CYBERCASH INC, 10-K/A, 1997-05-14

CYBERCASH INC
10-K/A, 1997-05-14
COMPUTER INTEGRATED SYSTEMS DESIGN

Previous: GS MORTGAGE SECURITIES CORP II, S-3, 1997-05-14

Next: CYBERCASH INC, 10-Q, 1997-05-14

<PAGE> 1

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

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

AMENDMENT NO. 1
TO
(MARK ONE)

<TABLE>
<S> <C>
[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
</TABLE>

COMMISSION FILE NUMBER: 0-27470

CYBERCASH, INC.
(Exact name of registrant as specified in its charter)
---------------------------

<TABLE>
<S> <C>
DELAWARE 54-1725021
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>

2100 RESTON PARKWAY
THIRD FLOOR
RESTON, VA 20191
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 620-4200
---------------------------
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 May 9, 1997, was approximately $67,700,078 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 May
9, 1997 was 10,882,664.

================================================================================
<PAGE> 2

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.

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

2
<PAGE> 3

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
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.

3
<PAGE> 4

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.

BRAND EQUITY. Over the last twenty years, the financial industry has
undergone tremendous consolidation. An outgrowth of that consolidation 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.

4
<PAGE> 5

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 transaction
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 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

5
<PAGE> 6

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.

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

6
<PAGE> 7

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.

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

7
<PAGE> 8

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.

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 Online(SM), 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.

8
<PAGE> 9

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 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

9
<PAGE> 10

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. 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

10
<PAGE> 11

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.

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.

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

11
<PAGE> 12

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.

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.

12
<PAGE> 13

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 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

13
<PAGE> 14

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
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

14
<PAGE> 15

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 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

15
<PAGE> 16

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.

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.

16
<PAGE> 17

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.

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

17
<PAGE> 18

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.

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

18
<PAGE> 19

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 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.

19
<PAGE> 20

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
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

20
<PAGE> 21

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."

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

21
<PAGE> 22

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.

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

22
<PAGE> 23

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.

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.

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

23
<PAGE> 24

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 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

24
<PAGE> 25

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 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

25
<PAGE> 26

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 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

26
<PAGE> 27

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
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 May 9, 1997, the directors, executive officers and their respective
affiliates beneficially owned approximately 38.1% 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 10,882,664 shares of the Company's Common Stock outstanding as of
May 9, 1997, 4,923,642 shares are freely tradeable without restriction or
further registration under the Securities Act of

27
<PAGE> 28

1933, as amended (the "Securities Act"), unless such shares are purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"). The remaining 5,959,022 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 May 9, 1997, 1,341,144 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.

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

28
<PAGE> 29

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 May 9, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
William N. Melton............ 55 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.............. 41 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 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.

29
<PAGE> 30

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 served as the Company's Chief Financial Officer since
March 1997. Prior to joining the Company, Mr. Condon was 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.

30
<PAGE> 31

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 May 9, 1997, the closing price
of the Company's common stock as reported by the Nasdaq National Market was
$13 3/4 per share. As of May 9, 1997, there were 7,015 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.

31
<PAGE> 32

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>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
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>

32
<PAGE> 33

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.

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

33
<PAGE> 34

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 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.

34
<PAGE> 35

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.

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.

35
<PAGE> 36

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."

36
<PAGE> 37

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

37
<PAGE> 38

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
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
============ ============
</TABLE>

See notes to consolidated financial statements.

38
<PAGE> 39

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.

