<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

                                       OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

                  FOR THE TRANSITION PERIOD FROM _____ TO _____

                        Commission file number 000-24643

                               DIGITAL RIVER, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                            41-1901640
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification Number)

                        9625 WEST 76TH STREET, SUITE 150
                          EDEN PRAIRIE, MINNESOTA 55344
                    (Address of principal executive offices)

                                  ----------

                                (612) 253-1234
              (Registrant's telephone number, including area code)

                                  ----------

     Indicate by check mark whether the  registrant  (1) has filed all 
reports  required to be filed by Section 13 or 15(d) of the  Securities  
Exchange Act of 1934 during the preceding 12 months (or for such shorter 
period that the registrant was required to file such  reports),  and (2) has 
been subject to such filing  requirements for the past 90 days. Yes / / No /X/

   Common Stock, $0.01 par value                        20,151,288 shares
   -----------------------------                  ----------------------------
               (Class)                            Outstanding as of May 3, 1999

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<PAGE>

                               DIGITAL RIVER, INC.

                                    Form 10-Q

                                      Index

<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION                                                                 PAGE
                                                                                                ----
<S>                                                                                             <C>
Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets
          at March 31, 1999 and December 31, 1998.........................................       3

          Condensed Consolidated Statements of Operations
          for the three months ended March 31, 1999 and 1998..............................       4

          Condensed Consolidated Statements of Cash Flows
          for the three months ended March 31, 1999 and 1998..............................       5

          Notes to Condensed Consolidated Financial Statements............................       6

Item 2.   Management's Discussion and Analysis of Financial Condition and Results 
          of Operations...................................................................       7

Item 3.   Qualitative and Quantitative Disclosure about Market Risk.......................      12


PART II.  OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds.......................................      13

Item 6.   Exhibits and Reports on Form 8-K................................................      13

SIGNATURES................................................................................      14

Exhibit Index.............................................................................      15

</TABLE>


                                      2.
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                               DIGITAL RIVER, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                            March 31,       December 31,
                                                                              1999              1998
                                                                         -------------      -------------
                                                                           (unaudited)
<S>                                                                      <C>                <C>

                             ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                               $ 50,445            $ 63,503
   Short-term investments                                                    19,949              10,894
   Accounts receivable, net                                                     743               1,487
   Prepaid expenses and other                                                   366                 420
                                                                         -------------      -------------
         Total current assets                                                71,503              76,304
PROPERTY AND EQUIPMENT, NET                                                   4,411               3,914
OTHER ASSETS                                                                    125                 110
                                                                         -------------      -------------
                                                                           $ 76,039            $ 80,328
                                                                         -------------      -------------
                                                                         -------------      -------------
                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                        $  4,835            $  3,880
   Accrued payroll                                                              688                 807
   Other current liabilities                                                    531               1,054
                                                                         -------------      -------------
         Total current liabilities                                            6,054               5,741
                                                                         -------------      -------------
STOCKHOLDERS' EQUITY:
   Preferred Stock, $.01 par value; 5,000,000 shares
      authorized; no shares issued and outstanding                                -                   -
   Common Stock, $.01 par value; 45,000,000 shares authorized;
      19,730,330 and 19,544,791 shares issued and outstanding                   197                 195
   Additional paid-in capital                                                94,449              93,883
   Deferred compensation                                                     (1,194)             (1,368)
   Accumulated deficit                                                      (23,467)            (18,123)
                                                                         -------------      -------------
         Total stockholders' equity                                          69,985              74,587
                                                                         -------------      -------------
                                                                           $ 76,039            $ 80,328
                                                                         -------------      -------------
                                                                         -------------      -------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


<PAGE>

                               DIGITAL RIVER, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                (In Thousands, Except Per Share Data; Unaudited)

<TABLE>
<CAPTION>
                                                                     Three Months Ended March 31,
                                                                     ----------------------------
                                                                       1999                 1998
                                                                     -------              -------
<S>                                                                  <C>                  <C>

