<PAGE>

   As filed with the Securities and Exchange Commission on October 19, 1999
                                                  Registration No. 333-
-------------------------------------------------------------------------------
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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933
                                ---------------
                            CYBERSOURCE CORPORATION
            (Exact Name of Registrant as Specified in Its Charter)
         Delaware                    7374                     77-0472961
     (State or Other     (Primary Standard Industrial      (I.R.S. Employer
     Jurisdiction of      Classification Code Number)   Identification Number)
     Incorporation or
      Organization)
                      550 S. Winchester Blvd., Suite 301
                          San Jose, California 95128
                                (408) 556-9100
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)
                             William S. McKiernan
                            Chief Executive Officer
                      550 S. Winchester Blvd., Suite 301
                          San Jose, California 95128
                                (408) 556-9100
 (Name, Address, Including Zip Code, and Telephone Number, IncludingArea Code,
                             of Agent For Service)
                                ---------------
                                  Copies to:
        Richard Scudellari, Esq.               Jeffrey D. Saper, Esq.
         Heike E. Fischer, Esq.              J. Robert Suffoletta, Esq.
           David B. Tom, Esq.                   Robert G. Day, Esq.
        Morrison & Foerster LLP                Allison L. Berry, Esq.
           755 Page Mill Road             Wilson Sonsini Goodrich & Rosati
          Palo Alto, CA 94304                 Professional Corporation
             (650) 813-5600                      650 Page Mill Road
                                                Palo Alto, CA 94304
                                                   (650) 493-9300
                                ---------------
          Approximate date of commencement of proposed sale to the public:
          As soon as practicable after this Registration Statement becomes
                                  effective.
                                ---------------
     If any of the securities being registered in this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
     If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
                                                          Proposed
 Title Of Each Class Of                    Proposed      Aggregate     Amount of
    Securities To Be      Amount To Be  Offering Price    Offering    Registration
       Registered        Registered (1)  Per Share(2)     Price(2)        Fee
----------------------------------------------------------------------------------
<S>                      <C>            <C>            <C>            <C>
Common Stock, $.001 par
 value.................   3,450,000       $50.4375     $174,009,375   $48,374.61
</TABLE>
-------------------------------------------------------------------------------
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(1) Includes 450,000 shares that may be purchased by the underwriters to cover
    over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of computing the
    amount of the registration fee based upon the average of the high and low
    prices of the registrant's common stock on the Nasdaq National Market on
    October 18, 1999.
                                ---------------
     The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
-------------------------------------------------------------------------------
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities, and it is not soliciting an offer to buy      +
+these securities, in any state where the offer or sale is not permitted.      +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                             Subject to Completion
                 Preliminary Prospectus dated October 19, 1999

PROSPECTUS
----------

                                3,000,000 Shares



                                  Common Stock

                                  -----------

    CyberSource Corporation is offering 2,000,000 shares of its common stock
and selling stockholders are offering 1,000,000 shares of common stock. We will
not receive any of the proceeds from the selling stockholders' sale of their
shares. Our shares are listed for trading on the Nasdaq National Market under
the symbol "CYBS." On October 18, 1999, the last reported sale price for our
common stock was $49.

    Investing in our common stock involves risks which are described in the
"Risk Factors" section beginning on page 4 of this prospectus.

                                  -----------

<TABLE>
<CAPTION>
                                                       Per Share Total
                                                       --------- -----
     <S>                                               <C>       <C>
     Public offering price...........................      $      $
     Underwriting discount...........................      $      $
     Proceeds, before expenses, to CyberSource.......      $      $
     Proceeds to selling stockholders................      $      $
</TABLE>

    The underwriters may also purchase, from the selling stockholders, up to an
additional 450,000 shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments.

    Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

    The shares of common stock will be ready for delivery in New York, New York
on or about      , 1999.

                                  -----------

Merrill Lynch & Co.
       J.P. Morgan & Co.
                PaineWebber Incorporated
                        Adams, Harkness & Hill, Inc.
                               C.E. Unterberg, Towbin


                                  -----------

              The date of this prospectus is              , 1999.
<PAGE>

                        Inside Front Cover


     The graphic depicts the CyberSource logo with the words "the power behind
the buy button" to the left of a screenshot of the Beyond.com web site. Below
the screenshot are four colored lines representing data streams. The colored
lines extend from the Beyond.com screenshot to a large box containing five gears
with the title "Internet Commerce Suite." The colored lines proceed and pass
between the five gears inside the large box. The upper left gear is titled
"Distribution Control" and contains a picture of an airplane as a graphical
fill. The upper right gear is titled "Tax Services" and contains financial data
as a graphical fill. The lower left gear is titled "Fulfillment Management" and
contains a picture of a warehouse as a graphical fill. The lower middle gear is
title "Payment Services" and contains a picture of currency and a credit card as
a graphical fill. The lower right gear is titled "Risk Management" and contains
a picture of a credit card swipe as a graphical fill. Three of the colored lines
extend to three boxes aligned below the graphic. The box on the left contains a
picture of three individuals unloading boxes from a delivery truck. The middle
box contains financial data, the term "Bank" and the phrase "order status
cleared." The box on the right contains graphs that represent "Merchant Data
Analysis Results for Risk Management." Below this box is the disclaimer
"Artist's depiction. Not actual data".
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   1
Risk Factors.............................................................   4
Forward-Looking Statements...............................................  13
Use of Proceeds..........................................................  13
Dividend Policy..........................................................  13
Price Range of Our Common Stock..........................................  13
Capitalization...........................................................  14
Dilution.................................................................  15
Selected Consolidated Financial Data.....................................  16
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  17
Business.................................................................  24
Management...............................................................  38
Principal and Selling Stockholders.......................................  47
Transactions between CyberSource and its Officers, Directors and
 Significant Stockholders................................................  50
Description of Capital Stock.............................................  54
Shares Eligible for Future Sale..........................................  56
Underwriting.............................................................  57
Legal Matters............................................................  60
Experts..................................................................  60
Where You Can Find More Information......................................  60
Index to Consolidated Financial Statements .............................. F-1
</TABLE>

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

      Unless otherwise indicated, the information in this prospectus assumes no
exercise of the underwriters' over-allotment option.

      You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

      CyberSource(R) is a registered trademark of CyberSource Corporation. This
prospectus contains product names and trade names and trademarks of CyberSource
and of other organizations.

<PAGE>

                               PROSPECTUS SUMMARY

      This summary is not complete and does not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision.

                            CyberSource Corporation

      We are a leading developer and provider of real-time, or on-demand, e-
commerce transaction services. Through our Internet Commerce Suite, we offer
services to online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, territory management, delivery address
verification and fulfillment management. Our services enable online merchants
to focus their resources on areas where they can most effectively differentiate
themselves, such as marketing, Web site content, merchandising and customer
support. By outsourcing their e-commerce transaction processing needs to us,
online merchants can speed their time to market, reduce their overall operating
costs and process orders from around the world in local currencies. Our
services are comprehensive, scalable (adaptable to meet increases in the number
of transactions), highly reliable and performed via a secure messaging
protocol, or transmission format. Our merchants have used our services to
process more than 34.0 million transactions since January 1998, of which
approximately 25.5 million were processed in the first nine months of 1999.

      As the Internet has become an important communications medium, merchants
and consumers have embraced using the Internet to buy and sell goods and
services. International Data Corporation, or IDC, forecasts that the actual
number of Web buyers worldwide will expand from approximately 48 million in
1999 to approximately 183 million in 2003 and that the amount of commerce
conducted over the Web will increase from approximately $111 billion in 1999 to
approximately $1.3 trillion in 2003 worldwide. To succeed online, a merchant
must attract customers to its Web site and provide an appealing and easy-to-use
environment that encourages customers to place an order by clicking on the
"buy" button. Once the customer places an order, the merchant must then process
the order by executing numerous transactions, such as credit card
authorization, calculation of sales tax and fulfillment of the order, often
while the customer is waiting.

      While early adopters of e-commerce business models often developed custom
transaction processing systems, today many online merchants are seeking to
outsource their transaction processing requirements. Our services offer online
merchants a solution to the challenges of e-commerce transaction processing.
Key benefits of our services include:

     .  Faster time-to-market,

     .  Access to a comprehensive suite of services,

     .  Enhanced merchant flexibility and control,

     .  Global reach, and

     .  Reduced overall costs.

      More than 800 customers have chosen to use our services. Our merchants
include Amazon.com, Beyond.com, BUY.COM, Casio, Compaq Computer, Egghead.com,
Remedy and Shopping.com. We target merchants worldwide through a direct sales
force as well as through an indirect sales channel. Our indirect sales channel
partners include resellers, solution resellers, Web/systems integrators and
commerce server vendors. We have also entered into strategic relationships with
General Electric Capital Corp., or GE Capital, and Visa to penetrate new e-
commerce markets.

                                       1
<PAGE>


      CyberSource Corporation was incorporated by Beyond.com in Delaware in
December 1997 under the name Internet Commerce Services Corporation.
Beyond.com, whose original name was CyberSource Corporation, contributed all
the assets and liabilities comprising its Internet commerce services business
to Internet Commerce Services Corporation and spun off Internet Commerce
Services Corporation to Beyond.com's stockholders in December 1997. In October
1998 we changed our name to CyberSource Corporation. Our headquarters are
located at 550 S. Winchester Blvd., Suite 301, San Jose, California 95128, and
our telephone number is (408) 556-9100. Information contained on our Web site
at www.cybersource.com does not constitute part of this prospectus.

                              Recent Developments

      Visa Agreement. In September 1999, we announced an agreement with Visa
U.S.A. to jointly develop and promote the CyberSource Internet Fraud Screen
enhanced by Visa. The agreement is mutually exclusive for two years and
includes a preferred pricing discount for merchants accepting Visa cards. We
believe this agreement will allow us to further refine and augment our existing
fraud screen offering by leveraging Visa's fraud modeling expertise.

      International Payment Solution. In June 1999, we announced an
international payment processing gateway using the services of National
Westminster Bank allowing merchants to accept payments in over 150 different
currencies while crediting merchant accounts in 19 currencies, including the
Euro.

      New Merchants. At September 30, 1999, over 800 merchants have chosen to
use our services, representing an increase of over 200 merchants since June 30,
1999. New merchants since June 30, 1999 include Amazon.com, eCampus.com, GUESS?
and Register.com. During the same period, transaction volume grew over 48%.

                                  The Offering

<TABLE>
 <C>                                                  <S>
 Common stock offered by CyberSource................. 2,000,000 shares
 Common stock offered by the selling stockholders.... 1,000,000 shares
 Common stock to be outstanding after this offering.. 23,989,957 shares(1)
 Use of proceeds..................................... For general corporate
                                                      purposes, including sales
                                                      and marketing, product
                                                      development, potential
                                                      strategic acquisitions
                                                      and other corporate
                                                      expenses.
 Nasdaq National Market symbol....................... CYBS
</TABLE>
--------
(1) This figure is based on 21,989,957 shares outstanding at September 30, 1999
    and excludes 3,137,395 shares of common stock issuable upon exercise of
    options outstanding at a weighted average exercise price of $7.08 per share
    and 135,941 shares available for grant at September 30, 1999 under our 1998
    Stock Option Plan and our 1999 Stock Option Plan. Also excludes an
    additional 500,000 shares reserved for issuance under our 1999 Employee
    Stock Purchase Plan and an additional 1,100,000 shares reserved for
    issuance under our 1999 Nonqualified Stock Option Plan. See "Description of
    Capital Stock -- Authorized and Outstanding Capital Stock" and Note 5 of
    Notes to Consolidated Financial Statements.


                                       2
<PAGE>


                      Summary Consolidated Financial Data

<TABLE>
<CAPTION>
                             Period From                        Nine Months
                            March 20, 1996   Years Ended           Ended
                            (Inception) to   December 31,      September 30,
                             December 31,  -----------------  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  --------
                                 (in thousands, except per share data)
<S>                         <C>            <C>      <C>       <C>      <C>
Consolidated Statements of
 Operations Data:
Revenues..................     $   144     $   968  $  3,384  $ 2,281  $  7,883
Gross profit (loss).......           7         644       (87)      84     1,048
Total operating expenses..       1,150       4,969     9,950    6,637    19,370
Loss from operations......      (1,143)     (4,325)  (10,037)  (6,553)  (18,322)
Net loss..................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
                               =======     =======  ========  =======  ========
Basic and diluted net loss
 per share................                          $  (2.05) $ (1.38) $  (1.58)
                                                    ========  =======  ========
Shares used in computing
 basic and diluted net
 loss per share(1)........                             4,918    4,763    11,246
                                                    ========  =======  ========
Pro forma basic and
 diluted net loss per
 share....................                          $  (0.86)          $  (0.98)
                                                    ========           ========
Shares used in computing
 pro forma basic and
 diluted net loss per
 share(1).................                            11,740             18,124
                                                    ========           ========
Selected Non-Financial
 Operating Data:
Number of transactions
 processed................                             8,560    4,536    25,526
</TABLE>

<TABLE>
<CAPTION>
                                                         September 30, 1999
                                                      ------------------------
                                                        Actual   As Adjusted(2)
                                                      ---------- -------------
<S>                                                   <C>        <C>
Consolidated Balance Sheet Data (in thousands):
Cash, cash equivalents and short-term investments....  $38,251     $130,851
Working capital......................................   35,547      128,147
Total assets.........................................   48,375      140,975
Total stockholders' equity ..........................   41,946      134,546
</TABLE>
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the number of shares used in computing per share amounts.
(2) Adjusted to reflect the sale by CyberSource of 2,000,000 shares in this
    offering, based on an assumed public offering price of $49.00 per share.


                                       3
<PAGE>

                                  RISK FACTORS

      You should carefully consider the following factors as well as other
information contained in this prospectus before deciding to invest in shares of
our common stock.

We Have a Limited Operating History and Are Subject to the Risks Encountered by
Early-Stage Companies

      We commenced operations in March 1996. From March 1996 until December
1997, we operated as a division of Beyond.com. In December 1997, we were
incorporated as a separate legal entity and our company was spun off from
Beyond.com. Accordingly, we have a very limited operating history, and our
business and prospects must be considered in light of the risks and
uncertainties to which early-stage companies in rapidly evolving markets such
as e-commerce are particularly exposed. These risks include:

     .  risks that the intense competition and rapid technological change
        in our industry could adversely affect market acceptance of all of
        our services;

     .  risks that we may not be able to expand our systems to handle
        increased traffic, resulting in slower response times and other
        difficulties in providing services to our merchant customers;

     .  risks that we may not be able to fully utilize relationships with
        our strategic partners and indirect sales channels; and

     .  risks that any fluctuations in our quarterly operating results
        will be significant relative to our revenues.

These risks are discussed in more detail below. We cannot assure you that our
business strategy will be successful or that we will successfully address these
risks and the risks detailed below.

We Have a History of Losses, Expect Future Losses and Cannot Assure You that We
Will Achieve Profitability

      Although our revenues have increased on a quarterly basis since 1997, we
have not achieved profitability and cannot be certain that we will realize
sufficient revenues to achieve profitability. We have incurred significant net
losses since our inception. We incurred net losses of $4.3 million in 1997,
$10.1 million in 1998 and $17.8 million in the nine months ended September 30,
1999. As of September 30, 1999, we had incurred cumulative losses of $33.3
million. You should not consider recent quarterly revenue growth as indicative
of our future performance. We do not expect to sustain similar levels of growth
in future periods. We have continued to increase our sales and marketing,
network infrastructure, product development and general and administrative
expenses in 1999 and plan to continue to do so in 2000. As a result, we will
need to generate significantly higher revenues in order to achieve
profitability. If we do achieve profitability, we may not be able to sustain
it.

The Expected Fluctuations of Our Quarterly Results Could Cause Our Stock Price
to Fluctuate or Decline

      We expect that our quarterly operating results will fluctuate
significantly in the future based upon a number of factors, many of which are
not within our control. We plan to further increase our operating expenses in
order to expand our sales and marketing activities, build our network
infrastructure and broaden our service capabilities. We base our operating
expenses on anticipated market growth and our operating expenses are relatively
fixed in the short term. As a result, if our revenues are lower than we expect,
our quarterly operating results may not meet the expectations of public market
analysts or investors, which could cause the market price of our common stock
to decline.

                                       4
<PAGE>

     Our quarterly results may fluctuate in the future as a result of many
factors, including the following:

     . changes in the number of transactions effected by our merchants,
       especially as a result of seasonality, success of each merchant's
       business, general economic conditions or regulatory requirements
       restricting our merchants;

     . our ability to attract new merchants and to retain our existing
       merchants;

     . merchant acceptance of our pricing model;

     . our success in expanding our sales and marketing programs; and

     . an interruption with one or more of our gateway processors and
       channel partners.

     Other factors that may affect our quarterly results are set forth
elsewhere in this section. As a result of these factors, our revenues are not
predictable with any significant degree of certainty.

     Due to the uncertainty surrounding our revenues and expenses, we believe
that quarter-to-quarter comparisons of our historical operating results should
not be relied upon as an indicator of our future performance.

We Could Lose a Significant Portion of Our Business Because We Do Not Have a
Long-Term Contract with Our Largest Customer, Beyond.com

     Revenues from services provided to Beyond.com accounted for 23.7% of our
revenues in 1998 and 15.3% in the nine months ended September 1999. No other
customer accounted for more than 10% of our revenues in 1998 or the first nine
months of 1999. Any significant decrease in revenues from Beyond.com could
materially adversely affect our operating results. We have no long-term
contract with Beyond.com that requires it to continue to use any of our
services. Accordingly, Beyond.com could cease using all or part of our
services on short notice without penalty.

The Demand for Our Services Could Be Negatively Affected by a Reduced Growth
of E-commerce or Delays in the Development of the Internet Infrastructure

     Sales of goods and services over the Internet do not currently represent
a significant portion of overall sales of goods and services. We depend on the
growing use and acceptance of the Internet as an effective medium of commerce
by merchants and customers in the United States and internationally. Rapid
growth in the use of and interest in the Internet is a relatively recent
development. In particular, sales of goods and services over the Internet have
developed more slowly outside of the United States. We cannot be certain that
acceptance and use of the Internet will continue to develop or that a
sufficiently broad base of merchants and consumers will adopt, and continue to
use, the Internet as a medium of commerce.

     The emergence of the Internet as a commercial marketplace may occur more
slowly than anticipated for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. If the
number of Internet users or their use of Internet resources continues to grow,
it may overwhelm the existing Internet infrastructure. Delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity could also have a detrimental effect.
These factors could result in slower response times or adversely affect usage
of the Internet, resulting in lower numbers of e-commerce transactions and
lower demand for our services.

                                       5
<PAGE>

Potential System Failures and Lack of Capacity Issues Could Negatively Affect
Demand for Our Services

      Our ability to deliver services to our merchants depends on the
uninterrupted operation of our e-commerce transaction processing systems. Our
systems and operations are vulnerable to damage or interruption from:

     .  earthquake, fire, flood and other natural disasters;

     .  power loss, telecommunications or data network failure, operator
        negligence, improper operation by employees, physical and
        electronic break-ins and similar events; and

     .  computer viruses.

      Despite the fact that we have implemented redundant servers in third-
party hosting centers, two of which are currently located in Santa Clara,
California, we may still experience service interruptions for the reasons
listed above and a variety of other reasons. If our redundant servers are not
available, our business may not have sufficient business interruption insurance
to compensate us for resulting losses. We have experienced periodic
interruptions, affecting all or a portion of our systems, which we believe will
continue to occur from time to time. In addition, any interruption in our
systems that impairs our ability to provide services could damage our
reputation and reduce demand for our services.

      Our success also depends on our ability to grow, or scale, our e-commerce
transaction systems to accommodate increases in the volume of traffic on our
systems, especially during peak periods of demand. We may not be able to
anticipate increases in the use of our systems and successfully expand the
capacity of our network infrastructure. Our inability to expand our systems to
handle increased traffic could result in system disruptions, slower response
times and other difficulties in providing services to our merchant customers,
which could materially harm our business.

A Breach of Our E-commerce Security Measures Could Reduce Demand for Our
Services

      A requirement of the continued growth of e-commerce is the secure
transmission of confidential information over public networks. We rely on
public key cryptography, an encryption method that utilizes two keys, a public
and a private key, for encoding and decoding data, and digital certificate
technology, or identity verification, to provide the security and
authentication necessary for secure transmission of confidential information.
Regulatory and export restrictions may prohibit us from using the strongest and
most secure cryptographic protection available and thereby expose us to a risk
of data interception. A party who is able to circumvent our security measures
could misappropriate proprietary information or interrupt our operations. Any
compromise or elimination of our security could reduce demand for our services.

      We may be required to expend significant capital and other resources to
protect against security breaches or to address any problems they may cause.
Concerns over the security of the Internet and other online transactions and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. Because our activities involve the storage
and transmission of proprietary information, such as credit card numbers,
security breaches could damage our reputation and expose us to a risk of loss
or litigation and possible liability. Our security measures may not prevent
security breaches, and failure to prevent security breaches may disrupt our
operations.

The Intense Competition in Our Industry Could Reduce or Eliminate the Demand
for Our Services

      The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop

                                       6
<PAGE>

custom systems may be less likely to adopt an outsourced transaction processing
strategy. We also face competition from developers of other systems for e-
commerce transaction processing such as Clear Commerce, CyberCash, Digital
River, Hewlett-Packard (VeriFone), HNC Software, Open Market, PaylinX,
ShopNow.com and Signio. In addition, other companies, including financial
services and credit companies such as First Data Corporation, AT&T and GE
Capital, may enter the market for our services. In the future, we may also
compete with large Internet-centric companies that derive a significant portion
of their revenues from e-commerce and may offer, or provide a means for others
to offer, e-commerce transaction services.

      Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. For example, Microsoft and
CyberCash have each introduced electronic-wallet solutions, that if widely
adopted by consumers, may result in reduced demand by our merchants for our
fraud screening services. Our current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with other solution providers, thereby increasing the ability of their
services to address the needs of our prospective customers. Our current and
potential competitors may establish or strengthen cooperative relationships
with our current or future channel partners, thereby limiting our ability to
sell services through these channels. We expect that competitive pressures will
require the reduction of the prices of our services and reduce our market
share, either of which could materially and adversely affect our business,
results of operations or financial condition.

If We Lose Key Personnel or Are Unable to Attract and Retain Additional
Qualified Personnel We May Not be Able to Successfully Manage Our Business and
Achieve Our Objectives

      We believe our future success will depend upon our ability to retain our
key management personnel, including William S. McKiernan, our Chief Executive
Officer, and other key members of management because of their experience and
knowledge regarding the development, special opportunities and challenges of
our business. None of our key employees is subject to an employment contract.
We may not be successful in attracting and retaining key employees in the
future.

      Our future success and our ability to expand our operations will also
depend in large part on our ability to attract and retain additional qualified
marketing, sales and technical personnel. Competition for these types of
employees is intense due to the limited number of qualified professionals. We
have in the past experienced difficulty in recruiting qualified marketing,
sales, engineering and support personnel. Failure to attract and retain
personnel, particularly marketing, sales and technical personnel could make it
difficult for us to manage our business and meet our objectives.

Difficulties We May Encounter Managing Our Growth Could Adversely Affect Our
Results of Operations

      We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative infrastructure. We have increased the number of our employees
from 45 employees at December 31, 1997 to 127 employees at December 31, 1998
and 208 employees at September 30, 1999. This expansion is placing a
significant strain on our managerial and financial resources.

      During 1998, we expended significant time and resources in developing our
management information and control systems and our business plan which was
completed towards the end of 1998. In the future, we may not be able to enhance
our management information and control systems in an efficient and timely
manner, and our current or planned personnel, systems, procedures and controls
may not be adequate to support our future operations. In addition, we may not
be able to hire, train, retain, motivate and manage required

                                       7
<PAGE>

personnel or to successfully identify, manage and exploit existing and
potential market opportunities. If we are unable to manage growth effectively,
our business, results of operations and financial condition would be materially
adversely affected.

If We Are Not Able to Fully Utilize Relationships With Our Indirect Sales
Channel Partners, We May Experience Lower Revenue Growth and Higher Operating
Costs

      Our future growth will depend in part on the success of our relationships
with existing and future indirect sales channel partners that will market our
services to their merchant accounts. If these relationships are not successful
or do not develop as quickly as we anticipate, our revenue growth may be
adversely affected. Accordingly, we may have to increase our sales and
marketing expenses in an attempt to secure additional merchant accounts.

Our Management Team Must Work Together Effectively in Order to Expand Our
Business, Increase Our Revenues and Improve Our Operating Results

      Several members of our existing senior management personnel have joined
us within the last year. As a result, there is a risk that management will not
be able to work together effectively as a team to address the challenges to our
business. In addition, our new employees include a number of key managerial,
technical and operations personnel who have been with us for a limited period
of time. We may need to add additional key personnel in the near future who
will also need to be integrated into our management team.

Our Market is Subject to Rapid Technological Change and to Compete, We Must
Continually Enhance Our Systems to Comply with Evolving Standards

      To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our services and the underlying
network infrastructure. The Internet and the e-commerce industry are
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render our technology and systems obsolete. Our success will depend, in
part, on our ability to both internally develop and license leading
technologies to enhance our existing services and develop new services. We must
continue to address the increasingly sophisticated and varied needs of our
merchants, and respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. The development
of proprietary technology involves significant technical and business risks. We
may fail to develop new technologies effectively or to adapt our proprietary
technology and systems to merchant requirements or emerging industry standards.
If we are unable to adapt to changing market conditions, merchant requirements
or emerging industry standards, our business would be materially harmed.

Our Current and Prior Overlapping Board Members with Beyond.com May Create
Conflicts of Interests and Result in Actions Inconsistent with Stockholder
Interests

      In connection with our spin-off from Beyond.com in December 1997, we
entered into agreements with Beyond.com to define the ongoing relationship
between the two companies. At the time these agreements were negotiated, all of
our directors were also directors of Beyond.com and other members of our
management team were also executive officers of Beyond.com. As a result, these
agreements were not the result of arms' length negotiations between us and
Beyond.com. Further, although we and Beyond.com are engaged in different
businesses, the two companies currently have no policies to govern the pursuit
or allocation of corporate opportunities, in the event they arise. Our business
could be adversely affected if the overlapping board members of the two
companies, of which there are currently two, William S. McKiernan and Bert
Kolde, pursue Beyond.com's interests over ours either in the course of
transactions between the companies or where the same corporate opportunities
are available to both companies.

                                       8
<PAGE>

We May Not Be Able to Adequately Protect Our Proprietary Technology and May Be
Infringing Upon Third-Party Intellectual Property Rights

      Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.

      As part of our confidentiality procedures, we enter into non-disclosure
agreements with our employees. Despite these precautions, third parties could
copy or otherwise obtain and use our technology without authorization, or
develop similar technology independently. Effective protection of intellectual
property rights may be unavailable or limited in foreign countries. We cannot
assure you that the protection of our proprietary rights will be adequate or
that our competitors will not independently develop similar technology,
duplicate our services or design around any patents or other intellectual
property rights we hold.

      We also cannot assure you that third parties will not claim our current
or future services infringe upon their rights. We have not conducted any search
to determine whether any of our services or technologies may be infringing upon
patent rights of third parties. As the number of services in our market
increases and functionalities increasingly overlap, companies such as ours may
become increasingly subject to infringement claims. In addition, these claims
also might require us to enter into royalty or license agreements. Any
infringement claims, with or without merit, could cause costly litigation that
could absorb significant management time. If required to do so, we may not be
able to obtain royalty or license agreements, or obtain them on terms
acceptable to us. See "Business--Intellectual Property" for more information
relating to protecting our intellectual property rights and risks relating to
claims of infringement upon the intellectual property of others.

We May Not Be Able to Secure Funding in the Future Necessary to Operate Our
Business as Planned

      We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use the net proceeds of this offering primarily to continue investments in
service development, to expand sales and marketing activities, to fund product
development, to fund continued operations and potentially to make future
acquisitions. We believe that these proceeds, together with our existing
capital resources, will be sufficient to meet our capital requirements for at
least the next twelve months. However, our capital requirements depend on
several factors, including the rate of market acceptance of our services, the
ability to expand our merchant base, the growth of sales and marketing and
other factors. If capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, and these equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or
enhance our services, take advantage of future opportunities or respond to
competitive pressures.

We May Become Subject to Government Regulation and Legal Uncertainties That
Would Adversely Affect Our Financial Results

      We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
e-commerce. However, due to the increasing usage of the Internet, it is
possible that a number of laws and regulations may be applicable or may be
adopted in the future with respect to conducting business over the Internet
covering issues such as:

     .  taxes;

     .  user privacy;

                                       9
<PAGE>

     .  pricing;

     .  content;

     .  right to access personal data;

     .  copyrights;

     .  distribution; and

     .  characteristics and quality of services.

      For example, we believe that some of our services may require us to
comply with the Fair Credit Reporting Act. As a precaution, we are implementing
changes to our systems and processes so that we will be in compliance with the
act. Complying with this act requires us to provide information about personal
data stored by us or our merchants. Failure to comply with this act could
result in claims being made against us.

      Furthermore, the growth and development of the market for e-commerce may
prompt more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for our services and
increase our cost of doing business.

      The applicability of existing laws governing issues such as property
ownership, copyrights, encryption and other intellectual property issues,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws intended to address these issues, including
some recently proposed changes in the United States regarding taxation and
encryption and in the European Union regarding contract formation and privacy,
could create uncertainty in the Internet marketplace and impose additional
costs and other burdens. This uncertainty, costs and burden could reduce demand
for our services or increase the cost of doing business due to increased costs
of litigation or increased service delivery costs.

Our International Business Exposes Us to Additional Foreign Risks

      Services provided to merchants outside the United States accounted for
9.0% of our revenues in 1998 and 24.9% of our revenues for the nine months
ended September 30, 1999. We intend to expand our international presence in the
future. Conducting business outside of the United States is subject to
additional risks that may affect our ability to sell our services and result in
reduced revenues, including:

     .  changes in regulatory requirements;

     .  reduced protection of intellectual property rights;

     .  evolving privacy laws in Europe;

     .  the burden of complying with a variety of foreign laws; and

     .  political or economic instability or constraints on international
        trade.

      In addition, some software exports from the United States are subject to
export restrictions as a result of the encryption technology in that software
and we may become liable to the extent we violate these restrictions. We might
not successfully market, sell and distribute our services in local markets and
we cannot be certain that one or more of these factors will not materially
adversely affect our future international operations, and consequently, our
business, financial condition and operating results.

      Also, sales of our services conducted through our subsidiary in the
United Kingdom are denominated in Pounds Sterling. We may experience
fluctuations in revenues or operating expenses due to fluctuations in the

                                       10
<PAGE>

value of the Pound Sterling relative to the U.S. Dollar. We do not currently
hedge with respect to currency exchange fluctutations.

Computer Systems and Software Are Critical to Our Operations and any
Significant Disruption Due to Year 2000 Non-Compliance Would Adversely Affect
Our Business

      Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including
technology, transportation, utilities, finance and telecommunications, will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Year 2000 compliance efforts may involve
significant time and expense, and uncorrected problems could materially
adversely affect our business, financial condition or operating results.

      We have completed audits of our internal systems and are working closely
with suppliers of these systems to ensure that all systems are Year 2000
compliant. We have commenced modification or replacement of non-compliant
systems as necessary. In addition, we are highly dependent on a few personal
computer manufacturing companies for our supply of desktop hardware and
peripherals. These suppliers may not be able to deliver on schedule due to Year
2000 issues, which could result in serious disruptions of employee productivity
and materially adversely affect our business.

We Intend to Pursue Strategic Acquisitions and Our Business Could Be Materially
Adversely Affected if We Fail to Adequately Integrate Acquired Businesses

      As part of our overall business strategy, we intend to pursue strategic
acquisitions of complementary businesses or technologies that would provide
additional service offerings, additional industry expertise, a broader client
base or an expanded geographic presence. From time to time, we have engaged in
discussions with third parties concerning potential acquisitions of product
lines, technologies and businesses. Any future acquisition could result in the
use of significant amounts of cash, potentially dilutive issuances of equity
securities, or the incurrence of debt or amortization expenses related to
goodwill and other intangible assets, any of which could materially adversely
affect our business, operating results and financial condition. In addition,
acquisitions involve numerous risks, including:

     .  difficulties in the assimilation of the operations, technologies,
        products and personnel of the acquired company;

     .  the diversion of management's attention from other business
        concerns;

     .  risks of entering markets in which we have no or limited prior
        experience; and

     .  the potential loss of key employees of the acquired company.

Existing Stockholders May Exert Control Over Us to the Detriment of Minority
Stockholders

      After completion of this offering, our officers, directors and principal
stockholders (i.e., greater than 5% stockholders) together will control
approximately 52.2% of our outstanding common stock. As a result, these
stockholders, if they act together, will be able to control our management and
affairs and all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in control of CyberSource and might affect the market price of our
common stock.

                                       11
<PAGE>

Our Stock Price May Fluctuate Substantially and You May Not Be Able to Resell
Your Shares Above the Offering Price

      The market price for the common stock will be affected by a number of
factors, including the following:

     .  the announcement of new services or service enhancements by us or
        our competitors;

     .  quarterly variations in our or our competitors' results of
        operations;

     .  changes in earnings estimates or recommendations by securities
        analysts;

     .  developments in our industry; and

     .  general market conditions and other factors, including factors
        unrelated to our operating performance or the operating
        performance of our competitors.

      In addition, stock prices for many companies in the technology and
emerging growth sectors have experienced wide fluctuations that have often been
unrelated to the operating performance. These factors and fluctuations, as well
as general economic, political and market conditions may materially adversely
affect the market price of our common stock.

Sales of Shares Eligible For Future Sale After This Offering Could Cause Our
Stock Price to Decline

      If our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options and warrants)
in the public market following this offering, the market price of our common
stock could fall. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Upon completion of this offering, we will have 23,989,957
outstanding shares of common stock based upon shares outstanding as of
September 30, 1999, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options after September 30, 1999. Of
these shares, the 3,000,000 shares sold in this offering will be freely
transferable without restriction under the Securities Act, unless held by
"affiliates" of CyberSource as that term is used under the Securities Act and
the Regulations promulgated thereunder. The remaining shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:

<TABLE>
<CAPTION>
                                                                    Number of
                   Date of Availability for Sale                      Shares
                   -----------------------------                    ----------
<S>                                                                 <C>
October 21, 1999 (120 days after the date of our initial public
 offering).........................................................    761,328
December 21, 1999 (180 days after the date of our initial public
 offering).........................................................  5,003,550
February 3, 2000 (90 days after the date of this prospectus)....... 10,545,678
Periodically thereafter upon the expiration of one-year holding
 periods...........................................................    851,229
</TABLE>

The Anti-Takeover Provisions in Our Certificate of Incorporation Could
Adversely Affect the Rights of the Holders of Our Common Stock

      Anti-takeover provisions of Delaware law and our Certificate of
Incorporation may make a change in control of CyberSource more difficult, even
if a change in control would be beneficial to the stockholders. These
provisions may allow the Board of Directors to prevent changes in the
management and control of CyberSource. Under Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the future.

      One anti-takeover provision that we have is the ability of our Board of
Directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 4,988,842 shares of preferred stock.
As of September 30, 1999, there are no shares of preferred stock outstanding.
However, because the rights and preferences of any series of preferred stock
may be set by the Board of Directors in its sole discretion without approval of
the holders of the common stock, the rights and preferences of this preferred
stock may be superior to those of the common stock. Accordingly, the rights of
the holders of common stock may be adversely affected.

                                       12
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about CyberSource, including, among other
things:

     .  risks and uncertainties encountered by early-stage companies;

     .  continued growth in e-commerce and Internet infrastructure
        development;

     .  our ability to retain our existing merchants and attract new
        merchants;

     .  technical difficulties and unanticipated system downtime; and

     .  our relationship with Beyond.com.

      We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur.

                                USE OF PROCEEDS

      Net proceeds to CyberSource from the sale of our shares of common stock
at an assumed offering price of $49.00 per share are estimated to be
approximately $92.6 million. We will not receive any of the proceeds from the
selling stockholders' sale of their shares.

      The principal purpose of this offering is to obtain additional working
capital. We expect to use the net proceeds for general corporate purposes,
including sales and marketing, product development and other corporate
expenses. A portion of the net proceeds may also be used to invest in or
acquire complementary businesses or technologies. We currently have no
agreements or understandings with respect to any investments or acquisitions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing instruments.

                                DIVIDEND POLICY

      We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain earnings, if any, to support the development of
our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
Board of Directors after taking into account factors, such as our financial
condition, operating results and current and anticipated cash needs.

                        PRICE RANGE OF OUR COMMON STOCK

      Since our initial public offering on June 23, 1999, our common stock has
traded on the Nasdaq National Market under the symbol "CYBS." The following
table sets forth the range of high and low closing sales prices of our common
stock for the periods indicated:

<TABLE>
<CAPTION>
      Year ending December 31, 1999                              High     Low
      -----------------------------                             ------- -------
      <S>                                                       <C>     <C>
      Second Quarter (from June 23, 1999)...................... $14 3/4 $    12
      Third Quarter............................................ $55 3/8 $15 1/4
      Fourth Quarter (through October 18, 1999)................ $55 1/2 $45 3/4
</TABLE>

      On October 18, 1999, the last reported sale price for our common stock on
the Nasdaq National Market was $49.00 per share.

                                       13
<PAGE>

                                 CAPITALIZATION

      The following table sets forth the capitalization of CyberSource as of
September 30, 1999:

     .  on an actual basis; and

     .  as adjusted to give effect to the sale by CyberSource of 2,000,000
        shares of common stock offered by CyberSource hereby at an assumed
        public offering price of $49.00 per share and the receipt of
        estimated net proceeds.

      This table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                           September 30, 1999
                                                          ---------------------
                                                           Actual   As Adjusted
                                                          --------  -----------
                                                             (in thousands)
<S>                                                       <C>       <C>
Long term debt, including current portion................ $  1,187   $  1,187
                                                          --------   --------
Stockholders' equity:
  Preferred stock, $.001 par value; 4,988,842 shares
   authorized, no shares issued and outstanding -- actual
   as adjusted...........................................       --         --
  Common stock, $.001 par value; 50,000,000 shares
   authorized, 21,989,957 shares issued and
   outstanding, -- actual; 23,989,957 shares issued and
   outstanding -- as adjusted(1).........................       22         24
  Additional paid in capital.............................   70,571    163,169
  Deferred compensation related to stock options.........     (799)      (799)
  Accumulated deficit....................................  (27,848)   (27,848)
                                                          --------   --------
Total stockholders' equity .............................. $ 41,946    134,546
                                                          --------   --------
    Total capitalization................................. $ 43,133   $135,733
                                                          ========   ========
</TABLE>
--------
(1) Excludes 3,137,395 shares of common stock issuable upon exercise of options
    outstanding at a weighted average exercise price of $7.08 per share and
    135,941 shares available for grant as of September 30, 1999 under our 1998
    Stock Option Plan and our 1999 Stock Option Plan. Also excludes an
    additional 500,000 shares reserved for issuance under our 1999 Employee
    Stock Purchase Plan and an additional 1,100,000 shares reserved for
    issuance under our 1999 Nonqualified Stock Option Plan. See "Management --
     Stock Plans" and "Executive Compensation" and Note 5 of Notes to
    Consolidated Financial Statements.

                                       14
<PAGE>

                                    DILUTION

      If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the net tangible book value per share of our common stock
after this offering. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common
stock immediately after completion of this offering.

      At September 30, 1999, our net tangible book value was $41.7 million or
approximately $1.90 per share. Net tangible book value per share represents the
amount of our stockholders' equity less intangible assets divided by 21,989,957
shares of common stock. After giving effect to the sale by us of 2,000,000
shares of our common stock hereby at an assumed public offering price of $49.00
per share, and the application of the estimated net proceeds therefrom, our net
tangible book value as of September 30, 1999 would have been $134.3 million or
$5.60 per share. This represents an immediate increase in net tangible book
value of $3.70 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $43.40 per share to the purchasers of
common stock in this offering, as illustrated in the following table:

<TABLE>
<S>                                                                 <C>   <C>
Assumed public offering price per share............................       $49.00
  Net tangible book value per share as of September 30, 1999....... $1.90
  Increase attributable to new investors...........................  3.70
                                                                    -----
Net tangible book value per share after this offering..............         5.60
                                                                          ------
Dilution per share to new investors................................       $43.40
                                                                          ======
</TABLE>

                                       15
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

      The following selected consolidated statements of operations data for the
period from March 20, 1996 (inception) through December 31, 1996, and for the
years ended December 31, 1997 and 1998 and the selected balance sheet data as
of December 31, 1997 and 1998 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus. The selected
balance sheet data as of December 31, 1996 is derived from our audited
consolidated financial statements not included in this prospectus. The
consolidated financial data as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 was derived from unaudited financial
statements included elsewhere in this prospectus. We have prepared this
unaudited information on the same basis as the audited consolidated financial
statements and have included all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of our
financial position and operating results for such periods. When you read this
consolidated financial data, you should also read the consolidated financial
statements and related notes included in this prospectus. The historical
results are not necessarily indicative of future results.

<TABLE>
<CAPTION>
                            Period from                        Nine Months
                              March 20       Year Ended           Ended
                           (Inception) to   December 31,      September 30,
                            December 31,  -----------------  -----------------
                                1996       1997      1998     1998      1999
                           -------------- -------  --------  -------  --------
                                 (in thousands, except per share data)
<S>                        <C>            <C>      <C>       <C>      <C>
Consolidated Statements
 of Operations Data:
Revenues:................     $   144     $   968  $  3,384  $ 2,281  $  7,883
                              -------     -------  --------  -------  --------
Cost of revenues.........         137         324     3,471    2,197     6,835
                              -------     -------  --------  -------  --------
Gross profit (loss)......           7         644       (87)      84     1,048
Operating expenses:
 Product development.....         338       2,300     3,802    2,534     5,207
 Sales and marketing.....         425       1,988     4,184    2,789    10,256
 General and
  administrative.........         387         681     1,946    1,314     3,528
 Deferred compensation
  amortization...........          --          --        18       --       379
                              -------     -------  --------  -------  --------
Total operating
 expenses................       1,150       4,969     9,950    6,637    19,370
                              -------     -------  --------  -------  --------
Loss from operations.....      (1,143)     (4,325)  (10,037)  (6,553)  (18,322)
Interest income
 (expense), net..........          --         (13)      (48)     (21)      559
                              -------     -------  --------  -------  --------
Net loss.................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
                              =======     =======  ========  =======  ========
Net loss per share(1)....                          $  (2.05) $ (1.38) $  (1.58)
Shares used in computing
 basic and diluted net
 loss per share(1).......                             4,918    4,763    11,246
Pro forma basic and
 diluted net loss per
 share(1)................                          $  (0.86)          $  (0.98)
Shares used in computing
 pro forma basic and
 diluted net loss per
 share(1)................                            11,740             18,124
Selected Non-Financial
 Operating Data:
Number of transactions
 processed...............                             8,560    4,536    25,526
</TABLE>

<TABLE>
<CAPTION>
                                               December 31,
                                           ---------------------  September 30,
                                            1996   1997   1998        1999
                                           ------ ------ -------  -------------
                                                     (in thousands)
<S>                                        <C>    <C>    <C>      <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
 investments.............................   $ --  $2,000 $11,111     $38,251
Working capital (deficit)................    (61)  2,016   7,554      35,547
Total assets.............................    106   3,735  14,975      48,375
Noncurrent obligations under capital
 leases..................................     --      33     256         545
Redeemable convertible preferred stock...     --   2,097  18,911          --
Total stockholders' equity (net capital
 deficiency) / divisional equity (1996)..    421   1,037  (9,023)     41,946
</TABLE>
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the determination of the number of shares used in computing per share
    amounts. Until December 31, 1997, the Company was operated as a division of
    Beyond.com Corporation and had no outstanding common or preferred shares,
    and, therefore, there are no loss per share amounts for the 1996 and 1997
    periods.

                                       16
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.

Overview

      We commenced operations in March 1996 as a division of Beyond.com. From
our inception to March 1997, our operating activities related primarily to
planning and developing proprietary e-commerce transaction systems, recruiting
personnel, raising capital and purchasing operating assets. On December 31,
1997, Beyond.com transferred assets and liabilities related to its e-commerce
transaction processing services division to CyberSource. Our financial
statements for 1996 and 1997 reflect our operations as a division of Beyond.com
through December 31, 1997. Our balance sheet as of December 31, 1997 has been
prepared using the historical basis of accounting and includes all the assets
and liabilities specifically identifiable to us. Our statements of operations
for 1996 and 1997 include all revenues and costs directly attributable to us,
including a corporate allocation of the costs of facilities, salaries and
employee benefits. Additionally, incremental corporate administration, finance
and management costs were allocated to us. We have incurred significant losses
since our inception, and through September 30, 1999 had incurred cumulative
losses of approximately $33.3 million. We expect to continue to incur
substantial operating losses for the foreseeable future.

      We derive substantially all of our revenues from e-commerce monthly
transaction processing fees, and, to a lesser extent, support services and
digital product rights management fees. Transaction revenues and digital
product rights management fees are recognized in the period in which the
transactions occur. Our e-commerce transaction processing service revenues are
derived from contractual relationships providing revenues on a per transaction
basis, generally subject to a monthly minimum or maintenance fee. In general,
these contractual relationships provide for a one-year term with automatic
renewal and can be cancelled by either party at any time with sixty days prior
notice. Support service fees are recognized as the related services are
provided and costs are incurred. As our revenues grow, we expect e-commerce
transaction processing revenues to become an increasingly larger percentage of
our total revenues.

      In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including our gross margin and operating expenses as a
percentage of total revenues, are not meaningful and should not be relied upon
as indications of future performance. Moreover, we do not believe that our
historical growth rates are indicative of future results. Even if our revenues
and number of transactions did continue to expand at a steady pace in absolute
numbers, our growth rate would decrease.

Results of Operations

      The following discussion does not contain data from the inception period
of March 20, 1996 through December 31, 1996, because we believe that amounts
from this inception period are not comparable to those for the years ended
December 31, 1997 and 1998 due to the different duration of the periods, and
due to the limited size of our operations as a division of Beyond.com in that
period.

Nine Months Ended September 30, 1998 and 1999

      Revenues. Revenues increased from $2.3 million for the nine months ended
September 30, 1998 to $7.9 million for the nine months ended September 30,
1999, an increase of approximately $5.6 million or 245.6%. This increase is due
to the addition of merchants and transaction volume increases from existing
merchants resulting from the increased market acceptance of e-commerce. Our
transactions processed increased

                                       17
<PAGE>

from approximately 4.5 million during the nine months ended September 30, 1998
to approximately 25.5 million during the nine months ended September 30, 1999.
A press article published in March 1999 attributes to William S. McKiernan, our
Chief Executive Officer, a statement that 50 million transactions is a
realistic target for 1999. Mr. McKiernan cannot recall making such a statement
and believes that it is an interpretation made by the author of the article.
Therefore, the statement should not be taken as a forecast. There can be no
assurance that we will process 50 million transactions in 1999.

      Cost of Revenues. Cost of revenues consists primarily of costs incurred
in the delivery of e-commerce transaction services, including personnel costs
in our operations, professional services and merchant support functions,
depreciation of capital equipment used in our network infrastructure and costs
related to the hosting of our servers at third-party hosting centers in the
United States and United Kingdom. Cost of revenues increased from $2.2 million
for the nine months ended September 30, 1998 to $6.8 million for the nine
months ended September 30, 1999. The increase is due primarily to additional
operations and merchant support personnel and related costs and costs
associated with our use of a second third-party hosting center in the United
States which commenced operations during the quarter ended September 30, 1999.
In addition, international cost of revenues increased due to costs associated
with a third party payment processing gateway in the U.K. due to increased
international transaction volumes.

      Product Development. Product development expenses consist primarily of
compensation and related costs of employees engaged in the research, design and
development of new services, and to a lesser extent, facility costs and related
overhead. Product development expenses increased from $2.5 million for the nine
months ended September 30, 1998 to $5.2 million for the nine months ended
September 30, 1999. The increase is primarily due to higher personnel related
costs resulting from an increase in personnel. We expect product development
expenses to increase in absolute dollars as we hire additional personnel and
develop new services.

      Sales and Marketing. Sales and marketing expenses consist primarily of
compensation of sales and marketing personnel, market research and advertising
costs, and, to a lesser extent, facility costs and related overhead. Sales and
marketing expenses increased from $2.8 million for the nine months ended
September 30, 1998 to $10.3 million for the nine months ended September 30,
1999. The increase is primarily due to an increase in marketing and promotional
programs, higher personnel related costs resulting from an increase in
personnel and higher sales commissions resulting from an increase in sales. We
expect sales and marketing expenses to increase in absolute dollars as we
increase our marketing and promotional programs.

      General and Administrative. General and administrative expenses consist
primarily of compensation for administrative personnel, fees for outside
professional services and, to a lesser extent, facility costs and related
overhead. General and administrative expenses increased from $1.3 million for
the nine months ended September 30, 1998 to $3.5 million for the nine months
ended September 30, 1999. The increase is primarily due to higher personnel
related costs resulting from an increase in personnel. We expect general and
administrative expenses to increase in absolute dollars to support the expected
growth of our business including our expected relocation to a new facility in
early 2000.

      Deferred Compensation Amortization. During the nine months ended
September 30, 1999, we recorded aggregate unearned compensation in the amount
of $1.0 million in connection with the grant of stock options with exercise
prices less than the deemed fair value on the respective dates of grant and
amortized $0.4 million of deferred compensation during that period. Deferred
compensation amortization related to these stock option grants, as well as 1998
stock option grants, will be approximately $0.6 million, $0.4 million and $0.2
million for years 1999, 2000 and 2001 and thereafter.

      Interest Income (Expense), Net. Interest income consists of interest
earnings on cash and cash equivalents and increased from $41,000 for the nine
months ended September 30, 1998 to $0.8 million for the nine months ended
September 30, 1999. The increase is primarily due to an increase in cash, cash
equivalents and short-term investments as a result of equity financings
completed during 1999, including our initial public

                                       18
<PAGE>

offering in June 1999. Interest expense increased from $62,000 for the nine
months ended September 30, 1998 to $0.3 million for the nine months ended
September 30, 1999. The increase represents interest on an unsecured
convertible note issued in August 1998 and interest on capital leases. The
convertible note was converted to equity in June 1999.

Years Ended December 31, 1997 and 1998

      Revenues. Revenues increased from $1.0 million in 1997 to $3.4 million in
1998, an increase of approximately $2.4 million or 249.6%. The increase is a
result of the addition of merchants and increased transaction volumes from
existing customers resulting from the increased market acceptance of e-
commerce. Since we were a division of Beyond.com, no revenues were recorded
from Beyond.com transactions processed during 1997. During 1998, Beyond.com
accounted for approximately 23.7% of our revenues. Given the continued increase
in our customer base, we expect Beyond.com's percentage of total revenues to
decrease in future periods as new customers increase our transaction volumes
and revenues.

      Cost of Revenues. Cost of revenues increased from $0.3 million or 33.5%
of revenues in 1997 to $3.5 million or 102.6% of revenues in 1998. The increase
in 1998 in dollars and as a percent of revenues is due to an increase of $1.6
million in operations, professional services and merchant support personnel and
related costs, an increase of $0.2 million in depreciation expense on capital
equipment as well as an increase of $0.3 million in costs related to the
hosting of our servers at third party hosting centers in the United States and
United Kingdom which include costs for additional space, installation of
equipment and additional phone line requirements.

      Product Development. Product development expenses increased from $2.3
million in 1997 to $3.8 million in 1998. The addition of product development
personnel during 1998 primarily accounted for the increase.

      Sales and Marketing. Sales and marketing expenses increased from $2.0
million in 1997 to $4.2 million in 1998. The increase is primarily due to
higher personnel related costs and increased sales commissions.

      General and Administrative. General and administrative expenses increased
from $0.7 million in 1997 to $1.9 million in 1998. The increase is primarily
due to higher personnel related costs resulting from the hiring of additional
personnel and, to a lesser extent, from salary increases.

