ANNUAL REPORT

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

(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:

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

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

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, 2014, 138,612,321 shares of common stock were outstanding, including 390,061 shares represented by 390,061 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 x 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):

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.

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

As used in this annual report, references to “the Company” are to KONAMI CORPORATION and 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 2014” refers to our fiscal year ended March 31, 2014, 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, “€” or “Euro” means the lawful currency of the member states of the European Union 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.

The following tables include selected historical financial data as of and for the fiscal years ended March 31, 2010 through 2014, 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.

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.

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.

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

Our Digital Entertainment segment, Gaming & Systems segment, and Pachinko & Pachinko Slot Machines 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, in recent years revenues from our mobile games^(*) have been heavily dependent on the sales of our rapidly growing titles such as DRAGON COLLECTION, SENGOKU COLLECTION, CROWS X WORST—Saikyou Densetsu, and Professional Baseball Dream Nine. Similarly, hit

home video game software titles such as 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.

(*) In our Form 20-F filings through fiscal year 2013, our products and services related to “mobile games” were referred to as “content for social networks.”

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

Our success depends on generating revenue from the timely introduction and shipment of new products. The majority of sales of new video game software for home use generally occurs in the first thirty to one hundred and twenty days after release. The sales occurrence for our Digital Entertainment segment, Gaming & Systems segment and Pachinko & Pachinko Slot Machines 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 our Digital Entertainment segment, Gaming & Systems segment, and Pachinko & Pachinko Slot Machines segment, as well as the markets for 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 addition, while significant price competition and reduced profit margins may result as the hardware product cycle matures, 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.

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 and services. 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. For example, adverse economic conditions in emerging markets, including the slowing growth rate in China, as well as lingering uncertainty surrounding European sovereign debt and government austerity measures have negatively affected consumer spending trends in those regions and in the global economy generally and may continue to have an adverse impact on economic conditions, including in Japan. Economic downturns have been, and may continue to be, characterized by diminished product and service demand and subsequent erosion of average selling prices.

In addition, Japan’s consumption tax was increased from 5% to 8% in April 2014 and currently it is scheduled to be increased further to 10% in October 2015. Such a tax increase may adversely affect consumer spending, which could in turn reduce the demand for our products and services and adversely affect our results of operations.

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 our products, 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 operating condition of our mobile games, 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. In Japan, it is customary to give presents to girlfriends, boyfriends, and family members during the Christmas and New Year season and buy toys as Christmas and New Year presents in December and 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 UEFA Champions League, the Japan Professional Baseball League, the Japan Professional Soccer 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 unauthorized copying occurs within some of the industries to which Digital Entertainment segment belongs. 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 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:

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 products 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:

While we will continually be searching for additional acquisition opportunities, we may not be successful in identifying suitable acquisitions. As the digital entertainment, 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 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 70% of our net revenues during fiscal 2014 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 continue to expand our international operations, particularly with respect to our Digital Entertainment segment and Gaming & Systems segment, 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, twenties and thirties, the traditional target market for our products and services, in particular with respect to our Digital Entertainment segment, 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 September 2013, 25.1% of Japan’s population was aged 65 or over, and this percentage, which was released in January 2012 and calculated for the 2010 national census, is expected to reach 31.6% by 2030 and 39.4% by 2055.

Unexpected network interruptions or security breaches, including hacking, may cause delays, interruptions of service or leak of personal information, resulting in a material adverse effect on our business, financial condition and results of operations and damage to our reputation and brands.

Security breaches, including hacking and unauthorized access, affecting any of our systems may cause delays or other service interruptions or leaks of confidential information, such as personal information, and could

result in significant damage to our hardware, software systems and databases, disruptions to our service and business activities, such as to our website, e-mail and other communication systems. While we endeavor to maintain robust security protections to prevent security breaches, there have been cases of unauthorized access to our systems in the past. If we experience frequent or persistent service disruptions, whether caused by hackings or failures of our own systems or those of third-party service providers, our customers’ experience with us may be negatively affected, which in turn, may have a material and adverse effect on our reputation and brands and our business, financial condition and results of operations.

Wars, terrorism, pandemic, natural disasters and other incidents which may cause political, economic or social instability may disrupt our operations or otherwise result in a material adverse effect on our financial performance.

Incidents such as terrorism, riots, wars, pandemic and natural disasters may adversely affect the world economy. Resulting social and political instability may cause further economic and political uncertainty in each of the regions we conduct our operations. As a result, our and our suppliers’ operations and financial performance as well as our customers’ investment and consumption patterns may be adversely affected. For instance, on March 11, 2011, a large earthquake and subsequent tsunami and aftershock hit northeastern Japan, causing material losses and damage to life, infrastructure and distribution routes, as well as supply instability in certain regions caused by damage to a nuclear power plant complex in Fukushima Prefecture.

Transitions in game consoles and technological change have a material impact on the relevant markets 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 releasing 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.

Furthermore, 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 affected by the platform transition to Sony PlayStation 3, Nintendo Wii and Microsoft Xbox 360. 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.

Due to the popularity of alternative platforms for content distribution such as mobile games, it is also possible that demand for console game platforms as a whole will decline over time, which could negatively impact our results of operations to the extent we are unable to adapt our games or develop new contents for any such alternative platforms.

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.

Almost all of our revenues from game software products have historically been derived from sales of products for use on proprietary game platforms developed and manufactured by other companies. We may only produce products for use on other companies’ 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 products from manufacturers of popular game consoles or if any of our existing license agreements are terminated, we will not be able to release products 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:

In addition, we depend on Sony and Nintendo for the manufacture of products that we develop for their hardware platforms. Products 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 also manufacture products 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 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 manufacturing products for their consoles, or elect to manufacture products themselves or use developers other than us.

Our products for both game consoles and amusement arcade games may be subject to governmental restrictions, rating restrictions 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 the terrorist attacks relating to the Iraq war commenced in March 2003 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 contents of our products, which could result in expensive product recalls, reprogramming or delays in the release of future products.

Our results of operations may suffer if amusement arcade revenues and sales of products for amusement arcades continue to decline.

Amusement arcades are the primary venue for video game machines and token-operated game machines in Japan. Amusement arcade revenues and sales of products for amusement arcades have recently been affected by the shrinking market for such games. 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 products for amusement arcades and this could have a negative impact on our results of operations if amusement arcade operators reduce purchases of our products as a result.

If our games are not accepted in the competitive domestic market for products for amusement arcades, our results of operations will suffer.

Our success as a manufacturer of products for amusement arcades is dependent upon numerous factors, including our ability to design, manufacture, market and service products 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. and BANDAI NAMCO Holdings Inc. If any of these game manufacturers, or another competitor, develops products for amusement arcades and installed these products in the same arcade floor space as our products, our sales 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, smart phone-based, and tablet terminal-based games as well as games which can be downloadable or which allows multiple players to play against each other using Wii, Nintendo DS, Nintendo 3DS, PlayStation 2, PlayStation 3, PlayStation 4, PlayStation Portable, PlayStation Vita, Xbox 360, Xbox One or personal computers, games have diversified over recent years and consumers now have expanded choices. In particular, demand for smart phone-based and tablet terminal-based games has rapidly grown in recent years. If consumers increasingly choose smart phone-based and tablet terminal-based games, demand for our existing mobile phone-based games as well as our games for other platforms could decline, and our business, revenues and profits could be affected if we are unable to expand sales of our smart phone-based and tablet terminal-based games. If there is any 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 charge 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 agency payment services with us, and our net revenues and operating income may be adversely affected.

Any development adversely affecting our operation of mobile games may have a negative impact on our profitability and growth.

Our ability to achieve wide acceptance of our mobile games by users depends in part on whether we can provide attractive contents in a timely manner and efficiently operate our games. Even if our mobile games achieve wide acceptance, we may be unable to generate adequate revenue from such mobile games, as most of the games in this category are free to play and generate revenue only from sales of virtual items to players. In addition, the success of our mobile games may be affected by the expansion of the industry related to mobile games as well as other factors which are beyond our control. Such factors include:

If we are not able to provide competitive contents, or if these political, economic, legal and other factors adversely affect the operation of our mobile games our financial conditions and results of operation may be negatively impacted.

If the agreements entered into with operators of the mobile sites and application stores through which our mobile games are distributed are terminated, the continued provision of the services we are currently providing will become difficult, which may adversely affect our revenues and profitability.

We currently provide mobile games almost entirely on the mobile sites and application stores operated by other companies. Our provision of mobile games is based on agreements entered into with the distributors which operate the mobile sites and application stores. In addition, with respect to our mobile games, the proportion accounted for the use of specific distributors has increased. Therefore, if the agreements with the distributors are terminated, it will become difficult for us to continue providing services of our mobile games on those mobile sites and application stores, and our businesses and financial performance may be damaged.

Our revenues and profits may be adversely affected by major natural disasters such as the Great East Japan Earthquake.

Natural disaster such as the Great East Japan Earthquake may cause postponement of the release of our products, delays in shipment due to the disruption of distribution network, delays in delivery of parts procured from the suppliers located in the disaster-stricken areas, related revisions to our production system and increases in procurement costs for parts and cancellation in procurement caused by increased scarcity of parts and inventory supply shortages in the market, as well as the suspension of distribution services for online games due to damaged telecommunications infrastructure. As a result, our revenues and profits may be adversely affected.

Our Health & Fitness segment may not grow as we expect if we are not able to efficiently operate club locations upon opening such locations.

Our operating results depend in part on our ability to efficiently operate club locations upon opening such locations. The successful development of clubs will depend on various factors, including our ability to:

If we are not able to adequately implement the factors outlined above, the growth of our Health & Fitness segment may be limited. We cannot assure you that we will be able to open new clubs in a timely and cost-efficient basis or operate our 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 fitness clubs, our operating income may be adversely affected. We may still incur future impairment charges

against goodwill, other identifiable intangible assets, or property and equipment. For the fiscal year ended March 31, 2014, we recognized ¥5,251 million of impairment charges for goodwill, property and equipment, and other identifiable intangible assets because of the worsening operating results of our facilities and the revision of the future business prospects of certain facilities due to changes in the business environment.

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 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 tennis clubs and other sports clubs, golf 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.

We could be subject to future claims related to health risks at our clubs.

Use of our fitness clubs and equipment may pose 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. 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 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, 2014, such deposits and guarantee money accounted for over 8% 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.

We act as a licensing agency in Japan, acquiring licenses for programs that have worldwide popularity, and supply 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 on our business results.

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.

We may be adversely affected by natural disasters such as the Great East Japan Earthquake during fiscal 2011.

Due to natural disasters as typified by the Great East Japan Earthquake during fiscal 2011, our directly-owned fitness clubs may be damaged and the sports facilities outsourced to us may become evacuation centers in some regions, which could result in the suspension of operations at some of our fitness clubs. In the future, similar earthquake disasters and other natural disasters may occur again and the operations of some of our fitness clubs may be suspended, which could adversely affect the financial performance of our Health & Fitness segment.

Rolling blackouts due to the shortage of power supply may adversely affect our business results.

Natural disasters such as the Great East Japan Earthquake during fiscal 2011 may damage power plants, which could result in a shortage of power supply. If power demand exceeds the available power supply in the future, rolling blackouts may be further implemented and operations at some of our fitness clubs and the manufacturing of products may be suspended, which could adversely affect our business results.

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 and territory in Australia, the majority of states and territories in the United States, and all legal gaming 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:

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

Our failure to obtain or retain required licenses for our Gaming & Systems 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, territory, provincial, tribal, international and local regulations. In particular, we are subject to extensive regulation in the states of Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, West Virginia, Wisconsin, and the Provinces of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Quebec 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 for 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, legal 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.

Legal 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 & Systems 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, the sales

of 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 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 rainfall in northeastern Australia in January 2011 and the surrounding areas of the Mississippi River in May 2011 could have material adverse effects on our Gaming & Systems segment.

The record rainfall in the Australian northeastern region in January 2011 and in the surrounding areas of the Mississippi River in the U.S. in May 2011 raised concerns about a delay in transporting equipment for our products. Similar natural disasters could adversely affect the future business results of our Gaming & Systems segment.

Our pachinko and 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 and establishment of a period of voluntary ban on replacement by the National Police Agency or the bankruptcy of our suppliers, pachinko and 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:

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 pachinko and 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 pachinko and 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.

We may be adversely affected by natural disasters such as the Great East Japan Earthquake during fiscal 2011.

Natural disaster such as the Great East Japan Earthquake may cause postponement of the release of our products, delays in shipment due to the disruption of distribution network, decreases in or cancellation of orders from facilities located in disaster-stricken areas, delays in delivery of parts procured from suppliers in the disaster-stricken areas and related revisions to our production system, as well as increases in procurement costs for parts and delays in procurement caused by increased scarcity of parts and inventory supply shortages in the market. Any of these factors could have an adverse effect on our business.

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 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 highs and lows of price per share of our common stock ranged from ¥1,723 to ¥2,984 during fiscal 2014.

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, 2014, there were 138,612,321 shares of our common stock outstanding including 39,500,597 shares, representing 28.50% of our outstanding shares, beneficially owned by Kagemasa Kozuki, our founder, Representative Director, Chairman and his Kozuki Foundation, 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, 2014, we held 4,887,679 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 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 or corporate auditors.

We are a limited liability, joint-stock corporation incorporated under the laws of Japan. Most of our directors 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 a concern 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.

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.

Our business was founded by our current Representative Director, Chairman, 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 and 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.

We produce, operate and distribute contents for mobile sites and for application stores. In addition, we develop, publish, market and distribute video game software products globally for stationary consoles such as Sony PlayStation 2, PlayStation 3, PlayStation 4, Nintendo Wii, and Microsoft Xbox 360, Xbox One, and for portable consoles such as Sony PlayStation Portable, PlayStation Vita, Nintendo DS and Nintendo 3DS, as well as for use on personal computers.

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 and 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 pachinko machines and pachinko slot machines.

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, 2014, we had a nationwide network of 200 directly operated health and fitness club facilities and 185 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. 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. As part of our plan 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, we acquired our consolidated subsidiary, COMBI WELLNESS Corporation, merging into Konami Sports & Life Co., Ltd. on June 1, 2012, in order to rationalize our business and concentrate our corporate resources.

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

We have built a company with a strategic 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, 2014, we had consolidated net revenues and net income attributable to our shareholders of ¥217,595 million and ¥3,834 million, respectively, compared with net revenues and net income attributable to our shareholders of ¥225,995 million and ¥13,174 million, respectively, for the fiscal year ended March 31, 2013.

We classify our businesses into four segments: Digital Entertainment, Health & Fitness, Gaming & Systems and Pachinko & Pachinko Slot Machines, 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.

Given that we operate in the digital entertainment industry, a business environment with lowering barriers to entry, we focus on creating a business structure where we can achieve maximum synergies of each of our

products and services. During fiscal 2014, this segment had net revenues of ¥104,335 million, which accounted for 47.9% of our consolidated net revenues, before elimination of intersegment revenues. Our Digital Entertainment Segment consists of the five types of products and services as follows:

We are the leading health and fitness club operator and health-related business enterprise in Japan. During fiscal 2014, this segment had net revenues of ¥76,511 million, which accounted for 35.2% of our consolidated net revenues, before elimination of intersegment revenues.

This segment is involved in development and sales of contents, hardware and casino management systems for gaming machines for casinos outside of Japan. During fiscal 2014, our net revenues from this segment were ¥31,600 million, which accounted for 14.5% of our consolidated net revenues, before elimination of intersegment revenues.

This segment is involved in production, manufacturing and sales of pachinko and pachinko slot machines. During fiscal 2014, our net revenues from this segment were ¥5,788 million, which accounted for 2.7% of our consolidated net revenues, before elimination of intersegment revenues.

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, 2014.

“Eliminations” primarily consists of eliminations of intercompany sales and of intercompany profits on inventories.

Consolidated net revenues generated by our Digital Entertainment Segment, before elimination of intersegment revenues, amounted to ¥116,366 million in fiscal 2013 and ¥104,335 million in fiscal 2014, a decrease of ¥12,031 million.

At the end of March 2014, the number of mobile phone handset subscriptions worldwide has grown by 5.1% to 4,770 million compared to the previous year, and is expected to further increase, especially in emerging countries.

Further, the shift in the mobile phone handset market from the traditional feature phone handset to the iPhone and smart phone handset equipped with Android OS has continued and the number of smart phone subscribers is estimated to exceed 50% in the global market by fiscal year 2015. Additionally, the usage of the smart phones on mobile game platforms has been increasing. As users of mobile games in feature phones have shifted to the use of smart phones, the number of mobile games for smart phones that contents providers provide has increased and the market for these games has rapidly expanded.

In recent years, in North America, contents for social games on PC platforms have become mainstream, and free service without basic fee or pay-per-item has led the market and continues to expand. Furthermore, although the applications market in the smart phones has also flourished, there is a severe competition due to low entry barriers.

In China, the pricing plans offered by communication carriers are not fully developed, and as a result, the market is still poised for growth. In South Korea, the pricing plans offered by communication carriers have expanded and smart phones have become prevalent, increasing the number of users of game contents.

We develop, produce, operate and distribute software for mobile phones, smart phones, home video game systems, personal computers and online networks. We plan to be actively involved in mobile game products and services in light of the recent growth of the markets for these products and services and we believe that there is an opportunity to increase our profits by leveraging our software titles.

In October 2001, we established Konami Mobile Online, Inc., which developed games for mobile phones, and after changing its trade name and merging it with our operations, since March 31, 2006 we have developed our online business through Konami Digital Entertainment Co., Ltd. for the purpose of realizing synergies between our video games software and card game products and services. As a result, these products and services have expanded to include the development and distribution of game contents not only for mobile phones but also for various multi-function devices such as smartphones and have grown to be important income generating products and services for us. In addition, as a distribution service of game contents, in recent years these products and services have expanded rapidly through growth in mobile sites. Since many of our mobile games can be played free of charge, the number of users registered on mobile sites has increased, and accordingly revenues from purchases of items granting players in-game advantages have increased. Based on this business model, DRAGON COLLECTION, for which the online distribution was launched on GREE in September 2010, has enjoyed high popularity among players, including achieving the top game ranking of GREE for 50 consecutive weeks, and we have steadily increased the number of users and achieved favorable results for this title. Furthermore, the online distribution of Professional Baseball Dream Nine, a baseball mobile game officially licensed from Nippon Professional Baseball, was launched on GREE, and the online distribution of SENGOKU COLLECTION, a mobile game in which players aim to become a shogun ruler, was launched on Mobage. We also have reinforced the contents roll-out for the mobile game market. Through the introduction of these titles, we have been strengthening our contents development for the mobile game market.

On April 1, 2011, we acquired 100% ownership in HUDSON SOFT CO., LTD. (“HUDSON”), a leader of the mobile industry, and completed a merger with HUDSON into Konami Digital Entertainment Co., Ltd. on March 1, 2012. While growth in the smart phones business is expected, we aim to establish a business structure that can properly respond to the rapidly changing mobile game market by integrating the know-how of the Konami group with its high staging and producing ability for games with the strengths of HUDSON, with its outstanding planning ability and flexibility.

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 game consoles and personal computers.

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. The beginning of each cycle is the period of rapid growth during which the games for the consoles of the new generation are prepared, and during that period, as platform manufacturers or buyers prepare video games for their new consoles, the video game software industry has experienced rapid periods of expansion. 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 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.

