ESOFT INC, 424B3, 1998-04-29

ESOFT INC
424B3, 1998-04-29
PREPACKAGED SOFTWARE

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PROSPECTUS

2,383,161 Shares

ESOFT, INC.

Common Stock

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

The 2,383,161 shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby (the "Shares") are being offered by stockholders (the "Selling
Stockholders"). See "Selling Stockholders."

Prior to this Offering (the "Offering"), there has been no public market
for the Common Stock in the United States and there can be no assurance that
such a market will develop after the completion of this Offering, or that if
developed, it will be sustained. The Common Stock is presently traded only on
the Vancouver Stock Exchange which is expected to continue to be the primary
market for these stocks. The offering price of the Common Stock to be offered by
this Prospectus will be determined by the market price in effect from time to
time. See "Summary - Initial Public Offering in Canada" and "Market for Common
Equity and Related Stockholder Matters."

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

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," LOCATED AT PAGES 4 THROUGH 8.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

The date of this Prospectus is April 23, 1998.

As supplemented April 28, 1998 (see page 31).

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SUMMARY

The following summary is qualified in its entirety by and should be read
in conjunction with the more detailed information appearing elsewhere in this
Prospectus, including the information set forth under "Risk Factors,"
"Management's Discussion and Analysis of Results and Operations" and the
financial statements (including the notes thereto).

THE COMPANY

eSoft, Inc. was incorporated under the laws of the State of Colorado on
March 3, 1984. On February 17, 1998, pursuant to approval by the Board of
Directors and shareholders of the Company, the Company merged into a newly
incorporated Delaware corporation, and has thus become reincorporated in the
State of Delaware.

In its early years, the focus of the Company was oriented towards the
development and sale of a computer bulletin board software product known as
TBBS. TBBS Software creates a multi-user host for direct dial-in access for
multiple users for on-going messaging, file transfer and data access. Concurrent
with the rapid rise of Internet related communications media, the demand for
TBBS software declined. In response, the Company designed a new product line of
Internet protocol adapters which are now being marketed under the acronym IPAD
(Internet Protocol Adapter Device). The Company launched its first IPAD product
in 1996.

THE INTERNET PROTOCOL ADAPTOR DEVICE

The IPAD is designed to be a total Internet/Intranet connectivity solution
without the complexity and high cost of traditional solutions. It affords to
small businesses, institutions, and educational sites a full connectivity
solution that is economical, easily installed and managed by existing
information systems personnel. To complete the package for the customer, the
Company can provide leased line connectivity options through major national
access providers. The IPAD product line includes all other accessories needed to
complete the connection, such as turnkey web servers, line interface devices,
modems and rack equipment.

There are currently three IPAD models offered by the Company. The IPAD
5000, the most sophisticated of the three models, integrates Internet hardware
and communications software into a user friendly turnkey system, which does not
require extensive technical knowledge to support. Utilizing an Intel Pentium
CPU, the IPAD 5000 is typically configured with 8MB of RAM, a 1.2GB hard drive
and 1.44 MB floppy drive. The hardware also includes five open slots to allow
for greater customized interface configuration. The IPAD 2500, the mid-range
model, is a desktop unit that contains a router with firewall capabilities, a
terminal server offering up to eight serial ports and the same basic Internet
connectivity provided by all of the Company's IPAD units. The IPAD 1200 is also
a desktop unit primarily designed for mass production without significant
customization for specific client needs. The IPAD 1200 utilizes the same
hardware configuration as the IPAD 5000, has two serial ports and a 10 MB
Ethernet card and can connect a business LAN of up to 150 users to the Internet
using a single address.

SEMINARS AND OTHER SERVICES

The Company also offers comprehensive, two day Internet training seminars.
Attendance fees from these seminars supplement revenues from IPAD product sales.

Customers also can purchase a contract through which the Company offers
technical support services to address customers' specific application needs.
More focused than the general seminars, such technical support services are
designed to address concerns of individual clients for applications ranging from
the launching of their web presence, to the reconfiguration of their LAN to
optimize both efficiency and connectivity.

INITIAL PUBLIC OFFERING IN CANADA

On March 16, 1998, the Company completed an initial public offering of
1,550,000 shares of its Common Stock at a price of $1.00 per share in British
Columbia, Canada (the "Canadian Offering"). The offering was made by C.M.

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Oliver & Company Limited (the "Agent") pursuant to an Agency Agreement under
which the Agent guaranteed the sale of all of the shares. The shares sold in
such offering will not be registered under the Securities Act of 1933 (the "1933
Act") and will be offered pursuant to an exemption from the registration
requirements of the 1933 Act provided by Regulation S under the 1993 Act. The
Shares in the Canadian Offering will not be offered or sold to U.S. persons. The
Agent received a commission of $.075 per share sold in the Canadian Offering and
also received 110,000 shares of Common Stock as a corporate finance fee and a
warrant to purchase up to 250,000 shares of Common Stock for up to two years at
a price of $1.00 per share for the first year after the offering and for $1.15
per share during the second year after the offering. Pursuant to a Sponsorship
Agreement between the Company and the Agent, dated November 26, 1997, the
Company also paid to the Agent a sponsorship fee of $15,000.

The net proceeds to the Company from the Canadian Offering were
approximately $1,158,250 after payment of $116,750 commissions to the Agent
(7.5% of the offering price) and the payment of other expenses of the offering,
estimated at $350,000, of which $75,000 was evidenced by a promissory note that
was paid, pursuant to the Company's option, by the issuance of shares of common
stock valued at $1.00 per share. The net cash proceeds of the Canadian Offering
are proposed to be used as follows:

Capital Equipment Purchases $ 196,000
Research and Development 214,000
Sales and Distribution Channel Development 340,000
Working Capital (1) $ 408,250
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Total $1,158,250
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(1) Salaries for planned additional sales and marketing and administrative
personnel, planned at approximately $412,000 over the next 12 months, will
be paid from working capital, partially contributed by proceeds of the
offering.

In the event that the proceeds of the offering, together with cash flow from
operations, if any, is insufficient to meet all of the expenses to which the
proceeds have been allocated, the Company will be required to re-evaluate its
planned expenditures and allocate its total resources in such manner as the
Board of Directors and management deems to be in the best interest of the
Company. Moreover, the Board of Directors and Management may, for business
reasons, reallocate funds among these or other uses in order to achieve the
Company's operating objectives.

THIS OFFERING

The Company is registering an aggregate of 2,383,161 shares of its Common
Stock to be offered for sale by stockholders of the Company. Of these shares,
1,881,061 shares are presently owned by the Selling Stockholders. An additional
414,600 shares may be offered by three of the Selling Stockholders which are
consultants to the Company ("Consultants") if they acquire the shares upon
exercise of warrants to purchase shares of Common Stock of the Company at an
exercise price of $1.00 per share, and 87,500 shares being registered may be
offered by a Selling Stockholder if acquired from the Company upon exercise of
warrants issued to the Selling Stockholder in connection with its purchase of
350,000 shares in a private transaction. The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Stockholders.

Common Stock Outstanding Prior
To This Offering.................. 5,081,061 shares

Common Stock Offered:
By the Selling Stockholders........ 2,383,161 shares

Common Stock To Be Outstanding
After This Offering............... 5,583,161 shares*

Use of Proceeds........................ The Company will receive no proceeds
from the sale of shares by the Selling
Stockholders.

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*Assumes the exercise of warrants to purchase 502,100 shares.

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk relating to the Company, the industries in which the Company
operates and the securities markets, particularly the markets for securities of
small issuers. Prospective purchasers of Common Stock should consider carefully
the information set forth below, as well as the other information in this
Prospectus, in determining whether to purchase the shares of Common Stock
offered hereby. In addition, certain information included in this Prospectus is
forward-looking. Such forward looking information involves significant risks and
uncertainties that could cause actual future results to differ significantly
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. See also "Management's Discussion and Analysis of Financial
Condition" and "Results of Operation - Forward Looking Statements."

The Company operates a growing business in a competitive market. There are
a number of risks inherent to the Company's business. These business risks
should be considered in the context of the Company's business, which is
described under "Business." These business risks include the following:

LIMITED OPERATING AND SALES HISTORY

While the Company's IPAD 5000 first entered the market in 1996, neither
Models 2500 nor 1200 have gained significant market exposure or demonstrable
market acceptance as yet. Given the absence of clear market acceptance with
respect to these two newly introduced products, which in turn are projected to
be responsible for approximately half of the Company's system sales in the next
year, there can be no assurances as to the achievability of expected market
penetration rates, and associated sales revenues.

SUFFICIENCY OF WORKING CAPITAL

The Company intends during the next year to expand its sales and marketing
expenditures, including developing a wholesale distribution network and to
increase selling, general and administrative expenses which expenditures,
together with capital purchases in the year subsequent to the date of this
Prospectus, will substantially exceed the net proceeds of the Canadian Offering.
There can be no assurances that cash flow contributions from operations, coupled
with proceeds of the Canadian Offering and available working capital will be
sufficient to fully fund the planned expansion of sales and marketing activities
and other increased expenditures.

CONTINGENCIES

Although the proceeds of the Canadian Offering, together with anticipated
operating revenues, are expected to be sufficient to meet the Company's needs
for the next year, the Company's budgets make little provision for unexpected
contingencies. In the event that unforeseen costs or delays are incurred, the
ability of the Company to allocate sufficient resources to overcome such events
cannot be assured.

ANTICIPATED MARKET GROWTH

The Company's anticipated growth in sales revenue is predicated upon
assumptions with respect to the rate of growth of the market for its IPAD
systems. Should these assumptions fail to be realized, the Company may be unable
to attain its expected revenue and income.

RELIANCE UPON THE INTERNET

The Company's future sales, will be dependent, in part, upon both the rate
of growth of the Internet, and its reputation as a secure, architecturally
stable, and reliable communications medium. Should these conditions erode, the
Company's sales prospects may be adversely affected.

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TECHNOLOGICAL OBSOLESCENCE

The Company operates within an industry subject to a rapid pace of
technological obsolescence. There can be no assurance as to the ability of the
Company to establish and maintain a position at the leading edge of
technological trends within its industry, and thereby maintain or improve its
competitive position in relation to other market participants.

NEW SOFTWARE DEVELOPMENTS

In future reporting periods, the Company expects to enhance its sales
prospects following the completion of encryption software to facilitate IPAD
supported virtual private networks. See "Business - Planned New Software
Product." There can be no assurances as to the ability of the Company to
successfully complete this development program in the next year as currently
planned or to successfully complete other product development programs it may
undertake.

COMPETITION

A number of the Company's competitors are very well established in the
marketplace, with larger sales volumes, broader brand name recognition, a wider
base of technical resources and greater financial resources than the Company.
There can be no assurance that the Company will be able to effectively compete
against such competitors given their entrenched market presence.

