Breaking News

Tweet TWEET

IIJ Announces Nine Months Financial Results for the Fiscal Year Ending March 31, 2014

IIJ Announces Nine Months Financial Results for the Fiscal Year Ending March 31, 2014  TOKYO, Feb. 7, 2014 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its consolidated financial results for the nine months of the fiscal year ending March 31, 2014 (from April 1, 2013 to December 31, 2013, "3Q13").^1   Highlights of 3Q13 Financial Results                                                       Revenues                    JPY82,746 million (up 7.9%                              YoY) Operating Income            JPY4,211 million (down                                  16.5% YoY) Net Income attributable to  JPY2,924 million (down      IIJ                         6.0% YoY)                                                       Revised Full FY2013 Financial Targets ▪ We revised FY2013 financial targets due to the weaker than expected recurring revenues which mainly came from certain large customers. The operating income was impacted accordingly as the costs for recurring revenues are not directly correlated with revenue trend.                                                                                  Previous Target            Revised Target (Feb. 7) Revenues                   JPY117,000 million         JPY114,000 million Operating Income           JPY9,400 million           JPY6,000 million Net Income attributable to JPY6,000 million           JPY4,700 million IIJ   Overview of 9 months for FY2013 Financial Results and Business Outlook  "We recognize the coming several years to be remarkable period for IIJ to leap into the next level of business phase. The continuous technological innovation of network infrastructure, the ongoing development of the widely-used smart phones and other portable devises, and the evolving IT needs as seen with the growing concept of big data should promote the further adoption of network and cloud usages by Japanese enterprises and governmental organization supported by the returned demand on systems investment along with the Japanese economic recovery. To grasp these favorable growth opportunities, we're enhancing our business investments more than ever. This fiscal year, we're increasing the procurement number of employees and aggressively investing in cloud and overseas businesses in particular," said Koichi Suzuki, Founder and CEO of IIJ.  "Along with our business expansion, our operating costs, including depreciation and amortization, personnel and overseas business-related costs, have increased largely from the beginning of this fiscal year. On the other hand, we've suffered from some large customers' recurring revenues slow down and decrease than estimated this fiscal year. Certain carriers, network operators and game providers are one of our largest customers, and we had serious price down pressure for Internet connectivity and WAN services and partial cancellation of server usage from them due to their individual business conditions. Costs of our recurring revenues are mainly costs to operate and maintain network facilities and equipment such as depreciation, personnel and circuit related costs and these costs are not directly correlated with individual revenue increase or decrease in general. Thus, the increasing gap to our initial expectation quarter by quarter in recurring revenues impacts our income level significantly. We're seeing quite fine systems construction orders, yet it wouldn't be strong enough to cover their reduced volume. Considering these situations, we revised our financial target downward," said Eijiro Katsu, President and COO of IIJ.  ^1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated. The translation of Japanese yen into U.S. dollars is solely for the convenience of readers outside of Japan. The rate used for the translation was JPY105.25 per US$1.00, which was the noon buying rate on December 31, 2013.  "We perceive this fiscal year's financial situation as a part of the course for future growth, although the sales slumps of large customers have not been expected. Sales activities have been quite fine in accumulating new orders and polishing the existing deep relationships with our core customers. It is true that our business transactions with large customers continuously become significant and our business volatility becomes large along with that. We need to implement further stronger control and management for large accounts and also increase such large customers and transactions more to reduce total business volatility. We believe our cloud strategy to capture blue-chips' core platform systems should respond this issue to grow our customers into large accounts in the middle term," continued Katsu.  "We can anticipate continuous growth of network and outsourcing demands, strong SI orders next year. As for large accounts, network carriers' traffic should continuously grow and game providers' server usage should grow in total. We are still in the middle of business investment and we continuously pursue business expansion strategy. We'll devote ourselves on network services development and the accumulation of profitable recurring revenue services. Also, with further investment and cost control, we believe we will get back to the track to strong income growth in the next fiscal year. Lastly, we'd like to pursue M&A transactions to support our business scale-up," concluded Suzuki.  3^rd Quarter FY2013 Financial Results Summary  Operating Results Summary                                 3Q12         3Q13         YoY %                                                            Change                                 JPY millions JPY millions  Total Revenues                   76,690      82,746      7.9 Network Services                 48,515      50,301      3.7 Systems Integration (SI)         25,601      29,197      14.0 Equipment Sales                  867         1,178       35.8 ATM Operation Business           1,707       2,070       21.3 Total Costs                      61,165      67,228      9.9 Network Services                 37,972      39,764      4.7 Systems Integration (SI)         20,994      24,826      18.3 Equipment Sales                  749         1,062       41.7 ATM Operation Business           1,450       1,576       8.7 SG&A Expenses and R&D            10,482      11,307      7.9 Operating Income                 5,043       4,211       (16.5) Income before Income Tax Expense 4,946       4,625       (6.5) Net Income attributable to IIJ   3,112       2,924       (6.0)                                                           Segment Results Summary                                 3Q12         3Q13                                 JPY millions JPY millions Total Revenues                   76,690      82,746 Network Services and SI Business 75,399      81,029 ATM Operation Business           1,707       2,070 Elimination                      416         353 Operating Income                 5,043       4,211 Network Service and SI Business  4,965       3,899 ATM Operation Business           164         400 Elimination                      86          88  We have omitted segment analysis because most of our revenues are dominated by Network Services and Systems Integration (SI) Business.  3^rd Quarter FY2013 Results of Operation  Revenues  Total revenues were JPY82,746 million, up 7.9% YoY.  Network Services revenue was JPY50,301 million, up 3.7% YoY.  Revenues for Internet connectivity services for corporate use were JPY12,499 million, up 6.1% YoY. The increase was mainly due to the increasing demands for broader bandwidth and mobile service. However, the rate of change was lower than the plan mainly due to the strong price down pressure by certain large customers.  Revenues for Internet connectivity services for home use were JPY4,397 million, up 7.0% YoY. The revenues grew as we have continued to accumulate orders for LTE mobile data communication service. Especially, the low-priced mobile service for SIM-free mobile phones led the revenue to growth and the number of its contracts was approximately 119,000 as of December 31, 2013.  WAN services revenues were JPY18,786 million, decreased slightly compared to 3Q12. While revenues from the other general customers increased continuously, the strong price down pressure by certain large customers had an impact on the decrease of the revenues.  Outsourcing services revenues were JPY14,619 million, up 6.4% YoY. The revenue growth was mainly due to the increase of revenues in "IIJ GIO Hosting Package Services" and datacenter-related services.  