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Orix Corp – ‘CB’ on 9/11/07 re: Internet Research Institute, Inc.

On:  Tuesday, 9/11/07, at 6:15am ET   ·   Accession #:  1193125-7-198558   ·   File #:  5-83116

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/11/07  Orix Corp                         CB                     1:1.3M Internet Research Institute, Inc. RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: CB          Rights/Exchange/Tender Offer Notification/Response  HTML    994K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM CB

TENDER OFFER/RIGHTS OFFERING NOTIFICATION FORM

(AMENDMENT NO.    )

Please place an X in the box(es) to designate the appropriate rule provision(s) relied upon to file this Form:

Note: Regulation S-T Rule 101(b)(8) only permits the filing or submission of a Form CB in paper by a party that is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

Internet Research Institute, Inc.

(Name of Subject Company)

(Translation of Subject Company’s Name into English (if applicable))

Japan

(Jurisdiction of Subject Company’s Incorporation or Organization)

ORIX Corporation

(Name of Person(s) Furnishing Form)

Common shares

(Title of Class of Subject Securities)

Not applicable

(CUSIP Number of Class of Securities (if applicable))

AtsuoYoshida / Shinjuku-Nomura Building 11F, 1-26-2 Nishi Shinjuku,

Shinjuku-ku, Tokyo, 163-0511, Japan / +81-3-5908-0711

(Name, Address (including zip code) and Telephone Number (including area code)

of Person(s) Authorized to Receive Notices and Communications on Behalf of Subject Company)

September 11, 2007

(Date Tender Offer/Rights Offering Commenced)

PART I

INFORMATION SENT TO SECURITY HOLDERS

Item 1 Home Jurisdiction Documents

Item 2 Informational Legends

See cover page of the Convocation Notice of the General Meeting of Shareholders dated September 11, 2007.

2

PART II

INFORMATION NOT REQUIRED TO BE SENT TO SECURITY HOLDERS

See the press release dated June 21, 2007 attached as Exhibit B.

3

PART III

CONSENT TO SERVICE OF PROCESS

A written irrevocable consent and power of attorney on Form F-X is being filed by ORIX Corporation concurrently with this Form CB.

4

PART IV

SIGNATURES

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

5

EXHIBIT A

NOTICE TO U.S. SHAREHOLDERS: This business combination is made for the securities of a non-U.S. company. The offer is subject to disclosure requirements of Japan that are different from those of the United States. Some of the financial statements included in the document have been prepared in accordance with non-U.S. accounting standards that may not be comparable to the financial statements of United States companies.

It may be difficult for you to enforce your rights and any claim you may have arising under the federal securities laws, since the issuer is located outside the United States, and some or all of its officers and directors may be residents of a non-U.S. jurisdiction. You may not be able to sue a non-U.S. company or its officers or directors in a court outside the United States for violations of the U.S. securities laws. It may be difficult to compel a non-U.S. company and its affiliates to subject themselves to a U.S. court’s judgment.

You should be aware that the issuer may purchase securities otherwise than under the exchange offer, such as in open market or privately negotiated purchases.

This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

As used in this translation document, “Company Law” and “Corporate Law” both refer to “Kaisha-hou” (Act No. 86 of 2005).

September 11, 2007

To Shareholders with Voting Rights

NOTICE OF CONVOCATION OF THE 11^th ORDINARY GENERAL MEETING OF SHAREHOLDERS

You are cordially invited to attend the 11^th Ordinary General Meeting of Shareholders of Internet Research Institute, Inc (IRI). The meeting will be held as described below.

If you are unable to attend the meeting, you can exercise your voting rights in writing or via the Internet. Please review the Reference Documents for the General Meeting of Shareholders and exercise your voting rights.

[Voting by mail]

Please indicate your vote for or against each of the proposals on the enclosed Voting Rights Exercise Form and return the form to ensure its arrival by no later than 6:00 p.m. on Tuesday, September 25, 2007.

[Voting via the Internet]

Please access the shareholder voting site (http://www.evote.jp/) with your browser or mobile phone and exercise your voting rights by no later than 6:00 p.m. on Tuesday, September 25, 2007.

For those attending, please present the enclosed Voting Rights Exercise Form at the reception desk on arrival at the meeting.