FEW BARRIERS TO ENTRY

As the market expands for products which perform in a manner similar to
that of the IPAD product line, it is expected that a broader range of both small
and large industry participants will enter the marketplace with competing
products. Additionally, there are comparatively few barriers to entry. As such
competition increases, industry margins on system sales may diminish.
Consequently, the ability of the Company to attain and maintain anticipated
gross margins over time, cannot be assured.

PROPRIETARY PROTECTION

The Company has no registered trademarks nor has it filed any patent or
design utility applications in any jurisdiction. The absence of such proprietary
protection may diminish the ability of the Company to distinguish itself from
other industry competitors. In addition, while the Company licenses its software
to purchasers and restricts unauthorized use under its licensing provisions,
this does not protect the Company from an erosion of potential revenue as a
consequence of illicit software use and piracy.

RELIANCE UPON THIRD PARTIES

The Company is reliant upon third parties for the supply of computers,
computer sub-assemblies, and certain software elements. The Company is also
reliant upon third parties to assist it in its marketing and sales activities.
Accordingly, the Company will be subject to risks associated with third party
quality assurance standards, timeliness, reputation, financial stability, labor
relations, regulatory compliance and warranty provisions over which the Company
has little if any control.

NO PRODUCT LIABILITY INSURANCE

The Company does not carry product liability insurance. To the extent that
the Company becomes subject to third party liability claims, its ability to
adequately protect its assets and operations against potential liability
exposure is uncertain.

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RELIANCE ON KEY PERSONNEL; NO KEY MAN INSURANCE

The Company's founder, Chairman, Chief Technology Officer and Chief
Executive Officer, Philip Becker is a key individual upon whom the Company is
likely to be reliant to attain its commercial objectives. The loss of his
services may impair the ability of the Company to attain its corporate
objectives; however, the Company has taken steps to ensure that information
which was previously known only to Mr. Becker now also is known by other members
of the senior management. An employment agreement has been entered into between
the Company and Mr. Becker, but the Company does not presently carry key man
insurance on Mr. Becker's life.

ACQUISITIONS OF NEW PERSONNEL

The Company has hired and expects to hire approximately twenty new
personnel in about one year to facilitate the achievement of its corporate
objectives. As most of these proposed new employees have not yet been
identified, their skills, experience, and their ability to work together as an
integrated team is untested. Should the Company be unable to hire the persons
with the desired skills, or if certain of the new employees fail to perform as
anticipated, the ability of the Company to fully implement its business plan may
be adversely affected.

REGULATORY APPROVALS

The Company has not acquired requisite product approvals and certification
from appropriate agencies which would permit the marketing of IPAD products in
the European Union. Its ability to secure such approvals in a timely period or
at all cannot be assured. See "Business - Government Regulations."

POSSIBLE REGULATORY REQUIREMENTS

While the Internet is largely unregulated, there is a substantial body of
regulation governing the telecommunication market and its industry players.
Changes in the regulatory regime may impact the commercial prospects of Internet
related vendors such as the Company.

RECENT OPERATING LOSSES

In the fiscal year ended December 31, 1997, the Company recorded an
operating loss of $193,252. The net loss was $355,252, due in part to a one-time
charge of $241,042 for deferred taxes resulting from the change in the Company's
tax status from an S-corporation to a C-corporation. However, the Company's
ability to restore profitability in future reporting periods is uncertain.

NO PUBLIC MARKET

There has, to date, been no public market for the Company's Common Stock
in the United States. The shares became listed on the Vancouver Stock Exchange
on March 17, 1998, which is expected to be the primary market for the shares,
but there can be no assurance that an active public market on the Vancouver
Stock Exchange will be sustained.
See "Market for Common Equity and Related Stockholder Matters-Common Stock."

NO DIVIDENDS

The Company has not paid dividends in the past and does not anticipate
paying dividends in the near future. The Company expects to retain its earnings
to finance further growth and, when appropriate, retire existing debt.

USE OF PROCEEDS

The Company will receive no proceeds from the sale of Common Stock by the
Selling Stockholders pursuant to this Prospectus. For a discussion of the
intended use of the proceeds of the Canadian Offering see the "Summary Initial
Public Offering in Canada."

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

The following discussion should be read in conjunction with the financial
statements and accompanying notes included elsewhere in the Registration
Statement.

INTRODUCTION

The Company is a technology firm which develops and markets communication
products which integrate and simplify PC server connectivity to the Internet
market. In recent years, the Company has developed and brought to production the
IPAD.

The Company was incorporated in 1984 to develop and market its original
product, a computer bulletin board product, TBBS. TBBS integrated formerly
complex technology into products which were relatively simple for the consumer
to use. Through 1995, the Company generated substantially all of its revenues
through sales of TBBS.

In 1995, the Company foresaw the Internet becoming the technology of
choice for the next level of network access connectivity. The Company began
refocusing its efforts on making communications technology simple to use and
began its design of IPAD. The IPAD product line was test marketed in 1995 as a
response to the anticipated demand of the Internet market. The Company's
dependence upon the TBBS product line decreased during and after 1995 as the
Company increased its dependency upon sales of IPAD.

RESULTS OF OPERATIONS

REVENUES

The Company's revenues in the fiscal year ended December 31, 1997 declined
from the fiscal year ended December 31, 1996 primarily as a result of the
decline in revenue from sales of the Company's TBBS product. TBBS product sales
accounted for $239,000 in revenue in 1996 (17% of total revenues), but only
approximately $62,000 (5% of revenue) in 1997. IPAD related product sales in
1997 were $1,171,000, substantially unchanged from $1,167,000 in 1996, but IPAD
sales had declined 33% in the first nine months of 1997 from the comparable 1996
period as marketing and sales activity were curtailed until the fourth quarter
of 1997 as a result of the Company's shortage of working capital. Approximately
44% of the 1997 IPAD sales were recorded in the fourth quarter when sales and
marketing efforts were revived after the infusion of approximately $347,000 in a
private placement in September 1997.

The Company's gross profit margins were approximately 66%, an improvement
over the 57% margins realized in 1996. The 1997 margins improved as a result of
the IPAD product being produced internally instead of being outsourced to
contract manufacturers. The improvement in gross margins was also attributed to
reduced costs of raw material created by quantity purchases and multiple vendor
sourcing.

Research and Development Expenditures

The Company conducts research and development through internal research
projects. Costs are incurred from time to time, in specific projects that employ
existing technologies for which feasibility previously has been established to
develop applications. Production costs for the development of the software used
for which technological feasibility has been established but before the product
is ready for sale, are capitalized when broad applications are identified within
its existing product lines. Costs for which technological feasibility had been
established, which were capitalized in 1997 totaled $233,000. The Company
capitalized $440,000 for such expenditures in 1996. The Company incurred $57,000
of expenses relating to research and development costs in 1997, compared to no
such expenses in 1996.

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Other Expenses

Selling, general and administrative costs ("SG&A") increased from $631,000
(45% of sales) in fiscal 1996, to $922,000 (75% of sales) in 1997, primarily
because of the overt fourth quarter activities including expenditures to build
the organization by hiring professional management and personnel, increases in
new employee hiring, the relocation of the Company from Aurora, Colorado to
Boulder, Colorado, the introduction of the Model 1200 IPAD, the production of
support and sales collateral material, the recruitment of international sales
representatives, and the increase in inventories necessary to support the
increased revenue levels of fiscal year 1998. Sales and marketing expenses for
1997 were reported as $77,544, a decrease of 35% below the $120,259 spent in
1996, as a result of significant decreases in advertising and trade show
expenses, but general and administrative expenses were up 65% in 1997 to
$844,800 from the 1996 level of $510,865. Consultant expense was also higher as
consultants were retained on an interim basis to develop the sales support
literature and brochures to direct the recruitment and hiring of sales personnel
and international representatives.

Net Income (Loss)

The Company realized net income in the fiscal year ended December 31,
1996, but in 1997 the Company recorded a loss of $355,000, of which $193,000 was
attributable to operations. The balance of the loss, $162,000, was substantially
a result of recording deferred taxes because the Company changed its federal
income tax status from an S Corporation to a C Corporation during that period.

Income Taxes and Net Operating Losses

As discussed in Note 4 to the accompanying financial statements, the
Company has recorded an expense to recognize deferred tax liability due to the
change in tax status from an S corporation to a C corporation in September 1997.
The deferred tax liability primarily results from capitalized software
development costs being expensed for income tax purposes in the period such
costs are incurred.

The Company has $155,000 in net operating loss carryforwards with
expirations through 2013. The net operating losses are limited due to issuances
of common stock.

CAPITAL RESOURCES AND LIQUIDITY

Historically, the Company had funded its working capital requirements from
internal operations. During 1996, the Company continued to fund a majority of
its internal working capital needs from $260,000 of cash flow from operating
activities, but it also received advances from Philip Becker, in addition to
approximately $112,000 that he had loaned in 1995 to assist the Company in
funding the IPAD product development, thus increasing the Company's indebtedness
to Mr. Becker to $239,903 at December 31, 1996. This indebtedness was payable by
the Company, at its option, in shares of Common Stock of the Company valued at
the public offering price per share of the Canadian Offering. In February and
March, 1998, the Company elected to pay that obligation, as well as $116,000 of
notes payable to consultants by the issuance of shares.

As of December 31, 1996, the Company received a binding commitment ,for a
$100,000 loan facility from the First National Bank of Arvada, Colorado to
support IPAD sales growth and the increase in capitalized software until longer
term financing could be arranged. During the first quarter of 1997, the Company
borrowed $100,000 under the interim loan facility from the First National Bank
of Arvada, Colorado, the proceeds of which were used to expand to a limited
degree, the Company's marketing activities and sales programs.

The completion in September of 1997 of the placement of $410,000 of
outside equity permitted the Company to significantly advance its marketing
efforts and to attract additional management personnel. On December 22, 1997,
the Company sold 350,000 shares of Common Stock and warrants to purchase an
additional 87,500 shares to Opus Capital Fund, LLC, for a total purchase price
of $350,438. Net proceeds from these offerings was $679,159. Working capital at
December 31, 1997, had increased to approximately $251,000 from less than
$23,000 at December 31, 1996.

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Operating activities resulted in a $44,000 cash reduction in 1997, since the
loss recorded for this period was substantially a result of increased
depreciation and amortization and the recording of deferred taxes, which did not
affect current cash flow.

In February and March 1998, the Company sold and issued an additional
440,000 shares, all at a price of $1.00 per share in private transactions to
officers, directors, key employees and consultants of the Company, and sold
60,000 shares to Wayne Farlow, former president of the Company in accordance
with his agreement upon termination of his employment.

