiscal year compared to the second half. Operating income in 1H04 was
JPY 182 million, and net income in 1H04 was JPY 1,162 million.
Outlook for FY2004
・ We expect that the trend of growing positive operating income will continue into 3Q04.
2

Overview of 2nd Quarter Financial Results and Business Outlook"We had a very solid first half of FY2004 and completed a rather significant turnaround compared to
1H03," said Koichi Suzuki, President and CEO of IIJ. “We are confident that our network solutions
business is starting to flourish. The demand from corporate customers for more comprehensive andreliable network solutions is growing and the trend of improving corporate IT spending continues. Our
strategy is to capture new total network solutions business from existing and new blue-chip customers.
We are particularly geared to providing various network solutions that are integrated with corporate
business systems, from network design, security consultation and network implementation, to project
management and outsourced operations. For example, we acquired contracts of Internet VPN based
connectivity for over 1,200 sites in 2Q04 and SEIL Management Framework ("SMF")3 for over 3,000
sites since 1H03. Additionally, we recently signed agreements with several major telecommunications
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 2Q04 and 1H04 results, translations of Japanese yen amounts into US
dollars are solely for the convenience of readers outside of Japan and have been made at the rate of JPY 110.20 = US$1.00,
the approximate exchange rate on September 30, 2004.
2
This Overview and Business Outlook contains forward-looking statements and projections such as statements regarding
FY2004 operating and net profitability that are subject to known and unknown risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by these statements. These risks and uncertainties include, but are
not limited to, the factors noted at the end of this release and to the risk factors and other information contained in IIJ’s filings on
Form 20-F and Form 6-K, as well as other filings and documents furnished to the Securities and Exchange Commission. IIJ
plans to keep this press release publicly available on its Web site (www.iij.ad.jp), but may discontinue this practice at any time.
IIJ intends to publish its next Overview and Business Outlook in its 3Q04 earnings release, presently scheduled for February
2005.
3
SMF is a network operating system developed by IIJ to provide features of automatic configuration and monitoring of IIJ
developed SEIL routers at customer sites.

Page 1 of 8

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
carriers, such as NTT Communications Corporation ("NTT Communications") and Kyushu
Communications Network Co., Inc ("QTNet") for SMF and SEIL to be distributed for their Internet VPN
service or managed services for their corporate customers.""In 2Q04, we also made significant progress in breaking into the financial services industry," continued
Koichi Suzuki. "In October 2004, the security system business of Yamatane Co.,Ltd. ("Yamatane") wastransferred to IIJ Financial Systems Inc. ("IIJ Financial Systems"), a newly established company that is
100% owned by IIJ Technology Inc. ("IIJ Technology"), our subsidiary that manages IIJ's systems
integration business. The finance industry in Japan is expected to expand considerably as the market
sees an increase in deregulation, such as the abolishment of laws barring banks from providing theircustomers with securities trading services. As a result, we are forecasting an increase in network usage
and higher demand for network and outsourcing services. This combination of market demand and our
focus on a strategy of providing total network solutions, along with continued emphasis on effective costmanagement, will contribute to continued increases in profitability in the third quarter and beyond.”"As planned, we achieved an increase in revenues in 2Q04 compared to 2Q03 and 1Q04", said Akihisa
Watai, CFO of IIJ. "At the same time, we substantially improved profits in 1H04, due to the increase ofrevenues in value-added services ("VAS") and systems integration ("SI"), as well as successfully
reduced fixed costs including backbone costs. We believe that we have successfully positioned
ourselves for steady operational profit growth for the foreseeable future. This along with increased
stable monthly revenues from outsourced operations as well, and we expect the trend of increasing
operating profitability to continue in the second half of fiscal year, which typically has stronger SI
revenues compared to the first half."

