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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

OR

For the fiscal year ended March 31, 2005

OR

For the transition period from             to             

Commission file number: 1-31452

Konami Kabushiki Kaisha

(Exact name of registrant as specified in its charter)

KONAMI CORPORATION

(Translation of registrant’s name into English)

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:

None

(Title of Class)

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

None

(Title of Class)

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

As of March 31, 2005, 119,481,411 shares of common stock were outstanding, including 176,100 shares represented by 176,100 American Depositary Shares.

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 which financial statement item the registrant has elected to follow:     Item 17  ¨    Item 18  x

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

As used in this annual report, “fiscal 2005” refers to our fiscal year ended March 31, 2005, and other fiscal years are referred to in a corresponding manner.

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

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

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

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PART I

Not applicable.

Not applicable.

A.    Selected Financial Data.

The following tables include selected historical financial data as of and for the fiscal years ended March 31, 2001 through 2005, derived from our audited consolidated financial statements prepared in accordance with U.S. GAAP. You should read the selected financial data below in conjunction with Item 5 of this annual report and our audited consolidated financial statements and information prepared in accordance with U.S. GAAP which are included in this annual report.

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

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Exchange Rate Data

Fluctuations in exchange rates between the Japanese yen and U.S. dollar and other currencies will affect the U.S. dollar and other currency equivalent of the yen price of our shares and ADSs and the U.S. dollar amounts received on conversion of cash dividends. We have translated some Japanese yen amounts presented in this annual report into U.S. dollars solely for your convenience. Unless otherwise noted, the rate used for the translations was ¥107.39 per $1.00 which was the mid price for telegraphic transfer of U.S. dollars for yen quoted by The Bank of Tokyo-Mitsubishi, Ltd. as of March 31, 2005, the last business day prior to the date of our most recent annual consolidated financial statements. The translation should not be construed as a representation that the yen amounts have been, could have been, or could in the future be converted into U.S. dollars at the above or any other rate.

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

As of July 8, 2005, the noon buying rate was ¥112.17 per $1.00.

B.    Capitalization and Indebtedness.

Not applicable.

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C.    Reasons for the Offer and Use of Proceeds.

Not applicable.

D.    Risk Factors.

Special Note Regarding Forward-looking Statements.

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

Important risks 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:

Risks Relating to Our Overall Business

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

The market for video game software, toy & hobby products, amusement arcade games, token-operated games and gaming machines is “hits” driven. “Hit” products account for a substantial portion of our net revenues and of the revenues in each of these markets. For example, the fast growth of our toy & hobby products in recent years resulted from, and was heavily dependent on, the sales of our Yu-Gi-Oh! card games. Similarly, hit video game software titles such as the Yu-Gi-Oh! series, the WORLD SOCCER Winning Eleven series and the METAL GEAR SOLID series 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 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 could be harmed.

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

Our success depends on generating revenue from the timely introduction and shipment of new products. The average life cycle of a new software title generally ranges from less than three months to twelve to eighteen months, with the majority of sales occurring in the first thirty to one hundred and twenty days after release. The life cycle for toy & hobby products including mainly card games, amusement arcade games, token-operated games and gaming machines 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 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 toy & hobby products, video game software, arcade games, token-operated games, gaming machines and most of our other products are intensely competitive and new products and platforms are regularly introduced. Only a small percentage of products introduced in the market achieve any degree of sustained market acceptance. In the case of software for handheld and home game consoles, amusement arcade games, token-operated games and gaming machines, significant price competition and reduced profit margins may result as the hardware product cycle matures. In addition, competition from new technologies such as video game software for play over the Internet or mobile phones may reduce demand in markets in which we have traditionally competed. As a result of prolonged price competition and reduced demand due to competing technologies, our operations in the past have been, and in the future could continue to be, negatively impacted.

Our competitors vary in size from small companies to very large corporations, some of which have significantly greater financial, marketing and product development resources than we have. Due to these greater resources, certain of our competitors can undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors of desirable motion picture, television, sports and character properties and pay more to third party software developers than we can. It is also possible that some of our domestic 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. Any significant downturn in general economic conditions which results in a reduction in consumers’ discretionary spending could reduce demand especially for entertainment and health-oriented products and services like ours and may harm our business. Such industry downturns have been, and may continue to be, characterized by diminished product demand and subsequent erosion of average selling prices.

Our performance may be vulnerable to rapidly changing consumer preferences.

Sales of our products depend substantially on how consumers decide to spend their money. Many of our markets are characterized by rapidly changing trends and fads, and frequent innovations and improvements are

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necessary to maintain consumer interest. We compete with other forms of entertainment and leisure activities. For example, we believe that the overall growth in the use of the internet and online services by consumers may pose a competitive threat if customers and potential customers spend less of their available time using video game software, toy & hobby products, amusement arcade games, token-operated games and gaming machines and more time using the Internet or otherwise choose to engage in other forms of entertainment and leisure activities. Our financial performance may be harmed if we are unable to successfully adapt our products and services to these changing trends and fads.

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

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

Our quarterly operating results also may be materially impacted by other factors, including the level of market acceptance or demand for video game software, the timing of hardware platform introductions, the level of development and/or promotion expenses for a video game title. Also, many of our products are in the greatest demand in December and January, particularly at the end and beginning of the year and, to a lesser extent, in August (summer vacation) and in March (spring vacation), in decreasing order. This trend is explained as these months correspond to the periods of children’s school holidays and it is customary in Japan to buy toys as Christmas and New Year presents in December and January. Additionally, in a platform transition period, sales of video game software products can be significantly affected by the timeliness of introduction of game console platforms by the manufacturers of those platforms, such as Sony, Nintendo and 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 FIFPro Commercial Enterprises BV. We have also acquired content licenses from Japanese sports organizations such as 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, Shogakukan Production Co., Ltd., Mirage Licensing, Inc. and 4KIDS Entertainment Inc.

