Management’s Discussion and Analysis of Financial  Condition and Results of Operations  (continued) (Dollars in thousands, except per share amounts) Our quarterly operating results may vary significantly, which could cause our stock price to decline. We have experienced, and may continue to experience, wide fluctuations in quarterly operating results. The interactive entertainment industry is highly seasonal, with sales typically higher during the fourth calendar quarter (our fourth and first fiscal quarters), due primarily to the increased demand for games during the holiday buying season. Our failure or inability to introduce products on a timely basis to meet seasonal fluctuations in demand will harm our business and operating results. These fluctua- tions could also cause our stock price to decline. Other factors that cause fluctuations include: In order to plan for acquisition and promotional activities, we  must anticipate and respond to rapid changes in consumer tastes and preferences. A decline in the popularity of interactive entertainment software or particular platforms could cause sales of our titles to decline dramatically. The period of time necessary to develop new game titles, obtain approvals of manufacturers and produce finished products is unpredictable. During this period, consumer appeal of a particular title may decrease, causing product sales to fall short of expectations. Rapidly changing technology and platform shifts could hurt  our operating results. The interactive entertainment industry in  general is associated with rapidly changing technology. As more advanced platforms achieve market acceptance, consumer demand for software for older platforms declines. We are devoting significant development resources primarily  on products designed for Sony’s PlayStation 2 and Microsoft’s Xbox.  If consumer demand for these platforms declines generally or as a result of the next hardware transition cycle, we may experience lower than expected sales or losses from products designed for these  platforms. A number of software publishers who compete with us have devel- oped or are currently developing software for use by consumers over the Internet. Future increases in the availability of such software or technological advances in such software or the Internet could result  in a decline in platform-based software and impact our sales. Direct sales of software by major publishers over the Internet would materi- ally adversely affect our distribution business. It is difficult to anticipate hardware development cycles and we must make substantial development and investment decisions well in advance of the introduction of new hardware products. If new hard- ware products are delayed or do not meet our expectations for con- sumer acceptance, we may not be able to recover our investment and our business and financial results could be adversely affected. Our business is dependent on publishing arrangements with third parties. Our success depends on our ability to identify and develop new titles on a timely basis. We have entered into agree- ments with third parties to acquire the rights to publish and distribute interactive entertainment software. These agreements typically require us to make advance payments, pay royalties and satisfy other condi- tions. Our advance payments may not be sufficient to permit devel- opers to develop new software successfully. In addition, software development costs, promotion and marketing expenses and royalties payable to software developers have increased significantly in recent years and reduce the potential profits derived from sales of our soft- ware. Future sales of our titles may not be sufficient to recover advances to software developers, and we may not have adequate financial and other resources to satisfy our contractual commitments. If we fail to satisfy our obligations under these license agreements, the agreements may be terminated or modified in ways that may be burdensome to us. The interactive entertainment software industry is cyclical, and we may fail to anticipate changing consumer preferences. Our business is subject to all of the risks generally associated with the interactive entertainment software industry, which has been cyclical in nature and has been characterized by periods of significant growth followed by rapid declines. Our future operating results will depend on numerous factors beyond our control, including: Our expense levels are based, in part, on our expectations regard- ing future sales and therefore our operating results would be harmed by a decrease in sales or a failure to meet our sales expectations.  The uncertainties associated with interactive entertainment software development, manufacturing lead times, production delays and the approval process for products by hardware manufacturers and other licensors make it difficult to predict the quarter in which our products will ship and therefore may cause us to fail to meet financial expecta- tions. In future quarters, our operating results may fall below the expectations of securities analysts and investors. In this event, the  market price of our common stock could significantly decline. 22 • the popularity, price and timing of new software and hardware platforms being released and distributed by us and our  competitors; • international, national and regional economic conditions, particular- ly economic conditions adversely affecting discretionary consumer spending; • war, acts of terrorism and military action, which could adversely affect consumer preferences in entertainment; • changes in consumer demographics; • the availability and popularity of other forms of entertainment; and • critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted. • the timing of orders from major customers. • product returns and price concessions; and • the timing and success of title introductions by our competitors; • availability of hardware platforms; • development and promotional expenses relating to the introduc- tion of new titles; • variations in sales of titles designed to operate on particular  platforms; • delays in the introduction of new titles; • the size and timing of product and business acquisitions; TAKE-TWO INTERACTIVE SOFTWARE, INC. 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