Digital River 2006 Annual Report Download - page 24

standards, controls and procedures. Moreover, the anticipated benefits of any acquisition may not be realized.
If a significant number of clients of the acquired businesses cease doing business with us, we would
experience lost revenue and operating profit, and any synergies from the acquisition may be lost. Future
acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities, amortization of intangible assets or impairment of goodwill.
We may need to raise additional capital to achieve our business objectives, which could result in dilution
to existing investors or increase our debt obligations.
We require substantial working capital to fund our business. In January 2005, we filed a registration
statement to increase our available shelf registration amount from approximately $55 million to $255 million.
Of this amount, approximately $173 million was utilized to issue common stock in March 2006, leaving
approximately $82 million available for future use. In addition, we filed an acquisition shelf for up to
approximately 1.5 million shares. In February 2006, we filed a shelf registration that would allow us to sell an
undetermined amount of equity or debt securities in accordance with the recently approved rules applying to
“well-known seasoned issuers.” If additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced and these equity securities may have rights,
preferences or privileges senior to those of our common stock. In June 2004, we issued 1.25% convertible
notes which require us to make interest payments and will require us to pay principal when the notes become
due in 2024 or in the event of acceleration under certain circumstances, unless the notes are converted into our
common stock prior to that. We may not have sufficient capital to service this or any future debt securities
that we may issue, and the conversion of the notes into our common stock may result in further dilution to our
stockholders. Our capital requirements depend on several factors, including the rate of market acceptance of
our products, the ability to expand our client base, the growth of sales and marketing, and opportunities for
acquisitions of other businesses. We have had significant operating losses and negative cash flow from
operations since inception. Additional financing may not be available when needed, on terms favorable to us
or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to
develop or enhance our services, take advantage of future opportunities or respond to competitive pressures,
which would harm our operating results and adversely affect our ability to sustain profitability.
Our operating results have fluctuated in the past and are likely to continue to do so, which could cause
the price of our common stock to be volatile.
Our quarterly and annual operating results have fluctuated significantly in the past and are likely to
continue to do so in the future due to a variety of factors, some of which are outside our control. As a result,
we believe that quarter-to-quarter and year-to-year comparisons of our revenue and operating results are not
necessarily meaningful, and that these comparisons may not be accurate indicators of future performance. If
our annual or quarterly operating results fail to meet the guidance we provide to securities analysts and
investors or otherwise fail to meet their expectations, the trading price of our common stock will likely
decline. Some of the factors that have or may contribute to fluctuations in our quarterly and annual operating
results include:
• The addition of new clients or loss of current clients;
• The introduction by us of new websites, web stores or services that may require a substantial
investment of our resources;
• The introduction by others of competitive websites, web stores or services or products;
• Our ability to continue to upgrade and develop our systems and infrastructure to meet emerging market
needs and remain competitive in our service offerings;
• Economic conditions, particularly those affecting e-commerce;
• Client decisions to delay new product launches or to invest in e-commerce initiatives;
• The performance of our newly acquired assets or companies;
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