Digital River 2001 Annual Report Download - page 35

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33
Interest Income.
Interest income consists of earnings on the Company’s cash and cash equivalents and short-term investments.
Interest income decreased to $881,000 in 2001 from $2.0 million in 2000 and $3.1 million in 1999,
resulting from changes in average cash and cash equivalent balances and decreases in interest rates.
Income Taxes.
The Company paid no income taxes in any of the years presented.The Company has incurred a net
loss for each year since inception. As of December 31, 2001, the Company had approximately $82.4
million of net operating loss carryforwards for federal income tax purposes, which expire beginning
in 2009. Due to the uncertainty of future profitability, a valuation allowance equal to the deferred tax
asset has been recorded. Certain changes in ownership that resulted from the past sales of capital stock
will limit the future annual realization of the tax net operating loss carryforwards to a specified
percentage under Section 382 of the Internal R evenue Code.
Liquidity and Capital R esources
Net cash provided by operating activities in 2001 was $547,000 and net cash used in operating activities
$17.0 million in 2000 and $13.6 million in 1999.The net cash provided by operating activities in 2001
and used in operating activities in 2000 and 1999 was primarily the result of net losses, offset by goodwill
and other intangibles amortization and earn-out charges, increases in accounts payable and increases in
depreciation and amortization.
Net cash used in investing activities was $2.4 million in 2001 and was the result of purchases of
equipment of $5.9 million and net cash paid for acquisitions of $1.5 million, offset in part by net sales
of investments of $5.0 million. Net cash provided by investing activities was $14.9 million in 2000 and
was the result of net sales of investments of $24.4 million partially offset by purchases of equipment
of $9.4 million. Net cash used in investing activities was $37.5 million in 1999 and was primarily the
result of the purchases of equipment totaling $4.8 million, the net purchase of investments of $28.5
million and net cash paid for acquisitions of $4.1 million.
Net cash provided by financing activities in 2001, 2000 and 1999 was $6.6 million, $3.9 million, and
$2.7 million, respectively.The cash provided by financing activities in each year was mainly the result of
proceeds from the exercise of stock options and warrants. In April 2001, the Company initiated a share
repurchase program of up to $5.0 million of its outstanding shares of Common Stock. R epurchases
will be at the Company’s discretion based on ongoing assessments of the capital needs of the business
and the market price of its shares. No time limit was set for the completion of the repurchase
program. In 2001, the Company expended $267,000 to repurchase its shares.
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report