Network Services Revenues Breakdown                                         3Q12          3Q13          YoY %                                                                      Change                                         JPY millions  JPY millions   Internet Connectivity Service (Corporate 11,783       12,499       6.1 Use) IP Service^2                             7,435        7,818        5.2 IIJ FiberAccess/F and IIJ DSL/F          2,397        2,368        (1.2) IIJ Mobile Service^3                     1,772        2,141        20.8 Others                                   179          172          (3.9) Internet Connectivity Service (Home Use) 4,111        4,397        7.0 Under IIJ Brand                          969          1,577        62.8 hi-ho                                    2,678        2,297        (14.2) OEM                                      464          523          12.6 WAN Services                             18,880       18,786       (0.5) Outsourcing Services                     13,741       14,619       6.4 Total Network Services                   48,515       50,301       3.7                                                                    Number of Contracts for Connectivity Services                                         as of         as of         YoY                                          Dec. 31, 2012 Dec. 31, 2013 Change Internet Connectivity Services           105,672      128,635      22,963 (Corporate Use) IP Service (-99Mbps)                     908          873          (35) IP Service (100Mbps-999Mbps)             370          434          64 IP Service (1Gbps-)                      186          263          77 IIJ Data Center Connectivity Service     309          293          (16) IIJ FiberAccess/F and IIJ DSL/F          46,670       53,536       6,866 IIJ Mobile Service^4                     55,883       71,940       16,057 Others                                   1,346        1,296        (50) Internet Connectivity Services (Home     465,624      596,458      130,834 Use)^ Under IIJ Brand                          89,885       152,191      62,306 hi-ho                                    150,238      157,087      6,849 OEM                                      225,501      287,180      61,679 Total Contracted Bandwidth               1,107.5Gbps  1,501.8Gbps   394.3Gbps  SI revenues were JPY29,197 million, up 14.0% YoY.  Systems construction revenue, a one-time revenue, was JPY11,635 million, up 18.4% YoY, mainly due to the continuous accumulation of orders and the trend of large scale projects in accordance with the returned demand on systems investment along with the Japanese economic recovery. Systems operation and maintenance revenue, a recurring revenue, was JPY17,562 million, up 11.3% YoY. The increase was mainly due to the increase in revenue of "IIJ GIO Component Services."  The orders received for SI and equipment sales were JPY36,156 million, significantly increased by 21.1% YoY. In the breakdown, the orders received for systems construction and equipment sales were JPY16,236 million, up 33.2% YoY, and the orders received for systems operation and maintenance were JPY19,920 million, up 12.7% YoY.  The order backlog for SI and equipment sales as of December 31, 2013 amounted to JPY25,862 million, up 27.7% YoY. In the breakdown, the order backlog for systems construction and equipment sales was JPY7,126 million, up 33.6% YoY, and the order backlog for systems operation and maintenance was JPY18,736 million, up 25.6% YoY.  Equipment sales revenues were JPY1,178 million, up 35.8% YoY.  ATM Operation Business revenues were JPY2,070 million, up 21.3% YoY. The increase was mainly in accordance with the increase in the numbers of newly placed ATMs. 785 ATMs were placed as of February 7, 2014.  ^2 IP Service revenues include revenues from the Data Center Connectivity Service.  ^3 Revenue from mobile data communication service for home use is included in Internet Connectivity Service (Home Use).  ^4 Contracts of IIJ Mobile Service are of mobile data communication service for corporate use.  Cost and expense  Total cost of revenues was JPY67,228 million, up 9.9% YoY.  Cost of Network Services revenues was JPY39,764 million, up 4.7% YoY. The increase was mainly due to the increase in network operation related costs as well as circuit-related and personnel-related costs. Gross margin was JPY10,538 million, down 0.1% YoY and gross margin ratio was 20.9%, down 0.8 points YoY due to the strong price down pressure in Internet connectivity and WAN services from certain large customers.  Cost of SI revenues was JPY24,826 million, up 18.3% YoY. The increase was mainly due to the increase in purchasing costs along with the increase in systems construction revenues as well as outsourcing-related and personnel-related costs. Gross margin was JPY4,371 million, down 5.1% YoY and gross margin ratio was 15.0% due to the trend of large scale projects.  Cost of Equipment Sales revenues was JPY1,062 million, up 41.7% YoY. Gross margin was JPY 116 million and gross margin ratio was 9.8%.  Cost of ATM Operation Business revenues was JPY1,576 million, up 8.7% YoY. The increase was in accordance with the number of newly placed ATMs. Gross margin was JPY494 million and gross margin ratio was 23.8%.  SG&A and R&D expenses  SG&A and R&D expenses were JPY11,307 million, up 7.9% YoY.  Sales and Marketing expenses were JPY6,346 million, up 5.2% YoY. The increase was mainly due to the increase in personnel-related expenses along with the increase in employees, rent expenses, and sales commission expenses related to Internet connectivity services for home use.  General and Administrative expenses were JPY4,645 million, up 12.0% YoY. The increase was mainly due to the increase in personnel-related expenses along with the increase in employees, rent expenses, depreciation, and commission expenses related to the procurement of employees.  Research and Development expenses were JPY316 million, up 3.9% YoY.  Operating income  Operating income was JPY4,211 million, down 16.5% YoY.  Other income (expenses)  Other income (expenses) was an income of JPY414 million (an expense of JPY97 million for 3Q12), mainly due to foreign currency gains of JPY203 million (foreign currency losses of JPY13 million for 3Q12) and net gain on other investments of JPY172 million, and interest expense of JPY194 million.  Income before income tax expense  Income before income tax expense was JPY4,625 million, down 6.5% YoY (JPY4,946 million for 3Q12) as a result of the decrease in operating income.  Net income  Income tax expense was JPY1,841 million (JPY1,954 million for 3Q12).  Equity in net income of equity method investees was JPY191 million (JPY131 million for 3Q12) mainly due to net income of Internet Revolution, Inc. and Internet Multifeed Co.  As a result of the above, net income was JPY2,975 million, down 4.8% YoY (JPY3,123 million for 3Q12).  Net income attributable to IIJ  Net income attributable to non-controlling interests was JPY51 million mainly related to net income of Trust Networks Inc. (JPY11 million for 3Q12).  Net income attributable to IIJ was JPY2,924 million, down 6.0% YoY (JPY3,112 million for 3Q12).  3^rd Quarter FY2013 Financial Condition  Balance Sheets  As of December 31, 2013, the balance of total assets was JPY100,596 million, increased by JPY18,485 million from the balance as of March 31, 2013 (JPY82,111 million as of March 31, 2013).  As for current assets as of December 31, 2013, as compared to the respective balances as of March 31, 2013, cash and cash equivalents increased by JPY9,843 million mainly due to the equity finance in the previous quarter, prepaid expenses increased by JPY1,474 million, inventories increased by JPY1,216 million and accounts receivable decreased by JPY1,998 million. As for noncurrent assets, as compared to the respective balances as of March 31, 2013, other investments increased by JPY3,656 million mainly due to the increase in its fair value, property and equipment increased by JPY3,531 million by continuous capital expenditure mainly for network infrastructure including cloud-related and guarantee deposits increased by JPY672 million along with our office expansion. As for current liabilities, as compared to the respective balances as of March 31, 2013, income taxes payable decreased by 1,493 million and accounts payable decreased by JPY1,303 million.  As for the balances of capital lease obligations, as compared to the respective balances as of March 31, 2013, capital lease obligations-current portion increased by JPY144 million to JPY3,649 million and capital lease obligations-noncurrent decreased by JPY449 million to JPY4,922 million.  As of December 31, 2013, the balance of other investments was JPY7,427 million. The breakdown of other investments were JPY4,477 million in available-for-sale securities including listed stocks, JPY2,242 million in nonmarketable equity securities, and JPY708 million in other. There was a large increase in fair value in one of our stock held for business relation due to going public in Japan.  As of December 31, 2013, the breakdown of major non-amortized intangible assets were JPY5,970 million in goodwill and JPY107 million in trademark. The balance of amortized intangible assets, which was customer relationships, was JPY4,317 million.  As of December 31, 2013, the balance of total IIJ shareholders' equity was JPY58,838 million, increased by JPY21,231 million from the balance as of March 31, 2013 due to increase in common-stock and additional paid-in capital as a result of equity finance and net income in 3Q13. IIJ shareholders' equity ratio (total IIJ shareholders' equity/total assets) as of December 31, 2013 was 58.5%.  Cash Flows  Cash and cash equivalents as of December 31, 2013 were JPY22,102 million compared to JPY10,648 million as of December 31, 2012.  Net cash provided by operating activities for 3Q13 was JPY5,732 million compared to net cash provided by operating activities of JPY5,880 million for 3Q12. In YoY comparison, net income decreased, while depreciation and amortization, which are non-cash expenses, increased. There were also the changes in operating assets and liabilities; cash inflow in accounts receivable increased, while cash outflows in operating liabilities such as accounts payable, increased.  