Handheld systems such as Nintendo DS and Sony PlayStation Portable have achieved global popularity since their introduction due to the inexpensive price of the hardware compared to a console systems and the popularization of casual games. In February 2011, Nintendo 3DS with the 3D function was launched as a successor device, and Sony PlayStation Vita was also launched starting in Japan in December 2011.

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 game consoles have become more highly sophisticated in their ability to show expressiveness when playing games. Furthermore, next-generation game consoles have been introduced with the launch of the Nintendo Wii U in December 2012 and the launch of the Sony PlayStation 4 and Xbox One in November 2013 in North America.

Internet technology for high speed broadband has enabled customers to have a more interactive and enhanced online experience. The spread of broadband services and continued competition among broadband providers has led 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 have entered the online game business. For example, Sony Computer Entertainment started a broadband online service for PlayStation 2 in the beginning 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 the middle of 2002, Sony Computer Entertainment

America Inc. started selling online adaptors and software for PlayStation 2 in the U.S., and in late 2006, started a download service through its network in conjunction with the release of PlayStation 3. In late 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 continued with Xbox 360, which was released in 2005. Currently, all portable game consoles and stationary game consoles have built-in network functions. Consequently, we are expanding further our range of online services. In addition, online distribution of additional contents for packaged software has brought about a change in the old business model, under which a sale was concluded upon the delivery of the product to a retailer, to a new business model under which we can expect continued revenues from selling additional contents to players. These services are expected to become a new source of income in part because risks unique to a retail business such as inventory, price protection and returned goods do not exist.

We develop, publish, distribute and market video game machines, handheld video game machines and products for personal computers. Most of our products consists of video games designed for use with video game platforms, including PlayStation 2, PlayStation 3, PlayStation 4, PlayStation Portable, PlayStation Vita, Nintendo DS, Nintendo 3DS and Wii and Microsoft Xbox 360, Xbox One, and PCs.

By developing products 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.

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.

Although we once published more than 100 new titles of video game software each year, since fiscal 2010, we have streamlined the number of new titles under the theme of “Selection and Concentration” to 46 titles in fiscal 2012, 10 titles in fiscal 2013, and 10 titles in fiscal 2014. 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 communication.

The following two tables indicate the major software titles that we have either published, or anticipate publishing, during fiscal years 2014 and 2015 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 2015 will be released when scheduled, if ever.

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

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.

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.

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.

Further, the video game software market is recently experiencing a polarizing trend whereby so-called “high-end AAA titles” designed with leading-edge programming technology to optimize the specifications of a game machine have increased in sales volume while many other titles remain stagnant. As these “high-end AAA titles” usually have a long two to three year development period and require commitment of management resources for research and development of technology, it is necessary to establish a strategic product development structure and perform allocation of management resources.

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 crucial to develop successful contents. 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

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.

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.

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 material 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.

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 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.

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 the year ended March 31, 2008 due to the strengthening of our website through sales of limited editions of our video game software products on our website.

In July 2010, as a new project, we opened our first antenna shop called “KONAMI STYLE Tokyo Midtown” which offers information and original limited-edition products available only at the store, and provides a place to gain a better understanding of KONAMI by offering the chance to customers to experience products yet to be released as well as implementing various events.

As for our amusement arcade games, we produce and sell video game machines and token-operated game machines for amusement arcades.

According to an industry statistical report, the amusement industry in Japan recorded total revenues of ¥649.1 billion in fiscal 2013. The breakdown by category is shown in the following table.

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 continued to decrease to ¥470.0 billion in the fiscal year ended March 31, 2013 from ¥487.5 billion in the fiscal year ended March 31, 2012 (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. Furthermore, the sales volume of equipment decreased from the previous year, recording ¥167.5 billion in the fiscal year ended March 31, 2013 compared to ¥173.7 billion in the fiscal year ended March 31, 2012. This decrease is primarily due to a decrease in sales in the operations area, the effects from the changeover period of the new product launch cycle, and the fact that “conversion kits” (consisting of software updates) with a low unit selling price became the leading products of the major manufacturers.

As for our amusement arcade games, we develop, produce and sell video game machines for amusement arcades, many of which use sophisticated computer graphics technology. In the fiscal year ended March 31, 2014, we introduced approximately 14 new titles for e-AMUSEMENT Participation (a method to share playing fees of users with operators). 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, and at the same time, some 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. These games evolved from beatmania, a disc jockey simulation game developed in our amusement arcade game business. Hit music simulation games have included DanceDanceRevolution, pop’n music, GuitarFreaks & DrumMania and jubeat. 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 arcade game 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. With respect to the MAH-JONG FIGHT CLUB series, starting with MAH-JONG FIGHT CLUB ultimate version, we have introduced e-AMUSEMENT Participation as a new business model enabling the distribution of new contents in sequence depending on the requests of users and operational status of the consoles, contributing to the enhancement of the operational ratio of the consoles and stable profits as well as providing the equipment necessary for consoles and systems at an inexpensive price, resulting in the mitigation of the initial investments by operators.

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

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 Digital Entertainment Co., Ltd. produces our amusement arcade games designed for the Japanese market.

Konami Digital Entertainment Co., Ltd. markets, sells and distributes our video game machines for amusement arcades. By utilizing the distribution network that we have built up, we believe we 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.

As indicated in the previous table, as of fiscal 2014 sales of token-operated game machines amounted to ¥34.9 billion, comprising approximately 21% of the ¥167.5 billion Japanese amusement arcade game market. Also, as indicated in the following table, although the sales of token-operated game machines continued to decrease until fiscal 2010, they started increasing again in fiscal 2012. This increase was due to the launch of new popular large-sized game machines, upgrading several popular game machines and the release of medal new games for kids and medium-sized game machines.

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 renting 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 released in February 2012 called Venus Fountain is a token-operated game which can be played by inserting a digital token and making entries by a touch panel. We have introduced a service that allows a smart phone application to link to the arcade game so that a user can enjoy the game at any time.

Medium- and large-sized game machines, which attract older children and adults, are supplied mainly to amusement arcades. Our principal machines also include the ETERNAL KNIGHTS series, a new sensory experience adventure game simulation RPG, the FANTASTIC FEVER series and the GI 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, a type of small-sized token-operated game machines. In this way, we are advancing a full lineup of various types of token games.

Our domestic token-operated game machines are developed in our production facilities in Kanagawa, Japan. As for production, Konami Digital Entertainment Co., Ltd. produces the domestic token-operated game machines.

Konami Digital Entertainment Co., Ltd. Markets, distributes and sells our token-operated game machines.

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 the future. According to government estimates, the number of births in Japan has declined from 2.09 million in 1973 to 1.03 million in 2013. Consequently, the population of this age group has decreased from 27 million in the beginning of the 1980s to 16.3 million in the estimated population as of April 2014. The population of children is expected to fall below 10 million in 2046.

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 3DS now occupy an important position in the toy market. These toys are also used by younger people. The popularity of electronic games is a significant factor for the decreasing demand for general toys.

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.

Under these circumstances, the age target set by toy makers has widened from infants aged zero to seniors. Furthermore, the trading card game products, regarded as belonging to the peripheral area of conventional toys, are expected to expand due to the release of new products, such as games that are played in combination with contents for mobile devices and PCs.

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 contents, 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 contents and subcontract the manufacturing to a third party.

More than 90% of our revenues from card games have been derived from worldwide sales of our Yu-Gi-Oh! TRADING CARD GAME, and changes in the revenues and income from our card games 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.

Our card game 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 game products.

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 game business and in April 2011, it moved to Tokyo Midtown, where our headquarters are located, changed its name to KONAMI CARDGAME STATION and commenced new operations. 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.

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 ¥76,511 million in fiscal 2014, a decrease of ¥3,385 million from ¥79,896 million in fiscal 2013.

According to “Fitness Club Industry Trends in Japan, 2012” published by Club Business Japan, the fitness club industry in Japan has reached a mature stage, with revenues generated at private fitness club in Japan leveling-off from ¥415.7 billion in 2008 to over ¥412.4 billion in 2012 and the number of private fitness club memberships remaining at generally the same level, from 4.01 million to 4.03 million over the same period. In 2013, the number of major fitness club memberships remained at approximately the same level as the previous year and it is anticipated that this trend may not change significantly in 2013.

On the other hand, the number of facilities continued to increase, and the total number of facilities was estimated to be 3,945 as of the end of December 2012. In 2012, a total of 212 new clubs were opened. While the pace of opening small-scale circuit training gyms remains higher, the pace of opening regular-sized gyms declined year-on-year and the pace of opening new-type facilities, such as small-scale gyms and studio-type facilities specializing in yoga and pilates exercise, has remained at approximately the same level as the previous year. It is anticipated that this trend may not have changed significantly as of the end of December 2013.

In this manner, competition intensified in metropolitan areas due to the diversity of industries or the emergence of specialized facilities. On the other hand, withdrawal from membership is on a declining trend and the annual consumption rate per individual is increasing overall due to an increase in the rate of participation by middle age groups, as well as a swingback of consumption since the stagnation that followed Great East Japan Earthquake and an increased interest in health and fitness after the Great East Japan Earthquake due to a heightened awareness for the need to improve health and fitness.

Moreover, 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, an increased number of people who enjoy outdoor sports such as running and cycling, as well as the growing popularity of home fitness as represented by Wii Fit and fitness DVDs.

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. In 2006, Konami Sports Corporation (the predecessor of Konami Sports & Life Co., Ltd.) merged with Konami Sports Life Corporation. 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. 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, 2014, we directly owned and operated a nationwide network of 200 fitness clubs and operated an additional 185 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.

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.

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. Going forward, we will seek to provide a wide range of health-themed services with the aim of establishing ourselves as a “Total Health Partner” with connections in the entire nation. We are not only striving to establish exercise habits in our sports facilities but also outside our facilities by introducing a health management system counseling program for employees affiliated with health insurance unions challenged by the issue of how to control medical costs. In addition, in our aging society, we have promoted health programs to maintain and improve physical functions for those who need

to reduce the risk of needing care as their physical and muscular strength weaken. Moreover, we expect to develop a life support program under a theme of the aging care management that can be utilized to review an individual’s exercise habits, diet and sleeping habits and other programs with the goal of exploring the possibilities of health related services and further expand the scope of our business.

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, and in January 2011, we launched iPhone compatible applications. Going forward, we are offering healthcare support services, such as our core service “e-XAX”, an IT health management system that manages exercise and health data, to connect the three scenes of daily health and fitness—in the fitness club, at home and outside the home. We have also improved customer access by launching an online webpage available for members of the club called Konami Sports Club member service, which has improved customer accessibility by enabling customers to manage various procedures online.

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 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 sports fitness clubs, Konami Sports Clubs. In fiscal 2006, we completed a full lineup of our fitness machines, such as the EZ series, and these machines are now in Konami Sports Clubs. 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. We have established a more efficient business structure for product development by merging COMBI WELLNESS Corporation into Konami Sports & Life Co., Ltd. in June 2012 and promoting the rationalization of the health service business operation.

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.

As a new service development, one of the Ministry of Economy, Trade and Industry’s “Community-based Comprehensive Health Service Industry Creation Projects”, a consortium of six organizations including KONAMI 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.

Furthermore, we were involved, as a representative organization, with the Ministry of Economy, Trade and Industry’s “Regulatory Reform and Industry Creation Research Projects in the Medical and Nursing Care related Areas”, a consortium engaged in the creation of new services in the healthcare field in collaboration with the medical and nursing care organizations in the Kyoto and Osaka regions.

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 diversifying 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.

Our marketing campaigns are directed by our in-house Marketing 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, 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 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 six principal types of memberships: (i) “Murisezu Kakushu”, which entitles members to use any Konami Sports Clubs facilities nationwide for up to twice a month and is designed for those who cannot continue to regularly exercise or those who have busy schedules; (ii) “Mazuha Shu 1”, which entitles members to use any Konami Sports Clubs facilities nationwide for up to four times a month and is designed for those who wish to incorporate exercise habits into their daily lives; (iii) “Shikkari Shu 2”, which entitles members to use any Konami Sports Clubs facilities nationwide for up to eight times a month and is designed for those who can visit the gym regularly; and (iv) “Sukinadake Free”, which entitles members to use any Konami Sports Clubs facilities nationwide for an unlimited number of times and is designed for those who wish to enjoy exercising as often as they wish. With respect to memberships (i) through (iv) above, the facilities of Konami Sports Clubs nationwide are classified into four categories, I, II, III and IV, and members can use any Konami Sports Clubs facilities which belong to the specific category of which they are a member as well as any facilities which belong to a lesser category for no additional usage charge. If a member wishes to use a facility which belongs to a higher category than that the member has selected, the member can use such facilities by paying the additional fees for each category. With respect to memberships (i) through (iii), if a member wishes to use the facilities for more than the designated number of times which they are entitled to use the facilities, they can do so by paying

additional fees. Furthermore, we offer the (v) GRANCISE Regular Membership, which entitles members to use all GRANCISE facilities and Konami Sports Clubs facilities for no additional usage charge; and the (vi) GRANCISE Branch Membership, which enables members to use one GRANCISE facility and all XAX-branded Konami Sports Club facilities for no additional usage charge

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 65% of monthly membership dues through automatic payments based on credit card contained in the membership agreement. Most membership dues are paid one 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.

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.

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:

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 health 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. We have

established a more efficient corporate structure for product development by merging COMBI WELLNESS Corporation into Konami Sports & Life Co., Ltd. in June 2012 and by rationalizing our health service business operations. We plan to grow our operations by developing high quality, branded fitness equipment that meets the needs of our customers and retailers.

We have developed and introduced the EZ Series as “Exertainment” equipment which adds entertainment aspects to traditional fitness machines and combines exercising and entertainment. Home fitness products, allowing users to enjoy exercising at home, were also introduced, 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 displaying and managing 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, nursing care equipment for the elderly. Additionally, we have released e-walkeylife2 and Kenshin Keikaku 2, updated versions of pedometer and management software, and we provide a system by which users can enhance their exercise habits and lifestyle by using their own data at home.

Having perceived the needs of health-conscious people, we have engaged in the improvement of product lineups, 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 those at home and actively promoted support for the maintenance and enhancement of health starting from within the inner body. In addition, we have been offering highly convenient services through the introduction of a service called “Supplement Member,” a delivery service of popular supplements for our club members to their home addresses.

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, through its merger with COMBI WELLNESS Corporation, which became our wholly-owned subsidiary in May 2006, we have established a more efficient corporate structure for product development and rationalized our health service business operations. 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.

Our Gaming & Systems 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. Consolidated net revenues generated by our Gaming & Systems Segment, before elimination of intersegment revenues, amounted to ¥24,984 million in fiscal 2013 and ¥31,600 million in fiscal 2014, an increase of ¥6,616 million. 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.

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

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 1976, gaming was limited to Nevada. In 1976, 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, Maryland, Michigan, Mississippi, Missouri, Ohio, 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.

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.

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, 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 & Systems 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. The Podium video slot machine, which has become a staple item, and the Advantage mechanical slot machine series continued to receive favorable reviews. For the fiscal year ended March 31, 2013, we also launched SYNKROS, which was a new-generation casino management system, enhanced with various new functions.

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 KP3 series product, a new platform which was released in fiscal 2013, as well as our K2V 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, 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.

Our gaming machines and casino management systems, 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.

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.

Our Pachinko & Pachinko Slot Machines segment is involved in the production, manufacturing and sales of pachinko machines and pachinko slot machines. Net revenues generated by this segment, before elimination of intersegment revenues amounted to ¥5,788 million in fiscal 2014, an increase of ¥390 million from ¥5,398 million in fiscal 2013.

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.

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 we place orders in advance to meet the requirements, in order to avoid future procurement problems. 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.

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.

Additionally, we newly formed KPE-TAKASAGO Sales Co., Ltd. on February 1, 2012, which markets the products of KPE Inc. and Takasago Electric Industry Co., Ltd. with a goal of maximizing the number of units sold.

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.

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 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.

During the fiscal year ended March 31, 2014, we released three different pachinko slot titles. In the future, we plan to expand our market share by utilizing our experience in video game software development and by presenting our uniqueness through the development of original contents and use of our own titles.

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. In February 2012, we formed a new sales company, KPE-TAKASAGO Sales Co., Ltd., in order to maximize sales volume and thus reinforce our sales system.

The number of pachinko and pachinko slot outlets in Japan has decreased in the last few years. According to statistics released by the National Police Agency in March 2014, the number of nationwide pachinko outlets has decreased by 256, or 2.1%, to 11,893 at the end of 2013 compared to the previous year and the number of pachinko machines per outlet was 387.8, an increase of 2.6% compared to the previous year.

A significant portion of our products include contents (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 contents 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.

Contents is one of our most valuable assets. Accordingly, we actively seek to obtain licenses of prominent brands for each of our products. 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 contents 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.

The following tables show net revenues by geographic area for the fiscal years ended March 31, 2012, 2013 and 2014:

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 2012, our net revenues increased ¥954 million in the United States and decreased ¥6,113 million in Europe. The increase in our net revenues in the United States was due primarily to the growth in sales of the Pro Evolution Soccer series in South America as well as the growth in sales of casino gaming machines and casino management systems. In Europe, net revenues decreased in fiscal 2012 due to, among other factors, the fact that we did not release a sequel to Castlevania: Lords of Shadow as we did in fiscal 2011 and the decrease in demand for the Pro Evolution Soccer series compared to the favorable sales achieved as a result of the once-every-four-years soccer festivities in fiscal 2011.

In fiscal year 2013, our net revenues increased ¥67 million in the United States and decreased ¥1,762 million in Europe. The slight increase in net revenues in the United States was due to the launch of METAL GEAR RISING REVENGEANCE, the latest title in the METAL GEAR SOLID series, and strong revenues from the launch of the latest title of the Pro Evolution Soccer series in South America, which was partially offset by a decrease in revenues from the Pro Evolution Soccer series in North America and our decision to narrow the number of titles we offer to ones with high profitability. On the other hand, in Europe, net revenues decreased in fiscal year 2013 from the previous fiscal year because sales of the latest release of the Pro Evolution Soccer series were not favorable.

In fiscal year 2014, our net revenues increased ¥5,048 million in the United States and increased ¥1,385 million in Europe. The increase in net revenues in the United States was due to the launch of METAL GEAR SOLID V: GROUND ZEROES, the latest title in the METAL GEAR SOLID series, and strong sales of the Yu-Gi-Oh! TRADING CARD GAME. In Europe, net revenues increased in fiscal year 2014 from the previous fiscal year because sales of the Yu-Gi-Oh! TRADING CARD GAME were favorable.

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 January 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 and video games business

overseas. Subsequently used to introduce the 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 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.

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. The following three tables show our primary research and development activities, during each of the last three fiscal years.

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 (and the rise of mobile 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 BANDAI NAMCO Holdings Inc. in September 2005, and later established BANDAI NAMCO 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. In addition, Konami Digital Entertainment Co., Ltd. merged with HUDSON on March 1, 2012.

We believe that the most significant competitive factors in all of our major business lines are the ability to develop compelling contents and bring it to market at the appropriate time to capitalize on ever-changing consumer preferences. We believe our ability to develop contents 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.