These license and distribution agreements are limited in scope and time, and we may not be able to acquire new licenses, renew licenses when they expire or include new products in existing licenses. License agreements relating to these rights generally extend for an initial term of two to three years. The agreements are terminable upon the occurrence of a number of factors, including our material breach of the agreement, failure to pay 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

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rights. We own or license various patents, copyrights and trademarks. We are aware that some unauthorized copying occurs within the trading card game, video game software and arcade machine industries. For example, unauthorized copies of the Yu-Gi-Oh! card games have been found in the United States, France, China, Taiwan and the Netherlands. If a significant volume of unauthorized copying of our trading card games and other products were to occur, it could cause material harm to our business and financial results.

Policing 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 our ability to protect our intellectual property rights and to avoid infringing intellectual property rights of others may diminish, 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 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 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 video game software products, amusement arcade games, token-operated games, gaming machines, pachinko liquid crystal display, and exercise equipment 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.

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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 video game software, amusement arcade machine, gaming machine and sports club 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 78.7% of our net revenues during fiscal 2002, 71.9% of our net revenues during fiscal 2003, 64.5% of our net revenues during fiscal 2004 and 67.7% of our net revenues during fiscal 2005 were derived from sales in Japan. Although we expect that domestic sales will continue to account for a significant portion of our revenues in future periods, we plan to expand our international operations, particularly with respect to video game software, gaming machines and toy & hobby products, including through alliances or investments. Sales in foreign countries may involve expenses incurred to customize products to comply with local laws, especially in the case of gaming machines. In addition, products that are successful in the domestic Japanese market may not be successful in foreign markets due to different consumer preferences. In addition, our costs will increase as a result of the need to conduct market research to discover local preferences and tastes and to develop foreign language versions or make product modifications in order to tailor our products to various local markets. In the case of video game software, we may have to grant price concessions to or accept returns from major retailers that control market access to consumers. International trade is also subject to general country risks, including

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suspension of currency exchange by governments, increases in tariffs, and forfeiture of property through expropriation by governments. International trade is also exposed to fluctuating exchange rates. We may become exposed to increased litigation risks or unexpected bankruptcy risks through product liabilities, facility liabilities, product defect or labor issues in the course of further expanding our business, enhancing our international network and increasing our vendors and customers. These and other factors specific to international trade may result in increased costs or reduced revenues.

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

The Japanese population of people in their teens and 20s, the traditional target market for our products and services including computer & video games products and arcade games, is expected to decline. Accordingly, we may not be able to increase or maintain revenues if we are unable to enter new markets such as sports clubs and 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 after 2007 and its demographic makeup is already aging considerably. According to government estimates released in March 2002, as of calendar year 2000, 17.4% of Japan’s population was aged 65 or over and this percentage is expected to reach 26.0% by 2015.

Risks Relating to Our Digital Entertainment Business

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

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

Also, when new game console platforms are announced or introduced into the market, consumers typically reduce their purchases of video game software products for current console platforms 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 and Nintendo 64 platforms were negatively affected by the platform transition from 32-bit and 64-bit to 128-bit game consoles such as Sony’s PlayStation 2, Nintendo’s GameCube and Microsoft’s Xbox. 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, as occurred with Microsoft’s Xbox, we may experience lower-than-expected sales.

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

The cyclical nature of the industry requires us to anticipate and assess the emergence and market acceptance of new game console platforms and develop new software well in advance of the time the platform is introduced to consumers. The complexity of next-generation platforms has resulted in higher development expenses which typically range between ¥100 million and ¥700 million per product. 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.

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

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

In addition, we depend on Sony and Nintendo for the manufacture of products that we develop for their hardware platforms. Games for the Xbox must be manufactured by pre-approved manufacturers. Our hardware platform licenses with these hardware manufacturers provide that the manufacturer may change prices for the manufacturing of products. 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 manufactures such as Sony and Nintendo are also publishers of games for their own hardware platforms and manufacture products for all of their other licensees, such manufacturers may give priority to their own products or those of our competitors in the event of insufficient manufacturing capacity. Our business and financial results could be materially harmed by unanticipated delays in the manufacturing and delivery of our products by Sony or Nintendo, which has occurred in the past. In addition, our business and financial results could be materially harmed if Sony or Nintendo used their rights under these agreements to delay the manufacture or delivery of our products, limit the costs recoverable by us to manufacture video game software for their consoles, or elect to manufacture software themselves or use developers other than us.

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

Legislation is periodically introduced at the local, state and federal levels in the United States and in other countries to establish a system for providing consumers with information about graphic violence and sexually explicit material contained in software products. In addition, many countries have laws that permit governmental entities to censor the content and advertising of software. Although there are no mandatory government-run rating systems in Japan, North America, Europe and Asian countries except China that are significant markets or potential markets for our products, governmental approval is required for software sales in China and such rating

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systems 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. Due to the uncertainties regarding these rating systems, confusion in the marketplace may occur, and we are unable to predict what effect, if any, such rating systems would have on our business.

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

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

If the recent merger of group companies engaged in videogame software and online games, music and publishing does not result in the new structure operating smoothly, our business and results of operations may be adversely affected.