      Deferred Compensation Amortization. During the year ended December 31,
1998, we recorded aggregate unearned compensation in the amount of $0.2 million
in connection with the grant of stock options during 1998 with exercise prices
less than the deemed fair value on the respective dates of grant.

      Interest Income (Expense), Net. Interest income was approximately $0.1
million in 1998. Interest expense of $0.2 million in 1998 represents interest
on an unsecured convertible note and interest on capital leases.

      Income Taxes. No provision for federal and state income taxes was
recorded as we incurred net operating losses since inception. As of December
31, 1998, we had federal and state net operating loss carryforwards of
approximately $8.6 million. If we are not able to use them, the federal and
state net operating loss carryforwards will expire in 2006 through 2018. The
Tax Reform Act of 1986 imposes substantial restrictions on the utilization of
net operating losses and tax credits in the event of a corporation's ownership
change, as defined in the Internal Revenue Code. Our ability to utilize net
operating loss carryforwards may be limited as a result of such an ownership
change. We do not anticipate that a material limitation on our ability to use
our carryforwards and credits will result from this offering.

      We have provided a full valuation allowance on our deferred tax assets
because of the uncertainty regarding their realization. Our accounting for
deferred taxes under Statement of Financial Accounting

                                       19
<PAGE>

Standards No. 109 involves the evaluation of a number of factors concerning the
reliability of our deferred tax assets. In concluding that a full valuation
allowance was required, we considered such factors as our history of operating
losses and expected future losses and the nature of our deferred tax assets.

Quarterly Results of Operations

      The following table presents our unaudited quarterly consolidated
statements of operations data and non-financial operating data for the seven
quarters ended September 30, 1999. In management's opinion, the consolidated
statements of operations data has been prepared substantially on the same basis
as the audited consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below in order to present
fairly the unaudited quarterly results. The quarterly data should be read in
conjunction with our audited consolidated financial statements and the related
notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                       -----------------------------------------------------------------
                                       Mar 31,  June 30,  Sept 30,  Dec 31,  Mar 31,  June 30,  Sept 30,
                                        1998      1998      1998     1998     1999      1999      1999
                                       -------  --------  --------  -------  -------  --------  --------
                                                             (in thousands)
<S>                                    <C>      <C>       <C>       <C>      <C>      <C>       <C>
Consolidated Statements of Operations
Data:
Revenues.............................  $   639  $   699   $   943   $ 1,103  $ 1,713  $ 2,536   $ 3,634
Cost of revenues.....................      647      655       895     1,274    1,505    2,236     3,094
                                       -------  -------   -------   -------  -------  -------   -------
Gross profit (loss)..................       (8)      44        48      (171)     208      300       540
                                       -------  -------   -------   -------  -------  -------   -------
Operating expenses:
  Product development................      671      808     1,055     1,268    1,322    1,652     2,233
  Sales and marketing................      822      849     1,118     1,395    2,079    4,207     3,970
  General and administrative.........      330      413       571       632      938    1,105     1,485
  Deferred compensation amortization.       --       --        --        18       67      156       156
                                       -------  -------   -------   -------  -------  -------   -------
    Total operating expenses.........    1,823    2,070     2,744     3,313    4,406    7,120     7,844
                                       -------  -------   -------   -------  -------  -------   -------
Loss from operations.................   (1,831)  (2,026)   (2,696)   (3,484)  (4,198)  (6,820)   (7,304)
Interest income (expense), net.......        7       11       (39)      (27)       8      (38)      589
                                       -------  -------   -------   -------  -------  -------   -------
Net loss.............................  $(1,824) $(2,015)  $(2,735)  $(3,511) $(4,190) $(6,858)  $(6,715)
                                       =======  =======   =======   =======  =======  =======   =======
Selected Non-Financial Operating
Data:
Number of transactions processed.....      870    1,193     2,473     4,024    5,800    7,959    11,767
</TABLE>

      Revenues increased during each quarter of 1998 and the three quarters of
1999 due to increases in transaction volumes and, to a lesser extent, increases
in merchant support services. The increase in cost of revenues during each
quarter of 1998 and the three quarters of 1999 is due to an increase in cost
related to operations, infrastructure and the hosting of our servers at third-
party hosting centers in the United States and United Kingdom, and to a lesser
extent, increases in merchant support personnel throughout the period. The
gross loss in the quarter ended March 31, 1998 is a result of continued
investment in network infrastructure and costs related to the hosting of our
servers. The gross loss in the quarter ended December 31, 1998 is a result of
an increase of $0.2 million in operations, professional services and merchant
support personnel related costs to support anticipated future revenue growth.
Product development expense increased during each quarter of 1998 and the three
quarters of 1999 principally due to an increase in product development
personnel. Sales and marketing expense increased in the three months ended
December 31, 1998 and the three months ended March 31, 1999 due to an increase
in sales and marketing personnel costs of $0.4 million. The increases in sales
and marketing expense in the three months ended June 30, 1999 and September 30,
1999 as compared to the three months ended March 31, 1999 are due primarily to
an increases in expenses for marketing and promotional programs by $2.8 million
in total and increases in personnel costs during these two quarters. The
increase in general and administrative expenses in the nine months ended
September 30, 1999 is due to

                                       20
<PAGE>

increased accounting and outside service and insurance expenses of $0.3
million. The deferred compensation amortization represents the amortization of
unearned compensation in connection with the grant of stock options during 1998
and 1999 at exercise prices less than the deemed fair value on the respective
dates of grant.

Liquidity and Capital Resources

      Our cash, cash equivalents and short-term investments increased by
approximately $36.3 million from December 31, 1997 to September 30, 1999. This
increase resulted from our receipt of approximately $62.7 million in proceeds
from the sale of equity securities which was partially offset by our net losses
during 1998 and the nine months ended September 30, 1999 as well as the
acquisition of equipment used in our network infrastructure. Our investment in
property and equipment was approximately $6.4 million, excluding approximately
$1.6 million of property and equipment financed under capital leases, during
the period from December 31, 1997 to September 30, 1999.

      Net cash used in our operating activities was approximately $8.9 million
during 1998 and approximately $14.0 million for the nine months ended September
30, 1999. Cash used in operations during 1998 and the nine months ended
September 30, 1999 was primarily due to our net losses and increases in current
assets, offset by depreciation and amortization and increases in accounts
payable and accrued liabilities. Accounts payable and accrued liabilities
increased in those periods primarily due to the expansion of our operations and
the related costs and increases in accrued personnel costs related to headcount
growth.

      Net cash used in investing activities was approximately $1.4 million
during 1998 and approximately $19.7 million during the nine months ended
September 30, 1999 and was comprised primarily of purchases of furniture and
equipment for new employees, leasehold improvements related to office
expansions in both periods and capital equipment used in our network
infrastructure and, in the nine months ended September 30, 1999, $14.8 million
in purchases of short-term investments. Our planned capital expenditures for
the remainder of 1999 are approximately $1.5 million, primarily for capital
equipment used in our network infrastructure.

      Net cash provided by financing activities was approximately $19.4 million
in 1998 and approximately $46.0 million for the nine months ended September 30,
1999. Net cash provided by financing activities in 1998 was due primarily to
proceeds from our issuance of a convertible note payable of $3.0 million and
proceeds from the issuance of preferred stock of $16.5 million. Net cash
provided by financing activities for the nine months ended September 30, 1999
was due primarily to proceeds from our initial public offering in the amount of
$46.2 million.

      The principal balance of $3.0 million of the convertible note payable was
converted into 1,657,458 shares of Series E preferred stock on June 7, 1999 at
a price of $1.81 per share. These shares converted into 828,729 shares of
common stock on June 23, 1999. Interest accrued on the note at a rate of 10.0%
per annum, and was payable in quarterly installments. We paid an aggregate
amount of $256,000 in interest under the note. See "Transactions between
CyberSource and its Officer, Directors and Significant Stockholders -- Option
Grants and Agreements with Executive Officers and Directors."

      We believe that the net proceeds from this offering, together with our
current cash and investment balances, will be sufficient to meet our working
capital and capital requirements for at least the twelve months immediately
following the offering. We expect that we will continue to use our cash to fund
operations during that period as we hire additional personnel and continue to
expand our research and development, sales and marketing and general and
administrative activities. In addition, our future capital requirements will
depend on many factors including the level of investment we make in new
businesses, new products or new technologies. A portion of the net proceeds may
be used to invest in or acquire complementary businesses or technologies. We
currently have no agreements or understandings with respect to any investments
or acquisitions. To the extent that the funds generated by this offering,
together with existing resources and future earnings, are

                                       21
<PAGE>

insufficient to fund our future activities, we may need to obtain additional
equity or debt financing. Additional funds may not be available or, if
available, we may not be able to obtain them on terms favorable to our
stockholders and us.

Year 2000 Readiness Disclosure

      State of Readiness. We utilize a number of computer software programs and
operating systems across our entire organization, including applications used
in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming Year 2000 and beyond, some level of
modification or replacement of applications will be necessary. We believe that
our internal Year 2000 issues are limited to information technology, or IT,
systems such as software programs and computer operating systems, and we are
working closely with the suppliers of these systems to ensure that all systems
are Year 2000 compliant. We have compiled certifications and representations of
Year 2000 compliance from publishers of all operating systems and software
utilized by our employees in the normal course of business. Employing a team
made up of internal personnel, we are currently testing the IT Systems to
determine if any additional modifications or replacement of these systems is
necessary. To date, we do not believe that such additional modifications or
replacements are necessary. We anticipate that the final round of testing of
these systems will be completed by November 1999.

      We rely on two Internet service providers for our Internet access. Both
companies have represented in their public filings with the Securities and
Exchange Commission that their systems are fully Year 2000 compliant or that
they have processes in place to achieve full compliance before the Year 2000.
We are relying on these Internet service providers to accomplish these tasks,
but have obtained no contractual commitments from them regarding Year 2000
issues.

      We are highly dependent on a few personal computer manufacturing
companies for our supply of desktop hardware and peripherals. We have reviewed
our primary suppliers' plans for the Year 2000 compliance to the extent that
Year 2000 issues affect these suppliers' ability to deliver on schedule. Based
on our review, we believe that they have made the necessary modifications to or
replacement of their affected systems. We have no contractual commitment from
our suppliers regarding Year 2000 issues.

      In addition, we have not assessed the Year 2000 readiness of our
merchants. Merchants who are not Year 2000 compliant may be unable to utilize
our services resulting in a reduction in our revenues. Furthermore, the
Internet as a whole, and business conducted on the Internet, may be adversely
affected by Year 2000 issues. We have no means of assessing such risk.

      Costs of Addressing Year 2000 Issues. Given the information known at this
time about our noncompliant systems, coupled with ongoing, normal course-of-
business efforts to upgrade or replace critical systems, as necessary, we do
not expect Year 2000 compliance costs to have any material adverse impact on
our business. We estimate that total costs for the Year 2000 compliance
assessment and remediation will not exceed $100,000. The costs of this
assessment and remediation will be paid out of general and administrative
expenses.

      Risks of Year 2000 Issues. In light of our assessment and remediation
efforts to date, and the planned, normal course-of-business upgrades, we
believe that any residual Year 2000 risk, other than Year 2000 risks affecting
the Internet as a whole, is limited to non-critical business applications and
support hardware. No assurance can be given, however, that all our systems will
be Year 2000 compliant or that non-compliance will not have a material adverse
effect on our business. We also do not have any assurance that the
manufacturers who supply desktop hardware or software for us will be Year 2000
compliant with their internal systems; a reduction in the supply of desktop
hardware or software from these suppliers could have a material adverse effect
on our business. In this case, we will find alternate suppliers of desktop
hardware and software.

      Contingency Plans. We believe that, if our suppliers are not Year 2000
compliant, the reasonably likely worst case would be that we would be unable to
receive desktop hardware and software from them on a

                                       22
<PAGE>

timely basis which would disrupt employee productivity and could materially
adversely affect our business. We have alternate suppliers in place in the
event that our current suppliers are not able to provide the necessary hardware
and software. Additionally, our operations department and merchant services
department will be fully staffed 24 hours a day from December 30, 1999 through
January 4, 2000 to address issues arising from non-compliance of our services
or of our merchants, if any.

Qualitative and Quantitative Disclosures about Market Risk

      We provide our services to customers primarily in the United States and,
to a lesser extent, in Europe and elsewhere throughout the world. As a result,
our financial results could be affected by factors, such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. All
sales are currently made in U.S. Dollars or Pound Sterling. A strengthening of
the U.S. Dollar or the Pound Sterling could make our products less competitive
in foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates. Due to the nature of our cash equivalents and
short-term investments, which are primarily money market funds and commercial
paper, we have concluded that there is no material market risk exposure.

                                       23
<PAGE>

                                    BUSINESS

Overview

      We are a leading developer and provider of real-time e-commerce
transaction services. Through our CyberSource Internet Commerce Suite, we offer
services to online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, territory management, delivery address
verification and fulfillment management.

Industry Background

The Rapid Growth of Internet Commerce

      As the Internet has become an increasingly important communications
medium, merchants and consumers have begun using the Internet to buy and sell
goods and services. According to International Data Corporation, or IDC, the
number of Internet users worldwide will grow from an estimated 142 million at
the end of 1998 to an estimated 399 million by 2002. Increasingly, these
Internet users are becoming online consumers. IDC forecasts that the actual
number of Web buyers worldwide will expand from 48 million in 1999 to
approximately 183 million in 2003 and that the amount of worldwide commerce
conducted over the Web will increase from $111 billion in 1999 to approximately
$1.3 trillion in 2003.

      E-commerce offers both merchants and consumers numerous benefits:

     .  Merchants and consumers can interact 24 hours a day, 7 days a
        week, regardless of their respective locations.

     .  Merchants can customize Web site content to match the needs and
        preferences of individual users by transparently personalizing
        content for each user.

     .  The online store enables merchants to readily increase the number
        of products and services offered, thereby enhancing the product
        selection available to customers.

     .  Online merchants can avoid investments in physical retail
        locations.

     .  Much of the interaction between merchants and consumers can be
        automated, resulting in reduced selling costs.

      These benefits allow merchants to focus on growing their customer bases
and to market and sell their products around the world in a cost-effective and
efficient manner.

      The early adopters of e-commerce were often Internet-centric companies,
such as Amazon.com and Beyond.com, which were founded specifically to transact
business on the Internet. Today, many businesses consider it essential to offer
their goods and services online, and traditional retailers such as department
stores, car dealers, and toy stores have opened online stores to supplement
their traditional retail models. An increasingly broad selection of products is
now being sold online, ranging from the initial online product offerings of
books, music, computers and software to more traditional consumer goods such as
automobiles, clothes, movie tickets, vitamins and even such personal products
as prescription drugs. Accordingly, the need for online transaction processing
is affecting virtually all industries.

Transaction Processing Demands

      To succeed online, a merchant must attract customers to its Web site and
provide an appealing and easy-to-use environment that encourages customers to
place an order by clicking on the "buy" button. Once the customer places an
order, the merchant must process the order by effectively and efficiently
executing

                                       24
<PAGE>

numerous transactions. With the rapid increase in the number of online
merchants and the vast array of products and services becoming available
online, competition among online merchants is increasingly intense. Due to
these competitive pressures, merchants must focus their resources on attracting
customers to their Web sites and providing compelling content to keep customers
in their online stores. However, as a merchant succeeds in these efforts, the
increased number of resulting orders creates another set of complex challenges.
These challenges include:

     .  Payment processing. The vast majority of online consumer purchases
        are conducted using credit cards. These credit card transactions
        should be processed in real-time to confirm an order while the
        customer is online. Increasingly, merchants are also seeking to
        process transactions in local currencies around the world.

     .  Fraud prevention. Because of the anonymity offered by the Internet
        and the speed with which one can make purchases, the opportunity
        for fraud is significant. In e-commerce transactions, because the
        credit card is not present, a merchant is generally held liable by
        its bank for the full value of the transaction in the event of
        credit card fraud even if a pre-authorization had been obtained.
        Online merchants must find ways to combat this fraud to avoid
        losing both the product being sold and the related revenue.

     .  Sales tax/VAT. An online merchant must comply with many different
        national, state and local sales tax/value added tax (VAT)
        regulations that vary depending on merchant and customer locations
        or product type.

     .  Export compliance. Online merchants must ensure that a proposed
        transaction complies with complex, rapidly changing export
        regulations that restrict the export of some goods to prohibited
        countries, persons and entities.

     .  Territory management. A transaction may be subject to policies and
        restrictions imposed by manufacturers that may prohibit the
        merchant from selling products due to a customer's geographic
        location.

     .  Fulfillment management. Online orders for physical goods must be
        transmitted to fulfillment centers, distributors or merchant-owned
        distribution centers for shipment of the goods.

      The online merchant must often address these demands while the customer
is waiting online. Information that a traditional retailer can collect during a
period of hours, such as fraud screen or export restrictions, often must be
available to the online merchant immediately. In addition, the merchant must
have an e-commerce system that scales as the business grows, provides a high
level of reliability and handles peak loads. The merchant's e-commerce system
should also integrate smoothly into its existing business and technology and
must support secure, authenticated messaging.

Evolution of E-commerce Transaction Processing Systems

      Early adopters of e-commerce business models typically developed custom
transaction processing systems. Merchants that built these systems often faced
long development cycles, which delayed their time-to-market. These custom
systems often had limited functionality and scalability and high ongoing
maintenance costs.

      More recently, online merchants have attempted to address their
transaction processing needs by either purchasing or outsourcing discrete
systems. Merchants that turn to discrete systems like payment processing are
still faced with the need to address other potentially costly and time-
consuming transaction processing issues like fraud screening or export control.
In addition, merchants that purchase discrete systems often discover that these
systems cannot scale as their business grows.

      As the Internet has become an essential marketplace, merchants are
increasingly turning to e-commerce service providers with the expertise to
deliver a comprehensive solution that shortens time-to-

                                       25
<PAGE>

market and maximizes the value of their investment. These transaction
processing solutions should be available at a low initial and overall cost and,
at the same time, be scalable to support the growth of the online business. A
solution should also allow the merchant to maintain control over its online
content and customer relationships and to integrate new services easily.

The CyberSource Solution

      We are a leading developer and provider of real-time e-commerce
transaction services. Through our CyberSource Internet Commerce Suite, we offer
online merchants a solution to the challenges of e-commerce transaction
processing. Key benefits of our solution include:

     .  Faster time-to-market. Our services and technical support enable
        online merchants to begin processing transactions without lengthy
        or costly integration efforts. Our services are invoked by a
        single common interface, the CyberSource Commerce Component,
        installed on a merchant's commerce server. This interface is
        available as a pre-installed part of the commerce server
        application or as a "plug-in," -- a software module that is pre-
        configured for use with the merchant's commerce server, making it
        easy to install and utilize our services. Currently, the
        CyberSource Commerce Component is integrated or available as a
        plug-in for popular commerce servers such as those offered by
        Allaire, BroadVision, Intershop, and Microsoft. In addition, we
        offer development kits that support installation of this interface
        in most operating system environments including Microsoft NT, UNIX
        (Sun Solaris, HP UX, IBM AIX, SCO and others) and Linux.

     .  Access to comprehensive suite of services. We provide merchants
        with on-demand, online access to services that address a broad
        spectrum of e-commerce transaction processing issues related to
        global payment processing, fraud prevention, tax calculation,
        export compliance, territory management, delivery address
        verification and fulfillment management.

     .  Enhanced merchant flexibility and control. Our comprehensive
        transaction processing solution enables the merchant to choose
        transaction services a la carte on a per order basis. The merchant
        has the flexibility to purchase any or all of our offered services
        for each order as needed. In addition, because our services are
        provided transparently to the customer, merchants retain complete
        control over their customers' buying experiences.

     .  Global reach. Our services are used by merchants in many countries
        throughout the world. We have established a network of virtual
        network access points in 18 countries on 5 continents. In
        addition, our payment gateways currently support over 150
        currencies and provide sales tax/VAT calculations for all Canadian
        provinces and all countries in the European Union in addition to
        all United States jurisdictions.

     .  Reduced overall costs. Our services enable merchants to
        effectively process online transactions without the cost of
        developing and maintaining their own complex transaction
        processing systems and infrastructure. Furthermore, our services
        lower transaction costs by reducing fraud and avoiding the
        shipment of goods to undeliverable physical addresses in the
        United States and Canada.

      The technology underlying our e-commerce transaction services provides
the following benefits:

     .  Scalability. Our services allow merchants to deliver consistent
        quality of service as their transaction volumes grow, and to
        handle daily and seasonal peak periods. As a result, merchants do
        not have to expand these areas of their transaction processing
        infrastructure as their businesses grow.

     .  High reliability. Our systems are engineered to provide high
        reliability, and we provide transaction processing 24 hours a day,
        7 days a week. In addition, we offer our merchants support 24
        hours a day, 7 days a week.

                                       26
<PAGE>

     .  Secure messaging. All communications between the merchant's Web
        server and our system are facilitated by our Simple Commerce
        Messaging Protocol, or SCMP. This encrypted protocol allows for
        digital signature processing, message integrity, and identity
        verification of all communications between the merchant and us.

     .  Real-time responses. Because our services enable online merchants
        to process e-commerce transactions in real-time, merchants can
        improve their level of customer satisfaction and reduce their
        support costs by avoiding delayed responses and minimizing the
        need for follow-up communications.

Strategy

      Our objective is to be the leading worldwide provider of real-time e-
commerce transaction services. Key elements of our strategy include the
following:

      Enhance and Extend Our Suite of E-commerce Services. We intend to build
upon our scalable, state-of-the-art transaction processing systems to enhance
and extend the suite of services we currently offer. By continuing to invest
resources in our core transaction processing engine, the CyberSource Internet
Commerce Engine, we intend to further improve availability, reliability and
scalability. Based on input from our merchants, we plan to introduce new
services to solve e-commerce problems as they emerge. For example, in response
to merchant demand, in March 1999, we introduced as part of our service suite
delivery address verification, which uses database and artificial intelligence
technologies to determine whether the merchant's customer has supplied a
deliverable street address in the United States or Canada. We also plan to
develop support for other payment methods in addition to credit cards, as
market demand for such services emerges. To supplement our internal development
efforts, we will consider strategic acquisitions of complementary technologies
and companies.

      Expand Merchant Customer Base through Improved Brand Recognition and
Increased Marketing.  To date, we have made significant investments in
marketing and branding. We substantially increased our sales and marketing
expenses in 1999 from 1998 levels and plan to continue to do so in 2000. We
also intend to increase the size of our direct sales force and enter into
additional collaborative relationships to generate new merchant customers as
well as to increase the number of transaction services used by our existing
merchants.

      Utilize Partnerships to Drive Transactions. We intend to utilize or
leverage our relationships with our channel partners including reselling
partners such as First Data Corp., Paymentech, Bank of America and Vital
Processing Services; solutions resellers (who offer hosted storefront services)
such as TicketMaster Online-CitySearch and Verio; and our strategic
relationships with GE Capital's Equity Capital Group and Visa to increase our
transaction volume and create new markets. We intend to enter into additional
relationships with other companies that offer similar benefits.

      Increase International Presence and Operations. We intend to expand the
availability and brand recognition of our services throughout the world. For
example, we maintain our European headquarters in the United Kingdom and have
recently established a sales presence in Germany, Australia and Asia. In
addition, we have established a payment processing relationship with National
Westminster Bank, or NatWest, to expand support for multi-currency payment
processing for European and other merchants wishing to support payment and
settlement in local European currencies. We plan to enhance these and similar
relationships that will allow us to offer payment processing services in all
major currencies and sales tax/VAT services in all major nations. We intend to
continue building our sales, marketing and operational presence outside of the
United States to serve merchants worldwide.

      Build Organization Around the Merchant. We will continue to focus on the
needs of our merchants and build our services and organization accordingly. For
example, we have established a merchant advisory

                                       27
<PAGE>

board which provides us with valuable feedback on how to improve existing
services and identifies potential new services. In addition, we conduct market
research utilizing focus groups and customer surveys to learn more about our
market and business opportunities. Our merchant customers benefit from the
collective experience of over 800 merchants as we improve existing services and
develop new services.

CyberSource Services

      We provide a suite of e-commerce transaction services designed to
simplify merchants' operations and allow them to focus on marketing and
merchandising tasks required for their online businesses. Our services are
transparent to the merchant's customers. We also offer digital product rights
management and professional services.

CyberSource Internet Commerce Suite

      The CyberSource Internet Commerce Suite is offered to online merchants
worldwide on a remotely accessed, pay-per-transaction basis. All of our
services are accessible through a common software interface residing on the
merchant's Web server. The diagram below illustrates the logical flow of an
order being processed by our Internet Commerce Suite.

                 [LOGO OF CYBERSOURCE INTERNET COMMERCE SUITE]

[The graphics depicts a replica of the on screen button with the word "BUY" on
the button. Next to the button are six connected circles labeled from left to
right "Calculate Tax", "Authorize Payment", "Screen For Fraud", "Verify
Delivery Address", "Check Export Compliance" and "Check Distribution Policies".
An arrow points to a box labeled "Fulfill Order or Provide Access" which has a
line connecting it to two options (1) on top "Physical Product Shipment" which
has two connected circles, the first one labeled "Message Fulfillment Center"
and the second labeled "Settle Payment" between the two circles the line is
labeled "Product Shipment"; (2) on bottom "Digital Products and Services" which
has two connected circles, the first one labeled "Issue Rights Deliver Product"
and the second labeled "Settle Payment". Below this group connected by a dotted
line is a box entitled "Digital Property Preparation, Warehousing, Rights
Management".]

      The CyberSource Internet Commerce Suite currently consists of:

<TABLE>
 <C>              <S>
 Tax Services     Our tax service calculates sales and use taxes for over 7,000
                  taxing jurisdictions in the United States and Canada. The
                  service also supports VAT calculation for all countries in
                  the European Union and many others outside the European
                  Union, enabling businesses to comply with most international
                  VAT regulations.
 Payment Services We provide secure, real-time credit card processing services
                  for all major card brands through major processing gateways
                  in the United States (First Data Corp., Paymentech, and Vital
                  Processing Services) and Europe (IBM Global Services and
                  NatWest). These relationships allow us to support payment
                  transactions in over 150 currencies worldwide, including the
                  Euro.
</TABLE>

                                       28
<PAGE>

<TABLE>
 <C>                             <S>
 Risk Management Services        Our Internet fraud screening system uses artificial intelligence, in
                                 conjunction with an extensive transaction history database, to allow
                                 Internet merchants to predict and control fraud. The service, which
                                 typically returns a predictive score in fewer than ten seconds,
                                 significantly reduces our merchants' risk of fraud losses.
                                 In July 1999, we entered into an agreement with Visa U.S.A. pursuant to
                                 which Visa has agreed to verify our fraud screening results for transactions
                                 paid for by a Visa credit card, enabling us to continually improve the
                                 accuracy and predictability of our Internet Fraud Screen service. This new
                                 service is called CyberSource Internet Fraud Screen enhanced by Visa.
                                 Improved accuracy translates into lower operational costs for merchants,
                                 because they can rely more heavily on automated methods of order screening
                                 with lower risk of rejecting valid sales or accepting fraudulent purchases.
 Distribution Control Services   We provide a range of distribution control services to help ensure merchants
                                 comply with corporate, partner, and government policies for product and
                                 service sales. They include:
                                 .  Export control. Through this service we help to ensure that online
                                    merchants comply with United States Government export regulations,
                                    monitoring order acceptance against a rapidly changing list of denied
                                    countries, persons or entities and electronically verifying the
                                    customer's location using our geolocation technology.
                                 .  Policy control. We offer this distribution control service to assist
                                                                                                             merchants
                                                                                                             in
                                                                                                             complying
                                                                                                             with
                                                                                                             internal
                                                                                                             corporate
                                                                                                             policies
                                                                                                             and
                                                                                                             partner
                                                                                                             marketing
                                                                                                             and
                                                                                                             distribution
                                                                                                             agreements
                                                                                                             for
                                                                                                             product
                                                                                                             sales.
                                                                                                             Specifically,
                                                                                                             this
                                                                                                             service
                                                                                                             allows
                                                                                                             merchants
                                                                                                             to
                                                                                                             limit
                                                                                                             product
                                                                                                             or
                                                                                                             service
                                                                                                             distribution
                                                                                                             to
                                                                                                             specific
                                                                                                             territories
                                                                                                             requested
                                                                                                             by
                                                                                                             the
                                                                                                             business,
                                                                                                             thereby
                                                                                                             ensuring
                                                                                                             compliance
                                                                                                             with
                                                                                                             marketing
                                                                                                             policies
                                                                                                             or
                                                                                                             distribution
                                                                                                             agreements.
 Fulfillment Management Services We support a number of services to help online merchants manage physical and
                                 digital product delivery in a secure, efficient fashion. These include:
                                 .  Fulfillment messaging. We provide secure fulfillment messaging to
                                    simplify the transmission of online orders to fulfillment centers,
                                    distributors, and merchant-owned distribution centers. The service
                                    handles all message routing and supports secure-mail, file transfer
                                    protocol and electronic data interchange formats. In addition, this
                                    service works in conjunction with our payment services to comply with
                                    card association rules regarding settlement upon product shipment.
                                 .  Delivery address verification. This service is designed to prevent
                                    merchants from shipping goods to incorrect physical addresses in the
                                    United States and Canada. This service identifies undeliverable addresses
                                    while the customer is still online so that discrepancies can be resolved
                                    immediately. This service utilizes database and artificial intelligence
                                    technologies to confirm in real-time that city/state/zip combinations are
                                    correct and that streets and street addresses are valid.
</TABLE>

                                       29
<PAGE>

<TABLE>
 <C> <S>
     .  Secure digital delivery. We use patented technology and digital
        certificates to provide simple, secure, electronic delivery of digital
        content, such as software, music, images and documents. Globally
        distributed servers provide geographic distribution efficiency.
</TABLE>

Digital Products Rights Management

      We provide online digital product registration services which allow
digital property owners to specify licensing and distribution conditions.
Digital property owners may designate agents authorized to sell or distribute
their property, and assign distribution controls by product or geographic
location.

      We maintain secure digital warehouses for property owned by, or
authorized to be sold by, the transacting merchant. Digital products may be
archived in the digital warehouses indefinitely to support returns and
replacement.

Professional Services

      Our professional services organization provides business application
expertise, technical know-how, and product knowledge to complement our products
and assist our merchants in achieving faster time-to-market. Our professional
services include planning, implementation, and training. Our planning services
include system and resource evaluation, back-office commerce system design,
order fulfillment strategies and commerce applications assessment and
recommendations. Our implementation services include project management,
merchant bank account acquisition, commerce application configuration and
activation and commerce application testing and validation. Our training
services include digital product preparation, customer service and support
training and ongoing site maintenance.

      For the year ended December 31, 1998, revenues derived from transaction
processing, support services and digital product rights were approximately 55%,
24% and 21% of total revenues, respectively, compared to 64%, 25% and 11% of
total revenues, respectively, for the nine months ended September 30, 1999.
These percentages exclude United Kingdom revenues as we did not segregate
United Kingdom revenues in 1998 as they represented less than 10% of total
revenues. The increase in transaction processing revenues as a percentage of
total revenues in the nine months ended September 30, 1999 was due to the
increase in transaction volumes during the period.

Merchants and Markets

      We have a broad customer base from a variety of industry groups.
Beyond.com accounted for 23.7% of our revenues in 1998 and 15.3% during the
nine months ended September 30, 1999. No other customer accounted for 10% or
more of our revenues during 1997, 1998 or the nine months ended September 30,
1999. The following is a representative list of customers that have chosen to
use our services:

<TABLE>
<CAPTION>
                                                               Consumer Electronics &
  Sporting Goods & Apparel       Books, Music and Video               Hardware
  ------------------------       ----------------------        ----------------------
<S>                           <C>                           <C>
           BlueFly                    Broadcast.com                     Casio
          Chip Shot                       K-Tel                    Compaq Computer
           FogDog                     Liquid Audio               Creative Computers
            Nike                      Varsity Books                 Eastman Kodak
      The Zone Network                                          Handheld Central LLC
<CAPTION>
     Retail Merchandise              Health & Beauty                  Software
     ------------------              ---------------                  --------
<S>                           <C>                           <C>
           Buy.com                     Healthshop                   Babbages etc.
                                   More.com (Greentree
          CyberShop                    Nutrition)                    Beyond.com
        Shopping.com                                                MetaCreations
         Toytime.com                                               SoftwareStreet
                                                                      Van Dyke
</TABLE>

                                       30
<PAGE>

Sales and Marketing

      Target customers for our e-commerce transaction services include
Internet-centric merchants, including those who have developed custom
transaction processing systems and established retailers that have opened
online stores to supplement their traditional retail models. We reach these
merchants worldwide through a direct sales force as well as through an indirect
sales channel that leverages existing sales and marketing infrastructures
developed by our partners. In addition to our direct and indirect sales
efforts, we work with several strategic partners to promote our e-commerce
transaction services. As of September 30, 1999, we had a total of 50 persons in
sales and marketing worldwide.

      Direct Sales. Our direct sales force is comprised of dedicated sales
professionals that target medium to large Internet commerce merchants that
focus primarily on business-to-consumer sales and typically process over 2,500
customer orders per month. In addition, these merchants typically maintain
their own online stores. Our direct sales organization consists of account
managers and territory managers. Our account managers focus on maintaining high
merchant satisfaction and selling additional services to existing merchants,
and our territory managers are responsible for attracting new merchants to our
services.

      Indirect Sales. Our indirect sales channel is divided into "resellers,"
"solutions resellers," "web/systems integrators," and "commerce server
vendors." These partners have contractual relationships that vary from co-
marketing relationships to authorized resale of transaction services.

     .  Resellers. Our resellers provide us services as a part of their
        larger merchant services portfolio, and facilitate the sale and
        billing of our services. Resellers are authorized to sell our
        transaction services, as well as our support services. Our
        resellers include banks and payment services providers such as
        First Data Corporation, Paymentech, Heartland Bank, Bank of
        America, and Vital Processing Services.

     .  Solutions resellers. Solutions resellers provide total merchant
        storefront solutions, typically hosting customized and turnkey
        storefronts for merchants which include our eCommerce transaction
        services. Our solutions resellers manage the entire merchant
        relationship including operations support and transaction services
        billing, and include ISPs, Portals, or specialized systems
        integrators such as TicketMaster Online-CitySearch, Verio, and Web
        Order.

     .  Web/systems integrators. These partners assist merchants in the
        design, development and implementation of online stores, and
        include Agency.com, ITL Infosys, iXL, Fort Point Partners and
        USWeb/CKS.

     .  Commerce server vendors. Our commerce server vendors design,
        develop and distribute software that facilitates the deployment of
        commerce-enabled Web sites, allowing for seamless integration of
        our eCommerce transaction services and include Allaire, Blue
        Martini, emercis, Evergreen, IBM, Intershop, InterWorld,
        Microsoft, Miva, PeopleSoft, RegiSoft and Vignette.

      Strategic Partners. Our strategic partners include GE Capital and Visa.
We work together with our strategic partners to enhance our existing suite of
products, develop new services, and drive the adoption of industry standards
while further increasing the visibility of our e-commerce services. We
currently have contractual relationships with our strategic partners under
which we pay commissions to our strategic partners who refer internet merchants
to us and with whom we enter into a contractual relationship.

      In July 1999, we entered into an agreement with Visa U.S.A. to jointly
develop and promote the CyberSource Internet Fraud Screen enhanced by Visa for
use in the United States. The agreement has an initial term until August 2001
and will be automatically extended thereafter until terminated by either party.
Visa has agreed to promote and market the new product to its member financial
institutions and Internet merchants. During the term of the agreement, we
cannot enter into any development or consultation agreements with certain
competitors of Visa in the area of Internet fraud detection.

                                       31
<PAGE>

      Marketing. We use a variety of marketing activities to increase market
awareness of our services and educate our target audience. In addition to
building awareness of our brand, our marketing activities focus on generating
leads for our sales efforts. To build awareness and attract new merchants we
conduct marketing and partnership programs including advertising, public
relations activities, referral programs, co-branded initiatives, virtual
seminars and trade shows.

Merchant Support

      We provide a range of merchant activation and sustaining support services
to ensure a high level of performance and reliability and to enable merchants
to get to market more quickly. We offer two levels of rapid start
implementation and two levels of sustaining support services in addition to
basic account activation: standard support and premier support. All of these
services include transaction reporting, fraud list updating and notification of
scheduled and unscheduled system downtime and self-help merchant support tools
on our Web site. Merchants may select any combination of implementation and/or
sustaining support packages, according to their needs.

      Account Activation. Our account activation level service is intended for
use by merchants that receive technical support from a technically qualified
third party, an organization that resells the CyberSource Internet Commerce
Suite, or by those merchants with sufficient in-house technical expertise.
Account activation allows merchants to connect to the CyberSource Internet
Commerce Suite, configure all merchant IDs and account information, access test
services, gain secure access to our online merchant support center and next
business day e-mail support.

      Rapid Start Implementation and Standard Sustaining Support. This level of
service is designed to provide support to merchants during regular business
hours. It provides all of the services of account activation as well as toll
free telephone support from 7 a.m. to 7 p.m., Pacific Time, Monday through
Friday, from our merchant support group with a guaranteed four hour response
time. E-mail support with a guaranteed four hour response time and an initial
one hour project orientation conference call with our support professionals is
also included.

      Rapid Start Premier Implementation and Premier Sustaining Support. Our
premier support level provides the implementation and sustaining support
benefits of the standard level with the addition of a dedicated merchant
support center engineer available during project implementation, and support
available 24 hours a day, 7 days a week, via toll-free telephone access or
email with a one hour guaranteed response. Also included are a dedicated
business account manager and a review to optimize fraud scoring and other
Internet commerce services.

      Through toll-free telephone numbers, our merchants can reach our support
desk professionals around the clock. As of September 30, 1999, 22 of our
employees were dedicated to merchant support.

Technology

      Our proprietary transaction processing system employs a modular
architecture that was designed to scale rapidly and handle the transaction
processing demands of our merchants across the Internet. This system is
composed of multiple groups of servers and routers acting as a single point of
contact for our merchants' transaction processing requirements. The primary
software components of our system are the E-Transaction Databases, the Internet
Commerce Engine, or ICE, the Internet Commerce Services Applications, the
Simple Commerce Messaging Protocol, or SCMP, and the SCMP client. This system
utilizes industry standards to maximize our compatibility with our merchants'
e-commerce systems. In addition, we have implemented a global network of data
centers and access points that are designed to minimize transaction processing
time and system failures.

                                       32
<PAGE>

                       [LOGO OF INTERNET COMMERCE ENGINE]

[The graphic depicts a main box with the words "CyberSource Data Center" above
it. Inside the main box top center are the words "Internet Commerce
Applications." Below is a row of seven boxes labeled from left to right "Tax
Calculation," Global Payment Procedures," "Fraud Prevention," "Delivery Address
Verification," "Territory Management," "Export Compliance," and "Fulfillment
Management." Below is a box labeled "Internet Commerce Engine" and below that
is a graphical representation of a disk labeled "eTransaction Databases." One
zigzag line connects the main box with a box on the left. The line is labeled
"Secure Commerce Messaging Protocol," the box is labeled "Merchant Commerce
Server (SCMP Client)." To the right of the main box are four zigzag lines
labeled from to bottom "Paymentech," "First Data Corp.," "NatWest," and "Other
External Resources."]

E-Transaction Database Architecture

      Three primary databases form the core of our transaction processing
system: the transaction process database which maintains information necessary
to process each individual transaction; the decision support database, which
processes reports and provides detailed information about merchants'
transactions and the digital products rights management database, which manages
and reports on the digital property rights that customers have purchased. Our
transaction services rely on these databases to store the information necessary
to process transactions. For example, our fraud prevention service relies upon
a proprietary database of millions of transactions to assess the risk of fraud.

Internet Commerce Engine

      Our ICE manages work flow functions and the required communications
between our commerce servers, our database and any external resources including
First Data Corp., National Westminster Bank, Paymentech and Vital Processing
Services. Our Internet Commerce Engine is designed to meet the transaction
processing demands of our merchants in a secure, fast, efficient, reliable,
scalable and interoperable manner. Our ICE was designed to scale rapidly to
handle peak transaction processing loads. Separate ICE servers share the
transaction load from our merchants and provide for immediate backup services
should any ICE server fail. Additional ICE servers can be readily added to our
data centers to accommodate increased merchant demand.

Internet Commerce Services Applications

      We have developed a set of software applications that perform the
services in our Internet Commerce Suite. These services include global payment
processing, fraud prevention, tax calculation, export compliance, territory
management, delivery address verification and fulfillment management. These
applications contain the rules and logic necessary to provide our transaction
services to merchants. The applications share resources with the ICE and
databases which allow us to efficiently add new application services to meet
our customers needs.

Simple Commerce Messaging Protocol

      We have developed the Simple Commerce Messaging Protocol, or SCMP, to
enable efficient and secure connections between our ICE and our merchants. In
order to ensure secure messaging, SCMP utilizes industry standards for secure
communications including the Data Encryption Standard, RSA/public key
cryptography and digital certificates. SCMP enables our merchants to securely
access our suite of commerce services. Most importantly, SCMP can be integrated
into any software product that might require our application services.

                                       33
<PAGE>

SCMP Client

      Our services are invoked by a common programming interface, residing on
our merchants' commerce servers. This client may be easily installed with a
"plug-in" that is available for most popular commerce servers including those
offered by BroadVision, IBM and Microsoft. In addition, we have developed
software libraries which act as a client and run on most operating systems
including Microsoft NT, UNIX (Sun Solaris, HP UX, IBM AIX, SCO and others) and
Linux. A merchant can access our commerce services using either the plug-in or
the software libraries that we have developed.

Industry Standards

      The implementation of our architecture is based on and complies with
widely accepted industry standards. For example, the ICE utilizes industry
standard components from industry leaders such as Cisco, Harbinger, Microsoft,
Retail Logic, RSA Data Security, Sun Microsystems and Sybase. Adherence to
industry standards provides compatibility with existing applications, enables
ease of modification and reduces the need for software modules to be rewritten
over time, thus protecting our merchants' investments.

Data Centers and Network Access

      Our data centers are located at leased facilities in Santa Clara,
California and London, England. A data center is a facility containing servers,
modem banks, network circuits and other physical equipment necessary to connect
users to the Internet. These data centers have multiple levels of redundant
connectivity to the Internet, back-up power, fire suppression, seismic
reinforcement and security surveillance 24 hours a day, 7 days a week. In
addition, we have access to 18 "points of presence" located on 5 continents.
That access is provided by an Internet service provider and allows us to serve
merchants globally. A "point of presence," or POP, is a point along an Internet
service provider's network that enables users to connect to the Internet more
directly and therefore more quickly. These points of presence provide rapid
access to our suite of services and significantly reduce the number of Internet
connections a transaction must pass through to reach us.

Product Development

      Our product development team is responsible for the design, development
and release of our core infrastructure and services. We have a well-defined
software development methodology that we believe enables us to deliver services
that satisfy real business needs for the global market while meeting commercial
quality expectations. We emphasize quality assurance throughout our software
development lifecycle. We believe that a strong emphasis placed on analysis,
design and rapid prototyping early in the project lifecycle reduces the number
and costs of defects that may be found in later stages. Our development
methodology focuses on delivery of product to a global market, enabling
localization into multiple languages, multi-currency payment processing, global
fraud detection, and local regulatory compliance from a single code base. As of
September 30, 1999, we employed 53 persons in our product development
organization.

      When appropriate, we utilize third parties to expand the capacity and
technical expertise of our internal product development organization. On
occasion, we have licensed third-party technology that we feel provides the
strongest technical alternative. We believe this approach shortens time-to-
market without compromising our competitive position or product quality.

Intellectual Property

      Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.

                                       34
<PAGE>

      We have been issued one patent and have five applications pending. The
issued patent, for a method and system for controlling distribution of software
in a multitiered distribution chain, expires in April 2016. We have pending
patent applications covering our Internet fraud screen system, digital
delivery, delivery address verification and other technologies for services not
yet offered for sale to the public. We investigate, define and prepare
applications for new patents as a part of the standard product development
cycle. Our engineering management team meets on a routine basis to harvest new
invention disclosures from the engineering and architecture groups. We cannot
assure you that any patent application that we file will issue as a patent, and
we cannot assure you that any patent issued to us will not be held invalid or
unenforceable based on prior art or for any other reason.

      We believe that numerous patent applications relating to the Internet
commerce field have been filed or have issued as patents. From time to time, in
the ordinary course of business, we become aware of one or more patents of
third parties that we choose to evaluate for a variety of purposes. These
purposes may include determining the general contents of patents, reviewing the
technological developments of their assignees, and determining whether our
technology may overlap. We have not conducted any search to determine whether
any of our services or technology could be alleged to infringe upon any patent
rights of any third party. We cannot assure you that none of our products,
services, and technology infringes any patent of any third party.

      As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, distributors, and corporate partners
and into license agreements with respect to our software, documentation and
other proprietary information. Despite these precautions, third parties could
reverse engineer, copy or otherwise obtain our technology without
authorization, or develop similar technology independently. While we police the
use of our services and technology through online monitoring and functions
designed into SCMP and our ICE, an unauthorized third-party may nevertheless
gain unauthorized access to our services or pirate our software. We are unable
to determine the extent to which piracy of our intellectual property or
software exists. Software piracy is a prevalent problem in our industry.
Effective protection of intellectual property rights may be unavailable or
limited in foreign countries. We cannot assure you that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our services or design
around any intellectual property rights we hold.

      From time to time we may receive notice of claims of infringement of
other parties' intellectual property rights. As the number of services in our
market increases and functionalities overlap, companies such as ours may become
increasingly subject to infringement claims. Any infringement claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel or require us to develop non-
infringing technology or enter into licensing agreements. Such licensing
agreements, if required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our failure or inability
to develop non-infringing technology or license the proprietary rights on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.

Competition

      The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop custom systems may be less likely to adopt an outsourced transaction
processing strategy. We also face competition from developers of other systems
for e-commerce transaction processing such as Clear Commerce, CyberCash,
Digital River, Hewlett-Packard (VeriFone), HNC Software, Open Market, PaylinX,
ShopNow.com and Signio. In addition, companies, including financial services
and credit companies such as First Data Corporation, AT&T and GE Capital, may
enter the market for our services. In the future, we also may compete with
large Internet-centric companies that derive a significant portion of their
revenues from e-commerce and may offer, or provide a means for others to offer,
e-commerce transaction services.

                                       35
<PAGE>

      Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other e-commerce transaction service
providers, thereby increasing the ability of their services to address the
needs of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
channel partners, thereby limiting our ability to sell services through these
channels. Competitive pressures could reduce our market share or require the
reduction of the prices of our services, either of which could materially and
adversely affect our business, results of operations or financial condition.

      We compete on the basis of certain factors, including:

     .  system reliability;

     .  product performance;

     .  breadth of service offering;

     .  ease of implementation;

     .  time to market;

     .  customer support; and

     .  price.

      We believe that we presently compete favorably with respect to each of
these factors. However, the market for our services is still rapidly evolving,
and we may not be able to compete successfully against current and potential
future competitors.

Facilities

      Our primary offices are located in approximately 32,528 square feet of
space in San Jose, California under leases expiring in September 2000 (5,277
square feet) and in January 2001 (27,251 square feet). We also lease space for
field sales offices in Jersey City, New Jersey and Los Angeles, California. In
addition, we maintain sales and support offices in leased space in Weybridge,
United Kingdom. We intend to relocate our primary offices to a new facility in
early 2000.

Employees

      As of September 30, 1999, we had a total of 208 employees, including 53
persons in product development, 50 persons in sales and marketing, 58 persons
in professional services, operations and customer support, 28 persons in
general and administrative services and 19 persons in our offices in the United
Kingdom. We also have one employee in each of Australia, Germany and Japan.
None of our employees is represented by a labor union, and we consider employee
relations to be good.

Legal Proceedings

      A former Vice President of Product Management filed a lawsuit against us
in the Superior Court of California in Santa Clara County on April 8, 1999
seeking unspecified monetary damages and equitable relief. The plaintiff
alleges several causes of action, including wrongful termination, defamation,
fraud, and unfair business practices arising out of her three month employment
with us. While we cannot assure you as to the

                                       36
<PAGE>

outcome of this litigation, we believe the lawsuit is without merit, and we
intend to vigorously defend against the claims asserted.

Regulations

      The following regulations can impact our business now or in the future:

      Fair Credit Reporting Act. Because our Internet fraud screening system
assesses the probability of fraud in an Internet credit card transaction, we
may be deemed a consumer reporting agency under the Fair Credit Reporting Act.
As a precaution, we are implementing changes to our systems and processes so
that we will be in compliance with the act. Complying with this act requires us
to provide information about personal data stored by us. Failure to comply with
this act could result in claims being made against us by individual consumers
and the Federal Trade Commission.

      Export Control Regulations. Current export control regulations prohibit
the export of strong encryption technology without a license, thereby
preventing us from using stronger encryption technology to protect the security
of data being transmitted to and from Internet merchants outside of the United
States. We have obtained a license to use 168-bit encryption technology with
our international merchants, and have applied for a license to use higher
levels of encryption technology. We cannot be sure that the license to use
stronger encryption technology will be issued. If our application is denied, we
will be unable to use stronger than 168-bit encryption technology with our
international merchants.

      Internet Tax Freedom Act. Enacted in October 1998 and effective through
October 2001, the act bars state or local governments from imposing taxes that
would subject buyers and sellers of electronic commerce to taxation in multiple
states. The act also bars state and local governments from imposing taxes on
Internet access through October 2001. When the act expires or if the act is
repealed, Internet access and sales across the Internet may be subject to
additional taxation by state and local governments, thereby discouraging
purchases over the Internet and adversely affecting our business.

                                       37
<PAGE>

                                   MANAGEMENT

Officers, Directors and Key Employees

      Our officers, key employees and directors, their ages and their positions
as of September 30, 1999, are as follows:

<TABLE>
<CAPTION>
 Name                          Age Position(s)
 ----                          --- ----------
 <C>                           <C> <S>
 Executive Officers
  William S. McKiernan........  42 Chairman of the Board of Directors and Chief
                                    Executive Officer
  L. Evan Ellis, Jr...........  44 President and Chief Operating Officer
  Charles E. Noreen, Jr.......  38 Vice President of Finance and Administration
                                    and Chief Financial
                                    Officer
  Thomas A. Arnold............  44 Chief Technical Officer
  Erna Arnesen................  47 Vice President of North American Field
                                    Operations
  Anthony V. Bates............  48 Executive Vice President of International
  William E. Donahoo..........  37 Vice President of Marketing
  Robert J. Ford..............  49 Vice President of Engineering
  Eric M. Wun.................  40 Vice President of Operations
 Key Employees
  David Daetz.................  34 Vice President of Corporate Business
                                    Development, Worldwide
  Steven W. Klebe.............  43 Vice President of Payment Industry Alliances
  Anthony F. Quilici..........  29 Vice President of Merchant Services
  Tracy Wilk..................  40 Vice President of Product Marketing
 Directors
  Bert Kolde(1)(2)............  44 Director
  Linda Fayne Levinson(1)(2)..  57 Director
  Steven P. Novak(1)(2).......  51 Director
  Richard Scudellari(1)(2)....  42 Director and Secretary
</TABLE>
--------
(1) Member of Audit Committee.

(2) Member of Compensation Committee.

      William S. McKiernan founded CyberSource and has been our Chief Executive
Officer since our inception in December of 1997. In 1994, Mr. McKiernan co-
founded Beyond.com, an on-line reseller of computer software, and was its
Chairman and Chief Executive Officer from its inception until 1998. He
currently serves as Chairman of the Board of Directors of Beyond.com. From 1992
to 1994, Mr. McKiernan was employed by McAfee Associates, Inc. (now known as
Network Associates), a developer of computer security software, where he served
as President and Chief Operations Officer during its initial public offering in
October 1992. Prior to joining McAfee Associates in 1992, Mr. McKiernan was
Vice President of Princeton Venture Research, Inc., an investment banking and
venture consulting firm from 1990 to 1992. Mr. McKiernan has also held
management positions with IBM/ROLM, a telecommunications company, and Price
Waterhouse. Mr. McKiernan holds a B.S. from Boston College and an M.B.A. from
the Harvard Business School.

