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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
                  For the fiscal year ended December 31, 1998
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
 
                  For the transition period from           to
 
                        COMMISSION FILE NUMBER: 0-27470
                          ---------------------------
 
                                CYBERCASH, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                             <C>
                  DELAWARE                                       54-1725021
      (State or other jurisdiction of               (I.R.S. Employer Identification No.)
       incorporation or organization)
</TABLE>
 
                              2100 RESTON PARKWAY
                                  THIRD FLOOR
                             RESTON, VIRGINIA 20191
          (Address of principal executive offices, including zip code)
 
                                 (703) 620-4200
              (Registrant's telephone number, including area code)
 
                          ---------------------------
             Securities pursuant to Section 12(b) of the Act: None
    Securities registered pursuant to Section 12(g) of the Act: Common Stock
                          ---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference on Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
 
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 19, 1999, was approximately $235,229,000 based upon the
last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the Registrant have been excluded because such persons
may be deemed to be affiliates. This determination is not necessarily
conclusive.
 
The number of shares outstanding of the Registrant's Common Stock outstanding as
of March 19, 1999 was 19,781,291.
 
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ITEM 1. BUSINESS
 
     EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF OUR
BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS OR OUR
FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS ARE ONLY PREDICTIONS, AND ACTUAL
EVENTS OR RESULTS MAY BE MATERIALLY DIFFERENT FROM OUR PREDICTIONS. IN
EVALUATING THESE STATEMENTS, YOU SHOULD CONSIDER THE VARIOUS FACTORS IDENTIFIED
IN THIS ANNUAL REPORT, INCLUDING BUT NOT LIMITED TO THE MATTERS SET FORTH BELOW
UNDER THE HEADING, "RISK FACTORS".
 
OVERVIEW
 
     CyberCash, Inc. (including our subsidiaries) (http://www.cybercash.com) is
a provider of payment software and services, enabling electronic commerce for
merchants operating either in the physical "brick and mortar" world or the
virtual world of the Internet. The company was organized on August 29, 1994 in
the State of Delaware, and was in the development stage from the date of
inception until December 1996. In February 1996, we completed our initial public
offering. During our first four years of existence, we developed and began
marketing technologies and services that provide secure, convenient means of
making and accepting payments over the Internet. In 1997, we established joint
ventures in Japan and Germany and a strategic licensing arrangement in the
United Kingdom to commercialize some of our payment solutions in these
countries. On April 30, 1998, we acquired ICVerify, Inc., a privately held
company providing payment processing software to merchants operating in the
physical world and on the Internet. In October 1998, we introduced our new
InstaBuy service (http://www.instabuy.com), based on our Agile Wallet
technology, which we offer to merchants, online communities and financial
institutions to simplify the way consumers make payments online.
 
     We manage our business in three segments: "Payments", "InstaBuy" and
"International". Our Payments business markets the following payment processing
software products in the United States and internationally:
 
     -  ICVERIFY,
 
     -  PCVERIFY, and
 
     -  NetVERIFY.
 
and the following services in the United States:
 
     -  CashRegister secure payment service,
 
     -  PayNow Secure Electronic Check Service, and
 
     -  CyberCoin service.
 
The Payments business generates revenues from sales of software products and
fees from payment services. Revenues from sales of software consist primarily of
license fees and maintenance fees, and to a lesser extent from fees for
consulting and training services. We make our Payment services available to
online shoppers without charge. Revenues generated from payment services consist
of initial set-up fees and monthly recurring revenue streams derived from
monthly minimum charges and per transaction fees.
 
     The InstaBuy business markets the InstaBuy service in the United States and
to strategic partners overseas. We make the InstaBuy service available to
consumers without charge. We currently generate revenues primarily through the
licensing of the technology to banks and other financial institutions, which
provide the InstaBuy service to their customers. Over time, we expect also to
generate revenue from merchants and other operators of online points-of-purchase
to which we deliver InstaBuy transactions.
 
     The International business markets our payment services and technologies in
Germany, Japan, the United Kingdom and Canada. This segment of our business
currently generates revenues primarily from license and maintenance fees and
fees for development work associated with our overseas licensing activities.
 
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     Most commerce is still conducted in the physical world. However, the
exchange of goods and services for payment over the Internet is growing. We
believe the continued growth of Internet commerce will depend in part on:
 
     -  the ability of buyers and sellers to use familiar forms of payment
        online -- such as credit and debit cards and checks -- in a simple and
        secure manner; and
 
     -  the availability of payment software and services that:
 
       -- securely transmit and store payment information with minimal
          interruption of a consumer's online experience;
 
       -- are convenient for merchants to install and maintain;
 
       -- connect merchants to major payment processors and financial
          institutions;
 
       -- facilitate familiar types of transactions from the physical world --
          like bill payment and incentive or loyalty programs -- on the
          Internet; and
 
       -- provide common payment platforms for merchants selling goods and
          services both at physical points-of-sale and electronic storefronts.
 
     We also believe the demand for software-based payment solutions at physical
points-of-sale will continue to grow because of the declining cost of personal
computers and the increased functionality and flexibility provided by software
solutions. Electronic payments technologies were once provided primarily through
proprietary, hard-wired cash registers and terminals. Advances in personal
computing now make it possible for merchants to use open architecture
software-based solutions that run either on stand-alone personal computers or
PC-based cash registers or terminals. This enables merchants to consolidate
their points-of-sale into one personal computer or PC-based cash register
instead of using proprietary terminals or multiple point-of-sale terminals at
each cash register, and provides an opportunity for merchants to use the same
PC-based payment solution for electronic storefronts.
 
PAYMENTS
 
  SOFTWARE
 
     Our software products are designed to be installed on personal computers or
PC-based cash registers for use in handling physical, mail or telephone order
and online sales. These payment solutions make it possible for merchants to:
 
     -  authorize, settle and capture VISA, MasterCard, JCB, American Express,
        Discover/Novus and private-label credit card transactions to their bank
        accounts, in real-time mode (ICVERIFY and PCVERIFY also support batch
        processing offline);
 
     -  obtain check verification;
 
     -  establish connectivity with most U.S.-based financial institutions and
        large payment processors, including First Data Corporation, Paymentech,
        Global Payment Systems (Novus), NOVA and Vital Processing Services
        (VisaNet); and
 
     -  access transaction data for tracking and reporting purposes.
 
     ICVERIFY operates on a number of popular operating system platforms,
including Windows, DOS, SCO, HP-UX, Solaris, and AIX, while PCVERIFY operates on
Windows and NetVERIFY operates on Windows, Solaris and AIX. The products also
support open platform magnetic stripe card readers, PIN pads and magnetic ink
check readers, as well as address verification services (AVS) provided by some
payments processors to reduce the risk of fraudulent transactions.
 
     The ICVERIFY suite of products provides a common payment platform for
merchants that wish to process transactions at physical, telephone or mail order
and electronic points-of-sale. In addition, NetVERIFY is
 
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designed for merchants to use at one or multiple electronic points-of-sale, or
by commerce service providers to provide payment processing functionality for
multiple merchants as part of a merchant store hosting solution.
 
     We operate subsidiaries in the United Kingdom and Germany to sell versions
of ICVERIFY and PCVERIFY that meet European processor specifications for credit
and debit card transactions. We plan to continue to expand our software sales in
other markets outside the United States as the growth of electronic commerce
warrants.
 
  PAYMENT SERVICES
 
     CashRegister Secure Payment Service
 
     The CashRegister secure payment service is a host-based service that we
operate on our servers for Internet merchants, removing them from the burden of
operating their own payment software. The service enables merchants to:
 
     -  authorize, settle and capture VISA, MasterCard, JCB, American Express,
        Discover/Novus and private-label credit card transactions to their bank
        accounts, in real-time or offline batch mode;
 
     -  establish connectivity with most U.S.-based financial institutions and
        payment processors, including First Data Corporation, American Express,
        Paymentech, Global Payment Systems (Novus), NOVA, Vital Processing
        Services (VisaNet) and Wells Fargo Bank; and
 
     -  use browser software from an enabled personal computer to access
        transaction data for reporting or tracking purposes.
 
The service also supports address verification services offered by some payment
processors to reduce the risk of fraudulent transactions.
 
     The CashRegister solution is a simple and cost-effective solution for
merchants that want to begin accepting payments over the Internet with minimal
up-front investment. Since most of the functionality and storage is performed by
our host servers, the CashRegister solution simplifies the process for merchants
to begin accepting payment transactions, while minimizing the number of software
updates that a merchant needs to install on its client server. The client
software also is designed to integrate easily with storefront software packages,
and is scalable for various levels of transaction volumes. In addition, the
CashRegister service is designed for merchants to use at one or multiple
electronic points-of-sale, or for commerce service providers to use to provide
payment processing functionality to multiple merchants as part of a merchant
store hosting solution.
 
     PayNow Secure Electronic Check Service
 
     Introduced in 1997, the PayNow Secure Electronic Check Service enables
billers to accept real-time payment from consumer checking accounts of bills
presented on the Internet. PayNow is built on the same platform as our
CashRegister payment service, making it an integrated option available to
merchants using our CashRegister payment services.
 
     CyberCoin Service
 
     The CyberCoin service enables merchants to accept the electronic equivalent
of cash payments over the Internet. We introduced this service primarily to
enable Internet merchants to accept relatively low-value payments from consumers
in a convenient, cost-effective manner. The service is intended to provide an
alternative to credit cards as a form of payment since the cost of processing a
credit card transaction is large relative to the size of smaller payments.
 
THE INSTABUY SERVICE AND AGILE WALLET TECHNOLOGY
 
     Our InstaBuy service makes Internet shopping easier by simplifying and
harmonizing the online buying experience for consumers. The service allows
consumers to transmit payment and shipping information with a single mouse-click
to any merchant, portal, or commerce aggregator that uses the InstaBuy service.
It provides a
 
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consistent user experience at all enabled merchants, making it unnecessary for
consumers to master different navigation paths or remember multiple passwords.
 
     The InstaBuy service is built on CyberCash's Agile Wallet platform, a
technology for facilitating retail e-commerce transactions. The Agile Wallet
technology is a hosted consumer application that we primarily operate on behalf
of sponsoring financial institutions. It consists essentially of a database
containing consumer payment information and a simple, configurable user
interface or "electronic wallet". We brand and customize the user interface to
the specifications of the sponsoring financial institution, which can then
promote the service to its retail customers and online points-of-purchase such
as large Internet merchants, portals, online communities and shopping
aggregators. Over time, we expect to add a variety of new payment instruments,
features and functions.
 
     The InstaBuy service responds to a need to simplify the process of
completing online sales. As much as two-thirds of all Internet "shopping carts"
that have items placed in them are abandoned by consumers before completing a
purchase. One factor that contributes to this high "drop-off" rate is that
consumers find it annoying and difficult to have to type in shipping addresses
and payment information each time they buy something online. For merchants, the
InstaBuy service offers a solution to this problem that we believe should
increase the volume of completed sales.
 
     For financial institutions, the branded user interface offers a way to
project their brand on the Internet, presenting it to customers each time they
engage in a credit card transaction. The convenience of the InstaBuy service
also serves as a value-added utility that financial institutions can offer to
their customers to build loyalty. By making it easier for consumers to shop, and
by promoting the use of their cards within the branded user interface, credit
card issuers may be able to increase revenues they generate from interchange
fees and interest on outstanding receivables. Financial institutions can also
use the InstaBuy service as a vehicle to offer new products and services to
their customers.
 
INTERNATIONAL
 
     We provide the CyberCoin and CashRegister services through our joint
ventures in Japan and Germany. In addition, Barclays Bank plc offers the
BarclayCoin service, based upon our CyberCoin technologies, and has selected our
secure payment technologies as the foundation for an Internet-based payment
system that Barclays is building. We plan to continue to expand our service
offerings in markets outside the United States as the growth of electronic
commerce warrants.
 
MARKETING AND DISTRIBUTION
 
  PAYMENTS
 
     Software
 
     Our acquisition of ICVerify has allowed us to enter the physical market and
to market software-based payment solutions for Internet commerce. To sell these
products, we rely upon direct sales to a relatively small number of large
merchants and on our telemarketing sales team to sell directly to smaller
merchants. However, because we lack the internal sales and marketing resources
to achieve volume and revenue goals, we leverage our direct sales efforts
through a number of marketing channels. These channels include:
 
     -  Payment processors in the United States, including First Data
        Corporation (including CardNet, Envoy, FDR, NaBANCO and Telemoney),
        Paymentech, Global Payment Systems (including National Data Corporation,
        MAPP and Modular Data, Inc.), NOVA, Novus and Vital Processing Services;
 
     -  Financial Institutions and independent sales organizations, some of
        which resell our products and services, and others that sell the
        products and services under private label; and
 
     -  Value-added resellers, hardware vendors and developers of
        "store-builder" software packages to integrate our payment capabilities
        into their products.
 
To facilitate installation and integration of our software products, we support
value-added resellers and integrators through their participation in our
Integration Partnership Program.
 
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     CashRegister Secure Payment Service
 
     We market the CashRegister secure payment service primarily to small- to
medium-sized merchants because of the ease of its set-up and relatively small
up-front costs. To sell this service, we have a direct sales force but rely
primarily upon our distribution channels, which include payment processors,
financial institutions, Internet service providers, hardware vendors and
developers of "store-builder" software packages that integrate our payment
capabilities into their products. We support web-hosting service providers,
technology integrators and value-added resellers through their participation in
our Merchant Development Partnership and Technology Partnership programs.
 
     PayNow Secure Electronic Check Service
 
     We market the PayNow Secure Electronic Check Service primarily through
firms that provide technology and services that enable large billers to present
bills to customers over the Internet. These firms include Bluegill Technologies,
Inc., the Digital Cities unit of America Online, eDocs, Inc., International
Billing Services, Inc., Microvault, Inc. NCR Corporation, Microsoft, Netscape,
Novazen, Oracle and Pitney-Bowes. In addition, with the recent integration of
our PayNow service into our CashRegister technology, we distribute the PayNow
service into existing distribution channels for our credit payment services.
 
     CyberCoin Service
 
     The U.S. market for the CyberCoin service has not matured as we had
originally anticipated. For that reason, we have ceased offering downloads of
the wallet software needed to use the service, and we plan to suspend the
service in the United States and Canada in the second quarter of 1999. We
anticipate, however, that there eventually will be a viable market for
cash-equivalent payment services in the United States and Canada. As that market
evolves, we will consider offering cash-equivalent payment services to our
merchant and consumer customers again.
 
     In some markets outside North America, there appears to be greater demand
for cash-equivalent payments on the Internet. We plan to continue to offer the
CyberCoin services through our joint venture partners located in Japan and
Germany, as well as through Barclays Bank plc.
 
  THE INSTABUY SERVICE AND AGILE WALLET TECHNOLOGY
 
     Our goals are to obtain the agreement of several large financial
institutions to sponsor the issuance of InstaBuy wallets, to have the service
adopted by a substantial number of Internet merchants, and to distribute
InstaBuy wallets to large numbers of consumers. To meet these goals, we market
the InstaBuy service primarily to the largest issuers of credit cards in the
United States and abroad. We rely in part on these issuers to encourage larger
Internet merchants to participate in the InstaBuy service and to issue wallets
that they sponsor. We also enter into agreements with Internet portals to
promote the InstaBuy service. We market the InstaBuy service directly through
our own sales force, senior executives and website and indirectly through a
variety of channels, including Internet service providers, Internet portals, and
credit card processors.
 
  INTERNATIONAL
 
     We expect commerce on the Internet to become increasingly global. For that
reason, a component of our strategy is to support credit and cash-equivalent
payment and Euro currency conversion services offered by our joint ventures
partners in Japan and Germany, and to license our technology to financial
institutions, including Barclays Bank in the United Kingdom.
 
COMPETITION
 
     The market for Internet commerce software and services is relatively new,
intensely competitive, quickly evolving, and subject to rapid technological
change. We expect competition to continue to increase in the future. Many of our
current and potential competitors have longer operating histories, greater name
recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources than CyberCash. In
 
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addition, many of our current or potential competitors, such as Microsoft, have
broad distribution channels that may be used to bundle competing products and
services directly to end-users or purchasers. If these competitors were to
bundle competing products or services for their customers, the demand for our
products and services may be substantially reduced, and our ability to
successfully distribute our products and deploy our services would be
substantially diminished. In addition, we compete against custom payment
solutions built by in-house information technology engineers. We cannot assure
you that we will be able to compete effectively with current or future
competition, or that the competitive pressures we face will not have a material
adverse effect on our business, financial condition or operating results.
 
  PAYMENTS
 
     ICVERIFY and PCVERIFY
 
     For payment processing solutions in the physical retail environment, our
current and potential competitors include makers of proprietary cash registers
and point-of-sale terminals, such as Verifone, a subsidiary of Hewlett-Packard
Company, and Hypercom Corporation. Many of these firms, and smaller software
firms, are also developing or marketing open platform software solutions to
compete with ICVERIFY and PCVERIFY. These firms market their software through
many of the same distribution channels that we use. In addition, a number of
financial institutions and payment processors, many of which act as distribution
channels for our software, are our current or potential competitors, developing
or marketing payment processing software under private labels to facilitate
connections to their respective payment gateways.
 
     NetVERIFY and CashRegister
 
     Our competition for providing payment processing over the Internet is
fragmented. For larger merchants wishing to establish direct gateways to their
payment processors, our competitors include software vendors like ClearCommerce
Corporation, IBM and Open Market, Inc. However, these solutions tend to be more
expensive, and require a greater investment in onsite maintenance. For small- to
medium-sized merchants, most of our competitors -- such as Authorize. Net,
PaymentNet, Card Services International and CyberSource -- offer either a
software payment solution or a hosted service. Some of our competitors are
beginning or planning to offer both software and hosted services.
 
     PayNow Secure Electronic Check Service
 
     Our PayNow Secure Electronic Check Service competes with electronic payment
and direct deposit services offered by financial institutions and companies
providing various means of payment fulfillment. Our competitors include
CheckFree Corporation, Transpoint Networks (a joint venture of Microsoft and
First Data Corporation) and financial institutions like Citibank and Wells Fargo
Bank, each of which operates services that permit consumers to direct the
movement of funds from their checking accounts electronically. Many of our
competitors have agreements with most major billers, and are now (or will soon
be) offering these services through major Internet portals. In contrast, we have
positioned our PayNow service to allow billers to enroll their own consumers for
payment rather than rely on third parties.
 
  INSTABUY SERVICE
 
     We compete with providers of other electronic wallet-based technologies to
get merchants and Internet portals to accept and sponsor our Agile Wallet and
InstaBuy service. Our competitors include larger Internet portals, such as
Yahoo! and America Online, which provide registration services that permit a
form of "one-click" shopping. In addition, Microsoft, which operates a major
Internet portal through its MSN website, recently announced its intent to offer
one-click shopping functionality through its new Passport service. Each of these
major portals offers, or plans to offer, the functionality of "one-click"
shopping as a way of becoming a central consumer registration bureau. In
contrast, we position our InstaBuy service and Agile Wallet on the assumption
that consumers will prefer to register their financial information and
transaction history with financial institutions. As part of this strategy, we
seek to encourage portals to co-brand with banks in the process of building
consumer trust and relationships.
 
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     Some of the companies with competing electronic wallet technologies also
compete with us for sponsorship from financial institutions. Their offerings
include software programs that must be installed on consumers' computers, and
offerings that take the form of services like ours. Most of the companies with
which we compete in this area are relatively small private companies. A few
larger companies offer wallets designed to conform to the Secure Electronic
Transactions (SET) protocol, which has yet to achieve market acceptance. These
include IBM, GlobeSet, and Trintech. Some of their offerings may be adapted to
use in a non-SET environment, and could thus compete directly with our Agile
Wallet as an offering to financial institutions.
 
YEAR 2000 COMPLIANCE
 
     We are actively engaged in examining and taking corrective action to ensure
our readiness for, and to mitigate risks associated with, the year 2000. The
systematic assessment and remediation of year 2000-related issues, measured
against rigorous, consistent and objective standards is one of our top
objectives in 1999.
 
     Our efforts are organized and managed by a formal, enterprise-wide project
team, which has executive sponsorship and representation from each of our
principal lines of business and our development, finance, operations, legal and
information technology teams. These efforts are in addition to less formal
efforts we conducted before the formal establishment of this project team in
November 1998. We currently estimate that our direct labor costs for addressing
year 2000 issues will be approximately $500,000.
 
     We are following an approach adopted by many public reporting companies,
both within and outside the financial service and software industries, for
conducting our year 2000 readiness efforts. The approach identifies
approximately five phases to achieving readiness: awareness, inventory,
assessment, action and contingency planning. Our goal is for all internally
developed software contained in active releases of our products and services,
and all third party systems and services, to meet our definition of year 2000
compliance by September 30, 1999. We currently believe we are on target to meet
that goal.
 
     In reviewing our own software and services, and the software, services and
systems of third parties, we define year 2000 compliance to mean that the
software, services and systems:
 
     -  accept input and provide output of data involving dates or portions of
        dates before, during and after January 1, 2000 in a consistent, defined,
        disclosed and unambiguous manner as to the appropriate century;
 
     -  Manage, store, manipulate, sort, sequence and perform calculations with
        respect to data involving dates or portions of dates before, during and
        after January 1, 2000, consistently and accurately;
 
     -  Recognize the year 2000 as a leap year; and
 
     -  Operate continuously and without error, malfunction or interruption
        caused by or resulting from the change of the centuries from 1999 to
        2000, or the transition from any date to any other date.
 
