Digital River 2006 Annual Report Download - page 21

opportunities could damage our reputation, limit our future growth, negatively affect our operating results and
harm our business.
We intend to continue to expand our international operations and these efforts may not be successful in
generating additional revenue.
We sell products and services to end-users outside the United States and we intend to continue expanding
our international presence. In 2006, our sales to international consumers represented approximately 41% of our
total sales. Expansion into international markets, particularly the European and Asia-Pacific regions, requires
significant resources that we may fail to recover by generating additional revenue. Conducting business outside
of the United States is subject to risks, including:
• Changes in regulatory requirements and tariffs;
• Uncertainty of application of local commercial, tax, privacy and other laws and regulations;
• Reduced protection of intellectual property rights;
• Difficulties in physical distribution for international sales;
• Higher incidences of credit card fraud and difficulties in accounts receivable collection;
• The burden and cost of complying with a variety of foreign laws;
• The possibility of unionization of our workforce outside the United States, particularly in Europe; and
• Political or economic constraints on international trade or instability.
These risks have grown with the acquisitions of element 5 AG (now Digital River GmbH) and SWReg,
which have substantial operations outside the U.S. and with our expansion into the Asia-Pacific region.
We may be unable to successfully and cost-effectively market, sell and distribute our services in foreign
markets. This may be more difficult or take longer than anticipated especially due to international challenges,
such as language barriers, currency exchange issues and the fact that the Internet infrastructure in foreign
countries may be less advanced than the U.S. Internet infrastructure. If we are unable to successfully expand
our international operations, or manage this expansion, our operating results and financial condition could be
harmed.
Our operating results are subject to fluctuations in demand for products and services offered by us or our
clients.
Our quarterly and annual operating results are subject to fluctuations in demand for the products or
services offered by us or our clients, such as anti-virus software and anti-spyware software. In particular, sales
of anti-virus software represented a significant portion of our revenues in recent years and in 2006, and
continue to be very important to our business. Demand for anti-virus software is subject to the unpredictable
introduction of significant computer viruses. On May 31, 2006, Microsoft Corporation introduced products to
protect businesses and consumers from computer viruses and other security risks. To the extent that Microsoft
or others successfully introduce products or services not sold through our platform that are competitive with
products and services sold by current Digital River clients (including anti-virus products and services), our
revenues could be materially adversely affected.
New obligations to collect or pay transaction taxes could substantially increase the cost to us of doing
business.
Currently, we collect sales, use, value added tax (VAT) or other similar transaction taxes with respect to
electronic software download and physical delivery of products in tax jurisdictions where we believe we have
taxable presences. The application of transaction taxes to interstate and international sales over the Internet is
complex and evolving. We already are required to collect and remit VAT in the European Union, for example.
Local, state or international jurisdictions may seek to impose transaction tax collection obligations on
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