Net cash used in investing activities for 3Q13 was JPY8,480 million compared to net cash used in investing activities of JPY4,704 million for 3Q12, mainly due to payments for purchase of property and equipment of JPY7,228 million (JPY4,410 million for 3Q12), payments for purchase of other investments of JPY1,128 million (JPY407 million for 3Q12) and payments for guarantee deposits of JPY681 million (JPY87 million for 3Q12).  Net cash provided by financing activities for 3Q13 was JPY12,408 million compared to net cash used in financing activities of JPY4,057 million for 3Q12, mainly due to proceeds from issuance of common stock of JPY17,271 million, principal payments under capital leases of JPY2,942 million (JPY2,741 million for 3Q12), net repayments of borrowings of JPY1,010 million (JPY610 million for 3Q12), JPY911 million in total for FY2012 year-end dividends and FY2013 interim dividends payments (JPY709 million for 3Q12).  FY2013 Financial Targets (revised on February 7, 2014)  We revised the target of consolidated financial results for the fiscal year ending March 31, 2014 announced on May 15, 2013. The table below shown is the summary of the revision.  Revision for the Consolidated Financial Targets for FY2013                                     Income      Net Income     Basic Net             Total       Operating   before      attributable   Income            Revenues    Income      Income Tax  to             attributable to                                     Expense     IIJ            IIJ                                     (Benefit)                  per Share            JPY         JPY         JPY         JPY millions   JPY             millions    millions    millions Previous    117,000    9,400      9,000      6,000         135.42 Target Revised     114,000    6,000      6,500      4,700         106.08 Target  Please refer to page 25 and 26 of this press release for more details.  Reconciliation of Non-GAAP Financial Measures  The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.  Adjusted EBITDA                                                     3Q12         3Q13                                                     JPY millions JPY millions Adjusted EBITDA                                      10,586      10,715 Depreciation and Amortization^5                      5,543       6,504 Operating Income                                     5,043       4,211 Other Income (Expense)                               (97)        414 Income Tax Expense                                   1,954       1,841 Equity in Net Income of Equity Method Investees      131         191 Net Income                                           3,123       2,975 Less: Net Income attributable to Noncontrolling      (11)        (51) Interests Net Income attributable to IIJ                       3,112       2,924  CAPEX                                                     3Q12         3Q13                                                     JPY millions JPY millions CAPEX, including Capital Leases                      8,452       9,863 Acquisition of Assets by Entering into Capital       4,042       2,635 Leases Purchase of Property and Equipment                   4,410       7,228  ^5 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details).  Presentation  Presentation materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on February 7, 2014.  About Internet Initiative Japan Inc.  Founded in 1992, Internet Initiative Japan Inc. is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality systems integration, security services, Internet access, and cloud computing. Moreover, IIJ has built one of the largest Internet backbone networks in Japan that is connected to the United States and the United Kingdom. IIJ listed on NASDAQ in 1999 and on the First Section of the Tokyo Stock Exchange in 2006. For more information about IIJ, visit the IIJ Web site at http://www.iij.ad.jp/en/.  Statements made in this press release regarding IIJ's or managements' intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding revenues, operating and net profitability are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include but not limited to: a decrease of corporate spending or capital expenditure due to depression in the Japanese economy and/or corporate earnings decreased, an inability to achieve anticipated results and cause negative impact on profitability, a possibility that less of reliability for our services and loss of business chances due to interrupt or suspend of our services, an excess increase in network rerated cost and outsourcing cost, personnel cost etc, a possibility to lose business opportunity due to our inadequate resources in personnel and others, an increase in competition and strong pricing pressure, the recording of an impairment loss as a results of an impairment test on the non-amortized intangible assets such as goodwill, a decline in value and trending value of our holding securities. Please refer to IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission ("SEC") for other risks.  Internet Initiative Japan Inc. Quarterly Consolidated Balance Sheets (Unaudited) (As of March 31, 2013 and December 31, 2013)                               As of March 31,   As of December 31, 2013                               2013                              Thousands of      Thousands of    Thousands of                               JPY               U.S. Dollars    JPY ASSETS                                                         CURRENT ASSETS:                                                Cash and cash equivalents     12,258,872        209,999         22,102,350 Accounts receivable, net of allowance for doubtful accounts of JPY 93,934 thousand and           18,764,703        159,304         16,766,820 JPY 55,215 thousand at March 31, 2013 and December 31, 2013, respectively Inventories                   1,301,684         23,919          2,517,444 Prepaid expenses              2,492,164         37,685          3,966,324 Deferred tax assets —current  1,046,828         8,527           897,481 Other current assets, net of allowance for doubtful accounts of JPY 10,732 thousand and           1,576,718         18,511          1,948,278 JPY 720 thousand at March 31, 2013 and December 31, 2013, respectively Total current assets          37,440,969        457,945         48,198,697 INVESTMENTS IN EQUITY METHOD  1,681,723         17,795          1,872,927 INVESTEES OTHER INVESTMENTS             3,771,262         70,568          7,427,324 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 29,516,394                    23,025,755        252,321         26,556,765 thousand and JPY 33,715,595 thousand at March 31, 2013 and December 31, 2013, respectively GOODWILL                      5,969,951         56,722          5,969,951 OTHER INTANGIBLE ASSETS —Net  4,791,431         42,332          4,455,457 GUARANTEE DEPOSITS            2,051,449         25,874          2,723,190 DEFERRED TAX ASSETS           163,773           350             36,850 —Noncurrent NET INVESTMENT IN SALES-TYPE LEASES—                      898,040           7,511           790,568 Noncurrent Prepaid expenses —Noncurrent  2,201,108         23,012          2,422,007 OTHER ASSETS, net of allowance for doubtful accounts of JPY 71,727 thousand and JPY 62,600       115,805           1,351           142,188 thousand at March 31, 2013 and December 31, 2013, respectively TOTAL                         82,111,266        955,781         100,595,924                                As of March 31,   As of December 31, 2013                               2013                              Thousands of      Thousands of    Thousands of                               JPY               U.S. Dollars    JPY LIABILITIES AND SHAREHOLDERS'                                  EQUITY CURRENT LIABILITIES:                                           Short-term borrowings         9,400,000         89,311          9,400,000 Long-term borrowings —current 1,010,000         9,311           980,000 portion Capital lease obligations     3,505,471         34,673          3,649,275 —current portion Accounts payable —trade       10,973,120        95,193          10,019,098 Accounts payable —other       949,264           5,706           600,544 Income taxes payable          1,669,849         1,677           176,502 Accrued expenses              2,266,427         20,480          2,155,517 Deferred income —current      1,806,074         16,045          1,688,703 Other current liabilities     803,902           11,685          1,229,878 Total current liabilities     32,384,107        284,081         29,899,517 LONG-TERM BORROWINGS          980,000           -              - CAPITAL LEASE OBLIGATIONS     5,370,365         46,762          4,921,708 —Noncurrent ACCRUED RETIREMENT AND PENSION COSTS                 2,112,085         21,707          2,284,623 —Noncurrent DEFERRED TAX LIABILITIES      412,132           13,465          1,417,180 —Noncurrent DEFERRED INCOME —Noncurrent   2,562,208         24,728          2,602,593 OTHER NONCURRENT LIABILITIES  656,191           5,262           553,853 Total Liabilities             44,477,088        396,005         41,679,474 COMMITMENTS AND CONTINGENCIES                                                                                                SHAREHOLDERS' EQUITY:                                          Common-stock —authorized, 75,520,000 shares;                       16,833,847        242,252         25,497,022 issued and outstanding, 41,295,600 shares at March 31, 2013 —authorized, 75,520,000 shares; issued and outstanding,                                       46,697,800 shares at December 31, 2013 Additional paid-in capital    27,300,325        341,544         35,947,501 Accumulated deficit           (6,399,088)       (41,669)        (4,385,715) Accumulated other             263,770           20,630          2,171,324 comprehensive income Treasury stock —758,800 shares and 758,813 shares held by the company at March (392,079)         (3,726)         (392,122) 31, 2013 and December 31, 2013, respectively Total Internet Initiative Japan Inc. shareholders'      37,606,775        559,031         58,838,010 equity NONCONTROLLING INTERESTS      27,403            745             78,440 Total equity                  37,634,178        559,776         58,916,450 TOTAL                         82,111,266        955,781         100,595,924  (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which was the noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.                                                                