Konami Grp Corp Regulatory News (KNM)

Consolidated Financial Results

for the First Quarter Ended June 30, 2008

(Prepared in Accordance with U.S. GAAP)

August 5, 2008

KONAMI CORPORATION

Address:

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

Stock code number, TSE:

9766 

Ticker symbol, NYSE:

KNM

URL:

www.konami.net

Shares listed:

Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange

and Singapore Exchange

Representative:

Kagemasa Kozuki, Representative Director and Chief Executive Officer

Contact:

Noriaki Yamaguchi, Representative Director and Chief Financial Officer

(Phone: +81-3-5771-0222)

Adoption of U.S. GAAP:

Yes

1. Consolidated Financial Results for the First Quarter Ended June 30, 2008

(Amounts are rounded to the nearest million)

(Millions of Yen, except per share data)

Net revenues

Operating

income 

Income before income taxes

Net income 

Three months ended June 30, 2008

% change from previous period

70,805

16.7%

11,611

65.6%

11,718

61.2%

5,664

46.6%

Three months ended June 30, 2007

% change from previous period

60,650

 5.2%

7,010

 16.8%

7,271

 25.3%

3,863

 82.2%

Basic net income per share

Diluted net income per share 

Three months ended June 30, 2008

41.23

41.18

Three months ended June 30, 2007

28.14

28.13

(Millions of Yen, except per share amounts)

Total assets

Total stockholders'

equity

Equity ratio

Stockholders'

equity per share

June 30, 2008

339,519

186,902

55.0%

1,359.83

March 31, 2008

319,248

182,759

57.2%

1,330.88

2. Cash Dividends

Record Date

Cash dividends per share (yen)

Interim

Year end

Annual

Year ended March 31, 2008

27.00

27.00

54.00

Year ending March 31, 2009

-Forecast

27.00

27.00

54.00

3. Consolidated Earnings Forecast for the Year Ending March 31, 2009

(Millions of Yen, except per share data)

Net revenues

Operating

income 

Income before income taxes

Net income

Net income per share

Year ending March 31, 2009

% change from previous year

330,000

11.0%

45,000

33.0%

44,500

35.5%

26,000

41.7%

189.34

4. Other

 1.

Changes accompanying amendment of accounting standard: Yes

 2.

Other: None

Please refer to page 11 of this attached material for the details.

 1.

Number of shares issued: (Treasury stock included)

 Three months ended June 30, 2008

143,500,000

 shares

 Year ended March 31, 2008

143,500,000

 shares

 2.

Number of Treasury Stock:

 Three months ended June 30, 2008

6,055,241

 shares

 Year ended March 31, 2008

6,178,443

 shares

 3.

Average number of shares outstanding:

 Three months ended June 30, 2008

137,368,791

 shares

 Three months ended June 30, 2007

137,259,918

 shares

Cautionary Statement with Respect to Forward-Looking Statements:

Statements made in this document with respect to our current plans, estimates, strategies and beliefs, including the above forecasts, are forward-looking statements about our future performance. These statements are based on management's assumptions and beliefs in light of information currently available to it and, therefore, you should not place undue reliance on them. A number of important factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on our Digital Entertainment business and Gaming & System business; (v) our ability to successfully expand the scope of our business and broaden our customer base through our Health & Fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of existing contingencies.

Please refer to page 9 of the attached material for information regarding the assumptions and other related items used in the preparation of these forecasts.

1. Business Performance and Cash Flows

1. Business Performance

Overview

Our Group Companies, KONAMI CORPORATION and its subsidiaries ("Konami"), are major players in the entertainment industry, which has seen the widespread distribution of game consoles and handheld game devices in the home video game market. The distinguishing characteristics of the hardware have inspired the sale of a wide variety of titles, creating excellent marketing opportunities for our business as we expand our overseas markets, especially in North America and Europe.

Japan's health care industry has been stimulated by the government's April 2008 introduction of "the designated checkups and health guidance program", which aims to reduce lifestyle-related diseases at the national level. The program, also referred to as measures against metabolic syndrome, is expected to boost demand for and interest in products and services that maintain and improve health.

Under these conditions, our Digital Entertainment business segment began the long-awaited release of METAL　GEAR　SOLID　4　GUNS　OF　THE　PATRIOTS for　

PlayStation　3, sold simultaneously worldwide in June 2008, and achieved sensational sales. Sales of our products for arcades and card game products have also been strong.

