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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, 2007.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
  12b-2
  Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.


Business


3Item 1A.


Risk Factors


13Item 1B.


Unresolved Staff Comments


27Item 2.


Properties


27Item 3.


Legal Proceedings


27Item 4.


Submission of Matters to a Vote of Security
    Holders


28PART IIItem 5.


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


29Item 6.


Selected Financial Data


31Item 7.


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


32Item 7A.


Qualitative and Quantitative Disclosures about
    Market Risk


41Item 8.


Financial Statements and Supplementary Data


43Item 9.


Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


43Item 9A.


Controls and Procedures


43Item 9B.


Other Information


45PART IIIItem 10.


Directors, Executive Officers and Corporate Governance


46Item 11.


Executive Compensation


46Item 12.


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


46Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


46Item 14.


Principal Accountant Fees and Services


46PART IVItem 15.


Exhibits and Financial Statement Schedules


472007 Equity Incentive PlanComputation of Ratio of Earnings to Fixed ChargesSubsidiariesConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906   2




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CAUTIONARY
    STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
    ACT OF 1995
  This Annual Report on
    Form 10-K
    contains certain forward-looking statements within the meaning
    of Section 27A of the Securities Act of 1933, as amended,
    and Section 21E of the Securities Exchange Act of 1934, as
    amended. All statements, other than statements of historical
    fact, regarding our strategy, future operations, financial
    position, estimated revenue, projected costs, projected savings,
    prospects, plans, opportunities and objectives constitute
    forward-looking statements. The words
    may, will, expect,
    plan, anticipate, believe,
    estimate, potential, or
    continue and similar types of expressions identify
    forward-looking statements, although not all such statements
    contain these identifying words. These forward-looking
    statements are based upon information that is currently
    available to us
    and/or
    managements current expectations, speak only as of the
    date hereof, and are subject to risks and uncertainties. We
    expressly disclaim any obligation, except as required by law, or
    undertaking to update or revise any forward-looking statements
    contained or incorporated by reference herein to reflect any
    change or expectations with regard thereto or to reflect any
    change in events, conditions, or circumstances on which any such
    forward-looking statement is based, in whole or in part. Our
    actual results may differ materially from the results discussed
    in or implied by such forward-looking statements. We are subject
    to a number of risks, some of which may be similar to those of
    other companies of similar size in our industry, including
    pre-tax losses, rapid technological changes, competition,
    limited number of suppliers, customer concentration, failure to
    successfully integrate acquisitions, adverse government
    regulations, failure to manage international activities, and
    loss of key individuals. Risks that may affect our operating
    results include, but are not limited to, those discussed in
    Part I Item 1A, titled Risk Factors.
    Readers should carefully review the risk factors described in
    this document and in other documents that we file from time to
    time with the Securities and Exchange Commission.
 PART I  ITEM 1.
    BUSINESS.  Overview
  e-commerce e-mail
  e-commerce e-commerce
   3




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e-mail
    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.
 4




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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
 5




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Deployment
    Speed
  e-commerce e-commerce
  Focus on
    Core Competency
  e-commerce e-commerce e-commerce
  Benefits
    to Buyers
  e-commerce
  Strategy
  e-commerce
  Attract New Clients and Expand Relationships with Existing
    Clients.
  e-commerce e-commerce
  e-commerce
 6




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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
    Store Design, Development and Hosting. e-commerce
 7




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e-mail e-mail
  e-commerce back-up
  Store Merchandising.
  Order Management and Fraud Screening. e-commerce
  and/or
  Digital and Physical Fulfillment Services.
  e-commerce
 8




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Customer Service. e-mail
  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
 9




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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.
 10




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e-commerce
  Product
    Research and Development
    e-commerce, 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. 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 a
    Quantive, 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
    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. 11




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Intellectual
    Property
    Employees
    Executive
    Officers
    Name

Age

PositionJoel A. Ronning


51


Chief Executive OfficerThomas M. Donnelly


43


Chief Financial OfficerKevin L. Crudden


52


VP/General Counsel   Mr. Ronning
  Mr. Donnelly
 12




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Mr. Crudden
  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.
    Our
    future success cannot be predicted based upon our limited
    operating history.
  e-commerce
  Failure
    to properly manage and sustain our expansion efforts could
    strain our management and other resources.
   13




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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,
    rules and regulations;
    The possibility of unionization of our workforce outside the
    United States, particularly in Europe;
    Political, social and economic instability;
    Import and export license requirements and restrictions of the
    United States and every other country in which we
    operate; and
    Political or economic constraints on international trade or
    instability.    non-U.S. domiciled
  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.
   14




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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.
   15




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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
  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.
      We may
    incur additional expenses in order to assist our employees with
    potential income tax liabilities which may arise under
    Section 409A of the Internal Revenue Code.
   16




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Implementing
    our acquisition strategy could result in dilution and operating
    difficulties leading to a decline in revenue and operating
    profit.
        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.
   17




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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.
    
