##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934.   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. EmployerIncorporation or
    organization)

Identification
    No.)   9625 WEST 76TH STREET
    EDEN PRAIRIE, MINNESOTA 55344 (Address of principal
    executive offices)
  (952) 253-1234 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
 Name of each Exchange on which registered:
 Common Stock $0.01 par value Nasdaq Global Select
    Market
  Securities registered pursuant to Section 12(g) of the
    Act:
    None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2)
 þ o o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 



TABLE OF
    CONTENTS
  
  PART IItem 1.


Business


6Item 1A.


Risk
    Factors


16Item 1B.


Unresolved Staff
    Comments


29Item 2.


Properties


29Item 3.


Legal
    Proceedings


29Item 4.


Submission of
    Matters to a Vote of Security Holders


30PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters,
    and Issuer Purchases of Equity Securities


31Item 6.


Selected Financial
    Data


33Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


36Item 7A.


Qualitative and
    Quantitative Disclosures about Market Risk


56Item 8.


Financial
    Statements and Supplementary Data


58Item 9.


Changes In and
    Disagreements With Accountants on Accounting and Financial
    Disclosure


58Item 9A.


Controls and
    Procedures


58Item 9B.


Other
    Information


61PART IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


62Item 11.


Executive
    Compensation


62Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


62Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


62Item 14.


Principal
    Accountant Fees and Services


62PART IVItem 15.


Exhibits and
    Financial Statement Schedules


63Amended and Restated Symantec Online Store AgreementComputation of Ratio of Earnings to Fixed ChargesSubsidiariesConsent of Independent Registered Public Accounting FirmCertificationCertificationCertification      2




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The Business section and other parts of this Annual Report on
    Form 10-K
    (Form 10-K)
    contain forward-looking statements that involve risks and
    uncertainties. Many of the forward-looking statements are
    located in Managements Discussion and Analysis of
    Financial Condition and Results of Operations.
    Forward-looking statements provide current expectations of
    future events based on certain assumptions and include any
    statement that does not directly relate to any historical or
    current fact. Forward-looking statements can also be identified
    by words such as anticipates, believes,
    estimates, expects, intends,
    plans, predicts, and similar terms.
    Forward-looking statements are not guarantees of future
    performance and our actual results may differ significantly from
    the results discussed in the forward-looking statements. Factors
    that might cause such differences include, but are not limited
    to, those discussed in the subsection entitled Risk
    Factors under Part I, Item 1A of this
    Form 10-K.
    We assume no obligation to revise or update any forward-looking
    statements for any reason, except as required by law.
  Explanatory
    Note
  Form 10-K,
  Form 10-K
  Form 10-K Form 10-Q
    Form 10-K.
       3




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Grants to Directors.
  Grants to Section 16 Officers.
  Grants to Employees and Consultants (inclusive of follow-on,
    new hire, and promotion grants).
 4




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EITF 96-18
    Pre-Tax


After TaxExpense


ExpenseFiscal Year

(Income)


(Income)1998

$
172


$
1721999


3,211



3,2112000


2,238



2,2382001


2,114



2,1142002


1,679



1,6792003


1,241



1,241Total
    1998-2003
    impact


10,655



10,6552004


817



8172005


293



(2,169
)2006


135



85Total

$
11,900


$
9,388  5




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PART I  ITEM 1.
    BUSINESS.  CAUTIONARY
    STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
    ACT OF 1995
  Form 10-K, Form 10-K. Form 10-K.
  Overview
  e-commerce e-mail
  e-commerce e-commerce
  e-mail
   6




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Form 10-K, Form 10-Q Form 8-K,
  Industry
    Background
  Growth of the Internet and
    E-Commerce. E-Commerce e-commerce e-commerce: bricks-and-mortar
  Growing Interest in Direct Sales of Products to
    Consumers.
  Opportunities for Outsourced
    E-Commerce. e-commerce e-commerce
  e-commerce e-commerce
  Shift from Physical to Electronic Delivery of
    Software.
 7




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The
    Digital River Solution
  e-commerce e-commerce e-commerce e-commerce e-mail
  Benefits
    to Clients
  Reduced
    Total Cost of Ownership and Risk
  e-commerce e-commerce e-commerce e-commerce e-commerce
  Revenue
    Growth
    non-U.S.-based
  tm
 8




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Deployment
    Speed
  e-commerce e-commerce
  Focus on
    Core Competency
  e-commerce e-commerce e-commerce
  Benefits
    to Buyers
  24/7 e-commerce
  Strategy
  e-commerce
  Attract New Clients and Expand Relationships with Existing
    Clients.
  e-commerce e-commerce
  e-commerce
 9




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Expand International Sales.
  Provide Clients with Strategic Marketing
    Services. e-mail return-on-investment and/or
  Maintain Technology Leadership. e-commerce return-on-investment
  Continue to Seek Strategic
    Acquisitions.
  Expand the Digital River oneNetwork
    Marketplace.
  Services
  self-service
  Store Design, Development and Hosting. e-commerce
 10




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e-mail e-mail
  e-commerce 24/7 back-up
  Store Merchandising.
  Order Management and Fraud Screening. e-commerce
  and/or
  Digital and Physical Fulfillment Services.
  e-commerce
 11




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Customer Service. e-mail 24/7
  Advanced Reporting and Analytics.
  Strategic Marketing Services. e-mail e-commerce
  Clients
  e-commerce
  Sales and
    Marketing
  e-commerce return-on-investment
  e-marketing e-mail e-mail
  e-commerce
 12




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Technology
  e-commerce e-commerce
  Architecture. e-commerce
    E-Commerce
    System Maintenance. e-commerce e-commerce e-commerce e-commerce e-commerce
  Security. e-commerce
  Data Center Operations.
 13




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e-commerce
  Product
    Research and Development
    e-commerce,
  Competition
  e-commerce e-commerce e-commerce
  
    In-house development of
    e-commerce
    capabilities using tools or applications from companies such as
    Art Technology Group, Inc. and IBM Corporation;
    E-Commerce
    capabilities custom-developed by companies such as IBM Global
    Services, and Accenture, Inc.;
    Other providers of outsourced
    e-commerce
    solutions, such as GSI Commerce, Inc., Macrovision Corporation,
    and asknet Inc;
    Providers of technologies, services or products that support a
    portion of the
    e-commerce
    process, such as payment processing, including CyberSource
    Corporation and PayPal Corp.;
    Companies that offer various online marketing services,
    technologies and products, including ValueClick, Inc. and
    aQuantive, Inc.;
    High-traffic branded websites that generate a substantial
    portion of their revenue from
    e-commerce
    and may offer or provide to others the means to offer products
    for sale, such as Amazon.com, Inc.; and 14




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
    Web hosting, web services and infrastructure companies that
    offer portions of our solution and are seeking to expand the
    range of their offerings, such as Network Solutions, LLC, Akamai
    Technologies, Inc., Yahoo! Inc., eBay Inc. and Hostopia.com, Inc.    Intellectual
    Property
    Employees
    Executive
    Officers
    Name

Age

PositionJoel A. Ronning


50


Chief Executive OfficerThomas M. Donnelly


42


Chief Financial Officer   Mr. Ronning
  Mr. Donnelly
 15




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ITEM 1A.
    RISK
    FACTORS  The risks described below are not the only ones facing our
    company. Additional risks not presently known to us or that we
    currently deem immaterial also may impair our business
    operations. Our business, financial condition or results of
    operations could be materially adversely affected by any of
    these risks and the value of our common stock could decline due
    to any of these risks. This annual report also contains
    forward-looking statements that involve risks and uncertainties.
    Our actual results could differ materially from those
    anticipated in these forward-looking statements as a result of
    certain factors, including the risks faced by us described below
    and elsewhere in this report.
  A loss
    of any client that accounts for a large portion of our revenue
    would cause our revenue to decline.
    We
    have a limited profitable operating history.
  e-commerce
  Failure
    to properly manage and sustain our expansion efforts could
    strain our management and other resources.
   16




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We
    intend to continue to expand our international operations and
    these efforts may not be successful in generating additional
    revenue.
    
    Changes in regulatory requirements and tariffs;
    Uncertainty of application of local commercial, tax, privacy and
    other laws and regulations;
    Reduced protection of intellectual property rights;
    Difficulties in physical distribution for international sales;
    Higher incidences of credit card fraud and difficulties in
    accounts receivable collection;
    The burden and cost of complying with a variety of foreign laws;
    The possibility of unionization of our workforce outside the
    United States, particularly in Europe; and
    Political or economic constraints on international trade or
    instability.      Our
    operating results are subject to fluctuations in demand for
    products and services offered by us or our
    clients.
    New
    obligations to collect or pay transaction taxes could
    substantially increase the cost to us of doing
    business.
   17




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e-commerce,
  We
    could be liable for fraudulent, improper or illegal uses of our
    platforms.
  e-commerce e-commerce
  Loss
    of our credit card acceptance privileges would seriously hamper
    our ability to process the sale of merchandise.
    Our
    failure to attract and retain software and digital products
    publishers, manufacturers, online retailers and online channel
    partners as clients would cause our revenue and operating
    profits to decline.
   18




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The
    matters relating to the investigation by the Special Committee
    of the Board of Directors and the restatement of our
    consolidated financial statements may result in additional
    litigation and governmental enforcement actions.
  Form 10-K, Form 10-K.
  Activities
    related to our internal review of historical stock option
    practices have required us to incur substantial expenses for
    legal, accounting, tax and other professional services, have
    diverted managements attention from our business, and
    could in the future harm our business, financial condition,
    results of operations and cash flows.
      Implementing
    our acquisition strategy could result in dilution and operating
    difficulties leading to a decline in revenue and operating
    profit.
   19




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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.
    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.
  quarter-to-quarter year-to-year
  
    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; 20




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
    Slower than anticipated growth of the online market as a vehicle
    for the purchase of software products;
    The cost of compliance with U.S. and foreign regulations
    relating to our business; and
    Our ability to retain and attract personnel commensurate with
    our business needs.    quarter-to-quarter
  Security
    breaches could hinder our ability to securely transmit
    confidential information.
  e-commerce
    Claims
    of infringement of other parties intellectual property
    rights could require us to expend significant resources, enter
    into unfavorable licenses or require us to change our business
    plans.
  time-to-time
 21




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Claims
    against us related to the software products that we deliver
    electronically and the tangible goods that we deliver physically
    could require us to expend significant resources.
    The
    growth of the market for our services depends on the development
    and maintenance of the Internet infrastructure.
    Because
    the
    e-commerce
    industry is highly competitive and has low barriers to entry, we
    may be unable to compete effectively.
  e-commerce e-commerce
  
    In-house development of
    e-commerce
    capabilities using tools or applications from companies, such as
    Art Technology Group, Inc. and IBM Corporation;
    E-Commerce
    capabilities custom-developed by companies, such as IBM Global
    Services and Accenture, Inc.;
    Other providers of outsourced
    e-commerce
    solutions, such as GSI Commerce, Inc., Macrovision Corporation,
    and asknet Inc.;
    Companies that provide technologies, services or products that
    support a portion of the
    e-commerce
    process, such as payment processing, including CyberSource
    Corporation and PayPal Corp.;
    Companies that offer various online marketing services,
    technologies and products, including ValueClick, Inc. and
    aQuantive, Inc.;
    High-traffic, branded websites that generate a substantial
    portion of their revenue from
    e-commerce
    and may offer or provide to others the means to offer their
    products for sale, such as Amazon.com, Inc.; and 22




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
    Web hosting, web services and infrastructure companies that
    offer portions of our solution and are seeking to expand the
    range of their offering, such as Network Solutions, LLC, Akamai
    Technologies, Inc., Yahoo! Inc., eBay Inc. and Hostopia.com Inc.  e-commerce e-commerce
  e-commerce
  Changes
    in government regulation could limit our Internet activities or
    result in additional costs of doing business over the
    Internet.
    
