NIRAKU GC HOLDINGS INC.*
株式会社ニラク ▪ ジーシー ▪ ホールディングス(the “Company”)

INTERNAL CONTROL POLICY

19 December 2014

* for identification purpose onlyInternal Control Framework
1.

The Company’s pachinko and pachislot hall operations are subject to risks of loss resulting fromemployee or customer’s dishonesty. Minimising such risks requires a set of robust proceduresthat can control the authorisation, accountability and safekeeping of pachinko balls and tokens,
cash and pachinko-related equipments, such as pachinko and pachislot machines. The Company
implements anti-cheating and anti-counterfeiting surveillance systems designed to detect
irregularities incurred during its daily operations, which includes a surveillance system and aninternal audit team which is responsible for hall operational audit.

2.

Prevention and investigation of fraud and cheating in the Company’s pachinko halls are primarily
carried out by its hall operations staff with the cooperation of its internal audit team.

3.

To ensure the integrity of operations and compliance with operational policies and procedures,
the Company’s internal audit team operates independently from its hall operation units.

Fraud Prevention and Detection Measures
4.

The Company have in place measures in its pachinko and pachislot hall operations to detect
potential fraud, cheating or counterfeiting activities. For instance, the pachinko and pachislot
machines have mechanisms to detect and reject any counterfeit bank notes inserted. Each of theCompany’s pachislot tokens feature a “NIRAKU” Stamp.

5.

To ensure that no altered or counterfeit pachinko balls or pachislot tokens are brought into or
taken out of the Company’s pachinko halls, the entrances of the pachinko halls are monitored by
the hall operation staff supported by surveillance cameras.

Hall Management System
6.

The Company’s hall management system (licensed from a third party supplier) captures data on
the number of pachinko balls and pachislot tokens played and paid out at each machine.

7.

At the end of each day, the assistant hall managers in each hall reconcile the opening balance ofballs and pachislot tokens against the ending balance, and carry out investigation on any
discrepancies greater than a certain number of balls or pachislot tokens, which may varydepending on the number of machines in the relevant hall.

Anti-Modification Controls
8.

The operations of the Company’s pachinko and pachislot machines are monitored by surveillancecameras and the hall computers.

9.

The hall operation staff who patrol the hall and monitor the footage of surveillance cameras aswell as the hall computers will detect and prevent any attempts to open the machines and tamper
with the pin angle maintenance adjustments, payout setting adjustments or otherwise illegallymanipulate the machines.

10.

The hall operation staff are responsible for daily tasks relating to machine maintenance, such ascleaning.

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11.

The hall operation staff are prohibited from performing any maintenance on a machine that
results in a modification of its systems, electronic components, or any other marjor changes
affecting machine function. Such adjustments are done by machine manufacturers with therequisite certification from regulatory authorities and subject to regulatory approval before that
adjustment or modification is made.

12.

The hall managers are authorised to check and make daily adjustments to the pachinko machines
in order to ensure continued compliance with relevant regulations.

Hall Operation Staff and Internal Audit Team13.

The hall operation staff are required to regularly patrol the hall to monitor the machines andequipments for alerts and errors, player traffic inside the halls, and certain customer behaviours
that may be indicative of fraudulent acts, and to report any perceived irregularities to the hallmanagers.

Cooperation with Police
14.

If suspicious activity which may constitute a crime is identified, the Company will report suchactivity to the local police for further investigation.

15.

The Company’s pachinko halls also cooperate with the Company’s other pachinko halls within
the relevant operation area to alert and notify other halls of persons suspected of cheating orengaging in other suspicious or illegal activity.

16.

The Company’s pachinko halls exchange surveillance photos of such persons to ensure that such
persons are not allowed entry into the Company’s pachinko halls.

Cash and G-prize Handling Measures
17.

Handling of significant amounts of cash and G-prizes is required to be done in the presence ofat least two staff, who are either a hall manager, an assistant hall manager or the designated staff
in charge of cash management, and such activity is recorded by surveillance cameras. All
significant amounts of cash for daily use are stored in the safe(s) located inside a separate locked
room in each of the pachinko halls which is only accessible by the hall managers, assistant hallmanagers and the designated staff in charge of cash management, while G-prizes are stored in
the locked drawers at each hall counter. The key and password of the safe and the key of the hallcounter drawer of each of the pachinko hall are kept by the hall managers, assistant hallmanagers and designated staff in charge of cash management.