Our Health & Fitness segment has expanded services at newly opened facilities under direct Konami management　and　at　other　facilities outsourced to　Konami.　We　are　promoting　IT-enabled　health management systems and improved programs and upgrading services that are designed around the unique features of individual sports clubs. One example is projects designed to fight metabolic syndrome.

Our Gaming & System business segment has strengthened the marketing potential of its slot machines, especially the K2V series and Advantage 5, with the aim of expanding our share in the North American market. We also have been developing a solid earnings structure in this segment thanks to sales revenues from the Konami Casino Management System, as well as participation agreements that establish an equipment marketing system in which profits are shared among casino operators.

In terms of financial performance, for the consolidated results for the three months ended June 30, 2008, net revenues amounted to Y70,805 million (a year-on-year increase of 16.7%), operating income was Y11,611 million (a year-on-year increase of 65.6%), income before income taxes was Y11,718 million (a year-on-year increase of 61.2%), and net income was Y5,664 million (a year-on-year increase of 46.6%).

Performance by business segment

Summary of net revenues by business segment:

Millions of Yen

Three months ended

June 30, 2007

Three months ended

June 30, 2008

 % change 

Digital Entertainment 

Y34,875

Y44,850

28.6

Health & Fitness 

21,617

22,174

2.6

Gaming & System

3,572

3,673

2.8

Other and Eliminations

586

108

(81.6)

Consolidated net revenues

Y60,650

Y70,805

16.7

Digital Entertainment

Computer & Video Games business: On June 12, 2008, we began the simultaneous and global release of METAL GEAR SOLID 4 GUNS OF THE PATRIOTS for PlayStation 3. This is the first software for PlayStation 3 that uses the full capacity of the Blu-Ray Disc. Due to the quality of the game, it received accolades even before it went on sale, and was honored with the Excellence Prize at the 11th Japan Media Arts Festival (Entertainment Division), organized by the government's Agency for Cultural Affairs. The METAL GEAR SOLID brand has continued to maintain its dynamic potential, which has contributed to sales of more than 3 million worldwide. Sales are still steadily increasing.

In Japan, JIKKYOU PAWAFURU PUROYAKYU PORTABLE 3 and PUROYAKYU SPIRITS 5 have sold well. Offshore,　meanwhile, in North　America,　our　music　games DanceDanceRevolution HOTTEST PARTY and KARAOKE REVOLUTION American Idol ENCORE debuted in the previous term and continue to sell well. In Europe, PRO EVOLUTION SOCCER 2008, which we released during the previous term, remains highly popular and continues to do well.

Amusement business: Various titles have achieved strong sales for our "e-AMUSEMENT" service that network with arcades throughout Japan. These titles include HORSERIDERS, a new style of game which enables card-holding players to compete among rivals as virtual jockeys raising and racing their horses, and the interactive ACTION刑事（DEKA）, a new type of multiple-experience game that thrusts the player into the role of action movie hero. Other titles in popular series that continue to do very well are MAH-JONG FIGHT CLUB 6 and WORLD SOCCER Winning Eleven ARCADE CHAMPIONSHIP 2008. In the medal game genre for commercial enterprises, our mid-sized pusher game SPINFEVER continues to enjoy robust sales.

Card games business: The YU-GI-OH! TRADING CARD GAME series has recorded brisk sales, especially in Japan.

In terms of financial performance, consolidated net revenues for the three months ended June 30, 2008 of this segment amounted to Y44,850 million (a year-on-year increase of 28.6%).

Health & Fitness

Operation of fitness clubs: Membership is climbing among middle-aged and older adults who tend to be increasingly conscious of their health. On the other hand, the average number of members per facility is on a downward trend because of steeper competition with other sports clubs, as young people, who were once the mainstay of clubs, come in fewer numbers, and as the opening of competitor outlets increases. To deal with these challenges, sports clubs operated by Konami are working hard to provide high-quality services, by developing new facilities under direct management and through expansion of facilities the management of which has been outsourced to us.