On April 1, 2005, we merged three consolidated subsidiaries engaged in the production of video game software (Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc. and Konami Computer Entertainment Japan, Inc.), a consolidated subsidiary specializing in online and mobile phone games (Konami Online, Inc.) and a consolidated subsidiary engaged in media entertainment (Konami Media Entertainment, Inc.). As a result of the merger, we developed a new Konami group business structure. However, if the new structure cannot operate smoothly, our business and results of operations may be adversely affected. Although the three group companies had experienced solid growth after going public, the business environment has recently begun to change dramatically due to the maturity of the domestic game software market, the emergence of foreign competition and development of the online gaming market, thus creating the need to develop video game software in a timely and flexible manner. As a result of the merger, we have consolidated the processes of planning, production and sales of video game software, created an opportunity to take advantage of synergies with other Konami group businesses and made possible further strategic investments into the online and mobile phone game businesses, which are expected to be growth areas. However, if the merger does not result in such effects, or if the online and mobile phone game businesses, which are expected to be growth areas, do not grow as expected, our business and results of operations may be adversely affected.

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

Amusement arcades are the primary venue for video game machines and token-operated game machines in Japan. Amusement arcade revenues and the sales of arcade games have been declining over the past several years, however, these have been bottoming out and recovering over the last two years. However, due to the development of full-scale home video game consoles that can rival amusement arcade games in play quality and the introduction of advanced mobile telephones equipped with internet and game functions, consumers now have increasing leisure alternatives outside of amusement arcades. As customer preferences diversify, fewer people may visit frequently the amusement arcades on which we depend for sales of our amusement arcade game software, amusement arcade games and token-operated game machines and this could have a negative impact on our results of operations if amusement arcade operators reduce purchases of our products as a result.

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

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

Our business, revenues and profits could be harmed if we are not able to respond in a timely manner to the increasing popularity of Internet-based games, including PS2, Xbox and PC games.

In recent years, the rapid growth of the Internet has resulted in the development of interactive software games for play over the Internet and, in Japan, on mobile phones. Although we are marketing mobile phone-based games and games downloadable using the online function of PlayStation 2, including one Internet-based game called WORLD SOCCER Winning Eleven8 LIVEWARE EVOLUTION, an Internet-based game, we are still largely developing and testing games for play over the Internet using PlayStation 2, Xbox or a PC and have not sold a significant number. If the Internet becomes a popular avenue for interactive software games, we will need to rapidly develop and release games for such media and to establish a profitable business model for these Internet-based games. If we are not able to respond in a timely manner to the increasing popularity of these games, our business, revenues and profits could be harmed.

Risks Relating to Our Gaming Business

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 that achieve player and casino acceptance while maintaining product quality and acceptable margins. In addition, we must compete against gaming equipment companies such as International Game Technology, Alliance Gaming Corporation, Aristocrat Leisure Limited and WMS Industries Inc., which are among the largest and most-established suppliers of gaming machines in the world. Some of our competitors have greater financial resources, name recognition, established service networks and customer relationships than we do and are licensed in more jurisdictions than we are.

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

An adverse change affecting the gaming industries, including a change 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:

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

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

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

The future revenue growth of our gaming business depends on our ability to improve the effectiveness of our sales organizations and service departments.

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

Any problem in the operation of our new factory in the United States may adversely impact our production capacity and quality control, negatively affecting our revenues and growth.

In order to meet our increasing sales in the U.S. market, we constructed a new facility with increased production capacity in Las Vegas, Nevada during fiscal 2005. If there is any disruption in the operation of the facility due to natural disasters or problems associated with operating a new facility, we may not be able to maintain sufficient production capacity that can respond to an increase in orders and our performance may be negatively affected as a result.

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Risks Relating to Our Health & Fitness Business

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

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

If we are not able to achieve success with respect to the factors outlined above, the growth of our health & fitness business may be limited. We cannot assure you that we will be able to implement our growth strategy, open new clubs on a timely and cost-efficient basis or operate our new clubs profitably. Upon opening a new sports club, we often experience an initial period of club operating losses for the first twelve months, but this period can vary substantially depending on the individual club. Initial membership levels tend not to generate sufficient revenue for the club to generate positive earnings in its first full year of operation and substantially lower margins in its second full year of operations than a mature club. These losses and lower margins may negatively impact our future results of operations.

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

The performance of our sports clubs is dependent on our ability to attract and retain members, and 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, the public’s interest in sports and sports 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 sports club industry will have an adverse effect on our results of operations.

The sports club industry is highly competitive. We compete with other sports clubs, physical fitness and recreational facilities established by local governments, hospitals and businesses for their employees, amenity and condominium clubs and, to a certain extent, with racquet and tennis and other athletic clubs, country clubs, weight reducing salons and the home-use fitness equipment industry. We also compete with other entertainment and retail businesses for the discretionary income of our target markets. We cannot assure you that we will be able to compete effectively in the future in the markets in which we operate. Competitors, which may include companies which are larger and have greater resources than us, may enter these markets to our detriment. These competitive conditions may limit our ability to increase dues without a material loss in membership, attract new

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members and attract and retain qualified personnel. Additionally, consolidation in the sports club industry could result in increased competition among participants, particularly large multi-facility operators that are able to compete for attractive acquisition candidates, thereby increasing costs associated with expansion through both acquisitions, and lease negotiation and real estate availability.