    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;
    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;
    Our ability to retain and attract personnel commensurate with
    our business needs; and
    Acquisitions.      Security
    breaches could hinder our ability to securely transmit
    confidential information.
  e-commerce
 18




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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.
    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.
    If our
    internal control over financial reporting or disclosure controls
    and procedures are not effective, there may be errors in our
    financial statements that could require a restatement or our
    filings may not be timely and investors may lose confidence in
    our reported financial information, which could lead to a
    decline in our stock price.
  Form 10-K.
 19




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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., 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
    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. 20




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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, taxation, and regulatory fees;
    Fraud;
    Advertising;
    Intellectual property rights;
    Information security;
    Quality of products and services;
    Taxes; and
    Recycling of consumer products.   21




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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.
      
    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.   22




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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.
     23




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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.
    We are
    subject to regulations relating to consumer
    privacy.
    and/or
   24




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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.
    Developments
    in accounting standards may cause us to increase our recorded
    expenses, which in turn would jeopardize our ability to
    demonstrate sustained profitability.
   25




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Internet-related
    stock prices are especially volatile and this volatility may
    cause our stock price 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;
    Loss of key 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;
    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.
   26




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The
    investment of our substantial cash balance and our investments
    in marketable debt securities are subject to risks which may
    cause losses and affect the liquidity of these
    investments.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    SquareDescription of Use

Primary Locations

Footage(1)


Lease ExpirationsCorporate Office Facilities

Minnesota


162,500


From 2008 to 2011Other U.S. Office Facilities

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


57,117


From 2008 to 2011Non-U.S.
    Office Facilities

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


68,363


From 2008 to 2026Off Site U.S. Data Centers

California, Minnesota


693


2008Off Site non U.S. Data Centers

Germany, Ireland, Sweden


378


2008     (1)
    
    Includes sub-leased space.    ITEM 3.
    LEGAL
    PROCEEDINGS  e-commerce e-commerce patents-in-suit,
 27




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   28




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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
  mark-up,
  High


Low2006First Quarter

$
46.08


$
29.27Second Quarter

$
48.00


$
37.00Third Quarter

$
53.21


$
37.90Fourth Quarter

$
60.99


$
48.202007First Quarter

$
58.67


$
47.80Second Quarter

$
60.30


$
43.70Third Quarter

$
49.71


$
41.71Fourth Quarter

$
53.52


$
32.38   Holders
    Dividend
    Policy
    Issuer
    Purchases of Equity Securities
    Securities
    Authorized for Issuance under Equity Compensation
    Plans
   29




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Securities
    Performance Measurement
    Comparison1
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Digital River, Inc., The NASDAQ Composite Index
    And The RDG Technology Composite Index
  
   *
    
    $100 invested on
    12/31/02 in
    stock or index-including reinvestment of dividends.     1
 30




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K
  Form 10-K,
  December 31,2007

2006

2005

2004

2003(In thousands)Balance Sheet Data:Cash and cash equivalents

$
381,788


$
390,243


$
131,770


$
127,734


$
72,885Short-term investments


315,636



235,699



220,569



164,402



59,037Working capital


529,712



497,887



244,647



198,747



85,011Total assets


1,127,744



1,006,263



669,549



504,521



189,658Long-term obligations


206,362



196,345



195,022



195,000



Retained earnings/ (accumulated deficit)


68,413



44,989



(15,627
)


(62,636
)


(97,143
)Total stockholders equity

$
676,280


$
603,759


$
305,551


$
192,769


$
131,852   Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Statement of Income Data:Revenue

$
349,275


$
307,632


$
220,408


$
154,130


$
101,201Costs and expenses (exclusive of depreciation and amortization
    expense shown separately below)Direct cost of services


10,243



7,709



5,063



5,167



3,857Network and infrastructure


32,309



29,250



19,817



15,164



12,295Sales and marketing


134,401



113,462



69,371



52,083



37,685Product research and development


39,179



32,341



20,690



14,293



10,263General and administrative


38,937



34,158



21,484



17,006



9,389Depreciation and amortization


12,706



10,983



8,833



8,203



7,275Amortization of acquisition related intangibles


7,586



12,134



8,730



8,269



5,380Total costs and expenses


275,361



240,037



153,988



120,185



86,144Income from operations


73,914



67,595



66,420



33,945



15,057Interest Income


32,167



22,836



9,668



3,166



819Other income (expense), net


(3,006
)


(949
)


(4,701
)


(1,525
)


19Income before income tax expense


103,075



89,482



71,387



35,586



15,895Income tax expense


32,261



28,672



14,875



1,079



Net income

$
70,814


$
60,810


$
56,512


$
34,507


$
15,895Net income per share  basic

$
1.75


$
1.58


$
1.64


$
1.07


$
0.54Net income per share  diluted

$
1.58


$
1.40


$
1.41


$
0.94


$
0.48Shares used in per-share calculation  basic


40,444



38,593



34,536



32,328



29,398Shares used in per-share calculation  diluted


45,914



44,642



41,448



38,532



33,051  31




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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.
  Overview
  e-commerce e-mail
  Acquisitions
    and Comparability of Results
    Critical
    Accounting Policies
    Revenue Recognition. (
  No. 99-19, e-commerce
 32




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No. 06-3, 06-3). EITF 06-3
  Allowance for Doubtful Accounts.
  Credit Card Chargeback Reserve.
  Goodwill, Intangibles and Other Long-Lived
    Assets.
 33