2nd Quarter FY2004 Financial Results
Operating Result Summary

1H04
Total Revenues
19,187
Total Costs
16,297
SG&A Expenses / R&D
2,708
Operating Income (Loss)
182
Net Income (Loss)
1,162
Revenues
Revenues in 2Q04 totaled JPY
10,512 million, an increase of
14.4% from JPY 9,185 million in
2Q03 and an increase of 21.2%
from JPY 8,675 million in 1Q04.

(JPY in millions)

1H03

2Q03
1Q04 QoQ %
YoY %
2Q04
YoY %
changechangechange17,529
9.5% 10,512 9,185
14.4% 8,675
21.2%
16,206
0.6% 8,854 8,337
6.2% 7,443
18.9%
3,359 (19.4%) 1,376 1,678 (18.0%) 1,332
3.3%(2,035) (108.9%)(830) (134.0%)(100) (380.8%)282(2,753) (142.2%)(278)(2.1%) 1,434 (119.0%)(273)
Revenues

Total Re ve nue s
Conne ctivity & V AS
SI
Equipm e nt Sale sConnectivity and VAS revenues were JPY 5,508
million in 2Q04, a decrease of 2.3% from JPY 5,637
million in 2Q03 and an increase of 1.1% from JPY 5,450
million in 1Q04.

2Q04

2Q03

10,512
5,508
3,838
1,167

9,185
5,637
2,549
999

(JPY in millions)YoY %change14.4%(2.3%)
50.5%
16.8%

1Q04
8,675
5,450
2,695
531

QoQ %
change
21.2%
1.1%
42.4%
119.8%

Total Revenue Trend
14,000(JPY in millions)

12,00010,000

Dedicated access service revenues were JPY 2,832
million in 2Q04, a decrease of 12.5% compared to 2Q03
and a decrease of 3.0% compared to 1Q04. The
increase in revenue from broadband services did notoffset the revenue decrease from IIJ T1 Standard and IIJ
Economy. IP Service revenues decreased by 10.6% in
2Q04 compared to 2Q03 and decreased by 2.5%
compared to 1Q04 due to the cancellation of the service
by certain large customers. However, we see the trend

Page 2 of 8

8,000
6,000
4,000
2,000
0
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

Connectivity and VAS

SI

Equipment Sales

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/that the customers' shift from IIJ T1 Standard and IIJ Economy to broadband services is being
discontinued and with new contracts, we expect the decrease in dedicated access service revenues tobottom out sometime in 2H04.
Dial-up access service revenues were JPY 740 million in 2Q04, a decrease of 5.6% compared to 2Q03
and a decrease of 1.6% compared to 1Q04 due to the decrease in revenues from IIJ4U.
VAS revenues were JPY 1,220 million in 2Q04, an increase of 12.9% compared to 2Q03 and anincrease of 2.8% compared to 1Q04, mainly as a result of the steady increase in security-related
services.
SI revenues increased 50.5% to JPY 3,838 million in 2Q04 from JPY 2,549 million in 2Q03 andincreased 42.4% from JPY 2,695 million in 1Q04. The year-over-year growth was as a result of the solid
growth of outsourced operation services, revenue from which increased by 42.8% to JPY 1,737 million
from JPY 1,216 million in 2Q03. The quarter-over-quarter increase was due to the increasing contractsof SI development.
Equipment sales revenues were JPY 1,167 million in 2Q04, an increase of 16.8% compared to 2Q03
and an increase of 119.8% compared to 1Q04.
Cost and expense
Cost of revenues was JPY 8,854
million in 2Q04, an increase of 6.2%
compared to 2Q03 and an increaseof 18.9% compared to 1Q04.
Total Costs

Cost of Revenues

Connectivity & VAS
SI
Equipment Sales

Cost of Connectivity and VAS
revenues was JPY 4,780 million, adecrease of 6.8% compared to 2Q03
and a decrease of 0.6% compared to
1Q04. The gross-margin ratio forConnectivity and VAS in 2Q04 was 13.2%,
compared to 9.1% in 2Q03 and 11.7% in 1Q04
due to a decrease in backbone costs.