On January 3, 1998, the loan from First National Bank of Arvada, Colorado,
described above, was extended to April 3, 1998 for the payment of the
outstanding balance of $73,363, with monthly installment payments of $3,325 in
February and March 1998, and on April 5, 1998 it was further extended until
October 5, 1998, with monthly payments of $3,325 continuing. The Company has
received from two banks preliminary loan proposals. A portion of such a loan, if
obtained, would be used to pay the indebtedness to First National Bank of
Arvada, with the balance of the commitment to be for a working capital line of
credit that would finance eligible accounts receivable and inventory. The
borrowings would be secured by a lien on all of the Company's assets. Neither
bank has approved a proposed loan or made a commitment for a loan to the Company
and there is no assurance that a loan will be obtained. The Company believes
that such a line of credit, if obtained, will assist the Company in financing
its anticipated growth of sales if the growth is achieved.

In the fourth quarter of fiscal 1997, the Company undertook preparations
for its initial public offering, completed in March 1998, through which
approximately $1,158,250 of net cash proceeds has been generated, after payment
of expenses and commissions. This equity infusion, together with working capital
generated from the Company's internal operations, should advance the Company
substantially towards establishing and fortifying channels of distribution for
its IPAD product line, and is expected to be sufficient to meet the capital
requirements of the Company for the next 12 months.

PLANNED PRIVATE PLACEMENT

On March 25, 1998, the Company entered into an engagement letter with C.
M. Oliver & Company Limited ("Agent"), the Agent for the Canadian Offering, that
sets forth the terms of a proposed private placement of shares of the Company's
Common Stock. The offering price provided for in the engagement letter is $4.25
per share and the Agent will receive compensation of 7.5% ($0.32 per share) of
the gross proceeds. The Agent has agreed to use its reasonable best efforts to
sell the offered shares with a minimum purchase per investor of $70,000, in
British Columbia, Europe and other jurisdictions. The offering is proposed to be
made pursuant to an exemption from the registration requirements of the
Securities Act of 1933 under Regulation S for shares sold outside the U.S. and
not to U.S. Persons. Shares may also be offered and sold in the U.S. or to U.S.
Persons pursuant to exemptions from such registration under Regulation D. The
engagement letter provides that the Company will file a registration statement
under the Securities Act of 1933 to register all shares issued in the private
placement for sale in the U.S., and to use its best efforts to cause such a
registration statement to become effective within 180 days of the closing of the
private placement. The Company does not expect to complete the private placement
until approximately the end of May 1998. There can be no assurance that the
private placement will be effectively completed for all or any of the 1,200,000
shares offered.

YEAR 2000 EFFECT

The Company's TBBS product line has one deficiency associated with year
2000 for which a correction is scheduled for a revision release in October 1998.
The IPAD product line has no known susceptibility to year 2000 issues. The cost
of the revision to the TBBS product is not expected to be material.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards that may affect the Company's financial
statements as follows:

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In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.

Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.

SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of the standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of these
standards.

In October 1997, Statement of Position 97-2, Software Revenue Recognition
(SOP 97-2) was issued. The SOP provides guidance on when revenue should be
recognized and in what amounts licensing, selling, leasing, or otherwise
marketing computer software. SOP 97-2 is effective for transactions entered into
in fiscal years after December 15, 1997. Because of the recent issuance of the
SOP, management has been unable to fully evaluate the impact, if any, the SOP
may have on future financial statement disclosure.

In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. SFAS No. 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement will have
no material impact on the Company's financial statements.

* * *

FORWARD-LOOKING STATEMENTS

This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors for such statements under such
sections. The forward-looking statements herein are based on current
expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on numerous assumptions, including, but not
limited to, the following: that significant increases in sales and marketing
personnel and expenditures will result in increased sales; that the recently
introduced IPAD 2500 and IPAD 1200 models will be readily accepted in the
market; that the industry trends perceived by the Company as described under
"Business" will continue to exist; that market segments targeted by the Company
will continue to grow and that the Company can successfully compete with larger,
more established competitors.

The foregoing assumptions are based on judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the Company's control. Accordingly,
although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any such assumption could prove to be

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inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. The forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by the forward-looking statements.
Additional information about these risks and uncertainties is included in the
Company's reports filed with the Securities and Exchange Commission on Form
10-KSB for the fiscal year ended December 31, 1997 and Form 10-QSB for the
quarter ended March 31, 1998.

BUSINESS

GLOSSARY

The following is a glossary of technical terms that appear in the
discussion of the Company's business in this prospectus:

"CLOSED, PROPRIETARY OPERATING SYSTEM" means an operating system which is
not made available for open use and serves a specific purpose. A closed
proprietary operating system has an advantage in security.

"CPU" means Central Processing Unit, the computational engine of a
computer.

"CSU/DSU" means Customer Service Unit/Digital Service Unit. A device which
converts the signals on a high speed leased line circuit to the digital signals
required to connect to a computer interface.

"DNS (DOMAIN NAME SERVER)" is a server function on the Internet which acts
as a "Directory Assistance" service.

"DOS" means Disk Operating System.

"ETHERNET" is a high speed transmission medium which allows direct
connection of computers in a local area at data transmission speeds of either
10Mhz or 100Mhz.

"FCC" means Federal Communications Commission (US).

"FINGER SERVER" is software which provides responses to queries using the
standard Finger protocol.

"FIREWALL" means a security function to prevent unauthorized access to a
network. Firewalls can be very simple allowing for basic security, or very
complex and involved for more advanced security needs.

"FTP SERVER" means a File Transfer Protocol server which is a server
function that allows you to offer access to files for transfer over the
Internet. They are normally linked to web servers to provide a graphical
interface.

"GB" means Gigabyte. One billion bytes.

"INTEGRAL 56 KB LEASED LINE CSU/DSU" is a complete interface to allow
direct connection to a particular type of leased line known as a 56KB leased
line. Includes both the digital interface and the CSU/DSU required for this type
of connection.

"ISDN" means Integrated Services Digital Network. A special type of
telephone circuit which allows direct digital connections.

"KB" means Kilobyte. One thousand bytes.

"LAN" means Local Area Network. A group of computers in a local area
(usually within a single building) which are connected together to share data.

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"MB" means Megabyte. One million bytes.

"MHZ" means Megahertz. One million cycles per second.

"MICROPROCESSOR" is a computer on a single integrated circuit chip.

"PACKET ROUTING FIREWALL" is a security system based on applying rules to
each packet which enters a router to determine if it should be allowed to
continue onward or be rejected.

"POP3 (POST OFFICE PROTOCOL 3) SERVER" is a server which stores local
mail to be accessed by the end users E-mail package, e.g., Eudora, Microsoft
Exchange, Netscape.

"RAM" means Random Access Memory. A computer's working program and data
memory.

"ROUTER" means a device which acts as a "gateway" between network
segments. A router in its simplest form will examine the address of each
"information packet," determine its destination and send it down the appropriate
wire.

"SMTP (SIMPLE MAIL TRANSPORT PROTOCOL)" is a server that acts as the
sending and receiving server. It looks at the address and sends it on its way
or transfers it to the POP3 (Post Office Protocol 3) server.

"TBBS" means The Bulletin Board Software, a PC server software which
creates a multi-user host for direct dial-in access for multiple users for
ongoing messaging, file transfer and data access.

"TELNET" is the Internet protocol used to simulate a point to modem
(serial line) connection between two computers over the Internet.

"TERMINAL SERVER" means a device which allows for remote dial-up access to
a network.

"UL" means Underwriter's Laboratories, Inc.

"UNIX" is a multiuser computer operating system.

"VPN (VIRTUAL PRIVATE NETWORK)" is the result of using encryption and
special protocols to create a private network using public data transmission
lines to promote lower cost and easy mobile access.

"WWW" means World Wide Web.

CORPORATE HISTORY

The Company is located at 5335 Sterling Drive, Suite C, Boulder, Colorado,
80301.

Through September 4, 1997, the Company had elected to be taxed as an
"S-corporation" for U.S. income tax purposes. Under this election the Company
was essentially taxed as a partnership. Accordingly, in lieu of corporate income
taxes, the shareholders were taxed on their proportional share of the Company's
taxable income individually. The Company withdrew the S-corporation election
after September 4, 1997 and is now subject to U.S. corporate income taxes.

On August 27, 1997 the Company's board of directors authorized a stock
split of 63.1579 to 1. The Company has no subsidiaries.

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BUSINESS HISTORY

The IPAD is designed to be a total Internet/Intranet connectivity solution
without the complexity and high cost of traditional solutions. It affords the
medium to small businesses, institutions, or educational sites a full
connectivity solution that is economical and easily installed and managed by
existing information systems' personnel. To complete the package for the
customer, the Company can provide leased line connectivity options through major
national access providers. The IPAD product line includes all other accessories
needed to complete the connection, such as turnkey web servers, line interface
devices, modems and rack equipment.

The Company's IPAD is designed to integrate key software and hardware
components to facilitate an Internet presence. This includes the functionality
of a router and a broad range of servers including full DNS, SMTP, POP3, world
wide web, FTP, Telnet and related applications. Also included is a capability to
provide for text-mode user access from data terminals or other hosts such as
BBS's. Given these features, the Company's IPAD product line can be used by
Internet service providers who resell Internet access to the public, as well as
by businesses which can find ready application for the technology, to enhance
internal communications and Internet access for their employees working through
their Internet service provider.

PRODUCT LINE AND SERVICES

THE IPAD 5000

The IPAD 5000 integrates Internet hardware and communications software
into a user friendly turnkey system, which does not require extensive technical
knowledge to support. Utilizing an Intel Pentium CPU, the device is typically
configured with 8 MB of RAM; a 1.2 GB hard drive; and a 1.44 MB floppy drive.
The hardware includes five open slots, and hence is designed to allow for
customized interface configuration. These interfaces may include an Ethernet
card, an ISDN terminal adapter, a V.35 leased line or Token Ring or extra serial
interfaces if desired. The software includes a basic Web Server, Telnet, an FTP
Server, an E-mail Server, a Finger Server, a DNS, and a Packet-Routing Firewall.
Unlike certain competing products in the marketplace, IPAD does not operate on a
UNIX platform but rather is a purpose built component, real time operating
system, which allows for a high degree of individual customization to better
address the needs of individual customers.

THE IPAD 2500

The IPAD 2500 was introduced to the marketplace in the second quarter of
1997. The IPAD 2500 is a desktop unit which contains a router with firewall
capabilities, a terminal server offering up to 8 serial ports, and the same
basic Internet connectivity provided by all of the Company's IPADs. Server
functions include a DNS, a POP3, E-mail, FTP, a SMTP, Telnet, a Finger Server,
and a basic WWW server. While less powerful than the Model 5000, it nonetheless
allows for more than one IP address and routing for up to two networks as well
as multiple web and FTP servers.