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Income Taxes and Deferred Taxes.
  Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB Statement
    No. 109 Accounting for Income Taxes
  step-up
  Stock-Based Compensation Expense.
     34




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##### Table of Contents



Form 10-K
  Results
    of Operations
    2007

2006

2005Revenue


100.0
%


100.0
%


100.0
%Costs and expenses:Direct cost of services


2.9



2.5



2.3Network and infrastructure


9.3



9.5



9.0Sales and marketing


38.5



36.9



31.5Product research and development


11.2



10.5



9.4General and administrative


11.1



11.1



9.7Depreciation and amortization


3.6



3.6



4.0Amortization of acquisition-related costs


2.2



3.9



4.0Total costs and expenses


78.8



78.0



69.9Income from operations


21.2



22.0



30.1Interest Income


9.2



7.4



4.4Other (expense), net


(0.9
)


(0.3
)


(2.1
)Income before income tax expense


29.5



29.1



32.4Income tax expense


9.2



9.3



6.8Net income


20.3
%


19.8
%


25.6
%   Revenue.
 35




---



##### Table of Contents



Direct Cost of Services. back-up
    Network and Infrastructure.
    Sales and Marketing.
 36




---



##### Table of Contents



Product Research and Development. e-commerce e-marketing
    General and Administrative.
    Depreciation and Amortization.
 37




---



##### Table of Contents



Amortization of Acquisition Related
    Intangibles.
  Income from Operations.
  Interest Income.
  Other Income (Expense), Net.
  Income Taxes.
     38




---



##### Table of Contents



Comprehensive Income.
    Liquidity
    and Capital Resources
      e-commerce
   39




---



##### Table of Contents



Liquidity
    and Capital Resource Requirements
    Contractual
    Obligations
    Payment Due by Period (In thousands)Total Amount







2012 andContractual Obligations

Committed

2008

2009

2010-2011

ThereafterOperating Lease Obligations

$
13,013


$
3,880


$
2,485


$
2,662


$
3,986Convertible Senior Notes

$
235,220


$
2,438


$
2,438


$
4,875


$
225,469Total

$
248,233


$
6,318


$
4,923


$
7,537


$
229,455    40




---



##### Table of Contents



2008
    Outlook
    New
    Accounting Standards
    ,
  Off
    Balance Sheet Arrangements
    ITEM 7A.
    QUALITATIVE
    AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK  Interest
    Rate Risk
   41




---



##### Table of Contents



Foreign
    Currency Risk
        Year Ended December 31, 2007


Year Ended December 31, 2006


Year Ended December 31, 2005At Prior


Exchange





At Prior


Exchange





At Prior


ExchangeYear


Rate


As


Year


Rate


As


Year


Rate


AsRates(1)


Effect(2)


Reported


Rates(1)


Effect(2)


Reported


Rates(1)


Effect(2)


ReportedRevenue

$
341,293


$
7,982


$
349,275


$
307,071


$
561


$
307,632


$
220,625


$
(217
)

$
220,408Costs and expenses


269,682



5,679



275,361



239,621



416



240,037



153,981



7



153,988Income from operations

$
71,611


$
2,303


$
73,914


$
67,450


$
145


$
67,595


$
66,644


$
(224
)

$
66,420     (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.  Transaction
    Exposure
    Translation
    Exposure
   42




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  QUARTERLY
    FINANCIAL DATA (UNAUDITED)
    Quarter EndedMarch 31


June 30


September 30


December 31(In thousands, except per share data)2007Revenue

$
91,631


$
78,227


$
82,539


$
96,878Income from operations


23,015



12,998



14,646



23,255Net income


20,706



14,493



15,299



20,316Net income per share  basic

$
0.51


$
0.35


$
0.38


$
0.51Net income per share  diluted

$
0.46


$
0.32


$
0.35


$
0.46   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   ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  (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   43




---



##### Table of Contents



(c)
    Changes
    in Internal Control over Financial Reporting    (d)
    Report of
    Independent Registered Public Accounting Firm          44




---



##### Table of Contents



/s/  Ernst &
    Young LLP
     ITEM 9B.
    OTHER
    INFORMATION   45




---



##### 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   46




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##### Table of Contents



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


51Consolidated Balance Sheets


52Consolidated Statements of Income


53Consolidated Statements of Stockholders
    Equity


54Consolidated Statements of Cash Flows


55Notes to Consolidated Financial Statements


56   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(2)

Amended and Restated Certificate of Incorporation of the
    Registrant, as currently in effect.3
.2(4)

Amended and Restated Bylaws of the Registrant, as currently in
    effect.4
.1(5)

Specimen Stock Certificate.4
.2(2)

Form of Senior Debt Indenture.4
.3(2)

Form of Subordinated Debt Indenture.4
.4

References are hereby made to Exhibits 3.1 and 3.2.4
.5(9)

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(5)

Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers.10
.3(5)

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(3)

Assignment of Lease dated April 21, 1998, by and between
    Intranet Integration Group, Inc. and Registrant.10
.5(3)

