20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

For the transition period from                      to                     

Commission file number: 1-31452

Konami Kabushiki Kaisha

(Exact name of registrant as specified in its charter)

KONAMI CORPORATION

(Translation of registrant’s name into English)

Japan	7-2, Akasaka 9-chome, Minato-ku, Tokyo 107-8323 Japan
(Jurisdiction of incorporation or organization)	(Address of principal executive offices)

Noriaki Yamaguchi, +81-3-5770-0573, +81-3-5412-3300,

7-2, Akasaka 9-chome, Minato-ku, Tokyo 107-8323, Japan

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock1	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2010, 133,460,664 shares of common stock were outstanding, including 398,323 shares represented by 398,323 American Depositary Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    x                Accelerated filer    ¨                Non-accelerated filer    ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x         International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨         Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item 18   ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

¹ Not for trading, but only in connection with the listing of American Depositary Shares, each representing one share of common stock.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Identity of Directors, Senior Management and Advisers	1
Item 2.	Offer Statistics and Expected Timetable	1
Item 3.	Key Information	1
Item 4.	Information on the Company	20
Item 4A.	Unresolved Staff Comments	64
Item 5.	Operating and Financial Review and Prospects	64
Item 6.	Directors, Senior Management and Employees	91
Item 7.	Major Shareholders and Related Party Transactions	96
Item 8.	Financial Information	98
Item 9.	The Offer and Listing	99
Item 10.	Additional Information	101
Item 11.	Quantitative and Qualitative Disclosures about Market Risk	115
Item 12.	Description of Securities Other Than Equity Securities	119
Item 12D.	3. Fees payable by ADR Holders	119
Item 12D.	4. Fees paid to KONAMI CORPORATION by the Depositary	119
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	120
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	120
Item 15.	Controls and Procedures	120
Item 16A.	Audit Committee Financial Expert	121
Item 16B.	Code of Ethics	121
Item 16C.	Principal Accountant Fees and Services	121
Item 16D.	Exemption from the Listing Standards for Audit Committees	122
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	123
Item 16F.	Change in Registrant’s Certifying Accountant	123
Item 16G.	Corporate Governance	123
PART III
Item 17.	Financial Statements	126
Item 18.	Financial Statements	126
Item 19.	Exhibits	126
Index to Consolidated Financial Statements and Financial Statement Schedule		F-1

As used in this annual report, references to “KONAMI” “we” “our” and “us” are to KONAMI CORPORATION and its subsidiaries, unless the context otherwise requires.

As used in this annual report, “fiscal 2010” refers to our fiscal year ended March 31, 2010, and other fiscal years are referred to in a corresponding manner.

As used in this annual report, “U.S. dollar” or “$” means the lawful currency of the United States of America, and “yen” or “¥” means the lawful currency of Japan.

As used in this annual report, “U.S. GAAP” means accounting principles generally accepted in the United States, and “Japanese GAAP” means accounting principles generally accepted in Japan.

As used in this annual report, “ADS” means an American Depositary Share, and “ADR” means an American Depositary Receipt.

PART I

Item 1. Identity of Directors, Senior Management and Advisers.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A.    Selected Financial Data.

The following tables include selected historical financial data as of and for the fiscal years ended March 31, 2006 through 2010, derived from our audited consolidated financial statements prepared in accordance with U.S. GAAP. You should read the selected financial data below in conjunction with Item 5 of this annual report and our audited consolidated financial statements and information prepared in accordance with U.S. GAAP which are included in this annual report.

Selected Financial Data Prepared in Accordance with U.S. GAAP

	Fiscal year ended/as of March 31,
	2006			2007			2008			2009			2010			2010
	(Yen in millions and U.S. dollars in thousands, except per share data)
Income Statement Data:
Net revenues	¥	262,137		¥	280,279		¥	297,402		¥	309,771		¥	262,144		$	2,817,541
Cost of products sold and services rendered		184,744			193,506			205,188			212,636			185,734			1,996,281
Selling, general and administrative expenses		55,199			58,628			58,375			58,653			55,407			595,518
Restructuring and impairment charges (1)(2)(3)		19,713			—			—			11,121			2,339			25,140
Operating income		2,481			28,145			33,839			27,361			18,664			200,602
Other income (expenses), net		5,957			(578	)		(1,005	)		(2,642	)		(1,542	)		(16,574	)
Income before income taxes and equity in net income (loss) of affiliated company		8,438			27,567			32,834			24,719			17,122			184,028
Income taxes		(10,270	)		10,919			13,080			10,715			3,600			38,693
Equity in net income (loss) of affiliated company		33			138			180			(2,490	)		56			602
Net income		18,741			16,786			19,934			11,514			13,578			145,937
Net income (loss) attributable to the noncontrolling interest		(4,267	)		575			1,589			640			264			2,837
Net income attributable to KONAMI CORPORATION	¥	23,008		¥	16,211		¥	18,345		¥	10,874		¥	13,314		$	143,100
Basic net income attributable to KONAMI CORPORATION per share	¥	175.86		¥	118.15		¥	133.63		¥	79.30		¥	99.76		$	1.07
Diluted net income attributable to KONAMI CORPORATION per share	¥	175.80		¥	118.09		¥	133.57		¥	79.30		¥	99.76		$	1.07
Cash dividends declared per share (4)	¥	54.00		¥	54.00		¥	54.00		¥	54.00		¥	54.00
Cash dividends declared per share in USD (5)	$	0.46		$	0.46		$	0.54		$	0.54		$	0.58
Balance Sheet Data:
Total current assets	¥	144,327		¥	138,261		¥	140,079		¥	136,675		¥	134,562		$	1,446,281
Total goodwill, identifiable intangible assets and property and equipment		103,129			114,617			126,786			118,360			119,579			1,285,243
Total assets		302,637			304,657			319,248			301,670			298,198			3,205,052
Total current liabilities		81,224			82,466			75,113			62,386			53,465			574,645
Total long-term liabilities		55,477			44,832			57,052			55,745			55,502			596,539
Common stock		47,399			47,399			47,399			47,399			47,399			509,448
Total KONAMI CORPORATION stockholders’ equity		163,815			174,662			182,759			178,632			184,465			1,982,642
Noncontrolling interest		2,121			2,697			4,324			4,907			4,766			51,226
Total equity		165,936			177,359			187,083			183,539			189,231			2,033,868

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(1) During fiscal 2006, we determined that the fair value of long-lived assets and identifiable intangible assets related to the Health & Fitness reporting unit was lower than their carrying value as a result of a review based on independent valuations. Accordingly, impairment of long-lived assets and identifiable intangible assets of ¥10,533 million and ¥9,180 million were recorded in operating expenses respectively.

(2) During fiscal 2009, we recorded ¥11,121 million as restructuring and impairment charges that include impairment losses of long-lived assets for our Health & Fitness segment.

(3) During fiscal 2010, we recorded ¥2,339 million as restructuring and impairment charges that include impairment losses of long-lived assets and expenses related to closure of facilities for our Health & Fitness segment.

(4) Cash dividends per share consist of interim dividends paid during the fiscal year and year-end dividends paid after the fiscal year-end.

(5) Calculated using the yen-dollar exchange rate of the respective fiscal year end date, the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

Exchange Rate Data

Fluctuations in exchange rates between the Japanese yen and U.S. dollar and other currencies will affect the U.S. dollar and other currency equivalent of the yen price of our shares and ADSs and the U.S. dollar amounts received on conversion of cash dividends. We have translated some Japanese yen amounts presented in this annual report into U.S. dollars solely for your convenience. Unless otherwise noted, the rate used for the translations was ¥93.04 per $1.00 which was the mid price for telegraphic transfer of U.S. dollars for yen quoted by The Bank of Tokyo-Mitsubishi UFJ, Ltd. as of March 31, 2010, the last business day on or prior to the date of our most recent annual consolidated financial statements. The translation should not be construed as a representation that the yen amounts have been, could have been, or could in the future be converted into U.S. dollars at the above or any other rate.

The following table presents the noon buying rates for Japanese yen per $1.00 in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for and as of the end of each period indicated.

Fiscal year ended March 31,	High	Low	Average (1)	Period-end
2006	120.93	104.41	113.67	117.48
2007	121.81	110.07	116.55	117.56
2008	124.09	96.88	114.31	99.85
2009	110.48	87.80	100.62	99.15
2010	100.71	86.12	92.93	93.40
Calendar year 2010
January	93.31	89.41	91.10	90.38
February	91.94	88.84	90.14	88.84
March	93.40	88.43	90.72	93.40
April	94.51	92.03	93.45	94.24
May	94.68	89.89	91.97	90.81
June	92.33	88.39	90.81	88.49

(1) Calculated from the average of the exchange rates on the last day of each month during the period with respect to fiscal years and from the average of daily noon buying rate with respect to calendar years.

As of July 23, 2010, the noon buying rate was ¥87.31 per $1.00.

B.    Capitalization and Indebtedness.

Not applicable.

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C.    Reasons for the Offer and Use of Proceeds.

Not applicable.

D.     Risk Factors.

Special Note Regarding Forward-looking Statements.

This annual report contains forward-looking statements about our industry, our business, our plans and objectives, our financial condition and our results of operations that are based on our current expectations, assumptions, estimates and projections. These forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan” or similar words. These statements discuss future expectations, identify strategies, discuss market trends, contain projections of results of operations or of financial condition, or state other forward-looking information. Known and unknown risks, uncertainties and other factors could cause our actual results to differ materially from and worse than those contained in or suggested by any forward-looking statement. We cannot promise that our expectations, projections, anticipated estimates or other information expressed in or underlying these forward-looking statements will turn out to be correct. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Important risk factors that could cause our actual results to be materially different from as described in the forward-looking statements are set forth in this Item 3.D or elsewhere in this annual report and include, without limitation:

• our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences;

• changes in economic conditions affecting our operations or the way that individuals choose to spend their leisure time;

• our ability to successfully expand internationally with a focus on our Digital Entertainment segment and Gaming & System segment;

• our ability to successfully expand the scope of our business and broaden our customer base through our Health & Fitness segment;

• our ability to successfully generate cash flows on an individual club operation level sufficient to recover the carrying value of the related individual club operations;

• regulatory developments and changes, in particular in the gaming industry, and our ability to respond and adapt to those changes;

• our ability to successfully integrate current acquisitions and realize expected synergies and business benefits to recover the acquisition investment, including goodwill and separately identifiable intangible assets; and

• our expectations with regard to further acquisitions and the integration of any companies we may acquire.

Risks Relating to Our Overall Business

Our future success is dependent on our ability to release “hit” products.

The market for video game software, amusement arcade games, token-operated games, card games and online service products that belong to our Digital Entertainment segment, gaming machines that belong to our Gaming & System segment, and pachinko liquid crystal display and pachinko slot machines that belong to our

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Other Operations segment are “hit” driven. “Hit” products account for a substantial portion of our net revenues and of the revenues in each of these markets. For example, the fast growth of our card game products in recent years resulted from, and was heavily dependent on, the sales of our Yu-Gi-Oh! Trading Card Game. Similarly, hit video game software titles such as the Yu-Gi-Oh! series, the DanceDanceRevolution series, the WORLD SOCCER Winning Eleven series and the METAL GEAR SOLID series, as well as our e-AMUSEMENT products for our amusement facilities, have contributed significantly to our recent results. If we do not develop, publish and distribute “hit” products in the future, our financial condition, results of operations and profitability in these segments could be negatively affected. The most important factor in developing hit products is to respond quickly to public tastes and preferences that change rapidly and are hard to predict. Therefore, if we fail to accurately anticipate and promptly respond to changing tastes and preferences, our business, revenues and profits in these segments could be harmed.

Our revenues are dependent on timely introduction of popular new products.

Our success depends on generating revenue from the timely introduction and shipment of new products. The majority of sales of new video game software generally occurs in the first thirty to one hundred and twenty days after release. The sales occurrence for amusement arcade games, token-operated games and card game products that belong to Digital Entertainment segment, gaming machines that belong to Gaming & System segment and pachinko slot machines that belong to Other segment also tends to be limited. We are constantly required to introduce new products in order to generate revenues and/or to replace declining revenues from older products. Also, because revenues earned during the early life of a product generally constitute a relatively high percentage of the total revenues earned from a product, a significant delay in the introduction of one or more new products, or the inability to ship in sufficient quantities to meet demand, could negatively affect sales and have a negative impact on our financial condition and results of operations. Unanticipated delays could also cause us to miss an important selling season such as the year-end holiday buying season or summer vacation. Moreover, our products may not achieve and sustain market acceptance during the short life cycle sufficient to generate revenue to recover our investment in developing the products and to cover our other costs.

The timely shipment of a new product depends on various factors, including the development process, approval by third-party licensors, production capacity and other factors such as debugging and approval by hardware licensors, in the case of video game software. It is possible that some of our products will not be released or shipped in a timely fashion in accordance with our plans.

Competition for market acceptance and pricing competition affect our revenue and profitability.

The markets for video game software, arcade games, token-operated games, card game products, gaming machines and most of our other products are intensely competitive and new products and platforms are regularly introduced. Only a small percentage of products introduced in the market achieve any degree of sustained market acceptance. In the case of video game software for handheld systems and home game consoles, amusement arcade games, token-operated games, gaming machines and pachinko slot machines, significant price competition and reduced profit margins may result as the hardware product cycle matures. In addition, competition from new technologies such as video game software for play over the Internet or mobile phones may reduce demand in markets in which we have traditionally competed. As a result of prolonged price competition and reduced demand due to competing technologies, our operations in the past have been, and in the future could continue to be, negatively impacted.

Our competitors vary in size from small companies to very large corporations, some of which have significantly greater financial, marketing and product development resources than we have. Due to these greater resources, certain of our competitors can undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors of desirable motion picture, television, music, sports and character properties and pay more to third party software developers than we can. It is also possible that some of our competitors will form alliances or enter into exclusive business arrangements with key creators, distributors or retailers overseas which could hinder our ability to expand into international markets.

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A decline in consumer spending due to unfavorable economic conditions could hinder sales of our products.

Our product sales are affected by customer’s ability and desire to spend disposable income on the purchase of our products. Any significant downturn in general economic conditions which results in a reduction in consumers’ discretionary spending could reduce demand especially for entertainment and health-oriented products and services like ours and may harm our business. Such industry downturns have been, and may continue to be, characterized by diminished product demand and subsequent erosion of average selling prices.

Our performance may be vulnerable to rapidly changing consumer preferences.

Sales of our products depend substantially on how consumers decide to spend their money. Many of our markets are characterized by rapidly changing trends and fads, and frequent innovations and improvements are necessary to maintain consumer interest. We compete with other forms of entertainment and leisure activities. For example, we believe that the overall growth in the use of the internet and online services by consumers may pose a competitive threat if customers and potential customers spend less of their available time using video game software, amusement arcade games, token-operated games, card game products, gaming machines and pachinko and pachinko slot machines, and more time using the Internet or otherwise choose to engage in other forms of entertainment and leisure activities. Our financial performance may be harmed if we are unable to successfully adapt our products and services to these changing trends and fads.

Fluctuations in our quarterly operating results make our quarterly revenues and income difficult to predict.

The timing of release of new products can cause material quarterly revenue and earnings fluctuations. A significant portion of revenues in any quarter is often derived from sales of new products introduced in that quarter or in the immediately preceding quarter. If we are unable to begin volume shipments of a significant new product during the scheduled quarter, our revenues and earnings will be negatively affected in that period. In addition, because a majority of the unit sales for many of our products typically occur in the first thirty to one hundred and twenty days following their introduction, revenues and earnings may increase significantly in a period in which a major product is introduced and may decline in the following period or in periods in which there are no major product introductions.

Our quarterly operating results also may be materially impacted by other factors, including the level of market acceptance or demand for video game software, the timing of hardware platform introductions, the level of development and/or promotion expenses for a video game title. Also, many of our products are in the greatest demand from November to January, particularly in November and December and at the end and beginning of the year. The reason for this trend is that these months correspond to the periods of children’s school holidays and it is customary in Japan to give presents to girlfriends, boyfriends, and family members during the Christmas season in December and buy toys as Christmas and New Year presents in January. In addition, in the U.S. demand is highest from November, starting with Thanksgiving and through the Christmas season. Moreover, in a platform transition period, sales of video game software products can be significantly affected by the timeliness of introduction of video game systems by the manufacturers of those platforms, such as Sony Corporation (“Sony”), Nintendo Co., Ltd. (“Nintendo”) and Microsoft Corporation (“Microsoft”).

Inability to procure commercially valuable intellectual property licenses may prevent product releases or result in reduced product sales.

We focus our development and publishing activities principally on products that are, or have the potential to become, franchise brand properties. Many of our products are based on intellectual property and other character or story rights acquired or licensed from third parties. For example, our products often embody trademarks, trade names, logos, or copyrights licensed by third parties, such as Major League Baseball Properties, Inc., and Major League Baseball Players Association. We have also acquired content licenses from sports organizations such as FIFPro Commercial Enterprises BV, the Japan Professional Baseball League, the Japan Professional Soccer

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League, or J-League, and the Japan Football Association. In addition, we have obtained content licenses from various companies, including NIHON AD SYSTEMS Inc., Kodansha Ltd., and Shogakukan-Shueisha Productions Co., Ltd.

These license and distribution agreements are limited in scope and time, and we may not be able to acquire new licenses, renew licenses or include new products in existing licenses. The agreements are terminable upon the occurrence of a number of factors, including our material breach of the agreement, delay in payment of amounts due to the licensor in a timely manner, or a bankruptcy or insolvency. The loss of a significant number of our intellectual property licenses or of our relationships with licensors could have a material adverse effect on our ability to develop new products and therefore on our business and financial results.

Inadequate intellectual property protections could prevent us from enforcing or defending our proprietary technology.

We regard our products as proprietary and rely on a combination of patent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and other methods to protect our proprietary rights. We own or license various patents, copyrights and trademarks. We are aware that some unauthorized copying occurs within the video game software, trading card game and arcade machine industries. For example, unauthorized copies of the Yu-Gi-Oh! Trading Card Game have been found all over the world. If a significant volume of unauthorized copying of our trading card games and other products were to occur, it could cause material harm to our business and financial results.

Policing all the unauthorized use of our products is difficult and can be a persistent problem, especially in some international markets. Further, the laws of some countries where our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of Japan and the United States, or are poorly enforced. Legal protection of our rights may be ineffective in such countries, and we may be unable to protect our intellectual property rights, particularly as we pursue new and emerging technologies. We cannot assure you that existing intellectual property laws will provide adequate protection for our products in connection with these emerging technologies.

Infringement of intellectual property rights could lead to costly litigation and/or the need to enter into license agreements, which may result in increased operating expenses.

Existing or future infringement claims against us may result in costly litigation or require us to obtain a license for the proprietary rights of third parties, which could have a negative impact on our results of operations. As the number of our products increases there is an increased possibility of the contents and features of these products overlapping with the products of other companies, and we become subject to an increasing possibility of infringement claims. Although we are making efforts to ensure that our products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement.

From time to time, third parties have asserted that some of our products infringed their proprietary rights. These infringement claims have sometimes resulted in litigation against us. For example, in video game software featuring sports such as baseball and soccer, we use individual names and images of professional players, team names, logos and uniforms. Although we have obtained licenses to use them from organizations and agents which manage the rights of the professional players and the teams, in the event agreements change or any disputes arise among the professional players, the teams and organizations or agents which manage their rights, it is possible that such professional players, teams, organizations or agents might bring a lawsuit against us to suspend manufacturing and sales of the relevant video game software. Such a lawsuit may be time consuming and expensive to defend.

Intellectual property litigation or claims could force us to do one or more of the following:

• cease selling, incorporating or using products or services that incorporate the challenged intellectual property;

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• obtain a license from the holder of the infringed intellectual property, which, if available at all, may not be available on commercially favorable terms; or

• redesign our products, which could cause us to incur additional costs, delay introduction and possibly reduce commercial appeal of our products.

Any of these actions may cause material harm to our business and financial results.

If our products contain defects, our business could be harmed significantly.

Our video game software products, amusement arcade games, token-operated games, exercise equipments, gaming machines, pachinko liquid crystal displays (“LCDs”) and pachinko slot machines are complex and may contain undetected errors when first introduced or when new versions are released. We cannot assure you that, despite extensive testing prior to release, errors will not be found in new products or releases after shipment, resulting in loss of or delay in market acceptance. This loss or delay could significantly harm our business and financial results.

We may face limitations on our ability to find suitable acquisition opportunities and integrate acquired businesses.

In order to develop and market our products and services competitively, we are seeking opportunities in and outside Japan to make acquisitions of controlling or significant stakes in other businesses that will grow our current businesses. Some of these transactions could be material in size and scope. Our acquisitions strategy requires that we effectively coordinate and integrate our activities with those of the companies in which we invest or which we acquire. In the event we make such acquisitions or investments, we will face additional financial and operational risks, including:

• difficulty in assimilating the operations, technology and personnel of acquired companies;

• disruption in our business because of the allocation of financial and human resources to consummate the acquisitions;

• difficulty in retaining key technical and managerial personnel from acquired companies;

• dilution of our current shareholders if we issue equity to fund one or more of these acquisitions or investments;

• difficulty in successful integration of acquisitions and realization of expected synergies and business benefits to recover acquisition investments, including any goodwill and separately identifiable intangible assets; and

• assumption of operating losses and increased expenses, charges and liabilities in connection with acquisitions.

While we will continually be searching for additional acquisition opportunities, we may not be successful in identifying suitable acquisitions. As the video game software, amusement arcade machine, fitness club, gaming machine and pachinko and pachinko slot industries continue to consolidate, we face significant competition in seeking and consummating acquisition opportunities. We may not be able to consummate potential acquisitions or investments on terms acceptable to us or such an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. Our shareholders may not have the opportunity to review, vote on or evaluate future acquisitions.

Our business and financial results could be negatively impacted if we are unable to attract additional qualified employees or retain the services of key employees, the loss of whom could have a material adverse effect on our business.

Our continued growth and success depend to a significant extent on the continued service of our senior management and other key employees and the hiring of new qualified employees. The software industry in

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particular is characterized by a high level of employee mobility and aggressive recruiting among competitors for personnel with technical, marketing, sales, product development and management skills. We may not be able to attract and retain skilled personnel or may incur significant costs in order to do so that may not be offset through either improved productivity or higher prices.

Factors specific to international trade may result in reduced revenues and/or increased costs.

Approximately 75% of our net revenues during fiscal 2010 were derived from sales in Japan. Although we expect that domestic sales will continue to account for a significant portion of our revenues in future periods, we plan to expand our international operations, particularly with respect to video game software, gaming machines and card game products, including through alliances or investments. Sales in foreign countries may involve expenses incurred to customize products to comply with local laws, especially in the case of gaming machines. In addition, products that are successful in the domestic Japanese market may not be successful in foreign markets due to different consumer preferences. In addition, our costs will increase as a result of the need to conduct market research to discover local preferences and tastes and to develop foreign language versions or make product modifications in order to tailor our products to various local markets. In the case of video game software, we may have to grant price concessions to or accept returns from major retailers that control market access to consumers. International trade is also subject to general country risks, including suspension of currency exchange by governments, increases in tariffs, and forfeiture of property through expropriation by governments. International trade is also exposed to fluctuating exchange rates. We may become exposed to increased litigation risks or unexpected bankruptcy risks through product liabilities, facility liabilities, product defect or labor issues in the course of further expanding our business, enhancing our international network and increasing our vendors and customers. These and other factors specific to international trade may result in increased costs or reduced revenues.

Demographic trends may have an adverse effect on our target market and our ability to increase revenues.

The Japanese population of people in their teens and twenties, the traditional target market for our products and services including computer & video games products and arcade games, is expected to decline. Accordingly, we may not be able to increase or maintain revenues if we are unable to expand our customer base and product offerings to overseas markets. Life expectancy in Japan is among the highest of the developed countries. However, as a result of a decline in fertility rates, Japan’s population is expected to begin declining and its demographic makeup is already aging considerably. According to government estimates, as of October 2009, 22.7% of Japan’s population was aged 65 or over, and, released in April 2008, as of calendar year 2006, this percentage is expected to reach 25.2% by 2013 and 40.5% by 2055.

Risks Relating to Our Digital Entertainment Segment

Transitions in game consoles and technological change have a material impact on the market for video game software and may adversely affect our revenues and profitability.

The life cycle of existing game consoles and the market acceptance and popularity of new game consoles significantly affect the success of our products. The introduction of new technologies could render our current products or products in development obsolete or unmarketable. In addition, we cannot guarantee that we will be successful in developing and publishing video game software for new game consoles on a timely basis. Further, the release dates of new game platforms or the number of units that will be shipped upon such release are beyond the scope of our control.

Also, when new game consoles are announced or introduced into the market, consumers typically reduce their purchases of video game software products for current consoles in anticipation of new platforms becoming available. During these periods, sales of our video game software products can be expected to slow down or even decline until new platforms have been introduced and have achieved wide consumer acceptance. For example, sales of some of our products for the previous PlayStation 2 and Nintendo GameCube platforms were negatively

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affected by the platform transition to Sony PlayStation 3, Nintendo Wii and Microsoft Xbox360. Also, if fewer than expected units of a new game platform are manufactured or shipped, or the introduction of a new platform is significantly delayed, we may experience lower-than-expected sales.

We must make significant expenditures to develop products for new platforms which may not be successful or released when anticipated.

The cyclical nature of the industry requires us to anticipate and assess the emergence and market acceptance of new game consoles and develop new software well in advance of the time the platform is introduced to consumers. If the platforms for which we develop new software products do not attain significant market penetration or our new products fail to gain market acceptance, we may not be able to recover in revenues our development expenses, which could be significant, and our business and financial results could be significantly harmed. We anticipate that our profitability will continue to be impacted by the levels of research and development expenses relative to revenues, and by fluctuations relating to the timing of development in anticipation of future platforms.

If we are unable to obtain or renew licenses from hardware manufacturers, we will not be able to release video game software for popular video game systems and our revenue and profitability may be negatively impacted.

Substantially all of our revenues from Computer & Video Games business have historically been derived from sales of video game software for use on proprietary game platforms developed and manufactured by other companies. We may only publish our games for play on their game platforms if we receive a platform license from them, which is generally for an initial term of several years and may be extended for additional one-year terms. If we cannot obtain licenses to develop video game software from manufacturers of popular game consoles or if any of our existing license agreements are terminated, we will not be able to release video game software for those systems, which may have a negative impact on our results of operations and profitability. Although we cannot assure shareholders that we will be able to obtain extensions or that we will be successful in negotiating definitive license agreements with developers of new systems when the term of existing license agreements end, to date we have always obtained extensions or new agreements with the hardware companies. We also depend on hardware manufacturers for the following additional reasons:

• platform manufacturers have considerable control over the prices for their publisher licenses;

• we must obtain their prior review and approval to publish games on their platforms;

• if the popularity of a game platform declines, or the manufacturer stops manufacturing or does not meet the demand for a platform, or delays the introduction of a platform in a region important to us, the games that we have published and that we are developing for that platform would likely produce lower sales than we anticipate;

• these manufacturers control the manufacture of, or approval to manufacture, the game discs and cartridges that incorporate our video game software; and

• these companies have the exclusive right to protect the intellectual property rights to their respective hardware platforms and technology and to discourage others from producing unauthorized software for their platforms that compete with our games.

In addition, we depend on Sony and Nintendo for the manufacture of products that we develop for their hardware platforms. Games for Microsoft’s hardware platforms must be manufactured by an authorized replicator. Our hardware platform licenses with these hardware manufacturers provide that the manufacturer may change licenses’ costs. These licenses include other provisions such as approval rights of all products and related promotional materials that could have an effect on our costs and the timing of release of new titles.

Since major manufacturers such as Sony and Nintendo are also publishers of games for their own hardware platforms and manufacture products for all of their other licensees, such manufacturers may give priority to their own products or those of our competitors in the event of insufficient manufacturing capacity. Our business and

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financial results could be materially harmed by unanticipated delays in the manufacturing and delivery of our products by Sony or Nintendo, which has occurred in the past. In addition, our business and financial results could be materially harmed if Sony or Nintendo used their rights under these agreements to delay the manufacture or delivery of our products, limit the costs recoverable by us to manufacture video game software for their consoles, or elect to manufacture video game software themselves or use developers other than us.

Our video game software for both game consoles and amusement arcade games may be subject to governmental restrictions, rating systems or to legal claims regarding content.

Legislation introduced at the local, state and federal levels in the United States and in other countries has established rating systems to inform consumers of software products that contain graphic violence and/or sexually explicit material. In 2005, legislation was also introduced in Japan to establish a system for local authorities to restrict the provision of products containing graphic violence. In addition, many countries have laws that permit governmental entities to censor the content and advertising of software. Although there are no mandatory government regulations in Japan, North America, Europe and Asian countries that are significant markets or potential markets for our products, an exception is China, where governmental approval is required for software sales in that country. Similar requirements for governmental approval may be adopted elsewhere. We may be required to modify our products or alter our marketing strategies to comply with new regulations, which could delay the release of our products in those countries. Moreover, uncertainties regarding the rating systems may give rise to confusion in the marketplace, and we are unable to predict what effect, if any, such rating systems would have on our business.

In the past several years, at least one lawsuit has been filed in the United States against video game companies by the families of persons shot and killed by teenage gunmen. This lawsuit, which did not name us as a defendant, alleged that the video game companies manufactured and/or supplied these teenagers with violent video games, teaching them how to use a gun and causing them to act out in a violent manner. While the plaintiffs’ claims were dismissed, similar lawsuits may be filed in the future which, if decided against us and our insurance carrier does not cover the amounts we are liable for, could have a material adverse effect on our business and financial results. Also payment of significant claims by insurance carriers may make such insurance coverage materially more expensive or unavailable in the future, thereby exposing our business to additional risk.

Although neither the terrorist attacks in the United States of America in September 2001, the late 2001 bio-terrorist attacks on various organizations nor war against Iraq commenced in March 2003 involving terrorist attacks have had a material adverse effect on our business, operations or financial condition, we cannot assure you that future terrorist attacks or the response of governments to any future terrorist actions, would not negatively affect our business by requiring us to modify the content of our video game software, which could result in expensive product recalls, reprogramming or delays in the release of future games.

Our results of operations may suffer if amusement arcade revenues and sales of arcade games and token-operated game machines continue to decline.

Amusement arcades are the primary venue for video game machines and token-operated game machines in Japan. Although amusement arcade revenues and the sales of arcade games had continued to grow, the market environment shows a declining trend due to the worldwide economic downturn stemming from the financial recession that started in the U.S. In addition, due to the development of full-scale home video game systems that can rival amusement arcade games in play quality and the introduction of advanced mobile telephones equipped with network and game functions, consumers now have increasing leisure alternatives outside of amusement arcades. As customer preferences diversify, fewer people may visit frequently the amusement arcades on which we depend for sales of our amusement arcade game software, amusement arcade games and token-operated game machines and this could have a negative impact on our results of operations if amusement arcade operators reduce purchases of our products as a result.

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If our games are not accepted in the competitive domestic market for video game machines and token-operated game machines for amusement arcades, our results of operations will suffer.

Our success as a manufacturer of video game machines and token-operated game machines is dependent upon numerous factors, including our ability to design, manufacture, market and service video game machines and token-operated game machines that achieve player acceptance while maintaining product quality and acceptable margins. In addition, we must compete against other large and well-established game manufacturers such as SEGA SAMMY HOLDINGS INC. (“Sega Sammy”) and NAMCO BANDAI Holdings Inc. (“Namco Bandai”). If any of these game manufacturers, or another competitor, develops popular video game machines or token-operated game machines for amusement arcades and installed these game machines in the same arcade floor space as our video games and token-operated game machines, our sales from the amusement arcade game and domestic token-operated game machine markets may decrease significantly.

Our business could be harmed if there is any substantial decline in the popularity of interactive Internet-based games or if our Internet-based games are not received favorably in the market.

In recent years, the rapid growth of the Internet has resulted in the development of interactive software games for play over networks and on mobile phones. Although we are marketing mobile phone-based games as well as games which can be downloadable or which allows multiple players to play against each other using Nintendo Wii, DS, PlayStation 3, PlayStation 2, PlayStation Portable, Xbox 360 or personal computers, games have diversified over recent years and consumers now have expanded choices. If there is any substantial decline in the popularity of our network-based games, our business, revenues and profits could be harmed.

In addition, the development and operation of Internet-based games require a long period for development and a substantial amount of initial investment, including for example numerous test operations of facilities such as servers. If our Internet-based games are not received favorably in the market, we may be unable to recoup our initial investment or operating expenses, and may have to recognize an impairment with respect to the servers and software assets associated with such games.

Information processing failures in the operation of our Internet-based games may adversely affect our revenues and income.

As our Internet-based games require servers that process a heavy volume of information, the computers we use as servers must be equipped with high processing capacity. Although we attempt to prevent troubles by performing maintenance for our servers, we may be unable to operate our Internet-based games if the information processing capacity of a server becomes suddenly overloaded or is unexpectedly attacked by external computer viruses. If the recovery of processing capacity requires a long period of time, thus driving customers away, or if such technical errors and interruptions occur repeatedly and cause our customers to lose confidence in our services, our net revenues and operating income may decrease.

Abuses of network-based credit card billing authorization may adversely affect our revenues and profits.

We collect charges for our network-based games based on consumers’ credit card information, through a credit card authorization agent. Although our credit card authorization agent takes all possible measures to ensure the privacy of customer information during billing transactions, if the credit card information of our customers is obtained by unauthorized third parties and used for unauthorized transactions, we may be required to make repayments of the unauthorized amounts out of the sales we made to such customers. In addition, if numerous abuses occur, a credit card authorization agent might cancel billing collection services with us, and our net revenues and operating income may be adversely affected.

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Risks Relating to Our Gaming & System Segment

If our gaming products are not accepted in the competitive market for gaming machines, we may be unable to compete in the gaming machine market.

Our success as a gaming machine manufacturer and supplier in overseas markets is dependent upon numerous factors, including our ability to design, manufacture, market and service gaming machines and casino management systems that achieve player and casino acceptance while maintaining product quality and acceptable margins and to obtain approvals for our products from gaming authorities. In addition, we must compete against gaming equipment and system companies such as International Game Technology, Bally Technologies, Inc., Aristocrat Leisure Limited and WMS Industries Inc., which are among the largest and most-established suppliers of gaming machines in the world. Some of our competitors have greater financial resources, name recognition, established service networks and customer relationships than we do, and are licensed in more jurisdictions than we are.

In order to diversify and expand sales, we have obtained licenses in every state in Australia, the main states in the United States, and some provinces in Canada, and are marketing and selling gaming products in those markets. If our games and our system products fail to be accepted by the market, and we are otherwise unable to develop products that offer technological advantages or unique entertainment features, we will be unable to generate the revenues necessary to compete effectively in the competitive gaming product market. Consequently, the results of our operations could suffer.

If our technologies for gaming products are subject to claims they infringe on competitors’ patents, trademark rights and design rights, we may be unable to market our products as planned, thus adversely affecting our profits.

As technological capabilities and an ability to develop effective business plans are constantly becoming more crucial for success in the gaming business, it has become a critical business strategy for companies, especially in the United States, to ensure an advantage over competitors by filing and acquiring their own intellectual property rights such as patents, trademark rights and design rights in advance of their competitors. In this competitive business environment, we strive to commercialize our products only after carefully examining the intellectual property rights status of the products. However, if the contents of our new products and services are deemed to infringe on the intellectual property rights of competitors, we may be unable to bring such products or services to market or be forced to cease selling such products or services.

An adverse change affecting the gaming and systems industries, including a change in the economy, in gaming regulations or in the expansion and popularity of casino gaming, will negatively impact our profitability and our potential for growth.

Our ability to grow our business and operate profitably is substantially dependent upon the expansion of the gaming industry and factors that are beyond our control. These factors include, among others:

• changes in the economy;

• the pace of market expansion;

• changes in gaming regulation;

• fluctuations in popularity of casino gaming; and

• changes in casino gaming tax rates instituted by national, state or province governments.

An adverse change in any of these political, legal and other factors may negatively impact our results of operations.

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Our failure to obtain or retain required licenses for our Gaming & System segment could prevent us from expanding our market and prohibit us from generating revenue in certain jurisdictions.

In North America, the manufacture and distribution of gaming products is subject to numerous federal, state, provincial, tribal, international and local regulations. In particular, we are subject to extensive regulation in Arizona, California, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, Oregon, West Virginia, Wisconsin, North Dakota, South Dakota, Oklahoma, Connecticut, Pennsylvania, Florida, Rhode Island, Puerto Rico and the Provinces of British Columbia, Ontario, Quebec, Alberta, Manitoba and Saskatchewan in Canada due to our gaming product business in those jurisdictions. In addition, we may also be subject to regulation as a gaming operator if we keep on developing lease participation agreements under which we share in the revenues generated by gaming machines. These regulations are constantly changing and evolving, and may curtail gaming in various jurisdictions in the future, which would decrease the number of jurisdictions from which we can generate revenues.

Together with our key personnel, we undergo extensive investigation before each jurisdictional license is issued. Our gaming products are subjected to independent testing and evaluation prior to approval from each jurisdiction in which we do business. Generally, regulatory authorities have broad discretion when granting, renewing or revoking these game approvals and licenses. Our failure to obtain or retain a required license or approval in one jurisdiction could negatively impact our ability to obtain or retain required licenses and approvals in other jurisdictions. The failure to obtain or retain a required license or approval in any jurisdiction would decrease the geographic areas where we may operate and generate revenues, decrease our share in the gaming marketplace and put us at a disadvantage compared with our competitors. Consequently, the market price of our common stock may suffer.

Regulatory authorities may require shareholders to submit to background investigations and respond to questions from regulatory authorities, and may deny a license or revoke our licenses based upon their findings. These licensing procedures and background investigations may inhibit potential investors from becoming significant shareholders.

The future revenue growth of our Gaming & System segment depends on our ability to strengthen our research and development departments and improve the effectiveness of our sales organizations and service departments.

In order to increase market awareness and sales of our gaming products, it is important for us to develop hit products that are received favorably in our markets and for us to maintain technology that allows for future innovation and adaptations to changes in customer preferences. If we fail to assess market needs or be technologically innovative, our net revenues and operating income may be adversely affected.

In addition, it is important for us to improve the effectiveness of our sales operations and service departments internationally. Our gaming business is expanding from sales of slot machines to sales of casino management systems, which connect gaming machines under a single accounting, marketing and customer management system and reinforcement of security. Casino management systems provide for relatively stable revenues, as proceeds from the initial sale are supplemented by subsequent connection fees. However, gaming products require sophisticated sales efforts targeted at selected people within the gaming industry and quality post-sale servicing. Competition for qualified sales personnel is intense, and we might not be able to hire the kind and number of sales personnel we are targeting. In addition, we will need to effectively train and educate our sales force and strengthen our service departments to ensure trust in our products if we are to be successful in selling into the gaming machine market.

If our manufacturing plant in the United States has operational difficulties, and we have problems with manufacturing capacity and quality control, our business growth may be adversely affected.

In June 2005, we started operation of a manufacturing plant in Las Vegas to strengthen production capacity and customer service and expand development and sales in the U.S. market. We depend on our manufacturing

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capacity for substantially all of our sales in the U.S. market. If operational troubles occur in this plant, we may be unable to maintain sufficient manufacturing capacity to meet increases in orders, and our financial performance may be adversely affected.

Natural disasters such as the damage caused by the record snowfall of December 2009 in the northeast United States, and flood damage due to the torrential rain in Manila in the Philippines in September 2009, could have material adverse effects on our Gaming & System segment.

The record snowfall in December 2009 raised concerns about a delay in transporting equipment to the casino markets in the northeast part of the United States where we ship our products. In addition, the flood caused by the torrential rain in September 2009 caused serious harm to the casino markets where construction and transporting were planned. Similarly, our business results could be significantly affected due to other natural disasters in the future.

Risks Relating to Our Health & Fitness Segment

Our health & fitness segment may not grow as we expect if we are not able to successfully develop and operate new club locations.

Our growth strategy depends in part on our ability to successfully develop and operate new club locations. The successful development of new clubs will depend on various factors, including our ability to:

• locate suitable sites for clubs;

• successfully negotiate lease agreements and meet construction schedules and budgets;

• resolve zoning, permitting or other regulatory issues relating to the construction of new clubs;

• hire, train and retain qualified personnel;

• attract new members; and

• effectively address issues raised by other factors, some or all of which may be beyond our control.

If we are not able to achieve success with respect to the factors outlined above, the growth of our health & fitness segment may be limited. We cannot assure you that we will be able to implement our growth strategy, open new clubs in a timely and cost-efficient basis or operate our new clubs profitably. Upon opening a new fitness club, we often experience an initial period of operating losses with respect to that club for the first year. However, this period can vary depending on the individual club, and may be substantially longer than a year. If we are unable to enhance the performance of our new fitness clubs, our operating income may be adversely affected. In fiscal 2009, we recorded ¥11,121 million as restructuring and impairment charges that include impairment losses of long-lived assets. In fiscal 2010, we recorded ¥2,339 million as restructuring and impairment charges that include impairment losses of long-lived assets and expenses related to closure of facilities. We may still incur future impairment charges against goodwill, other identifiable intangible assets, or property and equipment.

A decline in membership levels of our fitness clubs could have a negative effect on our business.

The performance of our fitness clubs is dependent on our ability to attract, acquire and retain members. We cannot assure you that we will be successful in these efforts, or that the membership levels at one or more of our clubs will not decline. Our members can cancel their club membership at the end of any month provided that they give advance notice by the tenth day of that month. Because members periodically cancel their membership, our total number of members will decline unless we are able to attract new members each month. There are numerous factors that could lead to a decline in membership levels at established clubs or that could prevent us from increasing our membership at newer clubs, including our reputation, our ability to deliver quality service at

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a competitive cost, the presence of direct and indirect competition in the areas in which the clubs are located, general interest in sports and fitness clubs and general economic conditions. As a result of these factors, we cannot assure you that our membership levels will be adequate to maintain or permit the expansion of our operations. In addition, a decline in membership levels may have a material adverse effect on our performance, financial condition and results of operations.

Failure to compete effectively in the fitness club industry will have an adverse effect on our results of operations.

The fitness club industry is highly competitive. We compete with other fitness clubs, physical fitness and recreational facilities established by local governments, hospitals and businesses for their employees, amenity and condominium clubs and, to a certain extent, with racquet and tennis and other athletic clubs, country clubs, weight reducing salons and the home-use fitness equipment industry. We also compete with other entertainment and retail businesses for the discretionary income of our target markets. We cannot assure you that we will be able to compete effectively in the future in the markets in which we operate. In addition, we may face new competitors in the market that may be larger and have greater resources than us. These competitive conditions may limit our ability to increase dues without a material loss in membership, attract new members and attract and retain qualified personnel. Additionally, consolidation in the fitness club industry could result in increased competition among participants, particularly as large multi-facility operators are better able to compete for attractive acquisition candidates, thereby increasing costs associated with expansion through acquisitions, as well as negotiation of leases and the availability of real estate.

Future claims—we could be subject to claims related to health risks at our clubs.

Use of our fitness clubs and equipment poses some potential health risks to members or guests through exertion from use of our services and facilities including exercise equipment. As a result, we may be subject to claims against us for death or injury suffered by members while exercising at our fitness clubs, and we may not be able to successfully defend any such claims. In addition, any such claims may harm our reputation. We currently maintain general liability insurance coverage but there can be no assurance that we will be able to maintain such liability insurance on acceptable terms in the future or that such insurance will provide adequate coverage against potential claims. Any liability claim in excess of our insurance coverage may adversely affect our results of operations as well as damage our brand image.

We are subject to various governmental regulations, any non-compliance with which could result in temporary closings and negative publicity, causing damage to our corporate image.

Our operations are subject to national, local and municipal government regulation in the various jurisdictions in which our clubs are located. These regulations include, but are not limited to, health, sanitation and safety regulations with respect to the sale of food and beverages and the operation of swimming pools and baths. Any failure to comply with these regulations could result in the temporary suspension or loss of licenses necessary for food service and other operations at our clubs. In addition, any resulting negative publicity could have an adverse effect on our reputation, resulting in deterioration of our brand image and ability to attract, acquire, and retain club members.

We may be unable to get refunds of deposits and guarantee money relating to leases of land and buildings for the use of our fitness club facilities.

In many cases, we rent land and buildings when we open new fitness clubs. Under the lease agreements that we enter into with landowners, we are often required to make deposits and to provide guarantee money in case we default in payment of rent or neglect to restore the property to its original state upon termination of the lease agreement. Under such lease agreements, if we pay our rent and restore the property as stipulated, we are entitled to obtain refund of such deposits and guarantee money. However, if the owner of the property faces financial

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difficulty or is otherwise unable or unwilling to return these funds, we may not be able to obtain full refunds of such deposits and guarantee money. As of March 31, 2010, such deposits and guarantee money accounted for over 9% of our total assets.

Inability to procure licenses for fitness programs from third parties or changes in the conditions of such licenses may adversely affect our revenues.

Our company acts as a licensing agency in Japan, acquiring licenses for programs that have worldwide popularity, and supplies the programs to not only our own facilities but also to other fitness clubs. In the event that it becomes difficult to renew licenses or if any changes are made to the conditions of such licenses, there may be a material adverse effect on our ability to supply programs to each facility and our business results could be affected.

The need to suspend our business operations due to unexpected epidemic diseases may adversely affect our revenues.

Due to the H1N1 influenza pandemic during fiscal 2010, the business operations of fitness clubs in some areas of Japan were suspended at the discretion of the government. If an unexpected epidemic of an unknown or known disease in the future results in the suspension of business operations of our fitness clubs at the instruction of the government or at our own discretion, our business results could be affected.

Abrupt changes in consumer tastes may adversely affect our business results.

Revenues due to usage of our facilities are highly dependent upon how consumers chose to spend their money, which makes it imperative that we unremittingly provide high quality services in line with customer needs. For example, our business results could be negatively affected if fitness trends which don’t require the spending of money catch on, such as home fitness, running or walking.

Risks Relating to Our Other Operations—LCDs for Pachinko machines and Pachinko slot machines

Upon manufacturing LCDs for Pachinko machines, any delay or disruption in shipments from outside sources or incorporation of our software into the LCDs by subcontractors may adversely affect our profits.

The manufacturing of LCDs is a complicated process which we entrust to third parties through agreements with certain suppliers who specialize in LCD commercial production. While we believe that we currently enjoy good relations with these suppliers, we cannot ensure that they will be able to provide us with the quality and quantity of LCDs which we may require in the future. We also rely on subcontractors to incorporate our software into the LCDs, which makes it possible that we will suffer profitability losses in the event of complications or delay. In addition, if any of the manufacturers or subcontractors discontinues their operations and we cannot find suitable replacements in a timely manner, we may face delays in introducing new products into the market and a decreased capacity for supplying software that is integrated into LCDs, adversely affecting our results of operations.

If the makers of LCDs for pachinko machines experience production delays, there may be unforeseen rises in inventory and delays in the posting of sales.

If the product release dates of makers of LCDs for pachinko machines are delayed for reasons such as revisions of the product release dates (due to changes in the market environment, efforts to differentiate themselves from competitors, or efforts to create balance between other products in their product line), or failure to pass the testing of the Security Electronics and Communications Technology Association (the “Security Association”), etc., there may be unforeseen rises in inventory and delays in the posting sales.

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Our company’s pachinko slot machines may not pass the testing of the Security Association due to circumstances beyond our control, and as a result, there may be delays in the date of release. Further, due to the tightening of regulations on the pachinko business by the National Police Agency or the bankruptcy of our suppliers, pachinko slot machines which had passed the Security Association testing, and released or were scheduled for release, may not be able to be sold.

Upon receipt of commission by a prefectural public safety commission, the Security Association conducts a regulatory check as to whether pachinko and pachinko slot machines fulfill prescribed conditions on the basis of documents submitted by the pachinko and pachinko slot makers, as well as the practical exam, as described below:

1. Pachinko and pachinko slot machine makers apply for the Security Association examination (application lots are determined by lottery).

2. In case the machines fail to pass 1., applicants must correct the parts which failed the examination, reapply, and upon passing, move on to 3.

3. The machines are inspected by a prefectural public safety commission.

4. The machines are set up in a pachinko hall, and the police ward with jurisdiction over the pachinko hall conducts an inspection.

5. Operation of the machines begins in the hall upon passing the test in 4. above.

The date of release for a product may be delayed if reapplication becomes necessary in the process of the above procedures due to failure to gain an application lot, changes to the test standards or are tightening of regulations on the industry by the National Police Agency or other similar considerations.

Our company’s pachinko slot machines may be adversely affected because of groups attempting to make money through illicit methods (commonly referred to as goto-shi) in the pachinko and pachinko slot industry.

Our company’s pachinko slot machines may be adversely affected because of groups attempting to make money through illicit methods (commonly referred to as goto-shi) in the pachinko and pachinko slot industries. In the event of such manipulation by goto-shi, there may be a decline in sales volume due to the tarnishing of our brand image, and delays in the dates of release due to measures to prevent goto-shi manipulation of our other products.

Risks Relating to the Shares and the ADSs

Our shareholders of record on a record date may not receive the dividend they anticipate

The customary dividend payout practice of publicly listed companies in Japan may significantly differ from the practice widely followed in foreign markets. Our dividend payout practice is no exception. Pursuant to our Articles of Incorporation, our board of directors can determine the matters regarding dividends. While we may announce a dividend forecast prior to the record date of March 31, September 30, or such other date as we may set pursuant to our Articles of Incorporation, our board of directors is not legally bound by such forecast. Instead, our board of directors ultimately determines the actual dividend payment amount to our shareholders of record on a record date, including whether we will make any dividend payment to such shareholders at all, after the expiry of such record date. Therefore, our shareholders of record on the March 31 record date may not receive the dividend they anticipate.

Our share price is volatile and shareholders may not be able to recoup their investment.

Disclosures of our operating results (particularly if below the estimates of securities industry analysts), announcements of various events by us or by our competitors or other industry participants or the development and marketing of new products, as well as other factors, may cause the market price of our common stock to

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change significantly over short periods of time. The price of our common stock has been and is likely to continue to be highly volatile, and shareholders may not be able to recoup their investment. For example, the closing highs and lows of price per share of our common stock ranged from ¥1,416 to ¥2,080 during fiscal 2010.

A substantial number of our shares of common stock are eligible for future sale, and the sale of these shares may cause the price of our common stock to decline even if our business is performing well.

As of March 31, 2010, there were 133,460,664 shares of our common stock outstanding including 35,400,786 shares, representing 26.53% of our outstanding shares, beneficially owned by Kagemasa Kozuki, our founder, Representative Director, Chairman of the Board, President and his affiliate holders Yoko Kozuki, Kozuki Foundation for Sports and Education, Kozuki Holding and Kozuki Capital Corporation. These shares and, generally, the shares owned by other shareholders, can be disposed of on the Tokyo Stock Exchange or otherwise in Japan without any legal restriction. Additionally, under our Articles of Incorporation, our board of directors is authorized to issue 306,500,000 additional shares of common stock generally without any shareholder approval. In addition, as of March 31, 2010, we held 10,039,336 shares of treasury stock which our board of directors may sell without any shareholder approval.

Additional sales of a substantial amount of our common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to decline. This could also impair our ability to raise additional capital through the sale of our securities. Also, in the future, we may issue common stock to raise cash for additional capital expenditures, working capital, research and development or acquisitions, and we may also pay for additional interests in subsidiaries or affiliated companies by using cash, common stock or both. We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest in us and have an adverse impact on the price of our common stock.

Investors holding less than a unit of shares will have limited rights as shareholders.

Pursuant to the Corporate Law of Japan relating to joint stock corporations and other related legislation, our Articles of Incorporation provide that 100 shares of common stock constitute one “unit”. The Corporate Law imposes significant restrictions and limitations on holdings of shares that do not constitute whole units. In general, holders of shares constituting less than one unit do not have the right to vote or to examine our books and records (other than our articles of incorporation and shareholders register). For a more complete description of the unit share system and its effect on the rights of holders of our shares, see Item 10.B “Unit Share System” below.

There are restrictions on your ability to withdraw shares from the depositary receipt facility.

Each ADS represents the right to receive one share of common stock. Each ADR will bear a legend to that effect. Holders of ADSs will be unable to withdraw fractions of shares from the depositary or receive any cash settlement in lieu of withdrawal of fractions of shares. Therefore, pursuant to the terms of the deposit agreement with our depositary, JPMorgan Chase Bank in order to withdraw any shares, a holder of ADSs must surrender for cancellation and withdrawal of shares, ADRs evidencing 100 ADSs or any integral multiple thereof. In addition, although the ADSs themselves may be transferred in any lots pursuant to the deposit agreement, the ability to trade the underlying shares may be limited.

Holders of ADRs have fewer rights than shareholders and must act through the depositary to exercise those rights.

Holders of ADRs do not have the same rights as shareholders and accordingly cannot exercise rights of shareholders against us. JPMorgan Chase Bank, as depositary, through its custodian agent, is the registered shareholder of the deposited shares underlying the ADSs, and therefore only it can exercise the rights of shareholders in connection with the deposited shares. In certain cases, we may not ask JPMorgan Chase Bank to

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ask holders of ADSs for instructions as to how they wish their shares voted. Even if we ask JPMorgan Chase Bank to ask holders of ADSs for such instructions, it may not be possible for JPMorgan Chase Bank to obtain these instructions from ADS holders in time for JPMorgan Chase Bank to vote in accordance with such instructions. JPMorgan Chase Bank is only obliged to try, as far as practical, and subject to Japanese law and our Articles of Incorporation, to vote or have its agents vote the deposited shares as holders of ADSs instruct. In your capacity as an ADS holder, you will not be able to bring a derivative action, examine the accounting books and records of the company, or exercise appraisal rights.

Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions.

Our Articles of Incorporation, our board of directors’ Regulations and the Corporate Law of Japan govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may be different from those that would apply to a non-Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction.

Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell your shares of our common stock at a particular price on any particular trading day, or at all.

Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

U.S. investors may have difficulty in serving process or enforcing a judgment against us or our directors, executive officers or corporate auditors.