The newly opened facilities under direct management are in Shin-Nagata (Hyogo Prefecture), opened in April 2008, and Musashi-Kosugi (Kanagawa) and Imazato (Osaka), both opened in June 2008. The sports club in Shin-Nagata offers a range of programs involving water resistance challenges, with seven user-friendly courses in a spacious 25-meter pool. The one in Imazato is the first Konami sports club with a pool for water aerobic walking. Each facility offers services that distinguish it from the other facilities.

In addition, metabolic syndrome has attracted greater attention recently, and our IT-enabled health management systems and improved programs are well equipped to address the concerns of club members. Our IT-enabled health management system e-XAX helps members keep track of their individual exercise histories and manage data on their fitness progress. This system is being installed on a growing scale. Two other programs we are promoting are 6WEEKS, designed to help users tackle lifestyle-related diseases, and the diet program, Biometrics. 

In March 2008, Sportsplex Japan Co., Ltd. (SPJ) joined the Konami Group, and on June 30, 2008 it merged with Konami Sports & Life. We will continue to expand our group's high-quality multi-option services in former SPJ facilities to offer excellent value.

Operation of sports facilities outsourced to us: We have added four facilities, including Totsuka Sports Center (Saitama) and Kujo (Nara), to the list of Japanese public facilities whose management we are supporting through our group's know-how and expertise. This business has expanded our ability to promote health and fitness in local communities. As of the end of June 2008, the total number of our directly operated facilities, facilities outsourced to us and other group outlets reached 337.

Health products: Healthcare needs are becoming increasingly diversified and we are expanding our lineup of products to meet these needs. By organizing an exhibit at Health & Fitness Japan 2008 held in June 2008, we highlighted many of our products promoting physical exercise, well-being and measures to combat metabolic syndrome. One product, the FORCEDREP WAIST SHAPER, is our second offering in our popular fitness machine FORCEDREP series, and has been attracting attention as an effective stimulator for flabby waists.

Three members from our group's swimming and gymnastic teams have been chosen to represent Japan in the 2008 Summer Olympics. We will continue to support these fine athletes, who are the pride of Japan, and are confident that their rigorous training will bring them superb results.

In terms of financial performance, consolidated net revenues for the three months ended June 30, 2008 of this segment amounted to Y22,174 million (a year-on-year increase of 2.6 %).

Gaming & System

Our Gaming & System business segment realized stable profits by introducing popular products and boosting sales potential, with a view to expanding our share of the North American market. Our K2V series slot machines and our group's first mechanical five-reel slot machine, Advantage 5, continue to be well received. Sales revenues are satisfactory due also to the Konami Casino Management System, the maintenance services of which contribute to more stable profits, and to participation agreements.

On the other hand, the Australian market is experiencing a decline in demand because of restrictions on the number of gaming devices in major states, tax system changes, and anti-smoking regulations. This decline is having a negative impact on the sale of our group's slot machines. To boost our market share, we intend to improve our services for existing customers and launch the mechanical five-reel slot machine in the Australian market.

At the Gaming Convention & Trade Show held by the National Indian Gaming Association (NIGA) in April 2008 in San Diego, California, we received positive attention for our mechanical reel slot machines, and the Konami Casino Management System. In addition, in June 2008, Konami Australia Pty. Ltd. and Konami Gaming Inc. teamed up for an exhibit at the Global Gaming Expo Asia in Macao. The exhibit highlighted a wide lineup, including Advantage 5, video reel slot machines, gaming machines such as the linked progressive machine Mystical Temple, and the Konami Casino Management System. Reaction to our lineup at the exhibit was favorable.

Konami intends to develop its global potential to meet global market demand, build new production systems, and expand its business while negotiating strategic tie-ups with other companies.

In terms of financial performance, consolidated net revenues for the three months ended June 30, 2008 of this segment amounted to Y3,673 million (a year-on-year increase of 2.8%).

2. Cash Flows

Cash flow summary for the three months ended June 30, 2008:

Millions of Yen

Three months ended

June 30, 2007

Three months ended

June 30, 2008

Change

Net cash provided by operating activities

Y489  

Y4,810 

Y4,321

Net cash used in investing activities

(6,778)

(1,027)

5,751

Net cash used in financing activities

(4,277)

(4,099)

178

Effect of exchange rate changes on cash and cash equivalents

1,204

1,129

(75)

Net increase (decrease) in cash and cash equivalents 

(9,362)

813

10,175

Cash and cash equivalents, end of the period

47,971

52,943

4,972

Cash and cash equivalents (hereafter, referred to as "Net cash"), for the three months ended June 30, 2008, amounted to Y52,943 million, an increase of Y813 million compared to the year ended March 31, 2008, and a year-on-year increase of 10.4%.