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

Use of our sports clubs and equipment poses some potential health risks to members or guests through exertion and use of our services and facilities including exercise equipment. We cannot assure you that a claim against us for death or injury suffered by members or their guests while exercising at a club will not be asserted, or that we would be able to successfully defend any such claim. We currently maintain general liability coverage but we cannot assure you 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. A liability claim in excess of our insurance coverage would have to be paid out of cash and would harm our reputation in the industry.

We are subject to various governmental regulations, the breach of which could result in temporary closings and negative publicity.

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. Breach of these regulations could result in the temporary suspension or loss of licenses necessary to food service and other operations at any one of our clubs and negative publicity that could have an adverse effect on our reputation and ability to attract 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 sports club facilities.

We rent land and buildings when we open new sports clubs in many cases. Under lease agreements, we are often required to make deposits and provide guarantee money in order to provide a source of funds to offset owners’ damages if we were to default in payment of rent or to neglect to restore the property to its original state upon termination of the lease agreement. Accordingly, if we pay our rent and perform our restoration obligations as prescribed in the agreement, we are entitled to obtain refund of such deposits and guarantee money. However, if the owner of the property goes bankrupt before returning these funds, or if the owner otherwise is unable or unwilling to return these funds, we may not be able to obtain refunds of such deposits and guarantee money.

Risks Relating to Our Other Operations

As we do not manufacture LCD units for Pachinko machines, any delay or disruption in shipments from outside sources or incorporation of our software into the LCD units by subcontractors may adversely affect our profits.

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

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Risks Relating to the Shares and the ADSs

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 closing highs and lows of price per share of our common stock ranged from ¥2,165 to ¥3,140 during fiscal 2005.

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 May 31, 2005, there were 119,481,411 shares of our common stock outstanding including 34,026,856 shares, representing 28.48% of our outstanding shares, beneficially owned by Mr. Kagemasa Kozuki, our founder, Representative Director, Chairman of the Board, President and Chief Executive Officer, and his affiliate holders Mrs. Yoko Kozuki, Kozuki Holding B.V., Kozuki Foundation for Sports and Higher Education, 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 321,262,434 additional shares of common stock generally without any shareholder approval. In addition, as of May 31, 2005, we held 9,256,155 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 Commercial Code 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 Commercial Code 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. The transferability of our shares of common stock constituting less than one unit is significantly limited. 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.

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

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

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

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

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

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

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

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A.    History and Development of the Company.

Our business was founded by our current Representative Director, Chairman of the Board and Chief Executive Officer, Mr. 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, game software for personal computers in 1983, game software for home video game consoles in 1985 and software for LCD units for pachinko machines in 1992. We began our Toy & Hobby business in 1996. We obtained a license to manufacture and sell gaming machines in Nevada, and entered the gaming business in the United States in 2000. We entered the sports 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 Digital Entertainment, Inc., formerly known as Konami of America, 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, 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 August 2002, we moved our principal head office to 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-6330, Japan. Our telephone number is 81-3-5220-0573.

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

B.    Business Overview.

Overview

In the area of entertainment, we develop, publish, market and distribute video game software products globally for use on Sony PlayStation and PlayStation 2, Nintendo GameCube, Microsoft Xbox console systems, Sony PlayStation Portable, Nintendo Game Boy Advance and Nintendo DS handheld devices as well as for use on personal computers. In addition, we plan, produce, operate and distribute entertainment content for mobile phone online games. In the year ended March 31, 2005, we published 95 titles for home and handheld game platforms.

We also produce card games, character goods, toys & hobbies, publications, 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. We also publish, produce and provide post-sale service for software and hardware for amusement arcade games. In addition, we produce software for LCD units used in pachinko machines, and produce video games and token-operated games installed in amusement arcades and other entertainment venues in Japan as well as gaming machines for casinos in the United States, Australia and other overseas jurisdictions.

In addition, we believe that we are the leading operator of health and sports clubs in Japan, in terms of revenues, members and the total number of facilities. As of March 31, 2005, our nationwide network of 205 directly operated health and sports club facilities and 28 franchised facilities cater to all age groups, from children through senior citizens. We also manufacture fitness equipment mainly for our sports clubs and manufacture and sell other goods and services related to sports and fitness.

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Because our sales are affected by changes in how consumers, particularly children and young adults, spend their leisure time, we seek to meet consumers’ needs and preferences by developing products that can be used in a number of environments, including home video games, card games and games for amusement arcades, casinos and pachinko parlors. We also recognize that in the entertainment industry, 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 built a company with a portfolio of products and services that spans a range of categories and target markets. We have created, licensed and acquired a group of recognizable brands that we market to a growing variety of consumer demographics.

For the fiscal year ended March 31, 2005, we had consolidated net revenues and net income of ¥260,691 million and ¥10,486 million, respectively, compared with net revenues and net income of ¥273,412 million and ¥20,104 million, respectively, for the fiscal year ended March 31, 2004.

Products and Services

Through the year ended March 31, 2005, we divided our business into five business segments, each of which is reflected in a separate division. The net revenue figures for each business segment described below include intersegment revenues:

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These business segments maintained their independence, originality and profitability and enjoyed strong reputations in their various markets. However, with the increasing use of the Internet and the enhancement of digital technology, differences among businesses in the digital entertainment industry have been disappearing. The recent emergence of the online game market is further intensifying this trend. In this environment, in order to respond to diversifying customer needs, in April 2005, we merged our three video game software production subsidiaries, Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc. and Konami Computer Entertainment Japan, Inc., Konami Online, Inc., which engaged in the planning, production and distribution of mobile and online games and Konami Media Entertainment, Inc. which engaged in the music and publication business with and into Konami. Furthermore, in April 2005, we positioned five of our business areas, Computer & Video Games, Toy & Hobby, Amusement, Online and Multimedia, as digital entertainment businesses, and set up a framework to maximize synergy. With this new focus, we reorganized our business into three segments: the Digital Entertainment business, Gaming business and Health & Fitness business.