We are a limited liability, joint-stock corporation incorporated under the laws of Japan. Most of our directors, executive officers and corporate auditors reside in Japan. All or substantially all of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions or in actions for enforcement of judgment of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

The dollar amount of the dividends to be paid to ADS and ADS holders might be affected by fluctuations in the foreign currency market.

The market price of our company’s ADS might drop in the event of a decline in the yen-U.S. dollar exchange rate. Further, the U.S. dollar amount of the cash dividend and other cash payments to be paid to holders of our company’s ADS will decrease in the event that the yen-U.S. dollar exchange rate declines.

Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs.

Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

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Item 4. Information on the Company.

A.    History and Development of the Company.

Our business was founded by our current Representative Director, Chairman of the Board and President, Kagemasa Kozuki, in Osaka on March 21, 1969. KONAMI was incorporated as a joint stock corporation under the laws of Japan on March 19, 1973 under the name Konami Industries Co., Ltd.

We originally were established to produce amusement arcade games and since that time have expanded the range of our products. We began to produce and market microcomputer-equipped video game machines in 1978, video game software for personal computers in 1982, game software for a home video game system in 1985 and software for LCDs for pachinko machines in 1992. We began our Toy & Hobby business in 1996. We obtained a license to manufacture and sell gaming machines in Nevada, and entered the gaming business in the United States in 2000. We entered the fitness club and equipment business through our acquisition of PEOPLE CO., LTD., which was renamed Konami Sports Corporation, in February 2001.

We initiated overseas operations by exporting amusement arcade games in 1979. We established our U.S. sales and manufacturing subsidiary, Konami of America, Inc. (the predecessor of Konami Digital Entertainment, Inc.) in 1982. Later, we established sales and manufacturing subsidiaries in a number of foreign countries.

We listed our shares on the Osaka Securities Exchange in 1984 (subsequently delisted in December 2002), on the Tokyo Stock Exchange in 1988, on the Singapore Exchange in 1997 (subsequently delisted in October 2009), on the London Stock Exchange in 1999 and on the New York Stock Exchange in September 2002.

In 1991, we changed our name to Konami Co., Ltd. and subsequently changed our name to KONAMI CORPORATION in 2000.

In 2006, we made Konami Sports Corporation (the predecessor of Konami Sports & Life Co., Ltd.) a wholly-owned subsidiary by issuing Konami shares to the minority shareholders of Konami Sports after Konami Sports Corporation merged with Konami Sports Life Corporation. In addition, we newly established Konami Digital Entertainment Co., Ltd. through a company separation to succeed to our digital entertainment business and we changed our group structure so that we act as a holding company.

In April 2007, we moved our principal head office to 7-2, Akasaka 9-chome, Minato-ku, Tokyo 107-8323, Japan. Our telephone number is 81-3-5770-0573.

For a discussion of recent and current capital expenditures, please see “Capital Expenditures” at the end of Item 5.A. We have had no recent significant divestitures nor are any significant divestitures currently being made.

B.    Business Overview.

Overview

We develop, publish, market and distribute video game software products globally for stationary consoles such as Sony PlayStation 2, PlayStation 3, Nintendo Wii, and Microsoft Xbox 360, and for portable consoles such as Sony PlayStation Portable and Nintendo DS, as well as for use on personal computers. In addition, we plan, produce, operate and distribute entertainment content for mobile phone online games.

We produce gaming machines for casinos in the United States, Australia and other overseas jurisdictions, in addition to video games and token-operated games installed in amusement arcades and other entertainment venues in Japan. We also produce card games, character goods, toys & hobbies, CDs and DVDs and other merchandize products, many of which use popular characters seen in movies, television, comic books, video games, advertising or other media. In addition, we produce software and hardware for pachinko slot machines and LCDs used in pachinko machines.

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In addition, we believe that we are the leading operator of fitness clubs in Japan, in terms of revenues and members. As of March 31, 2010, we have a nationwide network of 211 directly operated health and fitness club facilities and 116 sports facilities whose operations are outsourced to us and which cater to all age groups, from children through senior citizens. Moreover, Konami Sports Corporation merged with Konami Sports Life Corporation to establish Konami Sports & Life Co., Ltd. as of February 28, 2006, and COMBI WELLNESS Corporation became its wholly-owned subsidiary as of May 31, 2006 following our acquisition of all of its outstanding shares. We also have enhanced the value of each facility of former Sportsplex Japan Co., Ltd., which was merged into Konami Sports & Life Co., Ltd. as of June 30, 2008, by promoting the expansion of high quality and wide-ranging services. We aim to create new markets and provide various health-related services through the operation of fitness club facilities and the development and manufacturing of health-related equipment and supplements.

Because our sales are affected by changes in how consumers, particularly children and young adults, spend their leisure time, we seek to meet consumers’ needs and preferences by developing products that can be used in a number of environments, including home video games, games for amusement arcades and card games, casinos and pachinko parlors. We also recognize that borders that separate product categories such as games, movies, music, toys, books and television programs are blurring. We seek to capitalize on this trend by projecting successful concepts across different types of leisure environments and product categories.

Many of our successful products have resulted from diversified use of strong contents. For example:

• We first sold DanceDanceRevolution, one of our popular products, in November 1998 as an amusement arcade game. We launched DanceDanceRevolution in the form of home video game software in April 1999 and have sold over one million units. This product has become increasingly popular in North America today, as it has been utilized for physical education classes in schools. We started distributing DanceDanceRevolution S for iPhone/iPod touch in February 2009.

• We launched beatmania as an amusement arcade game in December 1997. We began selling beatmania in the form of home video game software in October 1998 and have sold over one million units. We sold beatmania as a pachinko slot machine in April 2008.

• We sold Yu-Gi-Oh! as video game software for Game Boy in July 1998; we subsequently introduced our hit Yu-Gi-Oh! Trading Card Game in February 1999. From April 2006, we created Yu-Gi-Oh! ONLINE, an online version of the Yu-Gi-Oh! Trading Card Game. Since March 2008, we have also developed Yu-Gi-Oh! DUEL TERMINAL, an amusement arcade game, for amusement arcades and supermarkets and introduced a new type of entertainment using trading cards.

• METAL GEAR SOLID, first sold in 1998, has been a big hit as video game software. In 2008, we released METAL GEAR SOLID 4 simultaneously in Japan, Europe and North America and recorded a big hit through this global launch. We have also developed the METAL GEAR ONLINE service for PS3 and the METAL GEAR SOLID TOUCH service for the iPhone/iPod touch produced by Apple Inc. and conducted sales of DVDs. Further, we have conducted various business activities such as using existing beverages and mobile phones as in-game items through collaboration with a beverage maker and a mobile phone maker.

• Tokimeki Memorial, a teenage romance game first introduced in 1994, have been hit video game software products and have also generated substantial sales of related character goods.

• We began selling the Winning Eleven series, a soccer game, in the form of home video game software in Japan in July 1995, and later expanded its compatibility to several home video game platforms. We have also introduced the series in overseas markets, particularly Europe and North America. In addition, we sell books, a music CD with a theme song, amusement game software and mobile contents related to the Winning Eleven series.

• We have used our expertise in video game software and hardware for the development of our gaming machine and fitness equipment products.

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We have built a company with a portfolio of products and services that spans a range of categories and target markets. We have created, licensed and acquired a group of recognizable brands that we market to a growing variety of consumer demographics.

For the fiscal year ended March 31, 2010, we had consolidated net revenues and net income attributable to KONAMI CORPORATION of ¥262,144 million and ¥13,314 million, respectively, compared with net revenues and net income attributable to KONAMI CORPORATION of ¥309,771 million and ¥10,874 million, respectively, for the fiscal year ended March 31, 2009.

Products and Services

We classify our businesses into three segments: Digital Entertainment, Gaming & System and Health & Fitness, each of which is operated on a separate basis. The net revenue figures for each business segment described below are before elimination of intersegment revenues.

Digital Entertainment Segment

Operating in a business environment with lowering barriers to entry in the digital entertainment industry, we decided to reposition our existing major business segments—video game software, amusement, card game and online—into one Digital Entertainment Segment from April 2005 to create a business structure where we can achieve maximum synergies. During fiscal 2010, this segment had net revenues of ¥142,650 million, which accounted for 54.4% of our consolidated net revenues, before elimination of intersegment revenues. Our Digital Entertainment Segment consists of the five businesses as follows:

• Computer & Video Games business:    We produce, manufacture and sell video game software, purchase and distribute video game software for home use.

• Amusement business:    We produce, manufacture and sell video games for amusement facilities and content for token-operated games.

• Card Games business:    We plan, produce, manufacture and sell card games.

• Online business:    We build computer systems related to online games, maintain and operate online servers, produce and distribute content for mobile phones, and produce online games.

• Other business:    We plan, produce, manufacture and sell electronic toys, figures and character goods, and plan, produce and sell music and video package products.

Gaming & System Segment

This segment is involved in development and sales of content, hardware and casino management systems for gaming machines for casinos outside of Japan. During fiscal 2010, our net revenues from this segment were ¥ 19,996 million, which accounted for 7.6% of our consolidated net revenues, before elimination of intersegment revenues.

In addition, as part of our shift to a holding company structure, we transferred our research and development center for gaming machines to Konami Gaming, Inc., our U.S. subsidiary in March 2006, to become Konami Gaming’s Japanese branch and research and development hub.

Health & Fitness Segment

We are the leading health and fitness club operator and health-related business enterprise in Japan. We believe that we had approximately 22% of the market in fiscal 2009 (according to the latest available data) as measured by revenues based on “Fitness Club Industry Trends in Japan, 2009” published by Club Business Japan in June 2010. During fiscal 2010, this segment had net revenues of ¥85,765 million, which accounted for 32.7% of our consolidated net revenues, before elimination of intersegment revenues.

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The following table presents net revenues in each of our historical business segments, before elimination of intersegment revenues, for each of the three years ended March 31, 2010.

Segment Revenues

	Year ended March 31,
	2008		2009		2010		2010
	(yen in millions, dollar in thousands)
Net Revenues:
Digital Entertainment	¥	178,939	¥	187,628	¥	142,650	$	1,533,211
Gaming & System		18,471		18,336		19,996		214,918
Health & Fitness		86,544		89,965		85,765		921,808
Other and Eliminations		13,448		13,842		13,733		147,604
Consolidated net revenues	¥	297,402	¥	309,771	¥	262,144	$	2,817,541

Notes:

“Other” consists of businesses which do not meet the quantitative criteria for separate presentation of segment reporting. “Eliminations” primarily consists of eliminations of intercompany sales and of intercompany profits on inventories.

Digital Entertainment Segment

Consolidated net revenues generated by our Digital Entertainment Segment, before elimination of intersegment revenues, amounted to ¥187,628 million in fiscal 2009 and ¥142,650 million in fiscal 2010, a decrease of ¥44,978 million.

Computer & Video Games business

Industry Overview

The video game industry is comprised of video game hardware manufacturers and video game software publishers. Game hardware systems, frequently referred to as platforms, include home game consoles, handheld platforms and personal computers. In Japan, mobile phones are yet another platform for which there is an emerging demand for video game software applications.

A new generation of more technologically advanced game consoles has been introduced every several years. The first platform was Nintendo Entertainment System introduced by Nintendo in 1983 with its central processing unit, or CPU, using 8-bit 1.78 MHz technology. The CPU is a chip on which the software operates, with a “bite” indicating capacity to process data and clock frequency (MHz) indicating the processing speed. Subsequent advances in technology have resulted in continuous increases in the processing power of the chips that power both the consoles and PCs. With the advancement of hardware technology, software has also advanced, with faster and more complex images, more lifelike animation and sound effects and more intricate scenarios.

Each new generation, or cycle, of hardware has resulted in larger numbers of consoles being purchased. At the beginning of each cycle, during the period of rapid growth in the installed base of the new generation of consoles, the video game software industry has experienced rapid periods of expansion, as buyers purchase video games for their new consoles. Shortly before and after the release of a new generation of game consoles, sales of the current generation of platforms and games generally diminish, as consumers defer purchases in anticipation of the new platforms and games.

Platform manufacturers license publishers to publish games for their platforms and retain a degree of control over the quality and manufacturing of these games. The publishers, subject to the approval of the platform

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manufacturers, determine the types of games they will create. Software publishers either create their games in-house, through their own development teams, or outsource this function to independent developers.

The following table illustrates the evolution of the principal platforms of both video game system and handheld system.

		Year of Introduction		Media Format
Manufacturer	Platform Name	Japan	U.S.
Home Game Consoles:
Nintendo	NES	1983	1985	Cartridge
Sega	Genesis	1988	1989	Cartridge
Nintendo	SNES	1990	1991	Cartridge
Sega	Saturn	1994	1995	CD-ROM Disc
Sony	PlayStation	1994	1995	CD-ROM Disc
Nintendo	Nintendo 64	1996	1996	Cartridge
Sega	Dreamcast	1999	1999	Proprietary Disc
Sony	PlayStation 2	2000	2000	DVD-ROM Disc/CD-ROM Disc
Nintendo	GameCube	2001	2001	Proprietary Disc
Microsoft	Xbox	2002	2001	DVD-ROM Disc/CD-ROM Disc
Microsoft	Xbox 360	2005	2005	DVD-ROM Disc/CD-ROM Disc
Nintendo	Wii	2006	2006	Proprietary Disc
Sony	PlayStation 3	2006	2006	BD-ROM/DVD-ROM
Handheld systems:
Nintendo	Game Boy	1989	1989	Cartridge
Nintendo	Game Boy Color	1998	1998	Cartridge
Nintendo	Game Boy Advance	2001	2001	Cartridge
Nintendo	Game Boy Advance SP*	2003	2003	Cartridge
Nintendo	Nintendo DS	2004	2004	Cartridge
Sony	PlayStation Portable	2004	2005	UMD

* Game Boy Advance SP is an updated version of the Game Boy Advance platform and the same software may be used on both devices.

Handheld systems such as Nintendo DS and Sony PlayStation Portable have widely been accepted in markets, and in Japan in particular, strong sales of Nintendo DS tapped a market of new users who were not yet familiar with such games, further expanding new markets for these devices.

As for stationary systems, starting with Microsoft Xbox 360 released in December 2005 in Japan and November 2005 in North America, Sony PlayStation 3 was launched in November 2006 in Japan and March 2007 in Europe, as well as Nintendo Wii in December 2006 in Japan and November 2006 in North America. These next-generation game consoles have become more highly sophisticated in their ability to show expressiveness when playing games. As a result, demand for home game consoles compatible with online usage are on the rise, exhibiting developments in service and products using online networks. This further led to the diversification of consumers’ preferences, attracting a wide range of users across different age and gender groups and stimulating markets for home game machines.

Our Computer & Video Games Software Business

Our Computer & Video Games business develops, publishes, distributes and markets software for video game systems and, to a lesser extent, personal computers. Most of our software consists of video games designed for use with video game platforms, including PlayStation 2, PlayStation 3, PlayStation Portable, Nintendo DS, Nintendo Wii and Microsoft Xbox 360, and PCs.

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By developing video game software for each of the leading home and handheld video game platforms, we are able to limit our dependence on individual platforms, capitalize on the popularity of successful platforms from time to time, and sell to a more diverse group of consumers since the target age group for each major platform differs. Along with the diversification of consumers’ preferences, Nintendo DS and Wii attract a wide range of users across different age and gender groups.

The market for video game software is substantially affected by sales of the various video game platforms. Our sales of video game software are inevitably affected to a substantial degree by the cyclical nature of the industry generally as platforms change, but through diversification we seek to limit this effect.

Software Titles

Although we have published more than 100 new titles of video game software each year, in fiscal 2009 we streamlined the number of new titles to 88 titles under the theme of “Selection and Concentration” and in fiscal 2010, to 61 titles. Almost all of these titles are designed for use with leading home and portable game platforms. We publish software titles in a variety of genres, including sports, action, role playing and music simulation.

The following two tables indicate the major software titles that we have either published, or anticipate publishing, during fiscal years 2010 and 2011 in each geographic market indicating for each title (i) the category of the game, (ii) the platform on which the game can be played, (iii) the date of release or anticipated release, and (iv) the market in which the product is sold. We cannot assure you that each of the titles anticipated for release in fiscal 2011 will be released when scheduled, if ever.

Titles Released in Fiscal 2010

Title	Category	Platform	Release Date	Market
JIKKYOU PAWAFURU MAJOR LEAGUE 2009	Sports (Baseball)	PS2/Wii	April 2009	Japan
PUROYAKYU SPIRITS 6	Sports (Baseball)	Multi-Platform	July 2009	Japan
WORLD SOCCER Winning Eleven 2010	Sports (Soccer)	Multi-Platform	November 2009	Japan
PRO EVOLUTION SOCCER 2010	Sports (Soccer)	Multi-Platform	October 2009	Europe
Magician’s Quest	Communication	NDS	May 2009	North America
Yu-Gi-Oh! 5D’s STARDUST ACCELERATOR-World Championship 2009	Adventure	NDS	May 2009	North America Europe
DanceDanceRevolution Hottest Party 3	Music Game	Wii	October 2009	North America
LOVEPLUS	Romance Simulation	NDS	September 2009	Japan

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Titles Released or Anticipated to Be Released in Fiscal 2011

Title	Category	Platform	Release Date	Market
METAL GEAR SOLID PEACE WALKER	Tactical Espionage Action	PSP	April 2010	Worldwide
PUROYAKYU SPIRITS 2010	Sports (Baseball)	Multi-Platform	April 2010	Japan
JIKKYOU PAWAFURU PUROYAKYU	Sports (Baseball)	Multi-Platform	Fiscal 2011	Japan
WORLD SOCCER Winning Eleven 2011	Sports (Soccer)	Multi-Platform	Fiscal 2011	Japan
				Europe
PRO EVOLUTION SOCCER 2011	Sports (Soccer)	Multi-Platform	Fiscal 2011	North America
Castlevania: Lords of Shadow	Action	Multi-Platform		Worldwide
KESHIKASUKUN BATTLE CATIVAL	Action	NDS	Fiscal 2011	Japan
TOKIMEKI MEMORIAL Girl’s Side 3rd Story	Romance Simulation	NDS	Fiscal 2011	Japan
LOVEPLUSPLUS	Romance Simulation	NDS	Fiscal 2011	Japan

* Excluding titles that are scheduled but have not yet been publicly announced to be released.

The primary home video game software products on which we rely as revenue sources have been our hit titles, which include the following:

• METAL GEAR SOLID.    With respect to our METAL GEAR SOLID series, we have sold over five million units of METAL GEAR SOLID, the original action game that we introduced in 1999 and five million units of the sequel, METAL GEAR SOLID 2 SONS OF LIBERTY. METAL GEAR SOLID 3 SNAKE EATER, launched during fiscal 2005, sold more than four million units. Products derived from METAL GEAR SOLID, such as METAL GEAR SOLID PORTABLE OPS, have also been launched, and METAL GEAR SOLID 4 GUNS OF THE PATRIOT, launched during fiscal 2009, sold more than 4 million units, increasing our total series sales to over 28 million units as of March 31, 2010.

• Soccer titles.    We have sold a total of over 62.2 million units of Winning Eleven series (also known as Pro Evolution Soccer series in Europe and North America) in worldwide as of March 31, 2010, since the initial title was released during the year ended March 31, 1996.

• Baseball titles.    We have sold a total of more than 20.4 million units of baseball titles in Japan as of March 31, 2010, since we began releasing titles during the year ended March 31, 1994.

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The following table illustrates the number of units that we have sold by platform for the periods indicated on a consolidated basis. This table indicates where we have concentrated our development efforts as well as changes in the relative significance of individual platforms.

	Year ended March 31,
	2006	2007	2008	2009	2010
Platforms	Units	Units	Units	Units	Units
	(sales units in ten-thousands)
PlayStation	10	2	1	1	0
PlayStation 2	1,290	1,063	796	469	241
PlayStation 3	—	6	194	761	472
PlayStation Portable	332	326	383	331	340
Game Boy	0	0	0	0	—
Game Boy Advance	201	58	6	0	—
Nintendo GameCube	38	10	9	0	—
Nintendo DS	164	493	557	433	335
Wii	—	41	206	454	438
Xbox	122	35	3	0	0
Xbox 360	11	141	124	179	152
PC	50	68	56	50	42
Other	13	7	0	3	0
Total	2,231	2,250	2,335	2,681	2,020

Software Development

We seek to produce video game software that is fun and exciting, and which provide sufficient challenges at various levels of proficiency to encourage repeated play. We also produce and release titles with comic, cartoon and movie contents and achieve synergy with media. We produce most of our own video game software.

Because the popularity of successful titles fades quickly, we are constantly working to develop new titles and sequels to existing titles. The life span for video game software titles depends on the type of title. Sports titles, which are updated frequently, may last indefinitely. Other titles usually have short life spans, generally six months to one year.

Most of our video game software production, including titles designed for overseas markets, is conducted in Japan. We subcontract part of the production to a subsidiary in China, Konami Software Shanghai, Inc. We expect that this subsidiary will be able to create and develop sophisticated video game software for both the Japanese market and the international market as it gradually acquires additional expertise and know-how.

On March 31, 2006, we founded Konami Digital Entertainment Co., Ltd. through a transfer of our digital entertainment operations including our video game software business, in the form of corporate separation and, as a result, we shifted to a holding company structure. We presently provide substantial discretion to our subsidiaries to achieve timely decision-making processes while the parent company develops group strategies and distributes management resources among group companies.

Hiring and retaining talented creative staff is key to developing successful content. We believe that our compensation structure that rewards creators for the success of their games and our policy of providing creators substantial independence and flexibility, enables us to attract and retain game creators that are among the best in the industry.

Through our long experience in developing software, we have developed significant in-house expertise and many proprietary development tools that streamline the development process, allowing members of our

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development teams to focus their efforts on the play and simulation aspects of the product under development. We believe our accumulated know-how and proprietary development tools enable our software designers to develop compelling, graphically sophisticated games quickly and efficiently, which may give us an advantage over competitors.

Manufacturing

Our video game software is manufactured upon acceptance by Sony, Nintendo and Microsoft as required by the applicable platform license. We believe that this is the most desirable arrangement for both parties because we avoid the costs associated with the construction and maintenance of manufacturing facilities while the hardware manufacturers collect per unit royalties for each game they manufacture. The manufacturing process begins with our placing a purchase order with a manufacturer. Hardware manufacturers or their authorized vendors typically ship the first order to us within two to six weeks and additional orders for the same title within three days to four weeks.

We maintain both the proprietary rights and risks associated with each game title. In addition, at the time our product unit orders are filled by the manufacturer, we become responsible for the costs of manufacturing and/or the applicable per unit royalty on such units, even if the units do not ultimately sell. We provide a standard defective product warranty on all of the products sold. We are responsible in most cases for resolving, at our expense, any applicable warranty or repair claim. To date, we have not experienced any material costs from warranty or repair claims.

Platform Licenses

Our video game software business is dependent on our license agreements with the manufacturers of hardware platforms. All of these licenses are non-exclusive with fixed terms although these contracts are usually extended for additional terms. Each license grants us the right to develop, publish and distribute titles for use on the manufacturer’s platforms. Manufacturers typically have the right to approve the titles to be released and embodied in products that are manufactured solely by the manufacturer or its authorized vendor.

The following table sets forth information with respect to our platform licenses. In some instances, we have more than one platform license for a particular platform. All of the platform licenses shown below are automatically renewed on an annual basis.

Manufacturer	Platform	Territory	Initial Contract Date
Nintendo	DS	Japan	October 1, 2004
Nintendo	DS	United States and Canada	June 23, 2005
Nintendo	DS	Europe	July 24, 2005
Nintendo	Wii	Japan	October 2, 2006
Sony	PlayStation 2	Japan	April 1, 2003
Sony	PlayStation 2	Asia	April 1, 2003
Sony	PlayStation 2	United States and Canada	October 25, 2001
Sony	PlayStation Portable	Japan	November 19, 2004
Sony	PlayStation Portable	Asia	May 1, 2005
Sony	PlayStation Portable	United States and Canada	February 11, 2005
Sony	PlayStation 3	Japan	October 20, 2006
Sony	PlayStation 3	United States and Canada	October 20, 2006
Sony	PlayStation 3	Europe	October 20, 2006
Sony	PlayStation 3	Asia	October 20, 2006
Microsoft	Xbox360	Worldwide	November 22, 2005

Nintendo charges us an amount for each Nintendo DS cartridge manufactured. This amount varies based, in part, on the memory capacity of the cartridges. Nintendo Wii, Sony and Microsoft contracts include a charge for

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every disc manufactured. The amounts charged by the manufacturers include a royalty for the use of the manufacturer’s name, proprietary information and technology, and are subject to adjustment by the manufacturers at their discretion. The manufacturers have the right to review, evaluate and approve a demo-disc of each title and the title’s packaging.

Marketing, Sales and Distribution

We believe that we benefit from a strong positive perception in Japan of the KONAMI brand name. We are focusing on further enhancing the KONAMI brand name by aggressively advertising and promoting ourselves and our products and services. To continue to increase our brand name recognition, we advertise on television, the radio and through various magazines and newspapers.

In October 2005, we merged with Konami Marketing Japan, Inc., a wholly-owned subsidiary for our marketing, sales and distribution businesses. As a result, we believe we are able to operate our digital entertainment business in a more consistent manner, from planning and production to advertisement and sales, and operate more efficiently. In addition, we newly established Konami Digital Entertainment Co., Ltd. through a company separation to succeed to our digital entertainment business in March 2006.

Our video game software products are sold in Japan primarily through our sales distribution network, which we coordinate, and offices throughout Japan. Each of these sales offices focuses its efforts on a specific area within Japan. We bear inventory risk until the product is sold to the retailer. However, once products are sold to a retailer, they cannot be returned unless they are defective. We believe that our distribution network is a major asset of our business. In addition, we also conduct online sales through a directly operated website, and online sales have accounted for a greater percentage of our sales each year since 2007 due to the strengthening of our website through sales of limited editions of our video game software products on our website.

As for overseas marketing, we sell our products through sales representatives at our subsidiaries, principally those in the United States, Germany and Hong Kong. Due to different commercial environments, there are some risks for price protection or returned goods. In the European markets, soccer game software has made solid sales, whereas in the North American market, music game software is popular.

Amusement Business

Our Amusement business produces and sells video game machines and token-operated game machines for amusement arcades.

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Amusement Arcade Games—Industry Overview

According to an industry statistical report, the amusement industry in Japan recorded total revenues of ¥796.3 billion during fiscal year 2009. The breakdown by category is shown in the following table.

Amusement Industry—Revenues in Japan

	December 31,
Industry	2002		2003		2004		2005		2006		2007		2008
	(billions of yen)
Amusement arcade operations	¥	605.5	¥	637.7	¥	649.2	¥	682.5	¥	702.9	¥	678.1	¥	573.1
Amusement arcade games (Japan)
Video game machines		22.7		35.0		39.6		48.5		50.2		49.7		48.4
Token-operated game machines		27.1		37.4		37.0		46.0		48.5		44.0		37.1
Prize machines		12.3		16.8		14.6		12.7		14.0		12.7		10.3
Vending machines		18.8		18.5		19.5		19.3		18.4		16.9		12.1
Music simulation game machines		3.4		3.4		3.3		3.4		3.4		4.7		4.2
Card games, etc. (excluding kids’)		—		—		5.5		11.5		8.7		8.0		9.4
*Kids’ Card games, etc.		—		—		—		—		23.7		19.6		15.0
Other		50.2		52.9		48.2		47.2		43.3		50.0		46.4
Sub-total		134.5		164.0		167.7		188.6		210.2		205.6		182.9
Amusement arcade games (exports)		20.0		13.9		12.9		10.6		13.2		13.5		13.3
Total	¥	760.0	¥	815.6	¥	829.8	¥	881.7	¥	926.3	¥	897.2	¥	769.3

* Sales amounts related to the Kids’ card games Industry was added from 2006.

Source: “Amusement Industry Survey, Fiscal 2009” (September, 2009), Japan Amusement Machinery Manufacturers Association.

Due to the development of powerful home game consoles that can rival amusement arcade games in play quality and the introduction of advanced mobile telephones equipped with online and game functions, consumers now have diverse leisure alternatives. In Japan’s amusement industry as a whole, the revenues produced by the amusement arcade operations decreased to ¥573.1 billion in the year ended December 31, 2008 from ¥678.1 billion in the year ended December 31, 2007 (according to the latest available data). This decrease in the industry-wide revenue was primarily due to shutdown of relatively small scale amusement arcades, which in turn had resulted from a decline in the number of customers and the level consumer spending amidst the deteriorating economy. The restructuring of the amusement industry such as development of large-scale amusement arcades attractive to customers continues, and only sales at shopping centers that target families have decreased for the first time in nine years, from the increase for the eight consecutive years.

KONAMI’s Amusement Business—Video Game Machines

Our Amusement business develops, produces and sells video game machines for amusement arcades, many of which use sophisticated computer graphics technology. In the year ended March 31, 2010, we introduced approximately 16 new titles for video game machines for amusement arcades, more than 70% of which were sequel titles. Such titles typically have life spans of six to 18 months, although popular titles may have a longer life and are sometimes developed into a series of titles, which together constitute a recognized brand such as DanceDanceRevolution and MAH-JONG FIGHT CLUB.

The main purchasers of our video game machines are amusement arcades. We have sought to respond to market trends by introducing low price products and products that involve the type of play that cannot be replicated easily by home video game systems. In this regard, our music simulation games have been successful.

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These games evolved from beatmania, a disc jockey simulation game developed in our Amusement business. Hit music simulation games have included DanceDanceRevolution, beatmania, pop’n music, GuitarFreaks & DrumMania. These music-simulation game machines are relatively expensive, but can accommodate relatively inexpensive software updates for sequel games. Because the price of new software generally is substantially less expensive as compared to the price of a new amusement arcade machine, software upgrades tend to be more attractive to our customers.

In March 2002, our Amusement business introduced the “e-AMUSEMENT” service that connects amusement arcades all over Japan through a computer network run by KONAMI, creating a new amusement arcade market. This service allows multiple players to participate in the same game simultaneously from different locations nationwide and to continue playing after saving the game. Our MAH-JONG FIGHT CLUB, which is our first title compatible with e-AMUSEMENT, is retaining its popularity in part due to events such as national conventions where players can try their skills in a tournament.

Our e-AMUSEMENT Titles:

The following are the major models of our video game machines currently on sale that are compatible with our e-AMUSEMENT service.

• MAH-JONG FIGHT CLUB, a Mah-jong game that allows multiple players to participate simultaneously from different locations;

• QUIZ MAGIC ACADEMY, an online quiz game participated by many players from all over the country;

• beatmania series: beatmania IIDX, pop’n music, DanceDanceRevolution, GuitarFreaks & DrumMania, music simulation games such as jubeat; and

• BASEBALL HEROES, an online baseball game that allows multiple players to participate by using professional baseball players’ cards.

Video Game Machines—Production

Our video game machines for amusement arcades designed for both the Japanese and the overseas markets are developed in Kobe and Tokyo. As for production, Konami Manufacturing and Service, Inc., a wholly owned subsidiary, produces our amusement arcade games designed for the Japanese market.

Video Game Machines—Marketing, Sales and Distribution

Konami Digital Entertainment Co., Ltd. markets and sells our video game machines for amusement arcades, and Konami Manufacturing & Service, Inc. handles our distribution business. As a result, we believe we have become able to provide more efficient services in our distribution activities. In overseas markets, our foreign sales subsidiaries are responsible for marketing, sales and distribution of our video game machines for amusement arcades.

Amusement Business—Overview of Token-Operated Game Machines Business

Token-operated game machines in Japan

As indicated in the following table, as of fiscal 2009, sales of token-operated game machines amounted to ¥37.1 billion, comprising approximately 20% of the ¥182.8 billion Japanese amusement arcade game market. Also, as indicated in the following table, revenues from amusement arcade operations and revenues from the operation of token-operated game machines increased every year from fiscal 2002 through fiscal 2007, but decreased in fiscal 2008. This decrease was caused by a decline in the number of customers due to the recent economic downturn and the revival of home video game machines such as Nintendo Wii as well as a trend of decline in the total number of amusement arcades.

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Token-Operated Game Machines—Japanese Industry Revenues

	Fiscal Year Ended on March 31,
	2004			2005			2006			2007			2008			2009
	(billions of yen except for percentages)
Revenues from the sale of token-operated game machines	¥	37.4		¥	37.0		¥	46.0		¥	48.5		¥	44.0		¥	37.1
Revenues from amusement arcade operations		637.7			649.2			682.5			702.9			678.1			573.1
Revenues from token-operated game machines		163.1			176.2			179.7			199.8			195.1			167.0
Token-operated game machine revenues as a percentage of amusement arcade revenues		25.6	%		27.1	%		26.3	%		28.4	%		28.8	%		29.1	%

Source: “Amusement Industry Survey, Fiscal 2009” (September 2009), Japan Amusement Machinery Manufacturers Association.

Our Amusement Business—Overview of Token-Operated Game Machines Business

We develop, produce and sell token-operated game machines that are primarily targeted to amusement arcade operators in Japan. All token-operated game machines that we sell in Japan are played by purchasing tokens that are inserted into the machine, the object being for the player to win more tokens to extend the playing time. Our popular token-operated game machine called “FORTUNE TRINITY” which was released in February contains a roulette installed on the ceiling which is the largest in the industry—exceeding over three meters in diameter—and which enables 20 users to play together simultaneously, presenting an orchestration of lights, sounds, and pictures at the time of the jackpot, similar to the water fountain show in Las Vegas and providing an experience which can be enjoyed only at an amusement facility.

Medium- and large-sized game machines, which attract older children and adults, are supplied mainly to amusement arcades. In addition to SPINFEVER and GRANDCROSS, our principal machines include the ETERNAL KNIGHTS series, a new sensory experience adventure game simulation RPG, the FANTASTIC FEVER series and the GI-HORSEPARK series, large-scale horse race games in which users can bet tokens and play racing games or training games. We also sell the Tower Pusher series, small-sized token-operated game machines. In this way, we are advancing a full lineup of various types of token games.

Token Operated Game Machines—Production

Our domestic token-operated game machines are developed in our production facilities in Kanagawa, Japan. As for production, Konami Manufacturing and Service, Inc. produces the domestic token-operated game machines.

Token Operated Game Machines—Marketing, Sales and Distribution

While Konami Digital Entertainment Co., Ltd. markets and sells our token-operated game machines, Konami Manufacturing & Service, Inc. is in charge of distribution.

Card Games Business

Toy Industry Overview

Consumption Trends—Declining Child Population and Enlarging the Age Brackets of Consumers

Each company in the Japanese toy industry is being forced to respond to changes resulting from a declining child population and the growing number of alternative options for play. Furthermore, companies must develop toys with original ideas so children will play with toys to a more advanced age than at present.

Since the population of children (those aged 0-14 years old) has been steadily declining and since the number of live births has also tended to decline, the child population is expected to continue to decline slightly in

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the future. According to the National Institute of Population and Social Security Research, the number of births in Japan has declined from 2.09 million in 1973 to 1.09 million in 2008. Consequently, the population of this age group has decreased from 27 million in the beginning of the 1980s to 17.1 million in the population census of 2009. The population of children is expected to fall below 10 million in 2039.

The phenomenon of children abandoning toys at a younger age is due to the changing pattern of children’s lives. A large number of children go to music classes (piano classes, etc.), fitness clubs (swimming schools, etc.) and cram schools (educational institutions to help enter kindergartens, primary schools and junior and senior high schools) from infancy and thus they spend less of their leisure time playing with toys than previous generations did. Moreover, electronic toys such as Nintendo DS now occupy an important position in the toy market. These toys are also used by younger people. The popularity of electronic games contributes much to the decreasing demand for general toys.

Trends and Characteristics of Toy Demand

In recent years, the toy and hobby business has been under difficult conditions not only due to the declining birthrate but also due to the diversification and the changes in customer’s preference. However, there has also been progress in diversification of distribution, expansion of new types of stores and diversification of products.

Under these circumstances, the age target set by toy makers has widened from infants aged zero to seniors. Furthermore, sales of card game products and trading card products, regarded to belong to the peripheral area of conventional toys, increased compared to the previous year while other toy makers engage in the development of products which are not categorized as conventional toys.

Our Card Games Business

We produce, develop, design and sell a range of card products and card-related products. These products are based on well-known characters, brands and images, or content, which we either produce on our own or license from third parties. Because of our strong reputation in the industry, we are able to acquire licenses to use popular characters and images such as those contained in Yu-Gi-Oh! Although each product is different, in most cases, we produce, develop and design the product around popular content and subcontract the manufacturing to a third party.

More than 90% of our revenues from our Card Games business has been derived from worldwide sales of our Yu-Gi-Oh! Trading Card Game, and changes in the revenues and income of our Card Games business have depended primarily on changes in worldwide sales of our Yu-Gi-Oh! Trading Card Game. We believe we have the largest share of the worldwide card game market according to data available from the Japan Toy Association and the Toy Industry Association, Inc. In February 1999, we launched our Yu-Gi-Oh! Trading Card Game in Japan. The Yu-Gi-Oh! Trading Card Game is based on a comic that was originally serialized in one of Japan’s most popular weekly comic magazines. We continue to sell our Yu-Gi-Oh! Trading Card Game globally in the United States and European countries, as well as in Japan.

Production

Our Card Games products are produced both overseas and in Japan by various third-party manufacturers. We are not dependent on any single manufacturer for the production of our Card Games products.

Marketing, Sales and Distribution

Marketing and sales in Japan are mostly conducted through direct sales to retailers, but depending on our target users and market conditions, we may choose more suitable methods. In July 2001, we opened the Konami Card Game Center in Tokyo as a customer service base for our card games business. Although we used to have partnership with retailers in the United States and Europe, we have switched to our independent distribution and have conducted sales in the United States since December 2008 and in Europe since April 2009, respectively.

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Online Business

Online Business Overview

Growth of broadband, online games and mobile phones as a platform

Internet technology for high speed broadband enables customers to have a more enhanced and interactive online experience. Going forward, we expect the spread of broadband services and continued competition among broadband providers to lead to further growth in the market for online games. With the rapid spread of broadband infrastructure, many game console manufacturers and video game software publishers are entering the online game business. For example, Sony Computer Entertainment started a broadband online service for PlayStation 2 in the spring of 2002 through which users can play games online and download software as well as enjoy broadband contents such as movies and music at home. In August 2002, Sony Computer Entertainment America Inc. started selling online adaptors and software for PlayStation 2 in the U.S., and in the fall of 2006, started a download service through its network in conjunction with the release of PlayStation 3. In the fall of 2002, Nintendo started an online service for GameCube in Japan and the U.S., and in conjunction with the release of Wii at the end of 2006, started a “virtual console” service in which users can download and play previously released game software for old models, and in March 2008, launched the “WiiWare” service, in which users can download new game software not available in stores. Microsoft started an online service for Xbox called “Xbox Live” in November 2002 in the U.S. and in January 2003 in Japan, and the service has been continued for Xbox 360, which was released in 2005. Now all portable game consoles and stationary game consoles have built-in network functions. Consequently, we are expanding further our range of online services. Some of our competitors have already started operating web sites where players can download a game and play it on the Internet. We expect that with the spread of broadband and faster services, investment into and interest in online games will expand significantly.

We also expect mobile phones to become a new platform for home video game software. In Japan, mobile phones are not just phones, but wireless Internet handsets loaded with digital cameras and multi-media processors. As of March 2010, the number of mobile phone subscriptions exceeded 112 million, and due to the prevalence of flat-rate plans offered by communication carriers, as well as advancements in mobile phone handset functions, the shift to content-rich media has expanded. Although usage rates for personal computers and the Internet is higher in the U.S. than in Japan, comparatively more people access the Internet via mobile phones in Japan and mobile phones are increasingly becoming a popular way to access the Internet.

Companies such as NTT DoCoMo, Inc. (DoCoMo) have developed a cutting-edge third -generation mobile phone technology enabling 24-hour access to the Internet at low cost from mobile phones for Japanese subscribers. One of the most popular services, i-mode, has been developed by DoCoMo and enables subscribers to view specified websites and to receive e-mails from mobile phones. In addition to accessing the Internet and e-mails, i-mode provides access to financial information (including share prices and net banking), travel information, news and entertainment information. Additional contents such as games are usually provided for an additional subscription of ¥100 to ¥300 per month. Other online mobile phone services, such as Softbank Mobile’s Yahoo! Keitai and EZweb by KDDI (au), provide similar functions. These third-generation services not only enable efficient access to e-mails, faster viewing for websites and e-commerce application, but also provide necessary speed and volume to support innovative multimedia applications such as more enhanced online games, downloading of music and video images.

Our Online Business

We develop, publish, distribute and sell software for home video game systems, personal computers, mobile phones and online networks. We plan to actively enter the mobile phone and online game software business in light of the recent growth of the online and mobile phone game markets, and we believe there may be new opportunities for profits with our software titles.

In October 2001, we established Konami Mobile Online, Inc. as our principal subsidiary developing games for mobile phones. In September 2003, we renamed it Konami Online, Inc. and added online game business to its

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existing businesses to manage online game infrastructures. Konami Online, Inc. later merged into KONAMI CORPORATION in April 2005. In the same month, KONAMI CORPORATION accepted new third-party shares issued by HUDSON SOFT CO., Ltd. and made it a consolidated subsidiary. Konami Digital Entertainment Co., Ltd. was established to take over our digital entertainment business and, starting from March 31, 2006, develop our online business for the purpose of synergetic effects between the Computer and Video Games Software and Card Games businesses. We develop and distribute various contents for all domestic mobile network services, including i-mode, Yahoo! Keitai and EZweb. In 2003, we started distribution of various game contents in North America, Europe and Asia. In Japan, we provide a download service for ringer melodies and wallpapers for mobile phones. Most of our games for mobile phones are mobile phone versions of our popular home video game software. Depending on the type of service, the subscription fee for users is ¥70 to ¥300 per month. As new services, we have distributed METAL GEAR SOLID TOUCH, DanceDanceRevolion S, PAWAFURU PUROYAKYU TOUCH and LOVEPLUS for the iPhone/iPod touch, to favorable reviews. We plan to add our successful sports titles to our distribution lineup.

Prior to fiscal 2007, we hosted online functionalities for our console games with online capability on our internal servers mainly for PlayStation 2. As the online capability of PlayStation 2 was rather limited, our video game software with online functionality was designed so that playing games on the console was the major premise, and the online usage rate was relatively low at that time. However, since PlayStation 3, which provides easier Internet access to users, led to significant improvements in the quality of the online component, from fiscal 2008 we have produced and sold video game software for PlayStation 3 which emphasizes the online services. In fiscal 2009, we started distributing METAL GEAR ONLINE, which recorded in total 1.7 million accounts worldwide at the end of March 2010 and has gained popularity.

Gaming & System Segment

Our Gaming & System segment develops, produces and sells gaming machines such as video and mechanical slot machines and management systems to gaming operators in North America, Oceania and other overseas markets. Net revenues generated by our Gaming business, before elimination of intersegment revenues, amounted to approximately ¥18,336 million in fiscal 2009 and approximately ¥ 19,996 million in fiscal 2010, an increase of approximately ¥1,660 million, or 9.1%. We develop, produce and sell gaming machines for international markets, primarily in North America and Australia, and sell casino management systems in North America and Australia.

Gaming Industry Overview

Global Gaming Industry

The North American market is the world’s largest gaming market, followed by the Oceanian market. Other major gaming markets include South America, Africa, Europe and Asia. Casinos are authorized to operate in more than 130 countries, and the number of countries authorizing casinos has been increasing each year.

Gaming in the United States

The gaming industry in the United States had generally experienced substantial growth during the decade between 1998 and 2007. However, the markets in some areas have been shrinking in this fiscal year due to the recent recession. Prior to 1979, gaming was limited to Nevada. In 1979, gaming was legalized in New Jersey. Between 1979 and 1988, gaming activities by various Native American tribes developed, leading to the enactment of the federal Indian Gaming Regulatory Act. The growth of Native American gaming served as a catalyst for certain jurisdictions to consider non-Native American gaming because of its potential as a source of government revenue. Since 1989, various forms of gaming have been legalized in numerous states including but not limited to Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, Pennsylvania, Florida and Rhode Island. In addition, gaming facilities operate at casino hotels, river boat casinos and on cruise ships sailing out of numerous ports in and around the United States. Several other states have approved or are considering approval of some form of gaming.

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Gaming in Australia

In Australia, the gaming industry is characterized by intense competition between manufacturers over a limited total market share due to an increase in the gaming tax rate and restrictions on the numbers of gaming machines permitted to be installed in larger states, as part of the Gambling Harm Minimization Policies implemented by the Australian government. Australia is the largest and most established market for gaming products outside of North America and is primarily oriented towards the video slot machine market.

Our Gaming Business

We have expanded our gaming machines business in international markets. This expansion, initiated in March 1998 by exporting components of video slot machines to Australia, was followed by the launch of video slot machine sales in the United States in late 2000. In August 2001, we acquired Paradigm Gaming Systems, Inc., through our American subsidiary, Konami Gaming, Inc., and integrated it into the Systems Division of Konami Gaming, Inc. Paradigm Gaming Systems, Inc. is a developer of casino management systems. Our casino management system product enables simultaneous accounting, marketing management, customer management and security enhancement by connecting all of the gaming machines to a casino in a unified management system. Due to the acquisition of Paradigm Gaming Systems, Inc., we are further expanding our opportunities in the gaming machine market in North America and are steadily expanding our client list. We have received licenses to manufacture and sell gaming machines in almost all of the major states and provinces in North America and Canada that permit gaming. For example, we acquired licenses from New Jersey in 2004, Oklahoma and Alberta, Canada in 2005, and Pennsylvania and Florida in 2006, and Rhode Island in 2007. In October 2005, we entered into an agreement for a large-scale installation of the Casino Management System in Quebec, Canada which commenced implementation in 2006 and was completed in 2007. Furthermore, in certain states and regions in Australia, we have commenced installations and engaged in expansion of sales.

We originally started our Gaming & System segment with sales of video slot machines in Australia and later introduced our video slot machine products into the North American market. We are currently focused on the development of new models, including mechanical slot machines, to secure revenues generated in the North American market.

In North America, the largest gaming machine market in the world, we currently hold licenses to manufacture and sell gaming machines in major states and sell gaming machines to major Native American casinos. We participated in the Global Gaming Expo in November 2009, and exhibited and received favorable reviews for, a wide-ranging product lineup that responded to the needs of each relevant market. It included new content for the K2V series, which was loaded onto the Podium, new cabinet (outer structure) for the expo; Advantage Revolution, the latest slot machine in which progress has been made in the staging elements; Advantage 5; and the Konami Casino Management System.

Konami Australia Pty Ltd, which has licenses for sales and manufacturing of gaming machines in all Australian states, markets gaming machines with a focus on our main K2V series product a new platform which was released in fiscal 2007, as well as our ES series product. Although the dominance of the largest player in the Australian gaming markets has made it difficult for us to become a market leader quickly, we have gained a stable position in the Australian market as one of the other main gaming machine sellers and manufacturers. We believe the Australian gaming market is mature and has been leveling off, due in part to the tax system revision, smoking bans, and regulations limiting the maximum number of gaming machines allowed in each state, and we do not expect our sales of gaming machines in Australia to expand substantially in the future unless there is a major change in the nature or regulation of the market. We intend to continue to try to expand our business to overseas markets.

In contrast to Australia, we believe demand for our gaming machines in North America has been increasing. Also, following acquisition of a license in New Jersey, one of the largest gaming markets in North America, in August 2004, we have acquired additional licenses, mainly in Oklahoma, New Mexico, Pennsylvania, Florida,

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Rhode Island and Alberta in Canada. We have built a new gaming machine facility in Las Vegas which commenced operations in June 2005, and which has significantly increased our production capacity to meet increasing demand in each market.

Production

Our gaming machines and casino management system, sold in North America are assembled at our production facility in Las Vegas, Nevada. Gaming machines sold in Australia are assembled at our production facility in Sydney, Australia. Our products are assembled utilizing various parts and components from a large base of local vendors. A Japanese branch of our North American subsidiary supplies certain software and electronic components to our overseas production facilities. We have also identified alternate sources of supply for significant parts and components in the event any of our current vendors fail to meet order requirements.

We completed the construction of a new building in Las Vegas in June 2005. More than a half of our worldwide sales are derived from the U.S. market, and products sold in the U.S. market are built solely in the facility in Las Vegas. We believe we have thus achieved more efficient operations through increased production capacity compared to our previous building and an enhanced training facility for customers of our casino management system.

Marketing, Sales and Distribution

Our gaming machines are marketed, sold and distributed overseas through our local subsidiaries directly to casino operators. Currently, in Las Vegas, which is representative of the North American market, there is substantial management integration of gaming facilities.

Health & Fitness Segment

Our Health & Fitness segment is comprised of the operation of fitness clubs and the design, manufacture and sales of fitness machines and fitness-related products.

Consolidated net revenues generated by our Health & Fitness segment, before elimination of intersegment revenues, amounted to ¥89,965 million in fiscal 2009 and ¥85,765 million in fiscal 2010, a decrease of ¥4,200 million.

Fitness club business

Industry Overview

According to “Fitness Club Industry Trends in Japan, 2009” published by Club Business Japan, revenues generated at private fitness club in Japan have increased from ¥379.6 billion in 2004 to over ¥400 billion in 2009, and although the number of private fitness club memberships has showed an increase from 3.78 million in 2004 to over 4 million in 2008, it dropped below the 4 million level in 2009. This cause was deemed to a decrease in the enrollment of young people aged from 20 to 35. Particularly a decrease in the enrollment of women, while admission of middle-aged and senior adults increased.

On the other hand, the number of facilities continued to increase but not at the same pace as in 2007 when an increase of 20% was recorded compared to the previous year, and the total number of facilities was estimated to be 3,388 as of the end of December 2009. Although nearly 400 small-scale circuit-training gyms opened each year in 2006 and 2007, such pace steadied down in 2009 with the opening of 98 small-scale circuit-training gyms. A pace of opening of new types of facilities such as small-scale gyms exclusively for women and studio-type facilities specialized in yoga and Pilates has declined, and it was reported that 152 clubs were newly opened overall in 2009.

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Despite this slower pace, because facilities in line with the diversity of customers’ preferences were continuously opened, the overall supply of facilities exceeded demand, resulting in intensified competition in the same sales areas located mainly in metropolitan areas. As a results, the number of membership per facility has been on a declining trend that has continued since 2005 as stated in the aforementioned “Fitness Club Industry Trends in Japan, 2009”.

However, the future fitness market is expected to grow in the medium to long term period considering the growing interest in diet programs and measures against slowing metabolisms, the movement to build a new health service scheme in local communities with the cooperation of the private sector, governmental authorities and academia, as well as the growing popularity of home fitness as represented by Wii Fit and fitness DVDs.

Our Fitness club Business

Through our acquisition of a majority of the outstanding common stock of PEOPLE CO., LTD. in February 2001, which we renamed Konami Sports Corporation, we have become the leading operator of health and fitness clubs in Japan in terms of revenues, members and total number of facilities. Since our acquisition of PEOPLE CO., LTD., we have grown our fitness club business primarily through acquisitions of other fitness clubs. We increased our presence in this market even further through the acquisition in February 2002 of a majority of the shares of the Daiei Olympic Sports Club, Inc., one of the major fitness club operators in Japan in terms of revenues, which was subsequently taken over by Konami Sports Corporation in October 2002. These acquisitions were part of our strategy to diversify our revenue base. Fitness club revenues tend to be more stable than revenues in other segments, which can fluctuate widely depending on the release of hit products. Fitness clubs also tend to have a more diverse consumer base across both gender and age. Finally, we expect that our fitness clubs will provide demand for our fitness machine business.

While the health-consciousness of Japanese people has increased significantly, their preferences and lifestyles have become more diverse. In order to achieve further growth in our Health & Fitness segment, we promote the provision of services which meet our customers’ diverse needs and the development of externally competitive products. However, a decline in consumer spending caused by the worldwide recession that has continued since the fall of 2008 has also affected the business environment surrounding our Health & Fitness segment. As a result, we tested the recoverability of underperforming clubs and recorded a pre-tax impairment charge of ¥7,881 million for long-lived assets during the fourth quarter of the fiscal year ended March 31, 2009. We also have made improvements such as efficiency of operations through consolidation of our competing clubs and closure of unprofitable clubs and review of product structure, as well as improvement of our products and services, for future growth.

As of March 31, 2010, we directly owned and operated a nationwide network of 211 fitness clubs and operated an additional 116 sports facilities outsourced to us. We offer a wide variety of health and fitness related services, including traditional membership-based clubs with swimming, gymnastics and tennis school programs, aerobics programs, combat-type exercise programs and health and advisory services to people of all ages. In addition to our facility-based operations, we also provide health and fitness advisory services to corporations and to public sector entities. Our non-facility business includes franchising of fitness clubs and the licensing of specific products and programs, such as diet programs. We also act as a nationwide agent of health and fitness programs for the Japan area, acquiring licenses for programs having worldwide popularity, and supply these programs to other fitness clubs as well. We are also engaged in other activities incidental to our core Health & Fitness segment, including travel agency operations and publishing a web magazine for club members.

We principally sell month-to-month membership payment plans that are generally cancelable by members at the end of any month provided that they give advance notice by the tenth day of that month. We believe that members generally prefer this non-commit membership plan over long term commitments. The non-commit membership plan also provides us with an incentive to deliver high quality programs and services in order to retain members.

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We have experienced significant growth through a combination of (i) acquiring existing single and multi-club businesses, and (ii) developing and opening new club locations. We believe that there are further opportunities to grow our business profitably. While Japan’s population is growing very slowly, is aging rapidly, and is projected to begin contracting in the future, the percentage of the population that are members of fitness clubs is significantly lower in Japan than it is in the United States. First, we plan to carefully continue opening of new fitness club facilities focusing on their profitability in a short to medium term, while critically assessing the profitability of existing facilities. Second, we believe that we can increase our market penetration by adding services and facilities that will attract new members from all age groups. We plan to differentiate us from our competitors by introducing fitness machines that include differentiated features, by digitizing health management, and by expanding our business into value-added services that can meet the evolving needs of consumers such as enhancement of hot bath facilities and adjacent development of soccer and golf schools. In September 2009, we set up a booth at the 35th International Home Care & Rehabilitation Exhibition H.C.R 2009 to introduce our original equipment, programs and services developed in response to an aging society.