     Our CashRegister 3.x payment service meets our definition of year 2000
compliance. In January 1999, we announced that we would be discontinuing support
of earlier versions of the CashRegister payment service (including the Secure
Transport Payment Service) during the fourth calendar quarter of 1999, and that
we would be providing migration tools to assist merchants in the free upgrade to
the CashRegister 3.x payment service. In February 1999, we announced that active
releases of ICVERIFY and PCVERIFY for Windows are year 2000 compliant, and we
began offering free upgrades to current users of our discontinued Windows
versions of these products. As we complete testing of our other products and
services, we plan to provide current users of our discontinued versions with
copies of year 2000-compliant versions for the same underlying operating system.
We maintain up-to-date information on our website (located at
http://www.cybercash.com) so that our customers and partners can stay informed
about the status of our internal testing, the products and services we recommend
they not use after December 31, 1999, and our definition of year 2000
compliance.
 
     In conducting our assessment of year 2000 compliance, particularly for the
software that we develop for our products and services, we cannot control all
variables that may result in year 2000-related failures. For that reason, our
definition of year 2000 expressly excludes year 2000-related problems occurring
as a result of reasons falling outside our control. Those reasons include:
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     -  The party operating the software (who may be a merchant, an ISP hosting
        a merchant's website or a software integrator responsible for
        maintaining the merchant's integrated payment processing software)
        failing to install a version of software that we announced on our
        website is year 2000 compliant;
 
     -  Failure by software integrators to follow documented interface
        specifications for our software, or to use and configure the software
        for use in accordance with the documentation associated with the
        software;
 
     -  Modification of software by the user or its agent in a manner that we
        did not expressly authorize;
 
     -  Use, interaction or interface of our software with any software,
        hardware or data that does not meet our definition for year 2000
        compliance (which could include the underlying operating system of the
        machine on which the software is hosted, or any other software used with
        or in the host machine);
 
     -  The input of data or output of data from the software is in a format or
        using a protocol that fails to meet our year 2000 compliance definition
        and is specified by a payment processor, a user or third party; or.
 
     -  Code changes in our year 2000 compliant products or service-enabling
        software that may be required by payment processors after we conduct
        end-to-end testing with them. We plan to conduct end-to-end testing with
        selected payment processors as their test environments become available.
 
     We believe we are managing the risk of revenue and customer service
interruption due to the year 2000 threat to immaterial levels. However, existing
industry standards in year 2000 compliance efforts cannot guarantee 100%
accuracy, and there may be issues of which we are not yet aware. Accordingly, we
may experience future uncertainties regarding year 2000 compliance of our
services and products. We cannot assure you that all of our products and
services will be year 2000 compliant before all relevant change-over dates,
including January 1, 2000, January 3, 2000 (the first business day of the year
2000) and February 29, 2000. Nor can we assure you that our currently compliant
products will not contain undetected problems associated with year 2000
compliance. Such problems may result in litigation and/or increased expenses
negatively affecting our future operating results.
 
RESEARCH AND DEVELOPMENT
 
     We intend to remain competitive by continuing to invest in research and
development. In 1999, we expect to focus on developing enhancements to our
existing products and services. In addition, we intend to adapt some of our
technologies to local processor specifications, currency and other requirements
for use in some non-U.S. markets, including Canada, Europe and Asia; however, we
intend to perform only a limited amount of development consulting work. Our
programmers and software engineering facilities are located in Reston, Virginia;
Oakland, California; and Bangalore, India.
 
     Research and development expenses were approximately $9,029,000, $9,656,000
and $12,692,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. To date, all software development costs have been expenses as
incurred. We do not anticipate our research and development costs will increase
substantially in 1999.
 
EMPLOYEES
 
     As of December 31, 1998, we had a total of 337 employees, 215 of whom are
based in the United States. We may increase the number of employees of our
development subsidiary in India. None of our employees is represented by a labor
union. We consider our relations with our employees to be good.
 
     The CyberCash logo, ICVERIFY, PCVERIFY, NetVERIFY, CyberCoin and PayNow
Secure Electronic Check Service are registered trademarks or service marks of
CyberCash or its affiliates in the United States and other countries. CyberCash,
PayNow, InstaBuy and Agile Wallet are trademarks of CyberCash in the United
States and other countries. Any other trademarks, service marks and registered
trademarks and service marks that we reference in this Annual Report on Form
10-K belong to their respective owners.
 
     CyberCash has been awarded U.S. Patent No. 5,870,473 for its "Electronic
Transfer System and Method." The patent describes a secure method for merchants
and customers to place orders for goods and services over
 
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any network, including the Internet. The patent covers encrypted transactions
between merchants and customers, linked by a server which brokers the
specific-merchant and specific-customer session for a specific period of time.
If either the merchant or the customer session occurs (or attempts to occur)
beyond a prescribed time period, the transaction is deemed to be invalid and no
transfer of funds or goods can take place. The patent covers small payments as,
for example, between merchants and consumers over the Internet, and large
payments such as between manufacturers and suppliers over a private network. The
patent was also awarded in Germany and is pending in other countries.
 
RISK FACTORS
 
  WE HAVE A LIMITED OPERATING HISTORY AND HAVE NOT YET OPERATED PROFITABLY.
 
     We were founded in August 1994, and we have not yet operated at a profit.
Our limited operating history offers little information to serve as a basis for
evaluating us and our long-term prospects. You should consider our prospects in
light of the risks, expenses and difficulties that companies in their earlier
stage of development encounter, particularly companies in new and rapidly
evolving markets. Our success depends upon our ability to address those risks
successfully, which include, among other things:
 
     -  Whether we can continue to build and maintain a strong management
        structure that can develop and execute our business strategy, and
        respond effectively to changes in the markets for our services and
        software products;
 
     -  Whether we can respond quickly and effectively to technological changes
        and competitive forces in our markets;
 
     -  Whether we will be able to assemble and maintain the necessary
        resources, especially talented software programmers, we will need to
        develop and upgrade our technology to meet evolving market demands;
 
     -  Whether we will be successful in continuing to evolve and successfully
        implement a sales and marketing strategy;
 
     -  Whether we will be able to develop and manage strategic relationships to
        maximize widespread acceptance of our products and services; and
 
     -  Whether the effect of the volatility of the market price of our stock
        will adversely affect our ability to sell our products and services,
        develop strategic relationships, attract and maintain qualified
        employees, and raise additional capital if necessary.
 
     If we do not succeed in addressing these risks, our business likely will be
materially and adversely affected.
 
  WE MAY CONTINUE TO EXPERIENCE LOSSES, WHICH WOULD DEPRESS OUR STOCK PRICE.
 
     As of December 31, 1998, we had an accumulated deficit of $94,881,000.
Since we started our business, our revenues have been small compared to our
expenses. Our ability to generate significant revenue remains uncertain. We
expect to continue to incur operating losses at least through 1999, and perhaps
for some time thereafter. We may never achieve, or be able to sustain,
profitability.
 
  THE DEVELOPMENT OF A MARKET FOR OUR PRODUCTS AND SERVICES IS UNCERTAIN.
 
     The market for our services is still immature and is evolving rapidly. An
increasing number of market entrants have introduced or are developing competing
products and services to enable payment transactions over the Internet. Critical
issues concerning the Internet (including security, reliability, cost, ease of
use and quality of service) remain unresolved and may limit the growth of
electronic commerce. Delays in the deployment of improvements to the
infrastructure for Internet access, including higher speed modems and other
access devices, adequate capacity and a reliable network backbone, also could
hinder the development of the Internet as a viable commercial marketplace. For
all of these reasons, it remains uncertain whether commerce over the Internet
will continue to grow, a significant market for our products and services will
emerge, or our products and services will
 
                                       10
<PAGE>   11
 
become generally adopted. Even if such a market does develop, competitive
pressures may make it difficult, or impossible, for us to operate profitably.
 
  THE MARKET FOR OUR PRODUCTS AND SERVICE MAY NOT GROW FAST ENOUGH TO SUPPORT
OUR LEVEL OF INVESTMENT, ADVERSELY AFFECTING REVENUES AND PROFITABILITY.
 
     The growth of our business depends upon widespread acceptance of our
products and services. This is particularly true of our new InstaBuy service,
the deployment of which is a major element of our business strategy for 1999.
The success of this service will depend on our ability to obtain the agreement
of several large financial institutions to sponsor the issuance of InstaBuy
wallets, to have the service adopted by a substantial number of Internet
merchants, and to distribute InstaBuy wallets to large numbers of consumers.
Moreover, our ability to persuade merchants to use the service is dependent in
part on the number of consumers who are using wallets; and our ability to
motivate consumers to use wallets is dependent in part on the number and type of
merchants that are using the service. To succeed, we will have to motivate both
groups to adopt the service simultaneously, which is particularly difficult. We
have only recently commenced operating the InstaBuy service, and we cannot
assure you that we will succeed in accomplishing any of these goals. Our failure
to accomplish these goals, or our inability to accomplish them on the
anticipated schedule, would have a material adverse effect on our business
 
  WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE.
 
     Our quarterly operating results have varied significantly and probably will
continue to do so in the future as a result of a variety of factors, many of
which are outside our control:
 
     -  Sales of our ICVERIFY payment software and our CashRegister service are
        affected by the reluctance of merchants to modify their payment systems
        during the fourth calendar quarter holiday period and during the first
        calendar quarter accounting and auditing period. Consequently, revenues
        from sales of our payment software and sign-up fees for our CashRegister
        service are likely to be lower during these periods than the balance of
        the year.
 
     -  In some cases our customers pay one-time licensing or consulting fees in
        connection with acquiring our payment services. The timing of the
        recognition of fees varies, which contributes to quarterly fluctuations
        in revenues. In addition, many of our distribution channels integrate
        our services with other electronic commerce solutions. The timing for
        these channels to complete the integration and deploy their solutions
        into their distribution channel is unpredictable.
 
     -  Our InstaBuy service is new, and the pricing structures and timing of
        the recognition of revenues for this service is unpredictable at this
        time. In addition to these factors, as a strategic response to changes
        in the competitive environment, we may from time to time make pricing
        decisions, marketing decisions, licensing decisions or business
        combinations that adversely affect our revenues or increase our costs.
        We also anticipate that revenues may decline as customers focus their
        financial and technical resources on responding to year 2000 issues
        instead of adopting payment technologies such as our products and
        services. Extraordinary events such as material litigation or
        acquisitions also could result in fluctuations in our operating results
        from one reporting period to the next.
 
     For these reasons, period-to-period comparisons of our results of
operations are not necessarily a reliable indication of future performance.
Because of all of the foregoing factors, it is likely that our quarterly
operating results from time to time will be below the expectations of public
market analysts and investors. In that case, we expect that the price of our
common stock would be materially and adversely affected.
 
  WE FACE INTENSE COMPETITION.
 
     The payments and electronic wallet industries are new and evolving rapidly,
resulting in a dynamic, competitive environment for our Payments and InstaBuy
businesses. We expect competition to persist, intensify and increase in the
future. Many of our current and potential competitors have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing
 
                                       11
<PAGE>   12
 
resources than we have. In addition, many of our current or potential
competitors, such as Microsoft, have broad distribution channels that they may
use to bundle competing products directly to end-users or purchasers. If these
competitors were to bundle competing products for their customers, it could
adversely affect our ability to market our products and services.
 
     Competitive pressures have led us on occasion to reduce our prices. We
expect that competition in our markets will continue to increase and may force
us to reduce prices for some of our products and services. Unless we can
increase our volume or reduce our costs, any such reductions would have an
adverse effect on our profitability.
 
  WE MUST ACHIEVE MARKET ACCEPTANCE AND DEVELOP NEW PRODUCTS AND SERVICES TO
ADDRESS TECHNOLOGICAL CHANGE.
 
     Broad acceptance of our products and services and their use in large
numbers is critical to our success because a large portion of our revenues
derive from one-time fees charged to customers buying our products and services.
In addition, our ability to earn significant revenues from our InstaBuy service
will depend in part on its acceptance by a substantial number of prominent
online merchants. One obstacle to widespread market acceptance for our products
and services is that widely adopted technological standards for accepting and
processing payments over the Internet have not yet emerged. As a result,
merchants and financial institutions have been slow to select which service to
use. Until one or more dominant standards emerge, we must design, develop, test,
introduce and support new services to meet changing customer needs and respond
to other technological developments. Our technologies have not been accepted as
standards. To be successful, we must obtain widespread acceptance of our
technologies, or modify our products and services to meet whatever industry
standards do ultimately develop. It is not certain that we will be able to do
either.
 
  WE MAY EXPERIENCE SOFTWARE DEFECTS AND DEVELOPMENT DELAYS, DAMAGING CUSTOMER
RELATIONS.
 
     Services based on sophisticated software and computing systems often
encounter development delays, and the underlying software may contain undetected
errors or failures when introduced or when the volume of services provided
increases. We may experience delays in the development of our software products
or the software and computing systems underlying our services. In addition,
despite testing by us and potential customers, it is possible that our software
may nevertheless contain errors, and this could have a material adverse effect
on our business.
 
  WE MAY EXPERIENCE BREAKDOWNS IN OUR PAYMENT PROCESSING SYSTEMS, HARMING OUR
BUSINESS.
 
     The operations of our Payment, InstaBuy and International services depend
on whether we are able to protect our system from interruption by events that
are beyond our control. Events that could cause system interruptions are:
 
     -  fire,
 
     -  earthquake,
 
     -  power loss,
 
     -  telecommunications failure, and
 
     -  unauthorized entry or other events.
 
     We have established two separate operations centers in Northern Virginia
that provide backup support for our services. In addition, we are building out a
third operations center, which we anticipate will be in operation before June
30, 1999. If one of these sites should cease operations because of a power
outage, fire, or natural disaster, the others should be able to take over with
only a minimal disruption in service. We have not, however, been able to test
the transfer of operations under emergency conditions, and we cannot be sure
that the transfer would be successful. Also, we have experienced growing
transaction volumes that have from time to time stressed the capacity of our
systems. There is a possibility that our existing systems may be inadequate and
cause serious failures of our services. Finally, although we regularly back up
data from operations, and take other
 
                                       12
<PAGE>   13
 
measures to protect against loss of data, there is still some risk of such
losses. A system outage or data loss could materially and adversely affect our
business.
 
     Despite the security measures we maintain, our infrastructure may be
vulnerable to computer viruses, hackers, rogue employees or similar sources of
disruption. Any damage or failure that causes interruptions in our operations
could have a material adverse effect on our business. Any problem of this nature
could result in significant liability to customers or financial institutions and
also may deter potential customers from using our services. We attempt to limit
this sort of liability through back-up systems, contractual provisions and
insurance. However, we cannot assure you that these contractual limitations on
liability would be enforceable, or that our insurance coverage would be adequate
to cover any liabilities we did sustain.
 
  OUR OPERATIONS AND BUSINESS COULD BE DISRUPTED OR DAMAGED IF OUR SYSTEMS AND
PRODUCTS ARE NOT YEAR 2000 COMPLIANT.
 
     We use computer software, operating systems, and embedded processors
containing programs in the development of our products and services, in the
delivery of our services and in our administrative and management operations.
The software we use in our products and in the delivery of our services
contains, in addition to code written by our programmers, some software that we
license from third parties. In addition, we rely on equipment and services
provided by other vendors that are susceptible to year 2000 problems. We are
reviewing the critical programs, systems and services we use (including those
provided by third party vendors) to assure that they are all able to handle
properly the upcoming calendar year 2000. On the basis of our work so far, we do
not anticipate that the year 2000 issue will have a material effect on our
business. It is, however, possible that problems will surface that have not yet
been identified that will require substantial time and resources to remedy. It
is also possible that we could fail to identify a problem with a resulting
failure or disruption of our operations. Either eventuality could have a
material adverse effect on our business.
 
  OUR RESULTS MAY SUFFER IF WE ARE UNABLE TO ATTRACT AND MAINTAIN QUALIFIED
MANAGEMENT AND TECHNICAL PERSONNEL.
 
     Our performance is substantially dependent on the performance of our
executive officers and key employees. We depend on our ability to retain and
motivate high quality personnel, especially our management and highly skilled
development teams. We do not have "key person" life insurance policies on any of
our employees. The loss of the services of any of our key employees,
particularly our founder and Chief Executive Officer, William N. Melton or our
President and Chief Operating Officer, James J. Condon, could have a material
adverse effect on us. Our future success also depends on our continuing ability
to identify, hire, train and retain other highly qualified technical and
managerial personnel. Competition for these employees is intense and increasing.
We may not be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of us to do so would have a
material adverse effect on our business.
 
  WE HAVE A LIMITED SALES FORCE, AND RELY ON OUR DISTRIBUTION CHANNELS, WHICH
ARE NEW AND EVOLVING.
 
     We have only a limited number of sales and marketing employees and,
therefore, we rely heavily on distribution channels for sales of our products
and payment services. Because of the rapidly evolving nature of electronic
commerce, we are not certain that the distribution channels with which we are
working will provide an adequate distribution network for us to achieve our
goals, or that we will be able to develop alternative channels.
 
  WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING COMPETITORS TO
DUPLICATE OUR PRODUCTS AND SERVICES.
 
     Our success and ability to compete is dependent in part upon our
proprietary technology. We rely primarily on copyright, trade secret and
trademark law to protect our technology. We hold one United States patent, and
have applied for several others in the United States and foreign countries. We
intend to continue to file patent applications on inventions that we may make in
the future. There can be no assurance that any of these patents will be granted,
or that if granted such patents would survive a legal challenge to their
validity, or provide meaningful levels of protection.
 
                                       13
<PAGE>   14
 
     We may have difficulties protecting our source code.
 
     The source code for our proprietary software is protected both as a trade
secret and as a copyrighted work. We generally enter into confidentiality and
assignment agreements with our employees, consultants and vendors, and generally
control access to and distribution of our software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our products, services or
technology without authorization, or to develop similar products, services or
technology independently. In addition, effective copyright and trade secret
protection may be unenforceable or limited in certain foreign countries, and the
global nature of the Internet makes it difficult to control the ultimate
destinations of our products or services. To license our products or services,
we often rely on "on-screen" licenses that are not manually signed by the
end-users and, therefore, may be unenforceable under some laws.
 
     We may be required to engage in litigation to enforce our proprietary
rights.
 
     Despite our efforts to protect our proprietary rights, third parties may
attempt to copy aspects of our products and services or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products and services is difficult, particularly in the global environment in
which we operate, and the laws of other countries may afford us little or no
effective protection of our intellectual property. We cannot assure you that the
steps that we have taken will prevent others from misappropriating our
technology or that these agreements will be enforceable.
 
     We may engage in litigation related to our intellectual property for a
number of reasons, including to:
 
     -  Enforce our intellectual property rights,
 
     -  Protect our trade secrets,
 
     -  Determine the validity and scope of the proprietary rights of others, or
 
     -  Defend against claims of infringement or invalidity.
 
     This litigation, whether successful or unsuccessful, could result in
substantial costs and diversions of resources, either of which could have a
material adverse effect on our business, financial condition or operating
results.
 
     Our products and services may infringe claims of third party patents, which
could adversely affect our business and profitability.
 
     We are aware of various patents held by independent third parties in the
area of electronic payment systems. It is possible that the holders of rights
under these patents could assert them against us. In fact, we have already
received notices of claims of infringement of other parties' proprietary rights.
We cannot assure you that our products and services are not within the scope of
patents held by others, either now or in the future. If any such claims are
asserted, we may seek to obtain a license under a third party's intellectual
property rights. There can be no assurance that such a license would be
available on reasonable terms or at all. We may also decide to defend against a
claim of infringement, but litigation, even if successful, is costly and may
have a material adverse effect on us regardless of the eventual outcome.
 
     We rely in part on third party technology licenses.
 
     We also rely on certain technology which we license from third parties,
including software which is integrated with internally developed software and
used in our software to perform key functions. We cannot assure you that third
party technology licenses will continue to be available to us on commercially
reasonable terms or at all. The loss of or inability to maintain any of these
technology licenses could result in delays in introduction of our services,
which could have a material adverse effect on our business, financial condition
or operating results.
 
                                       14
<PAGE>   15
 
  WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH MAY CHANGE AND HARM
OUR BUSINESS.
 
     Our operations are subject to various state and federal regulations.
Because electronic commerce in general, and most of our products and services in
particular, are so new, the application of many of these regulations is
uncertain and difficult to interpret. The agencies responsible for the
interpretation and enforcement of these regulations could amend those
regulations or issue new interpretations of existing regulations. It is also
possible that new legislation may be passed that imposes additional burdens. Any
such change could lead to increased operating costs and could also reduce the
convenience and functionality of our products or services, possibly resulting in
reduced market acceptance. It is possible that new laws and regulations may be
enacted with respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for our products or services
and increase our cost of doing business or could otherwise have a material
adverse effect on our business, financial condition or operating results.
 
  WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL NEEDED TO OPERATE AND GROW OUR
BUSINESS.
 
     We believe that our available cash resources combined with funds from
operations will be sufficient to meet our working capital and capital
expenditure requirements until our cash flow from operations turns positive. If
this belief should prove mistaken, we may be required to raise additional funds.
Alternatively, we may decide to raise additional funds in order to expand
operations, finance acquisitions or to finance other activities we decide may be
beneficial to our business. If we raise additional funds through the issuance of
equity securities, the percentage ownership of the stockholders of record will
be reduced, and stockholders may experience additional dilution. It is also
possible that new equity securities may have rights, preferences or privileges
senior to those of the holders of our common stock. Moreover, we cannot assure
you that additional financing will be available if we should need it. If
adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures, which could have a
material adverse effect on our business, financial condition or operating
results.
 
  WE HAVE INTERNATIONAL OPERATIONS, AND CHANGES IN THESE MARKETS MAY UNDERMINE
OUR BUSINESS OBJECTIVES.
 