Cost of SI revenues was JPY 2,983 million in
2Q04, an increase of 31.1% compared to 2Q03
and an increase of 38.3% compared to 1Q04.
The gross margin ratio for SI in 2Q04 was
22.3%, compared to 10.7% in 2Q03 and 20.0%
in 1Q04. These improvements were due to theincrease in profitable outsourced operation
services.

2Q04

2Q03

8,854
4,780
2,983
1,091

8,337
5,127
2,276
935

(JPY in millions)YoY %change6.2%(6.8%)
31.1%
16.7%

1Q04
7,443
4,811
2,157
475

QoQ %
change18.9%(0.6%)
38.3%
129.4%

Cost and Gross Margin Ratio Trend
12,00030.0%(JPY in millions)

10,000

25.0%

8,000

20.0%

6,000

15.0%

4,000

10.0%

2,000

5.0%

0

0.0%
1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

Cost of Connectivity and VAS (Cost of SI Cost (

3Q04

4Q04

Gross Margin Ratio)

Gross Margin Ratio)

Cost of Equipment Sales

Sales and marketing expenses were JPY 712
million in 2Q04, a decrease of 35.3% compared to 2Q03 and an increase of 7.3% compared to 1Q04.
The decrease in 2Q04 compared to 2Q03 was due to a decrease in bad debt expenses. The expenses
in 2Q03 were almost regarding Crosswave Communications Inc.
General and administrative expenses were JPY 613 million in 2Q04, an increase of 27.0% comparedto 2Q03 and a decrease of 1.3% compared to 1Q04. The increase in year-over-year comparison was
due to the increase in personnel expenses and the occurrence of the newly introduced enterprise tax.
Operating income
Operating income was JPY 282 million in 2Q04, compared to an operating loss of JPY 830 million in
2Q03 and operating loss of JPY 100 million in 1Q04 due to improvements in profitability for Connectivity,

Page 3 of 8

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
VAS and SI revenues.

Operating Income (Loss) Trend

Other expenses for 2Q04 were JPY 10 million,
compared to JPY 157 million in 2Q03 and JPY 151
million in 1Q04. The gains on the sale and exchangetransaction of equity investments, which amounted
JPY 121 million offset the interest expenses.
Income tax expense for 2Q04 was JPY 517 million,
compared to a benefit of JPY 572 million in 2Q03 anda benefit of JPY 1,657 million in 1Q04. The decrease
compared to 2Q03 and 1Q04 was due to an increasein valuation allowance for deferred tax assets
attributable primarily to the income tax effect of
decreasing
unrealized
gainoncertainavailable-for-securities during the quarter.
Equity in net income of equity method investees
amounted to JPY 16 million in 2Q04, compared to lossof JPY 50 million in 2Q03 and loss of JPY 11 million in
1Q04.
Net income (loss) was a loss of JPY 273 million in
2Q04, compared to a net loss of JPY 278 million in
2Q03 and net income of JPY 1,434 million in 1Q04, in
spite of the improvement in operating income, suchincome was offset by the increase in income tax
expense.

1,500(JPY in millions)

1,000
500
0
(500)
(1,000)(1,500)
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

Net Income (Loss) Trend
3,000(JPY in millions)

2,000
1,000
0
(1,000)(2,000)(3,000)
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

2nd Quarter FY2004 Business Review
Analysis by Service
Connectivity and Value-added Services
Number of Contracts for Connectivity Services
Dedicated Access Service Contracts
IP Service (Low Bandwidth: 64kbps-768kbps)4
IP Service (Medium Bandwidth: 1Mbps-99Mbps)
IP Service (High Bandwidth: 100Mbps-)
IIJ T1 Standard and IIJ Economy5
IIJ Data Center Connectivity Service
IIJ FiberAccess/F and IIJ DSL/F(Broadband Services)
Dial-up Access Service Contracts
Dial-up Access Services, under IIJ Brand
Dial-up Access Services, OEM6
Total Contracted Bandwidth