We believe we are the only company in Japan which operates fitness clubs and conducts a product development business. We expect to continue to increase revenues through club and membership growth not only by increasing the number of facilities and members, but also by providing products and services in relation to overall health service. We currently serve, not all, but many of the major cities in Japan.

We have taken actions to create a more powerful brand. To cement our position as the No. 1 brand in the fitness club industry in Japan, we unified our collection of brands, including XAX and PEOPLE, into a single brand: Konami Sports club, thereby strengthening our brand recognition and providing more sophisticated facility services, as part of our continuous efforts to improve the retention rate of current customers. Improving the retention rate of customers of existing clubs is one of our major objectives as revenue growth of existing clubs is lower than newly opened clubs. In a move to improve customer convenience, we introduced new services and products such as a personal trainer system where an instructor with specialized knowledge provides fee-based individualized lessons for each customer. Furthermore, we launched the first official i-mode, Ezweb, Yahoo! (internet enabled cellular phone) site in the fitness industry, which provides various club facility information and health related information. Going forward, we plan to offer an IT health management system that will enable comprehensive management of a person’s health, connecting the three aspects of daily health and lifestyle—the fitness club, the home and outside the home.

Not only do we focus more on improving the quality of our services than on reducing our member prices within the fitness clubs in order to compete efficiently, we also offer value-added services such as spa and massage in for extra charges. Also, outside of the fitness clubs, we offer various sporting events and tours in which our members can participate.

Our Health & Fitness segment develops fitness machines for home use by our consumers and fitness equipment for serious exercise for use principally in our Konami Sports fitness clubs. In fiscal 2006, we completed a full lineup of our fitness machines, such as the “EZ series”, and these machines are now in our Konami Sports fitness clubs. We also have several new machines in various stages of development. In addition, since COMBI WELLNESS Corporation became a wholly-owned subsidiary in May 2006, our product portfolio was expanded, including “Aerobike”, our principal product in this business.

In fiscal 2008, we announced our business and academic collaborations with Kagawa Education Institute of Nutrition and Osaka Electro-Communication University, and became involved in the training of instructors who are able to provide guidance in exercise and nutrition, the joint development of an effective health program to maintain both exercise and a nutritious diet, the training of staff who can act to maintain and control health, and the development of effective and practical health apparatuses. In addition, we have also begun sales of an original supplement for health and beauty called “Cristal Ottimo” and it is available at pharmacies, drugstores and Konami sports clubs nationwide. In fiscal 2010, we have promoted further sales enhancement by developing new sales channels such as mail-order and catalog sales for the existing product lineups.

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In fiscal 2009, we introduced our Targeting Waist Program simultaneously to all directly-owned fitness clubs throughout Japan. From workouts utilizing our specialized KONAMI original exercise machines to the provision of supplements and health management outside of our facilities, this program provides one-stop support for countering metabolic syndrome. In this way, we have provided services that only we can offer to our members with increasing health consciousness.

In fiscal 2010, as one of the Ministry of Economy, Trade and Industry’s “Community-based Comprehensive Health Service Industry Creation Projects”, a consortium of six organizations including our Company has promoted health enhancement projects using IT in Takamatsu, Kagawa and its surrounding areas. We have engaged in efforts to support health enhancement of community residents through the utilization of IT, such as exercise and dietary instruction through IT collaboration between medical institutions and fitness clubs, and the promotion of walking through the use of a pedometer and health management software developed by us.

Club Formats and Location

Our clubs generally have relatively high “retail” visibility, and located around the terminal railway stations in urban areas and commuter suburbs in accordance with our operating strategy of offering our target members the convenience of multiple locations close to where they live and work, reciprocal use privileges and facilities and services in which the quality is standardized.

In addition, we are making efforts to provide safe, clean and comfortable facilities from the viewpoint of our customers. We plan to further improve the safeness of our facilities and provide quality services to our customers, through introducing Automated External Defibrillators or AEDs in all of Konami Sports Club facilities as well as renovating older buildings. We aim to respond to various customer needs by providing a broad range of services through development of facilities and introduction of services that cater to all age groups and regional characteristics and to operate fitness club facilities that can contribute to the enhancement of the health of our community members.

We operate the following three types of service businesses at various locations in Japan.

• Operation of our fitness clubs.    In an effort to expand the network of our fitness club facilities, we are making efforts to provide an ever higher quality of service through the “digitization of health control” and the “enhancement of programs”. We have expanded the introduction of “e-XAX”, an IT health control system in which individual exercise histories and data for the enhancement of health are maintained, and continued the promotion of various programs such as “6 WEEKS”, a countermeasure program for lifestyle-related diseases and “BIOMETRICS”, a diet program, Targeting Waist Program, a program to combat metabolic syndrome. We provide three services at Konami Sports Club: XAX, through which we provide various programs combining studio fitness programs, machine exercises and swimming exercises targeting younger age groups; Undo-Jyuku for children up to high school students, with various fitness schools including swimming and gymnastics schools; and GRANCISE, furnished with top-level services and facilities for business people. Additionally, since 2002 we have expanded member services such as personal training, fitness counseling, acupuncture and massage, muscle toning training, diet programs, lifestyle diseases prevention programs, scuba diving classes and golf training, for additional fees. The income generated from operation of our fitness club facilities accounted for 82.4% of the total operating income of our Health & Fitness segment in fiscal 2010.

• Operation of sports facilities outsourced to us.    We operate sports facilities of private companies and of local governments by contract upon obtaining the approval of the relevant boards or councils. We actively utilize our expertise and experience in the health enhancement of community members. In fiscal 2010, we added six facilities including the Mikamo Clean Center Residual Heat Utilization Facility (Tochigi Prefecture), the Hiroshima Prefectural Sports Center (Hiroshima Prefecture) and the Sakai Municipal Mihara Sports Center (Osaka Prefecture), and using our expertise and experience in the operation of public facilities, we made active efforts to enhance the health of community members. Our

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operating income generated from operation of facilities by contract accounted for 7.1% of total income of our Health & Fitness segment for the fiscal 2010. In addition to the outsourcing business, we have franchise contracts under which we receive a royalty or advertising fees from franchised fitness clubs for use of our brand names and to be licensed for our specific products and programs. In fiscal 2006, we reviewed our existing franchise contracts and determined that fewer franchise stores were desirable for our brands. As a result, a majority of the existing 28 franchise contracts was not renewed and we recognized impairment losses for intangible assets related to those franchise contracts terminated in 2006.

• Other.    Our other businesses include, in particular, providing tours relating to sports and leisure mainly to adults, as well as extracurricular activities for children. For example, we offered an experience-oriented tour of the LES MILLS in New Zealand for which we are licensed, as well as an experience-oriented camp called “NEICHILD CAMP” allowing children to get closer to nature. We also generated additional income through sales of products at our stores, convenience stores, and online shopping. Our operating income generated from other operation accounted for 10.5% of total income of our Health & Fitness segment for the fiscal 2010.

Marketing

Our marketing campaigns are directed by our in-house Publicity Unit of Facility Operation Department. This team conveys each of our nationally branded fitness clubs as the premier network of fitness clubs in that region. Advertisements are designed to highlight the consistent quality and high value-to-price ratio that we believe we provide through a combination of our membership programs, club facilities and personnel. Our goal is to achieve broad awareness of our brand names primarily through television, newspaper, and magazine and our web site.

We also engage in public relations and special events to promote our image in surrounding local communities. We believe that these public relations efforts enhance our image and the image of our brand names in the communities in which we operate.

Sales

Sales of new memberships are generally handled at the club level. In making a sales presentation, we emphasize: (i) the proximity of our clubs to concentrated commercial and residential areas convenient to where target members live and work; (ii) the advantages of a membership with a club that has an extensive nationwide network; (iii) the lack of a long-term obligation on the part of the enrollee; (iv) the price value relationship of a membership; and (v) access to value-added services.

We generally offer five principal types of memberships: (i) GRANCISE Regular Membership, which entitles members to use all facilities of GRANCISE and XAX for no charge; (ii) GRANCISE Branch Membership, which enables members to use one GRANCISE facility and all XAX facilities for no charge; (iii) XAX Special Membership, which allows members to use all XAX facilities nationwide for no charge; (iv) XAX Regular Membership, which entitles members to use one XAX facility for no charge and all other XAX facilities nationwide on a per-use charge; and (v) XAX Branch Membership, which enables members to use one XAX facility during certain hours on weekdays and on Saturdays, Sundays and holidays or any time during the operation hours of Saturdays, Sundays and holidays. Furthermore, from fiscal 2010, we introduced MYSELECT Membership, which entitles members to use facilities within the designated area at any time during the operation hours. We also provide a wide variety of membership services in line with the regional features and needs at each facility.

In joining a club, a new member signs a membership agreement which obligates the member to pay monthly dues on an ongoing basis. We collect approximately 70% of monthly membership dues through automatic payments based on credit card contained in the membership agreement. Most membership dues are paid one

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month in advance. Members can generally cancel their membership at the end of any month provided that they give advance notice by the tenth day of that month. We believe that this program of monthly dues collection provides a predictable and stable cash flow for us and eliminates the traditional accounts receivable function while providing a significant competitive advantage in terms of the sales process, dues collection, working capital management and membership retention. During the first week of each month, we receive the dues for that month initiated by third party processors such as JACCS or Cedyna, two Japanese credit card companies.

We also respond to the needs of various companies by establishing differentiated prices for corporate membership plans. We have also developed corporate fitness programs, fitness evaluations and health clinics allowing corporations to use our fitness club facilities as part of their employee benefits plans.

The Fitness Product business

Industry Overview—Consumer Trends

We believe that the domestic market for fitness equipment has potential for growth due to a number of demographic and market trends that we expect will continue, including:

• growing consumer awareness of positive benefits of good nutrition and fitness;

• expanding media attention on health and fitness;

• an aging population that is maintaining a more active lifestyle;

• continued attention to appearance and weight by consumers;

• expansion of the market for sophisticated high-quality fitness equipment due to consumers’ continued demand for higher levels of efficiency in their workout regimes; and

• the growing need for easy programs and health control machines which can be used at the fitness club or at home, to respond to the tendency for consumers to demand quick, easily obtainable results within a short period of time.

Our Fitness Product Business

Our fitness equipment business is primarily comprised of procurement and sales, manufacturing and marketing of fitness equipment and related products. We believe that we can create fitness machines which meet customer needs and provide convenience to provide healthy and enjoyable training as well as enabling the management of one’s exercise history by using the e-XAX IT healthy management system, leveraging our know-how gained through development of entertainment software and hardware as well as operation and management systems networked with such software and hardware. Such machines will further stimulate the desires of consumers thinking about joining fitness clubs, and through the exercise history and being able to see the results of their exercise, will maintain the motivation of current members. This will result in profits for our fitness club business.

We also expanded into the home fitness equipment market, by leveraging the product development know-how of COMBI WELLNESS Corporation, which became a wholly-owned subsidiary in May 2006. In particular, we plan to grow our operations by developing high quality, branded fitness equipment that better meets the needs of our customers and retailers.

Production, Marketing, Sales and Distribution

Fitness Equipment

We have developed and introduced the EZ Series as “Exertainment” equipment which adds entertainment aspects to traditional fitness machines and combines exercising and entertainment. In addition to home fitness

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products that allow users to enjoy exercising at home, such as Refreshment Bike, a home fitness machine with a built-in generator of high amounts of concentrated oxygen and negative ions, as well as Kenshin Keikaku, a software which displays and manages physical activity data stored in e-walkeylife, a multi-functioned pedometer.

Further, with respect to full-scale exercise-oriented equipment, we have released products such as FORCED REP, a next generation strength machine which can automatically control the load and Massugu Sesuji and Anshin Hokou, nursing care equipment for the elderly. Additionally, we have released e-walkeylife2 and Kenshin Keikaku 2, updated versions of pedometer and management software, as well as Kenshin Keikaku TV, which can be connected to a TV, and we provide a system by which users can enhance their exercise habits and lifestyle by using their own data at home.

Health Products

Having perceived the needs of health-conscious people, we have engaged in the improvement of product lineups and developed original supplement products for use as one of the health-related products used by those who come to our fitness clubs as well as at home. We also introduced a service called “Supplement Member”, a delivery service of popular supplements for our club members to their home addresses. In 2009, we launched a new supplement called GLAVONOID to be used with our Targeting Waist Program, which was introduced to all directly-owned fitness clubs throughout Japan as a program to counter metabolic syndrome, and a new product called PROTEIN PRO, a protein drink in jelly form, that enables effective protein intake. In August 2009, we released EXERCISEWATER ZERO, a sugar-free beverage with zero calories, and engaged in sales expansion by selling the products not only at our facilities but also at convenience stores. In addition, we have commenced catalog sales of our health products at post offices in Tokyo through an alliance with the Tokyo Branch of Japan Post Network Co., Ltd.

Our fitness equipment and health related products had been designed, produced, developed, manufactured, marketed, sold and distributed by Konami Sports Life Corporation, our wholly owned subsidiary. Konami Sports Life Corporation merged with Konami Sports Corporation and became Konami Sports & Life Co., Ltd. as of February 28, 2006. In addition, we made COMBI WELLNESS Corporation a wholly-owned subsidiary in May 2006, and we will promote creation of new markets and provision of various health services, through for example engaging in comprehensive operation of fitness club facilities, development and manufacturing of health-related equipment and supplement products.

Other Operations

Pachinko and Pachinko Slot

Pachinko—Overview of Merchandise

The pinball-like game of pachinko is a national pastime in Japan. Players rent a supply of tiny metal balls that they then propel with a motorized trigger at a maximum permitted rate of 100 times a minute through a vertically mounted pinball-like maze in a pachinko machine. As the balls bounce through a maze of pins, they either hit jackpots to produce more balls or fall into the gutter at the bottom of the machine. The board face, which has moving images on a LCD panels and flashing lights, is designed to attract potential players and is the most important component.

Our Pachinko LCD Operations

We develop software for LCDs installed in pachinko machines. The life cycle of such software for LCDs is approximately several months to one year.

Currently, we typically introduce between three and five new software programs for LCDs each year. Pachinko machines must be inspected by The Security Electronics and Communications Technology Association

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(the “Security Association”), an extra-governmental organization associated with the Metropolitan Police Department, before being marketed in Japan. This process exposes us to possible delays in our introduction of new software because we may be required to change software content.

To attract a wider customer base, we have expanded the type of pachinko game machine titles we develop to focus software development to a great extent on entertainment and game value. We believe that the pachinko game machine manufacturing market in Japan is mature and is unlikely to grow significantly, if at all. However, we plan to expand our market share by increasing the volume of software we sell.

Development, Production and Components Supply

We outsource a portion of the production of our software for LCDs we develop to third parties who produce our software to our circuit design specifications. We also work with third-party contractors who integrate the software with LCDs, semi-conductors and printed circuit boards that we order from major electrical manufacturers in Japan. We have encountered difficulties in the past in procuring LCDs in sufficient quantities, although less so currently due to the increasing production capabilities of LCD makers. However, there is also increasing demand for semiconductors due to advanced LCD technologies and, in order to avoid future procurement problems, we place orders in advance to meet the requirements. We have not encountered, and do not expect to encounter, any difficulty in procuring printed circuit boards for our use. After our contractors have integrated the software and hardware, we then supply the bundled unit to the pachinko hardware manufacturer for the relevant pachinko machines.

Marketing and Sales

We sell our LCDs directly to pachinko machine manufacturers. Some of the larger manufacturers sell their own software for pachinko machines, but most manufacturers purchase software from third parties, including us. We commenced sales in 1992 and have been making efforts to strengthen business relations with companies who have basic product and sales agreements with us.

Market Environment

The number of pachinko and pachinko slot outlets in Japan has decreased in the last few years. According to statistics released by the National Policy Agency in April 2010, the number of nationwide pachinko outlets has decreased by 285, or 2.2%, to 12,652 at the end of 2009 compared to the previous year. The number of pachinko machines per outlet was 356.2, almost the same level as the previous year.

Pachinko Slot—Overview of Merchandise

The pachinko slot machine is a slot machine found mainly in pachinko outlets, and its official name is “Kaidoushiki Yugiki”. It is an entertainment machine which is as popular among the Japanese people as traditional pachinko. Players rent tokens which they put into pachinko slot machines and then must press buttons to stop each spinning reel, and acquire tokens by matching patterns. In recent years, there has been widespread growth in pachinko slot machines with LCD panels, as the display of effects on the screen while playing pachinko slot has made the experience more enjoyable.

Our Pachinko Slot Operations

We conduct a wide range of operations, ranging from planning and production to the manufacture and sales of pachinko slot machines. The life cycle of a pachinko slot machine can span from a few months to over a year.

Like pachinko machines, pachinko slot machines must be inspected by the Security Electronics and Communications Technology Association. Since changes may need to be made to the software or hardware following the inspection procedure, the release of new pachinko slot machines may at times be delayed.

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During the year ended March 31, 2010, we released five different pachinko slot titles. In the future, we plan to expand our market share by utilizing our experience in game development and the various rights to content held by our company to create new types of pachinko slot machines with high entertainment value.

Marketing and Sales

We sell our pachinko slot machines through two different methods. The first is to sell our pachinko slot machines to pachinko halls and pachinko slot halls directly, and the other is to sell through agencies. We will continue to maintain a strong alliance system to expand sales.

Market Environment

Please see the information provided under “Pachinko—Market Environment” above.

Brand Sourcing

A significant portion of our products include content (brands) such as characters, images, trademarks and logos, to which we have been granted licenses from a broad range of licensors. The success of our business depends to a significant extent on our ability to create or license content with strong consumer appeal and a high level of recognition or acceptance. To do so, we must identify and respond rapidly to new and emerging consumer trends.

Content is one of our most valuable assets. Accordingly, we actively seek to obtain licenses of prominent brands for our video game software, amusement arcade games, gaming machines, card games, toys, music CDs and other consumer merchandise. Our most important source for licensed brands has been sports organizations. Use of the names of actual players in our games is a relatively new phenomenon in response to the demand for greater reality in game software content and as such, securing necessary licenses is critical to success of our sports titles. Increasingly, we also seek to license brands from film makers, comic’s publishers, and animation and TV program producers.

Our significant brand licensing activities include the following:

• We have obtained licenses from the Union of European Football Associations (UEFA), Major League Baseball Properties, Inc., and Major League Baseball Players Association, FIFPro Commercial Enterprises BV and Japanese sports organizations such as the Professional Baseball Organization of Japan, the Japan Professional Soccer League, or J-League, and the Japan Football Association.

• We have obtained licenses from film makers, comic’s publishers and animation companies, including Nihon Ad Systems Inc., Shueisha, Kodansha and Shogakukan Production Co., Ltd.

Overseas Activities

The following tables show net revenues, operating expenses and operating income (loss) by geographic area for the fiscal years ended March 31, 2008, 2009 and 2010:

Year Ended March 31, 2008	Japan		United States		Europe		Asia/ Oceania		Total		Eliminations (2)			Consolidated
	(Millions of Yen)
Net revenues:
Customers	¥	220,462	¥	34,137	¥	35,589	¥	7,214	¥	297,402		—		¥	297,402
Intersegment (1)		21,147		4,802		44		658		26,651	¥	(26,651	)		—
Total		241,609		38,939		35,633		7,872		324,053		(26,651	)		297,402
Operating expenses	¥	211,643	¥	37,532	¥	33,810	¥	7,304	¥	290,289		(26,726	)	¥	263,563
Operating income	¥	29,966	¥	1,407	¥	1,823	¥	568	¥	33,764	¥	75		¥	33,839
Property and equipment, net	¥	64,075	¥	2,170	¥	147	¥	298	¥	66,690		—		¥	66,690

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Year Ended March 31, 2009	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations (2)			Consolidated
	(Millions of Yen)
Net revenues:
Customers	¥	223,662	¥	44,051	¥	37,216	¥	4,842		¥	309,771		—		¥	309,771
Intersegment (1)		24,762		4,266		96		596			29,720	¥	(29,720	)		—
Total		248,424		48,317		37,312		5,438			339,491		(29,720	)		309,771
Operating expenses	¥	229,411	¥	43,779	¥	33,158	¥	5,784		¥	312,132	¥	(29,722	)	¥	282,410
Operating income (loss)	¥	19,013	¥	4,538	¥	4,154	¥	(346	)	¥	27,359	¥	2		¥	27,361
Property and equipment, net	¥	57,951	¥	2,238	¥	112	¥	251		¥	60,552		—		¥	60,552
Year Ended March 31, 2010	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations (2)			Consolidated
	(Millions of Yen)
Net revenues:
Customers	¥	198,500	¥	33,743	¥	23,682	¥	6,219		¥	262,144		—		¥	262,144
Intersegment (1)		14,272		3,805		89		669			18,835	¥	(18,835	)		—
Total		212,772		37,548		23,771		6,888			280,979		(18,835	)		262,144
Operating expenses	¥	199,427	¥	33,845	¥	22,598	¥	6,560		¥	262,430	¥	(18,950	)	¥	243,480
Operating income	¥	13,345	¥	3,703	¥	1,173	¥	328		¥	18,549	¥	115		¥	18,664
Property and equipment, net	¥	60,345	¥	1,739	¥	93	¥	257		¥	62,434		—		¥	62,434
Year Ended March 31, 2010	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations (2)			Consolidated
	(Thousands of U.S. Dollars)
Net revenues:
Customers	$	2,133,491	$	362,672	$	254,536	$	66,842		$	2,817,541		—		$	2,817,541
Intersegment (1)		153,396		40,896		958		7,190			202,440	$	(202,440	)		—
Total		2,286,887		403,568		255,494		74,032			3,019,981		(202,440	)		2,817,541
Operating expenses	$	2,143,454	$	363,768	$	242,886	$	70,507		$	2,820,615	$	(203,676	)	$	2,616,939
Operating income	$	143,433	$	39,800	$	12,608	$	3,525		$	199,366	$	1,236		$	200,602
Property and equipment, net	$	648,592	$	18,691	$	1,000	$	2,762		$	671,045		—		$	671,045

(1) Intersegment means transactions between geographic areas.

(2) Eliminations means elimination of intersegment transactions and operating expenses not allocated to a specific geographic region.

One of our principal strategies is to significantly increase our overseas revenues in absolute terms and as a percentage of our overall revenues through development and supply of products in the most appropriate manner, producing globally-accepted products or products according to regional features.

Our present overseas activities consist principally of sales of video game software, amusement arcade games, card game products and gaming machines and revenues from charges on mobile games.

In fiscal 2008, our net revenues increased ¥2,188 million in the United States and ¥3,688 million in Europe, respectively, resulting mainly from the strong sales of gaming machines and the DanceDanceRevolution series of video game software in North America and Pro Evolution Soccer series of video game software in Europe.

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In fiscal 2009, our net revenues increased ¥9,378 million in the United States and ¥1,679 million in Europe, respectively, resulting mainly from the strong sales of gaming machines and the METAL GEAR SOLID and the DanceDanceRevolution series of video game software in North America and METAL GEAR SOLID and the Pro Evolution Soccer series of video game software in Europe.

In fiscal 2010, our net revenues decreased ¥10,769 million in the United States and ¥13,541 in Europe, respectively, resulting mainly from no release of new series of the METAL GEAR SOLID of video game software as well as failure to achieve sales of the DanceDanceRevolution series to the same level as the previous fiscal year. Similarly, in Europe, we did not release any new series of METAL GEAR SOLID of video game software and achieve sales of the Pro Evolution Soccer series to the same level as the previous fiscal year.

We initiated overseas operations by exporting amusement arcade games in 1979, and in 1982 we established a sales subsidiary in the United States. In subsequent years, we established additional sales subsidiaries in Germany, the United Kingdom, Korea, Singapore and Hong Kong, and a software game development subsidiary in Shanghai. In February 1997 we established Konami Gaming, Inc. to manufacture and distribute gaming machines in Nevada. Having received all licenses required by the state and county officials in Nevada, we began distributing gaming machines in Nevada beginning in fiscal 2001. Since then, we have received similar licenses and/or permission to operate in major states in North America. In addition, we have been licensed by Native American tribes in California, Arizona, New Mexico, Minnesota and Michigan. We have obtained licenses in a number of other gaming jurisdictions in North America. Konami Australia Pty Ltd., which became our consolidated subsidiary in October 2001, have obtained licenses to manufacture and sell gaming machines in all states in Australia, and exports gaming machines to overseas markets.

During the fiscal year ended March 31, 2001, the gaming machines we sold in the United States and two video slot machine components we exported to Australia were produced in Japan. Later, our production facility in Las Vegas, Nevada, which houses the headquarters and principal manufacturing facility of our U.S. gaming machine business, began operations in September 2001 and we completed construction of a new building in June 2005 which is currently operating under full production.

In October 2003, Konami of America, Inc., our sales subsidiary in the United States, added a new function of overseas business administration to its existing sales business and changed its name to Konami Digital Entertainment, Inc. It established a new administrative office in Los Angeles in order to conduct various activities responding to local market needs for expanding shares of our Computer & Video Games business overseas. Subsequent to the introduction of this regional autonomy system from April 2005, all overseas offices in our Digital Entertainment business changed their names to Konami Digital Entertainment, and we have promoted the establishment of the global Digital Entertainment business system.

We are committed to building our market share in China by localizing our popular products for the Chinese market. Additionally, in Korea, we released the PC online-game version of the WORLD SOCCER Winning Eleven series in March 2006, and following the release of the online-game version of Yu-Gi-Oh, we are in the process of producing a multiplayer dungeon role-playing-game called Chaotic Eden for the open ß test in fiscal 2011. We plan to start full operation in other Internet-developed countries in Asia. In order to allow for flexible development and sales, we incorporated a company in Korea in May 2008.

In line with our strategy to expand our international business, we are investigating acquisition and investment opportunities outside Japan for businesses that will grow or complement our current businesses.

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Research and Development

An important requirement for success in the highly competitive markets in which we operate is the ability to create quality products that attract public attention. We are also working to expand sales channels in markets such as fitness equipment and nursing care equipment. The following three tables show our primary research and development activities, during each of the last three fiscal years.

Year Ended March 31, 2008
Segment	Focus of R&D Activity
Digital Entertainment	Game software such as World Soccer Winning Eleven 2008 and Pro Evolution Soccer 2008 and METAL GEAR SOLID 4 GUNS OF THE PATRIOTS. Video games such as MAH-JONG FIGHT CLUB and BASEBALL HEROES, new software for music simulation games such as Drum Mania, medium- and large-sized token-operated games such as GI series and GRANDCROSS and amusement machines compatible with e-AMUSEMENT. Card games such as the Yu-Gi-Oh! Trading Card Game and action figures such as BUSOU SHINKI series.
Gaming & System	Gaming machines, software and casino management systems for North America and Australia.
Health & Fitness	Fitness machines such as EZ series and AEROBIKE, nursing care machines such as Motorcise and supplements such as Collagen Cristal Ottimo. Programs such as 6WEEKS and IT health management system such as e-XAX.

Year Ended March 31, 2009
Segment	Focus of R&D Activity
Digital Entertainment	Game software such as World Soccer Winning Eleven 2009 and Pro Evolution Soccer 2009 and METAL GEAR SOLID 4 GUNS OF THE PATRIOTS. Video games such as MAH-JONG FIGHT CLUB and BASEBALL HEROES, new software for music simulation games such as Drum Mania, medium- and large-sized token-operated games such as GI series and GRANDCROSS and amusement machines compatible with e-AMUSEMENT. Card games such as the Yu-Gi-Oh! Trading Card Game and action figures such as BUSOU SHINKI series.
Gaming & System	Gaming machines, software and casino management systems for North America and Australia.
Health & Fitness	Fitness machines such as EZ series and AEROBIKE, nursing care machines such as Motorcise and supplements such as Collagen Cristal Ottimo. Programs such as 6WEEKS and IT health management system such as e-XAX.

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Year Ended March 31, 2010
Segment	Focus of R&D Activity
Digital Entertainment	Game software such as World Soccer Winning Eleven 2010 and Pro Evolution Soccer 2010 and METAL GEAR SOLID PEACEWALKER. Card games such as the Yu-Gi-Oh! Trading Card Game and action figures such as BUSOU SHINKI series. Video games such as MAH-JONG FIGHT CLUB and BASEBALL HEROES, new software for music simulation games, medium- and large-sized token-operated games and amusement machines compatible with e-AMUSEMENT.
Gaming & System	Gaming machines, software and casino management systems for North America and Australia.
Health & Fitness	Fitness machines such as EZ series and AEROBIKE, nursing care machines such as Motorcise and supplements such as PROTEIN PRO. Programs such as 6WEEKS, IT health management system such as e-XAX and new health management approaches in relation to the Ministry of Economy, Trade and Industry’s projects using IT in Takamatsu.

Competition

The markets for video game software and most of our other products are intensely competitive and are characterized by the frequent introduction of new hardware systems, software products and other innovations.

In addition, the domestic Japanese market is gradually shrinking due partly to the declining birthrate. Japanese game producers are competing to bolster their product lineups and expand their overseas operations. Moreover, the spread of online games (rise of social games) due to the expansion of broadband networks and the market growth of cellular phone contents owing to the improvement of cellular phone capabilities have intensified competitions over limited users’ leisure times and made it extremely important for game software producers to develop software for a wide variety of media and outlets in order to maintain growth.

Rapid changes in the business environment as mentioned above are also driving reorganization in the game software industry. For example, Enix Co., Ltd. and Square Co., Ltd. merged on April 1, 2003 and the new company, Square Enix Co., Ltd., (currently, SQUARE ENIX HOLDINGS CO., LTD.) is expected to focus on strengthening software development and expanding the lineup of online games. Also, in October 2004, Sammy Corporation founded Sega Sammy Holdings Inc., a holding company through which it acquired SEGA Corporation. In addition, Bandai Co., Ltd. and Namco Limited consolidated their operations to establish Namco Bandai Holdings Inc. in September 2005, and later established Namco Bandai Games Inc. through the consolidation of their domestic game businesses in March 2006. Furthermore, KOEI Co., Ltd. and TECMO Ltd. consolidated their operations to establish TECMO KOEI Holdings Co., Ltd. in April 2009.

We believe that the most significant competitive factors in all of our major business lines are the ability to develop compelling content and bring it to market at the appropriate time to capitalize on ever-changing consumer preferences. We believe our ability to develop content internally, as well as our strong distribution network, give us an advantage over many of our competitors. However, our competitors vary in size from small companies to very large corporations which have significantly greater financial, marketing and product development resources than we have. Due to these greater resources, some of our competitors are better able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and pay higher fees to licensors of desirable properties.

Our competitors and potential competitors in the video game software industry include the following:

• Other Japanese publishers of video game software, including Capcom Co. Ltd., SQUARE ENIX HOLDINGS Co., Ltd., Namco Bandai Holdings Inc. and Sega Sammy Holdings Inc., as well as overseas publishers such as Electronic Arts Inc., Activision Blizzard, Inc., Take-Two Interactive Software, Inc., Ubisoft Entertainment and THQ Inc.

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• Integrated video game system hardware/software companies, such as Sony, Microsoft and Nintendo, which compete directly with us in the development and publishing of software titles for their respective platforms.

• Large diversified entertainment or software companies, many of which own substantial libraries of available content and have substantially greater financial resources than we have, and which may decide to compete directly with us or to enter into exclusive relationships with our competitors.

There are barriers to entry in the video game software market, consisting mainly of the difficulty of developing the technical and creative resources as well as the distribution networks of established competitors. However, the development of the Internet as a medium for the distribution of video game software, the use of the Internet to facilitate the formation of collaborative technical and creative networks, and the proliferation of programming tools and other resources may have the effect of reducing these barriers.

Our most significant competitors in the market for card game products and toy & hobby products are mainly toy makers, such as Namco Bandai Holdings Inc. We believe that the most significant competitive factor in the market for card game products and toy & hobby products is the ability to timely develop popular products based on appealing characters and themes. In addition, there have been business reorganizations such as consolidation of the operations of Takara Co., Ltd. and Tomy Co., Ltd. in March 2006 and their establishment of Takara Tomy Co., Ltd.

The market for video game machines and token-operated game machines for amusement arcades in Japan is dominated by a few large manufacturers, including ourselves as well as Sega Sammy and Namco Bandai, and competition in these markets is intense. The principal method of competition in the market for video game machines and token-operated game machines for amusement arcades is new product development.

The market for software for LCDs for pachinko machines in Japan is relatively stable, with manufacturers of pachinko machines having close relationships with particular producers of such software. We believe that we have benefited from our ability to provide software with strong entertainment value rather than speculation-oriented software. Competitors that produce entertainment-oriented software may pose a threat to us. We believe that our strong relationships with pachinko machine manufacturers and our reputation for making reliable, appealing products give us a competitive advantage in the market for software for LCDs for pachinko machines. The market for pachinko slot machines is intensely competitive among several major makers, such as Sega Sammy Holdings Inc., Universal Entertainment Corporation. and Sankyo Co., Ltd. The principal method of competition in the market for software for LCDs for pachinko machines and pachinko slot machines is new product development.

In the fitness club market, we compete with other commercial health and fitness clubs, such as Central Sports Co., Ltd., physical fitness and recreational facilities established by local governments, hospitals, nursing homes, businesses for their employees and similar organizations, and, to a certain extent, with racquet, tennis and other athletic clubs, country clubs, weight-reducing salons and the home-use fitness equipment industry. We also compete, to some extent, with entertainment and retail businesses for the discretionary income of our target markets. However, we believe our brand identity, operating experience, ability to allocate advertising and administration costs over all of our fitness clubs, nationwide operations, purchasing power and account processing and collection infrastructure, provide us with distinct competitive advantages. We expect more companies to enter the market both regionally and nationally and we may not be able to continue to compete effectively in each of our markets in the future.

Our principal competitors in overseas gaming machine markets include International Game Technology, Bally Technologies, Inc., Aristocrat Leisure Limited and WMS Industries Inc. A library of strong performing games, the possession of valuable patents and the development of unique products differentiable from those of others can be a significant competitive advantage. Other methods of competition include quality and breadth of sales and service organizations, financial stability of the manufacturer, and pricing.

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Intellectual Property

As of March 31, 2010, we had approximately 3,577 trademarks, 1,753 patents, two registrations of utility models and 116 registered designs (excluding applications pending) in Japan and we also had approximately 4,840 trademarks, 2,105 patents and 355 registered designs (excluding applications pending) overseas. The trademarks and patents relate to our hardware and software for video game software products, input equipment for home video games, amusement arcade and token-operated games and gaming machines, fitness machines, nursing care machines, nursing prevention care machines, LCDs for pachinko machines and pachinko slot machines. The utility models relate to input equipment for home video games, amusement and gaming machines and creative products. The registered designs relate to input equipment for home video game machines, amusement and gaming machines, designs for icons, creative products, pachinko equipment and pachinko slot machines.

Intellectual property for video game software is registered to us, our subsidiaries or to us and our subsidiaries as joint owners.

We believe that our trademarks (which, once registered, are perpetual, subject to use and payment of registration fees) and other intellectual property rights referred to above are important assets. Accordingly, we established necessary divisions designed to secure and protect such rights, including registration with appropriate authorities and, if necessary, legal proceedings. The non-registration or expiration of registration of some of our intellectual property rights could have a material adverse effect on our business.

Although we use copy-protection devices, an unauthorized person may be able to copy our software or otherwise obtain and use our proprietary information. If a significant amount of illegal copying of software published by us occurs, our product revenues could be adversely affected. Policing illegal use of software is extremely difficult and software piracy is expected to persist. In addition, the laws of some foreign countries in which our software is distributed do not protect us and our intellectual property rights to the same extent as the laws of Japan and the United States. Although illegal copying of our software has not been a major problem for us to date, it could have an adverse effect on our software business if we expand that business into China and Southeast Asia, where protection of intellectual property rights is weak.

Each of Nintendo, Sony and Microsoft incorporates security devices in the software and their respective hardware systems in order to prevent unlicensed software from infringing their respective proprietary rights by manufacturing software compatible with their hardware. Under our various license agreements with Nintendo, Sony and Microsoft, we are responsible for protecting our own and our licensors’ intellectual property rights that are used or incorporated in our software.

We do not own the trademarks, copyrights or patents covering the proprietary information and technology utilized in the game consoles marketed by Nintendo, Sony, Microsoft or, to the extent licensed from third parties, the brands, concepts and game programs featured in and comprising our software. See Item 4.B “Business Overview—Brand Sourcing”. Accordingly, we must rely on the trademarks, copyrights and patents of these third-party licensors for protection of such intellectual property from infringement. Under our license agreements with certain licensors, we may bear the risk of claims of infringement brought by third parties and arising from the sale of software.

Regulation

Gaming

General

The manufacture, sale and distribution of gaming devices, equipment and related software is subject to federal, state, tribal and local regulations in the United States and foreign jurisdictions. While the regulatory requirements vary from jurisdiction to jurisdiction, the majority of these jurisdictions require licenses, registrations, permits, findings of suitability, documentation of qualification including evidence of financial

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stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability or licensing of officers, directors, major shareholders and key employees. Laws of the various gaming regulatory agencies generally serve to protect the public and ensure that gaming related activity is conducted honestly, competitively, and free of corruption.

Various gaming regulatory agencies have issued licenses allowing us to manufacture and/or distribute our products and operate “wide area progressive” systems, also known as WAP systems. We and our key personnel have obtained or applied for all government licenses, permits, registrations, findings of suitability and approvals necessary allowing for the manufacture, distribution, and where permitted, operation of gaming machines in the jurisdictions where we do business. We have never been denied a gaming related license, nor have our licenses been suspended or revoked.

Nevada Regulation

The manufacture, sale and distribution of gaming devices in Nevada or for use outside Nevada are subject to the Nevada Gaming Control Act and the regulations of the Nevada Gaming Commission (Commission), and the State Gaming Control Board (GCB), and the local laws, regulations and ordinances of various county and municipal regulatory authorities (collectively referred to as the Nevada gaming authorities). These laws, regulations and ordinances primarily concern the responsibility, financial stability and character of gaming device manufacturers, distributors and operators, as well as persons financially interested or involved in gaming operations. The manufacture, distribution and operation of gaming devices require separate licenses. The laws, regulations and supervisory procedures of the Nevada gaming authorities seek to (i) prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity, (ii) establish and maintain responsible accounting practices and procedures, (iii) maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada gaming authorities, (iv) prevent cheating and fraudulent practices, and (v) provide a source of state and local revenues through taxation and licensing fees. Changes in these laws, regulations, procedures, and judicial or regulatory interpretations could have an adverse effect on our gaming operations.

Our subsidiary that conducts the manufacture, sale, and distribution of gaming devices in Nevada or for use outside Nevada, as well as the operation of slot machine routes and other gaming activities in Nevada, is required to be licensed by the Nevada gaming authorities. Our licenses require the periodic payment of fees and taxes and are not transferable. Each type of machine we sell in Nevada must first be approved by the Commission and may require subsequent machine modification. Our gaming subsidiary licensed in Nevada must also report substantially all loans, leases, sales of securities and similar financing transactions to the GCB and the Commission, and/or have them approved by the Commission. We believe we have obtained all required licenses and/or approvals necessary to carry on our business in Nevada.

We are registered with the Commission as a publicly traded corporation and are required periodically to submit detailed financial and operating reports to the Commission and to furnish any other information that the Commission may require. No person may become a stockholder of or receive any percentage of profits from our licensed gaming subsidiaries, without first obtaining licenses and approvals from the Nevada gaming authorities.

Our officers, directors and key employees who are actively engaged in the administration or supervision of gaming and/or directly involved in gaming activities of our licensed gaming subsidiaries may be required to file applications with the Nevada gaming authorities and may be required to be licensed or found suitable by them. Officers, directors and certain key employees of our licensed gaming subsidiaries must file applications with the Nevada gaming authorities and may be required by them to be licensed or found suitable. Our bylaws provide for us to pay all costs of the GCB investigations that are related to our officers, directors or employees.

The Nevada gaming authorities may investigate any individual who has a material relationship or involvement with us, or any of our licensed gaming subsidiaries in order to determine whether such individual is

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suitable or should be licensed as a business associate of a gaming licensee. The Nevada gaming authorities may deny an application for licensure or finding of suitability for any cause deemed reasonable. A finding of suitability is comparable to licensing and both require submission of detailed personal and financial information followed by a thorough background investigation. The applicant for licensing or a finding of suitability must pay all costs of the investigation. We must report changes in licensed positions to the Nevada gaming authorities. The Nevada gaming authorities may disapprove any change in position by one of our officers, directors or key employees, or require us to suspend or dismiss officers, directors or other key employees and sever all relationships with such persons, including those who refuse to file appropriate applications or whom the Nevada gaming authorities find unsuitable to act in such capacities. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.

We are required to submit detailed financial and operating reports to the Commission. If it were determined that any Nevada gaming laws were violated by us or any of our licensed gaming subsidiaries, our gaming licenses could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, we, our licensed gaming subsidiaries and any persons involved may be subject to substantial fines for each separate violation of the Nevada gaming laws at the discretion of the Commission. The Commission also has the power to appoint a supervisor to operate our gaming properties and, under certain circumstances, earnings generated during the supervisor’s appointment could be forfeited to the State of Nevada. The limitation, conditioning or suspension of our gaming licenses or the appointment of a supervisor could (and revocation of our gaming licenses would) materially and adversely affect our gaming operations.

The Commission may require any beneficial holder of our voting securities, regardless of the number of shares owned, to file an application, be investigated, and be found suitable, in which case the applicant would be required to pay all of the costs and fees of the GCB investigation. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership, or trust, it must submit detailed business and financial information including a list of beneficial owners. Any person who acquires more than 5% of our voting securities must report this to the Commission. Any person who becomes a beneficial owner of more than 10% of our voting securities must apply for a finding of suitability within 30 days after the chairman of the GCB mails the written notice requiring this filing.

Under certain circumstances, an Institutional Investor, as this term is defined in the Commission regulations, which acquires more than 10%, but not more than 15%, of our voting securities may apply to the Commission for a waiver of these finding of suitability requirements, provided the institutional investor holds the voting securities for investment purposes only. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of its business and not for the purpose of causing, directly or indirectly (i) the election of a majority of our board of directors, (ii) any change in our corporate charter, bylaws, management, policies or operations, or (iii) any other action which the Commission finds to be inconsistent with holding our voting securities for investment purposes only. The Commission considers voting on all matters voted on by shareholders and the making of financial and other informational inquiries of the type normally made by securities analysts, and such other activities as the Commission may determine, to be consistent with holding voting securities for investment purposes only. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of the GCB investigation.

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Commission or the chairman of the GCB may be found unsuitable. The same restrictions apply to a record owner who fails to identify the beneficial owner, if requested to do so. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of our voting securities beyond that period of time as may be prescribed by the Commission may be guilty of a criminal offense. We are subject to disciplinary action, and possible loss of our approvals, if, after we receive notice that a person is unsuitable to be

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a stockholder or to have any other relationship with us or any of our licensed gaming subsidiaries, we (i) pay that person any dividend or interest upon our voting securities, (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) give remuneration in any form to that person, for services rendered or otherwise, or (iv) fail to pursue all lawful efforts to require the unsuitable person to relinquish his voting securities for cash at fair market value. Additionally, the Clark County authorities have taken the position that they have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee.

The Commission may, in its discretion, require the holder of any of our debt securities to file an application, be investigated and be found suitable to own any of our debt securities. If the Commission determines that a person is unsuitable to own any of these securities, then pursuant to the Nevada gaming laws, we can be sanctioned, including the loss of our approvals, if without prior Commission approval, we: (i) pay to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognize any voting right by the unsuitable person in connection with these securities; (iii) pay the unsuitable person remuneration in any form; or (iv) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction.

We are required to maintain a current stock ledger in Nevada which may be examined by the Nevada gaming authorities at any time. If any of our securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada gaming authorities. A failure to make this disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Commission has the power at any time to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada gaming laws and the regulations of the Commission. To date, the Commission has not imposed this requirement on us.

We may not make a public offering of our securities without the prior approval of the Commission if the securities or their proceeds are intended to be used to construct, acquire or finance gaming facilities in Nevada, or retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation, or approval by the Commission or the GCB as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful.

Changes in control of KONAMI through merger, consolidation, acquisition of assets or stock, management or consulting agreements or any act or conduct by a person whereby he obtains control, may not occur without the prior investigation of the GCB and approval of the Commission. Entities seeking to acquire control of us must satisfy the GCB and the Commission in a variety of stringent standards prior to assuming control. The Commission may also require controlling shareholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and other corporate defense tactics that affect Nevada gaming licensees, and publicly-traded corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. Nevada’s gaming laws and regulations also require prior approval by the Commission if we were to adopt a plan of recapitalization proposed by our board of directors in opposition to a tender offer made directly to our shareholders for the purpose of acquiring control of us.

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License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the cities and counties where our subsidiaries conduct operations. Depending on the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually. Annual fees are payable to the State of Nevada to renew our licenses as a manufacturer, distributor, and operator of a slot machine route. Nevada gaming law also requires persons providing gaming devices in Nevada to casino customers on a revenue participation basis to pay their proportionate share of the taxes imposed on gaming revenues generated by the participation gaming devices.

Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively referred to as licensees), and who proposes to participate in the conduct of gaming operations outside of Nevada is required to deposit with the GCB, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the GCB of the licensee’s participation in foreign gaming. This revolving fund is subject to increase or decrease at the discretion of the Commission. As a licensee, we are required to comply with certain reporting requirements imposed by the Nevada gaming laws. We are also subject to disciplinary action by the Commission if we knowingly violate any laws of the foreign jurisdiction pertaining to our foreign gaming operation, fail to conduct our foreign gaming operations in accordance with the standards of honesty and integrity required of Nevada gaming operations engage in any activity or enter into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada, engage in any activity or enter into any association that interferes with the ability of the State of Nevada to collect gaming taxes and fees, or employ, contract with or associate with any person in the foreign gaming operation who has been denied a license or a finding of suitability in Nevada on the ground of personal unsuitability, or who has been found guilty of cheating at gambling.

Mississippi Regulations

The manufacture, sale and distribution of gaming machines for use or play in Mississippi or for distribution outside of Mississippi and the operation of wide area progressive gaming devices are subject to the Mississippi Act. Konami Gaming, Inc.’s (KGI) license as a wide area progressive operator permits placement of slot machines and gaming devices on the premises of other licensees on a participation basis. All manufacturing, distribution and wide area progressive operation are subject to licensing and regulatory control of the Mississippi Gaming Commission (the Mississippi Commission).

The laws, regulations and supervisory procedures of the Mississippi Commission are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Mississippi Commission; (iv) the prevention of cheating and fraudulent practices; (v) providing a source of state and local revenues through taxation and licensing fees; and (vi) the strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments and the manufacture and distribution of gaming devices and associated equipment. Changes in these laws, regulations and procedures could have an adverse effect on our future Mississippi operations.

Certain of our subsidiaries that manufacture and distribute gaming devices or operate a slot machine route, or operate wide area progressive gaming, or which hold stock of a subsidiary which does so (a “Gaming Subsidiary”), are required to be licensed or registered by the Mississippi Gaming Commission. The Licenses require the periodic payment of fees and taxes and are not transferable. We are registered by the Mississippi Commission as a publicly-traded corporation (Registered Corporation) and so we are required periodically to

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submit detailed financial operation reports to the Mississippi Commission and to furnish any other information which the Mississippi Commission may require. We have obtained from the Mississippi Commission the various registrations, finding of suitability, approvals, permits and licenses (collectively, referred to as Licenses) required to engage in manufacturing of gaming devices and for KGI to engage in wide area progressive operations, the manufacture, sale distribution of gaming devices for use or play in Mississippi or for distribution outside of Mississippi. We cannot assure you that these Licenses will not be revoked, suspended, limited or conditioned by the Mississippi Commission.

All gaming devices that are manufactured, sold or distributed for use or play in Mississippi, or for distribution outside of Mississippi, must be manufactured by licensed manufacturers and distributed or sold by licensed distributors. All gaming devices manufactured for use or play in Mississippi must be approved by the Mississippi Commission before sales distribution or exposure for play. The approval process for gaming devices includes rigorous testing by the Mississippi Commission, a field trial and a determination as to whether the gaming machine meets strict technical standards that are set forth in the regulations of the Mississippi Commission. Associated equipment (as defined in the Mississippi Act) must be administratively approved by the Chairman of the Mississippi Commission before it is distributed for use in Mississippi.

The Mississippi Commission may investigate any individual who has a material relationship or involvement with us in order to determine whether that individual is suitable or should be licensed as a business associate of a licensee. Officers, directors and certain key employees of our Gaming Subsidiary must file license applications with the Mississippi Commission. Our officers, directors and key employees who are actively and directly involved in activities of our Gaming Subsidiary may be required to be licensed or found suitable by the Mississippi Commission. The Mississippi Commission may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Mississippi Commission and, in addition to their authority to deny an application for a finding of suitability or license, the Mississippi Commission have jurisdiction to disapprove a change in a corporate position.

If the Mississippi Commission were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Mississippi Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Mississippi.

We are required to submit detailed financial and operating reports to the Mississippi Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by our Gaming Subsidiary must be reported to, and approved by, the Mississippi Commission.

If the Mississippi Commission determines that we violated the Mississippi Act, our Licenses could be limited, conditioned, suspended or revoked subject to compliance with certain statutory and regulatory procedures. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Mississippi Act at the discretion of the Mississippi Commission. The limitation, conditioning or suspension of any License or the appointment of a supervisor could, and the revocation of any license would, materially adversely affect our future operation in Mississippi.

Any beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file applications, be investigated and have his, her or its suitability as a beneficial holder of our voting securities determined if the Mississippi Commission has reason to believe that ownership would otherwise be inconsistent with the declared policies of the State of Mississippi. The applicant must pay all costs of investigation incurred by the Mississippi Commission in conducting any such investigation.

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The Mississippi Act requires any person who acquires beneficial ownership of more than 5% of our voting securities to report the acquisition to the Mississippi Commission. The Mississippi Act requires that beneficial owners of more than 5% of our voting securities apply to the Mississippi Commission for a finding of suitability within 30 days after the mailing of the written notice by the Executive Director of the Mississippi Commission requiring that filing. Under certain circumstances, an “institutional investor”, as defined in the Mississippi Act, which acquires more than 10%, but not more than 15% or our voting securities may apply to the Mississippi Commission for a waiver of that finding for suitability if the institution investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or those of any of our gaming affiliates, or any other action which the Mississippi Commission finds to be inconsistent with holding our voting securities for invest purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for information purposes and not to cause a change in our management policies or operations; and (iii) other activities that the Mississippi Commission may determine to be consistent with investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all cost of investigation.

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Commission may be found unsuitable. The same restrictions apply to a record owner who fails to identify the beneficial owner, if requested to do so. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of voting securities beyond that period of time as may be prescribed by the Mississippi Commission may be guilty of a criminal offense. We are subject to disciplinary action and possible loss of approvals if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or any of our licensed Gaming Subsidiaries, we (i) pay that person any dividend or interest upon our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting rights conferred through securities held by that person; (iii) pay remuneration in any form to that person for services rendered or otherwise; (iv) fail to pursue all lawful efforts to require the unsuitable person to relinquish voting securities including, if necessary, the immediate repurchase of the voting securities for cash at fair market value.

The Mississippi Commission may, in its discretion, require the holder of any of our debt security to file an application, be investigated and be found suitable to own any of our debt securities. If the Mississippi Commission determines that a person is unsuitable to own any of our securities, then under the Mississippi Act, we can be sanctioned, including the loss of our approvals, if without the prior approval of the Mississippi Commission we: (i) pay to the unsuitable person any dividend, interest or any distribution whatsoever; (ii) recognize any voting right by the unsuitable person in connection with that security; (iii) pay the unsuitable person remuneration in any form; or (iv) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

We are required to maintain a current stock ledger in the State of Mississippi which may be examined by the Mississippi Commission at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Commission. A failure to make this disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Mississippi Commission requires that stock certificates of Registered Corporation bear a legend indicating that the securities are subject to the Mississippi Act but we have obtained waiver of that requirement.

We may not make a public offering of our securities without the prior approval of the Mississippi Commission if the securities or the proceeds are intended to be used to construct, acquire or finance gaming

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facilities in Mississippi, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation, or approval by the Mississippi Commission as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. To this end, we received continuous approval of public offerings and/or private placements and related approvals (shelf approval) that are valid for a two years-period which can and will be renewed for each subsequent two years-period.

Changes in control of KONAMI through merger, consolidation, acquisition of assets or stock, management or consulting agreements or any act or conduct by a person whereby he or she obtains control, may not occur without the prior approval of the Mississippi Commission. Entities seeking to acquire control of us must satisfy the Mississippi Commission in a variety of stringent standards prior to assuming control. The Mississippi Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

The Mississippi legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and other corporate defense tactics that affect Mississippi gaming licensees and publicly-traded corporations that are affiliated with those operations may be injurious to stable and productive corporate gaming. The Mississippi Commission has established a regulatory scheme to ameliorate the potentially adverse affects of these business practices upon Mississippi’s gaming industry and to further Mississippi’s policy to: (i) assure the financial stability of corporate licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Mississippi Commission before we can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by management can be consummated. The Mississippi Act also requires prior approval if we were to adopt a plan of recapitalization proposed by our board of directors in opposition to a tender offer made directly to our shareholders for the purposes of acquiring control of us.

License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Mississippi and to the cities and counties where our subsidiaries conduct operations. Depending on the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually. Annual fees are payable to the State of Mississippi to renew our licenses as a manufacturer, distributor and operator of a slot machine route.

Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such person, and who proposes to become involved in a gaming venture outside of Mississippi, is required to deposit with the Mississippi Commission, and thereafter maintain, a revolving fund to pay the expenses of investigation by the Mississippi Commission, and thereafter maintain, a $10,000 of revolving fund to pay the expenses of investigation by the Mississippi Commission of their participation in foreign gaming operations. This revolving fund is subject to increase or decrease at the discretion of the Mississippi Commission. As a licensee, we are required to comply with certain reporting requirements imposed by the Mississippi Act. The Mississippi Commission may require us to file an application for a finding of suitability concerning an actual or intended activity or association in a foreign gaming operation. A licensee is also subject to disciplinary action by the Mississippi Commission if the licensee knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required by Mississippi gaming operations, engages in activities that are harmful to the State of Mississippi or its ability to collect gaming taxes and fees, or employs a person in the foreign operation who has been denied a license or finding of suitability in Mississippi on the grounds of personal unsuitability.