     A component of our strategy is to expand our operations into international
markets. We have created joint ventures in Japan and Germany and have arranged
with Barclays Bank for the delivery of certain of our services in the United
Kingdom. The majority of our revenues in 1997 were derived from licensing fees
and customization work charged to these joint ventures and foreign strategic
allies. In 1998, only 13% of our revenues derived from these activities. We
anticipate that revenues derived from customization work and initial licensing
fees from these international operations will continue to decline over time. We
also have subsidiaries in the United Kingdom and Germany to customize and market
our products in Europe. The deployment of our products and services through our
joint ventures, alliances and subsidiaries in Japan and Europe is at an early
stage, and revenues have so far have been small. We do not know if our products
and services will be commercially successful in these markets, or will generate
significant revenues for our business.
 
  WE MAY BE UNABLE TO SUCCESSFULLY ACQUIRE NEW BUSINESSES, PRODUCTS OR
TECHNOLOGIES NEEDED TO EFFECTIVELY COMPETE, OR TO MAKE THESE ACQUISITIONS
PROFITABLE ONCE ACQUIRED.
 
     As our business evolves, we may acquire complementary products,
technologies, and businesses. Any significant acquisition would entail a risk
that we would not be successful in integrating and operating the acquired
business, product or technology. A failure to do so could have a material
adverse effect on us.
 
  OUR STOCK PRICE IS VOLATILE.
 
     The price of our common stock has been and likely will continue to be
subject to wide fluctuations in response to a number of events and factors, such
as:
 
     -  quarterly variations in operating results,
 
     -  variances of our quarterly results of operations from securities analyst
        estimates,
 
                                       15
<PAGE>   16
 
     -  announcements of technological innovations, new products, acquisitions,
        capital commitments or strategic alliances by CyberCash or our
        competitors,
 
     -  changes in financial estimates and recommendations by securities
        analysts,
 
     -  the operating and stock price performance of other companies that
        investors may deem comparable to us, and
 
     -  news reports relating to trends in our markets.
 
     In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced significant price and
volume fluctuations that often have been unrelated to the operating performance
of the companies affected by these fluctuations. These broad market fluctuations
may adversely affect the market price of our common stock, regardless of our
operating performance. Securities class action litigation has often been
instituted against companies that have experienced periods of volatility in the
market price for their securities. If we were to become the target of this kind
of litigation, the cost in dollars and management attention could be
substantial, and the diversion of management's attention and resources could
have a material adverse affect on our business.
 
  EFFECTING A CHANGE OF CONTROL OF CYBERCASH WOULD BE DIFFICULT, WHICH MAY
DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK AND DEPRESS THE VALUE OF OUR
COMMON STOCK.
 
     Our certificate of incorporation authorizes our board of directors to issue
up to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges, including voting rights, of those shares without any
further vote or action by the stockholders. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. We also
have a stockholders rights plan. It provides for the issuance of rights if an
acquiror purchases 15 percent or more of our common stock without the approval
of our board of directors. The rights plan may have the effect of delaying,
deterring, or preventing changes in control or management of CyberCash, which
may discourage potential acquirors who otherwise might wish to acquire CyberCash
without the consent of our board of directors. The certificate of incorporation
provides for staggered terms for members of CyberCash's board of directors.
Certain provisions of our bylaws, the issuance of preferred stock, certain
provisions in the certificate of incorporation, the staggered board of directors
as well as applicable provisions of Delaware law could have a depressive effect
on our stock price or discourage a hostile bid in which stockholders could
receive a premium for their shares. In addition, these provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock, or delay, prevent or deter a merger, acquisition,
tender offer or proxy contest for us.
 
  THE COMMON STOCK WE ARE COMMITTED TO SELL AND MAY SELL IN THE FUTURE WILL
INCREASE THE AMOUNT OF OUR COMMON STOCK ON THE PUBLIC MARKET, CAUSING OUR STOCK
PRICE TO DECLINE.
 
     As of March 19, 1999, there were no issued or outstanding shares of
preferred stock. As of March 19, 1999, we had granted warrants, investment
options and stock options to acquire an aggregate of 6,749,933 shares of our
common stock. In addition, we have made firm commitments to issue 304,878 shares
of our common stock and an equal number of warrants to acquire 228,659 shares of
our common stock for $5 million. We granted these securities and entered into
these commitments in connection with acquiring technologies, raising capital in
private placement transactions, entering into strategic alliances and providing
incentives to employees, consultants and non-employee directors under our stock
option plans. The issuance of preferred stock, or sales in the public market of
substantial amounts of shares acquired upon exercise of the foregoing warrants
and options, or the prospect of such sales, could adversely affect the market
price of our common stock.
 
                                       16
<PAGE>   17
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The following sets forth certain information concerning CyberCash's
executive officers and key employees as of March 19, 1999:
 
<TABLE>
<CAPTION>
NAME                                   AGE    POSITION
----                                   ---    --------
<S>                                    <C>    <C>
William N. Melton....................  56     Chairman and Chief Executive Officer
James J. Condon......................  42     President, Chief Financial Officer and Chief Operating
                                              Officer
Bruce G. Wilson......................  51     Executive Vice President, International Operations
Denis Yaro...........................  45     Executive Vice President, InstaBuy Service
Nancy C. Goldberg....................  40     Senior Vice President, Payments
Thomas P. Costello...................  50     Senior Vice President, Development
Kenneth E. Perez.....................  38     Senior Vice President, Marketing
Russell B. Stevenson, Jr.............  57     Senior Vice President, General Counsel and Secretary
</TABLE>
 
     William N. Melton, a founder of CyberCash, has served as a member of its
board of directors and as its chief executive officer since its inception in
August 1994. He also served as CyberCash's president until January 1999. Mr.
Melton founded VeriFone, Inc., a transaction automation company, in 1981 and was
a director of VeriFone from 1981 until 1996, and served as its chairman of the
board from 1986 until 1992. Mr. Melton was a founding investor of Transaction
Network Services, Inc., a transaction network communications company, and
continues to serve on its board of directors. Mr. Melton also serves as a
director of America Online, Inc.
 
     James J. Condon, has served as CyberCash's chief financial officer since
March 1997, as its chief operating officer since March 1998 and as its president
since January 1999. Before joining CyberCash, Mr. Condon was director of
performance improvement for the information, communications and entertainment
industries at KPMG Peat Marwick. From 1991 to 1995, he was corporate vice
president for financial planning and administration, and before that vice
president of operations, in the customer support and development divisions of
Legent Corporation. Mr. Condon serves as a director of Solutions Consulting, a
privately held company that consults to software companies about electronic
commerce and supply-chain management issues.
 
     Bruce G. Wilson, a founder of CyberCash, has served in various capacities
since the company's inception and, since May 1996, as its executive vice
president for International Operations. Before joining CyberCash, Mr. Wilson
held a number of executive positions at NYNEX, a telecommunications company,
including as vice president for electronic funds transfer systems of NYNEX's
Information Solutions Group and vice president for sales and marketing of
NYNEX's Computer Services Group. Mr. Wilson is chairman of the board of
directors of the Electronic Funds Transfer Association. He helped establish the
EFTA's Prepaid Card (Smart Card) special interest group, of which he currently
is a member.
 
     Denis Yaro has served as executive vice president running CyberCash's
InstaBuy business since June 1998. He joined CyberCash in January 1996 as vice
president for product development. Mr. Yaro served as executive vice president
for development before taking on his present responsibilities. Before joining
CyberCash, Mr. Yaro was vice president and general manager of Enterprise
Management Products at SunSoft and vice president and general manager of
SunConnect, both business units of Sun Microsystems, Inc.
 
     Nancy C. Goldberg has served as CyberCash's senior vice president
responsible for the Payments business since October 1998. She joined CyberCash
in January 1998 as vice president for Internet Billing and Payment Services.
Before joining CyberCash, Ms. Goldberg was market director for financial
services at Proxicom, Inc., an Internet software developer, from October 1997 to
January 1998; chief executive officer and a co-founder of Verb, inc., a
developer of relational database-driven software, from 1994 to 1997; and a vice
president for Prudential Home Mortgage from 1991 to 1994, where she was
responsible for all applications systems. Before 1991, Ms Goldberg consulted
with the financial services industry group of Anderson Consulting.
 
     Thomas P. Costello has served as CyberCash's senior vice president for
development since June 1998. From 1990 to May 1998, Mr. Costello was senior vice
president for research and development at INTERSOLV, Inc., a maker of software
development tools. Before joining INTERSOLV, Mr. Costello served as president
and chief
 
                                       17
<PAGE>   18
 
executive officer of Mergent International, Inc., a software company he
co-founded to develop and market personal computer security products. Mr.
Costello serves as a director of Trigent Software, Ltd., a firm that performs
year 2000 remediation and assessment services.
 
     Kenneth E. Perez has served as senior vice president for marketing since
November 1998. Before joining CyberCash, Mr. Perez held a variety of positions
within the Hewlett-Packard Company, including director of business development
for its Extended Enterprise Business Unit from June 1997; Worldwide Financial
Operations Manager for the Channel Products Support Division from December 1996
to May 1997; and Finance Department Supervisor for the Commercial Systems
Division from 1992 to November 1996.
 
     Russell B. Stevenson, Jr. has served as general counsel and secretary of
CyberCash since April 1996 and as senior vice president since December 1997.
Before joining the company, Mr. Stevenson was a partner in the law firm of
Ballard Spahr Andrews & Ingersoll from 1993 to 1996 and a partner in Pepper
Hamilton & Scheetz from 1989 to 1993.
 
ITEM 2. PROPERTIES
 
     The Company leases its principal facilities totaling approximately 44,000
sq. ft. in Reston, Virginia, and approximately 25,000 sq. ft. in Oakland,
California together with smaller facilities in Tennessee, New York, Ohio,
London, England, Munich, Germany, Hong Kong and Bangalore, India. Leases on
3,297 sq. ft. in the Reston, Virginia space expire in April 1999; with 7,740 sq.
ft. expiring in December 2000 and 5,642 sq. ft. expiring in June 2001; 1,040 sq.
ft. expiring in January 2002 and 25,926 sq. ft. expiring in March 2003. The
leases for the Oakland, California space expires in June 1999. The Company paid
fees of $65,000 to terminate these leases before their scheduled expiration
dates. The Company has entered into a new lease for office space of
approximately 25,000 sq. feet in the Oakland, California area, which it expects
to occupy beginning in May 1999. The Company believes that its existing Reston,
Virginia and new Oakland, California facilities will be adequate through at
least 1999 and that sufficient additional space will be available thereafter as
needed on terms acceptable to the Company.
 
     The Company's processing facilities are presently located at the Company's
Reston, Virginia corporate headquarters and at an offsite back-up data center,
also located in Reston, Virginia. We are building out a 10,000 sq. ft. facility
for a third operations center, which we currently anticipate will be in
operation before June 30, 1999. Payment system processing is done on redundant
systems with frequent data backups. The system is physically housed in secured,
climate-controlled rooms. These geographically redundant systems protect against
system outage due to regional natural disasters or system failures, such as
power outages or telephone system failures. The Company's systems are capable of
uninterrupted operation despite the loss of power grid connections. The system
presently has the capacity to process a substantially greater volume of
transactions than are currently being received. The Company has three separately
routed telecommunications links to the Internet.
 
ITEM 3. LEGAL PROCEEDINGS
 
     On June 30, 1998, we implemented a shareholder rights plan. Under the
shareholder rights plan as originally adopted, outstanding rights could only be
redeemed by "continuing directors" upon any person or group acquiring 15% or
more of the outstanding CyberCash common stock. The term "continuing directors"
was generally defined to mean directors who were members of the board at the
time the plan was adopted and any other person who subsequently became a member
of the board if a majority of the continuing directors had recommended or
approved that person's nomination for election to the board. A lawsuit was
brought on August 13, 1998 against CyberCash, its board of directors and James
J. Condon, as CyberCash's Chief Financial Officer. The suit claims that the
"continuing director" provision of the plan violated Delaware law, and sought
injunctive relief and unspecified damages. We entered into a settlement
agreement with the law firm representing the plaintiffs in this lawsuit, which
did not have material impact on our financial statements. We amended the plan on
December 11, 1998 as part of that settlement by eliminating provisions that
require certain actions to be taken only by these "continuing directors." We
understand that the law firm representing the plaintiffs has filed several
similar suits against other companies that have similar provisions in their
shareholder rights plans. We believe that the rights plan as originally adopted,
including the provisions related to "continuing directors", was
 
                                       18
<PAGE>   19
 
in compliance with Delaware law. Nevertheless, to avoid the expense and
distraction of protracted litigation, we agreed to amend the shareholder rights
plan to eliminate the "continuing director" provisions. A hearing is scheduled
for April 6, 1999 before the Chancery Court of Delaware to consider and approve
the proposed settlement.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Not applicable.
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS
 
     CyberCash's common stock is traded on the Nasdaq National Market under the
symbol "CYCH". The following table sets forth the high and low sales prices for
our common stock for the indicated periods during 1998, 1997 and 1996, as
reported by the Nasdaq National Market. We completed our initial public offering
in February 1996 at a price of $17.00 per share. On March 19, 1999, the closing
price of our common stock as reported by the Nasdaq National Market was $14.4375
per share. As of March 19, 1999, there were 367 holders of record of the common
stock.
 
<TABLE>
<CAPTION>
                                                                    SALES PRICES
                                                                     PER SHARE
                                                                --------------------
                                                                  HIGH        LOW
                                                                --------    --------
<S>                                                             <C>         <C>
1996
February 15, 1996 to March 31, 1996.........................    $ 64.50     $     24.50
Second Quarter..............................................      64.75           28.75
Third Quarter...............................................      54.75           23.50
Fourth Quarter..............................................      40.50           20.75
1997
First Quarter...............................................    $ 23.25     $     12.75
Second Quarter..............................................      18.00           10.75
Third Quarter...............................................      23.25           11.50
Fourth Quarter..............................................      23.25           12.25
1998
First Quarter...............................................    $ 17.0625   $     10.4375
Second Quarter..............................................      26.875          12.1875
Third Quarter...............................................      14.50            7.625
Fourth Quarter..............................................      22.125           6.25
</TABLE>
 
     We have never paid cash dividends on our capital stock. We currently intend
to retain earnings, if any, for use in our business and do not anticipate paying
any cash dividends in the foreseeable future.
 
     Note 7 "Stockholders' Equity", Note 8 "First USA Warrants" and Note 16
"Events Subsequent to the Date of the Auditors Report (unaudited)" to the
Company's Consolidated Financial Statements, which are incorporated by this
reference into this Item 5, contain information concerning securities of the
Company that it sold during the three years ended March 19, 1999 which have not
been registered under the Securities Act.
 
                                       19
<PAGE>   20
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following consolidated statements of operations data for five years in
the period ended December 31, 1998 and the following consolidated balance sheet
data at December 31, 1998, 1997, 1996 1995 and 1994 should be read in
conjunction with the Consolidated Financial Statements of the CyberCash and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The historical operating results are not necessarily
indicative of future operating results.
 
<TABLE>
<CAPTION>
                                                                                                                 PERIOD FROM
                                                                                                                  AUGUST 29,
                                                                                                                     1994
                                                                     YEAR ENDED DECEMBER 31,                    (INCEPTION) TO
                                                    ---------------------------------------------------------    DECEMBER 31,
                                                        1998           1997           1996           1995            1994
                                                    ------------   ------------   ------------   ------------   --------------
<S>                                                 <C>            <C>            <C>            <C>            <C>
STATEMENTS OF OPERATIONS DATA:
Revenues..........................................  $ 12,587,603   $  4,487,173   $    127,439   $         --     $        --
Cost of revenues..................................     7,775,359      3,658,196      2,207,725             --              --
                                                    ------------   ------------   ------------   ------------     -----------
Gross profit (loss)...............................     4,812,244        828,977     (2,080,286)            --              --
Costs and expenses:
  Research and development........................     9,029,483      9,655,885     12,692,431      5,648,052         920,951
  Sales and marketing.............................    14,599,418      9,603,299      9,414,656      1,772,365          56,200
  General and administrative......................     7,168,740      5,840,100      4,564,644      2,728,673         190,627
  Amortization of intangible assets...............     5,164,056             --             --             --              --
  Restructuring charges...........................       608,755        344,242             --             --              --
  Write-off of NetBill technology license.........            --      2,162,500             --             --              --
                                                    ------------   ------------   ------------   ------------     -----------
Loss from operations..............................   (31,758,208)   (26,777,049)   (28,752,017)   (10,149,090)     (1,167,778)
Interest income and expense.......................       915,040      1,460,568      2,197,276        142,895          14,284
Loss from investments in affiliates...............      (101,280)      (905,429)            --             --              --
                                                    ------------   ------------   ------------   ------------     -----------
Net loss..........................................  $(30,944,448)  $(26,221,910)  $(26,554,741)  $(10,006,195)    $(1,153,494)
Net loss available to common stockholders.........  $(31,667,512)  $(26,504,649)  $(26,554,741)  $(10,006,195)    $(1,153,494)
                                                    ============   ============   ============   ============     ===========
Basic and diluted loss per share..................  $      (2.15)  $      (2.43)  $      (2.77)  $      (6.90)    $     (0.80)
                                                    ============   ============   ============   ============     ===========
Weighted average shares outstanding...............    14,707,723     10,898,036      9,585,418      1,450,000       1,450,000
                                                    ============   ============   ============   ============     ===========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                    ------------------------------------------------------------------------
                                                        1998           1997           1996           1995           1994
                                                    ------------   ------------   ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
Working capital...................................  $ 10,781,597   $ 24,035,699   $ 31,842,308   $  3,421,115   $ 1,105,093
Total assets......................................    93,324,471     31,359,274     41,050,081      7,386,224     1,719,014
Total liabilities.................................     5,730,266      1,752,946      2,940,595      2,273,022       378,991
Redeemable convertible preferred stock............            --     13,013,772             --     16,094,692     2,366,667
Accumulated Deficit...............................   (94,880,788)   (63,936,340)   (37,714,430)   (11,159,689)   (1,153,494)
Stockholders' equity (deficit)....................    87,594,205     16,592,556     38,109,486    (10,981,490)   (1,026,644)
</TABLE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     Investors should read the following discussion in conjunction with the
accompanying consolidated financial statements and the notes thereto. Our
reported results for 1998, and the relationship between those results and the
results for prior years, are not necessarily indicative of our results in the
future. This discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. All statements
other than statements of historical fact made in this discussion and throughout
this Annual Report on Form 10-K are forward looking. Our actual results could
differ significantly from the results discussed in these forward-looking
statements.
 
     In particular, the statements regarding industry prospects and future
results of operations or financial position are forward-looking statements.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations. The
 
                                       20
<PAGE>   21
 
following discussion and the section entitled "Risk Factors" in Item 1 of this
Annual Report on Form 10-K describe some, but not all, of the factors that could
cause these differences.
 
OVERVIEW
 
     Our future operating performance will depend in large part on:
 
     - the rate of growth of electronic commerce,
 
     - our success at delivering products and services that meet market demands,
 
     - our ability to maintain and expand our distribution channels,
 
     - in the case of our new InstaBuy service, on our ability to form
       additional alliances with banks and other financial institutions,
 
     - strategic decisions by major participants in the industry,
 
     - competitive pricing pressures,
 
     - legal and regulatory developments, and
 
     - general economic conditions.
 
Moreover, the market for electronic payment services is still new and changing
rapidly. We are not certain that our product and service offerings will find the
widespread market acceptance required to support our level of investment in
these offerings. Our revenue expectations have been based partly on expectations
of future demand rather than on actual experience. Most of our efforts before
1998 were devoted to business development and marketing in preparation for, and
anticipation of, the growth in electronic commerce. Largely, as a result of the
expenses associated with these efforts, our operating expenses increased each
quarter through the end of 1996, but they remained constant at approximately
$7.5 million for the five quarters ended March 31, 1998. We continued our
preparations in 1998, making significant investments to expand our technological
infrastructure to support the growth of our payment service and InstaBuy service
offerings. We also increased our marketing and sales expenditures, as we
concentrate on expanding our merchant base and deploying the InstaBuy service.
 
     On April 30, 1998, we completed our acquisition of ICVerify, Inc., a
company that develops and markets payment systems software, for $16,250,000 in
cash, 2,300,000 shares of our common stock valued at $20.50 on April 30, 1998,
the conversion of outstanding vested and unvested stock options under ICVerify's
1995 Employee Stock Option Plan into stock options exercisable under the
CyberCash 1995 Employee Stock Option Plan for $7.0 million and transaction costs
of approximately $279,000. Our operating expenses increased to approximately
$12.5 million for the last three quarters of 1998, largely as a result of
consolidating ICVerify's operating results with ours. We expect to maintain our
operating expenses at approximately this level for the foreseeable future.
Although our research and development expenses fell slightly in 1998 from 1997,
we expect research and development expenses will increase slightly as we
continue to develop new products, services and enhancements to our existing
technology.
 
     During 1997 and 1998, we continued our efforts to establish a strong market
position and to lay the foundations for growth in recurring revenues as
electronic commerce increases. In 1998, we reduced our reliance on revenues
generated by development work performed for strategic allies or joint venture
partners. We do not expect revenues from this kind of development work will be a
significant portion of our overall revenue in the future.
 
     Electronic commerce appears to have become established, and promises to
continue to grow rapidly. In this environment, our success will depend largely
on our ability to continue to compete successfully in our established Payments
business, establish our Agile Wallet and the InstaBuy service, develop our new
products and services and market them successfully in a market that is becoming
increasingly competitive.
 
