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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
                        -------------------------------


                                   (Mark One)
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1996

    [ ] 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)
                     --------------------------------------

       Delaware                                         54-1725021
(State of incorporation)                   (I.R.S. Employer Identification No.)

 2100 Reston Parkway                                 (703)-620-4200 
    Third Floor 
Reston, Virginia 20191
(Address of principal executive              (Registrant's telephone number, 
  offices, including zip code)                    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.    YES X   NO 
                                                ---    --- 

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 February 14, 1997, was approximately $62,170,420 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 of the Registrant's Common Stock outstanding as of
February 14, 1997 was 10,717,178.



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ITEM 1 OF THIS FORM 10-K ENTITLED "BUSINESS" AND ITEM 7 OF THIS FORM 10-K
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY
THE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS SHOULD BE
CONSIDERED IN THE CONTEXT OF THE RISK FACTORS SET FORTH BELOW IN ITEM 1 OF THIS
FORM 10-K.


                                     PART I

ITEM 1.   BUSINESS

     CyberCash, Inc. ("CyberCash" or the "Company") is a leading provider
of Internet payment processing services to financial institutions in the United
States and abroad. The Company's suite of Internet payment services features
the electronic counterparts to cash, credit cards and checks. The Company
believes that it is well-positioned to capitalize on the emerging market for
Internet commerce because it offers a range of payment services that work with
the existing transaction processing systems of financial institutions.

INDUSTRY BACKGROUND

     The Internet is a rapidly growing web of computer networks that permits
businesses, other organizations and individuals to communicate throughout the
world. The rapid growth in Internet use has been fueled by a number of factors,
including advances in technology, the decreasing cost of Internet access and
the increasing reliance of corporations on distributed information. Respected
industry observers estimate that the number of users of the Internet will grow
to 200 million by the end of 1999 from 56 million at the end of 1995.

     The growth and popularity of the Internet is providing new opportunities
for electronic commerce, including new methods of merchandising and payment.
Merchants are now able to provide full color graphic images of their
merchandise, up-to-the-minute pricing and inventory information, automated
order-taking, and low-cost, high-quality interactive customer support.
Publishers and other information providers are using the Internet to
disseminate digital information and to allow users to search and retrieve data.
By using the Internet, merchants can greatly reduce the costs of distributing
goods by eliminating physical store premises and storage facilities and, in the
case of information-based goods, the physical reproduction and transportation
of goods.

     Payment systems are evolving to better serve these new forms of commerce.
While at the present time most Internet payments are credit card transactions,
the Company believes that counterparts of all three of the major existing
payment instruments -- cash, checks and credit cards -- will evolve on the
Internet. The Company believes that, in order for the Internet to develop as a
significant commercial marketplace, a complete suite of payment instruments
must be available on the Internet. Moreover, individuals, businesses and
financial institutions must be satisfied that the electronic manifestations of
existing instruments are at least as safe, convenient and secure as their
familiar physical counterparts.


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BARRIERS TO INTERNET COMMERCE

     Even though the demand for conducting business over the Internet has
increased, the Internet's commercial potential has been slow to develop due to
a number of factors. Individuals and businesses desiring to effect payments on
the Internet face barriers, including the following:

     UNFAMILIARITY WITH INTERNET COMMERCE. The Company believes that consumers
have been slow to embrace the Internet as a means for buying and selling goods
and services in large part because financial institutions and merchants have
not yet built an adequate infrastructure for Internet commerce. Businesses and
financial institutions have been reluctant to adopt or develop Internet payment
mechanisms because of their concerns over security and the costs of adopting
new technology which may not achieve market or regulatory acceptance.

     LIMITED PAYMENT INSTRUMENTS. In face-to-face retail transactions,
consumers and merchants are accustomed to using and accepting a variety of
payment instruments, including cash, checks, credit cards, debit cards, and
coupons. Each of these instruments has different characteristics. Until
recently, credit cards have been the only widely available payment mechanism
for making purchases over the Internet. While credit cards are well-suited to
some types of transactions, they are unsatisfactory for others. The Company
believes that Internet commerce will not begin to achieve its full potential
until consumers and merchants have a range of payment options.

     HIGH TRANSACTION COSTS. Credit card payments over the Internet carry a
relatively high transaction cost, particularly for low denomination payments.
Accordingly, banks and merchants have generally considered credit cards to be
too costly a payment mechanism for low denomination transactions. Typically, a
bank charges a merchant a fixed percentage of the transaction value for
processing a credit card payment. For cards not present at the point of sale
(which is the case for transactions on the Internet), the percentage is usually
substantially higher. Merchants wishing to avoid these fees require their
customers to pay by cash or check. The Company believes that the electronic
counterparts of coins (and small-denomination bills) and checks are necessary
to enable meaningful levels of Internet commerce involving products and
services that will sell for under $10.00.

     PAYMENT FRAUD. Transmission of financial information over the Internet
leaves consumers, merchants and financial institutions exposed to the risk of
fraud from a number of sources. Stolen financial data can lead to unauthorized
charges or debits on accounts, resulting in losses to merchants and financial
institutions, inconvenience from the cancellation of accounts and possible
financial liability to the consumer. The relatively anonymous nature of users
on the Internet makes it difficult to detect such fraud. Financial
institutions, businesses and individuals fear that electronic checks and
currency may also be subject to payment fraud in the form of dishonored or
"bounced" checks, forgery and counterfeiting.

     MERCHANT FRAUD. The open, anonymous and public nature of the Internet may
also allow users to pose as legitimate merchants or well-known vendors and
collect payments without delivering the purchased goods or services. Most
existing Internet payment systems are unable to authenticate merchants to
prevent this sort of fraud.

     LACK OF PRIVACY. The Internet is a public network which potentially allows
third parties to gain unauthorized access to data as it is routed to its
intended destination or stored in databases. Many Internet payment systems lack
adequate encryption to protect against unauthorized access to transaction
information. Many systems provide little protection from merchants and payment
providers collecting data about consumers and their spending habits.
Furthermore, the global nature of the Internet makes effective regulation of
such privacy invasions difficult.

     CLOSED ARCHITECTURE; INCOMPATIBILITY. Internet users operate on a wide
variety of hardware and software platforms. Businesses, who need to reach the
maximum number of consumers, may be unwilling to be constrained by Internet
payment systems that fail to operate across major hardware and software


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platforms. Consumers cannot conduct business with merchants whose systems do
not readily interface with their system. In addition, banks and other financial
institutions currently process transactions under a wide variety of networks
and protocols that are well-established and extremely difficult and expensive
to change.

     INCONVENIENCE. Many Internet credit card payment systems require consumers
to input their card payment data each time they wish to make a purchase or to
establish an account with a merchant. This process is particularly burdensome
when effecting small transactions or multiple transactions with different
vendors. In addition, minimum transaction size requirements and lack of support
for payments between consumers or between businesses further limits the
usefulness of current Internet payment systems.

CYBERCASH'S SOLUTION

     CyberCash provides secure, convenient and cost-effective means for
effecting payments over the Internet. The following are the key elements of the
Company's Internet payment solution:

     COMPREHENSIVE SUITE OF SERVICES. CyberCash provides a comprehensive
Internet payment suite, featuring the electronic counterparts to cash, credit
cards and checks. The Company is unaware of any other company that currently
provides an Internet payment solution that incorporates all primary payment
instruments. Currently, CyberCash offers the following services:

          -       The CyberCoin(SM) service, the Company's low denomination
                  payment service, is designed to provide a secure, convenient
                  and cost-effective means of making small payments (generally
                  between $.25 and $10) rapidly and efficiently over the
                  Internet.

          -       The Secure Credit Card service (the "Credit Card service")
                  provides secure transport of credit card information over the
                  Internet directly into existing credit card processing
                  networks and protocols, with consumer and merchant
                  authentication.

          -       The PayNow(SM) Secure Electronic Check Service (or the "PayNow
                  service"), which the Company expects to release commercially
                  in the second quarter of 1997, will initially be used by
                  utilities, telephone companies and other large, institutional
                  billers to accept payments over the Internet. Later releases
                  of the PayNow service will be designed to provide secure and
                  nearly instantaneous transfer of funds among individuals and
                  businesses without the risk of insufficient funds or forgery.

     STRENGTHENING BANKS' RELATIONSHIPS. CyberCash designed its services to
enable financial institutions to build upon their strengths so that they can
promote the use of their products on the Internet to their customers and enjoy
revenue from the growth of new transactions. CyberCash's services foster three
core competencies of financial institutions:

              TRUST. The primary core competency of financial institutions is
         the trusted relationship they have with their customers. CyberCash
         designed its services to employ mechanisms that will maintain privacy
         for the customer, while allowing maximum control over the transaction.
         The use of encryption technologies in CyberCash's services facilitates
         the trusted relationship and ensures that the financial institution
         maintains this competency on the Internet.

              TRANSACTION PROCESSING. CyberCash's services work with the
         existing payment systems of financial institutions. This enables
         financial institutions to offer CyberCash's services to their
         customers without having to create new products. This approach places
         financial institutions fully in control of their customer
         relationships and makes CyberCash an enabler for transactions on the
         Internet.

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               BRAND EQUITY. Over the last twenty years, the financial industry 
          has undergone tremendous consolidation. An outgrowth of that consoli-
          dation has been the increased value of the financial institution's 
          brand. Recognizing the value of the brand, CyberCash makes it 
          possible through the use of its technology for financial institutions
          to brand the Wallet software provided to consumers for making Internet
          payments. In addition, CyberCash makes it possible for financial 
          institutions to host their branded Wallet at their web site. This    
          allows financial institutions to maintain complete control over the
          distribution of the Wallet, to keep the brand in front of the 
          consumer, and to build brand equity in the new commercial medium of 
          the Internet.

          USE OF EXISTING INFRASTRUCTURE. By using CyberCash's services, 
financial institutions can minimize the cost and time required to begin
providing Internet payment services as well as control how financial services
are delivered to customers on the Internet, as described above. Because
CyberCash uses existing bank processing systems, banks and other financial
institutions do not have to change their existing systems or processing
procedures in order to accommodate payments over the Internet. This enables
financial institutions to leverage their investments in existing
infrastructure, use existing risk management tools, generate incremental
revenue and provide their core products and services for use over the Internet.
The Company believes that, because it uses existing banking systems, the
likelihood that CyberCash will be adversely affected by adoption of new
regulatory restraints is minimized.

          TRANSACTION EFFICIENCIES. The CyberCoin service allows almost
instantaneous transfers between consumers and merchants, and rapid and
convenient "loading" and "unloading" of funds between the consumer's Wallet
software and a checking account or another source of funds. The Company
believes that this will reduce the administrative costs and inconvenience of
handling currency and coins, enabling merchants to profitably engage in low
denomination transactions over the Internet. Similarly, the initial release of
the PayNow service will automate bill paying for service providers with high
billing volumes, reducing the administrative costs and inconvenience of
handling paper checks. The Credit Card service helps merchants automate card
processing, ordering and payment collection procedures. CyberCash intends to
conform the Credit Card service to standards being developed by a consortium
including MasterCard and Visa. When these standards are completed and become
widely adopted, the Company believes that the card associations may reduce or
eliminate the "card not present" penalty for Internet credit card payments.

          STRONG SECURITY AND INTEGRITY. The CyberCash solution protects trans-
action integrity through message encryption, user and merchant authentication,
and merchant blinding. The Company utilizes sophisticated cryptographic
algorithms (1024-bit RSA and 40-bit DES), which provide the strongest message
encryption currently approved by the United States government for worldwide use
in financial applications.

          MERCHANT AUTHENTICATION. The Company's services are designed to assure
that merchants are "authentic": i.e., that they are who they say they are. Each
merchant is assigned a "digital signature" that is compared to the digital
signature received by the Company with each transaction. This prevents an
impostor from assuming the identity of a true merchant and processing a
fraudulent transaction.

          FEDERALLY INSURED BANK ACCOUNTS. Cash balances available for CyberCoin
transactions are deposited in insured financial institutions, with the Company
acting as agent for Wallet users. All such funds are therefore protected by
federal deposit insurance.

          PROTECTION OF CONSUMER PRIVACY. The design of CyberCash's services 
enables users to transmit bank account and credit card information over
the Internet in encrypted form without exposing sensitive data to merchants or
others, while simultaneously assuring merchants that they have received valid
payments for goods and services sold to users. In addition, the information
held by CyberCash that identifies a Wallet user with the transactions he or she
has carried out remains encrypted with the user's private key. It is thus
inaccessible to anyone, including CyberCash. The user can, however, use the
private 


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key to reconstruct a lost Wallet transaction log from encrypted
information retrieved from CyberCash, provided that the user has kept a
backed-up copy of his or her private key.

    OPEN ARCHITECTURE; COMPATIBILITY. The Company's software operates on 
most major hardware and software platforms and provides transaction
information compatible with the protocols used by the major payment processors.
The CyberCash Wallet software is compatible with Windows 3.1, Windows 95,
Windows NT and Apple MacOS operating systems, and implementation is in progress
for most major Unix operating systems. The Wallet is also compatible with most
of the major Internet browser software, including Netscape Navigator, Microsoft
Internet Explorer, CompuServe/Spry Air Mosaic, FTP and Spyglass Mosaic. The
CyberCash merchant software is compatible with most major Unix operating
platforms as well as Microsoft Windows NT. The CyberCash payment processing
system is currently connected with most major credit card processors, including
Vital Processing Services, Global Payment Systems (including National Data
Corporation, MAPP and Modular Data, Inc.), Wells Fargo Bank, CheckFree
Corporation, First Data Corporation (including Envoy, CES, NaBANCO, FDR and
Telemoney), NOVA and Sligos, a large French processor. In addition, the Company
is in the process of being connected with First USA/Paymentech.

    CONVENIENCE. The CyberCash Wallet utilizes a simple graphical user
interface and stores the user's payment information the first time it is
entered. An individual can then select a payment instrument using a mouse to
point and click on the desired payment method rather than by re-entering the
required information each time.

    CyberCash's Wallet software is available without charge from the 
Company's web site and is distributed by several of the Company's
technology allies. CyberCash expects that financial institutions will also
distribute Wallet software to their customers. For businesses, the Company's
system offers the convenience of automated payment receipt and rapid
remittance. For banks and financial institutions, the CyberCash system
eliminates the need to modify large installed processing systems or established
protocols to accommodate Internet payments. CyberCash's CashRegister software
is available from the Company and is also included in Internet merchant
software provided by other companies.

STRATEGY

    The Company's primary objective is to maintain its position as a leading
provider of Internet payment processing services to financial institutions in
the United States and abroad. The key elements of the Company's strategy are as
follows:

    RELY ON EXISTING INFRASTRUCTURE. To speed acceptance by consumers,
merchants and financial institutions of payments over the Internet, the
Company's services have been designed to leverage the established
infrastructure for existing payment methods. For example, the Company's Credit
Card service uses existing processors, communications links and protocols,
eliminating the need for banks and processors to modify their current back
office operations. In addition, the Company's CyberCoin and PayNow services
utilize funds that remain on deposit in federally insured accounts at financial
institutions. All transfers and settlements are completed through established
banking channels.

     LEVERAGE STRATEGIC RELATIONSHIPS. The Company has created a number of
strategic relationships in order to rapidly reach the critical mass of
financial institutions, consumers and providers of goods and services that is
necessary to launch a significant volume of Internet commerce. The Company has
strategic relationships with Internet technology leaders, such as Netscape
Communications Corporation, Microsoft Corporation, Oracle Corporation, Sun
Microsystems, Inc., Hewlett-Packard Corporation, America Online, Inc. and Open
Market, Inc. The Company is working with these companies to support CyberCash's
services in the consumer and business software solutions provided by these
companies.



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     The Company also has relationships with leading transaction and bank
data processors, such as First Data Corporation, Vital Processing Services,
Global Payment Systems and First USA/Paymentech. In addition, the Company has
begun pilot projects with Princeton TeleCom Corporation, International Billing
Services, Inc., and Electronic Funds & Data Corporation, which provide billing
services to high-volume billing clients, and Cephas Multimedia, Inc., a
developer of merchant web sites, to provide the PayNow service to facilitate
Internet-based bill presentment.

     SUPPORT OPEN SOLUTIONS. The Company plans to continue to develop and
provide open payment solutions that are easy to adopt and that interoperate
with a range of hardware and software platforms. The Company's services and
software are not limited to any particular operating system, Web browser or
server technology. This approach will allow financial institutions and
merchants access to the widest consumer base, providing their customers with
maximum flexibility and freedom of choice. The Company intends to implement new
industry standards as they emerge and to support additional hardware and
software platforms as they are introduced and accepted. The Company also
contributes to the development of open industry standards by
participating in standard-setting organizations, including CommerceNet and the
World Wide Web Consortium.

     RAPIDLY DISSEMINATE ENABLING SOFTWARE. To penetrate the markets for
Internet payment services, the Company intends to rapidly disseminate the
enabling software for its services to individuals, businesses and financial
institutions.

                  Consumers. The Company distributes its Wallet software free
         of charge to consumers through multiple distribution channels. The
         Company is establishing relationships with banks, on-line and home
         banking service providers and other software vendors for inclusion of
         the Wallet into their products and services on a branded,
         private-label basis. For example, First Union National Bank, National
         Bank of Canada and PC Financial Network are issuing branded Wallets.
         In addition, consumers can directly download the Wallet from the
         Company's and participating merchants' web sites.

                  Merchants. The Company believes that merchants will often
         rely on their banks for advice on how to safely receive payments over
         the Internet. Accordingly, CyberCash is establishing relationships
         with leading financial institutions that allow them to enhance the
         value provided to their merchants by offering the Company's services.
         Also, CyberCash provides merchant server software directly to
         bank-qualified merchants free of charge and assists them in their
         implementation of Internet payment systems. In addition, the Company
         has established relationships with providers of merchant payment
         software, such as Microsoft, Netscape, Sun Microsystems, Oracle, Lotus
         Development, Open Market, and iCat Corporation, to either support
         CyberCash's payments services or include CyberCash technology in their
         software.

                  Hosts. The Company is establishing relationships with
         companies that develop and operate Web sites for merchants in order to
         provide payment services for these merchants. For example, AOL
         Primehost (America Online's hosting service) and UUNET Technologies,
         Inc. have agreed to provide CyberCash's payment services as part of
         their commercial hosting services.

                  Webmeisters. The Company has established relationships with
         web site developers that offer technical assistance to merchants
         establishing Internet stores ("Webmeisters"). The Company provides
         training, software development tools and technical support to
         Webmeisters to enable them to integrate the Company's services into
         the web site or store.

                  Financial Institutions. The Company provides financial
         institutions its Internet payment processing services on a
         per-transaction basis. The Company may license its gateway software
         directly to financial institutions that desire to operate their own
         processing services.