Internet Initiative Japan Inc. Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Other Comprehensive Income (Unaudited) (For the nine months ended December 31, 2012 and December 31, 2013)  Quarterly Consolidated Statements of Income                               Nine Months Ended   Nine Months Ended                                December 31, 2012   December 31, 2013                               Thousands of        Thousands of  Thousands of                                JPY                 U.S. Dollars  JPY REVENUES:                                                       Network services:                                               Internet connectivity services 11,783,029          118,760       12,499,526 (corporate use) Internet connectivity services 4,110,638           41,775        4,396,796 (home use) WAN services                   18,879,758          178,489       18,785,947 Outsourcing services           13,741,605          138,900       14,619,196 Total                          48,515,030          477,924       50,301,465 Systems integration:                                            Systems construction           9,824,179           110,547       11,635,117 Systems operation and          15,776,992          166,856       17,561,594 maintenance Total                          25,601,171          277,403       29,196,711 Equipment sales                867,303             11,192        1,177,989 ATM operation business         1,706,586           19,670        2,070,278 Total revenues                 76,690,090          786,189       82,746,443 COST AND EXPENSES:                                              Cost of network services       37,971,665          377,803       39,763,829 Cost of systems integration    20,993,632          235,878       24,826,140 Cost of equipment sales        749,397             10,091        1,062,057 Cost of ATM operation business 1,450,459           14,980        1,576,636 Total cost                     61,165,153          638,752       67,228,662 Sales and marketing            6,030,817           60,292        6,345,713 General and administrative     4,147,197           44,138        4,645,519 Research and development       304,060             3,000         315,800 Total cost and expenses        71,647,227          746,182       78,535,694 OPERATING INCOME               5,042,863           40,007        4,210,749 OTHER INCOME (EXPENSE):                                         Dividend income                44,513              459           48,259 Interest income                19,889              177           18,670 Interest expense               (217,897)           (1,844)       (194,108) Foreign exchange gains         (12,705)            1,925         202,598 (losses) Net gain on sales of other     13,565              1,023         107,655 investments Net gain on other investments  --                  1,638         172,423 Losses on write-down of other  (19,788)            --            -- investments Other —net                     75,526              562           59,186 Other income (expense) —net    (96,897)            3,940         414,683 INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET 4,945,966           43,947        4,625,432 INCOME OF EQUITY METHOD INVESTEES INCOME TAX EXPENSE            1,954,168           17,498        1,841,690 EQUITY IN NET INCOME OF EQUITY METHOD                         131,688             1,817         191,204 INVESTEES NET INCOME                     3,123,486           28,266        2,974,946 LESS: NET INCOME ATTRIBUTABLE TO                             (11,201)            (484)         (50,876) NONCONTROLLING INTERESTS NET INCOME ATTRIBUTABLE TO INTERNET                       3,112,285           27,782        2,924,070 INITIATIVE JAPAN INC.                                Nine Months Ended   Nine Months Ended                                December 31, 2012   December 31, 2013 NET INCOME PER SHARE                                            BASIC WEIGHTED-AVERAGE NUMBER OF                             40,536,800                       43,772,437 SHARES (shares) DILUTED WEIGHTED-AVERAGE NUMBER                         40,569,000                       43,825,204 OF SHARES (shares) BASIC WEIGHTED-AVERAGE NUMBER OF                             81,073,600                       87,544,874 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER                         81,138,000                       87,650,408 OF ADS EQUIVALENTS (ADSs) BASIC NET INCOME PER SHARE     76.78               0.63          66.80 (JPY / U.S. Dollars / JPY) DILUTED NET INCOME PER SHARE   76.72               0.63          66.72 (JPY / U.S. Dollars / JPY) BASIC NET INCOME PER ADS EQUIVALENT(JPY / U.S.        38.39               0.32          33.40 Dollars / JPY) DILUTED NET INCOME PER ADS EQUIVALENT(JPY / U.S.        38.36               0.32          33.36 Dollars / JPY)   (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which was the noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.  Quarterly Consolidated Statements of Other Comprehensive Income                               Nine Months Ended   Nine Months Ended                                December 31, 2012   December 31, 2013                               Thousands of        Thousands of  Thousands of                                JPY                 U.S. Dollars  JPY NET INCOME                     3,123,486           28,266        2,974,946 Comprehensive income (loss):                                    Foreign currency translation   (14,446)            2,652         279,107 adjustments Unrealized holding gain (loss) 89,799              15,472        1,628,430 on securities Defined benefit pension plans  178                 1             178 Total comprehensive income    3,199,017           46,391        4,882,661 Less: Comprehensive income attributable to                (11,201)            (485)         (51,037)  noncontrolling interests Comprehensive income attributable to Internet      3,187,816           45,906        4,831,624 Initiative Japan Inc.   (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which was the noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.                                                                                                                               Internet Initiative Japan Inc. Quarterly Consolidated Statements of Cash Flows (Unaudited) (For the nine months ended December 31, 2012 and December 31, 2013)                               Nine Months Ended  Nine Months Ended                               December 31, 2012  December 31, 2013                              Thousands of       Thousands of   Thousands of                               JPY                U.S. Dollars   JPY OPERATING ACTIVITIES:                                          Net income                    3,123,486          28,266         2,974,946 Adjustments to reconcile net income to net cash                  provided by operating activities: Depreciation and amortization 5,543,517          61,798         6,504,202 Provision for retirement and pension costs,                165,262            1,642          172,815 less payments Reversal of allowance for     (142)              (435)          (45,808) doubtful accounts Loss on disposal of property  4,593              109            11,443 and equipment Net gain on sales of other    (13,565)           (1,023)        (107,655) investments Net gain on other investments --                 (1,638)        (172,423) Impairment of other           19,788             --             -- investments Foreign exchange gains, net   (17,284)           (1,477)        (155,394) Equity in net income of       (131,688)          (1,817)        (191,204) equity method investees Deferred income tax expense   151,975            3,711          390,591 Others                        13,153             509            53,567 Changes in operating assets and liabilities net of effects       from acquisition of a company: Decrease in accounts          435,371            19,739         2,077,501 receivable Decrease in net investment in 239,867            1,021          107,472 sales-type lease — noncurrent Increase in inventories       (981,707)          (11,534)       (1,213,943) Increase in prepaid expenses  (1,392,119)        (13,890)       (1,461,899) Increase