KADOKAWA ANNUAL REPORT 2004

To the Shareholders and Board of Directors of
Kadokawa Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Kadokawa Holdings, Inc. (the “Company”) and consolidated subsidiaries as of March 31, 2004, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of March 31, 2004, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.

Without qualifying our opinion, we draw attention to the following.
(1) As discussed in Note 2 (q) to the consolidated financial statements, effective April 1, 2002, the Company and domestic subsidiaries prospectively adopted the new Japanese accounting standards for treasury stock and reversal of statutory reserves.
(2) As discussed in Note 2 (r) to the consolidated financial statements, effective April 1, 2002, the Company changed the method of accounting for departmental expenses of Advertising department.
(3) As discussed in Notes 14 (a) to the consolidated financial statements, on April 26, 2004, the Board of Directors of the Company approved that Kadokawa Entertainment US, Inc., a subsidiary of the Company, made a contribution to DreamWorks L.L.C. and that Kadokawa Entertainment Inc., a subsidiary of the Company signed the agreement to get the exclusive distribution right of their produced and specified films in Japan.
(4) As discussed in Note 14 (b) to the consolidated financial statements, subsequent to the approval of the Board of Directors of the Company on June 1, 2004, the Company issued Zero Coupon Japanese Yen Convertible Notes-Notes with Stock Acquisition Rights-due in 2009 on June 18, 2004.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2004 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 22, 2004