    User privacy with respect to adults and minors;
    Our ability to collect
    and/or share
    necessary information that allows us to conduct business on the
    Internet;
    Export compliance;
    Pricing and taxation;
    Fraud;
    Advertising;
    Intellectual property rights;
    Information security; and
    Quality of products and services.   23




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Failure
    to develop our technology to accommodate increased traffic could
    reduce demand for our services and impair the growth of our
    business.
    e-commerce e-commerce
  System
    failures could reduce the attractiveness of our service
    offerings.
  time-to-time.
    
    Fire, flood and other natural disasters;
    Operator negligence, improper operation by, or supervision of,
    employees, physical and electronic break-ins, misappropriation,
    computer viruses and similar events; and
    Power loss, computer systems failures, and Internet and
    telecommunications failure. 24




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We may
    become liable to clients who are dissatisfied with our
    services.
  e-commerce and/or
  We
    depend on key personnel.
      Protecting
    our intellectual property is critical to our
    success.
   25




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Our
    clients sales cycles are lengthy, which may cause us to
    incur substantial expenses and expend management time without
    generating corresponding consumer revenue, which would impair
    our cash flow.
    The
    listing of our network addresses on anti-SPAM lists could harm
    our ability to service our clients and deliver goods over the
    Internet.
  time-to-time
  We are
    subject to regulations relating to consumer
    privacy.
    and/or
   26




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Compliance
    with future laws imposed on
    e-commerce
    may substantially increase our costs of doing business or
    otherwise adversely affect our ability to offer our
    services.
    and/or
    We are
    exposed to foreign currency exchange risk.
    Changes
    in our tax rates could affect our future results.
   27




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Developments
    in accounting standards may cause us to increase our recorded
    expenses, which in turn would jeopardize our ability to
    demonstrate sustained profitability.
    Compliance
    with changing regulation of corporate governance and public
    disclosure may result in additional expenses.
    Internet-related
    stock prices are especially volatile and this volatility may
    depress our stock price or cause it to fluctuate
    significantly.
    
    Actual or anticipated variations in quarterly operating results;
    Announcements of technological innovations;
    The ability to sign new clients and the retention of existing
    clients;
    New products or services that we offer;
    Competitive developments, including new products or services, or
    new relationships by our competitors;
    Changes that affect our clients or the viability of their
    product lines;
    Changes in financial estimates by securities analysts;
    Conditions or trends in the Internet and online commerce
    industries;
    Global unrest and terrorist activities;
    Changes in the economic performance
    and/or
    market valuations of other Internet or online
    e-commerce
    companies;
    Required changes in generally accepted accounting principles and
    disclosures; 28




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
    Our announcement of significant acquisitions, strategic
    partnerships, joint ventures or capital commitments or results
    of operations or other developments related to those
    acquisitions;
    Additions or departures of key personnel; and
    Sales or other transactions involving our common stock or our
    convertible notes.    Provisions
    of our charter documents, other agreements and Delaware law may
    inhibit potential acquisition bids for us.
     ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS     ITEM 2.
    PROPERTIES    SquareDescription of Use

Primary Locations

Footage(1)


Lease ExpirationsCorporate Office Facilities

Minnesota


133,000



From 2007 to 2008Other U.S. Office Facilities

California, Colorado, Illinois,
    Nebraska, Ohio, Pennsylvania, Utah


62,139



From 2007 to 2011Non-U.S. Office
    Facilities

Germany, Ireland, Japan, Korea,
    Luxembourg, Taiwan, United Kingdom


65,266



From 2007 to 2026Off Site U.S. Data Centers

California, Minnesota


693



From 2007 to 2008Off Site non U.S. Data Centers

China, Germany, Ireland, United
    Kingdom


282



From 2007 to 2008     (1)
    
    Includes
    sub-leased
    space.     ITEM 3.
    LEGAL
    PROCEEDINGS  e-commerce e-commerce patents-in-suit,
   29




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Rule 10b-5
        time-to-time
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   30




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Price
    Range of Common Stock
  over-the-counter mark-up,
  High


Low2005First Quarter

$
41.82


$
28.16Second Quarter

$
33.73


$
22.43Third Quarter

$
41.75


$
31.30Fourth Quarter

$
39.39


$
23.642006First Quarter

$
46.08


$
29.27Second Quarter

$
48.00


$
37.00Third Quarter

$
53.21


$
37.90Fourth Quarter

$
60.99


$
48.20   Holders
    Dividend
    Policy
    Issuer
    Purchases of Equity Securities
      Securities
    Authorized for Issuance under Equity Compensation
    Plans
   31




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Securities
    Performance Measurement
    Comparison1
  line-of-business
  COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Digital River, Inc., The NASDAQ Composite Index
    And The RDG Technology Composite Index
  
   *
    
    $100 invested on
    12/31/01 in
    stock or index-including reinvestment of dividends.     1
 32




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K. Form 10-K, Form 10-K Form 10-K.
  Form 10-K Form 10-Q Form 10-K,
  December 31,2006


2005


2004


2003


2002As








As








AsAs


Previously





As


Previously





As


Previously





AsRestated(1)


Reported


Adjustments


Restated(1)


Reported


Adjustments


Restated(1)


Reported


Adjustments


Restated(1)(In thousands)Balance Sheet Data:Cash and cash equivalents

$
390,243


$
131,770


$
127,734


$



$
127,734


$
72,885


$



$
72,885


$
40,801


$



$
40,801Short-term investments


235,699



220,569



164,402







164,402



59,037







59,037











Working capital


497,887



244,647



198,747







198,747



85,011







85,011



14,498







14,498Total assets


1,006,263



669,549



504,521







504,521



189,658







189,658



96,534







96,534Long-term obligations


196,345



195,022



195,000







195,000























Retained earnings/ (accumulated
    deficit)


44,989



(15,627
)


(51,164
)


(11,472
)


(62,636
)


(86,488
)


(10,655
)


(97,143
)


(103,624
)


(9,414
)


(113,038
)Total stockholders equity

$
603,759


$
305,551


$
192,769


$



$
192,769


$
131,852


$



$
131,852


$
57,186


$



$
57,186     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  33




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Year Ended December 31,2006


2005


2004


2003


2002As Restated(1)


As Restated(1)


As Restated(2)


As Restated(2)(In thousands, except per share data)Statement of Operations
    Data:Revenue

$
307,632


$
220,408


$
154,130


$
101,201


$
77,783Costs and expenses (exclusive of
    depreciation and amortization expense shown separately below)Direct cost of services


7,709



5,063



5,167



3,857



2,717Network and infrastructure


29,250



19,817



15,164



12,295



11,455Sales and marketing


113,462



69,371



52,083



37,685



33,061Product research and development


32,341



20,690



14,293



10,263



11,929General and administrative


34,158



21,484



17,006



9,389



9,469Depreciation and amortization


10,983



8,833



8,203



7,275



6,009Amortization of acquisition related
    intangibles


12,134



8,730



8,269



5,380



5,738Total costs and expenses


240,037



153,988



120,185



86,144



80,378Income (loss) from operations


67,595



66,420



33,945



15,057



(2,595
)Other income, net


21,887



4,967



1,641



838



406Income (loss) before income tax
    expense


89,482



71,387



35,586



15,895



(2,189
)Income tax expense


28,672



14,875



1,079







Net income (loss)

$
60,810


$
56,512


$
34,507


$
15,895


$
(2,189
)Net income (loss) per
    share  basic

$
1.58


$
1.64


$
1.07


$
0.54


$
(0.08
)Net income (loss) per
    share  diluted

$
1.40


$
1.41


$
0.94


$
0.48


$
(0.08
)Shares used in per-share
    calculation  basic


38,593



34,536



32,328



29,398



26,791Shares used in per-share
    calculation  diluted


44,642



41,448



38,532



33,051



26,791     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 34




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(2)
    
    The Selected Financial Data for 2003 and 2002 has been restated
    to reflect adjustments related to stock based compensation
    expense and the associated tax impact as further described in
    the Explanatory Note immediately preceding
    Part I, Item 1 of the
    Form 10-K.
    As a result of these adjustments, net income was reduced by
    $1,241 and $1,679 for the years ended December 31, 2003 and
    2002, respectively as follows:  2003


2002As Previously





As


As Previously





AsReported


Adjustments


Restated(1)


Reported


Adjustments


Restated(1)Statement of Operations
    Data:Revenue

$
101,201


$



$
101,201


$
77,783


$



$
77,783Costs and expenses (exclusive of
    depreciation and amortization expense shown separately below)Direct cost of services


3,585



272



3,857



2,357



360



2,717Network and infrastructure


12,253



42



12,295



11,405



50



11,455Sales and marketing


37,220



465



37,685



32,437



624



33,061Product research and development


9,962



301



10,263



11,454



475



11,929General and administrative


9,228



161



9,389



9,299



170



9,469Depreciation and amortization


7,275







7,275



6,009







6,009Amortization of acquisition
    related intangibles


5,380







5,380



5,738







5,738Total costs and expenses


84,903



1,241



86,144



78,699



1,679



80,378Income (loss) from operations


16,298



(1,241
)


15,057



(916
)


(1,679
)


(2,595
)Other income, net


838







838



406







406Income (loss) before income tax
    expense


17,136



(1,241
)


15,895



(510
)


(1,679
)


(2,189
)Income tax expense






















Net income (loss)

$
17,136


$
(1,241
)

$
15,895


$
(510
)

$
(1,679
)

$
(2,189
)Net income (loss) per
    share  basic

$
0.58


$
(0.04
)

$
0.54


$
(0.02
)

$
(0.06
)

$
(0.08
)Net income (loss) per
    share  diluted

$
0.52


$
(0.04
)

$
0.48


$
(0.02
)

$
(0.06
)

$
(0.08
)Shares used in per-share
    calculation  basic


29,398



29,398



29,398



26,791



26,791



26,791Shares used in per-share
    calculation  diluted


33,051



33,051



33,051



26,791



26,791



26,791     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 35




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATION  The discussion in this Annual Report contains forward-looking
    statements that involve risks and uncertainties. Our actual
    results could differ materially from those discussed below.
    Additional factors that could cause or contribute to such
    differences include, but are not limited to, those identified
    below, and those discussed in the section entitled Risk
    Factors, included elsewhere in this Annual Report. When
    used in this document, the words believes,
    expects, anticipates,
    intends, plans, and similar expressions,
    are intended to identify certain of these forward-looking
    statements. However, these words are not the exclusive means of
    identifying such statements. In addition, any statements that
    refer to expectations, projections or other characterizations of
    future events or circumstances are forward-looking statements.
    The cautionary statements made in this document should be read
    as being applicable to all related forward-looking statements
    wherever they appear in this document.
  Form 10-K.
  Overview
  e-commerce e-mail
  Acquisitions
    and Comparability of Results
    Critical
    Accounting Policies
    Revenue Recognition. (
  No. 99-19,
 36