39
<PAGE> 40

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
-------------------- PAID-IN DEVELOPMENT TREASURY
SHARES AMOUNT CAPITAL STAGE STOCK
---------- ------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Initial issuance of Common Stock........................ 1,450,000 $ 1,450 $ 143,550 $ -- $ --
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) --
Accretion of Series B Preferred Stock................... -- -- (65,750) -- --
Repayment of receivable from sale of Common Stock....... -- -- -- -- --
Accrued interest on receivable from sale of Common
Stock................................................. -- -- -- -- --
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 -- --
Net loss................................................ -- -- -- (10,006,195) --
---------- ------- ----------- ------------ ---------
Balance at December 31, 1995............................ 2,062,500 2,063 1,981,843 (11,159,689) --
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....... -- -- -- -- --
Accrued interest on receivable from sale of Common
Stock................................................. -- -- -- -- --
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)
========== ======= =========== ============ =========

<CAPTION>
RECEIVABLE
FROM UNEARNED TOTAL
SALE OF FOREIGN COMPENSATORY STOCKHOLDERS'
COMMON CURRENCY STOCK EQUITY
STOCK TRANSLATION OPTIONS (DEFICIT)
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Initial issuance of Common Stock........................ $ (29,400) $ -- $ -- $ 115,600
Issuance of Common Stock purchase rights................ -- -- -- 11,250
Net loss................................................ -- -- -- (1,153,494)
----------- ---------- ---------- -------------
Balance at December 31, 1994............................ (29,400) -- -- (1,026,644)
Accretion of Series B Preferred Stock................... -- -- -- (65,750)
Repayment of receivable from sale of Common Stock....... 14,700 -- -- 14,700
Accrued interest on receivable from sale of Common
Stock................................................. (12,208) -- -- (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........................ (1,130,000) -- -- --
Net loss................................................ -- -- -- (10,006,195)
----------- ---------- ---------- -------------
Balance at December 31, 1995............................ (1,156,908) -- (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 -- -- 398,070
Accrued interest on receivable from sale of Common
Stock................................................. (61,395) -- -- (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............................ $ (820,233) $ (87,569) $ (360,476) $ (38,109,486)
=========== ========= ========== =============
</TABLE>

See notes to consolidated financial statements.

40
<PAGE> 41

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<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>
OPERATING ACTIVITIES
Net loss....................................... $(1,153,494) $(10,006,195) $(26,554,741) $ (37,714,430)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 13,167 343,634 1,343,832 1,700,633
Accrued interest on receivable from sale of
Common Stock............................... -- (12,208) (61,395) (73,603)
Issuance of Common Stock and warrants for
services................................... 26,850 -- -- 26,850
Issuance of compensatory stock options....... -- 103,357 -- 103,357
Compensation expense related to stock
options.................................... -- -- 421,991 421,991
Changes in operating assets and liabilities:
Restricted cash............................ -- -- (250,000) (250,000)
Accounts receivable........................ -- -- (151,765) (151,765)
Prepaid expenses and other current
assets................................... (10,739) (388,776) (294,547) (694,062)
Deposits................................... (11,089) (114,080) (512,345) (637,514)
Accounts payable and accrued expenses...... 199,545 2,065,750 525,249 2,790,544
Deferred revenue........................... -- -- 90,000 90,000
Deferred rent.............................. -- 7,727 52,324 60,051
Due to related parties..................... 179,446 (179,446) -- --
----------- ------------ ------------ -------------
Net cash used in operating
activities.......................... (756,314) (8,180,237) (25,391,397) (34,327,948)
INVESTING ACTIVITIES
Purchases of property and equipment............ (237,008) (1,686,711) (5,406,578) (7,330,297)
----------- ------------ ------------ -------------
Net cash used in investing
activities.......................... (237,008) (1,686,711) (5,406,578) (7,330,297)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock......... 100,000 11,250 58,274,122 58,385,372
Proceeds from exercise of stock options........ -- -- 386,969 386,969
Proceeds issuance of Common Stock through the
Employee Stock Purchase Plan................. -- -- 338,837 338,837
Proceeds from receivable from sale of Common
Stock........................................ -- 14,700 278,070 292,770
Proceeds from issuance of Preferred Stock...... 2,366,667 13,571,366 -- 15,938,033
Proceeds from issuance of Preferred Stock
warrants..................................... -- 90,909 -- 90,909
----------- ------------ ------------ -------------
Net cash provided by financing
activities.......................... 2,466,667 13,688,225 59,277,998 75,432,890
----------- ------------ ------------ -------------
Effect of exchange rate changes on cash and
cash equivalents............................. -- -- (87,569) (87,569)
----------- ------------ ------------ -------------
Net increase in cash and cash equivalents...... 1,473,345 3,821,277 28,392,454 33,687,076
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 $ 33,687,076
=========== ============ ============ =============
Supplemental disclosure of non-cash financial
activities:
Common Stock issued for receivable from sale
of Common Stock............................ $ -- $ 1,130,000 $ -- $ 1,130,000
=========== ============ ============ =============
Exercise of Series B Preferred Stock
warrants, net of shares required to satisfy
exercise price............................. $ -- $ -- $ 267,380 $ 267,380
=========== ============ ============ =============
Treasury stock received in satisfaction of
receivable from sale of Common Stock....... $ -- $ -- $ 120,000 $ 120,000
=========== ============ ============ =============
</TABLE>