                                       21
<PAGE>   22
 
RESULTS OF OPERATIONS
 
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
 
  REVENUES
 
     Our revenues for the year ended December 31, 1998 were $12,588,000 compared
to $4,487,000 for the year ended December 31, 1997. During 1998, we generated
approximately 82% of these revenues from our Payments business, 5% from our
InstaBuy program and 13% from International. In contrast, the majority of our
revenues in 1997 derived from licensing our Internet payment technology and fees
for development work associated with these licensing activities. We grew our
revenue stream from our credit payment services by approximately 35% from 1997.
This growth resulted in part from increasing our base of merchant customers by
approximately 150% and in part from implementing a new fee structure, under
which we charge merchants a set-up and monthly service fee in addition to
transaction fees. Of the total revenues from our Payments business,
approximately 35% derived from set-up fees for our payment services and one-time
perpetual license fees from the sale of our software products.
 
     Our revenues from both software sales and payment service set-up fees are
subject to some seasonal variation. During the busy year-end holiday season,
merchants tend to focus their attention on selling, making them reluctant to
modify their payment systems. As a result, sales of payment software and
services are slower during that period. During the last half of 1998, revenues
from sales of our software products constituted approximately 50% of our total
revenues. We anticipate that revenues from sales of our payment software will
continue to represent a substantial portion of our total revenue for the
foreseeable future even though the market for Internet payment services is
likely to grow faster than the market for software payment products. As Internet
commerce continues to grow, we expect revenues from our payment services to grow
also, but the rate of this growth is likely to be slower due to substantial
increases in competition in our market. Competitive pressures have both affected
our market share and exerted downward pressure on prices for our payment
services. We also expect our sales of payment software to continue to grow, but
at a rate more consistent with growth of commerce in the physical "brick and
mortar" world than that of commerce on the Internet.
 
     For the foreseeable future, a significant factor in the growth of our
revenues will be the success of our Agile Wallet technology and InstaBuy
service. We entered into an agreement in October 1998 to operate the service for
First USA Bank, the first financial institution to brand our Agile Wallet user
interface to its specifications and pay us to customize and operate the service
for it. Revenues from First USA and other financial institutions for issuing
branded Agile Wallets could be significant in 1999 and subsequent years.
However, because the program is new and untested in the marketplace, we cannot
predict with any confidence the amount of these revenues, the rate of revenue
growth, or whether, in fact, we will succeed in generating revenues from any
financial institution other than First USA Bank.
 
     The long-term success of the InstaBuy service not only depends on our
ability to get other large financial institutions to sponsor and promote the
InstaBuy service but on consumers, Internet merchants, portals, online
communities and shopping aggregators. Because of the time it will take to enroll
significant numbers of merchants, and because of concessionary introductory
pricing arrangements, we do not anticipate generating significant revenues from
merchants in 1999.
 
  OPERATING EXPENSES
 
     Cost of Revenues.  Cost of revenues consist primarily of the cost of
operations to provide transaction processing, customer service and the software
and hardware components for our software products. Cost of revenues increased by
$4,117,000 from $3,658,000 for the year ended December 31, 1997 to $7,775,000
for the year ended December 31, 1998 primarily as a result of costs incurred to
produce and distribute our software products, increasing the size of our
customer service and network operations staffs and expanding our technological
infrastructure with investments in computers, networking systems and
telecommunications equipment to support growing transactions volumes for our
service offerings.
 
     Research and Development.  Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of our service and product offerings and technologies.
 
                                       22
<PAGE>   23
 
Research and development expenses decreased $627,000 from $9,656,000 for the
year ended December 31, 1997 to $9,029,000 for the year ended December 31, 1998.
This decrease was primarily due to our ability to shift portions of our
U.S.-based research and development efforts to our Bangalore, India development
subsidiary, where the cost of labor is less expensive. We plan to continue to
make significant investments in research and development. To date, all of our
software development costs have been expensed as incurred. We will continue to
expense similar costs until we can demonstrate that we may realize future
benefits from costs incurred to develop our software.
 
     Sales and Marketing.  Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses increased $4,997,000 from $9,603,000 for the year ended December 31,
1997 to $14,599,000 for the year ended December 31, 1998. A large portion of
1998 and 1997 sales and marketing expense was related to raising brand awareness
of CyberCash through television and magazine advertisements. In addition, during
1998, we almost tripled the size of our direct sales force primarily through the
acquisition of ICVerify. We expect our sales and marketing expenses to increase
as we promote our InstaBuy and Payment offerings.
 
     General and Administrative.  General and administrative expenses consist
primarily of compensation expense for management and support personnel and fees
for professional services and other expenses not associated with our general
management and administration and not attributable to a particular source of
revenue, or type of expense. General and administrative expenses increased
$1,329,000 from $5,840,000 for the year ended December 31, 1997 to $7,169,000
for the year ended December 31, 1998. This increase primarily reflects an
increase in employees during 1998 as a result of acquiring of ICVerify and
internal growth. We anticipate that our general and administrative expenses will
continue to be significant as we continue to develop and expand our operations.
 
     Amortization of Intangibles.  We accounted for the acquisition of ICVerify
as a purchase. Accordingly, we allocated the purchase price to the assets and
liabilities acquired at their estimated fair value as of the date of
acquisition. Of the purchase price, we allocated $400,000 to ICVerify's net
assets, and the remainder to intangible assets. Intangible assets are being
amortized using the straight-line method over their estimated useful lives.
During 1998, the Company had $5,164,000 in amortization expense.
 
     Restructuring Charges.  We routinely evaluate and realign our
organizational structure in order to respond appropriately to the ever-changing
electronic commerce market space and to take advantage of cost-reduction
opportunities related to acquisitions. During 1998 and 1997, we recorded
restructuring charges of $609,000 and $344,000, respectively, as a result.
 
     Acquisition of NetBill Technology License.  In 1997, we entered into a
technology licensing agreement with Carnegie Mellon University ("CMU") whereby
we acquired the exclusive worldwide rights to CMU's NetBill technology for use
in network-based electronic commerce. Due to the uncertainty associated with the
realizability of the license acquired, we recorded a non-cash charge to
operations of $2,163,000 during 1997 for the cost of this license.
 
     Interest Income.  Interest income decreased $546,000 from $1,461,000 for
the year ended December 31, 1997 to $915,000 for the year ended December 31,
1998. We funded the acquisition of ICVerify and operating activities out of cash
generated from the Company's private placements in 1998.
 
     Loss from Investments in Affiliates.  For the years ended December 31, 1998
and 1997, we recognized losses of $101,000 and $905,000, respectively, related
to our share of the net losses of our affiliates.
 
  LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1998, we had cash, cash equivalents and short-term
investments of $10,903,000 compared to $22,002,000 at December 31, 1997. The
decrease of $11,099,000 was a result of a net loss of $30,944,000 which was
offset primarily by non-cash expenses of $8,938,000 for depreciation,
amortization, provision for doubtful accounts, and losses from investments in
affiliates and disposal of property and equipment. In addition, we had cash
outflows for acquisitions and investments in affiliates of $15,693,000, capital
expenditures of $7,470,000 and investments in other long-term assets of
$1,500,000. These cash outflows were offset by proceeds
                                       23
<PAGE>   24
 
from private placements during 1998 which resulted in net cash proceeds of
$33,062,000; cash provided by the sale of short-term investments of $8,780,000;
operating activities and the effect of exchange rates of $855,000; and cash
provided from a receivable from the sale of common stock of $559,000 and the
sale of CyberCash common stock through the Employee Stock Purchase Plan and the
exercise of stock options for a total price of $1,093,000.
 
     We currently anticipate that our current available cash resources,
including the $10 million in private placement funds received in January 1999
and an additional $5 million in private placement funds, subject to a firm
commitment, combined with future cash flows from operations will be sufficient
to meet our presently anticipated cash needs, including our working capital
requirements for at least twelve to fifteen months. Thereafter, we may need to
raise additional funds.
 
     We may need to raise additional funds sooner than anticipated in order to:
 
     - fund more rapid expansion,
 
     - develop new or enhanced services,
 
     - respond to competitive pressures or
 
     - acquire complementary businesses or technologies.
 
     If we do raise additional funds through the issuance of equity securities,
the percentage ownership of the stockholders will be reduced, stockholders may
experience additional dilution, or equity securities issued may have rights,
preferences or privileges senior to those of common stockholders. We cannot
assure you that additional financing will be available now or in the future. If
adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance its services, take advantage of future
opportunities, or respond to competitive pressures, which could have a material
adverse effect on our business, financial condition or operating results. See
"Business -- Risk Factors." The common stock we are committed to sell and may
sell in the future will increase the amount of our common stock on the public
market, which could cause our stock price to decline.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
  REVENUES
 
     CyberCash's revenues for the year ended December 31, 1997 were $4,487,000
compared to $127,000 for the year ended December 31, 1996. During 1997, the
majority of our revenues derived from licensing our technology and from fees for
development work associated with licensing activities.
 
  OPERATING EXPENSES
 
     Cost of Revenues.  Cost of revenues consist primarily of labor costs for
providing development work associated with licensing activities and the cost of
operations to provide transaction processing and customer support. Cost of
revenues increased $1,450,000 from $2,208,000 for the year ended December 31,
1996 to $3,658,000 for the year ended December 31, 1997 primarily as a result of
increased revenues for the year ended December 31, 1997 from development
associated with licensing activities.
 
     Research and Development.  Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of CyberCash's services and technologies. Research and development expenses
decreased $3,036,000 from $12,692,000 for the year ended December 31, 1996 to
$9,656,000 for the year ended December 31, 1997. This decrease was primarily due
to our ability to receive development contracts in 1997 from strategic alliances
and joint venture partners to finance a portion of our development work. In
addition, we shifted much of our research and development efforts to our
Bangalore, India facility, resulting in a significant cost savings.
 
     Sales and Marketing.  Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses increased $188,000 from $9,415,000 for the year ended December 31, 1996
to $9,603,000 for the year ended December 31, 1997. A large portion of 1997
sales
                                       24
<PAGE>   25
 
and marketing expense was related to raising brand awareness of through
television and magazine advertisements.
 
     General and Administrative.  General and administrative expenses consist
primarily of compensation expense and fees for professional services and other
expenses associated with the general management and administration of CyberCash.
General and administrative expenses increased $1,619,000 from $4,565,000 for the
year ended December 31, 1996 to $6,184,000 for the year ended December 31, 1997.
This increase primarily reflects an increase in depreciation, and in
professional fees related to international joint ventures and strategic
alliances.
 
     Acquisition of Technology License.  On March 21, 1997, entered into a
technology licensing agreement with Carnegie-Mellon University whereby CyberCash
acquired the exclusive worldwide rights to technology for use in network-based
electronic commerce. In accordance with the CyberCash's research and development
policy, we recorded a non-cash charge to operations of $2,163,000 during the
three months ended March 31, 1997, for the fair value of the common stock and
warrants issued in the acquisition of the technology license.
 
     Interest Income.  Interest income decreased $736,000 from $2,197,000 for
the year ended December 31, 1996 to $1,461,000 for the year ended December 31,
1997. CyberCash funded operating activities out of cash generated from its
initial public offering and concurrent private placement on February 15, 1996
and private placement August 5, 1997.
 
     Loss from Investments in Affiliates.  For the year ended December 31, 1997,
CyberCash recognized a $905,000 loss related to its share of net losses of its
investments in affiliates.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
     Not applicable.
 
                                       25
<PAGE>   26
 
ITEM 8. FINANCIAL STATEMENTS
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
CyberCash, Inc.
 
     We have audited the accompanying consolidated balance sheets of CyberCash,
Inc. as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CyberCash, Inc. at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
 
                                                           /s/ Ernst & Young LLP
 
Vienna, Virginia
January 26, 1999
 
                                       26
<PAGE>   27
 
                                CYBERCASH, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
<S>                                                           <C>           <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $10,902,532   $13,222,234
  Short-term investments....................................           --     8,779,773
  Restricted cash...........................................      347,733       263,132
  Accounts receivable, net of allowance of $1,050,835 at
     December 31, 1998......................................    4,661,574     2,706,776
  Prepaid expenses and other current assets.................      600,024       816,730
                                                              -----------   -----------
     Total current assets...................................   16,511,863    25,788,645
Property and equipment, net.................................    9,050,162     4,671,350
Investment in affiliates....................................      242,947       342,155
Other long-term assets......................................    2,346,184       557,124
Goodwill and other intangibles, net.........................   65,173,315            --
                                                              -----------   -----------
     Total assets...........................................  $93,324,471   $31,359,274
                                                              ===========   ===========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 2,474,155   $   801,252
  Accrued employee benefits.................................    1,432,060       474,942
  Other accrued expenses....................................      853,268       266,946
  Deferred revenue..........................................      970,783       209,806
                                                              -----------   -----------
     Total current liabilities..............................    5,730,266     1,752,946
Commitments
  Series C redeemable convertible Preferred Stock, $.001 par
     value; 15,000 shares designated and issued, 13,500
     shares outstanding at December 31, 1997................           --    13,013,772
Stockholders' equity:
  Common Stock, $.001 par value; 25,000,000 shares
     authorized, 19,129,722 shares issued and 19,109,722
     shares outstanding as of December 31, 1998 and
     11,075,246 shares issued and 11,055,246 shares
     outstanding as of December 31, 1997....................       19,130        11,075
  Additional paid-in capital................................  183,265,162    81,896,532
  Accumulated deficit.......................................  (94,880,788)  (63,936,340)
  Treasury stock, 20,000 shares at cost.....................     (120,000)     (120,000)
  Receivable from sale of Common Stock......................     (267,724)     (803,338)
  Accumulated other comprehensive income....................     (420,750)     (332,288)
  Unearned compensatory stock options.......................         (825)     (123,085)
                                                              -----------   -----------
     Total stockholders' equity.............................   87,594,205    16,592,556
                                                              -----------   -----------
     Total liabilities and stockholders' equity.............  $93,324,471   $31,359,274
                                                              ===========   ===========
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       27
<PAGE>   28
 
                                CYBERCASH, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1998           1997           1996
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Revenues:
  Product sales......................................  $  6,478,191   $         --   $         --
  Service offerings..................................     6,109,412      4,487,173        127,439
                                                       ------------   ------------   ------------
     Total revenues..................................    12,587,603      4,487,173        127,439
Cost of revenues:
  Product sales......................................     1,738,963             --             --
  Service offerings..................................     6,036,396      3,658,196      2,207,725
                                                       ------------   ------------   ------------
     Total cost of revenues..........................     7,775,359      3,658,196      2,207,725
Gross profit (loss)..................................     4,812,244        828,977     (2,080,286)
Costs and expenses:
  Research and development...........................     9,029,483      9,655,885     12,692,431
  Sales and marketing................................    14,599,418      9,603,299      9,414,656
  General and administrative.........................     7,168,740      5,840,100      4,564,644
  Amortization of intangibles........................     5,164,056             --             --
  Restructuring charges..............................       608,755        344,242             --
  Write-off of NetBill technology license............            --      2,162,500             --
                                                       ------------   ------------   ------------
Loss from operations.................................   (31,758,208)   (26,777,049)   (28,752,017)
Interest income and expense..........................       915,040      1,460,568      2,197,276
Loss from investments in affiliates..................      (101,280)      (905,429)            --
                                                       ------------   ------------   ------------
Net loss.............................................  $(30,944,448)  $(26,221,910)  $(26,554,741)
                                                       ============   ============   ============
Basic and diluted loss per share.....................  $      (2.15)  $      (2.43)  $      (2.77)
                                                       ============   ============   ============
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       28
<PAGE>   29
 
                                CYBERCASH, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                                                                                             RECEIVABLE
                                                                                                FROM        ACCUMULATED
                                COMMON STOCK        ADDITIONAL                                 SALE OF         OTHER
                            --------------------     PAID-IN      ACCUMULATED    TREASURY      COMMON      COMPREHENSIVE
                              SHARES     AMOUNT      CAPITAL        DEFICIT        STOCK        STOCK         INCOME
                            ----------   -------   ------------   ------------   ---------   -----------   -------------
<S>                         <C>          <C>       <C>            <C>            <C>         <C>           <C>
Balance at December 31,
 1995.....................   2,062,500   $ 2,063   $  1,981,843   $(11,159,689)  $      --   $(1,156,908)    $      --
Initial public offering
 and concurrent private
 placement, net of
 expenses.................   3,736,540     3,737     58,270,385             --          --            --            --
Common Stock issued in
 connection with
 conversion of Series A
 and B Preferred Stock....   4,700,000     4,700     15,999,083             --          --            --            --
Common Stock issued in
 connection with the
 exercise and subsequent
 conversion of Series B
 Preferred Stock
 warrants.................     128,342       128         90,781             --          --            --            --
Exercise of Common Stock
 options..................      81,431        82        386,887             --          --            --            --
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......      23,449        22        338,815             --          --            --            --
Treasury stock received in
 satisfaction of
 receivable from sale of
 Common Stock.............          --        --             --             --    (120,000)           --            --
Repayment of receivable
 from sale of Common
 Stock....................          --        --             --             --          --       398,070            --
Accrued interest on
 receivable from sale of
 Common Stock.............          --        --             --             --          --       (61,395)           --
Compensation expense in
 connection with stock
 options..................          --        --        133,668             --          --            --            --
Amortization of deferred
 compensation.............          --        --             --             --          --            --            --
Comprehensive Income
 Net loss.................          --        --             --    (26,554,741)         --            --            --
 Foreign currency
   translation
   adjustment.............          --        --             --             --          --            --       (87,569)
 Comprehensive income.....
                            ----------   -------   ------------   ------------   ---------   -----------     ---------
Balance at December 31,
 1996.....................  10,732,262    10,732     77,201,462    (37,714,430)   (120,000)     (820,233)      (87,569)
                            ==========   =======   ============   ============   =========   ===========     =========
 
<CAPTION>
 
                              UNEARNED
                            COMPENSATORY      TOTAL
                               STOCK          EQUITY
                              OPTIONS       (DEFICIT)
                            ------------   ------------
<S>                         <C>            <C>
Balance at December 31,
 1995.....................   $(648,799)    $(10,981,490)
Initial public offering
 and concurrent private
 placement, net of
 expenses.................          --       58,274,122
Common Stock issued in
 connection with
 conversion of Series A
 and B Preferred Stock....          --       16,003,783
Common Stock issued in
 connection with the
 exercise and subsequent
 conversion of Series B
 Preferred Stock
 warrants.................          --           90,909
Exercise of Common Stock
 options..................          --          386,969
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......          --          338,837
Treasury stock received in
 satisfaction of
 receivable from sale of
 Common Stock.............          --         (120,000)
Repayment of receivable
 from sale of Common
 Stock....................          --          398,070
Accrued interest on
 receivable from sale of
 Common Stock.............          --          (61,395)
Compensation expense in
 connection with stock
 options..................          --          133,668
Amortization of deferred
 compensation.............     288,323          288,323
Comprehensive Income
 Net loss.................          --      (26,554,741)
 Foreign currency
   translation
   adjustment.............          --          (87,569)
                                           ------------
 Comprehensive income.....                  (26,642,310)
                             ---------     ------------
Balance at December 31,
 1996.....................    (360,476)      38,109,486
                             =========     ============
</TABLE>
 
                                       29
<PAGE>   30
                                CYBERCASH, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                             RECEIVABLE
                                                                                                FROM        ACCUMULATED
                                COMMON STOCK        ADDITIONAL                                 SALE OF         OTHER
                            --------------------     PAID-IN      ACCUMULATED    TREASURY      COMMON      COMPREHENSIVE
                              SHARES     AMOUNT      CAPITAL        DEFICIT        STOCK        STOCK         INCOME
                            ----------   -------   ------------   ------------   ---------   -----------   -------------
<S>                         <C>          <C>       <C>            <C>            <C>         <C>           <C>
Balance at December 31,
 1996.....................  10,732,262    10,732     77,201,462    (37,714,430)   (120,000)     (820,233)      (87,569)
Sale of Common Stock......      10,000        10        132,490             --          --            --            --
Exercise of Common Stock
 options..................      94,377        95        530,540             --          --            --            --
Common Stock and Warrants
 issued in Connection with
 acquisition of NetBill
 technology license.......     120,000       120      2,162,380             --          --            --            --
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......      35,451        35        441,533             --          --            --            --
Common Stock issued in
 connection with the
 conversion of Series C
 Preferred Stock..........      83,156        83      1,507,109             --          --            --            --
Accretion of Series C
 Preferred Stock..........          --        --       (282,739)            --          --            --            --
Repayment of receivable
 from sale of Common
 Stock....................          --        --             --             --          --        64,227            --
Accrued interest on
 receivable from sale of
 Common Stock.............          --        --             --             --          --       (47,332)           --
Compensation expense in
 connection with stock
 options..................          --        --        274,571             --          --            --            --
Amortization of deferred
 compensation.............          --        --        (70,814)            --          --            --            --
Comprehensive Income
 Net loss.................          --        --             --    (26,221,910)         --            --            --
 Foreign currency
   translation
   adjustment.............          --        --             --             --          --            --      (244,719)
 Comprehensive income.....
                            ----------   -------   ------------   ------------   ---------   -----------     ---------
Balance at December 31,
 1997.....................  11,075,246    11,075     81,896,532    (63,936,340)   (120,000)     (803,338)     (332,288)
                            ==========   =======   ============   ============   =========   ===========     =========
 