In mobile games, our principal competitors are GREE, Inc. and DeNA Co., Ltd. which have more established mobile game business than we do, carry out operation of social platforms and production of games. Other potential competitors include the companies engaged in production and sales of home video game software such as CAPCOM CO., LTD., SQUARE ENIX HOLDINGS CO., LTD. and BANDAI NAMCO Holdings Inc. which entered the market led by the recent popularity of mobile games. In addition, the production cost of mobile games is lower than that of video game software, and due to the low entry barrier compared to the existing video game software, an increasing number of emerging companies engaged in production of games have entered the market. Among these emerging companies, GungHo Online Entertainment, Inc. and COLOPL, Inc. which launched hit titles, have also became our major competitors.

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

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 and hobby products are mainly toy makers, such as BANDAI NAMCO Holdings Inc. We believe that the most significant competitive factor in the market for card game products and toy and 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 HOLDINGS INC. and BANDAI NAMCO Holdings Inc., 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.

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.

The market for pachinko and pachinko slot machines is becoming oligopolistic with intense competition 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 pachinko and pachinko slot machines is new product development.

As of March 31, 2014, we had approximately 2,617 trademarks, 2,998 patents and 37 registered designs (excluding applications pending) in Japan and we also had approximately 4,008 trademarks, 2,195 patents, one registered utility model and 219 registered designs (excluding applications pending) overseas. The trademarks and patents relate to our game software for home video games, applications of mobile games for mobile devices, input equipment for home video games, amusement arcade games, token-operated games, gaming machines,

pachinko machines, pachinko slot machines, fitness machines and others. The utility models relate to amusement machines. The registered designs mainly relate to amusement machines, gaming machines, pachinko machines and pachinko slot machines.

Intellectual property rights are 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. “Information on the Company.” 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.

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 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. Following is a summary of the regulatory requirements of a few of the jurisdictions in which we are regulated. They are indicative of the regulatory requirements in the other jurisdictions in which we are regulated.

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 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 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 the Company 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.

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.

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 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.

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% of 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 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-year-period which can and will be renewed for each subsequent two years-period.

Changes in control of the Company 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 effects 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.

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 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 (New Jersey Division). Under the New Jersey Act, a casino service industry (CSI) license is required for the manufacture and distribution of gaming machines to casinos in New Jersey. The New Jersey Division has the authority to decide CSI license applications. The New Jersey Division also has the responsibility to investigate all license applications and to prosecute violations of the New Jersey Act. However, the New Jersey Commission still retains the authority to decide a CSI license application when the New Jersey Division

recommends the denial of a CSI license application. The issuance and maintenance of a CSI license requires that directors, officers, key employees and owners of the applicant company be found by the New Jersey Division to be of good character, honesty and financially stable by a showing of clear and convincing evidence. We, together with our subsidiary Konami Gaming, Inc., were granted a CSI license in 2004. We are required to submit information relating to the company every five years to the New Jersey Division.

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 Division. The persons affiliated with an applicant who must be found qualified by the New Jersey Division 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 Division deems appropriate.

With respect to security holders, the New Jersey Division 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 25 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 Division 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 Division, the applicant and its individual qualifiers must demonstrate, by clear and convincing evidence, their good character, honesty and integrity, and 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 333 but less than 667 hours and a further $5,000 if the processing of the application exceeds 667 hours, plus the expenses of the New Jersey Division. The same fee structure applies to any resubmission application. If the processing of the application exceeds 1,000 hours, the New Jersey Division may charge an additional application fee calculated on an hourly basis. All unexpected cash disbursements are charged directly to the applicant.

The New Jersey Division has broad discretion regarding the issuance, suspension or revocation of CSI licenses. There is no guarantee that our license resubmission will continuously be granted. The New Jersey Division may impose conditions on a license. In addition, the New Jersey Division 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 effective for five years and will essentially remain effective thereafter unless the license is suspended, expires or is revoked. The applicant is asked to resubmit related information every five years.

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 and approval by the New Jersey Division 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 Division may require that the manufacturer of any component of the gaming equipment which the New Jersey Division, 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 Division 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 Division to approve a particular model of machine, it may require a trial period to test the machine in a licensed casino. Once a model is approved by the New Jersey Division, 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 Division.

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 U.S. 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.

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 Commission, or the NIGC, and the Secretary of the U.S. 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.

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.

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 Representative Director, Chairman, 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 30 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.

Standards for pachinko and pachinko slot machines are regulated under the Rules of the National Public Safety Commission pursuant to the Act Regulating Adults Entertainment Business, etc. The Security Association is the only organization authorized to test models of pachinko and pachinko slot machines and render a decision on whether such models meet certain specified technical criteria. Those who expect to produce and distribute models are first required to pass such model test conducted by the Security Association and then to obtain verification that such model complies with prescribed standards from the prefectural Public Safety Commission in the area in which such models would be distributed.

The following table sets forth information, as of March 31, 2014, with respect to our principal facilities:

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

Material plans for new expansion and renovation as of March 31, 2014 are as follows:

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.

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, 2014. 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.

The information required by this item is set forth in Item 4. “Information on the Company.” B “Business Overview” of this annual report.

We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. 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, 2014 and which remain unresolved as of the date of the filing of this annual report with the Commission.

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 2014 in this annual report refers to the fiscal year ended March 31, 2014, 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.

We are a global entertainment and health-related products and services provider. We produce, operate and distribute software for mobile phones and video games 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. We produce and market health-related products. Furthermore, we produce and market a variety of entertainment and components, including pachinko machines, pachinko slot machines and gaming machines. We earn revenues and income and generate cash from the sales of these products and services.

We divide our worldwide operations principally into four business segments for financial reporting purposes: Digital Entertainment, Health & Fitness, Gaming & Systems and Pachinko & Pachinko Slot Machines. The net revenue of these segments, before elimination of intersegment revenues, accounted for 47.9%, 35.2%, 14.5% and 2.7%, respectively, of our total net revenue in fiscal 2014. Our consolidated net revenue for fiscal 2014 was ¥217,595 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 a product and service that individually or as a series is a hit with consumers such as video game software, mobile games and card games. 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 segment has been active in the North American and European markets and our Gaming & Systems 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 income 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 consumer spending caused by the global recession, 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 popularization of smart phones and the advancement of digital technology such as cloud technology, the contents market for the mobile devices and PCs 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 a decrease in number of fitness club members triggered by a decline in consumer spending. 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 the demand for health-related services among middle-aged and senior consumers will increase. In

addition, in September 2013, Tokyo was chosen to host the 2020 Olympic Games. Because of this, not only has the public become even more aware of the importance of health and sports, but also, under the Industrial Competitiveness Enhancement Act, which was enacted in December, the goal of “developing an industry to extend healthy life expectancy” was positioned as the nation’s growth strategy and the “Next-generation Health Care Industry Council” has been established to effectuate this goal. The public and private sectors have taken measures to ensure the quality of and develop the infrastructure for private services. Accordingly, we believe that the social environment surrounding us has reached a turning point and that the further growth can be anticipated.

As for our mobile games, we plan to continue providing “intangible” services, adding value in new ways as made possible by the Internet, by producing and distributing contents for mobile sites and for application stores. In addition, we will develop our services to make them compatible with various other devices such as smart phones and tablet PCs in addition to providing our services on new platforms through development overseas.

As for our video game software, since we anticipate a booming market led by the release of a new model console game machine, we aim for further growth by producing and selling well-selected titles for such machines. In addition, although we have concerns about the effect on the sales of video game software caused by the rapid growth of contents for mobile sites and for application stores, since there still has been a strong demand for high quality games which can be played only on video game machines, particularly overseas, we plan to actively develop our business in global markets, with a focus on Europe and the U.S., and will increase the success rates for our titles through title selection and concentration.

As for our amusement arcade games, we plan to further enhance our “e-AMUSEMENT” service, which links amusement arcades on line throughout Japan, by strengthening existing contents and introducing new titles. Furthermore, in addition to our sales in the matured domestic market, we attempt to expand our sales overseas, focusing on Asia.

As for our card games, 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 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 health maintenance and promotion services within and outside the fitness club facilities as the main source of revenue other than fitness club membership fees.

In the Gaming & Systems 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.

In the Pachinko & Pachinko Slot Machines segment, we aim to expand our market share through the provision of our own value-added products by taking advantage of the entertainment know-how that we have cultivated over the years in response to the changes in the market, such as play methods and changes in user preferences.

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 impact of economic trends 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.

Home game software and card games, which are enjoyed at home, are generally deemed to be less affected by a weak economy. However, with respect to amusement arcade games, a decline in consumer spending caused by the deterioration of the economy would cause fewer people to visit amusement arcades more frequently, which may result in the deterioration of the operator’s business. If purchasing power decreases due to the deterioration of the operator’s business, 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 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.

Most of our revenues come from sales of hit products and services, which are dependent on our ability to anticipate and sell successfully the kinds of products and services that are popular with consumers. A single hit product or service 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 to other businesses 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 mobile 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 provides a more stable revenue base.

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 the successful identification and acquisition of rights to popular ideas and images. The number of intellectual property licenses we hold has been increasing as we acquire such licenses for strategic purposes.

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 obtain 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 as our card game products and also as our video game software products.

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 United States is highest from November, starting 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.

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”.

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 rates. 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 or 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 denominated 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, refer to Item 11 of this annual report and Note 18 to the consolidated financial statements included in this annual report.

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:

Net Revenues. In our Digital Entertainment segment, in addition to the production, operation and distribution of contents for mobile sites and for application stores, we are engaged in the production and

distribution of video game software for home and handheld game platforms and personal computers, 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 as well as the production and sale of books and music of our products. In fiscal 2014, net revenues from the Digital Entertainment segment were ¥104,335 million, accounting for 47.9% of consolidated net revenues before elimination of intersegment revenue.

Our online services are affected by market acceptance of network-based interactive games, the number of mobile phones, smartphones 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.

In addition, the mobile games we produce have been rapidly growing because our games can be played free of charge, a feature that has obtained support from players. If this type of game is deemed to be harmful to players’ interests in light of commonly accepted social norms, legal regulations may be imposed by the government, which could potentially impact the growth of mobile games. In cooperation with the mobile games platform operators, we will endeavor to improve the health and soundness of the mobile game operation by taking appropriate measures as needed.

Our video game software is sold mainly in the format of DVD-ROMs, Blue-ray Discs or proprietary discs for home video game platforms such as Sony PlayStation 2, PlayStation 3, PlayStation 4, Nintendo Wii, Microsoft Xbox 360 and Xbox One and ROM-cartridges and other media for handheld video game platforms such as Nintendo DS, Nintendo 3DS, Sony PlayStation Portable and Sony PlayStation Vita.

Our sales of video game software are strongly influenced by our ability to develop or acquire popular game contents. 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.

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.

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 net revenue 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.

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. It is expected that the process is 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 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.

Our cost of services rendered for contents for mobile sites, mobile phones, mobile devices 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 one to three years or based on the expected length of services.

As for arcade games and token-operated games for amusement facilities, 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 for our amusement arcade games 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.

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.

Net Revenues. We are one of the largest fitness club operators in Japan. We also design, manufacture and sell fitness and health related products. As of March 31, 2014, we operated 200 fitness clubs and provided outsourced services at 185 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 ¥76,511 million in net revenues or 35.2% of our total net revenue, before elimination of intersegment revenues, in fiscal 2014.

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.

Net Revenues. In fiscal 2014, net revenues from the Gaming & Systems segment, before elimination of intersegment revenues, were ¥31,600 million, accounting for 14.5% of consolidated net revenues. The main revenue source for the Gaming & Systems 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 & Systems 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 & Systems 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 & Systems segment by acquiring parts and producing our machines in the markets in which they are sold, thereby reducing shipping costs and foreign exchange risks.

Net Revenues. In fiscal 2014, net revenues from the Pachinko & Pachinko Slot Machines segment, before elimination of intersegment revenues, were ¥5,788 million, accounting for 2.7% of consolidated net revenues. Our revenues from pachinko machines and pachinko slot machines may be affected if our pachinko slot machines do not pass the testing of the Security Association due to circumstances beyond our control and if our pachinko machines are not able to be sold as scheduled due to the tightening of regulations on the pachinko business and establishment of a period of voluntary ban on replacement by the National Police Agency or the bankruptcy of our suppliers.

Expenses. Expenses from the Pachinko & Pachinko Slot Machines segment consist largely of initial cost of parts and materials, manufacturing costs and research and development.

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

Net revenues decreased by ¥8,440 million, or 3.7%, to ¥217,595 million for fiscal 2014 from ¥225,995 million for fiscal 2013. Further, in fiscal 2014, product sales revenues decreased by ¥6,279 million, or 6.0%, while service and other revenues only decreased by ¥2,121 million, or 1.7%, thereby resulting in the higher percentage of service and other revenues to net revenues. The decrease was due mainly to a decline in product sales revenue of home video game software in our Digital Entertainment segment, as well as the higher percentage of service and other revenues relating to amusement machines to businesses. Please refer to “Segment Information” for the details.

Cost of revenues decreased by ¥534 million, or 0.3%, to ¥152,279 million for fiscal 2014, compared to ¥152,813 million for fiscal 2013. Further, the percentage of cost of revenues to net revenues increased from 67.6% to 70.0%. This was due mainly to an increase in the percentage of cost of revenues to service and other revenues from 72.6% to 75.8%, resulting from an increase in the cost of revenues ratio for mobile games in the Digital Entertainment segment. Please refer to “Segment Information” for the details.

Selling, general and administrative expenses increased by ¥1,062 million, or 2.1%, to ¥52,369 million for fiscal 2014 from ¥51,307 million for fiscal 2013. This increase was due mainly to an increase in personnel costs, while advertising expenses decreased compared to the previous fiscal year when London Olympic Games were held.

Impairment charges for goodwill, property and equipment, and other intangible assets

In our Health & Fitness segment, in addition to the recognition of impairment charges for goodwill of ¥2,031 million, we recognized ¥3,220 million of impairment charges for property and equipment, and other identifiable intangible assets. These impairment charges were recognized because we became unable to achieve the initial growth prospects of our business in our Health & Fitness segment because of the worsening operating results of our facilities attributable to a decline in sales and the number of members and the fact that the future business prospects of certain of our facilities were revised due to changes in the business environment.

As a result of the foregoing, our operating income decreased by ¥14,179 million, or 64.8% to ¥7,696 million for fiscal 2014 from ¥21,875 million for fiscal 2013. Further, as a percentage of net revenues, operating income decreased by 6.2% to 3.5% in fiscal 2014 from 9.7% in fiscal 2013. This decrease was due mainly to a decline in the operating income ratio from 18.3% in fiscal 2013 to 11.3% in our Digital Entertainment segment, resulting from an increase in the cost to net revenues ratio in mobile games, and an operating loss of ¥4,024 million in our Health & Fitness segment due to the recognition of impairment charges for goodwill, property and equipment, and other intangible assets for fiscal 2014. Please refer to “Segment Information” for the details.

Other income (expenses), net, increased to ¥1,532 million for fiscal 2014, by ¥1,492 million, from ¥40 million for fiscal 2013. This was due to an increase in foreign currency exchange gains of ¥1,275 million in fiscal 2014 from fiscal 2013, which resulted from the trend of a weakening of the yen during fiscal 2014.

As a result of the foregoing, our income before income taxes and equity in net income of affiliated company decreased by ¥12,687 million, or 57.9%, to ¥9,228 million for fiscal 2014 from ¥21,915 million for fiscal 2013.

Income tax expenses decreased to ¥5,331 million for fiscal 2014, by ¥3,142 million, from ¥8,473 million for fiscal 2013. This was due to a decrease of taxable income amount caused by a decrease in income for fiscal 2014. Meanwhile, the effective tax rate increased to 57.8% for fiscal 2014 from 38.7% for fiscal 2013, due primarily to a change in the statutory income tax rate by a change in tax rates in Japan and the effect of the recognition of an impairment charge for goodwill, which is not tax deductible.

Equity in net income decreased to ¥22 million for fiscal 2014, by ¥22 million, from ¥44 million for fiscal 2013. This was due to a decline in earnings of Resort Solution Co., Ltd., the sole equity method investee.

Net income attributable to the noncontrolling interest decreased to ¥85 million for fiscal 2014, by ¥227 million, from ¥312 million in fiscal 2013. This was due to a decrease in income from Internet Revolution, Inc., one of our subsidiaries in Digital Entertainment segment.

As a result of the foregoing, net income attributable to KONAMI’s shareholders decreased by ¥9,340 million, or 70.9%, to ¥3,834 million for fiscal 2014 from ¥13,174 million in fiscal 2013.

Net revenues decreased by ¥39,763 million, or 15.0%, to ¥225,995 million for fiscal 2013 from ¥265,758 million for fiscal 2012. Further, in fiscal 2013, product sales revenues decreased by ¥36,231 million, or 25.8%, while service and other revenues only decreased by ¥3,532 million, or 2.8%, thereby resulting in service and other revenues surpassing product sales revenues in fiscal 2013. The decrease was due mainly to a decrease in net revenues along with a decrease in the number of released titles of video game software in the Digital Entertainment segment and of products in the Pachinko & Pachinko Slot Machines segment. Please refer to “Segment Information” for the details.

Cost of revenues decreased by ¥21,602 million, or 12.4%, to ¥152,813 million for fiscal 2013, compared to ¥174,415 million for fiscal 2012. This decrease was due mainly to a decrease in cost of revenues on products in the Digital Entertainment segment and Pachinko & Pachinko Slot Machines segment. Further, the percentage of cost of revenues to net revenues increased from 65.7% to 67.6%. This was due mainly to an increase in the percentage of cost of revenues to service and other revenues from 67.3% to 72.6%, resulting from an increase in the cost to net revenues ratio for mobile games in the Digital Entertainment segment. Please refer to “Segment Information” for the details.

Selling, general and administrative expenses increased by ¥1,256 million, or 2.5%, to ¥51,307 million for fiscal 2013 from ¥50,051 million for fiscal 2012. This increase was due mainly to an increase in advertising expenses associated with holding events and running TV commercials to support the opening of the London Olympic Games.

As a result of the foregoing, our operating income decreased by ¥19,075 million, or 46.6% to ¥21,875 million for fiscal 2013 from ¥40,950 million for fiscal 2012. Further, as a percentage of net revenues, operating income decreased by 5.7% to 9.7% in fiscal 2013 from 15.4% in fiscal 2012. This decrease was due mainly to a decline in the operating income ratio from 23.6% in fiscal 2012 to 18.3% in the Digital Entertainment segment, resulting from an increase in the cost to net revenues ratio in mobile games, and to the recognition of operating loss amounting to ¥1,166 million in the Pachinko & Pachinko Slot Machines segment for fiscal 2013. Please refer to “Segment Information” for the details.

Other income (expenses), net, increased to other income of ¥40 million for fiscal 2013, by ¥964 million, from other expenses of ¥924 million for fiscal 2012. This was due to an increase in foreign currency exchange gains of ¥954 million in fiscal 2013 from fiscal 2012, which resulted from a substantial weakening of the yen during the latter portion of fiscal 2013.

As a result of the foregoing, our income before income taxes and equity in net income of affiliated company decreased by ¥18,111 million, or 45.2%, to ¥21,915 million for fiscal 2013 from ¥40,026 million for fiscal 2012.

Income tax expenses decreased to ¥8,473 million for fiscal 2013, by ¥8,468 million, from ¥16,941 million for fiscal 2012. The effective tax rate decreased to 38.7% for fiscal 2013 from 42.3% for fiscal 2012, due primarily to a change in statutory income tax rate by a change in tax rates in Japan and reversal of valuation allowance, offset by adjustments to unrecognized tax benefits.