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     CREATE GLOBAL SERVICES. CyberCash believes that useful payment systems
must allow merchants and consumers to take advantage of the global reach of the
Internet. Consequently, the Company is exploring ways of offering Internet
payment services to financial institutions and merchants in Asia and Europe as
well as other locations outside of the United States and of providing currency
conversion for cross-border transactions.

     LEVERAGE TECHNICAL AND MANAGEMENT EXPERTISE. Existing payment systems are
the result of complex evolution driven by the interests of many diverse
constituents. Developing counterparts of these payment systems for the Internet
requires significant experience in, and understanding of, a number of
industries, including banking/financial processing, Internet communications,
cryptography/security, and software development. The Company believes that it
has assembled a team of employees who bring together the necessary experience.

     COORDINATE WITH REGULATORY BODIES. The Company believes that acceptance of
its services will depend, in part, on adequately addressing the concerns of
regulatory agencies. The Company is coordinating with government officials and
agencies to facilitate greater understanding of Internet commerce and
regulatory issues. The Company intends to continue working with regulatory
agencies and others to facilitate the growth and potential of Internet
commerce, while providing adequate protection to consumers, merchants and
financial institutions and addressing legitimate regulatory concerns.

CYBERCASH'S SERVICES

     CyberCash provides a suite of services to enable financial
institutions to process payments among merchants and consumers over the
Internet. The Company commercially released its Credit Card service in January
1996 and its CyberCoin service in September 1996. The Company expects to
complete its pilot of the PayNow Secure Electronic Check Service and
commercially release the service by the end of the second quarter of 1997.

     THE CYBERCOIN(SM) SERVICE

     The CyberCoin service offers Internet consumers and merchants the ability
to conduct small denomination payments spontaneously, easily and securely. The
technology supports payments of 1 cent and less up to $100, but the Company
believes that the initial market for these transactions will be in the range of
25 cents to $10 or perhaps $20, and therefore is targeting that segment. The
service can facilitate the purchase of both physical and electronic goods, but
is principally aimed at the electronic goods market--information, publishing,
software, music and games. The CyberCoin service is designed to be offered
through banks and other financial institutions, although pending its adoption
by a sufficient number of financial institutions, the Company is offering the
service directly to Internet merchants. The Company has entered into an
agreement with First Union National Bank to offer the service and expects to
enter into similar agreements with other banks. In addition, transaction
processor First Data Corporation has announced that it will offer the service.
Financial institutions will charge their merchant customers a per-transaction
fee for the service, and in turn CyberCash will charge these financial
institutions a per-transaction fee for providing the technology and processing
services.

     For the consumer, the service offers the ability to shop spontaneously
without committing to subscriptions or remembering passwords and offers the
convenience of accessing funds from credit card or bank accounts, all at no
charge. For the merchant, the service offers the opportunity to tap into the
market of consumers who are willing to pay for value-added content but do not
wish to enter into a subscription agreement. The merchant is assured of
immediate payment and can take advantage of leveraged marketing opportunities
as the community of CyberCoin merchants grows. For financial institutions, the
service offers not only the opportunity for additional fee income, but also
expanded marketing opportunities to strengthen and broaden their customer bases
of both merchants and consumers, and to establish themselves as technology
leaders.

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     The core of the CyberCoin service is a secure but efficient suite of
software modules that provide fast, reliable transaction processing while
minimizing the actual movement of funds within the banking system. Consumers
obtain free copies of the CyberCash Wallet from either the Company's web site
or the web site of a financial institution partner offering the service. They
then load a small amount of funds, generally $20, into these Wallets from a
checking account or from a credit card. Once funds are loaded, the consumer is
ready to make purchases at any merchant which has set up the CyberCash
CashRegister software. The consumer makes purchases by simply clicking on the
price or purchase icon displayed on a merchant's site; the Wallet automatically
sends and receives all messages necessary to complete the transaction and makes
a record of it, and verifies that electronic goods have been received before
releasing the funds. The Wallet also has an array of user preference settings
which allow consumers to configure security and other features to their
personal desires, including the ability to require the Wallet to prompt for
approval of all purchases or purchases over a user-determined threshold, to
require that the password be re-entered before completing transactions or
accessing bank or credit card accounts, and to manage the storage and retrieval
of electronic goods received. All "loaded" funds are held in bank agency
accounts until the funds are spent.

     In February 1997, the Company introduced the Digital NewsStand, a
technology that allows subscription-based Web merchants to sell "day passes"
and other limited access rights to their high-value content, and to promote
these sales by featuring aggregated access points to this high-value content
in "newsstands" on high-traffic Web sites such as search engines. The Digital
NewsStands will use the CyberCoin technology to make payments. The Company
plans to market the Digital NewsStand technology as a service to online
merchants and to other companies that want to establish vertical market
programs for specific types of content, such as games, sports and finance. The
Company is introducing the service with a Digital NewsStand focused on the
finance and investment market and has received agreements from BARRON'S
OnlineSM, Financial Times of London, Los Angeles Times, Bloomberg L.P.,
Quote.com, American Banker Online, Data Broadcasting Corp., and William O'Neil
+ Co. Inc. expressing their intent to participate in the pilot introduction of
this service. Internet search and navigation services that have expressed their
intent to participate in the launch of the Digital NewsStand include Yahoo! and
InfoSeek. The Digital NewsStand provides Web publishers with an easy way to
offer daily or limited-time views of their most current digital content without
requiring consumers to commit to monthly or yearly subscriptions. Revenues from
the Digital NewsStand will be divided among the publisher, Internet navigation
services, companies that promote the service and CyberCash.

     THE SECURE CREDIT CARD SERVICE

     CyberCash's credit card service offers consumers the ability to transmit
credit card data across the Internet securely and conveniently. The Credit Card
service has specialized payment system security functions which are not found
in general encryption products. These additional functions include
authentication of both the merchant and the consumer through the use of digital
signatures and certificates.

     The Company's Secure Credit Card service (the "Credit Card service")
provides secure transport of credit card information over the Internet directly
into existing credit card processing networks and protocols, including secure
authorization and capture and settlement as well as merchant and consumer
authentication.

     When a consumer wants to make a purchase, the consumer receives an on-line
invoice from the merchant. The Wallet software on the consumer's computer
allows the consumer to send credit card information to the merchant in an
encrypted form together with the invoice. The merchant adds identifying
information and forwards the entire package to CyberCash's computer servers.
CyberCash transmits the credit card information into the existing credit card
processing networks as a standard credit card authorization request formatted
in the appropriate network protocol. When the authorization request has been
approved, the CyberCash server informs the merchant, which then completes the
transaction with the consumer. CyberCash currently is connected with most major
credit card processors, including Vital Processing Services, Global Payment
Systems (including National Data Corporation, MAPP and Modular 

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Data, Inc.), Wells Fargo Bank, CheckFree Corporation, First Data
Corporation (including Envoy, CES, NaBANCO, FDR and Telemoney), NOVA and
Sligos, a large French processor. In addition, the Company is in the process of
being connected with First USA/Paymentech.

     In order to use the Credit Card Service, a merchant must have a
relationship with a bank that accepts credit card transactions. CyberCash has
relationships with a majority of these "acquiring banks" in the United States,
allowing substantially all merchants to process credit card transactions
through CyberCash. Internationally, CyberCash processes transactions for Sligos
and National Bank of Canada.

     The Company is conforming its Credit Card Service to the Secure Electronic
Transactions ("SET") standards being developed by a consortium including
MasterCard and Visa. The Company expects that the standards will be finalized
by the end of 1997. The Company anticipates that there will be significant
competition for secure credit card services on the Internet in part because of
the widespread adoption of the SET standards. Currently, CyberCash is the only
company offering a gateway service that does not require the processor to
invest in new infrastructure. CyberCash intends to certify this gateway as
SET-compliant through MasterCard and Visa as soon as the complete standard is
published, the certification process is defined, and the gateway has passed the
necessary tests. This SET gateway then will be able to process transactions
from the Internet and hand them to the credit card processors in a format they
can read. This approach allows CyberCash to build upon its existing credit card
business and to migrate its customers to SET when the customers are ready.

     THE PAYNOW(SM) SECURE ELECTRONIC CHECK SERVICE

     The PayNow Secure Electronic Check Service will provide individuals and
businesses with an Internet counterpart to paper checks. Users will be able to
make PayNow transactions in any amount. Initially, CyberCash expects to provide
the PayNow service to businesses that provide bill-paying on their Internet
site, such as telephone companies, utilities, cable companies and financial
institutions. CyberCash has begun pilot projects with Princeton TeleCom
Corporation, International Billing Services, Inc. and Electronic Funds & Data
Corporation, which provide billing services to high-volume billing clients, and
Cephas Multimedia, Inc., a developer of merchant web sites, to provide the
PayNow service to facilitate Internet-based bill presentment. Large billers,
such as New Jersey's Public Service Electric & Gas Co. ("PSE&G"), Kansas City
Power & Light, and the Suffolk County Water Company, will participate in the
pilot programs. The Company expects to provide the PayNow service for
business-to-business and consumer-to-consumer check transactions by the end of
1997.

     Initially, amounts paid through the PayNow service will be transferred
from consumer bank accounts to bank accounts maintained by utilities and
service providers by means of the bank clearing house system. In later
releases, the Company expects that its Digital Debit Card(SM) technology will
permit consumers to pay bills directly from their checking accounts without
waiting for a transfer to be cleared through the banking system.

     The Company expects that merchants, billers or their banks will pay
CyberCash a fee for each PayNow transaction. These transaction fees will be a
small percentage of the amount of the payment, depending on a number of
factors, including volume and term commitments. In addition, the Company
expects that merchants will pay their banks a fee per PayNow transaction.

     DIGITAL DEBIT CARD(SM) PAYMENTS

     CyberCash expects to introduce in the second quarter of 1997 its
Digital Debit Card(SM) technology, which will give consumers direct access to
their checking accounts by making their personal computers emulate an Automated
Teller Machine ("ATM") card. With the Digital Debit Card, consumers will be
able to make payments over the Internet or to load funds to their Wallet
without waiting for a transfer to be cleared through the banking system.
Digital Debit Card transactions will be processed through the ATM networks. 



                                      10
<PAGE>   11

Due to technological considerations, the Company expects that only a few
financial institutions will initially offer the Digital Debit Card to their
customers.

     OTHER SERVICES

     CyberCash is investigating other services to include in its suite of
Internet payment systems, including a means to use a stored value or "smart"
card on the Internet. However, no assurance can be given that any additional
services may be available in the near future.

CYBERCASH'S TECHNOLOGY

         CONSUMER WALLET SOFTWARE

         Consumers access the Company's services through software which runs on
their computers. The software may be part of an application provided by a
vendor other than CyberCash or may be the CyberCash Wallet software which is
available on CyberCash's web site without charge. The access software resides
on the consumer's personal computer and permits the consumer to enter his or
her preferred payment instruments into the wallet in a manner intended to be
analogous to placing credit cards, checks, cash or ATM cards into a physical
wallet. The latest version of the Wallet enables consumers to receive and use
promotional coupons.

     When the consumer is shopping at an Internet merchant site utilizing the
CyberCash's CashRegister merchant software, the Wallet permits the consumer to
select a payment instrument in a manner that is similar to opening a physical
wallet in a physical store. The payment is rapidly processed, with the full
protection of the CyberCash security system, completing the transaction between
the parties. A transaction log, similar to a checkbook register, is displayed
on the consumer's PC which consolidates all of the consumer's selected payment
instruments in one place, eliminating the need to sort through check registers,
cash receipts and credit card statements. To protect the consumer's privacy and
the confidentiality of the transaction, the transaction log is encrypted both
on the consumer's PC and in the archival copy maintained on the CyberCash
servers. All transactions are received by the CyberCash system in encrypted
form and are processed using the same security system that is commonly used in
banks and other financial institutions for preserving data security. The files
are not accessible to CyberCash or its employees unless the consumer "unlocks"
the file with the consumer's own private key.

     The consumer Wallet technology is compatible with all Web browsers
commonly in use by consumers. The Wallet is designed to be independent of, and
compatible with, major hardware and software platforms so as to provide
consumers maximum flexibility and eliminate dependency on whether the merchant
or gateway system is proprietary to the Company. The Wallet currently operates
on Windows 3.1, Windows 95, Windows NT and MacOS platforms.

     MERCHANT CASHREGISTER SOFTWARE

     The Company has developed merchant server software designed to
facilitate automated funds collection, deposit and other financial functions,
which it distributes free of charge to merchants. As of December 31, 1996,
there were approximately 330 merchants using the Company's CashRegister
software. The software permits immediate verification of the consumer
attempting to make a purchase and provides immediate, automatic posting of
credit card receipts and CyberCoin transactions to the merchant's account.
Merchants do not need to establish new accounts or new relationships with
financial institutions in order to use CyberCash's services. The Company
believes that its CashRegister software currently is the only available payment
solution that supports JavaScript.



                                      11
<PAGE>   12

     FINANCIAL INSTITUTION GATEWAY SOFTWARE

     The Company's financial institution gateway software is designed to
receive and efficiently process requests for credit card authorizations and
electronic funds transfers. These requests are passed on to existing financial
institution networks in the same established formats and protocols currently
used, allowing them to receive Internet payments without modifications to their
existing hardware or software systems. The CyberCash gateway software
eliminates the need for a financial institution to establish a direct link to
the Internet, thus providing additional security and reducing the likelihood
that internal bank systems can be compromised by hackers.

     SYSTEM ARCHITECTURE AND TECHNOLOGY

     The Company believes that its system architecture and technology provides
it with an important competitive advantage. The Company uses novel and
innovative applications of existing, established technologies to achieve a high
level of security, convenience and processing speed. Central to the security
afforded by the Company's services is a powerful system of encryption. The
Company uses technology licensed from RSA Data Security, Inc. combined with the
banking industry standard Digital Encryption Standard ("DES") to produce
powerful, flexible cryptographic protocols. The Company has received from the
U.S. Department of Commerce an export license for the 1024-bit RSA key
encryption capability contained in its Wallet and merchant software, thus
offering the strongest commercial Internet payment encryption system that is
legally available today.

STRATEGIC RELATIONSHIPS

     INTERNET TECHNOLOGY LEADERS

     The Company has strategic relationships with several Internet technology
leaders. The Company is working to include its services in Internet commerce
solutions and consumer software provided by these companies. These
relationships are marketing cooperation and assistance agreements without
commitments to minimum levels of business.

     Netscape Communications Corporation. Netscape is marketing the CyberCash 
CashRegister software as a preferred payment solution for Netscape's
SuiteSpot, Merchant System and Publishing System products and is providing
CyberCash's CashRegister software via Netscape's web site. Netscape also has
announced that it will begin marketing CyberCash's Wallet to users of
Netscape's browser software and that CyberCash's Wallet software will become
available via Netscape's web site. In addition, Netscape and CyberCash are
working together in developing international pilot projects using the SET       
protocol for credit card transactions. The Company has also agreed with Actra
Business Systems, LLC, a joint venture of Netscape and General Electric
Information Systems, Inc., to adapt the Company's software for a pilot program
to do business-to-business electronic data interchange ("EDI") transactions
over the Internet. While there can be no assurance that this program will be
successful, the Company believes that business-to-business transactions
represent a potentially large market for the Company's services.

     Microsoft Corporation. Microsoft is integrating support of the
Company's CyberCoin and Credit Card services into the Microsoft Merchant
Server, a web server for merchants doing business on the Internet.

     Sun Microsystems, Inc. The JavaSoft business unit of Sun Microsystems
is including payment cassettes using CyberCash's services in its Java Commerce
Toolkit, which will allow developers to integrate CyberCash's payment services
in merchant Web sites.

                                      12
<PAGE>   13

     Oracle Corporation. CyberCash is an Oracle Business Alliance Partner
and has developed a payment cartridge for use with Oracle's Webserver 2.1. The
Company is integrating the payment cartridge with the Apollo Merchant Server,
Oracle's new electronic commerce solution. The cartridge will support
CyberCash's Credit Card and CyberCoin services.

     Lotus Development Corporation. Lotus has integrated the CyberCash
CashRegister in its Lotus Domino Merchant server product.

     Hewlett-Packard Corporation. Hewlett Packard will include CyberCash
technology in the software it provides with its Web servers.

     Open Market, Inc. Open Market has licensed CyberCash's software for use in
its OM-Transact software, which is used to provide Internet merchants with
transaction management services, including secure payment, order management and
online customer service.

     iCat Corporation. iCat has agreed to support CyberCash's payment services
in its iCat Commerce Exchange software. iCat provides software which is used to
create catalogs for the Internet and CD-ROMs.

     RSA Data Security, Inc. CyberCash licenses encryption technology from
RSA Data Security, Inc., a subsidiary of Security Dynamics Technologies, Inc.,
which is a leading provider of data security and encryption technologies.

     TRANSACTION AND BILLING PROCESSORS

     The Company also has strategic relationships with leading transaction
processors and automated billing service providers. The Company is working with
these companies to include its services as part of the transaction processing
services that they provide to their financial institution and high volume
billing clients.

     First Data Corporation. First Data has agreed to provide CyberCash
technology and processing services to merchants through its financial
institution clients. First Data, which has been providing Internet processing
services to merchants using CyberCash's Credit Card service since 1995, has
announced that it intends also to provide the CyberCoin service to merchants
through its alliance partners and financial institution clients. First Data
currently processes Internet credit card transactions transported over the
Internet by the Company. First Data is a leading global processor of credit
cards, providing services to more than 2.5 million merchant outlets through
more than 1400 financial institution customers.

     Princeton TeleCom Corporation. Princeton TeleCom is participating in a
pilot project to provide the PayNow service to billing service customers.
Initially, Princeton TeleCom's client PSG&E, the largest public utility in New
Jersey with 2.2 million customers, will participate in the project.

     International  Billing Systems.  International  Billing Systems is
participating in a pilot program to offer the PayNow service to its billing
service customers.

     Electronic Funds and Data Corporation. Electronic Funds and Data
Corporation, the operator of www.billsite.com, is working with its client, the
Suffolk County Water Company, to allow their customers to pay their water bills
securely over the Internet.

     Transaction Network Services, Inc. Transaction Network Services
operates a communications network that connects to some of the largest
transaction processors in the United States. The Company has formed a
relationship with TNS that provides direct electronic access to credit card
processing companies and credit card acquiring banks.



                                      13
<PAGE>   14

     HOSTS AND MERCHANT DEVELOPMENT PARTNERS

     America Online, Inc. America Online has agreed to use CyberCash's services
as a payment solution for its commercial hosting service, AOL Primehost.

     UUNET Technologies, Inc. UUNET has agreed to use CyberCash's services as a
payment solution for its commercial hosting service.

     Cephas Multimedia, Inc. Cephas is participating in a pilot project to
provide the PayNow service to billing companies for which it develops web
sites. Initially, Cephas' client Kansas City Power & Light, a large Midwestern
energy company, will participate in the project.

     Proxicom. Proxicom, a Web site designer, has agreed to assist merchants in
designing Internet stores using CyberCash's services.