New Jersey Regulations

The manufacture, distribution, and operation of gaming machines, and other aspects of casino gaming in New Jersey, are subject to strict regulation pursuant to the New Jersey Casino Control Act and the regulations

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promulgated thereunder (collectively, referred to as New Jersey Act). The New Jersey Act created the New Jersey Casino Control Commission (New Jersey Commission) and the New Jersey Division of Gaming Enforcement (the New Jersey Division). The New Jersey Commission is authorized to decide all license applications and other matters and to promulgate regulations. The New Jersey Division is authorized to investigate all license applications, make recommendations to the New Jersey Commission, and to prosecute violations of the New Jersey Act.

Under the New Jersey Act, a company must be licensed as a gaming related casino service industry supplier (CSI), or fulfill other requirements, in order to manufacture or distribute gaming devices to New Jersey casinos. In order for a CSI license to be issued, renewed or maintained, certain directors, officers, key employees and owners of a company must be found by the New Jersey Commission to possess by clear and convincing evidence good character, honesty, integrity and financial stability. Concurrent with our subsidiary Konami Gaming, Inc., we obtained a CSI license in 2004.

In its discretion, the New Jersey Commission may permit an unlicensed applicant for a CSI license to transact business with New Jersey casinos prior to licensure. In order to do so, we must maintain a completed application for CSI licensure on file with the New Jersey Commission. In addition, the casino that desires to transact business with us must obtain the approval of the New Jersey Commission for each business transaction (transactional waiver) by filing a petition with the New Jersey Commission that demonstrates that good cause exists for granting the petition. The New Jersey Commission cannot grant such a petition if the New Jersey Division objects to the petition.

A CSI license application consists of extensive disclosure forms for the applicant, each of its holding companies, and each individual required to be found qualified by the New Jersey Commission. The persons affiliated with an applicant who must be found qualified by the New Jersey Commission are certain officers, directors and management employees, all beneficial owners of five percent (5%) or more of the applicant, and any other person the New Jersey Commission deems appropriate.

With respect to security holders, the New Jersey Commission may waive the qualification requirement for “institutional investors”, as defined in the New Jersey Act, of an applicant if: (i) there is no reason to believe that the institutional investor may be unqualified; (ii) the institutional investor holds less than ten percent of the outstanding securities; (iii) the securities were acquired for investment purposes only, and (iv) the holder has no intention of influencing the affairs of the applicant, other than voting its securities. The New Jersey Act defines an “institutional investor” as (i) any retirement fund administered by a public agency for the exclusive benefit of federal, state or local public employees; (ii) an investment company registered under the Investment Corporate Law of 1940; (iii) a collective investment trust organized by banks under Part Nine of the Rules of the Comptroller of the Currency, (iv) a closed end investment trust; (v) a chartered or licensed life insurance company or property and casualty insurance company; (vi) banking or other licensed or chartered lending institutions; (vii) an investment adviser registered under the Investment Advisers Act of 1940, and (viii) such other persons as the New Jersey Commission may determine for reasons consistent with the policies of the New Jersey Act.

In connection with a license application, the New Jersey Division conducts an investigation of the applicant and its individual qualifiers to determine their suitability for licensure. In order for a CSI license to be issued by the New Jersey Commission, the applicant and its individual qualifiers must demonstrate by clear and convincing evidence their good character, honesty and integrity, their financial stability, integrity and responsibility.

The application fee for a CSI license consists of a non-refundable deposit of $5,000 and an obligation to pay an additional $5,000 if the processing of the application requires more than 1,000 but less than 2,000 hours and a further $5,000 if the processing of the application exceeds 2,000 hours, plus the expenses of the New Jersey Commission and New Jersey Division. The same fee structure applies to any renewal application.

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The New Jersey Commission has broad discretion regarding the issuance, renewal, suspension or revocation of CSI licenses. If our CSI license application is denied, we will not be able to transact business with New Jersey casinos. There is no guarantee that we will be granted an initial license or that, following the issuance of an initial CSI license or any renewal thereof, we will continue to be granted renewals of the license. The New Jersey Commission may impose conditions on the issuance of a license. In addition, the New Jersey Commission has the authority to impose fines or suspend or revoke a license for violations of the New Jersey Act, including the failure to satisfy the licensure requirements. A CSI license is issued for an initial period of two years and is thereafter renewable for each four years-period.

In addition to our required licensure, the gaming equipment manufactured, distributed or sold by us to New Jersey casinos is subject to a technical examination by the New Jersey Division and approval by the New Jersey Commission for, at a minimum, quality, design, integrity, fairness, honesty, suitability and compliance with rigorous technical standards. The approval process includes the submission of a model of the machine to the New Jersey Division for testing, examination and analysis and for comparison with documentation of the schematics, block diagram, circuit analysis and written explanation of the method of operation, odds determination and all other pertinent information. All costs of such testing, examination and analysis are borne by us.

As part of this approval process, the New Jersey Commission may require that the manufacturer of any component of the gaming equipment which the New Jersey Commission, in its discretion, determines is essential to the gaming aspects of the device submit to licensing. Such components would include the computer control circuitry which causes or allows the device to operate as a gambling device. The failure or refusal of such a manufacturer to submit to licensing or the denial of a license by the New Jersey Commission to such manufacturer would result in our inability to distribute and market that gambling device to New Jersey casinos.

Prior to a decision by the New Jersey Commission to approve a particular model of machine, it may require a trial period to test the machine in a licensed casino. During the trial period, the manufacturer and distributor of the machine shall not be entitled to receive revenue of any kind whatsoever. Once a model is approved by the New Jersey Commission, all machines of that model placed in operation in licensed casinos shall operate in conformity with the model tested by the New Jersey Division. Any changes in the design, function or operation of the machine are subject to prior approval by the New Jersey Commission in consultation with the New Jersey Division.

Other Jurisdictions

Each of the other jurisdictions in which we do business requires various licenses, permits and approvals in connection with the manufacture and/or distribution of gaming devices typically involving restrictions similar in many respects to those of Nevada.

Federal United States Registration

The Federal Gambling Devices Act of 1962 (the Act) makes it unlawful for a person to manufacture, transport, or receive gaming machines, gaming devices or components across interstate lines unless that person has first registered with the Attorney General of the US Department of Justice. We are so registered and must renew our registration annually. In addition, gambling device identification and record keeping requirements are imposed by the Act. Violation of the Act may result in seizure and forfeiture of the equipment, as well as other penalties. We have complied with the registration requirements of the Act.

Native American Gaming Regulation

Gaming on Native American lands is governed by federal law, tribal-state compacts, and tribal gaming regulations. The Indian Gaming Regulatory Act of 1988, or the IGRA, provides the framework for federal and state control over all gaming on Native American lands and is administered by the National Indian Gaming

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Commission, or the NIGC, and the Secretary of the US Department of the Interior. IGRA requires that the tribe and the state enter into a written agreement, a tribal-state compact, which governs the terms of the gaming activities. Tribal-state compacts vary from state-to-state and in many cases require equipment manufacturers and/or distributors to meet ongoing registration and licensing requirements. In addition, tribal gaming commissions have been established by many Native American tribes to regulate gaming related activity on Indian lands. We manufacture and supply gaming equipment to Native American tribes who have negotiated compacts with their state and have received federal approval. We possess approvals to supply gaming equipment and components to Native American casinos in several States.

International Regulation

Certain foreign countries permit the importation, sale and operation of gaming equipment in casino and non-casino environments. Some countries prohibit or restrict the payout feature of the traditional slot machine or limit the operation and the number of slot machines to a controlled number of casinos or casino-like locations. Each gaming machine must comply with the individual country’s regulations. Certain jurisdictions require the licensing of gaming machine operators and manufacturers.

We manufacture and supply gaming equipment to various international markets including Australia, Canada, Malaysia, New Zealand, the Philippines, and South Africa. We have obtained the required licenses to manufacture and distribute our products in the various foreign jurisdictions where we do business.

Video Game Software

Japan.    No governmental entity in Japan is authorized to censor the content of computer entertainment software. The Computer Entertainment Supplier’s Association, or CESA, is a Japanese industry association that conducts market surveys, research and other activities to promote the computer entertainment software industry in Japan. CESA’s members are corporations and individuals engaged in projects relating to the development, manufacture and sale of computer entertainment software and organizations comprised of such individuals or organizations. We are a member of CESA and our Chief Executive Officer, Kagemasa Kozuki, had been the Chairman of CESA since its establishment in 1996 for three terms over six years.

The Computer Entertainment Rating Organization, or CERO, was established in 2002 and CERO started regulating home game software distributed in Japan through a rating system based upon the user’s age. CERO reviews expressions and contents of software based on its ethical guidelines upon request of software manufacturers. Expressions containing violence, anti-social behavior, sexual behavior and hazardous language or thought are subject to CERO’s rating. Each game software is categorized and labeled either as game software or educational/database software and those categorized as game software must label age classification mark based on the rating. CERO has adopted a five tiered game software age classification, including category “A” for persons of all ages, category “B” for persons 12 and older, category “C” for persons 15 and older, category “D” for persons 17 and older and category “Z” for sales prohibition to persons younger than 18, thereby indicating that contents of each categorized software are subject to persons in categorized age group.

International.    The content of video game software is not subject to federal regulation in the United States. However, many video game software publishers comply with the standardized rating system established by the Entertainment Software Rating Board, or ESRB. The ESRB is an independent entity established in 1994. It rates video games, websites and online games and reviews advertising created by the video game industry. Video game software publishers such as us include ESRB ratings on their game software packages and Nintendo and Sony include the meanings of these ratings on their game console packages.

In Europe, Pan European Game Information, an age rating system applied in 29 countries (primarily those in the EU), conducts voluntary age rating inspections using standards developed by the Interactive Software Federation of Europe, a Europe-based industry group. Furthermore, in Germany, the Unterhaltungs Software Selbstkontrolle (USK) conducts morals inspections pursuant to the country’s Minor Protection Law.

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Pachinko Machines (Pachinko, Pachinko Slot)

Standards for pachinko and pachinko slot machines are regulated under the Law Regulating Adult Entertainment in Japan. The Security Electronics Communication Technology Association is the only entity authorized to test new models of pachinko and pachinko slot machines and determine whether such models meet certain specified technical criteria. Those who expect to produce new models are first required to pass such model test and then to obtain verification that such model complies with applicable standards from the prefectural Public Safety Commission in the prefecture in which such models would be distributed and operated.

Property

The following table sets forth information, as of March 31, 2010, with respect to our principal facilities:

Belong to	Location	Uses	Space	Tenure	User
			(square meters)
Holding Company	Minato-ku, Tokyo	Administrative	1,815	Leased	Holding Company
Konami Digital Entertainment	Minato-ku, Tokyo	Production, Sales, Administrative	29,074	Leased	Konami Digital Entertainment
Konami Sports & Life Co., Ltd.	Shinagawa-ku, Tokyo, and 211 locations	Fitness club	735,284	Some owned and some leased	Konami Sports & Life Co., Ltd.
Konami Real Estate, Inc.	Nasu-gun, Tochigi	Training Facility	534,446	Owned	Corporate
Konami Real Estate, Inc.	Zama-shi, Kanagawa Kobe-shi, Hyogo, and Other	Production, Manufacturing, Administrative	56,685	Owned	Konami Digital Entertainment Konami Manufacturing and Service, Inc., and Other
Konami Digital Entertainment, Inc.	Los Angeles, California, U.S.A.	Sales, Administrative	4,979	Leased	Konami Digital Entertainment, Inc.
Konami Digital Entertainment GmbH	Frankfurt, Germany (primary location)	Sales, Administrative	4,582	Leased	Konami Digital Entertainment GmbH

In addition to the above facilities, we lease some floor space in office buildings in various locations around the world including Japan, China, the United States and Europe.

Legal Proceedings

We are involved in a number of actions and proceedings in Japan and overseas in the ordinary course of our business. However, we are not involved in any legal or arbitration proceedings, nor, so far as our Directors are aware, are there any legal or arbitration proceedings pending or threatened involving us that, if determined adversely to us, would individually or in the aggregate have a material adverse effect on us or our financial condition and results of operations.

Breakdown of Total Revenues by Category of Activity and Geographic Market

See Item 5.A of this annual report.

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C.    Organizational Structure.

The table below shows our principal subsidiaries (companies in which we hold, directly or indirectly, more than 50% of the issued share capital and where we exercise control) and affiliates (companies in which we hold, directly or indirectly, 20-50% of the issued share capital and where we have significant influence) as of March 31, 2010. Except where stated otherwise, each of these companies is accounted for as a consolidated subsidiary. The issued share capital of each of these companies is fully-paid.

Name	Registered office	Issued share capital (in millions)		Shares held by us, directly or indirectly (%)	Principal business	Establishment date
In Japan
Konami Digital Entertainment Co., Ltd.	Minato-ku, Tokyo	¥	26,000	100	Plan, production, manufacture and sales video game software, toys, card games, video games for amusement facilities, online games and content for mobile phones	March 2006
Konami Sports & Life Co., Ltd.	Shinagawa-ku, Tokyo	¥	13,000	100	Operation of fitness clubs and sales of fitness equipment	March 1973
Konami Real Estate, Inc.	Minato-ku, Tokyo	¥	10,000	100	Real estate management	December 1987
KPE, Inc.	Minato-ku, Tokyo	¥	1,000	100	Sales of pachinko LCDs Planning, production, manufacturing and sales of pachinko slot machines	June 1999
HUDSON SOFT CO., LTD.	Minato-ku, Tokyo	¥	5,064	54	Development of video game, mobile and online game software	May 1973
Internet Revolution, Inc.	Minato-ku, Tokyo	¥	1,250	70	Operation of portal site	February 2006
Resort Solution Co., Ltd. (1)	Shinjuku-ku, Tokyo	¥	3,948	20	Operation of golf courses, hotels and resorts	February 1931
Four other companies to be confirmed
Overseas
Konami Digital Entertainment, Inc.	El Segundo, U.S.A.	U.S.$	23.9	100	Sales of video game software, toys and hobby products and production and sale of amusement games	November 1982
Konami Corporation of America	Delaware, U.S.A.	U.S.$	35.5	100	Holding company	October 1996
Konami Gaming, Inc.	Las Vegas, U.S.A.	U.S.$	25.0	100	Production and sales of gaming machines	February 1997
Konami Digital Entertainment B.V.	Amsterdam, Netherlands	€	9.0	100	Holding company, production and sale of toys and hobby products	November 1997
Konami Digital Entertainment GmbH	Frankfurt am Main, Germany	€	5.1	100	Sales of video game software	December 1984

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Name	Registered office	Issued share capital (in millions)		Shares held by us, directly or indirectly (%)	Principal business	Establishment date
Konami Digital Entertainment Limited	Hong Kong, China	HK$	19.5	100	Sales of video game software and amusement arcade games and sales of toys and hobby products	September 1994
Konami Software Shanghai, Inc.	Shanghai, China	U.S.$	2.0	100	Development of video game software	June 2000
Konami Australia Pty Ltd.	New South Wales, Australia	A$	30.0	100	Production and sales of gaming machines	November 1996
Four other companies to be confirmed

(1) It is accounted for by the equity method.

D.    Property, Plants and Equipment.

The information required by this item is set forth in Item 4.B of this annual report.

Item 4A. Unresolved Staff Comments

We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the fiscal year ended March 31, 2010 and which remain unresolved as of the date of the filing of this Annual Report with the Commission.

Item 5. Operating and Financial Review and Prospects.

A.    Operating Results.

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and other information included in this annual report. Fiscal 2010 herein refers to the fiscal year ended March 31, 2010, and other fiscal years are referred to in a corresponding manner.

This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 3.D and elsewhere in this annual report.

Overview

We are a global entertainment products, health products and services provider. We publish and distribute video game software for use by customers with home and handheld video game systems, principally those manufactured by Sony, Nintendo and Microsoft, and also produce and distribute Internet-based entertainment contents. We also offer a variety of other digital entertainment products by producing toys, including card games, manufacturing and distributing amusement games and token-operated games for amusement arcades. Some of these products use characters from or inspired by characters in our home video game software and other products. Since February 2001, we have also run the largest chain of fitness clubs in Japan. Furthermore, we

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produce and market a variety of entertainment and exercise machines and components, including fitness machines, gaming machines, pachinko slot machines and LCDs for pachinko machines. We earn revenues and income and generate cash from sales of these products and services.

We divide our worldwide operations principally into three business segments for financial reporting purposes: Digital Entertainment, Gaming & System and Health & Fitness. The net revenue of these segments, before elimination of intersegment revenues, accounted for 54.4%, 7.6% and 32.7%, respectively, of our total net revenue in fiscal 2010. Our consolidated net revenue for fiscal 2010 was ¥262,144 million.

Due to the nature of the entertainment industry, our results of operations have largely been, and will to a considerable extent remain, affected by individual products or a series of products that are hits with consumers such as video game software and card game. See “Factors Affecting Our Results of Operations—Hit Products.” We have been working to reduce volatility in our results by building a solid and well-balanced business portfolio with multiple segments, featuring a growing number and variety of products and services. We are also diversifying our revenue sources by expanding our businesses overseas. Our Digital Entertainment segments have been active in the North American and European markets and our Gaming & System segment has actively developed its operations particularly in the North American market, the biggest gaming market in the world with high future growth potential.

The entertainment industry in Japan has been expanding, reflecting an increasing social recognition of the importance of developing intellectual property and the rapid advance of technology.

Within the Japanese entertainment industry, the video game software industry has become increasingly competitive and more hit products-oriented, with the size of the market fluctuating depending on the number of hit products produced and distributed in a given year. The toy industry in Japan faces problems, including a declining birthrate, children growing out of toys at younger ages due to earlier maturity, a decrease in disposable incomes due to the sluggish economy and an increase in spending on other entertainment. The toy industry is holding firm, however, without any sharp decline in sales, due to an increase in expenditures per child and an increase in demand for toys targeting adults in line with the aging of society. The amusement arcade industry has suffered a decline in the number of users triggered by a decline in consumer spending caused by the global recession as well as by the growing number of users who refrained from going out due to the surge in oil prices. Although the surge in oil prices has begun to ease, the recovery of the number of users is still slow, and thus, the slowdown of the amusement arcade industry continues to be severe. To respond to such situation, there has been increasing expectation for the emergence of “hit” products that will stimulate the market. Also, with the increasing use of the Internet and the advancement of digital technology, the mobile phone and online game market has been expanding as a new entertainment business.

The Japanese health industry in which our Health & Fitness segment operates is also feeling the impact of the recession. The fitness club industry where we boast a large market share has accelerated the price decline of membership fees and various services due to the intensified competition triggered by a decline in consumer spending. The number of fitness club members decreased. At the same time, due to the enforcement of health-related laws and regulations, there has been a growing interest in nursing care prevention as Japan’s population grows older. Measures to tackle lifestyle related diseases have been taken at the national level and steps to maintain good health are underway. We believe there will be an increasing demand for health-related services among middle-aged and senior consumers.

In our business, hardware manufacturers have now released their next-generation computer entertainment systems such as Nintendo Wii, Sony Computer Entertainment PlayStation 3 and Microsoft Xbox 360, and handheld game consoles such as Nintendo DS and the PlayStation Portable have been well received by a broad range of users regardless of age or gender, and the home game market in Japan and abroad has been strong. Moreover, we have also been actively expanding overseas, taking advantage of opportunities for growth in foreign markets, such as North America and Europe, and we are increasingly dependent on our overseas business. For example, in the sports video game category, soccer titles such as the Winning Eleven series,

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including WORLD SOCCER Winning Eleven (called “Pro Evolution Soccer” in Europe and North America), continue to gain popularity in Japan and Europe and recorded sales of over 9.4 million units worldwide in fiscal 2008, over 8.4 million units in fiscal 2009 and over 7.49 million units in fiscal 2010. We seek to continue expanding our business by introducing products that were hits in the Japanese market into overseas markets, as well as developing and introducing products that reflect the unique customer preferences and the competitive environment in each market.

Our main business strategies for each segment are as follows:

• Digital Entertainment Segment

In our Computer & Video Games business, we are striving to strengthen our content lineup and make it attractive to customers not only in Japan, but also worldwide in North America, Europe and Asia, by developing products that respond to the characteristics of each market.

In our Amusement business, we plan to further enhance our “e-AMUSEMENT” service, which links amusement arcades on line throughout Japan, by strengthening existing content and introducing new titles. Furthermore, in addition to our sales in the matured domestic market, we attempting to expand our sales to overseas focusing on Asia.

In our Card Games business, we are aiming to develop and acquire highly recognized characters and contents both produced by us as well as licensed by third parties, in order to expand our product lineup.

In our Online business, we plan to continue providing “intangible” services, adding value in new ways as made possible by the Internet, by planning, producing, operating and distributing Internet-based entertainment contents, including mobile games and PC online games.

• Gaming & System segment

In the Gaming & System segment, we aim to increase our revenue through development of competitive slot machine and system offerings, better services for clients, expansion of the markets for our casino management systems, enhancement of the competitiveness of our goods, improvement of client training and further expansion of participation.

• Health & Fitness segment

In the Health & Fitness segment, we are focusing on improving the quality of our services by offering a wide range of health-related value-added services in order to develop our operations effectively.

We aim to strengthen development and sales of goods such as health and nursing care prevention machines, supplements and health-related equipment and support heath maintenance and promotion services within and outside the fitness club facilities as the main source of revenue other than fitness club membership fees.

Factors Affecting Our Results of Operations

Factors Affecting Combined Results of Operations

A number of factors affect revenues and expenses across several of our segments, and therefore have a substantial impact on our combined results of operations. These factors subject to the impacts of the economic trend include a decline in consumer spending, price surge of raw materials, falling price of products, the importance of “hit products” that respond to trends in popular culture, intellectual property licensing, seasonal fluctuations, investments and acquisitions.

Economic Trend

Home games, online games and card games which are enjoyed at home are generally deemed to be less effected by the economy. However, with respect to amusement arcade games, due to a decline in consumer spending caused by deterioration of the economy, attempts to reduce consumption by refraining from going out

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caused fewer people to visit amusement arcades frequently, which may result in the deterioration of the operator’s management. If purchasing power decreases due to the deterioration of the operator’s management, sales of our amusement arcade games will be affected. In addition, in the worst case scenario, we may not be able to collect payment for goods we have sold. We attempt to prevent risk by purchasing credit insurance under the assumption that the worst case scenario such as the bankruptcy of our buyers will occur in addition to building a scheme under which we conduct sales upon careful evaluation of the credibility of our buyers. Furthermore, with respect to the operation of fitness clubs, similarly to amusement arcades, a decline in consumer spending may trigger a decrease in the number of members and a reduction in collection of membership fees. We aim to acquire new members and to keep our members from withdrawing from membership by attempting to enhance the quality of our services.

Hit Products

Most of our non-fitness related revenues come from sales of entertainment software and devices and are dependent on our ability to anticipate or influence the kinds of games and products that are popular with consumers. Revenues for our Digital Entertainment and Gaming & System segments are strongly affected by whether individual products or a series of products become “hits” with consumers. A single hit product can generate very substantial revenues, which can continue over an extended period through the release of sequel products and through expansion and extension of the concept or characters from a popular game.

Previously, our strategy was to develop a large number of titles for various platforms, in order to limit fluctuations in sales. However, due to recent changes in the business environment, such as the spread of online games, and our expansion into overseas markets, we have decided to adopt a new strategy of increasing revenues for each title through streamlining and enhancing the versatility of our content. Accordingly, we are cutting the number of titles through a process of “Selection and Concentration”, which we expect will provide a more consistent stream of revenues from each hit title. We have also decreased the volatility of our net revenues by entering the fitness club business, which we believe provided a more stable base of revenue.

Intellectual Property Licensing

One means we use to increase the likelihood that our products will succeed is licensing the right to utilize ideas and images from popular culture, such as comic book characters, sports and entertainment personalities and high visibility events. Thus, to some extent our revenues are dependent on successful identification and acquisition of rights to popular ideas and images. We have steadily increased the number of intellectual property licenses we hold to over 500 licenses in fiscal 2010.

These licenses typically require a guarantee of minimum future guaranty. We may experience losses if sales based on licensed intellectual property do not produce sufficient revenues to cover our minimum guaranty. In addition, games that are based on licensed ideas have lower margins than games that we develop independently.

In recent years, the entertainment industry has seen acceleration in crossovers with other industries such as toys, films, music, comics, publishing and communications. When we are able to use intellectual property licenses in multiple segments, we are able to produce higher revenues. For example, our Yu-Gi-Oh! Trading Card Game originated from the popular Yu-Gi-Oh! comic in a prominent Japanese weekly magazine. Following our “media-mix strategy”, we made good use of the license for the game, making substantial sales of our Yu-Gi-Oh! Trading Card Game for our Card Games business and as a video game for our Computer & Video Games business.

Seasonal Fluctuations

Many of our products are in the greatest demand from November to January. These months correspond to the periods of children’s school holidays, and it is customary in Japan to buy such products as Christmas and New Year presents in December and January. In addition, demand in the U.S is highest from November, starting

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with Thanksgiving and through the Christmas season. However, our earnings may not necessarily reflect the seasonal patterns of the industry as a whole as a result of increased sales due to the occurrence of various sports events or the release of “hit” titles.

Investments and Acquisitions

We have sought growth and diversification through investments and acquisitions in sectors that are expected to result in increased revenue stability and growth. These investments and acquisitions affected the composition of our assets and liabilities and our results of operations, sometimes materially. Among other things, we recognized an increase in the amount of goodwill and intangibles with indefinite life on our consolidated balance sheet in connection with such acquisitions, which we test for impairment at least on an annual basis—see “Critical Accounting Policies—Valuation of Intangible Assets and Goodwill”.

In particular, we have conducted the following transactions:

• Sale of 23.0% of the common stock of TAKARA Co., LTD. (“Takara”), which KONAMI CORPORATION had acquired in fiscal 2001 and 2002, in April 2005, for which we realized a gain on sale of ¥6,917 million in the first quarter of fiscal 2006.

• Consolidation of HUDSON SOFT CO., LTD. (“Hudson”), which was previously an affiliate accounted for by the equity method after our acquisition of 45.5% of its common stock in fiscal 2002, in April 2005, due to a capital investment of ¥1,434 million whereby KONAMI CORPORATION increased their interest to 54.0%.

• Acquisition of 77.8% of the common stock of Konami Träumer, Inc. for a total cash consideration of ¥525 million by KONAMI CORPORATION in fiscal 2004 and thereafter its merger with KONAMI CORPORATION in June 2005.

• Acquisition of 34.8% of minority interest of Konami Computer Entertainment Studios, Inc., 36.9% of the minority interest of Konami Computer Entertainment Tokyo, Inc. and 37.6% of minority interest of Konami Computer Entertainment Japan, Inc. and the merger of these companies with KONAMI CORPORATION in April 2005. We recognized goodwill of ¥13,348 million from the acquisition of the minority interests in these companies as a result of these transactions in fiscal 2006.

• Merger between Konami Sports Corporation and Konami Sports Life Corporation in February 2006, and acquisition of the remaining minority interest by share exchange in March 2006. We recognized goodwill of ¥6,596 million from the acquisition of minority interests in Konami Sports Corporation as a result of the transaction.

• Acquisition of 20.0% of the common stock of Resort Solution Co., Ltd. for a total cash consideration of ¥5,993 million by KONAMI CORPORATION in March, 2006, through which it became an affiliate accounted for by the equity method.

• Acquisition of all the shares of COMBI WELLNESS Corporation for a total cash consideration of ¥600 million by KONAMI CORPORATION in May 2006, through which it became our wholly-owned subsidiary.

• Acquisition of all the shares of Megacyber Corporation for a total cash consideration of ¥10 million by KONAMI CORPORATION on October 2, 2006, through which it became our wholly-owned subsidiary.

• Execution of an acquisition agreement with Blue Label Interactive, Inc. on June 22, 2006, pursuant to which Konami Digital Entertainment, Inc., our US affiliated company, paid total cash consideration of ¥1,099 million.

• Acquisition of 91.9% of the common stock of Sportsplex Japan Co., Ltd. for a total cash consideration of ¥509 million by KONAMI CORPORATION on March 6, 2008, through which it became our subsidiary. On July 1, 2008, it became our wholly-owned subsidiary.

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Foreign Currency Fluctuations

An increasing portion of our business is conducted in currencies other than yen—most significantly, U.S. dollars and Euro, as we increase our sales overseas. Our business is thus becoming sensitive to fluctuations in foreign currency exchange rates, especially the yen-U.S. dollar and yen-Euro exchange rate. Our consolidated financial statements are increasingly becoming subject to both translation risk and transaction risk. Translation risk arises from the fact that our foreign subsidiaries have different functional currencies than we do. Changes in the value of the Japanese yen relative to the functional currencies of these subsidiaries create translation gains and losses on our equity investments in foreign subsidiaries which are recorded as foreign currency translation adjustments on our consolidated statements of changes in equity in accumulated other comprehensive income (loss) until we dispose of, liquidate or take an impairment charge with respect to, the relevant subsidiaries.

Transaction risk arises when the currency structure of our costs and liabilities deviates from the currency structure of our sales proceeds and assets. A substantial portion of our overseas sales are made in U.S. dollars and Euros. Our sales denominated in U.S. dollars and Euro are, to a significant extent, offset by U.S. dollar and Euro denominated costs. Transaction risk remains for products sold in foreign currency to the extent that we must purchase parts for our products from Japan, the costs for which are denominated in yen.

We use foreign exchange forward contracts to manage foreign exchange exposure associated with short-term movements in exchange rates applicable to our payable commitments and receivables that we expect to pay or receive in foreign currencies. Changes in the fair values of our foreign exchange forward contracts are recognized as gains or losses on derivative instruments in our income statement. For a more detailed discussion of these instruments, you should read Item 11 herein and Note 17 to our consolidated financial statements included in this annual report.

Factors Affecting Results of Business Segments

In addition to the factors affecting our combined results of operations through several segments, there are other factors that affect the results of each of our segments independently. The factors affecting results in our business segments are as follows:

Digital Entertainment Segment

Net Revenues.    In our Digital Entertainment segment, in addition to the production and distribution of video game software for home and handheld game platforms and personal computers, we are engaged in the production and sales of card games and boys’ toy products, the development, manufacturing and maintenance of video arcade games and token-operated games for amusement arcades, the production and distribution of software for mobile phones and online network, as well as the production and sale of books and music of our products. In fiscal 2010, net revenues from the Digital Entertainment segment were ¥142,650 million, accounting for 54.4% of consolidated net revenues before elimination of intersegment revenue.

Our video game software is sold mainly in the format of DVD-ROMs or proprietary discs for home video game platforms such as Sony PlayStation 2, PlayStation 3, Nintendo Wii and Microsoft Xbox 360 and ROM-cartridges and other media for handheld video game platforms such as Nintendo DS and PlayStation Portable.

Our sales of video game software are strongly influenced by our ability to develop or acquire popular game content. See “—Factors Affecting Combined Results of Operations—Hit Products, Intellectual Property Licensing”. For instance, sales of video game software are significantly affected by sales volumes of video game systems. The potential market for a software product designed for a particular video game system is determined by the total number of such video game systems purchased by consumers, a number which is sometimes referred to as the “installed base” of such video game systems. When new hardware systems are introduced, we may experience a temporary decline in net sales attributable to video game software until we are able to produce one or more hit products that utilize the increased capabilities of the new hardware.

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The home video game industry is characterized by rapid technological changes, which have resulted in successive introductions of increasingly advanced game consoles. As a result of the rapid technological shifts, no single game console has achieved long-term dominance in the home video game and computer game market. To respond to these rapid shifts in video game hardware technology, it is necessary for us to continually anticipate game console cycles, time our product pipeline so that we do not publish games for hardware that is no longer popular, and develop software programming tools necessary for emerging hardware systems.

Our net revenue sales from card games and toys are principally affected by our identification and acquisition of rights to characters of popular comic books and TV programs, our ability to produce unique games, the number of children in the population, the timing of market entry, market competition, lifecycle of products and general economic trends. The toy industry in Japan is now faced with such issues as a decline of birthrates, young children’s shift away from toys due to their maturing at a younger age, and an increase in household expenses for children or other amusement purposes. However, the toy industry has not experienced a rapid decline in sales, but has continued a steady growth because of an increase in expense spent per child and a growing demand for toy products for adults along with an ageing society. In response, in order to maintain the balance of our business portfolio and to make our lineup of products more attractive, we strive to diversify products targeted to the Japanese market. For instance, we enhanced our reputation through sales of a series of BUSOU SHINKI to which our original “MMS figures” are applied.

Net revenues from amusement arcade games are affected by market acceptance, the number and size of video arcades in Japan, introduction of hit titles and general economic trends. In addition, our e-Amusement service, which links amusement arcade throughout Japan online, is influenced by market acceptance of network-based interactive games, network stability, which is the backbone of our services, and general economic trends. In addition to creating new games, we believe that we may be able to increase margins in this business by extending the life cycle of our existing arcade games by continuing to provide stable services after purchases of our machines. We also continue to benefit from sales of token-operated machines in Japan. We are proud of being one of the leading companies in the token-operated machine industry in Japan. Because the arcade game industry in Japan continues to be streamlined, the average scale of each amusement arcade is expanding along with a decrease in the number of amusement arcades. Accordingly, large-scale token-operated machines that attract a large number of customers have a tendency to gain popularity within large amusement arcades.

Our online services are affected by market acceptance of network-based interactive games, the number of mobile phone and Internet users, network system stability, which is the backbone of our services, and general economic trends. We make every effort to strengthen stability of our network-based services through such measures as server maintenance and improved stress tests.

We are engaged in publishing books and in the production and sales of music and video software. Such sales are influenced by market acceptance of each media, our ability to select, find and develop attractive contents and general economic trends. The sale of books and magazines in Japan has declined, and the value of audio record shipments has continued to decline. We are focused on maintaining stable sales of books on strategy for our game software, and are working on improvement of contents through planning and producing game software related music CDs.

Expenses.    Costs and expenses that we incur in the development of new video game software are expensed as research and development costs until such games reach technological feasibility, at which point we begin to capitalize the expenses. We expense capitalized costs to cost of revenues upon commercial release, as the commercial life of our software for home video game platforms is of short duration.

The rapid technological advances in home game consoles have significantly changed the software development process. We expect the process to become even more complex and expensive with the advent of more powerful next-generation game consoles. Our cost of revenues from software also includes the costs of licenses from content licensors. While some of our content licenses include prepaid or guaranteed royalties, most of the royalties we pay are on a revenue basis. We amortize the cost of prepaid royalties based on the number the

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associated products sold. We evaluate the future recoverability of any prepaid royalties and capitalized software development costs on a regular basis based on actual title performance. We expense as part of product development costs those capitalized costs that we deem unrecoverable.

Card games have historically shown a higher margin than other toy products due to their relatively low manufacturing costs. Costs include raw material costs, manufacturing outsourcing, licensing, research and development and administrative costs. Furthermore, because our card games and toys business is typically based on previously developed intellectual property, research and development costs are comparatively low.

As for amusement arcade games and token-operated games, we incur more limited cost of parts and raw materials and therefore have higher margins when we provide new game software contents for existing machines rather than selling new machines, because of lower cost of parts and raw materials. We are currently working on further improving margins in our Amusement business through the introduction of the less expensive “e-AMUSEMENT” gaming machine, which links amusement arcades online throughout Japan, and other measures to decrease production costs.

Our cost of services rendered for mobile phones and mobile terminals and personal computers game content consists of expenses incurred in the development of content, maintenance expenses for servers in our online services and service charge collection fees. We capitalize development and production costs and then amortize such costs as cost of services rendered for a period of two to three years or based on the expected length of services.

Costs and expenses related to publishing books and producing music are comprised mainly of costs to produce contents, costs paid for royalties on copyrights and royalties paid. Products in this business mainly use intellectual property rights that were developed in the past. As a result, the research and development costs of our other business are comparatively low.

Gaming & System Segment

Net Revenues.    In fiscal 2010, net revenues from the Gaming & System segment, before elimination of intersegment revenues, were ¥19,996 million, accounting for 7.6% of consolidated net revenues. The main revenue source for the Gaming & System segment is the sales of video and mechanical slot machines, casino management systems, software contents and revenue share with the casino operators in North America and Australia. Our sales of gaming machines are conducted overseas, primarily in North America and in Australia. Revenues for the Gaming & System segment are affected by the timing of the introduction of products, timing of regulatory approvals in various markets, the ability to penetrate into foreign gaming markets, the number of gaming players, gaming regulations in relevant markets, our competitiveness in these markets, the average product life cycles, general economic trends and currency exchange rates.

Expenses.    Expenses in our Gaming & System segment are largely related to cost of parts and raw materials, manufacturing costs and research and development expenses. In recent years, we have attempted to decrease our cost of revenues for the Gaming & System segment by acquiring parts and producing our machines in the markets in which they are sold, thereby reducing shipping costs and foreign exchange risks.

Health & Fitness Segment

Net Revenues.    We are the largest fitness club operator in Japan according to “Fitness Club Industry Trends in Japan, 2009” published by Club Business Japan. We also design, manufacture and sell fitness and health related products. As of March 31, 2010, we operated 211 fitness clubs and provided outsourced services at 116 clubs. In addition, in June 2008, Sportsplex Japan Co., Ltd. was merged into Konami Sports & Life Co., Ltd., and we aim to enhance convenience for our members through the integration of our brands. Our Health & Fitness segment had ¥85,765 million in net revenues or 32.7% of our total net revenue, before elimination of intersegment revenues, in fiscal 2010.

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While the majority of our Health & Fitness revenues come from membership fees, our fitness clubs also collect additional revenues from ancillary sales and services, sales of consumables including meals in our in-club restaurants and nutritional products in our in-club stores, and fees for services such as jazzercise and other fitness classes, massage, fitness counseling, work-out programs and personal trainers.

Expenses.    Operating expenses for our Health & Fitness segment include, for our health and fitness club business, leases for facilities, salaries for trainers and other club employees, costs of fitness machines and other equipment, utilities charges, marketing expenses, costs for maintaining the facilities and depreciation. Upon opening a new fitness club, we often experience an initial period of operating losses with respect to that club for the first year. However, this period can vary depending on the individual club, and may be substantially longer than a year. However, since most of our expenses are fixed, operating margins tend to improve significantly with respect to each club as membership increases. Expenses for our fitness-related software and fitness equipment business are largely related to cost of parts and raw materials, manufacturing costs and research and development expenses.

In fiscal 2009, in response to changes in the business environment, we revised the forecast of our revenues and profitability of underperforming clubs as well as decided to pursue the elimination and consolidation of our competing clubs. Accordingly, we recorded ¥11,121 million as restructuring and impairment charges that primarily include impairment losses of long-lived assets.

In fiscal 2010, based on the policy of the previous year, we recorded ¥2,339 million as restructuring and impairment charges that include expenses related to closure of clubs centering our competing clubs.

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Results of Operations

The table below shows our consolidated statements of income for the periods indicated:

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
NET REVENUES:
Product sales revenue	¥	218,306		¥	227,821		¥	185,514		$	1,993,917
Service revenue		79,096			81,950			76,630			823,624
Total net revenues		297,402			309,771			262,144			2,817,541
COSTS AND EXPENSES:
Costs of products sold		131,890			133,670			109,910			1,181,320
Costs of services rendered		73,298			78,966			75,824			814,961
Selling, general and administrative		58,375			58,653			55,407			595,518
Restructuring and impairment charges		—			11,121			2,339			25,140
Total costs and expenses		263,563			282,410			243,480			2,616,939
Operating income		33,839			27,361			18,664			200,602
OTHER INCOME (EXPENSES):
Interest income		894			459			165			1,773
Interest expense		(1,105	)		(1,468	)		(1,574	)		(16,917	)
Foreign currency exchange gain (loss), net		(704	)		(1,641	)		67			720
Other, net		(90	)		8			(200	)		(2,150	)
Other expenses, net		(1,005	)		(2,642	)		(1,542	)		(16,574	)
INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANY		32,834			24,719			17,122			184,028
INCOME TAXES:
Current		16,305			15,526			7,177			77,139
Deferred		(3,225	)		(4,811	)		(3,577	)		(38,446	)
Total		13,080			10,715			3,600			38,693
EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANY		180			(2,490	)		56			602
NET INCOME		19,934			11,514			13,578			145,937
NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		1,589			640			264			2,837
NET INCOME ATTRIBUTABLE TO KONAMI CORPORATION	¥	18,345		¥	10,874		¥	13,314		$	143,100

Comparison of Fiscal 2010 with Fiscal 2009

Net Revenues

Net revenues decreased by ¥47,627 million, or 15.4%, to ¥262,144 million for fiscal 2010 from ¥309,771 million for fiscal 2009. This decrease mainly resulted from the decrease in net revenues from our Digital Entertainment segment from the previous fiscal year in which several major titles were released.

Net revenues of our Digital Entertainment segment from external customers decreased by ¥45,069 million, or 24.1% to ¥142,239 million, accounting for 54.3% of the total. We released a variety of titles including sports titles, which we excel at, such WORLD SOCCER Winning Eleven 2010 (called PES 2010- Pro Evolution Soccer in Europe and North America), in addition to the anime titles and LOVEPLUS, a new communication game with love as its theme. In addition, the titles based on the contents popular in abroad showed favorable sales. In the Amusement business, in addition to our standard music titles, MAH-JONG FIGHT CLUB series showed

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favorable sales. In token-operated games, novel, innovative performance and design which evoke Las Vegas have won us favorable reviews and for FORTUNE TRINITY, a large-scale, mass-token pusher game, both of which have newly begun operations. Furthermore, to increase service demand, we introduced an electronic money service, PASELI, which utilizes the “e-AMUSEMENT” service linking online amusement arcades throughout Japan, to a widely positive response. In the Card Games business, we continue to record consistently strong revenue. Due to the release of major titles such as METAL GEAR SOLID 4 GUNS OF THE PATRIOTS in the previous consolidated fiscal year, a decline is seen in comparisons of revenue.

Net revenues of our Gaming & System segment from external customers increased by ¥1,660 million, or 9.1%, to ¥ 19,996 million in fiscal 2010. In the North American market, the industry-fixture 5 Reel Stepper Advantage 5 and the new chassis prototype Podium, which is equipped with the video slot machine series K2V, continue to receive positive reviews. Further, sales of Konami Casino Management System, which allow for a stable source of income through service and maintenance provided, and sales attributable to “participation,” wherein operators partake in a profit-sharing system, have resulted in steady acquisition of market share. In addition, in Central and South America, we have also proceeded with setting up distributorships and expanding sales.

Net revenues of our Health & Fitness segment from external customers decreased by ¥4,222 million, or 4.7%, to ¥85,480 million, accounting for 32.6% of the total. Although depression of consumer spending due to uncertainty about the economy has continued, and in the midst of sports club industry conditions such as decline in fees and increase in facilities, it remains a difficult environment for acquisition of new health club members, our Company group has sought to increase the added value in both our facility-related services as well as our health–related products, and aimed to increase services which cater to regional and individual customer needs and increase our product lineup.

Net revenues of the Other segment from external customers remained steady to ¥14,429 million in fiscal 2010.

Cost of Revenues

Cost of revenues decreased by ¥26,902 million, or 12.7%, to ¥185,734 million for fiscal 2010, compared to ¥212,636 million for fiscal 2009. This decrease was primarily due to the revenues decline of the Digital Entertainment segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by ¥3,246 million, or 5.5%, to ¥55,407 million for fiscal 2010 from ¥58,653 million for fiscal 2009. This decrease was primarily due to the decline in advertising expenses and markets expenses of the Digital Entertainment segment as compared to the previous fiscal year, in which major titles were released.

Restructuring and impairment Charges

During the previous fiscal year, ¥11,121 million of restructuring and impairment charges was recognized, which primarily consisted of impairment charges of long-lived assets and identifiable intangible assets, closure costs related to the consolidation of overlapping and duplicated facilities at underperforming sports club in our Health & Fitness segment due primarily to a decrease in the number of club members affected by the negative industry and economic trends. In the current fiscal year, ¥2,339 million of restructuring and impairment charges was recognized which primarily consisted of impairment and disposal expenses related to additional closure of facilities in our Health & Fitness segment.

Operating Income

As a result of the foregoing, our operating income decreased by ¥8,697 million, or 31.8% to ¥18,664 for fiscal 2010 from ¥27,361 million for fiscal 2009.

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As a percentage of net revenues, operating income decreased by 1.7% to 7.1% in fiscal 2010 from 8.8% in fiscal 2009. This was primarily due to a decline in operating income in the Digital Entertainment segment, which decreased primarily due to an decrease in sales.

Other Expenses, net

Other expenses, net, decreased by ¥1,100 million to ¥1,542 million for fiscal 2010 from ¥2,642 million for fiscal 2009, due primarily to a decrease in foreign exchange loss. A weak Euro, which began in the late fiscal 2009, resulted in recognition of foreign exchange loss by ¥1,641 million in fiscal 2009. However, foreign exchange gain of ¥67 million was recorded in fiscal 2010 since there were no such strong fluctuations in the exchange rate.

Income Before Income Taxes and Equity in net income (loss) of affiliated company

As a result of the foregoing, our income before income taxes and equity in net income (loss) of affiliated company decreased by ¥7,597 million, or 30.7%, to ¥17,122 million for fiscal 2010 from ¥24,719 million for fiscal 2009.

Income Taxes

Income tax expenses decreased by ¥7,115 million to ¥3,600 million for fiscal 2010 from ¥10,715 million for fiscal 2009, due primarily to a decrease in taxable income. The effective income tax rate decreased from 43.3% in fiscal 2009 to 21.0% in fiscal 2010. The decrease in the effective tax rate was primarily due to the reversal of deferred tax asset valuation allowances of ¥3,742 million at our US subsidiaries in light of the strong financial performance in our Gaming and System’s segment in that country. Also in fiscal 2009 our effective tax rate increased by 7.4% for adjustments necessary to reflect changes in estimates in the amount of foreign tax credits. Such adjustments in fiscal 2010 were insignificant.

Equity in Net Income (Loss) of Affiliated Company

Equity in net income (loss) increased by ¥2,546 million to a income of ¥56 million for fiscal 2010 from loss of ¥2,490 million for fiscal 2009, due to the recording of a valuation loss for shares of Resort Solution Co., Ltd. because of recording of accumulated impairment loss in the previous fiscal year for shares of the company, though Equity in net income (loss) of Resort Solution Co., Ltd was at the same level as fiscal 2009.

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest decreased by ¥376 million to income of ¥264 million for fiscal 2010 from income of ¥640 million for fiscal 2009, due primarily to a decrease in income at HUDSON SOFT COMPANY, LIMITED, which produces and sells packaged game software and mobile phone games, did not have a major “hit” title in fiscal 2010, while it had in fiscal 2009.

Net Income Attributable to KONAMI CORPORATION

As a result of the foregoing, net income attributable to company shareholders increased by ¥2,440 million, or 22.4%, to ¥13,314 million for fiscal 2010 from ¥10,874 million for fiscal 2009.

Comparison of Fiscal 2009 with Fiscal 2008

Net Revenues

Net revenues increased by ¥12,369 million, or 4.2%, to ¥309,771 million for fiscal 2009 from ¥297,402 million for fiscal 2008. This increase mainly resulted from the increase in net revenues from our Digital Entertainment segment.

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Net revenues of our Digital Entertainment segment from external customers increased by ¥8,926 million, or 5.0% to ¥187,308 million, accounting for 60.5% of the total. In our Computer & Video Games business, The METAL GEAR series steadily increased its sales as well as the WORLD SOCCER Winning Eleven (called “Pro Evolution Soccer” in Europe and North America) series continued to gain high popularity in Japan and abroad, resulting in increased sales compared with the previous fiscal year, and with aggregate sales of over 8.48 million units for the entire series. In the Amusement business, products incorporating the “e-AMUSEMENT” service, which links amusement arcades online throughout Japan, such as HORSERIDERS (a horseracing simulation card game) and MAH-JONG FIGHT CLUB 7, the latest title in the MAH-JONG FIGHT CLUB series, continuously received favorable reviews. In the Card Games business, Yu-Gi-Oh! Trading Card Game series continuously sold well. As a result, net revenue of the Digital Entertainment segment as a whole increased.

Net revenues of our Health & Fitness segment from external customers increased by ¥3,506 million, or 4.1%, to ¥89,702 million, accounting for 29.0% of the total. This increase was due primarily to the effect of opening of new clubs, development of new products in the health-oriented product business and an increase in the number of facilities of Sportsplex Japan Co., Ltd., which became our consolidated subsidiary in March 2008

Net revenues of our Gaming & System segment from external customers decreased by ¥135 million, or 0.7%, to ¥ 18,336 million in fiscal 2009. While sales of casino gaming machines such as K2V series and Advantage5 series increased steadily in the North American market, demand for casino gaming machines in the Australian market decreased due to the economic slowdown, restrictions placed in the key states on the number of machines installed, smoking restrictions in clubs and pubs and tax code revisions.

Net revenues of the Other segment from external customers increased by ¥72 million, or 0.5%, to ¥14,425 million in fiscal 2009 due primarily to strong sales of pachinko LCDs and pachinko slot machines. This increase was primarily due to strong sales of products related to LCDs for pachinko machines.

Cost of Revenues

Cost of revenues increased by ¥7,448 million, or 3.6%, to ¥212,636 million for fiscal 2009, compared to ¥205,188 million for fiscal 2008.

This increase was primarily due to an increase in net revenues from our Health & Fitness segment as a result of opening of new clubs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by ¥278 million, or 0.5%, to ¥58,653 million for fiscal 2009 from ¥58,375 million for fiscal 2008, which was approximately the same level as 2008.

Restructuring and impairment Charges

During fiscal 2009, we recorded ¥11,121 million of restructuring and impairment charges, which included impairment of tangible fixed assets of the Health & Fitness business, impairment of other intangible assets and closing expenses mainly for the elimination and consolidation of our competing facilities.

Operating Income

As a result of the foregoing, our operating income decreased by ¥6,478 million, or 19.1% to ¥27,361 million for fiscal 2009 from ¥33,839 million for fiscal 2008.

As a percentage of net revenues, operating income decreased by 2.6% to 8.8% in fiscal 2009 from 11.4% in fiscal 2008. This decrease was primarily due to a profit decline in the Health & Fitness segment, whereas our operating income in the Digital Entertainment segment increased primarily due to an increase in sales.

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Other Expenses, net

Other expenses, net, increased by ¥1,637 million to ¥2,642 million for fiscal 2009 from ¥1,005 million for fiscal 2008, due primarily to an increase of foreign exchange related losses triggered by appreciating yen in fiscal 2009.

Income Before Income Taxes and Equity in net income (loss) of affiliated company

As a result of the foregoing, our income before income taxes and equity in net income (loss) of affiliated company decreased by ¥8,115 million, or 24.7%, to ¥24,719 million for fiscal 2009 from ¥32,834 million for fiscal 2008.

Income Taxes

Income tax expense decreased by ¥2,365 million to ¥10,715 million for fiscal 2009 from ¥13,080 million for fiscal 2008, due primarily to a decrease in Income before income taxes for fiscal 2009. The effective tax rate of 43.3% in fiscal 2009 was 3.5 points higher than the effective rate in fiscal 2008 of 39.8%. The increase in the effective rate is due mainly to the increase in adjustment of estimated income tax accruals by 7.4 points in spite of the decrease in change in valuation allowance by 4.6 points from fiscal 2008. The rate difference was mainly attributable to a change in the estimates of indirect foreign tax credit related to dividends received from foreign subsidiaries. We recognize the foreign tax credits available pursuant to the Japanese Corporation Tax Act when the Company receives dividends from its foreign subsidiaries, and the amount of the tax credit is calculated based on the management estimates of foreign taxable income and foreign income taxes at each local subsidiary. The actual amount of foreign taxes is determined by the local tax authorities in periods subsequent to the initial recognition of the foreign tax credit. Once the local tax is determined by the local tax authorities, we update the calculation of the tax credit and adjust the credit amount.

Equity in Net Income (Loss) of Affiliated Company

Equity in net income (loss) decreased by ¥2,670 million to a loss of ¥2,490 million for fiscal 2009 from income of ¥180 million for fiscal 2008, due to the recording of a valuation loss of shares of Resort Solution Co., Ltd., though Equity in net income (loss) of Resort Solution Co., Ltd was at the same level as fiscal 2008.

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest decreased by ¥949 million to income of ¥640 million for fiscal 2009 from income of ¥1,589 million for fiscal 2008, due primarily to a decrease in net income at HUDSON SOFT COMPANY, LIMITED. The decrease in net income at HUDSON was mainly due to the reversal of deferred tax asset valuation allowances in fiscal 2008, in spite of the favorable sales for fiscal 2009.

Net Income Attributable to KONAMI CORPORATION

As a result of the foregoing, net income attributable to KONAMI CORPORATION decreased by ¥7,471 million, or 40.7%, to ¥10,874 million for fiscal 2009 from ¥18,345 million for fiscal 2008.

Segment Information

We have three reportable operating segments for which separate financial information is available and reported in our consolidated financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The operating segments are managed separately as each segment represents a strategic business unit that offers different products and serves different markets. We present our business segment information in the accompanying consolidated financial statements as it is presented in reports to our management, derived from our U.S. GAAP financial statements.

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The following tables present net revenues, including both customers and intersegment revenues, operating expenses and operating income (loss) for fiscal 2008, 2009 and 2010, by segment, which are the primary measures used by our chief operating decision makers to measure our operating results and to measure segment profitability and performance. The year-to-year comparisons following the tables discuss comparisons of net revenues, before elimination of intersegment revenues, operating expenses and operating income (loss) for each year.