Computer & Video Games:    production, manufacture and sale of home video game software, production of software for mobile phones, purchase and distribution of home video game software and production of online game

Toy & Hobby:    Planning, production, manufacture and sale of card games, electronic toys, toys for boys, toy snacks, figures and character goods.

Amusement:    Production, manufacture and sale of contents for video game machines and token-operated machines for amusement arcades.

Online:    building systems related to online games, management and operation of online servers and distribution of contents for mobile phones.

Multimedia:    planning, production and sale of music and video package products and planning, production and sale of books and magazines.

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The following table presents net revenues in each of our historical business segments, including intersegment revenues, for each of the three years ended March 31, 2005.

Segment Revenues

“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.”

“Corporate” primarily consists of administrative expenses of Konami.

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

Computer & Video Games

Industry Overview

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

A new generation of more technologically advanced game consoles has been introduced every several years. The first platform was introduced by Nintendo in 1983 using 8-bit technology. 8-bit means that the central processing unit, or chip, on which the software operates is capable of processing data in 8-bit units. 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, referred to in the industry as a larger “installed base”. At the beginning of each cycle, during the period of rapid growth in the installed base of the new generation of consoles, the video game software industry has experienced rapid periods of expansion, as buyers purchase video games for their new consoles. Shortly before and after the release of a new generation of game consoles, sales of the current generation of platforms and games generally diminish, as consumers defer purchases in anticipation of the new platforms and games.

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

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The following table illustrates the evolution of the principal platforms of both home game console and handheld devices since 1989.

The industry has completed a transition from 32- and 64-bit home game consoles to the next generation 128-bit consoles, with the release of Sony’s PlayStation 2 in March 2000 (October 2000 in the United States) and the release of the Nintendo GameCube in September 2001 (November 2001 in the United States) and the release of Microsoft Xbox in February 2002 (November 2001 in the United States). Also, Sony released PlayStation X, a PlayStation 2 with a DVD recorder function, in Japan in December 2003. The handheld platform market is currently undergoing transition to a new platform, with Sony entering the market with PlayStation Portable (PSP) and NINTENDO, which maintains the dominant market share, launching a new platform, NINTENDO DS. By incorporating 128-bit processing speeds, more memory and better resolution, these platforms allow the design of games with more realistic graphics and better game performance than games designed for the prior-generation systems.

The 128-bit hardware platforms, such as Sony’s PlayStation 2 and Microsoft’s Xbox, utilize a DVD software format and serve as a player for DVD movies and compact discs. Sony’s PlayStation X released in December 2003 carries a DVD recorder function and can serve as a home entertainment center. The ability of the next generation game consoles to serve as multi-purpose entertainment devices with DVD and Internet capabilities should have crossover appeal to a segment of the market that might not otherwise be inclined to purchase game consoles.

New handheld platforms, the NINTENDO DS and PlayStation Portable (PSP), were introduced in the year ended March 31, 2005. Each of Sony, Nintendo and Microsoft have also announced plans to release new home game consoles sometime during the latter half of the year ended March 31, 2006 and the first half of the year ended March 31, 2007. As a result of the introduction of these new platforms, we expect the game software market to remain active in the near term.

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World Video Game Software Markets

According to data by the Computer Entertainment Software Association, or CESA, the number of shipment of video game software was 66,225 thousand copies in Japan, 194,940 thousand copies in North America and 93,971 thousand copies in Europe in 2003. The North American market, the largest market for video game software in the world, and European markets have been growing steadily, while the Japanese market has been flattening.

Our Computer & Video Games Software Business

Our Computer & Video Games business develops, publishes, distributes and markets software for home and handheld video game consoles and, to a lesser extent, personal computers, mobile phones and online networks. Consolidated net revenues generated by our Computer & Video Games business, including intersegment revenues, increased 2.1% from ¥92,520 million during fiscal 2004 to ¥94,444 million during fiscal 2005. Most of our software consists of video games designed for use with video game platforms, including Sony PlayStation and PlayStation 2, PSP, Nintendo GameCube, Nintendo DS, Game Boy and Game Boy Advance, Microsoft Xbox and PCs. During the past five years we have released over 545 titles which includes 85 Sony PlayStation titles, 223 Sony PlayStation 2 titles, 124 Game Boy Advance titles, 36 Nintendo GameCube titles, 25 Microsoft Xbox titles and 21 PC titles.

By developing game software for each of the leading home and handheld video game platforms, we are able to limit our dependence on individual platforms, capitalize on the popularity of successful platforms from time to time and sell to a more diverse group of consumers since the target age group for each major platform differs. For example, the primary target consumers for Nintendo Game Boy, Game Boy Advance and GameCube are elementary school students. Sony PlayStation and PlayStation 2, and Microsoft Xbox cover a wider range of user age groups, including customers in their thirties.

The market for video game software is substantially affected by sales of the various video game platforms. For example, during fiscal 2002 the launches of the Nintendo GameCube and Microsoft’s Xbox were a significant development in this market, and we and our competitors devoted resources to developing software for these 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.

