2K Sports 2008 Annual Report Download - page 22

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 important to the success of our distribution business. In most cases, we have no guaranteed price or
delivery agreements with suppliers. Our distribution business has experienced, and may in the future
experience, significant supply shortages from time to time due to the inability of certain manufacturers to
supply products, such as the newest generation of platforms, on a timely basis. Further, manufacturers or
publishers that currently distribute their products through us may decide to distribute, or to substantially
increase their existing distribution, through other distributors, or directly to retailers. If we cannot obtain
sufficient supplies of the products that we distribute, our net revenue could decline and we could incur
losses.
We rely on a primary distribution service provider for a significant portion of our products and the failure of
this service provider to perform as expected could materially harm our results of operations.
In September 2008, we entered into a distribution services agreement with Ditan Distribution LLC, under
which Ditan assumed responsibility for the shipping, receiving, warehouse management and related
functions for our United States publishing and distribution businesses. We sell our products to our
customers in the United States primarily through this distribution services agreement with Ditan. Our
future performance will depend, in part, on Ditan’s ability to successfully distribute our products. If Ditan
does not perform adequately, or if we lose Ditan as our distributor and are unable to obtain a satisfactory
replacement in a timely manner, our sales and results of operations could suffer.
We may need to raise additional capital if we incur losses.
Although we achieved profitability for the year ended October 31, 2008, we have incurred significant losses
in the past. If we incur losses in the future, we may be required to raise additional capital in order to fund
our operations. We could seek to raise capital in a number of ways, including through the issuance of debt
or equity, or through other financing arrangements. During the year ended October 31, 2007, we entered
into a senior secured line of credit agreement (and expanded the line of credit in November 2007), which
requires us to make periodic interest or other debt service payments. If we borrow additional funds, further
debt service payments would probably be necessary. In addition, the terms of additional debt may impose
significant restrictions on our ability to operate our business. If we seek financing through the sale of equity
securities, our current stockholders will suffer dilution in their percentage ownership of common stock. We
cannot be certain as to our ability to raise additional capital in the future or under what terms capital
would be available, particularly in light of the recent economic turmoil which has, among other
consequences, led to the depression of stock prices and the tightening of credit. If we need to raise capital
and are not successful in doing so, we will have to consider other options that may include, but are not
limited to, a reduction in our expenditures for internal and external new product development, reductions
in overhead expenses, and sales of intellectual property and other assets. These actions, should they
become necessary, will likely result in a reduction in the size of our operations and could materially affect
the prospects of our business.
Our ability to raise additional capital may be limited.
Recent disruptions in financial markets have resulted in a severe tightening of credit availability in the
United States. Liquidity in credit markets has contracted significantly, making terms for certain financings
less attractive. Ongoing turmoil in the credit markets may make it difficult for us to obtain financing, on
acceptable terms or at all, for working capital, capital expenditures, acquisitions and other investments.
These difficulties could adversely affect our operations and financial performance.
Our credit agreement limits our ability to take various actions, including incurring additional debt, paying
dividends, repurchasing shares and acquiring or disposing of assets or businesses. In addition, we have
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