THE IPAD 1200

The IPAD 1200 was introduced to the marketplace in October 1997. This
system is also a desktop unit which can connect a business LAN of up to 150
users to the Internet using a single address. The hardware is an Intel Pentium
CPU with 8 MB of RAM, a 1.2 GB hard drive, a 1.44MB floppy drive, 2 serial ports
and a 10 MB Ethernet card. The IPAD 1200 comes standard with either a 56 KB
modem, ISDN terminal adaptor or integral 56 KB leased line CSU/DSU

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or its Internet feed. The product is designed for mass production without
significant customization for specific client needs.

ACCESSORIES

In the case of the Model 5000 (and to a lesser degree with the IPAD 2500),
customers can order additional cards and accessories to more effectively
configure a device to suit their needs. Aside from an Ethernet card, users have
the option, with certain models, of purchasing an ISDN terminal adapter,
interfaces for T1 and fractional T1 leased lines, as well as extra serial
interfaces. As many as 96 serial ports can be accommodated within a Model 5000
with each card being capable of connecting up to 16 modems or terminals.

SEMINARS

The Company also offers Internet training seminars. These comprehensive,
two day programs are offered on a regional basis throughout North America. They
address issues related to end user client set-up and trouble shooting; advanced
Internet operations including routing and domain name server operations;
Internet service provider management techniques, including guidance with respect
to systems performance and networking issues including questions relating to
growth planning, multiple networking interfacing, and connections with other
routers; and specific training with respect to IPAD applications and management
techniques. The Company expects to offer these seminars with greater frequency
in the future to supplement revenues from IPAD product sales.

TECHNICAL SUPPORT SERVICES

Customers can also purchase a contract through which the Company offers
technical support services to address customers' specific application needs.
More focused than the general seminars, such technical support services are
designed to address concerns of individual clients for applications ranging from
the launching of their web presence, to the reconfiguration of their LAN to
optimize both efficiency and connectivity.

TBBS SOFTWARE

Until the mid-1990s, most of the Company's revenues were generated from
the sale of TBBS, its bulletin board system software package. As the life cycle
of this product aged, the Company found it essential to expand and diversify its
range of product offerings which in turn led to the development of the IPAD. The
Company expects to continue to generate residual revenues from the sale of TBBS
software at least through the 1998 fiscal year. However, no further development
or upgrading of the software is expected to be pursued by the Company, as TBBS
is progressively phased out of the market in favor of more sophisticated
communications products.

PLANNED NEW SOFTWARE PRODUCT

The Company proposes to develop an IPAD-supported virtual private
network ("VPN") product. This product will require the development and
integration into the IPAD product of encryption software. The Company expects to
license the encryption software from a firm or firms specializing in this
technology. The Company has identified encryption software which it believes
will meet the needs of this proposed new product and has begun negotiating the
terms of a license. The Company has also begun research to identify the
important characteristics of a future VPN product offering. The Company believes
that the inclusion of the VPN technology in an IPAD product will have
considerable market appeal for prospective customers that require secure network
connections from remote locations. Development of this proposed new product is
in a very early stage and there can be no assurance that the Company will be
able to license the necessary technology at a reasonable cost, or at all, nor
that the Company will be able to satisfactorily integrate the encryption
technology into the IPAD product in a timely manner or at a cost which will
permit the Company to effectively compete with other products offering similar
technology.

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OPERATIONS

Currently, with respect to all models, the Company purchases
sub-assemblies from a variety of manufacturers and wholesalers, and undertakes
final assembly and software integration at its production facility in Colorado.
In the future, with respect to Models 1200 and 2500, the Company intends to
purchase the computers in essentially complete and finished form. Upon shipment
to its production facility, the Company would install an extra card in the case
of the Model 1200 and load its software. With respect to the somewhat higher
performing Model 2500, the modifications and degree of the Company's
customization which is undertaken, is less than that applicable to the Model
5000, but more vigorous than that carried out in the context of a typical Model
1200.

In all cases, the loading of the Company's IPAD software is what serves to
distinguish the Company's product line from competing products, and what
provides it with its key performance capabilities. Upon the insertion of the
additional boards and loading of the software, each unit is tested, certain
other quality assurance checks are undertaken, and the devices are packaged.

If and when the sales volume increases to a level beyond the capacity of
the Company's facilities, presently anticipated to be in six to nine months, the
Company expects to outsource the assembly of the product to a contract
manufacturer in the U.S. The Company has engaged a contract manufacturer in
Holland to manufacture products for the European market. This manufacturer was
chosen for its existing requisite approvals and certifications, and it is
investigating European safety standard requirements for the IPAD products. See
"Business - Government Regulations" below.

It is the intention of the Company to sell its products directly to
end-use purchasers, as well as to utilize value added resellers ("VAR"s) and
distributors to assist in product dissemination.

INTELLECTUAL PROPERTY

The Company has no patents, but regards its software as proprietary and
attempts to protect it by relying upon copyrights, trade secret laws, internal
nondisclosure agreements and transferability restrictions incorporated into its
software license agreements. The Company provides its software products under a
perpetual paid-up license agreement. Title does not transfer to the customer.
Program source listings are not released, which the Company believes further
protects against unauthorized transfers of the Company's proprietary
information, as well as the confidentiality of the Company's trade secrets. The
Company also uses a combination of software programming and hardware devices to
protect its products from unauthorized use or duplication.

HISTORY AND COST OF PRODUCT DEVELOPMENT

Up until and including 1994, substantially all of the Company's revenues
were generated from the sale of TBBS software. IPAD product sales commenced in
1995 and the product was released to the general public with the introduction of
the IPAD 5000 in 1996. The precursors to the IPAD 5000 (the IPAD 4000 and IPAD
4500) had identical software as the IPAD 5000 but were installed on 66 MHZ Intel
486 CPUs. In 1996, when the 133 MHZ Intel Pentium CPU became available, all
installed units of Model 4000 and Model 4500 were replaced with Model 5000. The
IPAD 2500 was introduced to the marketplace in mid-1997. The IPAD 1200 was
introduced and was available for purchase in October 1997. Seminars,
accessories, and services are an ongoing activity designed to supplement and
enhance the Company's product offerings, reputation, reliability and industry
stature.

The Company conducts research and development through internal research
projects. Costs are incurred from time to time, in specific projects that employ
existing technologies for which feasibility previously has been established to
develop applications. Production costs for the development of the software used
for which technological feasibility has been established but before the product
is ready for sale, are capitalized when broad applications are identified within
its existing product lines. Costs for which technological feasibility had been
established resulted in $130,000 in costs being capitalized in 1995, $440,000 in
1996, and $233,000 in 1997. The Company incurred research and development
expenses of $254,000 in 1995, $0 in 1996, and $57,000 in 1997.

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From time to time, the Company has entered into software development
consulting agreements. Two agreements entered into with John Patrick McMillan, a
consultant, provided for the Company to pay percentages of gross software
licensing fees on certain of its products, including the IPAD software. The
Company and the consultant have entered into a Termination Agreement terminating
those consulting arrangements in consideration of payment of $60,000, one-half
on execution of the Termination Agreement and one-half after completion of the
Canadian IPO, and a warrant to purchase 20,000 shares of the Company's Common
Stock at $1.00 per share for one year and $1.15 per year for a second year.

THE MARKET FOR THE PRODUCTS

The primary market being pursued by the Company consists of small to
medium size businesses. The Company believes these businesses increasingly find
it beneficial to host their own Internet infrastructure rather than rely upon an
Internet service provider for all of their Internet access and connectivity
needs. A secondary market consists of Internet service providers which can
benefit from the Company's IPAD integrated software and hardware product line.

The Company believes that for most small to medium size businesses, high
speed large diameter pipeline access to the Internet is sufficiently important
that the businesses would continue to rely upon an Internet service provider in
order to gain that advantage if it were not available in Internet connectivity
products such as the Company's IPAD products. With new advancements in Internet
software, however, individual companies, without a great deal of software
expertise, can now assume many of the responsibilities and functions which
heretofore have been carried out by Internet service providers on their behalf.
This includes control over a router, firewall, remote access server, a web
server, and mail server. Perhaps most importantly, rather than paying an
Internet service provider substantial fees in order to offer individual e-mail
addresses plus Internet access to each of many employees, the IPAD products can
provide such services to a growing company and their employees in a much more
cost effective manner.

Because the Company purchases its computer hardware in the United States,
and because of requirements for FCC approval and UL certification, the Company
has historically limited most of its sales to the United States. Within the
United States, the market and the rate of market growth are both considered to
be sufficiently large as to be able to absorb all of the Company's projected
output through at least the next two years. Although the Company has not
acquired requisite product approvals and certification from appropriate agencies
that would permit marketing of its IPAD products in the European Union, it has
entered into a contract for manufacture of its products in Holland. The contract
manufacturer was chosen for its existing requisite approvals and certification
and it is investigating European safety standards applicable to the IPAD
products. See "Business - Government Regulations."

The Company has sold more than 400 IPAD units since the introduction of
its product line in 1995. In 1997, the Company sold 146 IPAD units. No one
customer has accounted for as much as 10% of the Company's revenue in 1995, 1996
or 1997.

In an article entitled "All-In-One Net Boxes to the Rescue," published in
the September 8, 1997 edition of Inter@ctive Week, an Internet industry trade
publication, market analysts indicate that in 1997, fewer than 6,000 units of
IPAD like products were expected to be sold into the market. If one were to
assume that the average sale ranges from $3,000 - $5,000, this would place the
total market dimensions at $18 - $30 million excluding follow on accessories and
services.

INDUSTRY TRENDS

At one time, the combination of hardware and software that are currently
incorporated within an IPAD device required several pieces of stand alone
equipment, and complex software skills. This in turn created barriers to market
entry among small to medium sized companies, seeking to host many of their own
Internet functions. Unless they maintained the requisite technical skills, it
was more cost effective for these companies to allow an Internet service
provider to host these services on their behalf.

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The Company believes that two trends within the marketplace are eroding
this historical condition. First, the burgeoning demand for e-mail and Internet
access has had the effect of increasing the costs borne by companies to provide
widespread access to such services among their employees, (notwithstanding
general reductions in the unit costs of Internet access as a whole). Second, the
Company and its market competitors have been able to take advantage of
increasingly powerful and flexible computer systems. Today, these flexible
computer systems are readily available at comparatively modest cost and with the
integration of appropriate software, they can provide an all in one solution to
many of the software and hardware requirements that had previously demanded a
variety of pieces of equipment and considerable software integration skills.

As a consequence, the Company has observed a current industry trend is to
increasingly allow companies to take control of certain key Internet management
tools that have previously been hosted by Internet service providers and to
progressively limit the role of the Internet service providers to that of
offering high capacity access to the Internet itself.