2

(Attached Document)

Business Report

(From July 1, 2006 to June 30, 2007)

1. Matters Concerning the Current State of the Corporate Group

(1) Progress and Result of Operations

The Japanese economy for the consolidated accounting year under review was on the slow but brisk recovery due to increases in capital expenditure, supported by increase in corporate earnings, and continued favorable employment circumstances, although adverse impacts were anticipated from price hikes of crude oil and slowdown in the U.S. economy.

In the IT service market where the IRI Group companies operate, the FTTH (Fiber to the Home) service has made a remarkable expansion of share amid the spread of broadband, while the growth of the existing ADSL (Asymmetric Digital Subscriber Line) service has become slow. Under the changing IT service market, business around the Internet has been changing drastically, due to growing demand for video contents and spreads of SNS (Social Networking Service) and Web2.0 businesses represented by Google.

In the mobile and cell phone market, NTT DoCoMo, KDDI, and SoftBank have been diversifying and differentiating their cell phone services and charging systems since mobile number portability was introduced. Meanwhile, demand for replacing with cell phones that support the “Osaifu-Keitai” (mobile wallet) and One-Segment broadcasting functions is growing.

Under such circumstances, IRI Group companies have been achieving greater performances owing to increases in the number of broadband users and spread of Web 2.0 businesses. For example, in the area of our IP Network Business, IRI Commerce and Technology, Inc., which specializes in media service and EC site operation increased sales; Produce on Demand, Inc., which specializes in the distribution of video contents also boosted sales; and BroadBand Tower, Inc., which specializes in data center operation, increased sales although the company is an equity method affiliate but we regard as one of the IRI Group companies. In the area of our IP Platform Business, IRI Ubiteq, Inc. continued to boost sales in sensing modules operation, etc. Meanwhile, at the beginning of the fiscal year, the Company set up the Network Social Infrastructure Department and the Dependable Network Laboratories within the Company to consolidate the Group companies and transfer the Company to a business-oriented company, leaving the mere function of holding company behind.

However, the Company called off the parent-subsidiary relation with IXI Co., Ltd. (hereafter IXI: delisted from the second section of the Tokyo Stock Exchange on February 22, 2007) and its subsidiaries, as mentioned in the latter part of this report.

As results, the IRI Group’s consolidated performances fell considerably. Consolidated sales for the fiscal year under review declined to 15,354 million yen (a 77.5% decrease compared with consolidated sales of 68,366 million yen for the preceding term). Operating loss was 1,376 million yen (3,487 million yen of operating income for the preceding term). Ordinary loss was at 824 million yen (3,354 million yen of ordinary income for the preceding term). Net loss stood at 16,264 million yen (3,092 million yen of net income for the preceding term).

The Company’s performances by business segment are as follows:

Our IP Network Business boosted business opportunities owing to growing shift to IP-based user networks and to our distinguished strengths in technical capabilities and experiences of IP formation and operation as an IP technology provider. For example, IRI Commerce and Technology, Inc., which operates nine medias (such as RBB TODAY, Response, MEDWEB, and MONO-ONLINE), services, and EC operation under the keyword of “next generation publishing company,” deployed Web 2.0 business models centering on contents, survey, advertisement, video game production, and book publishing, and expanded marketing antennas. Produce on Demand, Inc. continued expanding the advertisement-containing non-charged streaming video distribution platform and its support service for “GyaO” started by USEN Corporation. Furthermore, Saver Corporation, which has become a consolidated subsidiary since this fiscal year after the share-for-share exchange effective on July 1, 2006, engaged in the development of streaming video distribution solutions for streaming video contribution sites for cell phones, and the development of bundled software programs for major cell phone makers.

BroadBand Tower, Inc., an equity method affiliate, provided robust and comfortable data center service centering on high-quality and fast access to Internet for different service providers that use broadband.

As results of efforts mentioned above, however, our IP Network Business’s consolidated sales fell to 5,225 million yen (a 49.7% decrease against consolidated sales of 10,389 million yen for the preceding term). Operating loss was 479 million yen (operating income for the preceding term was 152 million yen).