<CAPTION>
 
                              UNEARNED
                            COMPENSATORY      TOTAL
                               STOCK          EQUITY
                              OPTIONS       (DEFICIT)
                            ------------   ------------
<S>                         <C>            <C>
Balance at December 31,
 1996.....................    (360,476)      38,109,486
Sale of Common Stock......          --          132,500
Exercise of Common Stock
 options..................          --          530,635
Common Stock and Warrants
 issued in Connection with
 acquisition of NetBill
 technology license.......          --        2,162,500
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......          --          441,568
Common Stock issued in
 connection with the
 conversion of Series C
 Preferred Stock..........          --        1,507,192
Accretion of Series C
 Preferred Stock..........          --         (282,739)
Repayment of receivable
 from sale of Common
 Stock....................          --           64,227
Accrued interest on
 receivable from sale of
 Common Stock.............          --          (47,332)
Compensation expense in
 connection with stock
 options..................          --          274,571
Amortization of deferred
 compensation.............     237,391          166,577
Comprehensive Income
 Net loss.................          --      (26,221,910)
 Foreign currency
   translation
   adjustment.............          --         (244,719)
                                           ------------
 Comprehensive income.....                  (26,466,629)
                             ---------     ------------
Balance at December 31,
 1997.....................    (123,085)      16,592,556
                             =========     ============
</TABLE>
 
                                       30
<PAGE>   31
                                CYBERCASH, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                             RECEIVABLE
                                                                                                FROM        ACCUMULATED
                                COMMON STOCK        ADDITIONAL                                 SALE OF         OTHER
                            --------------------     PAID-IN      ACCUMULATED    TREASURY      COMMON      COMPREHENSIVE
                              SHARES     AMOUNT      CAPITAL        DEFICIT        STOCK        STOCK         INCOME
                            ----------   -------   ------------   ------------   ---------   -----------   -------------
<S>                         <C>          <C>       <C>            <C>            <C>         <C>           <C>
Balance at December 31,
 1997.....................  11,075,246    11,075     81,896,532    (63,936,340)   (120,000)     (803,338)     (332,288)
Sale of Common Stock......     376,701       377      3,799,623             --          --            --            --
Issuance of Common Stock
 in connection with the
 acquisition of ICVerify,
 Inc......................   2,300,000     2,300     54,228,654             --          --            --            --
Exercise of Common Stock
 options..................     336,426       336        649,483             --          --            --            --
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......      54,829        55        442,855             --          --            --            --
Common Stock issued in
 connection with the
 conversion of Series C
 and Series D Preferred
 Stock....................   4,986,520     4,987     42,994,227             --          --            --            --
Accretion of Series C and
 D Preferred Stock........          --        --       (723,064)            --          --            --            --
Repayment of receivable
 from sale of Common
 Stock....................          --        --             --             --          --       558,978            --
Accrued interest on
 receivable from sale of
 Common Stock.............          --        --             --             --          --       (23,364)           --
Amortization of deferred
 compensation.............          --        --        (23,148)            --          --            --            --
Comprehensive Income
 Net loss.................          --        --             --    (30,944,448)         --            --            --
 Foreign currency
   translation
   adjustment.............          --        --             --             --          --            --       (88,462)
 Comprehensive income.....
                            ----------   -------   ------------   ------------   ---------   -----------     ---------
Balance at December 31,
 1998.....................  19,129,722   $19,130   $183,265,162   $(94,880,788)  $(120,000)  $  (267,724)    $(420,750)
                            ==========   =======   ============   ============   =========   ===========     =========
 
<CAPTION>
 
                              UNEARNED
                            COMPENSATORY      TOTAL
                               STOCK          EQUITY
                              OPTIONS       (DEFICIT)
                            ------------   ------------
<S>                         <C>            <C>
Balance at December 31,
 1997.....................    (123,085)      16,592,556
Sale of Common Stock......          --        3,800,000
Issuance of Common Stock
 in connection with the
 acquisition of ICVerify,
 Inc......................          --       54,230,954
Exercise of Common Stock
 options..................          --          649,819
Common Stock issued in
 connection with Employee
 Stock Purchase Plan......          --          442,910
Common Stock issued in
 connection with the
 conversion of Series C
 and Series D Preferred
 Stock....................          --       42,999,214
Accretion of Series C and
 D Preferred Stock........          --         (723,064)
Repayment of receivable
 from sale of Common
 Stock....................          --          558,978
Accrued interest on
 receivable from sale of
 Common Stock.............          --          (23,364)
Amortization of deferred
 compensation.............     122,260           99,112
Comprehensive Income
 Net loss.................          --      (30,944,448)
 Foreign currency
   translation
   adjustment.............          --          (88,462)
                                           ------------
 Comprehensive income.....                  (31,032,910)
                             ---------     ------------
Balance at December 31,
 1998.....................   $    (825)    $ 87,594,205
                             =========     ============
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       31
<PAGE>   32
 
                                CYBERCASH, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------
                                                                  1998           1997           1996
                                                              ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
OPERATING ACTIVITIES
Net loss....................................................  $(30,944,448)  $(26,221,910)  $(26,554,741)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation..............................................     3,152,584      2,403,259      1,343,832
  Amortization of goodwill and intangible assets............     5,164,056             --             --
  Provision for doubtful accounts receivable................       236,068             --             --
  Write-off of NetBill technology license...................            --      2,162,500             --
  Loss from investments in affiliates.......................       101,280        905,429             --
  Loss on disposal of property and equipment................       208,716          4,679             --
  Accrued interest on receivable from sale of Common
    Stock...................................................       (23,364)       (47,332)       (61,395)
  Compensation expense related to stock options.............        99,112        441,152        421,991
  Changes in operating assets and liabilities, net of effect
    of acquisition of ICVerify:
    Restricted cash.........................................       (84,601)       (13,132)      (250,000)
    Accounts receivable.....................................    (1,392,759)    (2,555,011)      (151,765)
    Prepaid expenses and other current assets...............       348,710       (122,668)      (294,547)
    Other long-term assets..................................      (176,333)        80,390       (512,345)
    Accounts payable and accrued expenses...................     2,011,040     (1,307,455)       577,573
    Deferred revenue........................................       237,639        119,806         90,000
                                                              ------------   ------------   ------------
        Net cash used in operating activities...............   (21,062,300)   (24,150,293)   (25,391,397)
INVESTING ACTIVITIES
Sale(purchase) of short-term investments....................     8,779,773     (8,779,773)            --
Acquisition of ICVerify, net of cash received...............   (15,690,498)            --             --
Investments in affiliates...................................        (2,072)    (1,247,584)            --
Investment in other long-term assets........................    (1,500,000)            --             --
Purchases of property and equipment.........................    (7,470,220)    (1,449,628)    (5,406,578)
                                                              ------------   ------------   ------------
        Net cash used in investing activities...............   (15,883,017)   (11,476,985)    (5,406,578)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock......................     3,800,000        132,500     58,274,122
Proceeds from exercise of stock options.....................       649,819        530,635        386,969
Proceeds from issuance of Common Stock through the Employee
  Stock Purchase Plan.......................................       442,910        441,568        338,837
Proceeds from receivable from sale of Common Stock..........       558,978         64,227        278,070
Proceeds from issuance of Series D Preferred Stock..........    29,262,370     14,238,225             --
                                                              ------------   ------------   ------------
        Net cash provided by financing activities...........    34,714,077     15,407,155     59,277,998
                                                              ------------   ------------   ------------
Effect of exchange rate changes on cash and cash
  equivalents...............................................       (88,462)      (244,719)       (87,569)
                                                              ------------   ------------   ------------
Net (decrease)/increase in cash and cash equivalents........    (2,319,702)   (20,464,842)    28,392,454
Cash and cash equivalents at beginning of year..............    13,222,234     33,687,076      5,294,622
                                                              ------------   ------------   ------------
Cash and cash equivalents at end of year....................  $ 10,902,532   $ 13,222,234   $ 33,687,076
                                                              ============   ============   ============
Supplemental disclosure of non-cash investing and financing
  activities:
Issuance of Common Stock and Common Stock Options to acquire
  ICVerify, Inc.............................................  $ 54,230,954   $         --   $         --
                                                              ============   ============   ============
Conversion of Preferred Stock to Common Stock...............  $ 42,999,214   $  1,507,192   $         --
                                                              ============   ============   ============
Accretion of Stated Value of Preferred Stock................  $    723,064   $    282,739   $         --
                                                              ============   ============   ============
Treasury stock received in satisfaction of receivable from
  sale of Common Stock......................................  $         --   $         --   $    120,000
                                                              ============   ============   ============
Exercise of Series B Preferred Stock warrants, net of shares
  required to satisfy exercise price........................  $         --   $         --   $    267,380
                                                              ============   ============   ============
Supplemental disclosure of acquisition of ICVerify:
Assets and intangibles acquired.............................  $ 72,489,536   $         --   $         --
Liabilities.................................................     1,728,649             --             --
Common Stock and stock options..............................    54,230,954             --             --
                                                              ------------   ------------   ------------
                                                                16,529,933             --             --
Less: Cash received.........................................       839,435             --             --
                                                              ------------   ------------   ------------
Cash paid...................................................  $ 15,690,498   $         --   $         --
                                                              ============   ============   ============
</TABLE>
 
                See notes to consolidated financial statements.
                                       32
<PAGE>   33
 
                                CYBERCASH, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.   ORGANIZATION AND NATURE OF OPERATIONS
 
     CyberCash, Inc. ("CyberCash" or the "Company") was incorporated on August
29, 1994 in the state of Delaware and was in the development stage from date of
inception through December 31, 1996. CyberCash is a leader in secure, convenient
payment software and services, enabling e-commerce for merchants operating
either in the physical "brick and mortar" world or the virtual world of the
Internet.
 
     CyberCash solutions are the preferred choice for financial institutions,
software developers and integrators, commerce and Internet service providers,
and technology partners, offering unmatched ease and flexibility in integrating
payment capabilities into value-added offerings to customers.
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  PRINCIPLES OF CONSOLIDATION
 
     The accompanying financial statements include the accounts of CyberCash and
its subsidiaries. All significant inter-company transactions have been
eliminated in consolidation.
 
     Investments in unconsolidated joint ventures and affiliates in which the
Company has the ability to exercise significant influence over the investee but
has less than a controlling interest are accounted for using the equity method.
The Company records its share of net losses in its unconsolidated joint ventures
accounted for under the equity method to the extent of its investment balance.
 
     Investments in affiliates in which the Company does not have the ability to
exercise significant influence over the investee and has less than a controlling
interest are accounted for using the cost method. The Company has no further
investment obligations or guarantees to its unconsolidated joint ventures and
affiliates.
 
  CASH EQUIVALENTS AND RESTRICTED CASH
 
     The Company considers all highly liquid financial instruments purchased
with original maturities of three months or less to be cash equivalents. Cash
equivalents consist of investments in highly rated corporate debentures and
commercial paper, having maturities of less than three months, and a money
market mutual fund, which consists of U.S. government agency obligations and
highly rated corporate debentures, having maturities of less than three months.
These securities are recorded at cost, which approximates fair market value. The
Company has not experienced any losses on these investments. Restricted cash, in
the form of certificates of deposit, secure Company credit cards held by
employees for business expenses and a stand-by letter of credit issued as
security on leased property.
 
  SHORT-TERM INVESTMENTS
 
     Short-term investments consisted of high-grade commercial paper with
original maturities beyond three months and less than twelve months. The
Company's short-term investments were classified as available-for-sale and were
stated at cost, which approximated fair market value.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the asset's
estimated useful life ranging from 3 to 5 years.
 
  ASSET IMPAIRMENT
 
     Each year, management determines whether any property and equipment or any
other long-lived asset has been impaired based on the criteria established in
Statement of Financial Accounting Standards No. 121,
 
                                       33
<PAGE>   34
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
Disposed of". The Company has not made any adjustments to the carrying values of
its assets to date.
 
  GOODWILL AND OTHER INTANGIBLE ASSETS
 
     Intangible assets are recorded at cost and amortized using the
straight-line method over the following estimated useful lives:
 
<TABLE>
<S>                                                           <C>
Developed technology........................................   3 years
Assembled workforce.........................................   5 years
Trademark and tradename.....................................  10 years
Goodwill....................................................  10 years
</TABLE>
 
     The Company evaluates the recoverability of goodwill and other intangible
assets based on estimated, undiscounted operating income over the amortization
periods, giving consideration to sales and cost benefits expected to be realized
by the consolidated entity from the acquisition and integration of acquired
entities.
 
  AGENCY FUNDS
 
     Customer cash balances available for CyberCoin transactions are deposited
in insured accounts with financial institutions in which the Company acts as the
agent for its customers pending payment settlement. These funds are considered
neither an asset nor a liability of the Company. As of December 31, 1998 and
1997, the balance of funds held in agency accounts totaled approximately
$179,000 and $124,000, respectively.
 
  FOREIGN CURRENCY TRANSLATION
 
     Results of operations for foreign entities are translated to U.S. dollars
using average exchange rates during the year. Assets and liabilities are
translated to U.S. dollars using the exchange rate in effect at the balance
sheet dates. Resulting translation adjustments are reflected in stockholders'
equity as accumulated other comprehensive income.
 
  REVENUE RECOGNITION
 
     On January 1, 1998, the Company adopted AICPA Statement of Position 97-2
("SOP 97-2") "Software Revenue Recognition" (as amended by SOP 98-4 and SOP
98-9) which provides guidance in recognizing revenue on software transactions.
Accordingly, the Company recognizes transaction processing revenues, merchant
set-up and account fees, hardware and software product sales, software
development and technology license fees as the related services are performed or
products are shipped, assuming collectability is probable, fees are fixed, and
persuasive evidence of an arrangement exits.
 
     In those cases where customers have duplication rights for the software
products, revenue is recognized upon receipt of reports of units produced by the
customers. Revenues from the sale of product maintenance and support is
recognized ratably over the term of the agreement, which in most cases is one
year. In arrangements that include more than one element, the Company allocates
the total fee among each deliverable based upon their relative fair value as
determined by vendor-specific objective evidence.
 
  RESEARCH AND DEVELOPMENT COSTS
 
     The Company has expensed its product development costs as research and
development costs. It will continue to expense such costs until the
realizability of the Company's technologies can be established.
 
                                       34
<PAGE>   35
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
  ADVERTISING COSTS
 
     All costs related to advertising the Company's products are expensed in the
period incurred. During 1998, 1997 and 1996 advertising costs were $716,000,
$2,135,000 and $167,000, respectively.
 
  RESTRUCTURING CHARGES
 
     The Company evaluates and realigns its organizational structure in order to
respond to changes in the market and to take advantage of cost-reduction
opportunities. Costs related to corporate reorganizations conducted upon the
Company's comprehensive review of its key business lines have been classified as
restructuring charges. These charges include costs for severance and lease
termination charges related to downsizing the workforce. Restructuring charges
have been paid during the year in which they were incurred.
 
  INCOME TAXES
 
     The Company provides for income taxes in accordance with the liability
method. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
 
  STOCK BASED COMPENSATION
 
     The Company accounts for its stock-based compensation in accordance with
the provisions of APB No. 25. The Company presents pro forma disclosures of net
loss and net loss per share as if SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which established the fair value method of
accounting for employee stock options has been adopted.
 
  USE OF ESTIMATES
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The estimates involve judgments with respect to, among other
things, various future factors which are difficult to predict and are beyond the
control of the Company. Actual results could differ from those estimates.
 
  CONCENTRATION OF RISK
 
     The Company acts as an intermediary and facilitator for automated clearing
house and credit card transactions. The Company is exposed to risks associated
with returned transactions, merchant fraud and transmission of erroneous
information related to these transactions. The Company has not incurred
significant losses for these risks to date.
 
     The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral with regards to its
accounts receivable. The Company maintains reserves for credit losses and such
losses have been within management's expectations.
 
  RECLASSIFICATION
 
     Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
 
                                       35
<PAGE>   36
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
  RECENT PRONOUNCEMENTS
 
     In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued AICPA Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Software Developed or Obtained
for Internal Use" which is required to be adopted by the Company for all
financial periods ending after December 15, 1998. SOP 98-1 provides guidance in
capitalizing software that is developed in-house or purchased. The Company does
not believe SOP 98-1 will have a material impact on the Company's financial
statements.
 
3.   PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following at December 31:
 
<TABLE>
<CAPTION>
                                                                 1998          1997
                                                              -----------   ----------
<S>                                                           <C>           <C>
Computer equipment..........................................  $11,013,000   $6,339,000
Furniture and fixtures......................................    1,216,000      766,000
Office equipment............................................    1,338,000      663,000
Leasehold improvements......................................    2,241,000      810,000
                                                              -----------   ----------
                                                               15,808,000    8,578,000
Less accumulated depreciation...............................    6,758,000    3,907,000
                                                              -----------   ----------
                                                              $ 9,050,000   $4,671,000
                                                              ===========   ==========
</TABLE>
 
4.   ACQUISITION OF ICVERIFY, INC.
 
     On April 30, 1998, CyberCash acquired all the outstanding shares of common
stock of ICVerify, Inc. ("ICVerify") from its shareholders for $70.7 million,
including fees and expenses. The purchase price included $16.25 million in cash,
2.3 million shares of CyberCash Common Stock valued at $20.50 on April 30, 1998,
the conversion of outstanding vested and unvested stock options under ICVerify's
1995 Employee Stock Option Plan into stock options exercisable under the
CyberCash 1995 Employee Stock Option Plan for $7.0 million and transaction costs
of approximately $279,000. The consolidated financial statements include the
results of operations of ICVerify since the date of acquisition.
 
     The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been preliminarily allocated to the assets and liabilities
acquired at the estimated fair value as of the date of acquisition. Of the
purchase price, $400,000 was allocated to ICVerify's net assets, and the
remainder was allocated to intangible assets, as follows:
 
<TABLE>
<S>                                                           <C>
Developed technology........................................  $ 2,700,000
Assembled workforce.........................................  $   800,000
Trademark and tradename.....................................  $ 1,500,000
Goodwill....................................................  $65,300,000
</TABLE>
 
     Accumulated amortization is approximately $5,164,000 at December 31, 1998.
 
                                       36
<PAGE>   37
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.   ACQUISITION OF ICVERIFY, INC. -- (CONTINUED)
     The Company's unaudited pro forma consolidated condensed statements of
income for the years ended December 31, 1998 and 1997, assuming the acquisition
of ICVerify was effected at the beginning of each period, is summarized as
follows:
 
<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED   FOR THE YEAR ENDED
                                                     DECEMBER 31, 1998    DECEMBER 31, 1997
                                                     ------------------   ------------------
<S>                                                  <C>                  <C>
Revenue............................................     $ 15,182,000         $ 11,740,000
Net loss...........................................     $(35,612,000)        $(37,540,000)
Net loss available to Common Stockholders..........     $(36,335,000)        $(37,823,000)
Weighted average shares outstanding................       15,463,887           13,198,036
Basic and diluted earnings per share...............     $      (2.35)        $      (2.87)
</TABLE>
 
     This pro forma information does not purport to be indicative of the results
which may have been obtained had the acquisition been consummated at the date
assumed.
 
5.   COMMITMENTS
 
     The Company has entered into various operating lease agreements for office
and equipment. The leases generally contain renewal options. Future minimum
lease payments under non-cancelable operating lease agreements, with initial or
remaining terms in excess of one year, as of December 31, 1998, are as follows:
 
<TABLE>
<S>                                                           <C>
1999........................................................  $1,410,000
2000........................................................   1,156,000
2001........................................................   1,056,000
2002........................................................   1,011,000
2003........................................................     517,000
Thereafter..................................................   1,843,000
                                                              ----------
                                                              $6,993,000
                                                              ==========
</TABLE>
 
     During the years ended December 31, 1998, 1997 and 1996, the Company
recognized approximately $2,346,000 $1,751,000, and $1,371,000, respectively, in
rent expense. During 1998, 1997 and 1996, the Company recognized approximately
$123,000, $257,000 and $25,000, respectively, in sub-lease rental income.
 
     On August 11, 1998, in connection with one of the Company's office space
leases, the Company entered into a one-year standby letter of credit for $70,000
on behalf of the landlord.
 
     At the end of 1998, the Company entered into an agreement with an
affiliated company for a five-year sub-lease of office space. Minimum future
sub-lease rents to be received under this sub-lease as of December 31, 1998 are
approximately $442,000.
 
     In March 1999, the Company signed a lease for new office space of
approximately 25,000 square feet in Oakland, California for a lease term of
approximately 5 years beginning in May 1999.
 
6.   ACQUISITION OF NETBILL TECHNOLOGY LICENSE
 
     On March 21, 1997, the Company entered into a technology licensing
agreement with Carnegie Mellon University ("CMU") for exclusive worldwide rights
to CMU's NetBill technology for use in network-based electronic commerce. The
consideration for the license included 120,000 shares of Common Stock, plus
Warrants to purchase an additional 50,000 shares of the Company's Common Stock
at an exercise price of $16.45 per share. The Warrants are divided into 25,000
Class A Warrants and 25,000 Class B Warrants. Each class will become exercisable
in five equal annual installments of 5,000 Warrant shares, beginning on March
21, 1998 and
                                       37
<PAGE>   38
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6.   ACQUISITION OF NETBILL TECHNOLOGY LICENSE -- (CONTINUED)
will expire on March 21, 2007. However the exercise of the Class B Warrants is
also conditioned upon the achievement of certain milestones which, as of
December 31, 1998, have not been met. In addition, the Company will pay annual
cash royalties of $75,000 over the next four years. The Company will expense
these royalty payments in the year paid. Due to the uncertainty associated with
the realizability of the license acquired, the Company recorded a non-cash
charge to operations during 1997 of $2,162,500 for the fair value of the Common
Stock and Class A Warrants issued in the acquisition of the NetBill technology
license.
 