MARKETING PLAN

It is the intention of the Company to rely upon distributors, resellers
and direct sales to disseminate its product line throughout the market. The
Company recently hired a Director of Marketing Communications, and has retained
international sales agents for Europe, Latin America and Asia. Manufacturing and
customer support capability have been put in place in Europe in the first
quarter of 1998. A Vice President of Sales will be added in the second quarter
of 1998.

To assist in creating more customer awareness of the Company, the Company
has made provision for an advertising budget of over $100,000 in the forthcoming
year, with a further $80,000 for participation in trade shows. Through a
combination of reliance upon third party distributors as well as upon direct
sales, the Company believes that it can progressively establish a profile as a
major industry participant.

COMPETITION

Competition among the industry participants is based upon a number of
factors including product features, type of user primarily serviced, reputation
of the Company, ease of installation or use, reliability, cost, service
availability and other factors. The Company believes that its principal
competitive advantages are the product features, simplicity and ease of
installation and the availability of technical support for the product and the
customer. The Company's products are also designed to meet the specific needs of
the smaller to mid-sized companies that are the Company's target market. For
example, while many Internet connectivity devices are Unix-based systems
designed to support more complex operations generally required by larger
corporations, the Company's products emphasize use of a DOS based system which
is thought by management to be more user friendly as compared to those operating
on Unix platforms.

The Company's competitors are comprised of both well-established and
recognized industry participants (such as Sun Microsystems, Inc.) and smaller
corporations in some respects similar to the Company. Both groups produce
products which in terms of fundamental connectivity attributes are similar to
those currently offered by the Company. Among the more prominent industry
participants at present are companies such as Whistle Communications, Inc. of
Foster City, California; Apexx Technologies, Corp. of Boise, Idaho; FreeGate
Corporation of Sunnyvale, California; and iPlanet, Inc. of Sunnyvale,
California.

iPlanet, Inc. is a private corporation reportedly established in January
1996. As is the case with the Company, iPlanet provides fully-integrated
turn-key Internet connectivity solutions. iPlanet has developed the IPS series
of products which provide small to medium sized businesses access to the
Internet and Web hosting capabilities. The IP-168 is available in a variety of
models to accommodate speeds ranging from 28.8K dial-up to T1 dedicated lines.
It incorporates router capabilities, and supports a LAN print server. It
includes a Web server, an e-mail server (compatible with popular mail packages
such as Eudora, and Microsoft Mail), and standard mail protocols (POP2/3, IMAP3
and SMTP). The product is compatible with both Microsoft's Windows and Unix
operating systems. The IPS-PRO is a rack mounted version of the IPS 168 which is
designed for larger organizations of about 200 people. The IPS PRO operates with
a Pentium 133 MHZ microprocessor, and offers 32 MB RAM and a dual Ethernet
connection. In addition to the standard e-mail and web servers, the IPS PRO
supports a Domain Name Service Protocol, and can also support remote access
users and file sharing. It also includes a firewall (and related software
elements known as "proxies"). To

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complement the IPS-168, iPlanet offers a variety of add-on modules to provide
fax, virtual private networking, and e-mail enhancing capabilities.

Sun Microsystems, Inc. offers Internet servers referred to as "Netra i"
which accommodates high-volume Web site management. Netra i software comes with
Web server (Netscape Enterprise) and Web authoring software. Electronic mail, a
Domain Name Server and FTP functions are also fully integrated, as is firewall
security. Netra Internet servers operate in conjunction with Solaris and Unix
operating systems. Until recently, Netra i was classified as a fully integrated
series of Internet servers. However, software and hardware components are now
sold separately.

As is the case with the Company, most industry competitors produce an
array of products. Some are relatively inexpensive entry level devices, which in
some respects can be compared to the IPAD 1200. Typically, these are designed
with no significant degree of individual customization. Some products are
similar to the IPAD 5000 in that they provide for a substantial degree of
customization, and can accommodate multiple interfaces, and more than one
hundred individual users on a LAN with little difficulty.

Cross-comparisons indicate that several competing products incorporate
features similar to those offered by IPAD products (in terms of hardware and
software components), although they may provide varying degrees of
functionality, which in turn accounts for pricing variances. For example, the
InterJet product series offered by Whistle Communications, Inc. ranges in price
from $1,995 to $3,495 depending upon product features and capability. Products
which would likely compete with either the IPAD or the IPAD 5000 can either cost
more or less in relation to the IPAD depending upon their technical
specifications.

Some competitors already possess well-established distribution networks or
have formed strategic collaborations with key industry players. Others such as
Sun Microsystems, Inc. have much greater technical and financial resources
compared to the Company. The ability of the Company to effectively compete
against such firms cannot be assured, as they are already well established.

AVAILABILITY OF RAW MATERIALS AND SEMI-FINISHED GOODS

The computers which the Company utilizes to operate its software, whether
purchased in finished form, or as sub-assemblies, computer boards, software
programs and accessories which are assembled at the Company's production
facility from semi-finished goods, all represent widely available materials and
components in the marketplace. The Company has the ability to source such goods
from a wide range of prospective suppliers, depending upon pricing, delivery,
quality assurance and related considerations. In combination, the Company's IPAD
software represent a combination of "off the shelf" operating systems and
related software licensed from third parties, working in concert with what the
Company considers to be its own proprietary software, developed in-house. The
Company does not anticipate that the sourcing of such materials is likely to
become an impediment to its growth and expansion.

GOVERNMENT REGULATIONS

As the Company's products require access to telecommunications carriers,
the products are subject to regulation by the Federal Communications Commission
("FCC"). The Company's IPAD products use components purchased from other
manufacturers which have the required FCC approvals and the Company relies upon
the certification of compliance furnished by those manufacturers. No testing or
certification of the final assembled products offered by the Company is
required. Since the Company's products rely upon electrical power, certain
standards with respect to electrical safety must also be met. The manufacturers
of purchased components obtain the certification of testing laboratories such as
Underwriters Laboratories ("UL") and the Canadian Standards Association and the
Company again relies upon those certifications without the necessity for
certification of the final assembled products. The Company believes there are no
other material U.S. federal or state regulations which must be satisfied to
permit the sale of its products in the U.S.

The Company has not acquired requisite product approvals and certification
from appropriate agencies to permit IPAD products to be marketed in the European
Union. The Company has entered into an agreement with a subcontract manufacturer
located in Holland. This subcontract manufacturer was chosen for its existing
requisite approvals and certifications held, including ISO 9002 certification.
The Company's contract manufacturer is investigating European safety standard
requirements for the IPAD products by its Quality Organization. The Company has
not yet ascertained

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which approvals and certifications are required to sell its product in the
European Union. There can be no assurance that the necessary approvals will be
obtained without extended delays, or at all.

EMPLOYEES

At April 10, 1998, 22 people were employed by the Company, all on a
full-time basis, and four persons were performing services for the Company on a
contract basis until full-time management can be hired. The Company believes its
employee relations are excellent.

DESCRIPTION OF PROPERTY

The Company's office, production and warehouse facilities are located at
5335 Sterling Drive, Suite C, Boulder, Colorado 80301. The Company leases
approximately 5,300 square feet of space at this location pursuant to a lease
entered into in November 1997, which expires October 31, 2000, at a rent of
approximately $58,000 per year. The Company believes that this space will be
sufficient for the Company's operations for the foreseeable future.

The Company also remains obligated until November 1998 on a lease covering
1,300 out of 7,500 square feet of lease space that the Company formerly occupied
in Aurora, Colorado. Rental on this 1,300 square feet is approximately $13,000
per year. The Company hopes to sublet this space in the near future, but at
present the Company is using that space for storage.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

DIRECTORS AND EXECUTIVE OFFICERS

The following is a list of the current directors and senior officers of
the Company, their addresses, current positions with the Company and principal
occupations during the past five years:

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION FOR PREVIOUS FIVE YEARS
- -------------------------------------------------- -----------------------------------------------------------------

<S> <C>
PHILIP L. BECKER(1) Age 51. Chairman, Chief Technology Officer and Chief
Chairman, Chief Executive Officer and Chief Executive Officer of the Company since September 1997;
Technology Officer and Director President of the Company from July 1985 to September, 1997;
Director of the Company from 1984 to present.

REGIS A. FRANK(1) Age 52. President and Chief Operating Officer of the Company
President, Chief Operating Officer and Director since January 1998; Vice-President, Marketing and Sales, of
Sigmacom Corporation, a software developer and integration
services company, from May 1997 to December 1997; President of
Team Advisors, a business and marketing consulting company, from
November 1995 to April 1997; President and Chief Executive
Officer for SecaGraphics, Inc., a software development company;
from September 1986 to October 1995.

MICHAEL W. JOHNSON Age 36. President and CEO, INFONOW Corporation, Denver,
Director Colorado, since 1995; Engagement Manager, McKinsey &
1875 Lawrence Street Company, Inc., consultants, Dallas, Texas and Amsterdam,
Denver, CO 80302 Netherlands from 1990 to 1995.

ROBERT B. LOUTHAN Age 56. President of RBL Management Sciences, a management
Director marketing and sales consulting company, since 1986.
P. O. Box 4966
Vail, CO 81658

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RICHARD B. RICE Age 47. Owner, The Costwatch Consulting Group, Inc., a
Director telecommunications consulting company, since 1989. Since
5380 Lookout Ridge Drive March 1998, President and CEO of Cannect Communications,
Boulder, Colorado 80301 Inc., a telecommunications company that provides voice, data and
Internet services to the Canadian market.

THOMAS R. TENNESSEN(1) Age 38. Elected Secretary, Treasurer and Chief Financial Officer
Secretary, Treasurer and Chief Financial Officer of the Company April 9, 1998. Formerly self-employed financial
consultant from March 1997 to April 1998 and from May 1991
to August 1994; Chief Financial Officer of Topro, Inc.,
Denver, Colorado, a publicly-held system integrator from
September 1994 to March 1997.

ROBERT B. HARTMAN(1) Age 37. Vice-President, Engineering of the Company since
Vice President-Engineering January 1993; Senior Software Engineer for the Company from
1990 to 1993; President of Spark Software, a computer
consulting company from 1986 to 1990; Senior Software
Engineer and Project Leader for Automatrix, Inc., a software
development company, from 1983 to 1986.

JASON M. ROLLINGS(1) Age 36. Vice-President, Operations of the Company since
Vice President - Operations November 1997; Director of Factory Operations for Micromotion
Inc., an electronics manufacturer, from July 1997 to October
1997; Director of Manufacturing for Hi-Tech Manufacturing, a
printed circuit board and computer manufacturer, from April
1995 to July 1997; Director of Manufacturing for Codar Inc.,
a military computer manufacturer, from September 1988 to
March 1995.
</TABLE>
- ------------------------------

(1) Address: 5335 Sterling Drive, Suite C, Boulder, Colorado 80301.

Messrs. Becker, Frank, Hartman and Rollings are all full-time employees of
the Company.