      L. Evan Ellis, Jr. joined us in April 1999 and became our President and
Chief Operating Officer in August 1999. Prior to that, Mr. Ellis was Vice
President of North American Sales. From 1990 to 1999, Mr. Ellis was with
Silicon Graphics, Inc., a developer and manufacturer of high performance
computer workstations, where he was Senior Vice President of Field Operations
for the Americas from October 1997 to April 1999, Senior Vice President of
Marketing from May 1997 to October 1997, Vice President of Western

                                       38
<PAGE>

U.S. from October 1995 to May 1997 and Vice President of Field Marketing and
Distribution from October 1991 to October 1995. From 1978 to 1990, Mr. Ellis
was employed by International Business Machines in various sales and sales
management roles. Mr. Ellis received a B.S. in Economics from the University of
California, Los Angeles.

      Charles E. Noreen, Jr. has served as our Vice President of Finance and
Administration and Chief Financial Officer since joining us in September 1998.
Mr. Noreen was employed by RockShox, Inc., a bicycle component manufacturer,
first as its Vice President and Chief Financial Officer from May 1996 to July
1998, then as its Vice President of Business Development from July 1998 to
September 1998. Mr. Noreen was a partner at Coopers & Lybrand L.L.P. from 1994
to 1996 where he served as an accountant from 1983 to 1996. Mr. Noreen is a
certified public accountant and received a B.S. in Business Administration from
the University of Southern California.

      Thomas A. Arnold joined us in March 1996 and became as our Chief
Technical Officer in June 1999. From October 1989 to March 1996, Mr. Arnold
managed applications development at Silicon Graphics, Inc. Mr. Arnold received
a B.S. in Public Administration at San Jose State University and an M.B.A. with
an emphasis in Information Technology Management from Golden Gate University.

      Erna Arnesen joined us in June 1999 as Vice President, Channels and
Partners and became our Vice President of North American Field Operations in
September 1999. From 1993 to May 1999, Ms. Arnesen was with Silicon Graphics,
Inc. where she was Vice President of Global Channels. Prior to working at
Silicon Graphics, Inc., Ms. Arnesen held a variety of sales and marketing
positions at NeXT Software, Inc., a software developer, and Apple Computer,
Inc. Ms. Arnesen received a B.A. in History and Political Science from
Wellesley College and an M.B.A. from the Harvard Business School.

      Anthony V. Bates has served as our Executive Vice President of
International since joining us in February 1997. From 1996 to 1997, Mr. Bates
was Vice President of Worldwide Sales and Marketing for Serena Software
International, a software developer. From 1990 to 1996, Mr. Bates was President
and Chief Executive Officer of Specialix, Inc., a leading international
supplier of data communications products. Mr. Bates received an Honors Degree
in Electronics and Electrical Engineering from Newcastle upon Tyne Polytechnic
in the United Kingdom.

      William E. Donahoo has served as our Vice President of Marketing since
joining us in December 1998. From July 1998 to November 1998, Mr. Donahoo was
Vice President of Marketing & Business Development for DigiCash, Inc., a
developer of electronic currency, DigiCash filed for Chapter 11 bankruptcy
protection in November 1998. From March 1997 to March 1998, Mr. Donahoo was
Vice President of Marketing for Novonyx, a network software developer, which he
co-founded. From October 1990 to March 1997, Mr. Donahoo was employed by
Novell, Inc., a network software developer, first as a product-line manager
from October 1990 to October 1996, then as its Vice President of Marketing for
the Netware Product Group until March 1997. Mr. Donahoo received a B.S. in
Computer Science and an M.B.A. from Brigham Young University.

      Robert J. Ford has served as our Vice President of Engineering since
joining us in June 1999. From 1997 to 1999, Mr. Ford was Vice President of
Engineering for Extensity, Inc., a vendor of web-based e-business applications.
From 1995 to 1997, Mr. Ford served as Vice President of Engineering for
Intrinsa Corporation, a developer of defect detection software. From 1992 to
1995, Mr. Ford was Vice President of Engineering for Objectivity, Inc., a
developer of database management systems. Mr. Ford was employed by Boole &
Babbage, Inc., a vendor of systems management software, from 1980 to 1992,
where he was Vice President of Systems from 1989 to 1992. Mr. Ford received a
B.S. from Witwatersrand College for Advanced Technical Education in South
Africa.

      Eric M. Wun has served as our Vice President of Operations since joining
us in March 1999. From August 1998 to February 1999, Mr. Wun was Vice President
of Operations for Corio, Inc., a computer application service provider. From
December 1996 to August 1998, Mr. Wun was Vice President of Operations

                                       39
<PAGE>

for Zip2 Corp., a developer of personalized Web sites. Mr. Wun was Vice
President and Data Center Manager for Visa International from February 1992 to
October 1996. Mr. Wun received a B.S. in Economics from the University of San
Francisco.

      David Daetz has served as our Vice President of Worldwide Corporate
Business Development since joining us in June 1999. From 1997 to June 1999, Mr.
Daetz was Senior Director of Corporate Business Development at Symantec
Corporation, a software developer. From 1989 to 1997, Mr. Daetz held senior
management positions in business development, product marketing and marketing
at Apple Computer, Inc. Mr. Daetz holds a B.S. in Industrial Engineering /
Engineering Management and a B.A. in International Relations from Stanford
University and an M.B.A. from San Jose State University.

      Steven W. Klebe joined us in April 1997 and became our Vice President of
Payment Industry Alliances in January 1999. Prior to January 1999, Mr. Klebe
was our Vice President of Business Development and also held a number of sales
and marketing positions with us. From 1994 to 1997, Mr. Klebe was Vice
President of Sales for CyberCash, a provider of Internet payment services. From
1985 to 1994, Mr. Klebe was employed by VeriFone Corporation, an electronic
payment system provider. Mr. Klebe received a B.S. in Marketing from
Northeastern University.

      Anthony F. Quilici has served as our Vice President of Merchant Support
since February 1999. From February 1998 to February 1999, Mr. Quilici served as
Vice President of Operations, and from our inception in December 1997 until
February 1998, he served as our Director of Operations. Prior to joining us,
Mr. Quilici worked at Silicon Graphics, Inc. as a systems analyst from June
1995 to December 1997 and as a data analyst from July 1992 to June 1995. Mr.
Quilici received a B.S. in Management Information Systems from California State
University, Chico.

      Tracy Wilk has served as our Vice President of Product Marketing since
joining us in April 1999. From 1992 to 1999, Mr. Wilk was Vice President of
Strategic Alliances and Investments at Visa International. Mr. Wilk received a
B.A. in Economics and an M.B.A. from the University of California, Berkeley.

      Bert Kolde has been a director of CyberSource since our inception in
December 1997. Mr. Kolde serves as a director, Vice President, Treasurer and
Secretary of Vulcan Ventures Inc., an investment organization, Vice Chairman of
the Portland Trail Blazers, Seattle Seahawks, Oregon Arena Corporation, and
First and Goal Corporation. Mr. Kolde serves as Chairman of the Board of
Directors of Click2Learn.com, a provider of online learning services. Mr. Kolde
also serves as a director of MetaCreations Corporation, a developer of visual
computing software tools and Beyond.com Corporation. Mr. Kolde holds a B.A. in
Business Administration from Washington State University and an M.B.A. from the
University of Washington.

      Linda Fayne Levinson has been a director of CyberSource since our
inception in December 1997. Ms. Levinson has served as a principal of Global
Retail Partners, L.P. since April 1997. From 1994 to 1997, she served as
President of Fayne Levinson Associates, an independent general management
consulting firm that advised major corporations and start-up entrepreneurial
ventures. In 1993, Ms. Levinson was a financial adviser with Creative Artists
Agency, Inc. From 1989 to 1992, Ms. Levinson was a partner of Wings Partners,
Inc., a merchant banking firm and was actively involved in taking Northwest
Airlines private. From 1984 to 1987, Ms. Levinson was a Senior Vice President
of American Express Travel Related Services, Inc., a payment card company.
Prior to that, Ms. Levinson was a partner at McKinsey & Co. Ms. Levinson
presently serves as a director of Administaff, Inc., a professional employer
organization, Genentech, Inc., a biotechnology company, Jacobs Engineering
Group, Inc., a provider of engineering, design and consulting services, NCR
Corporation, a developer of information technology products, GoTo.com, Inc., a
developer of search engine technologies, as well as several privately-held
companies. Ms. Levinson received her A.B. from Barnard College in Russian
Studies, her M.A. from Harvard University in Russian Literature and her M.B.A.
from New York University.

      Steven P. Novak has been a director of CyberSource since our inception in
December 1997. Mr. Novak is the Managing Director heading C.E. Unterberg,
Towbin's Internet Practice. From February 1993 to January 1998,

                                       40
<PAGE>

Mr. Novak served as co-founder, President, and Chief Investment Officer of C.E.
Unterberg, Towbin Advisors, a registered investment advisor. Mr. Novak also
serves as a director of several privately held companies. Mr. Novak's prior
affiliations include, among others, Forstmann Leff Associates, a fund manager,
Sanford C. Bernstein & Company, Inc, an independent investment counselor, and
Harris Bankcorp, a multibank holding company. Mr. Novak holds a B.S. from
Purdue University and an M.B.A. from the Harvard Business School.

      Richard Scudellari has been a director of CyberSource since our inception
in December 1997. Mr. Scudellari has been a partner at Morrison & Foerster LLP,
a law firm, since February 1999. From 1990 to January 1999 Mr. Scudellari was a
partner at Jackson Tufts Cole & Black, LLP., a law firm. Mr. Scudellari holds a
B.S. and J.D. from Boston College.

      We currently have authorized five directors. Our executive officers are
appointed by, and serve at the discretion of, our Board of Directors. Each of
our officers and directors, excluding non-employee directors, devotes
substantially full time to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees. Two
of the five members of our Board of Directors also serve as directors of
Beyond.com.

Board Committees

      Our Audit Committee reviews, acts on and reports to our Board of
Directors with respect to auditing and accounting matters, including the
selection of our independent accountants, the scope of our annual audits, fees
to be paid to the independent accountants, the performance of our independent
accountants and our accounting practices. Ms. Levinson and Messrs. Kolde,
Novak, and Scudellari are the members of our Audit Committee.

      Our Compensation Committee establishes salaries, incentives and other
forms of compensation for officers and other employees. This Committee also
administers our incentive compensation and benefit plans. Ms. Levinson and
Messrs. Kolde, Novak, and Scudellari are the members of the Compensation
Committee.

Compensation Committee, Insider Participation and Interlocks

      None of the members of our Compensation Committee is an officer or
employee of CyberSource. Two members of our Board of Directors also serve as
members of the board of directors of Beyond.com. Other than with respect to
Beyond.com, no interlocking relationship exists between our Board of Directors
or Compensation Committee and the board of directors or compensation committee
of any other company, nor has an interlocking relationship existed in the past.

Director Compensation

      We do not pay directors cash compensation for their services as directors
or members of committees of the Board of Directors. We do reimburse them for
their reasonable expenses incurred in attending meetings of the Board of
Directors. In addition, each new non-employee director receives an option to
purchase 5,000 shares of our common stock upon joining the Board of Directors.
Each incumbent non-employee director is granted an option to purchase an
additional 5,000 shares of our common stock thereafter annually on January 1.
All options are immediately exercisable upon grant and remain subject to a
right of repurchase as determined under the 1999 Option Plan. See "Stock
Plans -- 1999 Option Plan."

                                       41
<PAGE>

Executive Compensation

      The following table sets forth information concerning compensation of our
Chief Executive Officer and our other most highly compensated executive
officers whose aggregate cash compensation exceeded $100,000 during the year
ended December 31, 1998 (collectively, our "Named Executive Officers").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                  Long-Term
                                Annual Compensation              Compensation
                         ------------------------------------ ------------------
Name and Principal                             Other Annual       Securities
Position in 1998          Salary     Bonus(2) Compensation($) Underlying Options
------------------       --------    -------- --------------- ------------------
<S>                      <C>         <C>      <C>             <C>
William S. McKiernan
 Chief Executive Officer
  (1) .................. $144,375(3)      --         --                 --
Anthony V. Bates
 Executive Vice
  President of
  International.........  137,500    $36,500         --             77,500
Thomas A. Arnold
 Chief Technical Officer
  (4)...................  118,688      5,700         --             85,000
Gregory Quinn (5)
 Vice President Sales...  118,693     53,400         --             65,000
</TABLE>
--------
(1) Mr. McKiernan also held the position of President until August 1999.

(2) Includes bonus amounts earned in 1998 and paid in 1999.

(3) Does not include $60,000 in deferred compensation earned by Mr. McKiernan
    in 1994 as President of Beyond.com, allocated to us in connection with the
    spin off and paid to Mr. McKiernan in 1998.

(4) Until June 1999, Mr. Arnold held the position of Vice President of
    Engineering and Chief Technology Officer.

(5) Mr. Quinn's employment with us terminated in March 1999.

                       Option Grants In Fiscal Year 1998

      The following table sets forth information for each of our Named
Executive Officers concerning stock options granted to them during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
                                                                       Potential Realizable
                                                                         Value at Assumed
                                                                       Annual Rates of Stock
                                                                        Price Appreciation
                                                                        for Option Term(5)
                                                                       ---------------------
                         Number of
                         Securities  Percent of
                         Underlying Total Options Exercise
                          Options    Granted to   Price Per Expiration
                         Granted(1) Employees (2) Share(3)   Date(4)       5%        10%
                         ---------- ------------- --------- ---------- ---------- ----------
<S>                      <C>        <C>           <C>       <C>        <C>        <C>
William S. McKiernan....       --         --           --          --          --         --
Anthony V. Bates........   50,000       4.27%      $0.045    03/18/08  $   13,789 $   23,437
                           12,500       1.07        0.200    03/18/08       1,572      3,984
                           15,000       1.28        0.540    07/30/08       5,094     12,909
Thomas A. Arnold........   75,000       6.40        0.015    03/18/08      22,933     37,406
                           10,000       0.85        0.540    07/30/08       3,396      8,606
Gregory Quinn...........   50,000       4.27        0.200    03/18/08       6,289     15,937
                           15,000       1.28        0.540    07/30/08       5,094     12,909
</TABLE>


                                       42
<PAGE>

--------
(1) Each of the above options was granted pursuant to our 1998 Stock Option
    Plan. 25% of the options granted vest one year from the date of grant.
    Thereafter the remaining 75% of the options granted vest monthly over the
    next three years.

(2) In the last fiscal year, we granted options to employees to purchase an
    aggregate of 1,170,998 shares.

(3) In determining the fair market value of our common stock, our board of
    directors considered factors, such as our financial condition and business
    prospects, our operating results, the absence of a market for our common
    stock and the risks normally associated with high technology companies. The
    exercise price may be paid in cash, check, promissory note, shares of our
    common stock, through a cashless exercise procedure involving same-day sale
    of the purchased shares or any combination of these methods.

(4) Options may terminate before their expiration dates if the optionee's
    status as an employee or consultant is terminated or upon the optionee's
    death or disability.

(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
    are mandated by rules of the Securities and Exchange Commission and do not
    represent our estimate or projection of our future common stock prices.

   Aggregate Option Exercises In Last Fiscal Year and Year-End Option Values

      The following table sets forth information concerning exercises of stock
options during the fiscal year ended December 31, 1998 by each of our Named
Executive Officers and the number and value of unexercised options held by each
of our Named Executive Officers on December 31, 1998.

<TABLE>
<CAPTION>
                                                         Number of
                                                   Securities Underlying   Value of Unexercised In-
                         Shares Acquired  Value    Unexercised Options at    the-Money Options at
Name                       on Exercise   Realized    December 31, 1998       December 31, 1998 (1)
----                     --------------- -------- ------------------------ -------------------------
                                                  Exercisable Unexercisble Exercisable Unexercisable
                                                  ----------- ------------ ----------- -------------
<S>                      <C>             <C>      <C>         <C>          <C>         <C>
William S. McKiernan....         --           --        --           --           --           --
Anthony V. Bates........     17,187      $ 8,508     3,125       57,188      $11,172     $195,085
Thomas A. Arnold........     42,188       22,148     7,813       35,000       28,164      120,925
Gregory Quinn...........         --           --        --       65,000           --      217,200
</TABLE>
--------
(1) The value of "in-the-money" stock options represents the positive spread
    between the exercise price of stock options and the fair market value for
    our common stock of $3.62 per share as of December 31, 1998, as determined
    by our Board of Directors.

Stock Plans

      In March 1998, we adopted our 1998 Stock Option Plan. We reserved
1,900,000 shares of common stock for stock option grants under the 1998 Option
Plan. Additionally, in January 1999, we adopted our 1999 Stock Option Plan. We
reserved 2,500,000 shares of common stock for stock option grants under the
1999 Option Plan. In June 1999, we adopted our 1999 Employee Stock Purchase
Plan. We reserved 500,000 shares for issuance under the 1999 Purchase Plan. In
October 1999, we adopted our 1999 Nonqualified Stock Option Plan. We reserved
1,100,000 shares for issuance under the 1999 Nonqualified Option Plan. The
purpose of each plan is to enhance our long-term stockholder value by offering
our employees, directors, officers, consultants, agents, advisors and
independent contractors the opportunity to promote and participate in our
growth and success, and to encourage these people to remain in our service and
acquire and maintain stock ownership in us.

      As of September 30, 1999, options to purchase 3,137,395 shares of common
stock were outstanding under the 1998 Plan and the 1999 Option Plan with a
weighted average exercise price of $7.08 per share. As of September 30, 1999,
options to purchase 135,941 shares were available for grant under the 1998
Option Plan and 1999 Option Plan and options for 1,126,664 shares had been
exercised.

                                       43
<PAGE>

      Our Board of Directors, a committee appointed by the Board or, with
respect to individual option grants of up to 30,000 shares, a subcommittee of
the compensation committee of the Board consisting of our Chairman may
administer the Plans.

1999 Stock Option Plan

      The administrator has the authority to select individuals who are to
receive options under the 1999 Option Plan and to specify the terms and
conditions of options granted (including whether or not the options are
incentive or nonstatutory stock options), the vesting provisions, the option
term and the exercise price. The 1999 Option Plan provides that we may grant
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 to employees, including our officers and employee
directors, and we may grant nonstatutory stock options to employees,
consultants and directors, including non-employee directors.

      The exercise price of incentive stock options granted under the 1999
Option Plan shall equal the fair market value of our common stock on the date
of grant (except in the case of grants to any person holding more than 10% of
the total combined voting power of all classes of our, or any of our parent's
or subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date
of grant. Option holders may pay for an exercise in cash or other
consideration, including a promissory note, as approved by the administrator.

      Generally, options granted under the 1999 Option Plan (other than those
granted to non-employee directors) vest at a rate of 25% of the shares
underlying the option after one year and the remaining shares vest in equal
portions over the following 36 months, so that all shares are vested after four
years. The form of stock option grant under the 1999 Option Plan used to grant
options to our employees provides for accelerated vesting of half of all
unvested shares upon involuntary termination of employment with us without
cause occurring within one year of a change in control of CyberSource. Unless
otherwise provided by the administrator, an option granted under the 1999
Option Plan generally expires 10 years from the date of grant (five years in
the case of an incentive stock option granted to any person holding more than
10% of the total combined voting power of all classes of our, or any of our
parent's or subsidiary's, stock or, if earlier, 30 days after the optionee's
termination of employment or service with us or any of our affiliates for any
reason other than termination for death or disability, or one year after
termination for death or total and permanent disability and six months in the
case of other types of disability). Options granted under our 1999 Option Plan
are not generally transferable by the optionee except by will or the laws of
descent and distribution and generally are exercisable during the lifetime of
the optionee only by the optionee.

      In the event of (i) a merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned
subsidiary or where there is no substantial change in our stockholders and the
options granted under the 1999 Option Plan are assumed by the successor
corporation), or (ii) the sale of all or substantially all of our assets, the
successor corporation will assume or substitute the options we have granted
under the 1999 Option Plan or shall provide substantially similar consideration
to optionees as is provided to the stockholders. In the event the successor
corporation refuses to assume or substitute outstanding options as provided
above, or in the event of our dissolution or liquidation, outstanding options
shall expire, notwithstanding any contrary terms in the grant, on a date
specified in a written notice sent to all optionees (which date shall be at
least 20 days after the date of the notice).

      The 1999 Option Plan also provides for automatic grants to non-employee
directors. Each non-employee director, upon initial election or appointment to
the Board of Directors, is entitled to receive options to purchase 5,000 shares
of common stock, provided that the election or appointment does not occur
within the last quarter of a given year. Thereafter, each non-employee director
is entitled to receive options to purchase 5,000 shares of common stock
annually on January 1 of each year, provided he or she is a non-employee

                                       44
<PAGE>

director on the date of grant and has continuously been an active member of the
Board of Directors for the year prior to the grant date. Options granted to
non-employee directors pursuant to the automatic grant provisions of the 1999
Option Plan are immediately exercisable, nonqualified stock options with an
exercise price equal to the fair market value of our common stock as of the
date of grant. Grants to non-employee directors are subject to the general
requirements of the 1999 Option Plan.

1998 Stock Option Plan

      The terms of options which we may grant under the 1998 Option Plan are
generally the same as those we may grant under the 1999 Option Plan. However,
under the 1998 Option Plan, the administrator may not grant options to an
individual in any one fiscal year which would permit that individual to
purchase more than 250,000 shares of common stock. The administrator may,
however, grant a newly-hired optionee a one-time grant of an option to purchase
up to an additional 250,000 shares of common stock. Also, the form of stock
option grant used to grant options to our employees under the 1998 Option Plan
does not provide for accelerated vesting as is provided in the form of stock
option grant used to grant options to our employees under the 1999 Option Plan.

      Stock options previously granted under the plans to the executives and
directors are described above under "Executive Compensation." At this time we
cannot determine the number of shares of common stock that may be subject to
options we grant in the future to our executive officers and other officers,
key employees and directors.

1999 Employee Stock Purchase Plan

      Our 1999 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code in order to
provide our employees with an opportunity to purchase common stock through
payroll deductions. An aggregate of 500,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan and made available for
purchase thereunder, subject to adjustment in the event of a stock split, stock
dividend or other similar change in the common stock or our capital structure.
All of our employees (and employees of our "subsidiary corporations" and
"parent corporations" (as defined by the Internal Revenue Code) designated by
the administrator of the 1999 Purchase Plan) whose customary employment is for
more than five months in any calendar year and more than 20 hours per week are
eligible to participate in the 1999 Purchase Plan. In addition, except for
employees who were employees on September 1, 1999, employees must have been
employed for twelve months or more to participate in the 1999 Purchase Plan.
Non-employee directors, consultants, and employees subject to the rules or laws
of a foreign jurisdiction that prohibit or make impractical the participation
of such employees in the 1999 Purchase Plan are not eligible to participate in
the 1999 Purchase Plan.

      The 1999 Purchase Plan designates offer periods, purchase periods and
exercise dates. The Code allows for offer periods of up to 27 months and
purchase periods of any length within an offer period. Initially, the purchase
periods under the 1999 Purchase Plan coincide with the offer periods such that
the purchase periods are of six months' duration commencing each February 1 and
August 1 (except that the initial purchase period commenced on September 1,
1999 and will end on January 31, 2000). Exercise dates are the last date of
each purchase period, that is July 31 and January 31 under the 1999 Purchase
Plan. In the event we merge with or into another corporation or sell all or
substantially all of our assets, or in the event certain other transactions in
which our stockholders before the transaction own less than 50% of the total
combined voting power of our outstanding securities following the transaction,
the administrator of the 1999 Purchase Plan may elect to shorten the offer
period then in progress.

      On the first day of each offer period, a participating employee is
granted a purchase right, which is a form of option to be automatically
exercised on the next exercise date. Deductions are to be made from the salary
of participants (in accordance with their authorizations) and credited to their
accounts under the 1999

                                       45
<PAGE>

Purchase Plan. When the purchase right is exercised, the participant's withheld
salary is used to purchase shares of common stock. The price per share at which
shares of common stock are to be purchased under the 1999 Purchase Plan for any
six month period is the lesser of (A) 85% of the fair market value of the
common stock on the date of the grant of the option (the commencement of the
offer period) or (B) 85% of the fair market value of the common stock of the
exercise date (the last day of the offer period).

      Payroll deductions may range from 1% to 10% (in whole -percentage
increments) of a participant's regular base pay, exclusive of bonuses,
overtime, shift-premiums, commissions, reimbursements or other expense
allowances. Participants may not make direct cash payments to their accounts.
For any six-month period the employee may purchase the lesser of $5,000 worth
of stock (calculated at the discounted rate) and 500 shares. The Code imposes
certain additional limitations on the amount of common stock that may be
purchased during any calendar year.

1999 Nonqualified Stock Option Plan

      The administrator has the authority to select individuals who are to
receive options under the 1999 Nonqualified Option Plan and to specify the
terms and conditions of options granted, the vesting provisions, the option
term and the exercise price. The 1999 Nonqualified Option Plan provides that we
may grant nonstatutory stock options to employees, consultants and directors.

      The exercise price of the stock options shall not be less than 85% of the
fair market value on the date of grant. Option holders may pay for an exercise
in cash or other consideration, including a promissory note, as approved by the
administrator.

      Generally, options granted under the 1999 Nonqualified Option Plan vest
at a rate of 25% of the shares underlying the option after one year and the
remaining shares vest in equal portions over the following 36 months, so that
all shares are vested after four years. The form of stock option grant under
the 1999 Nonqualified Option Plan used to grant options to our employees
provides for accelerated vesting of half of all unvested shares upon
involuntary termination of employment with us without cause occurring within
one year of a change in control of CyberSource. Unless otherwise provided by
the administrator, an option granted under the 1999 Option Plan generally
expires 10 years from the date of grant (30 days after the optionee's
termination of employment or service with us or any of our affiliates for any
reason other than termination for death or disability, or one year after
termination for death or total and permanent disability and six months in the
case of other types of disability). Options granted under our 1999 Nonqualified
Option Plan are not generally transferable by the optionee except by will or
the laws of descent and distribution and generally are exercisable during the
lifetime of the optionee only by the optionee.

      In the event of (i) a merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned
subsidiary or where there is no substantial change in our stockholders and the
options granted under the 1999 Nonqualified Option Plan are assumed by the
successor corporation), or (ii) the sale of all or substantially all of our
assets, the successor corporation will assume or substitute the options we have
granted under the 1999 Nonqualified Option Plan or shall provide substantially
similar consideration to optionees as is provided to the stockholders. In the
event the successor corporation refuses to assume or substitute outstanding
options as provided above, or in the event of our dissolution or liquidation,
outstanding options shall expire, notwithstanding any contrary terms in the
grant, on a date specified in a written notice sent to all optionees (which
date shall be at least 20 days after the date of the notice).

                                       46
<PAGE>

                       PRINCIPAL AND SELLING STOCKHOLDERS

      The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of September 30, 1999 as adjusted
to reflect the sale of shares offered hereby, by (a) each person known by us to
own beneficially more than 5% of the outstanding shares of common stock, (b)
each of our directors, (c) each Named Executive Officer (see "Management --
 Executive Compensation"), (d) each selling stockholder, and (e) all current
executive officers and directors as a group.

      Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of September 30, 1999 are
deemed outstanding. Percentage of beneficial ownership is based upon 21,989,957
shares of common stock outstanding prior to this offering and 23,989,957 shares
of common stock outstanding after this offering. To our knowledge, except as
set forth in the footnotes to this table and subject to applicable community
property laws, each person named in the table has sole voting and investment
power with respect to the shares set forth opposite the person's name. Except
as otherwise indicated, the address of each of the persons in this table is as
follows: c/o CyberSource Corporation, 550 S. Winchester Blvd., Suite 301, San
Jose, California 95128.

<TABLE>
<CAPTION>
                                                 Number of
                           Shares Beneficially  Shares to be  Shares Beneficially
                             Owned before the   Sold in the     Owned after the
                                Offering          Offering         Offering
                          --------------------- ------------ ---------------------
Name of Beneficial Owner    Number   Percentage                Number   Percentage
------------------------  ---------- ----------              ---------- ----------
<S>                       <C>        <C>        <C>          <C>        <C>
Named Executive
 Officers, Directors and
 5% Stockholders:
William S.
 McKiernan(1)...........   5,301,104    24.1%     408,891     4,892,213    20.4%
Bert Kolde(2)...........   2,495,603    11.3      206,644     2,288,919     9.5
Vulcan Ventures, Inc.
 110 110th Avenue NE,
 Suite 550
 Bellevue, WA 98004.....   2,480,603    11.3      201,644     2,278,959     9.5
Linda Fayne
 Levinson(3)............   1,951,634     8.9      157,048     1,794,586     7.5
Global Retail Partners,
 L.P. and its
 affiliates(4)
 2121 Avenue of the
 Stars, Suite 1630
 Los Angeles, CA 90067..   1,931,634     8.8      157,048     1,774,586     7.4
Steven P. Novak(5)......   1,580,624     7.2            0     1,565,624     6.5
General Electric Capital
 Corporation
 260 Longridge Road
 Stamford, CT 06927.....   1,546,554     7.0            0     1,546,554     6.4
Entities affiliated with
 C.E. Unterberg,
 Towbin(6)
 Swiss Bank Tower
 10 East 50th Street,
 22nd Floor
 New York, NY 10002.....   1,535,624     7.0            0     1,535,624     6.4
Thomas A. Arnold(7).....      71,728       *       35,000        36,728       *
Richard Scudellari(8)...      55,500       *       15,000        40,500       *
Anthony Bates(9)........      43,551       *       17,000        26,551       *
Charles E. Noreen,
 Jr.(10)................      40,625       *       20,000        20,625       *
Gregory Quinn...........      19,375       *            0        19,375       *
All executive officers
 and directors as a
 group
 (13 persons)(12).......  11,543,869    52.3%     500,891    11,027,978    45.8
</TABLE>

                                       47
<PAGE>

<TABLE>
<CAPTION>
                                                    Number of
                          Shares Beneficially      Shares to be Shares Beneficially
                            Owned before the       Sold in the    Owned after the
                                Offering             Offering         Offering
                          -----------------------  ------------ -----------------------
Name of Beneficial Owner   Number     Percentage                 Number     Percentage
------------------------  ----------- -----------               ----------- -----------
<S>                       <C>         <C>          <C>          <C>         <C>
All other Selling
 Stockholders:
John P. Pettit..........      525,000        2.4%     80,000        445,000        2.0%
Peter C. Blake-
 Burke(12)..............       59,094          *       8,000         51,094          *
Thomas H. Clements(13)..       49,626          *       8,000         41,626          *
Stephen W. Klebe(14)....       41,040          *      12,500         28,540          *
Anthony F. Quilici(15)..       38,802          *      10,000         28,802          *
Patricia Martin(16).....       14,250          *       2,500         11,750          *
Juan Herrera(17)........        8,000          *       1,667          6,333          *
Eric Vortriede(18)......        7,999          *       1,000          6,999          *
Nigel Tranter(19).......        5,292          *         500          4,792          *
Ian Collins(20).........        4,979          *       1,250          3,792          *
Other...................                              15,000
</TABLE>
--------
  * Less than 1% of the outstanding common stock.

 (1) Includes 5,029,004 shares of common stock held by Mr. McKiernan, 272,100
     shares of common stock held by members of Mr. McKiernan's immediate family
     Mr. McKiernan disclaims beneficial ownership of the shares held by his
     immediate family.

 (2) Includes options to purchase 5,000 shares of common stock exercisable
     within 60 days of September 30, 1999. Also, includes 2,480,603 shares held
     by Vulcan Ventures, Inc. Mr. Kolde is a director, the Vice President,
     Secretary and Treasurer of Vulcan Ventures, Inc. Mr. Kolde disclaims
     beneficial ownership of the shares owned by Vulcan, except for his
     proportional interest therein, if any.

 (3) Includes options to purchase 10,000 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Ms. Levinson. Also includes
     1,931,634 shares held by Global Retail Partners, L.P. and its affiliates.
     Ms. Levinson is a principal of Global Retail Partners, L.P. Ms. Levinson
     disclaims beneficial ownership of these shares, except for her
     proportional interest therein, if any.

 (4) Includes 1,238,464 shares of common stock held by Global Retail Partners,
     L.P., 85,265 shares held by Global Retail Partners Funding, Inc., 80,508
     shares held by GRP Partners, L.P., 369,036 shares held by DLJ Diversified
     Partners, L.P., 137,047 shares held by DLJ Diversified Partners-A, L.P.,
     13,200 shares held by DLJ ESC II, L.P., 8,114 shares held by DLJ ESC
     L.L.C. (collectively, the "Global Affiliates").

 (5) Includes 1,535,624 shares of common stock held by the Unterberg Affiliates
     (as defined below). Mr. Novak disclaims beneficial ownership of these
     shares, except for his proportional interest therein, if any.

 (6) Includes 57,581 shares of Common Stock held by UT Capital Partners
     International, LDC (formerly UH Capital Partners International, LDC),
     377,759 shares held by UT Technology Partners, LDC (formerly UH Technology
     Partners, LDC); 841,529 shares held by C. E. Unterberg Towbin Capital
     Partners I, L.P. (formerly Unterberg Harris Capital Partners I, L.P.);
     176,796 shares held by Unterberg Harris Private Equity Partners, L.P.;
     37,761 shares held by Unterberg Harris Private Equity Partners, CV; and
     44,198 shares held by C.E. Unterberg Towbin LLC (collectively, the
     "Unterberg Affiliates").

 (7) Includes options to purchase 14,479 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Arnold.

 (8) Includes options to purchase 10,000 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Scudellari.

 (9) Includes options to purchase 14,428 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Bates.

                                       48
<PAGE>

(10) Includes options to purchase 40,625 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Noreen.

(11) Includes options to purchase 94,532 shares of common stock exercisable
     within 60 days of September 30, 1999, held by all directors and executive
     officers of CyberSource.

(12) Includes options to purchase 5,209 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Burke.

(13) Includes options to purchase 6,251 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Clements.

(14) Includes options to purchase 8,020 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Klebe.

(15) Includes options to purchase 10,845 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Quilici.

(16) Includes options to purchase 6,875 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Ms. Martin.

(17) Includes options to purchase 1,667 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Herrera.

(18) Includes options to purchase 2,656 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Vortriede.

(19) Includes options to purchase 1,042 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Tranter.

(20) Includes options to purchase 1,250 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Collins.

                                       49
<PAGE>

                      TRANSACTIONS BETWEEN CYBERSOURCE AND
              ITS OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS

Relationship with Beyond.com

      In December 1997, we were spun-off from Beyond.com into a new Delaware
corporation, now called CyberSource Corporation. In connection with the spin-
off, Beyond.com issued our capital stock to their stockholders such that,
following consummation of the spin-off, each of Beyond.com's stockholders held
shares of common stock, Series A preferred stock, Series B preferred stock, and
Series C preferred stock of CyberSource in equal number and ownership
proportion and with the same rights as the stockholder had as a Beyond.com
stockholder. On the date of the spin-off, Beyond.com employees were granted
stock options in CyberSource based on the extent to which the employees'
original options in Beyond.com were vested. Immediately following the spin-off,
our employees maintained their outstanding vested stock options in Beyond.com
and were granted additional stock options in CyberSource to the extent of their
original options. The exercise prices of the original and additional option
grants were adjusted to reflect the allocation of the fair market price per
share between Beyond.com and our common stock, respectively, at the time of the
spin-off.

      We have entered into agreements with Beyond.com for the purpose of
defining the ongoing relationship between the two companies. Because four out
of five of our directors were also directors of Beyond.com at the time these
agreements were negotiated and members of our management team were formerly a
part of the management team of Beyond.com, these agreements are not the result
of arm's length negotiations. However, we believe the terms of these agreements
are no less favorable to us than could have been negotiated with a non-
affiliated party. We qualify the following description of these agreements in
their entirety by reference to the agreements, which have been filed as
exhibits to the registration statement on Form S-1 which we filed on April 30,
1999, as subsequently amended.

      Under our Conveyance Agreement dated December 31, 1997, we received from
Beyond.com:

     .  technology (including rights to all patent applications,
        trademarks and other of our intellectual property rights);

     .  contracts and licenses with third parties; and

     .  tangible assets in connection with credit card processing, fraud
        screening, export control, territory management and electronic
        fulfillment services.

In addition, we received employees engaged in the Internet commerce services
business from Beyond.com. We believe that we obtained all property from
Beyond.com necessary to operate our business. We do not share any property with
Beyond.com except for utility tools and improvements to the licensed technology
as described below.

      In connection with this transfer, we entered into an InterCompany Cross-
License Agreement with Beyond.com in April 1998, which was amended in May 1998,
pursuant to which Beyond.com granted us a non-exclusive, worldwide, perpetual,
irrevocable, royalty-free license to (1) internally use technology related to
electronic software distribution, and (2) use and sublicense its then existing
customer database in connection with fraud detection and verification. Under
this agreement, we granted Beyond.com a worldwide, perpetual, irrevocable,
royalty-free license to internally use our Sm@rtCert technology and
improvements thereto. We also granted Beyond.com the right to modify this
technology for purposes of merging the technology into its Cache Manager
technology (either alone or in combination with other software) for subsequent
sublicense to enterprises and governmental agencies. However, the Cross-License
Agreement limits the ability of Beyond.com to use our technology to compete
with us. The Cross-License Agreement further provides that the parties shall
have joint ownership of utility tools developed jointly prior to the date of
the Cross-License Agreement, and any improvements to the licensed technology to
the extent jointly developed after the date of

                                       50
<PAGE>

the Cross-License Agreement. The Cross-License Agreement also allocates between
us and Beyond.com the ownership of the other inventions each party made on or
before June 30, 1998. Each party has agreed to indemnify the other against any
third party claims regarding the licensee's use of licensed technology that
results in a claim against the licensor, except to the extent that the claim is
based upon a claim that the licensed technology infringes upon any third
party's intellectual property rights.

      We also entered into an Internet Commerce Services Agreement with
Beyond.com, pursuant to which we agreed to provide services including credit
card processing, fraud screening, export control, territory management and
electronic fulfillment. Pursuant to the terms of this agreement, Beyond.com
agreed to indemnify us for an amount not to exceed $100,000 against any claim
based upon an allegation that the software we distributed infringes upon any
third party's intellectual property rights. We agreed to indemnify Beyond.com
for an amount not to exceed $100,000 against any claim based upon an allegation
that our services, or the use of any software we provided in connection with
our services, infringes any third party's intellectual property rights. This
agreement was superseded by the CyberSource Internet Commerce Services
Agreement entered into by us with Beyond.com effective as of May 1999 pursuant
to which we agreed to provide similar services. Under the 1999 agreement, we
and Beyond.com agreed to indemnify each other against any claim based upon an
allegation that any services or products of the indemnifying party infringe
upon any third party's intellectual property rights. The initial term of the
1999 agreement expires on May 1, 2000, and the term of the 1999 agreement
automatically renews for additional one-year terms until the 1999 agreement is
terminated by either party. During 1998 and the nine months ended September 30,
1999, we recorded approximately $801,000 and $384,000, respectively, of
revenues related to these services.

Stock and Warrant Issuances

      Since our inception in December 1997, we have issued shares of common
stock and shares of preferred stock in private placement transactions each as
set forth below.

      In March and April 1998, we issued shares of Series D preferred stock in
private placements to investors at a purchase price of $1.08 per share. In
October and December 1998, we issued shares of Series E preferred stock in
private placements to investors at a purchase price of $1.81 per share. Upon
the closing of our initial public offering, each two shares of Series D and
Series E Preferred Stock converted into one share of common stock:

<TABLE>
<CAPTION>
                                        Number of Shares of Number of Shares of
                                        Series D Preferred  Series E Preferred
Purchaser(1)                              Stock Purchased     Stock Purchased
------------                            ------------------- -------------------
<S>                                     <C>                 <C>
Vulcan Ventures Incorporated..........        735,231            1,657,459
UT Technology Partners, LDC...........             --              276,243
UT Capital Partners International,
 LDC..................................             --               55,249
UH Technology Partners, LDC...........        294,092                   --
C.E. Unterberg, Towbin Capital
 Partners I, L.P......................             --              176,796
C.E. Unterberg, Towbin LLC............             --               88,397
Unterberg Harris Private Equity
 Partners, L.P........................         60,583               91,050
Unterberg Harris Private Equity
 Partners, C.V........................         12,940               19,448
DLJ Diversified Partners, L.P.........        140,465              316,655
DLJ Diversified Partners-A, L.P.......         52,164              117,596
DLJ ESC II, L.P.......................          8,113               18,289
GRP Partners, L.P.....................         30,643               69,082
Global Retail Partners Funding, Inc...         32,456               73,162
Global Retail Partners, L.P...........        471,390            1,062,674
General Electric Capital Corporation..             --            2,762,431
</TABLE>
--------
(1) Each listed purchaser is affiliated with a director of our company. For a
    description of these affiliations and disclaimers of beneficial ownership,
    see "Principal and Selling Stockholders."

                                       51
<PAGE>

      Concurrent with the issuance of Series E preferred stock to General
Electric Capital Corporation, which beneficially owns more than five percent of
our preferred stock, we issued General Electric Capital Corporation warrants to
buy 567,910 shares of Series E preferred stock with a weighted average exercise
price of $2.64. In connection with our initial public offering, General
Electric Capital Corporation exercised the warrants and acquired 165,339 shares
of our common stock.

Option Grants and Agreements with Executive Officers and Directors

      We granted to the following senior executive officers and directors
options to purchase shares of our common stock on the date, for the number of
shares, with an exercise price as indicated opposite each person's name:

<TABLE>
<CAPTION>
                                                         Securities
                                                         Underlying
Name                                      Option Date(1)  Options   Option Price
----                                      -------------- ---------- ------------
<S>                                       <C>            <C>        <C>
L. Evan Ellis............................     4/12/99     150,000     $ 5.720
                                              8/24/99     100,000      28.500

Charles E. Noreen, Jr. ..................    10/19/98     150,000       0.540

Thomas A. Arnold.........................     3/18/98      75,000       0.200
                                              7/30/98      10,000       0.540
                                              1/18/99      65,000       3.620

Anthony V. Bates.........................     3/18/98      62,500       0.200
                                              7/30/98      15,000       0.540
                                              1/18/99      72,500       3.620

Bert Kolde...............................     3/18/98       5,000       0.045
                                              3/18/99       5,000       0.020
                                               1/1/99       5,000       3.620

Linda Fayne Levinson.....................     3/18/98       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000

Steven P. Novak..........................     3/18/98      10,000       0.003
                                              3/18/99      10,000       0.013
                                              3/18/99       5,000       0.045
                                              3/18/99       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000

Richard Scudellari.......................     3/18/98       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000
</TABLE>
--------
(1) Options with a grant date in 1998 are subject to the terms of the 1998
    Option Plan. Options with a grant date in 1999 are subject to the terms of
    the 1999 Option Plan.

                                       52
<PAGE>

      All of our directors and executive officers as a group have been granted
options to purchase 1,368,500 shares of our common stock at a weighted average
exercise price of $7.01378 per share.

      Under the terms of an oral agreement between us and William S. McKiernan,
our Chief Executive Officer and Chairman of our Board of Directors, we repaid a
balance of $60,000 in January 1998 for unpaid salary that we had accrued on Mr.
McKiernan's behalf for services Mr. McKiernan provided to our predecessor, from
whom we were spun-off, from the date of its inception through December 31,
1994.

      In July 1998, Mr. McKiernan loaned us $3,000,000 pursuant to a
convertible promissory note dated August 7, 1998 that was amended and restated
on October 21, 1998. In accordance with the terms of the convertible promissory
note, the principal balance of $3,000,000 was converted into 1,657,458 shares
of our Series E preferred stock in June 1999 at a price of $1.81 per share.
Interest accrued on the note at a rate of ten percent (10.0%) per annum. We
paid an aggregate amount of $256,000 in interest under the note.

      We have entered into indemnification agreements with each of our
directors and officers.

                                       53
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

Authorized and Outstanding Capital Stock

      We are authorized to issue up to 50,000,000 shares of common stock and
4,988,842 shares of preferred stock. The following description of our capital
stock is not complete and is qualified in its entirety by our Certificate of
Incorporation and Bylaws, both of which were included as exhibits to the
registration statement of which this prospectus forms a part.

Common Stock

      As of September 30, 1999, there were 21,989,957 shares of common stock
outstanding held of record by approximately 237 stockholders. Holders of our
common stock are entitled to one vote for each share in all matters required or
permitted to be voted on by our stockholders. The Board of Directors may
declare a dividend out of funds legally available and the holders of common
stock are entitled to receive ratably any such dividends. In the event of our
liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all of our assets. Holders of our common stock
have no preemptive rights or other subscription rights to convert their shares
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable.

Preferred Stock

      The Board of Directors has the authority, without further action by the
stockholders, to issue up to 4,988,842 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges
and rights may be greater than those of the common stock. The Board of
Directors, without stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Therefore, we could issue
preferred stock quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, if we issue preferred stock, then the market price of common
stock may decrease, and voting and other rights may be adversely affected. We
have no plans to issue any preferred stock.

Certain Charter and Bylaw Provisions

      We are subject to Section 203 of the Delaware General Corporation Law
which prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The term "business combination" includes mergers and stock
and asset sales. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The effect of this statute could, among other
things, make it more difficult for a third party to gain control of us,
discourage bids for the common stock at a premium or otherwise adversely affect
the market price of the common stock.

Limitation of Directors' and Officers' Liability; Indemnification

      Our Certificate of Incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for
breach of their fiduciary duties as directors, except for liability that cannot
be eliminated under the Delaware General Corporation Law. The Delaware General
Corporation Law does not permit a provision in a corporation's certificate of
incorporation that would eliminate this liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful payment of a

                                       54
<PAGE>

dividend or unlawful stock repurchase or redemption, as provided in Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.

      While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate this
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of the corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.

      Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we shall indemnify our directors and officers. In
addition, each of our directors and officers has entered into an
indemnification agreement with us pursuant to which we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. At present, there is no pending litigation or proceeding
involving any of our directors or officers in which indemnification is required
or permitted, and we are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.

Registration Rights

      After completion of this offering, and assuming we comply with other
requirements, the holders of approximately 15,410,567 shares of common stock
(14,960,567 shares if the over-allotment option is exercised in full) will hold
registration rights. These rights are held under the terms of several
agreements between us and the holders of these shares of common stock. Under
the terms of these agreements, if we propose to register any of our securities
under the Securities Act, either for our own account or for other security
holders, we must give the holders of registration rights notice of registration
and include a portion of their shares of common stock in the registration at
our expense. In addition, holders of registration rights may require us to file
a registration statement under the Securities Act at our expense with respect
to their shares of common stock. We are required to use our commercially
reasonable efforts to effect this registration. All of these registration
rights are subject to conditions and limitations, among them the right of the
underwriters of any offering to limit the number of shares included in such
registration and our right not to effect a registration in certain specific
situations. Under these agreements, we have agreed to bear all registration
expenses (other than underwriting discounts and commissions and fees, and fees
and disbursements of counsel of the holders of registration rights subject to
limitations). We have agreed to indemnify the holders of registration rights
against liabilities under the Securities Act. We are bearing all registration
expenses (subject to the exceptions described above) related to the
registration statement of which this prospectus is a part.

Listing

      Our common stock is listed on the Nasdaq National Market under the symbol
"CYBS."

Transfer Agent and Registrar

      The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company. Its address is 40 Wall Street, New York, NY 10005,
and its telephone number is 212-936-5100.

                                       55
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

      Upon completion of this offering, we will have 23,989,957 shares of
common stock outstanding based on shares outstanding as of September 30, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after September 30, 1999. Of these shares, the 3,000,000
shares sold in this offering will be freely transferable without restriction
under the Securities Act, unless held by "affiliates" of CyberSource as that
term is used under the Securities Act and the Regulations promulgated
thereunder. The shares of our common stock outstanding after this offering will
be available for sale in the public market as follows:

<TABLE>
<CAPTION>
                                    Shares First
                                      Eligible
Days After Date of This Prospectus    for Sale                        Comment
----------------------------------  ------------                      -------
<S>                                 <C>          <C>
Upon Effectiveness......              3,000,000  Freely tradable shares sold in offering.
Upon Effectiveness......                745,457  Shares saleable under Rules 144 and 701.
December 21, 1999.......              4,258,093  Underwriter lockup entered into in connection with
                                                 our initial public offering released, shares
                                                 saleable under Rules 144 and 701.
90 days.................             10,545,678  Underwriter lockup released; shares saleable under
                                                 Rules 144 and 701.
</TABLE>

      Of the remaining shares, 4,589,500 sold in our initial public offering
are freely tradable without restriction.

      In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the Effective Date, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of common stock (approximately 239,990 shares immediately after this
offering based on shares outstanding as of September 30, 1999) or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale, subject to the filing of a Form 144 with respect to
such sale and other limitations and restrictions In addition, a person who is
not deemed to have been an affiliate of CyberSource at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above

      Any employee, officer or director of or consultant to CyberSource who
purchased his or her shares prior to the Effective Date or who holds vested
options as of that date pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date However, we and our officers, directors and our
other stockholders have agreed not to sell or otherwise dispose of any shares
of our common stock for the 180-day period after the date of this prospectus
without the prior written consent of the underwriters See "Underwriting."

      Prior to the Effective Date, we intend to file a registration statement
on Form S-8 under the Securities Act to register shares of common stock
reserved for issuance under the 1998 Option Plan and the 1999 Option Plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act Such registration statements will
become effective immediately upon filing.

      Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered in this offering.

                                       56
<PAGE>

                                  UNDERWRITING

General

      Subject to the terms and conditions set forth in a purchase agreement
between us, the selling stockholders and each of the underwriters named below,
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan & Co.,
PaineWebber Incorporated, Adams, Harkness & Hill, Inc. and C.E. Unterberg,
Towbin are acting as representatives, we and the selling stockholders have
agreed to sell to the underwriters, and each of the underwriters severally and
not jointly has agreed to purchase from us and the selling stockholders, the
number of shares of our common stock set forth opposite its name below.

<TABLE>
<CAPTION>
                                                                        Number
     Underwriter                                                       of Shares
     -----------                                                       ---------
<S>                                                                    <C>
Merrill Lynch, Pierce, Fenner & Smith
      Incorporated....................................................
J.P. Morgan Securities Inc. ..........................................
PaineWebber Incorporated..............................................
Adams, Harkness & Hill, Inc. .........................................
C.E. Unterberg, Towbin................................................
                                                                       ---------
      Total........................................................... 3,000,000
                                                                       =========
</TABLE>

      In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in that agreement, to purchase all of the
shares of our common stock being sold under the terms of the agreement if any
of the shares of common stock are purchased. Under the purchase agreement, the
commitments of non-defaulting underwriters may be increased.

      We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

      The expenses of this offering, exclusive of the underwriting discount,
are estimated at $500,000 and are payable by us.

      The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.

Commissions and Discounts

      The representatives have advised us that the underwriters propose
initially to offer the shares of our common stock to the public at the public
offering price set forth on the cover page of this prospectus, and to dealers
at such price less a concession not in excess of $    per share of common
stock. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $    per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.

                                       57
<PAGE>

      The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment options.

<TABLE>
<CAPTION>
                                                             Per  Without  With
                                                            Share Option  Option
                                                            ----- ------- ------
<S>                                                         <C>   <C>     <C>
Public offering price......................................  $      $        $
Underwriting discount......................................  $      $      $
Proceeds, before expenses, to CyberSource..................  $      $      $
Proceeds to selling stockholders...........................  $      $      $
</TABLE>

Over-Allotment Option

      The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of an additional 450,000 shares of our common stock at the public
offering price set forth on the cover of this prospectus, less the underwriting
discount. The underwriters may exercise this option solely to cover over-
allotments, if any, made on the sale of our common stock offered hereby. To the
extent that the underwriters exercise this option, each underwriter will be
obligated to purchase a number of additional shares of our common stock from
the selling stockholders proportionate to such underwriter's initial amount
reflected in the foregoing table.