SALES                                                                $11,707              $ 2,270

COST OF SALES                                                          9,804                1,896
                                                                     -------              -------
         Gross profit                                                  1,903                  374
                                                                     -------              -------
OPERATING EXPENSES:
   Sales and marketing                                                 3,622                1,060
   Product development and operations                                  3,564                  703
   General and administrative                                            955                  208
                                                                     -------              -------
         Total operating expenses                                      8,141                1,971
                                                                     -------              -------
LOSS FROM OPERATIONS                                                  (6,238)              (1,597)

INTEREST INCOME                                                          894                   42
                                                                     -------              -------
         Net loss                                                    $(5,344)             $(1,555)
                                                                     -------              -------
                                                                     -------              -------
Basic and diluted net loss per share                                 $  (.27)             $  (.16)
                                                                     -------              -------
                                                                     -------              -------
Basic and diluted weighted average common shares outstanding          19,632                9,946
                                                                     -------              -------
                                                                     -------              -------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


<PAGE>

                               DIGITAL RIVER, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                            (In Thousands; Unaudited)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                          March 31,
                                                                                   ---------------------
                                                                                      1999         1998
                                                                                   --------      -------
<S>                                                                                <C>           <C>
OPERATING ACTIVITIES:
   Net loss                                                                        $ (5,344)     $(1,555)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                     344          105
      Deferred compensation expense                                                     284            -
      Changes in assets and liabilities:
         Accounts receivable and prepaid expense                                        798         (125)
         Accounts payable                                                               955          911
         Other current liabilities                                                     (642)          38
                                                                                   --------      -------
            Net cash used in operating activities                                    (3,605)        (626)
                                                                                   --------      -------
INVESTING ACTIVITIES:
   Purchases of short-term investments                                              (17,055)           -
   Proceeds from sales of investments                                                 8,000            -
   Purchases of equipment                                                              (811)        (599)
   Patent acquisition costs                                                             (14)         (12)
   Payment of deferred costs                                                            (31)           -
                                                                                   --------      -------
            Net cash used in investing activities                                    (9,911)        (611)
                                                                                   --------      -------
FINANCING ACTIVITIES:
   Sales of Common Stock                                                                458        9,168
                                                                                   --------      -------
            Net cash provided by financing activities                                   458        9,168
                                                                                   --------      -------
            Net increase (decrease) in cash and cash equivalents                    (13,058)       7,931

CASH AND CASH EQUIVALENTS, beginning of period                                       63,503        2,126
                                                                                   --------      -------
CASH AND CASH EQUIVALENTS, end of period                                           $ 50,445      $10,057
                                                                                   --------      -------
                                                                                   --------      -------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


<PAGE>

                               DIGITAL RIVER, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION:

     The unaudited condensed consolidated financial statements included 
herein reflect all adjustments, consisting only of normal recurring 
adjustments, which in the opinion of management are necessary to fairly state 
the Company's consolidated financial position, results of operations and cash 
flows for the periods presented. These condensed consolidated financial 
statements should be read in conjunction with the Company's audited 
consolidated financial statements included in the Company's Form 10-K for the 
year ended December 31, 1998 as filed with the Securities and Exchange 
Commission. The results of operations for the period ended March 31, 1999 are 
not necessarily indicative of the results to be expected for any subsequent 
quarter or for the entire fiscal year ending December 31, 1999. The December 
31, 1998 balance sheet was derived from audited financial statements, but 
does not include all disclosures required by generally accepted accounting 
principles.

2.   PRINCIPLES OF CONSOLIDATION:

     The condensed consolidated financial statements include the accounts of 
Digital River, Inc. and its wholly owned subsidiaries. All intercompany 
balances and transactions have been eliminated.

3.   NET LOSS PER SHARE:

     Net loss per share is computed in accordance with Statement of Financial 
Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"). FAS 128 
requires the Company to report both basic loss per share, which is based on 
the weighted-average number of common shares outstanding excluding 
contingently issuable or returnable shares, and diluted loss per share, which 
is based on the weighted-average number of common shares outstanding and 
dilutive potential common shares outstanding. As a result of the losses 
incurred by the Company for the three months ended March 31, 1999 and 1998, 
respectively, all potential common shares were anti-dilutive and were 
excluded from the diluted net loss per share calculations.