Equity in net income decreased to ¥44 million for fiscal 2013, by ¥8 million, from ¥52 million for fiscal 2012. As there was no significant change in earnings of Resort Solution Co., Ltd., the sole equity method investee, income attributable to equity method affiliates in fiscal 2013 was at generally the same level as that in fiscal 2012.

Net income attributable to the noncontrolling interest increased to ¥312 million for fiscal 2013, by ¥187 million, from ¥125 million in fiscal 2012. This was due to an increase in income from Internet Revolution, Inc., one of our subsidiaries in Digital Entertainment segment.

As a result of the foregoing, net income attributable to KONAMI’s shareholders decreased by ¥9,838 million, or 42.8%, to ¥13,174 million for fiscal 2013 from ¥23,012 million in fiscal 2012.

We have four 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, which is based on U.S. GAAP information.

The following tables present net revenues, including both customers and intersegment revenues and segment profit (loss) for fiscal 2012, 2013 and 2014, 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 segment profit (loss) for each year.

Net revenues from external customers of our Digital Entertainment segment decreased by ¥12,017 million, or 10.4%, from ¥115,750 million in fiscal 2013 to ¥103,733 million in fiscal 2014, accounting for 47.7% of the total net revenues.

Our revenues from mobile games decreased compared to the previous fiscal year partially due to a decline in browser games and delays in the development of native applications, while the functionality of mobile devices and communications infrastructure have continued to develop due to the rapid adoption of smart phones and tablet devices. Such decline in browser games and delays in the development of native applications resulted in a decrease in the number of paying users⁽¹⁾ for our leading titles, which provide the substantial majority of our

revenues, to approximately 18 million users, or a decrease of approximately 26% compared to the previous fiscal year. As a result, our revenues from mobile games decreased by ¥3,023 million, from ¥32,270 million in fiscal 2013, to ¥29,247 million in fiscal 2014.

In connection with our revenues from computer and video games, while we launched METAL GEAR SOLID V: GROUND ZEROES, the latest game in the METAL GEAR SOLID series, due to a decrease in the overall number of the games we released, our revenues from computer and video games decreased by ¥6,018 million from ¥37,036 million in fiscal 2013 to ¥31,018 million in fiscal 2014.

In connection with our revenues from amusement machines to businesses, although we continued to achieve an increase in revenues led by the stable operation of titles which incorporate the “e-AMUSEMENT Participation” system (a method to share playing fees of users with operators), including MAH-JONG FIGHT CLUB and music titles, our product sales revenue decreased. Our revenues from amusement machines to businesses decreased by ¥3,144 million from ¥24,572 million in fiscal 2013 to ¥21,428 million in fiscal 2014.

Our revenues from sales of card games decreased due primarily to sluggish sales in Japan, while the sales of the Yu-Gi-Oh! TRADING CARD GAME series in Europe significantly increased. Our revenues from card games decreased by ¥376 million from ¥21,722 million in fiscal 2013 to ¥21,346 million in fiscal 2014.

Operating expenses decreased by ¥2,606 million, or 2.7%, to ¥92,597 million in fiscal 2014 from ¥95,203 million in fiscal 2013. Although there was a decrease in cost of products sold decreased by ¥5,579 million accompanying a decrease in product sales, cost to net revenues ratio increased to 61.2% in fiscal 2014 from 56.1% in fiscal 2013. This is primarily due to an increase by ¥4,078 million in costs of services rendered and others resulting from increases, for mobile games, in the platform commission fees because of development for native application settings and in the royalties accompanying sales-increase in the titles which were licensed from outside.

As a result, segment profit decreased by ¥9,425 million, or 44.5% to ¥11,738 million in fiscal 2014 from ¥21,163 million in fiscal 2013.

Net revenues from external customers of our Health & Fitness segment decreased by ¥3,384 million, or 4.2%, from ¥79,866 million in fiscal 2013 to ¥76,482 million in fiscal 2014. We introduced a new fee plan in which users can choose a number of facilities’ usage per week as well as a new facility usage system in which users can easily use multiple facilities. In addition, we commenced the provision of personalized programs called Partner Stretch and Core Training as well as low-intensity studio program focusing on the prevention of locomotive syndrome.

Operating expenses increased by ¥3,653 million, or 4.8%, to ¥80,535 million in fiscal 2014 from ¥76,882 million in fiscal 2013. Cost of revenues decreased by ¥2,834 million to ¥71,111 million in fiscal 2014 from ¥73,945 million in fiscal 2013 resulting from our efforts to reduce operating expenses for the facilities including personnel costs and rent expense. Cost to net revenues ratio slightly increased to 92.9% in fiscal 2014 from 92.6% in fiscal 2013. In addition, the segment recognized impairment charges for goodwill, property and equipment, and other intangible assets totaling ¥5,251 million.

As a result, our segment profit decreased by ¥7,038 million, to a segment loss of ¥4,024 million in fiscal 2014 from a segment profit of ¥3,014 million in fiscal 2013.

Net revenues from external customers of our casino business increased by ¥6,616 million, or 26.5%, from ¥24,984 million in fiscal 2013 to ¥31,600 million in fiscal 2014. Podium, the video slot machine, and the

Advantage series of five-reel mechanical slot machines received positive receptions, and SYNKROS, the casino management system with the enhanced function, received a high reputation from casino operators.

Operating expenses increased by ¥4,901 million, or 25.3%, to ¥24,279 million in fiscal 2014 from ¥19,378 million in fiscal 2013. Cost of revenues increased by ¥2,329 million accompanying an increase in sales, and cost to net revenues ratio of 35.2% in fiscal 2014 was at generally the same level as compared to cost to net revenues ratio of 35.1% in fiscal 2013 because its business continued to be stable. Other operating expenses increased by ¥2,572 million primarily due to increases in sales commission and personnel costs which were accompanying an increase in sales.

As a result, segment profit increased by ¥1,715 million, or 30.6%, to ¥7,321 million in fiscal 2014 from ¥5,606 million in fiscal 2013.

Net revenues from external customers of our Pachinko & Pachinko Slot Machines segment increased by ¥385 million, or 7.1%, from ¥5,395 million in fiscal 2013 to ¥5,780 million in fiscal 2014. In regards to new pachinko slot machines, we released MAGICAL HALLOWEEN 4, the latest title of the MAGICAL HALLOWEEN series, which has won strong support from the market, and GEKITO!SAIYUKI, which is equipped with customized moving game parts for the first time.

Operating expenses increased by ¥1,135 million, or 17.3% to ¥7,699 million in fiscal 2014 from ¥6,564 million in fiscal 2013. This was primarily due to an increase by ¥1,235 million in cost of revenues accompanying an increase in sales as well as an increase in cost to net revenues ratio to 91.9% in fiscal 2014 from 75.7% in fiscal 2013 primarily due to an increase in the production costs of contents resulting from spending a relatively long production time and labor to achieve the high specification.

As a result, segment loss increased by ¥745 million, to ¥1,911 million in fiscal 2014 from ¥1,166 million in fiscal 2013.

Net revenues from external customers of our Digital Entertainment segment decreased by ¥23,960 million, or 17.1%, from ¥139,710 million in fiscal 2012 to ¥115,750 million in fiscal 2013, accounting for 51.2% of the total net revenues.

Our revenues from mobile games, decreased partially as result of the fact that, as the market for mobile games expanded and became more competitive, the number of paying users⁽¹⁾ during the fiscal year for our leading titles that provide the substantial majority of our revenues for mobile games, decreased to approximately 25 million users, or by approximately 15% compared to the previous fiscal year. As a result, our revenues from mobile games decreased by ¥4,386 million, from ¥36,656 million in fiscal 2012, to ¥32,270 million in fiscal 2013.

For revenues from computer and video games, while we launched METAL GEAR RISING REVENGEANCE, the latest game in the METAL GEAR SOLID series, for the last two to three years we have been reducing the number of titles we release as part of our “Selection and Concentration” policy aimed at focusing our resources on selected “high-end AAA” titles. As a result, our revenues from computer and video games decreased by ¥13,413 million from ¥50,449 million in fiscal 2012 to ¥37,036 million in fiscal 2013 due to a decrease in the overall number of those games to be released.

Despite the continued increase in sales of MONSTER RETSUDEN ORECA BATTLE, the card game machines for children, revenues from amusement machines decreased overall as a result of our decision to focus on expanding titles such as the BEMANI series that incorporate the e-AMUSEMENT Participation system (a method to share playing fees of users with operators), a decision that was made in order to build a business model by which stable revenues can be maintained. Our revenues from amusement machines decreased by ¥738 million from ¥25,310 million in fiscal 2012 to ¥24,572 million in fiscal 2013.

Our revenues from sales of card games decreased by ¥4,457 million from ¥26,179 million in fiscal 2012 to ¥21,722 million in fiscal 2013. This decrease was due primarily to a decrease in repeat sales of the Yu-Gi-Oh! TRADING CARD GAME series in Japan.

Operating expenses decreased by ¥12,176 million, or 11.3%, to ¥95,203 million in fiscal 2013 from ¥107,379 million in fiscal 2012. While there was a decrease in costs of products sold by ¥19,050 million resulting from a decrease in product sales revenue, costs of services rendered and others for mobile games increased by ¥5,500 million primarily due to increases in development and operating costs, the result of an increase in the number of titles distributed and improvements to our contents. Consequently, cost to net revenues ratio was 56.1% in fiscal 2013 as compared to cost to net revenues ratio of 56.2% in fiscal 2012.

As a result, segment profit decreased by ¥11,858 million, or 35.9% to ¥21,163 million in fiscal 2013 from ¥33,021 million in fiscal 2012.

Net revenues from external customers of our Health & Fitness segment decreased by ¥2,563 million, or 3.1%, from ¥82,429 million in fiscal 2012 to ¥79,866 million in fiscal 2013. Amid the growing need for preventative care in an increasingly aging society and with a view to develop services primarily for elderly people in good health, we provide a wide range of health-themed services with the new aim of establishing ourselves as a “Total Health Partner.” We established the new brand OyZ, which primarily targets clients over 60 years of age, the new counseling system My Fit Planner and the new program Grid Series in Les Mills.

Operating expenses decreased by ¥2,844 million, or 3.6%, to ¥76,882 million in fiscal 2013 from ¥79,726 million in fiscal 2012. Cost of revenues decreased by ¥1,428 million to ¥73,945 million in fiscal 2013 from ¥75,373 million in fiscal 2012 due to our efforts to reduce operating expenses for the facilities, including a decrease in personnel costs. Cost to net revenues ratio increased to 92.5% in fiscal 2013 from 91.3% in fiscal 2012 primarily because the degree of a decrease in sales was larger than that in cost of revenues as the cost was mostly composed of fixed costs, such as personnel costs and rent costs. Other operating expenses decreased by ¥1,416 million because there were earthquake related expense of ¥342 million and loss from special termination benefit and settlement loss from defined benefit plan of ¥821 million in fiscal 2012, but there were no such expenses in fiscal 2013.

As a result, our segment profit increased by ¥185 million, or 6.5% to ¥3,014 million in fiscal 2013 from ¥2,829 million in fiscal 2012.

Net revenues from external customers of our Gaming & Systems segment decreased by ¥228 million, or 0.9%, from ¥25,212 million in fiscal 2012 to ¥24,984 million in fiscal 2013. This was due primarily to the strong sales performance of Podium, the video slot machine and the Advantage series of five-reel mechanical slot machines, mainly in the U.S. market.

Operating expenses increased by ¥822 million, or 4.4%, to ¥19,378 million in fiscal 2013 from ¥18,556 million in fiscal 2012. Selling, general and administrative expense to net revenues ratio increased to

42.4% in fiscal 2013 from 37.3% in fiscal 2012 primarily due to an increase by ¥1,189 million in selling, general and administrative expenses including increases in fees to obtain permits for new products or in new markets. Cost of revenues decreased by ¥367 million accompanying a decrease in sales, and cost to net revenues ratio slightly decreased to 35.2% in fiscal 2013 from 36.3% in fiscal 2012.

As a result, segment profit decreased by ¥1,050 million, or 15.8%, to ¥5,606 million in fiscal 2013 from ¥6,656 million in fiscal 2012.

Net revenues from external customers of our Pachinko & Pachinko Slot Machines segment decreased by ¥13,012 million, or 70.7%, from ¥18,407 million in fiscal 2012 to ¥5,395 million in fiscal 2013. While we achieved the highest number of units sold for MAGICAL HALLOWEEN 3 for our pachinko slot machine sales in the previous fiscal year, our product revenues substantially decreased this fiscal year due to a decrease in the number of units sold mainly resulting from the rescheduling of release dates for certain major titles due to market conditions.

Operating expenses decreased by ¥7,687 million, or 53.9% to ¥6,564 million in fiscal 2013 from ¥14,251 million in fiscal 2012. While cost of revenues decreased by ¥6,256 million accompanying a decrease in sales, cost to net revenues ratio increased to 75.7% in fiscal 2013 from 56.1% in fiscal 2012 primarily due to an increase in production costs of contents resulting from spending a relatively long production time and labor to achieve the high specification. Other operating expenses decreased by ¥1,431 million primarily due to a decrease in sales commission accompanying a decrease in sales.

As a result, segment profit decreased by ¥5,345 million, to a segment loss of ¥1,166 million in fiscal 2013 from a segment profit of ¥4,179 million in fiscal 2012.

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 that some of our significant accounting policies are 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 complexity and a higher degree of judgment.

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. Specifically, the estimated fair value of intangible assets related to trademarks and patents is determined using the relief from royalty method under the income approach, which involves the estimation of an amount of hypothetical royalty savings enjoyed by the company that owns the intangible asset because that company is relieved from having to license that intangible asset from another owner. The estimated royalty savings are calculated based on market comparable royalty rates, which are discounted to the present value at an appropriate discount rate. For the estimated fair value of intangible assets related to membership, we employed the excess earnings method under the income approach, which is a common valuation method used when the revenue stream of a particular asset cannot easily be separated from another asset. The excess earnings after deducting certain contributory asset charges are discounted to the present value at an appropriate discount rate. Discount rates were estimated based on the weighted average cost of capital and the weighted average return on assets analysis. 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.

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.

Based on such assessment, intangible assets related to trademarks and memberships have been determined to have an indefinite life while intangible assets related to customer relationships, patents and franchise and other contracts have been amortized over their estimated useful lives of 3 to 20 years.

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:

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 recognize an impairment loss based on the difference between the carrying amount and the fair value of the assets.

We perform an assessment of goodwill for impairment at least annually, and more frequently if an indicator of impairment has occurred. The assessment of goodwill for impairment permits us to make a qualitative assessment before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is more than its carrying amount, it shall be required to perform the two-step quantitative impairment test for that reporting unit. The first step requires identification of reporting units and determination of the fair value for each individual reporting unit. We have 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 recognized.

For the purpose of evaluating the recoverability of the carrying value of goodwill, we engage an independent appraiser to assist our 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 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.

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. We also reassess indefinite useful life determinations periodically for each asset. The assessment of goodwill for intangible assets with infinite useful lives permits us to make a qualitative assessment before evaluating fair value. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is more than its carrying amount, it shall be required to perform a quantitative assessment. 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.

Intangible assets with finite useful lives are amortized over their estimated useful lives on a straight-line basis.

As for the carrying value of goodwill and other intangible assets, there was no impairment for any of our reporting units during the fiscal years ended March 31, 2012 and 2013. The fair values of the reporting units that had significant amounts of goodwill were significantly in excess of their respective carrying values. During the fiscal year ended March 31, 2014, KONAMI recognized impairment charges of ¥2,031 million for goodwill, all of which was allocated to a reporting unit, the Health & Fitness segment. The fair value of the goodwill was determined by utilizing a discounted cash flow analysis and a comparable company analysis. We also concluded the fair value of certain trademarks were lower than their carrying value, all of which was allocated to a reporting unit, the Health & Fitness segment. Consequently, the Health & Fitness segment recognized impairment charges of ¥2,573 million for property and equipment, and other intangible assets. The fair value of the trademarks was determined by utilizing a relief from royalty method. These impairment charges were recognized because we became unable to achieve the initial growth prospects of our business in our Health & Fitness segment because of the worsening operating results of our facilities attributable to a decline in sales and the number of members and the fact that the future business prospects of certain of our facilities were revised due to changes in the business environment. Considering these circumstances, we reconsidered the assumed average annual revenue growth rate, which was used for calculating the future net cash flows, and changed to 3.2% in fiscal 2014 from 5.0% in fiscal 2013. The discount rate was also changed to 5.4% in fiscal 2014 from 5.0% in fiscal 2013. Meanwhile, the number of years used for calculating the future net cash flows and the terminal value growth rate were unchanged from three years and 1.0%, respectively. The remaining carrying value of goodwill in the Health & Fitness segment was ¥4,537 million at March 31, 2014. The estimated fair value of the Digital Entertainment reporting unit, which has goodwill with a carrying value of ¥15,285 million, was significantly in excess of its respective carrying value at March 31, 2013 and 2014. The fair values of this reporting unit were determined primarily using an income approach and also consider certain market approaches. We also reassess annually estimated cash flows, assumed a terminal growth rate and other inputs for determinations. Estimated cash flows were forecasted for three years and assumed a terminal growth rate of 1%. The discount rate used was 5.5% and 6.4% at March 31, 2013 and 2014, respectively.

Our 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 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.

We have performed impairment reviews for our fitness club assets based on 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.

No impairment charges for long-lived assets were necessary for the fiscal year ended March 31, 2012 and 2013. During the fiscal year ended March 31, 2014, KONAMI recorded a pre-tax impairment charge of ¥647 million for property and equipment related to facilities, whose operating results were underperforming and future prospects were revised due to changes in the business environment.

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.

We derive revenue from primarily three sources: (i) product revenue, which includes packaged game software and other products, amusement machines and related equipment, gaming machines and related casino management systems, pachinko machines and pachinko slot machines; (ii) service revenue from game contents, which includes mobile games and e-AMUSEMENT Participation; and (iii) membership fee revenue from health and fitness club members.

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

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 mobile games KONAMI enters into agreements with certain mobile game platform providers, pursuant to which KONAMI provides mobile games through the platform to players. The agreements provide for distribution, provision and allocation of revenue with regard to the mobile games. The amount of virtual goods purchased by the players within the games is electronically recorded by KONAMI’s server as well as by the servers of the mobile game platform providers. The mobile game platform providers collect cash from players based on the data and pay proceeds to KONAMI, net of the contractual fees attributable to their mobile game platform. KONAMI assesses whether it is the primary obligor responsible for users, whether it has the right to determine the price at the time of sales to users, and whether it has credit risk to determine whether or not it is acting as a principal or an agent in each arrangement. If KONAMI is a principal in an arrangement, the revenue is reported on a gross basis. If KONAMI is an agent in an arrangement, the revenue is reported on a net basis.

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.

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 management 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 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 mobile games is recognized when the service, related to the virtual goods within the game, have been rendered to the player. For purposes of determining when the service has been rendered to the player, we have determined that an implied obligation to the paying player exists for us to continue providing the purchased virtual goods within the mobile games over the period the player is expected to access the game or when the virtual goods are consumed. KONAMI categorizes its virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action. Common characteristics of consumable goods may include virtual goods that are no longer displayed on the player’s screen and do not provide the player any continuing benefit following consumption. For the sale of consumable virtual goods, KONAMI recognizes revenue when the goods are consumed. Durable virtual goods represent virtual goods that are accessible to the player over an extended period of time. KONAMI recognizes revenue from the sale of durable virtual goods on a straight-line basis over the estimated average playing period. The average playing period of paying players for the applicable game is estimated to be from five months to eight months based on the analysis of historical online usage data. Future paying player usage patterns and behavior may differ from the historical usage patterns and therefore the estimated average playing periods may change in the future.

