THQ 2005 Annual Report Download - page 72

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We cannot be certain of the future effectiveness of our internal controls over financial reporting or the
impact of the same on our operations or the market price for our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual
Report on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting.
Furthermore, our independent registered public accounting firm is required to audit our assessment of the
effectiveness of our internal controls over financial reporting and separately report on whether it believes
we maintain, in all material respects, effective internal controls over financial reporting. Although we
believe that we currently have adequate internal controls proceduresin place, we can not be certain that
future material changes to our internal controls over financial reporting will be effective. If we cannot
adequately maintain the effectiveness of our internal controls over financial reporting,we might be subject
to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission.
Any such action could adversely affect our financial results and the market price of our common stock.
Fluctuations in our quarterly operating results due toseasonality in the interactive software
entertainment industry could result in substantial losses to investors.
We have experienced, andmay continue to experience, significant quarterly fluctuations in sales and
operating results. The interactive software entertainment market is highly seasonal, with sales typically
significantly higher during the year-end holiday buying season. Other factors that cause fluctuations
include:
•the timing of our release of new titles as well as the release of our competitor’s products;
•the popularity of both new titles and titles released in prior periods;
•the profit margins for titles we sell;
•the competition in the industry for retail shelf space;
•fluctuations in the size and rate of growth of consumer demand for titles for different platforms;
and
•the timing of the introduction of new platforms and the accuracy of retailers’ forecasts of consumer
demand.
We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our
future performance. We may not be able to maintain consistent profitability on a quarterly or annual basis.
It is likely that in some future quarter, our operating results may be below the expectations of public
market analysts and investors and as a result of the factors described above and others described
throughout this “Risk Factors” section, the price of our common stock may fall or significantly fluctuate.
Rating systems and future legislation may makeit difficult to successfully market and sellour products.
Currently, the interactive software entertainment industry is self-regulated and rated by the Entertainment
Software Rating Board. Our retail customers take the Entertainment Software Rating Board rating into
consideration when deciding which of our products they will purchase. If the Entertainment Software
Rating Board or a manufacturer determines that a product should have a rating directed to an older or
more mature consumer, we may be less successful in our marketing and sales of a particular product.
Recently, legislation has been introduced at the local, state and federal levels for the establishment of a
governmentmandated rating and governing system in the United States and in foreign countries for our
industry. Various foreign countries already allow government censorship ofinteractive entertainment
products. We believe that if our industry were to become subject to a government rating system, our ability
to successfully market and sell our products could be adversely affected.