Lease Agreement dated January 18, 2000, between Property
    Reserve, Inc. and Registrant.10
.6(4)

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(6)

1998 Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.8(7)

1999 Stock Option Plan, formerly known as the 1999 Non-Officer
    Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.9(6)

2000 Employee Stock Purchase Plan, as amended, and offering.* 47




---



##### Table of Contents



ExhibitNumber

Description of Document10
.11(8)

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(8)

Second Amendment of Lease dated April 28, 2003, to that
    certain Lease dated January 18, 2000, between Property
    Reserve Inc. and Registrant.10
.15(9)

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(13)

Summary of Compensation Program for Non-Employee Directors.10
.17(14)

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
.18(10)

1998 Equity Incentive Plan (formerly known as 1998 Stock Option
    Plan).*10
.19(13)

Amended and Restated Employment Agreement for Joel A. Ronning.*10
.20(13)

Change of Control and Severance Agreement for Thomas M.
    Donnelly.*10
.21(11)

Form of Amendment to Non-Qualified Stock Option Agreement.*10
.22(12)

Inducement Equity Incentive Plan.*10
.23++

2007 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
    February 29, 2008.24
.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 June 1, 2006.(3)
    
    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.(4)
    
    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.(5)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File
    No. 333-56787),
    declared effective on August 11, 1998.(6)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File
    No. 333-105864)
    filed on June 5, 2003. 48




---



##### Table of Contents



(7)
    
    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.(8)
    
    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.(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(11)
    
    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.(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 14, 2007.(14)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006, filed on
    March 1, 2007. 49




---



##### 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)

February 29, 2008/s/  Thomas
    M. DonnellyThomas
    M. Donnelly

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

February 29, 2008/s/  Perry
    W. SteinerPerry
    W. Steiner

Director

February 29, 2008/s/  William
    LansingWilliam
    Lansing

Director

February 29, 2008/s/  Thomas
    F. MadisonThomas
    F. Madison

Director

February 29, 2008/s/  J.
    Paul ThorinJ.
    Paul Thorin

Director

February 29, 2008/s/  Frederic
    SeegalFrederic
    Seegal

Director

February 29, 2008  50




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Share Based Payment
    /s/  Ernst &
    Young LLP
    51




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Consolidated Balance Sheets
  December 31,


December 31,2007


2006(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
381,788


$
390,243Short-term investments


315,636



235,699Accounts receivable, net of allowance of $2,489 and $2,339


64,914



52,392Deferred income taxes


7,899



19,687Prepaid expenses and other


4,577



6,025Total current assets


774,814



704,046Property and equipment, net


31,102



24,079Goodwill


261,885



243,799Intangible assets, net of accumulated amortization of $59,493
    and $50,092


32,382



21,106Deferred income taxes


15,606



1,276Other assets


11,955



11,957TOTAL ASSETS

$
1,127,744


$
1,006,263LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
180,386


$
141,386Accrued payroll


12,704



12,097Deferred revenue


10,384



7,040Accrued acquisition liabilities


399



5,654Other accrued liabilities


41,229



39,982Total current liabilities


245,102



206,159NON-CURRENT LIABILITIES:Convertible senior notes


195,000



195,000Other liabilities


11,362



1,345Total non-current liabilities


206,362



196,345TOTAL LIABILITIES


451,464



402,504COMMITMENTS 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; 42,502,019 and 41,021,709 shares issued and
    40,549,135 and 40,458,093 outstanding


405



404Additional paid-in capital


576,529



546,758Retained earnings


68,413



44,989Accumulated other comprehensive income


30,933



11,608Total stockholders equity


676,280



603,759TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
1,127,744


$
1,006,263    52




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Consolidated Statements of Income
  For the Years Ended December 312007


2006


2005(In thousands except per share data)Revenue

$
349,275


$
307,632


$
220,408Costs and expensesDirect cost of services


10,243



7,709



5,063Network and infrastructure


32,309



29,250



19,817Sales and marketing


134,401



113,462



69,371Product research and development


39,179



32,341



20,690General and administrative


38,937



34,158



21,484Depreciation and amortization


12,706



10,983



8,833Amortization of acquisition-related intangibles


7,586



12,134



8,730Total costs and expenses


275,361



240,037



153,988Income from operations


73,914



67,595



66,420Interest Income


32,167



22,836



9,668Other expense, net


(3,006
)


(949
)


(4,701
)Income before income tax expense


103,075



89,482



71,387Income tax expense


32,261



28,672



14,875Net income

$
70,814


$
60,810


$
56,512Net income per share  basic

$
1.75


$
1.58


$
1.64Net income per share  diluted

$
1.58


$
1.40


$
1.41Shares used in per-share calculation  basic


40,444



38,593



34,536Shares used in per-share calculation  diluted


45,914



44,642



41,448    53




---



##### 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)(In thousands)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 EmployeeStock 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 on investments


















576







576



576Foreign currency translation gain


















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 EmployeeStock Purchase Plan


71



1



2,110















2,111



BALANCE, December 31, 2006


40,458


$
404


$
546,758


$



$
11,608


$
44,989


$
603,759


$
74,849Net income






















70,814



70,814



70,814Unrealized gain on investments


















1,006







1,006



1,006Foreign currency translation gain


















18,319







18,319



18,319Repurchase of common stock


(1,372
)