     Internex. Internex, a Web site host and developer, has agreed to use
CyberCash's services as a payment solution for its hosting clients.

MARKETING AND DISTRIBUTION

     The Company's Internet payment system serves three constituencies:
individuals, businesses and financial institutions. The Company's marketing and
distribution strategy is focused on distributing the Company's software to the
maximum number of individuals, businesses and financial institutions in the
minimum amount of time possible. The Company intends to create demand for its
services by positioning the Company's services in such a way that each
constituent can enhance its own competitive position, security and convenience
by using the Company's software and services. The Company uses multiple
channels to distribute its software but expects that financial institutions,
transaction processors and Internet software companies will distribute the
majority of its software. The Company believes that an essential element of any
successful payment system is the participation of a trusted party. For that
reason, a cornerstone of the Company's strategy is to make banks, financial
institutions and their processors, an integral part of its services,
emphasizing their compatibility with existing banking systems and
infrastructure.

RESEARCH AND DEVELOPMENT

     The Company believes that significant continuing investments in research 
and development will be required to remain competitive. The Company is
focusing on finalizing its PayNow service as well as developing and refining
methods for efficient connection into existing banking and financial networks
for transaction and payment processing. In addition, the Company intends to
focus substantial effort on meeting the needs of individuals, businesses and
financial institutions in foreign markets.

     The Company has established a development subsidiary in Bangalore,
India which is intended to reinforce its U.S. development efforts and provide
the Company with the ability to develop new software in order to meet customer
demands in a timely and cost-effective manner.

      Research and development expenses were approximately $5,648,000 and
$14,900,000 for the years ended December 31, 1995 and December 31, 1996,
respectively. To date, all software development costs have been expensed as
incurred. The Company does not anticipate a significant increase in the amount
of its research and development expenditures in 1997.

SERVICE AND SUPPORT

     CyberCash is committed to providing a high level of service and
support to its customers. CyberCash provides 24-hour, 7 day-a-week high
availability transaction services to banks and third-party 

                                      14
<PAGE>   15

processors, which in turn utilize these capabilities to service their
customers. Currently, the Company provides most of its customer support
directly to users through e-mail and telephone. Eventually, the Company expects
that its financial institution customers will provide first level support to
their customers and will refer to CyberCash for second level support, if
necessary. The Company utilizes escalation procedures that are designed to
bring unusual issues to the attention of management to help assure customer
satisfaction.

     Each CyberCash customer bank, processor and strategic partner is
designated with a CyberCash account representative who provides a direct point
of contact for inquiries and service changes, and who organizes the appropriate
technical and business resources to respond to the customer's service and
support requirements. Each merchant is provided with a designated customer
support person to assist it when required. The merchant's technical personnel
also are provided special password access to secure online software archives
and testing facilities world-wide on a 24-hour, 7-day a week basis to allow
them to perform their own testing and quality assurance functions after they
have made changes to their sites.

     General inquiries may be made through the Company's interactive Web pages
on the Internet, electronic mail information lines and an 800 telephone number.

COMPETITION

     CyberCash faces different competitors for each of its payment services.
However, because the Internet payment services industry is new and rapidly
evolving, the Company faces a dynamic competitive environment. Accordingly,
there can be no assurance that the following discussion identifies all present
or potential competitors for the Company, or provides a complete discussion of
the bases for competition.

     MICROPAYMENT SERVICES

     The Company believes that providers of alternative payment technologies
may pose competition for the Company, particularly its CyberCoin service. An
early purveyor of digital cash, DigiCash bv, offers digital cash in the U.S.
through a pilot program with Mark Twain Bank and also has pilot projects in
Germany, Australia and Finland.

     GC Tech, Inc.'s GlobalID payment software supports micropayments as well
as credit and debit card transactions. GC Tech, which was founded as a French
company and maintains substantial operations in France, licenses its software
to financial institutions, which act as intermediaries for Internet payment
processing. Kleline, S.A., a division of the French Paribas banking group,
launched the first commercial use of GC Tech's software in September 1996. GC
Tech also has a pilot project with a Brazilian bank.

     Digital Equipment Corporation researchers are developing a micropayment
system called Millicent which is based on merchant-specific "scrip" that can be
used to make purchases only at the particular merchant's web site. However,
Digital has not announced a public trial or commercial implementation of this
system.

     Other companies, such as CertCo, have announced plans to develop
micropayment services that may be similar to the CyberCoin service. Some
competitors are aggregating small consumer purchases and then submitting them
for payment against a pre-registered credit card. In addition, researchers at
several universities are designing other methods for allowing small
denomination transactions, including Carnegie Mellon's NetBill project and the
University of Southern California's NetCash system.

     CREDIT CARD SERVICES

     The Company competes with VeriFone, Inc., which provides software to
financial institutions for processing credit card transactions over the
Internet. Wells Fargo Bank has announced that it will use VeriFone's software
to offer Internet payment services to its merchant customers. GC Tech's GlobeID

                                      15
<PAGE>   16

Payment technology also permits the processing of credit card transactions over
the Internet using financial institutions as payment intermediaries. First
Virtual Holdings, Inc. provides an Internet payment service in which consumers
register their credit card data by telephone or fax in order to permit online
purchases. In addition, IBM is developing the Net.Commerce service for credit
card payments transported over the Internet and AT&T Corporation has begun
offering its SecureBuy service for credit card processing for Web merchants.
The Company expects that more competitors will provide Internet credit card
services after the SET standard is finalized.

     ELECTRONIC CHECK SERVICES

     CyberCash's PayNow service will compete with electronic payment and direct
deposit services that are being offered by financial institutions and companies
providing various means of payment fulfillment. In addition, several non-profit
organizations are studying electronic check systems but have not started any
pilot projects. These organizations include the Financial Services Technology
Consortium, which is composed of financial services companies, government
laboratories and technology vendors, and the University of Southern
California's NetCheque project.

     COMPETITION FROM OTHER SERVICES

     HOME BANKING. A central feature of the Company's planned PayNow service is
the ability for individuals or businesses to transfer money from their checking
accounts over the Internet. Services already exist that permit individuals or
businesses to have electronic access to information about their checking
accounts and, in some cases, direct the movement of funds from those accounts
electronically. These home banking and remote banking systems generally rely on
the computerized issuance of paper checks or on various overnight wire transfer
facilities. Several banks and other providers of remote banking systems,
however, are developing means to permit direct transfers from checking accounts
on a "real-time" basis. If this occurs, it would provide direct and significant
competition to the Company's services. Several of the companies in the home
banking field, including Intuit, Wells Fargo Bank and Citibank, are large,
well-established and well-funded, with greater name recognition and consumer
familiarity than the Company.

     SMART CARDS. Smart cards are a variant of digital cash. Funds are stored
and transferred using a credit-card sized piece of plastic, which includes a
small computer chip that has the capability to calculate and store values in
digital form and transfer them in a secure fashion. Smart cards are intended to
replace cash, checks and credit cards in the physical world, and are a common
and accepted means of effecting small transactions outside the United States.
The Company believes that its system, which is designed exclusively for
payments over the Internet, does not presently compete with smart card systems.
Competition may arise, however, if personal computer hardware containing smart
card readers becomes widely distributed. VeriFone and others have announced
that they will sell smart card-reader terminals for personal computers.

     Mondex International Ltd. has begun smart card pilot projects in the
United States and the United Kingdom. MasterCard International has acquired a
majority stake in Mondex. Mondex's United States subsidiary is owned in part by
Wells Fargo & Co., AT&T Corporation, Chase Manhattan Corporation and several
other large banks. In addition, Visa and American Express have announced that
they are each developing smart card programs.

     TECHNOLOGY PROVIDERS. Additional competition could come from Web browser
companies and software and hardware vendors that incorporate Internet payment
capabilities into their products. Further, because of the rapidly evolving
nature of the industry, many of the Company's collaborative partners are
current or potential competitors. In particular, the Company believes that
Microsoft intends to actively compete in all areas of Internet and online
commerce. While the Company is working with Microsoft to include support for
CyberCash's payment services in Microsoft's Internet merchant software, there
can be 



                                      16
<PAGE>   17

no assurance that, in the future, Microsoft will not develop its own
payment system which may compete with the Company's services.

     Many of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than the
Company. In addition, many of the Company's current or potential competitors,
such as Microsoft, have broad distribution channels that may be used to bundle
competing products directly to end-users or purchasers. If such competitors
were to bundle competing products for their customers, the demand for the
Company's services may be substantially reduced, and the ability of the Company
to successfully effect the distribution of its products and the utilization of
its services would be substantially diminished. There can be no assurance that
the Company will be able to compete effectively with current or future
competitors or that the competitive pressures faced by the Company will not
have a material adverse effect on the Company's business, financial condition
or operating results.

PROPRIETARY RIGHTS

     The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies primarily on copyright, trade secret
and trademark law to protect its technology. The Company has no patents. The
Company has applied for a United States patent on portions of its system
relating to its PayNow and CyberCoin services. There can be no assurance that a
patent will be granted pursuant to the Company's application, or that if
granted such patent would survive a legal challenge to its validity, or provide
adequate protection.

     The source code for the Company's proprietary software is protected both
as a trade secret and as a copyrighted work. The Company generally enters into
confidentiality and assignment agreements with its employees, consultants and
vendors, and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
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 the Company's services.

     To license its services, the Company often relies on "on-screen" licenses
that are not manually signed by the end-users and, therefore, may be
unenforceable under the laws of certain jurisdictions. Despite the Company's
efforts to protect its proprietary rights, third parties may attempt to copy
aspects of the Company's services or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
services is difficult, particularly in the global environment in which the
Company operates, and the laws of other countries may afford the Company little
or no effective protection of its intellectual property. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of resources,
either of which could have a material adverse effect on the Company's business,
financial condition or operating results.

         On January 29, 1996, the Company received notification from the holder
of a patent for which the Company holds a license of the licensor's intent to
file suit and to demand arbitration in the event that the Company did not
immediately enter into negotiations to resolve certain claims raised by
licensor. On April 29, 1996, the licensor sent the Company a letter stating
that the licensor had terminated the license based on a purported breach by the
Company. The Company has informed the licensor that the Company does not
believe that any grounds for termination exist. The Company is not using the
licensed technology and does not currently intend to do so. To date, no
royalties have accrued under the license.

                                      17
<PAGE>   18

     DigiCash bv has registered the trademark "CyberCash," in the Benelux
countries on an "intent-to-use" basis. The Company has not applied to register
its CyberCash mark in the Benelux countries. DigiCash has filed an application,
based on the Benelux registration, to register the CyberCash mark in the United
States but the United States Patent and Trademark Office ("USPTO") has issued
an office action denying the registration. The Company believes it has a basis
to challenge this application but, if DigiCash overcomes the USPTO's objection,
its registration of the mark may create rights superior to the Company's rights
in the CyberCash mark. Nevertheless, CyberCash has filed an application to
register the CyberCash mark on the supplemental register of the USPTO, as well
as in certain overseas jurisdictions. No assurance can be given as to the
ability of the Company to secure any registration of or the right to continue
to use the name and mark CyberCash nor can there be any assurance that a
license to or assignment of the CyberCash name and mark would be available to
the Company on reasonable terms or at all should the Company be unable to
secure registration of, or the right to continue to use, the CyberCash name and
mark. The prosecution of claims relating to the CyberCash mark, including the
securing of an injunction preventing the Company's use of CyberCash, could have
a material adverse effect on the Company's business, financial condition or
operating results.

     The Company is aware of patents held by independent third parties in the
area of electronic payment systems. No assurance can be given as to the
applicability of such patents to the Company's services and technologies. The
assertion of these patent rights, if successful, could result in substantial
costs to the Company. There can be no assurance that the Company's services are
not, or in the future will not be, within the scope of such patents or any
other existing or future patents, and any litigation arising thereunder, even
if successfully contested, could have a material adverse effect on the
Company's business, financial condition or operating results. In addition, the
Company from time to time has received, and may receive in the future, notices
of claims of infringement of other parties' proprietary rights. There can be no
assurance that claims for infringement or invalidity (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. If any such claims or actions are asserted, the
Company 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, and the assertion or prosecution of
any such claims could have a material adverse effect on the Company's business,
financial condition or operating results.

     The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's software to perform key functions. In this
regard, all of the Company's services incorporate data encryption and
authentication technology licensed from RSA Data Security, Inc. RSA Data
Security has agreed to indemnify CyberCash for any claim against the Company on
the basis of proprietary rights infringement with respect to the licensed
technology. CyberCash has agreed to a similar indemnity of its licensees.

GOVERNMENT REGULATION

     The Company anticipates that regulations may be imposed on Internet
payment systems providers. It is the Company's policy to work actively with
potential regulators on a current and ongoing basis to ensure that the Company
is aware of regulatory concerns and issues and that the potential regulators
are familiar with the Company and its business and view it as a responsible
industry leader. The principal regulatory issues presently before the Company
are as follows:

     REGULATION E. Regulation E has been promulgated by the Federal Reserve
Board under authority of the Electronic Funds Transfer Act. It applies to
entities that issue "access devices" to "consumer asset accounts." The
regulation requires written disclosures at the time an access device is issued,
written receipts for transactions, periodic statements, and error resolutions
procedures. While there is some uncertainty, the Company believes that some
aspects of Regulation E may apply to its CyberCoin service and, perhaps, to its
PayNow service.

                                      18
<PAGE>   19

     Because Regulation E was issued at a time when no services like those of
the Company existed, its application to the Company's services involves
numerous uncertainties and ambiguities. The Company has requested the Federal
Reserve Board to clarify the application of the regulation to CyberCash's
services. Meanwhile, the Company believes that it has designed and is operating
its services in a manner that fully complies with the intention of Regulation
E. There remains the possibility that the Federal Reserve Board, and the other
agencies that interpret and apply the regulation may challenge the Company's
services on the ground that they do not comply with Regulation E. The costs of
responding to such a challenge could result in significant drains on the
Company's financial and management resources, which could have a material
adverse effect on the Company's business, financial condition or operating
results. There is also a possibility that the Federal Reserve Board may amend
Regulation E or may issue new regulations that could result in increased
operating costs for the Company and could also reduce the convenience and
functionality of the Company's services, possibly resulting in reduced market
acceptance. Finally, banks and other financial institutions may be reluctant to
adopt the Company's services until the uncertainties with respect to Regulation
E have been resolved.

     FEDERAL MONEY TRANSMITTER REGULATION. Recent federal legislation imposes a
record-keeping requirement on all persons performing wire transfers of funds.
Records of all transactions over $3,000 must be kept in a form accessible to
subpoena for five years. Although it is unclear whether this regulation is
applicable to the Company, the Company's services have been designed to be able
to comply with such legislation.

     STATE MONEY TRANSMITTER REGULATIONS. Several states currently have
regulations requiring registration and bonding for "money transmitters."
Although the Company does not believe that these regulations are applicable to
it, a significant risk exists that regulators will take the position that such
regulations are applicable to the Company. While the Company is prepared to
fully comply with these regulations to the extent that they are applicable and
does not believe that compliance will impose a material burden on the Company's
operations, there is a risk that expanding developments in this area of
regulation may expose the Company to greater regulatory burdens in the future.
The Company is working with key state regulators to explore suitable regulatory
structures for businesses engaged in Internet commerce.

     STATE SALES AND USE TAX LAWS. The Company believes that several states are
moving aggressively to tax online service providers even when they have no
presence within the state. Compliance could be burdensome and require reporting
that would compromise the Company's commitment to maintaining maximum user
privacy. The Company is actively working with industry and regulators to
address these issues.

EMPLOYEES

     As of December 31, 1996, the Company had a total of 220 employees, 158 of
whom were based in the United States. The Company anticipates that it may
increase the number of its employees in its subsidiary in India but does not
anticipate any increase in the number of its employees in the United States in
the near future. None of the Company's employees are represented by a labor
union. The Company considers its relations with its employees to be good.

RISK FACTORS

     In evaluating CyberCash and its business, investors should consider the
risk factors discussed below. Among other things, the following discussion
identifies important factors that could cause CyberCash's actual results to
differ materially from results predicted or implied in any forward-looking
statements made in this Form 10-K or elsewhere by or on behalf of CyberCash.

                                      19
<PAGE>   20

     LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT

     The Company is a development stage company founded in August 1994 and
presently has only a limited number of financial institutions and merchants
utilizing its services. The Company commercially released its Credit Card
service in January 1996 and its CyberCoin service in September 1996 and only
recently began several pilot projects for its PayNow Secure Electronic Check
service. Accordingly, the Company has only a limited operating history upon
which an evaluation of the Company and its prospects can be based. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their earlier stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, continue to provide
enhancements to its Credit Card and CyberCoin service, further develop and
commercially release its PayNow service and supporting software, successfully
implement its marketing strategy, respond to competitive developments, continue
to attract, retain and motivate qualified personnel, expand its management
processes and capabilities, and develop and upgrade its technology. There can
be no assurance that the Company will succeed in addressing these risks, and
the failure to do so could have a material adverse effect on the Company's
business, financial condition and operating results.

     As of December 31, 1996, the Company had an accumulated deficit of
$37,714,000. Since its inception, the Company has not recognized any
significant revenue. There can be no assurance that the Company's revenues will
remain at current levels or increase, and the Company's ability to generate
significant revenue is subject to substantial uncertainty. In addition, the
Company anticipates that its operating expenses will continue to increase in
the foreseeable future as it further develops its technology, releases the
PayNow service, further increases its sales and marketing activities, creates
and expands the distribution channels for its services and broadens its
customer support capabilities. Accordingly, the Company expects to continue to
incur significant operating losses on both a quarterly and an annual basis at
least through 1998 and perhaps for some time thereafter. There can be no
assurance that the Company will achieve or sustain profitability.

     UNCERTAINTY OF DEVELOPMENT OF MARKET

     The market for the Company's services is at an early stage of development,
is rapidly evolving, and is characterized by an increasing number of market
entrants who have introduced or are developing competing products and services.
As is typical for a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. Moreover, critical issues concerning the Internet
(including security, reliability, cost, ease of use and quality of service)
remain unresolved and may affect growth of the use of the Internet in general
and of Internet commerce in particular. The widespread adoption of the Internet
for commerce will require a broad acceptance of new methods of conducting
business and exchanging information. Enterprises that have invested substantial
resources in other methods of conducting business have tended to be slow to
adopt a new strategy that may limit or compete with their existing business.
They have also had to overcome technical obstacles and develop new business
models to succeed in this new environment.

     The Company intends eventually to offer its payment services principally
through banks and other financial institutions. Many larger financial
institutions have been reluctant to commit to involvement with Internet
commerce. They have expressed concerns about the security, stability, and
economic viability of Internet payment systems such as those offered by the
Company. While the Company believes that some larger ones are demonstrating an
increased willingness to consider offering Internet payment services, it is
uncertain how many banks and other financial institutions will decide to do so,
or how long before they will do so in significant numbers. If financial
institutions do not begin to commit to offering Internet payment services, the
Company will have to change its strategy. There is no assurance that the
Company would be able to develop a successful alternative strategy.