The table below shows, for the periods indicated, Konami’s non-consolidated net sales of video game software, categorized by major platform manufacturers. Although this table does not include sales made by our consolidated subsidiaries, it illustrates a trend of increasing overseas sales as well as the relative significance of the manufacturers of hardware platforms for which we design our home video games.

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Software Titles

We publish approximately more than 100 new titles of video game software each year, almost all of which are designed for use with leading home and handheld video game consoles. We publish software titles in a variety of categories, including sports, action, role playing and music simulation.

The following table illustrates the number of software titles that we have released as well as 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.

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The following two tables indicate the major software titles that we have either published, or anticipate publishing, during fiscal years 2005 and 2006 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 2006 will be released when scheduled, if ever. Sales of video game software in Japan accounted for approximately 57% and 48% of our total video software sales in the years ended March 31, 2004 and 2005, respectively. We are working to improve our title lineups covering overseas markets in order to increase our shares in overseas markets, especially in the U.S. and European markets which have continuous growth potential.

Titles Released In Fiscal 2005

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Titles Released and Anticipated To Be Released In Fiscal 2006 (1)

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

Software Development

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

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

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

Through the year ended March 31, 2005, our software development was a collaborative process between our head office and our development subsidiaries. Our development subsidiaries were allowed wide creative freedom including the development of strategies, story lines and other characteristics. Also, compensation of the employees of each subsidiary was based in part upon the success of the titles published by that subsidiary. Each development subsidiary was generally supported by our central administrative and technology resources. Each subsidiary tended to specialize in the development of software for a particular game genre in which it excelled. We monitored and coordinated these development activities in order to ensure that sufficient resources are allocated among the subsidiaries so that the development of games was appropriately balanced on a group-wide basis.

Our Computer & Video Games business grew significantly over the last several years, with three of our development subsidiaries becoming public companies. However, the business environment has recently begun to change dramatically due to the maturity of the domestic video game software market, the emergence of foreign competition and the development of the online gaming market, creating the need to develop videogame software in a timely and flexible manner. To achieve this, we merged our three production companies, Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc. and Konami Computer Entertainment Japan, Inc. with and into Konami in April 2005.

Since April 2005, we have been doing all of our software development and production work as an integrated corporate unit, with the expectation that closer collaboration between our various creative units will produce

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beneficial synergies within our video game software business and with our other digital entertainment businesses. Prior to releasing each video game software product, we perform careful quality assurance testing, which involves a technical review of each component of the final product and testing on the applicable platforms.

Hiring and retaining talented creative staff is key to developing successful content. To do this, we have introduced equity-based incentives and remuneration packages for creative staffs and developers that reflect the financial results of their work. We believe that this 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—such as game engines, three-dimensional models and texture maps that can be used to control the diffuse color of a surface on a pixel-by-pixel basis—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.

Development of a video game generally takes six to 24 months or longer and typically costs ¥100 million to ¥700 million. Because of the increasingly complex technology and software involved, both the time and cost to develop games have increased during the past few years. We believe that we can generate significant incremental revenue from our games by introducing them on additional platforms at a significantly lower cost than the development cost for introducing the game on the first platform. Converting an existing next-generation game from one platform to another is expected to take three to six months. These relatively long development cycles require that we assess whether there will be adequate demand for a game well in advance of its release, which is difficult to predict.

Manufacturing

The manufacturers of the home and handheld game platforms, such as Sony, Nintendo and Microsoft, generally manufacture our video games for us, either themselves or through their designees, 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 and opening a letter of credit in favor of the manufacturer. Hardware manufacturers or their authorized vendors typically deliver the first order to us within four to six weeks and additional orders for the same title within two days to four weeks.

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

Platform Licenses

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

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The following table sets forth information with respect to our platform licenses. In some instances, we have more than one platform license for a particular platform.

Nintendo charges us an amount for each Game Boy Advance, Game Boy Color, Nintendo DS and Game Boy Pocket cartridge. This amount varies based, in part, on the memory capacity of the cartridges. Nintendo GameCube, Sony and Microsoft contracts include a charge for every disc manufactured. The amounts charged by the manufacturers generally include a manufacturing, printing and packaging fee as well as 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 prototype of each title and the title’s packaging.

Marketing, Sales and Distribution

We believe that we benefit from a strong positive perception in Japan of the Konami brand name. We are focusing on further enhancing the Konami brand name by aggressively advertising and promoting ourselves and our products and services. To continue to increase our brand name recognition, we advertise on television, the radio and through various magazines and newspapers. Konami Marketing Japan, Inc., our wholly-owned subsidiary, conducts sales and market research for all of our products in Japan, other than our Pachinko LCD units and products sold at shops within fitness facilities directly managed by Konami Sports, and oversees our relationships with retailers.

Our video game software products are sold in Japan primarily through our sales distribution network, coordinated by Konami Marketing Japan, Inc., which has offices throughout Japan. Each of these sales offices focuses its efforts on a specified 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.

As for overseas marketing, we sell our products through our subsidiaries, principally those in the United States, Germany and Hong Kong. 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, changed its name to Konami Digital Entertainment, Inc. It established a new administrative office in Los Angeles in order to conduct various activities responding to local market needs for expanding shares of our Computer & Video Games business overseas.