(14
)


(15,683
)










(47,271
)


(62,968
)Stock Issued for Acquisition


44







2,150















2,150



Exercise of stock options


1,220



12



13,498















13,510



Stock-based compensation










13,742















13,742



Restricted stock issued under equity incentive plans, net of
    forfeitures


135



2



(2
)Tax withheld in restricted stock vesting


(11
)






(407
)










(119
)


(526
)


Tax benefit of stock-based compensation










13,990















13,990



Common stock issued under the Employee Stock Purchase Plan


76



1



2,483















2,484



BALANCE, December 31, 2007


40,550


$
405


$
576,529


$



$
30,933


$
68,413


$
676,280


$
90,139    54




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Consolidated
    Statements of Cash Flows
  For the Years Ended December 31,2007


2006


2005(In thousands)OPERATING ACTIVITIES:Net income

$
70,814


$
60,810


$
56,512Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of acquisition-related intangibles


7,586



12,134



8,730Change in accounts receivable allowance, net of acquisitions


(174
)


1,215



(598
)Depreciation and amortization


12,706



10,983



8,833Stock-based compensation expense related to stock-based
    compensation plans


13,742



13,904



293Tax benefit of stock-based compensation










45,417Excess tax benefits from stock-based compensation


(12,030
)


(8,980
)


Deferred income taxes and other


27,522



19,583



(34,789
)Litigation and other charges










(739
)Change in operating assets and liabilities (net of acquisitions):Accounts receivable


(6,863
)


(14,678
)


(10,304
)Prepaid and other assets


1,325



(1,293
)


(2,417
)Accounts payable


32,181



3,701



34,822Deferred revenue


3,046



811



1,395Income tax payable


(7,076
)


8,126



2,740Accrued payroll and other accrued liabilities


3,609



11,190



9,859Net cash provided by operating activities


146,388



117,506



119,754INVESTING ACTIVITIES:Purchases of investments


(436,806
)


(193,609
)


(190,713
)Sales of investments


358,470



179,296



127,771Cash paid for acquisitions, net of cash received


(31,625
)


(37,800
)


(54,177
)Purchases of equipment and capitalized software


(18,722
)


(15,907
)


(8,328
)Net cash used in investing activities


(128,683
)


(68,020
)


(125,447
)FINANCING ACTIVITIES:Proceeds from sales of common stock






172,780



Exercise of stock options


13,510



21,118



23,199Sales of common stock under employee stock purchase plan


2,483



2,109



2,199Repurchase of common stock


(62,968
)






(13,145
)Repurchase of restricted stock to satisfy tax withholding
    obligation


(528
)


(426
)


Excess tax benefits from stock-based compensation


12,030



8,980



Net cash provided by (used in)financing activities


(35,473
)


204,561



12,253EFFECT OF EXCHANGE RATE CHANGES ON CASH


9,313



4,426



(2,524
)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


(8,455
)


258,473



4,036CASH AND CASH EQUIVALENTS, beginning of year


390,243



131,770



127,734CASH AND CASH EQUIVALENTS, end of year

$
381,788


$
390,243


$
131,770SUPPLEMENTAL DISCLOSURES:Cash paid for interest on Convertible Senior Notes

$
2,438


$
2,438


$
2,641Cash paid for income taxes

$
8,232


$
2,006


$
193Noncash investing and financing activities:Common stock issued in acquisitions and earn-outs

$
2,150


$
1,172


$
    55




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes
    to Consolidated Financial Statements
 December 31,
    2007 and 2006
  1.
    Nature of
    Operations and Summary of Significant Accounting
    Policies:  e-commerce
  Principles
    of Consolidation and Classification
    Use of
    Estimates
    Foreign
    Currency Translation
    Cash
    and Cash Equivalents
    Short-Term
    Investments
    Property
    and Equipment
   56




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006Computer hardware and software

$
60,977


$
46,326Furniture, fixtures and leasehold improvements


13,077



10,055Total property and equipment

$
74,054


$
56,381Accumulated depreciation


(42,952
)


(32,302
)Net property and equipment

$
31,102


$
24,079   Purchased
    Intangible Assets
    Long-Lived
    Assets
    Fair
    Value of Financial Instruments
   57




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Other
    Assets
    2007


2006Unamortized debt financing costs

$
5,298


$
5,630Cost of investment


6,000



6,000Other


657



327Total other assets

$
11,955


$
11,957   Other
    Accrued Liabilities
    2007


2006Accrued expenses

$
20,631


$
15,212Sales, value-added and transaction taxes


20,598



13,394Current income taxes






11,376Total other accrued liabilities

$
41,229


$
39,982   Comprehensive
    Income
      Revenue
    Recognition
  (
  No. 99-19, e-commerce
 58




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        No. 06-3, 06-3). EITF 06-3
  Deferred
    Revenue
    Advertising
    Costs
    Income
    Taxes
    Interest
    Income
   59




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Other
    (Expense), Net
    Research
    and Development and Software Development
  No. 98-1,
  Stock-Based
    Compensation Expense
         60