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##### Table of Contents



e-commerce
        Allowance for Doubtful Accounts. Credit
    Card Chargeback Reserve
  Goodwill, Intangibles and Other Long-Lived
    Assets.
  Income Taxes and Deferred Taxes.
 37




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##### Table of Contents



step-up
  Stock-Based Compensation Expense.
       38




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##### Table of Contents



Form 10-K
  Results
    of Operations
    2006


2005


2004As Restated(1)


As Restated(1)Revenue


100.0
%


100.0
%


100.0
%Costs and expenses:Direct cost of services


2.5



2.3



3.4Network and infrastructure


9.5



9.0



9.8Sales and marketing


36.9



31.5



33.8Product research and development


10.5



9.4



9.3General and administrative


11.1



9.7



11.0Depreciation and amortization


3.6



4.0



5.3Amortization of
    acquisition-related costs


3.9



4.0



5.4Total costs and expenses


78.0



69.9



78.0Income from operations


22.0



30.1



22.0Other income, net


7.1



2.3



1.1Income before income tax expense


29.1



32.4



23.1Income tax expense


9.3



6.8



0.7Net income


19.8
%


25.6
%


22.4
%     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  Revenue.
 39




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##### Table of Contents



e-commerce
  Direct Cost of Services. back-up
    Network and Infrastructure.
    Sales and Marketing.
 40




---



##### Table of Contents



Product Research and Development. e-marketing
    General and Administrative.
    Depreciation and Amortization.
  Amortization of Acquisition Related
    Intangibles.
 41




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##### Table of Contents



Income from Operations.
  Other Income, Net.
  Income Taxes.
  non-U.S. operations
         42




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##### Table of Contents



Comprehensive Income.
    Quarterly
    Results of Operations
  Forms 10-Q Form 10-K.
  Quarterly
    Period Ended September 30, 2006
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005As Restated(1)





As Restated(1)Revenue


100.0
%


100.0
%


100.0
%


100.0
%Cost of Revenue (exclusive of
    depreciation and amortization expense shown separately below):Direct cost of services


2.5



2.0



2.5



2.3Network and infrastructure


10.3



9.4



9.6



8.9Sales and marketing


37.8



31.4



37.0



30.7Product research and development


11.1



9.9



10.4



9.4General and administrative


10.7



10.0



10.9



10.2Depreciation and amortization


3.9



4.3



3.4



4.3Amortization of
    acquisition-related costs


4.4



3.9



4.1



4.2Total costs and expenses


80.7



70.9



77.9



70.0Income from operations


19.3



29.1



22.1



30.0Other income/(expense), net


7.7



2.8



6.7



2.2Income before income tax expense


27.0



31.9



28.8



32.2Income tax expense


7.4



8.7



9.0



8.0Net income


19.6
%


23.2
%


19.8
%


24.2
%     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  REVENUE.
 43




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##### Table of Contents



year-to-date e-commerce
  DIRECT COST OF SERVICES. back-up
  NETWORK AND INFRASTRUCTURE.
  SALES AND MARKETING.
 44




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##### Table of Contents



PRODUCT RESEARCH AND DEVELOPMENT. e-marketing
  GENERAL AND ADMINISTRATIVE.
  AMORTIZATION OF ACQUISITION-RELATED
    INTANGIBLES.
 45




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##### Table of Contents



OTHER INCOME, NET.
  INCOME TAXES.
  non-U.S. operations
         46




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##### Table of Contents



Quarterly
    Period Ended June 30, 2006
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005As Restated(1)





As Restated(1)Revenue


100.0
%


100.0
%


100.0
%


100.0
%Cost of Revenue (exclusive of
    depreciation and amortization expense shown separately below):Direct cost of services


2.7



2.4



2.5



2.4Network and infrastructure


8.8



9.3



9.2



8.7Sales and marketing


38.7



30.8



36.5



30.5Product research and development


10.5



10.1



10.1



9.1General and administrative


11.6



10.4



11.1



10.3Depreciation and amortization


3.5



4.6



3.2



4.3Amortization of
    acquisition-related costs


4.3



4.1



3.9



4.3Total costs and expenses


80.1



71.7



76.5



69.6Income from operations


19.9



28.3



23.5



30.4Other income/(expense), net


8.9



1.8



6.2



2.0Income before income tax expense


28.8



30.1



29.7



32.4Income tax expense


10.2



10.2



9.8



7.7Net income


18.6
%


19.9
%


19.9
%


24.7
%     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  REVENUE.
  e-commerce
  DIRECT COST OF SERVICES. back-up
 47




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##### Table of Contents



NETWORK AND INFRASTRUCTURE.
  SALES AND MARKETING.
  PRODUCT RESEARCH AND DEVELOPMENT. e-marketing
 48




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##### Table of Contents



GENERAL AND ADMINISTRATIVE.
  AMORTIZATION OF ACQUISITION-RELATED
    INTANGIBLES.
  OTHER INCOME, NET.
  INCOME TAXES.
  non-U.S. operations
 49




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##### Table of Contents



Quarterly
    Period Ended March 31, 2006
    Three Months EndedMarch 31,2006


2005As Restated(1)Revenue


100.0
%


100.0
%Cost of Revenue (exclusive of
    depreciation and amortization expense shown separately below):Direct cost of services


2.4



2.4Network and infrastructure


9.6



8.2Sales and marketing


34.5



30.2Product research and development


9.7



8.2General and administrative


10.6



10.3Depreciation and amortization


2.9



3.9Amortization of acquisition
    related costs


3.6



4.4Total costs and expenses


73.3



67.6Income from operations


26.7



32.4Other income/(expense), net


3.8



2.1Income before income tax expense


30.5



34.5Income tax expense


9.5



5.3Net income


21.0
%


29.2
%     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 50




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##### Table of Contents



REVENUE.
  e-commerce
  DIRECT COST OF SERVICES. back-up
  NETWORK AND INFRASTRUCTURE.
  SALES AND MARKETING.
 51




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##### Table of Contents



PRODUCT RESEARCH AND DEVELOPMENT. e-marketing
  GENERAL AND ADMINISTRATIVE.
  AMORTIZATION OF ACQUISITION-RELATED
    INTANGIBLES.
  OTHER INCOME, NET.
  INCOME TAXES.
 52




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##### Table of Contents



Form 10-K).
      Liquidity
    and Capital Resources
     53




---



##### Table of Contents



e-commerce
    Liquidity
    and Capital Resource Requirements
   54




---



##### Table of Contents



Contractual
    Obligations
    Payment Due by PeriodTotal Amount











2011 andContractual Obligations

Committed


2007


2008


2009-2010


Thereafter(In thousands)Operating Lease Obligations

$
14,770


$
3,964


$
2,893


$
2,245


$
5,668Convertible Senior Notes

$
237,657


$
2,438


$
2,438


$
4,875


$
227,906Total

$
252,427


$
6,402


$
5,331


$
7,120


$
233,574     2007
    Outlook
    New
    Accounting Standards
  ,
 55




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##### Table of Contents



No. FAS 115-1, Other-Than-Temporary 115-1). 115-1 other-than-temporary 03-01, Other-Than-Temporary 115-1
  Off
    Balance Sheet Arrangements
    ITEM 7A.
    QUALITATIVE
    AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK  Interest
    Rate Risk
  available-for-sale
  Foreign
    Currency Risk
   56




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##### Table of Contents



Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006


2005


2004At Prior


Exchange





At Prior


Exchange





At Prior


ExchangeYear


Rate


As


Year


Rate


As


Year


Rate


AsRates(1)


Effect(2)


Reported


Rates(1)


Effect(2)


Restated(3)


Rates(1)


Effect(2)


Restated(3)Revenue

$
307,071


$
561


$
307,632


$
220,625


$
(217
)

$
220,408


$
150,182


$
3,948


$
154,130Costs and expenses


239,621



416



240,037



153,981



7



153,988



118,553



1,632



120,185Income from operations


67,450



145



67,595



66,644



(224
)


66,420



31,629



2,316



33,945Other income, net


20,351



1,536



21,887



7,210



(2,243
)


4,967



1,611



30



1,641Income before income tax expense

$
87,801


$
1,681


$
89,482


$
73,854


$
(2,467
)

$
71,387


$
33,240


$
2,346


$
35,586     (1)
    
    Represents the outcome that would have resulted had exchange
    rates in the current period been the same as those in effect in
    the comparable prior-year period for operating results.(2)
    
    Represents the increase (decrease) in reported amounts resulting
    from changes in exchange rates from those in effect in the
    comparable prior-year period for operating results.(3)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  Transaction
    Exposure
    Translation
    Exposure
   57




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K.
    QUARTERLY
    FINANCIAL DATA (UNAUDITED)
  Quarter EndedMarch 31


June 30


September 30


December 31(In thousands, except per share data)2006Revenue

$
78,014


$
71,277


$
75,337


$
83,004Income from operations


20,824



14,189



14,565



18,017Net income


16,377



13,289



14,788



16,355Net income per share 
    basic

$
0.46


$
0.34


$
0.37


$
0.41Net income per share 
    diluted

$
0.41


$
0.30


$
0.33


$
0.36   Quarter EndedMarch 31


June 30


September 30


December 31As Restated(1)


As Restated(1)


As Restated(1)


As Restated(1)(In thousands, except per share data)2005Revenue

$
54,529


$
51,143


$
53,179


$
61,557Income from operations


17,661



14,489



15,460



18,810Net income


15,905



10,178



12,313



18,116Net income per share 
    basic

$
0.47


$
0.30


$
0.35


$
0.52Net income per share 
    diluted

$
0.39


$
0.26


$
0.31


$
0.45     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, and Note 13, Selected Quarterly
    Financial Information (Unaudited) in Notes to Consolidated
    Financial Statements.  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   ITEM 9A.  CONTROLS
    AND PROCEDURES  Special
    Committee Review into Stock Option Grant Practices and
    Restatement.
  Form 10-K,
 58




---



##### Table of Contents



Form 10-K.
    