in other current and (578,545)          (5,064)        (532,984) noncurrent assets Increase (decrease) in        59,748             (9,378)        (987,036) accounts payable Decrease in income taxes      (1,820,268)        (14,189)       (1,493,410) payable Increase (decrease) in        776,649            (80)           (8,392) deferred income-noncurrent Increase (decrease) in accrued expenses and         281,706            (1,809)        (190,343) other current and noncurrent liabilities Net cash provided by          5,879,797          54,461         5,732,046 operating activities INVESTING ACTIVITIES:                                          Purchase of property and      (4,410,119)        (68,671)       (7,227,651) equipment Proceeds from sales of        472,706            2,247          236,499 property and equipment Purchase of                   (41,250)           (936)          (98,494) available-for-sale securities Purchase of other investments (407,002)          (10,716)       (1,127,831) Investment in an equity       (100,000)          --             -- method investee Proceeds from sales of        --                 3,723          391,814 available-for-sale securities Proceeds from sales of other  92,634             190            20,000 investments Payments of guarantee         (86,954)           (6,474)        (681,378) deposits Refund of guarantee deposits  15,363             74             7,818 Payments for refundable       (554)              (44)           (4,697) insurance policies Refund from insurance         --                 152            16,026 policies Acquisition of a newly controlled company,           (229,058)          --             -- net of cash acquired Other                         (9,618)            (116)          (12,209) Net cash used in investing    (4,703,852)        (80,571)       (8,480,103) activities                                Nine Months Ended  Nine Months Ended                               December 31, 2012  December 31, 2013                              Thousands of       Thousands of   Thousands of                               JPY                U.S. Dollars   JPY FINANCING ACTIVITIES:                                          Proceeds from issuance of short-term borrowings         71,000             2,375          250,000 with initial maturities over three months Repayments of short-term borrowings with initial       (1,081,000)        (11,971)       (1,260,000) maturities over three months and long-term borrowings Principal payments under      (2,740,622)        (27,953)       (2,942,006) capital leases Net increase in short-term borrowings with               400,000            --             -- initial maturities less than three months Proceeds from issuance of stock to minority             2,570              --             -- shareholders Dividends paid                (709,394)          (8,653)        (910,697) Proceeds from issuance of common stock, net of issuance --                 164,097        17,271,204 cost Other                         --                 (0)            (41) Net cash provided by (used    (4,057,446)        117,895        12,408,460 in) financing activities                                                               EFFECT OF EXCHANGE RATE CHANGES ON                    (7,027)            1,740          183,075 CASH AND CASH EQUIVALENTS                                                               NET INCREASE (DECREASE) IN CASH AND CASH                (2,888,528)        93,525         9,843,478 EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF                  13,536,824         116,474        12,258,872 THE PERIOD CASH AND CASH EQUIVALENTS, END OF                        10,648,296         209,999        22,102,350 THE PERIOD  ADDITIONAL CASH FLOW INFORMATION:                               Interest paid                 218,322            1,847          194,375 Income taxes paid             3,484,499          25,660         2,700,675                                                               NONCASH INVESTING AND FINANCING ACTIVITIES:                     Acquisition of assets by      4,041,871          25,040         2,635,473 entering into capital leases Facilities purchase           367,018            5,706          600,544 liabilities Asset retirement obligation   --                 1,684          177,223 Acquisition of a company:                                      Assets acquired              404,139            --             -- Liabilities assumed          104,321            --             -- Noncontrolling interests     118                --             -- Cash paid                    (299,700)          --             -- Cash acquired               70,642             --             -- Acquisition of a newly controlled company,           229,058            --             -- net of cash acquired                                                                (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which was the noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.                                                       Going Concern Assumption (Unaudited) Nothing to be reported.  Material Changes In Shareholders' Equity(Unaudited) IIJ issued new shares by way of public offering with payment due July 18, 2013 and by way of third-party allotment in connection with secondary offering of shares by way of over-allotment with payment due August 5, 2013. As a result, common stock and additional paid-in capital increased by JPY8,662 million and JPY8,610 million, respectively.  Segment Information (Unaudited) Business Segments: Revenues:                                Nine Months Ended     Nine Months Ended                                 December 31, 2012     December 31, 2013                                Thousands of JPY      Thousands of JPY Network service and systems     75,399,477            81,028,754 integration business Customers                       74,983,504            80,676,165 Intersegment                    415,973               352,589 ATM operation business          1,706,586             2,070,278 Customers                       1,706,586             2,070,278 Intersegment                    --                    -- Elimination                     415,973               352,589 Consolidated total              76,690,090            82,746,443 Segment profit or loss:                                                                                     Nine Months Ended     Nine Months Ended                                 December 31, 2012     December 31, 2013                                Thousands of JPY      Thousands of JPY Network service and systems     4,964,544             3,899,222 integration business ATM operation business          163,845               399,972 Elimination                     85,526                88,445 Consolidated operating income   5,042,863             4,210,749                                                      Geographic information is not presented due to immateriality of revenue attributable to international operations.  Subsequent Events (Unaudited) Nothing to be reported.  3^rd Quarter FY2013 Consolidated Financial Results (3 months)  The following tables are highlight data of 3^rd Quarter FY2013 consolidated financial results (unaudited, from October 1, 2013 to December 31, 2013).  Operating Results Summary                                 3Q12         3Q13         YoY %                                                            Change                                 JPY millions JPY millions  Total Revenues:                  25,581       28,349       10.8 Network Services                 16,256       16,691       2.7 Systems Integration (SI)         8,475        10,524       24.2 Equipment Sales                  225          422          87.4 ATM Operation Business           625          712          14.0 Cost of Revenues:                20,204       23,262       15.1 Network Services                 12,589       13,299       5.6 Systems Integration (SI)         6,904        9,061        31.2 Equipment Sales                  198          381          92.2 ATM Operation Business           513          521          1.6 SG&A Expenses and R&D            3,597        3,885        8.0 Operating Income                 1,780        1,202        (32.5) Income before Income Tax Expense 1,770        1,278        (27.8) Net Income attributable to IIJ   1,105        719          (34.9)   Network Services Revenues Breakdown                                              3Q12         3Q13         YoY %                                                                         Change                                              JPY millions JPY millions  Internet Connectivity Service (Corporate Use) 3,967        4,141        4.4 IP Service                                    2,500        2,550        2.0 IIJ FiberAccess/F and IIJ DSL/F               791          793          0.2 IIJ Mobile Service                            616          740          20.2 Others                                        60           58           (2.5) Internet Connectivity Service (Home Use)      1,343        1,541        14.8 Under IIJ Brand                               348          596          71.7 hi-ho                                         837          766          (8.6) OEM                                           158          179          13.5 WAN Services                                  6,302        6,168        (2.1) Outsourcing Services                          4,644        4,841        4.2 Network Services Revenues                     16,256       16,691       2.7  Reconciliation of Non-GAAP Financial Measures (3^rd Quarter FY2013 (3 months))  The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.  