2Q04
8,880
71
597
93
358
225
7,536

2Q03
6,250
102
505
57
676
184
4,726

1Q04
8,076
76
594
82
421
224
6,679

711,637
70,629641,008
104.9Gbps

635,646
80,216555,430
66.7Gbps

708,586
73,225635,361
95.6Gbps

4

Including IPv6 Services.
Quoted as "Limited Functionality Services" in 1Q04 for the services with local access not shared, limited on several
functionality compared to IP service such as number of IP address allocated and fixed speed of 64kbps, 128kbps and 1.5Mbps.
6OEM stands for Original Equipment Manufacturer.
5

Page 4 of 8

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
In IP Services, the number of contracts for 100Mbps and over is increasing, since there were customers
who shifted to higher bandwidth within IP Service in order to keep more reliable connectivity for criticalusage such as main lines for corporate headquarters or upstream for Internet Service Providers. There
were 20 customers with contracts for over 1Gbps, and the total contracted bandwidth topped 100Gbps.
Broadband services continued to grow rapidly, mainly due to the new major contracts for multi-siteconnectivity solutions. A few examples of the new customers that IIJ acquired in the first half of FY2004
were: an information distribution company that broadcasts news to initially approximately 200 sites
which might expand to approximately 3,000 sites in the future, a beverage company that has network
connections between 15 companies, Weathernews Inc., the world's largest weather informationcompany with branches over 36 cities around the world that broadcasts information via platform builtwith Internet VPN and SMF, an electronic-powered tool manufacturer that has a combination of networkwith Wide-area LAN and Internet VPN as backup for connecting approximately 100 sales offices.
OEM contracts for dial-up access services also increased, since our OEM partners continued toincrease the number of service contracts in the expanding individual broadband market.
Connectivity and VAS Revenue Breakdown and Cost
2Q04
Connectivity Service Revenues
Dedicated Access Service Revenues
IP Service 7
IIJ T1 Standard and IIJ Economy
IIJ FiberAccess/F and IIJ DSL/F(Broadband Services)
Dial-up Access Service Revenues
Under IIJ Brand
OEM
VAS Revenues
Other Revenues
Total Connectivity and VAS Revenues
Cost of Connectivity and VAS
Backbone Cost (included in the costof Connectivity and VAS)
Connectivity and VAS Gross Margin Ratio

2Q03

YoY %
change(JPY in millions)

1Q04

QoQ %
change

2,223
228
382

2,485
451
300

(10.6%)(49.5%)
27.2%

2,279
275
365

(2.5%)(17.2%)
4.8%

501
239
1,220
716
5,508
4,780
877

566
218
1,081
536
5,637
5,127
1,240

(11.5%)
9.8%
12.9%
33.4%
(2.3%)(6.8%)(29.3%)

509
243
1,187
592
5,450
4,811
985

(1.5%)(1.9%)
2.8%
20.8%
1.1%
(0.6%)(10.9%)

13.2%

9.1%

11.7%

IP Service revenue declined due to the cancellation of the service by certain large customers. However,we see the trend that the major factor that decreased the IP Service revenues in the past, cancellation ofmajor contracts by a regional electric power company's telecom service arm is being discontinued. We
also see the trend that the shift of customers from IIJ T1 Standard and IIJ Economy to broadband
services is being discontinued and with newly acquired contracts, we expect the decrease in dedicatedaccess service revenue to bottom out sometime in 2H04.
VAS revenues continued to increase steadily. We had increased revenues from managed security,
network operations, hosting and data center services. VAS revenues also increased from revenues from
SMF and SEIL rental services due to the acquisition of major contracts for Internet VPN based
connectivity. For SMF, we acquired contracts for over 3,000 sites since 1H03.
Backbone costs decreased by 29.3% compared to 2Q03
and by 10.9% compared to 1Q04. We expect that this trend
will continue in 3Q04.
The cross-selling ratio between Connectivity and VAS, as
the percentage of the largest 1,000 Connectivity service
customers that use VAS was 86.9%.
7

Cross-selling Ratios
VAS Cross-selling Ratio
SI Cross-selling Ratio

2Q04
86.9%
80.0%

1Q04
86.8%
66.0%

IP Service revenues includes revenues from Data Center Connectivity Service.