     The following table summarizes securities outstanding as of each period 
end which were not included in the calculation of diluted net loss per share 
since their inclusion would be anti-dilutive:

<TABLE>
<CAPTION>
                                       March 31, 1999      March 31, 1998
                                       --------------      --------------
<S>                                    <C>                  <C>
          Common Stock warrants              388,513          634,588
          Common Stock options             2,524,607          808,800
</TABLE>

4.   SUBSEQUENT EVENTS:

     In April 1999, pursuant to an Agreement and Plan of Merger by and among 
the Company, Maagnum Internet Group, a Connecticut corporation ("Maagnum"), 
and Cyrus Maaghul, the sole shareholder of Maagnum (the "Merger Agreement"), 
Maagnum merged with and into the Company (the "Merger"). At the effective 
time of the Merger, Mr. Maaghul's shares of Maagnum common stock converted 
into the right to receive from the Company $2.5 million in cash, 88,809 
shares of Common Stock of the Company, and up to an additional 320,161 shares 
of Common Stock that may be earned by Mr. Maaghul upon the achievement of 
certain business goals over the 24-month period following the closing date of 


<PAGE>

the Merger. In addition, pursuant to a Stock Purchase Agreement dated April 
1, 1999 by and between the Company and Meiman Kentjana, a key employee of 
Maagnum, in consideration for Mr. Kentjana's agreement to waive certain 
rights with respect to Maagnum, the Company issued to Mr. Kentjana on the 
closing date of the Merger 22,841 shares of Common Stock and gave him the 
right to receive up to an additional 192,374 shares of Common Stock that may 
be earned by Mr. Kentjana upon the achievement of certain business goals over 
the 24-month period following the closing date of the Merger.

     Also in April 1999, pursuant to an Asset Purchase Agreement (the 
"Purchase Agreement") by and among the Company, Public Software Library Ltd., 
a Texas limited partnership ("Seller"), and the partners of Seller, the 
Company purchased substantially all of the assets and assumed certain 
liabilities of Seller in exchange for an aggregate of 161,842 shares of 
Common Stock of the Company.

     In April 1999, the Company's stockholders approved the 1998 Stock Option 
Plan, as amended wherein the number of the number of shares of Common Stock 
available for grants was increased to 3,283,333 shares from 2,333,333 shares.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

     THE COMPANY NOTES THAT, EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED 
HEREIN, THE MATTERS DISCUSSED BELOW CONTAIN FORWARD-LOOKING STATEMENTS WHICH 
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY 
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR 
INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, 
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING 
STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION TO UPDATE THIS 
INFORMATION OR PUBLICLY RELEASE ANY REVISION OR REFLECT EVENTS OR 
CIRCUMSTANCES AFTER THE DATE OF THIS REPORT. SUCH FACTORS INCLUDE, AMONG 
OTHERS: THE COMPANY'S LIMITED OPERATING HISTORY AND VARIABILITY OF OPERATING 
RESULTS, EXPECTATION OF FUTURE LOSSES, RISKS ASSOCIATED WITH ELECTRONIC 
SOFTWARE DELIVERY, DEPENDENCE ON THE INTERNET AND GROWTH IN ELECTRONIC 
COMMERCE AND INTERNET INFRASTRUCTURE DEVELOPMENT, DEPENDENCE ON SOFTWARE 
PUBLISHERS, DEPENDENCE ON ONLINE RETAILERS, SYSTEM DEVELOPMENT AND ELECTRONIC 
COMMERCE SECURITY RISKS, RAPID TECHNOLOGICAL CHANGES, COMPETITION IN THE 
ELECTRONIC COMMERCE INDUSTRY, THE IMPORTANCE OF ATTRACTING AND RETAINING 
PERSONNEL, MANAGEMENT OF THE COMPANY'S GROWTH, INTEGRATION OF ACQUIRED 
COMPANIES, DEPENDENCE ON KEY EMPLOYEES AND OTHER RISK FACTORS REFERENCED IN 
THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998.