Revenue from health and fitness club membership is derived primarily from monthly membership fees received 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.

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.

As for mobile games, prices of virtual goods offered to the players and the fees attributable to mobile game platform providers are fixed by the agreements.

KONAMI’s membership fee for health and fitness clubs is fixed at the time of admission of the member.

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.

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:

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

Separate units of accounting are recognized in earnings as they are delivered or ratably over the service period, as applicable.

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 deliverable arrangements. As VSOE of fair value for the online services could not be established, 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 based on historical online usage data.

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 “product sales revenue” and “costs of products sold” collectively.

We sell amusement machines in Digital Entertainment Segment, and provide disposal service for the amusement machines, “e-AMUSEMENT” service connecting multiple amusement arcades online, and “e-AMUSEMENT Participation” service sharing playing fees of users with customers (amusement arcade operators), as multiple deliverable arrangements. We do not grant the right to return amusement machines to the customers. The customers are granted the right to receive disposal services of the amusement machines at the point of sale, which is exercisable within 5 to 7 years as a fixed fee arrangement to require us to handle disposal of the machines at the end of their useful lives. The e-AMUSEMENT and e-AMUSEMENT Participation services are a separate contract from the sale of the machines. However, those service contracts are generally entered into concurrently with the sale of the machines. We have evaluated and concluded that each of these components contained in such arrangements is a separate unit of accounting since it has standalone value, and recognizes revenue when the customers have accepted the machine or the services have been rendered. Under a selling price hierarchy, consideration is allocated to each component based on the relative selling price for the deliverables. The selling price for a deliverable is based on VSOE or third party evidence, which is the price of the vendor’s or any competitor’s largely interchangeable services in standalone sales to similarly situated customers.

Revenues from casino management systems that are a part of Gaming & Systems Segment are also recognized as multiple deliverable arrangements. Revenues for individual deliverables are generally recognized when the recognition criteria for that element has been met. Maintenance service revenue is recognized ratably over the maintenance period based on VSOE of purchase price established by renewal rates.

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, 2013 and 2014, the aggregate valuation allowances provided against deferred tax assets were ¥9,487 million and ¥7,095 million, respectively. The net change in total valuation allowance for the fiscal years ended March 31, 2012, 2013 and 2014 were a decrease of ¥1,945 million, a decrease of ¥843 million and a decrease of ¥2,392 million, respectively.

During the fiscal year ended March 31, 2012, the valuation allowance for deferred tax assets was reduced by ¥241 million due to utilization of net operating loss carryforwards. Also, the valuation allowance was reduced by ¥452 million for the reduction in the carrying amount of deferred tax assets related to temporary differences not expected to be realized. The remainder of the decrease primarily related to the reduction in the carrying amount of deferred tax assets not expected to be realized for the impact of income tax rate changes in Japan, which had no impact on income tax expense.

During the fiscal year ended March 31, 2013, the valuation allowance was reduced by ¥314 million for a change in judgment primarily with respect to the need for valuation allowance at certain subsidiaries that were no longer in a cumulative loss position in recent years. Also, the valuation allowance for deferred tax assets was

reduced by ¥185 million due to utilization of net operating loss carryforwards. The remainder of the decrease primarily related to the derecognition of deferred tax assets for tax loss carryforwards that expired unused, which had no impact on income tax expense.

During the fiscal year ended March 31, 2014, the valuation allowance was increased by ¥42 million for a change in judgment about the realization of certain deferred tax assets. Also, the valuation allowance for deferred tax assets was reduced by ¥229 million due to utilization of net operating loss carryforwards. The remainder of the decrease primarily related to the de-recognition of deferred tax assets for tax loss carryforwards that expired unused and for local tax portion that resulted from tax law change in Japan, which had no impact on income tax expense.

In May, 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers”. This ASU 2014-09 will supersede the current revenue recognition requirements in Accounting Standard Codification (ASC) 605, “Revenue Recognition”, and requires an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. An entity should apply the amendments in this ASU 2014-09 using one of the two methods which are to either apply retrospectively to each prior reporting period presented, or to apply retrospectively with the cumulative effect of initially applying this ASU 2014-09 recognized at the date of initial application. We are currently reviewing which of the two methods to apply and the impact the adoption of the applicable method may have on our consolidated financial statements.

Our capital expenditures for fiscal 2012 amounted to ¥10,690 million on an accrual basis, which primarily consisted of additions to Konami Sports Clubs’ facility equipment, tools for product development relating to the Gaming & Systems segment and expenditures related to our plant facilities. Our capital expenditures for fiscal 2013 amounted to ¥9,399 million on an accrual basis, which primarily related to the purchase of production equipment for the Digital Entertainment segment, Konami Sports Clubs’ facility equipment and tools for product development and manufacturing relating to the Gaming & Systems segment. Our capital expenditures for fiscal 2014 amounted to ¥26,006 million on an accrual basis, which primarily related to the purchase of production equipment for the Digital Entertainment segment and acquisition of a business site as the Corporate (company-wide) asset.

The following table shows reconciliation between capital expenditures disclosed in the cash flow statements to the amounts discussed here on an accrual basis for fiscal 2012, 2013 and 2014:

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 2014 included cash used for ordinary operations of our business. From time to time, we consider potential opportunities to expand our current business or enter new areas of business.

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 2014, 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 will be sufficient to meet our operating requirements for the next twelve months through the end of fiscal 2015. In our opinion, the working capital is sufficient for KONAMI’s present requirements. 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 the relevant jurisdiction.

The following table sets forth certain information about our cash flows during fiscal 2012, 2013 and 2014:

Cash provided by operating activities decreased by ¥1,209 million, or 11.8%, to ¥9,027 million in fiscal 2014 from ¥10,236 million in fiscal 2013. This decrease was due mainly to a decrease in cash collected from customers as a result of decreased sales in our Digital Entertainment segment and an increase in cash used for the production costs in both our Digital Entertainment segment and our Pachinko & Pachinko Slot Machines segment, which was partially offset by a decrease of ¥6,515 million in cash paid for income taxes compared to the previous financial year.

Net cash used in investing activities increased by ¥15,159 million, or 131.0% to ¥26,734 million in fiscal 2014 from ¥11,575 million in fiscal 2013. This increase mainly resulted from the capital expenditures of the capital investment.

Net cash provided by financing activities increased by ¥3,448 million to ¥15,825 million for fiscal 2014 from ¥12,377 million in fiscal 2013. This increase primarily resulted from the issue of new bonds.

Cash provided by operating activities decreased by ¥27,679 million, or 73.0%, to ¥10,236 million in fiscal 2013 from ¥37,915 million in fiscal 2012. This decrease was due mainly to a decrease in cash collected from customers as a result of decreased sales of Digital Entertainment and Pachinko & Pachinko Slot Machines segments, an increase in cash used for development costs in those segments and an increase in payment for income taxes by ¥5,772 million compared to the previous fiscal year due to an increase in our taxable income.

Net cash used in investing activities increased by ¥3,929 million, or 51.4% to ¥11,575 million in fiscal 2013 from ¥7,646 million in fiscal 2012. This increase mainly resulted from an increase in time deposit and expenditures for business acquisitions.

Net cash used in financing activities decreased by ¥877 million, or 6.6%, to ¥12,377 million for fiscal 2013 from ¥13,254 million in fiscal 2012. This decrease primarily resulted from an increase in dividend payments and the fact that there was no income from sale and leaseback transactions for the current consolidated fiscal year; however, this was partially offset by income from borrowings.

Our debt includes both long-term and short-term debt. Our debt requirements have not been seasonal. As of March 31, 2014, short-term debt was ¥6,458 million of unsecured bank loans. As of March 31, 2014, long-term debt consisted of ¥15,000 million of unsecured bonds described in the following paragraphs. For information regarding the aggregate annual maturities of our long-term debt outstanding at March 31, 2014, 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 are market-based rates in Japan. The interest rates of our loans ranged from 0.45% to 0.66% during fiscal 2014.

During fiscal 2014, we issued series 9, 10 and 11 unsecured domestic bonds, due in fiscal 2018, fiscal 2019 and fiscal 2020, 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 0.46% to 0.66%.

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. We are also from time to time required to provide irrevocable letters of credit in connection with other transactions. As of March 31, 2014, we had outstanding letter of credit of $18,000.

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 17 in this annual report and Note 16 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. A fund administrator of each subsidiary of our group executes and controls those contracts. Each contract and its results are to be periodically reported to a representative director or an officer in charge of finance of each company.

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.

Our research and development activities consist primarily of developing mobile games, computer and video game software, amusement arcade games, card games, gaming machines, pachinko machines, and pachinko slot machines. Research and development expenses are charged to earnings as incurred. On a consolidated basis, we spent ¥2,444 million, ¥2,412 million and ¥2,620 million on research and development for fiscal 2012, 2013 and 2014 respectively.

While our results of operations for fiscal 2015 remain subject to a number of uncertainties, we currently expect that our net revenues for fiscal 2015 will increase from the previous year. We also expect an increase in operating income in fiscal 2015 due to stable revenues generated by regular titles in each segment. Due to the lingering European sovereign-debt crisis, we may experience certain negative effects but we expect the adverse impact, if any, that would be incurred in fiscal 2015 to be immaterial. We base our expectations for fiscal year 2015 on the following assumptions:

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.

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, 2014:

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, 2014 is ¥494 million, substantially all of which has been prepaid and recorded as prepaid royalties and license fees.

The following table sets forth our directors including the corporate auditors and certain other information:

Kagemasa Kozuki became our Representative Director and President in 1974 and Representative Director and Chairman in 1987. He also served as President since 1994, and became Representative Director, Chairman in 2012. He established KONAMI CORPORATION in 1973.

Takuya Kozuki became our Director in 2009, Representative Director in 2011 and President in 2012. He joined Konami Computer Entertainment America, Inc. as Director and Vice President in 1997. He has also served as Director, Chairman of Konami Corporation of America since 2012. He is a son of our Representative Director, Chairman, Kagemasa Kozuki.

Kimihiko Higashio has served as our Director since 2005. He joined KONAMI CORPORATION in 1997.

Fumiaki Tanaka has served as our Director since 2014. He also served as our Director from 1996 to 2001, and as President and Representative Director of Konami Digital Entertainment Co., Ltd. since 2006 to 2014. He joined KONAMI CORPORATION in 1981.

Satoshi Sakamoto has served as our Director since 2014. He joined Konami Australia Pty Ltd. as Managing Director in 1996, and he has been serving as Chairman of Konami Gaming Inc. since 2002.

Tomokazu Godai has served as our Director since 1992 and has served as Representative Director, Chairman of KPE, Inc. since 2014.

Akira Gemma has served as our Director since 2004. He has also served as Adviser of Shiseido Co., Ltd. since 2013.

Kaori Yamaguchi has served as our Director since 2014. She has been also serving as Associate Professor at University of Tsukuba since 2011.

Shinichi Furukawa has served as our Standing Corporate Auditor since 2013. He joined KONAMI CORPORATION in 1982.

Minoru Maruoka has served as our Standing Corporate Auditor since 2013. He served as Director of Panasonic Ecology Systems Co., Ltd. from 2010 to 2011.

Nobuaki Usui has served as our Corporate Auditor since 2011. He has also served as Outside Director of ORIX Corporation since 2012.

Setsuo Tanaka has served as our Corporate Auditor since 2011. He has also served as External Corporate Auditor of NGK INSULATORS, LTD. since 2007.

Hisamitsu Arai has served as our Corporate Auditor since 2011. He has also served as External Corporate Auditor of Soken Chemical & Engineering Co., Ltd. since 2013.

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, corporate officer (shikko-yaku), manager or employee of the 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.

(1) Amount of Compensation to Our Directors and Corporate Auditors in Fiscal 2014

(2) Directors and Corporate Auditors whose Total Compensation Amount was over ¥100 million in Fiscal 2014

(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, full-time/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, 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.)

The information required by this item in relation to the date of expiration of the current term of office for our directors and corporate auditors is set forth in Items 6.A and 6.B of this annual report.

We employed 5,453 persons on a full-time basis and 7,277 persons on a part-time basis as of March 31, 2014. While Konami Sports & Life Co., Ltd. has a labor union, we have no other labor union and have experienced no labor disputes. We believe that our labor relations are good.

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

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.

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.

We do not currently have in place any stock option plans for our directors or employees. While we have issued stock options to certain of our and our subsidiaries’ directors and employees in the past, there are currently no outstanding stock options held by our or our subsidiaries’ directors or employees.

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, 2014 the Employee Stock Purchase Association held a total of 1,759,843 shares of our common stock and the Director Stock Purchase Association held a total of 169,627 shares of our common stock.

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.

The following table shows, to the best of our knowledge, our major shareholders, as of March 31, 2014, who owned more than 5% of our outstanding common stock according to our register of shareholders or, in the case of Kagemasa Kozuki, owned a beneficial interest in more than 5% of our outstanding common stock. The Company understands that, other than Kagemasa Kozuki whose beneficial ownership is discussed below, the following shareholders may not be beneficial owners of the Company’s common stock and that, consequently, there may be other beneficial owners of more than 5% of our outstanding common stock that are not listed below. However, the Company does not have any further information available to determine the beneficial ownership of these shares, except as otherwise set forth below.

In addition, according to a statement on Schedule 13G (Amendment No. 2) filed by Mitsubishi UFJ Financial Group, Inc. with the Securities and Exchange Commission on February 12, 2014, Mitsubishi UFJ Financial Group, Inc. directly and indirectly held, as of December 31, 2013, 5,948,493 shares, or 4.3% of the then issued shares, of KONAMI CORPORATION’s Common Stock.

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, 2014 were as follows:

According to our register of shareholders and register of beneficial owners, as of March 31, 2014, there were 138,612,321 shares of our common stock outstanding. According to JPMorgan Chase Bank, depositary for our ADSs, as of March 31, 2014, 390,061 shares of our common stock were held in the form of ADRs and there were 26 ADR holders of record in the United States. According to our register of shareholders and register of beneficial owners, as of March 31, 2014, there were 47,768 holders of common stock of record worldwide, including 114 shareholders of record with addresses in the United States who held 7,038,067 shares, representing

approximately 5.08% 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 our control.

The information required by this item is set forth beginning on page F-2 of this annual report.

The information on legal or arbitration proceedings required by this item is set forth in Item 4. Information on the Company. B “Business Overview” of this annual report.

We believe that it is important to return our profits to our 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.

Except as disclosed in this annual report, we are not aware of any significant change since March 31, 2014, the date of our last audited financial statements.

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:

On July 11, 2014, the reported closing price of our shares on the Tokyo Stock Exchange was ¥2,249 per share, the closing Nikkei Stock Average was ¥15,164.04 and the closing TOPIX was ¥1,255.19.

On July 11, 2014, the closing sale price of our American Depositary Shares on the New York Stock Exchange was $22.17 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:

See Item 9.A of this annual report for information on the markets on which our common stock is listed or quoted.

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:

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 27, 2014, 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.

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.

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.

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.

Our authorized share capital consists of 450,000,000 shares. All issued shares are fully-paid and non-assessable. As of March 31, 2014, 138,612,321 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 four 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 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.

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:

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 the company 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.

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 22 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 capital reserve and our earned 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 group, 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.

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 capital reserve. 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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. However, as described below, in circumstances, a report by the proxy who is a resident of Japan must be filed to the Minister of Finance. In addition, 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.

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.

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.

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 11, 2014, the closing price of our shares on the Tokyo Stock Exchange was ¥2,249 per share. The following table shows the daily price limit for a stock on the Tokyo Stock Exchange with a closing price of between ¥2,000 and ¥3,000 per share, as well as the daily price limit if our per share price were to rise to between ¥3,000 and ¥5,000, or fall to between ¥1,000 and ¥1,500 or ¥1,500 and ¥2,000. Other daily price limits would apply if our per share price moved to other ranges.

For a history of the trading price of our shares on the Tokyo Stock Exchange, see Item 9.A of this annual report.

“The Countermeasures to Large-Scale Acquisitions of KONAMI CORPORATION Shares (Takeover Defense Measures)” (the “Current Plan”) was approved and subsequently introduced upon resolution at a general shareholders’ meeting held on June 27, 2013. The outline of the Current Plan is as follows:

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.

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).

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 annual report 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 annual report.

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.

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:

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:

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.

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 that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains 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 preferential tax rates. 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.

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 property is held for more 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.

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, and our gross income, each of which is itself subject to change.

In general, we will be a PFIC with respect to you if for any taxable year in which you held our ADSs or shares:

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:

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, unless you make a mark-to-market election or a special “purging election” with respect to your shares or ADSs, 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. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates 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 with respect to you, you may be required to file Internal Revenue Service Form 8621.

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:

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% (on or after January 1, 2013, 20.42%). Except for any individual shareholder who holds 3% or more of the total outstanding shares, the aforementioned withholding tax rate is reduced pursuant to the Special Taxation Measures Law of Japan and the Act on Special Measures Concerning the Securing of Financial Resources for Reconstruction Measures Involving the Great East Japan Earthquake to (i) 7.147% for dividends due and payable on or after January 1, 2013 to December 31, 2013, and (ii) 15.315% for dividends due and payable on or after

January 1, 2014. 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 Treaty 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 Treaty, 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 the 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:

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 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.

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.co.jp/en. 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, as amended, prescribing the furnishing and content of proxy statements to shareholders.

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.

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, 2014, our U.S. dollar and Euro denominated sales comprised 19.15% and 6.47% 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, 2014 we had net U.S. dollar dominated monetary assets of approximately $294 million and Euro denominated monetary assets of approximately €44 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.

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.

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 department of each company executes and controls these contracts. Foreign exchange forward contracts are presented below by the notional balances with weighted average exchange rates. Generally these forward contracts are expected to mature in three to six months. As of March 31, 2013 and 2014, the balance of assets and liabilities of derivative instruments were nil.

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, 2013 and 2014 respectively. All of our long-term debt obligations have fixed interest rates.

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, 2014 would be ¥40 million. We had no open equity derivative positions from April 1, 2013 to March 31, 2014.

The following tables below provide information about our market sensitive marketable securities as of March 31, 2013 and 2014, respectively:

As of March 31, 2014 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.

The following table shows the fees and charges that a holder of our ADR may have to pay, either directly or indirectly:

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$ 25,000 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, 2013 to March 31, 2014, 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.

Our Disclosure Committee is charged with the maintenance and evaluation of our disclosure controls and procedures. As of March 31, 2014, 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, as amended). Based on that evaluation, these officers concluded that, as of March 31, 2014, the disclosure controls and procedures were effective.

Our management 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 amended, 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 assessed the effectiveness of internal control over financial reporting as of March 31, 2014. 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 (issued 1992) (the COSO criteria).

Based on its assessment, the management concluded that, as of March 31, 2014, our internal control over financial reporting was effective.

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting. Their report appears at the beginning of our consolidated financial statements in this annual report.

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.

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.

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, 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.

The board of directors engaged KPMG AZSA LLC to perform an annual audit of our financial statements in the years ended March 31, 2013 and 2014. The following table presents information concerning fees paid to KPMG AZSA LLC and KPMG international member firms (“KPMG”) in those years.

