THQ 2007 Annual Report Download - page 23

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15
customers including contractual provisions under various licensearrangements. If we arerequired to enter
intosuch agreements or take such actions,our operating margins maydecline as a result.
Defects in our game software could harm our reputationor decrease the market acceptance of our
products.
Our game software may contain defects. In addition, because we do notmanufacture ourgames for
console platforms, we may not discoverdefects until after our products are in use by retail customers. Any
defects in our software could damage our reputation, cause our customers to terminate relationships with
us or to initiate product liabilitysuits against us, divert our engineering resources, delay market acceptance
of our products,increaseour costs or cause our revenue to decline.
We cannot be certainof the futureeffectivenessof ourinternalcontrols over financial reporting or the
impact of the same on our operations or the marketprice for our common stock.
Pursuant to Section 404 of the Sarbanes-OxleyActof 2002, we are required to include in ourAnnual
Report on Form 10-K ourassessment 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 reportingand separately reporton whether it believes
we maintain, in all material respects, effective internal controls over financial reporting. Although we
believethat we currentlyhave adequate internal controls procedures in place, we cannot be certain that
future material changes to our internal controls over financial reporting will be effective.If we cannot
adequately maintainthe effectiveness of our internal controls over financial reporting, we might be subject
to sanctions or investigation by regulatory authorities, such as theSecurities and Exchange Commission.
Any such action could adversely affect our financial resultsand the market price of our common stock.
Fluctuations in ourquarterly operating results dueto seasonality in theinteractive software
entertainment industry and other factors related to ourbusiness operations couldresult in substantial
losses to investors.
We have experienced, and may continueto experience, significant quarterly fluctuationsinsales and
operating results. The interactivesoftware entertainment market is highly seasonal, with sales typically
significantly higher duringthe year-end holiday buying season. Other factors that causefluctuations in our
sales and operating resultsinclude:
•thetiming of our release of new titles as well as therelease of our competitor’s products;
•thepopularity of both new titles andtitles released in priorperiods;
•theprofit margins for titles we sell;
•thecompetition in the industry for retail shelf space;
•fluctuations in the size and rate of growth of consumer demand for titles for different platforms;
and
•thetiming of the introductionof newplatforms and theaccuracy of retailers’ forecasts of consumer
demand.
We believe that quarter-to-quarter comparisons of ouroperating results are notagood indication of our
futureperformance. We may not be able to maintainconsistent profitability on aquarterly or annual basis.
It is likelythat in somefuturequarter, ouroperating results maybebelow theexpectations of public
market analysts and investors and as a result of the factorsdescribed above and others described
throughout this “Risk Factors” section, theprice of our common stockmayfall or significantly fluctuate.