Cash flow summary for each activity for the three months ended June 30, 2008 is as follows:

Cash flows from operating activities:

Net cash provided by operating activities amounted to Y4,810 million for the three months ended June 30, 2008, a year-on-year increase of 883.6%. Despite the increase in inventories and accounts receivable, this increase primarily resulted from an increase in net income for this period and deferred revenue.

Cash flows from investing activities:

Net cash used in investing activities amounted to Y1,027 million for the three months ended June 30, 2008, a year-on-year decrease of 84.8%. In spite of the increase in capital expenditures, the decrease in the amount used mainly resulted from the proceeds of sales of property and equipment.

Cash flows from financing activities:

Net cash used in financing activities amounted to Y4,099 million for the three months ended June 30, 2008, a year-on-year decrease of 4.2% . This primarily resulted from purchases of treasury stock and payments of dividends. 

3.Outlook for Fiscal Year Ending March 31, 2009

Digital Entertainment

The digital entertainment industry market in Japan is reaching maturity. Conversely, the North American and European markets have been posting favorable growth rates over the last few years and we intend to look closely at possible developments in those markets. Our Winning Eleven series (known outside Japan as PRO EVOLUTION SOCCER) has an excellent reputation in Japan and other countries and we intend to continue developing it globally for multiple platforms. For the North American market, we intend to develop the MLB　POWER PROS series　for　multiple　platforms and focus　on music　games which　enjoy solid popularity. We are planning to introduce the new product Rock Revolution as a companion product to the DanceDanceRevolution series. 

We intend to bolster our online distribution title lineup with Metal Gear Online, which is used for playing with the Starter Pack included on the main disc of METAL GEAR SOLID 4 GUNS OF THE PATRIOTS, and with the dungeon-adventure RPG Chaotic Eden, planned for distribution in South Korea during the current fiscal year. We also intend to introduce new titles and new Konami original content for game consoles that have network functions as part of their standard equipment to encourage download marketing.

Video games for commercial enterprises: We plan to further expand our lineup of products having access to "e-AMUSEMENT" service and further promote the marketing of jubeat, a new style of rhythm-action game played by touching the screen in synch with music, and popular series such as MAHJONG FIGHT CLUB and BASEBALL HEROES. 

Card games: We intend to continue the global promotion of the YU-GI-OH! TRADING CARD GAME series.

Instead of being satisfied with the present success of our popular content game software, video games for commercial enterprises, and card games, we intend to tackle new challenges in different fields, pursuing the possibilities offered through a combination of efforts.

Health & Fitness

Konami's promotion of health and fitness focuses on exercise, leisure and nutrition. We are therefore developing and providing health enhancement programs that offer guidance in both exercise techniques and nutrition, and developing highly effective health-related equipment. Our goal is to explore the potential of a wide range of health-promoting services. One group member, Konami Sports & Life, manages more than 300 large sports clubs in Japan as a leading sports club operating company based on a service-oriented business, and also designs and manufactures fitness machines and supplements. These products are tested at their sports clubs to demonstrate effectiveness, and marketing results are then reflected in subsequent development efforts. This distinctive approach has become one element in the company's strategic promotion of its health services.

The sports club market in Japan is characterized by opposing trends-middle-aged and older adults are becoming increasingly conscious of their health, and are buying sports club memberships in greater numbers, but, on the other hand, Japan's low birth rate is reducing the number of young people and competition among clubs is now steep. These trends point to a decline in the average number of members per sports club. On the bright side, Japan's aging society and the government's launch of a health guidance program to combat lifestyle-related diseases will most likely create greater opportunities for sports clubs and for the development and sale of health-related equipment. We intend to seize these opportunities by offering health-promotion programs designed on the results obtained at our sports clubs and by developing practical health-related equipment, thereby responding to a wide range of market needs.

Gaming & System

We intend to expand sales of mechanical reel slot machines (which are common in the North American gaming scene), especially the popular mechanical five-reel slot machine, Advantage 5. We also intend to expand the sale of video slot machines, which are popular in Australia, and promote the new release of the Konami Casino Management System in Australia. We also intend to focus on increasing regular income and ensuring more stable operations through participation agreements and casino management maintenance services.