OVERVIEW

     The Company is a leading provider of comprehensive electronic commerce 
outsourcing solutions to software publishers and online retailers. The 
Company was incorporated in February 1994 and commenced offering products for 
sale through its clients' Web stores in August 1996. From inception through 
August 1996, the Company had no sales, and its activities related primarily 
to the development of its Commerce Network Server ("CNS") technology related 
to electronic commerce. In 1996, the Company began to focus its business 
development efforts on building its inventory of software products through 
contracts with software publishers and had contracts with a total of 1,479 
and 1,677 software publishers as of December 31, 1998 and March 31, 1999, 
respectively. In 1997, the Company began to develop distribution 
relationships and had contracts with a total of 1,095 and 1,171 online 
retailers as of December 31, 1998 and March 31, 1999, respectively.

     The Company derives its revenue primarily from sales of third-party 
software. The Company has contractual relationships with its software 
publisher and online retailer clients which obligate the Company to pay to 
the client a specified percentage of each sale. Revenues from the sale of 
software products, net of estimated returns, are recognized upon either 
delivery through electronic software 


<PAGE>

delivery ("ESD") or shipment of the physical product to the end-user. The 
amount payable to the software publisher or online retailer is reported as 
cost of sales. The Company bears full credit risk with respect to 
substantially all sales. In late 1998, the Company began development of a 
transaction fee based e-commerce service for products other than third-party 
software and began offering this service in early 1999. There can be no 
assurance that the Company will derive any significant revenue from this 
service.

     The Company has a limited operating history upon which investors may 
evaluate its business and prospects. Since inception, the Company has 
incurred significant losses, and as of March 31, 1999, had an accumulated 
deficit of approximately $23.5 million. The Company intends to expend 
significant financial and management resources on the development of 
additional services, sales and marketing, technology and operations to 
support larger-scale operations and greater service offerings. As a result, 
the Company expects to incur additional losses and continued negative cash 
flow from operations for the foreseeable future, and such losses are 
anticipated to increase significantly from current levels. There can be no 
assurance that the Company's sales will increase or even continue at their 
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 and online retailers, 
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 such 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 sales. Sales 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 sales would have an immediate 
adverse effect on the Company's business, financial condition and results of 
operations. 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 sales 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.

RESULTS OF OPERATIONS

     The following table sets forth certain items from the Company's 
consolidated condensed statements of operations as a percentage of total 
revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                     Three Months Ended March 31,
                                                     ----------------------------
                                                      1999                  1998
                                                     ------                ------
<S>                                                  <C>                   <C>
Sales                                                 100.0%                100.0%
Cost of sales                                          83.7                  83.5
                                                     ------                ------
   Gross profit                                        16.3                  16.5
                                                     ------                ------
Operating expenses:
   Sales and marketing                                 30.9                  46.7
   Product development and operations                  30.4                  31.0
   General and administrative                           8.2                   9.2
</TABLE>


<PAGE>

<TABLE>
<S>                                                  <C>                   <C>
                                                     ------                ------
Total operating expenses (1)                           69.5                  86.9
                                                     ------                ------
Loss from operations                                  (53.2)                (70.4)
                                                     ------                ------
Interest income                                         7.6                   1.9
                                                     ------                ------
Net loss                                              (45.6)%               (68.5)%
                                                     ------                ------
</TABLE>

(1)  Operating  expenses include non-cash  employee stock  compensation  
     charges of $284,000 (2.4% of sales) for the three months ended 
     March 31, 1999.

SALES

     Sales increased to $11.7 million for the quarter ended March 31, 1999, 
up from $2.3 million for the quarter ended March 31, 1998. The increase was 
primarily a result of significant growth in the number of the Company's 
software publisher and online retailer clients as well as increasing market 
acceptance of ESD. International sales represented approximately 24% and 32% 
of sales for the three months ended March 31, 1999 and 1998, respectively.