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.

All of the services provided by KPMG in the fiscal year ended March 31, 2014 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.

With respect to the requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, 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:

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.

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.

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 “Rights of our Shareholders—Unit shares System” under Item 10.B of this annual report.

Companies listed on the New York Stock Exchange (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.

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.

The information required by this item is set forth beginning on page F-2 of this annual report.

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.

We have audited the accompanying consolidated balance sheets of KONAMI CORPORATION and subsidiaries as of March 31, 2013 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2014. 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 schedule 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, 2013 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2014, 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 described in Note 1(f) to the consolidated financial statements, the Company and its domestic subsidiaries changed their method of accounting for calculating depreciation of certain property and equipment beginning April 1, 2013.

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, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 30, 2014 expressed an unqualified opinion on the effectiveness of KONAMI CORPORATION’s internal control over financial reporting.

We have audited KONAMI CORPORATION’s internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). KONAMI CORPORATION’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 Annual 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.

In our opinion, KONAMI CORPORATION maintained, in all material respects, effective internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) 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, 2013 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2014, and our report dated July 30, 2014 expressed an unqualified opinion on those consolidated financial statements.

1. Business and Organization, Basis of Presentation and Summary of Significant Accounting Policies

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 content for mobile devices and PCs, 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 other regulations as a gaming operator if it enters into lease participation agreements under which it shares 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.

The consolidated financial statements herein are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the presentation used for the year ended March 31, 2014.

The accompanying consolidated financial statements include the accounts of the Company and all of its wholly- and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Noncontrolling interests in the net assets of majority-owned subsidiary are reported as a component of equity in the consolidated financial statements. Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. Noncontrolling interests in the subsidiary’s earnings or losses are reported as a component of net income in the accompanying consolidated financial statements.

Cash and cash equivalents include all highly liquid investments with an initial maturity of three months or less.

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 accretion or amortization 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, 2013 and 2014, 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.

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.

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 at the total investment level. 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.

Investments in non-marketable equity securities in which the Company does not consolidate or account for under the equity method are carried at cost.

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.

Property and equipment are carried at cost. Depreciation is computed based primarily on the straight-line method by the Company and its subsidiaries 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.

limit new capital expenditures for additional facilities and has begun implementing a new strategy to improve retention for longer-term membership. This will enable the Company to achieve a more stable utilization of the existing facilities. In addition, in other segments, the products and services have generally began generating consistent revenue and the centralization and enhancement of the production and manufacturing systems have resulted in a change in pattern of consumption. As such, the company and its domestic subsidiaries determined that the new method better reflects the future economic benefit from the usage of the property and equipment. The effect of the change in depreciation method is recognized prospectively as a change in accounting estimate.

As a result of the change in depreciation method, depreciation expense for the year ended March 31, 2014 decreased by approximately ¥814 million, and net income attributable to KONAMI CORPORATION and basic net income attributable to KONAMI CORPORATION per common share increased by ¥505 million and ¥3.64, respectively, for the year ended March 31, 2014.

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 loss.

KONAMI recognizes the fair value of 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.

KONAMI capitalizes costs associated with software systems for internal use, which 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 a point in which the project is substantially complete and ready for its intended use. 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.

KONAMI accounts for business combinations under the acquisition method and, accordingly, recognizes assets acquired including identifiable intangible assets, liabilities assumed and noncontrolling interests based on the respective estimated fair values at the acquisition date. Acquisition related costs are expensed as incurred.

Goodwill represents the difference between the cost of an acquired company and amounts allocated to the estimated fair values of identifiable assets acquired, liabilities assumed and any noncontrolling interests. Identifiable intangible assets represent intangible assets related to trademarks, gaming licenses, memberships, patents, 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. The assessment of goodwill for impairment permits KONAMI to make a qualitative assessment before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is more than its carrying amount, it shall be required to perform the two-step quantitative impairment test for that reporting unit. 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 recognized.

For the purpose of evaluating the recoverability of the carrying value of goodwill, KONAMI engages an independent appraiser to assist the 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.

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. The assessment of goodwill for intangible assets with infinite useful lives permits KONAMI to make a qualitative assessment before evaluating fair value. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is more than its carrying amount, it shall be required to perform a quantitative assessment. 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.

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 as part of KONAMI’s other long-lived assets as described below.

KONAMI’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group 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.

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 period when the change occurs. To date, KONAMI has not designated any derivative instrument as a hedge.

KONAMI accounts for income taxes based on the asset and liability method. Deferred tax assets and liabilities are recognized 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 and operating loss and credit carryforwards 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.

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.

KONAMI derives revenue from primarily three sources: (i) product revenue, which includes packaged game software and other products, amusement machines and related equipment, gaming machines and related casino management systems, and pachinko slot machines and pachinko machines, (ii) service revenue from game content, which includes mobile games and e-AMUSEMENT Participation, and (iii) membership fee revenue from health and fitness club members.

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

For mobile games, KONAMI enters into agreements with certain mobile game platform providers, in which KONAMI provides mobile games through the platform to players. The agreements specify for distribution, provision and allocation of revenue in regard with the mobile games. The number of virtual goods purchased by the players within the games is electronically recorded by KONAMI’s server as well as by the servers of the platform providers. The platform providers collect cash from players based on the data and pays proceeds to KONAMI, net of the contractual fees attributable to their mobile game platform. KONAMI assesses whether it is the primary obligor responsible for users, whether it has the right to determine the price at the time of sales to users, and whether it has credit risk to determine whether or not it is acting as a principal or an agent in each arrangement. If KONAMI is a principal in an arrangement, the revenue is reported on a gross basis. If KONAMI is an agent in an arrangement, the revenue is reported on a net basis.

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 management 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 mobile games is recognized when the services, related to the virtual goods within the game, have been rendered to the player. For purposes of determining when the service has been rendered to the player, KONAMI has determined that an implied obligation to the paying player exists for it to continue providing the purchased virtual goods within the mobile game over the period the player is expected to access the game or when the virtual goods are consumed. KONAMI categorizes its virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action. Common characteristics of consumable goods may include virtual goods that are no longer displayed on the player’s game board and do not provide the player any continuing benefit following consumption. For the sale of consumable virtual goods, KONAMI recognizes revenue as the goods are consumed. Durable virtual goods represent virtual

goods that are accessible to the player over an extended period of time. KONAMI recognizes revenue from the sale of durable virtual goods on a straight-line basis over the estimated average playing period. The average playing period of paying players for the applicable game is estimated to be from five months to eight months based on the analysis of historical online usage data. Future paying player usage patterns and behavior may differ from the historical usage patterns and therefore the estimated average playing periods may change in the future.

As for mobile games, prices of virtual goods offered to the players and the fees attributable to mobile game platform providers are fixed by the agreements.

KONAMI’s membership fee for health and fitness clubs is fixed at the time of admission of the member.

For those sources that involve multiple software deliverables, management evaluates revenue recognition based on the following criteria;

Separate units of accounting are recognized in earnings as they are delivered or ratably over the service period, as applicable.

KONAMI considers sales of packaged software with online functionality for certain platforms in its Digital Entertainment Segment, which is hosted on its internal servers, as multiple deliverable arrangements. As VSOE of fair value for the online services could not be established, revenue from the packaged products has not been allocated between the packaged game products and the online service for those titles, and the entire revenue from the sale of the packaged products has been recognized on a straight-line basis over the estimated online service period. The service period is estimated to be six months based on historical online usage data.

KONAMI’s Digital Entertainment Segment sells amusement machines, concurrent with disposal service for the amusement machines, e-AMUSEMENT service which is connecting multiple amusement arcades online, and e-AMUSEMENT Participation service which is sharing playing fees of users with customers (amusement arcade operators), in multiple deliverable arrangements. KONAMI does not grant the right to return amusement machines to the customers. The customers are granted the right to receive disposal services for the amusement machines at the point of sale as a fixed fee arrangement, which is exercisable within 5 to 7 years and require KONAMI to dispose of the machines at the end of their useful lives. The e-AMUSEMENT connection service and e-AMUSEMENT Participation service are a separate contract from the sale of the machines. However, those service contracts are generally entered into concurrently with the sale of the machines. KONAMI has concluded that each of these components contained in such arrangements is a separate unit of accounting since they have standalone value and therefore recognizes revenue when the customers have accepted the machine or when the services have been rendered. Under a selling price hierarchy, consideration is allocated to each component based on the relative selling price for the deliverables. The selling price for a deliverable is based on VSOE or third party evidence, which is the price of the vendor’s or any competitor’s largely interchangeable services in standalone sales to similarly situated customers.

Revenue from casino management systems that are a part of the Gaming & Systems Segment are recognized as multiple deliverable arrangements. Revenues for individual deliverables are generally recognized when the recognition criteria for that element has been met. Maintenance service revenue is recognized ratably over the maintenance period based on VSOE of selling price established by renewal rates.

Research and development expenses are charged to earnings as incurred. Research and development expenses included in selling, general and administrative expenses amounted to ¥2,444 million, ¥2,412 million and ¥2,620 million for the years ended March 31, 2012, 2013 and 2014, 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.

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 terms ranging primarily from 2 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 ¥430 million and ¥494 million at March 31, 2013 and 2014, respectively, and were included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

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 ¥2,594 million, ¥2,152 million and ¥1,853 million for the years ended March 31, 2012, 2013 and 2014, respectively.

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 ¥9,017 million, ¥11,455 million and ¥9,084 million for the years ended March 31, 2012, 2013 and 2014, respectively.

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).

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 five 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 including goodwill, realizability of deferred tax assets, and uncertain tax positions.

Basic net income attributable to KONAMI CORPORATION stockholders per common share excludes dilution for potential common stock and is computed by dividing the consolidated net income attributable to KONAMI CORPORATION stockholders by the weighted-average number of shares of common stock outstanding. Diluted net income attributable to KONAMI CORPORATION stockholders per share of common stock reflects the effect of potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into common stock. Diluted net income attributable to KONAMI CORPORATION stockholders per share of common stock is calculated by dividing the consolidated net income attributable to KONAMI CORPORATION stockholders by the sum of the weighted-average number of shares of common stock 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 share of common stock are as follows:

There were no potentially dilutive shares outstanding for the years ended March 31, 2012, 2013 and 2014.

Effective April 1, 2013, KONAMI has adopted Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. ASU 2013-02 requires the presentation of the amounts reclassified out of accumulated other comprehensive income by component, and to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. This presentation information is included in Note 15 to these consolidated financial statements.

On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” which requires an entity to recognize the amount to which it expects to be entitled for the transfer of promised goods or

services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for KONAMI on April 1, 2017. Early adoption is not permitted. Management is evaluating the effect that the ASU will have on KONAMI’s consolidated financial statements and related disclosures. Management has not yet selected a transition method nor has it determined the effect of the standard on KONAMI’s ongoing financial reporting.

On July 2, 2012, 4K Media Inc. (formerly 4K Acquisition Corp.), a subsidiary of the Company, entered into an asset purchase agreement with 4Kids Entertainment, Inc., which was engaged in the business of production of television and movie programs and licensing-out its content. The purpose of this agreement was to upgrade and extend the content of the Digital Entertainment business. The assets including merchandising rights to its content were acquired for ¥1,164 million in cash. Costs related to the acquisition of these assets of ¥43 million were reported in the operating expense in the accompanying consolidated statements of income.

The following table summarizes the fair values of the assets acquired at the acquisition date:

The acquired identifiable intangible assets consist of distribution and merchandising rights of ¥985 million and libraries of ¥16 million, which will be amortized over their estimated useful lives of 8 years.

The results of operations of 4K Media Inc. from the acquisition date to the year ended March 31, 2013 were not material. The pro forma condensed combined financial information is not disclosed because the effect of this acquisition on KONAMI’s consolidated financial statements is not material.

At March 31, 2012, 2013 and 2014, KONAMI held an investment in affiliate as follows:

Summarized financial information for the affiliated company accounted for by the equity method is presented below:

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.

The Company’s shares of undistributed earnings of the affiliate included in the consolidated retained earnings were earnings of nil as of March 31, 2012, 2013 and 2014.

The carrying amount of the investment in Resort Solution was ¥2,247 million and ¥2,249 million as of March 31, 2013 and 2014, respectively. The market value of this investment, based on the quoted market price of the shares, was ¥2,549 million and ¥2,662 million as of March 31, 2013 and 2014, respectively.

Investments in marketable securities at March 31, 2013 and 2014 consisted of the following:

Gross unrealized holding losses on available-for-sale securities and the fair value of the related securities in a continuous unrealized loss position at March 31, 2013 and 2014 are as follows:

Depreciation and amortization expense for the years ended March 31, 2012, 2013 and 2014 amounted to ¥7,482 million, ¥7,469 million and ¥5,675 million, respectively.

When KONAMI identifies a change in circumstances that indicates the carrying amount of long-lived assets might not be recoverable, KONAMI considers the impairment of the assets.

For the purpose of assessing recovery of property and equipment 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 undiscounted future cash flows are less than the carrying amount of the assets, the carrying amount of the assets is not considered recoverable, and if it exceeds the fair value, the assets are written down to fair value. For purposes of estimating fair value, KONAMI utilized the projected future cash flows of the clubs discounted at its weighted average cost of capital.

During the fiscal year ended March 31, 2014, KONAMI recognized an impairment charge of ¥647 million for property and equipment related to facilities, whose operating results were underperforming and future prospects were revised due to changes in the business environment. This impairment charge is included in “impairment charges for property and equipment, and other intangible assets” in the accompanying consolidated statements of income. See Note 18 for additional information.

During the fiscal year ended March 31, 2014, KONAMI recognized an impairment loss of ¥2,031 million, all of which was attributable to the Health & Fitness segment and reporting unit, due to lower than expected operating results and the resulting changes in estimates about its future expected cash flows. The fair value of the reporting unit was determined by using the discounted cash flow method and the guideline public company method. See Note 18 for additional information.

During the year ended March 31, 2014, KONAMI concluded the fair value of certain trademarks was lower than their carrying value, all of which are attributable to the Health & Fitness segment. Consequently, it recognized an impairment loss of ¥2,573 million that is included in “impairment charges for property and equipment, and other intangible assets” in the accompanying consolidated statements. The fair value of the trademarks was determined by using the relief from royalty method. See Note 18 for additional information.

The changes in the carrying amounts of goodwill by operating segments for the years ended March 31, 2012, 2013 and 2014 are as follows:

Identifiable intangible assets at March 31, 2013 and 2014 primarily representing intangible assets acquired in connection with acquisitions of other businesses consisted of the following:

Intangible assets with an indefinite useful life are reassessed for its useful life at least annually based on the factors including, but not limited to, the expected use of the asset by KONAMI, 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 customer relationships, patents and franchise and other contracts have been amortized over their estimated useful lives of 3 to 20 years.

The aggregate amortization expense for identifiable intangible assets for the years ended March 31, 2012, 2013 and 2014 was ¥280 million, ¥399 million and ¥469 million, respectively.

KONAMI acquired computer software of ¥3,901 million and ¥3,721 million in fiscal years 2013 and 2014, respectively.

Capitalized computer software at March 31, 2013 and 2014 consisted of the following:

Amortization expense of computer software for the years ended March 31, 2012, 2013 and 2014 amounted to ¥1,993 million, ¥2,595 million and ¥4,166 million, respectively.

Estimated amortization expense of computer software for the following years is as follows:

Amortization expense of other intangible assets for the years ended March 31, 2012, 2013 and 2014 amounted to ¥43 million, ¥50 million and ¥97 million, respectively.

Weighted-average interest rates on short-term borrowings were 0.61% and 0.51% at March 31, 2013 and 2014, respectively. The interest rates ranged from 0.46% to 0.85% and 0.45% to 0.64% per annum at March 31, 2013 and 2014, respectively. The above-mentioned short-term borrowings from banks included $20 million (¥1,881 million) and $20 million (¥2,058 million) loans denominated in foreign currencies at March 31, 2013 and 2014, respectively.

The Company issued unsecured bonds in the aggregate amount of ¥15,000 million in total on September 3, 2013. At March 31, 2013 and 2014, KONAMI did not have any assets that were pledged as collateral for any of the debt obligations.

While the Company has committed lines of credit available for immediate borrowings amounting to ¥25,000 million, it did not have any balance for the agreements as of March 31, 2013 and 2014. The aggregate commitment fee paid for such credit line agreements for the years ended March 31, 2013 and 2014 amounted to ¥19 million and ¥19 million, respectively.

The aggregate annual maturities of long-term debt outstanding at March 31, 2014 are as follows:

KONAMI is obligated under various capital leases and noncancelable operating leases.

For the year ended March 31, 2012, certain tools, furniture and fixtures were sold for ¥788 million, and then leased back. These leases were accounted for as a capital lease since the rights of ownership are to be transferred to KONAMI at the end of respective lease terms of 3 to 10 years. For the year ended March 31, 2012, certain properties including buildings were sold at ¥759 million and leased back. Those sale-leaseback contractual terms are 10 years, and the rights of ownership are to be transferred to the lessee at the end of lease term of 10 years. Based upon KONAMI’s continuing involvement under the applicable accounting standards, those sale-leaseback transactions were accounted for under the financing method and the proceeds from the transactions were recognized as financing obligations.

At March 31, 2013 and 2014, the amounts of assets and related accumulated amortization included in property and equipment on the consolidated balance sheet reported under capital leases and financing obligations were as follows:

Future minimum lease payments under capital leases and financing obligations and noncancelable operating leases as of March 31, 2014 are as follows:

KONAMI occupies certain offices and lease equipment under cancelable lease arrangements. Rental expenses for all operating leases for the years ended March 31, 2012, 2013 and 2014 totaled ¥18,255 million, ¥18,172 million and ¥18,074 million, respectively, and were included in costs of products sold, costs of services rendered and others and selling, general and administrative expenses in the accompanying consolidated statements of income.

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.

The following table presents the activity for asset retirement obligations for the years ended March 31, 2013 and 2014:

The Company and its domestic subsidiaries were subject to national corporate tax of 30%, corporate inhabitant tax of approximately 20.7% as a percentage of national corporate tax and enterprise tax of approximately 7.5%, after considering the deductible nature of certain taxes, which in the aggregate resulted in a statutory income tax rate of 40.9% for the years ended March 31, 2012. The Company and its domestic subsidiaries are subject to national corporate tax of 28%, corporate inhabitant tax of approximately 20.7% as a percentage of national corporate tax and enterprise tax of approximately 7.5%, after considering the deductible nature of certain taxes, which in the aggregate resulted in a statutory income tax rate of 38.0% for the years ended March 31, 2013 and 2014. Foreign subsidiaries are subject to income taxes of the countries in which they operate.

Due to the amendments to the Japanese corporate tax law that were enacted on November 30, 2011, the corporate tax rate was changed. As a result, the aggregate statutory income tax rate was reduced to 38.0% for fiscal years from April 1, 2012 to March 31, 2015, and to 35.6% for fiscal years from April 1, 2015 and thereafter.

In addition, due to the amendments to the Japanese corporate tax law that were enacted on March 20, 2014, the Special Reconstruction Corporation Tax, which has been imposed for fiscal years beginning on or after April 1 2012, was abolished a year ahead of the original schedule. As a result, the statutory income tax rate, which is used for calculating deferred tax assets and liabilities resulting from temporary differences and operating loss and credit carryforwards, was reduced to 35.6% from 38.0% for fiscal years beginning on or after April 1, 2014.

