Digital River 2001 Annual Report Download - page 46

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Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement
and tax bases of assets and liabilities using currently enacted tax rates. No income taxes were paid in
any of the years presented.
Net Loss per Share
Basic loss per common share is computed by dividing net loss by the weighted average number of
shares of common stock outstanding during the year.The computation of diluted earnings per common
share is similar to the computation of basic loss per common share, except that the denominator is
increased for the assumed conversion of convertible securities and the exercise of dilutive options using
the treasury stock method.The weighted average shares used in computing basic and diluted loss per
share were the same in each of the three years ended December 31, 2001. Stock options and warrants
totaling 5,947,790, 5,383,113 and 3,898,313 for the three years ended December 31, 2001, 2000 and
1999, respectively, were excluded from the computation of loss per share as their effect is antidilutive.
Use of Estim ates
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 141,“Business Combinations” and SFAS No. 142,“Goodwill and
Intangible Assets”. Major provisions of these Statements are as follows: all business combinations initiated
after June 30, 2001 must use the purchase method of accounting and the pooling of interest method of
accounting is prohibited except for transactions initiated before July 1, 2001; intangible assets acquired
in a business combination must be recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented
or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment annually, except in certain
circumstances, and whenever there is an impairment indicator; all acquired goodwill must be assigned
to reporting units for purposes of impairment testing; and effective January 1, 2002, goodwill from
acquisitions initiated prior to July 1, 2001 is no longer subject to amortization.
44
Notes to Consolidated Financial Statements December 31, 2001 and 2000
Digital River 2001 Annual Report