ELECTION OF DIRECTORS

Four directors of the Company were elected by the shareholders at a
meeting on February 10, 1998 and will hold office until the next annual meeting
at which time they may be re-elected or replaced. The Certificate of
Incorporation of the Company permits the directors to appoint new directors to
fill any vacancies that may occur on the board. Individuals appointed as
directors to fill vacancies on the board or added as additional directors hold
office like any other director until the next annual shareholder meeting at
which time they may be re-elected or replaced. On March 16, 1998, the directors
elected and appointed Richard B. Rice as a director.

EXECUTIVE COMPENSATION

The following tables contain disclosure regarding compensation awarded to,
earned by, or paid to the named executive officers.

-20-

<PAGE>

<TABLE>
<CAPTION>
Executive Compensation Table

Long Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------ ---------------------------- --------------
Securities
Year Ended Restricted Underlying
Name And December Other Annual Stock Options/ LTIP All Other
Principal Position 31, Salary($) Bonus($) Compensation($) Awards(s)($) SARs(#) Payments($) Compensation($)

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip L. Becker, 1997 100,000 -- -- -- -- -- --
Chief Executive 1996 60,000 -- -- -- -- -- --
Officer (1) 1995 45,000 -- -- -- -- -- --
J. Wayne Farlow 1997 40,000(2) -- -- -- -- -- --
</TABLE>

- ------------------------
(1) A detailed description of the employment agreement between the Company and
Mr. Becker follows under "Certain Relationship and Related Transactions"
below.

(2) Served as CEO from September 2, 1997 to November 7, 1997. Mr. Farlow
received a salary of $10,000 per month while serving as CEO. Pursuant to
the Severance Agreement described below, the Company paid Mr. Farlow's
salary through March 7, 1998.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

Prior to the adoption of the Stock Option Plan described below, no stock
options were ever granted to or exercised by executive officers of the Company.

In February 1998, the Board of Directors and shareholders of the Company
approved an amended Stock Option Plan, originally adopted in August 1997 (the
"Plan"), which provides for incentive stock options and non-statutory options to
be granted to officers, employees, directors and consultants to the Company.
Options, to purchase up to 900,000 shares of the Company's Common Stock may be
granted under the Plan. Terms of exercise and expiration of Options granted
under the Plan may be established in the discretion of an Administrative
Committee appointed to administer the Plan or by the Board of Directors if no
Committee is appointed, but no option may be exercisable for more than five (5)
years.

In the fiscal year ending December 31, 1997, stock options were granted as
follows:

<TABLE>
<CAPTION>
Option/SAR Grants In Last Fiscal Year

% Of Total
Number Of Options Granted
Shares Underlying To Employees In Exercise Expiration
Name Options Granted Fiscal Year Price Date

<S> <C> <C> <C> <C>
Philip L. Becker 200,000(1) 36% $1.00/share 9/2/2002

J. Wayne Farlow 60,000(2) 10% $ .50/share 9/2/1998(2)

J. Wayne Farlow 200,000(3) 36% $1.00/share 3/17/2003(3)

J. Wayne Farlow 100,000(3) 18% $2.00/share 3/17/2003(3)
</TABLE>

- -------------------------------
(1) No options were exercised during the fiscal year ended December 31, 1997.

(2) Pursuant to the Severance Agreement described below, Mr. Farlow exercised
this option on December 19,1997 and purchased the shares on February 20,
1998.

(3) Upon Mr. Farlow's resignation on November 7, 1997 as described below, these
options expired.

-21-

<PAGE>

<TABLE>
<CAPTION>
Aggregated Options/SAR Exercises FY-End Option/SAR Values

(A) (B) (C) (D) (E)
Number Of Securities Value Of Unexercised In-
Shares Underlying Unexercised The Money Options/SARs
Acquired Value Options/SARs At FY-End(#) At FY-End(#) Exercisable/
Name On Exercise Realized Exercisable/Unexercisable Unexercisable

<S> <C> <C> <C> <C>
Philip L. Becker - 0 - - 0 - 200,000 (U) $ 0
Chairman & CEO

J. Wayne Farlow 60,000(1) $30,000 - 0 - $ 0
</TABLE>

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

(1) Pursuant to the severance agreement described below, Mr. Farlow exercised
this option on December 19,1997 and purchased the shares on February 20,
1998.

During the fiscal year ended December 31, 1997, the Company did not make
any long-term incentive plan awards not disclosed above.

DIRECTOR COMPENSATION

The directors of the Company are not currently compensated for serving as
directors, but each director has been granted an option to purchase 18,000
shares of Common Stock at $1.00 per share. Mr. Becker and Mr. Frank also receive
compensation as officers.

SEVERANCE AGREEMENT

Wayne Farlow was Chief Executive Officer of the Company from September 2,
1997 to November 11, 1997. On December 19, 1997 the Company and Wayne Farlow
entered into a Severance Agreement and a Mutual Release (the "Severance
Agreement") pursuant to that Agreement, the Company and Mr. Farlow agreed to Mr.
Farlow's resignation as an officer and director effective November 7, 1997, the
Company paid Mr. Farlow $10,000 per month through March 7, 1998, plus $1,875 in
lieu of accrued vacation, and Mr. Farlow continued to participate in the
Company's health insurance program, with premiums paid by the Company, until
March 1998. In accordance with an option previously granted to Mr. Farlow, he
has purchased 60,000 shares of Common Stock of the Company at a price of $0.50
per share, paid for by cash ($600) with the balance secured by a non-recourse
promissory note, payable to the Company and due September 5, 1999.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company has a total of 5,081,061 shares of Common Stock issued and
outstanding after the issuance of 1,550,000 shares in the Canadian Offering and
110,000 shares to the Agent in that Offering. The following table sets forth
information regarding beneficial ownership of Common Stock of the Company and
options to purchase Common Stock that are currently exercisable or exercisable
within sixty days of the date of this Prospectus held by (i) each person or
group of persons known by the Company to own beneficially five percent (5%) or
more of the outstanding shares of the Company's Common Stock, (ii) each director
of the Company, (iii) each executive officer named in the Executive Compensation
Table and (iv) all executive officers and directors of the Company as a group.
Unless otherwise indicated, the shareholders listed below have sole voting and
investment power with respect to the shares reported as beneficially owned.

-22-

<PAGE>

<TABLE>
<CAPTION>
Amount And Nature Of
Name And Address Of Beneficial Owner Beneficial Ownership Percent Of Class
- ---------------------------------------------------- --------------------------- --------------------

<S> <C> <C>
Philip L. Becker, Director, Chairman and 1,093,750(1) 21.3%
CEO...............................................
5335 Sterling Drive, Suite C
Boulder, CO 80301

Regis A. Frank, President, Chief Operating 48,000(2) 0.9%
Officer and Director .............................
5335 Sterling Drive, Suite C
Boulder, CO 80301

Michael W. Johnson, Director ....................... 18,000(3) 0.4%
1875 Lawrence Street
Denver, CO 80302

Robert B. Louthan, Director ........................ 10,000(4) 0.2%
P. O. Box 4966
Vail, CO 81658

Opus Capital Fund, LLC.............................. 437,500(5) 8.5%
1113 Spruce St.
Boulder, CO 80302

Daryl Yurek(6)...................................... 346,330(6) 7.1%
1041 Kalmia Avenue
Boulder, CO 80304

J. Wayne Farlow, Former Director
and CEO(7)........................................ 180,000(8) 3.5%

Directors and Executive Officers.................... 1,232,750(9) 24.3%
as a group
</TABLE>

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

(1) Includes 53,750 options exercisable presently or within 60 days.

(2) Includes 23,000 options exercisable presently or within 60 days.

(3) Includes 3,000 options exercisable within 60 days.

(4) Reflects 10,000 options exercisable presently or within 60 days.

(5) Includes 87,500 shares purchasable upon exercise of warrants.

(6) Includes 100,000 shares beneficially owned by Mr. Yurek and held in the name
of the Daryl F. Yurek Self Employed Pension of which Smith Barney Inc. is
custodian. Excludes warrants to purchase 207,300 shares of Common Stock
exercisable beginning September 16, 1998 and expiring March 31, 1999.

(7) Served as CEO from September 2, 1997 to November 7, 1997.

(8) Includes 60,000 shares held by the Company as security for the payment of a
promissory note payable to the Company.

(9) Includes 89,250 options exercisable presently or within 60 days.

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the
stockholders selling shares in this offering, and their beneficial ownership of
Common Stock after giving effect to the Canadian Offering.

-23-

<PAGE>

<TABLE>
<CAPTION>
Shares Shares Shares Post-
Beneficially Pre-offering Offered Beneficially Offering
Owned Pre- Percentage In The Owned Post- %
Name And Address Offering Ownership (1) Offering Offering Ownership
- ----------------------------------- -------------- ---------------- ------------- --------------- -------------

<S> <C> <C> <C> <C> <C>
Philip L. Becker................... 1,093,750 21.4% 100,000 993,750 17.8%
5335 Sterling Drive, Suite C
Boulder, CO 80301

Opus Capital Fund, LLC............. 437,500(2) 8.5% 437,500(2) -0- 0%
1113 Spruce Street
Boulder, CO 80302

Daryl Yurek........................ 346,330(3) 7.1% 453,630(3) 100,000 1.8%
1041 Kalmia Avenue
Boulder, CO 80304

W. Terrance Schreier............... 223,615(4) 4.7% 287,265(4) 40,000 0.9%
1942 Broadway, Suite 303
Boulder, CO 80302

Copeland Consulting Group, Inc..... 210,267(5) 4.1% 263,917(5) 50,000 0.9%
5373 Lookout Ridge Drive
Boulder, CO 80301

Wayne Farlow....................... 180,000 3.5% 180,000 -0- 0%
4020 Pinon Drive
Boulder, CO 80303

Marion Jack Rickard................ 100,000 2.0% 100,000 -0- 0%
8500 W. Bowles Ave, #210
Littleton, CO 80123

Robert C. Hartman, Jr.............. 46,500 1.0% 20,000 26,500 0.5%
3837 S. Olathe Circle
Aurora, CO 80013
</TABLE>

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

(1) The percentages are calculated after 1,550,000 shares of Common Stock were
sold in the Canadian Offering and 110,000 shares were issued to C.M. Oliver
& Company Limited as a corporate finance fee relating to the Canadian
Offering.

(2) Includes warrants to purchase 87,500 shares of Common Stock.

(3) Includes 100,000 shares held in the name of the Daryl F. Yurek Self
Employed Pension of which Smith Barney Inc. is custodian. Shares
Beneficially Owned Pre-Offering excludes warrants to purchase up to 207,300
shares exercisable from September 16, 1998 to March 31, 1999, but Shares
Offered in the Offering include such warrant shares.