     Consumers have also been slower to commence substantial volumes of
purchases over the Internet than had been anticipated. They have demonstrated
concerns about privacy and security, as well as 



                                      20
<PAGE>   21

convenience and ease of use of payment systems. While the Company believes
that consumers are beginning to be more willing to use its payment services,
the rate at which the services will become widely accepted remains uncertain.

     The Company's services currently require consumers to download and install
the Company's Wallet software and to bind it to credit card or checking
accounts. With respect to the CyberCoin service, in particular, the incentive
for them to do so is largely dependent upon the number and quality of merchants
that have agreed to use the CyberCoin service. Conversely, the incentive for
merchants to adopt the CyberCoin service is largely dependent on the number of
consumers that are equipped to use it. For the CyberCoin service to become
successful, the Company will have to overcome the obstacle that this presents
and there can be no assurance that it will succeed. If it cannot achieve
widespread acceptance of its services by both consumers and merchants, the
Company's business will be materially and adversely affected.

     For the reasons discussed above, among others, Internet commerce, and
consequently the market for the Company's services, have developed more slowly
than some had predicted. Although Internet commerce continues to grow, it is
not known how soon, if ever, the demand for payment services will become
sufficient to sustain a viable market for the Company's services. The Company's
business includes services that have never existed before, which operate in a
market that previously did not exist. In this regard, it is unknown whether any
significant market for effecting payments by electronic check or for making low
denomination cash transfers over the Internet will develop. The use of the
Company's services is dependent in part upon the continued development of an
infrastructure for providing adequate Internet access and the proper management
of Internet traffic. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as adequate capacity, a reliable network backbone or timely development of
complementary products, such as high speed modems. There can be no assurance
that commerce over the Internet will become widespread, that a significant
market for the Company's services will emerge, or that the Company's services
will become generally adopted. If the market fails to continue to develop,
develops more slowly than expected or becomes saturated with competitors, the
infrastructure for the Internet is not adequately developed or the Company's
services do not achieve market acceptance by a significant number of
individuals, businesses and financial institutions, the Company's business,
financial condition and operating results will be materially and adversely
affected.

     POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     Because Internet commerce is still at an early stage, the Company's
revenue expectations are based almost entirely on expectations of future demand
and not on actual experience. Moreover, the Company does not have relevant
historical financial data for a significant number of periods on which to base
planned operating expenses. Accordingly, the Company's expense levels are based
in part on its current expectations as to future revenues and its expected
development and marketing requirements. In the event market demand and revenues
do not meet expectations, the Company may be unable to adjust its spending
levels on a timely basis to compensate for unexpected revenue shortfalls. In
addition, the Company's operating expenses increased substantially in recent
periods. The Company currently anticipates that its operating expenses will
remain relatively constant during 1997 as compared with 1996. Thereafter,
however, operating expenses may increase as the Company continues to develop
its services and technology, increase its sales and marketing operations,
develop new distribution channels, improve its operational and financial
systems and broaden its customer support capabilities. Any material shortfall
of demand for the Company's services in relation to the Company's expectations
would have a material adverse effect on the Company's business and financial
condition and could cause significant fluctuations in the Company's results of
operations.

     The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including
changes in acceptance of Internet commerce in general, demand for the Company's
services, introduction or enhancement of services by the Company and its



                                      21
<PAGE>   22

competitors, market acceptance of new services, the mix of distribution
channels through which services are provided, the distribution of the Company's
software to individuals, businesses and financial institutions, the timing and
effectiveness of collaborative marketing and distribution efforts by the
Company's strategic partners, the mix of international and North American
revenues, the timing and rate at which the Company increases its expenses to
support projected growth, the cost of compliance with applicable government
regulations, and general economic conditions. In particular, the Company
believes that quarterly operating results may fluctuate due to the timing of
the adoption of the Company's services by financial institutions and
transaction processors for use with their customers. In addition, as a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, marketing or licensing decisions or
business combinations that could have a material adverse effect on the
Company's business, results of operations or financial condition. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not meaningful and should not be relied upon as any indication
of future performance. Because of all of the foregoing factors, it is likely
that the Company's quarterly operating results from time to time will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's common stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

     COMPETITION

     The Internet payment services industry is new and rapidly evolving,
resulting in a dynamic competitive environment. The Company expects competition
to persist, intensify and increase in the future. Many of the Company's current
and potential competitors have longer operating histories, greater name
recognition, larger installed customer bases and significantly greater
financial, technical and marketing resources than the Company. In addition,
many of the Company's current or potential competitors, such as Microsoft, have
broad distribution channels that may be used to bundle competing products
directly to end-users or purchasers. If such competitors were to bundle
competing products for their customers, the demand for the Company's services
may be substantially reduced, and the ability of the Company to successfully
effect the distribution of its products and the utilization of its services
would be substantially diminished. There can be no assurance that the Company
will be able to compete effectively with current or future competitors or that
the competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, financial condition or operating results.

     The Company competes or may compete directly or indirectly with, among
others, (i) providers of digital cash, such as DigiCash bv; (ii) GC Tech, Inc.,
which currently is providing an Internet micropayment service in Europe; (iii)
Internet credit card service providers, such as VeriFone, Inc., First Virtual
Holdings, Inc., GC Tech, IBM and AT&T Corporation; (iv) banks and others which
may eventually offer direct transfers of funds from checking accounts over the
Internet; and (v) developers of "smart card" programs, such as Mondex.
Additional competition could come from other Web browser companies and software
and hardware vendors that incorporate Internet payment capabilities into their
products. Further, because of the rapidly evolving nature of the industry, many
of the Company's collaborative partners are current or potential competitors.
In addition, current or potential competitors, including certain of the
Company's collaborative partners, have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their software, products or services to compete with the Company's software and
services and address the needs of the Company's prospective customers.

     Additional competition could come from Web browser companies and software
and hardware vendors that incorporate Internet payment capabilities into their
products. Further, because of the rapidly evolving nature of the industry, many
of the Company's collaborative partners are current or potential competitors.
In particular, the Company believes that Microsoft intends to actively compete
in all areas of Internet and online commerce. While the Company is working with
Microsoft to include support for CyberCash's payment services in Microsoft's
Internet merchant software, there can be no assurance that, in the future,
Microsoft will not develop its own payment system which may compete with the
Company's services. See "Business -- Competition" and "Business -- Strategic
Relationships."



                                      22
<PAGE>   23

     DEVELOPMENT OF NEW SERVICES, INDUSTRY ACCEPTANCE AND TECHNOLOGICAL CHANGE

     Substantially all of the Company's anticipated revenues will be derived
from relatively small fees charged to financial institutions, businesses and
individuals for transactions effected using the Company's services.
Accordingly, broad acceptance of the Company's services and their use in large
numbers of transactions is critical to the Company's success, as is the
Company's ability to design, develop, test, introduce and support new services
and enhancements on a timely basis that meet changing customer needs and
respond to technological developments and emerging industry standards. The
market for the Company's services is characterized by rapidly changing
technology and evolving industry standards. The Company's services are designed
around certain technical standards, and current and future sales of the
Company's services will be dependent on industry acceptance of such standards.
While the Company intends to provide compatibility with the standards
promulgated by leading industry participants and groups, widespread adoption of
a proprietary or closed standard could preclude the Company from effectively
doing so. Moreover, a number of leading industry participants have announced
their intention to enter into or expand their position in the market for
Internet payments through the development of new technologies and standards.
There can be no assurance that the Company's services will achieve market
acceptance, that the Company will be successful in developing and introducing
its proposed services or new services that meet changing customer needs and
respond to technological changes or evolving industry standards in a timely
manner, if at all, that the standards upon which the Company's services are or
will be based will be accepted by the industry or that services or technologies
developed by others will not render the Company's services noncompetitive or
obsolete. The inability of the Company to respond to changing market
conditions, technological developments, evolving industry standards or changing
customer requirements, or the development of competing technology or products
that renders the Company's services noncompetitive or obsolete would have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business -- CyberCash's Technology -- System
Architecture and Technology," "-- Marketing and Distribution," and "-- Research
and Development."

     RISKS OF DEFECTS AND DEVELOPMENT DELAYS

     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. The Company may experience delays in the development of the software
and computing systems underlying the Company's services. In addition, there can
be no assurance that, despite testing by the Company and potential customers,
errors will not be found in the underlying software, or that the Company will
not experience development delays, resulting in delays in the shipment of its
software, the commercial release of its services or in the market acceptance of
its services, each of which could have a material adverse effect on the
Company's business, financial condition or operating results. See "Business --
Research and Development."

     DEPENDENCE ON KEY PERSONNEL

     The Company's performance is substantially dependent on the performance of
its executive officers and key employees, most of whom have worked together for
only a short period of time. The Company is dependent on its ability to retain
and motivate high quality personnel, especially its management and highly
skilled development teams. The Company does not have "key person" life
insurance policies on any of its employees. The loss of the services of any of
its key employees, particularly its founder, William N. Melton, could have a
material adverse effect on the Company's business, financial condition or
operating results. The Company's future success also depends on its continuing
ability to identify, hire, train and retain other highly qualified technical
and managerial personnel. Competition for such personnel is intense. There can
be no assurance that the Company will be able to attract, assimilate or retain
qualified technical and managerial personnel in the future, and the failure of
the Company to do so would have a material adverse effect on the Company's
business, financial condition and operating results. 



                                      23
<PAGE>   24

     LIMITED SALES FORCE; EVOLVING DISTRIBUTION CHANNELS

     The Company has a limited number of sales and marketing employees and does
not have established distribution channels for its software or services. The
Company intends to distribute its software to businesses and individuals free
of charge and to effect a significant amount of its software distribution
through bundling arrangements with the developers of various hardware and
software vendors. In order to generate substantial revenue, the Company must
achieve broad distribution of its software to individuals and businesses and
secure general adoption of its services and technology. No assurance can be
given as to the ability of the Company to continue to establish bundling
arrangements, retain existing arrangements or to broadly distribute its
software and generate sufficient demand for its services, and the inability of
the Company to do so would have a material adverse effect on the Company's
business, financial condition and operating results. See "Business -- Marketing
and Distribution."

     DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT; 
     POSSIBLE LITIGATION

     The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies primarily on copyright, trade secret
and trademark law to protect its technology. The Company has no patents. The
Company has applied for a United States patent on portions of its system
relating to its CyberCoin and PayNow services and the Company intends to file
for patents on certain other elements of existing technology and on inventions
that it 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. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company generally enters into
confidentiality and assignment agreements with its employees, consultants and
vendors, and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
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 the Company's services. To license its services,
the Company often relies on "on-screen" licenses that are not manually signed
by the end-users and, therefore, may be unenforceable under the laws of certain
jurisdictions. Despite the Company's efforts to protect its proprietary rights,
third parties may attempt to copy aspects of the Company's services or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's services is difficult, particularly in the
global environment in which the Company operates, and the laws of other
countries may afford the Company little or no effective protection of its
intellectual property. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology or that such agreements
will be enforceable. In addition, litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material
adverse effect on the Company's business, financial condition or operating
results.

         On January 29, 1996, the Company received notification from the holder
of a patent for which the Company holds a license of the licensor's intent to
file suit and to demand arbitration in the event that the Company did not
immediately enter into negotiations to resolve certain claims raised by the
licensor. On April 29, 1996, the licensor sent the Company a letter stating
that the licensor had terminated the license based on a purported breach by the
Company. The Company has informed the licensor that the Company does not
believe that any grounds for termination exist. The Company is not using the
licensed technology and does not currently intend to do so. To date, no
royalties have accrued under the license.

                                      24
<PAGE>   25

     DigiCash bv has registered the trademark "CyberCash," in the Benelux
countries on an "intent-to-use" basis. The Company has not applied to register
its CyberCash mark in the Benelux countries. DigiCash has filed an application,
based on the Benelux registration, to register the CyberCash mark in the United
States but the United States Patent and Trademark Office has issued an office
action denying the registration. The Company believes it has a basis to
challenge this application but, if DigiCash overcomes the USPTO's objection,
its registration of the mark may create rights superior to the Company's rights
in the CyberCash mark. Nevertheless, CyberCash has filed an application to
register the CyberCash mark on the supplemental register of the USPTO, as well
as in certain overseas jurisdictions. No assurance can be given as to the
ability of the Company to secure any registration of or the right to continue
to use the name and mark CyberCash nor can there be any assurance that a
license to or assignment of the CyberCash name and mark would be available to
the Company on reasonable terms or at all should the Company be unable to
secure registration of, or the right to continue to use, the CyberCash name and
mark. The prosecution of claims relating to the CyberCash mark, including the
securing of an injunction preventing the Company's use of CyberCash, could have
a material adverse effect on the Company's business, financial condition or
operating results.

     The Company is aware of patents held by independent third parties in the
area of electronic payment systems. No assurance can be given as to the
applicability of such patents to the Company's services and technologies. The
assertion of these patent rights, if successful, could result in substantial
costs to the Company. There can be no assurance that the Company's services are
not, or in the future will not be, within the scope of such patents or any
other existing or future patents, and any litigation arising thereunder, even
if successfully contested, could have a material adverse effect on the
Company's business, financial condition or operating results. In addition, the
Company from time to time has received, and may receive in the future, notices
of claims of infringement of other parties' proprietary rights. There can be no
assurance that claims for infringement or invalidity (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. If any such claims or actions are asserted, the
Company 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, and the assertion or prosecution of
any such claims could have a material adverse effect on the Company's business,
financial condition or operating results.

     The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's software to perform key functions. In this
regard, all of the Company's services incorporate data encryption and
authentication technology licensed from RSA Data Security, Inc. RSA Data
Security has agreed to indemnify CyberCash for any claim against the Company on
the basis of proprietary rights infringement with respect to the licensed
technology. CyberCash has agreed to a similar indemnity of its licensees.

      There also can be no assurance that the Company's other third party
technology licenses will continue to be available to the Company 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 the
Company's services until equivalent technology, if available, is identified,
licensed and integrated, which could have a material adverse effect on the
Company's business, financial condition or operating results. See "Business --
Proprietary Rights."

     RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY

     A significant barrier to Internet commerce is the secure exchange of value
over public networks. The Company relies on encryption and authentication
technology to provide the security and authentication necessary to effect the
secure exchange of value, including public key cryptography technology licensed
from RSA and private key Data Encryption Standard ("DES") cryptography. There
can be no assurance that advances in computer capabilities, new discoveries in
the field of cryptography or other events or developments will not result in a
compromise or breach of the RSA, DES or other algorithms used by the 

                                      25
<PAGE>   26
Company to protect customer transaction data. Such a development could
have a material adverse effect on the Company's business, financial condition
or operating results.

     GOVERNMENT REGULATION

     The Company's operations are subject to various state and federal
regulations. See "Business -- Government Regulation." Because Internet commerce
in general, and the Company's 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 new interpretations of
existing regulations. It is also possible that new legislation may be passed
that imposes additional regulation on the Company. Any such change in the
regulations applicable to the Company's business could lead to increased
operating costs and could also reduce the convenience and functionality of the
Company's services, possibly resulting in reduced market acceptance. In
addition, if a regulatory agency or law enforcement authority should assert
that the Company is failing to comply with existing regulations, the costs of
responding to such a challenge could result in significant drains on the
Company's financial and management resources, which could have a material
adverse effect on the Company's business, financial condition or operating
results.

     Due to the increasing popularity of the Internet, it is possible that 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 the
Company's services and increase the Company's cost of doing business or, could
otherwise have a material adverse effect on the Company's business, financial
condition or operating results.

     All of the Company's services utilize encryption technology, the export of
which is regulated by the U.S. government. The Company has obtained authority
to export the encryption technology in its Wallet and CashRegister software
worldwide, except to Libya, Syria, Cuba, North Korea, Sudan, Iraq and Iran.
This authority may be revoked or modified at any time, however, for any
particular jurisdiction or in general. The Company also intends to apply for an
export license covering the encryption technology in its gateway server
software. There can be no assurance, however, that such a license will be
obtained. In addition, there can be no assurance that such export controls,
either in their current form or as may be subsequently enacted, will not limit
the Company's ability to distribute its software outside of the United States
or electronically. While the Company takes precautions against unlawful
exportation of its software, the global nature of the Internet makes it
virtually impossible to effectively control the distribution of its software.
Moreover, federal or state legislation or regulation may further limit levels
of encryption or authentication technology. Any such export restrictions, the
unlawful exportation of the Company's software, new legislation or regulation
could have a material adverse effect on the Company's business, financial
condition or operating results. 

     FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

     The Company currently anticipates that its available cash resources
combined with funds from operations will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next twelve to fifteen months. Thereafter, if the Company has not commenced
to generate significant revenues, it will need to raise additional funds. The
Company is currently exploring the feasibility of raising additional equity
capital to provide working capital after the end of 1997 if its revenues do not
increase and also to enable it to fund more rapid expansion, to develop new or
enhanced services, to respond to competitive pressures or to acquire
complementary businesses or technologies. If the Company does raise additional
funds through the issuance of equity securities, the percentage ownership of
the stockholders of the Company will be reduced, stockholders may experience
additional dilution, or such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. There
can be no assurance that additional financing will be available now or in the
future. If adequate funds are not available or are not available on acceptable
terms, the 



                                      26
<PAGE>   27
Company 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 the Company's business, financial condition or
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

     MANAGEMENT OF GROWTH

     The Company requires an effective planning and management process in order
to be positioned to fully exploit the emerging demand for Internet payment
services. The Company's rapid growth has placed a significant strain on the
Company's managerial, operational and financial resources. As of December 31,
1996, the Company had grown to 220 employees from 65 employees on December 31,
1995. To manage its growth, the Company must continue to implement and improve
its operational and financial systems and to train and manage its employee base.
Further, the Company is required and will continue to be required to manage
multiple relationships among various financial institutions, merchants,
transaction processors, strategic partners, technology distributors and other
third parties. Although the Company believes that it has made adequate
allowances for the costs and risks associated with this expansion, there can be
no assurance that the Company's systems, procedures or controls will be adequate
to support the Company's current or future operations or that Company management
will be able to effectively manage this expansion and still achieve the rapid
execution necessary to fully exploit the market window for the Company's
Internet payment services in a timely and cost-effective manner. There also can
be no assurance that the Company will be able to successfully compete against
the significantly more extensive and well-funded sales and marketing and
research and development operations of the Company's competitors. The Company's
future operating results will depend on its ability to secure and manage new
distribution channels to reach a greater number of merchants and consumers,
continue to develop enhancements for its services, and expand its support
organization commensurate with the increasing use of its technology. Further,
the Company has a significant number of employees located in India working
through the Company's development subsidiary, and the Company expects that the
number of employees located in India will increase. If the Company is unable to
manage growth effectively or integrate operations domestically and in India or
achieve the rapid execution necessary to fully exploit the market window for the
Company's services in a timely and cost-effective manner, the Company's
business, operating results and financial condition will be materially adversely
affected.