By strengthening the collaboration among our three hubs in North America, Australia and Japan in product research and development, and by strengthening our partnerships, we intend to boost management efficiency, develop new products that respond to social changes and people's preferences, and add value to existing products. For example, instead of developing slot machines in isolation, we are encouraging a network-type framework for product development and marketing, with the goal of using a casino management system to bring greater effectiveness and dynamism to casino management. The Konami Casino Management System is already sold in North America and we intend to market it in Australia. Through these efforts, Konami aims to expand sales, especially in the growing North American market.

Projected consolidated results for the fiscal year ending March 31, 2009 are as follows: net revenue of 330,000 million yen; operating income of 45,000 million yen; income before income taxes of 44,500 million yen; and net income of 26,000 million yen. Thus, there is no change from the figures released in the Consolidated Financial Results for the Year Ended March 31, 2008, dated May 15, 2008.

Please note that we will not disclose projected consolidated results for the second quarter, the six-month period ending September 30, 2008, owing to the fact that Konami, which is engaged in a hit business, requires flexibility in how products are released and is subject to fluctuations in sales throughout the course of the year.

4. Other

(1) Changes in significant consolidated subsidiaries during the period (status changes of specified subsidiaries due to changes in the scope of consolidation) : None

(2) Adoption of simplified methods in accounting principles for quarterly consolidated financial statements: None

(3) Changes in accounting principles, procedures and reporting policies for quarterly consolidated financial statements (items to be disclosed in "Significant change in preparation basis for quarterly consolidated financial statements")

1.

Changes accompanying amendment of accounting standard: Yes

Effective April　1,　2008,　Konami　has　adopted Statement　of　Financial　Accounting Standards ("SFAS") No. 157, "Fair Value Measurements."SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and specifies disclosures about fair value measurement. The adoption of SFAS No. 157 did not have a significant impact on our consolidated results of operations and financial condition.

 2.

Other: None

Millions of Yen

Thousands of U.S. Dollars

June 30, 2007

June 30, 2008

March 31, 2008

June 30, 2008

%

%

%

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt and 

Y22,984

Y8,061

Y8,115

$75,747

capital lease obligations

Trade notes and accounts payable

18,877

24,945

20,410

234,401

Accrued income taxes

826

5,072

9,523

47,660

Accrued expenses 

22,759

19,105

21,934

179,525

Deferred revenue 

6,322

20,907

7,848

196,457

Other current liabilities

10,858

11,750

7,283

110,412

Total current liabilities

82,626

26.9

89,840

26.5

75,113

23.5

844,202

LONG-TERM LIABILITIES:

Long-term debt and capital lease 

obligations, less current portion 

23,707

35,706

35,613

335,519

Accrued pension and severance costs 

1,365

2,694

2,699

25,315

Deferred income taxes, net 

12,304

11,718

11,559

110,111

Other long-term liabilities

6,942

8,098

7,181

76,095

Total long-term liabilities

44,318

14.5

58,216

17.1

57,052

17.9

547,040

TOTAL LIABILITIES

126,944

41.4

148,056

43.6

132,165

41.4

1,391,242

MINORITY INTEREST IN

CONSOLIDATED SUBSIDIARIES

3,138

1.0

4,561

1.4

4,324

1.4

42,858

COMMITMENTS AND 

CONTINGENCIES

STOCKHOLDERS' EQUITY:

Common stock, no par value-

Authorized 450,000,000 shares;

47,399

15.5

47,399

13.9

47,399

14.8

445,395

issued 143,555,786 shares, 143,500,000 shares and 143,500,000 shares at June 30, 2007, June 30, 2008 and March 31, 2008, respectively

Additional paid-in capital

77,227

25.2

77,084

22.7

77,078

24.1

724,338

Legal reserve

284

0.1

284

0.1

284

0.1

2,669

Retained earnings

62,717

20.5

75,449

22.2

73,492

23.0

708,974

Accumulated other comprehensive

income

7,195

2.3

4,444

1.3

2,579

0.8

41,759

Treasury stock, at cost-

6,285,738 shares, 6,055,241 shares and 6,178,443 shares at June 30, 2007, June 30, 2008 and March 31, 2008, respectively