KONAMI recognized deferred tax assets and liabilities resulting from temporary differences and operating loss and credit carryforwards based on the enacted tax rates that will be applied when those differences and loss and credit carryforwards are expected to reverse.

The income before income taxes and equity in net income of an affiliated company and income tax expense (benefit) for the years ended March 31, 2012, 2013 and 2014 consisted of the following:

The significant components of total income taxes for the years ended March 31, 2012, 2013 and 2014 are as follows:

Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates in Japan was recognized by statutory income tax rate changes due to the amendments to the Japanese income tax law that were enacted on March 20, 2014,

Reconciliations of the differences between the statutory income tax rates and the effective income tax rates are as follows:

The effects of temporary differences that give rise to deferred tax assets and liabilities at March 31, 2013 and 2014 are as follows:

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 and credit 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 in which the deferred tax assets are deductible and utilizable, 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, 2014.

The net change in the total valuation allowance for the years ended March 31, 2012, 2013 and 2014 were a decrease of ¥1,945 million, a decrease of ¥843 million and a decrease of ¥2,392 million, respectively. The changes in the beginning-of-year valuation allowance for deferred tax assets due to a change in circumstances that resulted in a change in judgment about realization of deferred tax assets in future years for the years ended March 31, 2012, 2013 and 2014 were nil, a decrease of ¥314 million and an increase of ¥42 million, respectively. The change in the beginning-of-year valuation allowance for deferred tax assets due to utilization of net operating loss carryforwards for the years ended March 31, 2012, 2013 and 2014 were a decrease of ¥241 million, a decrease of ¥185 million and a decrease of ¥229 million, respectively.

Net deferred tax assets were included in the accompanying consolidated balance sheets as follows:

At March 31, 2014, KONAMI had operating loss carryforwards aggregating approximately ¥42,942 million, which will expire as follows:

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

As of March 31, 2013 and 2014, the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is immaterial.

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 that may occur within the next twelve months cannot be made as of March 31, 2014.

KONAMI recognizes interest and penalties related to unrecognized tax benefits in income taxes in the accompanying consolidated statements of income. Both the amount of interest and penalties in the consolidated balance sheets accrued as of March 31, 2013 and 2014, and the amount of interest and penalties included in income taxes in the accompanying consolidated statements of income for the years ended March 31, 2013 and 2014 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 the year ended March 31, 2004 for its major tax jurisdictions in Europe, Germany, fiscal years prior to the year ended March 31, 2008 in United States and Australia, and fiscal years prior to the year ended March 31, 2008 in Japan.

The Company and its domestic subsidiaries’ defined benefit severance and retirement plans covering its employees, were terminated or transitioned to new defined contribution plans by March 31, 2012. These plans generally provided retirement benefits and lump-sum severance payments to the employees based on employee’s rates of pay at the time of termination, years of service and certain other factors.

For the year ended March 31, 2012, certain of its domestic subsidiaries terminated existing defined benefit plans and made a transition to new defined contribution plans, resulting in settlement losses. Meanwhile, certain domestic subsidiaries encouraged the voluntary retirement plans, resulting in special granting termination benefits.

Net periodic cost of certain domestic subsidiaries’ plans for the years ended March 31, 2012, included the following components:

Weighted-average assumptions used to determine net periodic cost for the years ended March 31, 2012 were as follows:

Certain domestic subsidiaries determine the expected long-term rate of return on plan assets of the various asset investments categories. When determining the rate, management considers the current expectations for future returns and the actual historical returns of each plan asset category.

As a result, the Company and its domestic subsidiaries have defined contribution plans.

Certain domestic subsidiaries adopted the defined contribution plans for the year ended March 31, 2012 and the Company and other domestic subsidiaries adopted the defined contribution plans for the year ended March 31, 2014. For the year ended March 31, 2012, certain of its domestic subsidiaries terminated the defined benefit plans and made a transition to the defined contribution plans. Benefit obligations to be contributed to the defined contribution plans was determined as ¥1,759 million, which will be settled in 8 years. As of March 31, 2013, the amount of benefit obligations which has not been settled was ¥520 million, included in other current liabilities of ¥85 million and accrued pension and severance costs of ¥435 million, respectively, in the consolidated balance sheets. As of March 31, 2014, the amount of benefit obligations which has not been settled was ¥420 million, included in other current liabilities of ¥81 million and accrued pension and severance costs of ¥339 million, respectively, in the consolidated balance sheets.

The Company and certain of its domestic subsidiaries’ contributions to the defined contribution plans amounted to ¥249 million and ¥472 million for the years ended March 31, 2013 and 2014, respectively. The expenses were reported as costs and expenses in the consolidated statements of income.

The Company and its domestic subsidiaries have participated in Kanto IT Software Pension Fund (the Fund) as a multi-employer pension plan. The Fund was established pursuant to a Japanese law by multi-employers which are mainly Software and IT industry companies, and is a welfare pension fund for a multi-employer

contributory plan. The benefits which the Fund makes are retirement plans, lump-sum severance payments and lump-sum benefits for bereaved family. The Fund is a Japanese domestic plan and thus there is not an Employer Identification Number or a Pension Plan Number under in the U.S. There is not a U.S. Pension Protection Plan Act zone status applicable for the plan. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. There is no collective bargaining agreement applicable to the plan.

The risks of Participating in a multi-employer plan are different from a single-employer plan in the following aspects; assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; and if a participating employer stops contributing to the plan, any unfunded obligations of the plan may be borne by the remaining participating employers.

As of March 31, 2012, 2013 and 2014, our participation in the Fund is outlined in the table below. The Fund financial information for the year ended March 31, 2014 was not available at the time of these consolidated financial statements were issued. Therefore, the Company discloses the Fund financial information as of March 31, 2012 and 2013 as these were the most recent dates available.

The Fund financial statements for the years ended March 31, 2012 and 2013 indicated total plan asset of ¥186,190 million and ¥222,957 million, respectively; total actuarial present value of accumulated benefit obligations of ¥186,649 million and ¥206,135 million, respectively. The fund financial statements for the years ended March 31, 2012 and 2013 indicate that the plan were underfunded by ¥459 million (0.2%) and overfunded by ¥16,822 million (8.2%), respectively.

The employers make matching contributions to the funds up to a certain percentage of each employee’s standard pay. The contributions consist of standard contributions prepared for retirement plans or lump-sum payments, special contributions prepared for amortization of unamortized prior service cost and administrative fee’s contributions prepared for managing the Fund. The employers assume an obligation for contributions to the Fund.

Under the related acts and the terms, the Fund reevaluates the amount of contributions at least every five years in order to be of the value that would allow the maintenance the financial condition now and in the future. The Fund verifies the plan assets would be reserved as planed and agreed with benefit obligation for prior years of service on an annual basis. If the verifications would reveal a shortage of the reserve, the Fund shall resolve the shortage of the reserve by the implementation of additional special contributions.

The Company and its domestic subsidiaries’ contributions to the plan amounted to ¥781 million, ¥790 million and ¥805 million for the years ended March 31, 2012, 2013 and 2014, respectively. The contributions the Company and its domestic subsidiaries made to the Fund represent more than 5% of the total Fund. The expenses were reported as costs and expenses in the consolidated statements of income.

The Company and its domestic subsidiaries’ contributions to the plan are expected to amount to ¥885 million for the year ending March 31, 2015.

The Company has accrued the liability for retirement benefits for their directors and corporate auditors in the amount of ¥1,096 million and ¥1,085 million at March 31, 2013 and 2014, respectively, which is included in accrued pension and severance costs in the accompanying consolidated balance sheets.

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. At March 31, 2014, retained earnings available for dividends determined in accordance with Japanese GAAP recorded on the Company’s books of account were ¥114,654 million.

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.

The following table summarizes treasury stock activities for the years ended March 31, 2013 and 2014:

Changes in accumulated other comprehensive income (loss), net of applicable taxes, for the years ended March 31, 2012 and 2013 were as follows:

Changes in accumulated other comprehensive income (loss), net of applicable taxes, for the year ended March 31, 2014 are as follows:

Reclassifications out of accumulated other comprehensive income (loss) for the year ended March 31, 2014 are as follows:

Tax effects allocated to each component of other comprehensive income (loss) and adjustments are as follows:

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.

As of March 31, 2013 and 2014, the balance of assets and liabilities of derivative instruments were nil.

KONAMI does not designate the foreign exchange forward contracts as hedges. The gain or loss recognized in earnings on derivatives for the year ended March 31, 2013 and 2014 were as follows:

Foreign exchange net gain or losses, including those on these forward exchange contracts, for the years ended March 31, 2012, 2013 and 2014 were gain of ¥331 million, gain of ¥1,285 million and gain of ¥2,560 million, respectively.

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.

The fair values of KONAMI’s investments in marketable securities are based on quoted market prices.

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.

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.

The estimated fair values of KONAMI’s financial instruments at March 31, 2013 and 2014 are as follows:

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.

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:

As of March 31, 2013 and 2014, our assets and liabilities measured at fair value on a recurring basis are summarized in the following table by type of inputs used in the fair value measurements.

Level 1 investments are comprised solely of available-for-sale securities, which are 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, 2013 and 2014, KONAMI did not have any Level 3 financial instruments that were measured and reported at fair value on a recurring basis.

In measuring the fair value of assets and liabilities using assumptions classified as Level 3 inputs, KONAMI uses valuation techniques including discounted cash flow method, relief from royalty method and guideline public company method. KONAMI determines the most appropriate valuation technique to reflect features, natures and risks of each asset and liability to measure the fair value. KONAMI verifies the reasonableness of the selected valuation techniques and appropriateness and adequacy of and the unobservable inputs. In addition, KONAMI generally engages an independent appraiser in some cases to determine the fair values of its assets and liabilities.

As of March 31, 2014, KONAMI’s 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. As of March 31, 2013, KONAMI did not have any assets and liabilities measured at fair value on a non-recurring basis.

During the year ended March 31, 2014, KONAMI wrote down the carrying value of certain property and equipment to their estimated fair value of nil, and KONAMI classified them as Level 3. A fair value of nil was

determined with unobservable inputs that were primarily based negative future net cash flows expected to be generated from these assets as well as assumed salvage values of nil upon the ultimate disposition of these assets. As a result, KONAMI recognized an aggregate impairment charge of ¥647 million for such property and equipment, which is included in earnings.

During the year ended March 31, 2014, KONAMI concluded the fair value of certain identifiable intangible assets was lower than their carrying value. Consequently, the carrying value of the assets was written down to their fair value of ¥29,010 million, and classified them as Level 3. The fair value was determined using the royalty relief method and an assumed royalty rate of 2.5% on future revenues generated by these intangible assets. As a result, KONAMI recognized an aggregate impairment charge of ¥2,573 million for identifiable intangible assets included in earnings.

During the year ended March 31, 2014, KONAMI concluded implied the fair value of certain goodwill was lower than its carrying value. Consequently, the carrying value of the goodwill was written down to its implied fair value of ¥4,537 million, and classified them as Level 3. The estimated fair value of the Health & Fitness reporting unit was determined based on the weighted average of its fair value calculated by using an income approach and the market approach. Future net cash flows for the next three years were used with an assumed average annual revenue growth rate of 3.2% and a terminal value growth rate was estimated to be 1.0%. As a result, KONAMI recognized an impairment charge of ¥2,031 million for goodwill, which is included in earnings.

Impairment charges for property and equipments, net, identifiable intangible assets and goodwill are further discussed in Notes 6 and 7.

As of March 31, 2014, KONAMI’s assets and liabilities measured at fair value on a non-recurring basis in Level 3 are detailed in the following table.

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 four business segments:

The following table 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.

Corporate expenses primarily consist of personnel costs, advertising expenses and rental expenses, which are primarily related to our administrative department.

Corporate assets primarily consist of cash and cash equivalents, financial assets and property and equipment.

Capital expenditures include expenditures for acquisitions of tangible and intangible long-lived assets used in operations of each segment.

As discussed in Notes 6 and 7, impairment charges of ¥647 million for property and equipment, and ¥4,604 million for goodwill and identifiable intangible assets were included in the segment loss of the Health & Fitness segment for the year ended March 31, 2014.

For the years ended March 31, 2012, 2013 and 2014, the Pachinko & Pachinko Slot Machines segment profit and loss included inventory write-downs of ¥110 million, ¥192 million and ¥759 million, respectively.

Previously, the Company and its domestic subsidiaries had principally used the declining-balance method for computing depreciation expense of property and equipment. Effective April 1, 2013, the Company and its domestic subsidiaries changed their depreciation method to the straight-line method As a result of the change in depreciation method, compared with previous method, depreciation expense for the year ended March 31, 2014 decreased by approximately ¥104 million of the Digital Entertainment segment, ¥381 million of the Health &Fitness segment, ¥13 million of the Gaming & Systems segment, ¥78 million of the Pachinko & Pachinko Slot Machines and ¥238 million of the Corporate.

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.

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 and equipment and other assets amounting to approximately ¥185 million as of March 31, 2014.

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.

/s/ TAKUYA KOZUKI

Takuya Kozuki

Representative Director,

President


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


		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		21
Item 4A.	Unresolved Staff Comments		66
Item 5.	Operating and Financial Review and Prospects		66
Item 6.	Directors, Senior Management and Employees		95
Item 7.	Major Shareholders and Related Party Transactions		99
Item 8.	Financial Information		101
Item 9.	The Offer and Listing		102
Item 10.	Additional Information		104
Item 11.	Quantitative and Qualitative Disclosures about Market Risk		118
Item 12.	Description of Securities Other Than Equity Securities		120
Item 12D.	3. Fees payable by ADR Holders		120
Item 12D.	4. Fees paid to KONAMI CORPORATION by the Depositary		121

PART II

Item 13.	Defaults, Dividend Arrearages and Delinquencies		122
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		122
Item 15.	Controls and Procedures		122
Item 16A.	Audit Committee Financial Expert		123
Item 16B.	Code of Ethics		123
Item 16C.	Principal Accountant Fees and Services		123
Item 16D.	Exemption from the Listing Standards for Audit Committees		124
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		125
Item 16F.	Change in Registrant’s Certifying Accountant		125
Item 16G.	Corporate Governance		125
Item 16H.	Mine Safety Disclosure		128

PART III

Item 17.	Financial Statements		129
Item 18.	Financial Statements		129
Item 19.	Exhibits		129
Index to Consolidated Financial Statements and Financial Statement Schedule			F-1


	Fiscal year ended/as of March 31,
	2010			2011			2012			2013		2014
	(Yen in millions, except per share data)
Income Statement Data:
Net revenues	¥	262,144		¥	257,988		¥	265,758		¥	225,995	¥	217,595
Cost of products sold and services rendered and others		185,734			189,032			174,415			152,813		152,279
Selling, general and administrative expenses		55,407			46,253			50,051			51,307		52,369
Restructuring and impairment charges (1)		2,339			—			—			—		—
Earthquake related impairment charges and expenses (2)		—			4,455			342			—		—
Gain on bargain purchase (3)		—			(2,543	)		—			—		—
Impairment charges for goodwill, property and equipment, and other intangible assets (4)		—			—			—			—		5,251

Operating income		18,664			20,791			40,950			21,875		7,696

Other income (expenses), net		(1,542	)		(1,709	)		(924	)		40		1,532

Income before income taxes and equity in net income of affiliated company		17,122			19,082			40,026			21,915		9,228
Income taxes		3,600			6,401			16,941			8,473		5,331
Equity in net income of affiliated company		56			41			52			44		22

Net income		13,578			12,722			23,137			13,486		3,919
Net income (loss) attributable to the noncontrolling interest		264			(212	)		125			312		85

Net income attributable to KONAMI CORPORATION	¥	13,314		¥	12,934		¥	23,012		¥	13,174	¥	3,834

Basic net income attributable to KONAMI CORPORATION stockholders per share	¥	99.76		¥	96.48		¥	166.23		¥	95.04	¥	27.66
Diluted net income attributable to KONAMI CORPORATION stockholders per share	¥	99.76		¥	96.48		¥	166.23		¥	95.04	¥	27.66
Cash dividends declared per share (5)	¥	54.00		¥	32.00		¥	50.00		¥	50.00	¥	34.00

Balance Sheet Data:
Total current assets	¥	134,562		¥	148,934		¥	161,965		¥	153,483	¥	139,658
Total goodwill, identifiable intangible assets and property and equipment		119,579			122,953			125,409			126,810		139,439
Total assets		298,198			313,891			328,006			322,948		320,251
Total current liabilities		53,465			63,155			67,890			59,512		45,328
Total long-term liabilities		55,502			52,329			44,396			37,437		49,131
Common stock		47,399			47,399			47,399			47,399		47,399
Total KONAMI CORPORATION stockholders’ equity		184,465			193,914			215,458			225,425		225,133
Noncontrolling interest		4,766			4,493			262			574		659
Total equity		189,231			198,407			215,720			225,999		225,792


Fiscal year ended March 31,	High		Low		Average (1)		Period-end
2010		100.71		86.12		92.93		93.40
2011		94.68		78.74		85.71		82.76
2012		85.26		75.72		79.00		82.41
2013		96.16		77.41		82.96		94.16
2014		105.25		92.96		100.46		102.98

Calendar year 2014
January		104.87		102.20		103.76		102.28
February		102.71		101.11		102.13		102.08
March		103.38		101.36		102.34		102.98
April		103.94		101.43		102.46		102.14
May		102.34		101.26		101.77		101.77
June		102.69		101.28		102.06		101.28


Title	Category	Platform	Release Date	Market
PROFESSIONAL BASEBALL SPIRITS 2014	Sports (Baseball)	Multi-Platform	Fiscal 2014	Japan

JIKKYOU PAWAFURU PUROYAKYU 2013	Sports (Baseball)	Multi-Platform	Fiscal 2014	Japan

WORLD SOCCER Winning Eleven 2014	Sports (Soccer)	Multi-Platform	Fiscal 2014	Japan

Pro Evolution Soccer 2014	Sports (Soccer)	Multi-Platform	Fiscal 2014	North America Europe

METAL GEAR SOLID: THE LEGACY COLLECTION	Action	Multi-Platform	Fiscal 2014	Worldwide

METAL GEAR RISING REVENGEANCE SPECIAL EDITION	Action	PlayStation 3	Fiscal 2014	Japan

METAL GEAR SOLID V: GROUND ZEROES	Action	Multi-Platform	Fiscal 2014	Worldwide

Tongari Boushi to Mahou no Machi Special Pack	Simulation	Nintendo 3DS	Fiscal 2014	Japan

NEW LOVEPLUS PLUS	Simulation	Nintendo 3DS	Fiscal 2014	Japan

Castlevania: Lords of Shadow 2	Action	Multi-Platform	Fiscal 2014	Europe North America

Yu-Gi-Oh! ZEXAL World Duel Carnival	Match-up	Nintendo 3DS	Fiscal 2014	Japan

Titles Anticipated to be Released in Fiscal 2015
Title	Category	Platform	Release Date	Market

WORLD SOCCER Winning Eleven 2014: Aoki Samurai no Chousen	Sports (Soccer)	Multi-Platform	May 2014	Japan


	Year ended March 31,
	2012			2013			2014
	(yen in millions)
Net Revenues:
Digital Entertainment	¥	140,400		¥	116,366		¥	104,335
Health & Fitness		82,555			79,896			76,511
Gaming & Systems		25,212			24,984			31,600
Pachinko & Pachinko Slot Machines		18,430			5,398			5,788
Intersegment eliminations		(839	)		(649	)		(639	)