GROSS PROFIT

     Cost of sales increased to $9.8 million in the quarter ended March 31, 
1999 from $1.9 million in the quarter ended March 31, 1998. This increase 
reflects the Company's growth in sales. The Company's gross profit margin 
decreased slightly in the quarter ended March 31, 1999 due mainly to the 
higher cost impact of increased physical shipments in 1999. The Company 
believes that Internet commerce and related services will become more 
competitive in the near future. Accordingly, the Company may reduce or alter 
its pricing structure and policies in the future and any such change could 
reduce gross margins.

SALES AND MARKETING

     Sales and marketing expense increased to $3.6 million in the quarter 
ended March 31, 1999 from $1.1 million in the quarter ended March 31, 1998. 
This increase resulted from expanding the sales and marketing infrastructure 
required to increase the number of and provide support to the Company's 
software publisher and online retailer clients and variable expenses which 
increase in relation to sales. The primary components of this increase for 
the comparable quarters ended March 31 were an increase in advertising and 
marketing expenditures of $747,000, an increase in wages and benefits of 
$718,000 and an increase in credit card fees and chargeback costs of 
$475,000. As a percentage of sales, sales and marketing expense decreased to 
30.9% in the quarter ended March 31, 1999 from 46.7% in the quarter ended 
March 31, 1998, primarily reflecting the Company's increased sales volume. 
The Company expects that sales and marketing expense will continue to 
increase in absolute dollars as the Company continues to build its sales and 
marketing infrastructure and to develop marketing programs.

PRODUCT DEVELOPMENT AND OPERATIONS

     Product development and operations expense increased to $3.6 million in 
the quarter ended March 31, 1999 from $703,000 in the quarter ended March 
31,1998. The increase was primarily related to increased personnel and 
consulting costs related to developing, enhancing and maintaining the 
Company's CNS and related facilities and customer service related personnel 
costs. The primary components of this increase for the comparable quarters 
ended March 31, were an increase in wages and benefits of $465,000 and an 
increase in consulting costs of $1.6 million. As a percentage of sales, 
product 


<PAGE>

development and operations expense decreased to 30.4% in the quarter ended 
March 31, 1999 from 31.0% in the quarter ended March 31, 1998. The Company 
believes that continued investment in product development and operations is 
critical to attaining its strategic objectives and, and as a result, expects 
product development and operations expenses will continue to increase in 
absolute dollars. As a percentage of sales, these expenses are expected to 
decrease as sales increase.

GENERAL AND ADMINISTRATIVE

     General and administrative expense increased to $955,000 in the quarter 
ended March 31, 1999 from $208,000 in the quarter ended March 31, 1998. The 
increase was primarily due to increased personnel and related expenses. The 
primary components of this increase for the comparable quarters ended March 
31 were an increase in deferred compensation expense of $284,000 and an 
increase in wages and benefits of $275,000. As a percentage of sales, general 
and administrative expense decreased to 8.2% in the quarter ended March 31, 
1999 from 9.2% in the quarter ended March 31, 1998, primarily reflecting the 
Company's growth in sales. The Company expects general and administrative 
expense, excluding the impact of deferred compensation expense, to increase 
in absolute dollars in the future, particularly as the Company continues to 
build infrastructure to support growth and incurs costs associated with being 
a public company. As a percentage of sales, these expenses are expected to 
decrease as sales increase.

INTEREST INCOME

     Interest income consists of earnings on the Company's cash, cash 
equivalents and short-term investments. The increase over the prior period 
was attributable to interest received on higher average cash and cash 
equivalent balances resulting from the sales of Common Stock in the latter 
half of 1998. The Company expects interest income to decrease in the future 
as cash is used to fund operations and is used for investments in 
infrastructure.