No Sales of Similar Securities

      We and the selling stockholders have agreed not to directly or
indirectly:

     .  offer, pledge, sell, contract to sell, sell any option or contract
        to purchase, purchase any option or contract to sell, grant any
        option, right or warrant for the sale of, lend or otherwise
        dispose of or transfer any shares of our common stock or
        securities convertible into or exchangeable or exercisable for or
        repayable with our common stock, whether now owned or later
        acquired by the person executing the agreement or with respect to
        which the person executing the agreement later acquires the power
        of disposition, or file any registration statement under the
        Securities Act relating to any shares of our common stock (other
        than shares sold in this offering) or

     .  enter into any swap or other agreement or any other agreement that
        transfers, in whole or in part, the economic consequence of
        ownership of our common stock whether any such swap or transaction
        is to be settled by delivery of our common stock or other
        securities, in cash or otherwise, without the prior written
        consent of Merrill Lynch on behalf of the underwriters for a
        period of 90 days after the date of the prospectus. See "Shares
        Eligible for Future Sale."

Price Stabilization and Short Positions

      Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
underwriters are permitted to engage in transactions that stabilize the price
of our common stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our common stock.

      If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing our common stock in the open
market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.

                                       58
<PAGE>

                                 LEGAL MATTERS

      The validity of the common stock offered hereby will be passed upon for
us by Morrison & Foerster LLP, Palo Alto, California. A partner of Morrison &
Foerster LLP owns 45,500 shares of our common stock and holds an option to
purchase an additional 10,000 shares of our common stock. Legal matters in
connection with this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.

                                    EXPERTS

      Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule and the financial statements and schedule of
our predecessor division of Beyond.com corporation at December 31, 1997 and
1998 and for the period from March 20, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, as set forth in their
report. We have included our consolidated financial statements and schedule in
this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Common Stock offered hereby. This
prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to CyberSource and our common stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this prospectus as
to the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the North Western Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048, and copies of all or any part thereof may be
obtained from such office after payment of fees prescribed by the Commission.
The Commission maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.

                                       59
<PAGE>

                            CYBERSOURCE CORPORATION

                       CONSOLIDATED FINANCIAL STATEMENTS

                                    CONTENTS

<TABLE>
<S>                                                                         <C>
Report of Ernst & Young LLP Independent Auditors........................... F-2

Consolidated Financial Statements

Consolidated Balance Sheets................................................ F-3

Consolidated Statements of Operations...................................... F-4

Consolidated Statement of Redeemable Convertible Preferred Stock, Division
 Equity and Stockholders' Equity (Net Capital Deficiency).................. F-5

Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements................................. F-7
</TABLE>

                                      F-1
<PAGE>

                REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

The Board of Directors and Stockholders
CyberSource Corporation

      We have audited the accompanying consolidated balance sheets of
CyberSource Corporation as of December 31, 1997 and 1998, and the related
consolidated statements of operations, redeemable convertible preferred stock,
division equity and stockholders' equity (net capital deficiency), and cash
flows of CyberSource Corporation and its predecessor division of Beyond.com
Corporation for the period from March 20, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CyberSource Corporation at December 31, 1997 and 1998, and the consolidated
results of operations and cash flows of CyberSource Corporation and its
predecessor division of Beyond.com Corporation for the period from March 20,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998, in conformity with generally accepted accounting principles.

                                          /s/ Ernst & Young LLP

San Jose, California
February 18, 1999, except
 as to the second
 paragraph of Note 5, as
 to which the date is June
 21, 1999

                                      F-2
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                          CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                  December 31,
                                                 ---------------  September 30,
                                                  1997    1998        1999
                                                 ------ --------  -------------
                                                                   (Unaudited)
<S>                                              <C>    <C>       <C>
                     Assets
Current assets:
  Cash and cash equivalents..................... $2,000 $ 11,111    $ 23,461
  Short-term investments........................     --       --      14,790
  Accounts receivable, net of allowances of
   $332, $229, and $504 at December 31, 1997 and
   1998, and September 30, 1999.................    466      863       2,079
  Prepaid expenses and other current assets.....    118      411       1,101
                                                 ------ --------    --------
    Total current assets........................  2,584   12,385      41,431
Property and equipment, net.....................  1,151    2,300       6,733
Other noncurrent assets.........................     --      290         211
                                                 ------ --------    --------
    Total assets................................ $3,735 $ 14,975    $ 48,375
                                                 ====== ========    ========
   Liabilities and stockholders' equity (net
               capital deficiency)
Current liabilities:
  Accounts payable.............................. $  269 $    531    $  1,577
  Other accrued liabilities.....................    128      969       3,210
  Deferred revenue..............................    150      120         455
  Current obligations under capital leases......     21      211         642
  Convertible note payable to an officer and
   stockholder..................................     --    3,000          --
                                                 ------ --------    --------
    Total current liabilities...................    568    4,831       5,884
Noncurrent obligations under capital leases.....     33      256         545
Commitments
Redeemable convertible preferred stock:
  Designated shares--24,037,372
  Issued and outstanding shares--7,022,558 at
   December 31, 1997, 16,957,061 at December 31,
   1998 and none at September 30, 1999
   (liquidation preference of $18,616 at
   December 31, 1998)...........................  2,097   18,911          --
Stockholders' equity (net capital deficiency):
  Convertible preferred stock, $0.001 par value:
    Authorized shares--25,000,000 at December
     31, 1998 and 4,988,842 at September 30,
     1999.......................................     --       --          --
    Issuable in series; see above as to series
     designated as redeemable and shares issued
  Common stock, $0.001 par value:
    Authorized shares--50,000,000
    Issued and outstanding shares--4,535,000 at
     December 31, 1997, 5,406,536 at December
     31, 1998 and 21,989,957 at September 30,
     1999.......................................      5        5          22
  Additional paid-in capital....................  1,032    1,199      70,571
  Deferred compensation.........................     --     (142)       (799)
  Accumulated deficit...........................     --  (10,085)    (27,848)
                                                 ------ --------    --------
    Total stockholders' equity (net capital
     deficiency)................................  1,037   (9,023)     41,946
                                                 ------ --------    --------
    Total liabilities and stockholders' equity
     (net capital deficiency)................... $3,735 $ 14,975    $ 48,375
                                                 ====== ========    ========
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                           Period From
                            March 20,
                               1996                                 Nine Months Ended
                          (Inception) to Years Ended December 31,     September 30,
                           December 31,  ------------------------   -------------------
                               1996         1997          1998        1998      1999
                          -------------- ------------ ------------  --------  ---------
                                                                       (Unaudited)
<S>                       <C>            <C>          <C>           <C>       <C>
Revenues................     $   144     $       968  $      3,384  $  2,281  $   7,883
Cost of revenues........         137             324         3,471     2,197      6,835
                             -------     -----------  ------------  --------  ---------
Gross profit (loss).....           7             644           (87)       84      1,048
Operating expenses:
  Product development...         338           2,300         3,802     2,534      5,207
  Sales and marketing...         425           1,988         4,184     2,789     10,256
  General and
   administrative.......         387             681         1,946     1,314      3,528
  Deferred compensation
   amortization.........          --              --            18        --        379
                             -------     -----------  ------------  --------  ---------
Total operating
 expenses...............       1,150           4,969         9,950     6,637     19,370
                             -------     -----------  ------------  --------  ---------
Loss from operations....      (1,143)         (4,325)      (10,037)   (6,553)   (18,322)
Interest income.........          --              --           108        41        809
Interest expense........          --             (13)         (156)      (62)      (250)
                             -------     -----------  ------------  --------  ---------
Net loss................     $(1,143)    $    (4,338) $    (10,085) $ (6,574) $ (17,763)
                             =======     ===========  ============  ========  =========
Basic and diluted net
 loss per share.........                              $      (2.05) $  (1.38) $   (1.58)
                                                      ============  ========  =========
Shares used in computing
 basic and diluted net
 loss per share.........                                     4,918     4,763     11,246
                                                      ============  ========  =========
Pro forma basic and
 diluted net loss per
 share..................                              $      (0.86)           $   (0.98)
                                                      ============            =========
Shares used in computing
 pro forma basic and
 diluted net loss per
 share..................                                    11,740               18,124
                                                      ============            =========
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

       CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK,
       DIVISION EQUITY AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

                      (In thousands, except share amounts)

          Period from March 20, 1996 (inception) to September 30, 1999

<TABLE>
<CAPTION>
                              Redeemable
                              Convertible       Division
                            Preferred Stock      Equity                       Stockholders' Equity
                          --------------------  --------  -------------------------------------------------------------
                                                                                                              Total
                                                                                                          Stockholders'
                                                            Common Stock    Additional Deferred Accumu-      Equity
                                                          -----------------  Paid-In   Compen-   lated    (Net Capital
                            Shares     Amount    Amount     Shares   Amount  Capital    sation  Deficit    Deficiency)
                          -----------  -------  --------  ---------- ------ ---------- -------- --------  -------------
<S>                       <C>          <C>      <C>       <C>        <C>    <C>        <C>      <C>       <C>
Funding provided by
 Beyond.com
 Corporation............           --  $    --  $ 1,564           --  $ --   $    --    $   --  $     --     $    --
Net loss and
 comprehensive loss.....           --       --   (1,143)          --    --        --        --        --          --
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1996...................           --       --      421           --    --        --        --        --          --
Funding provided by
 Beyond.com
 Corporation............           --       --    7,051           --    --        --        --        --          --
Net loss and
 comprehensive loss.....           --       --   (4,338)          --    --        --        --        --          --
Incorporation of
 CyberSource and
 issuance of redeemable
 convertible preferred
 stock and common stock
 in December 1997 upon
 capital stock dividend
 from Beyond.com
 Corporation............    7,022,558    2,097   (3,134)   4,535,000     5     1,032        --        --       1,037
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1997...................    7,022,558    2,097       --    4,535,000     5     1,032        --        --       1,037
Issuance of common stock
 under stock option
 plan...................           --       --       --      871,536    --         7        --        --           7
Issuance of Series D
 redeemable convertible
 preferred stock, net of
 issuance costs of $20..    1,851,850    1,980       --           --    --        --        --        --          --
Issuance of Series E
 redeemable convertible
 preferred stock, net of
 issuance costs of
 $114...................    8,082,653   14,516       --           --    --        --        --        --          --
Issuance of warrants to
 Visa and GE Capital....           --      318       --           --    --        --        --        --          --
Deferred compensation
 related to stock option
 grants.................           --       --       --           --    --       160      (160)       --          --
Amortization of
 deferred compensation..           --       --       --           --    --        --        18        --          18
Net loss and
 comprehensive loss.....           --       --       --           --    --        --        --   (10,085)    (10,085)
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1998...................   16,957,061   18,911       --    5,406,536     5     1,199      (142)  (10,085)     (9,023)
Common shares issued for
 services (unaudited)...           --       --       --       22,500    --        81        --        --          81
Issuance of common stock
 under stock option plan
 (unaudited)............           --       --       --      255,128     1       175        --        --         176
Deferred compensation
 related to stock option
 grants (unaudited).....           --       --       --           --    --     1,036    (1,036)       --          --
Issuance of common stock
 in Initial Public
 Offering net of
 issuance costs of $848
 (unaudited)............           --       --       --    4,600,000     4    46,181        --        --      46,185
Conversion of note
 payable from Officer
 and Stockholder into
 Series E preferred
 stock (unaudited)......    1,657,458    3,000       --           --    --        --        --        --          --
Net exercise of warrants
 (unaudited)............      774,512       --       --           --    --        --        --        --          --
Conversion of preferred
 stock into common stock
 upon Initial Public
 Offering (unaudited)...  (19,389,031) (21,911)           11,705,793    12    21,899        --        --      21,911
Amortization of deferred
 compensation
 (unaudited)............           --       --       --           --    --        --       379        --         379
Net loss and
 comprehensive loss
 (unaudited)............           --       --       --           --    --        --        --   (17,763)    (17,763)
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at September 30,
 1999 (unaudited).......           --       --  $    --   21,989,957  $ 22   $70,571    $ (799) $(27,848)    $41,946
                          ===========  =======  =======   ==========  ====   =======    ======  ========     =======
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                             Period From                        Nine Months
                            March 20, 1996   Years Ended           Ended
                            (Inception) to   December 31,      September 30,
                             December 31,  -----------------  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  --------
                                             (In thousands)
                                                                (Unaudited)
<S>                         <C>            <C>      <C>       <C>      <C>
Operating activities
Net loss..................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
Adjustments to reconcile
 net loss to net cash used
 in operating activities:
  Common stock issued for
   services rendered......          --          --        --       --        81
  Depreciation and
   amortization...........          73         325       778      500     1,527
  Amortization of deferred
   compensation...........          --          --        18       --       379
  Changes in assets and
   liabilities:
   Accounts receivable....         (35)       (431)     (397)    (330)   (1,216)
   Prepaid expenses and
    other current assets..         (70)        (48)     (293)    (151)     (611)
   Accounts payable.......         122         147       262      683     1,046
   Other accrued
    liabilities...........          19         109       841      497     2,241
   Deferred revenue.......          26         124       (30)     (38)      335
                               -------     -------  --------  -------  --------
Net cash used in operating
 activities...............      (1,008)     (4,112)   (8,906)  (5,413)  (13,981)
Investing activities
Purchases of property and
 equipment................        (556)       (927)   (1,419)    (800)   (4,899)
Purchase of short-term
 investments..............          --          --        --       --   (14,790)
                               -------     -------  --------  -------  --------
Net cash used in investing
 activities...............        (556)       (927)   (1,419)    (800)  (19,689)
Financing activities
Proceeds from issuance of
 convertible note payable
 to an officer and
 stockholder..............          --          --     3,000    3,000        --
Principal payments on
 capital lease
 obligations..............          --         (12)      (67)     (21)     (341)
Financing provided by
 Beyond.com Corporation...       1,564       7,051        --       --        --
Loan to Beyond.com
 Corporation..............          --          --      (400)    (400)       --
Repayment of loan by
 Beyond.com Corporation...          --          --       400      400        --
Proceeds from issuance of
 redeemable convertible
 preferred stock, net.....          --          --    16,496    1,980        --
Proceeds from Initial
 Public Offering..........          --          --        --       --    46,185
Proceeds from exercise of
 stock options............          --          --         7       --       176
                               -------     -------  --------  -------  --------
Net cash provided by
 financing activities.....       1,564       7,039    19,436    4,959    46,020
                               -------     -------  --------  -------  --------
Net increase (decrease) in
 cash and cash
 equivalents..............          --       2,000     9,111   (1,254)   12,350
Cash and cash equivalents
 at beginning of period...          --          --     2,000    2,000    11,111
                               -------     -------  --------  -------  --------
Cash and cash equivalents
 at end of period.........     $    --     $ 2,000  $ 11,111  $   746  $ 23,461
                               =======     =======  ========  =======  ========
Supplemental schedule of
 cash flow information
Interest paid.............     $    --     $    --  $    156  $    61  $    250
Supplemental schedule of
 noncash financing
 activities
Property and equipment
 acquired under capital
 leases...................     $    --     $    66  $    480  $    --  $  1,061
Issuance of warrants to
 Visa and GE Capital......     $    --     $    --  $    318  $    --  $     --
Deferred compensation
 related to stock option
 grants...................     $    --     $    --  $    160  $    --  $  1,036
Conversion of note payable
 to an officer and
 stockholder into
 redeemable convertible
 preferred stock..........     $    --     $    --  $     --  $    --  $  3,000
Conversion of redeemable
 convertible preferred
 stock into common stock..     $    --     $    --  $     --  $    --  $ 21,911
</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

1. Summary of Significant Accounting Policies

The Company

      CyberSource Corporation (the Company) was incorporated in the state of
Delaware on December 30, 1997. Prior to its incorporation, the Company operated
as a division of Beyond.com Corporation (Beyond.com). The Company is a
developer and provider of real time e-commerce transaction services.

Basis of Presentation

      The accompanying consolidated financial statements reflect the financial
position and results of operations of the Company and its wholly owned
subsidiary and the predecessor division of Beyond.com. All intercompany
transactions and balances have been eliminated.

      On December 31, 1997, Beyond.com transferred assets and liabilities to
its wholly owned subsidiary, CyberSource Corporation. Upon this transfer,
Beyond.com distributed capital stock in the form of a dividend to all existing
stockholders of Beyond.com on a pro rata basis such that the stockholders of
the Company were the same as the stockholders of Beyond.com at the time of the
distribution (the Spin-off). The accompanying financial statements for fiscal
1996 and 1997 reflect the operations of the Company as a division of Beyond.com
through December 31, 1997. The balance sheet as of December 31, 1997 has been
prepared using the historical basis of accounting and include all of the assets
and liabilities specifically identifiable to the Company. Beyond.com's
corporate accounting systems were not designed to track cash receipts and
payments and liabilities on a business-specific basis.

      The statements of operations for fiscal 1996 and 1997 include all revenue
and costs directly attributable to the Company, including a corporate
allocation of the costs of facilities, salaries, and employee benefits.
Additionally, incremental corporate administration, finance, and management
costs are allocated to the Company. See Note 6.

      All of the allocations reflected in 1996 and 1997 in the financial
statements are based on assumptions that management believes are reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if the Company had
been operated on a stand-alone basis in fiscal 1996 and 1997 nor are they
necessarily indicative of future costs to support the operations of the
Company.

Interim Financial Statements

      In the opinion of management, the unaudited interim consolidated
financial statements at September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 include all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the Company's financial
position at September 30, 1999, and results of operations and cash flows for
the nine months ended September 30, 1998 and 1999. Results for the nine months
ended September 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.

Foreign Currency Translation

      The financial statements of the Company's non-U.S. subsidiary are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Assets

                                      F-7
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

and liabilities of this subsidiary are translated at the rates of exchange at
the end of the period. Revenues and expenses are translated using the average
exchange rates in effect during the period. Gains and losses from foreign
currency translation were not material through September 30, 1999.

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 as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

      The Company derives its revenues primarily from e-commerce service
monthly transaction processing fees, and, to a lesser extent, support service
fees and digital product rights management fees. Individual transactions,
monthly transaction revenues, and digital product rights management fees are
recognized in the period in which the transactions occur. Support service fees
are recognized when the services are provided and the related costs are
incurred. For the nine months ended September 30, 1999 and in fiscal 1998,
Beyond.com, a related party, accounted for 15% and 24% of revenues,
respectively. In fiscal 1996, a different customer accounted for 26% of
revenues. There were no customers which accounted for greater than 10% of
revenues in fiscal 1997.

Cash and Cash Equivalents and Short-Term investments

      The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998 and September 30, 1999, cash
equivalents consist primarily of investments in money market funds. To date,
the Company has not experienced losses on any of its investments.

      Short-term investments, which consist of available-for-sale securities,
represent commercial paper with an original maturity greater than three months
and less than one year. Unrealized gains and losses on short-term investments
were immaterial through September 30, 1999.

Accounts Receivable and Concentration of Credit Risk

      At December 31, 1997, 10% of accounts receivable was due from one
customer. At December 31, 1998 and September 30, 1999, 13% and 16%,
respectively, of accounts receivable were due from Beyond.com. The Company
generally does not require collateral. The Company maintains allowances for
potential credit losses.

Property and Equipment

      Property and equipment are stated at cost and are depreciated on a
straight-line basis over estimated useful lives of three years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or the estimated useful lives.

                                      F-8
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


      Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                             December 31,
                             ------------- September 30,
                              1997   1998      1999
                             ------ ------ -------------
   <S>                       <C>    <C>    <C>
   Computer equipment and
    software...............  $1,230 $2,916    $8,019
   Furniture and fixtures..     169    272       649
   Office equipment........      78    116       403
   Leasehold improvements..      72    144       337
                             ------ ------    ------
                              1,549  3,448     9,408
   Less accumulated
    depreciation and
    amortization...........     398  1,148     2,675
                             ------ ------    ------
                             $1,151 $2,300    $6,733
                             ====== ======    ======
</TABLE>

Product Development

      Product development expenditures are charged to operations as incurred.

Advertising Expense

      The cost of advertising is recorded as an expense when incurred.
Advertising costs were not significant during the year ended December 31, 1998
and were approximately $2,767,000 during the nine months ended September 30,
1999.

Accounting Stock-Based Compensation

      The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and
related interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

Net Loss Per Share and Pro Forma Net Loss Per Share

      In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. Potentially dilutive securities have been excluded from the
computation as their effect is antidilutive. Because the Company was a division
of Beyond.com through December 31, 1997 and had no outstanding common or
preferred stock, there is no earnings or loss per share presented for 1997 or
1996.


                                      F-9
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


     Pro forma basic and diluted net loss per share is as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                     Nine Months   Nine Months
                                        Year Ended      Ended         Ended
                                       December 31, September 30, September 30,
                                           1998         1998          1999
                                       ------------ ------------- -------------
<S>                                    <C>          <C>           <C>
Net loss.............................    $(10,085)     $(6,574)     $(17,763)
                                         ========      =======      ========
Weighted average shares used in
 computing basic and diluted net loss
 per common share....................       4,918        4,763        11,246
                                         ========      =======      ========
Pro forma:
  Shares used in computing basic and
   diluted net loss per share used
   above.............................       4,918                     11,246
  Adjusted to reflect the effect of
   the assumed conversion of
   redeemable convertible preferred
   stock from the date of issuance...       6,822                      6,878
                                         --------                   --------
Weighted average shares used in
 computing pro forma basic and
 diluted net loss per share..........      11,740                     18,124
                                         ========                   ========
Pro forma basic and diluted net loss
 per share...........................    $  (0.86)                  $  (0.98)
                                         ========                   ========
</TABLE>

     If the Company had reported net income for the year ended December 31,
1998, diluted earnings per share would have included additional common
equivalent shares related to approximately 1,001,000 outstanding options and
1,527,000 shares issuable on conversion of the convertible note payable and
exercise of the outstanding warrants at December 31, 1998. If the Company had
reported net income for the nine months ended September 30, 1999, diluted
earnings per share would have included the shares used in the computation of
net loss per share as well as additional common equivalent shares related to
outstanding options to purchase approximately 3,137,000 shares of common stock
at September 30, 1999, shares issuable upon exercise of the outstanding
warrants prior to the exercise of these warrants in June 1999 and shares
issuable upon conversion of the outstanding convertible note payable prior to
the conversion of the note in June 1999. The common equivalent shares from
options and warrants would be determined on a weighted average basis using the
treasury stock method. The common equivalent shares related to the convertible
note payable would be determined on a weighted average basis using the "as-if
converted" method.

Income Taxes

     Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, the liability method is used in accounting for income taxes, which
includes the effects of temporary differences between financial and taxable
amounts of assets and liabilities.

New Accounting Pronouncement

     In January 1999, the Company adopted American Institute of Certified
Public Accountants Statement of Position, "Accounting for Computer Software
Developed For or Obtained For Internal Use" (SOP 98-1). SOP 98-1 applies to all
nongovernmental entities and provides revised guidance for the accounting
treatment for software which is internally developed, acquired, or modified
solely to meet the entity's internal needs.

                                      F-10
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

SOP 98-1 did not have a material effect on the Company's financial statements
or results of operations for the nine months ended September 30, 1999.

2. Segment Information

      The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (FAS
131) in the fiscal year ended December 31, 1998. FAS 131 supersedes Statement
of Financial Accounting Standards No. 14, "Financial Reporting for Segments of
a Business Enterprise" (FAS 14). FAS 131 changes current practice under FAS 14
by establishing a new framework for reporting information regarding operating
segments in annual financial statements and requires selected information for
these segments in interim financial statements. FAS 131 also establishes
standards for related disclosures about products and services and geographic
areas.

      Operating segments are identified as components of an enterprise about
which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision making group to make decisions
about how to allocate resources and assess performance. The Company's chief
operating decision maker is the Chief Executive Officer. Through December 31,
1998, the Company viewed its operations as principally two segments, e-commerce
transaction services (ECTS) and digital product rights management (DPR) for
software and other digital products and manages the business based on the
revenues of these segments. Additionally, in 1996, 1997 and 1998 the Company
derived less than 10% of its revenues from outside the United States. Revenues
from outside the United States were 25% of revenues for the nine months ended
September 30, 1999.

      The following tables presents revenues and operating loss by the
Company's two business units for the period from March 20, 1996 (inception) to
December 31, 1996, for the year ended 1997 and 1998, and for the nine months
ended September 30, 1999. There were no interbusiness unit sales or transfers.
The Company does not report operating expenses, depreciation and amortization,
interest income (expense), income taxes, capital expenditures, or identifiable
assets by its industry segments to the Chief Executive Officer. The Company's
Chief Executive Officer reviews the revenues from each of the Company's
reportable segments, and all of the Company's expenses are managed by and
reported to the Chief Executive Officer on a consolidated basis. Revenues are
as follows (in thousands):

<TABLE>
<CAPTION>
                                               Year ended
                                              December 31,       Nine months
                                            ---------------- ended September 30,
                                            1996 1997  1998         1999
                                            ---- ---- ------ -------------------
<S>                                         <C>  <C>  <C>    <C>
ETCS....................................... $131 $770 $2,708       $7,267
DPR........................................   13  198    676          616
                                            ---- ---- ------       ------
Total...................................... $144 $968 $3,384       $7,883
                                            ==== ==== ======       ======
</TABLE>

3. Commitments

      The Company leases its primary facility and equipment under noncancelable
operating leases expiring periodically through 2001. Rental expense was
approximately $43,000, $144,000, $459,000, and $706,000 for the period from
March 20, 1996 (inception) to December 31, 1996 and for 1997 and 1998, and for
the nine months ended September 30, 1999, respectively. The Company has the
option to extend the lease term for an additional three years.

                                      F-11
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


      Beginning in 1997, the Company leased equipment under noncancelable lease
agreements that are accounted for as capital leases. Equipment under capital
lease arrangements, which is included in property and equipment, aggregated
approximately $546,000 and $1,607,000 at December 31, 1998 and September 30,
1999, respectively. Related accumulated amortization was approximately $69,000
and $367,000 at December 31, 1998 and September 30, 1999, respectively.
Amortization expense related to assets under capital leases is included with
depreciation expense.

      Future minimum lease payments under noncancelable operating leases and
capital leases at December 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Operating Capital
                                                                Leases   Leases
                                                               --------- -------
   <S>                                                         <C>       <C>
   1999.......................................................  $1,048    $227
   2000.......................................................     947     197
   2001.......................................................      73      81
                                                                ------    ----
   Total minimum payments.....................................  $2,068     505
                                                                ======
   Less amount representing interest..........................              38
                                                                          ----
                                                                           467
   Less current portion.......................................             211
                                                                          ----
                                                                          $256
                                                                          ====
</TABLE>

4. Redeemable Convertible Preferred Stock

      Redeemable convertible preferred stock at December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                     Issued and
                                                          Designated Outstanding
                                                            Shares     Shares
                                                          ---------- -----------
   <S>                                                    <C>        <C>
   Series A..............................................  1,985,520  1,985,520
   Series B..............................................  2,500,000  2,037,038
   Series C..............................................  3,000,000  3,000,000
   Series D..............................................  1,851,852  1,851,850
   Series E.............................................. 14,700,000  8,082,653
                                                          ---------- ----------
     Total............................................... 24,037,372 16,957,061
                                                          ========== ==========
</TABLE>

      In June 1999, the Company completed an initial public offering and all
outstanding shares of the Company's preferred stock, including preferred stock
issued in June 1999 upon conversion of the convertible note and exercise of
warrants, were converted into 11,705,793 shares of common stock.

      The holders of Series A, B, C, D, and E redeemable convertible preferred
stock were entitled to receive annual noncumulative dividends at the rate of
$0.0064, $0.0432, $0.03264, $0.108, and $0.181 per share, respectively, plus,
with respect to the Series B, C, D, and E preferred stock, cumulative dividends
at a rate of $0.00252, $0.001904, $0.0063, and $0.0106 per share, per month,
subsequent to the respective original issuance date, respectively, when and if
declared by the Board of Directors, payable in preference to common stock
dividends. There were no dividends declared or payable by the Company at
December 31, 1998.

                                      F-12
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


      Each share of preferred stock was convertible at any time at the option
of the holder into shares of common stock at the then effective conversion
price. Each outstanding share of Series A and B, preferred stock was
convertible into 1.00 share of common stock, and each two shares C, D, and E
preferred stock were convertible into 1 share of common stock subject to
adjustment as specified in the Certificate of Incorporation. Each series of
preferred stock automatically converted into common stock immediately prior to
the consummation of the Company's initial public offering (IPO) in June 1999.

      Each preferred share had voting rights equal to the number of common
shares into which it is convertible. Upon liquidation, the holders of the
Series A preferred stock were entitled to receive $0.064 per share, plus any
declared but unpaid dividends, before any distribution may be made to the
holders of the Series B, C, D, and E preferred or common shares. After the
payment to the holders of the Series A preferred stock, the holders of the
Series B, C, D, and E preferred stock were entitled to receive $0.432, $0.3264,
$1.08, and $1.81 per share, respectively, plus any declared but unpaid
dividends, before any distribution may be made to the holders of common shares.

      Prior to the conversion of the outstanding preferred stock into common
stock, at any time after January 5, 2000, the holders of a majority of the then
outstanding shares of Series A preferred stock could have requested the
redemption of all of the outstanding shares of Series A redeemable convertible
preferred stock. The Company would have redeemed such shares at a price per
share of $0.12, plus accrued dividends, if any, for Series A preferred stock.
At any time after July 12, 2002, the majority of the then outstanding shares of
Series B preferred stock could have requested the redemption of all of the
outstanding shares of Series B preferred stock at the original issuance price
per share of $0.432 plus accrued dividends, if any. At any time after July 12,
2002, the respective holders of at least two-thirds of the then outstanding
shares of Series C, D, and E preferred stock separately could have requested
the redemption of all of the outstanding shares of Series C, D, and E preferred
stock, respectively. The Company would have redeemed such shares at the
original issuance price per share of $0.3264, $1.08, and $1.81, respectively,
plus accrued dividends, if any. All of the outstanding preferred stock is
recorded at its redemption amount.

      During 1998, in connection with the issuance of Series E preferred stock
and certain strategic marketing agreements with Visa and GE Capital, the
Company issued warrants to purchase 552,486, 442,910, and 401,243 shares of the
Company's Series E preferred stock at exercise prices of $1.81, $3.00, and
$4.00 per share, respectively. The warrants were fully exercisable upon the
date of issuance and expired three years from the original date of the
marketing services agreements. Preferred shares issued upon exercise of the
warrants are non-forfeitable.

      The Company determined the fair value of the warrants at the time of
issuance to be $318,000 and recorded this amount as a cost of the strategic
marketing agreements. The determined value of the warrants was credited to
redeemable convertible preferred stock and is being amortized ratably over the
three year term of the strategic marketing agreements. The Company amortized
$28,000 and $79,000 of the value of the warrants to sales and marketing expense
in 1998 and for the nine months ended September 30, 1999, respectively. In June
1999, all warrants were exercised through a cashless net exercise into 774,512
shares of preferred stock.

                                      F-13
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the three months ended
                   September 30, 1998 and 1999 is unaudited)


5. Stockholders' Equity

Common Shares

      The Company is authorized to issue 50,000,000 shares of common stock. The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors.

      On April 30, 1999, the Company's Board of Directors approved a 1 for 2
reverse split of the Company's outstanding common stock, and on June 21, 1999,
the Company's stockholders approved the reverse split. The par value of the
common stock and the authorized shares of common stock were not adjusted as a
result of the reverse split. The conversion ratios of each series of preferred
stock were adjusted accordingly. The stock split is reflected in the
accompanying financial statements and footnotes on a retroactive basis in all
periods presented.

      The Company completed its IPO on June 28, 1999. A total of 4,000,000
shares of common stock was sold by the Company to the public at a price of
$11.00 per share. The net proceeds to the Company were approximately $40.0
million after deducting the underwriters discount and offering expenses.
Subsequent to June 30, 1999, an additional 600,000 shares of common stock were
sold by the Company to the public at a price of $11.00 per share from the
exercise of the underwriter's overallotment option generating additional net
proceeds to the Company of approximately $6.1 million.

      The Company has reserved shares of common stock for future issuance at
December 31, 1998 as follows:

<TABLE>
<CAPTION>
                                                    December 31, September 30,
                                                        1998         1999
                                                    ------------ -------------
<S>                                                 <C>          <C>
1998 and 1999 Stock Option Plans:
  Options outstanding..............................   1,000,701    3,137,395
  Options available for future grants..............      27,763      135,941
1999 Employee Stock Purchase Plan--options
 available for future grants.......................          --      500,000
1999 Nonqualified Stock Option Plan--options
 available for future grants.......................          --    1,100,000
Convertible note payable...........................     828,729           --
Redeemable convertible preferred stock.............  10,489,792           --
Outstanding warrants...............................     698,319           --
                                                     ----------    ---------
                                                     13,045,304    4,873,336
                                                     ==========    =========
</TABLE>

Stock Options

      In conjunction with the Spin-off of the Company on December 31, 1997,
employees of the Company, immediately following the Spin-off, maintained their
outstanding exercisable stock options in Beyond.com and in March 1998 were
granted additional incentive stock options in the Company. Employees of
Beyond.com were granted additional stock options in the Company in March 1998
based on the extent that the employees' original Beyond.com options were
exercisable on the date of the Spin-off. The exercise prices of the original

                                      F-14
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

Beyond.com option grants and the additional Company stock option grants were
adjusted to reflect the allocation of the fair market value per share price
between the Company's and Beyond.com's common stock at December 31, 1997. The
adjustments to these options resulted in nonstapled options to the employees of
each entity and were accounted for and in compliance with the guidelines in
Emerging Issues Task Force Issue No. 90-9, and therefore, no compensation
expense has been recorded.

      In March 1998, the Company adopted its 1998 Stock Option Plan (the 1998
Option Plan). There are 1,900,000 shares of common stock authorized for
issuance under the 1998 Option Plan. The 1998 Option Plan provides for the
issuance of common stock and the granting of options to employees, officers,
directors, consultants, independent contractors, and advisors of the Company.
The exercise price of a nonqualifying stock option and an incentive stock
option shall not be less than 85% and 100%, respectively, of the fair value of
the underlying shares on the date of grant. Options granted under the 1998
Option Plan generally become exercisable over five years at the rate of 20% per
year from the grant date.

      In January 1999, the Company adopted its 1999 Stock Option Plan (the 1999
Option Plan). The Company has reserved 2,500,000 shares of common stock for
issuance under the 1999 Option Plan. The provisions of the 1999 Plan and
similar to those of the 1998 Option Plan.

      The following table summarizes information about the Company's stock
option activity under the 1998 Option Plan and the 1999 Option Plan. Options
granted prior to December 31, 1997 were originated from options granted by
Beyond.com and were granted by the Company immediately following the adoption
of the 1998 Option Plan.

<TABLE>
<CAPTION>
                                                      Options Outstanding
                                                   ---------------------------
                                                    Number        Weighted
                                         Shares       of      Average Adjusted
                                       Available    Shares     Exercise Price
                                       ----------  ---------  ----------------
<S>                                    <C>         <C>        <C>
Shares reserved.......................  1,900,000         --       $   --
Options granted based upon Beyond.com
 option grants prior to Spin-off...... (1,227,183) 1,227,183       $0.160
Options granted.......................   (679,575)   679,575       $0.474
Options exercised.....................         --   (871,536)      $0.008
Options canceled......................     34,521    (34,521)      $0.378
                                       ----------  ---------
Balance at December 31, 1998..........     27,763  1,000,701       $0.310
Additional shares reserved
 (unaudited)..........................  2,500,000         --       $   --
Options granted (unaudited)........... (2,615,400) 2,615,400       $9.049
Options exercised (unaudited).........         --   (255,128)      $0.683
Options canceled (unaudited)..........    223,578   (223,578)      $2.763
                                       ----------  ---------
Balance at September 30, 1999
 (unaudited)..........................    135,941  3,137,395       $7.080
                                       ==========  =========
</TABLE>

      In connection with certain stock options granted in 1998, and the nine
months ended September 30, 1999, the Company recorded deferred compensation for
the estimated difference between the exercise price of the options and the
deemed fair value of $160,000, and $1,036,000, respectively, which is being
amortized on a graded method over the four-year vesting period of the options.

                                      F-15
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


     The following table summarizes information about options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                                               Weighted    Number of  Weighted
                                 Weighted      Average      Options   Average
                   Number of     Average      Remaining   Exercisable Adjusted
                    Options      Adjusted    Contractual     Upon     Exercise
 Exercise Price   Outstanding Exercise Price Life (Years)  Issuance    Price
 ---------------  ----------- -------------- ------------ ----------- --------
 <S>              <C>         <C>            <C>          <C>         <C>
 $0.006 -- $0.04     312,384      $0.04          7.76       109,510    $0.03
      $0.06           34,417      $0.06          8.84         8,868    $0.06
      $0.20          163,150      $0.20          9.20        21,000    $0.20
      $0.54          490,750      $0.54          9.71            --    $  --
                   ---------                                -------
                   1,000,701      $0.31                     139,378    $0.06
                   =========                                =======
</TABLE>

     At December 31, 1997, 828,640 options were exercisable at a weighted
average exercise price of $0.004.

Employee Stock Purchase Plan

     In June 1999, the Company's board of directors and stockholders adopted
its 1999 Employee Stock Purchase Plan and reserved 500,000 shares of common
stock for issuance under this plan. No shares have been issued under this plan
as of September 30, 1999.

Stock-Based Compensation

     Pro forma information regarding net loss is required by FAS 123, which
also requires that the information be determined as if the Company has
accounted for its employee stock options granted under the fair value method of
FAS 123. The fair value for these options was estimated at the date of grant
using the minimum value method with the following weighted average assumptions:
a risk-free interest rate of 5.51%, 6.16%, and 5.15% for 1996, 1997, and 1998,
respectively; no dividend yield or volatility factors of the expected market
price of the Company's common stock; and a weighted average expected life of
the option of four years.

     The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

     Had compensation cost been determined using the fair value at the grant
date for options granted calculated using the minimum value method of FAS 123,
the Company's actual net loss would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                    1996     1997      1998
                                                   -------  -------  --------
   <S>                                             <C>      <C>      <C>
   Pro forma net loss (in thousands).............. $(1,143) $(4,339) $(10,088)
   Pro forma basic and diluted net loss per
    share.........................................                   $  (2.05)
</TABLE>

                                      F-16
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


      The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.002, $0.02, and $0.08 per share
for options granted during 1996, 1997, and 1998, respectively.

      The pro forma impact of options on the net loss for the period from March
20, 1996 (inception) to December 31, 1996 and for the years ended December 31,
1997 and 1998 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of options vesting as
well as the impact of multiple years of stock option grants.

6. Related Party Transactions

Funding Prior to Spin-off

      Through December 31, 1997, the Company utilized Beyond.com's centralized
cash management services and processes related to receivables, payables,
payroll, and other activities. Through December 31, 1997, the Company's net
cash requirements were funded by Beyond.com. Net financing provided by
Beyond.com to the Company in 1996 and 1997 was approximately $1,564,000 and
$7,051,000, respectively, including funding related to expenditures for
operations and investing activities, corporate services provided, as described
below, and a $2,000,000 cash contribution by Beyond.com upon the Spin-off.
There were no intercompany transfers and no amounts were paid to Beyond.com by
the Company in repayment of the financing during these periods, and through the
date of the Spin-off, these amounts were included in division equity. The
average balances financed by Beyond.com during fiscal 1996 and 1997, which did
not bear interest, were approximately $800,000 and approximately $6,000,000,
respectively.

Corporate Services

      In accordance with Staff Accounting Bulletin No. 55, additional
allocations have been reflected in these financial statements for 1996 and
1997. These expenses have included corporate communications, management,
compensation and benefits administration, payroll, accounts payable, income tax
compliance, and other administration and finance overhead. Allocations and
charges were based on either a direct cost pass-through for incremental
corporate administration, finance and management costs and a percentage
allocation of costs for other services provided based on factors such as net
sales, headcount, and relative expenditure levels. Such allocations and
corporate charges totaled $519,000 and $688,500 for the period from March 20,
1996 (inception) to December 31, 1996 and for the year ended December 31, 1997,
respectively.

      Management believes that the basis used for allocating corporate services
is reasonable. However, the terms of these transactions may differ from those
that would result from transactions among unrelated parties.

      The CEO of the Company is Chairman of the Board of Beyond.com, and the
companies also have one other member of their Board of Directors in common.
Pursuant to the terms of an agreement entered into in connection with the Spin-
off from Beyond.com, the Company provides services to Beyond.com on a
nonexclusive basis. During 1998 and the nine months ended September 30, 1999,
the Company recorded approximately $801,000 and $1,205,000, respectively, of
revenues related to these services. As of December 31, 1998 and September 30,
1999, amounts receivable from Beyond.com were approximately $147,000 and
$342,000, respectively.

                                      F-17
<PAGE>

                            CYBERSOURCE CORPORATION
            and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


     In July 1999, the Company purchased a software license from Beyond.com
for $600,000 which is being amortized over two years.

Note Receivable Issued to Beyond.com

     On March 18, 1998, the Company loaned $400,000 to Beyond.com. The note
was repaid as of June 1998.

Convertible Note Payable to Officer and Stockholder

     In August 1998, the Company issued an unsecured convertible one-year
promissory note to an officer and stockholder from whom it had borrowed an
aggregate of $3,000,000 in July 1998. The note, which was amended in October
1998, was payable in full on October 21, 1999 and bore interest at a rate of
10% per annum. The note converted into 1,657,458 shares of Series E redeemable
convertible preferred stock in June 1999, prior to the completion of the
Company's initial public offering.

7. Litigation and Contingencies

     A former Vice President of Product Management filed a lawsuit against the
Company in the Superior Court of California in Santa Clara County on April 8,
1999 seeking monetary and equitable relief. The plaintiff alleges several
causes of action, including wrongful termination, defamation, fraud, and
unfair business practices arising out of her three month employment with the
Company. While there can be no assurances as to the outcome of this
litigation, the Company believes the lawsuit is without merit, and intends to
vigorously defend against the claims asserted.

     From time to time, the Company may be involved in other litigation
relating to claims arising out of its ordinary course of business. The Company
believes that there are no claims or actions pending or threatened against the
Company, the ultimate disposition of which would have a material impact on the
Company's financial position or results of operations.

8. Income Taxes

     As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $8,600,000. As of December 31, 1998, the
Company also had federal and state research credit carryforwards of
approximately $130,000 and $70,000, respectively. The net operating loss and
credit carryforwards will expire at various dates beginning in 2006 through
2018, if not utilized.

     The utilization of the net operating losses and credits may be subject to
a substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

                                     F-18
<PAGE>

                            CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)


      Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes at December 31, 1998 are as
follows (in thousands):

<TABLE>
   <S>                                                                  <C>
   Deferred tax assets:
     Net operating loss carryforwards.................................. $ 3,400
     Research credit carryforwards.....................................     200
     Other, net........................................................     300
                                                                        -------
   Net deferred tax assets.............................................   3,900
   Valuation allowance.................................................  (3,900)
                                                                        -------
   Net deferred tax assets............................................. $    --
                                                                        =======
</TABLE>

9. Subsequent Event

Stock Option Plan

      In October 1999, the Company adopted the 1999 Nonqualified Stock Option
Plan (the 1999 Nonqualified Plan). The Company has reserved 1,100,000 shares of
common stock for issuance under the 1999 Nonqualified Plan. The 1999
Nonqualified Plan provides for the granting of non-qualified stock options to
employees, consultants and directors. The other provisions of the 1999
Nonqualified Plan are similar to those of the 1999 and 1998 Stock Option Plans.


                                      F-19
<PAGE>

                               Inside Back Cover

     The graphic depicts the words CyberSource with "the power behind the buy
button" underneath it.
<PAGE>

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


                                3,000,000 Shares


                                  Common Stock



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

                              P R O S P E C T U S

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

                              Merrill Lynch & Co.

                               J.P. Morgan & Co.

                            PaineWebber Incorporated

                          Adams, Harkness & Hill, Inc.

                             C.E. Unterberg, Towbin

                                            , 1999

 ---------------------------------------------------------------------------
 ---------------------------------------------------------------------------
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

      The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:

<TABLE>
<CAPTION>
                                                                        Amount
                                                                       --------
     <S>                                                               <C>
     Securities and Exchange Commission Filing Fee.................... $ 48,375
     NASD Filing Fee..................................................   17,405
     Nasdaq National Market Listing Fee...............................   17,500
     Accounting Fees and Expenses.....................................  100,000
     Blue Sky Fees and Expenses.......................................   10,000
     Legal Fees and Expenses..........................................  100,000
     Transfer Agent and Registrar Fees and Expenses...................    5,000
     Printing Expenses................................................  150,000
     Miscellaneous Expenses...........................................   51,720
                                                                       --------
       Total.......................................................... $500,000
                                                                       ========
</TABLE>
--------
*  All amounts are estimates except the SEC filing fee, the NASD filing fee and
   the NASD filing fee and Nasdaq National Market listing fee.

Item 14. Indemnification of Directors and Officers

      Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.

      The Registrant's Amended and Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides that the liability of its directors for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. Pursuant to Delaware law, this includes elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws.

      The Registrant has entered into agreements with each of its directors and
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good

                                      II-1
<PAGE>

faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Registrant and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
indemnification agreements also set forth procedures that will apply in the
event of a claim for indemnification thereunder.

      The Registrant has obtained a policy of directors' and officers'
liability insurance that insures our directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.

      The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.

Item 15. Recent Sales of Unregistered Securities

      For the period from December 31, 1997 to September 30, 1999, the
Registrant has issued and sold the following unregistered securities:

      1. During the period, the Registrant granted stock options to employees,
directors and consultants under its 1998 Stock Option Plan and its 1999 Stock
Option Plan (collectively, the "Stock Plans") covering an aggregate of
4,474,150 shares of the Registrant's common stock, at exercise prices ranging
from $0.016 to $36.4370 with an average exercise price of $4.5545 per share.

      2. During the period, the Registrant issued and sold an aggregate of
1,125,676 shares of its common stock to 63 employees, directors and consultants
for cash and promissory notes in the aggregate amount of $180,990.32 upon
exercise of stock options granted pursuant to the Registrant's Stock Plans.

      3. During the period, the Registrant issued an aggregate of 4,535,000
shares of its common stock in connection with the spin off from Beyond.com in
December 1997, and 20,000 shares of its common stock for an aggregate
consideration of $72,400.

      4. During the period, the Registrant issued an aggregate of 1,985,520
shares of its Series A Preferred Stock, which have been converted into
1,985,520 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      5. During the period, the Registrant issued an aggregate of 2,037,038
shares of its Series B Preferred Stock, which have been converted into
2,037,038 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      6. During the period, the Registrant issued an aggregate of 3,000,000
shares of its Series C Preferred Stock, which have been converted into
1,500,000 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      7. During the period, the Registrant issued and sold an aggregate of
1,851,850 shares of its Series D Preferred Stock, which have been converted
into 925,925 shares of its common stock, for an aggregate purchase price of
$1,999,998.

      8. During the period, the Registrant issued and sold an aggregate of
8,082,653 shares of its Series E Preferred Stock, which have been converted
into 4,041,327 shares of its common stock, for an aggregate purchase price of
$14,629,602.

                                      II-2
<PAGE>

      9. During the period, the Registrant issued and sold warrants for a total
of 1,396,639 shares of its Series E Preferred Stock, which have been converted
into 698,320 shares of its common stock, for an aggregate consideration of
$3,933,698.

      10. During the period, the Registrant issued a convertible note
convertible into a total of 1,657,458 shares of its Series E Preferred Stock,
which have been converted into 828,729 shares of its common stock, for an
aggregate consideration of $3,000,000.

      The sale and issuance of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act by virtue
of Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written
contract relating to compensation, as provided by Rule 701 or were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof.

      Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any
of the above transactions.

Item 16. Exhibits and Consolidated Financial Statement Schedules

      (a) Exhibits

      The exhibits are as set forth in the Exhibit Index.

      (b) Consolidated Financial Statement Schedules

      Schedule II--Valuation and Qualifying Accounts

      All other schedules have been omitted since they are not required or are
not applicable or the required information is shown in the consolidated
financial statements or related notes.

Item 17. Undertakings

      The Registrant hereby undertakes to provide the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.

      In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

                                      II-3
<PAGE>

      The Registrant hereby undertakes that:

           (1) For purposes of determining any liability under the Act,
     the information omitted from the form of prospectus filed as part of
     this Registration Statement in reliance upon Rule 430A and contained
     in a form of prospectus filed by the Registrant pursuant to Rule
     424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part
     of this Registration Statement as of the time the Commission declared
     it effective.

           (2) For purposes of determining any liability under the Act,
     each post-effective amendment that contains a form of prospectus
     shall be deemed to be a new registration statement relating to the
     securities therein, and this offering of such securities at that time
     shall be deemed to be the initial bona fide offering thereof.

                                      II-4
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California on October 19, 1999.