(4) Includes 8,500 shares held in Mr. Schreier's name, 31,500 shares held in
the name of W. Terrance Schreier Simplified Employee Pension, of which
Everon Securities is custodian. Shares Beneficially Owned and Shares
Offered in offering also include shares held in the name of Transition
Partners, Ltd. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 103,650 shares of Common Stock of the Company exercisable
from September 15, 1998 to March 31, 1999, but such warrant shares are
included in Shares Offered in the Offering. Transition Partners, Ltd. is
controlled by Mr. Schreier and he is the beneficial owner of all shares and
warrants held in the name of Transition Partners, Ltd.

(5) Shares Beneficially Owned Pre-Offering excludes warrants to purchase
103,650 shares of Common Stock of the Company exercisable from September
15, 1998 to March 31, 1999, but such warrant shares are included in Shares
Offered in the Offering. Copeland Consulting Group, Inc. is controlled by
Gene R. Copeland and he is the beneficial owner of all shares and options
held in the name of Copeland Consulting Group, Inc.

-24-

<PAGE>

<S> <C> <C> <C> <C> <C>
Robert C. Hartman, Sr.............. 15,000 0.3% 10,000 5,000 0.1%
3837 S. Olathe Circle
Aurora, CO 80013

Joe W. Green....................... 70,000 1.4% 30,000 40,000 0.7%
2182 S. Grant St.
Denver, CO 80210

William G. Witmore................. 20,000 0.4% 20,000 -0- 0%
3905 Promontory Court
Boulder, CO 80304

Terrance W. Hefty.................. 20,000 0.4% 20,000 -0- 0%
8558 Baseline Road
Lafayette, CO 80026

Kent Nuzum......................... 29,200 0.2% 29,200 -0- 0%
5335 Sterling Drive, Suite C
Boulder, CO 80301

Alexander Dawson Foundation........ 7,500 0.1% 7,500 -0- 0%
4801 North 107th Street
Lafayette, CO 80026

James Oleynick..................... 40,000 0.8% 40,000 -0- 0%
1749 McSpadden Ave
Van Couver, British Columbia
V5N1L3

Adrian Swanton..................... 20,000 0.4% 20,000 -0- 0%
4336 Prospect Road
North Vancouver, British Columbia
V7N3L7

Equity Ventures Ltd................ 20,000 0.4% 20,000 -0- 0%
44 Church Street
Hamilton HM12, Bermuda

The Goleen Corp. Ltd............... 40,000 0.8% 40,000 -0- 0%
94 Dowdeswell St.
Box N7521
Nassau, Bahamas

William E. Hodal................... 10,000 0.2% 10,000 -0- 0%
2200 - 609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2

Jeana Traviss...................... 50,000 1.0% 50,000 -0- 0%
2200 - 609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2
</TABLE>

-25-

<PAGE>

<S> <C> <C> <C> <C> <C>
Henry Ewanchuk..................... 80,000 1.6% 80,000 -0- 0%
4116 West 8th Avenue
Vancouver, BC V6R 1Z6

Mike Meyers....................... 20,000 0.4% 20,000 -0- 0%
826 West 48th Avenue
Vancouver, BC V5Z 2R9

Chelsea Capital Corporation........ 40,000 0.8% 40,000 -0- 0%
1600 - 750 W. Pender Street
Vancouver, BC V6C 2T8

Michael Thomson.................... 20,000 0.4% 20,000 -0- 0%
1600 - 750 W. Pender Street
Vancouver, BC V6C 2T8

C.M. Oliver Capital Corporation.... 20,000 0.4% 20,000 -0- 0%
1600 - 750 W. Pender Street
Vancouver, BC V6C 2T8

Garrow Bay Holdings Ltd............ 8,000 0.2% 8,000 -0- 0%
6175 Nelson Avenue
West Vancouver, BC V7W 2A1

Bruce Buckland..................... 8,000 0.2% 8,000 -0- 0%
2200-609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2

Randy Ayers........................ 8,000 0.2% 8,000 -0- 0%
2200 - 609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2

Glenn Butterworth.................. 8,000 0.2% 8,000 -0- 0%
2200 - 609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2

Richard H. Becker.................. 10,000 0.2% 10,000 -0- 0%
1056 Ortego Road
Pebblebeach, CA 93953

Dale Eckert........................ 8,000 0.2% 8,000 -0- 0%
2200 - 609 Granville Street
P.O. Box 10337, Pacific Centre
Vancouver, BC V7Y 1H2

Daniel R. Copeland................. 3,333 0.1% 3,333 -0- 0%
5373 Lookout Ridge Dr.
Boulder, CO 80301
</TABLE>

-26-

<PAGE>

<S> <C> <C> <C> <C> <C>
Patrick J. Copeland................ 3,333 0.1% 3,333 -0- 0%
5373 Lookout Ridge Dr.
Boulder, CO 80301

Michelle L. Peebles................ 3,333 0.1% 3,333 -0- 0%
5373 Lookout Ridge Dr.
Boulder, CO 80301

Boulder County Day School.......... 2,500 0.0% 2,500 -0- 0%
800 Kalmia Avenue
Boulder, Colorado

Ollie F. Fry....................... 1,400 0.0% 1,400 -0- 0%
17 Alexander Road
Estherville, Iowa 51224

Lutheran Family Services........... 250 0.0% 250 -0- 0%
36350 Harlan Street
Denver, Colorado 80226
</TABLE>

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK

Effective March 17, 1998, following completion of the Canadian Offering, the
Common Stock of the Company became listed and began trading on the Vancouver
Stock Exchange. Such exchange is presently the only market, and is expected to
continue to be the primary market for the Common Stock. There are no proposals,
arrangements or understandings with any U.S. brokers, dealers or other persons
to establish a market for the Common Stock in the United States, and no market
is expected to develop in the near future. Moreover, at the date of this
Prospectus, the Common Stock has not been registered or qualified for sale under
state securities or Blue Sky laws of any states. The shares may therefore be
sold by the Selling Stockholders, or resold by a purchaser of the shares from a
Selling Stockholder, in the U.S., only to residents of states in which the sale
of the shares, and in transactions, which are exempt from any registration or
qualification requirement of the laws of that state.

The Company has 5,081,061 shares of Common Stock issued and outstanding, of
which 2,576,110 shares held by U.S. Persons are "restricted securities" under
Rule 144 of the Securities Act of 1933, as amended (the "Act"). The 1,660,000
shares issued in connection with the Canadian Offering are freely tradable in
Canada and such shares are subject to Regulation S under the Act and may not be
sold in the United States or to U.S. Persons (as defined in Regulation S) until
April 27, 1998, and an additional 410,000 shares issued pursuant to Regulation S
in September 1997 cannot be sold in the U.S. or to U.S. Persons until September
4, 1998, unless registered or exempt under the Act. 940,000 of the shares held
by Philip Becker have been held for the one-year period under Rule 144, and will
satisfy the two-year holding period under Rule 144 on June 21, 1998. The
remaining 1,701,110 shares subject to Rule 144 will satisfy the Rule 144
one-year and two-year (as the case may be) holding periods at various times from
September 4, 1998 through March 16, 2000. In addition to Rule 144 and Regulation
S restrictions on sales under the U.S. securities laws, in accordance with
Vancouver Stock Exchange requirements, 887,500 shares are subject to a "hold"
and may not be sold by the owners until at least June 16, 1998, and additionally
151,579 shares are subject to a "hold" until September 16, 1998 and 150,000
shares until March 16, 1999.

-27-

<PAGE>

STOCK OPTIONS AND WARRANTS

As of the date of this Registration Statement, options to purchase 756,000
shares have been granted under the Company's Stock Option Plan (the "Option
Plan"), 161,250 of which are currently exercisable. In addition, the Company has
granted warrants to consultants to purchase an aggregate of 522,100 shares of
Common Stock. All such options are exercisable at a price of $1.00 per share,
and the warrants are exercisable at $1.00 per share until March 16, 1999 and at
$1.15 per share thereafter until March 16, 2000.

The Company has granted to the Agent for the Canadian Offering a
non-transferable warrant (the "Agent's Warrant") to acquire up to 250,000 shares
of Common Stock. The Agent's Warrant is exercisable at $1.00 per share until
March 16, 1999, and thereafter at $1.15 per share until March 16, 2000. In April
1998, the Agent exercised the Agent's Warrant to purchase 42,000 shares.

HOLDERS

At March 17, 1998, there were approximately 500 holders of Common Stock of
the Company.

DIVIDENDS

The Company intends, for the foreseeable future to retain all earnings, if
any, for the development of its business opportunities. The payment of future
dividends will be at the discretion of the Company's board of directors and will
depend upon , among other things, future earnings, capital requirements, the
Company's financial condition and general business conditions.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has entered into transactions with its officers and directors,
and with principal stockholders listed above or affiliated entities as described
below.

EMPLOYMENT AGREEMENT - PHILIP BECKER

On September 2, 1997 the Company and Philip Becker ("Becker"), the founder,
the Chairman, Chief Technical Officer, Chief Executive Officer and a director of
the Company, entered into an employment agreement (the "Becker Agreement") which
extends for a thirty six month period commencing on September 1, 1997. Under the
terms of the Becker Agreement the Company will pay to Becker the sum of $8,333
per month until March 17, 1998, the completion of the Canadian Offering, and
thereafter the sum of $10,000 per month plus incentive stock options to acquire
200,000 shares of Common Stock at a price of $1.00 per share for a period of
five years from the date of the issuance, September 2, 1997. The options vest
over a 36 month period. No options will be exercisable initially, but 7/36 of
the options will vest seven months after the date of the issuance, September 2,
1997, and 1/36 of the options will vest on the first day of each month
thereafter.

The Becker Agreement also provides that Becker shall be eligible to receive
a quarterly performance bonus equal to 10% of the Company's earnings net of
adjustments for interest and taxes. In the event that the bonus exceeds 50% of
Becker's gross annual salary, the bonus will be capped at the amount of Becker's
salary for the quarter.

The Becker Agreement includes non-competition and confidentiality provisions
which extend for 12 months and five years following the termination of Becker's
employment with the Company, respectively. The Becker Agreement may be
terminated by either the Company or Becker on 30 days notice without cause. If
his employment is terminated by the Company without cause, the Company must pay
Becker one month's salary for each year of employment since 1992.

EMPLOYMENT AGREEMENT - REGIS A. FRANK

On March 6, 1998, the Company and Regis Frank ("Frank"), the President,
Chief Operating Officer and a director, entered into an employment agreement
(the "Frank Agreement") which extends for a thirty six month period commencing

-28-

<PAGE>

on January 1, 1998. Under the terms of the Frank Agreement the Company will pay
to Frank the sum of $10,000 per month plus incentive stock options to acquire
90,000 shares of Common Stock at a price of $1.00 per share for a period of five
years from the date of the issuance, January 8, 1998. The option will vest over
a 36 month period., with no options exercisable initially, but 6/36 of the
options will vest seven months after the date of the issuance, and 1/36 of the
options will vest on the first day of each month thereafter (the "Standard
Executive Option Terms"). The Frank Agreement also provides that Frank shall be
eligible to receive a quarterly performance bonus not to exceed $20,000 per
quarter.

