Digital River 2001 Annual Report Download - page 43

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41
1. Nature of O perations and Summary of Significant Accounting Policies:
Digital R iver, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively, the Company)
provide a suite of electronic commerce services to its clients, including web store development and hosting,
transaction processing, electronic software delivery, fraud screening, customer service and analytical marketing.
Through contractual relationships with software publishers and online retailers, the Company offers software
products for sale via the Internet. Beginning in late 1998, the Company also began to offer electronic
commerce services to companies outside of the software vertical market.The Company was incorporated
in 1994 and conducted its first online sale through a client’s Web store in August 1996.
The Company has experienced significant losses since inception ($103.1 million through December 31,
2001) and has, until the later stages of 2001, experienced significant negative cash flows from operations.
The Company’s prospects must be considered in light of the risks 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 others things, maintain existing
and develop new relationships with independent software publishers, online retailers and other companies
outside of the software market, maintain and increase its client base, 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 assurances that the Company will be
successful in addressing such risks, and the failure to do so could have a material adverse effect on the
Company’s business, financial condition and results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Digital R iver, Inc. and its wholly owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments, primarily high grade commercial
paper and money market accounts, that are readily convertible into known amounts of cash and that
have original maturities of three months or less to be cash equivalents.
Investments
Investments held by the Company are classified as available for sale securities and are carried at their
market value with cumulative unrealized gains or losses recorded as a component of accumulated other
comprehensive losses within stockholders’ equity.
Notes to Consolidated Financial Statements December 31, 2001 and 2000
Digital River 2001 Annual Report