     RISK OF LOSS FROM RETURNED TRANSACTIONS, MERCHANT FRAUD OR ERRONEOUS
     TRANSMISSIONS

     The Company currently utilizes two principal fund transfer systems: the
automated clearing house ("ACH") system for electronic fund transfers and the
national credit card systems (e.g., MasterCard, Visa, American Express and
Discover) for electronic credit card settlements. In its use of these
established payment systems, the Company may bear some of the credit risks
normally assumed by other users of these systems arising from returned
transactions caused by unauthorized use, disputes, theft or fraud. The Company
also may bear some risk of merchant fraud and transmission errors if it is
unable to have erroneously transmitted funds returned by an unintended
recipient. In addition, the agreement between the Company's users of its
services for allocation of these risks will be in electronic form, and while
digitally signed, will not be manually signed and hence may not be enforceable.
Finally, the Company may be subject to merchant fraud, including such actions as
inputting false sales transactions or false credits. The Company intends to
manage all of these risks through risk management systems, internal controls and
system security. There can be no assurance that the Company's risk management
practices or reserves will be sufficient to protect the Company from returned
transactions, merchant fraud or erroneous transmissions which could have a
material adverse effect on the Company's business, financial condition or
operating results.

     The Company is currently testing technology that would provide means other
than the ACH system by which consumers can access their checking accounts via
the Internet. This technology has the promise of being more efficient, less
costly, and more secure than the ACH system. There is, however, no 

                                       27
<PAGE>   28

assurance that the Company will be successful in the current effort, or, if it
is successful, that the new approaches it is seeking to develop will prove
cost-effective or will meet with market acceptance.

     SYSTEM INTERRUPTION AND SECURITY RISKS; POTENTIAL LIABILITY AND LACK OF
     INSURANCE

     The Company's operations are dependent on its ability to protect its system
from interruption by damage from fire, earthquake, power loss,
telecommunications failure, unauthorized entry or other events beyond the
Company's control. Most of the Company's computer equipment, including its
processing equipment, are currently located at a single site. There can be no
assurance that the Company's existing and planned precautions of redundant
systems, regular data backups and other procedures are adequate to prevent any
significant system outage or data loss. Consequently, unanticipated problems may
cause such failures or losses. Despite the implementation of security measures,
the Company's infrastructure may also be vulnerable to computer viruses, hackers
or similar disruptive problems caused by its customers or other Internet users.
Any damage or failure that causes interruptions in the Company's operations
could have a material adverse effect on the Company's business, financial
condition or operating results. Such computer break-ins and other disruptions
may jeopardize the security of information stored in and transmitted through the
computer systems of the individuals, businesses and financial institutions
utilizing the Company's services, which may result in significant liability to
the Company and also may deter potential customers from using the Company's
services. Persistent problems continue to affect public and private data
networks. For example, in a number of networks, hackers have bypassed firewalls
and misappropriated confidential information. In addition, while the Company
attempts to be careful with respect to the employees it hires and maintain
controls through software design, security systems and accounting procedures to
prevent unauthorized employee access to user accounts, it is possible that,
despite such safeguards, an employee of the Company could divert users' funds
while they are in the control of the Company, which would also expose the
Company to a risk of loss or litigation and possible liability to users. The
Company attempts to limit its liability to customers, including liability
arising from the failure of the security features contained in the Company's
system and services, through contractual provisions. However, there can be no
assurance that such limitations will be enforceable. The Company currently does
not have product liability insurance to protect against these risks and there
can be no assurance that such insurance will be available to the Company on
commercially reasonable terms or at all.

     RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

     A component of the Company's strategy is its planned expansion into
international markets. To date, the Company has limited experience in developing
localized versions of its services and marketing and distributing its services
internationally. There can be no assurance that the Company will be able to
successfully market, sell and deliver its services in these markets. In
addition, there are certain risks inherent in doing business in international
markets, such as unexpected changes in regulatory requirements, export
restrictions, export controls relating to encryption technology, tariffs and
other trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world and potentially adverse tax consequences, which could
adversely impact the success of the Company's international operations. There
can be no assurance that one or more of such factors will not have a material
adverse effect on the Company's future international operations and,
consequently, on the Company's business, financial condition or operating
results.

     BANK FAILURE; LIMITATION ON ACCESS TO FUNDS

     Some of the Company's services involve holding funds in the user's Wallet
in financial institutions. These funds are held in accounts by the Company as
agent for its customers. The Company will place funds only in banks which are
subject to state or federal regulation (or the non-U.S. equivalent), are insured
by the Federal Deposit Insurance Corporation and are believed by the Company to
be financially sound. Such regulatory and deposit insurance protection may not
be available for foreign accounts. Even if deposit insurance is available, such
insurance may not fully cover amounts held on 



                                       28
<PAGE>   29

behalf of the user. Furthermore, the Company believes that because the user
funds are held in a fiduciary or trust capacity by the Company, they would not
be subject to the claims of the Company's creditors or a bankruptcy trustee.
There can be no assurance, however, that should there be a failure of a
financial institution in which the Company has placed user funds, or should a
creditor or trustee of a user or of the Company seek control over an agency
account containing user funds, that the Company would not be subject to
litigation and possibly liability to users. The Company does not have insurance
to protect against certain of these risks, and there is no assurance that such
insurance will become available, or if made available, would be affordable to
the Company.

     DEPENDENCE ON THE INTERNET

     The Company's operating performance depends in large part on the emergence
of the Internet as a widely-used commercial marketplace. The Internet may not
prove to be a viable commercial marketplace because of inadequate development of
the necessary infrastructure (e.g., reliable network backbone), untimely
development of complementary products (e.g., high speed modems), delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased government
regulation. In addition, to the extent that the Internet continues to experience
significant growth in the number of users and the level of use, there can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed on it by such potential growth. Because global commerce on
the Internet and other similar open wide area networks are new and evolving, it
is difficult to predict with any assurance whether the Internet will prove to be
a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, the Company's business, operating results and
financial condition will be materially adversely affected.

         EXTREME VOLATILITY OF STOCK PRICE AND RISK OF LITIGATION

     The Company's Common Stock price has been extremely volatile and has
experienced substantial and sudden fluctuations, particularly as a result of
announcements by the Company and its competitors, changes in financial estimates
by securities analysts and announcements with respect to the industry generally.
In addition, the stock market has experienced significant price and volume
fluctuations that have especially affected the market prices of equity
securities of many high technology companies, particularly Internet-related
companies, and that often have been unrelated to the operating performance of
such companies. These broad market fluctuations have adversely affected and may
continue to adversely affect the market price of the Company's Common Stock. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on the Company's business, operating results and financial
condition.

         CONCENTRATION OF STOCK OWNERSHIP

     As of February 14, 1997, the directors, executive officers and their
respective affiliates beneficially owned approximately 38.5% of the outstanding
Common Stock. As a result, these stockholders are able to exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying, preventing or
deterring a change in control of the Company. See "Security Ownership of Certain
Beneficial Owners and Management."

         SHARES ELIGIBLE FOR FUTURE SALE

     Of the 10,717,178 shares of the Company's Common Stock outstanding as of
February 14, 1997, 4,759,458 shares are freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company, 



                                       29
<PAGE>   30


as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The
remaining 5,957,720 shares of Common Stock held by stockholders are either
"restricted securities" as that term is defined in Rule 144 under the Securities
Act or securities held by Affiliates (collectively, the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. As a result of the provisions of Rules 144
and 701, these Restricted Shares are eligible for sale from time to time upon
expiration of their respective one-year holding periods. In addition, as of
February 14, 1997, 1,335,276 shares of the Company's Common Stock were issuable
upon the exercise of stock options outstanding and 150,000 shares were issuable
upon exercise of a conditional warrant.

     EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS

     The Company's Certificate of Incorporation authorizes the 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 the Company's 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. The Certificate of Incorporation provides for staggered terms for
the members of the Board of Directors. Certain provisions of the Company's
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 the Company's 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 of the Company, or delay, prevent or deter a merger, acquisition,
tender offer or proxy contest for the Company.

ITEM 2.   PROPERTIES

     The Company leases its principal facilities totaling approximately 43,650
square feet in Reston, Virginia, and approximately 22,400 square feet in Redwood
City, California together with smaller facilities in Mission, Kansas, North
Olmstead, Ohio, Melville, New York, Nashville, Tennessee and Bangalore, India.
Leases on 3,297 square feet of the Reston, Virginia space expire in April 1999,
with 7,740 square feet expiring in December 2000, 5,642 square feet expiring in
June 2001, 1,040 square feet expiring in January 2002 and 25,926 square feet
expiring in March 2003. The lease on the Redwood City, California space expires
in May 1998. The Company believes that its existing Reston, Virginia facilities
will be adequate through at least 1997, that its existing Redwood City,
California facilities will be adequate through at least May 1998 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 a single site.
Payment system processing is done on redundant systems with frequent data
backups. The system is physically housed in a secured, climate-controlled room
within the Company's secured facilities. The Company intends to deploy
geographically redundant systems to 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 protected by an
uninterruptible power supply system which the Company intends to augment with an
emergency generating system for use during sustained power outages. The system
presently has the capacity to process a substantially greater volume of
transactions than are currently being received, or are projected to be received,
within the reasonable future. The Company has telecommunications links to the
Internet through two independent systems with a provision for a dial-line backup
if both primary and secondary systems fail simultaneously.

                                       30
<PAGE>   31

ITEM 3.   LEGAL PROCEEDINGS

     The Company is not party to any material legal proceedings as of December
31, 1996. However, on January 29, 1996, the Company received notification from
the holder of a patent for which the Company holds a license of the licensor's
intent to file suit and to demand arbitration in the event that the Company did
not immediately enter into negotiations to resolve certain claims raised by the
licensor. On April 29, 1996, the licensor sent the Company a letter stating that
the licensor had terminated the license based on a purported breach by the
Company. The Company has informed the licensor that the Company does not believe
that any grounds for termination exist. The Company is not using the licensed
technology and does not currently intend to do so. To date, no royalties have
accrued under the license.

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

     Not applicable.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

     The following sets forth certain information regarding the executive
officers of the Company as of February 14, 1997:
<TABLE>
<CAPTION>

Name                                Age     Position
----                                ---     --------

<S>                                 <C>     <C>                                    
William N. Melton                   54      President and Chief Executive Officer

Bruce G. Wilson                     49      Executive Vice President, Revenue and Corporate Growth

Denis Yaro                          43      Executive Vice President, Products and Operations

Jeffrey S. Irby                     38      Vice President, Sales and Marketing

Stephen D. Crocker                  52      Chief Technology Officer

James J. Condon                     40      Chief Financial Officer

Russell B. Stevenson, Jr.           55      Secretary and General Counsel
</TABLE>

     William N. Melton, a founder of the Company, has served as a member of the
Company's Board of Directors and as its President and Chief Executive Officer
since the Company's inception in August 1994. Mr. Melton founded VeriFone, Inc.,
a transaction automation company, in 1981 and was a director of VeriFone from
1981 until 1996. He served as President and Chief Executive Officer of VeriFone
from 1981 until 1986, 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 is also a director of America Online, Inc., an
online services company.

     Bruce G. Wilson, a founder of the Company, has served as its Executive Vice
President, Revenue and Corporate Growth since May 1996; Chief Operating Officer
from the Company's inception in August 1994 to May 1996; Treasurer from
inception until December 1995; Chief Financial Officer from inception until
December 1995; and Secretary from inception until April 1995. Prior to joining
the Company, Mr. Wilson held a number of executive positions at NYNEX, a
telecommunications company, including Vice President, Electronic Funds Transfer
Systems of NYNEX's Information Solutions Group and Vice



                                       31
<PAGE>   32

President, Sales and Marketing of its Computer Services Group. Mr. Wilson is a
member of the Board of Directors and the Executive Committee of the Electronic
Funds Transfer Association.

     Denis Yaro has served as the Company's Executive Vice President, Products
and Operations since June 1996, and Vice President, Product Development from
January 1996 until June 1996. Prior to joining the Company, 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.

     Jeffrey S. Irby has served as the Company's Vice President, Sales and
Marketing since January 1997, and Vice President and General Manager of its
Credit Card Service from August 1996 until January 1997. Prior to joining the
Company, Mr. Irby was with the consulting firm KPMG Peat Marwick L.L.P. since
May 1994, where he co-founded KPMG's Center of Excellence for Electronic
Financial Services, a dedicated practice focused on helping bankers serve as
commerce facilitators in the on-line environment. From 1991 to May 1994, he was
First Vice President of Michigan National Bank, where he served as Retail Group
Product Manager and Director of Retail Distribution.

     Stephen D. Crocker, a founder of the Company, has served as its Chief
Technology Officer since June 1996 and as its Senior Vice President of
Technology from the Company's inception to June 1996. From December 1986 to
August 1994, Dr. Crocker was Vice President of Trusted Information Systems, a
computer network and security company and he was a program manager from 1971 to
1974 in the United States Department of Defense's Advanced Research Projects
Agency (ARPA). He has served as a member of the Internet Architecture Board and
as the area director for security in the Internet Engineering Task Force.

     James J. Condon has agreed to become the Company's Chief Financial Officer
beginning on March 17, 1997. Mr. Condon has been with the consulting firm of
KPMG Peat Marwick L.L.P. since October 1995, where he is Director of Performance
Improvement Services for the information, communications and entertainment
industries. From 1991 to 1995, he was with Legent Corporation as its Corporate
Vice President, Financial Planning and Administration and previously as Vice
President, Operations of its customer support and development divisions.

     Russell B. Stevenson, Jr. has served as General Counsel and Secretary of
the Company since April 1996. Prior to 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.


                                       32
<PAGE>   33



                                     PART II

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 the Company's common stock for the indicated periods during 1996, as
reported by the Nasdaq National Market. The Company completed its initial public
offering in February 1996 at a price of $17.00 per share. On February 14,
1997, the closing price of the Company's common stock as reported by the Nasdaq
National Market was $13 1/16 per share. As of February 14, 1997, there were 201
holders of record of the common stock.

<TABLE>
<CAPTION>
                                          Sales Prices
                                            Per Share
                                     ------------------------
                                        High          Low
                                     -----------    ---------
<S>                                  <C>            <C>   
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

</TABLE>

     The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividends in the foreseeable future.

     On February 21, 1996, the Company sold 976,540 shares of common stock to
SOFTBANK Holdings, Inc. for $15.81 per share in a private placement transaction
pursuant to Section 4(2) of the Securities Act. The Company received an
aggregate of $15,439,097 from this sale of common stock.



                                       33
<PAGE>   34

ITEM 6.   SELECTED FINANCIAL DATA

     The following consolidated statements of operations data for the period
from the Company's inception (August 29, 1994) through December 31, 1994, for
the years ended December 31, 1995 and 1996 and for the period from August 29,
1994 through December 31, 1996 and the following consolidated balance sheet data
at December 31, 1995 and 1996 are derived from, and should be read in
conjunction with the Consolidated Financial Statements of the Company 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                                                       PERIOD FROM
                                     AUGUST 29, 1994                                                   AUGUST 29, 1994
                                     (INCEPTION) TO            YEAR ENDED          YEAR ENDED           (INCEPTION) TO
                                       DECEMBER 31,           DECEMBER 31,         DECEMBER 31,           DECEMBER 31,
STATEMENTS OF OPERATIONS DATA:            1994                    1995                 1996                  1996
                                    ------------------    ------------------    -----------------     -----------------
<S>                                 <C>                   <C>                    <C>                 <C>                     
Revenues                            $        --           $        --            $                      $
                                                                                          127,439              127,439
Costs and expenses:

  Research and development                    920,951              5,648,052            14,900,156          21,469,159
  Sales and marketing                          56,200              1,772,365             9,414,656          11,243,221
  General and administrative                  190,627              2,728,673             4,564,644           7,483,944
                                    ------------------    ------------------    ------------------    -----------------
Loss from operations                      (1,167,778)           (10,149,090)          (28,752,017)         (40,068,885)
Interest income                                14,284                142,895             2,197,276           2,354,455
                                    ------------------    ------------------    ------------------    -----------------
Net loss                            $     (1,153,494)     $     (10,006,195)     $    (26,554,741)      $  (37,714,430)
                                    ==================    ==================    ==================    =================
Net loss per share                  $           (.29)     $           (2.50)     $          (2.77)
                                    ==================    ==================    ==================                     

Weighted average shares
outstanding                                 4,002,074              4,002,074             9,585,418
                                    ==================    ==================    ==================    
</TABLE>


<TABLE>
<CAPTION>

                                                 DECEMBER 31,       DECEMBER 31,
                                                     1995               1996
                                             -------------------   ----------------
BALANCE SHEET DATA:

<S>                                           <C>                <C>
  Working capital                             $      3,428,842    $   31,902,359
  Total assets                                       7,386,224        41,050,081
  Total liabilities                                  2,273,022         2,940,595
  Redeemable convertible preferred stock            16,094,692           --
  Deficit accumulated during the
     development stage                             (11,159,689)      (37,714,430)
  Stockholders' equity (deficit)                   (10,981,490)       38,109,486
</TABLE>


                                       34
<PAGE>   35

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto.
Historical results and percentage relationships among any amounts in the
consolidated financial statements are not necessarily indicative of trends in
operating results for any future period. This discussion contains, in addition
to historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements. Information on risks facing
the Company is discussed under the caption "Risk Factors" in Item 1.

OVERVIEW

     CyberCash is a leading provider of Internet payment processing services to
financial institutions in the United States and abroad. The Company's suite of
Internet payment services features the electronic counterparts to cash, credit
cards and checks.

RESULTS OF OPERATIONS

     GENERAL

     Since its inception in August 1994, CyberCash has undertaken a program to
develop and expand the services that it offers. The Company invested in
designing and developing its services and network operations capacities and in
establishing and expanding its sales and marketing capabilities. These efforts
continue in preparation for and anticipation of the growth in Internet commerce
that the Company expects will create a substantial market for Internet payment
services. The Company also has made significant investments in computers,
networking systems and telecommunications equipment. Largely as a result of the
expenses associated with these efforts, the Company's operating expenses have
increased each year since its inception. The Company's operating expenses
were $1,168,000, $10,149,000 and $28,879,000 for the period from August 29, 1994
(inception) to December 31, 1994, and for the years ended December 31, 1995 and
1996, respectively. The Company recorded net losses of $1,153,000, $10,006,000
and $26,555,000 for the period from August 29, 1994 (inception) to December 31,
1994, and for the years ended December 31, 1995 and 1996, respectively. The
Company believes it will continue to incur losses at least through 1998, and
there can be no assurance when it will achieve profitability, if ever.