Adjusted EBITDA                                                     3Q12         3Q13                                                     JPY millions JPY millions Adjusted EBITDA                                      3,684        3,468 Depreciation and Amortization                        1,904        2,266 Operating Income                                     1,780        1,202 Other Income (Expense)                               (10)         76 Income Tax Expense                                   703          599 Equity in Net Income of Equity Method Investees      49           64 Net income                                           1,115        743 Less: Net income attributable to noncontrolling      (10)         (24) interests Net Income attributable to IIJ                       1,105        719  The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.  CAPEX                                                     3Q12         3Q13                                                     JPY millions JPY millions CAPEX, including capital leases                      2,549        5,216 Acquisition of Assets by Entering into Capital       924          772 Leases Purchase of Property and Equipment                   1,625        4,444   Internet Initiative Japan Inc. Quarterly Consolidated Statements of Income (Unaudited) (For the three months ended December 31, 2012 and December 31, 2013)                              Three Months Ended  Three Months Ended                              December 31, 2012   December 31, 2013                             Thousands of        Thousands of   Thousands of                              JPY                 U.S. Dollars   JPY REVENUES:                                                      Network services:                                              Internet connectivity        3,967,404           39,348         4,141,412 services (corporate use) Internet connectivity        1,342,487           14,641         1,541,006 services (home use) WAN services                 6,302,542           58,600         6,167,599 Outsourcing services         4,643,995           45,995         4,840,919 Total                        16,256,428          158,584        16,690,936 Systems integration:                                           Systems Construction         3,130,593           42,602         4,483,875 Systems Operation and        5,343,964           57,386         6,039,819 Maintenance Total                        8,474,557           99,988         10,523,694 Equipment sales              225,523             4,016          422,680 ATM operation business       624,581             6,766          712,174 Total revenues               25,581,089          269,354        28,349,484 COST AND EXPENSES:                                             Cost of network services     12,589,051          126,361        13,299,490 Cost of systems integration  6,904,274           86,090         9,060,955 Cost of equipment sales      198,152             3,619          380,895 Cost of ATM operation        512,418             4,947          520,692 business Total cost                   20,203,895          221,017        23,262,032 Sales and marketing          2,099,141           20,743         2,183,154 General and administrative   1,402,120           15,281         1,608,318 Research and development     95,777              895            94,210 Total cost and expenses      23,800,933          257,936        27,147,714 OPERATING INCOME             1,780,156           11,418         1,201,770 OTHER INCOME (EXPENSE):                                        Dividend income              9,751               119            12,499 Interest income              5,066               56             5,869 Interest expense             (72,734)            (586)          (61,641) Foreign exchange gains       37,292              601            63,313 (losses) Net gain on sales of other   -                  236            24,803 investments Other—net                    10,137              297            31,221 Other income (expense) — net (10,488)            723            76,064                                                               INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN   1,769,668           12,141         1,277,834 NET INCOME IN EQUITY METHOD INVESTEES                                                               INCOME TAX EXPENSE          702,996             5,687          598,517 EQUITY IN NET INCOME OF EQUITY                       48,600              607            63,846 METHOD INVESTEES NET INCOME                   1,115,272           7,061          743,163 LESS: NET INCOME ATTRIBUTABLE TO              (10,143)            (228)          (23,964) NONCONTROLLING INTERESTS NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN   1,105,129           6,833          719,199 INC.                                                                                             Three Months Ended  Three Months Ended                              December 31, 2012   December 31, 2013 NET INCOME PER SHARE                                           BASIC WEIGHTED-AVERAGE NUMBER OF                    40,536,800                        45,938,987 SHARES (shares) DILUTED WEIGHTED-AVERAGE NUMBER                       40,577,200                        45,995,002 OF SHARES (shares) BASIC WEIGHTED-AVERAGE NUMBER OF                    81,073,600                        91,877,974 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER                       81,154,400                        91,990,004 OF ADS EQUIVALENTS (ADSs) BASIC NET INCOME PER SHARE   27.26               0.15           15.66 (JPY / U.S. Dollars / JPY) DILUTED NET INCOME PER SHARE 27.24               0.15           15.64 (JPY / U.S. Dollars / JPY) BASIC NET INCOME PER ADS EQUIVALENT (JPY / U.S.      13.63               0.07           7.83 Dollars / JPY) DILUTED NET INCOME PER ADS EQUIVALENT (JPY / U.S.      13.62               0.07           7.82 Dollars / JPY)   (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which was the noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.                                                                Internet Initiative Japan Inc. Quarterly Consolidated Statements of Cash Flows (Unaudited) (For the three months ended December 31, 2012 and December 31, 2013)                               Three Months Ended Three Months Ended                               December 31, 2012  December 31, 2013                              Thousands of       Thousands of   Thousands of                               JPY                U.S. Dollars   JPY OPERATING ACTIVITIES:                                          Net income                    1,115,272          7,061          743,163 Adjustments to reconcile net income to net cash                                             provided by operating activities: Depreciation and amortization 1,904,175          21,527         2,265,726 Provision for retirement and pension                       58,532             524            55,092 costs, less payments Provision for (reversal of) allowance for doubtful       (228)              13             1,392 accounts Loss on disposal of property  2,278              74             7,827 and equipment Net gain on sales of other    --                 (236)          (24,803) investments Foreign exchange gains, net   (53,502)           (640)          (67,370) Equity in net income of equity method                 (48,600)           (607)          (63,846) investees Deferred income tax expense   27,645             2,100          221,007 Others                        12,186             500            52,633 Changes in operating assets and liabilities net of effects                                                        from acquisition of a company: Decrease (increase) in        257,960            (557)          (58,605) accounts receivable Decrease in net investment in sales-type                    98,612             404            42,497 lease―noncurrent Increase in inventories       (199,318)          (4,326)        (455,298) Increase in prepaid expenses  (442,220)          (5,024)        (528,822) Increase in other current and (626,725)          (6,509)        (685,056) noncurrent assets Increase (decrease) in        (241,843)          4,995          525,733 accounts payable Decrease in income taxes      (499,552)          (6,648)        (699,762) payable Increase in deferred income―  500,559            3,498          368,209 noncurrent Increase in accrued expenses, other                         44,303             3,199          336,714 current and noncurrent liabilities Net cash provided by          1,909,534          19,348         2,036,431 operating activities INVESTING ACTIVITIES:                                          Purchase of property and      (1,624,929)        (42,220)       (4,443,660) equipment Proceeds from sales of        97,701             1,078          113,413 property and equipment Purchase of                   (21,644)           (614)          (64,592) available-for-sale securities Purchase of other investments (33,093)           (429)          (45,191) Proceeds