See notes to consolidated financial statements.

41
<PAGE> 42

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.

ADVERTISING COSTS

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

42
<PAGE> 43

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

43
<PAGE> 44

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>

4. COMMITMENTS

The Company has entered into various operating lease agreements for office
and equipment. The leases generally contain renewal options. Future minimum
lease payments under 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 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

44
<PAGE> 45

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

45
<PAGE> 46

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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

46
<PAGE> 47

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>

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
------------- ----------- ---------------- -------------- ----------- --------------
<S> <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

47
<PAGE> 48

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

48
<PAGE> 49

CYBERCASH, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

49
<PAGE> 50

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 May 9, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- -----------------------------------
<S> <C> <C>
Daniel C. Lynch........... 55 Chairman of the Board of Directors
William N. Melton......... 55 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. Since 1989, Mr. Kozel has served in several management positions
at Cisco Systems, Inc., a network communications and software company, 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 and NetFRAME Systems, Inc.

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 product costing systems for
manufacturers. Mr. Rothschild is also a director of Ramtron International
Corporation.

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

50
<PAGE> 51

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

From August 1995 until July 1996, Hatim A. Tyabji served as a director of
the Company and as a member of the Compensation Committee. Mr. Tyabji is the
Chairman, President and Chief Executive Officer of VeriFone, Inc. Until July
1996, Mr. Melton was a director of VeriFone. No other 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. Based solely on a review of Forms 3 and 4 and amendments thereto
furnished under the Securities Exchange Act of 1934, Daniel C. Lynch, Bruce G.
Wilson and Stephen D. Crocker failed to file on a timely basis reports on Form 5
with respect to three transactions by Mr. Lynch which occurred in 1996 and one
transaction by each of Messrs. Wilson and Crocker which occurred in 1996.

51
<PAGE> 52

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>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) 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 during 1995, 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 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

52
<PAGE> 53

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 newly elected director of the Company who is not
otherwise an employee of the Company (a "Non-Employee Director") will
automatically be granted an option to purchase 10,000 shares of Common Stock on
the date of his or her election to the Board. On the date of each annual meeting
of the Company 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.

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

53
<PAGE> 54

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.

54
<PAGE> 55

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
five 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>
William N. Melton.......... -- -- -- -- -- --
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,
permanent and total disability or termination of employment.

(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price.

55
<PAGE> 56

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 five 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 five 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).

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED AT FISCAL YEAR END (#) FISCAL YEAR-END ($)(2)
ON EXERCISE ---------------------------- ----------------------------
NAME (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
William N. Melton................. -- -- -- -- --
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, minus the exercise price, multiplied by the number
of shares underlying the option.