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

Internet technology for high speed broadband enables customers to have a more enhanced and interactive online experience. Going forward, we expect the spread of broadband services and continued competition among broadband providers will lead to further growth in the market for online games. With the rapid spread of broadband infrastructure, many game console manufacturers and game software publishers are entering the online game business. For example, Sony Computer Entertainment started a broadband online service for

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PlayStation 2 in spring of 2002 through which users can play games online and download software as well as enjoy broadband contents such as movies and music at home. In August 2002, Sony Computer Entertainment America Inc. started selling online adaptors and software for PlayStation 2 in the U.S. In the fall of 2002, Nintendo started an online service for Game Cube in Japan and the U.S., Microsoft started online service for Xbox in November 2002 in the U.S. and in Japan in January 2003. Some of our competitors have already started operating web sites where players can download a game and play it on the Internet. We expect that with the spread of broadband and faster services, investment into and interest in online games will expand significantly.

We also expect mobile phones to become a new platform for home video game software. In Japan, mobile phones are not just phones, but wireless Internet handsets loaded with digital cameras and multi-media processors. As of March 31, 2005, over 75 million mobile internet subscribers in Japan downloaded share price information, reviewed news, sent out pictures and played games. Although usage rates for personal computers and the Internet is higher in the U.S. than in Japan, more people access the Internet via mobile phones in Japan and mobile phones have become a popular way to access the Internet.

Companies such as NTT DoCoMo, Inc. (DoCoMo) have developed a cutting-edge technology enabling 24-hour access to the Internet at low cost from mobile phones for Japanese subscribers. One of the most popular services, i-mode, has been developed by DoCoMo and enables subscribers to view specified websites and to receive e-mails from mobile phones. Other than accessing the Internet and e-mails, i-mode can access financial information (including share price and net banking), travel information, news and entertainment information. Additional contents such as games are usually provided for a ¥100 to ¥300 per month subscription. Other online mobile phone services, such as Vodafone Live! and Ezweb by au, provide similar functions. In 2001, with third-generation mobile technology, high speed wireless packet data service for the Internet became possible. These third-generation services not only enable efficient access to e-mails, faster viewing for websites and e-commerce application, but also provide necessary speed and volume to support innovative multimedia applications such as more enhanced online games, downloading of music and video images.

We develop, publish, distribute and sell software for home video game consoles, personal computers, mobile phones and online networks. We plan to actively enter the mobile phone and online game software business in light of the recent growth of the online and mobile phone game market, and we believe there is a new opportunity for increasing profits with our software titles.

In October 2001, we established Konami Mobile Online, Inc. as our principal subsidiary developing games for mobile phones. In September 2003, it changed its name to Konami Online, Inc., adding online game business to its existing businesses to manage online game infrastructures. It develops and distributes various contents for all domestic mobile internet services, including i-mode, Vodafone Live! and Ezweb. In 2003, we started distribution of various game contents in North America, Europe and Asia. In Japan, we provide a download service for ringer melodies and wallpapers for mobile phones. Most of our games for mobile phones are mobile phone versions of our popular home video game software. Depending on the service, the subscription is ¥70 to ¥300 per month and is charged to users. As a result of eliminating and consolidating our web sites during fiscal 2004, we offered our mobile Internet game service through approximately 48 Internet websites as of March 31, 2005.

Toy & Hobby

Toy Industry Overview

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

The Japanese toy industry is being forced to restructure as a result of a declining child population, the growing number of alternative options for play, changes in distribution systems and the bankruptcy of major toy wholesalers. 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 (owing to women getting married later in life and to the increasing number of unmarried women), the child population is expected to continue to decline slightly in the

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future. According to the National Institute of Population and Social Security Research, the number of births in Japan has declined from 2.09 million in 1973 to 1.19 million in 2000. Consequently, the population of this age group has decreased from 27 million in the beginning of the 1980s to 18.5 million in the population census of 2000. The children’s population is expected to fall below 16 million in 2016.

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.), sports 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 PlayStation2 and Game Boy Advance now occupy an important position in the toy market. These toys are also used by younger people. The popularity of electronic games contributes much to the decreasing demand for general toys.

Trends and Characteristics of Toy Demand

According to the market research conducted by the Japan Toy Association, total revenues of toys sold domestically, including home video game consoles and software, have been stable with the level of around ¥700 billion in the past five years. In light of the long-term demographic trends, this industry is not expected to grow. Toy demand fluctuates sharply from season to season. Toys are in the greatest demand in December and January, particularly at the end and beginning of the year, and, to a lesser extent, in August and in March (in decreasing order). This trend is explained as these months correspond to the periods of children’s school holidays and it is customary in Japan to buy toys as Christmas and New Year presents in December and January.

As to card games, according to the Toy Industry White Papers, card games’ retail sales grew dramatically from ¥30 billion in fiscal 1996 to ¥120 billion in fiscal 2001. However, sales of card games during fiscal 2004 and fiscal 2005 declined to ¥60 billion. Because our products represent a significant portion of the Japanese card game market, we believe that much of this decline is due to the reduced popularity of our Yu-Gi-Oh! card games which have dominated the market.

Popular goods reflect contemporary social conditions. We believe that the changing market environment has led to certain goods being introduced and produced, as mentioned below.

The distribution of toys has greatly changed owing to the entry of the large U.S. chain toy store Toys“R”Us into the Japanese market and to the increased sales made by suburban toy chain stores. The sales share of specialty toy shops has decreased and wholesalers, which act as intermediaries for manufacturers and retailers, have been affected by the change of distribution routes and the shortened distribution channels, which has caused them difficulties. The system of fixed price sales, which is the traditional business practices in the toy market, has begun to collapse, and even department stores have sold at discount prices.