3

In our IP Platform Business, IRI Ubiteq, Inc. won increasing orders of sensing modules that use biometrics. During the year, the subsidiary reinforced marketing of the video engine modules of full-spec high-vision, called UBIRIS and NET UBIRIS, which the subsidiary successfully developed. In the mobile and ubiquitous related areas, sales of our cell phone assessment service continued to increase. However, re-planning of the WiMAX support service was behind the schedule. As results, sales and operating income in IP Platform Business fell below those for the preceding term. Efforts to acquire new customers of the WiMAX support service began to bear fruit. For example, FCTV Co., Ltd. began to experiment in full high-vision picture transmission to which WiMAX is applied.

FiberTech Co., Ltd. continued marketing of super-thin-diameter endoscopes and began to engage in the joint developments of treatment instruments and a realtime confocal endoscope that adopt laser technology. During the year, the Company transferred all of its shares of FiberTech Co., Ltd. (40,683 shares) on July 10, 2007, and called off the parent-subsidiary relation.

As results mentioned above, our IP Platform Business’s consolidated sales fell to 7,017 million yen (a 1.8% decrease against consolidated sales of 7,147 million yen for the preceding term), while operating income fell to 178 million yen (a 46.9% decrease against 336 million yen of consolidated sales for the preceding term).

In the area of IP Enterprising Business, the Company exercised stock acquisition rights for Global Knowledge Network Japan, Ltd (GKN) to acquire it as a subsidiary during the consolidated accounting year under review. GKN, specializing in education business, increased sales in the project management training courses, Microsoft related training courses, and human skill training courses. Adjusting the management led to GKN's profitable operation on a monthly basis. In the autumn of 2006, GKN won Microsoft’s “CPLS Grand Prize" that endorses GNK as an excellent certified partner for learning solutions and the “Learning Partner of the Year” award from Cisco Systems in the spring of 2007 that endorses GKN as a high quality training institution .

As results of our efforts mentioned above, however, IP Enterprising Business’s consolidated sales fell to 2,869 million yen (a 94.3% decrease against 50,590 million yen for the preceding term). Operating income was 20 million yen (a 99.5% decrease against 3,921 million yen of operating income for the preceding term).

This business was categorized into “Other Businesses” until the preceding consolidated accounting year. From this consolidated accounting year on, however, the Company has created a new business segment, IP Synergy Finance Business. It conducted researches of companies, mainly investment activities by IT companies in Japan, which could bring about IP technology synergy with IRI Group companies.

As results of our efforts, however, our IP Synergy Finance Business’s consolidated sales was 200 million yen. Operating loss was 661 million yen.

During the consolidated accounting year under review, a major event occurred. Specifically, IXI of which the Company had acquired as a consolidated subsidiary through TOB in August 2005, failed to report its 19th semiannual report in time and filed for civil rehabilitation proceedings on January 21, 2007 to the Osaka District Court. The court accepted the application and issued a maintenance order (case number: Osaka District Court 2007 (Re) No. 3). As a result, IXI was finally delisted from the Second Section of the Tokyo Stock Exchange. The case revealed that IXI had presumably engaged in circular transactions considerably before becoming a subsidiary of the Company.

Some parties concerned testified that most of IXI’s business transactions had been fictitious circular transactions for years. Seeking cooperation from IXI’s trustee in bankruptcy, the Company inquired of IXI’s purchasers and suppliers about their balances with IXI. The Company also evaluated IXI’s software (CD-ROMs), posted as inventory assets and tangible fixed assets, by employing our technology (which revealed almost all of the CD-ROMs were inoperable and valueless,) and corrected IXI’s closing account prior to finalizing the consolidated semiannual accounts of the Company. However, the Company was unable to settle IXI’s closing account. This was because the Company regarded that to correct and settle IXI’s closing account based on certain hypothesis and assumption were not objective and that such consolidated closing account were to invite misunderstandings from shareholders and investors. For this reason, the Company processed the closing account of IXI and its subsidiaries (collectively referred to as the “IXI group”) that the IXI group produced no income and loss and that amounts in account items of the balance sheets were reversed, although the Company included the IXI group into consolidation.