Page 5 of 8

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
The cross-selling ratio between Connectivity and SI, as the percentage of SI customers that use
Connectivity services among the largest 100 SI customers was 80.0%.
Systems Integration
Systems Integration
Revenue Breakdown and Cost

Systems Integration Revenues
Systems Integration
Outsourced Operation
Cost of Systems Integration
Systems Integration Gross Margin Ratio

2Q04

2Q03

3,838
2,101
1,737
2,983
22.3%

2,549
1,333
1,216
2,276
10.7%

(JPY in millions)

1Q04 QoQ %YoY %changechange50.5% 2,695
42.4%
57.5% 1,040 102.0%
42.8% 1,655
5.0%
31.1% 2,157
38.3%
20.0%

In 1H04, revenues increased primarily in network design and, configuration and installation ofequipment to build multi-site connectivity with Internet VPN or Wide-area LAN technology to replace
existing Frame Relay network. Revenues also increased in network planning, security consultation,
project management and assistance for implementation. These services contributed to increase profits,
since we use relatively more internal resources. Stable monthly revenues from outsourced operation
increased as well. We expect the transfer of security system business of Yamatame by IIJ Technology
will effect positively on our revenue and profits after 3Q04.
Equipment Sales
Equipment Sales Revenue and Cost
2Q04
Equipment Sales Revenues
Cost of Equipment Sales
Equipment Sales Gross Margin Ratio

1,167
1,091
6.5%

(JPY in millions)

2Q03

YoY % 1Q04 QoQ %changechange999
16.8%
531 119.8%
935
16.7%
475 129.4%
6.4%
10.4%

Other Financial Statistics
Other Financial Statistics
2Q04
Adjusted EBITDA8CAPEX, including capital leases9
Depreciation and amortization10

1,275
1,345
1,012

(JPY in millions)

2Q03

YoY % 1Q04 QoQ %changechange126 909.0%
884
44.3%
579 132.2% 1,300
3.5%
984
2.8% 1,004
0.7%

Key Service Developments
Transfer of security system business of Yamatane to IIJ Financial Systems:
On September 17, 2004, IIJ Technology, our subsidiary that manages IIJ's systems integration services,
signed a definitive agreement for the transfer of security system business of Yamatame. The business
was transferred to IIJ Financial Systems, a newly established company that is 100% owned by IIJ
Technology. The transfer was successfully completed on October 1, 2004. We believe that the financial
services industry is one area in which we will see particularly strong growth. The finance industry inJapan is an area in which considerable expansion is expected as the market sees an increase inderegulation, such as the abolishment of laws barring banks from providing their customers withsecurities trading services. As a result, we are forecasting an increase in network usage and higher
8

Please refer to the Reconciliation of Non-GAAP Financial Measures on the next page.
Please refer to the Reconciliation of Non-GAAP Financial Measures on the next page.
10
Depreciation and amortization includes amortization of issuance cost of convertible notes.
9Page 6 of 8

IIJ 2Q04

Internet Initiative Japan Inc.
http://www.iij.ad.jp/en/
demand for network and outsourced operating services.
Addition of anti-spam features to our secure e-mail outsourcing service:
In 2Q04, IIJ continued to take the initiative to help fight against spam in Japan to capture the demands
for more secure corporate information system environment. We started to provide the anti-spamsolutions as an additional feature for our corporate e-mail hosting services in October 2004.
Introduction of SMF and SEIL routers to major telecommunication carriers:
After 2Q04, IIJ came to agreements with several major telecommunication carriers for SMF and SEIL to
be distributed for their Internet VPN or managed network services. The carriers include NTT
Communications, QTNet and KVH Telecom Co., Ltd.
Waive of service fees for victims of natural disasters:
Since 2Q03 as a company to provide public telecommunication services, IIJ has waived the service fees
for individual dial-up services for individuals in areas where the Disaster Relief Law was invoked due tothe natural disasters that occurred during this period. The financial impact by the waive was or will besmall since the unit price for our individual customers is relatively low compared to the unit price for our
corporate customers.
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:
Adjusted EBITDA(JPY in millions)