(18,369)

(6.0)

(17,758)

(5.2)

(18,073)

 (5.6)

(166,867)

Total stockholders' equity 

176,453

57.6

186,902

55.0

182,759

57.2

1,756,268

TOTAL LIABILITIES AND 

STOCKHOLDERS' EQUITY

Y306,535 

100.0

Y339,519

100.0

Y319,248

100.0

$3,190,368

3. Consolidated Statements of Income (Unaudited)

Millions of Yen

Thousands of U.S. Dollars

Three months ended 

June 30, 2007

Three months 

ended 

June 30, 2008

Year ended 

March 31, 2008

Three months ended 

June 30, 2008

%

%

%

NET REVENUES:

Product sales revenue 

Y40,782

Y50,407

Y218,306

$473,661

Service revenue 

19,868

20,398

79,096

191,674

Total net revenues 

60,650

100.0

70,805

100.0

297,402

100.0

665,335

COSTS AND EXPENSES:

Costs of products sold

21,372

25,215

131,890

236,939

Costs of services rendered 

18,707

19,626

73,298

184,420

Selling, general and administrative

13,561

14,353

58,375

134,871

Total costs and expenses

53,640

88.4

59,194

83.6

263,563

88.6

556,230

Operating income

7,010

11.6

11,611

16.4

33,839

11.4

109,105

OTHER INCOME (EXPENSES):

Interest income

266

197

894

1,851

Interest expense

(243)

(399)

(1,105)

(3,749)

Other, net 

238

309

(794)

2,904

Other income (expenses), net

261

0.4

107

0.1

(1,005)

(0.4)

1,006

INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES

7,271

12.0

11,718

16.5

32,834

11.0

110,111

INCOME TAXES

3,117

5.1

5,791

8.1

13,080

4.4

54,417

INCOME BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES

4,154

6.9

5,927

8.4

19,754

6.6

55,694

MINORITY INTEREST IN INCOME

OF CONSOLIDATED SUBSIDIARIES

438

0.7

292

0.4

1,589

0.5

2,744

EQUITY IN NET INCOME OF AFFILIATED COMPANIES

147

0.2

29

0.0

180

0.1

273

NET INCOME

Y3,863 

6.4

Y5,664

8.0

 Y18,345 

6.2

$53,223

PER SHARE DATA:

Yen

U.S. Dollar

Three months ended

Three months ended

Year ended

Three months ended

June 30, 2007

June 30, 2008

March 31, 2008

June 30, 2008

Basic net income per share

Y 28.14

Y41.23

Y133.63

$ 0.39

Diluted net income per hare

28.13

41.18

133.57

0.39

Weighted-average common 

share outstanding

137,259,918

137,368,791

137,290,259

Diluted weighted-average

common shares outstanding

137,298,107

137,560,824

137,344,709

Millions of Yen

Thousands of 

U.S. Dollars

Three months ended 

June 30, 2007

Three months ended 

June 30, 2008

Year ended

March 31, 2008

Three months ended

June 30, 2008

Cash flows from investing activities:

Capital expenditures

(3,093)

(3,713)

(11,995)

(34,890)

Proceeds from sales of property and equipment

-

1,315

8

12,357

Acquisition of new subsidiaries, net of cash acquired

-

-

(367)

-

Increase in lease deposits, net

(3,604)

1,410

(2,627)

13,249

Other, net

(81)

(39)

(378)

(367)

Net cash used in investing activities

(6,778)

(1,027)

(15,359)

(9,651)

Cash flows from financing activities:

Net decrease in short-term borrowings

-

-

(1,869)

-

Repayments of long-term debt

(148)

(148)

(2,969)

(1,391)

Proceeds from Issuance of bonds

-

-

15,000

-

Redemption of bonds

-

-

(20,000)

-

Principal payments under capital lease obligations

(678)

(682)

(2,596)

(6,409)

Dividends paid

(3,476)

(3,560)

(7,419)

(33,452)

Purchases of treasury stock by parent company

(8)

(94)

(31)

(883)

Other, net

33

385

66

3,618

Net cash used in financing activities 

(4,277)

(4,099)

(19,818)

(38,517)

Effect of exchange rate changes on cash and cash equivalents

1,204

1,129

(814)