4

The Company conducted the above-mentioned accounting processes in consultation with accounting auditor Deloitte Touche Tohmatsu (“Tohmatsu”). However, Tohmatsu finally decided to express no audit opinion on IRI’s consolidated financial statements for the six month period due to its inadequate auditing of IXI’s financial statements. Seeing the fact that the Company received the accounting auditor’s report with no audit opinion for the semiannual consolidated financial statements, Tokyo Stock Exchange, Ltd. (“TSE”) regarded that the Company’s stock was likely subject to the stock delisting standard and moved the stock to the supervisory post as of March 30, 2007 to appeal to shareholders and investors.

After the Company’s stock was moved to the supervisory post, the Company exerted itself to maintain the listing on TSE by responding to all the inquiries and references made by TSE in writing and verbal. However, TSE decided to delist IRI’s stock and informed the Company of its decision on May 23, 2007. The Company’s stock was finally delisted from TSE on June 24, 2007. The major reasons for the delisting were that the accounting auditor Tohmatsu had not expressed its audit opinion and that IXI had accounted for a large portion of IRI’s consolidated accounting, having considerable impacts on the Company, although the Company was unable to accept the decision. In connection with this, the Company transferred all the shares of IXI held by the Company (78,508 shares) on March 29, 2007, and IXI has been no longer a consolidated subsidiary of the Company since the closing of the third quarter of the Company (March 31, 2007).

The Company had concluded a share-for-share exchange agreement with SBI Holdings, Inc. in November 2006. However, since IXI’s failure to submit the semiannual report in time was subject to the provision of cancellation of the agreement, the Company and SBI Holdings agreed to cancel the share-for-share exchange agreement as of January 16, 2007.

After the Company received the delisting notice from TSE in May 2007, the credibility of the IRI Group was lost substantially. The Company sought and examined diverse options for survival, and eventually reached a basic business merger agreement with ORIX Corporation. Although IRI and ORIX Corporation have engage in the different fields of IT and finance, both companies have also similar histories and DNAs in business; both companies created new types of business in their fields and contributed to society. Therefore, the Company considers that the business merger agreement will supplement the other company with assets, resources, and know-how, which were unavailable in the past, and create new added-values and boost customer services for greater leap forward. Based on the agreement, the Company concluded a share-for-share exchange agreement with ORIX Corporation on June 21, 2007. When the 11th general ordinary meeting of shareholder of the Company approves an agenda for the business merger, the Company is scheduled to become a wholly-owned subsidiary of ORIX Corporation on November 1, 2007.

5

(2) Major fundraisings

Major fundraisings for the consolidated accounting period under review were as follows:

(3) Major capital expenditures

The total capital expenditures for this consolidated fiscal year are 324,131 thousand yen, which were chiefly appropriated to the following:

(4) Business Transfers, mergers, or demergers

None to be reported for this consolidated accounting year.

(5) Acquisition of businesses of other companies

None to be reported for this consolidated accounting year.

6

(6) Acquisition or disposition of stocks, equities, or stock acquisition rights of other companies

(7) Succession to rights and obligations of business of other judicial persons by merger or demerger

None to be reported for this consolidated accounting year.

7

(8) Assets, income or loss

(Thousands of yen)

(Thousands of yen)

8

(9) Issues to be addressed

The markets around the IRI Group are expected to continue to expand owing to spreading broadband and innovative technologies for the Interment. However, companies would not be able to survive the tough markets if they fail to forecast trends and changes in the markets. Under the circumstances, the IRI Group, centering on IP technology, is determined to become a business group with a robust management base. In particular, the IRI Group is determined to address the issues stated below:

In connection with this, the Company is preparing for a merger with ORIX Corporation (“ORIX”) based on the share-for-share exchange agreement, in which the Company shall become a wholly-owned subsidiary of ORIX from November 1, 2007, in anticipation that the 11th ordinary general meeting of shareholders of the Company approves the merger.

For stable earning, the Company is urged to build up a profitable base in two new business sections, called the Network Social Infrastructure Department and Dependable Network Laboratories, both of which were founded at the beginning of the 11th term (July 1, 2006). Each of the IRI Group companies needs deploying business that makes the most of its technical strengths. To this end, the IRI Group is determined to enhance its advanced technical capabilities and experiences centering on IP technology. This will lead to advanced technical findings and know-how developments, synergy among the Group companies, acquisitions of new business projects, technical development cooperation within and outside the Group companies. Based on business alliances for efficient utilization of corporate resources, the Company is urged to reinforce competitiveness by offering technology, developing new products, and enhancing marketing capability.