INCOME TAXES

     The Company paid no income taxes in any reported period. The Company has 
incurred a net loss for each period since inception. As of March 31, 1999, 
the Company had approximately $24.0 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 sales of Common and Preferred Stock will 
limit the future annual realization of the tax net operating loss 
carryforwards to a specified percentage under Section 382 of the Internal 
Revenue Code.

LIQUIDITY AND CAPITAL RESOURCES

     In the first three months of 1999, the Company used $3.6 million of cash 
to fund operations and made additions of equipment and software totaling 
$811,000. The Company also purchased $17.1 million in short-term investments 
which were partially offset by $8.0 million in sales of investments.

     As of March 31, 1999 the Company had approximately $50.4 million of cash 
and cash equivalents and $19.9 million of short-term investments. The 
Company's principal commitments consisted of obligations outstanding under 
operating leases. Although the Company has no material commitments for 
capital expenditures, it anticipates an increase in the rate of capital 
expenditures consistent with its anticipated growth in operations, 
infrastructure and personnel. The Company anticipates that it will expend 
approximately $8.0 million over the next 21 months on capital expenditures 
based on the Company's current anticipated growth rate. The Company further 
anticipates that it will 


<PAGE>

expend approximately $17.0 million over the next 21 months on product 
development based on the Company's current anticipated growth rate in 
operations. The Company may also use cash to acquire or license technology, 
products or businesses related to the Company's current business. The Company 
also anticipates that it will continue to experience significant growth in 
its operating expenses for the foreseeable future and that its operating 
expenses will be a material use of the Company's cash resources. The Company 
believes that existing sources of liquidity, will provide adequate cash to 
fund its operations for at least the next 21 months.

YEAR 2000 COMPLIANCE

     Like many other companies, Year 2000 computer issues create certain 
risks for the Company. If the Company's internal management information 
systems and external electronic commerce information systems do not correctly 
recognize and process date information beyond the Year 1999, there could be 
an adverse impact on the Company's operations. To address these Year 2000 
issues with its internal and external systems, the Company has evaluated such 
systems. The Company believes it has completed all activities to remediate 
Year 2000 issues as of March 31, 1999, although it will continue testing 
throughout the year. These activities are intended to encompass all major 
categories of systems used by the Company, including electronic commerce, 
sales processing, sales and financial systems. The costs incurred to date 
related to these programs have not been material. The cost which will be 
incurred by the Company prospectively is not expected to exceed $10,000. The 
total cost estimate does not include potential costs related to any customer 
or other claims or the cost of internal software and hardware replaced in the 
normal course of business. The total cost estimate is based on the current 
assessment of the projects and is subject to change as the project progresses.

     The Company is also working with key suppliers of products and services 
to determine that their operations and products are Year 2000 Compliant or to 
monitor their progress toward Year 2000 Compliance, as appropriate. The 
failure of a major supplier to become Year 2000 Compliant on a timely basis, 
or a conversion that is incompatible with the Company's systems could have a 
material adverse effect on the Company's business, financial condition and 
results of operations. In addition the Company's business, financial 
condition and results of operations may be materially adversely affected to 
the extent its end-users are unable to use their credit cards due to the Year 
2000 issues that are not rectified by their credit card vendors.

     In addition, the Company has begun internal discussions concerning 
contingency planning to address potential problem areas with internal systems 
and with suppliers and other third parties. It is expected that assessment, 
remediation and contingency planning activities will be on-going throughout 
calendar year 1999 with the goal of appropriately resolving all material 
internal and external systems and third party issues.

     As used by the Company, "Year 2000 Compliant" shall mean software that 
can individually, and in combination and in conjunction with all other 
systems, products or processes with which they are required or designed to 
interface, continue to be used normally and to operate successfully (both in 
functionality and performance in all material respects) over the transition 
into the twenty first century when used in accordance with the documentation 
relating to such software, including being able to, before, on and after 
January 1, 2000 substantially conform to the following: (i) use logic 
pertaining to dates which allow users to identify and/or use the century 
portion of any date fields without special processing; and (ii) respond to 
all date elements and date input so as to resolve any ambiguity as to century 
in a disclosed, defined and pre-determined manner and provide date 
information in ways which are unambiguous as to century, either by permitting 
or requiring the century to be specified or where the data element is 
represented without a century, the correct century is unambiguous for all 
manipulations 