    We lacked appropriate systems to ensure adequate communication
    among our departments, particularly accounting and human
    resources, pertaining to the option grant process;
    We failed on some occasions to prepare adequate minutes of
    meetings of the Compensation Committee and the Stock Option
    Committee; and
    There were inadequate control mechanisms in the accounting
    department to ensure that information about stock option grant
    dates and exercise prices accurately reflected the true
    measurement dates for accounting purposes.    
    The General Counsel and CFO, both experienced with public
    companies and stock option granting procedures, attend all Board
    and Committee meetings;
    We adopted new Equity Grant Procedures, eliminating all
    delegated authority to management to make equity awards; and
    We implemented a process to comply with the requirements
    regarding grant date determination related to our adoption of
    SFAS 123(R) on January 1, 2006.      (a)
    Disclosure
    Controls and Procedures  Rules 13a-15(e) 15d-15(e) Form 10-K Form 10-K.
  (b)
    Managements
    Annual Report on Internal Control over Financial
    Reporting   59




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##### Table of Contents



(c)
    Changes
    in Internal Control over Financial Reporting    (d)
    Report of
    Independent Registered Public Accounting Firm        60




---



##### Table of Contents



/s/  Ernst &
    Young LLP
     ITEM 9B.
    OTHER
    INFORMATION   61




---



##### Table of Contents



PART III    ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE   ITEM 14.  PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   62




---



##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Financial Statements.
    Report of
    Independent Registered Public Accounting Firm


67Consolidated
    Balance Sheets


68Consolidated
    Statements of Operations


69Consolidated
    Statements of Stockholders Equity


70Consolidated
    Statements of Cash Flows


71Notes to
    Consolidated Financial Statements


72   Financial Statement Schedules.
  Form 10-K,
  Exhibits.
  ExhibitNumber

Description of Document2
.1(1)

Stock Purchase Agreement, dated as
    of April 17, 2004, by and among Digital River, Inc.,
    Blitz F03-1424
    GmbH, a company organized under the laws of Germany and a wholly
    owned subsidiary of Digital River, and the selling shareholders
    of element 5 Informationstechnologien und 
    dienstleistungen Aktiengesellschaft, a company organized under
    the laws of Germany.3
.1(4)

Amended and Restated Certificate
    of Incorporation of the Registrant, as currently in effect.3
.2(6)

Amended and Restated Bylaws of the
    Registrant, as currently in effect.4
.1(7)

Specimen Stock Certificate.4
.2(4)

Form of Senior Debt Indenture.4
.3(4)

Form of Subordinated Debt
    Indenture.4
.4

References are hereby made to
    Exhibits 3.1 and 3.2.4
.5(13)

Indenture dated as of June 1,
    2004, between Digital River, Inc. and Wells Fargo Bank, N.A. as
    trustee, including therein the form of the Note.10
.1(7)

Form of Indemnity Agreement
    between Registrant and each of its directors and executive
    officers.10
.3(7)

Consent to Assignment and
    Assumption of Lease dated April 22, 1998, by and between
    CSM Investors, Inc., IntraNet Integration Group, Inc. and
    Registrant.10
.4(5)

Assignment of Lease dated
    April 21, 1998, by and between Intranet Integration Group,
    Inc. and Registrant.10
.5(5)

Lease Agreement dated
    January 18, 2000, between Property Reserve, Inc. and
    Registrant.10
.6(6)

First Amendment of Lease dated
    January 31, 2001, to that certain Lease dated
    April 24, 1996, between CSM Investors, Inc. and Registrant
    (as assignee of Intranet Integration Group, Inc.).10
.7(8)

1998 Stock Option Plan, as amended
    and superseded by Exhibit 10.19.*10
.8(9)

1999 Stock Option Plan, formerly
    known as the 1999 Non-Officer Stock Option Plan, as amended and
    superseded by Exhibit 10.19.*10
.9(8)

2000 Employee Stock Purchase Plan,
    as amended, and offering.* 63




---



##### Table of Contents



ExhibitNumber

Description of Document10
.11(10)

Second Amendment of Lease dated
    April 22, 2002, to that certain Lease dated April 24,
    1996, between CSM Investors, Inc. and Registrant (as assignee of
    Intranet Integration Group, Inc.) as amended.10
.12(10)

Second Amendment of Lease dated
    April 28, 2003, to that certain Lease dated
    January 18, 2000, between Property Reserve Inc. and
    Registrant.10
.15(13)

Registration Rights Agreement
    dated as of June 1, 2004, between Digital River, Inc. and
    the initial purchasers of Senior Convertible Notes due
    January 1, 2024.10
.16(14)

Supplemental Agreement and
    Settlement Agreement, by and among Digital River, Inc., Digital
    River GmbH, element 5 AG, Messrs. Clemens Roth, Christopher
    Reimold, Gerrit Schumann, Stephan Naujoks and various other
    former element 5 shareholders, dated as of January 18, 2005.10
.17(15)

Summary of Compensation Program
    for Non-Employee Directors.10
.18++

Second Amended and Restated
    Symantec Online Store Agreement, by and among Symantec
    Corporation, Symantec Limited, Digital River, Inc. and Digital
    River Ireland Limited effective April 1, 200610
.19(16)

1998 Equity Incentive Plan
    (formerly known as 1998 Stock Option Plan).*10
.20(17)

Employment Agreement between
    Digital River, Inc. and Carter D. Hicks.*10
.21(17)

Employment Offer Letter between
    Digital River, Inc. and Thomas M. Donnelly.*10
.24(18)

Form of Amendment to Non-Qualified
    Stock Option Agreement.*10
.25(19)

Inducement Equity Incentive Plan.*12
.1++

Computation of Ratio of Earnings
    to Fixed Charges.21
.1++

Subsidiaries of Digital River, Inc.23
.1++

Consent of Independent Registered
    Public Accounting Firm, dated March 1, 2007.24
.1++

Power of Attorney, pursuant to
    which amendments to this Annual Report on
    Form 10-K
    may be filed, is included on the signature pages of this Annual
    Report on
    Form 10-K.31
.1++

Certification of Digital River,
    Inc.s Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2++

Certification of Digital River,
    Inc.s Chief Financial Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
++

Certification of Digital River,
    Inc.s Chief Executive Officer and Chief Financial Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     ++
    
    Filed herewith.*
    
    Management contract or compensatory plan.
    
    Confidential treatment has been requested for portions of this
    agreement, which portions have been filed  separately with
    the SEC.(1)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 4, 2004.(2)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on February 11, 2002.(3)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on April 15, 2002.(4)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on June 1, 2006.(5)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 1999, filed on
    March 30, 2000.(6)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2000, filed on
    March 27, 2001.(7)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File
    No. 333-56787),
    declared effective on August 11, 1998.(8)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File
    No. 333-105864)
    filed on June 5, 2003. 64




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##### Table of Contents



(9)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended June 30, 2003, filed on August 14, 2003.(10)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended March 31, 2003, filed on May 15, 2003.(11)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended September 30, 2003, filed on
    November 13, 2003.(12)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2003, filed on
    March 15, 2004.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(14)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on January 20, 2005.(15)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on February 16, 2006.(16)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(17)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 5, 2005.(18)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended June 30, 2005, filed on August 9, 2005.(19)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005. 65




---



##### Table of Contents



SIGNATURES
  Form 10-K
    By:
    /s/  Joel
    A. Ronning     Form 10-K
  Form 10-K
  Signature

Title

Date/s/  Joel
    A. RonningJoel
    A. Ronning

Chief Executive Officer and
    Director (Principal Executive Officer)

March 1, 2007/s/  Thomas
    M. DonnellyThomas
    M. Donnelly

Chief Financial Officer and
    Treasurer (Principal Financial and Accounting Officer)

March 1, 2007/s/  Perry
    W. SteinerPerry
    W. Steiner

Director

March 1, 2007/s/  William
    LansingWilliam
    Lansing

Director

March 1, 2007/s/  Thomas
    F. MadisonThomas
    F. Madison

Director

March 1, 2007/s/  J.
    Paul ThorinJ.
    Paul Thorin

Director

March 1, 2007/s/  Frederic
    SeegalFrederic
    Seegal

Director

March 1, 2007  66




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm                 /s/  Ernst &
    Young LLP
    67




---



##### Table of Contents



DIGITAL
    RIVER, INC.



Consolidated
    Balance Sheets  December 31,


December 31,2006


2005As Restated(1)(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
390,243


$
131,770Short-term investments


235,699



220,569Accounts receivable, net of
    allowance of $2,339 and $1,023


52,392



34,883Deferred income taxes


19,687



22,660Prepaid expenses and other


6,025



3,741Total current assets


704,046



413,623Property and equipment, net


24,079



17,955Goodwill


243,799



195,299Intangible assets, net of
    accumulated amortization of $50,092 and $36,798


21,106



20,054Deferred income taxes


1,276



10,444Other assets


11,957



12,174TOTAL ASSETS

$
1,006,263


$
669,549LIABILITIES AND
    STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
141,386


$
127,846Accrued payroll


12,097



8,866Deferred revenue


7,040



5,403Accrued acquisition liabilities


5,654



5,651Other accrued liabilities


39,982



21,210Total current liabilities


206,159



168,976NON-CURRENT LIABILITIES:Convertible senior notes


195,000



195,000Other liabilities


1,345



22Total non-current liabilities


196,345



195,022TOTAL LIABILITIES


402,504



363,998COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred Stock, $.01 par
    value; 5,000,000 shares authorized; no shares issued or
    outstanding






Common Stock, $.01 par value;
    120,000,000 shares authorized; 40,458,093 and
    35,033,741 shares issued and outstanding


404



350Additional paid-in capital


546,758



325,249Deferred compensation






(1,990
)Retained earnings/(accumulated
    deficit)


44,989



(15,627
)Accumulated other comprehensive
    income (loss)


11,608



(2,431
)Total stockholders equity


603,759



305,551TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
1,006,263


$
669,549     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.   68




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##### Table of Contents



DIGITAL
    RIVER, INC.



Consolidated
    Statements of Operations  For the Years Ended December 312006


2005


2004As Restated(1)


As Restated(1)(In thousands)Revenue

$
307,632


$
220,408


$
154,130Costs and expensesDirect cost of services


7,709



5,063



5,167Network and infrastructure


29,250



19,817



15,164Sales and marketing


113,462



69,371



52,083Product research and development


32,341



20,690



14,293General and administrative


34,158



21,484



17,006Depreciation and amortization


10,983



8,833



8,203Amortization of
    acquisition-related intangibles


12,134



8,730



8,269Total costs and expenses


240,037



153,988



120,185Income from operations


67,595



66,420



33,945Other income, net


21,887



4,967



1,641Income before income tax expense


89,482



71,387



35,586Income tax expense


28,672



14,875



1,079Net income

$
60,810


$
56,512


$
34,507Net income per share 
    basic

$
1.58


$
1.64


$
1.07Net income per share 
    diluted

$
1.40


$
1.41


$
0.94Shares used in per-share
    calculation  basic


38,593



34,536



32,328Shares used in per-share
    calculation  diluted


44,642



41,448



38,532     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.   69




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##### Table of Contents



DIGITAL
    RIVER, INC.