7.   STOCKHOLDERS' EQUITY
 
INITIAL FUNDING
 
     In October 1994, the Company sold 2,500,000 shares of Series A redeemable
convertible Preferred Stock ("Series A Preferred Stock") at $2.00 per share.
During August and September 1995, the Company issued a total of 2,200,000 shares
of Series B redeemable convertible Preferred Stock ("Series B Preferred Stock")
at $5.00 per share and detachable warrants, at a cost of approximately $91,000,
to purchase up to 181,818 shares of Series B Preferred Stock at $5.00 per share.
The Series A and Series B Preferred Stock and related warrants were converted
into 4,828,342 shares of Common Stock upon the closing of the Company's initial
public offering in February 1996.
 
INITIAL PUBLIC OFFERING
 
     On February 15, 1996, the Company completed its initial public offering of
2,760,000 shares of Common Stock, resulting in net proceeds of approximately
$42,835,000. Concurrent with the initial public offering, the Company issued
976,540 shares of Common Stock in a private placement, which generated proceeds
of approximately $15,439,000.
 
PRIVATE PLACEMENTS
 
     On August 5, 1997, the Company completed a private placement with two
institutional investors for 15,000 shares of the Company's Series C redeemable
convertible Preferred Stock ("Series C Preferred Stock") with a stated value of
$1,000 per share resulting in net proceeds of approximately $14,200,000. During
1998 and 1997, the investors converted 13,500 and 1,500 shares of the Series C
Preferred Stock into 1,303,244 and 83,156 shares, respectively, of Common Stock.
 
     On both February 5, 1998 and July 14, 1998, the Company completed private
placements of equity securities. The Company issued an aggregate of 30,000
shares of $.001 par value Series D Convertible Preferred Stock, with a stated
value of $1,000 per share ("Series D Preferred Stock") and options to purchase
up to an aggregate of 708,382 shares of the Company's Common Stock ("Investment
Options"). The Investment Options may be exercised between January 1, 1999 and
February 5, 2003 at an exercise price of $12.80 per share. The two private
placements resulted in net proceeds of approximately $14,409,000 and
$14,800,000, respectively. As of December 31, 1998, the Series D Preferred Stock
was converted into 3,683,276 shares of Common Stock.
 
     Based on the terms of the Series C and Series D Preferred Stock private
placements, dividends of five percent were due to be accreted on the outstanding
Preferred Stock. During 1998, dividends of approximately $154,000 and $569,000
were accreted on the Series C and Series D Preferred Stock, respectively. During
1997, dividends of approximately $283,000 were accreted on the Series C
Preferred Stock.
 
     On January 6, 1999, the Company issued 609,719 Units, each Unit of which
consists of one share of the Company's Common Stock and a Warrant to purchase
0.75 shares of the Company's Common Stock for $16.40 per Unit in a private
placement for net proceeds of approximately $9,980,000. The Warrants are
initially exercisable for 457,317 shares of Common Stock. The Company is
committed to sell, and the investors have
 
                                       38
<PAGE>   39
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7.   STOCKHOLDERS' EQUITY -- (CONTINUED)
agreed to purchase, an additional 304,859 Units for an additional $5.0 million
in cash after the registration statement covering the $15.0 million private
placement, filed in February 1999, is declared effective by the Securities and
Exchange Commission. The exercise price for each Warrant contained in a Unit is
initially set at $20.00. If the average closing bid price of the Company's
Common Stock over the 10 trading days preceding January 6, 2000, January 6, 2001
and January 6, 2002 is less than the $20.00 exercise price ("Reset Price"), the
exercise price may be reset on these dates to the Reset Price. If an adjustment
of the exercise price occurs, the number of shares of Common Stock that can be
issued upon exercise of the Warrants would proportionately increase. The
Warrants will expire on January 6, 2004.
 
     On July 17, 1998, Garen Staglin, a Director of the Company, bought 16,701
shares of CyberCash Common Stock for an aggregate purchase price of $200,000. On
September 16, 1998, William N. Melton, Chairman and Chief Executive Officer,
completed the purchase of 350,000 shares of CyberCash Common Stock for an
aggregate purchase price of $3.5 million. In addition, Michael L. Rothschild, a
Director of the Company, bought 10,000 shares of CyberCash Common Stock for an
aggregate purchase price of $100,000. Messrs. Melton and Rothschild paid for
their shares at a premium to the then current fair market value of Common Stock,
and Mr. Staglin paid for his shares at the then current fair market value of
Common Stock. As of March 29, 1999, the Company had not registered for resale
any of the shares acquired by Messrs. Melton, Staglin or Rothschild.
 
PREFERRED STOCK
 
     The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock in one or more series with such rights, preferences and privileges as
determined by the Board of Directors.
 
8.   FIRST USA WARRANTS
 
     In November 1998, the Company issued the following warrants to First USA
Bank (the "FUSA Warrants") in connection with an Operating Agreement ("Operating
Agreement") entered into in October 1998. Under the Operating Agreement, the
Company has agreed to license its Agile Wallet technology to and operate a
branded version of its InstaBuy service for First USA, which will be promoted by
both companies. The warrants are fully vested and non-forfeitable as of January
1, 1999. All of the FUSA Warrants expire on September 30, 2003.
 
     The warrants are accounted for in accordance with the provisions of EITF
96-18, "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services." As
a result, the warrants were valued in November 1998 at approximately $5.6
million. This amount will be expensed over the remaining term of the Operating
Agreement, which extends to October 2003.
 
<TABLE>
<CAPTION>
                               RIGHT TO PURCHASE
                              NUMBER OF SHARES OF                        ELIGIBLE DATE OF EXERCISE AT
                                 COMMON STOCK       EXERCISE PRICE          STATED EXERCISE PRICE
                              -------------------   --------------   ------------------------------------
<S>                           <C>                   <C>              <C>
Warrant No. 1...............         600,000            $12.50            January 1, 1999 - June 30, 1999
                                                        $17.00           July 1, 1999 - December 31, 1999
                                                        $32.00       January 1, 2000 - September 30, 2003
Warrant No. 2...............         600,000            $17.00        January 1, 1999 - December 31, 1999
                                                        $32.00       January 1, 2000 - September 30, 2003
Warrant No. 3...............       1,000,000            $32.00       January 1, 1999 - September 30, 2003
</TABLE>
 
     As of March 29, 1999, the Company had not registered for resale any of the
shares underlying any of the warrants granted to First USA Bank.
 
                                       39
<PAGE>   40
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.   COMMON STOCK OPTIONS
 
     The Company's 1995 Stock Option Plan ("Option Plan") provides for incentive
and non-statutory stock option grants and their respective exercise prices to be
made at the discretion of the Compensation Committee of the Board of Directors
to employees, officers, employee directors and consultants. However, the
exercise price of the incentive stock options and the non-statutory stock
options can not be less than 100% and 85%, respectively, of the fair market
value of the Common Stock on the date of grant. The Option Plan reserves
3,500,000 shares of Common Stock for issuance upon the exercise of options.
 
     Stock options generally vest as to 7.5% of the shares subject to option
three months after the date of grant and 2.5% of such shares at the end of each
month thereafter, so that the option is fully vested 40 months after grant. The
terms of stock options granted under the Option Plan may not exceed 10 years.
 
     During the year ended December 31, 1995, employees exercised 500,000
options in exchange for notes receivable totaling $1,130,000. As of December 31,
1998, approximately $249,000 of the notes receivable balance and approximately
$18,000 of interest accrued on the notes receivable balance remained
outstanding. During 1998 and 1996, the Company received approximately $559,000
in cash and, 20,000 shares of treasury stock and $225,000 in cash, respectively,
in satisfaction of employees' notes receivable.
 
     During 1995, the Company recognized deferred compensation expense of
$752,000 for the difference between the exercise price and the deemed fair
market value on the date of grant of stock options. The Company is amortizing
this amount ratably over the vesting period of the options, which are 40 to 64
months. During the years ended December 31, 1998, 1997 and 1996, the Company
recognized approximately $99,000, $441,000 and $422,000, respectively, of
compensation expense related to Common Stock options. Included in the
compensation expense for 1998 and 1997 is $23,000 and $275,000, respectively,
related to accelerated vesting of stock options for terminated employees.
 
     The Company's 1995 Non-Employee Directors' Plan ("Directors' Plan")
provides for the automatic grant of options to purchase shares of Common Stock
to non-employee directors of the Company. Upon election to the Board of
Directors, the non-employee director will be granted an option to purchase
10,000 shares of Common Stock. In addition, on the date of each annual meeting
of the Company, each person who is then a non-employee director of the Company
will be granted an option to purchase 5,000 and 1,500 shares of Common Stock in
consideration for their participation on the Board of Directors and for each
committee membership, respectively. The number of options granted would be based
on the number of days such person has continuously served as a non-employee
director since the last annual meeting. Outstanding options under the Directors'
Plan will vest monthly over a five-year period and the exercise price will be
equal to the fair market value of the Common Stock on the date of grant. The
maximum number of shares of Common Stock that may be issued pursuant to options
that are granted under the Directors' Plan is 100,000.
 
     Additionally, in December 1995, the Company adopted an Employee Stock
Purchase Plan (the "ESPP") for employees of the Company. Employees who elect to
enroll in the ESPP may make contributions to the ESPP by having withheld from
their salary an amount between 1% and 15% of their compensation to purchase
shares of Common Stock. Lump-sum purchases of Common Stock are made at the end
of the purchase period at the lower of 85% of the fair market value of the stock
on the first day of the offering period, or the employee's commencement date in
the program, or 85% of the fair market value of the stock on the last day of the
purchase period.
 
                                       40
<PAGE>   41
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.   COMMON STOCK OPTIONS -- (CONTINUED)
     The following activity occurred in the ESPP:
 
<TABLE>
<CAPTION>
                                                     AMOUNT
                                                   CONTRIBUTED    SHARES       PURCHASE
                                                     TO ESPP     PURCHASED       PRICE
                                                   -----------   ---------   -------------
<S>                                                <C>           <C>         <C>
1998.............................................   $443,000      54,829      $6.43-$17.42
1997.............................................   $442,000      35,451     $11.90-$13.39
1996.............................................   $449,000      23,449            $14.45
</TABLE>
 
     The maximum number of shares of Common Stock that may be issued under the
ESPP is 500,000.
 
     In connection with the acquisition of ICVerify, CyberCash assumed all
outstanding options under ICVerify's 1995 Employee Stock Option Plan ("ICVerify
Option Plan"). All vested and unvested options granted under the ICVerify Option
Plan will continue to have the same terms and conditions as under the ICVerify
Option Plan. The options may be exercised for CyberCash Common Stock equal to
the number of shares exercisable under the ICVerify Option Plan multiplied by
 .2464 and the per share exercise price will be the exercise price under the
ICVerify Option Plan divided by .2464. Stock options generally vest as to 25% of
the shares subject to option, twelve months after the date of grant and
approximately 2% of such shares at the end of each month thereafter, so that the
option is fully vested 48 months after grant. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the ICVerify
Option Plan is 542,000.
 
                                       41
<PAGE>   42
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.   COMMON STOCK OPTIONS -- (CONTINUED)
     A summary of activity under the Option Plans and Directors' Plan follows:
 
<TABLE>
<CAPTION>
                                                 CYBERCASH                                   ICVERIFY
                                 -----------------------------------------   ----------------------------------------
                                                                 WEIGHTED                                   WEIGHTED
                                                                  AVERAGE                                    AVERAGE
                                  OPTION         PRICE PER       PRICE PER    OPTION        PRICE PER       PRICE PER
                                  SHARES           SHARE           SHARE      SHARES          SHARE           SHARE
                                 ---------   -----------------   ---------   --------   -----------------   ---------
<S>                              <C>         <C>      <C>        <C>         <C>        <C>      <C>        <C>
Outstanding at December 31,
  1995.........................    486,645    $2.00-  $ 8.00      $ 4.32           --                  --        --
    Granted....................  1,016,948    $8.00-  $45.75      $26.92           --             --               --
    Exercised..................    (81,431)   $2.00-  $15.00      $ 4.76           --             --               --
    Canceled...................    (82,204)   $2.00-  $33.50      $16.68           --             --               --
                                 ---------    ------  -------     ------     --------    ------  -------      -----
Outstanding at December 31,
  1996.........................  1,339,958    $2.00-  $45.75      $20.49           --             --               --
    Granted....................    793,889    $2.00-  $27.50      $14.27           --             --               --
    Exercised..................    (94,377)   $2.00-  $15.00      $ 5.62           --             --               --
    Canceled...................   (388,561)   $2.00-  $37.25      $21.69           --             --               --
                                 ---------    ------  -------     ------     --------    ------  -------      -----
Outstanding at December 31,
  1997.........................  1,650,909    $2.00-  $45.75      $18.03           --             --               --
    Granted....................  1,855,773    $6.26-  $22.625     $13.32           --             --               --
    Converted in CyberCash
       Options.................         --             --              --     377,717    $0.41-  $16.875      $6.59
    Exercised..................   (115,816)   $2.00-  $17.00      $ 3.97     (220,610)   $0.41-  $ 1.79       $0.71
    Canceled...................   (750,917)   $2.00-  $37.25      $18.60      (58,247)   $0.41-  $16.875      $2.20
                                 ---------    ------  -------     ------     --------    ------  -------      -----
Outstanding at December 31,
  1998.........................  2,639,949    $2.00-  $45.75      $15.08       98,860    $0.41-  $16.875      $2.38
                                 =========    ======  =======     ======     ========    ======  =======      =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        DIRECTOR'S PLAN
                                                              -----------------------------------
                                                                                        WEIGHTED
                                                                                         AVERAGE
                                                              OPTION     PRICE PER      PRICE PER
                                                              SHARES       SHARE          SHARE
                                                              ------   --------------   ---------
<S>                                                           <C>      <C>              <C>
Outstanding at December 31, 1995............................      --         --              --
    Granted.................................................  10,000       $32.25        $32.25
    Exercised...............................................      --         --              --
    Canceled................................................      --         --              --
                                                              ------   --------------    ------
Outstanding at December 31, 1996............................  10,000       $32.25        $32.25
    Granted.................................................  32,158   $10.75-$13.625    $11.64
    Exercised...............................................      --         --              --
    Canceled................................................      --         --              --
                                                              ------   --------------    ------
Outstanding at December 31, 1997............................  42,158   $10.75-$32.25     $16.53
    Granted.................................................  29,000       $14.38        $14.38
    Exercised...............................................      --         --              --
    Canceled................................................      --         --              --
                                                              ------   --------------    ------
Outstanding at December 31, 1998............................  71,158   $10.75-$32.25     $15.93
                                                              ======   ==============    ======
</TABLE>
 
                                       42
<PAGE>   43
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.   COMMON STOCK OPTIONS -- (CONTINUED)
     The following table summarizes information regarding stock options
outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                               OUTSTANDING OPTIONS                     EXERCISABLE OPTIONS
                                 -----------------------------------------------   ----------------------------
                                  NUMBER OF    WEIGHTED AVERAGE      WEIGHTED                       WEIGHTED
       RANGE OF EXERCISE           OPTIONS        REMAINING          AVERAGE         NUMBER         AVERAGE
            PRICES               OUTSTANDING   CONTRACTUAL LIFE   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
       -----------------         -----------   ----------------   --------------   -----------   --------------
<S>                              <C>           <C>                <C>              <C>           <C>
$0.41- $2.00...................     162,413          7.59             $ 1.66          98,777         $ 1.76
$6.00-$8.50....................     199,287          8.14             $ 6.92         100,267         $ 6.32
$8.63-$8.88....................     428,203          9.64             $ 8.87          44,551         $ 8.87
$8.97-$11.63...................     322,152          8.78             $11.16          68,971         $11.42
$11.81-$13.25..................     188,212          8.89             $12.86          45,319         $13.08
$13.38-$13.63..................     410,722          8.54             $13.62         148,063         $13.62
$13.69-$15.00..................     354,937          8.11             $14.72         172,183         $14.90
$15.03-$19.88..................     293,042          9.31             $16.37          31,667         $16.49
$20.00-$31.75..................     281,400          8.25             $25.64         126,974         $27.85
$32.25-$45.75..................     169,600          7.24             $40.65          59,648         $37.17
                                  ---------          ----             ------         -------         ------
$0.41-$45.75...................   2,809,967          8.59             $14.66         896,420         $14.99
                                  =========          ====             ======         =======         ======
</TABLE>
 
     The Company has reserved shares of Common Stock for future issuance
relating to the employee benefits plans and the Directors' plan. At December 31,
1998, the remaining reserved shares of Common Stock are as follows:
 
<TABLE>
<S>                                                           <C>
CyberCash Option Plan.......................................  2,708,376
ICVerify Option Plan........................................    321,390
Directors' Plan.............................................    100,000
ESPP........................................................    386,271
                                                              ---------
                                                              3,516,137
                                                              =========
</TABLE>
 
     Adjusted pro forma information regarding net loss is required by SFAS No.
123 and has been determined as if the Company had accounted for its Option Plan,
ICVerify Option Plan, Directors' Plan and ESPP under the fair value methodology.
The fair value of the options granted during the years ended December 31, 1998,
1997 and 1996 are estimated as $11.35, $9.14, and $18.19 per share,
respectively, on the date of grant. The fair value for the Option Plan, ICVerify
Option Plan, Directors' Plan and ESPP was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
 
<TABLE>
<CAPTION>
                                                   1998          1997          1996
                                                   ----          ----          ----
<S>                                             <C>           <C>           <C>
Risk-Free Interest Rate.......................     5.40%         5.44%         6.00%
Expected Dividend Yields......................     0.00%         0.00%         0.00%
Expected Life of the Option...................  48.4 months   48.4 months   48.4 months
Volatility of the Company's Stock.............    91.41%        79.88%        101.00%
</TABLE>
 
     For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized over the option's vesting period. The effect of
applying SFAS No. 123 on 1998, 1997 and 1996 pro forma net loss is not
necessarily representative of the effects on reported net loss for future years
due to, among other things, (1) the
 
                                       43
<PAGE>   44
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.   COMMON STOCK OPTIONS -- (CONTINUED)
vesting period of the stock options and (2) the fair value of additional stock
options in future years. The Company's adjusted pro forma information for the
years ended December 31, are as follows:
 
<TABLE>
<CAPTION>
                                                   1998           1997           1996
                                               ------------   ------------   ------------
<S>                                            <C>            <C>            <C>
Adjusted pro forma net loss..................  $(42,494,601)  $(31,468,485)  $(30,106,000)
Adjusted pro forma net loss per share........  $      (2.89)  $      (2.91)  $      (3.14)
</TABLE>
 
     As of December 31, 1998, there remains available for grant pursuant to the
Option Plan, ICVerify Option Plan, Directors' Plan and the ESPP 576,556 shares
of Common Stock.
 
10. INCOME TAXES
 
     The following is a summary of the components of the Company's net deferred
tax assets as of December 31:
 
<TABLE>
<CAPTION>
                                                                1998          1997
                                                             -----------   -----------
<S>                                                          <C>           <C>
Net operating loss carryforward............................  $32,189,000   $22,132,000
Deferred start-up costs....................................      741,000     1,111,000
Depreciation...............................................       81,000        42,000
Accrued and deferred expenses..............................      360,000       235,000
                                                             -----------   -----------
                                                              33,371,000    23,520,000
Valuation allowance........................................  (33,371,000)  (23,520,000)
                                                             -----------   -----------
Deferred tax asset, net....................................  $        --   $        --
                                                             ===========   ===========
</TABLE>
 
     At December 31, 1998, the Company had approximately $80,472,000 in tax net
operating loss carryforwards that expire at varying dates through 2018. These
carryforwards may be significantly limited under the Internal Revenue Service
Code as a result of ownership changes resulting from the Company's redeemable
convertible Preferred Stock financings and the initial public offering.
 
11. INVESTMENT IN AFFILIATES
 
     On May 13, 1997, CyberCash and Softbank Corporation ("Softbank") entered
into a joint venture agreement to commercialize CyberCash's technology in Japan.
Pursuant to the agreement, the parties formed a Japanese corporation, CyberCash
Kabushiki Kaisha ("CCKK"), to serve as the joint venture entity. A subsidiary of
CyberCash purchased 200 shares of CCKK's Common Stock (approximately a 46%
interest) for $83,000, and Softbank and several other entities purchased 220
shares of CCKK's Preferred Stock, which is convertible into CCKK's Common Stock
on a one-for-one basis. During February 1998, CyberCash's subsidiary sold 10
shares of CCKK's common stock to another shareholder of CCKK for approximately
$200,000. CyberCash accounts for its investment in CCKK under the equity method.
 
     In May 1997, CyberCash and CCKK entered into a Software Development
Agreement. Under the agreement, CyberCash will modify the CyberCash technology
and will license it to CCKK for use in the Japanese market. CCKK agreed to pay
CyberCash $100,000 plus its fully-burdened costs of performing this work, not to
exceed $1,100,000. During 1998 and 1997, the Company recognized revenues of
$522,000 and $597,000, respectively, for work performed under the Software
Development Agreement and $315,000 of these revenues are included in accounts
receivable as of December 31, 1998.
 
     On October 3, 1997, CyberCash, Dresdner Bank AG ("Dresdner") and Landesbank
Sachsen Girozentrale ("Sachsen") formed a joint venture, CyberCash GmbH ("CC
GmbH"), to commercialize CyberCash's technology in Germany. A wholly owned
subsidiary of CyberCash purchased 40% of CC GmbH's equity shares
 
                                       44
<PAGE>   45
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11. INVESTMENT IN AFFILIATES -- (CONTINUED)
for $1,165,000 with Dresdner and Sachsen purchasing the remaining 40% and 20% of
the shares, respectively. CyberCash accounts for its investment in CC GmbH under
the equity method.
 