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Recent
    Accounting Pronouncements
      2.  Net
    Income per Share:
   61




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    For the Years Ended December 31,2007


2006


2005Earnings per share  basicNet income  basic

$
70,814


$
60,810


$
56,512Weighted average shares outstanding  basic


40,444



38,593



34,536Earnings per share  basic

$
1.75


$
1.58


$
1.64Earnings per share  dilutedNet income  basic

$
70,814


$
60,810


$
56,512Exclude: Interest expense and amortized financing cost of
    convertible senior notes, net of tax benefit


1,739



1,739



2,099Net income  diluted

$
72,553


$
62,549


$
58,611Weighted average shares outstanding  basic


40,444



38,593



34,536Dilutive impact of non-vested stock and options outstanding


1,045



1,624



2,487Dilutive impact of convertible senior notes


4,425



4,425



4,425Weighted average shares outstanding  diluted


45,914



44,642



41,448Earnings per share  diluted

$
1.58


$
1.40


$
1.41   No. 04-8,
  3.
    Short-Term
    Investments:    Unrealized Gain/(Loss)





Maturities/Reset DatesLess than 12


Greater than 12





Less than 12Cost


Months


Months


Fair Value


Months


1 to 3 Years2007U.S. government sponsored entities

$
139,377


$
94


$
859


$
140,330


$
69,070


$
71,260Student loan bonds


63,000











63,000



63,000



Other


112,306











112,306



112,306



Total available-for-sale securities

$
314,683


$
94


$
859


$
315,636


$
244,376


$
71,2602006U.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


$
61,863  62




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    4.
    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


Agreements2007NetGiro Systems AB





$
27,386


$
8,567


$
(7,477
)

$
9,742


$
4,424


$
12,372


$
Total





$
27,386


$
8,567


$
(7,477
)

$
9,742


$
4,424


$
12,372


$
2006MindVision, Inc.





$
24,975


$
2,555


$
(8,036
)

$
18,859


$
3,170


$
4,490


$
40Direct Response Technologies, 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


$
     Acquisitions
    completed in 2007
    Acquisitions
    completed in 2006
  e-commerce
   63




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Acquisitions
    completed in 2005
  e-commerce
  e-commerce
  Future
    Earn-outs
    Pro
    Forma Operating Results (Unaudited)
    2007


2006


2005Revenue

$
357,190


$
322,296


$
242,488Income from operations


74,771



68,260



63,606Net income


71,670



61,338



53,954Diluted income per share

$
1.60


$
1.41


$
1.32     Goodwill
     64




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    TotalBalance as of December 31, 2005

$
195,299Goodwill from acquisitions and earn-outs


35,883Adjustments(1)


12,617Balance as of December 31, 2006

$
243,799Goodwill from acquisitions and earn-outs


13,774Adjustments(1)


4,312Balance as of December 31, 2007

$
261,885     (1)
    
    Adjustments to goodwill during the year ended December 31,
    2007 and December 31, 2006, resulted primarily from foreign
    currency translation adjustments relating to goodwill associated
    with our current and prior period acquisitions.  Intangible
    Assets
    As of December 31, 2007Carrying Amount


Accumulated


Carrying AmountGross


Amortization


NetCustomer relationships

$
57,327


$
33,761


$
23,566Non-compete agreements


5,351



5,328



23Technology/tradename


29,197



20,404



8,793Total

$
91,875


$
59,493


$
32,382   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     2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageAmount


Life


Amount


Life


Amount


LifeCustomer relationships

$
12,372



10 years


$
8,110



8 years


$
9,386



4 yearsNon-compete agreements










40



4 years







Technology/tradename


4,424



8 years



5,635



4 years



2,196



4 yearsTotal

$
16,796



10 years


$
13,785



6 years


$
11,582



4 years  65




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year2008

$
6,4312009


5,5202010


3,8032011


3,2352012


3,185Thereafter


10,208Total

$
32,382     2007


2006Tangible assets

$
8,567


$
4,128Liabilities assumed


(7,477
)


(11,759
)Customer relationships


12,372



8,110Non-compete agreements






40Technology/tradename


4,424



5,635Goodwill ( year of acquisition)


9,742



30,202Goodwill (subsequent to year of acquisition)






Net assets acquired

$
27,628


$
36,356   5.
    Stock-Based
    Compensation:       66




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Expense
    Information under SFAS 123(R)
    Year Ended December 31,2007


2006(In thousands)


(In thousands)Costs and expensesDirect cost of services

$
807


$
842Network and infrastructure


270



329Sales and marketing


5,028



5,182Product research and development


1,736



2,292General and administrative


5,901



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


13,742



13,904Tax benefit


(3,737
)


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

$
10,005


$
9,036     Year Ended December 31,2007


2006


2005Net income, as reported for prior periods(1)

$
N/A


$
N/A


$
56,512Stock-based compensation expense included in reported net
    income, net 
    of tax










184Stock-based compensation expense determined under the fair value
    based method for all awards


(13,742
)


(13,904
)


(13,170
)Tax benefit(2)


3,737



4,868



4,588Stock-based compensation expense, net of tax(3)


(10,005
)