Consolidated
    Statements of Stockholders Equity  RetainedAdditional





Accumulated


Earnings


TotalCommon Stock


Paid-In


Deferred


Comprehensive


(Accumulated


Stockholders


ComprehensiveShares


Amount


Capital


Compensation


Income (Loss)


Deficit)


Equity


Income (Loss)As


As





As


As


AsRestated(1)


Restated(1)





Restated(1)


Restated(1)


Restated(1)(In thousands)BALANCE, December 31, 2003 as
    previously reported


31,498


$
315


$
217,981


$



$
44


$
(86,488
)

$
131,852


$
17,180Adjustments to opening
    shareholders equity










11,798



(1,143
)






(10,655
)






(1,241
)BALANCE, December 31, 2003 as
    restated


31,498


$
315


$
229,779


$
(1,143
)

$
44


$
(97,143
)

$
131,852


$
15,939Net income






















34,507



34,507



34,507Unrealized (loss) on investments


















(275
)






(275
)


(275
)Foreign currency translation (loss)


















(99
)






(99
)


(99
)Common stock issued for acquisitions


160



2



5,342















5,344



Exercise of stock options


1,943



19



19,700















19,719



Stock-based compensation










15



802











817



Common stock issued under the
    Employee Stock Purchase Plan


51



1



903















904



BALANCE, December 31, 2004


33,652


$
337


$
255,739


$
(341
)

$
(330
)

$
(62,636
)

$
192,769


$
34,133Net income






















56,512



56,512



56,512Unrealized (loss) on investments


















(776
)






(776
)


(776
)Foreign currency translation (loss)


















(1,325
)






(1,325
)


(1,325
)Repurchase of common stock


(483
)


(5
)


(3,637
)










(9,503
)


(13,145
)


Exercise of stock options


1,718



17



23,182















23,199



Stock-based compensation










(2,053
)


293











(1,760
)


Inducement Equity Incentive Plan


64



1



1,971



(1,942
)










30



Tax benefit of stock-based
    compensation










47,848















47,848



Common stock issued under the
    Employee Stock Purchase Plan


83







2,199















2,199



BALANCE, December 31, 2005


35,034


$
350


$
325,249


$
(1,990
)

$
(2,431
)

$
(15,627
)

$
305,551


$
54,411Net income






















60,810



60,810



60,810Reclassification of deferred
    compensation balance upon adoption of SFAS 123(R)










(1,990
)


1,990















Unrealized gain (loss) on
    investments


















576







576



576Foreign currency translation gain
    (loss)


















13,463







13,463



13,463Sale of common stock


4,000



40



172,740















172,780



Stock Issued for Acquisition


28







1,175











(3
)


1,172



Exercise of stock options


1,220



12



21,106















21,118



Stock-based compensation


113



1



13,903















13,904



Tax withheld in restricted stock
    vesting


(8
)






(235
)










(191
)


(426
)


Tax benefit of stock-based
    compensation










12,700















12,700



Common stock issued under the
    Employee Stock Purchase Plan


71



1



2,110















2,111



BALANCE, December 31, 2006


40,458


$
404


$
546,758


$



$
11,608


$
44,989


$
603,759


$
74,849     (1)
    
    See Note 2, Restatement
    of Consolidated Financial Statements, in Notes to
    Consolidated Financial Statements.   70




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##### Table of Contents



DIGITAL
    RIVER, INC.
  Consolidated
    Statements of Cash Flows
  For the Years Ended December 312006


2005


2004As Restated(1)


As Restated(1)(In thousands)OPERATING ACTIVITIES:Net income

$
60,810


$
56,512


$
34,507Adjustments to reconcile net income
    to net cash provided by operating activities:Amortization of acquisition-related
    intangibles


12,134



8,730



8,269Change in accounts receivable
    allowance, net of acquisitions


1,215



(598
)


709Depreciation and amortization


10,983



8,833



8,203Stock-based compensation expense
    related to stock-based compensation plans


13,904



293



817Tax benefit of stock-based
    compensation






45,417



Excess tax benefits from
    stock-based compensation


(8,980
)






Deferred income taxes and other


19,583



(34,789
)


Litigation and other charges






(739
)


1,090Change in operating assets and
    liabilities (net of acquisitions):Accounts receivable


(14,678
)


(10,304
)


(8,223
)Prepaid and other assets


(1,293
)


(2,417
)


1,037Accounts payable


3,701



34,822



34,433Deferred revenue


811



1,395



(230
)Income tax payable


8,126



2,740



143Accrued payroll and other accrued
    liabilities


11,190



9,859



4,380Net cash provided by operating
    activities


117,506



119,754



85,135INVESTING ACTIVITIES:Purchases of investments


(193,609
)


(190,713
)


(199,699
)Sales of investments


179,296



127,771



94,059Cash paid for acquisitions, net of
    cash received


(37,800
)


(54,177
)


(126,457
)Purchases of equipment and
    capitalized software


(15,907
)


(8,328
)


(9,255
)Net cash used in investing
    activities


(68,020
)


(125,447
)


(241,352
)FINANCING ACTIVITIES:Principal amount on line of credit










45,000Repayment of principal on line of
    credit










(45,000
)Proceeds from convertible senior
    notes










188,371Proceeds from sales of common stock


172,780







Exercise of stock options


21,118



23,199



19,719Sales of common stock under
    employee stock purchase plan


2,109



2,199



904Repurchase of common stock






(13,145
)


Repurchase of restricted stock to
    satisfy tax witholding obligation


(426
)






Excess tax benefits from
    stock-based compensation


8,980







Net cash provided by financing
    activities


204,561



12,253



208,994EFFECT OF EXCHANGE RATE CHANGES ON
    CASH


4,426



(2,524
)


2,072NET INCREASE IN CASH AND CASH
    EQUIVALENTS


258,473



4,036



54,849CASH AND CASH EQUIVALENTS,
    beginning of period


131,770



127,734



72,885CASH AND CASH EQUIVALENTS, end of
    period

$
390,243


$
131,770


$
127,734SUPPLEMENTAL DISCLOSURES:Cash paid for interest on
    Convertible Senior Notes

$
2,438


$
2,641


$
Cash paid for income taxes

$
2,006


$
193


$
Noncash investing and financing
    activities:Common stock issued in acquisitions
    and earn-outs

$
1,172


$



$
5,344     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.   71




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##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to Consolidated Financial Statements
  1.
    Nature of
    Operations and Summary of Significant Accounting
    Policies:  e-commerce
  Principles
    of Consolidation and Classification
    Foreign
    Currency Translation
    Cash
    and Cash Equivalents
    Short-Term
    Investments
  available-for-sale available-for-sale
  Property
    and Equipment
   72




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    2006


2005Computer hardware and software

$
46,326


$
44,849Furniture, fixtures and leasehold
    improvements


10,055



7,151Total property and equipment

$
56,381


$
52,000Accumulated depreciation


(32,302
)


(34,045
)Net property and equipment

$
24,079


$
17,955   Purchased
    Intangible Assets
    Long-Lived
    Assets
    Fair
    Value of Financial Instruments
   73




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   Other
    Assets
    2006


2005Unamortized debt financing costs

$
5,630


$
5,960Cost of investment


6,000



6,000Other


327



214Total other assets

$
11,957


$
12,174     Other
    Accrued Liabilities
    2006


2005Accrued expenses

$
15,212


$
12,451Sales, value-added and transaction
    taxes


13,394



5,479Current income taxes


11,376



3,280Total other accrued liabilities

$
39,982


$
21,210   Comprehensive
    Income
      Revenue
    Recognition
  (
  No. 99-19,
 74




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
  e-commerce
        Deferred
    Revenue
    Advertising
    Costs
    Income
    Taxes
    Other
    Income, Net
   75




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    Use of
    Estimates
    Research
    and Development and Software Development
  No. 98-1,
  Stock-Based
    Compensation Expense
         76




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
        Recent
    Accounting Pronouncements
  ,
      No. FAS 115-1, Other-Than-Temporary 115-1). 115-1 other-than-temporary 03-01, Other-Than-Temporary 115-1
  2.
    Restatement
    of Consolidated Financial Statements   77




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
  Form 10-K
    Form 10-K.
           78




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
      Grants
    to Directors.
    Grants
    to Section 16 Officers.
    Grants
    to Employees and Consultants (inclusive of follow-on, new hire,
    and promotion grants).
     79




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     Pre-Tax


After TaxExpense


ExpenseFiscal Year

(Income)


(Income)1998

$
172


$
1721999


3,211



3,2112000


2,238



2,2382001


2,114



2,1142002


1,679



1,6792003


1,241



1,241Total
    1998-2003
    impact


10,655



10,6552004


817



8172005


293



(2,169
)2006


135



85Total

$
11,900


$
9,388  80




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    December 31, 2005As Reported


Adjustments


As Restated(1)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
131,770


$



$
131,770Short-term investments


220,569







220,569Accounts receivable, net of
    allowance of $1,023


34,883







34,883Deferred income taxes


22,251



409



22,660Prepaid expenses and other


3,741







3,741Total current assets


413,214



409



413,623Property and equipment, net


17,955







17,955Goodwill


195,299







195,299Intangible assets, net of
    accumulated amortization of $36,798


20,054







20,054Deferred income taxes


10,444







10,444Other assets


12,174







12,174TOTAL ASSETS

$
669,140


$
409


$
669,549LIABILITIES AND
    STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
127,846


$



$
127,846Accrued payroll


8,866







8,866Deferred revenue


5,403







5,403Accrued acquisition costs


5,651







5,651Other accrued liabilities


21,210







21,210Total current liabilities


168,976







168,976NON-CURRENT LIABILITIES:Convertible senior notes


195,000







195,000Other liabilities


22







22Total non-current liabilities


195,022







195,022TOTAL LIABILITIES


363,998







363,998COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred Stock, $.01 par
    value; 5,000,000 shares authorized; no shares issued or
    outstanding










Common Stock, $.01 par value;
    120,000,000 shares authorized; 35,033,741 shares
    issued and outstanding


350







350Additional paid-in capital


315,489



9,760



325,249Deferred compensation


(1,942
)


(48
)


(1,990
)Retained earnings/(accumulated
    deficit)


(6,324
)


(9,303
)


(15,627
)Accumulated other comprehensive
    income (loss)


(2,431
)






(2,431
)Total stockholders equity


305,142



409



305,551TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
669,140


$
409


$
669,549     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 81




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##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    2005


2004As Previously





As


As Previously





AsReported


Adjustments


Restated(1)


Reported


Adjustments


Restated(1)Statement of Operations
    Data:Revenue

$
220,408


$



$
220,408


$
154,130


$



$
154,130Costs and expenses (exclusive of
    depreciation and amortization expense shown separately below)Direct cost of services


5,013



50



5,063



5,013



154



5,167Network and infrastructure


19,814



3



19,817



15,143



21



15,164Sales and marketing


69,256



115



69,371



51,749



334



52,083Product research and development


20,575



115



20,690



14,097



196



14,293General and administrative


21,474



10



21,484



16,894



112



17,006Depreciation and amortization


8,833







8,833



8,203







8,203Amortization of acquisition related
    intangibles


8,730







8,730



8,269







8,269Total costs and expenses


153,695



293



153,988



119,368



817



120,185Income (loss) from operations


66,713



(293
)


66,420



34,762



(817
)


33,945Other income, net


4,967







4,967



1,641







1,641Income (loss) before income tax
    expense


71,680



(293
)


71,387



36,403



(817
)


35,586Income tax expense


17,337



(2,462
)


14,875



1,079







1,079Net income (loss)

$
54,343


$
2,169


$
56,512


$
35,324


$
(817
)

$
34,507Net income (loss) per
    share  basic

$
1.57


$
0.06


$
1.64


$
1.09


$
(0.02
)

$
1.07Net income (loss) per
    share  diluted

$
1.36


$
0.05


$
1.41


$
0.96


$
(0.02
)

$
0.94Shares used in per-share
    calculation  basic


34,536



34,536



34,536



32,328



32,328



32,328Shares used in per-share
    calculation  diluted


41,448



41,448



41,448



38,532



38,532



38,532     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 82




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    DIGITAL
    RIVER, INC.
  Consolidated
    Statements of Cash Flows For the Years Ended
    December 31,
  2005


2004As Previously








As PreviouslyReported


Adjustments


As Restated(1)


Reported


Adjustments


As Restated(1)(In thousands)OPERATING ACTIVITIES:Net income

$
54,343


$
2,169


$
56,512


$
35,324


$
(817
)

$
34,507Adjustments to reconcile net income
    to net cash provided by operating activities:Amortization of acquisition-related
    intangibles


8,730







8,730



8,269







8,269Change in accounts receivable
    allowance, net of acquisitions


(598
)






(598
)


709







709Depreciation and amortization


8,833







8,833



8,203







8,203Stock-based compensation expense
    related to stock-based compensation plans






293



293







817



817Tax benefit of stock-based
    compensation


47,879



(2,462
)


45,417











Excess tax benefits from
    stock-based compensation






















Deferred income taxes and other


(34,789
)






(34,789
)