Employees of the IRI Group companies are capable but the number is limited. Thus, the IRI Group needs to employ more immediately useful players and appoint the right employee for the right job. Such new professional employees and existing employees must be educated and trained in order to maintain and develop the IRI Group’s management and technical capabilities centering on IP technology and associated fields for the future. In addition, the IRI Group will work on the improvement of working conditions to attract prospective employees.

The Company has valued the uniqueness of each of the IRI Group companies, while establishing certain rules for cooperation among the Group companies, and tried to build up corporate governance based on the “allied but independent” group management. In particular, the Company emphasized the independence of the Group companies listed on stock exchanges. Unfortunately, however, IXI Co., Ltd., which became a subsidiary of the Company in August 2005, had committed dishonest transactions. This led eventually to delisting of not only IXI Co., Ltd. but also the Company. The delisting had substantial adverse impacts on the credibility of the IRI Group. Even when the Company becomes a wholly-owned subsidiary of ORIX Corporation, the Company is still determined to exert oneself to develop and reinforce the corporate governance system by recovering the credibility impaired, reinforcing the credit control system, developing the internal check system to prevent illegal transactions, and familiarizing employees with legal compliance.

9

(10) Major business segments (as of June 30, 2007)

(11) Principal offices (as of June 30, 2007)

(12) Employees (as of June 30, 2007)

10

(13) Major creditor and borrowing amount (as of June 30, 2007)

(14) Major subsidiaries (as of June 30, 2007)

(15) Other material matters concerning the present situations of the IRI Group

No particular matters to report for this accounting year.

11

2. Matters Concerning Officers of the Company

(1) Directors and Corporate Auditors

12

(2) Changes in Directors and Corporate Auditors for the year

Mr. Kei Furuta, Mr. Rintaro Umenai, and Mr. Tsukasa Ogino took office as Director, and Mr. Naoshi Shima and Mr. Shinichiro Ozeki took office as Corporate Auditor after they were elected at the 10th Ordinary General Meeting of Shareholders of the Company held on September 26, 2006.

Directors Yoshimichi Kaneki, Masaki Kinoshita and Eiichi Shimizu, Corporate Auditors Haruhisa Ishida and Toshiyuki Takahashi retired office upon closing of the 10th Ordinary General Meeting of Shareholders of the Company held on September 26, 2006.

Director Hirokazu Shimada resigned on February 6, 2007 for personal reasons.

Director Rintaro Umenai resigned on March 31, 2007 for medical treatment.

(3) Remunerations for Directors and Corporate Auditors

Notes:

(4) Matters concerning Outside Officers

Note: Positions are as of June 30, 2007.

13

14

The Articles of Incorporation of the Company have provisions of limitation of liability to be borne by Outside Directors and Outside Corporate Auditors so that they can fully exercise their capabilities as Outside Officers.

Pursuant to such provisions of the Articles of Incorporation, the Company has concluded liability limitation agreements with all of the Outside Directors and Outside Corporate Auditors, a summary of which is stated as follows:

Outside Directors and Outside Corporate Auditors shall pay compensation for liability, prescribed in Article 423 Paragraph 1 of the Company Law, up to the amount of either one million yen or the minimum liability limit prescribed in Article 425 Paragraph 1 of the Company Law, whichever is larger, if an Outside Director or Outside Corporate Auditor, with good intent, commits non-gross negligence during service for the Company.

Note: The number of shareholders decreased by 13,373 compared with the number at the end of the preceding fiscal year.

(4) Number of increased shares during the term

(5) Names of major shareholder who hold one-tenth or more of the total number of shares issued (not including own shares)

15

4. Matters Concerning Stock Acquisition Rights, etc. of the Company

(1) Summary of stock acquisition rights granted to Officers of the Company at the end of the fiscal year

Exhibit 1:

16

Exhibit 2:

17

18

Exhibit 3:

Exhibit 4:

(2) Summary of stock acquisition rights granted to employees etc. of the Company during the fiscal year

No employees were granted.