Adjusted EBITDA
Depreciation and Amortization11
Operating Income (Loss)
Other Expenses
Income Tax Expense (Benefit)
Minority Interests in Consolidated Subsidiaries
Equity in Net Loss of Equity Method Investees
Net Income (Loss)

2Q03
1Q04
2Q04
126
884
1,275
(956)
(984)
(993)
(830)
(100)
282
(157)
(151)
(10)
(572) (1,657)
518
187
39
(43)
(50)
(11)
16
(278)
1,434
(273)

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:
CAPEX
Capital Expenditures
Acquisition of Assets by Entering into
Capital Leases
Purchase of Property and Equipment(JPY in millions)

2Q03
1Q04
2Q04
579
1,300
1,345
431
977
1,294
51

148

323

Management Message/Webcast
On November 12, IIJ will present its management message and the Company's results and outlook by
webcast. For details, please access the following URL: http://www.iij.ad.jp/en/IR/

11

Depreciation and amortization excludes amortization of issuance cost of convertible notes that was presented as otherexpenses.

Page 7 of 8

IIJ 2Q04

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
Internet-access and comprehensive network solutions providers. The company has built one of thelargest Internet backbone networks in Japan, and between Japan and the United States. IIJ and its
group of companies provide total network solutions that mainly cater to high-end corporate customers.
Services range from the delivery of new generation network services over an optical-fiber infrastructurethat 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
forward-looking statements, such as statements regarding FY2004 operating and net profitability, are subject
to various risks, uncertainties and other factors that could cause IIJ’s actual results to differ materially 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 2Q04

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

For the Three Months Ended Sept 30, 2004, Sept 30, 2003 and Jun 30, 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
Sept 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

Sept 30, 2003
% of
Total
Revenues

YOY
Chg %

Sequential Comparison
Jun 30, 2004
% of
Total
QOQ
JPY
Revenues
Chg %25,702
6,714
11,072
6,494
49,982

2,832,355
739,957
1,220,119
715,617
5,508,048

27.0%
7.0
11.6
6.8
52.4

3,236,405
783,589
1,080,876
536,389
5,637,259

35.2%
8.5
11.8
5.9
61.4

(12.5%)
(5.6)
12.9
33.4
(2.3)

2,918,488
751,933
1,186,837
592,3905,449,648

33.6%
8.7
13.7
6.8
62.8

(3.0%)
(1.6)
2.8
20.8
1.1

34,825
10,586
95,393

3,837,711
1,166,569
10,512,328

36.5
11.1
100.0

2,549,379
998,6219,185,259

27.7
10.9
100.0

50.5
16.8
14.4

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

31.1
6.1
100.0

42.4
119.8
21.2

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

43,37827,065
9,899
80,3424,780,268
2,982,577
1,090,870
8,853,715

45.5
28.3
10.4
84.2

5,126,708
2,275,704
934,7118,337,123

55.8
24.8
10.2
90.8

(6.8)
31.1
16.7
6.2

4,811,341
2,156,620
475,466
7,443,427

55.5
24.8
5.5
85.8

(0.6)
38.3
129.4
18.9

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

6,458
5,558
474
92,832

711,661
612,526
52,237
10,230,139

6.8
5.8
0.5
97.3

1,099,560
482,218
96,11810,015,019

12.0
5.2
1.0
109.0

(35.3)
27.0(45.7)
2.1

662,950
620,651
48,3688,775,396

7.6
7.2
0.6
101.2

7.3
(1.3)
8.0
16.6

2,561

282,189

2.7(829,760)(9.0)(134.0)(100,489)(1.2)(380.8)(93)(10,188)(0.1)(157,294)(1.7)(93.5)(150,700)(1.7)(93.2)