Litigation and other charges


(739
)






(739
)


1,090







1,090Change in operating assets and
    liabilities (net of acquisitions):Accounts receivable


(10,304
)






(10,304
)


(8,223
)






(8,223
)Prepaid and other assets


(2,417
)






(2,417
)


1,037







1,037Accounts payable


34,822







34,822



34,433







34,433Deferred revenue


1,395







1,395



(230
)






(230
)Income tax payable


2,740







2,740



143







143Accrued payroll and other accrued
    liabilities


9,859







9,859



4,380







4,380Net cash provided by operating
    activities


119,754







119,754



85,135







85,135INVESTING ACTIVITIES:Purchases of investments


(190,713
)






(190,713
)


(199,699
)






(199,699
)Sales of investments


127,771







127,771



94,059







94,059Cash paid for acquisitions, net of
    cash received


(54,177
)






(54,177
)


(126,457
)






(126,457
)Purchases of equipment and
    capitalized software


(8,328
)






(8,328
)


(9,255
)






(9,255
)Net cash used in investing
    activities


(125,447
)






(125,447
)


(241,352
)






(241,352
)FINANCING ACTIVITIES:Principal amount on line of credit














45,000







45,000Repayment of principal on line of
    credit














(45,000
)






(45,000
)Proceeds from convertible senior
    notes














188,371







188,371Proceeds from sales of common stock






















Exercise of stock options


23,199







23,199



19,719







19,719Sales of common stock under
    employee stock purchase plan


2,199







2,199



904







904Repurchase of common stock


(13,145
)






(13,145
)










Repurchase of restricted stock to
    satisfy tax witholding obligation






















Excess tax benefits from
    stock-based compensation






















Net cash provided by financing
    activities


12,253







12,253



208,994







208,994EFFECT OF EXCHANGE RATE CHANGES ON
    CASH


(2,524
)






(2,524
)


2,072







2,072NET INCREASE IN CASH AND CASH
    EQUIVALENTS


4,036







4,036



54,849







54,849CASH AND CASH EQUIVALENTS,
    beginning of period


127,734







127,734



72,885







72,885CASH AND CASH EQUIVALENTS, end of
    period

$
131,770


$



$
131,770


$
127,734


$



$
127,734SUPPLEMENTAL DISCLOSURES:Cash paid for interest on
    Convertible Senior Notes

$
2,641


$



$
2,641


$



$



$
Cash paid for income taxes

$
193


$



$
193


$



$



$
Noncash investing and financing
    activities:Common stock issued in acquisitions
    and earn-outs

$



$



$



$
5,344


$



$
5,344     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 83




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    Additional Paid in


Deferred Stock





Net Impact toFiscal Year

Capital


Compensation


Retained Earnings


Shareholders Equity1998

$
5,170


$
(4,998
)

$
(172
)

$
1999


8,429



(5,046
)


(3,383
)


2000


8,293



(2,672
)


(5,621
)


2001


11,103



(3,368
)


(7,735
)


2002


11,783



(2,368
)


(9,415
)


2003


11,798



(1,143
)


(10,655
)


2004


11,813



(341
)


(11,472
)


2005

$
9,761


$
(48
)

$
(9,304
)

$
409   3.
    Net
    Income per Share:      For the Years Ended December 31,2006


2005


2004Restated(1)


Restated(1)Earnings per share 
    basicNet income  basic

$
60,810


$
56,512


$
34,507Weighted average shares
    outstanding  basic


38,593



34,536



32,328Earnings per share 
    basic

$
1.58


$
1.64


$
1.07Earnings per share 
    dilutedNet income  basic

$
60,810


$
56,512


$
34,507Exclude: Interest expense and
    amortized financing cost of convertible senior notes, net of tax
    benefit


1,739



2,099



1,772Net income  diluted

$
62,549


$
58,611


$
36,279Weighted average shares
    outstanding  basic


38,593



34,536



32,328Dilutive impact of non-vested
    stock and options outstanding


1,624



2,487



3,626Dilutive impact of convertible
    senior notes


4,425



4,425



2,578Weighted average shares
    outstanding  diluted


44,642



41,448



38,532Earnings per share 
    diluted

$
1.40


$
1.41


$
0.94     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 84




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   No. 04-8,
  4.
    Short-Term
    Investments:  available-for-sale
  Unrealized Gain/(Loss)





Maturities/Reset DatesLess Than 12


Greater Than 12





Less Than 12Cost


Months


Months


Fair Value


Months


1 to 3 Years2006U.S. government sponsored
    entities

$
142,473


$
(441
)

$
(208
)

$
141,824


$
79,961


$
61,863Student loan bonds


35,000











35,000



35,000



Other


58,875











58,875



58,875



Total
    available-for-sale
    securities

$
236,348


$
(441
)

$
(208
)

$
235,699


$
173,836


$
61,8632005U.S. government sponsored
    entities

$
147,982


$
(1,277
)

$
(189
)

$
146,516


$
64,003


$
82,513Student loan bonds


60,000











60,000



60,000



Other


14,053











14,053



14,053



Total
    available-for-sale
    securities

$
222,035


$
(1,277
)

$
(189
)

$
220,569


$
138,056


$
82,513    85




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   5.
    Business
    Combinations, Goodwill and Intangible Assets:    Initial


Initial











Other Intangible AssetsShares


Purchase


Acquired


Assumed





Technology/


Customer


Non-CompeteAcquisition

Issued


Consideration


Assets


Liabilities


Goodwill


Tradenames


Relationships


Agreements2006Mindvision, Inc.





$
24,975


$
2,555


$
(8,036
)

$
18,859


$
3,170


$
4,490


$
40Direct ResponseTechnologies, Inc.






14,876



1,573



(3,723
)


11,343



2,465



3,620



Total





$
39,851


$
4,128


$
(11,759
)

$
30,202


$
5,635


$
8,110


$
402005Commerce5, Inc.





$
45,000


$
3,321


$
(5,501
)

$
38,737


$
1,607


$
7,639


$
SWReg






8,800



5,373



(6,464
)


9,090



589



1,747



Total





$
53,800


$
8,694


$
(11,965
)

$
47,827


$
2,196


$
9,386


$
2004element 5, AG





$
120,000


$
14,662


$
(16,673
)

$
110,775


$
5,654


$
7,814


$
784Fireclick, Inc.






7,500



451



(111
)


7,512



701







250BlueHornet Networks, Inc.


160



1,176



756



(280
)


4,280



836



1,104



250Total


160


$
128,676


$
15,869


$
(17,064
)

$
122,567


$
7,191


$
8,918


$
1,284     Acquisitions
    completed in 2006
  e-commerce
    Acquisitions
    completed in 2005
  e-commerce
 86




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   e-commerce
  Acquisitions
    completed in 2004
  e-commerce
    Accrual








Accrual








Accrual





AccrualApril 16,


Net





December 31,


Adjust-





December 31,





December 31,2004


Additions


Charges


2004


ments


Charges


2005


Charges


2006Shareholder escrow

$



$
2,500


$



$
2,500


$



$
(1,250
)

$
1,250


$
(1,250
)

$
Employee severance costs


700



2,100



(400
)


2,400



(200
)


(1,250
)


950



(451
)


499Facilities consolidation


200



100



(300
)






















Total

$
900


$
4,700


$
(700
)

$
4,900


$
(200
)

$
(2,500
)

$
2,200


$
(1,701
)

$
499   return-on-investment,
  e-mail
 87




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
      Pro
    Forma Operating Results (Unaudited)
    2006


2005


2004As Restated(1)


As Restated(1)Revenue

$
311,090


$
242,488


$
178,814Income from operations


67,213



63,606



24,832Net income


60,208



53,954



25,594Diluted income per share

$
1.39


$
1.32


$
0.69     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.    Goodwill
     88




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     TotalBalance as of December 31,
    2004

$
148,086Goodwill from acquisitions and
    earn-outs


49,096Adjustments(1)


(1,883
)Balance as of December 31,
    2005

$
195,299Goodwill from acquisitions and
    earn-outs


35,883Adjustments(1)


12,617Balance as of December 31,
    2006

$
243,799     (1)
    
    Adjustments to goodwill during the year ended December 31,
    2006 and December 31, 2005, resulted primarily from foreign
    currency translation adjustments relating to goodwill associated
    with our current and prior period acquisitions.  Intangible
    Assets
    As of December 31, 2006Carrying Amount


Accumulated


Carrying AmountGross


Amortization


NetCustomer relationships

$
43,072


$
28,890


$
14,182Non-compete agreements


5,251



5,017



234Technology/tradename


22,875



16,185



6,690Total

$
71,198


$
50,092


$
21,106   As of December 31, 2005Carrying Amount


Accumulated


Carrying AmountGross


Amortization


NetCustomer relationships

$
34,666


$
21,103


$
13,563Non-compete agreements


5,121



4,300



821Technology/tradename


17,065



11,395



5,670Total

$
56,852


$
36,798


$
20,054     2006(1)


2005


2004Weighted





Weighted





WeightedAverage





Average





AverageAmount


Life


Amount


Life


Amount


LifeCustomer relationships

$
8,110



8 years


$
9,386



4 years


$
8,918



3 yearsNon-compete agreements


40



4 years











1,284



3 yearsTechnology/tradename


5,635



4 years



2,196



4 years



7,191



3 yearsTotal

$
13,785



6 years


$
11,582



4 years


$
17,393



3 years  89




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    Year2007

$
6,6832008


4,1922009


3,2812010


1,8362011


1,246Thereafter


3,868Total

$
21,106     2006


2005Tangible assets

$
4,128


$
8,694Liabilities assumed


(11,759
)


(11,965
)Customer relationships


8,110



9,386Non-compete agreements


40



Technology/tradename


5,635



2,196Goodwill (year of acquisition)


30,202



47,827Goodwill (subsequent to year of
    acquisition)






985Net assets acquired

$
36,356


$
57,123   6.
    Stock-Based
    Compensation:      Expense
    Information under SFAS 123(R)
   90




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    2006 Three Months Ended


Year EndedMarch 31


June 30


September 30


December 31


December 31, 2006(In thousands)


(In thousands)Costs and expensesDirect cost of services

$
214


$
218


$
197


$
213


$
842Network and infrastructure


86



84



78



81



329Sales and marketing


1,289



1,323



1,268



1,302



5,182Product research and development


585



591



556



560



2,292General and administrative


1,239



1,303



1,357



1,360



5,259Stock-based compensation included
    in costs and expenses


3,413



3,519



3,456



3,516



13,904Tax benefit


(1,200
)


(1,218
)


(1,221
)


(1,229
)


(4,868
)Stock-based compensation expense,
    net of tax

$
2,213


$
2,301


$
2,235


$
2,287


$
9,036     For the Years Ended December 31,Pro Forma


Pro Forma2006


2005


2004As Restated(1)


As Restated(1)Net income, as reported for prior
    periods(2)

$
N/A


$
56,512


$
34,507Stock-based compensation expense
    included in reported net income, net of tax






184



817Stock-based compensation expense
    determined under the fair value based method for all awards


(13,904
)


(13,170
)


(27,236
)Tax benefit(3)


4,868



4,588



0Stock-based compensation expense,
    net of tax(4)


(9,036
)


(8,582
)


(27,236
)Net income, including the effect of
    stock-based compensation expense(5)

$
60,810


$
48,114


$
8,088Basic net income per
    share  as reported for prior periods(1)(2)