Year Ended March 31, 2008	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
Customers	¥	178,382	¥	18,471	¥	86,196		¥	14,353		¥	297,402
Intersegment		577		—		348			(905	)		—
Total		178,939		18,471		86,544			13,448			297,402
Operating expenses		143,579		15,677		81,251			23,056			263,563
Operating income (loss)	¥	35,360	¥	2,794	¥	5,293		¥	(9,608	)	¥	33,839
Year Ended March 31, 2009	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
Customers	¥	187,308	¥	18,336	¥	89,702		¥	14,425		¥	309,771
Intersegment		320		—		263			(583	)		—
Total		187,628		18,336		89,965			13,842			309,771
Operating expenses		146,076		14,889		98,235			23,210			282,410
Operating income (loss)	¥	41,552	¥	3,447	¥	(8,270	)	¥	(9,368	)	¥	27,361
Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
Customers	¥	142,239	¥	19,996	¥	85,480		¥	14,429		¥	262,144
Intersegment		411		—		285			(696	)		—
Total		142,650		19,996		85,765			13,733			262,144
Operating expenses		121,167		15,323		87,687			19,303			243,480
Operating income (loss)	¥	21,483	¥	4,673	¥	(1,922	)	¥	(5,570	)	¥	18,664
Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of U.S. Dollars)
Net revenue:
Customers	$	1,528,794	$	214,918	$	918,745		$	155,084		$	2,817,541
Intersegment		4,417		—		3,063			(7,480	)		—
Total		1,533,211		214,918		921,808			147,604			2,817,541
Operating expenses		1,302,311		164,693		942,466			207,469			2,616,939
Operating income (loss)	$	230,900	$	50,225	$	(20,658	)	$	(59,865	)	$	200,602

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Comparison of Fiscal 2010 with Fiscal 2009

Digital Entertainment segment

Net revenues for customers of our Digital Entertainment segment decreased by ¥45,069 million, or 24.1%, to ¥142,239 million in fiscal 2010 from ¥187,308 million in fiscal 2009. Compared to the previous year due to absence of major titles, both net revenues and operating income decreased.

In our home video game software series, we rolled out the latest titles with a focus on popular KONAMI series such as the soccer game Winning Eleven (known in the US and Europe as PRO EVOLUTION SOCCER). New titles, such as LOVEPLUS, which is a new romantic communication game, and titles featuring popular overseas content enjoyed steady sales.

With respect to arcade games for our Amusement business, the MAH-JONG FIGHT CLUB GARYOTENSEI, the latest in series, and the large-scale mass medal game FORTUNE TRINITY continued to be satisfactory.

In addition, revenues from all card games including the Yu-Gi-Oh! Trading Card Game series increased steadily.

Operating expenses decreased by ¥24,909 million, or 17.1%, to ¥121,167 million in fiscal 2010 from ¥146,076 million in fiscal 2009 due primarily to a decrease in the sales cost and advertising and sales promotion expenses, due to absence of major titles compared to the previous year.

As a result, operating income decreased by ¥20,069 million, or 48.3%, to ¥21,483 million in fiscal 2010 from ¥41,552 million in fiscal 2009.

Gaming & System segment

Net revenues of our Gaming & System segment increased by ¥1,660 million, or 9%, to ¥19,996 million in fiscal 2010 from ¥18,336 million in fiscal 2009, reaching record-high net revenues and operating income. This increase was due primarily to an enrichment of our product lineup in the North America and Australian markets, with a focus, in the case of video slot machines, on the new-generation cabinet (outer structure) Podium running the K2V series, and on the Advantage 5 series in the case of mechanical stepper machines. Those sales progressed steadily. Meanwhile, we also increased the sale of the Konami Casino Management System and the profits from participation agreements (equipment sales in which profits are shared).

Operating expenses increased by ¥434 million, or 2.9%, to ¥15,323 million in fiscal 2010 from ¥14,889 million in fiscal 2009. This increase was primarily due to an increase in sales cost led by an increase in sales volume.

As a result, operating income increased by ¥1,226 million, or 35.6%, to ¥4,673 million in fiscal 2010 from ¥3,447 million in fiscal 2009.

Health & Fitness segment

Net revenues of our Health & Fitness segment, before elimination of intersegment revenues, decreased by ¥4,200 million, or 4.7%, to ¥85,765 million in fiscal 2010 from ¥89,965 million in fiscal 2009. In our Health & Fitness segment, in addition to opening of new directly operated facilities and expansion of facilities outsourced to us, we have promoted development of facilities and introduction of services in line with diversified customer needs and regional characters.

Operating expenses decreased by ¥ 10,548 million, or 10.7%, to ¥87,687 million in fiscal 2010 from ¥98,235 million in fiscal 2009. This decrease is primarily due to the restructuring and impairment charges of

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¥11,121 million including impairment losses of long-lived assets and identifiable intangible assets and costs related to the elimination and consolidation of facilities incurred in fiscal 2009, compared to ¥2,339 million in fiscal 2010.

As a result, we recognized an operating loss of ¥1,922 million in fiscal 2010 compared to operating loss of ¥8,270 million in fiscal 2009.

Comparison of Fiscal 2009 with Fiscal 2008

Digital Entertainment segment

Net revenues of our Digital Entertainment segment, before elimination of intersegment revenues, increased by ¥8,689 million, or 4.9%, to ¥187,628 million in fiscal 2009 from ¥178,939 million in fiscal 2008 due primarily to the increase in sales of our Computer & Video Games business despite a sharp rise in the value of the yen in the second half of fiscal 2009.

In our Computer & Video Games business, METAL GEAR SOLID 4 GUNS OF THE PATRIOTS, released simultaneously around the world in June 2008, was named Game of the Year by GameSpot, a major U.S. gaming website, in GameSpot’s Best of 2008 roundup of winning titles. The game exhibited its strength as a brand, winning a total of six “game of the year” titles at U.S. and European gaming websites. The METAL GEAR series steadily increased its sales, with total units sold of this series surpassing 4.75 million worldwide.

Moreover, a license agreement was concluded with the Union of European Football Associations (UEFA) for the Winning Eleven series. The inclusion of the much-awaited UEFA Champions League mode further enhanced the strength of this product, with 8.48 million units sold for the Winning Eleven series overall. In addition, sales of standard baseball titles such as Pawapurokun Pocket 11, JIKKYOU PAWAFURU PUROYAKYU 2009 and JIKKYOU PAWAFURU PUROYAKYU NEXT increased steadily.

With respect to arcade games for our Amusement business, e-AMUSEMENT products such as HORSERIDERS, a horseracing simulation card game, the MAH-JONG FIGHT CLUB series and the QUIZ MAGIC ACADEMY series showed favorable performance.

In addition, revenues from all card games including the Yu-Gi-Oh! Trading Card Game series increased steadily.

Operating expenses increased by ¥2,497 million, or 1.7%, to ¥146,076 million in fiscal 2009 from ¥143,579 million in fiscal 2008 due primarily to an increase in the selling, general and administrative expenses for home video game software.

As a result, operating income increased by ¥6,192 million, or 17.5%, to ¥41,552 million in fiscal 2009 from ¥35,360 million in fiscal 2008.

Gaming & System segment

Net revenues of our Gaming & System segment decreased by ¥135 million, or 0.7%, to ¥18,336 million in fiscal 2009 from ¥18,471 million in fiscal 2008. This slight decrease was due primarily to a rapid decrease in the value of the US dollar and the Australian dollar against the yen in the second half of fiscal year 2009. On a local currency basis, Gaming & System segment revenue increased. This increase was due to an increase in revenues from sales of gaming machines and casino management systems by our U.S. subsidiary, Konami Gaming, Inc. In North America, sales of the K2V video slot platform series and our first five-reel mechanical slot machines, Advantage 5, were in great demand. The sales from overseas and domestic markets decreased at our Australian subsidiary, Konami Australia Pty Ltd.

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Operating expenses decreased by ¥788 million, or 5.0%, to ¥14,889 million in fiscal 2009 from ¥15,677 million in fiscal 2008. This decrease was primarily due to a rapid decrease in the value of the dollars and a decrease in administrative expenses and development costs.

As a result, operating income increased by ¥653 million, or 23.4%, to ¥3,447 million in fiscal 2009 from ¥2,794 million in fiscal 2008.

Health & Fitness segment

Net revenues of our Health & Fitness segment, before elimination of intersegment revenues, increased by ¥3,421 million to ¥89,965 million in fiscal 2009 from ¥86,544 million in fiscal 2008 due primarily to an increase in sales due to an increase in the number of facilities of Sportsplex Japan Co., Ltd., the opening of new facilities and the development of new products.

Operating expenses increased by ¥ 16,984 million to ¥98,235 million in fiscal 2009 from ¥81,251 million in fiscal 2008. This increase includes restructuring and impairment charges of ¥11,121 million including impairment losses of long-lived assets and identifiable intangible assets and costs related to the elimination and consolidation of facilities. Furthermore, operating expenses increased due to an increase in the number of facilities of Sportsplex Japan Co., Ltd., an increase in costs related to opening of new facilities and an increase in costs related to management and operation of facilities caused by the high price of crude oil.

As a result, we recognized an operating loss of ¥8,270 million in fiscal 2009 compared to operating income of ¥5,293 million in fiscal 2008.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires our management to make assumptions and estimates about expected future cash flows and other matters that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the notes to our consolidated financial statements includes a summary of the significant accounting policies used in the preparation of our consolidated financial statements. We consider some of our significant accounting policies to be critical to our reported results because they require our management to make complex judgments in making assumptions and estimates about the effects of matters that are inherently uncertain and therefore subject to change. Changes in such assumptions and estimates could have a material effect on the amounts reported in our financial statements. We believe that among our significant accounting policies, the following policies may involve a higher degree of judgment or complexity.

Acquisition Accounting

We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as asset lives, can materially impact net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances by impairment charges, if the asset becomes impaired in the future.

In determining the estimated fair value for intangible assets, we typically utilize the income approach, which employs discounting of the projected future net cash flow using an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income approach or other methods include the projected future cash flows (including timing) and the discount rate reflecting the risks inherent in the future cash flows.

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Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Intangible assets determined to have an indefinite useful life have been reassessed at least annually including, but not limited to, the expected use of the asset by us, legal or contractual provisions that may affect the useful life or renewal or extension of the asset’s contractual life without substantial cost, and the effects of demand, competition and other economic factors.

As a result of reassessment in fiscal 2010 made after termination of certain franchise contracts, intangible assets related to franchise contracts which were previously determined to have an indefinite life have been determined to have a finite life of 14 years based on the current expectation as to future renewals of the existing contracts. Intangible assets related to existing technology, customer relationships, membership lists and franchise and other contracts have been amortized over their estimated useful lives of 7 to 15 years.

Valuation of Intangible Assets and Goodwill

We are required to perform an annual impairment test of our indefinite-lived intangible assets and goodwill of a reporting unit. We also assess the impairment of intangible assets and goodwill of a reporting unit whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Some of the factors we consider important which could trigger an impairment review include the following:

• significant underperformance relative to historical or projected future operating results;

• significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

• significant negative industry or economic trends.

When we determine that the carrying amount of intangible assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate the carrying amount of the assets based on their fair value. If the fair value is less than the carrying amount of the assets, we record an impairment loss based on the difference between the carrying amount and the fair value of the assets.

When we test goodwill for impairment, we perform it at a level of reporting unit, an operating segment or one level below an operating segment. The two-step impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

We engage an independent appraiser to assist us in our determination of the fair values of our reporting units. In its determination of the fair values, the appraiser primarily utilizes a discounted cash flow analysis as well as other relevant valuation approaches including the stock price and market capitalization of the acquired entity and asset and liability structure of the reporting units. Significant assumptions used in this analysis include: (i) expected future revenue growth rates, profit margins and working capital levels of the reporting units; (ii) a discount rate; and (iii) a terminal value multiples. The revenue growth rates, profit margins and working capital levels of the reporting units are based on our expectation of future results. In evaluating the recoverability of other intangible assets which are allocated to the reporting units, we primarily utilize a discounted cash flow analysis as well as other applicable valuation approaches, and if applicable, independent valuations.

During the year ended March 31, 2008, we evaluated the recoverability of goodwill and intangible assets and concluded that there was no impairment in the carrying value of such assets for any of our reporting units.

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However, in the fourth quarter of the fiscal year ended March 31, 2009, we determined that the fair value of indefinite lived intangible assets related to trademarks recognized in the Health & Fitness reporting unit was lower than their carrying value as a result of review based on the independent valuations. Consequently, an aggregate non-cash impairment charge of ¥1,857 million was recorded in restructuring and impairment charges for the year ended March 31, 2009. This impairment charge was attributed to determination that the reporting unit would fail to meet previous growth expectations of future results. As for the carrying value of goodwill, there was no impairment during the fiscal year ended March 31, 2009. Furthermore, in the fourth quarter of the fiscal year ended March 31, 2010, we determined that the fair value of indefinite lived intangible assets related to credit card contracts recognized in the Health & Fitness reporting unit was lower than their carrying value. Consequently, an aggregate non-cash impairment charge of ¥451 million was recorded in restructuring and impairment charges. This impairment charge was attributed to determination that the sufficient future cash flow in relation to the assets could not be estimated as a result of review of the business segment in part as we proceed with restructuring in the business segment.

Valuation of Long-Lived Assets

Our long-lived assets are reviewed for impairment, “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of the use of the acquired assets or the strategy for overall business; significant negative industry or economic trends. When it is determined that the carrying amount of assets to be held and used may not be recoverable based upon the existence of one or more of these indicators of impairment, recoverability is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

The factors most significantly affecting the impairment calculation are our estimates of future cash flows. Our cash flow projections carry several years into the future and include assumptions on variables such as growth in revenues, and our cost of capital inflation, the economy and market competition. Any changes in these variables could have an effect upon our valuation.

In the years prior to 2006, we performed impairment reviews for our fitness club assets based on certain grouping of clubs in the same geographic area where club operations were characterized by interdependencies such as the sharing of costs and expenses. However, in fiscal 2006, in connection with changes in management of our Health & Fitness operation and in our operating structure of clubs, which eliminated these interdependencies among clubs, we reassessed our asset grouping for fitness clubs and changed our focus to an individual club operation level, which we consider to be the lowest level at which identifiable cash flows are largely independent of the cash flows of other assets. The carrying amount of the club assets is compared to the expected undiscounted future cash flows to be generated by those assets over the estimated remaining useful life of the club. Cash flows are projected for each club based on historical results and expectations. In cases where the expected future cash flows are less than the carrying amount of the assets, those clubs are considered impaired and the assets are written down to fair value.

During the fourth quarter of the fiscal year ended March 31, 2009, we identified changes in circumstances that indicated the carrying value of long-lived assets might not be recoverable and projected a decline in net cash flows for Health & Fitness segment, primarily reflecting a decrease in the number of club members affected by the negative industry and economic trends. As a result, we tested the recoverability of underperforming clubs and recorded a pre-tax impairment charge of ¥7,881 million for long-lived assets for the year ended March 31, 2009. The recoverability test included reviewing the actual and projected cash flows of these underperforming clubs. The impairment charges related primarily to the carrying values of buildings, leasehold improvements and other

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tangible club facility assets that will continue to be operated by us. We also considered operations of all clubs within each market served by multiple clubs and determined to cease operation of certain of these clubs that overlap in a particular marked, and recognized the closure related impairment charges which were included in the amount discussed above. In addition, in the fourth quarter of the fiscal year ended March 31, 2010, we recorded impairment charge of ¥480 million for long-lived assets for the clubs to be closed.

Software Development Costs

We utilize our internal development teams to develop our software. We capitalize software development costs once technological feasibility is established and such costs are determined to be recoverable from future revenues. We expense software development costs incurred prior to technological feasibility to research and development. We evaluate the technological feasibility of our software in development on a product-by-product basis, based on our historical experience, whether the software is closely related to previously marketed software or uses existing technology, and other factors. For products where proven game engine technology exists, technological feasibility may occur early in the development cycle. We believe that our accounting policies for software development are critical for our financial statements as our decisions as to technological feasibility affect the timing of our recognition of the costs associated with development of our software products.

Revenue Recognition

We derive revenue from primarily three sources: (i) product revenue, which includes packaged game software and other products, gaming machines and related casino management systems, and LCDs for pachinko machines; (ii) membership fee revenue from health and fitness club members; and (iii) sales and subscription fee revenue from mobile game contents.

For those sources that do not involve delivery of multiple software or other deliverables, KONAMI recognizes revenue based on the basic criteria outlined below:

Persuasive Evidence of an Arrangement.

For product sales, it is KONAMI’s customary practice to have a written contract, which is signed by both the customer and KONAMI, or a purchase order or amendment to the written contract from those customers that have previously negotiated a standard purchase agreement.

For KONAMI’s health and fitness clubs, members are required to sign a standard monthly membership agreement upon admission, which is automatically renewed unless the member provides advance notice of his or her intention to cancel prior to the tenth day of the month at the end of which the membership will terminate.

For mobile game contents, KONAMI enters into distribution agreements with mobile phone carriers for the sale or subscription of mobile game contents by the carriers to their subscribers. KONAMI recognizes as revenues the net amount the mobile phone carrier pays to KONAMI upon the sale of KONAMI’s game contents, net of any service or other fees earned and deducted by the carrier.

Delivery Has Occurred.

Packaged game software and other products are physically delivered to customers, with standard transfer terms. Also, KONAMI’s game machines and related equipment are physically delivered to customers as a fully-assembled, ready to be installed unit. These arrangements generally include an acceptance clause. KONAMI recognizes revenue from product sales upon delivery and acceptance, which is the timing the rights and risks are transferred to the customer. Generally, KONAMI does not permit exchanges nor accept returns of unsold merchandise except in the case of obvious defects. In certain limited circumstances KONAMI may allow returns, for which KONAMI estimates the related allowances based upon management’s evaluation of historical experience, the nature of the software titles and other factors. KONAMI maintains detail listings of software

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titles in distribution channel, closely monitors their movements, and is able to reasonably estimate future credits to be issued for price protection. These estimates are deducted from gross sales.

Revenue from health and fitness club membership is derived primarily from monthly membership fees from club members. Revenue for those fees is recognized as monthly charges and are generally made to the members’ accounts in advance, at the end of each month, with respect to the following month’s membership. This policy requires KONAMI to defer the applicable membership fee revenue for one month.

Revenue from mobile game contents is derived from monthly subscription fees. Under the distribution agreements, the mobile phone carriers are responsible for billing, collection and remittance of those subscription fees to KONAMI. KONAMI has a collection risk for accounts receivable except for certain mobile phone carriers. The carriers generally report the final sales data to KONAMI within 60 days following the end of each month. When final sales data is not available in a timely manner for reporting purposes, KONAMI estimates its revenues based on sales data available from the server in which game contents are housed, which is then adjusted to actual revenues in the following reporting period once the actual amounts are determined.

The Price is Fixed or Determinable.

The price customers pay for KONAMI’s products is negotiated at the outset of an arrangement, and is generally determined by the specific volume of product to be delivered. Therefore, the prices are considered to be fixed or determinable at the start of the arrangement. KONAMI’s membership fee for health and fitness clubs is fixed at the time of admission of the member. Also, monthly subscription fees for mobile game contents are based on a fixed rate per end customer subscriber.

Collection is Probable.

Probability of collection is assessed on a customer-by-customer basis. KONAMI typically sells to customers with whom KONAMI has a history of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. For KONAMI’s health and fitness clubs, the collectability of membership fees is assured as it generally charges members’ accounts one-month in advance. In addition, for its mobile game contents, KONAMI has a collection risk for its accounts receivable except for certain mobile phone carriers.

Determining whether these criteria have been satisfied involves assumptions and judgments that can have a significant impact on the timing and amount of revenue KONAMI recognizes in each period.

For those sources that involve multiple software deliverables, KONAMI evaluates revenue recognition based on the following items:

(1) if and when each element has been delivered,

(2) whether undelivered elements are essential to the functionality of the delivered elements,

(3) whether vender-specific objective evidence of fair value (VSOE) exists for undelivered elements, and

(4) allocation of the total price among the various elements.

We recognize revenues from package software with online functionality for certain platforms in Digital Entertainment Segment which is hosted on its internal servers as multiple software deliverables. If VSOE of fair value for the online services cannot be established for most of titles, revenue from the package products is not allocated among the console game products and online service for those titles, and the entire revenue from the sale of the package products is recognized on a straight-line basis over the estimated online service period. The service period is estimated to be six months. For those certain titles which we have established the fair value by VSOE, we recognize a part of revenue for the titles based on VSOE as carrying-over. We recognize this revenue at a fixed amount during the six-month estimate online service period.

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Further, we describe revenue and cost for package game products and online services and online services that VSOE of the fair value can and/or cannot be established as “products sales revenue” and “costs of products sold” collectively.

We recognize revenues from casino management systems in our Gaming & System segment containing multiple factors as software products, as the software is essential to the functionality of the hardware. Revenue from sales of casino management systems is recognized only when installation of hardware and software is completed and accepted by the customers. Maintenance service revenue is recognized ratably over the maintenance period based on VSOE of fair value established by renewal rates.

For those sources that involve multiple deliverables except for software deliverables, KONAMI applies the recognition criteria. Specifically, deliverables are divided into separate units of accounting if:

(1) Each item has value to the customer on a stand-alone basis,

(2) we have objective and reliable evidence of the fair value of the undelivered items, and

(3) delivery of any undelivered item is considered probable and substantially in our control.

Changes to assumptions or judgments related to the above could have a significant impact on the timing and amount of revenue that KONAMI recognizes in each period.

Income Taxes

The recoverability of deferred tax assets ultimately depends on the existence of sufficient taxable income of an appropriate character and we record a valuation allowance to reduce the deferred tax assets to an amount that is more likely than not to be recoverable. A change in our ability to continue to generate future taxable income could affect our ability to recover the deferred tax assets and requires re-assessment of the valuation allowance. Such changes, if significant, could have a material impact on our effective tax rate, results of operations and cash flows.

Establishing a valuation allowance requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning strategies. At March 31, 2009 and 2010, the aggregate valuation allowances provided against deferred tax assets were ¥5,727 million and ¥1,279 million, respectively. The net change in total valuation allowance for the year ended March 31, 2008, 2009 and 2010 were a decrease of ¥3,300 million, ¥2,715 million and ¥4,448 million, respectively. The decrease of ¥3,300 million for the year ended March 31, 2008 primarily resulted from the reversal of the valuation allowance against deferred tax assets at our domestic subsidiary as it showed continuing strong performance in the Digital Entertainment segment. The decrease of ¥2,715 million for the year ended March 31, 2009 was attributable to the decrease of future deductible temporary differences and net operating loss carryforwards at our U.S. subsidiaries, which resulted in a decrease of gross deferred tax assets and related valuation allowances. The decrease of ¥4,448 million for the year ended March 31, 2010 primarily resulted from the reversal of the valuation allowance against deferred tax assets at our U.S. subsidiaries as they recorded strong financial results and made stable income in our Gaming and System segment.

Accounting Developments

In October 2009, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) of FASB Accounting Standard Codification (“ASC”), No. 2009-13 “Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force”. ASU2009-13 provides amendments to the criteria for allocation of revenues in multiple-deliverable arrangements, and in the absence of vendor-specific objective evidence or a third-party evidence concerning a selling price of deliverable products and services, sets forth a provision to allocate revenues in relation to products and services by applying an estimated selling price. Furthermore, ASU2009-13 requires disclosure of details information concerning multiple-deliverable arrangements. ASU2009-13 is applied to arrangements executed or significantly modified in fiscal years commenced on or after June 15, 2010. We are currently reviewing impacts the adoption of ASU2009-13 may have on our consolidated financial statements.

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In October 2009, the FASB issued ASU2009-14 “Certain Revenue Arrangements That Include Software Elements-a consensus of the FASB Emerging Issues Task Force”. ASU2009-14 is to exclude tangible products containing software components that function to deliver the product’s essential functionality from the criteria for software revenues. ASU2009-14 is applied to arrangements executed or significantly modified in fiscal years commenced on or after June 15, 2010. We are currently reviewing impacts the adoption of ASU2009-14 may have on our consolidated financial statements.

Capital Expenditures

Our capital expenditures amounted to ¥13,731 million, ¥6,812 million and ¥7,962 million on an accrual basis during fiscal 2008, 2009 and 2010, respectively. In fiscal 2008, our capital expenditure consisted mainly of funds for the improvement of fitness club facilities in the amount of ¥1,378 million, tools for products development in the amount of ¥1,796 million, business office facilities in the amount of ¥1,786 million, and learning center facilities in the amount of ¥4,034 million. Our capital expenditures for fiscal 2009 amounted to ¥6,812 million on an accrual basis, which primarily consisted of additions to Konami Sports Club’s facility equipment, tools for products development and computer software, and facility equipment relating to the Gaming and System segment. Our capital expenditures for fiscal 2010 amounted to ¥7,962 million on an accrual basis, which primarily consisted of additions to Konami Sports Club’s facility equipment, tools for products development relating to the Gaming and System segment.

The following table shows reconciliation between capital expenditure disclosed in the cash flow statements to the amounts discussed here on an accrual basis for fiscal 2008, 2009 and 2010.

	Fiscal year ended March 31,
	2008		2009			2010		2010
	(millions of yen and thousands of dollars)
Capital expenditure in the consolidated statement of cash flows	¥	11,995	¥	8,531		¥	6,318	$	67,906
Effects of timing difference of payments and other		1,736		(1,719	)		1,644		17,670
Capital expenditure (accrual basis)	¥	13,731	¥	6,812		¥	7,962	$	85,576

B.    Liquidity and Capital Resources

Our principal needs for cash are: fees for manufacturing and royalty payments to video game hardware manufacturers who produce our game software; payments to content licensors; purchase of parts and raw materials; selling, general and administrative expenses such as research and development expenses; payments for the acquisition of companies targeted under our acquisitions strategy; employees’ salaries, wages and other payroll costs; lease payments for fitness club facilities; debt service requirements; expenditures to renovate and maintain our properties; payments of dividends to our shareholders; and taxes. Our principal needs for cash during fiscal 2010 include cash used for ordinary operations of our business. In addition, we consider potential opportunities to expand our current business or enter new areas of business from time to time.

Generally, our sources of funds include available cash reserves, cash provided by our current and future operating activities, borrowings from banks and other financial institutions and issuance of debt securities. We believe that as of the end of fiscal 2010, cash and deposit balance, expected cash from operations, execution of commitment line contracts with main banks and future borrowings or issuance of debt capital will provide sufficient financial resources to meet our currently anticipated capital and other expenditure requirements. In addition, taking into account the above circumstances, we believe that the amount we expect to generate from our operations through the end of fiscal 2011, will be sufficient to meet our operating requirements for the next twelve months through the end of fiscal 2011. There are no material contractual or legal restrictions on the ability of our subsidiaries to transfer funds to us in the form of dividends (assuming that they have sufficient distributable net assets or retained earnings as provided under the local law of the relevant jurisdiction), loans or advances. There are no material economic restrictions on payments of dividends, loans or advances to us by our subsidiaries other than general withholding or other taxes calculated at rates determined by the local tax law of

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the relevant jurisdiction (ordinarily 20% in the case of dividend payments by our Japanese subsidiaries and 10% (or, in certain circumstances, 15%) in the case of dividend payments and 10% in the case of interest payments by our U.S. subsidiaries).

Cash Flows

The following table sets forth certain information about our cash flows during fiscal 2008, 2009 and 2010:

	Fiscal year ended March 31,
	2008			2009			2010			2010
	(millions of yen and thousands of dollars)
Net cash provided by operating activities	¥	30,788		¥	30,131		¥	14,297		$	153,665
Net cash used in investing activities		(15,359	)		(5,715	)		(6,449	)		(69,315	)
Net cash used in financing activities		(19,818	)		(21,004	)		(10,744	)		(115,477	)
Effect of exchange rate changes on cash and cash equivalents		(814	)		(1,974	)		68			734
Net increase (decrease) in cash and cash equivalents		(5,203	)		1,438			(2,828	)		(30,393	)
Cash and cash equivalents at beginning of year		57,333			52,130			53,568			575,750
Cash and cash equivalents at end of year	¥	52,130		¥	53,568		¥	50,740		$	545,357

Comparison of Fiscal 2010 with Fiscal 2009

Net cash provided by operating activities decreased by ¥15,834 million, or 52.6%, to ¥14,297 million in fiscal 2010 from ¥30,131 million in fiscal 2009. This primarily resulted from a decrease in the collection amount of sales proceeds and an increase in the inventories following a decrease in sales compared to that for the year ended March 31, 2009, when our Digital Entertainment segment released hit titles for video game software and amusement arcades. Meanwhile, the amount of income taxes paid in the year ended March 31, 2010 decreased from the year ended March 31, 2009 due to a decrease in taxable income.

Net cash used in investing activities increased by ¥734 million, or 12.8% to ¥6,449 million in fiscal 2010 from ¥5,715 million in fiscal 2009. This increase mainly resulted from the lack of proceeds from sale of property and equipment which existed for the year ended March 31, 2009, despite a decrease in capital expenditures for investments.

Net cash used in financing activities decreased by ¥10,260 million yen, or 48.8%, to ¥10,744 million for fiscal 2010 from ¥21,004 million in fiscal 2009. These financing activities primarily resulted from the lack of purchases of treasury stock and redemption of bonds which took place during the year ended March 31, 2009.

Comparison of Fiscal 2009 with Fiscal 2008

Net cash provided by operating activities decreased by ¥657 million, or 2.1%, to ¥30,131 million in fiscal 2009 from ¥30,788 million in fiscal 2008. Despite the decrease in inventories and deferred revenue, this decrease primarily resulted from a decrease in net income attributable to KONAMI CORPORATION and accrued income taxes.

Net cash used in investing activities decreased by ¥9,644 million, or 62.8% to ¥5,715 million in fiscal 2009 from ¥15,359 million in fiscal 2008. This decrease was primarily due to a decrease in capital expenditures and sale of property and equipment.

Net cash used in financing activities increased by ¥1,186 million yen, or 6.0%, to ¥21,004 million for fiscal 2009 from ¥19,818 million in fiscal 2008. This increase was primarily due to acquisition of treasury stock in spite of a decrease in the redemption of bonds.

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Long and Short-term Debt

Our debt includes both long-term and short-term debt. Our debt requirements have not been seasonal. There is no short-term debt as of March 31, 2010. As of March 31, 2010, long-term debt consisted mainly of ¥15,000 million of unsecured bonds described in the following paragraphs. It also includes ¥204 million of unsecured loans from banks, of which ¥204 million is current. For information regarding the aggregate annual maturities of our long-term debt outstanding at March 31, 2010, please see the Contractual Obligations table below under Item 5.F. We are able to borrow from financial institutions at local market-based interest rates, which in our case is market-based rates in Japan. The interest rates of our loans ranged from 0.87% to 1.73% during fiscal 2010.

During fiscal 2008, we issued series 6, 7 and 8 unsecured domestic bonds, due in fiscal 2012, fiscal 2013 and fiscal 2014, respectively. Each of the bonds was issued for ¥5,000 million for an aggregate total principal amount of ¥15,000 million. The interest rates of these bonds issued by us range from 1.51% to 1.73%.

In connection with our purchases of certain products for distribution in North America and Europe, some of our suppliers require us to provide irrevocable letter of credit prior to accepting our purchase orders. As of March 31, 2010, there was no outstanding letter of credit.

Derivative Transactions

We enter into foreign exchange forward contracts to manage foreign exchange exposure associated with short-term movements in exchange rates applicable to our payables commitments and receivables that we expect to pay or receive in foreign currencies. For a more detailed discussion of these instruments, you should read Item 11 herein and Note 17 to our consolidated financial statements included in this annual report. We do not hold or issue derivatives for speculation purposes. Because the counterparties to those contracts are limited to major international financial institutions, we do not anticipate any material losses arising from credit risk. Our Finance Group executes and controls those contracts. Each contract and its results are to be periodically reported to a general manager and an officer in charge of the group and the CFO.

We do not designate any derivative financial instruments as hedges and, as a result, they are recognized as either assets or liabilities at fair value and the corresponding gains and losses are recognized in earnings in the period of change.

C.    Research and Development, Patents and Licenses, etc.

Our research and development activities consist primarily of developing video game software, amusement arcade games, card games, and gaming machines. Research and development expenses are charged to earnings as incurred. On a consolidated basis, we spent ¥3,111 million, ¥2,677 million and ¥2,964 million on research and development for fiscal 2008, 2009 and 2010, respectively.

D.    Trend Information.

While our results of operations for fiscal 2011 remain subject to a number of uncertainties, we currently expect that our net revenues for fiscal 2011 will increase slightly from the previous year. We also expect a slight increase in operating income in fiscal 2011 due to stable revenues generated by regular titles in each segment. We base our expectations on the following assumptions:

Our fiscal 2011 business plans are formulated on the basis of the following assumptions:

• Digital Entertainment segment:    In the Computer & Video Games business, we expect an increase in sales due to the continuously strong sports-related titles. We expect our sales volume and net revenues to remain almost at the same level as fiscal 2010 as a whole, despite the streamlining of the number of titles under our “Selection and Concentration Policy”. Thereby, we are streamlining our titles to concentrate on those which provide the most versatility in terms of content and relatively high and

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consistent revenues. We expect net revenues of our Amusement business to remain almost at the same level as fiscal 2010, as a result of solid sales of our standard series products and products by which “e-AMUSEMENT” services can be provided. We expect our net revenues of our Card Games business to remain almost at the same level as fiscal 2010, reflecting solid sales of the Yu-Gi-Oh! Trading Card Game. We expect net revenues in our Online business to remain almost at the same level as fiscal 2010, reflecting the growth of home online gaming and revenues from mobile game contents. We expect net revenues in our Multimedia business such as music to remain almost at the same level as fiscal 2010 as a result of evolving original animations collaborating with other segments.

• Gaming & System segment:    We expect an increase in net revenues by our Gaming & System segment reflecting anticipated gains in sales of gaming machines and casino management systems in the North American market.

• Health & Fitness segment:    In the Health & Fitness segment, although severe conditions are expected to continue for a while, we expect an increase in the number of members and opportunities for development and sales of health related machines, triggered by the arrival of aging society and measures against the adult diseases. We recognize the increase of fee-based programs such as measures against metabolic and diet programs, expansion of services out of fitness clubs by digitizing exercise instruction, nutrition instruction and heath management which is our strength and the potential expansion of demands for operation of exercise facilities and provision of exercise instruction from local authorities and the private sector. In addition, in March 2011, we anticipate to complete recording expenses related to the closure of overlapped and underperforming facilities as part of restructuring processes for this segment determined in fiscal 2009. As a result, even the growth in sales may slowdown, we expect an improvement of our profitability in fiscal 2010.

The discussion above includes forward-looking statements based on management’s assumptions and beliefs as to the factors set forth above, as to market and industry conditions and as to our performance under those conditions and are subject to the qualifications set forth in “Special Note Regarding Forward-looking Statements” in “Risk Factors” in Item 3.D. Our actual results could vary significantly from these projections and could be influenced by a number of factors including our ability to generate new popular products, our ability to expand overseas, consumer spending patterns and other factors and risks as discussed in the other part of “Risk Factors” in Item 3.D.

E.    Off-Balance Sheet Arrangements.

Not applicable.

F.    Tabular Disclosure of Contractual Obligations.

Contractual Obligations

The following table summarizes the contractual obligations and other commercial commitments that will affect our liquidity position for the next several years, as of March 31, 2010:

			Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(millions of yen)
Long-Term Debt, including contractual interest	¥	15,822	¥	447	¥	10,332	¥	5,043	¥	—
Capital Lease Obligations		37,356		3,512		5,455		4,769		23,620
Operating Leases		97,199		8,956		17,825		17,559		52,859
Purchase Obligations		60		60		—		—		—
Pension Contribution		1,077		1,077		—		—		—
Asset Retirement Obligation		3,384		—		—		—		3,384
Total	¥	154,280	¥	13,809	¥	33,280	¥	27,328	¥	79,863

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Licenses.    We have several on-going contractual commitments involving minimum future royalties’ payments. Under these agreements, we commit to provide specified payments to the intellectual property holders, such as professional sports organizations, based upon contractual arrangements. Assuming all contractual provisions are met, the total future minimum contract commitment for contracts in place as of March 31, 2010 is ¥1,190 million, substantially all of which has been prepaid and recorded as prepaid royalties and license fees.

Item 6. Directors, Senior Management and Employees.

A.    Directors and Senior Management.

Directors, Corporate Auditors and Executive Officers

The following table sets forth our Directors including the executive officers and Corporate Auditors and certain other information:

Name	Position	Date of Birth	Current Term Expires	Director, Corporate Auditor or Corporate Officer Since	Number of KONAMI CORPORATION shares owned as of March 31, 2010 (1)		Percentage of holding of KONAMI CORPORATION shares outstanding as of March 31, 2010
Directors:
Kagemasa Kozuki	Representative Director, Chairman of the Board and President	November 12, 1940	June 2011	March 1974	35,400,786 (0	)	26.53	%
Noriaki Yamaguchi	Representative Director, Vice President and Corporate Officer	January 26, 1944	June 2011	June 1994	59,024 (0	)	*
Kimihiko Higashio	Representative Director, Vice President and Corporate Officer	September 24, 1959	June 2011	June 2005	24,140 (0	)	*
Takuya Kozuki	Director	May 19, 1971	June 2011	June 2009	13,954 (0	)	*
Tomokazu Godai	Outside Director	October 6, 1939	June 2011	May 1992	10,184 (0	)	*
Hiroyuki Mizuno	Outside Director	April 20, 1929	June 2011	June 2001	10,191 (0	)	*
Akira Gemma	Outside Director	August 1, 1934	June 2011	June 2004	8,000 (0	)	*
Corporate Auditors:
Noboru Onuma	Standing Corporate Auditor	January 1, 1948	June 2013	June 1999	2,149 (0	)	*
Tachio Ohori	Corporate Auditor	March 3, 1933	June 2011	June 2007	448 (0	)	*
Masaru Mizuno	Corporate Auditor	September 4, 1932	June 2011	June 2007	448 (0	)	*
Shogo Sasabe	Corporate Auditor	July 3, 1929	June 2011	June 2007	1,460 (0	)	*
Corporate Officers:
Fumiaki Tanaka	Vice President, Corporate Officer	March 10, 1961	—	June 2000	75,593 (0	)	*
Satoshi Sakamoto	Corporate Officer	August 22, 1948	—	April 2007	0 (0	)	*
Akira Tamai	Corporate Officer	October 14, 1963	—	April 2005	1,993 (0	)	*
Mineaki Yoshiba	Corporate Officer	May 16, 1964	—	May 2008	700 (0	)	*

(1) Includes shares beneficially owned through the Director Stock Purchase Association. Numbers in parenthesis indicate the numbers of shares issuable by the exercise of rights to purchase shares held by each person listed above—see Item 6.E. “Share Ownership”.

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• Includes shares beneficially owned through Yoko Kozuki (11,600 shares), Kozuki Foundation for Sports, Athletes and Higher Education (14,700,000 shares), Kozuki Holding (13,530,000 shares), Kozuki Capital Corporation (7,036,996 shares) and the Director Stock Purchase Association (51,334 shares) in addition to those owned of record by Kagemasa Kozuki (70,856 shares).

• All of our Directors are Japanese nationals and, except for Tomokazu Godai, Hiroyuki Mizuno and Akira Gemma, are engaged in our business on a full-time basis. The business address of our Directors is 7-2, Akasaka 9-chome, Minato-ku, Tokyo 107-8323, Japan.

• The list of corporate officers does not include those persons who also serve as directors.

• Asterisks indicate ownership of less than one percent.

Kagemasa Kozuki became our Representative Director and President in 1974 and Representative Director and Chairman in 1987. He has also served as President since 1994. He established KONAMI CORPORATION in 1973.

Noriaki Yamaguchi became our Managing Director in 1994 and Representative Director in 2001. He has served as our Representative Director, Vice President and Corporate Officer since 2009. He joined KONAMI CORPORATION in 1994.

Kimihiko Higashio became our Director in 2005 and Representative Director in 2008. He has served as our Representative Director, Vice President and Corporate Officer since 2009. He joined KONAMI CORPORATION in 1997.

Takuya Kozuki has served as our director since 2009. He joined Konami Computer Entertainment America, Inc. as Director and Vice President in 1997. He also served as Director and Chairman of Konami Corporation of America since 2002. He is a son of our Representative Director, Chairman and President, Kagemasa Kozuki.

Tomokazu Godai has served as our Director since 1992. He has also served as Representative Director of Maya Tec Co., Ltd. since 1975.

Hiroyuki Mizuno has served as our Director since 2001. He has also served as Director of Hiroshima Prefectural Institute of Industrial Science and Technology since 1998.

Akira Gemma has served as our Director since 2004. He has also served as Senior Corporate Adviser of Shiseido Co., Ltd. since 2003.

Noboru Onuma has served as our Standing Corporate Auditor since 1999.

Tachio Ohori has served as our Corporate Auditor since 2007.

Masaru Mizuno has served as our Corporate Auditor since 2007. He has served as Senior Advisor of Japan Tobacco Inc. since 2005.

Shogo Sasabe has served as our Corporate Auditor since 2007. He has served as Special Advisor of BANDO CHEMICAL INDUSTRIES, LTD. since 2009.

Fumiaki Tanaka was in charge of the Amusement Business until 2005 and served as Executive Corporate Officer since 2000 till 2006. He has serves as Vice President, Corporate Officer since 2009. He also served as Director from 1996 to 2001. He has served as Representative Director and President of Konami Digital Entertainment Co., Ltd. since 2006 and also Representative Director and President and Corporate Officer of Konami Sports & Life Co., Ltd. since 2009. He joined KONAMI CORPORATION in 1981.

Satoshi Sakamoto has served as Corporate Officer since 2007. He joined Konami Australia Pty Ltd. as Managing Director in 1996 and has served as Chairman of Konami Gaming Inc. since 2002.

Akira Tamai has served as Corporate Officer since 2005. He joined KONAMI CORPORATION in 1999 and also Director, Vice President and Corporate Officer of Konami Sports & Life Co., Ltd. since 2009.

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Mineaki Yoshiba has served as Corporate Officer since 2008. He joined KONAMI CORPORATION in 2000.

Our board of directors has the ultimate responsibility for the administration of our affairs. Our Articles of Incorporation provide for appointment of twelve Directors. Directors are elected at a general meeting of shareholders, and the term of office of Directors provided for under our Articles of Incorporation is one year, although they may serve any number of consecutive terms. Our board of directors elects from among its members one or more Representative Directors, who have the authority individually to represent us in all matters.

Our Articles of Incorporation provide for the appointment of not more than five Corporate Auditors, at least half of whom must not have been a Director, executive officer (shikko-yakuin), manager or employee of our company or any of our subsidiaries prior to the date on which such person assumes the office of Corporate Auditor. Corporate Auditors are elected at a general meeting of shareholders from among those candidates nominated by our board of directors and, if any, by shareholders. The term of office of a Corporate Auditor provided for under the Corporate Law and our Articles of Incorporation is four years, although they may serve any number of consecutive terms. Corporate Auditors are under a statutory duty to oversee the administration of our affairs by our Directors, to examine our financial statements and business reports to be submitted by our board of directors to the general meetings of our shareholders and to report to the shareholders regarding any actions by our Directors that are seriously unreasonable or which are in violation of laws, ordinances or our Articles of Incorporation, etc. They are required to attend meetings of our board of directors and to express their opinions, but they are not entitled to vote. Under the Corporate Law of Japan, the Corporate Auditors collectively constitute the board of corporate auditors. The board of corporate auditors has a statutory duty to prepare and submit an audit report to our board of directors each year. A Corporate Auditor may note his or her opinion in the audit report if different from the opinion expressed in the audit report. The board of corporate auditors is empowered to establish audit principles, the methods of examination by Corporate Auditors of our affairs and financial position and other matters concerning the performance of the Corporate Auditors’ duties.

In addition to Corporate Auditors, we must appoint independent public accountants who have statutory duties of examining the financial statements to be submitted by our board of directors to the general meetings of shareholders and reporting thereon to the board of corporate auditors and the Directors. Examination by independent public accountants of our financial statements is also required for the purposes of the securities reports which companies listed on Japanese stock exchanges must file with the Director of the relevant Local Finance Bureau and which are open to public inspection. KPMG AZSA LLC currently acts as our Independent Registered Public Accounting Firm.

B.    Compensation.

(1) Amount of Compensation to Our Directors and Corporate Auditors in Fiscal 2010

Category	Base Salary (Millions of Yen)	Number of Directors or Executive Officers
Directors (Excluding Outside Directors)	428	5
Outside Directors	79	7
Total	507	12

(1) Outside directors include all corporate auditors.

(2) There is not any payment of compensation other than basic compensation to Directors or Corporate Auditors (such as bonuses, stock options and others).

(3) Directors’ retirement benefit program has been abolished. (The program for Directors was abolished at the time of the 28th Ordinary General Shareholders’ Meeting held on June 23, 2000, and for Corporate Auditors at the time of the 31st Ordinary General Shareholders’ Meeting held on June 19, 2003.)

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(2)    Directors and Corporate Auditors whose Total Compensation Amount is over ¥100 million in Fiscal 2010

Name	Position	Consolidated base salary (Millions of Yen)
Kagemasa Kozuki	Representative Director, Chairman of the Board and President	296

(1) The total amount of the above consolidated compensation is the sum of the compensation paid as Director of the filing company, our subsidiaries, Konami Digital Entertainment, Co., Ltd. and Konami Sports & Life Co., Ltd., of ¥259 million, ¥22 million and ¥15 million, respectively. In addition, there is not any payment of compensation other than basic compensation.

(3) Policy concerning Determination of Compensation Amount for Directors and its Calculation Method

Compensation for Directors is determined pursuant to a resolution adopted at a meeting of board of directors to the upper range of directors compensation amount determined by a resolution adopted at a general meeting of shareholders. Individual compensation is determined, taking into account trend of business performance, considering status of representation rights, positions, roles and scale of duty, term period, fulltime/part-time, by evaluating degree of contribution concerning achievements and management.

Compensation for Corporate Auditors is determined based on consultation of Corporate Auditors to the upper range of corporate auditors compensation amount determined by a resolution adopted at a general meeting of shareholders.

Furthermore, there is not any payment of compensation other than basic compensation to Directors or Corporate Auditors (such as bonuses, stock options and others).

Additionally, the retirement benefit program has been abolished.

C.    Board Practices.

The information required by this item in relation to the date of expiration of the current term of office for our Directors, Corporate Auditors and Corporate Officers is set forth in Items 6.A and 6.B of this annual report.

D.    Employees.

We employed 5,708 persons on a full-time basis and 7,428 persons on a part-time basis as of March 31, 2010. One of our subsidiaries, Konami Sports & Life Co., Ltd., has a labor union to which 823 employees belonged as of March 31, 2010. We have no other labor union and have experienced no labor disputes. We believe that our labor relations are good.

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The following two tables show the number of our employees by segment and geographic location as of the dates indicated:

Breakdown of Employees by Segment

	As of March 31,
Segment	2008	2009	2010
Digital Entertainment	3,074	3,193	3,297
Gaming & System	355	374	396
Health & Fitness	1,611	1,584	1,547
Others	221	274	275
General Administrative (1)	211	207	193
Total	5,472	5,632	5,708

(1) Employees in the General Administrative segment consist of those who cannot be classified into a specific segment.

Breakdown of Employees by Geographic Location

	As of March 31,
	2008	2009	2010
Japan	4,731	4,830	4,863
North America	359	413	429
Asia (other than Japan)	157	166	179
Europe	110	113	124
Australia	115	110	113
Total	5,472	5,632	5,708

The retirement age for our employees (excluding contract workers), other than Directors and Corporate Auditors, is 60.

From August 1998, we began offering a fixed compensation system to our management and this plan is currently offered to most of our employees.

Many of our employees receive compensation on the basis of fixed annual salaries. In addition, we have in place a performance-linked incentive system for employees. Salaries of the employees are decided by our committee responsible for rewards upon evaluations by the person in charge of the employees’ respective production and divisions based on our results, the relevant production, the relevant division, as well as the individual’s own efforts and contribution. Also, employees and directors may receive additional compensation for the development of a patent that makes a significant contribution to our business. In addition, employees involved in production of our products receive rewards based on the contributions of their production teams to our financial results.

E.    Share Ownership.

(1) Share Ownership by Directors and Corporate Auditors

Except as described in Item 7.A below, none of our directors or members of our administrative, supervisory or management bodies beneficially owns more than one percent of our shares of common stock.

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(2) Stock option plan for directors and employees

Our shareholders authorized the issuance of 17,879 rights to purchase 1,787,900 shares of our common stock by resolution at our ordinary general meeting of shareholders held on June 20, 2002. We issued these rights to subscribe for or purchase shares of our common stock, which function in the manner of stock options, to our directors and employees as well as to the directors and employees of our subsidiaries. These rights were issued to increase director and employee motivation to improve our financial performance and to attract highly qualified personnel. These rights were exercisable from July 1, 2004 to June 30, 2007. The exercise price was ¥3,640.

On June 23, 2005, the shareholders approved the Company’s board of directors resolution on May 10, 2005 for approval of the eight plans of stock subscription rights to directors and employees of the Company and its subsidiaries. Those stock subscription rights plans are intended to enable the grant of stock options and the total maximum number of shares outstanding under the plans was 395,400 shares of common stock of the Company. The exercise periods ranged from August 1, 2005 through June 30, 2008, and exercise prices ranged from ¥1,670 to ¥2,857.

At our general meeting of shareholders held on June 23, 2005, the shareholders also approved the Company’s board of directors resolution on May 19, 2005 for approval of another plan of stock subscription rights to directors and employees of the Company and its subsidiaries. The stock subscription rights are intended to enable the grant of stock options, and the maximum number of shares issuable under the plan is 1,150,000 shares of common stock of the Company. The exercise period is from July 1, 2007 to June 30, 2009. The exercise price will be equal to 1.20 times the daily average closing price on the Tokyo Stock Exchange for the month prior to the grant date. However, these stock subscription rights were not issued although they were approved as mentioned above.

Following a resolution by the extraordinary general meeting of shareholders held on January 26, 2006, and a share exchange executed on March 1, 2006, we succeeded to obligations related to 12,200 stock subscription rights issued as series 1 by Konami Sports & Life Co., Ltd, which former Konami Sports Corporation approved in the Ordinary General Meeting of Shareholders held on June 23, 2004. We believe that these stock subscription rights are important for enhancing the motivation and morale of directors and employees of Konami Sports & Life Co., Ltd. subsequent to the share exchange, and to maximize the corporate value of the Konami Group. The exercise period was from July 1, 2006 to June 30, 2009, and the exercise price was ¥3,133.

(3) Employee Stock Purchase Plan

Our directors and employees (excluding part-time employees) are eligible to participate in stock purchase plans, pursuant to which a plan administrator makes open market purchases of our shares of common stock for the accounts of participating directors and employees on a monthly basis. Such purchases are made out of amounts deducted from each director’s or employee’s salary. As of March 31, 2010 the Employee Stock Purchase Association held a total of 1,765,742 shares of our common stock and the Director Stock Purchase Association held a total of 104,127 shares of our common stock.

Item 7. Major Shareholders and Related Party Transactions.

A.    Major Shareholders.

As of March 31, 2010, 133,460,664 shares of our common stock were outstanding.

Any person who becomes, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of a company listed on any Japanese stock exchange or whose shares are traded on the Japanese over-the-counter market, as calculated pursuant to the Financial Instruments and Exchange Law of Japan, must file with the Regional Finance Bureau having jurisdiction within five business days a report concerning such shareholding. See Item 10.B “Memorandum and Articles of Association” below.

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To our knowledge, as of March 31, 2010 or a later date as indicated, the following persons beneficially owned more than 5% of our outstanding common stock. The information in this table is based upon our register of shareholders and reports filed with the Regional Financial Bureau:

Shareholders	Number of shares of common stock owned	Percentage of common stock outstanding as of March 31, 2010
Kagemasa Kozuki (1)	35,400,786	26.53	%
Kozuki Foundation For Sports and Education (2)	14,700,000	11.01
Kozuki Holding (2)	13,530,000	10.14
The Master Trust Bank of Japan	10,724,800	8.04
Japan Trustee Services Bank, Ltd.	8,207,400	6.15
Kozuki Capital Corporation (2)	7,036,996	5.27

(1) Kagemasa Kozuki’s share ownership includes shares beneficially owned through Yoko Kozuki (11,600 shares), Kozuki Foundation for Sports and Education (14,700,000 shares), Kozuki Holding (13,530,000 shares), Kozuki Capital Corporation (7,036,996 shares), and the Director Stock Purchase Association (51,334 shares) in addition to those owned of record by Kagemasa Kozuki (70,856 shares).

(2) As explained in note (1) above, Kagemasa Kozuki is also a beneficial owner of these shares.

None of our shares of common stock entitles the holder to any preferential voting rights.

The ownership and distribution of the shares (in 100-share units) by category of shareholders according to our register of shareholders and register of beneficial shareholders as at March 31, 2010 were as follows:

Category	Number of Shareholders	Number of Shares Held	Percentage of Outstanding Shares
Japanese financial institutions	68	38,171,534	28.60	%
Japanese securities companies	36	8,503,768	6.37
Other Japanese corporations	418	22,523,905	16.88
Foreign corporations and individuals	384	42,430,329	31.79
Japanese individuals and others	50,379	21,831,128	16.36
Total	51,285	133,460,664	100.00	%

According to our register of shareholders and register of beneficial owners, as of March 31, 2010, there were 133,460,664 shares of our common stock outstanding. According to JPMorgan Chase Bank, depositary for our ADSs, as of March 31, 2010, 398,323 shares of our common stock were held in the form of ADRs and there were 21 ADR holders of record in the United States. According to our register of shareholders and register of beneficial owners, as of March 31, 2010, there were 51,285 holders of common stock of record worldwide, including 111 shareholders of record with addresses in the United States who held 10,536,018 shares, representing approximately 7.89% of our outstanding common stock as of that date. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States may be fewer than the number of beneficial owners in the United States.

None of our shares of common stock entitles the holder to any preferential voting rights.

To our knowledge, we are not, directly or indirectly, owned or controlled by any other corporation or by any government or by any other natural or legal persons severally or jointly. We know of no arrangements the operation of which may at a later time result in a change of control of KONAMI.

B.    Related Party Transactions.

There were no related party transactions for fiscal 2010.

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C.    Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information.

A.    Consolidated Statements and Other Financial Information.

Financial Statements

The information required by this item is set forth beginning on page F-2 of this annual report.