Income(Loss) before income tax expense(benefit)

2,468

272,001

2.6(987,054)(10.7)(127.6)(251,189)(2.9)(208.3)

Income tax expense(benefit)
Minority interests in consolidated subsidiaries
Equity in net income(loss) of equity method investees

4,695
(388)
141

517,379(42,837)
15,548

4.9
(0.4)
0.1

(571,642)
186,931(49,945)

(6.2)
2.0
(0.5)

(190.5)(122.9)(131.1)(1,657,335)
39,184(10,995)(19.1)
0.4(0.1)(131.2)(209.3)(241.4)

Net income(loss)(2,474)(272,667)(2.6%)(278,426)(3.0%)

1,434,335

16.5%(119.0%)

Systems integration revenues
Equipment sales
Total revenues

Operating income(loss)
Other expenses

Basic Net Income(Loss) Per Share
Basic Net Income(Loss) Per ADS Equivalent
Weighted Average Number of Shares
Weighted Average Number of ADS Equivalents(7,117)(3.56)
38,312
76,623,702(10,082)(5.04)
27,61755,233,050(2.1%)

37,43818.72
38,312
76,623,702

Note (1):The translation of Japanese yen amounts into US dollar amounts with respect to the three months ended Sept 30, 2004 are included solely for the convenience of readers outside Japanand have been made at the rate of JPY 110.20 =$1, the approximate rate of exchange on Sept 30, 2004.

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

As of Sept 30, 2004, Sept 30, 2003 and Jun 30, 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

Sept 30, 2004
JPY%

Sept 30, 2003
JPY%

Jun 30, 2004
JPY%

107,098
61,152
2,379
5,917
965

11,802,165
6,739,000
262,180
652,061
106,364

27.4%
15.6
0.6
1.5
0.3

11,782,935
6,726,563
268,519654,269
464,418

30.7%
17.5
0.7
1.7
1.2

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

25.3%
12.8
1.0
2.2
1.1

177,511

19,561,770

45.4

19,896,704

51.8

17,807,332

42.4

7,114
96,70782,081
18,878
8,747

783,933
10,657,082
9,045,349
2,080,345
963,895

1.8
24.7
21.0
4.8
2.3

1,106,062
5,513,137
9,108,783
2,080,764
728,580

2.9
14.3
23.7
5.4
1.9

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

1.8
28.3
20.4
4.9
2.2

391,038

43,092,374

100.0%

38,434,030

100.0%

42,038,781

100.0%

Short-term borrowings
Payable under securities loan agreement
Accounts payable
Accrued expenses
Other current liabilities
Long-term borrowings-current portion
Convertible notes
Capital lease obligations-current portion

52,016
7,412
40,856
4,071
5,489
14,974
100,617
22,6055,732,204
816,800
4,502,356
448,585
604,868
1,650,139
11,088,000
2,491,070

13.3%
1.9
10.5
1.0
1.4
3.8
25.7
5.8

4,304,906

11.2%

5,363,001

12.8%

4,856,325
489,568
410,577
2,946,377

12.6
1.3
1.1
7.7

2,588,505

6.7

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

8.9
1.1
1.7
3.7
26.4
5.7

Total current liabilities

248,040

27,334,022

63.4

15,596,258

40.6

25,367,091

60.3

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

15,721

1,732,473

4.0

5.4

3,620,613
102,224
300,190

8.4
0.3
0.7

5.2
39.0
8.3
0.2
0.5

2,270,366

32,855928
2,724

1,982,612
15,000,000
3,198,073
69,794
193,043

3,123,878
89,037233,046

7.4
0.2
0.6

300,268

33,089,522

76.8

36,039,780

93.8

31,083,418

73.9

8,581

945,572

2.2

437,678

1.1

901,088

2.2

Shareholders' Equity:
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Treasury stock