18.

The hall managers, assistant hall managers or the designated staff in charge of cash management
will conduct an inventory check of cash and G-prizes after the close of business each day,regardless of whether the safe(s) or locked drawer(s) have been accessed during the day, andcross-check the total actual amount on hand against the daily system record which is updated toreflect all inventory movements of cash or G-prizes.

19.

Based on the inventory record, the hall managers or assistant hall managers determine thequantity of G-prizes to be purchased in order to replenish the G-prize inventory to an appropriate
level. Purchase orders for G-prizes must be maintained in the prize management system, which
are authorized to used for prize ordering and inventory management. The hall managers orassistant hall managers approve G-prize purchase orders in the prize management system.

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20.

G-prizes are delivered in the presence of the hall managers, assistant hall managers or thedesignated staff in charge of cash management. Quantity of G-prizes delivered are cross-checkedagainst purchase orders and inventory records in the prize management system and updated
accordingly, which the headquarters have real-time access. The payments for such deliveries
must similarly are also handled by these authorized staff members.

21.

The staff in charge of cash management and the assistant hall managers carry out cash countresults of which is stored is the Company’s sales reporting system and sign off the daily hallreports at the close of each business day, subject to the ultimate approval of each hall managers.
The Company’s headquarters have real-time access to the sales reporting system as well as accessand review authority to daily hall reports of each pachinko hall.

22.

The headquarters perform a daily review of sales record and the amount of cash collected andreported by each hall in the sales reporting system. Reconciliation between the daily statementsof cash collection provided by the security transportation company, an independent third party,
and the amount reported by each pachinko hall is performed on a monthly basis.

Cash Management and Collection Guidelines
23.

A maximum amount of ¥35 million cash, which includes change, pay-ins and money for buying
G-prize, will be kept at each pachinko hall for daily operations.

24.

The Company contracts with security transportation company, an independent third party, for thecollection of cash in excess of the amount necessary for daily operations. Such excess cash will
be deposited into a secure safe that is located in each of the pachinko halls, which is only
accessible for collection by the transportation company. Upon deposit into the safe, a deposit slip
is automatically generated, and the risks of loss will be transferred to the transportationcompany.

25.

The transportation company will collect cash from the Company’s safes on a regular basis
ranging from daily to weekly, which may vary depending on the number of machines in therelevant hall, transport it to the bank and deposit the cash into the Company’s account.

26.

The Company will reconcile the amount collected by the transportation company against theamount credited to the Company’s bank accounts on a monthly basis.

Financial Statement Reconciliation
27.

The Company’s accounting system, which is licensed from an independent third party supplier,
will be used for accounts preparation.

28.

The Company’s finance department reconciles its cash balances with various records, includingbank-in statements provided by the transportation company and the amount of cash collected andreported by pachinko halls in the sales reporting system. The accounting entries which record
cash bank-ins are subject to approval from the designated personnel in the Company’s financedepartment in the accounting system.

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29.

The Company’s prize management system keeps up-to-date inventories of various prizes,including G-prizes. This enables the prize management system to keep up-to-date and accurate
inventories, including tracking transactions in which customers exchange pachinko balls or
pachislot tokens for prizes. Daily reports will be generated and reviewed by the hall managers
in which irregularities such as abnormal increases in the volume of G-prizes being exchanged canbe detected. These information are also accessible by the Company’s headquarters to identify anyabnormalities.

International Controls related to Information Technology and Computer Systems
30.

The Company’s information technology department supports several systems which areaccessible by authorised employees in order to ensure smooth operations. To ensure the securityof the information technology systems, the Company implements the following measures:
access rights to the various systems are assigned to employees based on their designatedroles and responsibilities;

the Company’s major systems, including the prize management system, hall computers,
sales reporting system, accounting system and human resources and payroll system arepassword-protected;

the Company’s network will be protected by a firewall and anti-virus software, and accessis restricted to employees only;the Company’s computing facilities in Tokyo ( 東 京 都 ) and Koriyama ( 郡 山 市 ) areaccessible only by authorised personnel;

to protect the Company’s information, the Company has a backup plan in place for criticalsystems and data. Full backups are performed on a daily basis; and

the Company will establish a formal disaster recovery plan in the even that future disasters
occur, which includes off-site backup of data.

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