                                          Cybersource Corporation

                                                /s/ William S. McKiernan
                                          By: _________________________________
                                                   William S. McKiernan
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Bill McKiernan, L. Evan Ellis,
Charles E. Noreen and Richard Scudellari as his true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and sign any registration statement for the same offering covered by
the Registration Statement that is to be effective upon filing pursuant to Rule
462 promulgated under the Securities Act of 1993, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
      /s/ William S. McKiernan         Chairman of the Board of    October 19, 1999
______________________________________ Directors and Chief
         William S. McKiernan          Executive Officer
                                       (Principal Executive
                                       Officer)

       /s/ Charles E. Noreen           Vice President of Finance   October 19, 1999
______________________________________ and Administration and
          Charles E. Noreen            Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)

                                       Director                    October    , 1999
______________________________________
              Bert Kolde

     /s/ Linda Fayne Levinson          Director                    October 19, 1999
______________________________________
         Linda Fayne Levinson

        /s/ Steven P. Novak            Director                    October 19, 1999
______________________________________
           Steven P. Novak

        /s/ Richard Scudellari         Director                    October 19, 1999
______________________________________
          Richard Scudellari
</TABLE>

                                      II-5
<PAGE>

                            CYBERSOURCE CORPORATION

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                    December 31, 1997 and December 31, 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                  Amounts
                                                 Charged to
                                     Balance at  Revenue,   Write-offs  Balance
                                     beginning   Costs, or      and    at End of
                                      of year    Expenses   Recoveries   Year
                                     ---------- ----------- ---------- ---------
<S>                                  <C>        <C>         <C>        <C>
1997
  Allowance for Doubtful Accounts...    $ --       $332        $ --      $332
1998
  Allowance for Doubtful Accounts...    $332       $193        $296      $229
</TABLE>
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                                 Document
 -------                                --------
 <C>     <S>
  1.1**  Form of Underwriting Agreement.
  3.1*   Certificate of Incorporation of the Registrant, as amended.
  3.2*   Bylaws of the Registrant, as amended.
  4.1    Reference is made to Exhibits 3.1 and 3.2.
  5.1    Opinion of Morrison & Foerster LLP.
 10.1*   Form of Indemnification Agreement between the Registrant and each of
         its directors and officers.
 10.2*   1998 Stock Option Plan.
 10.3*   1999 Stock Option Plan.
 10.4*   Standard Office Lease dated August 20, 1996 by and between California
         State Automobile Association Inter-Insurance Bureau as Landlord and
         CyberSource Corporation as Tenant.
 10.5*   First Amendment to Lease dated October 20, 1997 by and between
         California State Association Inter-Insurance Bureau as Landlord and
         CyberSource Corporation as Tenant.
 10.6*   Assignment of Standard Office Lease dated December 31, 1997 by and
         between CyberSource Corporation as Assignor and Internet Commerce
         Services Corporation as Assignee.
 10.7*   Sublease dated July 1, 1998 by and between MultiGen Inc. of California
         as Sublessor and CyberSource of California as Sublessee.
 10.8*   Second Amendment to Lease dated October 30, 1998 by and between
         California State Automobile Association Inter-Insurance Bureau as
         Landlord and CyberSource Corporation as Tenant.
 10.9+*  Conveyance Agreement dated December 31, 1997 by and between
         CyberSource Corporation and Internet Commerce Service Corporation.
 10.10+* Amended and Restated Inter-Company Cross License Agreement dated May
         19, 1998 by and between Internet Commerce Services Corporation and
         software.net Corporation.
 10.11+* Internet Commerce Services Agreement dated April 23, 1998 by and
         between Internet Commerce Services Corporation and software.net
         Corporation.
 10.12*  Amended and Restated Investors' Rights Agreement dated October 21,
         1998.
 10.13*  Amended and Restated Convertible Promissory Note, dated October 21,
         1998.
 10.14*  1999 Employee Stock Purchase Plan.
 10.15+  Development and Marketing Agreement dated July 26, 1999 by and between
         CyberSource Corporation and VISA U.S.A., Inc.
 10.16+  CyberSource Internet Commerce Services Agreement dated May 1, 1999 by
         and between CyberSource Corporation and Beyond.com.
 10.17   1999 Nonqualified Stock Option Plan.
 23.1    Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1.
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
 24.1    Powers of Attorney. Reference is made to Page II-5.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number          Document
 -------         --------
 <C>     <S>
 27.1*   Financial Data Schedule
</TABLE>
--------
+  Confidential treatment granted or requested as to portions of this exhibit.
*  Previously filed as an exhibit, bearing the same number, to the Registrant's
   registration statement on Form S-1 (No. 333-77565).
** To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 336708}]
{"company-data": {"conformed-name": "CYBERSOURCE CORP", "cik": "0000934280", "assigned-sic": "7374", "irs-number": "770472961", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-89337", "film-number": "99730878"}, "business-address": {"street1": "550 SOUTH WINCHESTER BLVD", "street2": "SUITE 301", "city": "SAN JOSE", "state": "CA", "zip": "95128", "phone": "4085569100"}, "mail-address": {"street1": "550 SOUTH WINCHESTER BLVD", "street2": "STE 301", "city": "SAN JOSE", "state": "CA", "zip": "95128"}}
As filed with the Securities and Exchange Commission on October 19, 1999
                                                  Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                ---------------
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933
                                ---------------
                            CYBERSOURCE CORPORATION
            (Exact Name of Registrant as Specified in Its Charter)
         Delaware                    7374                     77-0472961
     (State or Other     (Primary Standard Industrial      (I.R.S. Employer
     Jurisdiction of      Classification Code Number)   Identification Number)
     Incorporation or
      Organization)
                      550 S. Winchester Blvd., Suite 301
                          San Jose, California 95128
                                (408) 556-9100
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)
                             William S. McKiernan
                            Chief Executive Officer
                      550 S. Winchester Blvd., Suite 301
                          San Jose, California 95128
                                (408) 556-9100
 (Name, Address, Including Zip Code, and Telephone Number, IncludingArea Code,
                             of Agent For Service)
                                ---------------
                                  Copies to:
        Richard Scudellari, Esq.               Jeffrey D. Saper, Esq.
         Heike E. Fischer, Esq.              J. Robert Suffoletta, Esq.
           David B. Tom, Esq.                   Robert G. Day, Esq.
        Morrison & Foerster LLP                Allison L. Berry, Esq.
           755 Page Mill Road             Wilson Sonsini Goodrich & Rosati
          Palo Alto, CA 94304                 Professional Corporation
             (650) 813-5600                      650 Page Mill Road
                                                Palo Alto, CA 94304
                                                   (650) 493-9300
                                ---------------
          Approximate date of commencement of proposed sale to the public:
          As soon as practicable after this Registration Statement becomes
                                  effective.
                                ---------------
     If any of the securities being registered in this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
     If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Proposed
 Title Of Each Class Of                    Proposed      Aggregate     Amount of
    Securities To Be      Amount To Be  Offering Price    Offering    Registration
       Registered        Registered (1)  Per Share(2)     Price(2)        Fee
----------------------------------------------------------------------------------
Common Stock, $.001 par
 value.................   3,450,000       $50.4375     $174,009,375   $48,374.61
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(1) Includes 450,000 shares that may be purchased by the underwriters to cover
    over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of computing the
    amount of the registration fee based upon the average of the high and low
    prices of the registrant's common stock on the Nasdaq National Market on
    October 18, 1999.
                                ---------------
     The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities, and it is not soliciting an offer to buy      +
+these securities, in any state where the offer or sale is not permitted.      +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                             Subject to Completion
                 Preliminary Prospectus dated October 19, 1999

PROSPECTUS
----------

                                3,000,000 Shares

                                  Common Stock

                                  -----------

    CyberSource Corporation is offering 2,000,000 shares of its common stock
and selling stockholders are offering 1,000,000 shares of common stock. We will
not receive any of the proceeds from the selling stockholders' sale of their
shares. Our shares are listed for trading on the Nasdaq National Market under
the symbol "CYBS." On October 18, 1999, the last reported sale price for our
common stock was $49.

    Investing in our common stock involves risks which are described in the
"Risk Factors" section beginning on page 4 of this prospectus.

                                  -----------
Per Share Total
                                                       --------- -----
Public offering price...........................      $      $
     Underwriting discount...........................      $      $
     Proceeds, before expenses, to CyberSource.......      $      $
     Proceeds to selling stockholders................      $      $
The underwriters may also purchase, from the selling stockholders, up to an
additional 450,000 shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments.

    Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

    The shares of common stock will be ready for delivery in New York, New York
on or about      , 1999.

                                  -----------

Merrill Lynch & Co.
       J.P. Morgan & Co.
                PaineWebber Incorporated
                        Adams, Harkness & Hill, Inc.
                               C.E. Unterberg, Towbin

                                  -----------

              The date of this prospectus is              , 1999.
Inside Front Cover

     The graphic depicts the CyberSource logo with the words "the power behind
the buy button" to the left of a screenshot of the Beyond.com web site. Below
the screenshot are four colored lines representing data streams. The colored
lines extend from the Beyond.com screenshot to a large box containing five gears
with the title "Internet Commerce Suite." The colored lines proceed and pass
between the five gears inside the large box. The upper left gear is titled
"Distribution Control" and contains a picture of an airplane as a graphical
fill. The upper right gear is titled "Tax Services" and contains financial data
as a graphical fill. The lower left gear is titled "Fulfillment Management" and
contains a picture of a warehouse as a graphical fill. The lower middle gear is
title "Payment Services" and contains a picture of currency and a credit card as
a graphical fill. The lower right gear is titled "Risk Management" and contains
a picture of a credit card swipe as a graphical fill. Three of the colored lines
extend to three boxes aligned below the graphic. The box on the left contains a
picture of three individuals unloading boxes from a delivery truck. The middle
box contains financial data, the term "Bank" and the phrase "order status
cleared." The box on the right contains graphs that represent "Merchant Data
Analysis Results for Risk Management." Below this box is the disclaimer
"Artist's depiction. Not actual data".
TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   1
Risk Factors.............................................................   4
Forward-Looking Statements...............................................  13
Use of Proceeds..........................................................  13
Dividend Policy..........................................................  13
Price Range of Our Common Stock..........................................  13
Capitalization...........................................................  14
Dilution.................................................................  15
Selected Consolidated Financial Data.....................................  16
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  17
Business.................................................................  24
Management...............................................................  38
Principal and Selling Stockholders.......................................  47
Transactions between CyberSource and its Officers, Directors and
 Significant Stockholders................................................  50
Description of Capital Stock.............................................  54
Shares Eligible for Future Sale..........................................  56
Underwriting.............................................................  57
Legal Matters............................................................  60
Experts..................................................................  60
Where You Can Find More Information......................................  60
Index to Consolidated Financial Statements .............................. F-1
----------------

      Unless otherwise indicated, the information in this prospectus assumes no
exercise of the underwriters' over-allotment option.

      You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

      CyberSource(R) is a registered trademark of CyberSource Corporation. This
prospectus contains product names and trade names and trademarks of CyberSource
and of other organizations.
PROSPECTUS SUMMARY

      This summary is not complete and does not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision.

                            CyberSource Corporation

      We are a leading developer and provider of real-time, or on-demand, e-
commerce transaction services. Through our Internet Commerce Suite, we offer
services to online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, territory management, delivery address
verification and fulfillment management. Our services enable online merchants
to focus their resources on areas where they can most effectively differentiate
themselves, such as marketing, Web site content, merchandising and customer
support. By outsourcing their e-commerce transaction processing needs to us,
online merchants can speed their time to market, reduce their overall operating
costs and process orders from around the world in local currencies. Our
services are comprehensive, scalable (adaptable to meet increases in the number
of transactions), highly reliable and performed via a secure messaging
protocol, or transmission format. Our merchants have used our services to
process more than 34.0 million transactions since January 1998, of which
approximately 25.5 million were processed in the first nine months of 1999.

      As the Internet has become an important communications medium, merchants
and consumers have embraced using the Internet to buy and sell goods and
services. International Data Corporation, or IDC, forecasts that the actual
number of Web buyers worldwide will expand from approximately 48 million in
1999 to approximately 183 million in 2003 and that the amount of commerce
conducted over the Web will increase from approximately $111 billion in 1999 to
approximately $1.3 trillion in 2003 worldwide. To succeed online, a merchant
must attract customers to its Web site and provide an appealing and easy-to-use
environment that encourages customers to place an order by clicking on the
"buy" button. Once the customer places an order, the merchant must then process
the order by executing numerous transactions, such as credit card
authorization, calculation of sales tax and fulfillment of the order, often
while the customer is waiting.

      While early adopters of e-commerce business models often developed custom
transaction processing systems, today many online merchants are seeking to
outsource their transaction processing requirements. Our services offer online
merchants a solution to the challenges of e-commerce transaction processing.
Key benefits of our services include:

     .  Faster time-to-market,

     .  Access to a comprehensive suite of services,

     .  Enhanced merchant flexibility and control,

     .  Global reach, and

     .  Reduced overall costs.

      More than 800 customers have chosen to use our services. Our merchants
include Amazon.com, Beyond.com, BUY.COM, Casio, Compaq Computer, Egghead.com,
Remedy and Shopping.com. We target merchants worldwide through a direct sales
force as well as through an indirect sales channel. Our indirect sales channel
partners include resellers, solution resellers, Web/systems integrators and
commerce server vendors. We have also entered into strategic relationships with
General Electric Capital Corp., or GE Capital, and Visa to penetrate new e-
commerce markets.

                                       1
CyberSource Corporation was incorporated by Beyond.com in Delaware in
December 1997 under the name Internet Commerce Services Corporation.
Beyond.com, whose original name was CyberSource Corporation, contributed all
the assets and liabilities comprising its Internet commerce services business
to Internet Commerce Services Corporation and spun off Internet Commerce
Services Corporation to Beyond.com's stockholders in December 1997. In October
1998 we changed our name to CyberSource Corporation. Our headquarters are
located at 550 S. Winchester Blvd., Suite 301, San Jose, California 95128, and
our telephone number is (408) 556-9100. Information contained on our Web site
at www.cybersource.com does not constitute part of this prospectus.

                              Recent Developments

      Visa Agreement. In September 1999, we announced an agreement with Visa
U.S.A. to jointly develop and promote the CyberSource Internet Fraud Screen
enhanced by Visa. The agreement is mutually exclusive for two years and
includes a preferred pricing discount for merchants accepting Visa cards. We
believe this agreement will allow us to further refine and augment our existing
fraud screen offering by leveraging Visa's fraud modeling expertise.

      International Payment Solution. In June 1999, we announced an
international payment processing gateway using the services of National
Westminster Bank allowing merchants to accept payments in over 150 different
currencies while crediting merchant accounts in 19 currencies, including the
Euro.

      New Merchants. At September 30, 1999, over 800 merchants have chosen to
use our services, representing an increase of over 200 merchants since June 30,
1999. New merchants since June 30, 1999 include Amazon.com, eCampus.com, GUESS?
and Register.com. During the same period, transaction volume grew over 48%.

                                  The Offering
Common stock offered by CyberSource................. 2,000,000 shares
 Common stock offered by the selling stockholders.... 1,000,000 shares
 Common stock to be outstanding after this offering.. 23,989,957 shares(1)
 Use of proceeds..................................... For general corporate
                                                      purposes, including sales
                                                      and marketing, product
                                                      development, potential
                                                      strategic acquisitions
                                                      and other corporate
                                                      expenses.
 Nasdaq National Market symbol....................... CYBS
--------
(1) This figure is based on 21,989,957 shares outstanding at September 30, 1999
    and excludes 3,137,395 shares of common stock issuable upon exercise of
    options outstanding at a weighted average exercise price of $7.08 per share
    and 135,941 shares available for grant at September 30, 1999 under our 1998
    Stock Option Plan and our 1999 Stock Option Plan. Also excludes an
    additional 500,000 shares reserved for issuance under our 1999 Employee
    Stock Purchase Plan and an additional 1,100,000 shares reserved for
    issuance under our 1999 Nonqualified Stock Option Plan. See "Description of
    Capital Stock -- Authorized and Outstanding Capital Stock" and Note 5 of
    Notes to Consolidated Financial Statements.

                                       2
Summary Consolidated Financial Data
Period From                        Nine Months
                            March 20, 1996   Years Ended           Ended
                            (Inception) to   December 31,      September 30,
                             December 31,  -----------------  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  --------
                                 (in thousands, except per share data)
Consolidated Statements of
 Operations Data:
Revenues..................     $   144     $   968  $  3,384  $ 2,281  $  7,883
Gross profit (loss).......           7         644       (87)      84     1,048
Total operating expenses..       1,150       4,969     9,950    6,637    19,370
Loss from operations......      (1,143)     (4,325)  (10,037)  (6,553)  (18,322)
Net loss..................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
                               =======     =======  ========  =======  ========
Basic and diluted net loss
 per share................                          $  (2.05) $ (1.38) $  (1.58)
                                                    ========  =======  ========
Shares used in computing
 basic and diluted net
 loss per share(1)........                             4,918    4,763    11,246
                                                    ========  =======  ========
Pro forma basic and
 diluted net loss per
 share....................                          $  (0.86)          $  (0.98)
                                                    ========           ========
Shares used in computing
 pro forma basic and
 diluted net loss per
 share(1).................                            11,740             18,124
                                                    ========           ========
Selected Non-Financial
 Operating Data:
Number of transactions
 processed................                             8,560    4,536    25,526
September 30, 1999
                                                      ------------------------
                                                        Actual   As Adjusted(2)
                                                      ---------- -------------
Consolidated Balance Sheet Data (in thousands):
Cash, cash equivalents and short-term investments....  $38,251     $130,851
Working capital......................................   35,547      128,147
Total assets.........................................   48,375      140,975
Total stockholders' equity ..........................   41,946      134,546
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the number of shares used in computing per share amounts.
(2) Adjusted to reflect the sale by CyberSource of 2,000,000 shares in this
    offering, based on an assumed public offering price of $49.00 per share.

                                       3
RISK FACTORS

      You should carefully consider the following factors as well as other
information contained in this prospectus before deciding to invest in shares of
our common stock.

We Have a Limited Operating History and Are Subject to the Risks Encountered by
Early-Stage Companies

      We commenced operations in March 1996. From March 1996 until December
1997, we operated as a division of Beyond.com. In December 1997, we were
incorporated as a separate legal entity and our company was spun off from
Beyond.com. Accordingly, we have a very limited operating history, and our
business and prospects must be considered in light of the risks and
uncertainties to which early-stage companies in rapidly evolving markets such
as e-commerce are particularly exposed. These risks include:

     .  risks that the intense competition and rapid technological change
        in our industry could adversely affect market acceptance of all of
        our services;

     .  risks that we may not be able to expand our systems to handle
        increased traffic, resulting in slower response times and other
        difficulties in providing services to our merchant customers;

     .  risks that we may not be able to fully utilize relationships with
        our strategic partners and indirect sales channels; and

     .  risks that any fluctuations in our quarterly operating results
        will be significant relative to our revenues.

These risks are discussed in more detail below. We cannot assure you that our
business strategy will be successful or that we will successfully address these
risks and the risks detailed below.

We Have a History of Losses, Expect Future Losses and Cannot Assure You that We
Will Achieve Profitability

      Although our revenues have increased on a quarterly basis since 1997, we
have not achieved profitability and cannot be certain that we will realize
sufficient revenues to achieve profitability. We have incurred significant net
losses since our inception. We incurred net losses of $4.3 million in 1997,
$10.1 million in 1998 and $17.8 million in the nine months ended September 30,
1999. As of September 30, 1999, we had incurred cumulative losses of $33.3
million. You should not consider recent quarterly revenue growth as indicative
of our future performance. We do not expect to sustain similar levels of growth
in future periods. We have continued to increase our sales and marketing,
network infrastructure, product development and general and administrative
expenses in 1999 and plan to continue to do so in 2000. As a result, we will
need to generate significantly higher revenues in order to achieve
profitability. If we do achieve profitability, we may not be able to sustain
it.

The Expected Fluctuations of Our Quarterly Results Could Cause Our Stock Price
to Fluctuate or Decline

      We expect that our quarterly operating results will fluctuate
significantly in the future based upon a number of factors, many of which are
not within our control. We plan to further increase our operating expenses in
order to expand our sales and marketing activities, build our network
infrastructure and broaden our service capabilities. We base our operating
expenses on anticipated market growth and our operating expenses are relatively
fixed in the short term. As a result, if our revenues are lower than we expect,
our quarterly operating results may not meet the expectations of public market
analysts or investors, which could cause the market price of our common stock
to decline.

                                       4
Our quarterly results may fluctuate in the future as a result of many
factors, including the following:

     . changes in the number of transactions effected by our merchants,
       especially as a result of seasonality, success of each merchant's
       business, general economic conditions or regulatory requirements
       restricting our merchants;

     . our ability to attract new merchants and to retain our existing
       merchants;

     . merchant acceptance of our pricing model;

     . our success in expanding our sales and marketing programs; and

     . an interruption with one or more of our gateway processors and
       channel partners.

     Other factors that may affect our quarterly results are set forth
elsewhere in this section. As a result of these factors, our revenues are not
predictable with any significant degree of certainty.

     Due to the uncertainty surrounding our revenues and expenses, we believe
that quarter-to-quarter comparisons of our historical operating results should
not be relied upon as an indicator of our future performance.

We Could Lose a Significant Portion of Our Business Because We Do Not Have a
Long-Term Contract with Our Largest Customer, Beyond.com

     Revenues from services provided to Beyond.com accounted for 23.7% of our
revenues in 1998 and 15.3% in the nine months ended September 1999. No other
customer accounted for more than 10% of our revenues in 1998 or the first nine
months of 1999. Any significant decrease in revenues from Beyond.com could
materially adversely affect our operating results. We have no long-term
contract with Beyond.com that requires it to continue to use any of our
services. Accordingly, Beyond.com could cease using all or part of our
services on short notice without penalty.

The Demand for Our Services Could Be Negatively Affected by a Reduced Growth
of E-commerce or Delays in the Development of the Internet Infrastructure

     Sales of goods and services over the Internet do not currently represent
a significant portion of overall sales of goods and services. We depend on the
growing use and acceptance of the Internet as an effective medium of commerce
by merchants and customers in the United States and internationally. Rapid
growth in the use of and interest in the Internet is a relatively recent
development. In particular, sales of goods and services over the Internet have
developed more slowly outside of the United States. We cannot be certain that
acceptance and use of the Internet will continue to develop or that a
sufficiently broad base of merchants and consumers will adopt, and continue to
use, the Internet as a medium of commerce.

     The emergence of the Internet as a commercial marketplace may occur more
slowly than anticipated for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. If the
number of Internet users or their use of Internet resources continues to grow,
it may overwhelm the existing Internet infrastructure. Delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity could also have a detrimental effect.
These factors could result in slower response times or adversely affect usage
of the Internet, resulting in lower numbers of e-commerce transactions and
lower demand for our services.

                                       5
Potential System Failures and Lack of Capacity Issues Could Negatively Affect
Demand for Our Services

      Our ability to deliver services to our merchants depends on the
uninterrupted operation of our e-commerce transaction processing systems. Our
systems and operations are vulnerable to damage or interruption from:

     .  earthquake, fire, flood and other natural disasters;

     .  power loss, telecommunications or data network failure, operator
        negligence, improper operation by employees, physical and
        electronic break-ins and similar events; and

     .  computer viruses.

      Despite the fact that we have implemented redundant servers in third-
party hosting centers, two of which are currently located in Santa Clara,
California, we may still experience service interruptions for the reasons
listed above and a variety of other reasons. If our redundant servers are not
available, our business may not have sufficient business interruption insurance
to compensate us for resulting losses. We have experienced periodic
interruptions, affecting all or a portion of our systems, which we believe will
continue to occur from time to time. In addition, any interruption in our
systems that impairs our ability to provide services could damage our
reputation and reduce demand for our services.

      Our success also depends on our ability to grow, or scale, our e-commerce
transaction systems to accommodate increases in the volume of traffic on our
systems, especially during peak periods of demand. We may not be able to
anticipate increases in the use of our systems and successfully expand the
capacity of our network infrastructure. Our inability to expand our systems to
handle increased traffic could result in system disruptions, slower response
times and other difficulties in providing services to our merchant customers,
which could materially harm our business.

A Breach of Our E-commerce Security Measures Could Reduce Demand for Our
Services

      A requirement of the continued growth of e-commerce is the secure
transmission of confidential information over public networks. We rely on
public key cryptography, an encryption method that utilizes two keys, a public
and a private key, for encoding and decoding data, and digital certificate
technology, or identity verification, to provide the security and
authentication necessary for secure transmission of confidential information.
Regulatory and export restrictions may prohibit us from using the strongest and
most secure cryptographic protection available and thereby expose us to a risk
of data interception. A party who is able to circumvent our security measures
could misappropriate proprietary information or interrupt our operations. Any
compromise or elimination of our security could reduce demand for our services.

      We may be required to expend significant capital and other resources to
protect against security breaches or to address any problems they may cause.
Concerns over the security of the Internet and other online transactions and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. Because our activities involve the storage
and transmission of proprietary information, such as credit card numbers,
security breaches could damage our reputation and expose us to a risk of loss
or litigation and possible liability. Our security measures may not prevent
security breaches, and failure to prevent security breaches may disrupt our
operations.

The Intense Competition in Our Industry Could Reduce or Eliminate the Demand
for Our Services

      The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop

                                       6
custom systems may be less likely to adopt an outsourced transaction processing
strategy. We also face competition from developers of other systems for e-
commerce transaction processing such as Clear Commerce, CyberCash, Digital
River, Hewlett-Packard (VeriFone), HNC Software, Open Market, PaylinX,
ShopNow.com and Signio. In addition, other companies, including financial
services and credit companies such as First Data Corporation, AT&T and GE
Capital, may enter the market for our services. In the future, we may also
compete with large Internet-centric companies that derive a significant portion
of their revenues from e-commerce and may offer, or provide a means for others
to offer, e-commerce transaction services.

      Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. For example, Microsoft and
CyberCash have each introduced electronic-wallet solutions, that if widely
adopted by consumers, may result in reduced demand by our merchants for our
fraud screening services. Our current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with other solution providers, thereby increasing the ability of their
services to address the needs of our prospective customers. Our current and
potential competitors may establish or strengthen cooperative relationships
with our current or future channel partners, thereby limiting our ability to
sell services through these channels. We expect that competitive pressures will
require the reduction of the prices of our services and reduce our market
share, either of which could materially and adversely affect our business,
results of operations or financial condition.

If We Lose Key Personnel or Are Unable to Attract and Retain Additional
Qualified Personnel We May Not be Able to Successfully Manage Our Business and
Achieve Our Objectives

      We believe our future success will depend upon our ability to retain our
key management personnel, including William S. McKiernan, our Chief Executive
Officer, and other key members of management because of their experience and
knowledge regarding the development, special opportunities and challenges of
our business. None of our key employees is subject to an employment contract.
We may not be successful in attracting and retaining key employees in the
future.

      Our future success and our ability to expand our operations will also
depend in large part on our ability to attract and retain additional qualified
marketing, sales and technical personnel. Competition for these types of
employees is intense due to the limited number of qualified professionals. We
have in the past experienced difficulty in recruiting qualified marketing,
sales, engineering and support personnel. Failure to attract and retain
personnel, particularly marketing, sales and technical personnel could make it
difficult for us to manage our business and meet our objectives.

Difficulties We May Encounter Managing Our Growth Could Adversely Affect Our
Results of Operations

      We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative infrastructure. We have increased the number of our employees
from 45 employees at December 31, 1997 to 127 employees at December 31, 1998
and 208 employees at September 30, 1999. This expansion is placing a
significant strain on our managerial and financial resources.

      During 1998, we expended significant time and resources in developing our
management information and control systems and our business plan which was
completed towards the end of 1998. In the future, we may not be able to enhance
our management information and control systems in an efficient and timely
manner, and our current or planned personnel, systems, procedures and controls
may not be adequate to support our future operations. In addition, we may not
be able to hire, train, retain, motivate and manage required

                                       7
personnel or to successfully identify, manage and exploit existing and
potential market opportunities. If we are unable to manage growth effectively,
our business, results of operations and financial condition would be materially
adversely affected.

If We Are Not Able to Fully Utilize Relationships With Our Indirect Sales
Channel Partners, We May Experience Lower Revenue Growth and Higher Operating
Costs

      Our future growth will depend in part on the success of our relationships
with existing and future indirect sales channel partners that will market our
services to their merchant accounts. If these relationships are not successful
or do not develop as quickly as we anticipate, our revenue growth may be
adversely affected. Accordingly, we may have to increase our sales and
marketing expenses in an attempt to secure additional merchant accounts.

Our Management Team Must Work Together Effectively in Order to Expand Our
Business, Increase Our Revenues and Improve Our Operating Results

      Several members of our existing senior management personnel have joined
us within the last year. As a result, there is a risk that management will not
be able to work together effectively as a team to address the challenges to our
business. In addition, our new employees include a number of key managerial,
technical and operations personnel who have been with us for a limited period
of time. We may need to add additional key personnel in the near future who
will also need to be integrated into our management team.

Our Market is Subject to Rapid Technological Change and to Compete, We Must
Continually Enhance Our Systems to Comply with Evolving Standards

      To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our services and the underlying
network infrastructure. The Internet and the e-commerce industry are
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render our technology and systems obsolete. Our success will depend, in
part, on our ability to both internally develop and license leading
technologies to enhance our existing services and develop new services. We must
continue to address the increasingly sophisticated and varied needs of our
merchants, and respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. The development
of proprietary technology involves significant technical and business risks. We
may fail to develop new technologies effectively or to adapt our proprietary
technology and systems to merchant requirements or emerging industry standards.
If we are unable to adapt to changing market conditions, merchant requirements
or emerging industry standards, our business would be materially harmed.

Our Current and Prior Overlapping Board Members with Beyond.com May Create
Conflicts of Interests and Result in Actions Inconsistent with Stockholder
Interests

      In connection with our spin-off from Beyond.com in December 1997, we
entered into agreements with Beyond.com to define the ongoing relationship
between the two companies. At the time these agreements were negotiated, all of
our directors were also directors of Beyond.com and other members of our
management team were also executive officers of Beyond.com. As a result, these
agreements were not the result of arms' length negotiations between us and
Beyond.com. Further, although we and Beyond.com are engaged in different
businesses, the two companies currently have no policies to govern the pursuit
or allocation of corporate opportunities, in the event they arise. Our business
could be adversely affected if the overlapping board members of the two
companies, of which there are currently two, William S. McKiernan and Bert
Kolde, pursue Beyond.com's interests over ours either in the course of
transactions between the companies or where the same corporate opportunities
are available to both companies.

                                       8
We May Not Be Able to Adequately Protect Our Proprietary Technology and May Be
Infringing Upon Third-Party Intellectual Property Rights

      Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.

      As part of our confidentiality procedures, we enter into non-disclosure
agreements with our employees. Despite these precautions, third parties could
copy or otherwise obtain and use our technology without authorization, or
develop similar technology independently. Effective protection of intellectual
property rights may be unavailable or limited in foreign countries. We cannot
assure you that the protection of our proprietary rights will be adequate or
that our competitors will not independently develop similar technology,
duplicate our services or design around any patents or other intellectual
property rights we hold.

      We also cannot assure you that third parties will not claim our current
or future services infringe upon their rights. We have not conducted any search
to determine whether any of our services or technologies may be infringing upon
patent rights of third parties. As the number of services in our market
increases and functionalities increasingly overlap, companies such as ours may
become increasingly subject to infringement claims. In addition, these claims
also might require us to enter into royalty or license agreements. Any
infringement claims, with or without merit, could cause costly litigation that
could absorb significant management time. If required to do so, we may not be
able to obtain royalty or license agreements, or obtain them on terms
acceptable to us. See "Business--Intellectual Property" for more information
relating to protecting our intellectual property rights and risks relating to
claims of infringement upon the intellectual property of others.

We May Not Be Able to Secure Funding in the Future Necessary to Operate Our
Business as Planned

      We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use the net proceeds of this offering primarily to continue investments in
service development, to expand sales and marketing activities, to fund product
development, to fund continued operations and potentially to make future
acquisitions. We believe that these proceeds, together with our existing
capital resources, will be sufficient to meet our capital requirements for at
least the next twelve months. However, our capital requirements depend on
several factors, including the rate of market acceptance of our services, the
ability to expand our merchant base, the growth of sales and marketing and
other factors. If capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, and these equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or
enhance our services, take advantage of future opportunities or respond to
competitive pressures.

We May Become Subject to Government Regulation and Legal Uncertainties That
Would Adversely Affect Our Financial Results

      We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
e-commerce. However, due to the increasing usage of the Internet, it is
possible that a number of laws and regulations may be applicable or may be
adopted in the future with respect to conducting business over the Internet
covering issues such as:

     .  taxes;

     .  user privacy;

                                       9
.  pricing;

     .  content;

     .  right to access personal data;

     .  copyrights;

     .  distribution; and

     .  characteristics and quality of services.

      For example, we believe that some of our services may require us to
comply with the Fair Credit Reporting Act. As a precaution, we are implementing
changes to our systems and processes so that we will be in compliance with the
act. Complying with this act requires us to provide information about personal
data stored by us or our merchants. Failure to comply with this act could
result in claims being made against us.

      Furthermore, the growth and development of the market for e-commerce may
prompt more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The adoption of
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for our services and
increase our cost of doing business.

      The applicability of existing laws governing issues such as property
ownership, copyrights, encryption and other intellectual property issues,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws intended to address these issues, including
some recently proposed changes in the United States regarding taxation and
encryption and in the European Union regarding contract formation and privacy,
could create uncertainty in the Internet marketplace and impose additional
costs and other burdens. This uncertainty, costs and burden could reduce demand
for our services or increase the cost of doing business due to increased costs
of litigation or increased service delivery costs.

Our International Business Exposes Us to Additional Foreign Risks

      Services provided to merchants outside the United States accounted for
9.0% of our revenues in 1998 and 24.9% of our revenues for the nine months
ended September 30, 1999. We intend to expand our international presence in the
future. Conducting business outside of the United States is subject to
additional risks that may affect our ability to sell our services and result in
reduced revenues, including:

     .  changes in regulatory requirements;

     .  reduced protection of intellectual property rights;

     .  evolving privacy laws in Europe;

     .  the burden of complying with a variety of foreign laws; and

     .  political or economic instability or constraints on international
        trade.

      In addition, some software exports from the United States are subject to
export restrictions as a result of the encryption technology in that software
and we may become liable to the extent we violate these restrictions. We might
not successfully market, sell and distribute our services in local markets and
we cannot be certain that one or more of these factors will not materially
adversely affect our future international operations, and consequently, our
business, financial condition and operating results.

      Also, sales of our services conducted through our subsidiary in the
United Kingdom are denominated in Pounds Sterling. We may experience
fluctuations in revenues or operating expenses due to fluctuations in the

                                       10
value of the Pound Sterling relative to the U.S. Dollar. We do not currently
hedge with respect to currency exchange fluctutations.

Computer Systems and Software Are Critical to Our Operations and any
Significant Disruption Due to Year 2000 Non-Compliance Would Adversely Affect
Our Business

      Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including
technology, transportation, utilities, finance and telecommunications, will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. Year 2000 compliance efforts may involve
significant time and expense, and uncorrected problems could materially
adversely affect our business, financial condition or operating results.

      We have completed audits of our internal systems and are working closely
with suppliers of these systems to ensure that all systems are Year 2000
compliant. We have commenced modification or replacement of non-compliant
systems as necessary. In addition, we are highly dependent on a few personal
computer manufacturing companies for our supply of desktop hardware and
peripherals. These suppliers may not be able to deliver on schedule due to Year
2000 issues, which could result in serious disruptions of employee productivity
and materially adversely affect our business.

We Intend to Pursue Strategic Acquisitions and Our Business Could Be Materially
Adversely Affected if We Fail to Adequately Integrate Acquired Businesses

      As part of our overall business strategy, we intend to pursue strategic
acquisitions of complementary businesses or technologies that would provide
additional service offerings, additional industry expertise, a broader client
base or an expanded geographic presence. From time to time, we have engaged in
discussions with third parties concerning potential acquisitions of product
lines, technologies and businesses. Any future acquisition could result in the
use of significant amounts of cash, potentially dilutive issuances of equity
securities, or the incurrence of debt or amortization expenses related to
goodwill and other intangible assets, any of which could materially adversely
affect our business, operating results and financial condition. In addition,
acquisitions involve numerous risks, including:

     .  difficulties in the assimilation of the operations, technologies,
        products and personnel of the acquired company;

     .  the diversion of management's attention from other business
        concerns;

     .  risks of entering markets in which we have no or limited prior
        experience; and

     .  the potential loss of key employees of the acquired company.

Existing Stockholders May Exert Control Over Us to the Detriment of Minority
Stockholders

      After completion of this offering, our officers, directors and principal
stockholders (i.e., greater than 5% stockholders) together will control
approximately 52.2% of our outstanding common stock. As a result, these
stockholders, if they act together, will be able to control our management and
affairs and all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in control of CyberSource and might affect the market price of our
common stock.

                                       11
Our Stock Price May Fluctuate Substantially and You May Not Be Able to Resell
Your Shares Above the Offering Price

      The market price for the common stock will be affected by a number of
factors, including the following:

     .  the announcement of new services or service enhancements by us or
        our competitors;

     .  quarterly variations in our or our competitors' results of
        operations;

     .  changes in earnings estimates or recommendations by securities
        analysts;

     .  developments in our industry; and

     .  general market conditions and other factors, including factors
        unrelated to our operating performance or the operating
        performance of our competitors.

      In addition, stock prices for many companies in the technology and
emerging growth sectors have experienced wide fluctuations that have often been
unrelated to the operating performance. These factors and fluctuations, as well
as general economic, political and market conditions may materially adversely
affect the market price of our common stock.

Sales of Shares Eligible For Future Sale After This Offering Could Cause Our
Stock Price to Decline

      If our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options and warrants)
in the public market following this offering, the market price of our common
stock could fall. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Upon completion of this offering, we will have 23,989,957
outstanding shares of common stock based upon shares outstanding as of
September 30, 1999, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options after September 30, 1999. Of
these shares, the 3,000,000 shares sold in this offering will be freely
transferable without restriction under the Securities Act, unless held by
"affiliates" of CyberSource as that term is used under the Securities Act and
the Regulations promulgated thereunder. The remaining shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
Number of
                   Date of Availability for Sale                      Shares
                   -----------------------------                    ----------
October 21, 1999 (120 days after the date of our initial public
 offering).........................................................    761,328
December 21, 1999 (180 days after the date of our initial public
 offering).........................................................  5,003,550
February 3, 2000 (90 days after the date of this prospectus)....... 10,545,678
Periodically thereafter upon the expiration of one-year holding
 periods...........................................................    851,229
The Anti-Takeover Provisions in Our Certificate of Incorporation Could
Adversely Affect the Rights of the Holders of Our Common Stock

      Anti-takeover provisions of Delaware law and our Certificate of
Incorporation may make a change in control of CyberSource more difficult, even
if a change in control would be beneficial to the stockholders. These
provisions may allow the Board of Directors to prevent changes in the
management and control of CyberSource. Under Delaware law, our Board of
Directors may adopt additional anti-takeover measures in the future.

      One anti-takeover provision that we have is the ability of our Board of
Directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 4,988,842 shares of preferred stock.
As of September 30, 1999, there are no shares of preferred stock outstanding.
However, because the rights and preferences of any series of preferred stock
may be set by the Board of Directors in its sole discretion without approval of
the holders of the common stock, the rights and preferences of this preferred
stock may be superior to those of the common stock. Accordingly, the rights of
the holders of common stock may be adversely affected.

                                       12
FORWARD-LOOKING STATEMENTS

      This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about CyberSource, including, among other
things:

     .  risks and uncertainties encountered by early-stage companies;

     .  continued growth in e-commerce and Internet infrastructure
        development;

     .  our ability to retain our existing merchants and attract new
        merchants;

     .  technical difficulties and unanticipated system downtime; and

     .  our relationship with Beyond.com.

      We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur.

                                USE OF PROCEEDS

      Net proceeds to CyberSource from the sale of our shares of common stock
at an assumed offering price of $49.00 per share are estimated to be
approximately $92.6 million. We will not receive any of the proceeds from the
selling stockholders' sale of their shares.

      The principal purpose of this offering is to obtain additional working
capital. We expect to use the net proceeds for general corporate purposes,
including sales and marketing, product development and other corporate
expenses. A portion of the net proceeds may also be used to invest in or
acquire complementary businesses or technologies. We currently have no
agreements or understandings with respect to any investments or acquisitions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, investment grade, interest-bearing instruments.

                                DIVIDEND POLICY

      We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain earnings, if any, to support the development of
our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
Board of Directors after taking into account factors, such as our financial
condition, operating results and current and anticipated cash needs.

                        PRICE RANGE OF OUR COMMON STOCK

      Since our initial public offering on June 23, 1999, our common stock has
traded on the Nasdaq National Market under the symbol "CYBS." The following
table sets forth the range of high and low closing sales prices of our common
stock for the periods indicated:
Year ending December 31, 1999                              High     Low
      -----------------------------                             ------- -------
Second Quarter (from June 23, 1999)...................... $14 3/4 $    12
      Third Quarter............................................ $55 3/8 $15 1/4
      Fourth Quarter (through October 18, 1999)................ $55 1/2 $45 3/4
On October 18, 1999, the last reported sale price for our common stock on
the Nasdaq National Market was $49.00 per share.

                                       13
CAPITALIZATION

      The following table sets forth the capitalization of CyberSource as of
September 30, 1999:

     .  on an actual basis; and

     .  as adjusted to give effect to the sale by CyberSource of 2,000,000
        shares of common stock offered by CyberSource hereby at an assumed
        public offering price of $49.00 per share and the receipt of
        estimated net proceeds.

      This table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
September 30, 1999
                                                          ---------------------
                                                           Actual   As Adjusted
                                                          --------  -----------
                                                             (in thousands)
Long term debt, including current portion................ $  1,187   $  1,187
                                                          --------   --------
Stockholders' equity:
  Preferred stock, $.001 par value; 4,988,842 shares
   authorized, no shares issued and outstanding -- actual
   as adjusted...........................................       --         --
  Common stock, $.001 par value; 50,000,000 shares
   authorized, 21,989,957 shares issued and
   outstanding, -- actual; 23,989,957 shares issued and
   outstanding -- as adjusted(1).........................       22         24
  Additional paid in capital.............................   70,571    163,169
  Deferred compensation related to stock options.........     (799)      (799)
  Accumulated deficit....................................  (27,848)   (27,848)
                                                          --------   --------
Total stockholders' equity .............................. $ 41,946    134,546
                                                          --------   --------
    Total capitalization................................. $ 43,133   $135,733
                                                          ========   ========
--------
(1) Excludes 3,137,395 shares of common stock issuable upon exercise of options
    outstanding at a weighted average exercise price of $7.08 per share and
    135,941 shares available for grant as of September 30, 1999 under our 1998
    Stock Option Plan and our 1999 Stock Option Plan. Also excludes an
    additional 500,000 shares reserved for issuance under our 1999 Employee
    Stock Purchase Plan and an additional 1,100,000 shares reserved for
    issuance under our 1999 Nonqualified Stock Option Plan. See "Management --
     Stock Plans" and "Executive Compensation" and Note 5 of Notes to
    Consolidated Financial Statements.

                                       14
DILUTION

      If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the net tangible book value per share of our common stock
after this offering. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common
stock immediately after completion of this offering.

      At September 30, 1999, our net tangible book value was $41.7 million or
approximately $1.90 per share. Net tangible book value per share represents the
amount of our stockholders' equity less intangible assets divided by 21,989,957
shares of common stock. After giving effect to the sale by us of 2,000,000
shares of our common stock hereby at an assumed public offering price of $49.00
per share, and the application of the estimated net proceeds therefrom, our net
tangible book value as of September 30, 1999 would have been $134.3 million or
$5.60 per share. This represents an immediate increase in net tangible book
value of $3.70 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $43.40 per share to the purchasers of
common stock in this offering, as illustrated in the following table:
Assumed public offering price per share............................       $49.00
  Net tangible book value per share as of September 30, 1999....... $1.90
  Increase attributable to new investors...........................  3.70
                                                                    -----
Net tangible book value per share after this offering..............         5.60
                                                                          ------
Dilution per share to new investors................................       $43.40
                                                                          ======
15
SELECTED CONSOLIDATED FINANCIAL DATA

      The following selected consolidated statements of operations data for the
period from March 20, 1996 (inception) through December 31, 1996, and for the
years ended December 31, 1997 and 1998 and the selected balance sheet data as
of December 31, 1997 and 1998 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus. The selected
balance sheet data as of December 31, 1996 is derived from our audited
consolidated financial statements not included in this prospectus. The
consolidated financial data as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 was derived from unaudited financial
statements included elsewhere in this prospectus. We have prepared this
unaudited information on the same basis as the audited consolidated financial
statements and have included all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of our
financial position and operating results for such periods. When you read this
consolidated financial data, you should also read the consolidated financial
statements and related notes included in this prospectus. The historical
results are not necessarily indicative of future results.
Period from                        Nine Months
                              March 20       Year Ended           Ended
                           (Inception) to   December 31,      September 30,
                            December 31,  -----------------  -----------------
                                1996       1997      1998     1998      1999
                           -------------- -------  --------  -------  --------
                                 (in thousands, except per share data)
Consolidated Statements
 of Operations Data:
Revenues:................     $   144     $   968  $  3,384  $ 2,281  $  7,883
                              -------     -------  --------  -------  --------
Cost of revenues.........         137         324     3,471    2,197     6,835
                              -------     -------  --------  -------  --------
Gross profit (loss)......           7         644       (87)      84     1,048
Operating expenses:
 Product development.....         338       2,300     3,802    2,534     5,207
 Sales and marketing.....         425       1,988     4,184    2,789    10,256
 General and
  administrative.........         387         681     1,946    1,314     3,528
 Deferred compensation
  amortization...........          --          --        18       --       379
                              -------     -------  --------  -------  --------
Total operating
 expenses................       1,150       4,969     9,950    6,637    19,370
                              -------     -------  --------  -------  --------
Loss from operations.....      (1,143)     (4,325)  (10,037)  (6,553)  (18,322)
Interest income
 (expense), net..........          --         (13)      (48)     (21)      559
                              -------     -------  --------  -------  --------
Net loss.................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
                              =======     =======  ========  =======  ========
Net loss per share(1)....                          $  (2.05) $ (1.38) $  (1.58)
Shares used in computing
 basic and diluted net
 loss per share(1).......                             4,918    4,763    11,246
Pro forma basic and
 diluted net loss per
 share(1)................                          $  (0.86)          $  (0.98)
Shares used in computing
 pro forma basic and
 diluted net loss per
 share(1)................                            11,740             18,124
Selected Non-Financial
 Operating Data:
Number of transactions
 processed...............                             8,560    4,536    25,526
December 31,
                                           ---------------------  September 30,
                                            1996   1997   1998        1999
                                           ------ ------ -------  -------------
                                                     (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
 investments.............................   $ --  $2,000 $11,111     $38,251
Working capital (deficit)................    (61)  2,016   7,554      35,547
Total assets.............................    106   3,735  14,975      48,375
Noncurrent obligations under capital
 leases..................................     --      33     256         545
Redeemable convertible preferred stock...     --   2,097  18,911          --
Total stockholders' equity (net capital
 deficiency) / divisional equity (1996)..    421   1,037  (9,023)     41,946
--------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the determination of the number of shares used in computing per share
    amounts. Until December 31, 1997, the Company was operated as a division of
    Beyond.com Corporation and had no outstanding common or preferred shares,
    and, therefore, there are no loss per share amounts for the 1996 and 1997
    periods.

                                       16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.

Overview

      We commenced operations in March 1996 as a division of Beyond.com. From
our inception to March 1997, our operating activities related primarily to
planning and developing proprietary e-commerce transaction systems, recruiting
personnel, raising capital and purchasing operating assets. On December 31,
1997, Beyond.com transferred assets and liabilities related to its e-commerce
transaction processing services division to CyberSource. Our financial
statements for 1996 and 1997 reflect our operations as a division of Beyond.com
through December 31, 1997. Our balance sheet as of December 31, 1997 has been
prepared using the historical basis of accounting and includes all the assets
and liabilities specifically identifiable to us. Our statements of operations
for 1996 and 1997 include all revenues and costs directly attributable to us,
including a corporate allocation of the costs of facilities, salaries and
employee benefits. Additionally, incremental corporate administration, finance
and management costs were allocated to us. We have incurred significant losses
since our inception, and through September 30, 1999 had incurred cumulative
losses of approximately $33.3 million. We expect to continue to incur
substantial operating losses for the foreseeable future.

      We derive substantially all of our revenues from e-commerce monthly
transaction processing fees, and, to a lesser extent, support services and
digital product rights management fees. Transaction revenues and digital
product rights management fees are recognized in the period in which the
transactions occur. Our e-commerce transaction processing service revenues are
derived from contractual relationships providing revenues on a per transaction
basis, generally subject to a monthly minimum or maintenance fee. In general,
these contractual relationships provide for a one-year term with automatic
renewal and can be cancelled by either party at any time with sixty days prior
notice. Support service fees are recognized as the related services are
provided and costs are incurred. As our revenues grow, we expect e-commerce
transaction processing revenues to become an increasingly larger percentage of
our total revenues.

      In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including our gross margin and operating expenses as a
percentage of total revenues, are not meaningful and should not be relied upon
as indications of future performance. Moreover, we do not believe that our
historical growth rates are indicative of future results. Even if our revenues
and number of transactions did continue to expand at a steady pace in absolute
numbers, our growth rate would decrease.

Results of Operations

      The following discussion does not contain data from the inception period
of March 20, 1996 through December 31, 1996, because we believe that amounts
from this inception period are not comparable to those for the years ended
December 31, 1997 and 1998 due to the different duration of the periods, and
due to the limited size of our operations as a division of Beyond.com in that
period.

Nine Months Ended September 30, 1998 and 1999

      Revenues. Revenues increased from $2.3 million for the nine months ended
September 30, 1998 to $7.9 million for the nine months ended September 30,
1999, an increase of approximately $5.6 million or 245.6%. This increase is due
to the addition of merchants and transaction volume increases from existing
merchants resulting from the increased market acceptance of e-commerce. Our
transactions processed increased

                                       17
from approximately 4.5 million during the nine months ended September 30, 1998
to approximately 25.5 million during the nine months ended September 30, 1999.
A press article published in March 1999 attributes to William S. McKiernan, our
Chief Executive Officer, a statement that 50 million transactions is a
realistic target for 1999. Mr. McKiernan cannot recall making such a statement
and believes that it is an interpretation made by the author of the article.
Therefore, the statement should not be taken as a forecast. There can be no
assurance that we will process 50 million transactions in 1999.

      Cost of Revenues. Cost of revenues consists primarily of costs incurred
in the delivery of e-commerce transaction services, including personnel costs
in our operations, professional services and merchant support functions,
depreciation of capital equipment used in our network infrastructure and costs
related to the hosting of our servers at third-party hosting centers in the
United States and United Kingdom. Cost of revenues increased from $2.2 million
for the nine months ended September 30, 1998 to $6.8 million for the nine
months ended September 30, 1999. The increase is due primarily to additional
operations and merchant support personnel and related costs and costs
associated with our use of a second third-party hosting center in the United
States which commenced operations during the quarter ended September 30, 1999.
In addition, international cost of revenues increased due to costs associated
with a third party payment processing gateway in the U.K. due to increased
international transaction volumes.

      Product Development. Product development expenses consist primarily of
compensation and related costs of employees engaged in the research, design and
development of new services, and to a lesser extent, facility costs and related
overhead. Product development expenses increased from $2.5 million for the nine
months ended September 30, 1998 to $5.2 million for the nine months ended
September 30, 1999. The increase is primarily due to higher personnel related
costs resulting from an increase in personnel. We expect product development
expenses to increase in absolute dollars as we hire additional personnel and
develop new services.

      Sales and Marketing. Sales and marketing expenses consist primarily of
compensation of sales and marketing personnel, market research and advertising
costs, and, to a lesser extent, facility costs and related overhead. Sales and
marketing expenses increased from $2.8 million for the nine months ended
September 30, 1998 to $10.3 million for the nine months ended September 30,
1999. The increase is primarily due to an increase in marketing and promotional
programs, higher personnel related costs resulting from an increase in
personnel and higher sales commissions resulting from an increase in sales. We
expect sales and marketing expenses to increase in absolute dollars as we
increase our marketing and promotional programs.

      General and Administrative. General and administrative expenses consist
primarily of compensation for administrative personnel, fees for outside
professional services and, to a lesser extent, facility costs and related
overhead. General and administrative expenses increased from $1.3 million for
the nine months ended September 30, 1998 to $3.5 million for the nine months
ended September 30, 1999. The increase is primarily due to higher personnel
related costs resulting from an increase in personnel. We expect general and
administrative expenses to increase in absolute dollars to support the expected
growth of our business including our expected relocation to a new facility in
early 2000.

      Deferred Compensation Amortization. During the nine months ended
September 30, 1999, we recorded aggregate unearned compensation in the amount
of $1.0 million in connection with the grant of stock options with exercise
prices less than the deemed fair value on the respective dates of grant and
amortized $0.4 million of deferred compensation during that period. Deferred
compensation amortization related to these stock option grants, as well as 1998
stock option grants, will be approximately $0.6 million, $0.4 million and $0.2
million for years 1999, 2000 and 2001 and thereafter.

      Interest Income (Expense), Net. Interest income consists of interest
earnings on cash and cash equivalents and increased from $41,000 for the nine
months ended September 30, 1998 to $0.8 million for the nine months ended
September 30, 1999. The increase is primarily due to an increase in cash, cash
equivalents and short-term investments as a result of equity financings
completed during 1999, including our initial public

                                       18
offering in June 1999. Interest expense increased from $62,000 for the nine
months ended September 30, 1998 to $0.3 million for the nine months ended
September 30, 1999. The increase represents interest on an unsecured
convertible note issued in August 1998 and interest on capital leases. The
convertible note was converted to equity in June 1999.

Years Ended December 31, 1997 and 1998

      Revenues. Revenues increased from $1.0 million in 1997 to $3.4 million in
1998, an increase of approximately $2.4 million or 249.6%. The increase is a
result of the addition of merchants and increased transaction volumes from
existing customers resulting from the increased market acceptance of e-
commerce. Since we were a division of Beyond.com, no revenues were recorded
from Beyond.com transactions processed during 1997. During 1998, Beyond.com
accounted for approximately 23.7% of our revenues. Given the continued increase
in our customer base, we expect Beyond.com's percentage of total revenues to
decrease in future periods as new customers increase our transaction volumes
and revenues.

      Cost of Revenues. Cost of revenues increased from $0.3 million or 33.5%
of revenues in 1997 to $3.5 million or 102.6% of revenues in 1998. The increase
in 1998 in dollars and as a percent of revenues is due to an increase of $1.6
million in operations, professional services and merchant support personnel and
related costs, an increase of $0.2 million in depreciation expense on capital
equipment as well as an increase of $0.3 million in costs related to the
hosting of our servers at third party hosting centers in the United States and
United Kingdom which include costs for additional space, installation of
equipment and additional phone line requirements.

      Product Development. Product development expenses increased from $2.3
million in 1997 to $3.8 million in 1998. The addition of product development
personnel during 1998 primarily accounted for the increase.