124,912214,497(305,161)
48,340(399)

13,765,372
23,637,628(33,628,762)
5,327,042(44,000)

31.9
54.8(78.0)
12.4(0.1)

13,765,372
23,637,628(37,438,265)
1,991,900
(63)

35.8
61.5
(97.4)
5.2
0.0

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

32.7
56.2(79.3)
14.4(0.1)

Total shareholders' equity

82,1899,057,280

21.0

1,956,572

5.1

10,054,275

23.9

Total liabilities and shareholders' equity

391,038

43,092,374

100.0%

38,434,030

100.0%

42,038,781

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' EQUITYCurrent Liabilities:

Total liabilities
Minority Interest

Note (1): The translation of Japanese yen amounts into US dollar amounts with respect to Sept 30, 2004 are included solely for the convenience of readers outside Japanand have been made at the rate of JPY110.20 =$1, the approximate rate of exchange on Sept 30, 2004.

INTERNET INITIATIVE JAPAN INC.

Appendix 3

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

Sept 30, 2003

Jun 30, 2004

JPY

JPY

JPY

(278,426)

1,434,335

Operating Activities:
Net income (loss)(2,474)(272,667)

Depreciation and amortization

9,179

1,011,532

983,736

1,004,170

Provision for doubtful accounts

181

19,968313,968(12,936)

Equity method net loss (income)(141)(15,548)

49,945

10,995

Minority interests in net income (loss) of consolidated subsidiaries

389

42,837(186,931)(39,184)

Foreign exchange losses (gains)(129)(14,152)

3,282(7,585)

Loss on retirement of convertible notes--

Net (gains) losses on other investments(890)(98,103)

97,530-5,195

Decrease (increase) in accounts receivable(12,673)(1,396,506)(1,100,671)

3,627,399

Increase (decrease) in accounts payable

5,144

566,837

216,306(3,094,772)

Decrease in inventories

1,361

149,969

72,432

24,958(1,672,424)

2,749

Deferred income taxes

4,554

501,873(577,444)

Other

4,927

542,953(120,151)(255,036)

Net cash provided by (used in) operating activities

9,428

1,038,993(526,424)

1,027,864

Investing Activities:
Purchase of property and equipment(467)(51,435)(148,007)(323,210)

Proceeds from sales of other investment

1,137

125,281

122,650

91,286

Purchase of other investments(28)(3,083)(304,517)(2,290)Refund (payment) of guarantee deposits-net(174)(19,193)

1,199

14,528

8

904

9,875

(4,851)476

52,474(318,800)(224,537)

Other
Net cash provided by (used in) investing activities
Financing Activities:
Proceeds from long-term borrowings

9,074

1,000,000--

Repayments of long-term borrowings(13,039)(1,436,943)(36,017)(36,710)Proceeds from securities loan agreement

7,412

816,800--

Repurchase of convertible notes

-

-

-

(745,488)

Principal payments under capital leases(6,247)(688,418)(671,376)(669,047)

Net increase (decrease) in short-term borrowings

3,350

369,203(1,370,436)(1,201,093)-

188,632

Proceeds from issuance of common stock of a subsidiary--

Proceeds from issuance of common stock--

Net cash provided by (used in) financing activities

11,886,887-

550

60,6429,809,058(2,463,706)

208

22,85394

3,343

Net Increase (Decrease) in Cash and Cash Equivalents

10,662

1,174,962

8,963,928(1,657,036)

Cash and Cash Equivalents, Beginning of Period

96,436

10,627,203

2,819,007

12,284,239

Cash and Cash Equivalents, End of Period

107,098

11,802,165

11,782,935

10,627,203

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 Sept 30, 2004 are included
solely for the convenience of readers outside Japan and have been made at the rate of JPY110.20 =$1, the approximate rate ofexchange on Sept 30, 2004.