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October 6, 2008

Financial Summaries for the First Quarter of the Fiscal Year Ending May 31, 2009
(June 1, 2008 – August 31, 2008)
Company name:
INTER ACTION Corporation
Stock exchange listing: TSE Mothers Market
Stock code:
7725
URL: http://www.inter-action.co.jp/
Representative: Hideo
Kiji,
President

Contact:
Takao Kiji, Director, General Manager of Operation Department
Tel: +81-45-788-8373
Scheduled date of filing of Quarterly Report: October 14, 2008
(All amounts are rounded down to the nearest million yen)
1. Consolidated Financial Results for the Three Months Ended August 31, 2008 (Jun. 1, 2008 – Aug. 31, 2008) (1) Consolidated results of operations

(Percentages represent year-on-year changes)


Sales
Operating income
Ordinary income
Net income

Million yen
%
Million yen
%
Million yen
%
Million yen
%
Three months ended Aug. 2008
365
-
(19)
-
(18)
-
(9)
-
Three months ended Aug. 2007
299 (56.0)
(86)
-
(107)
-
(82)
-
Net income per share
Net income per share
(diluted)
Yen
Yen
Three months ended Aug. 2008
(155.28)
-
Three months ended Aug. 2007
(1,353.84)
-
(2) Consolidated financial position


Total assets
Net assets
Equity ratio
Net assets per share

Million yen
Million yen
%
Yen
As of August 31, 2008
3,894
2,025
52.0
33,287.03
As of May 31, 2008
4,091
2,033
49.7
33,423.43
Reference: Shareholders’ equity
August 2008:
2,025 million yen
May 2008:
2,033 million yen
2. Dividends

Dividend per share
Record
date
1Q-end 2Q-end 3Q-end Year-end Annual

Yen Yen Yen Yen Yen
Fiscal year ended May 2008
-
0.00
-
0.00
0.00
Fiscal year ending May 2009
-
-
-
-
-
Fiscal year ending May 2009 (forecast)
-
0.00
-
150.00
150.00
Note: Revision of dividend forecast during the period: None
3. Consolidated Forecast for the Fiscal Year Ending May 31, 2009 (Jun. 1, 2008 – May 31, 2009)
(Percentages represent year-on-year changes)

Sales
Operating income
Ordinary income
Net income
Net income per share

Million yen
%
Million yen
%
Million yen
%
Million yen
%
Yen
Interim 816
-
(27)
-
(44)
-
(31)
-
(509.52)
Full year
1,710 (0.8)
65
-
25
-
10
-
164.36
Note: Revision of consolidated forecast during the period: None

INTER ACTION Corporation (7725) 1Q FY5/09 Financial Summaries

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4. Others
(1) Changes in consolidated subsidiaries during the period (changes in scope of consolidation): None
Newly added: -

Excluded: -

(2) Application of simplified accounting methods and special accounting methods in the preparation of quarterly
consolidated financial statements: None
(3) Changes in accounting principles, procedures and presentation methods for preparation of quarterly consolidated
financial statements
1) Changes caused by revision of accounting standards: Yes 2) Other changes: None
Note: Please refer to “Qualitative Information and Financial Statements, 4. Others” on page 4 for further information.

(4) Number of shares outstanding (common stock)
1) Number of shares outstanding at the end of period (including treasury stock)

Aug. 2008:
63,841 shares
May 2008:
63,841 shares
2) Number of treasury stock at the end of period

Aug. 2008:
3,000 shares
May 2008:
3,000 shares
3) Average number of common shares outstanding during the period

Aug. 2008:
63,841 shares
Aug. 2007:
63,841 shares

* Cautionary statement with respect to forward-looking statements
1. The aforementioned forecasts are based on assumptions regarding economic and market trends at the time this presentation was
prepared. Actual results may differ from these forecasts for a number of factors.
2. Application of accounting policies in the preparation of quarterly consolidated financial statements
Effective from the current fiscal year, the Company has adopted “Accounting Standards for Quarterly Financial Statements” (ASBJ Statement No. 12) and “Guidance on Accounting Standards for Quarterly Financial Statements” (ASBJ Guidance No. 14). In addition, the quarterly consolidated financial statements are prepared in accordance with “Regulations for Quarterly Consolidated Financial Statements”.

INTER ACTION Corporation (7725) 1Q FY5/09 Financial Summaries

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Qualitative Information and Financial Statements

1. Qualitative information regarding consolidated operational results
In the first quarter, sales of the INTER ACTION Group benefited from the resumption of investments in illuminators for testing CCD/C-MOS imagers, the Group’s core product, and from other factors. The result was a 66 million yen increase in sales from 299 million yen one year earlier to 365 million yen in this fiscal year’s first quarter.
The cost of sales increased 85 million yen from 129 million yen to 215 million yen and rose from 43.4% of sales to 58.8% of sales. This was mainly because of a higher cost of sales ratio for units other than equipment and for maintenance services. Selling, general and administrative expenses decreased 85 million yen from 255 million yen to 170 million yen. This was attributable to cost reduction measures based in rigorous cost management, particularly a cut in directors’ remunerations and other personnel expenses. The net result was a 66 million yen decline in the operating loss from 86 million yen in previous first quarter to 19 million yen in the current first quarter.
A foreign exchange gain and other items made non-operating income larger than non-operating expenses. As a result, the ordinary loss fell 89 million yen from 107 million yen to 18 million yen.
The sale to Teseda Corporation of non-exclusive rights to manufacture DFT (design-for-test) test system hardware resulted in an extraordinary income of 30 million yen from the sale of manufacturing rights. Although there was a negative impact on earnings from deferred income taxes, the net loss was down 72 million yen from 82 million yen to 9 million yen.
Figures for the previous fiscal year’s first quarter are provided solely for reference. Sales by product category were as follows.