     The Company's business model is based principally on receiving transaction
processing fees and license fees from financial institutions and transaction
processors. CyberCash expects to receive per-transaction fees from the
following: (i) financial institutions that offer CyberCoin processing services
and technology to their merchants and consumer customers to enable small
denomination payments over the Internet; (ii) credit card processors that
provide transaction processing to merchants through credit card acquiring banks;
and (iii) financial institutions and billing service companies that provide
payment services over the Internet through the PayNow service. The Company
anticipates in the future receiving per-transaction fees from financial
institutions that process transactions through the Automated Teller Machine
networks using the Digital Debit Card service. In addition, the Company
anticipates receiving fees from licensing its gateway server software to
companies that are providing their own credit card transaction processing. To
facilitate the wide adoption of the Company's services, the Company currently
distributes its merchant and consumer software free of charge through a variety
of distribution channels.

                                       35
<PAGE>   36

     YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

     Revenues

     The Company's revenues for the year ended December 31, 1996 were $127,000.
Substantially all of the revenue was derived from transaction processing and
connection fees for Secure Credit Card services and consulting services. The
Company commercially released its Secure Credit Card service in January 1996 and
its CyberCoin service in September 1996. As of December 31, 1996, CyberCash had
approximately 330 merchants using the Company's services. The Company
anticipates that there will be significant competition for secure credit card
services on the Internet. Accordingly, the Company anticipates that the
CyberCoin and PayNow services will be the principal contributors to the
Company's overall profitability, although there can be no assurance that the
Company will become profitable. The Company had no revenues in the year ended
December 31, 1995.

     Operating Expenses

     Research and Development. Research and development expenses consist
primarily of compensation expense and consulting fees to support the development
of the Company's software, services and technologies. Research and development
expenses increased $9,252,000 from $5,648,000 for year ended December 31, 1995
to $14,900,000 for the year ended December 31, 1996. Research and development
expenses increased in 1996 as a result of the Company implementing its
first-year growth strategy of commercially releasing its Secure Credit Card and
CyberCoin services; introducing its PayNow service, as well as developing and
refining methods for efficient connection into existing banking and financial
networks for transaction and payment processing; and continuing to develop and
provide open payment solutions that are easy to adopt and that interoperate with
a wide variety of hardware and software platforms. In order to meet its growth
strategy, during 1996 the Company substantially increased the number of
employees engaged in development and increased expenditures for outside
consultants. The Company believes that significant continuing investments in
research and development will be required to remain competitive. However, the
Company does not intend during 1997 to increase significantly its resources
devoted to software development. To date, all of the Company's software
development costs have been expensed as incurred. The Company will continue to
expense research and development costs until the recoverability of such costs
through future benefits can be demonstrated.

     Sales and Marketing. Sales and marketing expenses consist primarily of
compensation expense and advertising and marketing costs. Sales and marketing
expenses increased $7,643,000 from $1,772,000 for the year ended December 31,
1995 to $9,415,000 for the year ended December 31, 1996. The increases were due
principally to the addition of the sales and marketing personnel necessary to
accomplish the Company's objective of maintaining its position as a leading
provider of Internet payment services. During 1996, sales and marketing focused
on key elements of the Company's strategy, including the following objectives:
introducing the CyberCoin service and continued promotion of the Secure Credit
Card service; entering into strategic relationships to promote a significant
volume of Internet commerce; devoting substantial efforts to developing
technology and marketing relationships with companies that are engaged in
providing technology for facilitating electronic commerce; and providing a high
level of service and support to its customers. The Company anticipates that its
sales and marketing expenses will continue to be significant as it commercially
releases its PayNow service, continues to promote its Secure Credit Card and
CyberCoin services and seeks to expand its relationships with financial
institutions and other Internet participants.

     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 the
Company. General and administrative expenses increased $1,836,000 from
$2,729,000 for the year ended December 31, 1995 to $4,565,000 for the year ended
December 31, 1996. This increase primarily reflects the addition of personnel
and increased professional services in the areas of human resources, finance,
legal and administration. The Company anticipates that 



                                       36
<PAGE>   37

its general and administrative expenses will continue to be significant as it
continues to develop and expand its operations.

     Interest Income

     Interest income increased $2,054,000 from $143,000 for the year ended
December 31, 1995 to $2,197,000 for the year ended December 31, 1996 due to
interest income earned on invested proceeds from the Company's initial public
offering and concurrent private placement on February 15, 1996.

     YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

     The financial results for the period from August 29, 1994 (inception) to
December 31, 1994 relate to the Company's initial organization, licensing and
software development activities. The Company does not believe that the operating
results from this period provide meaningful comparisons to subsequent periods.

     Revenues

     From August 29, 1994 (inception) to December 31,1995, the Company did not
recognize any revenue.

     Operating Expenses

     Research and Development. Research and development expenses increased
$4,727,000 from $921,000 for the period from inception to December 31, 1994 to
$5,648,000 for the year ended December 31, 1995. The increase is due to software
development activities related to the development and pilot release of the
Secure Credit Card service.

     Sales and Marketing. Sales and marketing expenses increased $1,716,000 from
$56,000 for the period from inception to December 31, 1994 to $1,772,000 for the
year ended December 31, 1995. The increase is primarily related to establishing
relationships with financial institution, merchants and consumers, as well as
promoting the pilot release of the Secure Credit Card service.

     General and Administrative. General and administrative expenses increased
$2,538,000 from $191,000 for the period from inception to December 31, 1994 to
$2,729,000 for the year ended December 31, 1995. The increase is due to the
addition of personnel and increased professional services in the areas of human
resources, finance, legal and administration.

     Interest Income

     Interest income increased $129,000 from $14,000 for the period from
inception to December 31, 1994 to $143,000 for the year ended December 31, 1995
due to interest income earned on invested proceeds from the Company's private
placements of Preferred Stock in October 1994 and August and September 1995.

INCOME TAXES

      As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $28,533,000. These carryforwards may be
significantly limited under the Internal Revenue Code as a result of ownership
changes resulting from the Company's redeemable convertible preferred stock
financing and initial public offering.

                                       37
<PAGE>   38

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1996, the Company had cash and cash equivalents of
$33,687,000 compared to $5,295,000 at December 31, 1995. The increase in cash
and cash equivalents of $28,392,000 was obtained from the Company's initial
public offering and concurrent private placement which together resulted in net
cash proceeds of $58,274,000; the sale of Common Stock through the Employee
Stock Purchase Plan and the exercise of stock options for a total exercise price
of $726,000; the receipt of $278,000 from a receivable from the sale of Common
Stock offset by accrued interest of $61,000; an increase in accounts payable and
accrued expenses of $525,000 due to higher accrued employee benefits resulting
from a significant increase in employees in 1996; and an increase in other
liabilities of $142,000. This increase to cash and cash equivalents was reduced
by a net loss of $26,555,000 which was offset by non-cash expenses of $1,766,000
for depreciation and compensation expense related to stock options; capital
expenditures of $5,407,000; an increase in restricted cash of $250,000 to secure
corporate credit cards; an increase in accounts receivable of $152,000; an
increase in other assets of $807,000 primarily related to the Company's office
facilities; and the effect of exchange rates of $87,000.

     Although Internet commerce has been slower to develop than originally
expected, the Company currently anticipates that its available cash resources
combined with future cash flows from operations will be sufficient to meet its
presently anticipated cash needs, including working capital, the acquisition of
software licenses and other capital expenditures for at least twelve to fifteen
months. In addition, the Company has the flexibility to reduce its discretionary
costs and expenditures. Thereafter, the Company may need to raise additional
funds through debt and/or equity financing. The Company's estimates of its cash
requirements are based on its budget forecasts as they currently exist, and
depend on assumptions about future events, including revenue assumptions. There
is no assurance that these assumptions will prove true, and the Company's actual
cash requirements could exceed its current estimates. The Company may need to
raise additional funds sooner than anticipated in order to fund more rapid
expansion, to develop new or enhanced services, to respond to competitive
pressures or to acquire complementary businesses or technologies. If the Company
does raise additional funds through the issuance of equity securities, the
percentage ownership of the stockholders of the Company will be reduced,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences or privileges senior to those of the holders of the
Company's common stock. There can be no assurance that additional financing will
be available now or in the future. If adequate funds are not available or are
not available on acceptable terms, the Company 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 the
Company's business, financial condition or operating results. See "Business --
Risk Factors -- Future Capital Needs; Uncertainty of Additional Financing."



                                       38
<PAGE>   39


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
CyberCash, Inc.

We have audited the accompanying consolidated balance sheets of CyberCash, Inc.
(a development stage company) as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the period from August 29, 1994 (inception) to December 31, 1994, the
years ended December 31, 1995 and 1996 and for the period from August 29, 1994
(inception) through December 31, 1996. 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, 1995 and 1996, and the consolidated results of
its operations and its cash flows for the period from August 29, 1994
(inception) to December 31, 1994, the years ended December 31, 1995 and 1996 and
for the period from August 29, 1994 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.

                                                  /s/  ERNST & YOUNG LLP

Vienna, Virginia
January 23, 1997


                                       39
<PAGE>   40


                                 CYBERCASH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                        1995            1996
                                                                                   ------------     ------------ 
                             ASSETS
<S>                                                                               <C>             <C>
Current assets:

   Cash and cash equivalents                                                       $  5,294,622     $ 33,687,076 
   Restricted cash                                                                         --            250,000
   Accounts receivable                                                                     --            151,765
   Prepaid expenses and other current assets                                            399,515          694,062
                                                                                   ------------     ------------ 
         Total current assets                                                         5,694,137       34,782,903

Property and equipment, net                                                           1,566,918        5,629,664
Deposits                                                                                125,169          637,514
                                                                                   ------------     ------------ 
                                                                                                                 
        Total assets                                                               $  7,386,224     $ 41,050,081
                                                                                   ============     ============ 

         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

   Accounts payable                                                                $  1,153,053     $  1,263,923
   Accrued bonus and employee benefits                                                  354,034        1,067,025
   Other accrued expenses                                                               758,208          459,596
   Deferred revenue                                                                        --             90,000
                                                                                   ------------     ------------ 
        Total current liabilities                                                     2,265,295        2,880,544


Deferred rent                                                                             7,727           60,051
                                                                                   ------------     ------------ 
       Total liabilities                                                              2,273,022        2,940,595

Commitments

Redeemable convertible Preferred Stock, $.001 par value; 9,763,637
 shares authorized :

  Series A Preferred Stock, 2,500,000 shares designated, issued and
      outstanding at December 31, 1995                                                5,000,000             --
  Series B Preferred Stock, 2,381,819 shares designated; 2,200,000
      shares issued and outstanding at December 31, 1995                             11,003,783             --
  Series B Preferred Stock warrants                                                      90,909             --
                                                                                   ------------     ------------ 
                                                                                     16,094,692             --
Stockholders' equity (deficit):

  Common Stock, $.001 par value; 25,000,000 shares authorized, 2,062,500 shares
    issued and outstanding as of December 31, 1995 and 10,732,262 issued and
    10,712,262 outstanding as of December 31, 1996                                        2,063           10,732
  Additional paid-in capital                                                          1,981,843       77,201,462
  Deficit accumulated during the development stage                                  (11,159,689)     (37,714,430)
  Treasury stock, 20,000 shares at December 31, 1996                                       --           (120,000)
  Receivable from sale of Common Stock                                               (1,156,908)        (820,233)
  Foreign currency translation                                                             --            (87,569)
  Unearned compensatory stock options                                                  (648,799)        (360,476)
                                                                                   ------------     ------------ 
Total stockholders' equity (deficit)                                                (10,981,490)      38,109,486
                                                                                   ------------     ------------ 
Total liabilities and stockholders' equity (deficit)                               $  7,386,224     $ 41,050,081
                                                                                   ============     ============ 

                 See notes to consolidated financial statements.

</TABLE>


                                       40
<PAGE>   41



                                 CYBERCASH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

 
<TABLE>
<CAPTION>
                            PERIOD FROM                                               PERIOD FROM
                          AUGUST 29, 1994                                           AUGUST 29, 1994
                          (INCEPTION) TO      YEAR ENDED         YEAR ENDED         (INCEPTION) TO
                           DECEMBER 31,       DECEMBER 31,       DECEMBER 31,         DECEMBER 31,
                               1994               1995                1996               1996
                          ---------------   ---------------    ----------------    ---------------
<S>                       <C>               <C>                <C>                <C>       
Revenues                  $      --         $      --          $      127,439      $     127,439

Costs and expenses:

  Research and                                                                                  
    development                 920,951         5,648,052          14,900,156         21,469,159
  Sales and marketing            56,200         1,772,365           9,414,656         11,243,221
  General and   
    administrative              190,627         2,728,673           4,564,644          7,483,944
                          ---------------   ---------------    ----------------    ---------------
Loss from operations         (1,167,778)      (10,149,090)        (28,752,017)       (40,068,885)
Interest income                  14,284           142,895           2,197,276          2,354,455
                          ---------------   ---------------    ----------------    ---------------
Net loss                  $  (1,153,494)    $ (10,006,195)     $  (26,554,741)     $ (37,714,430)
                          ===============   ===============    ================    ===============
Net loss per share        $        (.29)    $       (2.50)     $        (2.77)  
                          ===============   ===============    ================ 
Weighted average shares
  outstanding                 4,002,074         4,002,074           9,585,418
                          ===============   ===============    ================ 
</TABLE>

                 See notes to consolidated financial statements.


                                       41
<PAGE>   42


                                 CYBERCASH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                                                                     DEFICIT                        RECEIVABLE
                                                                                   ACCUMULATED                         FROM      
                                             COMMON STOCK            ADDITIONAL      DURING THE                       SALE OF    
                                        -----------------------       PAID-IN       DEVELOPMENT       TREASURY        COMMON     
                                         SHARES        AMOUNT         CAPITAL          STAGE            STOCK          STOCK     
                                        ----------    ---------    ------------    --------------   ------------   ------------  
<S>                                    <C>           <C>          <C>             <C>              <C>            <C>            
Initial issuance of Common Stock        1,450,000     $  1,450     $   143,550     $    --          $   --         $  (29,400)   
Issuance of Common Stock purchase                                                                                                
  rights                                   --            --             11,250          --              --             --        
Net loss                                   --            --            --            (1,153,494)        --             --        
                                       -----------    ---------    ------------    --------------   ------------   ------------  
Balance at December 31, 1994            1,450,000        1,450         154,800       (1,153,494)        --            (29,400)   
Accretion of Series B Preferred Stock      --            --           (65,750)          --              --             --        
Repayment of receivable from
  sale of Common Stock                     --            --            --               --              --              14,700   
Accrued interest on receivable from
  sale of Common Stock                     --            --            --               --              --            (12,208)   
Compensation expense in connection
  with issuance of stock options           --            --            752,156          --              --             --        
Exercise of Common Stock purchase                                                                                                
  rights                                  112,500          113          11,137          --              --             --        
Exercise of Common Stock options          500,000          500       1,129,500          --              --         (1,130,000)   
Net loss                                   --            --            --           (10,006,195)        --             --        
                                       -----------    ---------    ------------    --------------   ------------   ------------  
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      --            --            --               --              --             --        
Foreign currency translation             
  adjustment                               --            --            --               --              --             --    
Net loss                                   --            --            --           (26,554,741)        --             --        
                                       ===========    =========    ============    ==============   ============   ============  
Balance at December 31, 1996           10,732,262     $ 10,732     $77,201,462     $(37,714,430)    $ (120,000)    $ (820,233)   
                                       ===========    =========    ============    ==============   ============   ============  

</TABLE>

<PAGE>   43
<TABLE>
<CAPTION>
                                        
                                                           UNEARNED          TOTAL
                                           FOREIGN       COMPENSATORY     STOCKHOLDERS'
                                           CURRENCY          STOCK           EQUITY
                                          TRANSLATION       OPTIONS        (DEFICIT)
                                         ------------   ---------------   ---------------
<S>                                    <C>            <C>               <C>           
Initial issuance of Common Stock         $   --         $     --          $      115,600
Issuance of Common Stock purchase                                                       
  rights                                     --               --                  11,250
Net loss                                     --               --             (1,153,494)
                                         ------------   ---------------   ---------------
Balance at December 31, 1994                 --               --             (1,026,644)
Accretion of Series B Preferred Stock        --               --                (65,750)
Repayment of receivable from
  sale of Common Stock                       --               --                  14,700
Accrued interest on receivable from
  sale of Common Stock                       --               --                (12,208)
Compensation expense in connection
  with issuance of stock options             --              (648,799)           103,357
Exercise of Common Stock purchase            
  rights                                     --               --                  11,250
Exercise of Common Stock options             --               --                --
Net loss                                     --               --            (10,006,195)
                                         ------------   ---------------   ---------------
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
Foreign currency translation                
  adjustment                                (87,569)          --                (87,569)
Net loss                                     --               --            (26,554,741)
                                         ============   ===============   ===============
Balance at December 31, 1996             $  (87,569)    $    (360,476)    $ (38,109,486)
                                         ============   ===============   ===============

</TABLE>

                See notes to consolidated financial statements..