Consolidated net revenues	¥	265,758		¥	225,995		¥	217,595


Manufacturer	Platform	Territory	Initial Contract Date
Nintendo	Nintendo DS	Japan	October 1, 2004
Nintendo	Nintendo DS	United States and Canada	June 23, 2005
Nintendo	Nintendo DS	Europe	June 24, 2005
Nintendo	Wii	Japan	October 2, 2006
Nintendo	Nintendo 3DS	Japan	December 1, 2010
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	November 17, 2006
Sony	PlayStation Vita	Japan	October 24, 2011
Sony	PlayStation Vita	Asia	March 31, 2012
Microsoft	Xbox 360	Worldwide	November 22, 2005
Microsoft	Xbox One	Worldwide	October 1, 2013


	Fiscal Year Ended on March 31,
Industry	2009		2010		2011		2012		2013
	(billions of yen)
Amusement arcade operations	¥	573.1	¥	504.3	¥	495.8	¥	487.5	¥	470.0
Amusement arcade games (Japan)
Video game machines		48.4		37.7		38.4		43.5		21.1
Token-operated game machines		37.1		28.9		30.6		36.2		34.9
Prize machines		10.3		7.8		8.2		7.8		4.9
Vending machines		12.1		10.2		11.0		14.0		14.0
Music simulation game machines		4.2		4.0		4.2		5.3		6.1
Card games, etc. (excluding kids’)		9.4		8.3		6.6		5.3		5.4
*Kids’ card games, etc.		15.0		10.9		10.4		11.8		15.8
Other		46.4		48.8		52.4		49.8		65.3

Sub-total		182.9		156.6		161.8		173.7		167.5
Amusement arcade games (exports)		13.3		13.0		11.5		11.0		11.6

Total	¥	769.3	¥	673.9	¥	669.1	¥	672.2	¥	649.1


	Millions of yen
	2012		2013		2014
Net revenues:
Japan	¥	208,641	¥	171,057	¥	155,364
United States		35,955		36,631		41,679
Europe		14,561		12,703		14,088
Asia/Oceania		6,601		5,604		6,464

Consolidated net revenues	¥	265,758	¥	225,995	¥	217,595


Year Ended March 31, 2012
Segment		Focus of R&D Activity

Digital Entertainment		Mobile games such as DRAGON COLLECTION, SENGOKU COLLECTION, Professional Baseball Dream Nine and CROWS×WORST—Saikyou Densetsu. Video game software such as WORLD SOCCER Winning Eleven 2012, Pro Evolution Soccer 2012, series of METAL GEAR, JIKKYOU PAWAFURU PUROYAKYU and PROFESSIONAL BASEBALL SPIRITS. 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 STEEL CHRONICLE, software for music simulation games such as jubeat copious, medium- and large-sized token-operated games and amusement machines such as Venus Fountain. Game software compatible with the e-AMUSEMENT Participation system such as MAH-JONG FIGHT CLUB ultimate version and QUIZ MAGIC ACADEMY Kenja no Tobira.

Health & Fitness		Health drinks such as Collagen Cristal Rich, Kenkou Daizu, Ryokunou Aojiru and Ryokunou Aojiru Saratto Noushuku. Verification of new health management services and business models in relation to the Ministry of Economy, Trade and Industry’s medical and nursing care related services industry creation research projects.

Gaming & Systems		Gaming machines, software and casino management systems for North America and Australia.

Pachinko & Pachinko Slot Machines		New cabinet (outer structure) and basic technology for pachinko machines and pachinko slot machines


Year Ended March 31, 2013
Segment		Focus of R&D Activity

Digital Entertainment		Mobile games such as DRAGON COLLECTION, SENGOKU COLLECTION, Professional Baseball Dream Nine and CROWS×WORST—Saikyou Densetsu. Video game software such as WORLD SOCCER Winning Eleven 2013, Pro Evolution Soccer 2013, series of METAL GEAR, JIKKYOU PAWAFURU PUROYAKYU and PROFESSIONAL BASEBALL SPIRITS, as well as development of new game engines. Card games such as the Yu-Gi-Oh! TRADING CARD GAME. Video games such as MAH-JONG FIGHT CLUB and BASEBALL HEROES, software for music simulation games such as series of BEMANI, and versions of the game software above compatible with the e-AMUSEMENT Participation system. Medium and large-sized token-operated games such as GI-GranDesire, and card game machines from which original cards of Monster Retsuden ORECA BATTLE are issued.

Health & Fitness		Development of new supplement line, launch of fitness programs for the elderly, organization of new counseling system, sale of beauty goods for facial esthetic treatments and hypertonic beverages and renewal of existing body make program.

Gaming & Systems		Gaming machines, software and casino management systems for North America and Australia.

Pachinko & Pachinko Slot Machines		New cabinet (outer structure) and basic technology for pachinko machines and pachinko slot machines


Year Ended March 31, 2014
Segment		Focus of R&D Activity

Digital Entertainment		Mobile games such as DRAGON COLLECTION, SENGOKU COLLECTION, Professional Baseball Dream Nine, CROWS×WORST—Saikyou Densetsu, and World Soccer Collection. Video game software such as the Pro Evolution Soccer series, the METAL GEAR series, JIKKYOU PAWAFURU PUROYAKYU and the PROFESSIONAL BASEBALL SPIRITS series, as well as development of new game engines. Card games such as the Yu-Gi-Oh! TRADING CARD GAME. Video games such as the MAH-JONG FIGHT CLUB series, software for music simulation games such as the BEMANI series, and versions of the game software above compatible with the e-AMUSEMENT Participation system. Medium and large-sized token-operated games such as the AnimaLotta series, and card game machines from which original Monster Retsuden ORECA BATTLE cards are issued.

Health & Fitness		Establishment of “Naze hitoha tsudukanainoka? Kenkyujo,” development of the “Konami Method” incorporating know-how relating to exercise and health promotion, development of “Nichijo seikatsu dosa kojo series,” which is an exercise program targeting people with decreased physical strength who use a facility to prevent the need for nursing care in old age and commencement of the “Tsuzu LOG” service which is a portal website concerning health & fitness.

Gaming & Systems		Gaming machines, software and casino management systems for North America and Australia.

Pachinko & Pachinko Slot Machines		New cabinet (outer structure) and basic technology for pachinko machines and pachinko slot machines


			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	¥	15,000		—		—	¥	10,000	¥	5,000
Capital Lease Obligations		28,219	¥	3,071	¥	5,561		4,800		14,787
Operating Leases		78,224		10,006		19,297		14,052		34,869
Purchase Obligations		185		185		—		—		—
Pension Contributions		885		885		—		—		—
Asset Retirement Obligations		3,442		—		—		—		3,442

Total	¥	125,955	¥	14,147	¥	24,858	¥	28,852	¥	58,098


Category	Basic compensation (Millions of Yen)		Number of Directors or Corporate Officers
Directors (Excluding Outside Directors)		429		4
Corporate Auditors (Excluding Outside Auditors)		11		1
Outside Directors		76		8


Name	Category		Company	Basic compensation (Millions of Yen)
Kagemasa Kozuki		Directors	KONAMI CORPORATION		296


	As of March 31,
Segment	2012		2013		2014
Digital Entertainment		2,814		3,002		2,903
Health & Fitness		1,353		1,288		1,206
Gaming & Systems		465		499		537
Pachinko & Pachinko Slot Machines		454		468		515
General Administrative (1)		276		281		292

Total		5,362		5,538		5,453


Shareholders	Number of shares of common stock owned		Percentage of common stock outstanding as of March 31, 2014
Kagemasa Kozuki (1)		39,500,597		28.50	%
Kozuki Foundation (2)		16,600,000		11.98
Kozuki Holding (2)		15,700,000		11.33
The Master Trust Bank of Japan (3)		15,566,200		11.23
Japan Trustee Services Bank, Ltd. (3)		9,313,500		6.72
Kozuki Capital Corporation (2)		7,048,596		5.09


Category	Number of Shareholders		Number of Shares Held		Percentage of Outstanding Shares
Japanese financial institutions		55		41,233,879		29.75	%
Japanese securities companies		51		8,140,109		5.87
Other Japanese corporations		432		24,599,070		17.75
Foreign corporations and individuals		443		46,245,493		33.36
Japanese individuals and others		46,787		18,393,770		13.27

Total		47,768		138,612,321		100.00	%


Fiscal Year ended March 31,	Price per Share of KONAMI CORPORATION Common Stock on Tokyo Stock Exchange				Average Daily Trading Volume		Closing TOPIX				Closing Nikkei Stock Average
Fiscal Period	High		Low		Average Daily Trading Volume		High		Low		High		Low
2010		2,080		1,416		912,983		987.27		778.21		11,147.62		8,084.62
2011		1,976		1,289		1,050,423		1,001.77		725.90		11,408.17		8,227.63
2012		2,906		1,460		1,743,622		879.48		703.88		10,255.15		8,135.79
2013		2,423		1,535		1,284,193		1,061.75		692.18		12,650.26		8,238.96
2014		2,984		1,723		1,550,538		1,308.08		971.33		16,320.22		11,805.78
2013:
First quarter		2,423		1,535		1,608,132		863.23		692.18		10,190.35		8,238.96
Second quarter		1,910		1,606		979,056		781.94		703.31		9,288.53		8,328.02
Third quarter		2,129		1,666		958,016		861.57		710.32		10,433.63		8,488.14
Fourth quarter		1,986		1,704		1,618,029		1,061.75		862.62		12,650.26		10,398.61
2014:
First quarter		2,984		1,723		1,901,432		1,289.77		971.33		15,942.60		11,805.78
Second quarter		2,669		1,988		1,313,330		1,232.02		1,103.94		14,953.29		13,118.14
Third quarter		2,725		2,125		1,459,966		1,302.87		1,138.75		16,320.22		13,748.94
Fourth quarter		2,668		2,181		1,529,917		1,308.08		1,139.27		16,164.01		13,995.86

Calendar Period
2014:
January		2,527		2,293		1,807,489		1,308.08		1,211.22		16,164.01		14,764.57
February		2,625		2,181		1,690,111		1,234.54		1,139.27		15,094.54		13,995.86
March		2,668		2,235		1,114,040		1,241.88		1,145.90		15,312.60		14,203.21
April		2,443		2,209		918,252		1,223.26		1,121.50		15,164.39		13,885.11
May		2,415		2,130		1,175,875		1,205.60		1,143.63		14,744.16		13,964.43
June		2,365		2,202		1,165,624		1,273.80		1,210.82		15,442.67		14,777.51


	New York Stock Exchange Price per ADS				Average daily trading volume of ADSs
Fiscal Period	High ($)		Low ($)		Average daily trading volume of ADSs
2010		21.98		14.80		3,593
2011		22.47		15.14		7,802
2012		37.22		17.35		8,853
2013		29.74		18.90		5,574
2014		28.32		17.51		6,710
2013:
First quarter		29.74		19.76		5,737
Second quarter		24.11		20.51		2,978
Third quarter		25.49		21.17		3,161
Fourth quarter		23.18		18.90		10,623
2014:
First quarter		28.32		17.51		15,805
Second quarter		25.29		20.18		5,581
Third quarter		26.34		22.16		3,144
Fourth quarter		25.86		22.07		2,093

Calendar Period:
2014:
January		24.16		22.31		2,495
February		25.25		22.07		1,711
March		25.86		22.22		2,038
April		23.06		21.84		1,586
May		24.89		20.34		2,962
June		23.06		21.84		1,586


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


	Expected maturity dates
Type of debt and average interest rates	2014		2015		2016		2017		2018		Thereafter	Total 3/31/13		Fair Value 3/31/13
	(in millions of yen)
Unsecured bonds (1.73%)	¥	5,000		—		—		—		—	—	¥	5,000	¥	5,014

Total	¥	5,000		—		—		—		—	—	¥	5,000	¥	5,014


Interest rate risk at March 31, 2014

	Expected maturity dates
Type of debt and average interest rates	2015		2016		2017		2018		2019		Thereafter	Total 3/31/14		Fair Value 3/31/14
	(in millions of yen)
Unsecured bonds (0.55%)		—		—		—	¥	5,000	¥	5,000	¥5,000	¥	15,000	¥	14,625

Total		—		—		—	¥	5,000	¥	5,000	¥5,000	¥	15,000	¥	14,625


	Millions of Yen
	March 31, 2013
	Cost		Gross unrealized gains		Gross unrealized (losses)		Fair value
Available-for-sale:
Marketable equity securities	¥	397	¥	43	¥	—	¥	440

Total	¥	397	¥	43	¥	—	¥	440


	Millions of Yen
	March 31, 2014
	Cost		Gross unrealized gains		Gross unrealized (losses)			Fair value
Available-for-sale:
Marketable equity securities	¥	397	¥	121	¥	(0	)	¥	518

Total	¥	397	¥	121	¥	(0	)	¥	518


Type of Services:		Amount of Fee (USD)

Deposit or substitution the underlying shares (including execution and delivery of Receipts)		USD5.00 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)		USD5.00 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


	Year ended March 31,
	(in millions)
	2013		2014
Audit fees (1)	¥	432	¥	462
Tax fees (2)		174		135
All other fees		3		5

Total	¥	609	¥	602


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, 2013		514		1,866.53		—		—
May 1 to May 31, 2013		1,574		2,477.63		—		—
June 1 to June 30, 2013		306		2,418.79		—		—
July 1 to July 31, 2013		328		2,241.34		—		—
August 1 to August 31, 2013		132		2,225.86		—		—
September 1 to September 30, 2013		318		2,314.69		—		—
October 1 to October 31, 2013		396		2,317.06		—		—
November 1 to November 30, 2013		509		2,561.74		—		—
December 1 to December 31, 2013		1,112		2,514.04		—		—
January 1, to January 31, 2014		127		2,400.81		—		—
February 1, to February 28, 2014		77		2,367.58		—		—
March 1 to March 31, 2014		643		2,583.37		—		—


Corporate Governance Practices Followed by NYSE-listed U.S. Companies		Corporate Governance Practices Followed by KONAMI
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 task of overseeing management is assigned to the corporate auditors, who are separate from the Company’s management. Companies under the system of “Board of Statutory Auditors”, including the Company, are required to have at least three corporate auditors and the majority have to be “outside” corporate auditors who 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 (shikko yaku), manager or any other employee of the company or any of its subsidiaries in previous years prior to the appointment. Currently, the Company has five corporate auditors and four 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.


Corporate Governance Practices Followed by NYSE-listed U.S. Companies		Corporate Governance Practices Followed by KONAMI
		Under the Corporate Law, the Company is required to have at least three corporate auditors. Currently, the Company has five 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, as amended, 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. Compensation committee members must satisfy the additional independence requirements under Section 303A.02(a)(ii) of the NYSE Listed Company Manual. A compensation committee must also have authority to retain or obtain the advice of compensation and other advisers, subject to prescribed independence criteria that the committee must consider prior to engaging any such adviser.		The Company is not required under the Corporate Law to have a compensation committee and does not currently have a compensation committee. 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.


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 at March 31, 2014

	11.1	— 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



Report of Independent Registered Public Accounting Firm			F-2

Consolidated balance sheets as March 31, 2013 and 2014			F-4

Consolidated statements of income for the years ended March 31, 2012, 2013 and 2014			F-5

Consolidated statements of comprehensive income for the years ended March 31, 2012, 2013 and 2014			F-6

Consolidated statements of changes in equity for the years ended March 31, 2012, 2013 and 2014			F-7

Consolidated statements of cash flows for the year ended March 31, 2012, 2013 and 2014			F-9

Notes to consolidated financial statements			F-10

Schedule II—Valuation and qualifying accounts			F-49


	Millions of Yen, except per share data
	2012			2013			2014
NET REVENUES:
Product sales revenue	¥	140,159		¥	103,928		¥	97,649
Service and other revenue		125,599			122,067			119,946

Total net revenues		265,758			225,995			217,595

COSTS AND EXPENSES:
Costs of products sold		89,924			64,152			61,352
Costs of services rendered and others		84,491			88,661			90,927
Selling, general and administrative		50,051			51,307			52,369
Earthquake related impairment charges and expenses		342			—			—
Impairment charges for goodwill		—			—			2,031
Impairment charges for property and equipment, and other intangible assets		—			—			3,220

Total costs and expenses		224,808			204,120			209,899

Operating income		40,950			21,875			7,696

OTHER INCOME (EXPENSES):
Interest income		215			182			233
Interest expense		(1,427	)		(1,300	)		(1,187	)
Foreign currency exchange gain, net		331			1,285			2,560
Other, net		(43	)		(127	)		(74	)

Other income (expenses), net		(924	)		40			1,532

INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF AFFILIATED COMPANY		40,026			21,915			9,228

INCOME TAXES:
Current		14,117			9,099			4,695
Deferred		2,824			(626	)		636

Total		16,941			8,473			5,331
EQUITY IN NET INCOME OF AFFILIATED COMPANY		52			44			22

NET INCOME		23,137			13,486			3,919
NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		125			312			85

NET INCOME ATTRIBUTABLE TO KONAMI CORPORATION	¥	23,012		¥	13,174		¥	3,834


PER SHARE DATA:	Yen
	2012			2013			2014
Basic net income attributable to KONAMI CORPORATION stockholders per share	¥	166.23		¥	95.04		¥	27.66

Diluted net income attributable to KONAMI CORPORATION stockholders per share	¥	166.23		¥	95.04		¥	27.66


	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			Total KONAMI CORPORATION stockholders’ equity			Non controlling Interest			Total Equity
Balance at March 31, 2011	¥	47,399	¥	75,490		¥	284	¥	90,250		¥	(2,547	)	¥	(16,962	)	¥	193,914		¥	4,493		¥	198,407
Cash dividends attributable to KONAMI CORPORATION stockholders, ¥50.0 per share									(5,697	)								(5,697	)					(5,697	)
Purchase of treasury stock															(29	)		(29	)					(29	)
Reissuance of treasury stock				(0	)										5,745			5,745						5,745
Equity transaction with noncontrolling interests and others				(1,315	)													(1,315	)		(4,356	)		(5,671	)
Comprehensive income:
Net income									23,012									23,012			125			23,137
Other comprehensive loss												(172	)					(172	)					(172	)

Total comprehensive income for the year																		22,840			125			22,965

Balance at March 31, 2012	¥	47,399	¥	74,175		¥	284	¥	107,565		¥	(2,719	)	¥	(11,246	)	¥	215,458		¥	262		¥	215,720
Cash dividends attributable to KONAMI CORPORATION stockholders, ¥50.0 per share									(6,931	)								(6,931	)					(6,931	)
Purchase of treasury stock															(6	)		(6	)					(6	)
Reissuance of treasury stock				(0	)										2			2						2
Comprehensive income:
Net income									13,174									13,174			312			13,486
Other comprehensive income												3,728						3,728						3,728

Total comprehensive income for the year																		16,902			312			17,214


	Millions of Yen
Current assets	¥	125
Property and equipment		7
Identifiable intangible assets		1,001
Other assets		31

Total assets acquired	¥	1,164


	Description of business	Acquisition Date	Ownership %
	Description of business	Acquisition Date	2012	2013	2014
Resort Solution Co., Ltd. (“Resort Solution”)	Management of resort facilities	March 2006	20.4%	20.4%	20.4%