Risk Factors

The Group identifies the items listed below as potential risk factors that could affect operating results. Forward-looking statements are in accordance with management's judgment as of June 30, 2010.

(1) Changes in the Economic Environment

In the event of a harsh downturn in the economy causing consumer expenditure to fall, demand for the Group's products and services in the entertainment field may decline. Such circumstances may lead to adverse impact on the Group's business performance.

(2) The Group's Ability to Respond to Changes in Consumer Preferences in the Digital Content Market and the Rapid Progress of Innovative Technology

It is possible that the Group's substantial transformation stated in "Strategic Outlook, Issues Facing Management and Future Direction" of the Company's Annual Report may adversely affect the Group's business performance if the Group is unable to respond adequately and promptly to such transformation.

(3) Changes in Game Platforms and the Group's Response

The Group's core business predominantly involves the sale of game software for use on home-use video game consoles. Consequently, the Group's business may be affected by change in market shares of console platforms caused by generational transition, and changes in console manufacturers' strategies.

(4) Securing Human Resources to Execute the Group's Growth Strategies Concentrating on the Creation of New Content and the Promotion of Global Businesses

The Group has been making rapid progress in expanding its business operations. Delays in securing ideally suited human resources may adversely affect the Group's business performance.

(5) Expansion in the Group's International Business Operations

As the Group pursues an expansion of its international business operations, a variety of factors present in the countries and regions in which the Group operates may affect the business performance. Such factors include market trends, the political situation, economic climate, laws and regulations, cultural factors, religious factors and customs.

(6) Exchange Rate Fluctuations

The Group includes consolidated subsidiaries located in North America, Europe and Asia. The risk of foreign exchange loss has been reduced as foreign currency gained by those subsidiaries is expended for settlement or reinvestment in the applicable countries.
However, sales, expenses, assets, liabilities and net assets of the foreign subsidiaries are converted into Japanese yen amounts in the consolidated financial statements. Consequently, exchange rates may affect the Group's financial results if they fluctuate beyond management forecasts.

(7) Entertainment Industry Laws

The operation of amusement facilities is subject to government control under the Law for Proper Control of Entertainment and Amusement Businesses and other related laws and regulations. These laws and regulations include an approval and licensing system for the opening and operation of amusement facilities, regulations on business hours (ordinances vary, but operation is generally prohibited from midnight to 10 a.m.), age restrictions (ordinances vary, but the admittance of persons under 16 years of age after 6 p.m. and persons under 18 years of age after 10 p.m. is generally prohibited), area restrictions on outlet opening, and regulations concerning facility structures, interiors, fighting and noise. While strictly complying with the laws and regulations, the Group has actively pursued the establishment of new amusement facilities.
However, if regulations were to change owing to the establishment of new laws or other reasons, the Group's business performance may be affected.

(8) Management of Personal Information

With regard to the management of personal information, in conjunction with the enactment of the Personal Information Protection Law, the Group has bolstered employee training with the aim of increasing awareness about the handling of personal information. The Group has also identified all personal information obtained by the Group, and improved the timeliness of its personal information management systems. The Group has undertaken a full range of measures to strengthen its internal control systems, including ongoing improvements to technology controlling access to its customer database and to its data security systems, restrictions on personnel permitted to access information and establishment of a monitoring system, and appropriate management of customer inquiries. The Group intends to maintain its stringent management systems for personal information by reviewing current systems and enhancing employee training. However, if a leak of personal information were to occur from the Group, the Group's business performance may be affected.

(9) Accidents and Disasters

The Group periodically carries out accident prevention checks, facility inspections, emergency drills and administers policies on infectious diseases to minimize accidents and the potential impact of disasters, including terrorist attacks, infectious diseases, food poisoning, fires, electrical blackouts, computer system or server malfunctions, earthquakes, typhoons, flood damage and other accidents. However, in the event of an accident, disaster or infectious disease affects the Group, it may not be possible to avoid or alleviate all adverse impacts.
A major earthquake, accident or disaster including infectious disease could impede the Group's operations and affect business performance.

(10) Litigation and Other Claims

The Group is being managed strictly in compliance with laws and regulations and with full respect for third parties' rights while carrying out its operations. However, in the course of its business activities in the global arena, the risk of the Group becoming a defendant in litigation exists. If such litigation were to occur, the Group's business performance may be affected.

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