                                       42
<PAGE>   44

                                 CYBERCASH, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    PERIOD FROM                                           
                                                                  AUGUST 29, 1994                                         
                                                                  (INCEPTION) TO      YEAR ENDED         YEAR ENDED       
                                                                   DECEMBER 31,       DECEMBER 31,       DECEMBER 31,     
                                                                       1994               1995                1996        
                                                                  ---------------   ---------------    ----------------   
<S>                                                              <C>                 <C>                <C>               
OPERATING ACTIVITIES                                                                                                      
Net loss                                                         $    (1,153,494)    $ (10,006,195)      $(26,554,741)     
Adjustments to reconcile net loss to net                                                                                  
  cash used in operating activities:                                                                                        
     Depreciation                                                         13,167           343,634          1,343,832     
     Accrued interest on receivable from sale of                                                                          
          Common Stock                                                   --                (12,208)           (61,395)     
     Issuance of Common Stock and warrants for services                   26,850           --                  --          
     Issuance of compensatory stock options                              --                103,357             --          
     Compensation expense related to stock options                       --                --                 421,991     
     Changes in operating assets and liabilities:                                                                         
          Restricted cash                                                --                --                (250,000)     
          Accounts receivable                                            --                --                (151,765)     
          Prepaid expenses and other current assets                      (10,739)         (388,776)          (294,547)     
          Deposits                                                       (11,089)         (114,080)          (512,345)     
          Accounts payable and accrued expenses                          199,545         2,065,750            525,249     
          Deferred revenue                                               --                --                  90,000     
          Deferred rent                                                  --                  7,727             52,324     
          Due to related parties                                         179,446          (179,446)            --          
                                                                 ----------------   ---------------    ---------------    
                 Net cash used in operating activities                  (756,314)       (8,180,237)       (25,391,397)     
                                                                                                                          
INVESTING ACTIVITIES                                                                                                      
Purchases of property and equipment                                     (237,008)       (1,686,711)        (5,406,578)     
                                                                 ----------------   ---------------    ---------------    
                 Net cash used in investing activities                  (237,008)       (1,686,711)        (5,406,578)     
                                                                                                                          
FINANCING ACTIVITIES                                                                                                      
Proceeds from issuance of Common Stock                                   100,000            11,250         58,274,122     
Proceeds from exercise of stock options                                  --                --                 386,969     
Proceeds issuance of Common Stock through the                                                                             
 Employee Stock Purchase Plan                                            --                --                 338,837     
Proceeds from receivable from sale of Common Stock                       --                 14,700            278,070     
Proceeds from issuance of Preferred Stock                              2,366,667        13,571,366            --          
Proceeds from issuance of Preferred Stock warrants                       --                 90,909            --          
                                                                 ----------------   ---------------    ---------------    
                 Net cash provided by financing activities             2,466,667        13,688,225         59,277,998     
                                                                 ----------------   ---------------    ---------------    
Effect of exchange rate changes on cash and cash equivalents             --                --                 (87,569)     
                                                                 ----------------   ---------------    ---------------    
Net increase in cash and cash equivalents                              1,473,345         3,821,277         28,392,454     
Cash and cash equivalents at beginning of period                         --              1,473,345          5,294,622     
                                                                 ================   ===============    ===============    
Cash and cash equivalents at end of period                       $     1,473,345    $    5,294,622      $  33,687,076     
                                                                 ================   ===============    ===============    
Supplemental disclosure of non-cash financial activities:
 Common Stock issued for receivable from sale of                                                                          
    Common Stock                                                 $       --         $    1,130,000      $     --          
                                                                 ================   ===============    ===============    
 Exercise of Series B Preferred Stock warrants, net of                                                                    
    shares required to satisfy exercise price                    $       --         $      --           $     267,380     
                                                                 ================   ===============    ===============    
 Treasury stock received in satisfaction of receivable                                                                    
   from sale of Common Stock                                     $       --         $      --           $     120,000     
                                                                 ================   ===============    ===============    
</TABLE>


<PAGE>   45
<TABLE>
<CAPTION>
                                                                       PERIOD FROM   
                                                                     AUGUST 29, 1994 
                                                                     (INCEPTION) TO  
                                                                       DECEMBER 31,  
                                                                          1996       
                                                                    ---------------  
<S>                                                                 <C>                 
OPERATING ACTIVITIES                                                                 
Net loss                                                            $  (37,714,430)   
Adjustments to reconcile net loss to net                                             
  cash used in operating activities:                                                   
     Depreciation                                                        1,700,633   
     Accrued interest on receivable from sale of                                     
          Common Stock                                                     (73,603)   
     Issuance of Common Stock and warrants for services                     26,850   
     Issuance of compensatory stock options                                103,357   
     Compensation expense related to stock options                         421,991   
     Changes in operating assets and liabilities:                                    
          Restricted cash                                                 (250,000)   
          Accounts receivable                                             (151,765)   
          Prepaid expenses and other current assets                       (694,062)   
          Deposits                                                        (637,514)   
          Accounts payable and accrued expenses                          2,790,544   
          Deferred revenue                                                  90,000   
          Deferred rent                                                     60,051   
          Due to related parties                                                --   
                                                                   ----------------  
                 Net cash used in operating activities                 (34,327,948)   
                                                                                     
INVESTING ACTIVITIES                                                                 
Purchases of property and equipment                                     (7,330,297)   
                                                                   ----------------  
                 Net cash used in investing activities                  (7,330,297)   
                                                                                     
FINANCING ACTIVITIES                                                                 
Proceeds from issuance of Common Stock                                  58,385,372    
Proceeds from exercise of stock options                                    386,969    
Proceeds issuance of Common Stock through the                                         
 Employee Stock Purchase Plan                                              338,837    
Proceeds from receivable from sale of Common Stock                         292,770    
Proceeds from issuance of Preferred Stock                               15,938,033    
Proceeds from issuance of Preferred Stock warrants                          90,909    
                                                                   ----------------   
                 Net cash provided by financing activities              75,432,890    
                                                                   ----------------   
Effect of exchange rate changes on cash and cash equivalents               (87,569)    
                                                                   ----------------   
Net increase in cash and cash equivalents                               33,687,076    
Cash and cash equivalents at beginning of period                                --    
                                                                   ================   
Cash and cash equivalents at end of period                          $   33,687,076    
                                                                   ================   
Supplemental disclosure of non-cash financial activities:
 Common Stock issued for receivable from sale of                                      
    Common Stock                                                    $    1,130,000    
                                                                   ================   
 Exercise of Series B Preferred Stock warrants, net of                                
    shares required to satisfy exercise price                       $      267,380    
                                                                   ================   
 Treasury stock received in satisfaction of receivable                                
   from sale of Common Stock                                        $      120,000    
                                                                   ================   
</TABLE>

                See notes to consolidated financial statements.

                                       43
<PAGE>   46


                                 CYBERCASH, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. ORGANIZATION AND NATURE OF OPERATIONS

  CyberCash, Inc. (the "Company" or "CyberCash") was incorporated on August 29,
1994 in the State of Delaware and has been in the development stage since its
formation. CyberCash is a leading provider of Internet payment processing
services to financial institutions in the United States and abroad. The
Company's suite of Internet payment services features the electronic
counterparts to cash, credit cards and checks.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

  The accompanying financial statements include the accounts of CyberCash and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.

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. The Company
has invested cash in excess of current working capital needs in a money market
mutual fund which consists of obligations of U.S. government agencies, 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 a certificate of deposit,
supports Company credit cards held by employees for business expenses.

FOREIGN CURRENCY TRANSLATION

    Results of operations for foreign entities, primarily the Company's Indian
development subsidiary, are translated using average exchange rates during the
period. Assets and liabilities are translated to U.S. dollars using the exchange
rate in effect at the balance sheet date. Resulting translation adjustments are
reflected in stockholders' equity as foreign currency translation adjustment.

PROPERTY AND EQUIPMENT

  Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives ranging from 3 to 5 years.

AGENCY FUNDS

  Customer cash balances available for CyberCoin transactions are deposited in
insured accounts with financial institutions in which the Company acts as agent
for its customers pending payment settlement. These funds are considered neither
an asset or a liability of the Company. As of December 31, 1996, the balance of
funds held in agency accounts totaled approximately $17,800.

RESEARCH AND DEVELOPMENT COSTS

  Through December 31, 1996, the Company expensed its product development costs
as research and development costs. The Company will continue to expense research
and development costs until the recoverability of such costs through future
benefits can be demonstrated.

                                       44
<PAGE>   47
                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




ADVERTISING COSTS

  All costs related to advertising the Company's products are expensed in the
period incurred.

INCOME TAXES

  Deferred income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.

NET LOSS PER SHARE

  The Company's net loss per share calculations are based on the weighted
average number of shares of common stock outstanding. Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletin No. 83, all Common Stock and
Preferred Stock issued and options and warrants granted by the Company during
the twelve-months preceding February 15, 1996, the effective date of the 
Company's Registration Statement, have been included in the calculation of
weighted average common shares and common share equivalents outstanding as if
they were outstanding for all periods from inception to December 31, 1995, the
date of the last year of financial statements included in the Registration
Statement. Preferred stock issued and options and warrants granted by the
Company outside of the aforementioned twelve-month period have not been
included in the calculation because such items were anti-dilutive.

STOCK BASED COMPENSATION

  SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a fair
value method of accounting for employee stock options and similar equity
instruments. The fair value method requires compensation cost to be measured at
the grant date based on the value of the award and is recognized over the
service period. SFAS No. 123 allows companies to either account for stock-based
compensation under the new provisions of SFAS No. 123 or under the provisions of
APB 25. The Company will continue to account for its stock-based compensation in
accordance with the provisions of APB 25 and will present pro forma disclosures
of net loss and net loss per share as if the fair value method 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 ACH 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.

RECLASSIFICATION

  Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.

                                       45
<PAGE>   48

                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3. PROPERTY AND EQUIPMENT

   Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                               1995                 1996
                                     -----------------    ------------------
<S>                                     <C>                   <C>          
Computer equipment                      $   1,713,000         $   5,486,000
Furniture and fixtures                        151,000               718,000
Office equipment                                1,000               536,000
Leasehold improvements                         59,000               591,000
                                     -----------------    ------------------
                                            1,924,000             7,331,000
Less: accumulated depreciation                357,000             1,701,000
                                     =================    ==================
                                        $   1,567,000         $   5,630,000
                                     =================    ==================
</TABLE>



         The Company has entered into various operating lease agreements for
 office and equipment. The leases generally contain renewal options. Future
 minimum lease payments under noncancelable operating lease agreements, with
 initial or remaining terms in excess of one year, as of December 31, 1996, are
 as follows:

<TABLE>
<S>                     <C>         
  1997...               $  1,457,000
  1998...                  1,076,000
  1999...                    821,000
  2000...                    685,000
  2001...                    616,000
  Thereafter                 656,000
                      ===============
                        $  5,311,000
                      ===============
</TABLE>

  During the years ended December 31, 1995 and 1996, the Company recognized
approximately $360,000 and $1,371,000, respectively in rent expense. During
1996, the Company recognized approximately $25,000 in sublease rental income.
Minimum future sublease rentals to be received under noncancelable subleases as
of December 31, 1996 are approximately $352,000.

  During 1994, the Company licensed the right to use certain technology of a
licensor. In exchange for this right, the Company paid $275,000 in cash and
agreed to pay royalty fees of 2.5% of future revenue derived from the licensed
technology. In addition, the Company granted the licensor a conditional warrant
to purchase up to 150,000 shares of the Company's Common Stock at $2.00 per
share, exercisable up to the dollar value of the royalty payments, if such
royalties are ever payable. The Company expensed the license fee in accordance
with its product development accounting policy. On January 29, 1996, the Company
received notification from the licensor of the licensor's intent to file suit
and to demand arbitration in the event that the Company did not immediately
enter into negotiations to resolve certain claims raised by the licensor. On
April 29, 1996, the licensor sent the Company a letter stating that the licensor
had terminated the license based on a purported breach by the Company. The
Company has informed the licensor that the Company does not believe that any
grounds for termination exist. To date, the

                                       46
<PAGE>   49
                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Company has not incorporated the licensed technology into its products and
services and does not currently intend to do so, and therefore has not incurred
any royalty expense.

  In May 1996, the Company signed a letter of intent to purchase a software
license. In consideration for the license, the Company will agree to pay an
up-front license fee in the form of 120,000 shares of Common Stock, plus 50,000
warrants to purchase an additional 50,000 shares of Common Stock at an exercise
price equal to the average closing price of the Company's Common Stock during
the five days prior to the closing of the software license transaction. The
warrants will vest over 5 years and 25,000 of the warrants will also be
contingent upon issuance of a patent for the licensed software technology. In
addition, the Company will pay a cash royalty of $450,000 payable over 3 years.
The Company is negotiating a definitive license agreement to implement this
transaction.

5. REDEEMABLE CONVERTIBLE PREFERRED STOCK

  Pursuant to the Company's stock purchase agreement executed 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
Company's President and Chief Executive Officer served on the Board of Directors
of a company which participated in the Company's Series B Preferred Stock
financing at the time of the financing. Additionally, two companies that
participated in the Series B Preferred Stock financing have designated
representatives to the Company's Board of Directors.

  Upon the closing of the Company's initial public offering in February 1996,
all outstanding shares of Series A and Series B Preferred Stock converted into
4,700,000 shares of Common Stock on a one-for-one basis. Additionally, the
holder of the Series B Preferred Stock warrants elected to exercise the
warrants, net of the number of shares required, based on the initial public
offering price, to satisfy the $5.00 exercise price. As such, the holder
received 128,342 shares of Series B Preferred Stock, which were immediately
converted into 128,342 shares of Common Stock.

6. STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK

  During August and September, 1994, the Company completed a private placement
of 1,450,000 shares of Common Stock with the Company receiving total proceeds of
$145,000, which consisted of $100,000 of cash, $29,400 of notes receivable which
accrues interest at an annual rate of 8% and is due on August 29, 1999, $15,000
for a technology license and $600 of services. The Company recorded the Common
Stock issued in exchange for license and services at $15,600, which is
equivalent to the fair market value of the stock, as determined by the private
placement transaction.

  During August 1994, the Company issued Common Stock purchase rights to
purchase up to 112,500 shares of Common Stock at $.10 per share in exchange for
services valued at $11,250. These purchase rights were exercised in their
entirety in 1995.

                                       47
<PAGE>   50
                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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.

REVERSE SPLIT OF COMMON STOCK AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

  On December 20, 1995, the Board of Directors approved a one-for-two reverse
stock split of the Company's $.001 par value Common Stock and redeemable
convertible Preferred Stock, which became effective on February 9, 1996. All
references in the accompanying consolidated financial statements to the number
of shares of Common Stock and redeemable convertible Preferred Stock have been
restated to reflect the split.

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.

COMMON STOCK OPTIONS

  In April 1995, the Company adopted the 1995 Stock Option Plan (the "Option
Plan"). The Option Plan provides for incentive stock option grants to be made at
the discretion of the Compensation Committee of the Board to employees, officers
and employee directors and nonstatutory stock option grants to employees,
officers, directors and consultants of the Company.  The maximum number of
shares of Common Stock that may be issued pursuant to options granted under the
Option Plan is 2,000,000.

  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 are
generally of two types: time-based vested options ("Type A") and
performance-based vested options ("Type B"). Time-based vested 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. Performance-based vested options
generally vest in their entirety 10 years after the date of grant; however,
vesting is accelerated upon achievement of a milestone event, as specified in
the terms of the options. Upon occurrence of a milestone event, vesting
accelerates so that 2.5% of the shares generally vest each month after the
event, and the option is fully vested 40 months after the occurrence of the
event. Management estimates that the total vesting period for Type B options
will be approximately 64 months.

  During the year ended December 31, 1995, employees exercised 500,000 options
in exchange for notes receivable totaling $1,130,000. During 1996, the Company
received 20,000 shares of treasury stock and $224,786 in cash in satisfaction of
one employee's note receivable. As of December 31, 1996, 130,624 of these shares
of Common Stock are subject to repurchase by the Company until full vesting has
occurred and approximately $803,000 of the notes receivable remained
outstanding.

  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 

                                       48
<PAGE>   51
                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


stock options. The Company is amortizing this amount ratably over the vesting
period of the options, which is 40 to 64 months. During the years ended December
31, 1995 and 1996, the Company recognized approximately $103,000 and $422,000,
respectively, of compensation expense related to Common Stock options.

  In December 1995, the Company adopted the 1995 Non-Employee Directors' Plan
("Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company. Pursuant to the
terms of the Directors' Plan, each person who is initially elected as a
non-employee director of the Company after December 1995 will automatically be
granted an option to purchase 10,000 shares of Common Stock on the date of their
election to the Board. On the date of each annual meeting of the Company
starting with the meeting to be held in 1997, each person who is then a
non-employee director of the Company will be granted an option to purchase up to
3,000 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.
Outstanding options under the Directors' Plan will vest monthly over a five year
period. The exercise price of options granted 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 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 employees commencement date in the program or
85% of the fair market value of the stock on the last day of the purchase
period. During 1996, employees contributed $449,000 to the ESPP and 23,449
shares of Common Stock were purchased at $14.45 per share. The maximum number of
shares of Common Stock that may be issued under the ESPP is 500,000.

A summary of activity under the Option Plan and Directors' Plan follows:

<TABLE>
<CAPTION>
                                                            Option Plan                              Directors' Plan             
                                             ------------------------------------------    ------------------------------------- 
                                                                             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>        
Outstanding at December 31, 1994                --               --             --            --            --           --      
   Granted                                     986,645      $2.00-$8.00      $3.52            --            --           --      
   Exercised                                 (500,000)      $2.00-$6.00      $2.26            --            --           --      
   Canceled                                     --               --             --            --            --           --      
                                             ----------     -------------    ----------    ---------    -----------   ---------- 
Outstanding at December 31, 1995               486,645      $2.00-$8.00      $4.32            --            --           --      
  Granted                                    1,016,948      $8.00-$45.75     $26.92        10,000       $32.25        $32.25     
  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        10,000       $32.25        $32.25     
                                             ==========     ============     ==========    =========    ===========   ========== 
</TABLE>

                                       49
<PAGE>   52


                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following table summarizes information regarding stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
   Range of          Number of      Weighted Average         Weighted                              Weighted
   Exercise           Options           Remaining            Average             Number             Average
    Prices          Outstanding     Contractual Life      Exercise Price        Exercisable      Exercise Price
----------------    ------------    ------------------     -------------    -----------------    --------------
<C>                    <C>                       <C>             <C>                 <C>                <C>  
$2.00-$2.00             177,230                  8.28             $2.00               73,086             $2.00
$5.00-$6.00             176,318                  8.85             $5.73               62,955             $5.75
$8.00-$12.00             92,410                  8.91             $9.96               15,714             $9.26
$15.00-$15.00           228,625                  9.11            $15.00               50,374            $15.00
$23.00-$26.50           155,450                  9.82            $25.67                7,455            $26.44
$27.00-$31.75           184,150                  9.49            $30.38               23,371            $31.45
$32.25-$33.00            69,250                  9.79            $32.34                5,225            $32.32
$33.50-$33.50           139,025                  9.54            $33.50               20,087            $33.50
$34.25-$41.50            27,500                  9.72            $36.49                  625            $35.70
$45.75-$45.75           100,000                  9.47            $45.75                3,752            $45.75
----------------    ------------    ------------------     -------------    -----------------    --------------
$2.00-$45.75          1,349,958                  9.20            $20.49              262,644            $12.86
================    ============    ==================     =============    =================    ==============
</TABLE>

  Adjusted pro forma information regarding net loss is required by SFAS 123 and
has been determined as if the Company had accounted for its Option Plan,
Directors' Plan and ESPP under the fair value method of that Statement. The fair
value of the options granted during the years ended December 31, 1995 and 1996
are estimated as $0.49 and $18.19, respectively on the date of grant. The fair
value for the Option 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>
                                                1995              1996
                                                ----              ----
<S>                                         <C>               <C>        
Risk-Free Interest Rate                         6.0%              6.0%
Expected Dividend Yields                        0.0%              0.0%
Expected Life of the Option                 48.4 months       48.4 months
Volatility of the Company's Stock               0.0%             101.0%
</TABLE>

  For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting period. The effect
of applying SFAS 123 on 1995 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 vesting period of the stock options and the (2) 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>
                                                   1995              1996
                                                   ----              ----
<S>                                          <C>               <C>           
Adjusted pro forma net loss                  $ (9,998,576)     $ (30,106,000)
Adjusted pro forma net loss per share        $ (2.50)          $ (3.14)
</TABLE>


As of December 31, 1996, there remains available for grant pursuant to the
Option Plan, Directors' Plan and the ESPP 98,611, 90,000, and 476,551 shares of
Common Stock, respectively.