from sales of        --                 1,638          172,452 available-for-sale securities Proceeds from sales of other  3,517              152            16,000 investments Payments of guarantee         (64,481)           (181)          (19,095) deposits Refund of guarantee deposits  2,966              7              706 Payments for refundable       (186)              (45)           (4,697) insurance policies Other                         (9,678)            (28)           (2,959) Net cash used in investing    (1,649,827)        (40,642)       (4,277,623) activities                                                                                Three Months Ended Three Months Ended                               December 31, 2012  December 31, 2013                              Thousands of       Thousands of   Thousands of                               JPY                U.S. Dollars   JPY FINANCING ACTIVITIES:                                          Proceeds from issuance of short-term borrowings         50,000             475            50,000 with initial maturities over three months Repayments of short-term borrowings with initial       (71,000)           (475)          (50,000) maturities over three months and long-term borrowings Principal payments under      (927,968)          (9,212)        (969,549) capital leases Proceeds from issuance of subsidiary stock to           2,570              --             --  minority shareholders Dividends paid                (354,697)          (4,801)        (505,329) Net cash used in financing    (1,301,095)        (14,013)       (1,474,878) activities                                                               EFFECT OF EXCHANGE RATE CHANGES ON                    19,234             350            36,790 CASH AND CASH EQUIVALENTS                                                               NET DECREASE IN CASH AND CASH (1,022,154)        (34,957)       (3,679,280) EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF                  11,670,450         244,956        25,781,630 THE PERIOD CASH AND CASH EQUIVALENTS, END OF                        10,648,296         209,999        22,102,350 THE PERIOD   (Note) The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of JPY 105.25 per 1U.S. dollar which wasthe noon buying rate in New York City for cable transfers in foreign currencies as of December 31, 2013.  Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the nine months ended December 31, 2013 in the form defined by the Tokyo Stock Exchange.  Consolidated Financial Results for the Nine Months Ended December 31, 2013 [Under accounting principles generally accepted in the United States ("U.S. GAAP")] February 7, 2014 Company name: Internet Initiative      Exchange listed: First Section, Tokyo Japan Inc.                            Stock Exchange Stock code number: 3774                URL: http://www.iij.ad.jp/ Representative: Eijiro Katsu,           President and Representative Director Contact: Akihisa Watai, Managing       TEL: (03) 5259-6500 Director and CFO Filing of quarterly report (Shihanki-houkokusho) to the regulatory            organization in Japan: Scheduled on February 14, 2014 Payment of dividend: -                Supplemental material on quarterly                                        results: Yes Presentation on quarterly results: Yes (for institutional investors and       analysts) (Amounts of less than JPY one million are rounded)                                                                                            1. Consolidated Financial Results for the Nine Months Ended     December 31, 2013 (April 1, 2013 to December 31, 2013)                            (1) Consolidated Results of Operations                        (% shown is YoY                                                                change)                                                 Income before  Net Income                Total Revenues Operating Income Income         attributable                                                 Tax Expense    to IIJ                JPY        %   JPY       %      JPY      %     JPY       %                 millions       millions         millions       millions Nine Months Ended           82,746     7.9 4,211     (16.5) 4,625    (6.5) 2,924     (6.0) December 31, 2013 Nine Months Ended           76,690     8.4 5,043     26.1   4,946    30.8  3,112     30.2 December 31, 2012  (Note1) Total comprehensive income attributable to IIJ    Nine Months Ended December 31, 2013: JPY4,832 million (up 51.6%   YoY)    Nine Months Ended December 31, 2012: JPY3,188 million (up 33.9% YoY)  (Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income of equity method investees in IIJ's consolidated financial statements.                                                                                                      Basic Net Income          Diluted Net Income                        attributable              attributable                         to IIJ per Share          to IIJ per Share                        JPY                       JPY Nine Months Ended       66.80                     66.72 December 31, 2013 Nine Months Ended       76.78                     76.72 December 31, 2012  (Note) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. Accordingly, basic net income attributable to IIJ per share and diluted net income attributable to IIJ per share have been adjusted as if the stock split were conducted on April 1, 2012, at the beginning of the fiscal year ended March 31, 2013.  (2) Consolidated Financial Position                                                    Total    Total    Total IIJ      Total IIJ Shareholders'             Assets   Equity   Shareholders'  Equity                                Equity         to Total Assets             JPY      JPY      JPY millions   %              millions millions As of December 31, 100,596  58,916   58,838         58.5 2013 As of March  82,111   37,634   37,607         45.8 31, 2013                                                                       2. Dividends                                                                           Dividends per Share                  1Q-end   2Q-end     3Q-end   Year-end   Total                  JPY      JPY        JPY      JPY         Fiscal Year Ended --       1,750.00   --       10.00      1,760.00 March 31, 2013 Fiscal Year Ending            --       11.00      --                  March 31, 2014 Fiscal Year Ending                                      11.00      22.00 March 31, 2014 (forecast) (Note1) Changes in the latest forecasts released: None                    (Note2) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. 2Q-end dividend (interim dividend) for the fiscal year ended March 31, 2013 does not take the stock split into consideration. The dividends for 2Q-end and the          total dividend for the fiscal year ended March 31, 2013 would have been JPY8.75 and JPY18.75 respectively if the stock split were conducted on April 1, 2012, at the beginning of the fiscal year ended March 31, 2013.    3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2014 (April 1, 2013 through March 31, 2014)                              (% shown is                                                                     YoY change)                                     Income before                   Basic Net        Total        Operating       Income Tax      Net Income      Income       Revenues     Income          Expense         attributable to attributable                                     (Benefit)       IIJ             to IIJ                                                                     per Share       JPY      %   JPY      %      JPY      %      JPY      %      JPY        millions     millions        millions        millions Fiscal Year Ending 114,000  7.3 6,000    (22.6) 6,500    (16.2) 4,700    (11.3) 106.08 March 31, 2014 (Note1) Changes in the latest forecasts released: Yes (Note2) IIJ issued 4,700,000 shares of common stock by way of public offering on July 18, 2013. IIJ also issued 700,000 shares of common stock by way of third-party allotment in connection with secondary offering of shares by way of over-allotment on August 5, 2013. Basic Net Income attributable to IIJ per Share in the above "3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2014" was calculated to reflect the increases in the number of shares outstanding.  * Notes  (1) Changes in significant subsidiaries for the nine months ended December 31, 2013  (Changes in significant subsidiaries for the nine months ended December 31, 2013 which resulted in changes in scope of consolidation): None  (2) Application of simplified or exceptional accounting: None  (3) Changes in significant accounting and reporting policies for the quarterly consolidated financial statements    1) Changes due to the revision of accounting standards: None    2) Others: None  (4) Number of shares outstanding (shares of common stock)    1) The number of shares outstanding (inclusive of treasury stock):    As of December 31, 2013: 46,697,800 shares    As of March 31, 2013: 41,295,600 shares    2) The number of treasury stock:    As of December 31, 2013: 758,813 shares    As of March 31, 2013: 758,800 shares    3) The weighted average number of shares outstanding:    For the nine months ended December 31, 2013: 43,772,437 shares    For the nine months ended December 31, 2012: 40,536,800 shares    (Note) IIJ conducted a 1:200 stock split on common stock with an effective   date of October 1, 2012. The number of shares outstanding (shares of common   stock) in the above have been adjusted as if the stock split were conducted   on April 1, 2012, at the beginning of the fiscal year ended March 31, 2013.  [English Translation]                                                                February 7, 2014                      Company address: 1-105 Kanda Jimbo-cho, Chiyoda-ku, Tokyo                                   Company name: Internet Initiative Japan Inc.    Company representative: Eijiro Katsu, President and Representative Director        (Stock Code Number: 3774 The First Section of the Tokyo Stock Exchange)                              Contact: Akihisa Watai, Managing Director and CFO                                                              TEL: 03-5259-6500   IIJ Revises its Full-Year Financial Target for the Fiscal Year ending March                                    31, 2014  TOKYO-- February 7, 2014 - Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE1:3774) announced today that given the current business situation, IIJ has revised its financial targets for the fiscal year ending March 31, 2014 ("FY2013") from the targets announced on May 15, 2013, when released the consolidated full year financial results for the fiscal year ended March 31, 2013.  1. Revision for the Consolidated Financial Targets for full FY2013  Full FY2013 (From April 1, 2013 to March 31, 2014)                                                     Net Income   Basic Net                Total    Operating  Income before    attributable Income               Revenues Income     Income Tax       to           attributable                                    Expense(Benefit) IIJ          to                                                                  IIJ per Share               JPY      JPY        JPY millions     JPY millions JPY                millions millions Previous       117,000  9,400      9,000            6,000        135.42 Target (A) New Target (B) 114,000  6,000      6,500            4,700        106.08 Change (B-A)   (3,000)  (3,400)    (2,500)          (1,300)      -- Change (%)     (2.6%)   (36.2%)    (27.8%)          (21.7%)      -- <Reference>    106,248  7,753      7,757            5,301        130.76 FY2012 Actual  (Note) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. Accordingly, basic net income per share for the fiscal year ended March 31, 2013 ("FY2012") has been adjusted as if the stock split were conducted on April 1, 2012, at the beginning of FY2012.  The year-end dividend target remains unchanged from JPY11.00 announced on May 15, 2013.  2. Reason for Revision  We believe that the business growth opportunities for IIJ group should be greater than ever for the middle term, considering the current overall market situation. The continuous technological innovation of network infrastructure, the ongoing development of the widely-used smart phones and other portable devises, and the evolving IT needs as seen with the growing concept of big data should promote the further adoption of network and cloud usages by Japanese enterprises and governmental organization supported by the returned demand on systems investment along with the Japanese economic recovery. Realizing the coming few years would be a critical period for IIJ business growth, we have been quite aggressive in business investment from the beginning of this fiscal year. Such business investment includes the enhanced procurement of employees, the continued expansion of network infrastructure, the continued service development, and the reinforcement of new business investment such as overseas business.  The operating costs and expenses for the nine months in FY2013 (from April 1, 2013 to December 31, 2013, "3Q13") increased significantly by JPY6,888 million, up 9.6% compared with the same period of the previous fiscal year ("YoY") mainly due to the above described business investment. The table below shows the breakdown of year over year difference in revenue, cost and SG&A and R&D expenses. The increase in the costs of systems integration revenues is principally purchasing costs, outsourcing-related and personnel-related costs in accordance with its revenue increase. The increase in the costs of network services revenues and SG&A and R&D expenses was mainly related to the business expansion operation including the increased number of employees, the expansion of network infrastructure including cloud-related, and the reinforcement of overseas business. The breakdown by items is as follows: the total personnel-related costs increased by JPY1,281 million, up 11.1% YoY, the outsourcing-related costs increased by JPY1,882 million, up 12.7%, the rent-related costs increased by JPY362 million, up 22.2% YoY, the depreciation and amortization increased by JPY814 million, up 14.8% YoY, and the purchasing costs increased by JPY1,339 million, up 24.1% YoY.                                                                                                     Nine Months for the Fiscal Year   Nine Months for the Fiscal Year            Ended                             Ending             March 31, 2013                    March 31, 2014            Revenues         Costs and        Revenues         Costs and                                         Expenses                          Expenses             YoY              YoY              YoY              YoY            Change    YoY    Change    YoY    Change    YoY    Change    YoY             (JPY      Change (JPY      Change (JPY      Change (JPY      Change             millions)        millions)        millions)        millions) Network     1,273     2.7%   385       1.0%   1,786     3.7%   1,792     4.7% Services Systems     3,893     17.9%  3,727     21.6%  3,596     14.0%  3,833     18.3% Integration Equipment   (11)      (1.3%) (37)      (4.7%) 311       35.8%  313       41.7% Sales ATM Operation   784       85.0%  437       43.2%  364       21.3%  126       8.7% Business SG&A and R&D         --        --     382       3.8%   --        --     825       7.9% Expenses Total       5,938     8.4%   4,893   7.3%   6,056     7.9%   6,888     9.6%  On the other hand, the total revenues for 3Q13 fell short of the initial plan. The gap was primarily due to the recurring revenues which consist of network services revenues (Internet connectivity services, outsourcing services, and WAN services) and operation and maintenance revenues of systems integration revenues. One of the most critical factors affecting the gap of recurring revenues was the slowing down and/or decrease of revenue from certain large customers of carriers, network operators and game providers who led FY2012 revenue growth. Because of these large customers' individual business conditions, the strong price down pressure in Internet connectivity and WAN services and the reduced server usage in cloud services and systems operation and maintenance have been taken place. Those gaps in the recurring revenue have been increasing quarter by quarter and it is estimated to become even greater in the fourth quarter. The recurring revenues from these certain large customers are estimated to be approximately JPY2.0 billion short of the initial target. While the systems construction revenues are expected to be strong based on the favorable order situation, the accumulation of the recurring revenues from the other general customers has not been as strong as the initial plan due to factors such as the postponement of new services launch. Because of all these relevant reasons, we revised FY2013 total revenues target from JPY117.0 billion to JPY114.0 billion, down 2.6% compared with the target.  The operating income for 3Q13 decreased by 16.5% YoY. The decrease in profit has been widening - the operating income for the first half of FY2013 decreased by 7.8% YoY. The developing decrease in profit is primarily because the recurring revenue has not been accumulating as planned. Also, the above described business expansion strategies have been resulted in the increase in the cost and expenses. The costs of the recurring revenues are mainly costs to operate and maintain the network facilities and equipment such as circuit costs, depreciation, personnel-related and outsourcing-related costs, and these costs are not directly correlated with individual revenue increase or decrease. Thus, the fluctuations in the recurring revenues tend to have a significant impact on operating income in general. The widening of the operating income gap is estimated to continue in the fourth quarter. In regards to the favorable order situation of systems construction, its gross margin ratio is to be lower than the plan as the trend of large scale projects is observed. Considering these relevant factors, we revised FY2013 operating income target from JPY9.4 billion to JPY6.0 billion, down 36.2% compared with the previous target.  The targets for income before income tax expense and net income attributable to IIJ have also been revised in accordance with the above described revisions respectively.  (*) The above targets for FY2013 consolidated financial results are based on information available at the time of the announcement and the actual results may differ from the targets due to various factors.  CONTACT: For inquiries, contact:          IIJ Investor Relations          Tel: +81-3-5259-6500 E-mail: ir@iij.ad.jp          URL: http://www.iij.ad.jp/en/ir  company logo