Digital River 2002 Annual Report Download - page 54

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Property and Equipment
Property and equipment is stated at cost and is being depreciated under the straight-line method using lives of three to
seven years and consists mainly of computer equipment and software licenses.
Long-Lived Assets
The Company will record impairment losses on long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by the assets are less than the carrying amount of such assets.
P atents
The costs of developing patents are amortized over a three-year period utilizing the straight-line method of amortization
once the patent application is filed. As of December 31, 2002, currently existing patents have been fully amortized.
Patents are included in other assets on the accompanying consolidated balance sheets, net of accumulated amortization
of $435,000 and $400,000 as of December 31, 2002 and 2001.
Fair Value of Financial Instruments
T he c a rr ying amount of ca sh and c ash e quiva le nts, a cc ounts r e ce iva ble, note s paya ble a nd a c counts pa yable appr oxima tes
f air value be ca use of the shor t maturity of these instr ume nts.
Rev enue Re c ognition
The Company recognizes revenue from services rendered once all the following criteria for revenue recognition have
been met: 1) Pervasive evidence of an agreement exists, 2) the services have been rendered, 3) the fee is fixed and
determinable and not subject to refund or adjustment and 4) collection of the amounts due is reasonably assured. The
Company derives its revenue primarily from transaction and service fees associated with the e-commerce services
provided to its clients. These services include Web commerce hosting, transaction processing, digital and physical
fulfillment services, fraud screening, customer service and merchandising and analytical marketing services. The
Company acts as the merchant of record on the majority of the transactions processed and has contractual relationships
with its clients, primarily software publishers and online retailers, which obligate the Company to pay to the client a
specified percentage of each sale. The Company retains its transaction fee and also charges for various service fees.
The Company also derives revenue from providing clients the right to use its software applications, integration,
development and consulting services provided to clients. Signed contracts are obtained from clients prior to recognition
of these revenues. Fees for the use of software applications and any integration and development work required to
provide on-going hosting services for the client are recognized ratably over the term of the contract once collection is
reasonably assured. Clients do not have the right to take possession of the software applications used in the delivery of
services. Payments received in advance of revenue recognition, even if non-refundable, are recorded as deferred
revenue and recognized when earned. Revenues from consulting services are recognized as the services are provided.
Sales to foreign customers accounted for 22%, 22% and 25% of sales for 2002, 2001 and 2000, respectively. In
addition, revenue derived from sales of product from one software publisher accounted for approximately 23%, 15%,
and 0% of total Company revenue in 2002, 2001 and 2000, respectively.