Legal or Arbitration Proceedings

The information on legal or arbitration proceedings required by this item is set forth in Item 4.B of this annual report.

Dividend Policy

KONAMI CORPORATION believes that it is important to return KONAMI CORPORATION’s profits to the stockholders to secure constant high dividends and improve the corporate value. However, our dividends are subject to our future earnings and financial condition, approval of the board of directors (in the case of year-end dividends) and other factors, including statutory and other restrictions with respect to the payment of dividends.

B.    Significant Changes.

We are not aware of any significant change in our financial position since March 31, 2010, the date of our last audited financial statements.

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Item 9. The Offer and Listing.

A.    Offer and Listing Details.

The following table indicates the reported closing high and low sale prices (adjusted to reflect the prior stock splits of shares referred to in the table included in Item 10.A “Share Capital—Changes in Issued Share Capital” of our registration statement on Form 20-F filed with the Securities and Exchange Commission on September 20, 2002) and the average trading volume of our common stock on the Tokyo Stock Exchange, the closing highs and lows of the Nikkei Stock Average and the closing highs and lows of the TOPIX for the periods indicated:

	Price per Share of KONAMI CORPORATION Common Stock on Tokyo Stock Exchange		Average Daily Trading Volume of KONAMI CORPORATION Common Stock	Closing TOPIX		Closing Nikkei Stock Average
Fiscal Period	High	Low		High	Low	High	Low
2006	3,110	2,115	743,008	1,728.16	1,109.19	17,059.66	10,825.39
2007	3,670	2,330	974,090	1,816.97	1,458.30	18,215.25	14,218.60
2008	4,120	2,580	1,042,096	1,796.89	1,139.62	18,297.00	11,691.00
2009	4,410	1,275	1,458,497	1,449.14	698.46	14,601.27	6,994.90
2010	2,080	1,416	912,983	987.27	778.21	11,147.62	8,084.62
2009:
First quarter	4,410	3,510	1,248,744	1,449.14	1,214.92	14,601.27	12,521.84
Second quarter	3,820	2,440	1,208,135	1,334.52	1,069.69	13,603.31	11,160.83
Third quarter	2,785	1,347	1,805,970	1,107.68	721.53	11,456.64	6,994.90
Fourth quarter	2,345	1,275	1,587,000	896.21	698.46	9,325.35	7,021.28
2010:
First quarter	1,877	1,416	989,797	954.08	778.21	10,170.82	8,084.62
Second quarter	2,080	1,673	858,910	987.27	852.11	10,767.00	9,050.33
Third quarter	1,829	1,417	828,003	920.54	809.24	10,707.51	9,076.41
Fourth quarter	1,839	1,485	977,162	984.06	876.77	11,147.62	9,867.39
Calendar Period
2010:
January	1,777	1,492	925,437	966.40	901.12	10,982.10	10,198.04
February	1,677	1,485	951,453	921.90	876.77	10,449.75	9,867.39
March	1,839	1,635	1,044,036	984.06	893.81	11,147.62	10,116.86
April	1,976	1,780	981,052	1,001.77	968.79	11,408.17	10,865.92
May	1,788	1,459	1,327,983	970.46	850.88	10,847.90	9,395.29
June	1,593	1,380	1,141,764	904.03	835.91	10,251.90	9,347.07

On July 23, 2010, the reported closing price of our shares on the Tokyo Stock Exchange was ¥1,358 per share, the closing Nikkei Stock Average was ¥9,430.96 and the closing TOPIX was 841.29.

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Our ADSs have been listed on the New York Stock Exchange since September 30, 2002. On July 23, 2010, the closing sale price of our American Depositary Shares on the New York Stock Exchange was $15.67 per share. The following table sets forth, for the periods indicated, the closing high and low sales price in U.S. dollars and the average trading volume of our American Depositary Shares on the New York Stock Exchange:

	New York Stock Exchange Price per ADS		Average daily trading volume of ADSs
Fiscal Period	High ($)	Low ($)
2006	26.83	19.00	902
2007	30.48	20.42	2,571
2008	39.93	20.22	5,612
2009	42.79	12.77	11,898
2010	21.98	14.8	3,593
2009:
First quarter	42.79	33.36	22,181
Second quarter	34.92	23.34	7,942
Third quarter	26.38	15.25	8,839
Fourth quarter	26.48	12.77	8,470
2010:
First quarter	19.48	14.80	7,021
Second quarter	21.98	18.19	1,936
Third quarter	20.01	16.17	2,184
Fourth quarter	19.90	16.53	3,269
Calendar Period:
2010:
January	19.15	16.80	3,916
February	18.70	16.53	3,658
March	19.90	18.67	2,413
April	21.16	19.26	3,290
May	19.80	16.16	5,525
June	17.49	15.50	5,950

B.    Plan of Distribution.

Not applicable.

C.    Markets.

See Item 9.A of this annual report for information on the markets on which our common stock is listed or quoted.

D.    Selling Shareholders.

Not applicable.

E.    Dilution.

For the year ended March 31, 2010, we had no share of diluted securities. Also, for the years ended March 31, 2008, 2009 and 2010 we had nil, 741,968 and nil shares attributable to outstanding stock options were excluded as the exercise prices of the stock subscription rights were greater than or equal to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.

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F.    Expenses of the Issue.

Not applicable.

Item 10. Additional Information.

A.    Share Capital.

Not applicable.

B.    Memorandum and Articles of Association.

Objects and Purposes in Our Articles of Incorporation

Our corporate purposes, as specified in Article 2 of our Articles of Incorporation, which are attached as an exhibit to this annual report, are to own shares of and to manage companies which engage in the following businesses and to be engaged in the implementation of operations incidental to such business activities:

(1) Research, development, manufacture and distribution of software and hardware relating to electric appliances and electronic components;

(2) Planning, production, manufacture, rental and distribution of music, audio and visual software (including disks, tape and film, etc.); production and acquisition of master copies, and transferal or usage permission thereof;

(3) Acquisition, management, promotion of usage and development of music copyright and related performance rights, and transferal or usage permission thereof;

(4) Planning, production and distribution of books, magazines, sheet music and other publications;

(5) Development, manufacture and distribution of toys;

(6) Design of character products (with images of people, animals, etc. which have unique names or characters);

(7) Planning, production, distribution on the Internet and Internet related services;

(8) Gathering, online distribution, processing and online sales of information, pictures and music using electrical communication and electrical communication related services;

(9) Information processing services and information reporting services;

(10) Management and control of sports facilities, culture centers, day-care centers, fee-paying senior care facilities, amusement arcades, restaurants, accommodations, hot spring bathing facilities, saunas and parking lots;

(11) Management of schools for training and educating sport instructors, producers of digital content (application software for digital technologies) and producers of computer software;

(12) Medical treatment services and beauty services;

(13) Production and sale of medical devices, medical products, sanitary products such as nursing care goods, and fitness equipment;

(14) Providing preventive care services and home care services in compliance with the nursing-care insurance law;

(15) Distribution of soft drinks, foods, alcoholic beverages, sports gear, clothing and computer game machines;

(16) Advertising agency, insurance agency, broadcasting business, travel agency and leisure business including tours, sports, etc.;

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(17) Purchase and sale of antiques;

(18) Sale, purchase, lease, blockage and management of real estate;

(19) Job placement;

(20) General lease business and finance business;

(21) Holding of and investment in securities;

(22) Acquisition and management of copyrights, trademark rights, design rights, performance rights and rights to produce records and videos related to each of the preceding items;

(23) Import, export and agency business related to each of the preceding items;

(24) Investment in the party in charge of the business specified in the preceding items; and

(25) Any and all businesses incidental to any of the preceding items.

Provisions Regarding Our Directors

Our Articles of Incorporation do not contain any provision concerning the power of a Director to vote at a meeting of our board of directors on proposals in which the Director is materially interested. However, in accordance with Article 369 Clause 2 of the Corporate Law, a Director is not empowered to participate in discussion or exercise his or her vote at a meeting of our board of directors on proposals in which that Director has a personal interest.

Our Articles of Incorporation do not contain any provision concerning the power of a Director to vote to itself, or to any one or more of the elected members of our board of directors, any remuneration (including retirement allowances or other benefit). However, in accordance with Article 361 of the Corporate Law, Directors are not empowered to determine their remuneration (including retirement allowances or other benefits), such determination being made by resolutions of a general meeting of our shareholders.

Our Articles of Incorporation do not contain any provision concerning the powers of the Directors to borrow on our behalf. In accordance with Article 362 of the Corporate Law, our board of directors is not restricted in any way in the exercise of its power to borrow on our behalf.

There is no provision under our Articles of Incorporation or under the Corporate Law which requires a Director to retire from our board of directors at a particular age. However, in accordance with Article 22 of our Articles of Incorporation, the term of office of each Director who has been duly elected at a general meeting of shareholders in accordance with Article 21 of our Articles of Incorporation shall expire upon conclusion of the ordinary general meeting of shareholders for the last fiscal period ending within one year after his or her assumption of office. Directors can be re-elected. All of our existing Directors have been elected by the resolution of the shareholders’ meeting held on June 29, 2010 and each has entered into contract with us on the same date.

Article 361 of the Corporate Law provides that, unless otherwise specified in the Articles of Incorporation, that remuneration for Directors, in respect of its amount (if the amount is fixed), calculation manner (if the amount is not fixed) or its substance (if the remuneration is not cash), is determined at a general meeting of shareholders of a company. Within the upper limit approved by the shareholders’ meeting, our board of directors will determine the amount of compensation for each director. The board of directors may, by its resolution, leave such decision to the discretion of the company’s Representative Director.

Article 362 Clause 4 Sub-clause 2 of the Corporate Law provides that the incurrence by a company of a significant loan from a third party should be approved by the company’s board of directors. Our Regulations of our board of directors have adopted this policy.

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There is no mandatory retirement age for our Directors under the Corporate Law or our Articles of Incorporation.

There is no requirement concerning the number of shares an individual must hold in order to qualify him or her as a Director of KONAMI under the Corporate Law or our Articles of Incorporation.

Article 28 of our Articles of Incorporation and Article 427 Clause 1 of the Corporate Law provide that we may enter into agreements with external directors which limit the liability of such directors provided for by Article 423 Clause 1 of the Corporate Law.

Holding of Our Shares by Foreign Investors

There are no limitations on the rights of non-residents or foreign shareholders to hold or exercise voting rights on our shares imposed by the laws of Japan or our Articles of Incorporation or our other constituent documents.

Rights of Our Shareholders

The following section contains certain information relating to the shares, including summaries of certain provisions of our Articles of Incorporation and Share Handling Regulations and of the Corporate Law relating to joint stock corporations.

General

Our authorized share capital consists of 450,000,000 shares in registered form with no par value. All issued shares are fully-paid and non-assessable. As of March 31, 2010, 133,460,664 of our shares were issued and outstanding and our stated capital was ¥47,399 million. Under the Corporate Law, the transfer of shares is effected by delivery of share certificates, and in order to assert rights as a shareholder against us, the transferee must have its name and address registered on our register of shareholders. However, by amendment of the Law Concerning Central Clearing of Bonds, Share Certificates and Other Securities in Japan (effective January 5, 2009), the share certificate system has been replaced by a book-entry transfer system administered by the Japan Securities Depositary Center, Inc ( “JASDEC”). Under the new system, Japanese listed companies cannot issue share certificates and those certificates previously issued are void. The shareholder’s ownership right that was represented by the share certificate is now recorded as an entry in an account that the shareholder is required to open with an Account Management Institution, i.e. a financial institution such as a bank, trust bank or a securities firm. A transfer of shares is effected by recording the transfer from the transferor’s account to the transferee’s account. We amend our register of shareholders (to, for example, reflect a transfer of shares) upon receipt of a General Shareholders Notification from JASDEC.

A registered shareholder is generally entitled to exercise its rights as shareholder, such as voting rights, and to receive dividends (if any). In order to exercise minority shareholder rights, a shareholder must make a request through their Account Management Institution for JASDEC to send us an Individual Shareholder Notification. Minority shareholder rights must be exercised within two weeks of delivery of the Individual Shareholder Notification. New shares issued with respect to registered shares, including those issued upon a stock split, automatically become registered shares.

The registered beneficial holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights such as the right to bring a derivative action, examine our accounting books and records or exercise appraisal rights. No temporary documents of title in respect of the shares will be issued. For this purpose, shareholders are required to file their names, addresses and seals with the transfer agent for the shares. Non-Japanese shareholders may file specimen signatures in lieu of seals. Non-resident shareholders are required to appoint a standing proxy in Japan or

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designate a mailing address in Japan. Japanese securities firms and commercial banks will customarily act as standing proxy and provide related services for standard fees. The transfer agent for our shares is The Sumitomo Trust & Banking Co., Ltd.

Our shares are freely transferable and there are no restrictions on transfer of the shares under the terms of the Corporate Law or our Articles of Incorporation.

Settlement transactions concerning shares listed on any of the stock exchanges in Japan normally are effected on the fourth dealing day after the transaction. Settlement in Japan is made through JASDEC as stated above.

As described above, non-resident shareholders are required to appoint a standing proxy in Japan or to provide a mailing address in Japan to receive notices from us. A local standing proxy can handle the registration of transfer and the application for reduced withholding tax. See Item 10.E “Taxation—Japanese Taxation”. Persons holding shares through Euroclear or Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) appoint the depositary of Euroclear or Clearstream, Luxembourg as proxy on a standing basis. Persons holding shares through Euroclear or Clearstream, Luxembourg may receive notice from us, such as notices of shareholders’ meeting and dividend distributions, and are eligible for reduced withholding tax in accordance with the operating procedures of Euroclear and Clearstream, Luxembourg.

The Duties and Liabilities of Directors

Article 355 of the Corporate Law requires directors to “perform their duties faithfully on behalf of the company”, thus subjecting directors to a duty of loyalty (chujitsu gimu). This duty is supplemented by other duties such as to avoid self-interested transactions and competition with the corporation as well as to abide by all laws and regulations, the articles of incorporation and resolutions of general meetings of shareholders.

Directors shall be held liable for damages caused by any of the following actions:

• declaring an unlawful dividend or distribution of money;

• offering undue benefit in relation to the exercise of shareholder’s rights;

• engaging in a transaction that conflicts with interests of the company; or

• performing any other actions that violate laws and regulations, including the general duties of directors described in the preceding paragraph or the articles of incorporation.

Shareholders’ Rights to Bring Actions Against Directors

The provisions of Articles 847 of the Corporate Law constitute the Japanese shareholder derivative action mechanism. The provisions allow any shareholder who has continuously held a share for the previous six months to demand of the corporation that it file a suit to protect the company and enforce the liability of directors. Specifically, it provides that derivative actions may be brought to “enforce the liability of directors” in situations including, but not limited to, that where directors engage in self-interested transactions, or violate any laws and regulations or the articles of incorporation. If a corporate auditor has not instituted an action for the company within sixty days, the plaintiff-shareholder may initiate a lawsuit as a derivative action. Article 847 Clause 5 of the Corporate Law provides an exception to the sixty day waiting period, however, for cases in which waiting sixty days might cause the company “irreparable damage.” In such cases, the shareholder may institute the action immediately. After having brought the action, the shareholder who has done so must make notification of litigation (notice under litigation proceedings) to the company “without delay.” If a company might suffer irreparable damage from an act of a director, a shareholder who has owned a share continuously for the previous six months may seek an injunction suspending the performance of the act by the director pursuant to Article 360 of the Corporate Law.

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Dividends

Following resolution of a general meeting of our shareholders, annual dividends are distributed to shareholders or pledgees of record as at March 31 in each year in proportion to the number of shares held by each shareholder or pledgee. Our Articles of Incorporation permit the payment of interim cash dividends (i.e. cash distributions made pursuant to Article 454 Clause 5 of the Corporate Law) to shareholders or pledgees of record as at September 30 in each year by resolution of our board of directors. Under our Articles of Incorporation, we are not obliged to pay any annual or interim dividends unclaimed for a period of three years after the date on which they are first made available by us. In addition, pursuant to Article 459 of the Corporate Law, our Articles of Incorporation permit our board of directors to determine the distribution of our reserves based on the Board’s resolution, as well as to establish an alternative record date.

Article 445 Clause 4 of the Corporate Law and Article 45 of the Corporate Computation Rule under the Corporate Law provide in effect that, in the event that we distribute profits by way of annual dividends or interim dividends, until the sum of our additional paid-in capital and our legal reserve is one-quarter of our capital we must have retained in our legal reserve and set aside as our legal reserve, an amount equal to at least one-tenth of any amount paid out by us as an appropriation of retained earnings. We may distribute profits by way of annual dividends or interim dividends out of the amount remaining (the “Distributable Amount” (Article 461 Clause 2 of the Corporate Law)) from the aggregate of retained capital and retained earnings at the end of the most recent fiscal year, adjusted for the amount of dividends distributed thereafter, “Retained Earnings” (Article 446 of the Corporate Law) and after adjustment, such as deduction of the book value of treasury stock, in accordance with laws and regulations. In our company, the ex-dividend date and the record date for dividends precede the date of determination of the amount of the dividends to be paid.

For information as to Japanese taxes on dividends, see Item 10.E “Taxation—Japanese Taxation” below.

Capital and Reserves

The entire amount of the issue price of new shares is required to be accounted for as stated capital stock, although we may account for an amount not exceeding one-half of such issue price as additional paid-in capital. We may at any time transfer the whole or any part of our additional paid-in capital and legal reserve to capital stock by resolution of a general meeting of our shareholders. The whole or any part of retained capital and retained earnings which are distributable as annual dividends may also be transferred to capital stock by resolution of a general meeting of our shareholders.

Stock Splits

Pursuant to Article 183 and 184 of the Corporate Law, we may at any time split the shares in issue into a greater number of shares by resolution of our board of directors. We must give public notice of the stock split, specifying a record date therefore, not less than two weeks prior to such record date. In conjunction with a stock split, we may increase the number of our authorized shares by the same ratio as the stock split ratio through a resolution of our board of directors.

Unit Share System

Under our Articles of Incorporation, the number of shares constituting one unit is 100 shares. Our board of directors may amend our Articles of Incorporation reducing the number of shares constituting one unit or eliminating the provision for the unit from our Articles of Incorporation although any amendment to our Articles of Incorporation increasing the number of shares constituting one unit requires a special resolution of a general meeting of shareholders. In any event, the number of shares constituting one unit shall not exceed 1,000 shares. Under the unit share system, each shareholder shall have one voting right for each unit of shares that he or she holds, and any number of shares less than one unit carries no voting rights. Holders of less than one unit of shares may at any time require us to purchase such shares at their then current market price as determined pursuant to the Corporate Law and to sell them additional shares to create a whole unit of 100 shares.

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General Meeting of Shareholders

The ordinary general meeting of our shareholders is usually held in June of each year in Tokyo. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary. Notice of a shareholders’ meeting stating the purpose thereof and a summary of the matters to be acted upon, together with our annual business reports including financial statements, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his or her mailing address or proxy in Japan) at least two weeks prior to the date set for the meeting. The record date for voting rights for an ordinary general meeting of shareholders is March 31.

Any shareholder holding at least 300 voting rights or one percent of the total number of voting rights for six months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a Representative Director at least eight weeks prior to the date of such meeting.

Voting Rights

A holder of shares constituting one or more whole units is entitled to one vote for each unit of shares, except that neither we, nor a corporate shareholder with not less than one-quarter of the total voting rights of which are directly or indirectly owned by us, has voting rights in respect of the shares held by us or such a corporate shareholder. Except as otherwise provided by law or by our Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the voting rights that are represented at the meeting. Our Articles of Incorporation provide that the quorum for election or removal of Directors and Corporate Auditors is one-third of the total number of voting rights. Our shareholders are not entitled to cumulative voting in the election of Directors. Our shareholders may cast their votes in writing. Shareholders may also exercise their voting rights through proxies, provided that the proxies are also holders of shares with voting rights and are sole.

Our Articles of Incorporation provide that, in order to amend our Articles of Incorporation and in certain other instances, including any reduction of the capital stock, dissolution, merger or consolidation, exchange of shares for shares of an existing company, transfer of the whole or an important part of the business, taking over the whole of the business of any other company or any offering of new shares at a “specially favorable” price (or any offering of stock acquisition rights or bonds with stock acquisition rights with “specially favorable” conditions) to persons other than shareholders, the quorum is at least one-third of the total number of voting rights and approval by at least two-thirds of the voting rights represented at the general meeting of shareholders is required.

The voting rights of holders of ADSs are exercised by the depositary based on instructions from those holders. With respect to voting by holders of ADRs, please see Item 12.D of our registration statement on Form 20-F filed with the Securities and Exchange Commission on September 20, 2002.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all taxes, liquidation expenses and debts will be distributed among the shareholders in proportion to the respective number of shares which they hold.

Issue of Additional Shares and Pre-emptive Rights

Holders of shares have no pre-emptive rights. Authorized but unissued shares may be issued at such time and upon such terms as our board of directors determines, subject to the limitations as to the offering of new shares at a “specially favorable” price mentioned in “Rights of Our Shareholders—Voting Rights” above. Our board of directors may, however, determine that shareholders be given subscription rights to new shares, in which case they must be given on uniform terms to all shareholders as of a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom such rights are given must also be given at least two weeks’ prior notice of the date on which such rights expire.

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Stock Subscription Rights

We may grant stock subscription rights to persons other than shareholders, as well as shareholders pursuant to a resolution of our board of directors. In the case of granting stock subscription rights to persons other than our shareholders under “specially favorable” conditions, a special resolution of the general meeting of shareholders is required. Upon exercise of such stock subscription rights, we shall issue new shares or transfer shares which are held by us as treasury stock to the holder of the stock subscription rights.

Dilution

It is possible that, in the future, market conditions and other factors might make rights issues to shareholders desirable at a subscription price substantially below their then current market price, in which case shareholders who do not exercise and are unable otherwise to realize the full value of their subscription rights will suffer dilution of their equity interest in us.

Report to Shareholders

We furnish to our shareholders notices of shareholders’ meetings, summaries for each such meeting of the matters to be acted upon, annual business reports, including financial statements, as mentioned above, and notices of resolutions adopted at the shareholders’ meetings, all of which are in Japanese.

In addition, we intend, upon request, to furnish to our shareholders with addresses outside Japan, through their resident proxies in Japan, copies of our annual report in English, containing annual audited consolidated financial statements.

Record Date

March 31 is the record date for the payment of annual dividends and September 30 is the record date for the payment of interim dividends. Shareholders appearing on our shareholders’ register at the close of business on March 31 of each year are entitled to vote at the ordinary general meeting of shareholders with respect to the fiscal year ending on such date. In addition, by resolution of our board of directors and after giving at least two weeks’ prior public notice, we may at any time set a record date to determine the shareholders who are entitled to interim dividends and certain other rights pertaining to the shares.

Repurchase of Our Shares

We may acquire our shares (i) by purchasing them on any Japanese stock exchange on which our shares are listed or by way of tender offer (pursuant to an ordinary resolution of any general meeting of shareholders or a resolution of our board of directors), (ii) from a specific shareholder other than our subsidiary (pursuant to a special resolution of a general meeting of shareholders) or (iii) from our subsidiary (pursuant to a resolution of our board of directors). In the case of (ii) above, any other shareholder may make a request directly to a Representative Director in writing, five days prior to the relevant shareholders’ meeting that we acquire our shares held by such other shareholder.

Any such acquisition of our shares must satisfy certain requirements, inter alia, that the acquisition cost may not exceed the Distributable Amount, described in “Dividends” above, as of the effective date of the acquisition. However, if it is anticipated that, as a result of the acquisition, the Distributable Amount, as stated on the balance sheet at the end of the immediately following fiscal year, will be less than zero, we may not purchase such shares. We may hold our shares acquired in compliance with the provisions of the Corporate Law (the “treasury stock”) and generally may cancel or dispose of such shares by resolutions of our board of directors subject to the limitation as to the disposal of such treasury stock at a specially favorable price mentioned in “Voting Rights” above.

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Disposal by Us of Shares Held by Unknown Shareholders

We are not required to send a notice to a shareholder if a notice to such shareholder fails to arrive at the registered address of the shareholder in the register of shareholders, or at the address otherwise notified to us, continuously for five years or more.

In addition, we may sell by way of auction or otherwise dispose of shares for which the location of the shareholder is unknown. Generally, if (i) notices to a shareholder fail to arrive continuously for five years or more at the shareholder’s registered address in the register of shareholders or at the address otherwise notified to us and (ii) the shareholder fails to receive dividends on the shares continuously for five years or more at the address registered in the register of shareholders or at the address otherwise notified to us, we may sell by way of auction or otherwise dispose of the shareholder’s shares (including repurchase by us) by a resolution of our board of directors after giving at least three months’ prior public and individual notice and shall hold or deposit the proceeds of such sale or disposal of shares for the shareholder, the location of which is unknown.

Japanese Foreign Exchange and Certain Other Regulations

The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the cabinet orders and ministerial ordinances thereunder (collectively, the “Foreign Exchange Regulations”) govern certain matters relating to the acquisition and holding of shares by “non-residents of Japan” and “foreign investors”. The Foreign Exchange Regulations currently in effect do not affect the purchase, sale or exchange of shares provided such transactions take place outside Japan between non-residents of Japan.

“Non-residents of Japan” is defined in the Foreign Exchange Regulations to mean individuals who are not residents of Japan and corporations whose principal offices are not located in Japan. Generally, branches and other offices located within Japan of non-resident corporations are regarded as residents of Japan, and branches and other offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.

“Foreign investors” is defined in the Foreign Exchange Regulations to mean (i) individuals not resident in Japan, (ii) corporations organized under the laws of foreign countries or whose principal offices are located outside Japan, or (iii) corporations organized in Japan not less than 50% of the total voting rights of which are held, directly or indirectly, by individuals and/or corporations falling within (i) and/or (ii) above or (iv) corporations for which a majority of the directors or other officers (or directors or other officers having the power of representation) are individuals falling within (i).

Acquisition of Shares

In general, the acquisition of shares of stock of a Japanese company listed on any Japanese stock exchange or traded in any over-the-counter market in Japan by a non-resident of Japan from a resident of Japan may be made without any restriction, except as mentioned below. However, a report by the proxy who is a resident of Japan to the Minister of Finance must be filed following the transfer of shares to the non-resident of Japan within 20 days from the date of such acquisition, unless the consideration for such transfer is ¥100 million or less. In addition to the above, the Foreign Exchange Regulations give the Minister of Finance the power to require a prior approval for any such acquisition in certain exceptional circumstances.

If a foreign investor acquires shares of a Japanese company listed on a Japanese stock exchange or traded on an over-the-counter market in Japan and as a result of such acquisition (regardless of the person from or through whom it acquires the shares), aggregated with existing holdings (if any), the foreign investor directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor is, in general, required to report such acquisition to the Minister of Finance and any other competent Ministers no later than the 15 day of the month following the month in which the date of such acquisition falls. In certain exceptional cases, a prior notification is required in respect of such an acquisition.

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Dividends and Proceeds of Sale

Under the Foreign Exchange Regulations, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of shares by non-resident shareholders by way of a stock split is not subject to any notification or reporting requirements. Under the terms of the deposit agreement pursuant to which our ADSs are issued, the depositary is required, to the extent that in its judgment it can convert yen on a reasonable basis into dollars and transfer the resulting dollars to the United States, to convert all cash dividends that it receives in respect of deposited shares into dollars and to distribute the amount received (after deduction of applicable withholding taxes) to the holder of ADSs. For additional information regarding our ADSs, please see Item 12.D of our registration statement on Form 20-F filed with the Securities and Exchange Commission on September 20, 2002.

Reporting of Substantial Shareholdings

The Financial Instruments and Exchange Law of Japan and regulations thereunder generally requires any person who has become a beneficial holder (including certain sole or joint holders) of more than 5% of the total issued voting shares of a company listed on any Japanese stock exchange or traded on the over-the-counter market in Japan to file with the Director-General of the relevant local Finance Bureau, within five business days, a report concerning such shareholdings. A similar report must also be made (with certain exceptions) if the percentage of such holding subsequently increases or decreases by 1% or more. Copies of any such report must also be furnished to the issuer of such shares and to all Japanese stock exchanges on which the shares are listed or the Japan Securities Dealers Association in the case of over-the-counter registered shares. For this purpose, shares issuable upon exercise of stock acquisition rights are taken into account in determining both the number of shares held by such holder and the issuer’s total issued share capital.

Daily Price Fluctuation Limits under Japanese Stock Exchange Rules

Share prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each share, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his shares at such price on a particular trading day, or at all.

On July 23, 2010, the closing price of our shares on the Tokyo Stock Exchange was ¥1,358 per share. The following table shows the daily price limit for a stock on the Tokyo Stock Exchange with a closing price of between ¥1,500 and ¥2,000 per share, as well as the daily price limit if our per share price were to rise to between ¥2,000 and ¥3,000 or ¥3,000 and ¥5,000, or fall to between ¥1,000 and ¥1,500. Other daily price limits would apply if our per share price moved to other ranges.

Selected Daily Price Limits

Previous Day’s Closing Price or Special Quote				Maximum Daily Price Movement
Over	¥1,000	Less than	¥1,500	¥300
Over	1,500	Less than	2,000	400
Over	2,000	Less than	3,000	500
Over	3,000	Less than	5,000	700

For a history of the trading price of our shares on the Tokyo Stock Exchange, see Item 9.A of this annual report.

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Takeover Defense Measures

“The Countermeasures to any large-scale acquisition of shares in the Company (takeover defense measures)” (the “Current Plan”) was approved and subsequently introduced upon partial amendments at a general shareholders’ meeting held on June 29, 2010. The outline of the Current Plan is as follows:

1. Purpose of Introducing the Current Plan

In the recent years, a trend has emerged in the Japanese capital markets of sudden hostile acquisitions of large quantities of shares, conducted without due discussion and agreement with management of the target company. There is a possibility that such kind of large-scale acquisition may be attempted with respect to the Company shares.

The purpose of the Current Plan is to enable shareholders of the Company to make an appropriate decision on whether to accept a large-scale acquisition of the Company shares, and to deter actions which would have an adverse impact on the Company’s corporate value and the common interests of the shareholders.

2. Outline of the Current Plan

The Current Plan is such that, in order to ensure that shareholders have necessary and sufficient information and time to make an appropriate decision in the event that a large-scale acquisition of the Company’s shares is attempted, the Company’s board of directors established the Large-Scale Acquisition Rule (the “Rule”). The Rule requires submission of information on the large-scale acquisition by a large-scale acquirer and secures time for evaluation and investigation thereof by the Company’s board of directors. It seeks that the large-scale acquirer comply with the Rule, sets out the response policy for cases of both compliance and non-compliance, and provides for implementation, if necessary, of appropriate countermeasures to protect the Company’s corporate value and the common interests of shareholders (such as gratis allotment of Stock Acquisition Rights with discriminative exercise conditions).

The Current Plan was scheduled to expire at the conclusion of the 38th general shareholders’ meeting to be held on June 29, 2010. In order to ensure and enhance the corporate value of our company and the common interests of shareholders, we have continued to review the Current Plan following its introduction, in light of recent developments in takeover defense measures. As a result of this review, our board of directors has resolved at a meeting held May 13, 2010 to revise certain elements of the Current Plan and renew it, subject to the approval of its shareholders at the 38th general shareholders’ meeting held on June 29, 2010.

C.    Material Contracts.

We have not entered into any material contract, other than in the ordinary course of business, within the two years immediately preceding the date of this document or any contract, other than in the ordinary course of business, which contains any provision under which we have any obligation or entitlement which is material to us as at the date of this document.

D.    Exchange Controls.

There are no laws, decrees, regulations or other legislation which affect our ability to import or export capital for our use or our ability to pay dividends to nonresident holders of our shares.

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E.    Taxation.

United States Federal Income Taxation

This section describes the material United States federal income tax consequences of owning shares or ADSs. It applies to you only if you are a U.S. holder, as defined below, and you hold your shares or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:

• a dealer in securities,

• a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings,

• a tax-exempt organization,

• a life insurance company,

• a person liable for alternative minimum tax,

• a person that actually or constructively owns 10% or more of our voting stock,

• a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, or

• a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the Convention Between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the “Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of JPMorgan Chase Bank as Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are:

• a citizen or resident of the United States,

• a domestic corporation,

• an estate whose income is subject to United States federal income tax regardless of its source, or

• a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

You should consult your own tax adviser regarding the United States federal, state and local and the Japanese and other tax consequences of owning and disposing of shares and ADSs in your particular circumstances.

In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income tax.

Taxation of Dividends

Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, if you are a U.S. holder, the gross amount of any dividend paid by us out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be subject to U.S. federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you in taxable

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years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSs generally will be qualified dividend income.

You must include any Japanese tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Japanese yen payments made, determined at the spot Japanese yen/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain.

Subject to certain limitations, the Japanese tax withheld in accordance with the Treaty and paid over to Japan will be creditable against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to you under Japanese law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. For foreign tax credit purposes, dividends will be income from sources outside the United States and will, depending on your circumstances, generally be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you.

Taxation of Capital Gains

Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Passive Foreign Investment Company Rules

We believe that shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is subject to change because it is a factual determination that is made annually based on our asset values, including the value of our intangibles as evidenced by the fair market value of our shares or ADSs, and our gross income, each of which is itself subject to change. Sustained trading value of our shares below their levels of early 2009 may result in our shares and ADSs being treated as stock of a PFIC for United States federal income tax purposes.

In general, we will be a PFIC with respect to you if for any taxable year in which you held our ADSs or shares:

• at least 75% of our gross income for the taxable year is passive income or

• at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income.

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Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.

If we are treated as a PFIC, and you are a U.S. holder that did not make a mark-to-market election, as described below, you will be subject to special rules with respect to:

• any gain you realize on the sale or other disposition of your shares or ADSs and

• any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the shares or ADSs).

Under these rules:

• the gain or excess distribution will be allocated ratably over your holding period for the shares or ADSs,

• the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income,

• the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year, and

• the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year.

Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.

If you own shares or ADSs in a PFIC that are treated as marketable stock, you may make a mark-to-market election. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your shares or ADSs at the end of the taxable year over your adjusted basis in your shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the shares or ADSs will be adjusted to reflect any such income or loss amounts.

In addition, notwithstanding any election you make with regard to the shares or ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC either in the taxable year of the distribution or the preceding taxable year. Moreover, your shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs, even if we are not currently a PFIC. For purposes of this rule, if you make a mark-to-market election with respect to your shares or ADSs, you will be treated as having a new holding period in your shares or ADSs beginning on the first day of the first taxable year beginning after the last taxable year for which the mark-to-market election applies. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income.

If you own shares or ADSs during any year that we are a PFIC, you must file Internal Revenue Service Form 8621.

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Japanese Taxation

The following is a summary of the principal Japanese tax consequences to owners of our shares or ADSs who are non-resident individuals or non-Japanese corporations without a permanent establishment in Japan to which income from our shares is attributable. The tax treatment is subject to possible changes in the applicable Japanese laws or double taxation conventions occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor. Potential investors should consult their own tax advisers as to:

• the overall tax consequences of the acquisition, ownership and disposition of shares or ADSs, including specifically the tax consequences under Japanese law;

• the laws of the jurisdiction of which they are resident; and

• any tax treaty between Japan and their country of residence.

Generally, a non-resident holder of shares or ADSs is subject to Japanese withholding tax on dividends paid by us. In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by us to non-resident holders is 20%. Except for any individual shareholder who holds 5% or more of the total outstanding shares, the aforementioned 20% withholding tax rate is reduced pursuant to the Special Taxation Measures Law of Japan to (i) 7% for dividends due and payable on or before December 31, 2011, and (ii) 15% for dividends due and payable on or after January 1, 2012. Japan has income tax treaties, conventions or agreements whereby this withholding tax rate is reduced to, in most cases, 15% for portfolio investors, with, among other countries, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.

The Convention between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, which we refer to as the Tax Convention, established the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a United States resident, with the proviso that this does not apply if the beneficial owner of dividends is a United States resident that carries on business through a permanent establishment in Japan and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. Under the Tax Convention, the maximum withholding rates for U.S. shareholders and U.S. holders of ADSs are limited to (a) 5% of the gross amount of the dividends if the recipient is a corporation which holds more than 10% of voting shares of the paying corporation, or (b) 10% of the gross amount of the dividends otherwise.

• Notwithstanding the above, no withholding tax shall be imposed if the recipient is, for example:

• a corporation which has continued to hold more than 50% of the voting shares of the paying corporation for a period of 12 months ending on the date on which entitlement to the dividends is determined, and that either (i) whose shares are listed or registered on a certified stock exchange and traded thereon; or (ii) the competent authority determines that the purpose or business of which is not focused on achieving the benefit of the Tax Convention, and which has continued to hold more than 50% of the voting shares of the paying corporation for a period of 12 months ended on the last day of the financial year of such paying corporation; or

• a pension fund that is a resident of U.S, provided that such dividends are not delivered from the carrying on of a business by such pension fund.

Non-resident holders who are entitled to a reduced rate of Japanese withholding tax on payments of dividends on the shares by us are required to submit an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends in advance through us to the relevant tax authority before the payment of dividends. A standing proxy for non-resident holders may provide such application service. With respect to ADSs, this reduced rate is applicable if the depositary or its agent submits two Application Forms for Income Tax Convention (one prior to payment of dividends, the other within eight months

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after our fiscal year-end). To claim this reduced rate, a non-resident holder of ADSs will be required to file proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the depositary. Non-resident holders who do not submit an application in advance will generally be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate of an applicable tax treaty.

Gains derived from the sale of shares or ADSs outside Japan, or from the sale of shares within Japan by a non-resident holder, generally are not subject to Japanese income or corporation taxes.

Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares or ADSs as a legatee, heir or donee, even if the individual is not a Japanese resident.

F.    Dividends and Paying Agents.

Not applicable.

G.    Statement by Experts.

Not applicable.

H.    Documents on Display.

We file periodic reports and other information with the Securities and Exchange Commission. You may read and copy any document that we file with the SEC at the SEC’s public reference room at 100F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference room. The Securities and Exchange Commission also maintains a web site at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Some of this information may also be found on our website at www.konami.com. Our website is not part of this annual report.

As a foreign private issuer, we are exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing and content of proxy statements to shareholders.

I.    Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk primarily from changes in foreign currency exchange rates, interest rates and equity prices. Our earnings and cash flows may be negatively impacted by fluctuating interest and foreign exchange rates as well as equity prices associated with assets, liabilities or anticipated transactions which may affect our operating results and financial condition. We seek to minimize market risk through our regular operating and financing activities and, following the evaluation of the exposures, selectively enter into derivative hedging instruments. Foreign exchange forward contracts are used by us primarily to reduce foreign exchange currency risks. We do not hold derivative instruments for speculative purposes. Also, we do not hold or issue financial instruments for trading purposes.

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Foreign currency exchange rate risk

Transaction risk

A portion of our business is conducted in currencies other than yen, most significantly the U.S. dollar and the Euro. For the fiscal year ended March 31, 2010, our U.S. dollar and Euro denominated sales comprised 13.79% and 10.24% of total revenues, respectively. While sales denominated in U.S. dollars and the Euro are, to a significant extent, offset by U.S. dollar and Euro denominated costs, we generally have had significant U.S. dollar and Euro dominated monetary assets. As of March 31, 2010 we had net U.S. dollar dominated monetary assets of approximately $1,096 million and Euro denominated monetary assets of approximately €42 million. To the extent that there are any open foreign currency positions, we are exposed to the risk of foreign currency fluctuations. Any gains and losses that result are recorded in our results of operations for the period. The foreign exchange gain (loss), net represents the differences between the value of monetary assets and liabilities when they are originated at exchange rates current when a purchase or sale occurs and their value at the prevailing exchange rate when they are settled or translated at year-end. Foreign currency-denominated monetary assets may include bank deposits, trade receivables and other receivables and monetary liabilities may include trade and notes payable, borrowings and debt.

Translation risk

Our reporting currency is the Japanese yen. We have assets and liabilities outside Japan, primarily in the United States and Europe, which are subject to fluctuations in foreign currency exchange rates. We prepare financial statements of our foreign operations in their functional currencies prior to consolidation in our financial statements. As a result, changes in the value of the yen relative to the functional currencies of the underlying operations create translation gains and losses, which are recorded outside of our statement of income in other comprehensive income until we dispose of or liquidate the relevant foreign operation.

Foreign currency derivatives

We enter into foreign exchange forward contracts to manage foreign exchange exposure associated with short-term movements in exchange rates applicable to our payables commitments and receivables that we expect to be paid that are denominated in foreign currencies. Because the counterparties to these contracts are limited to major international financial institutions, we do not anticipate any losses arising from credit risk. Our Finance Group executes and controls these contracts. Foreign exchange forward contracts are presented below by the notional balances with weighted average exchange rates. All of these forward contracts are expected to mature in three to six months.

Foreign exchange forward contracts at March 31, 2010

	Millions of Yen
	Contract amount		Fair value		Gain (loss)		Weighted average exchange rates
Foreign exchange forward contracts
Selling U.S. Dollar		—		—		—	—
Selling EURO		—		—		—	—
Total	¥	—	¥	—	¥	—

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Foreign exchange forward contracts at March 31, 2009

	Millions of Yen
	Contract amount		Fair value		Gain (loss)			Weighted average exchange rates
Foreign exchange forward contracts
Selling U.S. Dollar	¥	938	¥	981	¥	(43	)	93.82
Selling EURO		—		—		—		—
Total	¥	938	¥	981	¥	(43	)

Interest rate risk

The tables below present the principal cash flows and related weighted-average interest rates for our long-term loan debt obligations by expected maturity dates and the expected fair value as of March 31, 2010 and 2009 respectively. All of our long-term debt obligations have fixed interest rates.

Interest rate risk at March 31, 2010

	Expected maturity dates
Type of debt and average interest rates	2011		2012		2013		2014		2015	Thereafter	Total 3/31/10		Fair Value 3/31/10
	(in millions of yen)
Unsecured bank loans (1.01%)	¥	204		—		—		—	—	—	¥	204	¥	201
Unsecured bonds (1.56%)		—	¥	5,000	¥	5,000	¥	5,000	—	—	¥	15,000	¥	14,902
Total	¥	204	¥	5,000	¥	5,000	¥	5,000	—	—	¥	15,204	¥	15,103

Interest rate risk at March 31, 2009

	Expected maturity dates
Type of debt and average interest rates	2010		2011		2012		2013		2014		Thereafter	Total 3/31/09		Fair Value 3/31/09
	(in millions of yen)
Unsecured bank loans (0.87-1.03%)	¥	592	¥	204		—		—		—	—	¥	796	¥	778
Unsecured bonds (1.62%)		—		—	¥	5,000	¥	5,000	¥	5,000	—	¥	15,000	¥	14,540
Total	¥	592	¥	204	¥	5,000	¥	5,000	¥	5,000	—	¥	15,796	¥	15,318

Investment price risk

The fair value of certain of our investments, primarily in marketable equity securities, exposes us to equity price risks. In general, we have invested in highly-liquid and low-risk instruments, which are not held for trading purposes. These investments are subject to changes in the market prices of the securities. If the fair value of these securities were to change by 10%, the impact on the carrying amount of those securities as of March 31, 2009 would be ¥22 million. We had no open equity derivative positions from April 1, 2009 to March 31, 2010.

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The following tables below provide information about our market sensitive marketable securities as of March 31, 2010 and 2009, respectively:

	Millions of Yen								Thousands of U.S. Dollars
	March 31, 2010								March 31, 2010
	Cost		Gross unrealized gains		Gross unrealized (losses)		Fair value		Cost		Gross unrealized gains		Gross unrealized (losses)		Fair value
Available-for-sale:
Marketable equity securities	¥	224	¥	2	¥	—	¥	226	$	2,408	$	21	$	—	$	2,429
Other securities		—		—		—		—		—		—		—		—
Total	¥	224	¥	2	¥	—	¥	226	$	2,408	$	21	$	—	$	2,429

	Millions of Yen									Thousands of U.S. Dollars
	March 31, 2009									March 31, 2009
	Cost		Gross unrealized gains		Gross unrealized (losses)			Fair value		Cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
Available-for-sale:
Marketable equity securities	¥	544	¥	17	¥	(1	)	¥	560	$	5,538	$	173	$	(10	)	$	5,701
Other securities		—		—		—			—		—		—		—			—
Total	¥	544	¥	17	¥	(1	)	¥	560	$	5,538	$	173	$	(10	)	$	5,701

Credit Risk

As of March 31, 2010, we did not have any significant concentration of business transacted with an individual counterparty or group of counterparties that could, if suddenly eliminated, severely impact our operations. Moreover our derivative financial instruments are executed with credit worthy financial institutions, and our management believes there is little risk of default by these parties.

Commodity price risk

As of March 31, 2010, we had no open commodity derivative positions.

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Item 12. Description of Securities Other Than Equity Securities

Item 12D. 3. Fees payable by ADR Holders

The following table shows the fees and charges that a holder of our ADR may have to pay, either directly or indirectly:

Type of Services:	Amount of Fee (USD)
Deposit or substitution the underlying shares (including execution and delivery of Receipts)	US5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered
Receipt or distribution dividends	USD0.02 or less per ADS
Sale or exercise of rights	USD5.00 for each 100 ADSs (or portion thereof)
Withdrawal of underlying security (including the surrender of Receipts)	US5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered
Transfer, split or grouping of receipts	USD1.50 per ADS
General depositary services, including any annually charged fee.	USD0.02 per ADS (or portion thereof) not more than once each calendar year and payable at the sole discretion of the depositary by billing Holders or by deducting such charge from one or more cash dividends or other cash distributions
Taxes and other governmental charges	As applicable
Such cable, telex and facsimile transmission expenses as are expressly provided in the Deposit Agreement	As applicable
Such expenses as are incurred by the Depositary in the conversion of Foreign Currency	As applicable

Item 12D. 4. Fees paid to KONAMI CORPORATION by the Depositary

JPMorgan Chase Bank N.A., as Depositary, has agreed to reimburse KONAMI CORPORATION for expenses incurred in relation to the maintenance of KONAMI CORPORATION’s ADR program, up to a total of US$110,000 for the annual expenses associated with Investor Relations and NYSE annual fees, including investor relations expenses and stock exchange application and listing fees. Furthermore, from April 1, 2009 to March 31, 2010, the Depositary has waived a total of $40,000 in fees associated with the administration of the ADR program and administrative fees for routine corporate actions such as, among others, proxy process fees and cash distribution process fees, in addition to their standard fees for providing investor relations information services.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

Item 15. Controls and Procedures.

Our Disclosure Committee is charged with the maintenance and evaluation of our disclosure controls and procedures. As of March 31, 2010, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, and the Disclosure Committee, of the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, these officers concluded that, as of March 31, 2010, the disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

The management of KONAMI is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management of KONAMI assessed the effectiveness of internal control over financial reporting as of March 31, 2010. In making this assessment, the management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (the COSO criteria).

Based on its assessment, the management concluded that, as of March 31, 2010, our internal control over financial reporting was effective.

Our independent registered public accounting firm, KPMG AZSA LLC, has issued an audit report on our internal control over financial reporting. This report appears beginning of our consolidated financial statements in this annual report.

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Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert.

Our Board of Corporate Auditors has determined that we do not have an “audit committee financial expert” as defined in Item 16A of Form 20-F serving on our Board of Corporate Auditors. We believe that the combined knowledge, skills and experience of the members of our Board of Corporate Auditors enables them, as a group, to act effectively in the fulfillment of their tasks and responsibilities, including those under the Sarbanes-Oxley Act of 2002, and that our Board of Corporate Auditors has functioned and can continue to function effectively without appointing a member who would qualify as an audit committee financial expert under Item 16A. In addition, the Corporate Auditors have the power and authority to engage outside experts as they deem appropriate to provide them with advice on matters related to their responsibilities.

Item 16B. Code of Ethics.

We have adopted a code of ethics, the “Konami Group Code of Business Conduct and Ethics” which applies to all of our personnel, including our chief executive officer, chief financial officer, corporate auditors, corporate officers, and employees, whether working for KONAMI CORPORATION or another company in the Konami Group. The text of the Konami Group Code of Business Conduct and Ethics is attached as exhibit 11.1 to this annual report.

Item 16C. Principal Accountant Fees and Services.

Fees Paid to the Independent Auditor

The board of directors engaged KPMG AZSA LLC to perform an annual audit of our financial statements in the years ended March 31, 2009 and 2010. The following table presents information concerning fees paid to KPMG AZSA LLC and KPMG international member firms (“KPMG”) in those years.

	Year ended March 31,
	(in millions)
	2009		2010
Audit fees (1)	¥	526	¥	493
Tax fees (2)		253		235
All other fees (3)		24		12
Total	¥	803	¥	740

(1) These are fees for professional services for the audit of our annual financial statements and services that are normally provided in connection with statutory and regulatory filings.

(2) These are fees for professional tax services performed including tax compliance, tax advice and tax planning.

(3) These are fees for all other services except those separately defined above.

Pre-Approval of Services Provided by KPMG

Our Corporate Auditors have adopted policies and procedures for pre-approving all non-audit work performed by KPMG. Specifically, the policies and procedures prohibit KPMG from performing any services for KONAMI CORPORATION or its subsidiaries without the prior approval of our Corporate Auditors.

121

All of the services provided by KPMG in the year ended March 31, 2010 were approved by our Corporate Auditors pursuant to the approval policies described above, and none of such services were approved pursuant to the procedures described in Rule 2-01(c)(7)(i)(C) of Regulation S-X, which waives the general requirement for pre-approval in certain circumstances.

Item 16D. Exemption from the Listing Standards for Audit Committees.

With respect to the requirements of Rule 10A-3 under the Securities Exchange Act of 1934 relating to listed company audit committees, which apply to us through Section 303A.06 of the New York Stock Exchange’s Listed Company Manual, we rely on an exemption provided by paragraph (c)(3) of that Rule available to foreign private issuers with boards of corporate auditors meeting certain requirements. For a New York Stock Exchange-listed Japanese company with a board of corporate auditors, the requirements for relying on paragraph (c)(3) of Rule 10A-3 are as follows:

• The board of corporate auditors must be established, and its members must be selected, pursuant to Japanese law expressly requiring such a board for Japanese companies that elect to have a corporate governance system with corporate auditors.

• Japanese law must and does require the board of corporate auditors to be separate from the board of directors.

• None of the members of the board of corporate auditors may be elected by management, and none of the listed company’s executive officers may be a member of the board of corporate auditors.

• Japanese law must and does set forth standards for the independence of the members of the board of corporate auditors from the listed company or its management.

• The board of corporate auditors, in accordance with Japanese law or the registrant’s governing documents, must be responsible, to the extent permitted by Japanese law, for the appointment, retention and oversight of the work of any registered public accounting firm engaged (including, to the extent permitted by Japanese law, the resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the listed company, including its principal accountant which audits its consolidated financial statements included in its annual reports on Form 20-F.

• To the extent permitted by Japanese law:

• the board of corporate auditors must establish procedures for (i) the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

• the board of corporate auditors must have the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties; and

• the listed company must provide for appropriate funding, as determined by its board of corporate auditors, for payment of (i) compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us, (ii) compensation to any advisers employed by the board of corporate auditors, and (iii) ordinary administrative expenses of the board of corporate auditors that are necessary or appropriate in carrying out its duties.

In our assessment, our Board of Corporate Auditors, which meets the requirements for reliance on the exemption in paragraph (c)(3) of Rule 10A-3 described above, is not materially less effective than an audit committee meeting all the requirements of paragraph (b) of Rule 10A-3 (without relying on any exemption provided by that Rule) at acting independently of management and performing the functions of an audit committee as contemplated therein.

122

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

The following table sets forth, for each of the months indicated, the total number of shares purchased by us and any affiliated purchaser, the average price paid per share, the number of shares purchased as part of a publicly announced repurchase plan or program, and the maximum number of shares that may yet be purchased under the plans.

Period	(a) Total Number  of Shares Purchased (shares)	(b) Average Price Paid per Share (yen)	(c) Total Number of Shares  Purchased as Part of Publicly Announced Plans	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans
April 1 to April 30, 2009	60	1,540.00	—	—
May 1 to May 31, 2009	292	1,552.54	—	—
June 1 to June 30, 2009	131	1,808.62	—	—
July 1 to July 31, 2009	204	1,764.40	—	—
August 1 to August 31, 2009	116	1,810.36	—	—
September 1 to September 30, 2009	73	1,767.00	—	—
October 1 to October 31, 2009	67	1,770.82	—	—
November 1 to November 30, 2009	98	1,584.94	—	—
December 1 to December 31, 2009	220	1,544.16	—	—
January 1, to January 31, 2010	208	1,697.96	—	—
February 1, to February 28, 2010	92	1,510.46	—	—
March 1 to March 31, 2010	123	1,730.61	—	—

Notes:

Total number of purchase shares shown includes the purchase of fractional shares from fractional share owners, pursuant to the Japanese Commercial Code. For an explanation of the right of such shareholders, see “Right of our Shareholders—Unit shares System” under Item 10.B of this Annual Report.

Item 16F. Change in Registrant’s Certifying Accountant.

Not Applicable.

Item 16G. Corporate Governance.

Companies listed on the New York Stock Exchange (hereinafter called the NYSE) must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, listed companies that are foreign private issuers, such as KONAMI CORPORATION, are permitted to follow home country practice in lieu of certain provisions of Section 303A

123

The following table shows the significant differences between the corporate governance practices followed by U.S. listed companies under Section 303A of the NYSE Listed Company Manual and those followed by KONAMI.