                                       50


<PAGE>   53
                               CYBERCASH, INC.
                        (A DEVELOPMENT STAGE COMPANY)
                                      
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. INCOME TAXES

  The following is a summary of the components of the Company's net deferred tax
assets as of December 31,:

<TABLE>
<CAPTION>
                                           1995               1996
                                     ---------------    ----------------
<S>                                  <C>                <C>         
Net operating loss carryforward      $   2,291,000        $ 11,413,000
Deferred start-up costs                  2,092,000           1,481,000
Depreciation                               --                   98,000

Accrued and deferred expenses              --                  203,000
                                     ---------------    ---------------
                                         4,383,000          13,195,000
Valuation allowance                     (4,383,000)        (13,195,000)
                                     ---------------    ---------------
Deferred tax asset, net              $      --          $          --
                                     ===============    ===============
</TABLE>

  At December 31, 1995 and 1996, the Company had approximately $5,727,000 and
$28,533,000, respectively, in tax net operating loss carryforwards which expire
at varying dates through 2011. 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.

8. DUE TO RELATED PARTIES

  During 1994, general and administrative expenses totaling $179,446 were paid
directly by an officer of the Company. These expenses were repaid to the officer
during the year ended December 31, 1995.

  Additionally, the Company borrowed $2,508,000 from an officer and a director
of the Company. Of the total amount borrowed, approximately $1,671,000 was
applied against 334,258 shares purchased in the Series B Preferred Stock
offering and the remaining balance was repaid in cash.

9. RETIREMENT PLAN

  During the year ended December 31, 1995, the Company adopted a 401(k) plan
(the "Plan"). The Plan, which covers all employees who have completed three
months of service and attained the age of twenty one, 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.

10. REVENUES TO MAJOR 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%). As of December 31, 1996, substantially all of the
Company's accounts receivable were due from these four customers.



                                      51
<PAGE>   54


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 of
the Company as of February 14, 1997:

<TABLE>
<CAPTION>
Name                                Age     Position
----                                ---     --------
<S>                                 <C>    <C>
Daniel C. Lynch                     55      Chairman of the Board of Directors

William N. Melton                   54      Director

Edward R. Kozel                     41      Director

Michael Rothschild                  44      Director

Garen K. Staglin                    52      Director
</TABLE>

     Daniel C. Lynch, a founder of the Company, has served as chairman of the
Company's Board of Directors since the Company's inception in August 1994 and
served briefly as Vice President during its 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, and 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.

     Edward R. Kozel has been a member of the Company's Board of Directors since
November 1995 and serves as the designated board representative of Cisco
Systems, Inc., a network communications and software company. Since 1989, Mr.
Kozel has served in several management positions at Cisco Systems, including
Market Development Manager from 1989 to 1992; Director of Field
Operations/Business Development from 1992 to 1993; Vice President of Business
Development from 1993 to the present and Chief Technical Officer from May 1995
to the present. In addition, Mr. Kozel is a member of the Board of Directors of
Cisco Systems.

     Michael Rothschild has served as a member of the Company'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 1993, Mr.
Rothschild has been President and Chief Executive Officer of Maxager Technology,
Inc., a software maker specializing in advanced factory management systems.

                                       52
<PAGE>   55

         Garen K. Staglin has served as a member of the Company's Board of
Directors since July 1996. He is the Chairman and Chief Executive Officer of
Safelite Glass Corporation, a manufacturer and retailer of replacement autoglass
and related services. Mr. Staglin is also a director of First Data Corporation,
Quick Response Services, Inc. and Grimes Aerospace Corporation. He is a member
of the Advisory Board of the Stanford Graduate School of Business.

BOARD COMPOSITION

         The Company's Board of Directors is divided into three classes: Class I
expires at the annual meeting of stockholders to be held in 1997; Class II
expires at the annual meeting of stockholders to be held in 1998; 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 Kozel; 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
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 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 the Company's independent auditors.
Messrs. Lynch, Rothschild and Staglin comprise the Audit Committee. The
Compensation Committee of the 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 Company's stock plans, except for the 1995
Non-Employee Directors' Stock Option Plan, which is administered by the Board of
Directors. Messrs. Lynch, Kozel and Staglin comprise the Compensation Committee.

DIRECTOR COMPENSATION

         Directors currently do not receive any cash compensation from the
Company for their service as members of the 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 the Company served as a director or member of
(i) the compensation committee of another entity which has an executive officer
who is a director of the Company or a member of the Company's Compensation
Committee, (ii) the Board of Directors of another entity in which one of the
executive officers of such entity served on the Company'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 the Company's
Board of Directors, during the year ended December 31, 1996.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company'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 ownership of Common
Stock. Daniel C. Lynch, Bruce G. Wilson and Stephen D. Crocker failed to file on
a timely basis reports on Form 5 with respect to certain transactions which
occurred in 1996.

                                       53
<PAGE>   56

ITEM 11.   EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

     The following table sets forth certain compensation awarded or paid by the
Company during the fiscal year ended December 31, 1996 to its President and
Chief Executive Officer and the Company's four other most highly compensated
officers and key employees:

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                        ANNUAL COMPENSATION
                                                  ---------------------------------
                                                                                         LONG TERM
                                                                                    COMPENSATION AWARDS
                                                                          OTHER     -------------------
                                                                          ANNUAL         SECURITIES
                                                                         COMPEN-         UNDERLYING
NAME AND PRINCIPAL POSITION                YEAR   SALARY($)  BONUS ($)  SATION ($)      OPTIONS (#)
------------------------------------       ----   -------    ---------- ----------      -----------
<S>                                         <C>     <C>         <C>      <C>                     <C>    
William N. Melton                           1996    100,000         --          --                    --
President and Chief Executive Officer       1995    100,000         --          --                    --

Bruce G. Wilson                             1996    195,000     24,000          --                    --
Executive Vice President                    1995    170,000         --          --                27,000

Stephen D. Crocker                          1996    195,000     28,000   29,021(1)                    --
Chief Technology Officer                    1995    170,000         --          --               200,000

Russell B. Stevenson, Jr.                   1996    168,523     20,475          --                35,000
Secretary and General Counsel               1995         --         --          --                    --

Denis Yaro                                  1996    175,389     22,533          --               160,000
Executive Vice President                    1995         --         --          --                    --
</TABLE>

----------------

(1)      In connection with the exercise of certain options, Mr. Crocker
         executed a promissory note in the amount of $400,000, which accrues
         interest at an annual rate of 6%. The Company paid Mr. Crocker $29,021
         to reimburse him for the interest that he paid on the note.

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 2,000,000 shares of
Common Stock. 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 previously was administered by the
Board of Directors and presently is being administered by the Compensation
Committee, 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 are
generally of two types: time-based vested options and performance-based vested
options. Time-based vested 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. Performance-based vested options

                                       54
<PAGE>   57

generally vest in their entirety 10 years after the date of grant; provided,
however, that vesting is accelerated upon achievement of a milestone event, as
specified in the terms of the options. Upon occurrence of a milestone event,
vesting accelerates so that 2.5% of the shares generally vest each month after
the event, and the option is fully vested 40 months after the occurrence of the
event. 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 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. Furthermore, the Compensation
Committee may offer to exchange new options for existing options, with the
shares subject to the existing options again becoming available for grant under
the Option Plan. 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, 1996, 581,431 shares of Common Stock had been issued
upon the exercise of options granted under the Option Plan (130,624 of which
were subject to a repurchase option in favor of the Company as of December 31,
1996), options to purchase 1,339,958 shares of Common Stock at exercise prices
ranging from $2.00 to $45.75 per share were outstanding and 98,611 shares
remained available for future option grants. 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 person who is initially elected as a director of the
Company after the date hereof, and 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 starting with the
meeting to be held in 1997, 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 3,000 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.

     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.

                                       55
<PAGE>   58


     As of December 31, 1996, options to purchase 10,000 shares of Common Stock
at an exercise price of $32.25 per share were outstanding under the Directors'
Plan and 90,000 shares remained available for future option grants under the
Directors' Plan.

     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, 1996, 23,449 shares of Common Stock were purchased at
$14.45 per share, and 476,551 shares remained available for future purchases.

                                       56

<PAGE>   59


STOCK OPTION INFORMATION

     The following table shows for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by, and held at year
end by the Company's President and Chief Executive Officer and the Company's
four other most highly compensated officers and key employees:

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                             POTENTIAL REALIZABLE   
                                                                                VALUE AT ASSUMED    
                           NUMBER OF       % OF TOTAL                         ANNUAL RATES OF STOCK 
                           SECURITIES       OPTIONS      EXERCISE            PRICE APPRECIATION FOR 
                           UNDERLYING      GRANTED TO     OR BASE             OPTION TERM ($)(3)(4) 
                            OPTIONS       EMPLOYEES IN     PRICE  EXPIRATION ----------------------
NAME                       GRANTED(#)(1)   FISCAL YEAR   ($/sh)(2)   DATE        5%         10%
----                       -------------  ------------   ---------   ----    ----------------------
<S>                          <C>                 <C>    <C>      <C>        <C>           <C>    
Bruce G. Wilson                 27,000             0      6.00    11/30/05    101,881       258,186
Denis Yaro                      80,000           7.8     15.00     1/26/06    754,674     1,912,491
                                80,000           7.8     15.00      6/7/06    754,674     1,912,491
Jeffrey S. Irby                 30,000           2.9     32.25    10/21/06    608,456     1,541,946
Stephen D. Crocker             200,000             0      2.00     4/05/05    251,558       637,497
Russell  B. Stevenson, Jr.      35,000           3.4     31.75     4/12/06    698,859     1,771,046
</TABLE>

----------

(1)  The options are generally incentive stock options with vesting based either
     on time or performance. Time-based vesting generally occurs 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. Performance based vesting is
     specified by the specific terms of the option.

(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, 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, 1996 by the Company's
President 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, 1996 by the Company's President 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, 1996 of unexercised
in-the-money options; that is, the amount by which the exercise price exceeds
the fair market value of the Common Stock as of December 31, 1996 ($23.00).

                                       57

<PAGE>   60
\
   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                     VALUES

<TABLE>
<CAPTION>
                                                NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                                           UNDERLYING UNEXERCISED OPTIONS    IN-THE-MONEY OPTIONS AT
                          SHARES ACQUIRED      AT FISCAL YEAR END (#)          FISCAL YEAR-END ($)(2)
                            ON EXERCISE    -------------------------------  -----------------------------
      NAME                       (#)        EXERCISABLE     UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
--------------------         -----------   -------------  ----------------  -------------  --------------
<S>                          <C>               <C>             <C>           <C>           <C>      
Bruce G. Wilson                        0           8,775           18,225       149,175         309,825
Denis Yaro                             0          34,000          126,000       272,000       1,008,000
Jeffrey S. Irby                        0           2,000           28,000             0               0
Stephen D. Crocker(1)                  0               0           60,000             0       1,260,000
Russell B.  Stevenson, Jr.             0           7,000           28,000             0               0
</TABLE>


----------

(1)  Includes 60,000 shares held by Mr. Crocker issued upon exercise of options
     but subject to a right of repurchase by the Company.

(2)  Based on the closing price of the Company's Common Stock on December 31,
     1996 of $23.00 per share of the Common Stock, minus the exercise price,
     multiplied by the number of shares underlying the option.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information known to the Company
with respect to the beneficial ownership of its Common Stock as of February 14,
1997 for (i) each stockholder who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each executive officer of the Company;
(iii) each director of the Company, and (iv) all directors and executive
officers of the Company as a group. Unless otherwise specified, the address of
all stockholders is the address of the Company set forth herein.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF
  BENEFICIAL OWNER                              NUMBER OF SHARES(1)        % OF SHARES OUTSTANDING
------------------                             -------------------        -----------------------
<S>                                                <C>                             <C>   
William N. Melton (2)......................         2,294,258                       21.41%

SOFTBANK Holdings, Inc ....................           976,540                        9.11
   2951 28th Street, #3060
   Santa Monica, CA 90405

VeriFone, Inc. (3).........................           900,000                        8.40
   Three Lagoon Drive
   Suite 400
   Redwood City, CA 94065

Daniel C. Lynch (4)........................           744,400                        6.95

Edward R. Kozel (5)........................           602,000                        5.62

Cisco Systems, Inc. (6)....................           600,000                        5.60
   225 West Tasman Drive
   San Jose, CA 95134

Stephen D. Crocker (7).....................           251,410                        2.35
Bruce G. Wilson (8)........................           160,988                        1.50
Denis Yaro (9).............................            48,000                        *
Michael Rothschild (10)....................            38,924                        *
</TABLE>

                                       58

<PAGE>   61


<TABLE>
<CAPTION>
 NAME AND ADDRESS OF
  BENEFICIAL OWNER                               NUMBER OF SHARES(1)     % OF SHARES OUTSTANDING
------------------                               -------------------     -----------------------
<S>                                               <C>                              <C>
Russell B. Stevenson, Jr. (9)..............            10,500                        *
Jeffrey S. Irby (9)........................            10,000                        *
Garen K. Staglin (9).......................             1,328                        *
All directors and executive officers
   as a group (10 persons) (11)............         4,161,808                       38.54%
</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 10,717,178 shares outstanding as of February 14, 1997.

(2)  Includes 15,000 shares held by members of Mr. Melton's immediate family.

(3)  Information presented is based on a Schedule 13G filed by VeriFone, Inc.
     with the Commission on February 12, 1997. Includes 100,000 shares owned by
     a wholly-owned subsidiary of VeriFone.

(4)  Consists of 709,400 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.

(5)  Includes 600,000 shares held by Cisco Systems, Inc. Mr. Kozel is a director
     and chief technology office of Cisco Systems, Inc. and therefore may be
     deemed to share voting and investment power with respect to such shares.

(6)  Information presented is based on a Schedule 13G filed by Cisco Systems,
     Inc. with the Commission on February 14, 1997.

(7)  Includes 52,500 shares of common stock issued upon early exercise of
     employee stock options that are subject to repurchase by the Company as of
     February 14, 1997.

(8)  Includes 10,800 shares subject to stock options exercisable within 60 days
     of February 14, 1997.

(9)  Consists of shares subject to stock options exercisable within 60 days of
     February 14, 1997.

(10) All shares held by The Michael L. Rothschild Trustee Revocable Trust U/T/A
     dated August 9, 1993.

(11) Includes 600,000 shares held by entities affiliated with certain directors
     of the Company as described in footnote 5 above, 80,628 shares subject to
     stock options exercisable within 60 days February 14, 1997 and 52,500
     shares of common stock issued upon early exercise of employee stock options
     that are subject to repurchase by the Company as of February 14, 1997.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In connection with the exercise of options during 1995, Magdalena
Yesil, an officer of the Company at the time of the exercise, executed a
promissory note in the amount of $330,000 with interest payable at an annual
rate of 6%, which matured three years from the date of the note and was secured
by the Common Stock issued upon exercise of the options. During 1996, the
Company repurchased 20,000 shares of the Company's Common Stock at $6.00 a share
from Ms. Yesil upon the termination of her employment. In addition, Ms. Yesil
repaid $224,454, representing principal and interest on the note, in
satisfaction of the promissory note


                                       59
<PAGE>   62

                                     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) above.

          (d)  FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above.

                                       60

<PAGE>   63



                                   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

March 10, 1997

                                   By:    /s/ WILLIAM N. MELTON
                                          ----------------------------------
                                          William N. Melton
                                          President and Chief Executive Officer

                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William N. Melton and Russell B.
Stevenson, Jr., jointly and severally, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Annual Report on Form 10-K, and file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, which include the
principal executive officer, the principal financial officer and principal
accounting officer and a majority of the Board of Directors, on behalf of the
registrant and in the capacities and on the dates indicated.

                     
/s/ WILLIAM N. MELTON                                 March 10, 1997
-----------------------------
William N. Melton
President, Chief Executive Officer & Director
(Principal Executive Officer, Principal Financial Officer
   and Principal Accounting Officer)

                                       61

<PAGE>   64




/s/ DANIEL C. LYNCH
--------------------------------------                       March 10, 1997
Daniel C. Lynch
Chairman of the Board of Directors


--------------------------------------                               
Edward R. Kozel
Director

/s/ MICHAEL ROTHSCHILD 
--------------------------------------                       March 6, 1997
Michael Rothschild 
Director

/s/ GAREN K. STAGLIN
--------------------------------------                       March 10, 1997
Garen Staglin
Director

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION OF DOCUMENT
------                              -----------------------
<S>      <C>
3.1      Amended and Restated Certificate of Incorporation (1)
3.2      Bylaws (1)
4.1      Form of the Company's common stock certificate (1)
10.1     Form of Indemnity Agreement entered into between the Company and
         certain of its directors and executive officers (1) (2)
10.2     1995 Stock Option Plan (1) (2)
10.3     Form of Incentive Stock Option (1) (2)
10.4     Form of Performance Stock Option (1) (2)
10.5     Form of Non-Statutory Stock Option (1) (2)
10.6     1995 Employee Stock Purchase Plan (1) (2)
10.7     1995 Non-Employee Directors' Stock Option Plan (1) (2)
</TABLE>

-------------------------

(1)      Incorporated herein by reference to the same-numbered exhibit to the
         Company's Registration Statement on Form S-1 (Reg. No. 33-80725) (the
         "Form S-1").

(2)      Indicates a management compensatory plan, contract or arrangement

                                       62

<PAGE>   65

<TABLE>
<S>      <C>
10.8     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, Inc. and Health & Sciences
         Television Network, Inc. (1)
10.9     Lease dated November 30, 1994 by and between the Company and Gateway
         Virginia Properties, Inc. and First Amendment to Lease dated November
         7, 1995 (1)
10.10    Second Amendment to Lease dated April 29, 1996 by and between the
         Company and Gateway Virginia Properties, Inc.
10.11    Sublease Agreement dated December 16, 1996 by and between the Company
         and National Food Brokers Association.
10.12    Sublease dated March 27, 1996 by and between the Company and Sega of
         America, Inc. and Addendum No. One to the Sublease dated April 12,
         1996 (regarding office space subleased to the Company).
10.12(i) Sublease dated July 30, 1996 by and between the Company and Sega of
         America, Inc. (regarding office space subleased to Sega of America).
10.13    Amended and Restated Investors' Rights Agreement, dated August 24,
         1994, between the Company and certain investors. (1)
10.13(i) Amendment, dated September 29, 1995, to Amended and Restated Investors'
         Rights Agreement. (1)
10.14    BSAFE/TIPEM OEM Master License Agreement, dated September 1995, by and
         between the Company and RSA Data Security, Inc. (1)
10.15    Purchase Agreement dated February 15 1996 by and between the Company
         and SOFTBANK Holdings, Inc.
11.1     Statement regarding calculation of net loss per share
21.1     Subsidiaries of the Company
23.1     Consent of Ernst & Young LLP, independent auditors
27.1     Financial Data Schedule
</TABLE>

--------------

(1)      Incorporated herein by reference to the same-numbered exhibit to the
         Company's Registration Statement on Form S-1 (Reg. No. 33-80725) (the
         "Form S-1").


                                       63