      Sales and Marketing. Sales and marketing expenses increased from $2.0
million in 1997 to $4.2 million in 1998. The increase is primarily due to
higher personnel related costs and increased sales commissions.

      General and Administrative. General and administrative expenses increased
from $0.7 million in 1997 to $1.9 million in 1998. The increase is primarily
due to higher personnel related costs resulting from the hiring of additional
personnel and, to a lesser extent, from salary increases.

      Deferred Compensation Amortization. During the year ended December 31,
1998, we recorded aggregate unearned compensation in the amount of $0.2 million
in connection with the grant of stock options during 1998 with exercise prices
less than the deemed fair value on the respective dates of grant.

      Interest Income (Expense), Net. Interest income was approximately $0.1
million in 1998. Interest expense of $0.2 million in 1998 represents interest
on an unsecured convertible note and interest on capital leases.

      Income Taxes. No provision for federal and state income taxes was
recorded as we incurred net operating losses since inception. As of December
31, 1998, we had federal and state net operating loss carryforwards of
approximately $8.6 million. If we are not able to use them, the federal and
state net operating loss carryforwards will expire in 2006 through 2018. The
Tax Reform Act of 1986 imposes substantial restrictions on the utilization of
net operating losses and tax credits in the event of a corporation's ownership
change, as defined in the Internal Revenue Code. Our ability to utilize net
operating loss carryforwards may be limited as a result of such an ownership
change. We do not anticipate that a material limitation on our ability to use
our carryforwards and credits will result from this offering.

      We have provided a full valuation allowance on our deferred tax assets
because of the uncertainty regarding their realization. Our accounting for
deferred taxes under Statement of Financial Accounting

                                       19
Standards No. 109 involves the evaluation of a number of factors concerning the
reliability of our deferred tax assets. In concluding that a full valuation
allowance was required, we considered such factors as our history of operating
losses and expected future losses and the nature of our deferred tax assets.

Quarterly Results of Operations

      The following table presents our unaudited quarterly consolidated
statements of operations data and non-financial operating data for the seven
quarters ended September 30, 1999. In management's opinion, the consolidated
statements of operations data has been prepared substantially on the same basis
as the audited consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below in order to present
fairly the unaudited quarterly results. The quarterly data should be read in
conjunction with our audited consolidated financial statements and the related
notes appearing elsewhere in this prospectus.
Three Months Ended
                                       -----------------------------------------------------------------
                                       Mar 31,  June 30,  Sept 30,  Dec 31,  Mar 31,  June 30,  Sept 30,
                                        1998      1998      1998     1998     1999      1999      1999
                                       -------  --------  --------  -------  -------  --------  --------
                                                             (in thousands)
Consolidated Statements of Operations
Data:
Revenues.............................  $   639  $   699   $   943   $ 1,103  $ 1,713  $ 2,536   $ 3,634
Cost of revenues.....................      647      655       895     1,274    1,505    2,236     3,094
                                       -------  -------   -------   -------  -------  -------   -------
Gross profit (loss)..................       (8)      44        48      (171)     208      300       540
                                       -------  -------   -------   -------  -------  -------   -------
Operating expenses:
  Product development................      671      808     1,055     1,268    1,322    1,652     2,233
  Sales and marketing................      822      849     1,118     1,395    2,079    4,207     3,970
  General and administrative.........      330      413       571       632      938    1,105     1,485
  Deferred compensation amortization.       --       --        --        18       67      156       156
                                       -------  -------   -------   -------  -------  -------   -------
    Total operating expenses.........    1,823    2,070     2,744     3,313    4,406    7,120     7,844
                                       -------  -------   -------   -------  -------  -------   -------
Loss from operations.................   (1,831)  (2,026)   (2,696)   (3,484)  (4,198)  (6,820)   (7,304)
Interest income (expense), net.......        7       11       (39)      (27)       8      (38)      589
                                       -------  -------   -------   -------  -------  -------   -------
Net loss.............................  $(1,824) $(2,015)  $(2,735)  $(3,511) $(4,190) $(6,858)  $(6,715)
                                       =======  =======   =======   =======  =======  =======   =======
Selected Non-Financial Operating
Data:
Number of transactions processed.....      870    1,193     2,473     4,024    5,800    7,959    11,767
Revenues increased during each quarter of 1998 and the three quarters of
1999 due to increases in transaction volumes and, to a lesser extent, increases
in merchant support services. The increase in cost of revenues during each
quarter of 1998 and the three quarters of 1999 is due to an increase in cost
related to operations, infrastructure and the hosting of our servers at third-
party hosting centers in the United States and United Kingdom, and to a lesser
extent, increases in merchant support personnel throughout the period. The
gross loss in the quarter ended March 31, 1998 is a result of continued
investment in network infrastructure and costs related to the hosting of our
servers. The gross loss in the quarter ended December 31, 1998 is a result of
an increase of $0.2 million in operations, professional services and merchant
support personnel related costs to support anticipated future revenue growth.
Product development expense increased during each quarter of 1998 and the three
quarters of 1999 principally due to an increase in product development
personnel. Sales and marketing expense increased in the three months ended
December 31, 1998 and the three months ended March 31, 1999 due to an increase
in sales and marketing personnel costs of $0.4 million. The increases in sales
and marketing expense in the three months ended June 30, 1999 and September 30,
1999 as compared to the three months ended March 31, 1999 are due primarily to
an increases in expenses for marketing and promotional programs by $2.8 million
in total and increases in personnel costs during these two quarters. The
increase in general and administrative expenses in the nine months ended
September 30, 1999 is due to

                                       20
increased accounting and outside service and insurance expenses of $0.3
million. The deferred compensation amortization represents the amortization of
unearned compensation in connection with the grant of stock options during 1998
and 1999 at exercise prices less than the deemed fair value on the respective
dates of grant.

Liquidity and Capital Resources

      Our cash, cash equivalents and short-term investments increased by
approximately $36.3 million from December 31, 1997 to September 30, 1999. This
increase resulted from our receipt of approximately $62.7 million in proceeds
from the sale of equity securities which was partially offset by our net losses
during 1998 and the nine months ended September 30, 1999 as well as the
acquisition of equipment used in our network infrastructure. Our investment in
property and equipment was approximately $6.4 million, excluding approximately
$1.6 million of property and equipment financed under capital leases, during
the period from December 31, 1997 to September 30, 1999.

      Net cash used in our operating activities was approximately $8.9 million
during 1998 and approximately $14.0 million for the nine months ended September
30, 1999. Cash used in operations during 1998 and the nine months ended
September 30, 1999 was primarily due to our net losses and increases in current
assets, offset by depreciation and amortization and increases in accounts
payable and accrued liabilities. Accounts payable and accrued liabilities
increased in those periods primarily due to the expansion of our operations and
the related costs and increases in accrued personnel costs related to headcount
growth.

      Net cash used in investing activities was approximately $1.4 million
during 1998 and approximately $19.7 million during the nine months ended
September 30, 1999 and was comprised primarily of purchases of furniture and
equipment for new employees, leasehold improvements related to office
expansions in both periods and capital equipment used in our network
infrastructure and, in the nine months ended September 30, 1999, $14.8 million
in purchases of short-term investments. Our planned capital expenditures for
the remainder of 1999 are approximately $1.5 million, primarily for capital
equipment used in our network infrastructure.

      Net cash provided by financing activities was approximately $19.4 million
in 1998 and approximately $46.0 million for the nine months ended September 30,
1999. Net cash provided by financing activities in 1998 was due primarily to
proceeds from our issuance of a convertible note payable of $3.0 million and
proceeds from the issuance of preferred stock of $16.5 million. Net cash
provided by financing activities for the nine months ended September 30, 1999
was due primarily to proceeds from our initial public offering in the amount of
$46.2 million.

      The principal balance of $3.0 million of the convertible note payable was
converted into 1,657,458 shares of Series E preferred stock on June 7, 1999 at
a price of $1.81 per share. These shares converted into 828,729 shares of
common stock on June 23, 1999. Interest accrued on the note at a rate of 10.0%
per annum, and was payable in quarterly installments. We paid an aggregate
amount of $256,000 in interest under the note. See "Transactions between
CyberSource and its Officer, Directors and Significant Stockholders -- Option
Grants and Agreements with Executive Officers and Directors."

      We believe that the net proceeds from this offering, together with our
current cash and investment balances, will be sufficient to meet our working
capital and capital requirements for at least the twelve months immediately
following the offering. We expect that we will continue to use our cash to fund
operations during that period as we hire additional personnel and continue to
expand our research and development, sales and marketing and general and
administrative activities. In addition, our future capital requirements will
depend on many factors including the level of investment we make in new
businesses, new products or new technologies. A portion of the net proceeds may
be used to invest in or acquire complementary businesses or technologies. We
currently have no agreements or understandings with respect to any investments
or acquisitions. To the extent that the funds generated by this offering,
together with existing resources and future earnings, are

                                       21
insufficient to fund our future activities, we may need to obtain additional
equity or debt financing. Additional funds may not be available or, if
available, we may not be able to obtain them on terms favorable to our
stockholders and us.

Year 2000 Readiness Disclosure

      State of Readiness. We utilize a number of computer software programs and
operating systems across our entire organization, including applications used
in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming Year 2000 and beyond, some level of
modification or replacement of applications will be necessary. We believe that
our internal Year 2000 issues are limited to information technology, or IT,
systems such as software programs and computer operating systems, and we are
working closely with the suppliers of these systems to ensure that all systems
are Year 2000 compliant. We have compiled certifications and representations of
Year 2000 compliance from publishers of all operating systems and software
utilized by our employees in the normal course of business. Employing a team
made up of internal personnel, we are currently testing the IT Systems to
determine if any additional modifications or replacement of these systems is
necessary. To date, we do not believe that such additional modifications or
replacements are necessary. We anticipate that the final round of testing of
these systems will be completed by November 1999.

      We rely on two Internet service providers for our Internet access. Both
companies have represented in their public filings with the Securities and
Exchange Commission that their systems are fully Year 2000 compliant or that
they have processes in place to achieve full compliance before the Year 2000.
We are relying on these Internet service providers to accomplish these tasks,
but have obtained no contractual commitments from them regarding Year 2000
issues.

      We are highly dependent on a few personal computer manufacturing
companies for our supply of desktop hardware and peripherals. We have reviewed
our primary suppliers' plans for the Year 2000 compliance to the extent that
Year 2000 issues affect these suppliers' ability to deliver on schedule. Based
on our review, we believe that they have made the necessary modifications to or
replacement of their affected systems. We have no contractual commitment from
our suppliers regarding Year 2000 issues.

      In addition, we have not assessed the Year 2000 readiness of our
merchants. Merchants who are not Year 2000 compliant may be unable to utilize
our services resulting in a reduction in our revenues. Furthermore, the
Internet as a whole, and business conducted on the Internet, may be adversely
affected by Year 2000 issues. We have no means of assessing such risk.

      Costs of Addressing Year 2000 Issues. Given the information known at this
time about our noncompliant systems, coupled with ongoing, normal course-of-
business efforts to upgrade or replace critical systems, as necessary, we do
not expect Year 2000 compliance costs to have any material adverse impact on
our business. We estimate that total costs for the Year 2000 compliance
assessment and remediation will not exceed $100,000. The costs of this
assessment and remediation will be paid out of general and administrative
expenses.

      Risks of Year 2000 Issues. In light of our assessment and remediation
efforts to date, and the planned, normal course-of-business upgrades, we
believe that any residual Year 2000 risk, other than Year 2000 risks affecting
the Internet as a whole, is limited to non-critical business applications and
support hardware. No assurance can be given, however, that all our systems will
be Year 2000 compliant or that non-compliance will not have a material adverse
effect on our business. We also do not have any assurance that the
manufacturers who supply desktop hardware or software for us will be Year 2000
compliant with their internal systems; a reduction in the supply of desktop
hardware or software from these suppliers could have a material adverse effect
on our business. In this case, we will find alternate suppliers of desktop
hardware and software.

      Contingency Plans. We believe that, if our suppliers are not Year 2000
compliant, the reasonably likely worst case would be that we would be unable to
receive desktop hardware and software from them on a

                                       22
timely basis which would disrupt employee productivity and could materially
adversely affect our business. We have alternate suppliers in place in the
event that our current suppliers are not able to provide the necessary hardware
and software. Additionally, our operations department and merchant services
department will be fully staffed 24 hours a day from December 30, 1999 through
January 4, 2000 to address issues arising from non-compliance of our services
or of our merchants, if any.

Qualitative and Quantitative Disclosures about Market Risk

      We provide our services to customers primarily in the United States and,
to a lesser extent, in Europe and elsewhere throughout the world. As a result,
our financial results could be affected by factors, such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. All
sales are currently made in U.S. Dollars or Pound Sterling. A strengthening of
the U.S. Dollar or the Pound Sterling could make our products less competitive
in foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates. Due to the nature of our cash equivalents and
short-term investments, which are primarily money market funds and commercial
paper, we have concluded that there is no material market risk exposure.

                                       23
BUSINESS

Overview

      We are a leading developer and provider of real-time e-commerce
transaction services. Through our CyberSource Internet Commerce Suite, we offer
services to online merchants for global payment processing, fraud prevention,
tax calculation, export compliance, territory management, delivery address
verification and fulfillment management.

Industry Background

The Rapid Growth of Internet Commerce

      As the Internet has become an increasingly important communications
medium, merchants and consumers have begun using the Internet to buy and sell
goods and services. According to International Data Corporation, or IDC, the
number of Internet users worldwide will grow from an estimated 142 million at
the end of 1998 to an estimated 399 million by 2002. Increasingly, these
Internet users are becoming online consumers. IDC forecasts that the actual
number of Web buyers worldwide will expand from 48 million in 1999 to
approximately 183 million in 2003 and that the amount of worldwide commerce
conducted over the Web will increase from $111 billion in 1999 to approximately
$1.3 trillion in 2003.

      E-commerce offers both merchants and consumers numerous benefits:

     .  Merchants and consumers can interact 24 hours a day, 7 days a
        week, regardless of their respective locations.

     .  Merchants can customize Web site content to match the needs and
        preferences of individual users by transparently personalizing
        content for each user.

     .  The online store enables merchants to readily increase the number
        of products and services offered, thereby enhancing the product
        selection available to customers.

     .  Online merchants can avoid investments in physical retail
        locations.

     .  Much of the interaction between merchants and consumers can be
        automated, resulting in reduced selling costs.

      These benefits allow merchants to focus on growing their customer bases
and to market and sell their products around the world in a cost-effective and
efficient manner.

      The early adopters of e-commerce were often Internet-centric companies,
such as Amazon.com and Beyond.com, which were founded specifically to transact
business on the Internet. Today, many businesses consider it essential to offer
their goods and services online, and traditional retailers such as department
stores, car dealers, and toy stores have opened online stores to supplement
their traditional retail models. An increasingly broad selection of products is
now being sold online, ranging from the initial online product offerings of
books, music, computers and software to more traditional consumer goods such as
automobiles, clothes, movie tickets, vitamins and even such personal products
as prescription drugs. Accordingly, the need for online transaction processing
is affecting virtually all industries.

Transaction Processing Demands

      To succeed online, a merchant must attract customers to its Web site and
provide an appealing and easy-to-use environment that encourages customers to
place an order by clicking on the "buy" button. Once the customer places an
order, the merchant must process the order by effectively and efficiently
executing

                                       24
numerous transactions. With the rapid increase in the number of online
merchants and the vast array of products and services becoming available
online, competition among online merchants is increasingly intense. Due to
these competitive pressures, merchants must focus their resources on attracting
customers to their Web sites and providing compelling content to keep customers
in their online stores. However, as a merchant succeeds in these efforts, the
increased number of resulting orders creates another set of complex challenges.
These challenges include:

     .  Payment processing. The vast majority of online consumer purchases
        are conducted using credit cards. These credit card transactions
        should be processed in real-time to confirm an order while the
        customer is online. Increasingly, merchants are also seeking to
        process transactions in local currencies around the world.

     .  Fraud prevention. Because of the anonymity offered by the Internet
        and the speed with which one can make purchases, the opportunity
        for fraud is significant. In e-commerce transactions, because the
        credit card is not present, a merchant is generally held liable by
        its bank for the full value of the transaction in the event of
        credit card fraud even if a pre-authorization had been obtained.
        Online merchants must find ways to combat this fraud to avoid
        losing both the product being sold and the related revenue.

     .  Sales tax/VAT. An online merchant must comply with many different
        national, state and local sales tax/value added tax (VAT)
        regulations that vary depending on merchant and customer locations
        or product type.

     .  Export compliance. Online merchants must ensure that a proposed
        transaction complies with complex, rapidly changing export
        regulations that restrict the export of some goods to prohibited
        countries, persons and entities.

     .  Territory management. A transaction may be subject to policies and
        restrictions imposed by manufacturers that may prohibit the
        merchant from selling products due to a customer's geographic
        location.

     .  Fulfillment management. Online orders for physical goods must be
        transmitted to fulfillment centers, distributors or merchant-owned
        distribution centers for shipment of the goods.

      The online merchant must often address these demands while the customer
is waiting online. Information that a traditional retailer can collect during a
period of hours, such as fraud screen or export restrictions, often must be
available to the online merchant immediately. In addition, the merchant must
have an e-commerce system that scales as the business grows, provides a high
level of reliability and handles peak loads. The merchant's e-commerce system
should also integrate smoothly into its existing business and technology and
must support secure, authenticated messaging.

Evolution of E-commerce Transaction Processing Systems

      Early adopters of e-commerce business models typically developed custom
transaction processing systems. Merchants that built these systems often faced
long development cycles, which delayed their time-to-market. These custom
systems often had limited functionality and scalability and high ongoing
maintenance costs.

      More recently, online merchants have attempted to address their
transaction processing needs by either purchasing or outsourcing discrete
systems. Merchants that turn to discrete systems like payment processing are
still faced with the need to address other potentially costly and time-
consuming transaction processing issues like fraud screening or export control.
In addition, merchants that purchase discrete systems often discover that these
systems cannot scale as their business grows.

      As the Internet has become an essential marketplace, merchants are
increasingly turning to e-commerce service providers with the expertise to
deliver a comprehensive solution that shortens time-to-

                                       25
market and maximizes the value of their investment. These transaction
processing solutions should be available at a low initial and overall cost and,
at the same time, be scalable to support the growth of the online business. A
solution should also allow the merchant to maintain control over its online
content and customer relationships and to integrate new services easily.

The CyberSource Solution

      We are a leading developer and provider of real-time e-commerce
transaction services. Through our CyberSource Internet Commerce Suite, we offer
online merchants a solution to the challenges of e-commerce transaction
processing. Key benefits of our solution include:

     .  Faster time-to-market. Our services and technical support enable
        online merchants to begin processing transactions without lengthy
        or costly integration efforts. Our services are invoked by a
        single common interface, the CyberSource Commerce Component,
        installed on a merchant's commerce server. This interface is
        available as a pre-installed part of the commerce server
        application or as a "plug-in," -- a software module that is pre-
        configured for use with the merchant's commerce server, making it
        easy to install and utilize our services. Currently, the
        CyberSource Commerce Component is integrated or available as a
        plug-in for popular commerce servers such as those offered by
        Allaire, BroadVision, Intershop, and Microsoft. In addition, we
        offer development kits that support installation of this interface
        in most operating system environments including Microsoft NT, UNIX
        (Sun Solaris, HP UX, IBM AIX, SCO and others) and Linux.

     .  Access to comprehensive suite of services. We provide merchants
        with on-demand, online access to services that address a broad
        spectrum of e-commerce transaction processing issues related to
        global payment processing, fraud prevention, tax calculation,
        export compliance, territory management, delivery address
        verification and fulfillment management.

     .  Enhanced merchant flexibility and control. Our comprehensive
        transaction processing solution enables the merchant to choose
        transaction services a la carte on a per order basis. The merchant
        has the flexibility to purchase any or all of our offered services
        for each order as needed. In addition, because our services are
        provided transparently to the customer, merchants retain complete
        control over their customers' buying experiences.

     .  Global reach. Our services are used by merchants in many countries
        throughout the world. We have established a network of virtual
        network access points in 18 countries on 5 continents. In
        addition, our payment gateways currently support over 150
        currencies and provide sales tax/VAT calculations for all Canadian
        provinces and all countries in the European Union in addition to
        all United States jurisdictions.

     .  Reduced overall costs. Our services enable merchants to
        effectively process online transactions without the cost of
        developing and maintaining their own complex transaction
        processing systems and infrastructure. Furthermore, our services
        lower transaction costs by reducing fraud and avoiding the
        shipment of goods to undeliverable physical addresses in the
        United States and Canada.

      The technology underlying our e-commerce transaction services provides
the following benefits:

     .  Scalability. Our services allow merchants to deliver consistent
        quality of service as their transaction volumes grow, and to
        handle daily and seasonal peak periods. As a result, merchants do
        not have to expand these areas of their transaction processing
        infrastructure as their businesses grow.

     .  High reliability. Our systems are engineered to provide high
        reliability, and we provide transaction processing 24 hours a day,
        7 days a week. In addition, we offer our merchants support 24
        hours a day, 7 days a week.

                                       26
.  Secure messaging. All communications between the merchant's Web
        server and our system are facilitated by our Simple Commerce
        Messaging Protocol, or SCMP. This encrypted protocol allows for
        digital signature processing, message integrity, and identity
        verification of all communications between the merchant and us.

     .  Real-time responses. Because our services enable online merchants
        to process e-commerce transactions in real-time, merchants can
        improve their level of customer satisfaction and reduce their
        support costs by avoiding delayed responses and minimizing the
        need for follow-up communications.

Strategy

      Our objective is to be the leading worldwide provider of real-time e-
commerce transaction services. Key elements of our strategy include the
following:

      Enhance and Extend Our Suite of E-commerce Services. We intend to build
upon our scalable, state-of-the-art transaction processing systems to enhance
and extend the suite of services we currently offer. By continuing to invest
resources in our core transaction processing engine, the CyberSource Internet
Commerce Engine, we intend to further improve availability, reliability and
scalability. Based on input from our merchants, we plan to introduce new
services to solve e-commerce problems as they emerge. For example, in response
to merchant demand, in March 1999, we introduced as part of our service suite
delivery address verification, which uses database and artificial intelligence
technologies to determine whether the merchant's customer has supplied a
deliverable street address in the United States or Canada. We also plan to
develop support for other payment methods in addition to credit cards, as
market demand for such services emerges. To supplement our internal development
efforts, we will consider strategic acquisitions of complementary technologies
and companies.

      Expand Merchant Customer Base through Improved Brand Recognition and
Increased Marketing.  To date, we have made significant investments in
marketing and branding. We substantially increased our sales and marketing
expenses in 1999 from 1998 levels and plan to continue to do so in 2000. We
also intend to increase the size of our direct sales force and enter into
additional collaborative relationships to generate new merchant customers as
well as to increase the number of transaction services used by our existing
merchants.

      Utilize Partnerships to Drive Transactions. We intend to utilize or
leverage our relationships with our channel partners including reselling
partners such as First Data Corp., Paymentech, Bank of America and Vital
Processing Services; solutions resellers (who offer hosted storefront services)
such as TicketMaster Online-CitySearch and Verio; and our strategic
relationships with GE Capital's Equity Capital Group and Visa to increase our
transaction volume and create new markets. We intend to enter into additional
relationships with other companies that offer similar benefits.

      Increase International Presence and Operations. We intend to expand the
availability and brand recognition of our services throughout the world. For
example, we maintain our European headquarters in the United Kingdom and have
recently established a sales presence in Germany, Australia and Asia. In
addition, we have established a payment processing relationship with National
Westminster Bank, or NatWest, to expand support for multi-currency payment
processing for European and other merchants wishing to support payment and
settlement in local European currencies. We plan to enhance these and similar
relationships that will allow us to offer payment processing services in all
major currencies and sales tax/VAT services in all major nations. We intend to
continue building our sales, marketing and operational presence outside of the
United States to serve merchants worldwide.

      Build Organization Around the Merchant. We will continue to focus on the
needs of our merchants and build our services and organization accordingly. For
example, we have established a merchant advisory

                                       27
board which provides us with valuable feedback on how to improve existing
services and identifies potential new services. In addition, we conduct market
research utilizing focus groups and customer surveys to learn more about our
market and business opportunities. Our merchant customers benefit from the
collective experience of over 800 merchants as we improve existing services and
develop new services.

CyberSource Services

      We provide a suite of e-commerce transaction services designed to
simplify merchants' operations and allow them to focus on marketing and
merchandising tasks required for their online businesses. Our services are
transparent to the merchant's customers. We also offer digital product rights
management and professional services.

CyberSource Internet Commerce Suite

      The CyberSource Internet Commerce Suite is offered to online merchants
worldwide on a remotely accessed, pay-per-transaction basis. All of our
services are accessible through a common software interface residing on the
merchant's Web server. The diagram below illustrates the logical flow of an
order being processed by our Internet Commerce Suite.

                 [LOGO OF CYBERSOURCE INTERNET COMMERCE SUITE]

[The graphics depicts a replica of the on screen button with the word "BUY" on
the button. Next to the button are six connected circles labeled from left to
right "Calculate Tax", "Authorize Payment", "Screen For Fraud", "Verify
Delivery Address", "Check Export Compliance" and "Check Distribution Policies".
An arrow points to a box labeled "Fulfill Order or Provide Access" which has a
line connecting it to two options (1) on top "Physical Product Shipment" which
has two connected circles, the first one labeled "Message Fulfillment Center"
and the second labeled "Settle Payment" between the two circles the line is
labeled "Product Shipment"; (2) on bottom "Digital Products and Services" which
has two connected circles, the first one labeled "Issue Rights Deliver Product"
and the second labeled "Settle Payment". Below this group connected by a dotted
line is a box entitled "Digital Property Preparation, Warehousing, Rights
Management".]

      The CyberSource Internet Commerce Suite currently consists of:
Tax Services     Our tax service calculates sales and use taxes for over 7,000
                  taxing jurisdictions in the United States and Canada. The
                  service also supports VAT calculation for all countries in
                  the European Union and many others outside the European
                  Union, enabling businesses to comply with most international
                  VAT regulations.
 Payment Services We provide secure, real-time credit card processing services
                  for all major card brands through major processing gateways
                  in the United States (First Data Corp., Paymentech, and Vital
                  Processing Services) and Europe (IBM Global Services and
                  NatWest). These relationships allow us to support payment
                  transactions in over 150 currencies worldwide, including the
                  Euro.
28
Risk Management Services        Our Internet fraud screening system uses artificial intelligence, in
                                 conjunction with an extensive transaction history database, to allow
                                 Internet merchants to predict and control fraud. The service, which
                                 typically returns a predictive score in fewer than ten seconds,
                                 significantly reduces our merchants' risk of fraud losses.
                                 In July 1999, we entered into an agreement with Visa U.S.A. pursuant to
                                 which Visa has agreed to verify our fraud screening results for transactions
                                 paid for by a Visa credit card, enabling us to continually improve the
                                 accuracy and predictability of our Internet Fraud Screen service. This new
                                 service is called CyberSource Internet Fraud Screen enhanced by Visa.
                                 Improved accuracy translates into lower operational costs for merchants,
                                 because they can rely more heavily on automated methods of order screening
                                 with lower risk of rejecting valid sales or accepting fraudulent purchases.
 Distribution Control Services   We provide a range of distribution control services to help ensure merchants
                                 comply with corporate, partner, and government policies for product and
                                 service sales. They include:
                                 .  Export control. Through this service we help to ensure that online
                                    merchants comply with United States Government export regulations,
                                    monitoring order acceptance against a rapidly changing list of denied
                                    countries, persons or entities and electronically verifying the
                                    customer's location using our geolocation technology.
                                 .  Policy control. We offer this distribution control service to assist
                                                                                                             merchants
                                                                                                             in
                                                                                                             complying
                                                                                                             with
                                                                                                             internal
                                                                                                             corporate
                                                                                                             policies
                                                                                                             and
                                                                                                             partner
                                                                                                             marketing
                                                                                                             and
                                                                                                             distribution
                                                                                                             agreements
                                                                                                             for
                                                                                                             product
                                                                                                             sales.
                                                                                                             Specifically,
                                                                                                             this
                                                                                                             service
                                                                                                             allows
                                                                                                             merchants
                                                                                                             to
                                                                                                             limit
                                                                                                             product
                                                                                                             or
                                                                                                             service
                                                                                                             distribution
                                                                                                             to
                                                                                                             specific
                                                                                                             territories
                                                                                                             requested
                                                                                                             by
                                                                                                             the
                                                                                                             business,
                                                                                                             thereby
                                                                                                             ensuring
                                                                                                             compliance
                                                                                                             with
                                                                                                             marketing
                                                                                                             policies
                                                                                                             or
                                                                                                             distribution
                                                                                                             agreements.
 Fulfillment Management Services We support a number of services to help online merchants manage physical and
                                 digital product delivery in a secure, efficient fashion. These include:
                                 .  Fulfillment messaging. We provide secure fulfillment messaging to
                                    simplify the transmission of online orders to fulfillment centers,
                                    distributors, and merchant-owned distribution centers. The service
                                    handles all message routing and supports secure-mail, file transfer
                                    protocol and electronic data interchange formats. In addition, this
                                    service works in conjunction with our payment services to comply with
                                    card association rules regarding settlement upon product shipment.
                                 .  Delivery address verification. This service is designed to prevent
                                    merchants from shipping goods to incorrect physical addresses in the
                                    United States and Canada. This service identifies undeliverable addresses
                                    while the customer is still online so that discrepancies can be resolved
                                    immediately. This service utilizes database and artificial intelligence
                                    technologies to confirm in real-time that city/state/zip combinations are
                                    correct and that streets and street addresses are valid.
29
.  Secure digital delivery. We use patented technology and digital
        certificates to provide simple, secure, electronic delivery of digital
        content, such as software, music, images and documents. Globally
        distributed servers provide geographic distribution efficiency.
Digital Products Rights Management

      We provide online digital product registration services which allow
digital property owners to specify licensing and distribution conditions.
Digital property owners may designate agents authorized to sell or distribute
their property, and assign distribution controls by product or geographic
location.

      We maintain secure digital warehouses for property owned by, or
authorized to be sold by, the transacting merchant. Digital products may be
archived in the digital warehouses indefinitely to support returns and
replacement.

Professional Services

      Our professional services organization provides business application
expertise, technical know-how, and product knowledge to complement our products
and assist our merchants in achieving faster time-to-market. Our professional
services include planning, implementation, and training. Our planning services
include system and resource evaluation, back-office commerce system design,
order fulfillment strategies and commerce applications assessment and
recommendations. Our implementation services include project management,
merchant bank account acquisition, commerce application configuration and
activation and commerce application testing and validation. Our training
services include digital product preparation, customer service and support
training and ongoing site maintenance.

      For the year ended December 31, 1998, revenues derived from transaction
processing, support services and digital product rights were approximately 55%,
24% and 21% of total revenues, respectively, compared to 64%, 25% and 11% of
total revenues, respectively, for the nine months ended September 30, 1999.
These percentages exclude United Kingdom revenues as we did not segregate
United Kingdom revenues in 1998 as they represented less than 10% of total
revenues. The increase in transaction processing revenues as a percentage of
total revenues in the nine months ended September 30, 1999 was due to the
increase in transaction volumes during the period.

Merchants and Markets

      We have a broad customer base from a variety of industry groups.
Beyond.com accounted for 23.7% of our revenues in 1998 and 15.3% during the
nine months ended September 30, 1999. No other customer accounted for 10% or
more of our revenues during 1997, 1998 or the nine months ended September 30,
1999. The following is a representative list of customers that have chosen to
use our services:
Consumer Electronics &
  Sporting Goods & Apparel       Books, Music and Video               Hardware
  ------------------------       ----------------------        ----------------------
BlueFly                    Broadcast.com                     Casio
          Chip Shot                       K-Tel                    Compaq Computer
           FogDog                     Liquid Audio               Creative Computers
            Nike                      Varsity Books                 Eastman Kodak
      The Zone Network                                          Handheld Central LLC
Retail Merchandise              Health & Beauty                  Software
     ------------------              ---------------                  --------
Buy.com                     Healthshop                   Babbages etc.
                                   More.com (Greentree
          CyberShop                    Nutrition)                    Beyond.com
        Shopping.com                                                MetaCreations
         Toytime.com                                               SoftwareStreet
                                                                      Van Dyke
30
Sales and Marketing

      Target customers for our e-commerce transaction services include
Internet-centric merchants, including those who have developed custom
transaction processing systems and established retailers that have opened
online stores to supplement their traditional retail models. We reach these
merchants worldwide through a direct sales force as well as through an indirect
sales channel that leverages existing sales and marketing infrastructures
developed by our partners. In addition to our direct and indirect sales
efforts, we work with several strategic partners to promote our e-commerce
transaction services. As of September 30, 1999, we had a total of 50 persons in
sales and marketing worldwide.

      Direct Sales. Our direct sales force is comprised of dedicated sales
professionals that target medium to large Internet commerce merchants that
focus primarily on business-to-consumer sales and typically process over 2,500
customer orders per month. In addition, these merchants typically maintain
their own online stores. Our direct sales organization consists of account
managers and territory managers. Our account managers focus on maintaining high
merchant satisfaction and selling additional services to existing merchants,
and our territory managers are responsible for attracting new merchants to our
services.

      Indirect Sales. Our indirect sales channel is divided into "resellers,"
"solutions resellers," "web/systems integrators," and "commerce server
vendors." These partners have contractual relationships that vary from co-
marketing relationships to authorized resale of transaction services.

     .  Resellers. Our resellers provide us services as a part of their
        larger merchant services portfolio, and facilitate the sale and
        billing of our services. Resellers are authorized to sell our
        transaction services, as well as our support services. Our
        resellers include banks and payment services providers such as
        First Data Corporation, Paymentech, Heartland Bank, Bank of
        America, and Vital Processing Services.

     .  Solutions resellers. Solutions resellers provide total merchant
        storefront solutions, typically hosting customized and turnkey
        storefronts for merchants which include our eCommerce transaction
        services. Our solutions resellers manage the entire merchant
        relationship including operations support and transaction services
        billing, and include ISPs, Portals, or specialized systems
        integrators such as TicketMaster Online-CitySearch, Verio, and Web
        Order.

     .  Web/systems integrators. These partners assist merchants in the
        design, development and implementation of online stores, and
        include Agency.com, ITL Infosys, iXL, Fort Point Partners and
        USWeb/CKS.

     .  Commerce server vendors. Our commerce server vendors design,
        develop and distribute software that facilitates the deployment of
        commerce-enabled Web sites, allowing for seamless integration of
        our eCommerce transaction services and include Allaire, Blue
        Martini, emercis, Evergreen, IBM, Intershop, InterWorld,
        Microsoft, Miva, PeopleSoft, RegiSoft and Vignette.

      Strategic Partners. Our strategic partners include GE Capital and Visa.
We work together with our strategic partners to enhance our existing suite of
products, develop new services, and drive the adoption of industry standards
while further increasing the visibility of our e-commerce services. We
currently have contractual relationships with our strategic partners under
which we pay commissions to our strategic partners who refer internet merchants
to us and with whom we enter into a contractual relationship.

      In July 1999, we entered into an agreement with Visa U.S.A. to jointly
develop and promote the CyberSource Internet Fraud Screen enhanced by Visa for
use in the United States. The agreement has an initial term until August 2001
and will be automatically extended thereafter until terminated by either party.
Visa has agreed to promote and market the new product to its member financial
institutions and Internet merchants. During the term of the agreement, we
cannot enter into any development or consultation agreements with certain
competitors of Visa in the area of Internet fraud detection.

                                       31
Marketing. We use a variety of marketing activities to increase market
awareness of our services and educate our target audience. In addition to
building awareness of our brand, our marketing activities focus on generating
leads for our sales efforts. To build awareness and attract new merchants we
conduct marketing and partnership programs including advertising, public
relations activities, referral programs, co-branded initiatives, virtual
seminars and trade shows.

Merchant Support

      We provide a range of merchant activation and sustaining support services
to ensure a high level of performance and reliability and to enable merchants
to get to market more quickly. We offer two levels of rapid start
implementation and two levels of sustaining support services in addition to
basic account activation: standard support and premier support. All of these
services include transaction reporting, fraud list updating and notification of
scheduled and unscheduled system downtime and self-help merchant support tools
on our Web site. Merchants may select any combination of implementation and/or
sustaining support packages, according to their needs.

      Account Activation. Our account activation level service is intended for
use by merchants that receive technical support from a technically qualified
third party, an organization that resells the CyberSource Internet Commerce
Suite, or by those merchants with sufficient in-house technical expertise.
Account activation allows merchants to connect to the CyberSource Internet
Commerce Suite, configure all merchant IDs and account information, access test
services, gain secure access to our online merchant support center and next
business day e-mail support.

      Rapid Start Implementation and Standard Sustaining Support. This level of
service is designed to provide support to merchants during regular business
hours. It provides all of the services of account activation as well as toll
free telephone support from 7 a.m. to 7 p.m., Pacific Time, Monday through
Friday, from our merchant support group with a guaranteed four hour response
time. E-mail support with a guaranteed four hour response time and an initial
one hour project orientation conference call with our support professionals is
also included.

      Rapid Start Premier Implementation and Premier Sustaining Support. Our
premier support level provides the implementation and sustaining support
benefits of the standard level with the addition of a dedicated merchant
support center engineer available during project implementation, and support
available 24 hours a day, 7 days a week, via toll-free telephone access or
email with a one hour guaranteed response. Also included are a dedicated
business account manager and a review to optimize fraud scoring and other
Internet commerce services.

      Through toll-free telephone numbers, our merchants can reach our support
desk professionals around the clock. As of September 30, 1999, 22 of our
employees were dedicated to merchant support.

Technology

      Our proprietary transaction processing system employs a modular
architecture that was designed to scale rapidly and handle the transaction
processing demands of our merchants across the Internet. This system is
composed of multiple groups of servers and routers acting as a single point of
contact for our merchants' transaction processing requirements. The primary
software components of our system are the E-Transaction Databases, the Internet
Commerce Engine, or ICE, the Internet Commerce Services Applications, the
Simple Commerce Messaging Protocol, or SCMP, and the SCMP client. This system
utilizes industry standards to maximize our compatibility with our merchants'
e-commerce systems. In addition, we have implemented a global network of data
centers and access points that are designed to minimize transaction processing
time and system failures.

                                       32
[LOGO OF INTERNET COMMERCE ENGINE]

[The graphic depicts a main box with the words "CyberSource Data Center" above
it. Inside the main box top center are the words "Internet Commerce
Applications." Below is a row of seven boxes labeled from left to right "Tax
Calculation," Global Payment Procedures," "Fraud Prevention," "Delivery Address
Verification," "Territory Management," "Export Compliance," and "Fulfillment
Management." Below is a box labeled "Internet Commerce Engine" and below that
is a graphical representation of a disk labeled "eTransaction Databases." One
zigzag line connects the main box with a box on the left. The line is labeled
"Secure Commerce Messaging Protocol," the box is labeled "Merchant Commerce
Server (SCMP Client)." To the right of the main box are four zigzag lines
labeled from to bottom "Paymentech," "First Data Corp.," "NatWest," and "Other
External Resources."]

E-Transaction Database Architecture

      Three primary databases form the core of our transaction processing
system: the transaction process database which maintains information necessary
to process each individual transaction; the decision support database, which
processes reports and provides detailed information about merchants'
transactions and the digital products rights management database, which manages
and reports on the digital property rights that customers have purchased. Our
transaction services rely on these databases to store the information necessary
to process transactions. For example, our fraud prevention service relies upon
a proprietary database of millions of transactions to assess the risk of fraud.

Internet Commerce Engine

      Our ICE manages work flow functions and the required communications
between our commerce servers, our database and any external resources including
First Data Corp., National Westminster Bank, Paymentech and Vital Processing
Services. Our Internet Commerce Engine is designed to meet the transaction
processing demands of our merchants in a secure, fast, efficient, reliable,
scalable and interoperable manner. Our ICE was designed to scale rapidly to
handle peak transaction processing loads. Separate ICE servers share the
transaction load from our merchants and provide for immediate backup services
should any ICE server fail. Additional ICE servers can be readily added to our
data centers to accommodate increased merchant demand.

Internet Commerce Services Applications

      We have developed a set of software applications that perform the
services in our Internet Commerce Suite. These services include global payment
processing, fraud prevention, tax calculation, export compliance, territory
management, delivery address verification and fulfillment management. These
applications contain the rules and logic necessary to provide our transaction
services to merchants. The applications share resources with the ICE and
databases which allow us to efficiently add new application services to meet
our customers needs.

Simple Commerce Messaging Protocol

      We have developed the Simple Commerce Messaging Protocol, or SCMP, to
enable efficient and secure connections between our ICE and our merchants. In
order to ensure secure messaging, SCMP utilizes industry standards for secure
communications including the Data Encryption Standard, RSA/public key
cryptography and digital certificates. SCMP enables our merchants to securely
access our suite of commerce services. Most importantly, SCMP can be integrated
into any software product that might require our application services.

                                       33
SCMP Client

      Our services are invoked by a common programming interface, residing on
our merchants' commerce servers. This client may be easily installed with a
"plug-in" that is available for most popular commerce servers including those
offered by BroadVision, IBM and Microsoft. In addition, we have developed
software libraries which act as a client and run on most operating systems
including Microsoft NT, UNIX (Sun Solaris, HP UX, IBM AIX, SCO and others) and
Linux. A merchant can access our commerce services using either the plug-in or
the software libraries that we have developed.

Industry Standards

      The implementation of our architecture is based on and complies with
widely accepted industry standards. For example, the ICE utilizes industry
standard components from industry leaders such as Cisco, Harbinger, Microsoft,
Retail Logic, RSA Data Security, Sun Microsystems and Sybase. Adherence to
industry standards provides compatibility with existing applications, enables
ease of modification and reduces the need for software modules to be rewritten
over time, thus protecting our merchants' investments.

Data Centers and Network Access

      Our data centers are located at leased facilities in Santa Clara,
California and London, England. A data center is a facility containing servers,
modem banks, network circuits and other physical equipment necessary to connect
users to the Internet. These data centers have multiple levels of redundant
connectivity to the Internet, back-up power, fire suppression, seismic
reinforcement and security surveillance 24 hours a day, 7 days a week. In
addition, we have access to 18 "points of presence" located on 5 continents.
That access is provided by an Internet service provider and allows us to serve
merchants globally. A "point of presence," or POP, is a point along an Internet
service provider's network that enables users to connect to the Internet more
directly and therefore more quickly. These points of presence provide rapid
access to our suite of services and significantly reduce the number of Internet
connections a transaction must pass through to reach us.

Product Development

      Our product development team is responsible for the design, development
and release of our core infrastructure and services. We have a well-defined
software development methodology that we believe enables us to deliver services
that satisfy real business needs for the global market while meeting commercial
quality expectations. We emphasize quality assurance throughout our software
development lifecycle. We believe that a strong emphasis placed on analysis,
design and rapid prototyping early in the project lifecycle reduces the number
and costs of defects that may be found in later stages. Our development
methodology focuses on delivery of product to a global market, enabling
localization into multiple languages, multi-currency payment processing, global
fraud detection, and local regulatory compliance from a single code base. As of
September 30, 1999, we employed 53 persons in our product development
organization.

      When appropriate, we utilize third parties to expand the capacity and
technical expertise of our internal product development organization. On
occasion, we have licensed third-party technology that we feel provides the
strongest technical alternative. We believe this approach shortens time-to-
market without compromising our competitive position or product quality.

Intellectual Property

      Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.

                                       34
We have been issued one patent and have five applications pending. The
issued patent, for a method and system for controlling distribution of software
in a multitiered distribution chain, expires in April 2016. We have pending
patent applications covering our Internet fraud screen system, digital
delivery, delivery address verification and other technologies for services not
yet offered for sale to the public. We investigate, define and prepare
applications for new patents as a part of the standard product development
cycle. Our engineering management team meets on a routine basis to harvest new
invention disclosures from the engineering and architecture groups. We cannot
assure you that any patent application that we file will issue as a patent, and
we cannot assure you that any patent issued to us will not be held invalid or
unenforceable based on prior art or for any other reason.

      We believe that numerous patent applications relating to the Internet
commerce field have been filed or have issued as patents. From time to time, in
the ordinary course of business, we become aware of one or more patents of
third parties that we choose to evaluate for a variety of purposes. These
purposes may include determining the general contents of patents, reviewing the
technological developments of their assignees, and determining whether our
technology may overlap. We have not conducted any search to determine whether
any of our services or technology could be alleged to infringe upon any patent
rights of any third party. We cannot assure you that none of our products,
services, and technology infringes any patent of any third party.

      As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, distributors, and corporate partners
and into license agreements with respect to our software, documentation and
other proprietary information. Despite these precautions, third parties could
reverse engineer, copy or otherwise obtain our technology without
authorization, or develop similar technology independently. While we police the
use of our services and technology through online monitoring and functions
designed into SCMP and our ICE, an unauthorized third-party may nevertheless
gain unauthorized access to our services or pirate our software. We are unable
to determine the extent to which piracy of our intellectual property or
software exists. Software piracy is a prevalent problem in our industry.
Effective protection of intellectual property rights may be unavailable or
limited in foreign countries. We cannot assure you that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our services or design
around any intellectual property rights we hold.

      From time to time we may receive notice of claims of infringement of
other parties' intellectual property rights. As the number of services in our
market increases and functionalities overlap, companies such as ours may become
increasingly subject to infringement claims. Any infringement claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel or require us to develop non-
infringing technology or enter into licensing agreements. Such licensing
agreements, if required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our failure or inability
to develop non-infringing technology or license the proprietary rights on a
timely basis, our business, operating results and financial condition could be
materially adversely affected.

Competition

      The market for our services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. Our
primary source of competition comes from online merchants who develop custom
systems. These online merchants who have made large initial investments to
develop custom systems may be less likely to adopt an outsourced transaction
processing strategy. We also face competition from developers of other systems
for e-commerce transaction processing such as Clear Commerce, CyberCash,
Digital River, Hewlett-Packard (VeriFone), HNC Software, Open Market, PaylinX,
ShopNow.com and Signio. In addition, companies, including financial services
and credit companies such as First Data Corporation, AT&T and GE Capital, may
enter the market for our services. In the future, we also may compete with
large Internet-centric companies that derive a significant portion of their
revenues from e-commerce and may offer, or provide a means for others to offer,
e-commerce transaction services.

                                       35
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Competition could seriously impede our ability to sell additional
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future services
obsolete, unmarketable or less competitive. Our current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other e-commerce transaction service
providers, thereby increasing the ability of their services to address the
needs of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
channel partners, thereby limiting our ability to sell services through these
channels. Competitive pressures could reduce our market share or require the
reduction of the prices of our services, either of which could materially and
adversely affect our business, results of operations or financial condition.

      We compete on the basis of certain factors, including:

     .  system reliability;

     .  product performance;

     .  breadth of service offering;

     .  ease of implementation;

     .  time to market;

     .  customer support; and

     .  price.

      We believe that we presently compete favorably with respect to each of
these factors. However, the market for our services is still rapidly evolving,
and we may not be able to compete successfully against current and potential
future competitors.

Facilities

      Our primary offices are located in approximately 32,528 square feet of
space in San Jose, California under leases expiring in September 2000 (5,277
square feet) and in January 2001 (27,251 square feet). We also lease space for
field sales offices in Jersey City, New Jersey and Los Angeles, California. In
addition, we maintain sales and support offices in leased space in Weybridge,
United Kingdom. We intend to relocate our primary offices to a new facility in
early 2000.

Employees

      As of September 30, 1999, we had a total of 208 employees, including 53
persons in product development, 50 persons in sales and marketing, 58 persons
in professional services, operations and customer support, 28 persons in
general and administrative services and 19 persons in our offices in the United
Kingdom. We also have one employee in each of Australia, Germany and Japan.
None of our employees is represented by a labor union, and we consider employee
relations to be good.

Legal Proceedings

      A former Vice President of Product Management filed a lawsuit against us
in the Superior Court of California in Santa Clara County on April 8, 1999
seeking unspecified monetary damages and equitable relief. The plaintiff
alleges several causes of action, including wrongful termination, defamation,
fraud, and unfair business practices arising out of her three month employment
with us. While we cannot assure you as to the

                                       36
outcome of this litigation, we believe the lawsuit is without merit, and we
intend to vigorously defend against the claims asserted.

Regulations

      The following regulations can impact our business now or in the future:

      Fair Credit Reporting Act. Because our Internet fraud screening system
assesses the probability of fraud in an Internet credit card transaction, we
may be deemed a consumer reporting agency under the Fair Credit Reporting Act.
As a precaution, we are implementing changes to our systems and processes so
that we will be in compliance with the act. Complying with this act requires us
to provide information about personal data stored by us. Failure to comply with
this act could result in claims being made against us by individual consumers
and the Federal Trade Commission.

      Export Control Regulations. Current export control regulations prohibit
the export of strong encryption technology without a license, thereby
preventing us from using stronger encryption technology to protect the security
of data being transmitted to and from Internet merchants outside of the United
States. We have obtained a license to use 168-bit encryption technology with
our international merchants, and have applied for a license to use higher
levels of encryption technology. We cannot be sure that the license to use
stronger encryption technology will be issued. If our application is denied, we
will be unable to use stronger than 168-bit encryption technology with our
international merchants.

      Internet Tax Freedom Act. Enacted in October 1998 and effective through
October 2001, the act bars state or local governments from imposing taxes that
would subject buyers and sellers of electronic commerce to taxation in multiple
states. The act also bars state and local governments from imposing taxes on
Internet access through October 2001. When the act expires or if the act is
repealed, Internet access and sales across the Internet may be subject to
additional taxation by state and local governments, thereby discouraging
purchases over the Internet and adversely affecting our business.

                                       37
MANAGEMENT

Officers, Directors and Key Employees

      Our officers, key employees and directors, their ages and their positions
as of September 30, 1999, are as follows:
Name                          Age Position(s)
 ----                          --- ----------
Executive Officers
  William S. McKiernan........  42 Chairman of the Board of Directors and Chief
                                    Executive Officer
  L. Evan Ellis, Jr...........  44 President and Chief Operating Officer
  Charles E. Noreen, Jr.......  38 Vice President of Finance and Administration
                                    and Chief Financial
                                    Officer
  Thomas A. Arnold............  44 Chief Technical Officer
  Erna Arnesen................  47 Vice President of North American Field
                                    Operations
  Anthony V. Bates............  48 Executive Vice President of International
  William E. Donahoo..........  37 Vice President of Marketing
  Robert J. Ford..............  49 Vice President of Engineering
  Eric M. Wun.................  40 Vice President of Operations
 Key Employees
  David Daetz.................  34 Vice President of Corporate Business
                                    Development, Worldwide
  Steven W. Klebe.............  43 Vice President of Payment Industry Alliances
  Anthony F. Quilici..........  29 Vice President of Merchant Services
  Tracy Wilk..................  40 Vice President of Product Marketing
 Directors
  Bert Kolde(1)(2)............  44 Director
  Linda Fayne Levinson(1)(2)..  57 Director
  Steven P. Novak(1)(2).......  51 Director
  Richard Scudellari(1)(2)....  42 Director and Secretary
--------
(1) Member of Audit Committee.

(2) Member of Compensation Committee.

      William S. McKiernan founded CyberSource and has been our Chief Executive
Officer since our inception in December of 1997. In 1994, Mr. McKiernan co-
founded Beyond.com, an on-line reseller of computer software, and was its
Chairman and Chief Executive Officer from its inception until 1998. He
currently serves as Chairman of the Board of Directors of Beyond.com. From 1992
to 1994, Mr. McKiernan was employed by McAfee Associates, Inc. (now known as
Network Associates), a developer of computer security software, where he served
as President and Chief Operations Officer during its initial public offering in
October 1992. Prior to joining McAfee Associates in 1992, Mr. McKiernan was
Vice President of Princeton Venture Research, Inc., an investment banking and
venture consulting firm from 1990 to 1992. Mr. McKiernan has also held
management positions with IBM/ROLM, a telecommunications company, and Price
Waterhouse. Mr. McKiernan holds a B.S. from Boston College and an M.B.A. from
the Harvard Business School.