19

5. Matters Concerning Accounting Auditor

(1) Name of Accounting Auditor

Deloitte Touche Tohmatsu

(2) Remunerations for the Accounting Auditor

24,000 thousand yen

71,595 thousand yen

(3) Accounting Auditors for subsidiaries of the Company

(4) Description of non-audit services

No such service.

(5) Summary of liability limitation agreements

No such agreements concluded.

(6) Policy on dismissing or not reappointing the Accounting Auditor

The Board of Corporate Auditors may discuss dismissal of the Accounting Auditor or the Board of Directors may propose dismissal or non-reappointment of the Accounting Auditor as an agendum at a general meeting of shareholders. The Company may take these measures owing to its circumstances, or when the Accounting Auditor is regarded as falling on one of the items defined in Article 340 Paragraph 1 of the Company Law, or when the Accounting Auditor infringes on or interfere with a provision of the Company Law or the Certified Public Accountant Law or other regulations, or when the Accounting Auditor is regarded as offending public order and morals and when the Company considers dismissal or non-reappointment as reasonable.

20

6. Summary of Board of Directors’ Resolutions on the Development of Systems Necessary for Ensuring Appropriateness in Business

The Board of Directors’ meeting, which was held on May 12, 2006, has decided the following policies in order to develop an internal control system.

(1) Institutional systems that ensure the compliance of Directors’ execution of assignments with law and the Articles of Incorporation and the compliance of employees’ execution of duties with law and the Articles of Incorporation

(2) Matters concerning safekeeping and controlling information on Directors’ execution of assignments

(3) Rules of managing exposures to loss and other systems

21

(4) Systems that ensure the Directors’ efficient exercise of assignments

(5) Systems that ensure appropriateness in business conducted by the business group consisting of corporations, the parent company, and its subsidiaries

(6) System of assigning duties to employees upon request by Corporate Auditors and ensuring their independence from Directors

(7) System that allows Directors and employees to report to the Corporate Auditor concerned and other Corporate Auditors

(8) Other Systems that ensure effective audit by Corporate Auditors

22

Non-Consolidated Financial Statements

(From July 1, 2006 to June 30, 2007)

1. Matters Concerning IXI Co., Ltd.

(1) Overview of the current fiscal year

    IXI Co., Ltd. (“IXI”) filed for civil rehabilitation proceedings to the Osaka District Court on January 21, 2007. The court decided to begin civil rehabilitation proceedings on January 29, 2007. IXI, which submitted a rehabilitation plan on August 10, 2007, was still under the control of the trustee in bankruptcy as of August 23, 2007. IXI had failed to submit a semiannual report (six months from April 1, 2006 to September 30, 2006) of the accounting year ended March 31, 2007 in time to the Financial Service Agency and has been delisted from the Tokyo Stock Exchange. Furthermore, Osaka District Public Prosecutor's Office has begun to investigate IXI on a charge of illegal transactions. In the course of the investigation, some mass media reported that IXI had probably been involved in fictitious circular transactions and indebted for a large off-the-book amount. The Company considers that those illegal transactions and window-dressing operations are probably true. The Company completed the transfer of all of its shares of IXI to a third party on March 29, 2007.

(2) Treatment in presenting the non-consolidated financial statements for the current fiscal year

    IXI had failed to submit a semiannual report in time and has been delisted. As a result, the Company was unable to grasp IXI’s financial position, which is the basis for valuing IXI’s stocks. Accordingly, the Company wrote down loss on the book value of all the shares of IXI.

(3) Impacts on the 12th term (from July 1, 2007 to June 30, 2008) and onward

    Progress in IXI’s civil rehabilitation proceeding and its closing of accounts are unlikely to have impacts on the non-consolidated financial statements of the Company for the 12th term and onward.

23

2. Non-Consolidated Balance Sheet (as of June 30, 2007)

(Thousands of yen)

24

3. Non-Consolidated Statement of Income (from July 1, 2006 to June 30, 2007)

(Thousands of yen)

25

4. Non-Consolidated Statement of Changes in Shareholders’ Equity, etc.

(from July 1, 2006 to June 30, 2007)

(Thousands of yen)

26

5. Notes to Non-Consolidated Financial Statements

1. Significant Accounting Policies

(1) Standards and method of valuation of securities

Stocks of subsidiaries and affiliates:

Stated at cost using the moving-average method.