(Electronics testing equipment business)
Semiconductor manufacturers continue to hold back on capital expenditures. But semiconductor manufacturers in South Korea resumed their investments in illuminators for testing CCD/C-MOS imagers, the Group’s core product, in the first quarter of the current fiscal year. In addition, sales in this business benefited from sales of image testing equipment to solar cell panel manufacturers, a new market category for INTER ACTION.
Due to these factors, segment sales to external customers totaled 361 million yen and operating income was 118 million yen.
(Security systems business)
Security products that incorporate image processing technology accounted for most sales in this business. In the first quarter, segment sales to external customers totaled 4 million yen and there was a 27 million yen operating loss.
2. Qualitative information regarding consolidated financial position
Total assets decreased 197 million yen over the end of the previous fiscal year to 3,894 million yen at the end of the first quarter of the current fiscal year.
Current assets decreased 196 million yen to 2,899 million yen mainly because of a decline in cash and deposits in banks. Fixed assets totaled 994 million yen, about the same as at the end of the previous fiscal year.
Total liabilities decreased 189 million yen to 1,869 million yen.
Current liabilities decreased 70 million yen to 792 million yen mainly because of a decline in trade accounts payable. Long-term liabilities decreased 118 million yen to 1,076 million yen mainly because of a decline in long-term borrowings.
Net assets decreased 8 million yen to 2,025 million yen.

INTER ACTION Corporation (7725) 1Q FY5/09 Financial Summaries

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Cash flow position
Cash and cash equivalents totaled 1,551 million yen at the end of the first quarter of the current fiscal year, 337 million yen less than at the end of the previous fiscal year.
A summary of cash flows is as follows.
Operating activities
Net cash used in operating activities was 216 million yen. There were an increase of 37 million yen in trade receivables and a decline of 39 million yen in trade payables.
Investing activities
Net cash used in investing activities was 16 million yen. There was the payment of 24 million yen for loans receivable.
Financing activities
Net cash used in financing activities was 106 million yen. There were proceeds of 50 million yen from long-term borrowings, but the payment of 108 million yen for the repayment of long-term borrowings and the payment of 40 million yen for redemption of corporate bonds.
3. Qualitative information regarding forecast
INTER ACTION is working on improving operating efficiency and enacting other structural reforms in order to become profitable in the fiscal year ending in May 31, 2009, which is the Company’s highest priority. In the first quarter, these actions have already contributed to a decline in selling, general and administrative expenses. The Company plans to continue making progress with its structural reforms.
The downturn in the semiconductor market will probably continue to impact the desire of semiconductor manufacturers to make capital expenditures. INTER ACTION plans to respond to this challenge by introducing new products in a timely manner and adding sales channels.
Based on this outlook, there are no changes to the first half and full year forecasts that were announced on July 15, 2008.
4. Others
(1) Changes in consolidated subsidiaries during the period (changes in scope of consolidation) No reportable information. (2) Application of simplified accounting methods and special accounting methods in the preparation of quarterly
consolidated financial statements
1) Application of simplified accounting methods
No reportable information.
2) Application of special accounting methods in the preparation of quarterly consolidated financial statements
No reportable information.
(3) Changes in accounting principles, procedures and presentation methods for preparation of quarterly consolidated
financial statements
(Changes in accounting policies)
1) Application of accounting policies in the preparation of quarterly consolidated financial statements
Effective from the current fiscal year, the Company has adopted “Accounting Standards for Quarterly Financial Statements” (ASBJ Statement No. 12) and “Guidance on Accounting Standards for Quarterly Financial Statements” (ASBJ Guidance No. 14). In addition, the quarterly consolidated financial statements are prepared in accordance with “Regulations for Quarterly Consolidated Financial Statements”.

INTER ACTION Corporation (7725) 1Q FY5/09 Financial Summaries

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2) Changes in valuation criteria and methods for principal assets
Inventories In prior years, inventories for regular sales purposes was computed primarily by the specific-identification cost method for manufactured goods and work in process, and the monthly-period-average cost method for raw materials. With the adoption of “Accounting Standards for Measurement of Inventories” (ASBJ Statement No. 9: July 5, 2006) from the period under review, manufactured goods and work in process are valued primarily by the specific-identification cost method (the carrying value on the balance sheet is written down to reflect the effect of lower profit margins) and raw materials are valued by the monthly-period-average cost method (the carrying value on the balance sheet is written down to reflect the effect of lower profit margins). The effect of these changes was to decrease net income before income taxes by 8,832 thousand yen.
(Supplementary Information)
INTER ACTION has used the fiscal 2008 revision of Corporation Tax Law to revise the useful life of tangible fixed assets for accounting purposes. Effective from the first quarter of the current fiscal year, the useful life of some machinery and equipment has been changed.
The effect of this change on profit or loss is insignificant.