     CyberCash and CC GmbH agreed to enter into a technology license agreement.
Under the agreement, CyberCash will modify the CyberCash technology and will
license it to CC GmbH for use in the German market. CC GmbH agreed to pay
CyberCash DM 3,600,000 (approximately US $2,100,000) for the initial licensing
of the technology, in addition to annual maintenance fees of $80,000. The
Company recognized $344,000 and $2,045,000 in revenues during 1998 and 1997,
respectively, from CC GmbH and $471,000 and $2,045,000 of these revenues are
included in accounts receivable as of December 31, 1998 and 1997, respectively.
 
12. RETIREMENT PLAN
 
     The Company has adopted a 401(k) plan (the "Plan"), which covers all
employees who have completed three months of service and attained the age of
twenty-one. The Plan allows employees to contribute up to 15% of their total
compensation, subject to Internal Revenue Service limitations. The Company has
not made matching contributions to the Plan.
 
13. SEGMENT INFORMATION
 
     In accordance with SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," the Company has determined that it has three
reportable segments: Payments, InstaBuy and International. The Company's
revenues in 1998 from each of these segments were $10,307,000 (82%) from
Payments, $655,000 (5%) from InstaBuy and $1,626,000 (13%) from International.
The Company began managing its business using these segments during 1998.
 
     CyberCash's Payments segment provides a complete line of software products
and services allowing merchants, billers, financial institutions and consumers
to conduct secure transactions using the broadest array of popular payment
forms. Credit, debit, purchase cards, cash, checks, smart cards and alternative
payment types (e.g., "frequent buyer" or loyalty programs) are all supported by
CyberCash payment solutions. Leading payment solutions of CyberCash and its
subsidiaries include ICVERIFY(R), PCVERIFY(TM), CashRegister, NetVERIFY(TM), and
PayNow(TM).
 
     The Company's InstaBuy segment provides merchants and financial
institutions with a service to assist in building better relationships with
their consumers. The InstaBuy service provides merchants with a way to convert a
higher percentage of web site visitors to buyers and to retain those customers
for repeat purchases through one-click purchasing while consumers gain
convenience and security. The leading InstaBuy service solution of CyberCash
includes Agile Wallet(TM) and InstaBuy(TM).
 
     CyberCash's International segment provides for the licensing of CyberCash
technology for use in foreign markets. The Company has entered into licensing
agreements with its joint ventures and international partners to commercialize
CyberCash's technology through the modification of and subsequent licensing of
CyberCash's technology for usage in international markets. The leading solutions
of CyberCash and its subsidiaries to be licensed in foreign markets include
Agile Wallet(TM), InstaBuy(TM), ICVERIFY(R), PCVERIFY(TM), CashRegister,
NetVERIFY(TM) and CyberCoin(R).
 
                                       45
<PAGE>   46
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
13. SEGMENT INFORMATION -- (CONTINUED)
     The following table sets forth the Company's long-lived assets and revenues
by geographic location:
 
<TABLE>
<CAPTION>
                                             1998                        1997               1996
                                   -------------------------   ------------------------   --------
                                     ASSETS       REVENUES       ASSETS       REVENUES    REVENUES
                                   -----------   -----------   -----------   ----------   --------
<S>                                <C>           <C>           <C>           <C>          <C>
United States....................  $89,964,000   $11,207,000   $29,021,000   $1,531,000   $127,000
India............................    3,035,000            --     2,338,000           --         --
United Kingdom...................           --       350,000            --      164,000         --
Germany..........................      325,000       533,000            --    2,195,000         --
Japan............................           --       498,000            --      597,000         --
</TABLE>
 
     The Company's net revenues in 1997 were primarily from three customers who
have licensed CyberCash technology for use in foreign markets and who provide
services in the banking and transaction processing industries. Revenues from
these customers totaled approximately $2,045,000 (46%), $1,028,000 (23%) and
$597,000 (13%). As of December 31, 1997, substantially all of the Company's
accounts receivable were due from these three customers.
 
     The Company's net revenues in 1996 were primarily from four customers who
provide services in the banking and transaction processing industries. Revenues
from these customers totaled approximately $35,000 (28%), $30,000 (24%), $22,000
(17%) and $20,000 (16%).
 
14. NET LOSS PER SHARE
 
     The following table set forth the computation of basic and diluted loss per
share:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                               ------------------------------------------
                                                   1998           1997           1996
                                               ------------   ------------   ------------
<S>                                            <C>            <C>            <C>
Numerator:
  Net loss...................................  $(30,944,448)  $(26,221,910)  $(26,554,741)
  Accrued dividends to Preferred
     Stockholders............................      (723,064)      (282,739)            --
                                               ------------   ------------   ------------
  Net loss available to Common
     Stockholders............................  $(31,667,512)  $(26,504,649)  $(26,554,741)
                                               ------------   ------------   ------------
Denominator:
  Weighted average shares outstanding........    14,707,723     10,898,036      9,585,418
                                               ------------   ------------   ------------
Basic and diluted loss per share.............  $      (2.15)  $      (2.43)  $      (2.77)
</TABLE>
 
     Stock options issued under the Company's Option Plan, ICVerify Option Plan,
Directors' Plan and warrants and Investment Options issued to CMU and First USA
and in connection with the Company's private placements, have been excluded from
diluted earnings per share computation because of their anti-dilutive nature.
 
15. RELATED PARTY TRANSACTIONS
 
     During 1998, the Company paid $35,000 to a relative of a shareholder in
connection with an operating lease agreement in California.
 
     At the end of 1998, the Company entered into an agreement with an
affiliated company for a five-year sub-lease of office space. Also, during 1998,
the Company paid approximately $670,000 to this affiliated company for
engineering services.
 
     During 1998, 1997 and 1996 the Company paid $119,000, $65,000 and $57,000,
respectively to a processing company in which the Company's Chairman and Chief
Executive Officer is a director.
 
                                       46
<PAGE>   47
                                CYBERCASH, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
16. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITOR'S REPORT (UNAUDITED)
 
INCREASE IN COMMON STOCK OPTION RESERVE
 
     During February 1999, the Board of Directors increased the 1995 Stock
Option Plan ("Option Plan") stock reserve to 7,500,000 shares of Common Stock.
This increase in the Option Plan reserve is subject to approval by the
shareholders at the annual shareholders meeting in June 1999.
 
STOCK BONUS PLAN
 
     In February 1999, the Company adopted the 1999 Restricted Stock Plan (the
"Stock Plan"). The Stock Plan provides for restricted and unrestricted stock
grants to be made at the discretion of the Compensation Committee of the Board
of Directors to employees, officers and employee directors and consultants. The
Company reserved 500,000 shares of Common Stock for issuance under the Stock
Plan.
 
PRIVATE PLACEMENT
 
     In consideration for certain advertising services, the Company has
committed to sell 15,000 shares of its Common Stock to Donino White & Partners,
Inc., subject to these shares becoming registered with the Securities and
Exchange Commission before May 31, 1999. The Company filed a registration
statement in February 1999 for the registration of these shares.
 
                                       47
<PAGE>   48
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Current executive officers of the Registrant found under the caption
"Executive Officers of the Registrant" in Part I hereof is also incorporated by
reference into this Item 10.
 
DIRECTORS
 
     The following sets forth certain information regarding the directors as of
March 19, 1999:
 
<TABLE>
<CAPTION>
NAME                                   AGE    POSITION
----                                   ---    --------
<S>                                    <C>    <C>
William N. Melton....................  56     Chairman of the Board of Directors
Daniel C. Lynch......................  56     Director
Michael Rothschild...................  46     Director
Charles T. Russell...................  69     Director
Garen K. Staglin.....................  54     Director
</TABLE>
 
     Daniel C. Lynch, a founder of the Company, served as chairman of
CyberCash's board of directors from its inception in August 1994 until January
1999, and continues to serve as a director. He also served briefly as vice
president during the Company's formation in August 1994. Mr. Lynch was the
founder of Interop, a conference and tradeshow company for the computer and
communications industry, now a division of Softbank Expos and formerly
Ziff-Davis Conference and Exhibition Company. From 1980 to 1983, he was director
of information processing division for the Information Sciences Institute. Mr.
Lynch is also a member of the Board of Trustees of the Santa Fe Institute, a
director of Exodus Communications, Inc. and a director of Couad Communications
Group, Inc.
 
     Michael Rothschild has served as a member of CyberCash's board of directors
since November 1995. He is an author, economic columnist and president of The
Bionomics Institute, a non-profit educational foundation. Since 1996, Mr.
Rothschild has been president and chief executive officer of Maxager Technology,
Inc., a software maker specializing in advanced product costing systems for
manufacturers.
 
     Charles T. Russell has been a member of CyberCash's board of directors
since August 1997. Mr. Russell was president and chief executive officer of Visa
International from 1984 to 1994. Mr. Russell is a member of the board of
directors of First Data Corporation.
 
     Garen K. Staglin has served as a member of CyberCash's board of directors
since July 1996. Mr. Staglin served as chairman and chief executive officer from
1991 to 1998 of Safelite Glass Corporation, a manufacturer and retailer of
replacement autoglass and related services. He continues to serve as chairman of
Safelite's board of directors. Mr. Staglin is also a director of First Data
Corporation, Quick Response Services, Inc. and Specialized Bicycle Corporation.
He is a member of the Advisory Board of the Stanford Graduate School of
Business.
 
BOARD COMPOSITION
 
     CyberCash's board of directors is divided into three classes: Class I
expires at the annual meeting of stockholders to be held in 2000; Class II
expires at the annual meeting of stockholders to be held in 2001; and Class III
expires at the annual meeting of stockholders to be held in 1999. The Class I
directors are Messrs. Melton and Staglin; the Class II directors are Messrs.
Lynch and Russell; and the Class III director is Mr. Rothschild. At each annual
meeting of stockholders, the successors to directors whose terms are expiring
will be elected to serve from the time of election and qualification until the
third annual meeting following election and until their successors have been
duly elected and qualified. Any additional directorships resulting from an
                                       48
<PAGE>   49
 
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of an equal number of
directors.
 
BOARD COMMITTEES
 
     The audit committee of the CyberCash's board of directors was formed in
December 1995 to review the internal accounting procedures of the Company and
consult with and review the services provided by CyberCash's independent
auditors. Messrs. Lynch, Rothschild and Staglin comprise the audit committee.
The compensation committee of CyberCash's board of directors was formed in
December 1995 to review and recommend to the board the compensation and benefits
of employees of the company. The compensation committee also administers the
issuance of stock options and other awards under the CyberCash stock plans,
except for the 1995 Non-Employee Directors' Stock Option Plan, which is
administered by the board of directors. Messrs. Lynch, Russell and Staglin
comprise the compensation committee.
 
DIRECTOR COMPENSATION
 
     Directors currently do not receive any cash compensation from CyberCash for
their service as members of its board of directors, although they are reimbursed
for certain expenses in connection with attendance at board and committee
meetings.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     No executive officer of CyberCash served as a director or member of (i) the
compensation committee of another entity which has an executive officer who is a
director of CyberCash or a member of CyberCash's Compensation Committee, (ii)
the board of directors of another entity in which one of the executive officers
of such entity served on CyberCash's compensation committee, or (iii) the
compensation committee of any other entity in which one of the executive
officers of such entity served as a member of CyberCash's board of directors,
during the year ended December 31, 1998.
 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Section 16(a) of the Securities and Exchange Act of 1934 requires
CyberCash's directors and executive officers, and persons who own more than ten
percent of the company's common stock, to file with the Securities and Exchange
Commission, by a specified date, reports regarding their respective ownership of
CyberCash common stock. To the company's knowledge, based solely on its review
of the copies of such reports furnished to it and written representations that
no other reports were required, we believe that all of its officers and
directors and greater than ten percent beneficial owners complied with all
Section 16(a) filing requirements applicable to them with respect to those
transactions during 1998.
 
                                       49
<PAGE>   50
 
ITEM 11. EXECUTIVE COMPENSATION
 
EXECUTIVE COMPENSATION
 
     The following table sets forth certain compensation awarded or paid by the
Company during the three fiscal years ended December 31, 1998 to its Chairman of
the Board and Chief Executive Officer and the Company's four other most highly
compensated officers and key employees:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                           ANNUAL COMPENSATION
                                                   -----------------------------------
                                                                              OTHER            LONG TERM
                                                                              ANNUAL      COMPENSATION AWARDS
                                                                             COMPEN-     SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION                 YEAR   SALARY ($)   BONUS ($)   SATION ($)        OPTIONS (#)
---------------------------                 ----   ----------   ---------   ----------   ---------------------
<S>                                         <C>    <C>          <C>         <C>          <C>
William N. Melton.........................  1998         --          --        --                    --
Chairman of the Board and Chief Executive   1997    100,000          --        --                    --
Officer                                     1996    100,000          --        --                    --
James J. Condon...........................  1998    207,853          --        --               165,000
President, Chief Financial Officer and      1997    126,628          --        --                90,000
Chief Operating Officer
Bruce G. Wilson...........................  1998    186,806          --        --                23,000
Executive Vice President                    1997    180,000       9,000        --                15,000
                                            1996    180,000      15,000        --                    --
Russell B. Stevenson, Jr..................  1998    209,160          --        --                55,000
Senior Vice President, General Counsel and  1997    210,000      20,475        --                30,000
Secretary                                   1996    168,523      20,475        --                35,000
Denis Yaro................................  1998    220,000          --        --                10,000
Executive Vice President                    1997    220,000      26,000        --                10,000
                                            1996    175,389      22,533        --               160,000
</TABLE>
 
EQUITY INCENTIVE PLANS
 
     1995 Stock Option Plan.  In April 1995, the Company adopted the 1995 Stock
Option Plan (the "Option Plan") under which 1,000,000 shares of Common Stock
were reserved for issuance upon exercise of options granted to employees,
officers and consultants of the Company. Subsequent amendments to the Option
Plan increased the share reserve to its current level of 7,500,000 shares of
Common Stock subject to shareholder approval. The Option Plan provides for
grants of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options to employees (including officers and
employee directors), directors and consultants of the Company. The Option Plan
is administered by the Compensation Committee of the Board of Directors, which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
 
     The terms of stock options granted under the Option Plan may not exceed 10
years. The exercise price of options granted under the Option Plan is determined
by the Compensation Committee; provided, however, that the exercise price of a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant; and the exercise price of an
incentive stock option cannot be less than 100% of the fair market value of the
Common Stock on the date of grant. Options granted under the Option Plan
generally vest as to 7.5% of the shares subject to option three months after the
date of grant and 2.5% of such shares at the end of each month thereafter, so
that the option is fully vested 40 months after grant. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. An optionee whose relationship with the Company or any related
corporation ceases for any reason (other than by death or permanent and total
disability) may exercise options within the three month period following such
cessation (unless such
 
                                       50
<PAGE>   51
 
options terminate or expire sooner by their terms) or within such longer period
as determined by the Compensation Committee.
 
     Shares subject to options which have lapsed or terminated may again be
subject to options granted under the Option Plan. The Compensation Committee may
offer to exchange new options for existing options; however, the shares subject
either to the new and existing options will be charged against the Option Plan's
reserve. In the event of a decline in the value of the Company's Common Stock,
the Compensation Committee has the authority to offer optionees the opportunity
to replace outstanding higher priced options with new lower priced options. Upon
any merger or consolidation in which the Company is acquired, all outstanding
vested options will either be assumed or substituted by the surviving entity. If
the surviving entity determines not to assume or substitute unvested options,
the unvested portion of the options will terminate as of the closing of the
merger or consolidation.
 
     As of December 31, 1998, 791,624 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan, options to purchase
2,639,949 of Common Stock at exercise prices ranging from $2.00 to $45.75 per
share were outstanding and 68,427 shares remained available for future option
grants. In January 1999, the Company's Board of Directors increased the reserve
of Common Stock available under the Option Plan by 4 million shares, subject to
the approval by the Company's stockholder at its next annual meeting. The Option
Plan will terminate on April 5, 2005, unless terminated sooner by the
Compensation Committee.
 
     Non-Employee Directors' Stock Option Plan.  In December 1995, the Board of
Directors adopted the 1995 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company. The Directors'
Plan is administered by the Board of Directors.
 
     The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 100,000. Pursuant to the terms of
the Directors' Plan, each newly elected director of the Company who is not
otherwise an employee of the Company (a "Non-Employee Director") will
automatically be granted an option to purchase 10,000 shares of Common Stock on
the date of his or her election to the Board. On the date of each annual meeting
of the Company, each person who is then a Non-Employee Director of the Company
and who has continuously served as a Non-Employee Director since the last annual
meeting, will be granted an option to purchase 5,000 shares of Common Stock of
the Company under the Directors' Plan, and each other person who is then a
Non-Employee Director will be granted an option to purchase a pro rated number
of shares of Common Stock based on the number of days such person has
continuously served as a Non-Employee Director since the last annual meeting. In
addition, on the date of each annual meeting of the Company, each person who is
then a Non-Employee Director of the Company will be granted an option to
purchase 1,500 shares of Common Stock of the Company under the Directors' Plan
for each committee of the Board of Directors of the Company on which such person
has served for at least the five months immediately prior to the annual meeting
of the Company's stockholders.
 
     Outstanding options under the Directors' Plan will vest monthly over a five
year period. The exercise price of options granted under the Directors' Plan
will be equal to the fair market value of the Common Stock on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan are generally non-transferable. The Directors' Plan will
terminate at the direction of the Board of Directors.
 
     In the event of certain transactions by which the Company is acquired or
controlled by a single investor or group of investors, options outstanding under
the Directors' Plan will automatically become fully vested and will terminate if
not exercised prior to such event.
 
     As of December 31, 1998, options to purchase 71,158 shares of Common Stock
at exercise prices ranging from $10.75 to $32.25 per share were outstanding
under the Directors' Plan and 28,842 shares remained available for future option
grants under the Directors' Plan.
 
     ICVerify, Inc. Stock Option Plan.  In connection with the acquisition of
ICVerify, CyberCash assumed ICVerify's 1995 Employee Stock Option Plan
("ICVerify Option Plan"). All vested and unvested options granted under the
ICVerify Option Plan will continue to have the same terms and conditions as
under the ICVerify Option
                                       51
<PAGE>   52
 
Plan. The options may be exercised for CyberCash Common Stock equal to the
number of shares exercisable under the ICVerify Option Plan multiplied by .2464
and the per share exercise price will be the exercise price under the ICVerify
Option Plan divided by .2464. Stock options generally vest as to 25% of the
shares subject to option, twelve months after the date of grant and
approximately 2% of such shares at the end of each month thereafter, so that the
option is fully vested 48 months after grant. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the ICVerify
Option Plan is 2,200,000.
 
     As of December 31, 1998, 220,610 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan, options to purchase
98,860 shares of Common Stock at exercise prices ranging from $0.41 to $16.875
per share were outstanding and 220,530 shares remained available for future
option grants.
 
     Employee Stock Purchase Plan.  In December 1995, the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
500,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code. The Purchase Plan is administered by the Compensation Committee.
Under the Purchase Plan, the Compensation Committee may authorize participation
by eligible employees, including officers, in periodic offerings. The offering
period for any offering will be no more than 27 months.
 
     Employees are eligible to participate if they are employed by the Company
or a subsidiary of the Company designated by the Compensation Committee for at
least 20 hours per week and are employed by the Company or a subsidiary of the
Company designated by the Committee for at least five months per calendar year.
Employees who participate in an offering can have up to 15% of their earnings
withheld pursuant to the Purchase Plan. The amount withheld will then be used to
purchase shares of Common Stock on specified dates determined by the
Compensation Committee. The price of Common Stock purchased under the Purchase
Plan will be equal to 85% of the lower of the fair market value of the Common
Stock on the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with the Company.
 
     In the event of certain transactions by which the Company is acquired or
becomes controlled by a single investor or group of investors, the Compensation
Committee has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
if any, or the Compensation Committee may shorten the offering period and
provide for all sums collected by payroll deductions to be applied to purchase
stock immediately prior to such transaction. The Purchase Plan will terminate at
the Board's direction. The Board of Directors has the authority to amend or
terminate the Purchase Plan, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase Common Stock.
 
     As of December 31, 1998, 113,729 shares of Common Stock have been purchased
at prices ranging from $6.4281 to $24.225 per share, and 386,271 shares remained
available for future purchases.
 
                                       52
<PAGE>   53
 
STOCK OPTION INFORMATION
 
     The following table shows for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by the Company's Chairman of the Board and Chief Executive Officer and the
Company's four other most highly compensated officers and key employees:
 
<TABLE>
<CAPTION>
                                                                                      POTENTIAL REALIZABLE
                                                                                        VALUE AT ASSUMED
                                                                                      ANNUAL RATES OF STOCK
                                                                                     PRICE APPRECIATION FOR
                           NUMBER OF      % OF TOTAL                                  OPTION TERM ($)(3)(4)
                          SECURITIES       OPTIONS        EXERCISE                    OPTION GRANTS IN LAST
                          UNDERLYING      GRANTED TO       OR BASE                         FISCAL YEAR
                            OPTIONS      EMPLOYEES IN       PRICE       EXPIRATION   -----------------------
NAME                     GRANTED(#)(1)   FISCAL YEAR      ($/SH)(2)        DATE          5%          10%
----                     -------------   ------------   -------------   ----------   ----------   ----------
<S>                      <C>             <C>            <C>             <C>          <C>          <C>
William N. Melton......          --           --                   --          --            --           --
James J. Condon........     165,000            9%       $8.875-$15.94   8/17/2008    $3,025,000   $5,343,000
Bruce G. Wilson........      23,000          1.2%       $8.875-$11.63   8/17/2008    $  152,135   $  448,826
Denis Yaro.............      10,000          .05%       $       11.63    1/9/2008    $  170,917   $   73,109
Russell B. Stevenson,
  Jr...................      55,000            3%       $8.875-$12.44   8/17/2008    $  407,602   $1,032,944
</TABLE>
 
---------------
(1)  The options are generally incentive stock options with vesting occurring
     over 40 months, with 7.5% of the shares vesting after three months, and
     2.5% of the shares vesting each month for the next 37 months.
 