Corporate Governance Practices Followed by NYSE-listed U.S. Companies	Corporate Governance Practices Followed by the Company
A NYSE-listed U.S. company must have a majority of directors meeting the independence requirements under Section 303A of the NYSE Listed Company Manual.	Under Japan’s Corporate Law and relevant regulations (collectively, the “Corporate Law”), large listed companies may elect to structure their corporate governance system to be either that of a company with a Board of Statutory Auditors and an independent auditing firm (kaikei-kansanin), or that of a company with specified committees. The Company is currently a company with a Board of Statutory Auditors and an independent auditing firm (i.e. the “system of “Board of Statutory Auditors”” of corporate governance). For large listed companies under the system of “Board of Statutory Auditors”, including the Company, the Corporate Law has no independence requirement with respect to directors. The tasks of overseeing management and auditing the Company’s financial statements are assigned to the corporate auditors, who are separate from the company’s management. Companies under the system of “Board of Statutory Auditor”, including the Company, are required to have at least three corporate auditors and the majority have to be “outside” corporate auditors must meet independence requirements under the Corporate Law. An outside corporate auditor is defined as a corporate auditor who has not served as a director, accounting consultant (kaikei sanyo), executive officer (shikkoyaku), manager or any other employee of the company or any of its subsidiaries in previous years prior to the appointment. Currently, the Company has four corporate auditors and all of them are outside corporate auditors.
A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors, and the audit committee must have at least three members.	The Company employs the system of “Board of Statutory Auditors” as described above. Under this system, the Board of Statutory Auditors is a legally separate and independent body from the board of directors. The function of the Board of Statutory Auditors is similar to that of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and review and express opinion on the method of auditing by the company’s accounting firm and on such accounting firm’s audit reports, for the protection of the company’s shareholders.

124

Corporate Governance Practices Followed by NYSE-listed U.S. Companies	Corporate Governance Practices Followed by the Company
	Under the Corporate Law, the Company is required to have at least three corporate auditors. Currently, the Company has four corporate auditors. Each corporate auditor elected before the date of the ordinary meeting of shareholders of the Company relating to the fiscal year ended March 31, 2003 has a three-year term, while each corporate auditor elected on or after that date has a four-year term. In contrast, the term of each director of the Company is one year. With respect to the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees, the Company relies on an exemption under that rule which is available to foreign private issuers with boards of corporate auditors meeting certain criteria.
A NYSE-listed U.S. company must have a nominating/corporate governance committee composed entirely of independent directors.	The Company’s directors are elected at a meeting of shareholders. Its board of directors does not have the power to fill vacancies thereon. The Company’s corporate auditors are also elected at a meeting of shareholders. A proposal by the Company’s board of directors to elect a corporate auditor must be approved by a resolution of its Board of Statutory Auditors. The Board of Statutory Auditors is empowered to adopt a resolution requesting that the Company’s directors submit a proposal for election of a corporate auditor to a meeting of shareholders. The corporate auditors have the right to state their opinion concerning election of a corporate auditor at the meeting of shareholders.
A NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors.	Total amounts of compensation including remuneration, bonuses and other financial benefits, for the Company’s directors and corporate auditors are proposed to, and voted on at, a meeting of shareholders. Once the proposals for such total amounts of compensation are approved at the meeting of shareholders, each of the board of directors and Board of Statutory Auditors allocate the respective total amounts among their respective members.
A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan.	Pursuant to the Corporate Law, if the Company desires to adopt an equity compensation plan under which stock acquisition rights are granted on specially favorable conditions (except where such rights are granted to all of its shareholders on a pro rata basis), the Company must approve the plan by a “special resolution” of a general meeting of shareholders, where the quorum is at least one-third of the total number of voting rights which are entitled to vote at such a general meeting of shareholders and the approval of at least two-thirds of the voting rights represented at the meeting is required.

125

PART III

Item 17. Financial Statements.

In lieu of responding to this item, we have responded to Item 18 of this annual report.

Item 18. Financial Statements.

The information required by this item is set forth beginning on page F-2 of this annual report.

Item 19. Exhibits.

Exhibit Number	Description
1.1	— Articles of Incorporation of the registrant (English translation)****
1.2	— Share Handling Regulations of the registrant (English translation)****
1.3	— Regulations of the board of directors of the registrant (English translation)*
1.4	— Regulations of the board of corporate auditors of the registrant (English translation)*
2.1	— Form of Deposit Agreement among the registrant, JPMorgan Chase Bank as Depositary and all owners and holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt***
8.1	— List of subsidiaries of the registrant
11.1	— The Konami Group Code of Business Conduct and Ethics**
12.1	— Certification of the Chief Executive Officer required by Rule 13a-14(a)
12.2	— Certification of the Chief Financial Officer required by Rule 13a-14(a)
13.1	— Certification of the Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
13.2	— Certification of the Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code

* Incorporated by reference to the Annual Report on Form 20-F filed on August 2, 2007

** Incorporated by reference to the Annual Report on Form 20-F filed on July 22, 2005

*** Incorporated by reference to the Registration Statement on Form F-6 filed on September 20, 2002.

**** Incorporated by reference to the Annual Report on Form 20-F filed on August 3, 2009

We have not included as exhibits certain instruments with respect to our long-term debt. The amount of debt authorized under each such debt instrument does not exceed 10% of our total assets. We agree to furnish a copy of any such instrument to the Commission upon request.

126

KONAMI CORPORATION

AND SUBSIDIARIES

Index to Consolidated Financial Statements and Financial Statement Schedule

Report of Independent Registered Public Accounting Firm.	F-2
Consolidated balance sheets as March 31, 2009 and 2010	F-4
Consolidated statements of income for the years ended March 31, 2008, 2009 and 2010	F-5
Consolidated statements of changes in equity for the years ended March 31, 2008, 2009 and 2010	F-6
Consolidated statements of cash flows for the year ended March 31, 2008, 2009 and 2010	F-9
Notes to consolidated financial statements	F-10
Schedule II—Valuation and qualifying accounts	F-55

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KONAMI CORPORATION:

We have audited the accompanying consolidated balance sheets of KONAMI CORPORATION and subsidiaries as of March 31, 2009 and 2010, and the related consolidated statements of income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KONAMI CORPORATION and subsidiaries as of March 31, 2009 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As further discussed in Note 1 to the consolidated financial statements, effective April 1 2009, the Company adopted retrospectively the presentation and disclosure provisions of FASB Accounting Standard Codification Topic 810, “Consolidation”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), KONAMI CORPORATION’s internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 6, 2010 expressed an unqualified opinion on the effectiveness of KONAMI CORPORATION’s internal control over financial reporting.

The accompanying consolidated financial statements as of and for the year ended March 31, 2010 have been translated into United States dollars solely for convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements, expressed in Japanese yen, have been translated into dollars on the basis set forth in Note 1 to the consolidated financial statements.

/s/    KPMG AZSA LLC

Tokyo, Japan

August 6, 2010

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KONAMI CORPORATION:

We have audited KONAMI CORPORATION’s internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, KONAMI CORPORATION maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of KONAMI CORPORATION and subsidiaries as of March 31, 2009 and 2010, and the related consolidated statements of income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2010, and our report dated August 6, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG AZSA LLC

Tokyo, Japan

August 6, 2010

F-3

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2009 and 2010

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	¥	53,568		¥	50,740		$	545,357
Trade notes and accounts receivable, net of allowance for doubtful accounts of ¥470 million and ¥680 million ($7,309 thousand) at March 31, 2009 and 2010, respectively		30,624			30,164			324,204
Inventories		23,512			23,497			252,547
Deferred income taxes, net		19,203			20,669			222,152
Prepaid expenses and other current assets		9,768			9,492			102,021
Total current assets		136,675			134,562			1,446,281
PROPERTY AND EQUIPMENT, net		60,552			62,434			671,045
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities		560			226			2,429
Investment in affiliate		2,119			2,146			23,065
Identifiable intangible assets		35,883			35,246			378,826
Goodwill		21,925			21,899			235,372
Lease deposits		27,959			27,685			297,560
Deferred income taxes, net		3,641			3,531			37,952
Other assets		12,356			10,469			112,522
Total investments and other assets		104,443			101,202			1,087,726
TOTAL ASSETS	¥	301,670		¥	298,198		$	3,205,052
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations	¥	3,627		¥	2,433		$	26,150
Trade notes and accounts payable		17,430			16,138			173,452
Accrued income taxes		6,683			3,962			42,584
Accrued expenses		17,738			18,568			199,570
Deferred revenue		7,586			6,246			67,132
Other current liabilities		9,322			6,118			65,757
Total current liabilities		62,386			53,465			574,645
LONG-TERM LIABILITIES:
Long-term debt and capital lease obligations, less current portion		37,739			39,885			428,687
Accrued pension and severance costs		2,941			2,861			30,750
Deferred income taxes, net		6,564			4,162			44,733
Other long-term liabilities		8,501			8,594			92,369
Total long-term liabilities		55,745			55,502			596,539
TOTAL LIABILITIES		118,131			108,967			1,171,184
COMMITMENTS AND CONTINGENCIES (Notes 10 and 22)
EQUITY:
KONAMI CORPORATION stockholders’ equity:
Common stock, no par value- Authorized 450,000,000 shares; issued 143,500,000 shares at March 31, 2009 and 2010: outstanding 133,461,502 shares and 133,460,664 shares at March 31, 2009 and 2010, respectively		47,399			47,399			509,448
Additional paid-in capital		77,090			77,089			828,558
Legal reserve		284			284			3,052
Retained earnings		76,947			83,055			892,680
Accumulated other comprehensive income (loss)		98			(175	)		(1,881	)
Treasury stock, at cost- 10,038,498 shares and 10,039,336 shares at March 31, 2009 and March 31, 2010, respectively		(23,186	)		(23,187	)		(249,215	)
Total KONAMI CORPORATION stockholders’ equity		178,632			184,465			1,982,642
Noncontrolling interest		4,907			4,766			51,226
TOTAL EQUITY		183,539			189,231			2,033,868
TOTAL LIABILITIES AND EQUITY	¥	301,670		¥	298,198		$	3,205,052

See accompanying notes to consolidated financial statements.

F-4

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years ended March 31, 2008, 2009 and 2010

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
NET REVENUES:
Product sales revenue	¥	218,306		¥	227,821		¥	185,514		$	1,993,917
Service revenue		79,096			81,950			76,630			823,624
Total net revenues		297,402			309,771			262,144			2,817,541
COSTS AND EXPENSES:
Costs of products sold		131,890			133,670			109,910			1,181,320
Costs of services rendered		73,298			78,966			75,824			814,961
Selling, general and administrative		58,375			58,653			55,407			595,518
Restructuring and impairment charges		—			11,121			2,339			25,140
Total costs and expenses		263,563			282,410			243,480			2,616,939
Operating income		33,839			27,361			18,664			200,602
OTHER INCOME (EXPENSES):
Interest income		894			459			165			1,773
Interest expense		(1,105	)		(1,468	)		(1,574	)		(16,917	)
Foreign currency exchange gain (loss), net		(704	)		(1,641	)		67			720
Other, net		(90	)		8			(200	)		(2,150	)
Other expenses, net		(1,005	)		(2,642	)		(1,542	)		(16,574	)
INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANY		32,834			24,719			17,122			184,028
INCOME TAXES:
Current		16,305			15,526			7,177			77,139
Deferred		(3,225	)		(4,811	)		(3,577	)		(38,446	)
Total		13,080			10,715			3,600			38,693
EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANY		180			(2,490	)		56			602
NET INCOME		19,934			11,514			13,578			145,937
NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		1,589			640			264			2,837
NET INCOME ATTRIBUTABLE TO KONAMI CORPORATION	¥	18,345		¥	10,874		¥	13,314		$	143,100
PER SHARE DATA:	Yen									U.S. Dollars
	2008			2009			2010			2010
Basic net income attributable to KONAMI CORPORATION stockholders per share	¥	133.63		¥	79.30		¥	99.76		$	1.07
Diluted net income attributable to KONAMI CORPORATION stockholders per share	¥	133.57		¥	79.30		¥	99.76		$	1.07

See accompanying notes to consolidated financial statements.

F-5

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Years ended March 31, 2008, 2009 and 2010

	Millions of Yen
	Stockholders’ Equity																Total KONAMI CORPORATION stockholders’ equity			Non controlling Interest			Total Equity
	Common Stock		Additional Paid-in Capital			Legal Reserve		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock, at Cost
Balance at March 31, 2007	¥	47,399	¥	77,213		¥	284	¥	62,560		¥	5,617		¥	(18,411	)	¥	174,662		¥	2,697		¥	177,359
Cash dividends attributable to KONAMI CORPORATION stockholders, ¥54.0 per share									(7,413	)								(7,413	)					(7,413	)
Cash dividends attributable to noncontrolling interest																					(2	)		(2	)
Purchase of treasury stock															(31	)		(31	)					(31	)
Reissuance of treasury stock				(47	)										213			166						166
Retirement of treasury stock				(156	)										156			—						—
Others				68														68			58			126
Comprehensive income:
Net income									18,345									18,345			1,589			19,934
Foreign currency translation adjustments												(2,907	)					(2,907	)		(18	)		(2,925	)
Net unrealized losses on available-for-sale securities												(25	)					(25	)					(25	)
Pension liability adjustment												(106	)					(106	)					(106	)
Comprehensive income																		15,307			1,571			16,878
Balance at March 31, 2008	¥	47,399	¥	77,078		¥	284	¥	73,492		¥	2,579		¥	(18,073	)	¥	182,759		¥	4,324		¥	187,083
Cash dividends attributable to KONAMI CORPORATION stockholders, ¥54.0 per share									(7,419	)								(7,419	)					(7,419	)
Cash dividends attributable to noncontrolling interest																					(2	)		(2	)
Purchase of treasury stock															(5,576	)		(5,576	)					(5,576	)
Reissuance of treasury stock				(0	)										463			463						463
Others				12														12			(55	)		(43	)
Comprehensive income:
Net income									10,874									10,874			640			11,514
Foreign currency translation adjustments												(2,078	)					(2,078	)					(2,078	)
Net unrealized losses on available-for-sale securities												(59	)					(59	)					(59	)
Pension liability adjustment												(344	)					(344	)					(344	)
Comprehensive income																		8,393			640			9,033

F-6

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Years ended March 31, 2008, 2009 and 2010—(Continued)

	Millions of Yen
	Stockholders’ Equity																Total KONAMI CORPORATION stockholders’ equity			Non controlling Interest			Total Equity
	Common Stock		Additional Paid-in Capital			Legal Reserve		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock, at Cost
Balance at March 31, 2009	¥	47,399	¥	77,090		¥	284	¥	76,947		¥	98		¥	(23,186	)	¥	178,632		¥	4,907		¥	183,539
Cash dividends attributable to KONAMI CORPORATION stockholders, ¥54.0 per share									(7,206	)								(7,206	)					(7,206	)
Cash dividends attributable to noncontrolling interest																					(381	)		(381	)
Purchase of treasury stock															(3	)		(3	)					(3	)
Reissuance of treasury stock				(1	)										2			1						1
Comprehensive income:
Net income									13,314									13,314			264			13,578
Foreign currency translation adjustments												(207	)					(207	)		(4	)		(211	)
Net unrealized losses on available-for-sale securities												(8	)					(8	)					(8	)
Pension liability adjustment												(58	)					(58	)		(20	)		(78	)
Comprehensive income																		13,041			240			13,281
Balance at March 31, 2010	¥	47,399	¥	77,089		¥	284	¥	83,055		¥	(175	)	¥	(23,187	)	¥	184,465		¥	4,766		¥	189,231

F-7

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Years ended March 31, 2008, 2009 and 2010—(Continued)

	Thousands of U.S. Dollars
	Stockholders’ Equity																Total KONAMI CORPORATION stockholders’ equity			Non controlling Interest			Total Equity
	Common Stock		Additional Paid-in Capital			Legal Reserve		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock, at Cost
Balance at March 31, 2009	$	509,448	$	828,568		$	3,052	$	827,031		$	1,053		$	(249,205	)	$	1,919,947		$	52,741		$	1,972,688
Cash dividends attributable to KONAMI CORPORATION stockholders, $0.58 per share									(77,451	)								(77,451	)					(77,451	)
Cash dividends attributable to noncontrolling interest																					(4,095	)		(4,095	)
Purchase of treasury stock															(32	)		(32	)					(32	)
Reissuance of treasury stock				(10	)										22			12						12
Comprehensive income:
Net income									143,100									143,100			2,838			145,938
Foreign currency translation adjustments												(2,225	)					(2,225	)		(43	)		(2,268	)
Net unrealized losses on available-for-sale securities												(86	)					(86	)					(86	)
Pension liability adjustment												(623	)					(623	)		(215	)		(838	)
Comprehensive income																		140,166			2,580			142,746
Balance at March 31, 2010	$	509,448	$	828,558		$	3,052	$	892,680		$	(1,881	)	$	(249,215	)	$	1,982,642		$	51,226		$	2,033,868

See accompanying notes to consolidated financial statements.

F-8

KONAMI CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended March 31, 2008, 2009 and 2010

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Cash flows from operating activities:
Net income	¥	19,934		¥	11,514		¥	13,578		$	145,937
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		12,069			13,731			12,899			138,639
Provision for doubtful receivables		(248	)		209			259			2,784
Restructuring and impairment charges		—			11,121			2,339			25,140
Loss (gain) on sale or disposal of property and equipment, net		382			(337	)		822			8,835
Equity in net loss (income) of affiliated company		(180	)		2,490			(56	)		(602	)
Deferred income taxes		(3,225	)		(4,811	)		(3,577	)		(38,446	)
Change in assets and liabilities, net of businesses acquired:
Decrease (increase) in trade notes and accounts receivable		(7,483	)		175			(261	)		(2,805	)
Increase in inventories		(2,117	)		(1,424	)		(2,455	)		(26,386	)
Decrease (increase) in other receivables		902			1,111			(406	)		(4,364	)
Decrease (increase) in prepaid expense		747			(918	)		(24	)		(258	)
Decrease in trade notes and accounts payable		(623	)		(556	)		(949	)		(10,200	)
Increase (decrease) in accrued income taxes, net of tax refunds		6,845			(2,157	)		(2,526	)		(27,150	)
Increase (decrease) in accrued expenses		827			(1,266	)		(262	)		(2,816	)
Increase (decrease) in deferred revenue		2,192			(234	)		(1,294	)		(13,908	)
Decrease in advance received		(427	)		(796	)		(478	)		(5,138	)
Decrease in deposits		(850	)		(93	)		(396	)		(4,256	)
Other, net		2,043			2,372			(2,916	)		(31,341	)
Net cash provided by operating activities		30,788			30,131			14,297			153,665
Cash flows from investing activities:
Capital expenditures, including interest capitalized		(11,995	)		(8,531	)		(6,318	)		(67,906	)
Proceeds from sales of property and equipment		8			1,355			10			107
Acquisition of new subsidiaries, net of cash acquired		(367	)		—			—			—
Decrease (increase) in lease deposits, net		(2,627	)		1,616			(374	)		(4,020	)
Other, net		(378	)		(155	)		233			2,504
Net cash used in investing activities		(15,359	)		(5,715	)		(6,449	)		(69,315	)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings		(1,869	)		—			—			—
Repayments of long-term debt		(2,969	)		(592	)		(592	)		(6,363	)
Proceeds from issuance of bonds		15,000			—			—			—
Redemption of bonds		(20,000	)		(5,000	)		—			—
Principal payments under capital lease obligations		(2,596	)		(2,886	)		(2,581	)		(27,741	)
Dividends paid		(7,419	)		(7,414	)		(7,569	)		(81,352	)
Purchases of treasury stock		(31	)		(5,576	)		(3	)		(32	)
Other, net		66			464			1			11
Net cash used in financing activities		(19,818	)		(21,004	)		(10,744	)		(115,477	)
Effect of exchange rate changes on cash and cash equivalents		(814	)		(1,974	)		68			734
Net increase (decrease) in cash and cash equivalents		(5,203	)		1,438			(2,828	)		(30,393	)
Cash and cash equivalents, beginning of year		57,333			52,130			53,568			575,750
Cash and cash equivalents, end of year	¥	52,130		¥	53,568		¥	50,740		$	545,357

See accompanying notes to consolidated financial statements.

F-9

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010

1.    Business and Organization, Basis of Presentation and Summary of Significant Accounting Policies

Business and Organization

KONAMI CORPORATION (the “Company”) was founded in 1969 and was incorporated under the laws of Japan in March 1973. The Company and its subsidiaries (collectively “KONAMI”) engage in production and sale of video game software for home video game systems, game machines for installation in amusement arcades and other entertainment venues and other amusement-related products, and operation of health and fitness club facilities. The principal markets for KONAMI’s products are Japan, North America, Europe, Asia and Australia while all of its health and fitness club facility operation is in Japan.

Substantially all of KONAMI’s revenues from video game software have historically been derived from sales of software for use on proprietary game platforms developed and manufactured by other manufacturers. KONAMI may only publish its games for use on the manufacturers’ game platforms if it receives a platform license from them, which is generally for an initial term of several years and may be extended for additional one-year terms. If KONAMI cannot obtain licenses to develop video game software from manufacturers of popular game platforms or if any of its existing license agreements are terminated, it will not be able to release software for those platforms, which may have a negative impact on its results of operations and profitability. To date, KONAMI has successfully obtained extensions or new agreements with the platform manufacturers each time it has attempted to do so. These licenses include other provisions such as approval rights by the manufacturers of all products and related promotional materials which could have an effect on KONAMI’s costs and the release date of new game titles.

In the United States, Canada and Australia, the manufacture and distribution of KONAMI’s gaming machines are subject to numerous federal, state and local regulations. In addition, KONAMI may be subject to regulation as a gaming operator if it enters into lease participation agreements under which it shares in the revenues generated by gaming machines. These regulations are constantly changing and evolving, and may curtail gaming in various jurisdictions in the future, which would decrease the number of jurisdictions from which KONAMI can generate revenues. KONAMI and its key personnel are subject to an extensive investigation before each jurisdictional gaming license is issued. Moreover, KONAMI’s gaming machines are subjected to independent testing and evaluation prior to approval from each jurisdiction. Generally, regulatory authorities have broad discretion when granting, renewing or revoking these game approvals and licenses.

Basis of Accounting

The Company and its domestic subsidiaries maintain their books and records in conformity with accounting principles and practices generally accepted in Japan (“Japanese GAAP”), and its foreign subsidiaries in conformity with those of the country of their domicile. The consolidated financial statements presented herein have been prepared in a manner and reflect certain adjustments, which are necessary to conform with U.S. generally accepted accounting principles (“U.S. GAAP”).

Translation into U.S. Dollars

The accompanying consolidated financial statements are stated in Japanese yen, the functional currency of the country in which the Company is incorporated and principally operates. The U.S. dollar amounts included herein represent a translation using the mid price for telegraphic transfer of U.S. dollars for yen quoted by The Bank of Tokyo-Mitsubishi UFJ, Ltd. as of March 31, 2010 of ¥93.04 to $1 and are included solely for the convenience of the reader. The translation should not be construed as a representation that the yen amounts have been, could have been, or could in the future be converted into U.S. dollars at the above or any other rate.

F-10

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Summary of Significant Accounting Policies

(a) Consolidation Policy

The accompanying consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an initial maturity of three months or less.

(c) Marketable Securities

KONAMI classifies its debt and marketable equity securities into one of three categories: trading, available-for-sale, or held-to-maturity securities. Trading securities are bought and held primarily for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which KONAMI has the ability and intent to hold until maturity. All securities not included in trading or held-to-maturity categories are classified as available-for-sale. Trading and available-for-sale securities whose fair values are readily determinable are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses from sale of available-for-sale securities are determined based on the average cost method. A decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income is recognized when received. As of March 31, 2009 and 2010, all equity securities held by KONAMI are classified as available-for-sale.

On a continuous basis, but no less frequently than at the end of each quarter period, KONAMI evaluates the cost basis of an available-for-sale security for possible other-than-temporary impairment. Factors considered in assessing whether an indication of other-than-temporary impairment exists include: the degree of change in ratio of market prices per share to book value per share at date of evaluation compared to that at date of acquisition, the financial condition and prospects of each investee company, industry conditions in which the investee company operates, the fair value of an available-for-sale security relative to the cost basis of the investment, the period of time the fair value of an available-for-sale security has been below the cost basis of the investment and other relevant factors.

KONAMI evaluates the cost basis of a held-to-maturity debt security for possible other-than-temporary impairment by taking into consideration the financial condition, business prospects and credit worthiness of the issuer. The published credit ratings of investee companies that are “BB” or lower are considered an indication of other-than-temporary impairment.

Impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on quoted market prices, projected discounted cash flows or other valuation techniques as appropriate.

F-11

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

(d) Investment in Affiliate

For those investments in affiliates in which the Company has the ability to exercise significant influence over the affiliate’s operations (generally when its voting interest is between 20% and 50%), the equity method of accounting is used. Under this method, the investment is initially recorded at cost and is adjusted to recognize the Company’s share of the net earnings or losses of the affiliates. All significant intercompany profits from these affiliates have been eliminated. Investments in non-marketable equity securities in which the Company’s ownership is less than 20% are carried at cost.

The difference between the initial cost of an investment and the estimated fair value of underlying equity in net assets of an equity method investee (“investor level goodwill”) is not amortized but continues to be reviewed for impairment. When an other-than-temporary decline in value of an equity-method investment occurs, an impairment loss is recognized in earnings. On a continuous basis, but no less frequently than at the end of each quarter period, the Company evaluates the carrying amount of its ownership interests in investee companies for possible impairment. Factors considered in assessing whether an indication of other-than-temporary impairment exists include the achievement of business plan objectives and milestones including cash flow projections and the results of planned financing activities, the financial condition and prospects of each investee company, the fair value of the ownership interest relative to the carrying amount of the investment, the period of time the fair value of the ownership interest has been below the carrying amount of the investment and other relevant factors. Any impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on quoted market prices, projected discounted cash flows or other valuation techniques as appropriate. A decline in the fair value of an investment below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the investment is established. The impairment is first applied to reduce the amount of any investor level goodwill, and then to the remaining basis in the investment.

(e) Inventories

Inventories, consisting of merchandise for resale, finished products, work-in-process, raw materials and supplies, are stated at the lower of cost or market. Cost is determined by the specific identification method for software products, and by the weighted average method for others.

(f) Property and Equipment

Property and equipment are carried at cost. Depreciation is computed on the declining-balance method using estimated useful lives ranging from 10 to 50 years for buildings and structures and from 2 to 20 years for tools, furniture and fixtures. Equipment under capital leases is stated at the lower of the present value of minimum lease payments or the fair value of the leased equipment at the inception of the lease and is amortized over the shorter of the lease term or estimated useful life of the asset, which range from 3 to 25 years.

Ordinary maintenance and repairs are expensed as incurred. Major replacements and improvements are capitalized. When properties are retired or otherwise disposed of, the property and related accumulated depreciation accounts are relieved of the applicable amounts and any differences are included in operating income or expenses.

KONAMI recognizes a liability for asset retirement obligations in the period in which it is incurred if sufficient information is available to make a reasonable estimate of fair value. When a company initially recognizes a liability for an asset retirement obligation, it must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset.

F-12

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

(g) Software for Internal Use

KONAMI has capitalized costs associated with software systems for internal use, that have reached the application stage and meet recoverability tests as capitalized computer software in the accompanying consolidated balance sheets. Such capitalized costs primarily include external direct costs utilized in developing or obtaining the applications. Capitalization of such costs ceases at the point in which the project is substantially complete and ready for its intended use, and the costs capitalized are amortized on a straight-line basis over the estimated useful life of each application, ranging from 2 to 5 years. KONAMI expenses costs incurred during the preliminary project stage which include costs for making strategic decisions about the project, and determining performance and system requirements. KONAMI also expenses costs incurred for internal-use software in the post-implementation stage such as training and maintenance costs.

(h) Business Combination

KONAMI has used the acquisition method of accounting for its acquisitions and, accordingly, has recorded assets including identifiable intangible assets, liabilities and noncontrolling interests of the acquired companies based on each of the estimated fair value at the acquisition date. Additionally, goodwill and certain identifiable intangible assets are not included in amortized intangible assets, and tested for impairment based on fair value.

(i) Goodwill and Other Identifiable Intangible Assets

Goodwill represents the difference between the cost of acquired companies and amounts allocated to the estimated fair value of their net assets. Identifiable intangible assets represent intangible assets related to trademarks, membership lists, gaming licenses, existing technology, customer relationships and franchise and other contracts acquired in connection with acquisitions of subsidiaries.

KONAMI performs an assessment of goodwill for impairment at least annually, and more frequently if an indicator of impairment has occurred, using a two-step process. The first step requires identification of reporting units and determination of the fair value for each individual reporting unit. KONAMI has determined its reporting units to be the same as its reportable segments. The fair value of each reporting unit is then compared to the reporting unit’s carrying amount including assigned goodwill. To the extent a reporting unit’s carrying amount exceeds its fair value; the second step of the impairment test is performed by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. If the implied fair value of a reporting unit’s goodwill is less than its carrying amount, an impairment loss is recorded.

For the purpose of evaluating the recoverability of the carrying value of goodwill, KONAMI engages an independent appraiser to assist management in its determination of the fair values of its reporting units. In its computation of the fair values, the appraiser primarily utilizes a discounted cash flow analysis as well as other valuation approaches including the stock price, market capitalization and asset and liability structure of the reporting units. Significant assumptions used in this analysis includes 1) expected future revenue growth rates, profit margins and working capital levels of the reporting units, 2) a discount rate, and 3) a terminal value multiples. The revenue growth rates, profit margins and working capital levels of the reporting units are based on management’s expectation of future results. In evaluating the recoverability of other intangible assets which were allocated to the reporting units, KONAMI primarily utilizes a discounted cash flow analysis as well as other applicable valuation approaches, and if applicable, independent valuations.

F-13

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Intangible assets determined to have an indefinite useful life are also tested for impairment annually or more frequently if there is an indication of potential impairment. KONAMI also reassesses indefinite useful life determinations periodically for each asset. Meanwhile, intangible assets with finite useful lives are amortized over their estimated useful lives on a straight line basis. KONAMI assesses the recoverability of these intangible assets in a manner similar to KONAMI’s other long-lived assets as described below.

(j) Impairment or Disposal of Long-Lived Assets

KONAMI’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors KONAMI considers important which could trigger an impairment review include: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of the use of the assets or the strategy for overall business; significant negative industry or economic trends. When it is determined that the carrying amount of assets or asset groups to be held and used may not be recoverable based upon the existence of one or more of these indicators of impairment, recoverability is measured by a comparison of the carrying amount of an asset or asset group to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(k) Derivative Financial Instruments

From time to time, KONAMI uses certain derivative financial instruments to manage its foreign currency risks. KONAMI may enter into forward contracts to reduce its exposure to short-term (generally no more than one year) movements in exchange rates applicable to firm funding commitments that are denominated in currencies other than the Japanese yen.

KONAMI reports all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. For derivative instruments designated and effective as fair value hedges, changes in the fair value of the derivative instrument and of the hedged item attributable to the hedged risk are recognized in earnings. For derivative instruments designated as cash flow hedges, the effective portion of any hedge is reported in accumulated other comprehensive income (loss) until it is recognized in earnings in the same period in which the hedged item affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of all hedges are reported in current earnings each period. Changes in fair value of derivative instruments that are not designated as a hedge are recorded each period in current earnings. If a derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the current period. To date, KONAMI has not designated any derivative instrument as a hedge.

(l) Income Taxes

KONAMI accounts for income taxes based on income before income tax on its consolidated statement of income. Deferred income taxes are recognized by the asset and liability method for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards using enacted tax rates in effect for the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

F-14

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

KONAMI recognizes the financial statement effects of tax positions when it is more likely than not that the tax positions, taken or expected to be taken in a tax return, will be sustained upon examination by the tax authorities. Benefits from tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are included in income taxes in its consolidated financial statements.

(m) Revenue Recognition

KONAMI derives revenue from primarily three sources: (i) product revenue, which includes packaged game software and other products, gaming machines and related casino management systems, and LCDs for pachinko machines, (ii) membership fee revenue from health and fitness club members, and (iii) sales and subscription fee revenue from mobile game contents.

For those sources that do not involve delivery of multiple software or other deliverables, KONAMI recognizes its revenue under the basic criteria outlined below to be met:

Persuasive Evidence of an Arrangement.

For product sales, it is KONAMI’s customary practice to have a written contract, which is signed by both the customer and KONAMI, or a purchase order or amendment to the written contract from those customers that have previously negotiated a standard purchase agreement.

For KONAMI’s health and fitness clubs, members are required to sign a standard monthly membership agreement upon admission, which is automatically renewed unless the member provides advance notice of his or her intention to cancel prior to the tenth day of the month at the end of which the membership will terminate.

For mobile game contents, KONAMI enters into distribution agreements with mobile phone carriers for the sale or subscription of mobile game contents by the carriers to their subscribers. KONAMI recognizes as revenues the net amount due to KONAMI by the mobile phone carrier upon the sale of KONAMI’s game contents, net of any service or other fees earned and deducted by the carrier.

Delivery Has Occurred.

Packaged game software and other products are physically delivered to customers, with standard transfer terms. Also, KONAMI’s game machines and related equipment are physically delivered to customers as a fully-assembled, ready to be installed unit. These arrangements generally include an acceptance clause. KONAMI recognizes revenue from product sales upon delivery and acceptance, which is the timing the rights and risks are transferred to the customer. Generally, KONAMI does not permit exchanges nor accept returns of unsold merchandise except in the case of obvious defects. In certain limited circumstances KONAMI may allow returns, for which KONAMI estimates the related allowances based upon management’s evaluation of historical experience, the nature of the software titles and other factors. KONAMI maintains detail listings of software titles in distribution channel, closely monitor their movements, and is able to reasonably estimate future credits to be issued for price protection. These estimates are deducted from gross sales.

Revenue from health and fitness club membership is derived primarily from monthly membership fees from club members. Revenue for those fees is recognized as monthly charges are generally made to the members’ accounts in advance, at the end of each month, with respect to the following month’s membership. This policy requires KONAMI to defer the applicable membership fee revenue for one month.

F-15

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Revenue from mobile game contents is derived from monthly subscription fees. Under the distribution agreements, the mobile phone carriers are responsible for billing, collection and remittance of those subscription fees to KONAMI. KONAMI has a collection risk for accounts receivable except for certain mobile phone carriers. The carriers generally report the final sales data to KONAMI within 60 days following the end of each month. When final sales data is not available in a timely manner for reporting purposes, KONAMI estimates its revenues based on sales data available from the server in which game contents are housed, which is then adjusted to actual revenues in the following reporting period once the actual amounts are determined.

The Price is Fixed or Determinable.

The price customers pay for KONAMI’s products is negotiated at the outset of an arrangement, and is generally determined by the specific volume of product to be delivered. Therefore, the prices are considered to be fixed or determinable at the start of the arrangement. KONAMI’s membership fee for health and fitness clubs is fixed at the time of admission of the member. Also, monthly subscription fees for mobile game contents are based on a fixed rate per end customer subscriber.

Collection is Probable.

Probability of collection is assessed on a customer-by-customer basis. KONAMI typically sells to customers with whom KONAMI has a history of successful collection. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately their ability to pay. For KONAMI’s health and fitness clubs, the collectability of membership fees is assured as it generally charges members’ accounts one-month in advance. In addition, for our mobile game contents, KONAMI has a collection risk for our accounts receivable except for certain mobile phone carriers.

For those sources that involve multiple software deliverables, KONAMI evaluates revenue recognition based on the following items;

(1) if and when each element has been delivered

(2) whether undelivered elements are essential to the functionality of the delivered elements

(3) whether vender-specific objective evidence of fair value (VSOE) exists for undelivered elements

(4) allocation of the total price among the various elements

KONAMI recognizes revenues from package software with online functionality for certain platforms in Digital Entertainment Segment which is hosted on its internal servers as multiple software deliverables. As VSOE of fair value for the online services could not be established for most of titles, revenue from the package products has not been allocated among the package game products and online service for those titles, and the entire revenue from the sale of the package products has been recognized on a straight-line basis over the estimated online service period. The service period is estimated to be six months. For those titles which the Company has established VSOE, the package game products and online services are recognized as separate units of accounting.

Revenues from casino management systems that are a part of Gaming & System Segment are also recognized as multiple software deliverables, because the software is essential to the functionality of the hardware. Revenue from sales of casino management systems is recognized only when installation of hardware and software is completed and accepted by the customers. Maintenance service revenue is recognized ratably over the maintenance period based on VSOE of fair value established by renewal rates.

F-16

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

For those sources that involve multiple deliverables except for software deliverables, KONAMI applies the recognition criteria. Specifically, deliverables are divided into separate units of accounting if:

(1) Each item has value to the customer on a stand-alone basis,

(2) objective and reliable evidence of the fair value of the undelivered items exists, and

(3) delivery of any undelivered item is considered probable and substantially in KONAMI’s control.

Separate units of accounting are recognized in earnings as they are delivered or ratably over the service period, as applicable.

(n) Software Development Costs

Research and development expenses are charged to earnings as incurred. Research and development expenses included in selling, general and administrative expenses amounted to ¥3,111 million, ¥2,677 million and ¥2,964 million ($31,857 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively, in the accompanying consolidated statements of income.

KONAMI capitalizes certain software development costs incurred after technological feasibility is established or for development costs that have alternative future uses. Under KONAMI’s current practice of developing new game software products, technological feasibility is not established until substantially all development activities are complete, which generally include the development of a working template and the related tools. For game products where a proven game engine technology exists and other criteria supporting the technological feasibility of the game title in development have been met, which include coding and testing of unique or unproven functions and features, KONAMI capitalizes these costs and begins to expense them upon release of the product through cost of revenues or writes them off when they are deemed unrecoverable.

(o) Royalties and License Fees

KONAMI pays royalties and license fees to professional sports organizations and certain other third parties for use of their trade names. Minimum portions of such royalties and license fees paid up-front are recorded as prepaid royalties and are expensed to costs of products sold over the contractual terms ranging primarily from 4 to 12 months. Variable portions of such royalties and license fees, which are generally determined based on the number of copies shipped at the predetermined royalty rates, are expensed to cost of products sold based on actual shipment. Management periodically evaluates the future realizability of prepaid royalties and charges to income any amounts deemed unlikely to be realized. Prepaid royalties amounted to ¥588 million and ¥1,190 million ($12,790 thousand) at March 31, 2009 and 2010, respectively, and were included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

(p) Shipping and Handling Expenses

Shipping and handling expenses are charged to earnings as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income. Shipping and handling expenses amounted to ¥2,519 million, ¥2,707 million and ¥2,185 million ($23,485 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively.

F-17

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

(q) Advertising Expenses

Advertising expenses are charged to earnings as incurred and are included in Selling, general and administrative expenses in the accompanying consolidated statements of income. Advertising expenses amounted to ¥11,408 million, ¥12,596 million and ¥9,880 million ($106,191 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively.

(r) Stock-based Compensation

KONAMI accounts for its stock-based compensation plan to directors and employees using the fair value based method. KONAMI recognizes the post-vesting share-based compensation awards, according to the period in which employees are required to provide service, beginning from the adoption date.

(s) Comprehensive Income (loss)

KONAMI classified other comprehensive income (loss) in a financial statement and display of other comprehensive income (loss) separately from retained earnings and additional paid-in capital. Other comprehensive income (loss) primarily includes foreign currency translation adjustments, unrealized gains (losses) from marketable securities considered available-for-sale and pension liability adjustments as well as the income tax effects thereof.

(t) Foreign Currencies Transactions and Translations

Transactions denominated in foreign currencies are recorded using the exchange rates in effect as of the transaction dates. The related foreign currency asset and liability balances are re-measured based on exchange rates prevailing at each balance sheet date with the resulting gain or loss charged to earnings.

Assets and liabilities of a foreign subsidiary where the functional currency is other than Japanese yen are translated into Japanese yen at the exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated at average exchange rates during the current year. The resulting translation adjustments are included in accumulated other comprehensive income (loss).

(u) Consumption Taxes

Revenue is recorded net of applicable consumption taxes.

(v) Use of Estimates

Preparation of these consolidated financial statements requires management of KONAMI to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenue and expenses during the reporting periods. There can be no assurance that actual results will not differ from those estimates.

KONAMI has identified four areas where it believes assumptions and estimates are particularly critical to the consolidated financial statements. These are service period for deferred net revenue, accounting for software development costs, impairment of long-lived and intangible assets, and realizability of deferred tax assets.

(w) Net Income Per Share

Basic net income attributable to KONAMI CORPORATION stockholders per common share excludes dilution for potential common stock and is computed by dividing consolidated net income (loss) attributable to

F-18

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

KONAMI CORPORATION stockholders by the weighted-average number of common shares outstanding. Diluted net income attributable to KONAMI CORPORATION stockholders per common share reflects the effect of potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net income attributable to KONAMI CORPORATION stockholders per common share is calculated by dividing net income attributable to KONAMI CORPORATION stockholders by the sum of the weighted-average number of common shares plus additional shares that would be outstanding if potential dilutive shares had been issued.

The components of basic and diluted net income attributable to KONAMI CORPORATION stockholders per common share are as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2008		2009		2010		2010
Net income available for KONAMI CORPORATION stockholders	¥	18,345	¥	10,874	¥	13,314	$	143,100
	Shares
Weighted-average common shares outstanding		137,290,259		137,124,130		133,461,138
Dilutive effect of employee stock options		54,450		—		—
Common stock and common stock equivalents		137,344,709		137,124,130		133,461,138
	Yen						U.S. Dollars
Net income attributable to KONAMI CORPORATION stockholders per common share:
Basic	¥	133.63	¥	79.30	¥	99.76	$	1.07
Diluted	¥	133.57	¥	79.30	¥	99.76	$	1.07

For the years ended March 31, 2008, 2009 and 2010, nil, 741,968 and nil shares attributable to outstanding stock options were excluded from the calculation of diluted earnings attributable to KONAMI CORPORATION per share because the exercise prices of the stock options were greater than to the average price of the common shares, and therefore their inclusion would have been anti-dilutive.

(x) New Accounting Pronouncements Adopted

Effective April 1, 2009, KONAMI adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 141 Revised, Business Combinations, included in FASB Accounting Standards Codification (“ASC”) Topic 805. This ASC establishes principles and requirements of how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in a business combination. This ASC requires disclosures to enable evaluation of the nature and financial effects of the business combination. KONAMI did not have any business combinations during the fiscal year ended March 31, 2010.

F-19

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Effective April 1, 2009, KONAMI adopted the provisions FASB Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, included in ASC Topic 810. This ASC establishes new accounting and reporting standards for noncontrolling interests (previously referred to as minority interests) in consolidated financial statements. This ASC establishes new accounting and reporting for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. This ASC requires disclosure that clearly indentifies and distinguishes the interests of the parent and the interest of the noncontrolling owners. This ASC is effective for fiscal years beginning on or after December 15, 2008 on a prospective basis, except for certain presentation and disclosure requirements, which must be applied retrospectively for all periods presented, and was adopted by KONAMI in the first quarter beginning April 1, 2009 . Upon adoption of this ASC, noncontrolling interests, which were previously referred to as minority interests and classified between total liabilities and stockholders’ equity on the consolidated balance sheets, are now included as a separate component of total equity. Also, consolidated net income on the consolidated statements of income now includes the net income (loss) attributable to noncontrolling interests. These financial statement presentation requirements have been adopted retrospectively and prior year amounts have been classified to conform with this ASC.

In December 2008, the FASB issued ASC 715-20-65 “Employers’ Disclosures about Postretirement Benefit Plan Assets”. ASC 715-20-65 requires additional disclosures about plan assets including investment policies, fair value of each major category of plan assets, development of fair value measurements and concentrations of risk. ASC 715-20-65 is effective for fiscal years ending after December 15, 2009 and adopted by KONAMI in the year ending March 31, 2010. See Note14.

On January 1, 2008, KONAMI adopted the provisions of FASB Statement No. 157, Fair Value Measurements, included in ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements for financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Statement 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. See Notes 18 and 19.

On January 1, 2009, KONAMI adopted the provisions of ASC Topic 820 to fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. See Notes 3, 6, 7, 8 and 19.

KONAMI also adopted ASC 740-10 “Accounting for Uncertainty in Income Taxes on April 1, 2007, which clarifies the accounting for uncertainty in income taxes recognized in financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the tax effects of a position be recognized only when it is more likely than not to be sustained upon examination. KONAMI classifies penalties and interest related to unrecognized tax benefits, if any, in provision for income taxes. The initial adoption of ASC 740-10 on April 1, 2007 did not have a material impact on KONAMI’s consolidated financial statements.

F-20

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

2.    Merger and Acquisition

On March 6, 2008, the Company acquired 33,384 shares, representing 91.9% of the total outstanding common stock of Sportsplex Japan Co., Ltd. (“Sportsplex Japan”) for the total cash purchase price of ¥509 million to expand the number of sports clubs in Tokyo and Kanagawa prefecture and enhance convenience and comfort for the members of the facilities. Sportsplex Japan became the Company’s consolidated subsidiary and its operating results have been included in the Company’s consolidated financial statements from the date of acquisition. On June 30, 2008, Sportsplex Japan merged with and into the Company’s consolidated subsidiary, Konami Sports & Life Co., Ltd. (“KSL”).

The acquisition was accounted for using the purchase method of accounting and the excess of fair value of acquired net assets over acquisition cost was allocated as a pro rata reduction of the amounts that otherwise would have been assigned to the acquired long-lived assets. The allocation resulted in ¥299 million of customer relationship as an identifiable intangible asset, for which useful lives were estimated to be 7 years.

The following table reflects the allocation of the purchase price to the fair values of the identifiable assets acquired and liabilities assumed:

	Millions of Yen
Current assets	¥	684
Property and equipment		7,418
Identifiable intangible assets		299
Other assets		1,448
Total assets acquired		9,849
Current liabilities		2,784
Long-term liabilities		6,499
Total liabilities assumed		9,283
Other		57
Net assets acquired	¥	509

The impact to revenue, net income and net income per share for the years ended March 31, 2008 as if the above transaction to acquire a newly consolidated subsidiary were completed as of the beginning of the fiscal year, is not material.

3.    Investment in Affiliate

The carrying amounts of investment in affiliate as of March 31, 2009 and 2010 were ¥2,119 million and ¥2,146 million ($23,065 thousand), respectively.

At March 31, 2008, 2009 and 2010, KONAMI held an investment in affiliate as follows:

	Description of business	Acquisition Date	Ownership %
			2008		2009		2010
Resort Solution Co., Ltd. (“Resort Solution”)	Management of resort facilities	March 2006	20.0	%	20.4	%	20.4	%

F-21

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Resort Solution purchased and retired 1,000 thousand shares of treasury stock for the year ended March 31, 2009.

Summarized financial information for the affiliated company accounted for by the equity method is presented below:

	Millions of Yen				Thousands of U.S. Dollars
	2009		2010		2010
Financial Position:
Property and equipment, net	¥	14,948	¥	17,534	$	188,456
Other assets, net		16,454		12,621		135,659
Total assets		31,402		30,155	$	324,115
Debt		4,462		5,570		59,866
Other liabilities		18,691		16,082		172,850
Noncontrolling interest		20		29		314
Stockholders’ equity		8,229		8,474		91,085
Total liabilities and equity	¥	31,402	¥	30,155	$	324,115

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Operations:
Sales	¥	27,068		¥	25,281		¥	22,807		$	245,139
Cost of revenues		13,014			13,170			10,988			118,105
Selling, general and administrative expenses		11,625			11,169			11,114			119,454
Operating income (loss)		2,429			942			705			7,580
Interest income (expense), net		(37	)		(83	)		(116	)		(1,243	)
Other, net		(1,085	)		(301	)		(65	)		(700	)
Net income (loss)	¥	1,307		¥	558		¥	524		$	5,637

The difference between the amount at which an investment is carried and the amount of underlying equity in net assets represents mainly intangible assets recognized at the Company.

During the year ended March 31, 2009, the Company evaluated the recoverability of its investment in affiliate and determined that the decline in value of the investment in Resort Solution was other than temporary. Accordingly, the Company recorded a ¥4,347 million of pre-tax impairment charge. The impairment charge was included in equity in net income (loss) of affiliated company in the consolidated statement of income.

The Company’s shares of undistributed earnings of the affiliate included in the consolidated retained earnings were earnings of nil as of March 31, 2009 and 2010.

The investment in Resort Solution with a carrying amount of ¥2,119 million and ¥2,146 million ($23,065 thousand) as of March 31, 2009 and 2010, respectively, was traded on established markets and was quoted at a market value of ¥2,119 million and ¥1,937 million ($20,819 thousand) as of March 31, 2009 and 2010, respectively.

F-22

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

4.    Inventories

Inventories at March 31, 2009 and 2010 consisted of the following:

	Millions of Yen				Thousands of U.S. Dollars
	2009		2010		2010
Finished products	¥	11,641	¥	8,402	$	90,305
Work in process		8,300		11,766		126,462
Raw materials and supplies		3,571		3,329		35,780
Total	¥	23,512	¥	23,497	$	252,547

5.    Investment in Marketable Securities

Investment in marketable securities at March 31, 2009 and 2010 consisted of the following:

									Millions of Yen
									March 31, 2009
									Cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
Available-for-sale:
Marketable equity securities									¥	544	¥	17	¥	(1	)	¥	560
Total									¥	544	¥	17	¥	(1	)	¥	560
	Millions of Yen								Thousands of U.S. Dollars
	March 31, 2010								March 31, 2010
	Cost		Gross unrealized gains		Gross unrealized (losses)		Fair value		Cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
Available-for-sale:
Marketable equity securities	¥	224	¥	2	¥	—	¥	226	$	2,408	$	21	$	—		$	2,429
Total	¥	224	¥	2	¥	—	¥	226	$	2,408	$	21	$	—		$	2,429

F-23

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

6.    Property and Equipment

Property and equipment at March 31, 2009 and 2010 consisted of the following:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Property and equipment, at cost:
Land	¥	11,331		¥	11,212		$	120,507
Buildings and structures		61,503			69,147			743,196
Tools, furniture and fixtures		26,738			27,461			295,153
Construction in progress		12			446			4,794
Total		99,584			108,266			1,163,650
Less-Accumulated depreciation and amortization		(39,032	)		(45,832	)		(492,605	)
Net property and equipment	¥	60,552		¥	62,434		$	671,045

See Note 11 for assets under capital leases that are included in the above.

Depreciation and amortization expense for the years ended March 31, 2008, 2009 and 2010 amounted to ¥7,468 million, ¥9,075 million and ¥8,284 million ($89,037 thousand), respectively.

For the purpose of assessing impairment of long-lived assets used for Health & Fitness operations, grouping is at the individual club operation level which is considered to be the lowest level at which identifiable cash flows are largely independent of the cash flows of other assets. The carrying amount of the club assets is compared to the expected undiscounted future cash flows to be generated by those assets over the estimated remaining useful life of the club. Cash flows are projected for each club based on historical results and expectations. In cases where the expected future cash flows are less than the carrying amount of the assets, those clubs are considered impaired and the assets are written down to fair value. For purposes of estimating fair value, KONAMI utilized the projected future cash flows of the impaired clubs discounted at its weighted average cost of capital.

During the fiscal year ended March 31, 2009, KONAMI identified a change in circumstances that indicated the carrying value of long-lived assets might not be recoverable and projected a decline in net cash flows for Health & Fitness segment, primarily reflecting a decrease in the number of club members affected by the negative industry and economic trends. As a result, KONAMI tested the recoverability of underperforming clubs and recorded a pre-tax impairment charge of ¥7,881 million for long-lived assets, which was included in restructuring and impairment charges in the accompanying consolidated statements of income for the year ended March 31, 2009. The recoverability test included reviewing the actual and projected cash flows of these underperforming clubs. KONAMI also considered operations of all clubs within each market served by multiple clubs and determined to cease operation of certain of these clubs that overlap in a particular marked, and recognized the closure related impairment charges which were included in the amount discussed above.

During the fiscal year ended March 31, 2010, KONAMI recorded a pre-tax impairment charge of ¥480 million ($5,159 thousand) for long-lived assets related to closure of facilities, which was included in restructuring and impairment charges in the accompanying consolidated statements of income for the year ended March 31, 2010.

F-24

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

7.    Goodwill and Identifiable Intangible Assets

During the year ended March 31, 2008, KONAMI evaluated the recoverability of goodwill and indefinite lived intangible assets and concluded that there was no impairment in the carrying value of such assets for any of its reporting units.

However, in the fourth quarter of the fiscal year ended March 31, 2009, KONAMI determined that the fair value of indefinite lived intangible assets related to trademarks recognized in the Health & Fitness reporting unit was lower than their carrying value as a result of review based on the independent valuations. Consequently, an aggregate non-cash impairment charge of ¥1,857 million was recorded in restructuring and impairment charges in the accompanying consolidated statements of income for the year ended March 31, 2009. This impairment charge was attributed to determination that the reporting unit would fail to meet previous growth expectations of future results. As for the carrying value of goodwill, there was no impairment during the fiscal year ended March 31, 2009.

In the fourth quarter of the fiscal year ended March 31, 2010, KONAMI determined that the fair value of indefinite lived intangible assets related to credit card contracts in the Health & Fitness reporting unit was lower than their carrying value. As a result, an aggregate non-cash impairment charge of ¥ 451 million ($4,847 thousand) was recorded in restructuring and impairment charges in the accompanying consolidated statements of income for the year ended March 31, 2010. The impairment charge was attributed to determination that the assets would fail to generate substantially expected future cash flows resulting from reviewing certain business as part of the restructuring processes for the reporting unit. As for the carrying value of goodwill, there was no impairment during the fiscal year ended March 31, 2010.

The changes in the carrying amounts of goodwill by operating segment for the years ended March 31, 2009 and 2010 are as follows:

	Millions of Yen
	Digital Entertainment			Health & Fitness		Gaming & System		Total
Balance at March 31, 2008	¥	15,242		¥	6,568	¥	125	¥	21,935
Foreign currency translation adjustment		(10	)		—		—		(10	)
Balance at March 31, 2009	¥	15,232		¥	6,568	¥	125	¥	21,925
Foreign currency translation adjustment		(26	)		—		—		(26	)
Balance at March 31, 2010	¥	15,206		¥	6,568	¥	125	¥	21,899
	Thousands of U.S. Dollars
	Digital Entertainment			Health & Fitness		Gaming & System		Total
Balance at March 31, 2009	$	163,714		$	70,593	$	1,344	$	235,651
Foreign currency translation adjustment		(279	)		—		—		(279	)
Balance at March 31, 2010	$	163,435		$	70,593	$	1,344	$	235,372

F-25

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Identifiable intangible assets at March 31, 2009 and 2010 primarily representing intangible assets acquired in connection with acquisitions of subsidiaries consisted of the following:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Identifiable intangible assets subject to amortization:
Existing technology	¥	513		¥	—		$	—
Franchise and other contracts		2,202			1,582			17,003
Membership lists		418			418			4,493
Less-Accumulated amortization		(1,044	)		(614	)		(6,599	)
Net amortized identifiable intangible assets		2,089			1,386			14,897
Identifiable intangible assets with an indefinite life:
Trademarks		33,553			33,553			360,630
Gaming licenses		241			307			3,299
Total unamortized identifiable intangible assets		33,794			33,860			363,929
Total identifiable intangible assets	¥	35,883		¥	35,246		$	378,826

Intangible assets determined to have an indefinite useful life have been reassessed at least annually based on the factors including, but not limited to, the expected use of the asset by the Company, legal or contractual provisions that may affect the useful life or renewal or extension of the asset’s contractual life without substantial cost, and the effects of demand, competition and other economic factors.