<PAGE>

involving that element. Based on currently available information, the Company 
does not believe that the Year 2000 matters discussed above related to 
internal systems or products sold to customers will have a material adverse 
impact on the its financial condition or overall trends in results of 
operations; however, it is still uncertain to what extent the Company may be 
affected by such matters. In addition, customers may delay purchase decisions 
because of uncertainty about Year 2000 issues. There also can be no assurance 
that the failure to ensure Year 2000 Compliance by a supplier or another 
third party would not have a material adverse effect on the Company.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company does not enter into financial instruments for trading or 
speculative purposes and does not currently utilize derivative financial 
instruments. The operations of the Company are conducted primarily in the 
United States and as such are not subject to material foreign currency 
exchange rate risk. The Company has no long-term debt.


<PAGE>

PART II.  OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

(d)  The effective date of the Company's registration statement, filed on 
Form S-1 under the Securities Act of 1933 (File No. 333-56787), was August 
11, 1998 (the "Registration Statement"). The class of securities registered 
was Common Stock and all securities registered were sold in this initial 
public offering (the "IPO"). The managing underwriters for the offering were 
BT Alex. Brown, BancAmerica Robertson Stephens and Bear, Stearns & Co. Inc. 
Pursuant to the Registration Statement, the Company sold 3,000,000 shares of 
its Common Stock for an aggregate gross offering price of $25.5 million.

     In connection with the IPO, the Company incurred expenses of 
approximately $2.8 million, of which approximately $1.8 million represented 
underwriting discounts and commissions and approximately $1 million 
represented other expenses related to the offering. All such expenses were 
direct or indirect payments to others. The net offering proceeds to the 
Company were $22.7 million.

     Through March 31, 1999, the Company has used $2.5 million of the net 
proceeds from the IPO to purchase equipment and software and $7.9 million of 
the net proceeds for working capital and general corporate purposes. The 
Company has invested the net proceeds in short-term, investment-grade, 
interest bearing financial instruments. The use of the proceeds from the 
offering does not represent a material change in the use of the proceeds 
described in the Registration Statement.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)       EXHIBITS

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                     DESCRIPTION OF DOCUMENTS
          -------                    ------------------------
<S>                         <C>
           3.1(1)           Amended and Restated Certificate of Incorporation
           3.2(1)           Bylaws of the Registrant
           4.1(1)           Specimen Common Stock Certificate
          11.1(2)           Statement of Computation of Per Share Earnings
          27.1              Financial Data Schedule
</TABLE>

     (1)  Filed as an exhibit to the Company's Registration Statement on
          Form S-1, File No. 333-56787, declared effective on August 11,
          1998, incorporated herein by reference.

     (2)  See Note 3 to Condensed Consolidated Financial Statements.

(b)       REPORTS ON FORM 8-K

          No reports on Form 8-K were filed during the quarter ended March 31,
          1999.


<PAGE>

                                 SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

Date:  May 14, 1999                DIGITAL RIVER, INC.



                                   By:  /s/ Robert E. Strawman
                                        ----------------------
                                         Robert E. Strawman
                                         Chief Financial Officer
                                         (Principal Financial and Accounting 
                                         Officer)


<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                     DESCRIPTION OF DOCUMENTS
          -------                    ------------------------
<S>                         <C>
           3.1(1)           Amended and Restated Certificate of Incorporation
           3.2(1)           Bylaws of the Registrant
           4.1(1)           Specimen Common Stock Certificate
          11.1(2)           Statement of Computation of Per Share Earnings
          27.1              Financial Data Schedule
</TABLE>

     (1)  Filed as an exhibit to the Company's Registration Statement on
          Form S-1, File No. 333-56787, declared effective on August 11,
          1998, incorporated herein by reference.

     (2)  See Note 3 to Condensed Consolidated Financial Statements.


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