(9,036
)


(8,582
)Net income, including the effect of stock-based compensation
    expense(4)

$
70,814


$
60,810


$
48,114Basic net income per share  as reported for prior
    periods(1)


N/A


$
N/A


$
1.64Diluted net income per share  as reported for prior
    periods(1)


N/A


$
N/A


$
1.41Basic net income per share, including the effect of stock-based
    compensation expense(4)

$
1.75


$
1.58


$
1.39Diluted net income per share, including the effect of
    stock-based compensation expense(4)

$
1.58


$
1.40


$
1.24     (1)
    
    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. 67




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   (2)
    
    No tax benefit was recorded prior to the removal of the
    valuation allowance on certain deferred tax assets in the fourth
    quarter of 2005.(3)
    
    Total stock-based compensation expense prior to 2006 is
    calculated based on the pro forma application of SFAS 123.(4)
    
    Net income and net income per share prior to 2006 represents pro
    forma information based on SFAS 123.  Valuation
    Information under SFAS 123(R)
    2007


2006


2005Risk-free interest rate


4.5
%


4.7
%


4.2
%Expected life (years)


3.46



4.08



3.14Volatility factor


0.50



0.59



0.68Expected dividends










Weighted average fair value of options granted

$
23.11


$
19.00


$
13.71         6.
    Income
    Taxes:    Year Ended December 31,2007


2006


2005United States

$
74,595


$
65,171


$
65,054International


28,480



24,311



6,333Total

$
103,075


$
89,482


$
71,387  68




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended December 31,2007


2006


2005Current tax expense (benefit):United States federal

$
29,204


$
34,362


$
20,825State and local


1,842



2,160



1,484International


5,939



2,915



3,825Total current provision for income taxes


36,985



39,437



26,134Deferred tax expense (benefit):United States federal


(3,896
)


(10,136
)


(10,288
)State and local


(227
)


(637
)


(647
)International


(601
)


8



(324
)Total deferred provision (benefit) for income taxes


(4,724
)


(10,765
)


(11,259
)Provision for income taxes

$
32,261


$
28,672


$
14,875     Year Ended December 31,2007


2006


2005Tax expense at statutory rate

$
36,076


$
31,319


$
24,986State taxes, net of federal benefit


1,615



1,469



1,359International rate differential


(4,623
)


(3,193
)


(1,561
)Tax Credits


(671
)


(1,909
)


Nondeductible expense and other


(136
)


986



1,801Change in valuation allowance










(11,710
)Total

$
32,261


$
28,672


$
14,875  69




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2007


2006Deferred tax assets:Net operating loss and credit carryforwards

$
12,412


$
30,302Nondeductible reserves and accruals


9,144



6,123Depreciation and amortization


3,339



4,522Valuation allowance


(1,390
)


(12,960
)Total deferred tax assets


23,505



27,987Deferred tax liabilities:Other intangibles


(5,054
)


(7,540
)Total deferred tax liabilities


(5,054
)


(7,540
)Net deferred tax assets

$
18,451


$
20,447         Balance at January 1, 2007

$
3,340Additions based on tax positions related to the current year


1,072Additions for tax positions of prior years


1,035Balance at December 31, 2007

$
5,447    70




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  2004-2007
  7.
    Commitments
    and Contingencies:  Leases
    Year Ending December 31,

Lease Obligations2008

$
3,8802009


2,4852010


1,6562011


1,0062012


412Thereafter


3,574Total future minimum obligations

$
13,013   Litigation
     71




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Indemnification
    Provisions
      8.
    Long-Term
    Debt:       72




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    9.
    Stockholders
    Equity:  Share
    Repurchase Program
    10.
    Employee
    Benefit Plans:  Option
    and Restricted Stock Awards
  2007
    Plan
    1998
    Plan
    General
    Stock Award Information
     73




---



##### 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, 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


$
18.68Granted


(573,376
)


573,376



45.07 - 56.61



54.17Restricted stock effect on shares available for grant


(251,426
)


N/A



N/A



N/AExercised






(1,219,519
)


2.59 - 45.24



11.08Canceled/expired


133,330



(133,330
)


4.56 - 56.61



38.01Additional Shares Reserved


2,000,000



N/A



N/A



N/ABalance, December 31, 2007


2,848,728



2,778,310


$
2.59-$57.36


$
28.41     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



19,187



3.0 years


$
2.74


$
581,847



19,187


$
2.74


$
581,8474.56 - 7.55



222,358



3.5 years



5.55



6,119,206



222,358



5.55



6,119,2069.12 - 13.92



502,250



4.8 years



11.75



10,708,396



421,904



11.91



8,927,12516.72 - 22.98



470,914



5.8 years



22.35



5,049,596



423,324



22.58



4,441,70123.01 - 30.69



720,304



7.2 years



27.89



3,731,841



377,773



27.60



2,066,07933.58 - 57.36



843,297



8.9 years



48.77







198,223



46.02



$ 2.59 - $57.36



2,778,310



6.7 years


$
28.41


$
26,190,886



1,662,769


$
21.30


$
22,135,958      74




---



##### 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


$
39.96Granted


198,889



53.75Vested


(23,713
)