      L. Evan Ellis, Jr. joined us in April 1999 and became our President and
Chief Operating Officer in August 1999. Prior to that, Mr. Ellis was Vice
President of North American Sales. From 1990 to 1999, Mr. Ellis was with
Silicon Graphics, Inc., a developer and manufacturer of high performance
computer workstations, where he was Senior Vice President of Field Operations
for the Americas from October 1997 to April 1999, Senior Vice President of
Marketing from May 1997 to October 1997, Vice President of Western

                                       38
U.S. from October 1995 to May 1997 and Vice President of Field Marketing and
Distribution from October 1991 to October 1995. From 1978 to 1990, Mr. Ellis
was employed by International Business Machines in various sales and sales
management roles. Mr. Ellis received a B.S. in Economics from the University of
California, Los Angeles.

      Charles E. Noreen, Jr. has served as our Vice President of Finance and
Administration and Chief Financial Officer since joining us in September 1998.
Mr. Noreen was employed by RockShox, Inc., a bicycle component manufacturer,
first as its Vice President and Chief Financial Officer from May 1996 to July
1998, then as its Vice President of Business Development from July 1998 to
September 1998. Mr. Noreen was a partner at Coopers & Lybrand L.L.P. from 1994
to 1996 where he served as an accountant from 1983 to 1996. Mr. Noreen is a
certified public accountant and received a B.S. in Business Administration from
the University of Southern California.

      Thomas A. Arnold joined us in March 1996 and became as our Chief
Technical Officer in June 1999. From October 1989 to March 1996, Mr. Arnold
managed applications development at Silicon Graphics, Inc. Mr. Arnold received
a B.S. in Public Administration at San Jose State University and an M.B.A. with
an emphasis in Information Technology Management from Golden Gate University.

      Erna Arnesen joined us in June 1999 as Vice President, Channels and
Partners and became our Vice President of North American Field Operations in
September 1999. From 1993 to May 1999, Ms. Arnesen was with Silicon Graphics,
Inc. where she was Vice President of Global Channels. Prior to working at
Silicon Graphics, Inc., Ms. Arnesen held a variety of sales and marketing
positions at NeXT Software, Inc., a software developer, and Apple Computer,
Inc. Ms. Arnesen received a B.A. in History and Political Science from
Wellesley College and an M.B.A. from the Harvard Business School.

      Anthony V. Bates has served as our Executive Vice President of
International since joining us in February 1997. From 1996 to 1997, Mr. Bates
was Vice President of Worldwide Sales and Marketing for Serena Software
International, a software developer. From 1990 to 1996, Mr. Bates was President
and Chief Executive Officer of Specialix, Inc., a leading international
supplier of data communications products. Mr. Bates received an Honors Degree
in Electronics and Electrical Engineering from Newcastle upon Tyne Polytechnic
in the United Kingdom.

      William E. Donahoo has served as our Vice President of Marketing since
joining us in December 1998. From July 1998 to November 1998, Mr. Donahoo was
Vice President of Marketing & Business Development for DigiCash, Inc., a
developer of electronic currency, DigiCash filed for Chapter 11 bankruptcy
protection in November 1998. From March 1997 to March 1998, Mr. Donahoo was
Vice President of Marketing for Novonyx, a network software developer, which he
co-founded. From October 1990 to March 1997, Mr. Donahoo was employed by
Novell, Inc., a network software developer, first as a product-line manager
from October 1990 to October 1996, then as its Vice President of Marketing for
the Netware Product Group until March 1997. Mr. Donahoo received a B.S. in
Computer Science and an M.B.A. from Brigham Young University.

      Robert J. Ford has served as our Vice President of Engineering since
joining us in June 1999. From 1997 to 1999, Mr. Ford was Vice President of
Engineering for Extensity, Inc., a vendor of web-based e-business applications.
From 1995 to 1997, Mr. Ford served as Vice President of Engineering for
Intrinsa Corporation, a developer of defect detection software. From 1992 to
1995, Mr. Ford was Vice President of Engineering for Objectivity, Inc., a
developer of database management systems. Mr. Ford was employed by Boole &
Babbage, Inc., a vendor of systems management software, from 1980 to 1992,
where he was Vice President of Systems from 1989 to 1992. Mr. Ford received a
B.S. from Witwatersrand College for Advanced Technical Education in South
Africa.

      Eric M. Wun has served as our Vice President of Operations since joining
us in March 1999. From August 1998 to February 1999, Mr. Wun was Vice President
of Operations for Corio, Inc., a computer application service provider. From
December 1996 to August 1998, Mr. Wun was Vice President of Operations

                                       39
for Zip2 Corp., a developer of personalized Web sites. Mr. Wun was Vice
President and Data Center Manager for Visa International from February 1992 to
October 1996. Mr. Wun received a B.S. in Economics from the University of San
Francisco.

      David Daetz has served as our Vice President of Worldwide Corporate
Business Development since joining us in June 1999. From 1997 to June 1999, Mr.
Daetz was Senior Director of Corporate Business Development at Symantec
Corporation, a software developer. From 1989 to 1997, Mr. Daetz held senior
management positions in business development, product marketing and marketing
at Apple Computer, Inc. Mr. Daetz holds a B.S. in Industrial Engineering /
Engineering Management and a B.A. in International Relations from Stanford
University and an M.B.A. from San Jose State University.

      Steven W. Klebe joined us in April 1997 and became our Vice President of
Payment Industry Alliances in January 1999. Prior to January 1999, Mr. Klebe
was our Vice President of Business Development and also held a number of sales
and marketing positions with us. From 1994 to 1997, Mr. Klebe was Vice
President of Sales for CyberCash, a provider of Internet payment services. From
1985 to 1994, Mr. Klebe was employed by VeriFone Corporation, an electronic
payment system provider. Mr. Klebe received a B.S. in Marketing from
Northeastern University.

      Anthony F. Quilici has served as our Vice President of Merchant Support
since February 1999. From February 1998 to February 1999, Mr. Quilici served as
Vice President of Operations, and from our inception in December 1997 until
February 1998, he served as our Director of Operations. Prior to joining us,
Mr. Quilici worked at Silicon Graphics, Inc. as a systems analyst from June
1995 to December 1997 and as a data analyst from July 1992 to June 1995. Mr.
Quilici received a B.S. in Management Information Systems from California State
University, Chico.

      Tracy Wilk has served as our Vice President of Product Marketing since
joining us in April 1999. From 1992 to 1999, Mr. Wilk was Vice President of
Strategic Alliances and Investments at Visa International. Mr. Wilk received a
B.A. in Economics and an M.B.A. from the University of California, Berkeley.

      Bert Kolde has been a director of CyberSource since our inception in
December 1997. Mr. Kolde serves as a director, Vice President, Treasurer and
Secretary of Vulcan Ventures Inc., an investment organization, Vice Chairman of
the Portland Trail Blazers, Seattle Seahawks, Oregon Arena Corporation, and
First and Goal Corporation. Mr. Kolde serves as Chairman of the Board of
Directors of Click2Learn.com, a provider of online learning services. Mr. Kolde
also serves as a director of MetaCreations Corporation, a developer of visual
computing software tools and Beyond.com Corporation. Mr. Kolde holds a B.A. in
Business Administration from Washington State University and an M.B.A. from the
University of Washington.

      Linda Fayne Levinson has been a director of CyberSource since our
inception in December 1997. Ms. Levinson has served as a principal of Global
Retail Partners, L.P. since April 1997. From 1994 to 1997, she served as
President of Fayne Levinson Associates, an independent general management
consulting firm that advised major corporations and start-up entrepreneurial
ventures. In 1993, Ms. Levinson was a financial adviser with Creative Artists
Agency, Inc. From 1989 to 1992, Ms. Levinson was a partner of Wings Partners,
Inc., a merchant banking firm and was actively involved in taking Northwest
Airlines private. From 1984 to 1987, Ms. Levinson was a Senior Vice President
of American Express Travel Related Services, Inc., a payment card company.
Prior to that, Ms. Levinson was a partner at McKinsey & Co. Ms. Levinson
presently serves as a director of Administaff, Inc., a professional employer
organization, Genentech, Inc., a biotechnology company, Jacobs Engineering
Group, Inc., a provider of engineering, design and consulting services, NCR
Corporation, a developer of information technology products, GoTo.com, Inc., a
developer of search engine technologies, as well as several privately-held
companies. Ms. Levinson received her A.B. from Barnard College in Russian
Studies, her M.A. from Harvard University in Russian Literature and her M.B.A.
from New York University.

      Steven P. Novak has been a director of CyberSource since our inception in
December 1997. Mr. Novak is the Managing Director heading C.E. Unterberg,
Towbin's Internet Practice. From February 1993 to January 1998,

                                       40
Mr. Novak served as co-founder, President, and Chief Investment Officer of C.E.
Unterberg, Towbin Advisors, a registered investment advisor. Mr. Novak also
serves as a director of several privately held companies. Mr. Novak's prior
affiliations include, among others, Forstmann Leff Associates, a fund manager,
Sanford C. Bernstein & Company, Inc, an independent investment counselor, and
Harris Bankcorp, a multibank holding company. Mr. Novak holds a B.S. from
Purdue University and an M.B.A. from the Harvard Business School.

      Richard Scudellari has been a director of CyberSource since our inception
in December 1997. Mr. Scudellari has been a partner at Morrison & Foerster LLP,
a law firm, since February 1999. From 1990 to January 1999 Mr. Scudellari was a
partner at Jackson Tufts Cole & Black, LLP., a law firm. Mr. Scudellari holds a
B.S. and J.D. from Boston College.

      We currently have authorized five directors. Our executive officers are
appointed by, and serve at the discretion of, our Board of Directors. Each of
our officers and directors, excluding non-employee directors, devotes
substantially full time to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees. Two
of the five members of our Board of Directors also serve as directors of
Beyond.com.

Board Committees

      Our Audit Committee reviews, acts on and reports to our Board of
Directors with respect to auditing and accounting matters, including the
selection of our independent accountants, the scope of our annual audits, fees
to be paid to the independent accountants, the performance of our independent
accountants and our accounting practices. Ms. Levinson and Messrs. Kolde,
Novak, and Scudellari are the members of our Audit Committee.

      Our Compensation Committee establishes salaries, incentives and other
forms of compensation for officers and other employees. This Committee also
administers our incentive compensation and benefit plans. Ms. Levinson and
Messrs. Kolde, Novak, and Scudellari are the members of the Compensation
Committee.

Compensation Committee, Insider Participation and Interlocks

      None of the members of our Compensation Committee is an officer or
employee of CyberSource. Two members of our Board of Directors also serve as
members of the board of directors of Beyond.com. Other than with respect to
Beyond.com, no interlocking relationship exists between our Board of Directors
or Compensation Committee and the board of directors or compensation committee
of any other company, nor has an interlocking relationship existed in the past.

Director Compensation

      We do not pay directors cash compensation for their services as directors
or members of committees of the Board of Directors. We do reimburse them for
their reasonable expenses incurred in attending meetings of the Board of
Directors. In addition, each new non-employee director receives an option to
purchase 5,000 shares of our common stock upon joining the Board of Directors.
Each incumbent non-employee director is granted an option to purchase an
additional 5,000 shares of our common stock thereafter annually on January 1.
All options are immediately exercisable upon grant and remain subject to a
right of repurchase as determined under the 1999 Option Plan. See "Stock
Plans -- 1999 Option Plan."

                                       41
Executive Compensation

      The following table sets forth information concerning compensation of our
Chief Executive Officer and our other most highly compensated executive
officers whose aggregate cash compensation exceeded $100,000 during the year
ended December 31, 1998 (collectively, our "Named Executive Officers").

                           Summary Compensation Table
Long-Term
                                Annual Compensation              Compensation
                         ------------------------------------ ------------------
Name and Principal                             Other Annual       Securities
Position in 1998          Salary     Bonus(2) Compensation($) Underlying Options
------------------       --------    -------- --------------- ------------------
William S. McKiernan
 Chief Executive Officer
  (1) .................. $144,375(3)      --         --                 --
Anthony V. Bates
 Executive Vice
  President of
  International.........  137,500    $36,500         --             77,500
Thomas A. Arnold
 Chief Technical Officer
  (4)...................  118,688      5,700         --             85,000
Gregory Quinn (5)
 Vice President Sales...  118,693     53,400         --             65,000
--------
(1) Mr. McKiernan also held the position of President until August 1999.

(2) Includes bonus amounts earned in 1998 and paid in 1999.

(3) Does not include $60,000 in deferred compensation earned by Mr. McKiernan
    in 1994 as President of Beyond.com, allocated to us in connection with the
    spin off and paid to Mr. McKiernan in 1998.

(4) Until June 1999, Mr. Arnold held the position of Vice President of
    Engineering and Chief Technology Officer.

(5) Mr. Quinn's employment with us terminated in March 1999.

                       Option Grants In Fiscal Year 1998

      The following table sets forth information for each of our Named
Executive Officers concerning stock options granted to them during the fiscal
year ended December 31, 1998.
Potential Realizable
                                                                         Value at Assumed
                                                                       Annual Rates of Stock
                                                                        Price Appreciation
                                                                        for Option Term(5)
                                                                       ---------------------
                         Number of
                         Securities  Percent of
                         Underlying Total Options Exercise
                          Options    Granted to   Price Per Expiration
                         Granted(1) Employees (2) Share(3)   Date(4)       5%        10%
                         ---------- ------------- --------- ---------- ---------- ----------
William S. McKiernan....       --         --           --          --          --         --
Anthony V. Bates........   50,000       4.27%      $0.045    03/18/08  $   13,789 $   23,437
                           12,500       1.07        0.200    03/18/08       1,572      3,984
                           15,000       1.28        0.540    07/30/08       5,094     12,909
Thomas A. Arnold........   75,000       6.40        0.015    03/18/08      22,933     37,406
                           10,000       0.85        0.540    07/30/08       3,396      8,606
Gregory Quinn...........   50,000       4.27        0.200    03/18/08       6,289     15,937
                           15,000       1.28        0.540    07/30/08       5,094     12,909
42
--------
(1) Each of the above options was granted pursuant to our 1998 Stock Option
    Plan. 25% of the options granted vest one year from the date of grant.
    Thereafter the remaining 75% of the options granted vest monthly over the
    next three years.

(2) In the last fiscal year, we granted options to employees to purchase an
    aggregate of 1,170,998 shares.

(3) In determining the fair market value of our common stock, our board of
    directors considered factors, such as our financial condition and business
    prospects, our operating results, the absence of a market for our common
    stock and the risks normally associated with high technology companies. The
    exercise price may be paid in cash, check, promissory note, shares of our
    common stock, through a cashless exercise procedure involving same-day sale
    of the purchased shares or any combination of these methods.

(4) Options may terminate before their expiration dates if the optionee's
    status as an employee or consultant is terminated or upon the optionee's
    death or disability.

(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
    are mandated by rules of the Securities and Exchange Commission and do not
    represent our estimate or projection of our future common stock prices.

   Aggregate Option Exercises In Last Fiscal Year and Year-End Option Values

      The following table sets forth information concerning exercises of stock
options during the fiscal year ended December 31, 1998 by each of our Named
Executive Officers and the number and value of unexercised options held by each
of our Named Executive Officers on December 31, 1998.
Number of
                                                   Securities Underlying   Value of Unexercised In-
                         Shares Acquired  Value    Unexercised Options at    the-Money Options at
Name                       on Exercise   Realized    December 31, 1998       December 31, 1998 (1)
----                     --------------- -------- ------------------------ -------------------------
                                                  Exercisable Unexercisble Exercisable Unexercisable
                                                  ----------- ------------ ----------- -------------
William S. McKiernan....         --           --        --           --           --           --
Anthony V. Bates........     17,187      $ 8,508     3,125       57,188      $11,172     $195,085
Thomas A. Arnold........     42,188       22,148     7,813       35,000       28,164      120,925
Gregory Quinn...........         --           --        --       65,000           --      217,200
--------
(1) The value of "in-the-money" stock options represents the positive spread
    between the exercise price of stock options and the fair market value for
    our common stock of $3.62 per share as of December 31, 1998, as determined
    by our Board of Directors.

Stock Plans

      In March 1998, we adopted our 1998 Stock Option Plan. We reserved
1,900,000 shares of common stock for stock option grants under the 1998 Option
Plan. Additionally, in January 1999, we adopted our 1999 Stock Option Plan. We
reserved 2,500,000 shares of common stock for stock option grants under the
1999 Option Plan. In June 1999, we adopted our 1999 Employee Stock Purchase
Plan. We reserved 500,000 shares for issuance under the 1999 Purchase Plan. In
October 1999, we adopted our 1999 Nonqualified Stock Option Plan. We reserved
1,100,000 shares for issuance under the 1999 Nonqualified Option Plan. The
purpose of each plan is to enhance our long-term stockholder value by offering
our employees, directors, officers, consultants, agents, advisors and
independent contractors the opportunity to promote and participate in our
growth and success, and to encourage these people to remain in our service and
acquire and maintain stock ownership in us.

      As of September 30, 1999, options to purchase 3,137,395 shares of common
stock were outstanding under the 1998 Plan and the 1999 Option Plan with a
weighted average exercise price of $7.08 per share. As of September 30, 1999,
options to purchase 135,941 shares were available for grant under the 1998
Option Plan and 1999 Option Plan and options for 1,126,664 shares had been
exercised.

                                       43
Our Board of Directors, a committee appointed by the Board or, with
respect to individual option grants of up to 30,000 shares, a subcommittee of
the compensation committee of the Board consisting of our Chairman may
administer the Plans.

1999 Stock Option Plan

      The administrator has the authority to select individuals who are to
receive options under the 1999 Option Plan and to specify the terms and
conditions of options granted (including whether or not the options are
incentive or nonstatutory stock options), the vesting provisions, the option
term and the exercise price. The 1999 Option Plan provides that we may grant
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 to employees, including our officers and employee
directors, and we may grant nonstatutory stock options to employees,
consultants and directors, including non-employee directors.

      The exercise price of incentive stock options granted under the 1999
Option Plan shall equal the fair market value of our common stock on the date
of grant (except in the case of grants to any person holding more than 10% of
the total combined voting power of all classes of our, or any of our parent's
or subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date
of grant. Option holders may pay for an exercise in cash or other
consideration, including a promissory note, as approved by the administrator.

      Generally, options granted under the 1999 Option Plan (other than those
granted to non-employee directors) vest at a rate of 25% of the shares
underlying the option after one year and the remaining shares vest in equal
portions over the following 36 months, so that all shares are vested after four
years. The form of stock option grant under the 1999 Option Plan used to grant
options to our employees provides for accelerated vesting of half of all
unvested shares upon involuntary termination of employment with us without
cause occurring within one year of a change in control of CyberSource. Unless
otherwise provided by the administrator, an option granted under the 1999
Option Plan generally expires 10 years from the date of grant (five years in
the case of an incentive stock option granted to any person holding more than
10% of the total combined voting power of all classes of our, or any of our
parent's or subsidiary's, stock or, if earlier, 30 days after the optionee's
termination of employment or service with us or any of our affiliates for any
reason other than termination for death or disability, or one year after
termination for death or total and permanent disability and six months in the
case of other types of disability). Options granted under our 1999 Option Plan
are not generally transferable by the optionee except by will or the laws of
descent and distribution and generally are exercisable during the lifetime of
the optionee only by the optionee.

      In the event of (i) a merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned
subsidiary or where there is no substantial change in our stockholders and the
options granted under the 1999 Option Plan are assumed by the successor
corporation), or (ii) the sale of all or substantially all of our assets, the
successor corporation will assume or substitute the options we have granted
under the 1999 Option Plan or shall provide substantially similar consideration
to optionees as is provided to the stockholders. In the event the successor
corporation refuses to assume or substitute outstanding options as provided
above, or in the event of our dissolution or liquidation, outstanding options
shall expire, notwithstanding any contrary terms in the grant, on a date
specified in a written notice sent to all optionees (which date shall be at
least 20 days after the date of the notice).

      The 1999 Option Plan also provides for automatic grants to non-employee
directors. Each non-employee director, upon initial election or appointment to
the Board of Directors, is entitled to receive options to purchase 5,000 shares
of common stock, provided that the election or appointment does not occur
within the last quarter of a given year. Thereafter, each non-employee director
is entitled to receive options to purchase 5,000 shares of common stock
annually on January 1 of each year, provided he or she is a non-employee

                                       44
director on the date of grant and has continuously been an active member of the
Board of Directors for the year prior to the grant date. Options granted to
non-employee directors pursuant to the automatic grant provisions of the 1999
Option Plan are immediately exercisable, nonqualified stock options with an
exercise price equal to the fair market value of our common stock as of the
date of grant. Grants to non-employee directors are subject to the general
requirements of the 1999 Option Plan.

1998 Stock Option Plan

      The terms of options which we may grant under the 1998 Option Plan are
generally the same as those we may grant under the 1999 Option Plan. However,
under the 1998 Option Plan, the administrator may not grant options to an
individual in any one fiscal year which would permit that individual to
purchase more than 250,000 shares of common stock. The administrator may,
however, grant a newly-hired optionee a one-time grant of an option to purchase
up to an additional 250,000 shares of common stock. Also, the form of stock
option grant used to grant options to our employees under the 1998 Option Plan
does not provide for accelerated vesting as is provided in the form of stock
option grant used to grant options to our employees under the 1999 Option Plan.

      Stock options previously granted under the plans to the executives and
directors are described above under "Executive Compensation." At this time we
cannot determine the number of shares of common stock that may be subject to
options we grant in the future to our executive officers and other officers,
key employees and directors.

1999 Employee Stock Purchase Plan

      Our 1999 Employee Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code in order to
provide our employees with an opportunity to purchase common stock through
payroll deductions. An aggregate of 500,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan and made available for
purchase thereunder, subject to adjustment in the event of a stock split, stock
dividend or other similar change in the common stock or our capital structure.
All of our employees (and employees of our "subsidiary corporations" and
"parent corporations" (as defined by the Internal Revenue Code) designated by
the administrator of the 1999 Purchase Plan) whose customary employment is for
more than five months in any calendar year and more than 20 hours per week are
eligible to participate in the 1999 Purchase Plan. In addition, except for
employees who were employees on September 1, 1999, employees must have been
employed for twelve months or more to participate in the 1999 Purchase Plan.
Non-employee directors, consultants, and employees subject to the rules or laws
of a foreign jurisdiction that prohibit or make impractical the participation
of such employees in the 1999 Purchase Plan are not eligible to participate in
the 1999 Purchase Plan.

      The 1999 Purchase Plan designates offer periods, purchase periods and
exercise dates. The Code allows for offer periods of up to 27 months and
purchase periods of any length within an offer period. Initially, the purchase
periods under the 1999 Purchase Plan coincide with the offer periods such that
the purchase periods are of six months' duration commencing each February 1 and
August 1 (except that the initial purchase period commenced on September 1,
1999 and will end on January 31, 2000). Exercise dates are the last date of
each purchase period, that is July 31 and January 31 under the 1999 Purchase
Plan. In the event we merge with or into another corporation or sell all or
substantially all of our assets, or in the event certain other transactions in
which our stockholders before the transaction own less than 50% of the total
combined voting power of our outstanding securities following the transaction,
the administrator of the 1999 Purchase Plan may elect to shorten the offer
period then in progress.

      On the first day of each offer period, a participating employee is
granted a purchase right, which is a form of option to be automatically
exercised on the next exercise date. Deductions are to be made from the salary
of participants (in accordance with their authorizations) and credited to their
accounts under the 1999

                                       45
Purchase Plan. When the purchase right is exercised, the participant's withheld
salary is used to purchase shares of common stock. The price per share at which
shares of common stock are to be purchased under the 1999 Purchase Plan for any
six month period is the lesser of (A) 85% of the fair market value of the
common stock on the date of the grant of the option (the commencement of the
offer period) or (B) 85% of the fair market value of the common stock of the
exercise date (the last day of the offer period).

      Payroll deductions may range from 1% to 10% (in whole -percentage
increments) of a participant's regular base pay, exclusive of bonuses,
overtime, shift-premiums, commissions, reimbursements or other expense
allowances. Participants may not make direct cash payments to their accounts.
For any six-month period the employee may purchase the lesser of $5,000 worth
of stock (calculated at the discounted rate) and 500 shares. The Code imposes
certain additional limitations on the amount of common stock that may be
purchased during any calendar year.

1999 Nonqualified Stock Option Plan

      The administrator has the authority to select individuals who are to
receive options under the 1999 Nonqualified Option Plan and to specify the
terms and conditions of options granted, the vesting provisions, the option
term and the exercise price. The 1999 Nonqualified Option Plan provides that we
may grant nonstatutory stock options to employees, consultants and directors.

      The exercise price of the stock options shall not be less than 85% of the
fair market value on the date of grant. Option holders may pay for an exercise
in cash or other consideration, including a promissory note, as approved by the
administrator.

      Generally, options granted under the 1999 Nonqualified Option Plan vest
at a rate of 25% of the shares underlying the option after one year and the
remaining shares vest in equal portions over the following 36 months, so that
all shares are vested after four years. The form of stock option grant under
the 1999 Nonqualified Option Plan used to grant options to our employees
provides for accelerated vesting of half of all unvested shares upon
involuntary termination of employment with us without cause occurring within
one year of a change in control of CyberSource. Unless otherwise provided by
the administrator, an option granted under the 1999 Option Plan generally
expires 10 years from the date of grant (30 days after the optionee's
termination of employment or service with us or any of our affiliates for any
reason other than termination for death or disability, or one year after
termination for death or total and permanent disability and six months in the
case of other types of disability). Options granted under our 1999 Nonqualified
Option Plan are not generally transferable by the optionee except by will or
the laws of descent and distribution and generally are exercisable during the
lifetime of the optionee only by the optionee.

      In the event of (i) a merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned
subsidiary or where there is no substantial change in our stockholders and the
options granted under the 1999 Nonqualified Option Plan are assumed by the
successor corporation), or (ii) the sale of all or substantially all of our
assets, the successor corporation will assume or substitute the options we have
granted under the 1999 Nonqualified Option Plan or shall provide substantially
similar consideration to optionees as is provided to the stockholders. In the
event the successor corporation refuses to assume or substitute outstanding
options as provided above, or in the event of our dissolution or liquidation,
outstanding options shall expire, notwithstanding any contrary terms in the
grant, on a date specified in a written notice sent to all optionees (which
date shall be at least 20 days after the date of the notice).

                                       46
PRINCIPAL AND SELLING STOCKHOLDERS

      The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of September 30, 1999 as adjusted
to reflect the sale of shares offered hereby, by (a) each person known by us to
own beneficially more than 5% of the outstanding shares of common stock, (b)
each of our directors, (c) each Named Executive Officer (see "Management --
 Executive Compensation"), (d) each selling stockholder, and (e) all current
executive officers and directors as a group.

      Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of September 30, 1999 are
deemed outstanding. Percentage of beneficial ownership is based upon 21,989,957
shares of common stock outstanding prior to this offering and 23,989,957 shares
of common stock outstanding after this offering. To our knowledge, except as
set forth in the footnotes to this table and subject to applicable community
property laws, each person named in the table has sole voting and investment
power with respect to the shares set forth opposite the person's name. Except
as otherwise indicated, the address of each of the persons in this table is as
follows: c/o CyberSource Corporation, 550 S. Winchester Blvd., Suite 301, San
Jose, California 95128.
Number of
                           Shares Beneficially  Shares to be  Shares Beneficially
                             Owned before the   Sold in the     Owned after the
                                Offering          Offering         Offering
                          --------------------- ------------ ---------------------
Name of Beneficial Owner    Number   Percentage                Number   Percentage
------------------------  ---------- ----------              ---------- ----------
Named Executive
 Officers, Directors and
 5% Stockholders:
William S.
 McKiernan(1)...........   5,301,104    24.1%     408,891     4,892,213    20.4%
Bert Kolde(2)...........   2,495,603    11.3      206,644     2,288,919     9.5
Vulcan Ventures, Inc.
 110 110th Avenue NE,
 Suite 550
 Bellevue, WA 98004.....   2,480,603    11.3      201,644     2,278,959     9.5
Linda Fayne
 Levinson(3)............   1,951,634     8.9      157,048     1,794,586     7.5
Global Retail Partners,
 L.P. and its
 affiliates(4)
 2121 Avenue of the
 Stars, Suite 1630
 Los Angeles, CA 90067..   1,931,634     8.8      157,048     1,774,586     7.4
Steven P. Novak(5)......   1,580,624     7.2            0     1,565,624     6.5
General Electric Capital
 Corporation
 260 Longridge Road
 Stamford, CT 06927.....   1,546,554     7.0            0     1,546,554     6.4
Entities affiliated with
 C.E. Unterberg,
 Towbin(6)
 Swiss Bank Tower
 10 East 50th Street,
 22nd Floor
 New York, NY 10002.....   1,535,624     7.0            0     1,535,624     6.4
Thomas A. Arnold(7).....      71,728       *       35,000        36,728       *
Richard Scudellari(8)...      55,500       *       15,000        40,500       *
Anthony Bates(9)........      43,551       *       17,000        26,551       *
Charles E. Noreen,
 Jr.(10)................      40,625       *       20,000        20,625       *
Gregory Quinn...........      19,375       *            0        19,375       *
All executive officers
 and directors as a
 group
 (13 persons)(12).......  11,543,869    52.3%     500,891    11,027,978    45.8
47
Number of
                          Shares Beneficially      Shares to be Shares Beneficially
                            Owned before the       Sold in the    Owned after the
                                Offering             Offering         Offering
                          -----------------------  ------------ -----------------------
Name of Beneficial Owner   Number     Percentage                 Number     Percentage
------------------------  ----------- -----------               ----------- -----------
All other Selling
 Stockholders:
John P. Pettit..........      525,000        2.4%     80,000        445,000        2.0%
Peter C. Blake-
 Burke(12)..............       59,094          *       8,000         51,094          *
Thomas H. Clements(13)..       49,626          *       8,000         41,626          *
Stephen W. Klebe(14)....       41,040          *      12,500         28,540          *
Anthony F. Quilici(15)..       38,802          *      10,000         28,802          *
Patricia Martin(16).....       14,250          *       2,500         11,750          *
Juan Herrera(17)........        8,000          *       1,667          6,333          *
Eric Vortriede(18)......        7,999          *       1,000          6,999          *
Nigel Tranter(19).......        5,292          *         500          4,792          *
Ian Collins(20).........        4,979          *       1,250          3,792          *
Other...................                              15,000
--------
  * Less than 1% of the outstanding common stock.

 (1) Includes 5,029,004 shares of common stock held by Mr. McKiernan, 272,100
     shares of common stock held by members of Mr. McKiernan's immediate family
     Mr. McKiernan disclaims beneficial ownership of the shares held by his
     immediate family.

 (2) Includes options to purchase 5,000 shares of common stock exercisable
     within 60 days of September 30, 1999. Also, includes 2,480,603 shares held
     by Vulcan Ventures, Inc. Mr. Kolde is a director, the Vice President,
     Secretary and Treasurer of Vulcan Ventures, Inc. Mr. Kolde disclaims
     beneficial ownership of the shares owned by Vulcan, except for his
     proportional interest therein, if any.

 (3) Includes options to purchase 10,000 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Ms. Levinson. Also includes
     1,931,634 shares held by Global Retail Partners, L.P. and its affiliates.
     Ms. Levinson is a principal of Global Retail Partners, L.P. Ms. Levinson
     disclaims beneficial ownership of these shares, except for her
     proportional interest therein, if any.

 (4) Includes 1,238,464 shares of common stock held by Global Retail Partners,
     L.P., 85,265 shares held by Global Retail Partners Funding, Inc., 80,508
     shares held by GRP Partners, L.P., 369,036 shares held by DLJ Diversified
     Partners, L.P., 137,047 shares held by DLJ Diversified Partners-A, L.P.,
     13,200 shares held by DLJ ESC II, L.P., 8,114 shares held by DLJ ESC
     L.L.C. (collectively, the "Global Affiliates").

 (5) Includes 1,535,624 shares of common stock held by the Unterberg Affiliates
     (as defined below). Mr. Novak disclaims beneficial ownership of these
     shares, except for his proportional interest therein, if any.

 (6) Includes 57,581 shares of Common Stock held by UT Capital Partners
     International, LDC (formerly UH Capital Partners International, LDC),
     377,759 shares held by UT Technology Partners, LDC (formerly UH Technology
     Partners, LDC); 841,529 shares held by C. E. Unterberg Towbin Capital
     Partners I, L.P. (formerly Unterberg Harris Capital Partners I, L.P.);
     176,796 shares held by Unterberg Harris Private Equity Partners, L.P.;
     37,761 shares held by Unterberg Harris Private Equity Partners, CV; and
     44,198 shares held by C.E. Unterberg Towbin LLC (collectively, the
     "Unterberg Affiliates").

 (7) Includes options to purchase 14,479 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Arnold.

 (8) Includes options to purchase 10,000 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Scudellari.

 (9) Includes options to purchase 14,428 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Bates.

                                       48
(10) Includes options to purchase 40,625 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Noreen.

(11) Includes options to purchase 94,532 shares of common stock exercisable
     within 60 days of September 30, 1999, held by all directors and executive
     officers of CyberSource.

(12) Includes options to purchase 5,209 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Burke.

(13) Includes options to purchase 6,251 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Clements.

(14) Includes options to purchase 8,020 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Klebe.

(15) Includes options to purchase 10,845 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Quilici.

(16) Includes options to purchase 6,875 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Ms. Martin.

(17) Includes options to purchase 1,667 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Herrera.

(18) Includes options to purchase 2,656 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Vortriede.

(19) Includes options to purchase 1,042 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Tranter.

(20) Includes options to purchase 1,250 shares of common stock exercisable
     within 60 days of September 30, 1999, held by Mr. Collins.

                                       49
TRANSACTIONS BETWEEN CYBERSOURCE AND
              ITS OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS

Relationship with Beyond.com

      In December 1997, we were spun-off from Beyond.com into a new Delaware
corporation, now called CyberSource Corporation. In connection with the spin-
off, Beyond.com issued our capital stock to their stockholders such that,
following consummation of the spin-off, each of Beyond.com's stockholders held
shares of common stock, Series A preferred stock, Series B preferred stock, and
Series C preferred stock of CyberSource in equal number and ownership
proportion and with the same rights as the stockholder had as a Beyond.com
stockholder. On the date of the spin-off, Beyond.com employees were granted
stock options in CyberSource based on the extent to which the employees'
original options in Beyond.com were vested. Immediately following the spin-off,
our employees maintained their outstanding vested stock options in Beyond.com
and were granted additional stock options in CyberSource to the extent of their
original options. The exercise prices of the original and additional option
grants were adjusted to reflect the allocation of the fair market price per
share between Beyond.com and our common stock, respectively, at the time of the
spin-off.

      We have entered into agreements with Beyond.com for the purpose of
defining the ongoing relationship between the two companies. Because four out
of five of our directors were also directors of Beyond.com at the time these
agreements were negotiated and members of our management team were formerly a
part of the management team of Beyond.com, these agreements are not the result
of arm's length negotiations. However, we believe the terms of these agreements
are no less favorable to us than could have been negotiated with a non-
affiliated party. We qualify the following description of these agreements in
their entirety by reference to the agreements, which have been filed as
exhibits to the registration statement on Form S-1 which we filed on April 30,
1999, as subsequently amended.

      Under our Conveyance Agreement dated December 31, 1997, we received from
Beyond.com:

     .  technology (including rights to all patent applications,
        trademarks and other of our intellectual property rights);

     .  contracts and licenses with third parties; and

     .  tangible assets in connection with credit card processing, fraud
        screening, export control, territory management and electronic
        fulfillment services.

In addition, we received employees engaged in the Internet commerce services
business from Beyond.com. We believe that we obtained all property from
Beyond.com necessary to operate our business. We do not share any property with
Beyond.com except for utility tools and improvements to the licensed technology
as described below.

      In connection with this transfer, we entered into an InterCompany Cross-
License Agreement with Beyond.com in April 1998, which was amended in May 1998,
pursuant to which Beyond.com granted us a non-exclusive, worldwide, perpetual,
irrevocable, royalty-free license to (1) internally use technology related to
electronic software distribution, and (2) use and sublicense its then existing
customer database in connection with fraud detection and verification. Under
this agreement, we granted Beyond.com a worldwide, perpetual, irrevocable,
royalty-free license to internally use our Sm@rtCert technology and
improvements thereto. We also granted Beyond.com the right to modify this
technology for purposes of merging the technology into its Cache Manager
technology (either alone or in combination with other software) for subsequent
sublicense to enterprises and governmental agencies. However, the Cross-License
Agreement limits the ability of Beyond.com to use our technology to compete
with us. The Cross-License Agreement further provides that the parties shall
have joint ownership of utility tools developed jointly prior to the date of
the Cross-License Agreement, and any improvements to the licensed technology to
the extent jointly developed after the date of

                                       50
the Cross-License Agreement. The Cross-License Agreement also allocates between
us and Beyond.com the ownership of the other inventions each party made on or
before June 30, 1998. Each party has agreed to indemnify the other against any
third party claims regarding the licensee's use of licensed technology that
results in a claim against the licensor, except to the extent that the claim is
based upon a claim that the licensed technology infringes upon any third
party's intellectual property rights.

      We also entered into an Internet Commerce Services Agreement with
Beyond.com, pursuant to which we agreed to provide services including credit
card processing, fraud screening, export control, territory management and
electronic fulfillment. Pursuant to the terms of this agreement, Beyond.com
agreed to indemnify us for an amount not to exceed $100,000 against any claim
based upon an allegation that the software we distributed infringes upon any
third party's intellectual property rights. We agreed to indemnify Beyond.com
for an amount not to exceed $100,000 against any claim based upon an allegation
that our services, or the use of any software we provided in connection with
our services, infringes any third party's intellectual property rights. This
agreement was superseded by the CyberSource Internet Commerce Services
Agreement entered into by us with Beyond.com effective as of May 1999 pursuant
to which we agreed to provide similar services. Under the 1999 agreement, we
and Beyond.com agreed to indemnify each other against any claim based upon an
allegation that any services or products of the indemnifying party infringe
upon any third party's intellectual property rights. The initial term of the
1999 agreement expires on May 1, 2000, and the term of the 1999 agreement
automatically renews for additional one-year terms until the 1999 agreement is
terminated by either party. During 1998 and the nine months ended September 30,
1999, we recorded approximately $801,000 and $384,000, respectively, of
revenues related to these services.

Stock and Warrant Issuances

      Since our inception in December 1997, we have issued shares of common
stock and shares of preferred stock in private placement transactions each as
set forth below.

      In March and April 1998, we issued shares of Series D preferred stock in
private placements to investors at a purchase price of $1.08 per share. In
October and December 1998, we issued shares of Series E preferred stock in
private placements to investors at a purchase price of $1.81 per share. Upon
the closing of our initial public offering, each two shares of Series D and
Series E Preferred Stock converted into one share of common stock:
Number of Shares of Number of Shares of
                                        Series D Preferred  Series E Preferred
Purchaser(1)                              Stock Purchased     Stock Purchased
------------                            ------------------- -------------------
Vulcan Ventures Incorporated..........        735,231            1,657,459
UT Technology Partners, LDC...........             --              276,243
UT Capital Partners International,
 LDC..................................             --               55,249
UH Technology Partners, LDC...........        294,092                   --
C.E. Unterberg, Towbin Capital
 Partners I, L.P......................             --              176,796
C.E. Unterberg, Towbin LLC............             --               88,397
Unterberg Harris Private Equity
 Partners, L.P........................         60,583               91,050
Unterberg Harris Private Equity
 Partners, C.V........................         12,940               19,448
DLJ Diversified Partners, L.P.........        140,465              316,655
DLJ Diversified Partners-A, L.P.......         52,164              117,596
DLJ ESC II, L.P.......................          8,113               18,289
GRP Partners, L.P.....................         30,643               69,082
Global Retail Partners Funding, Inc...         32,456               73,162
Global Retail Partners, L.P...........        471,390            1,062,674
General Electric Capital Corporation..             --            2,762,431
--------
(1) Each listed purchaser is affiliated with a director of our company. For a
    description of these affiliations and disclaimers of beneficial ownership,
    see "Principal and Selling Stockholders."

                                       51
Concurrent with the issuance of Series E preferred stock to General
Electric Capital Corporation, which beneficially owns more than five percent of
our preferred stock, we issued General Electric Capital Corporation warrants to
buy 567,910 shares of Series E preferred stock with a weighted average exercise
price of $2.64. In connection with our initial public offering, General
Electric Capital Corporation exercised the warrants and acquired 165,339 shares
of our common stock.

Option Grants and Agreements with Executive Officers and Directors

      We granted to the following senior executive officers and directors
options to purchase shares of our common stock on the date, for the number of
shares, with an exercise price as indicated opposite each person's name:
Securities
                                                         Underlying
Name                                      Option Date(1)  Options   Option Price
----                                      -------------- ---------- ------------
L. Evan Ellis............................     4/12/99     150,000     $ 5.720
                                              8/24/99     100,000      28.500

Charles E. Noreen, Jr. ..................    10/19/98     150,000       0.540

Thomas A. Arnold.........................     3/18/98      75,000       0.200
                                              7/30/98      10,000       0.540
                                              1/18/99      65,000       3.620

Anthony V. Bates.........................     3/18/98      62,500       0.200
                                              7/30/98      15,000       0.540
                                              1/18/99      72,500       3.620

Bert Kolde...............................     3/18/98       5,000       0.045
                                              3/18/99       5,000       0.020
                                               1/1/99       5,000       3.620

Linda Fayne Levinson.....................     3/18/98       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000

Steven P. Novak..........................     3/18/98      10,000       0.003
                                              3/18/99      10,000       0.013
                                              3/18/99       5,000       0.045
                                              3/18/99       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000

Richard Scudellari.......................     3/18/98       5,000       0.200
                                               1/1/99       5,000       3.620
                                              5/10/99      10,000       9.000
--------
(1) Options with a grant date in 1998 are subject to the terms of the 1998
    Option Plan. Options with a grant date in 1999 are subject to the terms of
    the 1999 Option Plan.

                                       52
All of our directors and executive officers as a group have been granted
options to purchase 1,368,500 shares of our common stock at a weighted average
exercise price of $7.01378 per share.

      Under the terms of an oral agreement between us and William S. McKiernan,
our Chief Executive Officer and Chairman of our Board of Directors, we repaid a
balance of $60,000 in January 1998 for unpaid salary that we had accrued on Mr.
McKiernan's behalf for services Mr. McKiernan provided to our predecessor, from
whom we were spun-off, from the date of its inception through December 31,
1994.

      In July 1998, Mr. McKiernan loaned us $3,000,000 pursuant to a
convertible promissory note dated August 7, 1998 that was amended and restated
on October 21, 1998. In accordance with the terms of the convertible promissory
note, the principal balance of $3,000,000 was converted into 1,657,458 shares
of our Series E preferred stock in June 1999 at a price of $1.81 per share.
Interest accrued on the note at a rate of ten percent (10.0%) per annum. We
paid an aggregate amount of $256,000 in interest under the note.

      We have entered into indemnification agreements with each of our
directors and officers.

                                       53
DESCRIPTION OF CAPITAL STOCK

Authorized and Outstanding Capital Stock

      We are authorized to issue up to 50,000,000 shares of common stock and
4,988,842 shares of preferred stock. The following description of our capital
stock is not complete and is qualified in its entirety by our Certificate of
Incorporation and Bylaws, both of which were included as exhibits to the
registration statement of which this prospectus forms a part.

Common Stock

      As of September 30, 1999, there were 21,989,957 shares of common stock
outstanding held of record by approximately 237 stockholders. Holders of our
common stock are entitled to one vote for each share in all matters required or
permitted to be voted on by our stockholders. The Board of Directors may
declare a dividend out of funds legally available and the holders of common
stock are entitled to receive ratably any such dividends. In the event of our
liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all of our assets. Holders of our common stock
have no preemptive rights or other subscription rights to convert their shares
into any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable.

Preferred Stock

      The Board of Directors has the authority, without further action by the
stockholders, to issue up to 4,988,842 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges
and rights may be greater than those of the common stock. The Board of
Directors, without stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Therefore, we could issue
preferred stock quickly with terms calculated to delay or prevent a change in
control of the Company or make removal of management more difficult.
Additionally, if we issue preferred stock, then the market price of common
stock may decrease, and voting and other rights may be adversely affected. We
have no plans to issue any preferred stock.

Certain Charter and Bylaw Provisions

      We are subject to Section 203 of the Delaware General Corporation Law
which prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The term "business combination" includes mergers and stock
and asset sales. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The effect of this statute could, among other
things, make it more difficult for a third party to gain control of us,
discourage bids for the common stock at a premium or otherwise adversely affect
the market price of the common stock.

Limitation of Directors' and Officers' Liability; Indemnification

      Our Certificate of Incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for
breach of their fiduciary duties as directors, except for liability that cannot
be eliminated under the Delaware General Corporation Law. The Delaware General
Corporation Law does not permit a provision in a corporation's certificate of
incorporation that would eliminate this liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful payment of a

                                       54
dividend or unlawful stock repurchase or redemption, as provided in Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.

      While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate this
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of the corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.

      Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we shall indemnify our directors and officers. In
addition, each of our directors and officers has entered into an
indemnification agreement with us pursuant to which we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. At present, there is no pending litigation or proceeding
involving any of our directors or officers in which indemnification is required
or permitted, and we are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.

Registration Rights

      After completion of this offering, and assuming we comply with other
requirements, the holders of approximately 15,410,567 shares of common stock
(14,960,567 shares if the over-allotment option is exercised in full) will hold
registration rights. These rights are held under the terms of several
agreements between us and the holders of these shares of common stock. Under
the terms of these agreements, if we propose to register any of our securities
under the Securities Act, either for our own account or for other security
holders, we must give the holders of registration rights notice of registration
and include a portion of their shares of common stock in the registration at
our expense. In addition, holders of registration rights may require us to file
a registration statement under the Securities Act at our expense with respect
to their shares of common stock. We are required to use our commercially
reasonable efforts to effect this registration. All of these registration
rights are subject to conditions and limitations, among them the right of the
underwriters of any offering to limit the number of shares included in such
registration and our right not to effect a registration in certain specific
situations. Under these agreements, we have agreed to bear all registration
expenses (other than underwriting discounts and commissions and fees, and fees
and disbursements of counsel of the holders of registration rights subject to
limitations). We have agreed to indemnify the holders of registration rights
against liabilities under the Securities Act. We are bearing all registration
expenses (subject to the exceptions described above) related to the
registration statement of which this prospectus is a part.

Listing

      Our common stock is listed on the Nasdaq National Market under the symbol
"CYBS."

Transfer Agent and Registrar

      The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company. Its address is 40 Wall Street, New York, NY 10005,
and its telephone number is 212-936-5100.

                                       55
SHARES ELIGIBLE FOR FUTURE SALE

      Upon completion of this offering, we will have 23,989,957 shares of
common stock outstanding based on shares outstanding as of September 30, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after September 30, 1999. Of these shares, the 3,000,000
shares sold in this offering will be freely transferable without restriction
under the Securities Act, unless held by "affiliates" of CyberSource as that
term is used under the Securities Act and the Regulations promulgated
thereunder. The shares of our common stock outstanding after this offering will
be available for sale in the public market as follows:
Shares First
                                      Eligible
Days After Date of This Prospectus    for Sale                        Comment
----------------------------------  ------------                      -------
Upon Effectiveness......              3,000,000  Freely tradable shares sold in offering.
Upon Effectiveness......                745,457  Shares saleable under Rules 144 and 701.
December 21, 1999.......              4,258,093  Underwriter lockup entered into in connection with
                                                 our initial public offering released, shares
                                                 saleable under Rules 144 and 701.
90 days.................             10,545,678  Underwriter lockup released; shares saleable under
                                                 Rules 144 and 701.
Of the remaining shares, 4,589,500 sold in our initial public offering
are freely tradable without restriction.

      In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the Effective Date, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of common stock (approximately 239,990 shares immediately after this
offering based on shares outstanding as of September 30, 1999) or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale, subject to the filing of a Form 144 with respect to
such sale and other limitations and restrictions In addition, a person who is
not deemed to have been an affiliate of CyberSource at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above

      Any employee, officer or director of or consultant to CyberSource who
purchased his or her shares prior to the Effective Date or who holds vested
options as of that date pursuant to a written compensatory plan or contract is
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date However, we and our officers, directors and our
other stockholders have agreed not to sell or otherwise dispose of any shares
of our common stock for the 180-day period after the date of this prospectus
without the prior written consent of the underwriters See "Underwriting."

      Prior to the Effective Date, we intend to file a registration statement
on Form S-8 under the Securities Act to register shares of common stock
reserved for issuance under the 1998 Option Plan and the 1999 Option Plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act Such registration statements will
become effective immediately upon filing.

      Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered in this offering.

                                       56
UNDERWRITING

General

      Subject to the terms and conditions set forth in a purchase agreement
between us, the selling stockholders and each of the underwriters named below,
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan & Co.,
PaineWebber Incorporated, Adams, Harkness & Hill, Inc. and C.E. Unterberg,
Towbin are acting as representatives, we and the selling stockholders have
agreed to sell to the underwriters, and each of the underwriters severally and
not jointly has agreed to purchase from us and the selling stockholders, the
number of shares of our common stock set forth opposite its name below.
Number
     Underwriter                                                       of Shares
     -----------                                                       ---------
Merrill Lynch, Pierce, Fenner & Smith
      Incorporated....................................................
J.P. Morgan Securities Inc. ..........................................
PaineWebber Incorporated..............................................
Adams, Harkness & Hill, Inc. .........................................
C.E. Unterberg, Towbin................................................
                                                                       ---------
      Total........................................................... 3,000,000
                                                                       =========
In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth in that agreement, to purchase all of the
shares of our common stock being sold under the terms of the agreement if any
of the shares of common stock are purchased. Under the purchase agreement, the
commitments of non-defaulting underwriters may be increased.

      We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.

      The expenses of this offering, exclusive of the underwriting discount,
are estimated at $500,000 and are payable by us.

      The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.

Commissions and Discounts

      The representatives have advised us that the underwriters propose
initially to offer the shares of our common stock to the public at the public
offering price set forth on the cover page of this prospectus, and to dealers
at such price less a concession not in excess of $    per share of common
stock. The underwriters may allow, and such dealers may reallow, a discount not
in excess of $    per share of common stock to other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.

                                       57
The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment options.
Per  Without  With
                                                            Share Option  Option
                                                            ----- ------- ------
Public offering price......................................  $      $        $
Underwriting discount......................................  $      $      $
Proceeds, before expenses, to CyberSource..................  $      $      $
Proceeds to selling stockholders...........................  $      $      $
Over-Allotment Option

      The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of an additional 450,000 shares of our common stock at the public
offering price set forth on the cover of this prospectus, less the underwriting
discount. The underwriters may exercise this option solely to cover over-
allotments, if any, made on the sale of our common stock offered hereby. To the
extent that the underwriters exercise this option, each underwriter will be
obligated to purchase a number of additional shares of our common stock from
the selling stockholders proportionate to such underwriter's initial amount
reflected in the foregoing table.

No Sales of Similar Securities

      We and the selling stockholders have agreed not to directly or
indirectly:

     .  offer, pledge, sell, contract to sell, sell any option or contract
        to purchase, purchase any option or contract to sell, grant any
        option, right or warrant for the sale of, lend or otherwise
        dispose of or transfer any shares of our common stock or
        securities convertible into or exchangeable or exercisable for or
        repayable with our common stock, whether now owned or later
        acquired by the person executing the agreement or with respect to
        which the person executing the agreement later acquires the power
        of disposition, or file any registration statement under the
        Securities Act relating to any shares of our common stock (other
        than shares sold in this offering) or

     .  enter into any swap or other agreement or any other agreement that
        transfers, in whole or in part, the economic consequence of
        ownership of our common stock whether any such swap or transaction
        is to be settled by delivery of our common stock or other
        securities, in cash or otherwise, without the prior written
        consent of Merrill Lynch on behalf of the underwriters for a
        period of 90 days after the date of the prospectus. See "Shares
        Eligible for Future Sale."