Other securities

Securities with market quotations:

Securities with fair market value are stated at fair market value based on the quoted market prices as of the accounting year end.

Variation differences are directly charged or credited to net assets and cost of securities sold is computed by the moving average method.

Securities without market quotations:

Securities without fair market value are stated at cost being determined by the moving-average method.

The Company posted an amount, as the amount of investments, which is equivalent to its equity of the assets of investment partnerships, and posted net income/loss, as net income/loss for the accounting year, which is equivalent to its equity of the net income/loss in the closing account of the investment partnerships prescribed in the investment partnership agreements (net method).

(2) Standards and methods of valuation of inventories

Work in process:

Carried by specific control method

(3) Depreciation method for fixed assets

Tangible assets:

Declining-balance method

Buildings are amortized over 8 to 15 years, while Tools, furniture and fixtures are amortized over 3 to 10 years.

Intangible assets:

Straight-line method

Software for internal use is amortized by straight-line method over the expected available periods within 5 years.

(4) Method of accounting of deferred assets

Stock issue expense:

Posted as expense at full value upon issuance.

Bond issue expense:

Amortized equally over 3 years.

(5) Standards of accounting for reserves

Allowance for doubtful accounts:

General allowances are provided using a rate determined by past bad debts experience and also specific allowances are provided for the estimated amounts considered to be uncollectible after reviewing individual collectability of certain doubtful accounts.

(6) Accounting for leases

Financial leases other than those that are deemed to transfer the ownership of the leased property to the lessee are accounted for as operating leases.

(7) Accounting for consumption tax

Consumption tax is accounted for by the tax exclusion method.

Consumption tax on non-deductible assets is posted as expense incurred during the fiscal year.

27

2. Notes to Balance Sheet

Corresponding liability

3. Notes to Non-Consolidated Statement of Income

(1) Amounts less than one thousand yen are rounded down to the nearest thousand yen.

(2) Amounts of business with subsidiaries and affiliates

4. Notes to Non-Consolidated Statements of Changes in Shareholders’ Equity, etc.

(1) Amounts less than one thousand yen are rounded down to the nearest thousand yen.

(2) Class of treasury stock and total number

Note: The increase in the number of shares of treasury stock stemmed from repurchases of fractional shares.

5. Notes to Tax Effects

(1) Details of deferred tax assets and liabilities by major cause incurred

28

6. Transaction with Related Companies

7. Per Share Information

Net assets per share are computed based on the following:

Net income per share is computed based on the following:

8. Important Subsequent Events

Changes in subsidiaries and affiliates

To focus all of its corporate resources on IT business, the principal business of the IRI Group, the Company concluded an agreement on July 9, 2007 in which all the shares of consolidated subsidiary FiberTech Co., Ltd. held by the Company shall be transferred. As a result, the Company has called off the parent-subsidiary relation with FiberTech since July 10, 2007, the stock transfer date. A summary of the agreement is as follows:

29

Accounting Auditor’s Report (copy)

Independent Auditor’s Report

August 23, 2007

Internet Research Institute, Inc.

The Board of Directors

Deloitte Touche Tohmatsu

Designated and Engagement Partner CPA

Takashi Inoue (seal)

Designated and Engagement Partner CPA

Yasufumi Mitomi (seal)

Pursuant to Article 436 Paragraph 2 Item 1 of the Company Law, we have audited the non-consolidated financial statements, that is, the non-consolidated balance sheet, the non-consolidated statement of income, non-consolidated statement of changes in shareholders' equity, etc., the notes to non-consolidated financial statements, and the supplementary schedules of Internet Research Institute, Inc. (the “Company”), for the 11th fiscal term from July 1, 2006 to June 30, 2007. These non-consolidated financial statements and the supplementary schedules are the responsibility of the Company's management.

We conducted our audit, except the IXI case stated below, in accordance with auditing standards generally accepted in Japan. Those auditing standards require that we plan and perform the audit to obtain reasonable assurance as to whether the non-consolidated financial statements and supplementary schedules are free of material misstatement. The audit included examining, on a test basis, evidence supporting the amounts and disclosures in the non-consolidated financial statements and supplementary schedules, assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall presentation of the non-consolidated financial statements.