39.19Forfeited


(31,272
)


48.54Non-Vested Balance, December 31, 2007


233,404


$
50.64   Employee
    Stock Purchase Plan
   75




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Inducement
    Equity Incentive Plan
    Shares


Restricted


WeightedAvailable


Stock


Averagefor Grant


Non-Vested


Fair ValueBalance, December 31, 2004









$
Shares Reserved


87,500



N/A



N/AGranted


(63,750
)


63,750



30.93Vested










Forfeited










Balance, December 31, 2005


23,750



63,750


$
30.93Granted


(23,750
)


23,750



31.73Vested






(21,250
)


30.93Forfeited










Balance, December 31, 2006






66,250


$
31.22Granted


(4,800
)


4,800



37.74Vested






(18,542
)


31.27Forfeited


37,483



(37,483
)


31.34Balance, December 31, 2007


32,683



15,025


$
32.92   Rule 10b5-1
    Trading Plans
  Rule 10b5-1(c)(1)
  Employee
    Benefit Plan
    11.
    Segment
    Information:  e-commerce
 76




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      2007


2006


2005United States

$
198,388


$
180,905


$
135,110Europe


103,385



87,854



59,951Other


47,502



38,873



25,347Total

$
349,275


$
307,632


$
220,408       2007


2006United States


Europe


United States


EuropeTotal property and equipment

$
59,359


$
14,695


$
46,997


$
9,384Accumulated depreciation


(34,185
)


(8,767
)


(27,904
)


(4,398
)Net property and equipment

$
25,174


$
5,928


$
19,093


$
4,986Total intangible assets

$
56,302


$
35,573


$
55,590


$
15,608Accumulated amortization


(41,385
)


(18,108
)


(36,021
)


(14,071
)Net intangible assets

$
14,917


$
17,465


$
19,569


$
1,537Total goodwill

$
139,136


$
145,204


$
145,454


$
120,800Accumulated amortization


(22,455
)






(22,455
)


Net goodwill

$
116,681


$
145,204


$
122,999


$
120,800   12.
    Subsequent
    Events   77




---



##### Table of Contents



Digital
    River, Inc.
    Schedule II
    For Years Ended December 31, 2007, 2006 and 2005
    (In thousands)
  Charges toBalance at

Costs and



Balance at2007

Beginning of Year

Expenses

Deductions

End of YearAllowance for doubtful accounts

$
2,339


$
581


$
(431
)

$
2,489Accrued chargeback reserve


834



6,829



(6,477
)


1,186   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   Charged /Charged /


(Credited) toDeferred income tax asset

Balance at


(Credited) to


Other


Balance atValuation Allowance

Beginning of Year


Expenses


Accounts(1)


End of Year2007

$
12,961


$



$
(11,571
)

$
1,3902006


17,504







(4,543
)


12,9612005


42,973



(9,364
)


(16,105
)


17,504     (1)
    
    Amounts not charged (credited) to expenses were charged
    (credited) to equity or goodwill 78




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##### 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(2)

Amended and Restated Certificate of Incorporation of the
    Registrant, as currently in effect.3
.2(4)

Amended and Restated Bylaws of the Registrant, as currently in
    effect.4
.1(5)

Specimen Stock Certificate.4
.2(2)

Form of Senior Debt Indenture.4
.3(2)

Form of Subordinated Debt Indenture.4
.4

References are hereby made to Exhibits 3.1 and 3.2.4
.5(9)

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(5)

Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers.10
.3(5)

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(3)

Assignment of Lease dated April 21, 1998, by and between
    Intranet Integration Group, Inc. and Registrant.10
.5(3)

Lease Agreement dated January 18, 2000, between Property
    Reserve, Inc. and Registrant.10
.6(4)

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(6)

1998 Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.8(7)

1999 Stock Option Plan, formerly known as the 1999 Non-Officer
    Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.9(6)

2000 Employee Stock Purchase Plan, as amended, and offering.*10
.11(8)

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(8)

Second Amendment of Lease dated April 28, 2003, to that
    certain Lease dated January 18, 2000, between Property
    Reserve Inc. and Registrant.10
.15(9)

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(13)

Summary of Compensation Program for Non-Employee Directors.10
.17(14)

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
.18(10)

1998 Equity Incentive Plan (formerly known as 1998 Stock Option
    Plan).*10
.19(13)

Amended and Restated Employment Agreement for Joel A. Ronning.*10
.20(13)

Change of Control and Severance Agreement for Thomas M.
    Donnelly.*10
.21(11)

Form of Amendment to Non-Qualified Stock Option Agreement.*10
.22(12)

Inducement Equity Incentive Plan.*10
.23++

2007 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
    February 29, 2008.24
.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. 79




---



##### Table of Contents



ExhibitNumber

Description of Document31
.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 June 1, 2006.(3)
    
    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.(4)
    
    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.(5)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File
    No. 333-56787),
    declared effective on August 11, 1998.(6)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File
    No. 333-105864)
    filed on June 5, 2003.(7)
    
    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.(8)
    
    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.(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(11)
    
    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.(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 14, 2007.(14)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006, filed on
    March 1, 2007. 80