N/A


$
1.64


$
1.07Diluted net income per
    share  as reported for prior periods(1)(2)


N/A


$
1.41


$
0.94Basic net income per share,
    including the effect of stock-based compensation expense(5)

$
1.58


$
1.39


$
0.25Diluted net income per share,
    including the effect of stock-based compensation expense(5)

$
1.40


$
1.24


$
0.26     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 91




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   (2)
    
    Net income and net income per share prior to 2006 did not
    include stock-based compensation expense under SFAS 123
    because we were following the provisions of APB 25.(3)
    
    No tax benefit was recorded prior to the removal of the
    valuation allowance on certain deferred tax assets in the fourth
    quarter of 2005.(4)
    
    Total stock-based compensation expense prior to 2006 is
    calculated based on the pro forma application of SFAS 123.(5)
    
    Net income and net income per share prior to 2006 represents pro
    forma information based on SFAS 123.  Valuation
    Information under SFAS 123(R)
    2006


2005


2004As Restated(1)


As Restated(1)Risk-free interest rate


5
%


4
%


4
%Expected life (years)


4.08



3.14



1-4Volatility factor


0.59



0.68



1.3Expected dividends










Weighted average fair value of
    options granted

$
19.00


$
13.71


$
13.00         7.
    Income
    Taxes:    Year Ended December 31,2006


2005


2004As Restated(1)


As Restated(1)United States

$
65,171


$
65,054


$
32,961International


24,311



6,333



2,625Total

$
89,482


$
71,387


$
35,586     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 92




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     Year Ended December 31,2006


2005


2004As Restated(1)


As Restated(1)Current tax expense (benefit):United States federal

$
34,362


$
20,825


$
State and local


2,160



1,484



International


2,915



3,825



1,079Total current provision for income
    taxes


39,437



26,134



1,079Deferred tax expense (benefit):United States federal


(10,136
)


(10,288
)


State and local


(637
)


(647
)


International


8



(324
)


Total deferred provision (benefit)
    for income taxes


(10,765
)


(11,259
)


Provision for income taxes

$
28,672


$
14,875


$
1,079     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.    Year Ended December 31,2006


2005


2004As Restated(1)


As Restated(1)Tax expense at statutory rate

$
31,319


$
24,986


$
12,455State taxes, net of federal benefit


1,469



1,359



1,484International rate differential


(3,193
)


(1,561
)


128Tax Credits


(1,909
)






Non-deductible goodwill and
    earn-out compensation










183Nondeductible expense and other


986



1,801



1,012Change in valuation allowance






(11,710
)


(14,183
)Total

$
28,672


$
14,875


$
1,079     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 93




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    2006


2005As Restated(1)Deferred tax assets:Net operating loss and credit
    carryforwards

$
30,302


$
48,353Nondeductible reserves and accruals


6,123



2,854Depreciation and amortization


4,522



5,475Valuation allowance


(12,960
)


(17,504
)Total deferred tax assets


27,987



39,178Deferred tax liabilities:Depreciation






(788
)Other intangibles


(7,540
)


(5,706
)Total deferred tax liabilities


(7,540
)


(6,494
)Net deferred tax assets

$
20,447


$
32,684     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.    paid-in-capital
      step-up
 94




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    8.
    Commitments
    and Contingencies:  Leases
    Year Ending December 31,

Lease Obligations2007

$
3,9642008


2,8932009


1,3952010


8502011


362Thereafter


5,306Total future minimum obligations

$
14,770   Litigation
    time-to-time
  Indemnification
    Provisions
   95




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
      9.
    Long-Term
    Debt:           96




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
   10.
    Stockholders
    Equity:  Share
    Repurchase Program
    11.
    Employee
    Benefit Plans:  Option
    and Restricted Stock Awards
       97




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     WeightedShares





Options


AverageAvailable


Options


Price


Pricefor Grant


Outstanding


per Share


per ShareBalance, December 31, 2003


3,461,199



6,652,096



$ 1.69 - $31.13


$
10.87Granted


(1,603,600
)


1,603,600



20.60 - 24.86



22.83Exercised






(1,942,212
)


2.59 - 31.13



10.15Canceled/expired


596,944



(596,944
)


2.59 - 31.13



15.93Balance, December 31, 2004


2,454,543



5,716,540



$ 1.69 - $31.13


$
13.94Granted


(846,678
)


846,678



23.90 - 30.69



28.15Exercised






(1,719,114
)


1.69 - 30.69



13.50Canceled/expired


320,719



(320,719
)


3.88 - 27.40



15.15Balance, December 31, 2005


1,928,584



4,523,385



$ 2.59 - $31.13


$
16.69Granted


(395,000
)


395,000



29.75 - 57.36



38.64Restricted stock effect on shares
    available for grant


(134,250
)


N/A



N/A



N/AExercised






(1,219,736
)


2.59 - 45.24



17.31Canceled/expired


140,866



(140,866
)


2.59 - 30.69



22.57Balance, December 31, 2006


1,540,200



3,557,783



$ 2.59 - $57.36


$
18.68     Options Outstanding


Options ExercisableWeighted


Weighted


Aggregate





Weighted


AggregateNumber


Average


Average


Intrinsic


Number


Average


IntrinsicExercise Price


Outstanding


Life Remaining


Price


Value


Exercisable


Price


Value$ 2.59 - $ 3.88



122,433



1.8 years


$
2.96


$
6,468,315



122,433


$
2.96


$
6,468,3154.56 -  7.55



806,923



4.2 years



5.32



40,723,068



806,923



5.32



40,723,0689.12 - 13.92



729,486



5.8 years



11.65



32,199,619



580,402



11.86



25,497,18116.72 - 22.98



627,899



6.8 years



22.20



21,089,713



412,757



22.52



13,733,27623.01 - 31.13



929,445



8.1 years



27.65



26,158,720



217,766



27.88



6,077,86931.14 - 57.36



341,597



9.3 years



39.98



5,400,636



41,003



35.39



836,605$ 2.59 - $57.36



3,557,783



6.4 years


$
18.68


$
132,040,071



2,181,284


$
13.00


$
93,336,315      98




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
    WeightedRestricted


AverageStock


Fair ValueNon-Vested Balance,
    December 31, 2005





$
Granted


89,500



39.96Vested






Forfeited






Non-Vested Balance,
    December 31, 2006


89,500


$
39.96   Employee
    Stock Purchase Plan
    Inducement
    Equity Incentive Plan
    Employee
    Benefit Plan
    12.
    Segment
    Information:  e-commerce
  E-Business
 99




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     2006


2005


2004United States

$
180,905


$
135,110


$
106,350Europe


87,854



59,951



35,450Other


38,873



25,347



12,330Total

$
307,632


$
220,408


$
154,130       2006


2005United States


Europe


United States


EuropeTotal property and equipment

$
46,997


$
9,384


$
46,694


$
5,306Accumulated depreciation


(27,904
)


(4,398
)


(30,691
)


(3,354
)Net property and equipment

$
19,093


$
4,986


$
16,003


$
1,952Total intangible assets

$
55,590


$
15,608


$
42,871


$
13,981Accumulated amortization


(36,021
)


(14,071
)


(28,995
)


(7,803
)Net intangible assets

$
19,569


$
1,537


$
13,876


$
6,178Total goodwill

$
145,454


$
120,800


$
109,374


$
108,380Accumulated amortization


(22,455
)






(22,455
)


Net goodwill

$
122,999


$
120,800


$
86,919


$
108,380   13.
    Selected
    Quarterly Financial Information (Unaudited)    Quarter EndedMarch 31


June 30


September 30


December 31(In thousands, except per share data)2006Revenue

$
78,014


$
71,277


$
75,337


$
83,004Income from operations


20,824



14,189



14,565



18,017Net income


16,377



13,289



14,788



16,355Net income per share 
    basic

$
0.46


$
0.34


$
0.37


$
0.41Net income per share 
    diluted

$
0.41


$
0.30


$
0.33


$
0.36   100




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
  Quarter EndedMarch 31


June 30


September 30


December 31As Restated(1)


As Restated(1)


As Restated(1)


As Restated(1)(In thousands, except per share data)2005Revenue

$
54,529


$
51,143


$
53,179


$
61,557Income from operations


17,661



14,489



15,460



18,810Net income


15,905



10,178



12,313



18,116Net income per share 
    basic

$
0.47


$
0.30


$
0.35


$
0.52Net income per share 
    diluted

$
0.39


$
0.26


$
0.31


$
0.45     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, and Note 13, Selected Quarterly  Quarter EndedMarch 31


June 30As Previously








As Previously2005

Reported


Adjustments


As Restated(1)


Reported


Adjustments


As Restated(1)Statement of Operations
    Data:Revenue

$
54,529


$



$
54,529


$
51,143


$



$
51,143Costs and expensesDirect cost of services


1,301



16



1,317



1,187



15



1,202Network and infrastructure


4,479



2



4,481



4,738



1



4,739Sales and marketing


16,376



61



16,437



15,740



23



15,763Product research and development


4,458



39



4,497



5,127



35



5,162General and administrative


5,615



3



5,618



5,301



2



5,303Depreciation and amortization


2,122







2,122



2,375







2,375Amortization of acquisition related
    intangibles


2,396







2,396



2,110







2,110Total costs and expenses


36,747



121



36,868



36,578



76



36,654Income (loss) from operations


17,782



(121
)


17,661



14,565



(76
)


14,489Other income, net


1,155







1,155



891







891Income (loss) before income tax
    expense


18,937



(121
)


18,816



15,456



(76
)


15,380Income tax expense


4,900



(1,989
)


2,911



5,230



(28
)


5,202Net income (loss)

$
14,037


$
1,868


$
15,905


$
10,226


$
(48
)

$
10,178Net income (loss) per
    share  basic

$
0.41


$
0.06


$
0.47


$
0.30


$



$
0.30Net income (loss) per
    share  diluted

$
0.35


$
0.04


$
0.39


$
0.26


$



$
0.26Shares used in per-share
    calculation  basic


33,932



33,932



33,932



34,176



34,176



34,176Shares used in per-share
    calculation  diluted


41,454



41,454



41,454



41,154



41,154



41,154     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 101




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
  Quarter EndedSeptember 30


December 31As Previously








As Previously2005

Reported


Adjustments


As Restated(1)


Reported


Adjustments


As Restated(1)Statement of Operations
    Data:Revenue

$
53,179


$



$
53,179


$
61,557


$



$
61,557Costs and expensesDirect cost of services


1,050



15



1,065



1,475



4



1,479Network and infrastructure


4,983







4,983



5,614







5,614Sales and marketing


16,713



21



16,734



20,428



11



20,439Product research and development


5,210



34



5,244



5,779



7



5,786General and administrative


5,294



2



5,296



5,264



2



5,266Depreciation and amortization


2,308







2,308



2,028







2,028Amortization of acquisition related
    intangibles


2,089







2,089



2,135







2,135Total costs and expenses


37,647



72



37,719



42,723



24



42,747Income (loss) from operations


15,532



(72
)


15,460



18,834



(24
)


18,810Other income, net


1,526







1,526



1,395







1,395Income (loss) before income tax
    expense


17,058



(72
)


16,986



20,229



(24
)


20,205Income tax expense


4,700



(27
)


4,673



2,507



(418
)


2,089Net income (loss)

$
12,358


$
(45
)