Intangible assets related to existing technology, membership lists and franchise and other contracts have been amortized over their estimated useful lives of 7 to 15 years.

The aggregate amortization expense for identifiable intangible assets for the years ended March 31, 2008, 2009 and 2010 was ¥709 million, ¥361 million and ¥251 million ($2,698 thousand), respectively.

The estimated amortization expense for the following years is as follows:

	Millions of Yen		Thousands of U.S. Dollars
Year ending March 31,
2011	¥	174	$	1,870
2012		174		1,870
2013		174		1,870
2014		174		1,870
2015		161		1,730

8.    Restructuring and impairment charges

For the purpose of aiming to future growth under the changing business environment surrounding the Health & Fitness segment, KONAMI recorded restructuring and impairment charges which primarily consisted of impairment charges for long-lived assets and identifiable intangible assets, closure costs related to the consolidation of overlapping and duplicated facilities at underperforming facilities. KONAMI plans to finalize the closure of the facilities in the year ending March 31, 2011.

F-26

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The following table summarizes the restructuring and impairment charges recognized in the accompanying consolidated statement of income for the year ended March 31, 2009 and 2010:

	Millions of Yen				Thousands of U.S. dollars
	2009		2010		2010
Impairment charges of long-lived assets	¥	7,881	¥	480	$	5,159
Impairment charge of identifiable intangible assets		1,857		451		4,848
Expenses related to closure of facilities		1,383		1,408		15,133
Total	¥	11,121	¥	2,339	$	25,140

Impairment charges for long-lived assets and intangible assets for the year ended March 31, 2009 and 2010 are more fully discussed in Note 6 and 7, respectively.

The following table presents the activities for liabilities with contract terminations related to closure of facilities for the year ended March 31, 2010:

	Millions of Yen			Thousands of U.S. dollars
	2010			2010
Beginning balance	¥	26		$	280
Additional costs incurred		389			4,181
Cash disbursements		(378	)		(4,063	)
Ending balance	¥	37		$	398

At March 31, 2009, KONAMI recognized ¥26 million of accrued contract termination cost and no further change was recorded for the year ended March 31, 2009.

The aggregate estimated amounts for contract termination costs related to closure of facilities is ¥481 million ($5,170 thousand), including ¥66 million ($709 thousand) which will be incurred for the year ending March 31, 2011.

9.    Other Assets

Other assets at March 31, 2009 and 2010 consisted of the following:

	Millions of Yen				Thousands of U.S. Dollars
	2009		2010		2010
Capitalized computer software, net	¥	6,816	¥	5,081	$	54,611
Investments in non-marketable securities		547		544		5,847
Other		4,993		4,844		52,064
Total other assets	¥	12,356	¥	10,469	$	112,522

F-27

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

KONAMI acquired computer software for internal use of ¥2,100 million and ¥1,871 million ($20,110 thousand) in fiscal years 2009 and 2010, respectively.

Capitalized computer software at March 31, 2009 and 2010 consisted of the following:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Capitalized computer software, at cost	¥	21,746		¥	21,071		$	226,472
Less—Accumulated amortization		(14,930	)		(15,990	)		(171,861	)
Capitalized computer software, net	¥	6,816		¥	5,081		$	54,611

Amortization expense of computer software for the years ended March 31, 2008, 2009 and 2010 amounted to ¥3,799 million, ¥3,731 million and ¥4,075 million ($43,798 thousand), respectively.

Estimated amortization expense of computer software for the following years is as follows:

	Millions of Yen		Thousands of U.S. Dollars
Year ending March 31,
2011	¥	2,661	$	28,601
2012		1,194		12,833
2013		761		8,179
2014		354		3,805
2015		111		1,193

Amortization expense of other intangible assets for the years ended March 31, 2008, 2009 and 2010 amounted to ¥93 million, ¥565 million and ¥288 million ($3,095 thousand), respectively.

10.    Short-term Borrowings and Long-term Debt

A summary of long-term debt at March 31, 2009 and 2010 is as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Unsecured 1.51% per annum bonds due in September 2011	¥	5,000		¥	5,000		$	53,740
Unsecured 1.61% per annum bonds due in September 2012		5,000			5,000			53,740
Unsecured 1.73% per annum bonds due in September 2013		5,000			5,000			53,740
Unsecured loans from banks due serially to 2011 with interest rates ranging from 0.87% to 1.03% per annum at March 31, 2009 and 2010		796			204			2,194
Total long-term debt		15,796			15,204			163,414
Less: current portion		(592	)		(204	)		(2,193	)
Long-term debt, non-current portion	¥	15,204		¥	15,000		$	161,221

F-28

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The Company issued unsecured bonds in the aggregate amount of ¥15,000 million in total on September 5, 2007. Unsecured long-term loans from banks included no loans denominated in foreign currencies at March 31, 2009 and 2010. Additionally, the interest rates as of March 31, 2009 and 2010 ranged from 0.87% to 1.03%, respectively, due by 2011. At March 31, 2009 and 2010, KONAMI did not have any assets that were pledged as collateral for any of the debt obligations.

The Company has committed lines of credit available for immediate borrowings amounting to ¥20,000 million ($214,961 thousand) with certain financial institutions on November 7, 2006. KONAMI did not have any balance for the agreements as of March 31, 2009 and 2010. The aggregate commitment fee paid for such credit line agreements for the years ended March 31, 2009 and 2010 amounted both to ¥15 million ($161 thousand).

The aggregate annual maturities of long-term debt outstanding at March 31, 2010 are as follows:

	Millions of Yen		Thousands of U.S. Dollars
Year ending March 31,
2011	¥	204	$	2,193
2012		5,000		53,740
2013		5,000		53,740
2014		5,000		53,740

11.    Leases

KONAMI is obligated under various capital leases and noncancelable operating leases which expire at various dates during the next 25 years.

At March 31, 2009 and 2010, the amounts of assets and related accumulated amortization included in property and equipment on the consolidated balance sheet recorded under capital leases were as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Building and structures	¥	17,973		¥	21,918		$	235,576
Tools, furniture and fixtures		6,588			5,159			55,449
Accumulated amortization		(6,317	)		(7,569	)		(81,352	)
Net leased property	¥	18,244		¥	19,508		$	209,673

F-29

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Amortization of capitalized leases is included in depreciation expense.

Future minimum lease payments under capital leases and noncancelable operating leases as of March 31, 2010 are as follows:

	Millions of Yen					Thousands of U.S. Dollars
	Capital Leases			Operating Leases		Capital Leases			Operating Leases
Year ending March 31,
2011	¥	3,512		¥	8,956	$	37,747		$	96,260
2012		2,833			8,937		30,449			96,055
2013		2,622			8,888		28,182			95,529
2014		2,398			8,796		25,774			94,540
2015		2,371			8,763		25,484			94,185
Thereafter		23,620			52,859		253,869			568,132
Total minimum lease payments	¥	37,356		¥	97,199		401,505		$	1,044,701
Less: amount representing interest (rates ranging from 1.250% to 9.362% per annum)		(10,242	)				(110,082	)
Present value of net minimum lease payments		27,114					291,423
Less: current portion		(2,229	)				(23,957	)
Non-current portion	¥	24,885				$	267,466

Current and non-current portions of minimum leases payments for capital leases are included in current and non-current portions of long-term debt, respectively, in the accompanying consolidated balance sheets.

KONAMI occupies certain offices and lease equipment under cancelable lease arrangements. Rental expenses for all operating leases for the years ended March 31, 2008, 2009 and 2010 totaled ¥19,452 million, ¥19,022 million and ¥18,763 million ($201,666 thousand), respectively, and were included in costs of products sold, costs of services rendered and selling, general and administrative expenses in the accompanying consolidated statements of income.

12.    Asset Retirement Obligation

KONAMI has asset retirement obligations arising from the contractual requirements to perform certain asset retirement activities at the time that certain leasehold improvements relating primarily to the office and the health and fitness facilities are disposed of. The liability was initially measured at fair value and subsequently is adjusted for accretion expenses and changes in amount or timing of estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of related long-lived assets and depreciated over the assets’ useful life.

F-30

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The following table presents the activity for asset retirement obligations for the years ended March 31, 2009 and 2010:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Beginning balance	¥	2,997		¥	3,803		$	40,875
Accretion expense		86			82			1,483
Liabilities settled		(23	)		(1,006	)		(10,813	)
Additional liabilities incurred		49			138			881
Changes in estimates, including timing		694			367			3,945
Ending balance	¥	3,803		¥	3,384		$	36,371

13.    Income Taxes

The Company and its domestic subsidiaries are subject to national corporate tax of 30% and corporate inhabitant tax plus enterprise tax of approximately 10.9%, after considering the non-deductible expense to the corporation tax, which in the aggregate resulted in a statutory income tax rate of 40.9% for the years ended March 31, 2008, 2009 and 2010. Foreign subsidiaries are subject to income taxes of the countries in which they operate. The income before income taxes and equity in the earnings (loss) of an affiliated company, and income tax expense (benefit) for the years ended March 31, 2008, 2009 and 2010 consisted of the following:

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Income before income taxes and equity in the earnings (loss) of an affiliated company:
Japan	¥	28,760		¥	17,764		¥	11,507		$	123,678
Foreign		4,074			6,955			5,615			60,350
Total	¥	32,834		¥	24,719		¥	17,122		$	184,028
Income taxes—Current:
Japan	¥	14,335		¥	14,812		¥	5,446		$	58,534
Foreign		1,970			714			1,731			18,605
Total	¥	16,305		¥	15,526		¥	7,177		$	77,139
Income taxes—Deferred:
Japan	¥	(2,421	)	¥	(5,380	)	¥	(404	)	$	(4,342	)
Foreign		(804	)		569			(3,173	)		(34,104	)
Total	¥	(3,225	)	¥	(4,811	)	¥	(3,577	)	$	(38,446	)

F-31

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The significant components of total income taxes for the years ended March 31, 2008, 2009 and 2010 are as follows:

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Income taxes on continuing operations before equity in net income (loss) of affiliated company and net income attributable to the noncontrolling interest	¥	13,080		¥	10,715		¥	3,600		$	38,693
Equity in net income (loss) of affiliated company		86			(1,757	)		11			118
Income tax expense (benefit) reported in other comprehensive income related to:
Net unrealized gains (losses) on available-for-sale securities		(17	)		(40	)		(6	)		(64	)
Pension liability adjustment		(72	)		(238	)		(40	)		(430	)
Total income taxes	¥	13,077		¥	8,680		¥	3,565		$	38,317

Reconciliations of the differences between the statutory income tax rates and the effective income tax rates are as follows:

	2008		2009		2010
Statutory income tax rate	40.9	%	40.9	%	40.9	%
Increase (reduction) in taxes resulting from:
Non-deductible expenses	0.6		1.5		2.7
Non-taxable income	(0.2	)	(0.3	)	(0.0	)
Change in valuation allowance	(6.4	)	(11.0	)	(22.4	)
Dividend of overseas subsidiaries	2.9		1.3		0.3
Unrecognized tax benefits	2.4		—		—
Adjustment of estimated income tax accruals	—		7.4		(0.4	)
Other, net	(0.4	)	3.5		(0.1	)
Effective income tax rate	39.8	%	43.3	%	21.0	%

F-32

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The effects of temporary differences that give rise to deferred tax assets and liabilities at March 31, 2009 and 2010 are as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Deferred tax assets:
Accrued enterprise taxes	¥	804		¥	622		$	6,685
Accrued expenses		4,245			2,987			32,104
Accrued pension and severance costs		1,474			1,400			15,047
Allowance for doubtful accounts		94			55			591
Inventories		15,019			15,804			169,862
Net operating loss carryforwards		4,017			5,865			63,038
Property and equipment basis differences		4,834			3,577			38,446
Asset retirement obligation		1,556			1,381			14,843
Deferred revenue		851			988			10,619
Investments in affiliate		1,549			1,522			16,359
Other		3,461			2,763			29,697
Gross deferred tax assets		37,904			36,964			397,291
Less valuation allowance		(5,727	)		(1,279	)		(13,747	)
Total deferred tax assets		32,177			35,685			383,544
Deferred tax liabilities:
Intangible assets		(14,647	)		(14,375	)		(154,503	)
Other		(1,263	)		(1,425	)		(15,316	)
Gross deferred tax liabilities		(15,910	)		(15,800	)		(169,819	)
Net deferred tax assets	¥	16,267		¥	19,885		$	213,725

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax loss carryforwards are utilizable. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that KONAMI will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2010.

The net change in the total valuation allowance for the years ended March 31, 2008, 2009 and 2010 were a decrease of ¥3,300 million, ¥2,715 million and ¥4,448 million ($47,807 thousand), respectively. The decrease of ¥4,448 for the year ended March 31, 2010 primarily resulted from the reversal of the valuation allowance against deferred tax assets of our U.S. subsidiaries in light of the strong performance in our Gaming and System segment.

F-33

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Net deferred tax assets were included in the accompanying consolidated balance sheets as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Current assets:
Deferred income taxes, net	¥	19,203		¥	20,669		$	222,152
Investments and other assets:
Deferred income taxes, net		3,641			3,531			37,952
Current liabilities:
Other current liabilities, net		(13	)		(153	)		(1,645	)
Long-term liabilities:
Deferred income taxes, net		(6,564	)		(4,162	)		(44,733	)
Net deferred tax assets	¥	16,267		¥	19,885		$	213,726

At March 31, 2010, subsidiaries had operating loss carryforwards aggregating approximately ¥14,340 million ($154,127 thousand), which will expire as follows:

	Millions of yen		Thousands of U.S. Dollars
Year ending March 31
2011	¥	157	$	1,687
2012		93		1,000
2013		477		5,127
2014		1,165		12,522
2015		824		8,856
2016		2,345		25,204
2017 and thereafter		9,279		99,731
Total	¥	14,340	$	154,127

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Millions of yen		Millions of yen		Millions of yen		Thousands of U.S. Dollars
	2008		2009		2010		2010
Beginning balance		—	¥	706	¥	706	$	7,588
Changes for the year	¥	706		—		—		—
Ending balance	¥	706	¥	706	¥	706	$	7,588

The total amount of unrecognized tax benefits as of each year end, if recognized, that would reduce the effective income tax rate, is ¥706 million ($7,588 thousand).

Although KONAMI believes its estimates and assumptions of unrecognized tax benefits are reasonable, given the uncertainty regarding when tax authorities will complete their examinations, the items subject to their examinations and the possible outcomes of their examinations, an accurate estimate of significant increases or

F-34

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

decreases that may occur within the next twelve months cannot be made at this time. Based on the items of which KONAMI is aware of at March 31, 2010, any change to the unrecognized tax benefits that, if recognized, would affect the effective income tax rate is not expected to be material.

KONAMI recognizes interest and penalties related to unrecognized tax benefits in income taxes in the consolidated statements of income. Both interest and penalties accrued as of March 31, 2009 and 2010, and interest and penalties included in income taxes for the years ended March 31, 2009 and 2010 are not material.

KONAMI files its income tax returns in various tax jurisdictions. KONAMI is no longer subject to tax examinations by the respective local tax authorities for fiscal years prior to 1999 for Europe, fiscal years prior to 2005 for North America and Australia, and fiscal years prior to 2006 for Japan.

14.    Severance and Retirement Plans

The Company and its domestic subsidiaries have defined benefit severance and retirement plans covering their employees. The plans provide, under most circumstances, retirement benefits and lump-sum severance payments to the employees that are determined by reference to their rates of pay at the time of termination, years of service and certain other factors. All employees may choose either to remain in the defined benefit plans or to withdraw from the plans and enroll under such system as receiving all compensation during their employment. For those under the fixed annual compensation system, separate severance and retirement benefits are not to be paid upon their termination or retirement.

KONAMI recognizes the funded status of a benefit plan (measured as the difference between plan assets at fair value and the benefit obligation) in the consolidated balance sheet and recorded the adjustments, after considering tax effect, as a component of accumulated other comprehensive income (loss). The adjustments made to accumulated other comprehensive income (loss) represent actuarial (gain) loss and unamortized prior service cost.

F-35

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The reconciliation of beginning and ending balances of the benefit obligations of the Company and its domestic subsidiaries’ plans are as follows:

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Change in benefit obligation:
Benefit obligation, beginning of year	¥	3,300		¥	3,524		$	37,876
Service cost		204			210			2,257
Interest cost		25			25			269
Actuarial loss		90			228			2,451
Benefits paid		(95	)		(85	)		(914	)
Benefit obligation, end of year	¥	3,524		¥	3,902		$	41,939
Change in plan assets:
Fair value of plan assets, beginning of year	¥	2,044		¥	1,922		$	20,658
Actual return on plan assets		(280	)		161			1,730
Employer contribution		207			207			2,225
Benefits paid		(49	)		(53	)		(570	)
Fair value of plan assets, end of year	¥	1,922		¥	2,237		$	24,043
Under funded status	¥	(1,602	)	¥	(1,665	)	$	(17,896	)
Amounts recognized in the consolidated balance sheets consist of:
Other assets	¥	54		¥	134		$	1,440
Other current liabilities		(36	)		(34	)		(366	)
Accrued pension and severance costs		(1,620	)		(1,765	)		(18,970	)
Net amount recognized	¥	(1,602	)	¥	(1,665	)	$	(17,896	)

Recognized accumulated other comprehensive income (loss) at March 31, 2009 and 2010 is as follows;

	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Actuarial net loss		(100	)		(157	)		(1,687	)
		(100	)		(157	)		(1,687	)
	Millions of Yen						Thousands of U.S. Dollars
	2009			2010			2010
Pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	¥	2,703		¥	3,101		$	33,330
Accumulated benefit obligation		2,561			2,899			31,159
Fair value of plan assets		1,047			1,302			13,994

F-36

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The measurement date used to determine pension benefit obligations for all the pension plans was March 31. The accumulated benefit obligations for the defined benefit plans were ¥3,364 million and ¥3,699 million ($39,757 thousand) at March 31, 2009 and 2010 respectively.

Net periodic cost of the Company and its domestic subsidiaries’ plans for the years ended March 31, 2008, 2009 and 2010 included the following components:

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Service cost—benefits earned during the year	¥	234		¥	204		¥	210		$	2,257
Interest cost on projected benefit obligation		24			25			25			268
Expected return on plan assets		(46	)		(41	)		(38	)		(408	)
Recognized actuarial gain		(60	)		(136	)		(27	)		(290	)
Amortization of prior service cost		(13	)		(39	)		—			—
Net periodic cost	¥	139		¥	13		¥	170		$	1,827

Estimated amortization for actuarial loss for the year ending March 31, 2011 is as follows:

	Millions of yen	Thousands of U.S. Dollars
Actuarial net loss	25	268

Weighted-average assumptions used to determine projected benefit obligations at March 31, 2009 and 2010 were as follows:

	2009		2010
Weighted-average assumptions:
Discount rate	1.1	%	0.9	%
Assumed rate of increase in future compensation levels	1.9	%	1.8	%

Weighted-average assumptions used to determine net periodic cost for the years ended March 31, 2008, 2009 and 2010 were as follows:

	2008		2009		2010
Weighted-average assumptions:
Discount rate	1.3	%	1.3	%	1.1	%
Assumed rate of increase in future compensation levels	2.0	%	1.9	%	1.9	%
Expected long-term rate of return on plan assets	1.7	%	2.0	%	2.0	%

The Company and its domestic subsidiaries determine the expected long-term rate of return on plan assets of the various assets categories in which they invest. KONAMI considers the current expectations for future returns and the actual historical returns of each plan asset category.

The Company and its domestic subsidiaries’ investment goals for the pension benefit plans are to ensure adequate plan assets to provide future payments of pension benefits to eligible participants. The Company and its domestic subsidiaries address diversification by the use of domestic and foreign equity securities and domestic and foreign debt securities in order to secure stable return on plan assets subject to specific risk management

F-37

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

policies. The Company and its domestic subsidiaries evaluates the difference between expected return based on expected long-term rate of return on plan assets and actual return on invested plan assets on an annual basis. The Company and its domestic subsidiaries will revise the asset allocation if the evaluation requires a revision of its formulation of asset allocation.

The Company and its domestic subsidiaries’ plan assets consist of three major components: approximately 30% is invested in equity securities, approximately 30% is invested in debt securities, and approximately 40% is invested in other investment vehicles, primarily consisting of investments in life insurance company general accounts.

The equity securities for pooled funds are selected primarily from stocks that are listed on the securities exchanges. In making investment decisions, the Company and its domestic subsidiaries had examined the business condition of the investee companies, and appropriately diversified investments by type of industry and other relevant factors. The debt securities for pooled funds are selected primarily from government bonds, public debt instruments, and corporate bonds. In making investment decisions, the Company and its domestic subsidiaries had examined the quality of the issue, including rating, interest rate, and repayment dates, and appropriately diversified the investments. In regard to investments in life insurance company general accounts, the contracts with the insurance companies guarantee a certain amount of interest rate and return of capital.

The fair values of the Company and its domestic subsidiaries’ plan assets at March 31, 2010, by asset category, are as follows:

	Millions of Yen
Year Ended March 31, 2010	Level 1		Level 2		Level 3		Total
Plan assets
Equity securities:
Pooled funds	¥	—	¥	688	¥	—	¥	688
Debt securities:
Pooled funds		—		664		—		664
Other investment:
Life insurance company general accounts		—		809		—		809
Others		—		76		—		76
Total plan assets	¥	—	¥	2,237	¥	—	¥	2,237
	Thousands of U.S. Dollars
Year Ended March 31, 2010	Level 1		Level 2		Level 3		Total
Plan assets
Equity securities:
Pooled funds	$	—	$	7,395	$	—	$	7,395
Debt securities:
Pooled funds		—		7,136		—		7,136
Other investments:
Life insurance company general accounts		—		8,695		—		8,695
Others		—		817		—		817
Total plan assets	$	—	$	24,043	$	—	$	24,043

F-38

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The three levels of input used to measure fair value are more fully described in Note 19.

Pooled funds investing in the equity securities consist of approximately 65% Japanese companies and 35% foreign companies. Pooled funds investing in the debt securities consist of approximately 54% Japanese government bonds, 23% foreign government bonds, 22% Japanese public debt instruments and corporate bonds, and 1% foreign public debt instruments and corporate bonds.

Level 2 assets are comprised principally of pooled funds that invest in equity and debt securities and investments in life insurance company general accounts. Pooled funds are valued at their net asset values that are calculated by the sponsor of the fund and have daily liquidity. Investments in life insurance company general accounts are valued at conversion value.

As of March 31, 2010, the Company and its domestic subsidiaries did not have any Level 1 and 3 plan assets.

The Company and its domestic subsidiaries have participated in the welfare pension fund for a multi-employer contributory plan. KONAMI’s contributions to the plan amounted to ¥849 million, ¥887 million and ¥985 million ($10,587 thousand) for the years ended March 31, 2008, 2009 and 2010, respectively, and were recorded as costs and expenses in the consolidated statements of income.

The Company and its domestic subsidiaries expects to contribute ¥176 million ($1,892 thousand) and ¥901 million ($9,684 thousand) to its domestic defined benefit plan and multi-employer contributory plan, respectively, in the year ending March 31, 2011.

Future estimated pension benefit payments, using the defined benefit plan for the Company and its domestic subsidiaries are as follows.

	Millions of yen		Thousands of U.S. Dollars
Year ending March 31
2011	¥	214	$	2,300
2012		226		2,429
2013		221		2,375
2014		214		2,300
2015		207		2,225
2016-2019		1,079		11,597

The Company has accrued the liability for retirement benefits for their directors and corporate auditors in the amount of ¥1,321 million and ¥ 1,096 ($11,780 thousand) at March 31, 2009 and 2010, respectively, which is included in accrued pension and severance costs in the accompanying consolidated balance sheets.

F-39

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

15.    Stockholders’ Equity

Dividends

Under the Japanese Corporate Law (the “Law”), the amount available for dividends is based on retained earnings as recorded on the books of the Company maintained in conformity with Japanese GAAP. Certain adjustments not recorded on the Company’s books are reflected in the consolidated financial statements for reasons described in Note 1. At March 31, 2010, retained earnings available for dividends determined in accordance with Japanese GAAP recorded on the Company’s books of account were ¥68,436 million ($735,555 thousand).

The Law provides that an amount equal to at least 10% of the aggregate amount of cash dividends of retained earnings associated with cash outlays shall be appropriated as a legal reserve until such reserve and additional paid-in-capital equals 25% of common stock.

Treasury Stock Transactions

The following table summarizes treasury stock activities for the years ended March 31, 2009 and 2010:

	Change in Treasury stock
	Shares		Millions of yen
Balance at March 31, 2008	6,178,443		¥	18,073
Acquisition through purchase of odd-lot shares	25,846			101
Issuance upon exercise under stock compensation plan	4,000,000			5,475
Retirement of treasury stock	(165,791	)		(463	)
Balance at March 31, 2009	10,038,498		¥	23,186
Acquisition through purchase of odd-lot shares	1,684			3
Sell upon request for purchase of odd-lot shares	(846	)		(2	)
Balance at March 31, 2010	10,039,336		¥	23,187

	Change in Treasury stock
	Thousands of U.S. Dollars
Balance at March 31, 2009	$	249,205
Acquisition through purchase of odd-lot shares		32
Sell upon request for purchase of odd-lot shares		(22	)
Balance at March 31, 2010	$	249,215

Stock-based Compensation Plan

The Company and its domestic consolidated subsidiaries maintain certain stock-based compensation plans for grant of stock subscription rights to their directors and employees. Under these plans, the number of common shares issuable will be adjusted for stock splits, reverse stock splits and certain other recapitalizations.

KONAMI’s stock option awards generally vest based on 2 to 4 years of continuous service and have 5-year contractual terms. These awards gradually vest through the period of service rendered and therefore

F-40

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

compensation cost is recognized over the period, in which employees are required to provide service. The compensation cost recognized for the years ended March 31, 2008 and 2009 and 2010 were ¥68 million, ¥12 million and nil, respectively.

All the stock subscription rights granted KONAMI’s stock-based compensation plans expired at June 30, 2009.

The following summarizes KONAMI’s stock option and changes during the year ended March 31, 2010.

Options	Shares	Weighted-Average Exercise Price (in yen)	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in  millions of yen)
Outstanding at March 31, 2009	741,968	3,133	—	—
Granted	—	—	—	—
Exercised	—	—	—	—
Forfeited or expired	741,968	3,133	—	—
Outstanding at March 31, 2010	—	—	—	—
Exercisable at March 31, 2010	—	—	—	—

Aggregate intrinsic value of options exercised were ¥26 million, ¥1 million and nil for the year ended March 31, 2008, 2009 and 2010, respectively.

Aggregate fair value of shares vested for the year ended March 31, 2008, 2009 and 2010 were ¥262 million, ¥229 million and nil, respectively.

Cash received from the exercise of stock options were ¥463 million and nil for the years ended March 31, 2009 and 2010, respectively.

KONAMI has a policy for issuing its treasury stock to satisfy option exercises.

F-41

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

16.    Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) at March 31, 2008, 2009 and 2010 were as follows:

	Millions of Yen									Thousands of U.S. Dollars
	2008			2009			2010			2010
Foreign currency translation adjustments, net of tax:
Balance, beginning of year	¥	5,174		¥	2,267		¥	189		$	2,031
Aggregate adjustment for the year resulting from translation of foreign currency financial statements		(2,907	)		(2,078	)		(207	)		(2,225	)
Balance, end of year	¥	2,267		¥	189		¥	(18	)	$	(194	)
Net unrealized gains (losses) on available-for-sale securities, net of tax:
Balance, beginning of year	¥	93		¥	68		¥	9		$	97
Net change		(25	)		(59	)		(8	)		(86	)
Balance, end of year	¥	68		¥	9		¥	1		$	11
Adjustment on retirement benefits, net of tax:
Balance, beginning of year		350			244			(100	)	$	(1,075	)
Net change		(106	)		(344	)		(58	)		(623	)
Balance, end of year	¥	244		¥	(100	)	¥	(158	)	$	(1,698	)
Total accumulated other comprehensive income (loss), net of tax:
Balance, beginning of year	¥	5,617		¥	2,579		¥	98		$	1,053
Adjustments for the year		(3,038	)		(2,481	)		(273	)		(2,934	)
Balance, end of year	¥	2,579		¥	98		¥	(175	)	$	(1,881	)

F-42

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Tax effects allocated to each component of other comprehensive income (loss) and adjustments are as follows:

	Millions of Yen
	Pretax amount			Tax (expense) or benefit			Net of tax amount
2008
Foreign currency translation adjustments	¥	(2,907	)	¥	—		¥	(2,907	)
Net unrealized losses on available-for-sale securities:
Unrealized losses arising during the year		(42	)		17			(25	)
Less: reclassification adjustment for gains included in net income		—			—			—
Net unrealized losses		(42	)		17			(25	)
Pension liability adjustment:
Net loss arising during the year		(105	)		43			(62	)
Less: amortization of net gain		(60	)		23			(37	)
Net loss		(165	)		66			(99	)
Amortization of prior service cost		(13	)		6			(7	)
Pension liability adjustments, net		(178	)		72			(106	)
Other comprehensive loss	¥	(3,127	)	¥	89		¥	(3,038	)
2009
Foreign currency translation adjustments	¥	(2,078	)	¥	—		¥	(2,078	)
Net unrealized losses on available-for-sale securities:
Unrealized losses arising during the year		(99	)		40			(59	)
Less: reclassification adjustment for gains included in net income		—			—			—
Net unrealized losses		(99	)		40			(59	)
Pension liability adjustment:
Net loss arising during the year		(407	)		166			(241	)
Less: amortization of net gain		(136	)		56			(80	)
Net loss		(543	)		222			(321	)
Amortization of prior service cost		(39	)		16			(23	)
Pension liability adjustments, net		(582	)		238			(344	)
Other comprehensive loss	¥	(2,759	)	¥	278		¥	(2,481	)
2010
Foreign currency translation adjustments	¥	(207	)	¥	—		¥	(207	)
Net unrealized losses on available-for-sale securities:
Unrealized losses arising during the year		(199	)		81			(118	)
Less: reclassification adjustment for gains included in net income		185			(75	)		110
Net unrealized losses		(14	)		6			(8	)
Pension liability adjustment:
Net loss arising during the year		(71	)		29			(42	)
Less: amortization of net gain		(27	)		11			(16	)
Net loss		(98	)		40			(58	)
Pension liability adjustments, net		(98	)		40			(58	)
Other comprehensive loss	¥	(319	)	¥	46		¥	(273	)

F-43

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

	Thousands of U.S. Dollars
	Pretax amount			Tax (expense) or benefit			Net of tax amount
2010
Foreign currency translation adjustments	$	(2,225	)	$	—		$	(2,225	)
Net unrealized losses on available-for-sale securities:
Unrealized losses arising during the year		(2,138	)		870			(1,268	)
Less: reclassification adjustment for gains included in net income		1,988			(806	)		1,182
Net unrealized losses		(150	)		64			(86	)
Pension liability adjustment:
Net loss arising during the year		(763	)		312			(451	)
Less: amortization of net gain		(290	)		118			(172	)
Net loss		(1,053	)		430			(623	)
Pension liability adjustments, net		(1,053	)		430			(623	)
Other comprehensive loss	$	(3,428	)	$	494		$	(2,934	)

17.    Derivative Financial Instruments

Effective January 1, 2009, KONAMI has adopted ASC No. 815, “Derivatives and Hedging” (former SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities, An amendment of FASB Statement No.133”).

KONAMI uses foreign exchange forward contracts with terms ranging from 3 to 6 months to reduce its exposure to short-term movements in the exchange rates applicable to firm funding commitments denominated in currencies other than Japanese yen. KONAMI does not hold derivative financial instruments for trading purposes.

The location and fair value amounts of derivative instruments reported in the consolidated statement of financial position as of March 31, 2009 and 2010 were as follows:

	Millions of Yen
	Asset Derivatives				Liability Derivatives
	2009		2010		2009			2010
	Balance Sheet location	Fair value	Balance Sheet location	Fair value	Balance Sheet location	Fair value		Balance Sheet location	Fair value
Derivatives not designated as hedging instruments:	—		—					—
Forward exchange contracts	—	—	—	—	Other current liabilities	¥	43	—	—
Total derivatives		—		—		¥	43		—

The aggregate notional amount of forward exchange contracts at March 31, 2009 is ¥938 million.

F-44

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

KONAMI does not designate the foreign exchange forward contracts as hedges. The gain or loss recognized in earnings on derivatives for the three months ended March 31, 2009 and for the year ended March 31, 2010 were as follows:

	Location of Gain or (Loss) recognized in Income on Derivative	For the three months ended March 31, 2009			For the year  ended March 31, 2010
		Millions of Yen			Millions of Yen		Thousands of U.S. Dollars
Derivatives not designated as hedging instruments:
Forward exchange contracts	Foreign currency exchange gain (loss), net	¥	(19	)	¥	137	$	1,472
Total		¥	(19	)	¥	137	$	1,472

Foreign exchange net gain or losses, including those on these forward exchange contracts, for the years ended March 31, 2008, 2009 and 2010 were loss of ¥704 million, loss of ¥1,641 million and gain of ¥67 million ($720 thousand), respectively. Effects of exchange rate changes subsequent to March 31, 2010 on fair value of those forward exchange contracts have not been significant as of the reporting date.

18.    Fair Value of Financial Instruments

Cash and cash equivalents, Trade notes and accounts receivable, Trade notes and accounts payable, Accrued expenses, and Short-term borrowings

The carrying amount approximates fair value because of the short maturity of these instruments.

Investments in marketable securities

The fair values of KONAMI’s investments in marketable securities are based on quoted market prices.

Investments in non-marketable securities

For investments in non-marketable securities for which there are no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. It was not practicable to estimate the fair value of common stock representing certain untraded companies. These investments are carried at cost.

Long-term debt

The fair values of KONAMI’s long-term debt instruments are based on the quoted price in the most active market or the present value of future cash flows associated with each instrument discounted using the Company’s current borrowing rate for similar debt instruments of comparable maturity.

Derivative financial instruments

The fair values of derivative financial instruments, consisting principally of foreign exchange forward contracts, all of which are used for purposes other than trading, are estimated by obtaining quotes from brokers.

F-45

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

The estimated fair values of KONAMI’s financial instruments at March 31, 2009 and 2010 are as follows:

	Millions of Yen												Thousands of U.S. Dollars
	2009						2010						2010
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Non-derivatives:
Investment in marketable securities	¥	560		¥	560		¥	226		¥	226		$	2,429		$	2,429
Long-term debt, including current installments		(15,796	)		(15,318	)		(15,204	)		(15,103	)		(163,414	)		(162,328	)
Derivatives:
Foreign exchange forward contracts:
Assets		—			—			—			—			—			—
Liabilities		43			43			—			—			—			—

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

19.    Fair Value Measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

Level 1 —	Quoted prices for identical assets or liabilities in active markets
Level 2 —	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 —	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

F-46

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of March 31, 2009 and 2010, our assets and liabilities measured at fair value on a recurring basis are summarized in the following table by the type of inputs applicable to the fair value measurements.

	Millions of Yen
Year Ended March 31, 2009	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities	¥	560	¥	—	¥	—	¥	560
Total assets	¥	560	¥	—	¥	—	¥	560
Liabilities:
Derivatives	¥	—	¥	43	¥	—	¥	43
Total liabilities	¥	—	¥	43	¥	—	¥	43
	Millions of Yen
Year Ended March 31, 2010	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities	¥	226	¥	—	¥	—	¥	226
Total assets	¥	226	¥	—	¥	—	¥	226
Liabilities:
Derivatives	¥	—	¥	—	¥	—	¥	—
Total liabilities	¥	—	¥	—	¥	—	¥	—
	Thousands of U.S. Dollars
Year Ended March 31, 2010	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities	$	2,429	$	—	$	—	$	2,429
Total assets	$	2,429	$	—	$	—	$	2,429
Liabilities:
Derivatives	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

Level 1 investments are comprised solely of available-for-sale securities, which is valued using an unadjusted quoted market price in active markets with sufficient volume and frequency of transactions.

Derivative financial instruments are comprised of foreign exchange forward contracts. Level 2 derivatives are valued using quotes obtained from counterparties or third parties, which are periodically validated by pricing models using observable market inputs, such as foreign currency exchange rates and interest rates.

As of March 31, 2009 and 2010, KONAMI did not have any Level 3 financial instruments that were measured and recorded at fair value on a recurring basis.

F-47

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

As of March 31, 2009 and 2010, our assets and liabilities measured at fair value on a non-recurring basis are summarized in the following table by the type of inputs applicable to the fair value measurements.

	Millions of Yen
Year Ended March 31, 2009	Carrying Value		Level 1		Level 2		Level 3		Total gain or losses
Assets:
Equity-method Investments	¥	2,119	¥	2,119	¥	—	¥	—	¥	(4,347	)
Total	¥	2,119	¥	2,119	¥	—	¥	—	¥	(4,347	)

The Company’s marketable equity-method investment was measured at fair value during the year ended March 31, 2009 due to events or circumstances the Company identified that significantly impacted the fair value of these investments, resulting in other-than-temporary impairment charges. As a result, the Company recorded a ¥4,347 million of impairment charge for its investments to write down the investment to its fair value. The impairment charge was included in equity in net income (loss) of affiliated companies on the consolidated statements of income. We classified these investments as Level 1, as we use an unadjusted quoted market price in active markets.

Impairment charges for investments in affiliates for the year ended March 31, 2009 is more fully discussed in Note 3.

	Millions of Yen
Year Ended March 31, 2010	Carrying Value		Level 1		Level 2		Level 3		Total gain or losses
Non-financial assets:
Property and equipments, net	¥	—	¥	—	¥	—	¥	—	¥	(480	)
Identifiable intangible assets		—		—		—		—		(451	)
Total non-financial assets	¥	—	¥	—	¥	—	¥	—	¥	(931	)
	Thousands of U.S. Dollars
Year Ended March 31, 2010	Carrying Value		Level 1		Level 2		Level 3		Total gain or losses
Non-financial assets:
Property and equipments, net	$	—	$	—	$	—	$	—	$	(5,159	)
Identifiable intangible assets		—		—		—		—		(4,847	)
Total non-financial assets	$	—	$	—	$	—	$	—	$	(10,006	)

During the year ended March 31, 2010, KONAMI wrote down the carrying value of the long-lived assets amounted to ¥480 million ($5,159 thousand) to their fair value nil, and we classified them as Level 3, whose fair value was valued with inputs to be unobservable. As a result, KONAMI recorded impairment losses of ¥480 million ($5,159 thousand) for property and equipments, and those losses were included in the accompanying consolidated statements of income for the year ended March 31, 2010.

F-48

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

During the year ended March 31, 2010, KONAMI concluded the fair value of certain indefinite lived intangible assets was lower than their carrying value. Consequently, the carrying value of the assets was written down to their fair value nil, and we classified them as Level 3, whose fair value was valued with inputs to be unobservable. As a result, KONAMI recorded an aggregate impairment loss of ¥451 million ($4,847 thousand) for identifiable intangible assets, and the loss was included in the accompanying consolidated statements of income for the year ended March 31, 2010.

Impairment losses for long-lived assets and intangible assets are more fully discussed in Note 6 and 7, respectively.

20.    Supplemental Disclosures to Consolidated Statements of Cash Flows

	Millions of Yen							Thousands of U.S. Dollars
	2008			2009		2010		2010
Cash paid during the year for:
Interest, excluding interest capitalized	¥	1,007		¥	1,447	¥	1,545	$	16,606
Income taxes		8,589			17,722		9,641		103,622
Acquisitions of new subsidiaries:
Fair value of assets acquired		9,707			—		—		—
Liabilities assumed		(9,283	)		—		—		—
Other		(57	)		—		—		—
Cash paid, net of cash acquired		367			—		—		—
Property acquired under capital leases during the year		600			6,116		4,371		46,980
Recognition of tangible fixed assets due to assets retirement obligation		1,688			743		505		5,428

21.    Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The operating segments are managed separately as each segment represents a strategic business unit that offers different products and serves different markets. KONAMI operates on a worldwide basis principally with the following three business segments:

1. Digital Entertainment:	Production and sale of digital contents and related products including Computer & Video Games, Amusement, Card Games, and Online.
2. Gaming & Systems:	Production, manufacture, sale and service of gaming machines and the Casino Management System for overseas markets.
3. Health & Fitness:	Operation of health and fitness clubs, and production and sale of health and fitness related goods.

Notes:

1. “Other” consists of segments which do not meet the quantitative criteria for separate presentation of segment reporting.

2. “Corporate” primarily consists of administrative expenses of the Company.

3. “Eliminations” primarily consist of eliminations of intercompany sales and of intercompany profits on inventories.

F-49

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

4. Segment income (loss) is measured in a consistent manner with consolidated operating income, which is income before income taxes and equity in income of affiliates before other income (expenses). Expenses not directly associated with specific segments are allocated based on the most reasonable measures applicable.

5. Assets of each segment are defined as total assets, including derivative financial instruments, investments in affiliates, and deferred tax assets. Segment assets are based on those directly associated with each segment and those not directly associated with specific segments are allocated based on the most reasonable measures applicable.

6. Intersegment sales and revenues are generally made at values that approximate arm’s-length prices.

The following table summarizes presents segment revenue, segment operating income (loss), segment assets, segment depreciation and amortization and segment capital expenditures information. This information is derived from KONAMI’s management reports which have been prepared based on U.S. GAAP.

a .    Segment information

(1) Revenue and operating income (loss)

Year Ended March 31, 2008	Digital Entertainment		Gaming & System		Health & Fitness		Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	178,382	¥	18,471	¥	86,196	¥	14,353		¥	297,402
Intersegment		557		—		348		(905	)		—
Total		178,939		18,471		86,544		13,448			297,402
Operating expenses		143,579		15,677		81,251		23,056			263,563
Operating income (loss)	¥	35,360	¥	2,794	¥	5,293	¥	(9,608	)	¥	33,839

Year Ended March 31, 2009	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	187,308	¥	18,336	¥	89,702		¥	14,425		¥	309,771
Intersegment		320		—		263			(583	)		—
Total		187,628		18,336		89,965			13,842			309,771
Operating expenses		146,076		14,889		98,235			23,210			282,410
Operating income (loss)	¥	41,552	¥	3,447	¥	(8,270	)	¥	(9,368	)	¥	27,361

F-50

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	142,239	¥	19,996	¥	85,480		¥	14,429		¥	262,144
Intersegment		411		—		285			(696	)		—
Total		142,650		19,996		85,765			13,733			262,144
Operating expenses		121,167		15,323		87,687			19,303			243,480
Operating income (loss)	¥	21,483	¥	4,673	¥	(1,922	)	¥	(5,570	)	¥	18,664
Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness			Other, Corporate and Eliminations			Consolidated
	(Thousands of U.S. Dollars)
Net revenue:
External Customers	$	1,528,794	$	214,918	$	918,745		$	155,084		$	2,817,541
Intersegment		4,417		—		3,063			(7,480	)		—
Total		1,533,211		214,918		921,808			147,604			2,817,541
Operating expenses		1,302,311		164,693		942,466			207,469			2,616,939
Operating income (loss)	$	230,900	$	50,225	$	(20,658	)	$	(59,865	)	$	200,602

As further described in Note 8, non-cash restructuring and impairment charges of ¥11,095 million ($119,250 thousand) and ¥1,950 million ($20,959 thousand) were included in the operating expenses of the Health & Fitness segment for the year ended March 31, 2009 and 2010, respectively.

F-51

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

(2) Total assets, depreciation and amortization and capital expenditures

Year Ended March 31, 2008	Digital Entertainment		Gaming & System		Health & Fitness		Other, Corporate and Eliminations		Consolidated
	(Millions of Yen)
Assets	¥	120,530	¥	13,646	¥	128,296	¥	56,776	¥	319,248
Depreciation and amortization		4,982		251		3,723		3,113		12,069
Capital expenditures		1,349		1,324		1,746		9,312		13,731
Year Ended March 31, 2009	Digital Entertainment		Gaming & System		Health & Fitness		Other, Corporate and Eliminations		Consolidated
	(Millions of Yen)
Assets	¥	133,210	¥	12,447	¥	104,520	¥	51,493	¥	301,670
Depreciation and amortization		3,280		959		4,793		4,699		13,731
Capital expenditures		1,659		1,310		1,591		2,252		6,812
Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness		Other, Corporate and Eliminations		Consolidated
	(Millions of Yen)
Assets	¥	133,973	¥	14,049	¥	107,523	¥	42,653	¥	298,198
Depreciation and amortization		2,907		732		4,894		4,366		12,899
Capital expenditures		1,523		976		4,803		660		7,962
Year Ended March 31, 2010	Digital Entertainment		Gaming & System		Health & Fitness		Other, Corporate and Eliminations		Consolidated
	(Thousands of U.S. Dollars)
Assets	$	1,439,951	$	151,000	$	1,155,664	$	458,437	$	3,205,052
Depreciation and amortization		31,244		7,868		52,601		46,926		138,639
Capital expenditures	$	16,369	$	10,490	$	51,623	$	7,094	$	85,576

Eliminations and corporate primarily consist of eliminations of intercompany profits on inventories and assets for corporate headquarters, which primarily consist of cash and financial assets.

Capital expenditures include expenditures for acquisitions of tangible and intangible long-lived assets used in operations of each segment and are stated on an accrual basis.

F-52

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

b.    Geographic information

Year Ended March 31, 2008	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	220,462	¥	34,137	¥	35,589	¥	7,214		¥	297,402		—		¥	297,402
Intersegment		21,147		4,802		44		658			26,651	¥	(26,651	)		—
Total		241,609		38,939		35,633		7,872			324,053		(26,651	)		297,402
Operating expenses		211,643		37,532		33,810		7,304			290,289		(26,726	)		263,563
Operating income (loss)	¥	29,966	¥	1,407	¥	1,823	¥	568		¥	33,764	¥	75		¥	33,839
Property and equipment, net	¥	64,075	¥	2,170	¥	147	¥	298		¥	66,690		—		¥	66,690
Year Ended March 31, 2009	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	223,662	¥	44,051	¥	37,216	¥	4,842		¥	309,771		—		¥	309,771
Intersegment		24,762		4,266		96		596			29,720	¥	(29,720	)		—
Total		248,424		48,317		37,312		5,438			339,491		(29,720	)		309,771
Operating expenses		229,411		43,779		33,158		5,784			312,132		(29,722	)		282,410
Operating income (loss)	¥	19,013	¥	4,538	¥	4,154	¥	(346	)	¥	27,359	¥	2		¥	27,361
Property and equipment, net	¥	57,951	¥	2,238	¥	112	¥	251		¥	60,552		—		¥	60,552
Year Ended March 31, 2010	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations			Consolidated
	(Millions of Yen)
Net revenue:
External Customers	¥	198,500	¥	33,743	¥	23,682	¥	6,219		¥	262,144		—		¥	262,144
Intersegment		14,272		3,805		89		669			18,835	¥	(18,835	)		—
Total		212,772		37,548		23,771		6,888			280,979		(18,835	)		262,144
Operating expenses		199,427		33,845		22,598		6,560			262,430		(18,950	)		243,480
Operating income (loss)	¥	13,345	¥	3,703	¥	1,173	¥	328		¥	18,549	¥	115		¥	18,664
Property and equipment, net	¥	60,345	¥	1,739	¥	93	¥	257		¥	62,434		—		¥	62,434
Year Ended March 31, 2010	Japan		United States		Europe		Asia/ Oceania			Total		Eliminations			Consolidated
	(Thousands of U.S. Dollars)
Net revenue:
External Customers	$	2,133,491	$	362,672	$	254,536	$	66,842		$	2,817,541		—		$	2,817,541
Intersegment		153,396		40,896		958		7,190			202,440	$	(202,440	)		—
Total		2,286,887		403,568		255,494		74,032			3,019,981		(202,440	)		2,817,541
Operating expenses		2,143,454		363,768		242,886		70,507			2,820,615		(203,676	)		2,616,939
Operating income (loss)		143,433		39,800		12,608		3,525			199,366	$	1,236			200,602
Property and equipment, net	$	648,592	$	18,691	$	1,000	$	2,762		$	671,045		—		$	671,045

F-53

KONAMI CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended March 31, 2008, 2009 and 2010—(Continued)

For the purpose of presenting its operations in geographic areas above, KONAMI attributes revenues from external customers to individual countries in each area based on where the Company and its subsidiaries sold products or rendered services, and attributes assets based on where assets are located.

22.    Commitments and Contingencies

KONAMI is subject to pending claims and litigation. After review and consultation with counsel, management considered that any liability that may result from the disposition of such lawsuits would not be material.

KONAMI has placed firm orders for purchases of property, plant and equipment and other assets amounting to approximately ¥60 million ($645 thousand) as of March 31, 2010.

F-54

KONAMI CORPORATION

AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

	Millions of Yen
	Balance at beginning of the year		Additions		Deductions		Balance at end of the year
2008
Allowance for doubtful accounts
Trade accounts receivable	¥	540	¥	234	¥	514	¥	260
2009
Allowance for doubtful accounts
Trade accounts receivable	¥	260	¥	344	¥	134	¥	470
2010
Allowance for doubtful accounts
Trade accounts receivable	¥	470	¥	221	¥	11	¥	680

	Thousands of U.S. Dollars
	Balance at beginning of the year		Additions		Deductions		Balance at end of the year
2010
Allowance for doubtful accounts
Trade accounts receivable	$	5,052	$	2,375	$	118	$	7,309

F-55

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

KONAMI CORPORATION

Date: August 6, 2010

/s/    NORIAKI YAMAGUCHI        

Noriaki Yamaguchi

Representative Director, Vice-President,

Corporate Officer

INDEX TO EXHIBITS

Exhibit Number	Description
1.1	— Articles of Incorporation of the registrant (English translation)****
1.2	— Share Handling Regulations of the registrant (English translation)****
1.3	— Regulations of the board of directors of the registrant (English translation)*
1.4	— Regulations of the board of corporate auditors of the registrant (English translation)*
2.1	— Form of Deposit Agreement among the registrant, JPMorgan Chase Bank as Depositary and all owners and holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt***
8.1	— List of subsidiaries of the registrant
11.1	— The Konami Group Code of Business Conduct and Ethics**
12.1	— Certification of the Chief Executive Officer required by Rule 13a-14(a)
12.2	— Certification of the Chief Financial Officer required by Rule 13a-14(a)
13.1	— Certification of the Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
13.2	— Certification of the Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code

*       Incorporated by reference to the Annual Report on Form 20-F filed on August 2, 2007

**     Incorporated by reference to the Annual Report on Form 20-F filed on July 22, 2005

***   Incorporated by reference to the Registration Statement on Form F-6 filed on September 20, 2002.

**** Incorporated by reference to the Annual Report on Form 20-F filed on August 3, 2009

We have not included as exhibits certain instruments with respect to our long-term debt. The amount of debt authorized under each such debt instrument does not exceed 10% of our total assets. We agree to furnish a copy of any such instrument to the Commission upon request.

EX-8.1

Exhibit 8.1

Subsidiaries of the Registrant

Company Name in English	Jurisdiction of Incorporation
Konami Digital Entertainment Co., Ltd.	Japan
KPE, Inc.	Japan
Konami Sports Life & Co., Ltd.	Japan
Konami Real Estate, Inc.	Japan
COMBI WELLNESS Corporation	Japan
The Club at Yebisu Garden Co., Ltd	Japan
KPR, Inc.	Japan
HUDSON SOFT CO., LTD.	Japan
Konami Manufacturing & Service, Inc.	Japan
Internet Revolution Inc.	Japan
Konami Digital Entertainment, Inc.	U.S.A
Konami Gaming, Inc.	U.S.A
Konami Corporation of America	U.S.A
Hudson Entertainment, Inc.	U.S.A
Konami Digital Entertainment B.V.	Holland
Konami Digital Entertainment GmbH	Germany
Konami Digital Entertainment Limited	China
Konami Software Shanghai, Inc.	China
Konami Digital Entertainment Co.	South Korea
Konami Australia Pty Ltd.	Australia
Konami Gaming (Australia) Pty Ltd.	Australia
Konami Computer Entertainment Europe, Ltd.	UK

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Kagemasa Kozuki, certify that:

1. I have reviewed this annual report on Form 20-F of KONAMI CORPORATION;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: August 6, 2010

/s/    KAGEMASA KOZUKI        

Kagemasa Kozuki

Representative Director and

Chairman of the Board, President

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Noriaki Yamaguchi, certify that:

1. I have reviewed this annual report on Form 20-F of KONAMI CORPORATION;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: August 6, 2010

/s/    NORIAKI YAMAGUCHI        

Noriaki Yamaguchi

Representative Director, Vice-President,

Corporate Officer

EX-13.1

Exhibit 13.1

CERTIFICATION

Pursuant to 18 U.S.C. § 1350, the undersigned officer of KONAMI CORPORATION (the “Company”) hereby certifies, to such officer’s knowledge, that the Company’s annual report on Form 20-F for the year ended March 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2010

/s/    KAGEMASA KOZUKI        

Kagemasa Kozuki

Representative Director and

Chairman of the Board, President

EX-13.2

Exhibit 13.2

CERTIFICATION

Pursuant to 18 U.S.C. § 1350, the undersigned officer of KONAMI CORPORATION (the “Company”) hereby certifies, to such officer’s knowledge, that the Company’s annual report on Form 20-F for the year ended March 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 6, 2010

/s/    NORIAKI YAMAGUCHI        

Noriaki Yamaguchi

Representative Director, Vice-President,

Corporate Officer