56
<PAGE> 57

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 May 9, 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 21.08%
SOFTBANK Holdings, Inc................................ 976,540 8.97
2951 28th Street, #3060
Santa Monica, CA 90405
VeriFone, Inc. (3).................................... 900,000 8.27
Three Lagoon Drive
Suite 400
Redwood City, CA 94065
Daniel C. Lynch (4)................................... 744,400 6.84
Edward R. Kozel (5)(6)................................ 602,000 5.53
Cisco Systems, Inc. (6)............................... 600,000 5.51
225 West Tasman Drive
San Jose, CA 95134
Stephen D. Crocker (7)................................ 252,561 2.32
Bruce G. Wilson (8)................................... 163,164 1.50
Denis Yaro (9)........................................ 60,000 *
Michael Rothschild (10)............................... 38,924 *
Russell B. Stevenson, Jr. (9)......................... 13,125 *
Jeffrey S. Irby (9)................................... 12,500 *
Garen K. Staglin (9).................................. 1,826 *
All directors and executive officers as a group
(10 persons) (11)................................... 4,182,758 38.08%
</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 10,882,664 shares outstanding as of May 9, 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 719,400 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.

57
<PAGE> 58

(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 41,250 shares of common stock issued upon early exercise of
employee stock options that are subject to repurchase by the Company as of
May 9, 1997.

(8) Includes 12,825 shares subject to stock options exercisable within 60 days
of May 9, 1997.

(9) Consists of shares subject to stock options exercisable within 60 days of
May 9, 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 an entity affiliated with a director of the
Company as described in footnote 5 above, 100,276 shares subject to stock
options exercisable within 60 days May 9, 1997 and 41,250 shares of common
stock issued upon early exercise of employee stock options that are subject
to repurchase by the Company as of May 9, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the exercise of stock options during 1995, Stephen
Crocker, Larry Gilbert and Magdalena Yesil executed promissory notes in the
amounts of $400,000, $150,000 and $330,000, respectively, with interest payable
at an annual rate of 6%, which mature three years from the date of the note and
are secured by the Common Stock issued upon exercise of the options. The Company
paid Mr. Crocker, the Company's Chief Technology Officer, $29,021 to reimburse
him for the interest that he paid on his note during 1996. The Company paid Mr.
Gilbert, who was the Company's Secretary and General Counsel prior to April
1996, $10,883 to reimburse him for the interest that he paid on his note during
1996. During 1996, the Company repurchased from Ms. Yesil, who was an executive
officer of the Company prior to September 1996, 20,000 shares of the Company's
Common Stock at $6.00 a share upon the termination of her employment. In
addition, Ms. Yesil repaid $224,454, representing principal and interest on her
promissory note, in satisfaction of the note. As of May 9, 1997, the outstanding
amounts of principal owed by Mr. Crocker and Mr. Gilbert were $400,000 and
$150,000, respectively.

58
<PAGE> 59

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.

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

59
<PAGE> 60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to the
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CYBERCASH, INC.
Registrant

May 14, 1997

By: /s/ RUSSELL B. STEVENSON, JR.

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

Russell B. Stevenson, Jr.

General Counsel and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to the 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.

<TABLE>
<C> <S> <C>
/s/ WILLIAM N. MELTON* President, Chief Executive Officer & May 14, 1997
- ---------------------------------- Director
William N. Melton (Principal Executive Officer)

/s/ JAMES J. CONDON Chief Financial Officer (Principal May 14, 1997
- ---------------------------------- Financial
James J. Condon Officer and Principal Accounting
Officer)

/s/ DANIEL C. LYNCH* Chairman of the Board of Directors May 14, 1997
- ----------------------------------
Daniel C. Lynch

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

/s/ MICHAEL ROTHSCHILD* Director May 14, 1997
- ----------------------------------
Michael Rothschild

/s/ GAREN K. STAGLIN* Director May 14, 1997
- ----------------------------------
Garen Staglin

* /s/ RUSSELL B. STEVENSON, JR.
- ----------------------------------
Russell B. Stevenson, Jr.
Attorney-in-Fact
</TABLE>

60
<PAGE> 61

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)
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. (3)
10.11 Sublease Agreement dated December 16, 1996 by and between the Company and National
Food Brokers Association. (3)
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). (3)
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). (3)
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. (3)
11.1 Statement regarding calculation of net loss per share (3)
21.1 Subsidiaries of the Company (3)
23.1 Consent of Ernst & Young LLP, independent auditors (3)
27.1 Financial Data Schedule (3)
</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.

(3) Previously filed.