Price Stabilization and Short Positions

      Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and selling group members
to bid for and purchase our common stock. As an exception to these rules, the
underwriters are permitted to engage in transactions that stabilize the price
of our common stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our common stock.

      If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing our common stock in the open
market. The underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.

                                       58
LEGAL MATTERS

      The validity of the common stock offered hereby will be passed upon for
us by Morrison & Foerster LLP, Palo Alto, California. A partner of Morrison &
Foerster LLP owns 45,500 shares of our common stock and holds an option to
purchase an additional 10,000 shares of our common stock. Legal matters in
connection with this offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.

                                    EXPERTS

      Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule and the financial statements and schedule of
our predecessor division of Beyond.com corporation at December 31, 1997 and
1998 and for the period from March 20, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, as set forth in their
report. We have included our consolidated financial statements and schedule in
this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.

                      WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Common Stock offered hereby. This
prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to CyberSource and our common stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this prospectus as
to the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the North Western Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048, and copies of all or any part thereof may be
obtained from such office after payment of fees prescribed by the Commission.
The Commission maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.

                                       59
CYBERSOURCE CORPORATION

                       CONSOLIDATED FINANCIAL STATEMENTS

                                    CONTENTS
Report of Ernst & Young LLP Independent Auditors........................... F-2

Consolidated Financial Statements

Consolidated Balance Sheets................................................ F-3

Consolidated Statements of Operations...................................... F-4

Consolidated Statement of Redeemable Convertible Preferred Stock, Division
 Equity and Stockholders' Equity (Net Capital Deficiency).................. F-5

Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements................................. F-7
F-1
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

The Board of Directors and Stockholders
CyberSource Corporation

      We have audited the accompanying consolidated balance sheets of
CyberSource Corporation as of December 31, 1997 and 1998, and the related
consolidated statements of operations, redeemable convertible preferred stock,
division equity and stockholders' equity (net capital deficiency), and cash
flows of CyberSource Corporation and its predecessor division of Beyond.com
Corporation for the period from March 20, 1996 (inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CyberSource Corporation at December 31, 1997 and 1998, and the consolidated
results of operations and cash flows of CyberSource Corporation and its
predecessor division of Beyond.com Corporation for the period from March 20,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998, in conformity with generally accepted accounting principles.

                                          /s/ Ernst & Young LLP

San Jose, California
February 18, 1999, except
 as to the second
 paragraph of Note 5, as
 to which the date is June
 21, 1999

                                      F-2
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                          CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)
December 31,
                                                 ---------------  September 30,
                                                  1997    1998        1999
                                                 ------ --------  -------------
                                                                   (Unaudited)
Assets
Current assets:
  Cash and cash equivalents..................... $2,000 $ 11,111    $ 23,461
  Short-term investments........................     --       --      14,790
  Accounts receivable, net of allowances of
   $332, $229, and $504 at December 31, 1997 and
   1998, and September 30, 1999.................    466      863       2,079
  Prepaid expenses and other current assets.....    118      411       1,101
                                                 ------ --------    --------
    Total current assets........................  2,584   12,385      41,431
Property and equipment, net.....................  1,151    2,300       6,733
Other noncurrent assets.........................     --      290         211
                                                 ------ --------    --------
    Total assets................................ $3,735 $ 14,975    $ 48,375
                                                 ====== ========    ========
   Liabilities and stockholders' equity (net
               capital deficiency)
Current liabilities:
  Accounts payable.............................. $  269 $    531    $  1,577
  Other accrued liabilities.....................    128      969       3,210
  Deferred revenue..............................    150      120         455
  Current obligations under capital leases......     21      211         642
  Convertible note payable to an officer and
   stockholder..................................     --    3,000          --
                                                 ------ --------    --------
    Total current liabilities...................    568    4,831       5,884
Noncurrent obligations under capital leases.....     33      256         545
Commitments
Redeemable convertible preferred stock:
  Designated shares--24,037,372
  Issued and outstanding shares--7,022,558 at
   December 31, 1997, 16,957,061 at December 31,
   1998 and none at September 30, 1999
   (liquidation preference of $18,616 at
   December 31, 1998)...........................  2,097   18,911          --
Stockholders' equity (net capital deficiency):
  Convertible preferred stock, $0.001 par value:
    Authorized shares--25,000,000 at December
     31, 1998 and 4,988,842 at September 30,
     1999.......................................     --       --          --
    Issuable in series; see above as to series
     designated as redeemable and shares issued
  Common stock, $0.001 par value:
    Authorized shares--50,000,000
    Issued and outstanding shares--4,535,000 at
     December 31, 1997, 5,406,536 at December
     31, 1998 and 21,989,957 at September 30,
     1999.......................................      5        5          22
  Additional paid-in capital....................  1,032    1,199      70,571
  Deferred compensation.........................     --     (142)       (799)
  Accumulated deficit...........................     --  (10,085)    (27,848)
                                                 ------ --------    --------
    Total stockholders' equity (net capital
     deficiency)................................  1,037   (9,023)     41,946
                                                 ------ --------    --------
    Total liabilities and stockholders' equity
     (net capital deficiency)................... $3,735 $ 14,975    $ 48,375
                                                 ====== ========    ========
See accompanying notes.

                                      F-3
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
Period From
                            March 20,
                               1996                                 Nine Months Ended
                          (Inception) to Years Ended December 31,     September 30,
                           December 31,  ------------------------   -------------------
                               1996         1997          1998        1998      1999
                          -------------- ------------ ------------  --------  ---------
                                                                       (Unaudited)
Revenues................     $   144     $       968  $      3,384  $  2,281  $   7,883
Cost of revenues........         137             324         3,471     2,197      6,835
                             -------     -----------  ------------  --------  ---------
Gross profit (loss).....           7             644           (87)       84      1,048
Operating expenses:
  Product development...         338           2,300         3,802     2,534      5,207
  Sales and marketing...         425           1,988         4,184     2,789     10,256
  General and
   administrative.......         387             681         1,946     1,314      3,528
  Deferred compensation
   amortization.........          --              --            18        --        379
                             -------     -----------  ------------  --------  ---------
Total operating
 expenses...............       1,150           4,969         9,950     6,637     19,370
                             -------     -----------  ------------  --------  ---------
Loss from operations....      (1,143)         (4,325)      (10,037)   (6,553)   (18,322)
Interest income.........          --              --           108        41        809
Interest expense........          --             (13)         (156)      (62)      (250)
                             -------     -----------  ------------  --------  ---------
Net loss................     $(1,143)    $    (4,338) $    (10,085) $ (6,574) $ (17,763)
                             =======     ===========  ============  ========  =========
Basic and diluted net
 loss per share.........                              $      (2.05) $  (1.38) $   (1.58)
                                                      ============  ========  =========
Shares used in computing
 basic and diluted net
 loss per share.........                                     4,918     4,763     11,246
                                                      ============  ========  =========
Pro forma basic and
 diluted net loss per
 share..................                              $      (0.86)           $   (0.98)
                                                      ============            =========
Shares used in computing
 pro forma basic and
 diluted net loss per
 share..................                                    11,740               18,124
                                                      ============            =========
See accompanying notes.

                                      F-4
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

       CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK,
       DIVISION EQUITY AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

                      (In thousands, except share amounts)

          Period from March 20, 1996 (inception) to September 30, 1999
Redeemable
                              Convertible       Division
                            Preferred Stock      Equity                       Stockholders' Equity
                          --------------------  --------  -------------------------------------------------------------
                                                                                                              Total
                                                                                                          Stockholders'
                                                            Common Stock    Additional Deferred Accumu-      Equity
                                                          -----------------  Paid-In   Compen-   lated    (Net Capital
                            Shares     Amount    Amount     Shares   Amount  Capital    sation  Deficit    Deficiency)
                          -----------  -------  --------  ---------- ------ ---------- -------- --------  -------------
Funding provided by
 Beyond.com
 Corporation............           --  $    --  $ 1,564           --  $ --   $    --    $   --  $     --     $    --
Net loss and
 comprehensive loss.....           --       --   (1,143)          --    --        --        --        --          --
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1996...................           --       --      421           --    --        --        --        --          --
Funding provided by
 Beyond.com
 Corporation............           --       --    7,051           --    --        --        --        --          --
Net loss and
 comprehensive loss.....           --       --   (4,338)          --    --        --        --        --          --
Incorporation of
 CyberSource and
 issuance of redeemable
 convertible preferred
 stock and common stock
 in December 1997 upon
 capital stock dividend
 from Beyond.com
 Corporation............    7,022,558    2,097   (3,134)   4,535,000     5     1,032        --        --       1,037
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1997...................    7,022,558    2,097       --    4,535,000     5     1,032        --        --       1,037
Issuance of common stock
 under stock option
 plan...................           --       --       --      871,536    --         7        --        --           7
Issuance of Series D
 redeemable convertible
 preferred stock, net of
 issuance costs of $20..    1,851,850    1,980       --           --    --        --        --        --          --
Issuance of Series E
 redeemable convertible
 preferred stock, net of
 issuance costs of
 $114...................    8,082,653   14,516       --           --    --        --        --        --          --
Issuance of warrants to
 Visa and GE Capital....           --      318       --           --    --        --        --        --          --
Deferred compensation
 related to stock option
 grants.................           --       --       --           --    --       160      (160)       --          --
Amortization of
 deferred compensation..           --       --       --           --    --        --        18        --          18
Net loss and
 comprehensive loss.....           --       --       --           --    --        --        --   (10,085)    (10,085)
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at December 31,
 1998...................   16,957,061   18,911       --    5,406,536     5     1,199      (142)  (10,085)     (9,023)
Common shares issued for
 services (unaudited)...           --       --       --       22,500    --        81        --        --          81
Issuance of common stock
 under stock option plan
 (unaudited)............           --       --       --      255,128     1       175        --        --         176
Deferred compensation
 related to stock option
 grants (unaudited).....           --       --       --           --    --     1,036    (1,036)       --          --
Issuance of common stock
 in Initial Public
 Offering net of
 issuance costs of $848
 (unaudited)............           --       --       --    4,600,000     4    46,181        --        --      46,185
Conversion of note
 payable from Officer
 and Stockholder into
 Series E preferred
 stock (unaudited)......    1,657,458    3,000       --           --    --        --        --        --          --
Net exercise of warrants
 (unaudited)............      774,512       --       --           --    --        --        --        --          --
Conversion of preferred
 stock into common stock
 upon Initial Public
 Offering (unaudited)...  (19,389,031) (21,911)           11,705,793    12    21,899        --        --      21,911
Amortization of deferred
 compensation
 (unaudited)............           --       --       --           --    --        --       379        --         379
Net loss and
 comprehensive loss
 (unaudited)............           --       --       --           --    --        --        --   (17,763)    (17,763)
                          -----------  -------  -------   ----------  ----   -------    ------  --------     -------
Balance at September 30,
 1999 (unaudited).......           --       --  $    --   21,989,957  $ 22   $70,571    $ (799) $(27,848)    $41,946
                          ===========  =======  =======   ==========  ====   =======    ======  ========     =======
See accompanying notes.

                                      F-5
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
Period From                        Nine Months
                            March 20, 1996   Years Ended           Ended
                            (Inception) to   December 31,      September 30,
                             December 31,  -----------------  -----------------
                                 1996       1997      1998     1998      1999
                            -------------- -------  --------  -------  --------
                                             (In thousands)
                                                                (Unaudited)
Operating activities
Net loss..................     $(1,143)    $(4,338) $(10,085) $(6,574) $(17,763)
Adjustments to reconcile
 net loss to net cash used
 in operating activities:
  Common stock issued for
   services rendered......          --          --        --       --        81
  Depreciation and
   amortization...........          73         325       778      500     1,527
  Amortization of deferred
   compensation...........          --          --        18       --       379
  Changes in assets and
   liabilities:
   Accounts receivable....         (35)       (431)     (397)    (330)   (1,216)
   Prepaid expenses and
    other current assets..         (70)        (48)     (293)    (151)     (611)
   Accounts payable.......         122         147       262      683     1,046
   Other accrued
    liabilities...........          19         109       841      497     2,241
   Deferred revenue.......          26         124       (30)     (38)      335
                               -------     -------  --------  -------  --------
Net cash used in operating
 activities...............      (1,008)     (4,112)   (8,906)  (5,413)  (13,981)
Investing activities
Purchases of property and
 equipment................        (556)       (927)   (1,419)    (800)   (4,899)
Purchase of short-term
 investments..............          --          --        --       --   (14,790)
                               -------     -------  --------  -------  --------
Net cash used in investing
 activities...............        (556)       (927)   (1,419)    (800)  (19,689)
Financing activities
Proceeds from issuance of
 convertible note payable
 to an officer and
 stockholder..............          --          --     3,000    3,000        --
Principal payments on
 capital lease
 obligations..............          --         (12)      (67)     (21)     (341)
Financing provided by
 Beyond.com Corporation...       1,564       7,051        --       --        --
Loan to Beyond.com
 Corporation..............          --          --      (400)    (400)       --
Repayment of loan by
 Beyond.com Corporation...          --          --       400      400        --
Proceeds from issuance of
 redeemable convertible
 preferred stock, net.....          --          --    16,496    1,980        --
Proceeds from Initial
 Public Offering..........          --          --        --       --    46,185
Proceeds from exercise of
 stock options............          --          --         7       --       176
                               -------     -------  --------  -------  --------
Net cash provided by
 financing activities.....       1,564       7,039    19,436    4,959    46,020
                               -------     -------  --------  -------  --------
Net increase (decrease) in
 cash and cash
 equivalents..............          --       2,000     9,111   (1,254)   12,350
Cash and cash equivalents
 at beginning of period...          --          --     2,000    2,000    11,111
                               -------     -------  --------  -------  --------
Cash and cash equivalents
 at end of period.........     $    --     $ 2,000  $ 11,111  $   746  $ 23,461
                               =======     =======  ========  =======  ========
Supplemental schedule of
 cash flow information
Interest paid.............     $    --     $    --  $    156  $    61  $    250
Supplemental schedule of
 noncash financing
 activities
Property and equipment
 acquired under capital
 leases...................     $    --     $    66  $    480  $    --  $  1,061
Issuance of warrants to
 Visa and GE Capital......     $    --     $    --  $    318  $    --  $     --
Deferred compensation
 related to stock option
 grants...................     $    --     $    --  $    160  $    --  $  1,036
Conversion of note payable
 to an officer and
 stockholder into
 redeemable convertible
 preferred stock..........     $    --     $    --  $     --  $    --  $  3,000
Conversion of redeemable
 convertible preferred
 stock into common stock..     $    --     $    --  $     --  $    --  $ 21,911
See accompanying notes.

                                      F-6
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

1. Summary of Significant Accounting Policies

The Company

      CyberSource Corporation (the Company) was incorporated in the state of
Delaware on December 30, 1997. Prior to its incorporation, the Company operated
as a division of Beyond.com Corporation (Beyond.com). The Company is a
developer and provider of real time e-commerce transaction services.

Basis of Presentation

      The accompanying consolidated financial statements reflect the financial
position and results of operations of the Company and its wholly owned
subsidiary and the predecessor division of Beyond.com. All intercompany
transactions and balances have been eliminated.

      On December 31, 1997, Beyond.com transferred assets and liabilities to
its wholly owned subsidiary, CyberSource Corporation. Upon this transfer,
Beyond.com distributed capital stock in the form of a dividend to all existing
stockholders of Beyond.com on a pro rata basis such that the stockholders of
the Company were the same as the stockholders of Beyond.com at the time of the
distribution (the Spin-off). The accompanying financial statements for fiscal
1996 and 1997 reflect the operations of the Company as a division of Beyond.com
through December 31, 1997. The balance sheet as of December 31, 1997 has been
prepared using the historical basis of accounting and include all of the assets
and liabilities specifically identifiable to the Company. Beyond.com's
corporate accounting systems were not designed to track cash receipts and
payments and liabilities on a business-specific basis.

      The statements of operations for fiscal 1996 and 1997 include all revenue
and costs directly attributable to the Company, including a corporate
allocation of the costs of facilities, salaries, and employee benefits.
Additionally, incremental corporate administration, finance, and management
costs are allocated to the Company. See Note 6.

      All of the allocations reflected in 1996 and 1997 in the financial
statements are based on assumptions that management believes are reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs that would have resulted if the Company had
been operated on a stand-alone basis in fiscal 1996 and 1997 nor are they
necessarily indicative of future costs to support the operations of the
Company.

Interim Financial Statements

      In the opinion of management, the unaudited interim consolidated
financial statements at September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 include all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the Company's financial
position at September 30, 1999, and results of operations and cash flows for
the nine months ended September 30, 1998 and 1999. Results for the nine months
ended September 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.

Foreign Currency Translation

      The financial statements of the Company's non-U.S. subsidiary are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Assets

                                      F-7
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

and liabilities of this subsidiary are translated at the rates of exchange at
the end of the period. Revenues and expenses are translated using the average
exchange rates in effect during the period. Gains and losses from foreign
currency translation were not material through September 30, 1999.

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 as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

      The Company derives its revenues primarily from e-commerce service
monthly transaction processing fees, and, to a lesser extent, support service
fees and digital product rights management fees. Individual transactions,
monthly transaction revenues, and digital product rights management fees are
recognized in the period in which the transactions occur. Support service fees
are recognized when the services are provided and the related costs are
incurred. For the nine months ended September 30, 1999 and in fiscal 1998,
Beyond.com, a related party, accounted for 15% and 24% of revenues,
respectively. In fiscal 1996, a different customer accounted for 26% of
revenues. There were no customers which accounted for greater than 10% of
revenues in fiscal 1997.

Cash and Cash Equivalents and Short-Term investments

      The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998 and September 30, 1999, cash
equivalents consist primarily of investments in money market funds. To date,
the Company has not experienced losses on any of its investments.

      Short-term investments, which consist of available-for-sale securities,
represent commercial paper with an original maturity greater than three months
and less than one year. Unrealized gains and losses on short-term investments
were immaterial through September 30, 1999.

Accounts Receivable and Concentration of Credit Risk

      At December 31, 1997, 10% of accounts receivable was due from one
customer. At December 31, 1998 and September 30, 1999, 13% and 16%,
respectively, of accounts receivable were due from Beyond.com. The Company
generally does not require collateral. The Company maintains allowances for
potential credit losses.

Property and Equipment

      Property and equipment are stated at cost and are depreciated on a
straight-line basis over estimated useful lives of three years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or the estimated useful lives.

                                      F-8
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

      Property and equipment consist of the following (in thousands):
December 31,
                             ------------- September 30,
                              1997   1998      1999
                             ------ ------ -------------
Computer equipment and
    software...............  $1,230 $2,916    $8,019
   Furniture and fixtures..     169    272       649
   Office equipment........      78    116       403
   Leasehold improvements..      72    144       337
                             ------ ------    ------
                              1,549  3,448     9,408
   Less accumulated
    depreciation and
    amortization...........     398  1,148     2,675
                             ------ ------    ------
                             $1,151 $2,300    $6,733
                             ====== ======    ======
Product Development

      Product development expenditures are charged to operations as incurred.

Advertising Expense

      The cost of advertising is recorded as an expense when incurred.
Advertising costs were not significant during the year ended December 31, 1998
and were approximately $2,767,000 during the nine months ended September 30,
1999.

Accounting Stock-Based Compensation

      The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and
related interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123), requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB Opinion No. 25, when the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

Net Loss Per Share and Pro Forma Net Loss Per Share

      In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period. Potentially dilutive securities have been excluded from the
computation as their effect is antidilutive. Because the Company was a division
of Beyond.com through December 31, 1997 and had no outstanding common or
preferred stock, there is no earnings or loss per share presented for 1997 or
1996.

                                      F-9
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

     Pro forma basic and diluted net loss per share is as follows (in
thousands, except per share amounts):
Nine Months   Nine Months
                                        Year Ended      Ended         Ended
                                       December 31, September 30, September 30,
                                           1998         1998          1999
                                       ------------ ------------- -------------
Net loss.............................    $(10,085)     $(6,574)     $(17,763)
                                         ========      =======      ========
Weighted average shares used in
 computing basic and diluted net loss
 per common share....................       4,918        4,763        11,246
                                         ========      =======      ========
Pro forma:
  Shares used in computing basic and
   diluted net loss per share used
   above.............................       4,918                     11,246
  Adjusted to reflect the effect of
   the assumed conversion of
   redeemable convertible preferred
   stock from the date of issuance...       6,822                      6,878
                                         --------                   --------
Weighted average shares used in
 computing pro forma basic and
 diluted net loss per share..........      11,740                     18,124
                                         ========                   ========
Pro forma basic and diluted net loss
 per share...........................    $  (0.86)                  $  (0.98)
                                         ========                   ========
If the Company had reported net income for the year ended December 31,
1998, diluted earnings per share would have included additional common
equivalent shares related to approximately 1,001,000 outstanding options and
1,527,000 shares issuable on conversion of the convertible note payable and
exercise of the outstanding warrants at December 31, 1998. If the Company had
reported net income for the nine months ended September 30, 1999, diluted
earnings per share would have included the shares used in the computation of
net loss per share as well as additional common equivalent shares related to
outstanding options to purchase approximately 3,137,000 shares of common stock
at September 30, 1999, shares issuable upon exercise of the outstanding
warrants prior to the exercise of these warrants in June 1999 and shares
issuable upon conversion of the outstanding convertible note payable prior to
the conversion of the note in June 1999. The common equivalent shares from
options and warrants would be determined on a weighted average basis using the
treasury stock method. The common equivalent shares related to the convertible
note payable would be determined on a weighted average basis using the "as-if
converted" method.

Income Taxes

     Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under
FAS 109, the liability method is used in accounting for income taxes, which
includes the effects of temporary differences between financial and taxable
amounts of assets and liabilities.

New Accounting Pronouncement

     In January 1999, the Company adopted American Institute of Certified
Public Accountants Statement of Position, "Accounting for Computer Software
Developed For or Obtained For Internal Use" (SOP 98-1). SOP 98-1 applies to all
nongovernmental entities and provides revised guidance for the accounting
treatment for software which is internally developed, acquired, or modified
solely to meet the entity's internal needs.

                                      F-10
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

SOP 98-1 did not have a material effect on the Company's financial statements
or results of operations for the nine months ended September 30, 1999.

2. Segment Information

      The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (FAS
131) in the fiscal year ended December 31, 1998. FAS 131 supersedes Statement
of Financial Accounting Standards No. 14, "Financial Reporting for Segments of
a Business Enterprise" (FAS 14). FAS 131 changes current practice under FAS 14
by establishing a new framework for reporting information regarding operating
segments in annual financial statements and requires selected information for
these segments in interim financial statements. FAS 131 also establishes
standards for related disclosures about products and services and geographic
areas.

      Operating segments are identified as components of an enterprise about
which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision making group to make decisions
about how to allocate resources and assess performance. The Company's chief
operating decision maker is the Chief Executive Officer. Through December 31,
1998, the Company viewed its operations as principally two segments, e-commerce
transaction services (ECTS) and digital product rights management (DPR) for
software and other digital products and manages the business based on the
revenues of these segments. Additionally, in 1996, 1997 and 1998 the Company
derived less than 10% of its revenues from outside the United States. Revenues
from outside the United States were 25% of revenues for the nine months ended
September 30, 1999.

      The following tables presents revenues and operating loss by the
Company's two business units for the period from March 20, 1996 (inception) to
December 31, 1996, for the year ended 1997 and 1998, and for the nine months
ended September 30, 1999. There were no interbusiness unit sales or transfers.
The Company does not report operating expenses, depreciation and amortization,
interest income (expense), income taxes, capital expenditures, or identifiable
assets by its industry segments to the Chief Executive Officer. The Company's
Chief Executive Officer reviews the revenues from each of the Company's
reportable segments, and all of the Company's expenses are managed by and
reported to the Chief Executive Officer on a consolidated basis. Revenues are
as follows (in thousands):
Year ended
                                              December 31,       Nine months
                                            ---------------- ended September 30,
                                            1996 1997  1998         1999
                                            ---- ---- ------ -------------------
ETCS....................................... $131 $770 $2,708       $7,267
DPR........................................   13  198    676          616
                                            ---- ---- ------       ------
Total...................................... $144 $968 $3,384       $7,883
                                            ==== ==== ======       ======
3. Commitments

      The Company leases its primary facility and equipment under noncancelable
operating leases expiring periodically through 2001. Rental expense was
approximately $43,000, $144,000, $459,000, and $706,000 for the period from
March 20, 1996 (inception) to December 31, 1996 and for 1997 and 1998, and for
the nine months ended September 30, 1999, respectively. The Company has the
option to extend the lease term for an additional three years.

                                      F-11
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

      Beginning in 1997, the Company leased equipment under noncancelable lease
agreements that are accounted for as capital leases. Equipment under capital
lease arrangements, which is included in property and equipment, aggregated
approximately $546,000 and $1,607,000 at December 31, 1998 and September 30,
1999, respectively. Related accumulated amortization was approximately $69,000
and $367,000 at December 31, 1998 and September 30, 1999, respectively.
Amortization expense related to assets under capital leases is included with
depreciation expense.

      Future minimum lease payments under noncancelable operating leases and
capital leases at December 31, 1998 are as follows (in thousands):
Operating Capital
                                                                Leases   Leases
                                                               --------- -------
1999.......................................................  $1,048    $227
   2000.......................................................     947     197
   2001.......................................................      73      81
                                                                ------    ----
   Total minimum payments.....................................  $2,068     505
                                                                ======
   Less amount representing interest..........................              38
                                                                          ----
                                                                           467
   Less current portion.......................................             211
                                                                          ----
                                                                          $256
                                                                          ====
4. Redeemable Convertible Preferred Stock

      Redeemable convertible preferred stock at December 31, 1998 is as
follows:
Issued and
                                                          Designated Outstanding
                                                            Shares     Shares
                                                          ---------- -----------
Series A..............................................  1,985,520  1,985,520
   Series B..............................................  2,500,000  2,037,038
   Series C..............................................  3,000,000  3,000,000
   Series D..............................................  1,851,852  1,851,850
   Series E.............................................. 14,700,000  8,082,653
                                                          ---------- ----------
     Total............................................... 24,037,372 16,957,061
                                                          ========== ==========
In June 1999, the Company completed an initial public offering and all
outstanding shares of the Company's preferred stock, including preferred stock
issued in June 1999 upon conversion of the convertible note and exercise of
warrants, were converted into 11,705,793 shares of common stock.

      The holders of Series A, B, C, D, and E redeemable convertible preferred
stock were entitled to receive annual noncumulative dividends at the rate of
$0.0064, $0.0432, $0.03264, $0.108, and $0.181 per share, respectively, plus,
with respect to the Series B, C, D, and E preferred stock, cumulative dividends
at a rate of $0.00252, $0.001904, $0.0063, and $0.0106 per share, per month,
subsequent to the respective original issuance date, respectively, when and if
declared by the Board of Directors, payable in preference to common stock
dividends. There were no dividends declared or payable by the Company at
December 31, 1998.

                                      F-12
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

      Each share of preferred stock was convertible at any time at the option
of the holder into shares of common stock at the then effective conversion
price. Each outstanding share of Series A and B, preferred stock was
convertible into 1.00 share of common stock, and each two shares C, D, and E
preferred stock were convertible into 1 share of common stock subject to
adjustment as specified in the Certificate of Incorporation. Each series of
preferred stock automatically converted into common stock immediately prior to
the consummation of the Company's initial public offering (IPO) in June 1999.

      Each preferred share had voting rights equal to the number of common
shares into which it is convertible. Upon liquidation, the holders of the
Series A preferred stock were entitled to receive $0.064 per share, plus any
declared but unpaid dividends, before any distribution may be made to the
holders of the Series B, C, D, and E preferred or common shares. After the
payment to the holders of the Series A preferred stock, the holders of the
Series B, C, D, and E preferred stock were entitled to receive $0.432, $0.3264,
$1.08, and $1.81 per share, respectively, plus any declared but unpaid
dividends, before any distribution may be made to the holders of common shares.

      Prior to the conversion of the outstanding preferred stock into common
stock, at any time after January 5, 2000, the holders of a majority of the then
outstanding shares of Series A preferred stock could have requested the
redemption of all of the outstanding shares of Series A redeemable convertible
preferred stock. The Company would have redeemed such shares at a price per
share of $0.12, plus accrued dividends, if any, for Series A preferred stock.
At any time after July 12, 2002, the majority of the then outstanding shares of
Series B preferred stock could have requested the redemption of all of the
outstanding shares of Series B preferred stock at the original issuance price
per share of $0.432 plus accrued dividends, if any. At any time after July 12,
2002, the respective holders of at least two-thirds of the then outstanding
shares of Series C, D, and E preferred stock separately could have requested
the redemption of all of the outstanding shares of Series C, D, and E preferred
stock, respectively. The Company would have redeemed such shares at the
original issuance price per share of $0.3264, $1.08, and $1.81, respectively,
plus accrued dividends, if any. All of the outstanding preferred stock is
recorded at its redemption amount.

      During 1998, in connection with the issuance of Series E preferred stock
and certain strategic marketing agreements with Visa and GE Capital, the
Company issued warrants to purchase 552,486, 442,910, and 401,243 shares of the
Company's Series E preferred stock at exercise prices of $1.81, $3.00, and
$4.00 per share, respectively. The warrants were fully exercisable upon the
date of issuance and expired three years from the original date of the
marketing services agreements. Preferred shares issued upon exercise of the
warrants are non-forfeitable.

      The Company determined the fair value of the warrants at the time of
issuance to be $318,000 and recorded this amount as a cost of the strategic
marketing agreements. The determined value of the warrants was credited to
redeemable convertible preferred stock and is being amortized ratably over the
three year term of the strategic marketing agreements. The Company amortized
$28,000 and $79,000 of the value of the warrants to sales and marketing expense
in 1998 and for the nine months ended September 30, 1999, respectively. In June
1999, all warrants were exercised through a cashless net exercise into 774,512
shares of preferred stock.

                                      F-13
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the three months ended
                   September 30, 1998 and 1999 is unaudited)

5. Stockholders' Equity

Common Shares

      The Company is authorized to issue 50,000,000 shares of common stock. The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors.

      On April 30, 1999, the Company's Board of Directors approved a 1 for 2
reverse split of the Company's outstanding common stock, and on June 21, 1999,
the Company's stockholders approved the reverse split. The par value of the
common stock and the authorized shares of common stock were not adjusted as a
result of the reverse split. The conversion ratios of each series of preferred
stock were adjusted accordingly. The stock split is reflected in the
accompanying financial statements and footnotes on a retroactive basis in all
periods presented.

      The Company completed its IPO on June 28, 1999. A total of 4,000,000
shares of common stock was sold by the Company to the public at a price of
$11.00 per share. The net proceeds to the Company were approximately $40.0
million after deducting the underwriters discount and offering expenses.
Subsequent to June 30, 1999, an additional 600,000 shares of common stock were
sold by the Company to the public at a price of $11.00 per share from the
exercise of the underwriter's overallotment option generating additional net
proceeds to the Company of approximately $6.1 million.

      The Company has reserved shares of common stock for future issuance at
December 31, 1998 as follows:
December 31, September 30,
                                                        1998         1999
                                                    ------------ -------------
1998 and 1999 Stock Option Plans:
  Options outstanding..............................   1,000,701    3,137,395
  Options available for future grants..............      27,763      135,941
1999 Employee Stock Purchase Plan--options
 available for future grants.......................          --      500,000
1999 Nonqualified Stock Option Plan--options
 available for future grants.......................          --    1,100,000
Convertible note payable...........................     828,729           --
Redeemable convertible preferred stock.............  10,489,792           --
Outstanding warrants...............................     698,319           --
                                                     ----------    ---------
                                                     13,045,304    4,873,336
                                                     ==========    =========
Stock Options

      In conjunction with the Spin-off of the Company on December 31, 1997,
employees of the Company, immediately following the Spin-off, maintained their
outstanding exercisable stock options in Beyond.com and in March 1998 were
granted additional incentive stock options in the Company. Employees of
Beyond.com were granted additional stock options in the Company in March 1998
based on the extent that the employees' original Beyond.com options were
exercisable on the date of the Spin-off. The exercise prices of the original

                                      F-14
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

Beyond.com option grants and the additional Company stock option grants were
adjusted to reflect the allocation of the fair market value per share price
between the Company's and Beyond.com's common stock at December 31, 1997. The
adjustments to these options resulted in nonstapled options to the employees of
each entity and were accounted for and in compliance with the guidelines in
Emerging Issues Task Force Issue No. 90-9, and therefore, no compensation
expense has been recorded.

      In March 1998, the Company adopted its 1998 Stock Option Plan (the 1998
Option Plan). There are 1,900,000 shares of common stock authorized for
issuance under the 1998 Option Plan. The 1998 Option Plan provides for the
issuance of common stock and the granting of options to employees, officers,
directors, consultants, independent contractors, and advisors of the Company.
The exercise price of a nonqualifying stock option and an incentive stock
option shall not be less than 85% and 100%, respectively, of the fair value of
the underlying shares on the date of grant. Options granted under the 1998
Option Plan generally become exercisable over five years at the rate of 20% per
year from the grant date.

      In January 1999, the Company adopted its 1999 Stock Option Plan (the 1999
Option Plan). The Company has reserved 2,500,000 shares of common stock for
issuance under the 1999 Option Plan. The provisions of the 1999 Plan and
similar to those of the 1998 Option Plan.

      The following table summarizes information about the Company's stock
option activity under the 1998 Option Plan and the 1999 Option Plan. Options
granted prior to December 31, 1997 were originated from options granted by
Beyond.com and were granted by the Company immediately following the adoption
of the 1998 Option Plan.
Options Outstanding
                                                   ---------------------------
                                                    Number        Weighted
                                         Shares       of      Average Adjusted
                                       Available    Shares     Exercise Price
                                       ----------  ---------  ----------------
Shares reserved.......................  1,900,000         --       $   --
Options granted based upon Beyond.com
 option grants prior to Spin-off...... (1,227,183) 1,227,183       $0.160
Options granted.......................   (679,575)   679,575       $0.474
Options exercised.....................         --   (871,536)      $0.008
Options canceled......................     34,521    (34,521)      $0.378
                                       ----------  ---------
Balance at December 31, 1998..........     27,763  1,000,701       $0.310
Additional shares reserved
 (unaudited)..........................  2,500,000         --       $   --
Options granted (unaudited)........... (2,615,400) 2,615,400       $9.049
Options exercised (unaudited).........         --   (255,128)      $0.683
Options canceled (unaudited)..........    223,578   (223,578)      $2.763
                                       ----------  ---------
Balance at September 30, 1999
 (unaudited)..........................    135,941  3,137,395       $7.080
                                       ==========  =========
In connection with certain stock options granted in 1998, and the nine
months ended September 30, 1999, the Company recorded deferred compensation for
the estimated difference between the exercise price of the options and the
deemed fair value of $160,000, and $1,036,000, respectively, which is being
amortized on a graded method over the four-year vesting period of the options.

                                      F-15
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

     The following table summarizes information about options outstanding at
December 31, 1998:
Weighted    Number of  Weighted
                                 Weighted      Average      Options   Average
                   Number of     Average      Remaining   Exercisable Adjusted
                    Options      Adjusted    Contractual     Upon     Exercise
 Exercise Price   Outstanding Exercise Price Life (Years)  Issuance    Price
 ---------------  ----------- -------------- ------------ ----------- --------
$0.006 -- $0.04     312,384      $0.04          7.76       109,510    $0.03
      $0.06           34,417      $0.06          8.84         8,868    $0.06
      $0.20          163,150      $0.20          9.20        21,000    $0.20
      $0.54          490,750      $0.54          9.71            --    $  --
                   ---------                                -------
                   1,000,701      $0.31                     139,378    $0.06
                   =========                                =======
At December 31, 1997, 828,640 options were exercisable at a weighted
average exercise price of $0.004.

Employee Stock Purchase Plan

     In June 1999, the Company's board of directors and stockholders adopted
its 1999 Employee Stock Purchase Plan and reserved 500,000 shares of common
stock for issuance under this plan. No shares have been issued under this plan
as of September 30, 1999.

Stock-Based Compensation

     Pro forma information regarding net loss is required by FAS 123, which
also requires that the information be determined as if the Company has
accounted for its employee stock options granted under the fair value method of
FAS 123. The fair value for these options was estimated at the date of grant
using the minimum value method with the following weighted average assumptions:
a risk-free interest rate of 5.51%, 6.16%, and 5.15% for 1996, 1997, and 1998,
respectively; no dividend yield or volatility factors of the expected market
price of the Company's common stock; and a weighted average expected life of
the option of four years.

     The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

     Had compensation cost been determined using the fair value at the grant
date for options granted calculated using the minimum value method of FAS 123,
the Company's actual net loss would have been increased to the pro forma
amounts indicated below:
1996     1997      1998
                                                   -------  -------  --------
Pro forma net loss (in thousands).............. $(1,143) $(4,339) $(10,088)
   Pro forma basic and diluted net loss per
    share.........................................                   $  (2.05)
F-16
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

      The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.002, $0.02, and $0.08 per share
for options granted during 1996, 1997, and 1998, respectively.

      The pro forma impact of options on the net loss for the period from March
20, 1996 (inception) to December 31, 1996 and for the years ended December 31,
1997 and 1998 is not representative of the effects on net income (loss) for
future years, as future years will include the effects of options vesting as
well as the impact of multiple years of stock option grants.

6. Related Party Transactions

Funding Prior to Spin-off

      Through December 31, 1997, the Company utilized Beyond.com's centralized
cash management services and processes related to receivables, payables,
payroll, and other activities. Through December 31, 1997, the Company's net
cash requirements were funded by Beyond.com. Net financing provided by
Beyond.com to the Company in 1996 and 1997 was approximately $1,564,000 and
$7,051,000, respectively, including funding related to expenditures for
operations and investing activities, corporate services provided, as described
below, and a $2,000,000 cash contribution by Beyond.com upon the Spin-off.
There were no intercompany transfers and no amounts were paid to Beyond.com by
the Company in repayment of the financing during these periods, and through the
date of the Spin-off, these amounts were included in division equity. The
average balances financed by Beyond.com during fiscal 1996 and 1997, which did
not bear interest, were approximately $800,000 and approximately $6,000,000,
respectively.

Corporate Services

      In accordance with Staff Accounting Bulletin No. 55, additional
allocations have been reflected in these financial statements for 1996 and
1997. These expenses have included corporate communications, management,
compensation and benefits administration, payroll, accounts payable, income tax
compliance, and other administration and finance overhead. Allocations and
charges were based on either a direct cost pass-through for incremental
corporate administration, finance and management costs and a percentage
allocation of costs for other services provided based on factors such as net
sales, headcount, and relative expenditure levels. Such allocations and
corporate charges totaled $519,000 and $688,500 for the period from March 20,
1996 (inception) to December 31, 1996 and for the year ended December 31, 1997,
respectively.

      Management believes that the basis used for allocating corporate services
is reasonable. However, the terms of these transactions may differ from those
that would result from transactions among unrelated parties.

      The CEO of the Company is Chairman of the Board of Beyond.com, and the
companies also have one other member of their Board of Directors in common.
Pursuant to the terms of an agreement entered into in connection with the Spin-
off from Beyond.com, the Company provides services to Beyond.com on a
nonexclusive basis. During 1998 and the nine months ended September 30, 1999,
the Company recorded approximately $801,000 and $1,205,000, respectively, of
revenues related to these services. As of December 31, 1998 and September 30,
1999, amounts receivable from Beyond.com were approximately $147,000 and
$342,000, respectively.

                                      F-17
CYBERSOURCE CORPORATION
            and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

     In July 1999, the Company purchased a software license from Beyond.com
for $600,000 which is being amortized over two years.

Note Receivable Issued to Beyond.com

     On March 18, 1998, the Company loaned $400,000 to Beyond.com. The note
was repaid as of June 1998.

Convertible Note Payable to Officer and Stockholder

     In August 1998, the Company issued an unsecured convertible one-year
promissory note to an officer and stockholder from whom it had borrowed an
aggregate of $3,000,000 in July 1998. The note, which was amended in October
1998, was payable in full on October 21, 1999 and bore interest at a rate of
10% per annum. The note converted into 1,657,458 shares of Series E redeemable
convertible preferred stock in June 1999, prior to the completion of the
Company's initial public offering.

7. Litigation and Contingencies

     A former Vice President of Product Management filed a lawsuit against the
Company in the Superior Court of California in Santa Clara County on April 8,
1999 seeking monetary and equitable relief. The plaintiff alleges several
causes of action, including wrongful termination, defamation, fraud, and
unfair business practices arising out of her three month employment with the
Company. While there can be no assurances as to the outcome of this
litigation, the Company believes the lawsuit is without merit, and intends to
vigorously defend against the claims asserted.

     From time to time, the Company may be involved in other litigation
relating to claims arising out of its ordinary course of business. The Company
believes that there are no claims or actions pending or threatened against the
Company, the ultimate disposition of which would have a material impact on the
Company's financial position or results of operations.

8. Income Taxes

     As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $8,600,000. As of December 31, 1998, the
Company also had federal and state research credit carryforwards of
approximately $130,000 and $70,000, respectively. The net operating loss and
credit carryforwards will expire at various dates beginning in 2006 through
2018, if not utilized.

     The utilization of the net operating losses and credits may be subject to
a substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

                                     F-18
CYBERSOURCE CORPORATION
             and its predecessor division of Beyond.com Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      (Information as of September 30, 1999 and for the nine months ended
                   September 30, 1998 and 1999 is unaudited)

      Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes at December 31, 1998 are as
follows (in thousands):
Deferred tax assets:
     Net operating loss carryforwards.................................. $ 3,400
     Research credit carryforwards.....................................     200
     Other, net........................................................     300
                                                                        -------
   Net deferred tax assets.............................................   3,900
   Valuation allowance.................................................  (3,900)
                                                                        -------
   Net deferred tax assets............................................. $    --
                                                                        =======
9. Subsequent Event

Stock Option Plan

      In October 1999, the Company adopted the 1999 Nonqualified Stock Option
Plan (the 1999 Nonqualified Plan). The Company has reserved 1,100,000 shares of
common stock for issuance under the 1999 Nonqualified Plan. The 1999
Nonqualified Plan provides for the granting of non-qualified stock options to
employees, consultants and directors. The other provisions of the 1999
Nonqualified Plan are similar to those of the 1999 and 1998 Stock Option Plans.

                                      F-19
Inside Back Cover

     The graphic depicts the words CyberSource with "the power behind the buy
button" underneath it.
---------------------------------------------------------------------------
 ---------------------------------------------------------------------------

                                3,000,000 Shares

                                  Common Stock

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

                              P R O S P E C T U S

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

                              Merrill Lynch & Co.

                               J.P. Morgan & Co.

                            PaineWebber Incorporated

                          Adams, Harkness & Hill, Inc.

                             C.E. Unterberg, Towbin

                                            , 1999

 ---------------------------------------------------------------------------
 ---------------------------------------------------------------------------
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

      The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
Amount
                                                                       --------
Securities and Exchange Commission Filing Fee.................... $ 48,375
     NASD Filing Fee..................................................   17,405
     Nasdaq National Market Listing Fee...............................   17,500
     Accounting Fees and Expenses.....................................  100,000
     Blue Sky Fees and Expenses.......................................   10,000
     Legal Fees and Expenses..........................................  100,000
     Transfer Agent and Registrar Fees and Expenses...................    5,000
     Printing Expenses................................................  150,000
     Miscellaneous Expenses...........................................   51,720
                                                                       --------
       Total.......................................................... $500,000
                                                                       ========
--------
*  All amounts are estimates except the SEC filing fee, the NASD filing fee and
   the NASD filing fee and Nasdaq National Market listing fee.

Item 14. Indemnification of Directors and Officers

      Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.

      The Registrant's Amended and Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides that the liability of its directors for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. Pursuant to Delaware law, this includes elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws.

      The Registrant has entered into agreements with each of its directors and
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good

                                      II-1
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Registrant and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
indemnification agreements also set forth procedures that will apply in the
event of a claim for indemnification thereunder.

      The Registrant has obtained a policy of directors' and officers'
liability insurance that insures our directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.

      The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.

Item 15. Recent Sales of Unregistered Securities

      For the period from December 31, 1997 to September 30, 1999, the
Registrant has issued and sold the following unregistered securities:

      1. During the period, the Registrant granted stock options to employees,
directors and consultants under its 1998 Stock Option Plan and its 1999 Stock
Option Plan (collectively, the "Stock Plans") covering an aggregate of
4,474,150 shares of the Registrant's common stock, at exercise prices ranging
from $0.016 to $36.4370 with an average exercise price of $4.5545 per share.

      2. During the period, the Registrant issued and sold an aggregate of
1,125,676 shares of its common stock to 63 employees, directors and consultants
for cash and promissory notes in the aggregate amount of $180,990.32 upon
exercise of stock options granted pursuant to the Registrant's Stock Plans.

      3. During the period, the Registrant issued an aggregate of 4,535,000
shares of its common stock in connection with the spin off from Beyond.com in
December 1997, and 20,000 shares of its common stock for an aggregate
consideration of $72,400.

      4. During the period, the Registrant issued an aggregate of 1,985,520
shares of its Series A Preferred Stock, which have been converted into
1,985,520 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      5. During the period, the Registrant issued an aggregate of 2,037,038
shares of its Series B Preferred Stock, which have been converted into
2,037,038 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      6. During the period, the Registrant issued an aggregate of 3,000,000
shares of its Series C Preferred Stock, which have been converted into
1,500,000 shares of its common stock, in connection with its spin off from
Beyond.com in December 1997.

      7. During the period, the Registrant issued and sold an aggregate of
1,851,850 shares of its Series D Preferred Stock, which have been converted
into 925,925 shares of its common stock, for an aggregate purchase price of
$1,999,998.

      8. During the period, the Registrant issued and sold an aggregate of
8,082,653 shares of its Series E Preferred Stock, which have been converted
into 4,041,327 shares of its common stock, for an aggregate purchase price of
$14,629,602.

                                      II-2
9. During the period, the Registrant issued and sold warrants for a total
of 1,396,639 shares of its Series E Preferred Stock, which have been converted
into 698,320 shares of its common stock, for an aggregate consideration of
$3,933,698.

      10. During the period, the Registrant issued a convertible note
convertible into a total of 1,657,458 shares of its Series E Preferred Stock,
which have been converted into 828,729 shares of its common stock, for an
aggregate consideration of $3,000,000.

      The sale and issuance of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act by virtue
of Rule 701 promulgated thereunder in that they were offered and sold either
pursuant to written compensatory benefit plans or pursuant to a written
contract relating to compensation, as provided by Rule 701 or were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof.

      Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any
of the above transactions.

Item 16. Exhibits and Consolidated Financial Statement Schedules

      (a) Exhibits

      The exhibits are as set forth in the Exhibit Index.

      (b) Consolidated Financial Statement Schedules

      Schedule II--Valuation and Qualifying Accounts

      All other schedules have been omitted since they are not required or are
not applicable or the required information is shown in the consolidated
financial statements or related notes.

Item 17. Undertakings

      The Registrant hereby undertakes to provide the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.

      In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

                                      II-3
The Registrant hereby undertakes that:

           (1) For purposes of determining any liability under the Act,
     the information omitted from the form of prospectus filed as part of
     this Registration Statement in reliance upon Rule 430A and contained
     in a form of prospectus filed by the Registrant pursuant to Rule
     424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part
     of this Registration Statement as of the time the Commission declared
     it effective.

           (2) For purposes of determining any liability under the Act,
     each post-effective amendment that contains a form of prospectus
     shall be deemed to be a new registration statement relating to the
     securities therein, and this offering of such securities at that time
     shall be deemed to be the initial bona fide offering thereof.

                                      II-4
SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California on October 19, 1999.

                                          Cybersource Corporation

                                                /s/ William S. McKiernan
                                          By: _________________________________
                                                   William S. McKiernan
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Bill McKiernan, L. Evan Ellis,
Charles E. Noreen and Richard Scudellari as his true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and sign any registration statement for the same offering covered by
the Registration Statement that is to be effective upon filing pursuant to Rule
462 promulgated under the Securities Act of 1993, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature                          Title                   Date
              ---------                          -----                   ----
/s/ William S. McKiernan         Chairman of the Board of    October 19, 1999
______________________________________ Directors and Chief
         William S. McKiernan          Executive Officer
                                       (Principal Executive
                                       Officer)

       /s/ Charles E. Noreen           Vice President of Finance   October 19, 1999
______________________________________ and Administration and
          Charles E. Noreen            Chief Financial Officer
                                       (Principal Financial and
                                       Accounting Officer)

                                       Director                    October    , 1999
______________________________________
              Bert Kolde

     /s/ Linda Fayne Levinson          Director                    October 19, 1999
______________________________________
         Linda Fayne Levinson

        /s/ Steven P. Novak            Director                    October 19, 1999
______________________________________
           Steven P. Novak

        /s/ Richard Scudellari         Director                    October 19, 1999
______________________________________
          Richard Scudellari
II-5
CYBERSOURCE CORPORATION

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                    December 31, 1997 and December 31, 1998
                                 (In thousands)
Amounts
                                                 Charged to
                                     Balance at  Revenue,   Write-offs  Balance
                                     beginning   Costs, or      and    at End of
                                      of year    Expenses   Recoveries   Year
                                     ---------- ----------- ---------- ---------
1997
  Allowance for Doubtful Accounts...    $ --       $332        $ --      $332
1998
  Allowance for Doubtful Accounts...    $332       $193        $296      $229
EXHIBIT INDEX
Exhibit
 Number                                 Document
 -------                                --------
1.1**  Form of Underwriting Agreement.
  3.1*   Certificate of Incorporation of the Registrant, as amended.
  3.2*   Bylaws of the Registrant, as amended.
  4.1    Reference is made to Exhibits 3.1 and 3.2.
  5.1    Opinion of Morrison & Foerster LLP.
 10.1*   Form of Indemnification Agreement between the Registrant and each of
         its directors and officers.
 10.2*   1998 Stock Option Plan.
 10.3*   1999 Stock Option Plan.
 10.4*   Standard Office Lease dated August 20, 1996 by and between California
         State Automobile Association Inter-Insurance Bureau as Landlord and
         CyberSource Corporation as Tenant.
 10.5*   First Amendment to Lease dated October 20, 1997 by and between
         California State Association Inter-Insurance Bureau as Landlord and
         CyberSource Corporation as Tenant.
 10.6*   Assignment of Standard Office Lease dated December 31, 1997 by and
         between CyberSource Corporation as Assignor and Internet Commerce
         Services Corporation as Assignee.
 10.7*   Sublease dated July 1, 1998 by and between MultiGen Inc. of California
         as Sublessor and CyberSource of California as Sublessee.
 10.8*   Second Amendment to Lease dated October 30, 1998 by and between
         California State Automobile Association Inter-Insurance Bureau as
         Landlord and CyberSource Corporation as Tenant.
 10.9+*  Conveyance Agreement dated December 31, 1997 by and between
         CyberSource Corporation and Internet Commerce Service Corporation.
 10.10+* Amended and Restated Inter-Company Cross License Agreement dated May
         19, 1998 by and between Internet Commerce Services Corporation and
         software.net Corporation.
 10.11+* Internet Commerce Services Agreement dated April 23, 1998 by and
         between Internet Commerce Services Corporation and software.net
         Corporation.
 10.12*  Amended and Restated Investors' Rights Agreement dated October 21,
         1998.
 10.13*  Amended and Restated Convertible Promissory Note, dated October 21,
         1998.
 10.14*  1999 Employee Stock Purchase Plan.
 10.15+  Development and Marketing Agreement dated July 26, 1999 by and between
         CyberSource Corporation and VISA U.S.A., Inc.
 10.16+  CyberSource Internet Commerce Services Agreement dated May 1, 1999 by
         and between CyberSource Corporation and Beyond.com.
 10.17   1999 Nonqualified Stock Option Plan.
 23.1    Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1.
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
 24.1    Powers of Attorney. Reference is made to Page II-5.
Exhibit
 Number          Document
 -------         --------
27.1*   Financial Data Schedule
--------
+  Confidential treatment granted or requested as to portions of this exhibit.
*  Previously filed as an exhibit, bearing the same number, to the Registrant's
   registration statement on Form S-1 (No. 333-77565).
** To be filed by amendment.