Gross margins relating to our distribution business have been historically narrow which increases the impact of variations in costs on our operating results. As a result of intense price competi- tion, our gross margins in our distribution business have historically been narrow and we expect them to continue to be narrow in the future. We receive purchase discounts from suppliers based on vari- ous factors, including volume purchases. These purchase discounts directly affect our gross margins. It may become more difficult for us to achieve the percentage growth in sales required to continue to receive volume purchase discounts. We may not be able to adequately adjust our cost structure  in a timely fashion in response to a sudden decrease in demand. The market price for our common stock may be highly volatile. We are subject to risks and uncertainties of international trade. 25 A significant portion of our selling and general and administrative expense is comprised of personnel and facilities. In the event of a  significant decline in net sales, we may not be able to exit facilities, reduce personnel, or make other significant changes to our cost  structure without significant disruption to our operations or without significant termination and exit costs. Management may not be able to implement such actions in a timely manner, if at all, to offset an immediate shortfall in net sales and gross profit. Our distribution business is dependent on suppliers to maintain an adequate supply of products to fulfill customer orders on a timely basis. Our ability to obtain particular products in required quantities and to fulfill customer orders on a timely basis is critical to our success. In most cases, we have no guaranteed price or delivery agreements with suppliers. In certain product categories, limited price concessions or return rights offered by publishers may have a bearing on the amount of product we may be willing to purchase. Our indus- try may experience significant hardware supply shortages from time to time due to the inability of certain manufacturers to supply certain products on a timely basis. As a result, we have experienced, and may in the future continue to experience, short-term hardware inven- tory shortages. In addition, manufacturers or publishers who currently distribute their products through us may decide to distribute, or  to substantially increase their existing distribution, through other  distributors, or directly to retailers. We are subject to the risk that our inventory values may decline and protective terms under supplier arrangements may not adequately cover the decline in values. The interactive enter- tainment software and hardware industry is characterized by the intro- duction of new and enhanced generations of products and evolving industry standards. These changes may cause inventory to decline substantially in value or to become obsolete. We are also exposed to inventory risk in our distribution business to the extent that supplier price concessions are not available on all products or quantities and are subject to time restrictions. In addition, suppliers may become insolvent and unable to fulfill price concession obligations. Sales in international markets, primarily in the United Kingdom and other countries in Europe, have accounted for a significant portion of our net sales. Sales in international markets accounted for approxi- mately 27.9%, 20.0% and 23.6%, respectively, of our net sales for the years ended October 31, 2003, 2002 and 2001. We are subject to We are uncertain about the future of our management and key personnel. Our Chairman has received a Wells Notice from the Staff of the SEC. Our Chairman founded the company and we depend on Restatements of our financial statements could result in  lawsuits. The Staff of the SEC has raised issues with respect to our revenue recognition policies and certain sales transactions and their impact on our current and historical financial statements. After a detailed review, we restated our previously issued financial state- ments to reflect our revised revenue recognition policy with respect to establishing reserves for price concessions for our published  products, as well as to increase our provision for returns at October 31, 2000 with respect to certain sales transactions, primarily to retail customers with a corresponding reduction in the returns provision  in 2001. Although we have entered into discussions with the Staff  to address the issues raised in the Wells Notice, we are unable to predict the outcome of these discussions. We may be subject to class action lawsuits seeking damages as a result of the restatements. See Note 2 to Consolidated Financial Statements. We are subject to SEC proceedings that may result in sanctions and monetary penalties. We received a Wells Notice from the Staff of the SEC stating the Staff’s intention to recommend that the SEC bring an enforcement action seeking an injunction and monetary damages against us alleging that we violated certain provisions of  the federal securities laws. The proposed allegations stem from the previously disclosed SEC investigation into certain accounting matters related to our financial statements, periodic reporting and internal accounting controls. The investigation is continuing and we expect  to receive additional requests for information. We are subject to rapidly evolving regulation affecting financial reporting, accounting and corporate governance matters. In response to recent corporate events, legislators and government agencies have focused on the integrity of financial reporting, and  regulatory accounting bodies have recently announced their intention to issue several new accounting standards, including accounting for stock options as compensation expense, certain of which are signifi- cantly different from current accounting standards. We cannot predict the impact of the adoption of any such proposals on our future  financial results. Additionally, recently enacted legislation focused  on corporate governance, auditing and internal accounting controls imposes compliance burdens on us, and will require us to devote  significant financial, technical and personnel resources to address compliance issues. The market price of our common stock has been and may continue to be highly volatile. Factors such as our operating results, announce- ments by us or our competitors and various factors affecting the inter- active entertainment software industry may have a significant impact on the market price of our common stock. risks inherent in foreign trade, including increased credit risks; tariffs and duties; fluctuations in foreign currency exchange rates; shipping delays; and international political, regulatory and economic develop- ments, all of which can have a significant impact on our operating results. All of our international sales are made in local currencies.