According to the research conducted by the NPD Group, the toy market in North America has a size of $20 billion annual sales, accounting for approximately 37% of the world toy market. The toy market in North America is expected to expand gradually and not to be affected significantly by general economic conditions.

Costs for product development and marketing in European markets are generally higher than other markets due primarily to costs for translation in several languages and different distribution system in each country.

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The average amount spent on each child has been increasing due to declining birth rate in North America. Also, the age group of consumers of toy products has been lowered, reflecting the fact that children tend to abandon toys at a younger age due to the accelerating pace of children’s growth.

In North America, sales of licensed products accounted for 25 to 30% of total toy products sales and toys relating to Japanese cartoon contents have been especially popular.

Our Toy & Hobby Business

We create, develop, design and sell a range of toys and brand-related goods, including card games, figures, toys with confectionery, CDs and DVDs of music from our video game software, game tip books (containing clues and strategies for playing popular games), capsule toys, game prizes for amusement arcade games and other accessories. These original toys and brand-related goods are based on well-known characters, brands and images, or content, that we either create on our own or license from third parties. In some cases, owners of popular content such as comic book publishers or animation companies approach us and ask us to use their content in our products. In other cases, we approach the owners of content that we believe has potential customer appeal in order to obtain the rights to use and develop that content into products. 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!. Most sports-related licenses, which give us the right to use team or organization logos and trademarks, are non-exclusive. In other cases, we typically obtain exclusive rights. Although each product is different, in most cases, we create, develop and design the product around popular content and subcontract the manufacturing to a third party.

Our Toy & Hobby business is divided into four divisions: (i) card games; (ii) toys; (iii) music CDs and DVDs; and (iv) publications. More than 80% of our revenues from our Toy & Hobby business has been derived from worldwide sales of card games, and changes in the revenues and income of our Toy & Hobby business have depended primarily on changes in our worldwide sales of card games, principally our Yu-Gi-Oh! 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! Official Card Game in Japan. Yu-Gi-Oh! is the story of a shy young boy who overcomes rivals with the help of an ancient deck of cards. Yu-Gi-Oh! card game is based on the comic by Kazuki Takahashi that was originally serialized in Shonen Jump, one of Japan’s most popular comic magazines. Yu-Gi-Oh! features frightening monsters and dark fantasy storylines, which have a strong appeal to preteens. Our license agreement with the Japanese publisher automatically extends on a yearly basis unless terminated with notice.

Yu-Gi-Oh! was launched as a television cartoon series in the United States in September 2001, and has been keeping high audience ratings on the Kids’ WB! Network. Reflecting the popularity of the Yu-Gi-Oh! television cartoon, we recorded ¥26 billion sales of the Yu-Gi-Oh! Trading Card Game in the U.S in fiscal 2004. We have sold several new versions of Yu-Gi-Oh! Trading Card Game and plan to release additional new versions to the extent that it produces sufficient profit. We believe our card games are popular both for play and for card collecting.

The Yu-Gi-Oh! card game was launched in the United Kingdom in December 2002, in France in March 2003 and in other European countries in April 2003. The Yu-Gi-Oh! card game gained popularity in these European markets and recorded sales of ¥14 billion in fiscal 2004.

In fiscal 2005, sales of the Yu-Gi-Oh! card game in United States and European markets declined to about ¥22.5 billion, combined.

We are working to diversify the range of our toy products in order to reduce our dependency on card games. Our toy business mainly develops (i) boy’s toys that are licensed from television and comic cartoons or figures based on characters of our home game software and amusement games, etc.; (ii) educational toys with sounds for infants; (iii) toys with confectionery; (iv) capsule toys; and (v) bath and toiletry items.

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In our main boy’s toy business, we have obtained an exclusive license to develop a major series of boy’s toy products based on The Gransazers, a science fiction action hero in a TV show produced by Toho and broadcast by 26 TV stations around the country, including six stations affiliated with TV Tokyo. We have received favorable responses for our lineup of toys and merchandize carrying heroes and robots appearing on the show. Also, a new robot hero animation television program, Get Ride! AMDRIVER, started in April 2004 and we introduced a lineup of toy products using the characters from this television program. In October 2004 we introduced toys using characters appearing in the popular science fiction action hero series, THE JUSTIRISERS which followed THE GRANSAZERS and recorded solid sales.

Toy & Hobby Business—Production

Our Toy & Hobby 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 toy & hobby products.

Toy & Hobby Business—Marketing, Sales and Distribution

Marketing and sales in Japan are conducted through our sales network in Konami group through which we sell directly to retailers such as Toys“R”Us. In July 2001, we opened the Konami Card Game Center in Tokyo as a customer service base for our card game business. Our retail partner, The Upper Deck Company, LLC., acts as our distributor in the U.S. and retains the inventory and return risks for the Yu-Gi-Oh! Trading Card Game there. In Europe, we conducted sales of Yu-Gi-Oh! Trading Card Game either directly or through our retail partners, including The Upper Deck Company, LLC until March 2004, however, we currently distribute our products through The Upper Deck Company, LLC’s European entity employing the scheme used in the U.S.

Amusement

Our Amusement segment produces and sells video game machines and token-operated game machines for amusement arcades and software for LDC units used in pachinko machines.

The discussion below presents a description of our Amusement segment operations corresponding to that industry.

Amusement Arcade Games—Industry Overview

According to the most recent industry statistics, the domestic amusement arcade industry had total revenues of ¥815.6 billion during 2004. The breakdown by category is shown in the following table.

Amusement Arcades—Japanese Industry Revenues