10,609

Net decrease in cash and cash equivalents 

(9,362)

813

(5,203)

7,639

Cash and cash equivalents, beginning of the period 

57,333

52,130

57,333

489,852

Cash and cash equivalents, end of the period

Y47,971

Y52,943

Y52,130

$ 497,491

1) Going concern assumption:

None

2) Significant changes in stockholders' equity:

None

5. Segment Information (Unaudited)

Three months ended 

June 30, 2007

Digital Entertainment

Health & Fitness

Gaming & System

Other, corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

34,748

Y

21,513

Y

3,572

Y

817

Y

60,650

 Intersegment

127

104

-

(231)

-

Total

34,875

21,617

3,572

586

60,650

Operating expenses

26,574

19,833

3,177

4,056

53,640

Operating income (loss)

Y

8,301

Y

1,784

Y

395

Y

(3,470)

Y

7,010

Three months ended 

June 30, 2008

Digital Entertainment

Health & Fitness

Gaming & System

Other, corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

44,779

Y

22,078

Y

3,673

Y

275

Y

70,805

 Intersegment

71

96

-

(167)

-

Total

44,850

22,174

3,673

108

70,805

Operating expenses

31,691

21,590

3,201

2,712

59,194

Operating income (loss)

Y

13,159

Y

584

Y

472

Y

(2,604)

Y

11,611

Year ended 

March 31, 2008

Digital Entertainment

Health & Fitness

Gaming & System

Other, corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

178,382

Y

86,196

Y

18,471

Y

14,353

Y

297,402

 Intersegment

557

348

-

(905)

-

Total

178,939

86,544

18,471

13,448

297,402

Operating expenses

143,579

81,251

15,677

23,056

263,563

Operating income (loss)

Y

35,360

Y

5,293

Y

2,794

Y

(9,608)

Y

33,839

Three months ended 

June 30, 2008

Digital Entertainment

Health & Fitness

Gaming & System

Other, corporate and Eliminations

Consolidated

(Thousands of U.S. Dollars)

Net revenue:

 Customers

$

420,776

$

207,461

$

34,514

$

2,584

$

665,335

 Intersegment

667

902

-

(1,569)

-

Total

421,443

208,363

34,514

1,015

665,335

Operating expenses

297,792

202,875

30,079

25,484

556,230

Operating income (loss)

$

123,651

$

5,488

$

4,435

$

(24,469)

$

109,105

Notes:

1.

Primary businesses of each segment are as follows:

Digital Entertainment Segment:

Production and sale of digital content and related products including Computer & Video Games, Amusement, Card Games, and Online.

Health & Fitness Segment:

Operation of health and fitness clubs, and production and sale of health and fitness related goods.

Gaming & System Segment: 

Production, manufacture, sale and service of gaming machines and the Casino Management System for overseas markets.

2.

"Other" consists of segments which do not meet the quantitative criteria for separate presentation under SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information."

3.

"Corporate" primarily consists of administrative expenses of the Company.

4.

"Eliminations" primarily consist of eliminations of intercompany sales and of intercompany profits on inventories.

Three months ended

June 30, 2007

Japan 

North America

Europe

Asia

/Oceania

Total 

Eliminations 

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

50,346

Y

4,439

Y

4,136

Y

1,729

Y

60,650

-

Y

60,650

 Intersegment

1,702

1,070

0

37

2,809

Y

(2,809)

-

Total

52,048

5,509

4,136

1,766

63,459

(2,809)

60,650

Operating expenses

45,443

5,575

3,866

1,552

56,436

(2,796)

53,640

Operating income (loss)

Y

6,605

Y

(66)

Y

270

Y

214

Y

7,023

Y

(13) 

Y

7,010

Three months ended

June 30, 2008

Japan 

North America

Europe

Asia

/Oceania

Total 

Eliminations 

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

56,345

Y

7,865

Y

5,264

Y

1,331

Y

70,805

-

Y

70,805

 Intersegment

3,831

857

3

120

4,811

Y

(4,811)

-

Total

60,176

8,722

5,267

1,451

75,616

(4,811)

70,805

Operating expenses

49,889

7,748

4,757

1,606

64,000

(4,806)

59,194

Operating income (loss)

Y

10,287

Y

974

Y

510

Y

(155)

Y

11,616

Y

(5)