$
12,313


$
17,722


$
394


$
18,116Net income (loss) per
    share  basic

$
0.35


$



$
0.35


$
0.50


$
0.01


$
0.52Net income (loss) per
    share  diluted

$
0.31


$



$
0.31


$
0.44


$
0.01


$
0.45Shares used in per-share
    calculation  basic


34,824



34,824



34,824



35,112



35,112



35,112Shares used in per-share
    calculation  diluted


41,972



41,972



41,972



41,244



41,244



41,244     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 102




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
     September 30, 2005


June 30, 2005As Previously








As PreviouslyReported


Adjustments


As Restated(1)


Reported


Adjustments


As Restated(1)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
145,068


$



$
145,068


$
142,221


$



$
142,221Short-term investments


210,217







210,217



179,824







179,824Accounts receivable, net of
    allowance


25,540







25,540



21,903







21,903Deferred income taxes






















Prepaid expenses and other


5,123







5,123



3,109







3,109Total current assets


385,948







385,948



347,057







347,057Property and equipment, net


18,470







18,470



19,314







19,314Goodwill


156,515







156,515



156,279







156,279Intangible assets, net of
    accumulated amortization


13,089







13,089



15,194







15,194Deferred income taxes






















Other assets


9,637







9,637



9,566







9,566TOTAL ASSETS

$
583,659


$



$
583,659


$
547,410


$



$
547,410LIABILITIES AND
    STOCKHOLDERS
    EQUITYCURRENT LIABILITIES:Accounts payable

$
91,983






$
91,983


$
84,879






$
84,879Accrued payroll


7,263







7,263



4,254







4,254Deferred revenue


4,309







4,309



4,419







4,419Accrued acquisition costs


5,297







5,297



6,588







6,588Other accrued liabilities


16,903







16,903



16,987







16,987Total current liabilities


125,755







125,755



117,127







117,127NON-CURRENT LIABILITIES:Convertible senior notes


195,000







195,000



195,000







195,000Other liabilities


3,245







3,245



3,245







3,245Total non-current liabilities


198,245







198,245



198,245







198,245TOTAL LIABILITIES


324,000







324,000



315,372







315,372COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred Stock, $.01 par
    value; 5,000,000 shares authorized; no shares issued or
    outstanding






















Common Stock


352







352



342







342Additional paid-in capital


277,021



9,770



286,791



261,103



9,797



270,900Deferred compensation






(72
)


(72
)






(144
)


(144
)Retained earnings/(accumulated
    deficit)


(16,721
)


(9,698
)


(26,419
)


(29,079
)


(9,653
)


(38,732
)Accumulated other comprehensive
    income (loss)


(993
)






(993
)


(328
)






(328
)Total stockholders equity


259,659







259,659



232,038







232,038TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
583,659


$



$
583,659


$
547,410


$



$
547,410     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements. 103




---



##### Table of Contents



DIGITAL
    RIVER, INC.
   Notes to Consolidated Financial
    Statements  (Continued)
  March 31, 2005As PreviouslyReported


Adjustments


As Restated(1)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
142,786


$



$
142,786Short-term investments


172,826







172,826Accounts receivable, net of
    allowance


22,580







22,580Deferred income taxes










Prepaid expenses and other


6,215







6,215Total current assets


344,407







344,407Property and equipment, net


18,999







18,999Goodwill


154,330







154,330Intangible assets, net of
    accumulated amortization


17,144







17,144Deferred income taxes










Other assets


6,218







6,218TOTAL ASSETS

$
541,098


$



$
541,098LIABILITIES AND
    STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
97,549


$



$
97,549Accrued payroll


3,842







3,842Deferred revenue


4,702







4,702Accrued acquisition costs


3,643







3,643Other accrued liabilities


18,502







18,502Total current liabilities


128,238







128,238NON-CURRENT LIABILITIES:Convertible senior notes


195,000







195,000Other liabilities










Total non-current liabilities


195,000







195,000TOTAL LIABILITIES


323,238







323,238COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred Stock, $.01 par
    value; 5,000,000 shares authorized; no shares issued or
    outstanding










Common Stock


342







342Additional paid-in capital


256,091



9,825



265,916Deferred compensation






(220
)


(220
)Retained earnings/(accumulated
    deficit)


(37,127
)


(9,605
)


(46,732
)Accumulated other comprehensive
    income (loss)


(1,446
)






(1,446
)Total stockholders equity


217,860







217,860TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
541,098


$



$
541,098     (1)
    
    See Note 2, Restatement of Consolidated Financial
    Statements, in Notes to Consolidated Financial Statements.  14.
    Subsequent
    Events   104




---



##### Table of Contents



Digital
    River, Inc.
  Schedule II
    For Years Ended December 31, 2005, 2004 and 2003
    (In thousands)
  Charges toBalance at

Costs and



Balance at2006

Beginning of Year

Expenses

Deductions

End of YearAllowance for doubtful accounts

$
1,023


$
1,426


$
(110
)

$
2,339Accrued chargeback reserve


1,445



2,937



(3,548
)


834   Charges toBalance at

Costs and



Balance at2005

Beginning of Year

Expenses

Deductions

End of YearAllowance for doubtful accounts

$
1,146


$
468


$
(591
)

$
1,023Accrued chargeback reserve


2,246



3,031



(3,832
)


1,445   Charges toBalance at

Costs and



Balance at2004

Beginning of Year

Expenses

Deductions

End of YearAllowance for doubtful accounts

$
319


$
1,061


$
(234
)

$
1,146Accrued chargeback reserve


1,774



3,008



(2,536
)

$
2,246   Charged /Charged /

(Credited) toBalance at

(Credited) to

Other

Balance atDeferred income tax asset Valuation Allowance

Beginning of Year

Expenses

Accounts(1)

End of Year2006

$
17,504


$



$
(4,543
)

$
12,9612005


42,973



(9,364
)


(16,105
)


17,5042004


42,944



(14,468
)


14,497



42,973     (1)
    
    Amounts not charged (credited) to expenses were charged
    (credited) to equity or goodwill 105




---



##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Description of Document2
.1(1)

Stock Purchase Agreement, dated as
    of April 17, 2004, by and among Digital River, Inc., Blitz
    F03-1424
    GmbH, a company organized under the laws of Germany and a wholly
    owned subsidiary of Digital River, and the selling shareholders
    of element 5 Informationstechnologien und 
    dienstleistungen Aktiengesellschaft, a company organized under
    the laws of Germany.3
.1(4)

Amended and Restated Certificate
    of Incorporation of the Registrant, as currently in effect.3
.2(6)

Amended and Restated Bylaws of the
    Registrant, as currently in effect.4
.1(7)

Specimen Stock Certificate.4
.2(4)

Form of Senior Debt Indenture.4
.3(4)

Form of Subordinated Debt
    Indenture.4
.4

References are hereby made to
    Exhibits 3.1 and 3.2.4
.5(13)

Indenture dated as of June 1,
    2004, between Digital River, Inc. and Wells Fargo Bank, N.A. as
    trustee, including therein the form of the Note.10
.1(7)

Form of Indemnity Agreement
    between Registrant and each of its directors and executive
    officers.10
.3(7)

Consent to Assignment and
    Assumption of Lease dated April 22, 1998, by and between
    CSM Investors, Inc., IntraNet Integration Group, Inc. and
    Registrant.10
.4(5)

Assignment of Lease dated
    April 21, 1998, by and between Intranet Integration Group,
    Inc. and Registrant.10
.5(5)

Lease Agreement dated
    January 18, 2000, between Property Reserve, Inc. and
    Registrant.10
.6(6)

First Amendment of Lease dated
    January 31, 2001, to that certain Lease dated
    April 24, 1996, between CSM Investors, Inc. and Registrant
    (as assignee of Intranet Integration Group, Inc.).10
.7(8)

1998 Stock Option Plan, as amended
    and superseded by Exhibit 10.19.*10
.8(9)

1999 Stock Option Plan, formerly
    known as the 1999 Non-Officer Stock Option Plan, as amended and
    superseded by Exhibit 10.19.*10
.9(8)

2000 Employee Stock Purchase Plan,
    as amended and offering.*10
.11(10)

Second Amendment of Lease dated
    April 22, 2002, to that certain Lease dated April 24,
    1996, between CSM Investors, Inc. and Registrant (as assignee of
    Intranet Integration Group, Inc.) as amended.10
.12(10)

Second Amendment of Lease dated
    April 28, 2003, to that certain Lease dated
    January 18, 2000, between Property Reserve Inc. and
    Registrant.10
.15(13)

Registration Rights Agreement
    dated as of June 1, 2004, between Digital River, Inc. and
    the initial purchasers of Senior Convertible Notes due
    January 1, 2024.10
.16(14)

Supplemental Agreement and
    Settlement Agreement, by and among Digital River, Inc., Digital
    River GmbH, element 5 AG, Messrs. Clemens Roth, Christopher
    Reimold, Gerrit Schumann, Stephan Naujoks and various other
    former element 5 shareholders, dated as of January 18,
    2005.10
.17(15)

Summary of Compensation Program
    for Non-Employee Directors.10
.18++

Second Amended and Restated
    Symantec Online Store Agreement, by and among Symantec
    Corporation, Symantec Limited, Digital River, Inc. and Digital
    River Ireland Limited effective April 1, 2006 .10
.19(16)

1998 Equity Incentive Plan
    (formerly known as 1998 Stock Option Plan).*10
.20(17)

Employment Agreement between
    Digital River, Inc. and Carter D. Hicks.*10
.21(17)

Employment Offer Letter between
    Digital River, Inc. and Thomas M. Donnelly.*10
.24(18)

Form of Amendment to Non-Qualified
    Stock Option Agreement.*10
.25(19)

Inducement Equity Incentive Plan.*12
.1++

Computation of Ratio of Earnings
    to Fixed Charges21
.1++

Subsidiaries of Digital River, Inc.23
.1++

Consent of Independent Registered
    Public Accounting Firm, dated March 1, 2007. 106




---



##### Table of Contents



ExhibitNumber

Description of Document24
.1++

Power of Attorney, pursuant to
    which amendments to this Annual Report on
    Form 10-K
    may be filed, is included on the signature pages of this Annual
    Report on
    Form 10-K.31
.1++

Certification of Digital River,
    Inc.s Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2++

Certification of Digital River,
    Inc.s Chief Financial Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32++


Certification of Digital River,
    Inc.s Chief Executive Officer and Chief Financial Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     ++
    
    Filed herewith*
    
    Management contract or compensatory plan
    
    Confidential treatment has been requested for portions of this
    agreement, which portions have been filed separately with the SEC(1)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 4, 2004.(2)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on February 11, 2002.(3)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on April 15, 2002.(4)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on June 1, 2006.(5)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 1999, filed on
    March 30, 2000.(6)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2000, filed on
    March 27, 2001.(7)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File
    No. 333-56787),
    declared effective on August 11, 1998.(8)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File
    No. 333-105864)
    filed on June 5, 2003.(9)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended June 30, 2003, filed on August 14, 2003.(10)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended March 31, 2003, filed on May 15, 2003.(11)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended September 30, 2003, filed on
    November 13, 2003.(12)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2003, filed on
    March 15, 2004.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(14)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on January 20, 2005.(15)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on February 16, 2006.(16)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(17)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 5, 2005.(18)
    
    Incorporated by reference from the Companys Quarterly
    Report on Form
    10-Q for the
    quarter ended June 30, 2005, filed on August 9, 2005.(19)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005. 107