(2)  The exercise price is equal to 100% of the fair market value of the Common
     Stock on the date of the grant.
 
(3)  The options have a ten-year term, subject to earlier termination upon
     death, permanent and total disability or termination of employment.
 
(4)  The potential realizable value is calculated based on the term of the
     option at its time of grant (10 years) and is calculated by assuming that
     the stock price on the date of grant as determined by the Board of
     Directors appreciates at the indicated annual rate compounded annually for
     the entire term of the option and that the option is exercised and sold on
     the last day of its term for the appreciated price. The 5% and 10% assumed
     rates of appreciation are derived from the rules of the Securities and
     Exchange Commission and do not represent the Company's estimate or
     projection of the future Common Stock price.
 
     The following table sets forth information with respect to (i) the exercise
of stock options during the fiscal year ended December 31, 1998 by the Company's
Chairman of the Board and Chief Executive Officer and the Company's four other
most highly compensated officers and key employees, (ii) the number of
unexercised options held as of December 31, 1998 by the Company's Chairman of
the Board and Chief Executive Officer and the Company's four other most highly
compensated officers and key employees and (iii) the value as of December 31,
1998 of unexercised in-the-money options; that is, the amount by which the fair
market value exceeds the exercise price of the Common Stock as of December 31,
1998 ($15.00).
 
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
 
<TABLE>
<CAPTION>
                                                    NUMBER OF SECURITIES
                                                   UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                          OPTIONS                 IN-THE-MONEY OPTIONS AT
                             SHARES ACQUIRED       AT FISCAL YEAR END (#)          FISCAL YEAR-END ($)(1)
                               ON EXERCISE      ----------------------------    ----------------------------
NAME                               (#)          EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
----                         ---------------    -----------    -------------    -----------    -------------
<S>                          <C>                <C>            <C>              <C>            <C>
William N. Melton........          --                 --               --              --              --
James J. Condon..........          --             69,626          185,374        $ 94,041        $125,022
Bruce G. Wilson..........          --             36,275           28,725        $252,363        $110,888
Denis Yaro...............          --             41,000          139,000        $ 15,125        $ 32,375
Russell B
Stevenson, Jr............          --             52,625           67,375        $ 49,234        $168,891
</TABLE>
 
---------------
(1)  Based on the closing price of the Company's Common Stock on December 31,
     1998 of $15.00 per share, minus the exercise price, multiplied by the
     number of shares underlying the option.
                                       53
<PAGE>   54
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth certain information known to CyberCash with
respect to the beneficial ownership of its common stock as of March 19, 1999 for
(i) each stockholder who is known by CyberCash to own beneficially more than 5%
of its common stock, (ii) certain executive officers of CyberCash, (iii) each
director of CyberCash and (iv) all directors and executive officers of
CyberCash, as a group. Unless otherwise specified, the address of all
stockholders is the address of CyberCash's principal executive offices, provided
on the cover page of this Annual Report.
 
<TABLE>
<CAPTION>
                                                                     AMOUNT AND
                                                                      NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER                           BENEFICIAL OWNERSHIP(1)    % OF CLASS
------------------------------------                           -----------------------    ----------
<S>                                                            <C>                        <C>
William N. Melton(2).......................................           2,644,258               13.37%
First USA Bank, N.A.(3)....................................           2,200,000               10.01%
  Three Christine Centre
  201 North Walnut Street
  Wilmington, Delaware 19801
Halifax Fund LP(4).........................................           1,432,865                7.13%
  c/o The Palladin Group, Inc.
  40 West 57th Street
  New York, New York 10019
RGC International Investors, LDC(5)........................           1,183,991                5.76%
  c/o Rose Glen Capital Management, L.P.
  251 St. Asaphs Road, 3 Bala Plaza -- East
  Bala Cynwyd, Pennsylvania 19004
Daniel C. Lynch(6).........................................             602,509                3.05%
                                                                                          ----------
Bruce G. Wilson(7).........................................             195,214
Denis Yaro(8)..............................................             160,816                    *
James J. Condon(9).........................................              98,594
Russell B. Stevenson, Jr.(10)..............................              69,500                    *
Michael Rothschild(11).....................................              52,932                    *
Garen K. Staglin(12).......................................              47,008                    *
Charles T. Russell(13).....................................               5,292                    *
All directors and executive officers as a group (9                    3,876,123               18.12%
  persons)(14).............................................
                                                                                          ----------
</TABLE>
 
---------------
*  Less than one percent.
 
(1)  The ownership of shares of Common Stock reported herein is based upon
     filings with the Securities and Exchange Commission (the "Commission").
     Beneficial ownership is determined in accordance with the rules of the
     Commission and generally includes voting or investment power with respect
     to securities. Except as indicated by footnote, and subject to community
     property laws where applicable, the persons named in the table above have
     sole voting and investment power with respect to all shares of Common Stock
     shown as beneficially owned by them. Percentage of beneficial ownership is
     based on 19,781,291 shares outstanding as of March 19, 1999. Securities
     issuable upon exercise of options are deemed to be outstanding for the
     purpose of computing the percentage of outstanding securities owned by the
     holder of such options.
 
(2)  Includes 15,000 shares held by members of Mr. Melton's immediate family,
     40,000 shares held by The William N. Melton 1994 Charitable Remainder
     Annuity Trust, 70,000 shares held by The William N. Melton 1995 Charitable
     Remainder Annuity Trust and 110,000 shares held by The Melton Foundation.
 
(3)  Consists of shares subject to warrants exercisable within 60 days of March
     19, 1999.
 
                                       54
<PAGE>   55
 
(4)  Includes 152,287 shares subject to warrants and 236,128 shares subject to
     investment options, in each case exercisable within 60 days of March 19,
     1999.
 
(5)  Includes 305,030 shares subject to warrants and 472,254 shares subject to
     investment options, in each case exercisable within 60 days of March 19,
     1999.
 
(6)  Consists of 572,576 shares held by The Lynch Living Trust U/T/A dated March
     2, 1990 of which Daniel C. Lynch and Karen D. Lynch are co-trustees; 10,000
     shares held by The Katherine Danielle Lynch Irrevocable Trust of which
     Daniel C. Lynch is trustee; 10,000 shares held by The Michael MacAllen
     Lynch Irrevocable Trust of which Daniel C. Lynch is trustee; and 5,000
     shares held by The Francis Troy Lynch Irrevocable Trust of which Daniel C.
     Lynch is trustee and 4,933 shares subject to stock options exercisable
     within 60 days of March 19, 1999.
 
(7)  Includes 600 shares subject to forfeiture within 60 days of March 19, 1999
     and 43,300 shares subject to stock options exercisable within 60 days of
     March 19, 1999.
 
(8)  Includes 360 shares subject to forfeiture within 60 days of March 19, 1999
     and 157,650 shares subject to stock options exercisable within 60 days of
     March 19, 1999.
 
(9)  Includes 1,800 shares subject to forfeiture within 60 days of March 19,
     1999, and 94,768 shares subject to stock options exercisable within 60 days
     of March 19, 1999.
 
(10) Includes 1,200 shares subject to forfeiture within 60 days of March 19,
     1999 and 67,500 shares subject to stock options exercisable within 60 days
     of March 19, 1999.
 
(11) Consists of 38,924 shares held by The Michael L. Rothschild Trustee
     Revocable Trust U/T/A dated August 9, 1993, 10,000 shares held by The MLR
     Enterprises, Inc. Master Pension and Profit-Sharing Plan U/T/A dated
     January 1, 1991 and 4,008 shares subject to stock options exercisable
     within 60 days of March 19, 1999.
 
(12) Includes 16,700 shares held by The Garen K. and Sharalyn King Staglin 1997
     Charitable Unit Trust dated July 8, 1997 and 10,308 shares subject to stock
     options exercisable within 60 days of March 19, 1999.
 
(13) Consists of shares subject to stock options exercisable within 60 days of
     March 19, 1999.
 
(14) Includes 3,960 shares subject to forfeiture within 60 days of March 19,
     1999 and 387,759 shares subject to stock options exercisable within 60 days
     of March 19, 1999.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     In connection with the exercise of stock options during 1995, Stephen
Crocker executed a promissory note in the amount of $400,000 with interest
payable at an annual rate of 6%, which is secured by the Common Stock issued
upon exercise of the options. Mr. Crocker, the Company's former Chief Technology
Officer, paid his note in full, including interest, during 1998.
 
     On July 17, 1998, Garen Staglin, a Director of the Company, bought 16,701
shares of CyberCash Common Stock for an aggregate $200,000. On September 16,
1998, William N. Melton, Chairman and Chief Executive Officer, completed the
purchase of 30,000 shares of CyberCash Common Stock for an aggregate of $3.5
million. In addition, Michael L. Rothschild, a Director of the Company, bought
10,000 shares of CyberCash Common Stock for an aggregate of $100,000.
 
     During 1998, 1997 and 1996 the Company paid $119,000, $65,000 and $57,000,
respectively, to a processing company in which William N. Melton, Chairman and
Chief Executive Officer, is a director.
 
                                       55
<PAGE>   56
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a)  The following documents are filed as part of this Form 10-K:
 
     1. FINANCIAL STATEMENTS. Consolidated Financial Statements and Report of
        Ernst & Young LLP, Independent Auditors, are included in Item 8 in Part
        II of this Form 10-K.
 
     2. FINANCIAL STATEMENT SCHEDULES. Schedules have been omitted since they
        are either not required, not applicable, or the information is otherwise
        included.
 
     3. EXHIBITS. The exhibits listed on the accompanying Index to Exhibits are
        filed as part of, or incorporated by reference into, this Form 10-K.
 
(b)  REPORTS ON FORM 8-K: None.
 
(c)  EXHIBITS. See Item 14(a)(3) above.
 
(d)  FINANCIAL STATEMENT SCHEDULE:  Schedule II -- Valuation and Qualifying
     Accounts.
 
                                       56
<PAGE>   57
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
CyberCash, Inc.
 
     We have audited the consolidated financial statements of CyberCash, Inc. as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, and have issued our report thereon dated January 26,
1999 (included elsewhere in this Form 10-K). Our audits also included the
financial statement schedule listed in Item 14 of this Form 10-K. This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
 
     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
 
                                                           /s/ Ernst & Young LLP
 
Vienna, Virginia
January 26, 1999
 
                                       57
<PAGE>   58
 
                                  SCHEDULE II
                                CYBERCASH, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                            BALANCE AT                                BALANCE AT
                                            BEGINNING                                   END OF
DESCRIPTION                                 OF PERIOD     ADDITIONS     DEDUCTIONS      PERIOD
-----------                                 ----------    ----------    ----------    ----------
<S>                                         <C>           <C>           <C>           <C>
Allowance for Doubtful Accounts:
  December 31, 1996.....................    $       --    $       --    $       --    $       --
  December 31, 1997.....................            --            --            --            --
  December 31, 1998.....................            --     1,050,835(1)         --     1,050,835
</TABLE>
 
(1) Additions relate primarily to the acquisition of ICVerify.
 
                                       58
<PAGE>   59
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          CYBERCASH, INC.
                                          Registrant
                                          By: /s/ WILLIAM N. MELTON
                                            ------------------------------------
                                            William N. Melton
                                            Chairman and Chief Executive Officer
 
March 31, 1999
 
<TABLE>
<C>                                            <S>                                  <C>
            /s/ WILLIAM N. MELTON              Chairman of the Board of Directors   March 31, 1999
---------------------------------------------  and
              William N. Melton                Chief Executive Officer
                                               (Principal Executive Officer)
 
             /s/ JAMES J. CONDON               President, Chief Operating Officer   March 31, 1999
---------------------------------------------  and
               James J. Condon                 Chief Financial Officer (Principal
                                               Financial Officer and
                                               Principal Accounting Officer)
 
             /s/ DANIEL C. LYNCH               Director                             March 31, 1999
---------------------------------------------
               Daniel C. Lynch
 
           /s/ MICHAEL ROTHSCHILD              Director                             March 31, 1999
---------------------------------------------
             Michael Rothschild
 
           /s/ CHARLES T. RUSSELL              Director                             March 31, 1999
---------------------------------------------
             Charles T. Russell
 
            /s/ GAREN K. STAGLIN               Director                             March 31, 1999
---------------------------------------------
              Garen K. Staglin
</TABLE>
 
                                       59
<PAGE>   60
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                      DESCRIPTION OF DOCUMENT
-------                      -----------------------
<C>        <S>
 2.1       Agreement and Plan of Reorganization dated April 8, 1998
           among CyberCash, Inc., CyberCash Acquisition Corporation and
           ICVerify, Inc. (1)
 3.1       Amended and Restated Certificate of Incorporation (2)
 3.1(i)    Amendment to Amended and Restated Certificate of
           Incorporation
 3.2       Bylaws (2)
 3.3       Certificate of Designation, Preferences and Rights of Series
           C Convertible Preferred Stock (3)
 3.4       Certificate of Designation, Preferences and Rights of Series
           D Convertible Preferred Stock (4)
 3.5       Certificate of Designation, Preferences and Rights of Series
           E Junior Participating Preferred Stock (5)
 4.1       Form of the Company's common stock certificate (2)
 4.2       Form of Rights Agreement dated as of June 30, 1998 between
           the Company and BankBoston N.A. as Rights Agent, including
           exhibits thereto (6)
 4.2(i)    Form of Amendment dated as of December 18, 1998 to Rights
           Agreement
 4.3       Subscription Agreement dated as of March 21, 1997 between
           the Company and Carnegie Mellon University (7)
 4.4       Warrant Certificate dated as of March 21, 1997 (8)
 4.5       Securities Purchase Agreement dated as of August 1, 1997
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (9)
 4.6       Registration Rights Agreement dated as of August 1, 1997
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (10)
 4.7       Securities Purchase Agreement dated as of February 5, 1998
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (11)
 4.8       Registration Rights Agreement dated as of February 5, 1998
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (12)
 4.9       Form of Investment Option issued to RGC International
           Investors, LDC and Halifax Fund, L.P. (13)
 4.10      Securities Purchase Agreement dated as of January 6, 1999
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (14)
 4.11      Registration Rights Agreement dated as of January 6, 1999
           between CyberCash, Inc., RGC International Investors, LDC
           and Halifax Fund, L.P. (15)
 4.12      Form of Warrant issued to RGC International Investors, LDC
           and Halifax Fund, L.P. (16)
 4.13      Form of Warrant 98-1 dated as of November 6, 1998 between
           the Company and First USA Bank (17)
 4.14      Form of Warrant 98-2 dated as of November 6, 1998 between
           the Company and First USA Bank (18)
 4.15      Form of Warrant 98-3 dated as of November 6, 1998 between
           the Company and First USA Bank (19)
10.1       Form of Indemnity Agreement entered into between the Company
           and certain of its directors and executive officers (2) (20)
10.2       CyberCash, Inc. 1995 Stock Option Plan (2) (20)
10.3       Form of Incentive Stock Option (2) (20)
10.4       Form of Performance Stock Option (2) (20)
10.5       Form of Non-Statutory Stock Option (2) (20)
10.6       CyberCash, Inc. Employee Stock Purchase Plan (2) (20)
10.7       CyberCash, Inc. Non-Employee Directors Stock Option Plan (2)
           (20)
10.8       CyberCash, Inc. 1999 Restricted Stock Plan (20)
10.9       Sublease dated March 14, 1995 by and between the Company and
           Health Sciences Television Network, Inc. and Lease dated
           October 18, 1993 between Gateway Virginia Properties and
           Health Sciences Television Network, Inc. (21)
</TABLE>
 
                                       60
<PAGE>   61
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                      DESCRIPTION OF DOCUMENT
-------                      -----------------------
<C>        <S>
10.10      Lease dated November 30, 1994 by and between the Company and
           Gateway Virginia Properties, Inc. and First Amendment to
           Lease dated November 7, 1995 (22)
10.11      Second Amendment to Lease dated April 29, 1996 by and
           between the Company and Gateway Virginia Properties, Inc.
           (23)
10.12      Sublease Agreement dated December 1 6, 1996 by and between
           the Company and Gateway Virginia Properties, Inc. (24)
10.13      Lease Agreement dated August 11, 1998 between APA Properties
           No. 6, L.P. and the Company
10.14      Sublease dated March 22, 1999 between Computer Associates
           International Inc. and the Company
10.15      Form of Subscription Agreement between the Company and
           certain of its directors
10.16      Amended and Restated Investors Rights Agreement, dated
           August 24, 1994, between the Company and certain investors
           (25)
10.16(i)   Amendment, dated September 29, 1995, to Amended and Restated
           Investors' Rights Agreement (26)
10.17      BSAFE/TIPEM OEM Master License Agreement, dated September
           1995, by and between the Company and RSA Data Security, Inc.
           (27)
10.18      Purchase Agreement dated February 15, 1996 by and between
           the Company and Softbank Holdings, Inc. (28)
10.19      Joint Venture Agreement dated as of May 13, 1997 among the
           Company, CyberCash Japan C.V. and Softbank Corporation (29)
10.20      Software License Agreement dated as of May 13, 1997 between
           the Company and CyberCash K.K. (30)
10.21      Technology License Agreement dated as of December 17, 1997
           between the Company and CyberCash GmbH (31)
10.22      Operating Agreement dated October 15, 1998 between the
           Company and First USA Bank
21.01      Subsidiaries of the Company
23.01      Consent of Ernst & Young LLP, Independent Auditors
           Financial Data Schedule
</TABLE>
 
---------------
 (1) Incorporated herein by reference to the same-numbered exhibit to the
     Company's Current Report on Form 8-K filed with the Securities and Exchange
     Commission on May 1, 1998.
 
 (2) Incorporated herein by reference to the same-numbered exhibit to the
     Company's Registration Statement on Form S-1 (Reg. No. 33-80725) (the "S-1
     Registration Statement").
 
 (3) Incorporated herein by reference to Exhibit 99.2 to the Company's Current
     Report on Form 8-K filed with the Securities and Exchange Commission on
     August 5, 1997 (the "August 1997 8-K").
 
 (4) Incorporated herein by reference to Exhibit 3.4 to the Company's Current
     Report on Form 8-K filed with the Securities and Exchange Commission on
     February 10, 1998 (the "February 1998 8-K").
 
 (5) Incorporated herein by reference to Exhibit 3.1 to the Company's Current
     Report on Form 8-K filed with the Securities and Exchange Commission on
     July 2, 1998 (the "July 1998 8-K").
 
 (6) Incorporated herein by reference to Exhibit 4.1 to the July 1998 8-K.
 
 (7) Incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly
     Report on Form 10-Q filed with the Securities and Exchange Commission on
     August 25, 1997 ("Second Quarter 1997 10-Q").
 
 (8) Incorporated herein by reference to Exhibit 10.4 to the Second Quarter 1997
     10-Q.
 
 (9) Incorporated herein by reference to Exhibit 99.3 to the August 1997 8-K.
 
(10) Incorporated herein by reference to Exhibit 99.4 to the August 1997 8-K.
 
(11) Incorporated herein by reference to Exhibit 4.2 to the February 1998 8-K.
 
(12) Incorporated herein by reference to Exhibit 4.3 to the February 1998 8-K.
 
(13) Incorporated herein by reference to Exhibit 4.4 to the February 1998 8-K.
 
(14) Incorporated herein by reference to Exhibit 4.1 to the Company's Current
     Report on Form 8-K filed with the Securities and Exchange Commission on
     January 11, 1999 (the "January 1999 8-K").
 
                                       61
<PAGE>   62
 
(15) Incorporated herein by reference to Exhibit 4.2 to the January 1999 8-K.
 
(16) Incorporated herein by reference to Exhibit 4.3 to the January 1999 8-K.
 
(17) Incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly
     Report on Form 10-Q filed with the Securities and Exchange Commission on
     November 16, 1998 ("Third Quarter 1998 10-Q").
 
(18) Incorporated herein by reference to Exhibit 4.2 to the Third Quarter 1998
     10-Q.
 
(19) Incorporated herein by reference to Exhibit 4.3 to the Third Quarter 1998
     10-Q.
 
(20) Indicates a management compensatory plan, contract or arrangement.
 
(21) Incorporated by reference to Exhibit 10.8 to the S-1 Registration
     Statement.
 
(22) Incorporated by reference to Exhibit 10.9 to the S-1 Registration
     Statement.
 
(23) Incorporated by reference to Exhibit 10.10 to the Company's Annual Report
     on Form 10-K filed with the Securities and Exchange Commission on March 10,
     1997 (the "1997 10-K").
 
(24) Incorporated by reference to Exhibit 10.11 to the 1997 10-K.
 
(25) Incorporated by reference to Exhibit 10.13 to the S-1 Registration
     Statement.
 
(26) Incorporated by reference to Exhibit 10.13(i) to the S-1 Registration
     Statement.
 
(27) Incorporated by reference to Exhibit 10.14 to the S-1 Registration
     Statement.
 
(28) Incorporated by reference to Exhibit 10.15 to the 1997 10-K.
 
(29) Incorporated by reference to Exhibit 10.5 to the Second Quarter 1997 10-Q.
 
(30) Incorporated by reference to Exhibit 10.6 to the Second Quarter 1997 10-Q.
 
(31) Incorporated herein by reference to Exhibit 10.18 to the Company's Annual
     Report on Form 10-K405 filed with the Securities and Exchange Commission on
     March 31, 1998.
 
                                       62