Digital River 2001 Annual Report Download - page 29

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27
Company’s revenue will increase or even continue at its current level or that the Company will achieve
or maintain profitability or generate cash from operations in future periods.
The Company’s prospects must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly companies in new and
rapidly evolving markets such as electronic commerce.To address these risks, the Company must,
among other things, maintain existing and develop new relationships with software publishers, online
retailers and E-Business Services clients, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and transaction-processing systems, provide
superior customer service and order fulfillment, respond to competitive developments, and attract,
retain and motivate qualified personnel.There can be no assurance that the Company will be successful
in addressing these risks, and the failure to do so would have a material adverse effect on the
Company’s business, financial condition and results of operations.
The Company’s current and future expense levels are based largely on its planned operations and
estimates of future revenue. R evenue and operating results generally depend on the volume and timing
of orders received, which are difficult to forecast.The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall
in revenue would have an immediate adverse effect on the Company’s business, financial condition and
results of operations.The Company is also likely to continue to see revenue in its Software and Digital
Commerce Services Division fluctuate on the seasonal basis typical for the software publishing market
in general.The Company believes that its fiscal first and fourth quarters are seasonally stronger than its
second and third quarters due to the timing of demand for tax preparation software and the holiday
season selling period. In addition, it is the Company’s belief that software publishers avoid new product
releases in the summer months. In view of the rapidly evolving nature of the Company’s business and
its limited operating history, the Company is unable to accurately forecast its revenue and believes that
period-to-period comparisons of its operating results are not necessarily meaningful and should not be
relied upon as an indication of future performance.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America.As such, we are required to make certain estimates, judgments
and assumptions that we believe are reasonable based upon the information available.These estimates
and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the periods presented.The significant
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report