The Frank Agreement includes non-competition and confidentiality provisions
which extend for 12 months and five years following the termination of Frank's
employment with the Company, respectively. The Frank Agreement may be terminated
by either the Company or Frank on 30 days notice without cause. If his
employment is terminated by the Company without cause, the Company must pay
Frank the greater of three (3) month's salary and benefits or that number of
months equal to the number of years which have elapsed since January 1, 1998
until the date of Frank's termination by the Company.

EMPLOYMENT AGREEMENT - ROBERT C. HARTMAN

On March 6, 1998, the Company and Robert C. Hartman ("Hartman"), the Vice
President of Engineering, entered into an employment agreement (the "Hartman
Agreement") which extends for a thirty six month period commencing on January 1,
1998. Under the terms of the Hartman Agreement the Company paid to Hartman the
sum of $5,600 per month until the completion of the Canadian Offering, March 17,
1998, and thereafter the sum of $7,500 per month plus incentive stock options on
Standard Executive Option Terms to acquire 40,000 shares of Common Stock at a
price of $1.00 per share for a period of four years from the date of the
issuance, January 8, 1998. The Hartman Agreement also provides that Hartman
shall be eligible to receive a quarterly performance bonus not to exceed $5,000
per quarter.

The Hartman Agreement includes non-competition and confidentiality
provisions which extend for 12 months and five years following the termination
of Hartman's employment with the Company, respectively. The Hartman Agreement
may be terminated by either the Company or Hartman on 30 days notice without
cause. If his employment is terminated by the Company without cause, the Company
must pay Hartman the greater of three (3) month's salary and benefits or that
number of months equal to the number of years which have elapsed since January
1, 1998 until the date of Hartman's termination by the Company.

EMPLOYMENT LETTER - JASON M. ROLLINGS

On October 7, 1997, the Company provided a letter (the "Rollings Letter") to
Jason M. Rollings ("Rollings"), the Vice President of Operations, outlining the
terms of his employment by the Company. Under the terms of the Rollings Letter,
the Company will pay to Rollings the sum of $7,500 per month plus incentive
stock options on Standard Executive Option Terms to acquire 30,000 shares of
Common Stock at a price of $1.00 per share for a period of five years from the
date of issuance, January 8, 1998. Rollings is also eligible to receive a
quarterly performance bonus, based equally on Rollings performance and the
Company's performance, not to exceed $7,500 per quarter.

The Rollings Letter also provides that the Company will loan Rollings
$20,000. The loan is to be forgiven over a two-year period, with $10,000 being
forgiven after one year of service and the remainder being forgiven when he has
completed his second year of employment with the Company. If Rollings chooses to
leave the Company before completing two years of employment with the Company, he
agrees to repay any portion of the loan still outstanding. If the Company
terminates Rollings' employment for any reason, other than cause, any
outstanding loan balance will be immediately forgiven and Rollings will be
entitled to three months severance.

The Company also agreed to loan Rollings $15,000 on the earlier of February
28, 1998 or the closing of the Canadian Offering, March 17, 1998. Any such loan
is to be repaid from any quarterly bonus Rollings receives. If Rollings chooses
to leave the Company before any such loan has been repaid, Rollings agrees to
repay any outstanding balance related thereto. If the Company terminates
Rollings for any reason, other than cause, any outstanding loan balance will be
forgiven.

-29-

<PAGE>

PROPOSED EMPLOYMENT AGREEMENT - THOMAS R. TENNESSEN

The Company and Thomas R. Tennessen ("Tennessen"), the Chief Financial
Officer, propose to enter into an employment agreement (the "Proposed Tennessen
Agreement") which extends for a thirty six month period commencing on April 16,
1998. Under the terms of the Proposed Tennessen Agreement the Company will pay
to Tennessen the sum of $7,500 per month plus incentive stock options to acquire
45,000 shares of Common Stock at a price of $1.00 per share on Standard
Executive Option Terms for a period of four years from the date of the issuance,
February 20, 1998. The Proposed Tennessen Agreement also provides that Tennessen
shall be eligible to receive a quarterly performance bonus not to exceed $5,000
per quarter.

The Proposed Tennessen Agreement includes non-competition and
confidentiality provisions which extend for 12 months and five years following
the termination of Tennessen's employment with the Company, respectively. The
Proposed Tennessen Agreement may be terminated by either the Company or Frank on
30 days notice without cause. If his employment is terminated by the Company
without cause, the Company must pay Frank the greater of three (3) month's
salary and benefits or that number of months equal to the number of years which
elapse subsequent to execution of the proposed agreement until the date of
Tennessen's termination by the Company.

CONSULTING AGREEMENTS

On September 2, 1997, the Company and Kent Nuzum ("Nuzum"), then the
Secretary, Interim Chief Financial Officer and a director of the Company,
entered into a consulting and non-competition agreement (the "Nuzum Agreement")
which extends for an eleven month period ending July 31, 1998. Under the terms
of the Nuzum Agreement, Nuzum provides certain consulting services related to
the management of the regulatory issues associated with the listing of the
Company's Common Stock with various stock exchanges in Canada and the United
States. As payment for his consulting services Nuzum receives the sum of $3,500
per month (the "Consulting Fee") plus Nuzum's reasonable out-of-pocket expenses.
In consideration of the Consulting Fee Nuzum agrees not to disclose any
confidential information relating to the Company for a period of twelve months
following termination of the Nuzum Agreement.

The Company and Transition Partners, Ltd. ("TPL"), a Colorado corporation
with its principal place of business at 1942 Broadway, Suite 303, Boulder,
Colorado, U.S.A. 80302, entered into a letter consulting agreement (the "TPL
Agreement") on October 14, 1996, which was subsequently modified and extended on
May 6, 1997 and August 22, 1997. Under the terms of the TPL Agreement, as
amended, TPL provides certain consulting and advisory services related to
general corporate development, strategic planning and capital formation of the
Company. As payment for its consulting services TPL received a lump-sum payment
of $20,500, in addition to the $36,000 in fees received during the period
October 1996 to March 1997, and two promissory notes in the amounts of $41,000
and $75,000 respectively. Each of the promissory notes was payable, at the
option of the Company, by issuance of Common Stock of the Company valued at the
price of the Common Stock issued in the Canadian Offering, and these promissory
notes have been paid by the issuance of shares of Common Stock at a price of
$1.00 per share. The TPL Agreement will terminate on May 21, 1998.

On August 22, 1997 the Company and Pantheon Capital Ltd. ("Pantheon")
entered into a consulting and non-competition agreement (the "Pantheon
Agreement") which extends until May 21, 1998. Under the terms of the Pantheon
Agreement, as amended November 11, 1997, Pantheon provided certain consulting
services relating to an interim private financing of up to $410,000 and to the
Canadian Offering and agreed not to disclose confidential information of the
Company for five years. All rights of Pantheon under the Pantheon Agreement have
subsequently been transferred to its Stockholders, Daryl Yurek and Kent Nuzum.
In consideration of its consulting services Pantheon was issued warrants to
purchase 414,600 shares of Common Stock of the Company at $1.00 per share
beginning September 16, 1998 and expiring March 31, 1999. The warrant provides
that it may be exercised by giving a non-interest bearing 12-month promissory
note to the Company.

SEVERANCE AGREEMENT

On December 19, 1997 the Company and Wayne Farlow, the President of the
Company from September 2 to November 11, 1997 entered into the Severance
Agreement described under "Executive Compensation - Severance Agreement."

-30-

<PAGE>

SALE OF SHARES

The sale of Shares by the Selling Stockholders may be effected from time to
time in transactions (which may include block transactions) on any stock
exchange or trading market, if any, on which the Company's Common Stock is
listed or traded, in negotiated transactions, or a combination of such methods
of sale at fixed prices which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of such shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers that act
in connection with the sale of the shares of Common Stock hereunder might be
deemed to be "underwriters" within the meaning of Section 2(11) of the Act and
any commissions received by them and any profit on the resale of the Shares as
principals might be deemed to be underwriting discounts and commissions under
the Act.

The Company has paid substantially all of the expenses incident to the
offering of the Shares, other than any fees and expenses of counsel to any of
the Selling Stockholders.

LEGAL MATTERS

The due authorization, valid issuance and non-assessability of the shares of
Common Stock offered hereby will be passed upon for the Company by the law firm
of Davis, Graham & Stubbs LLP, Denver, Colorado.

DESCRIPTION OF SECURITIES

The Company is authorized to issue 50,000,000 shares of Common Stock, $.01
par value. The holders of Common Stock are entitled to vote at all meeting of
stockholders, to receive dividends if, as and when declared by the board of
directors, and to participate ratably in any distribution of property or assets
on the liquidation, winding up or other dissolution of the Company. The shares
have no preemptive or conversion rights.

EXPERTS

The financial statements of the Company included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement and
are included in reliance upon such reports given upon the authority of said
firms as experts in auditing and accounting.

AVAILABLE INFORMATION

The Company has filed with the Commission, a Registration Statement on
Form 10-SB pursuant to the Securities Exchange Act of 1934, as amended and a
Registration Statement on Form SB-2 pursuant to the Securities Act of 1933, as
amended (collectively referred to as the "Registration Statements") with respect
to the Shares being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statements, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements contained in this Prospectus as to
the contents of any contract or any other document are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statements, each such statement
being qualified in its entirety by such reference. The Registration Statements
may be inspected and copied at the offices of the Commission at Judiciary Plaza
Building, 450 Fifth Street, N.W., Washington, D.C. 20549; and its regional
offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material, or any portion thereof, may be
obtained from the Public Reference Section of the Commission, Judiciary Place,
450 Fifth Street, N.W. , Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains information regarding registrants'
electronic filings with the Commission. The address of the Commission's Web site
is http://www.sec.gov.

-31-

<PAGE>

The Company files reports and other financial information with the
Commission pursuant to Section 13 of the Securities Exchange Act of 1934, and
following completion of this Offering, the Company intends to furnish its
stockholders with annual reports containing audited financial statements
examined and reported upon by its independent certified public accountants and
such interim reports, in each case, as it may determine to furnish or as may be
required by law.

SUPPLEMENT DATED APRIL 28, 1998

FIRST QUARTER 1998 OPERATING RESULTS:

Set forth below is a summary of the results of operations of the Company
during the three months ended March 31, 1998:

Revenues $733,932
Gross Profit 460,188
Expenses 754,271
-------

Net Loss ($295,240)

Basic and diluted loss per share $(0.09)

First quarter 1998 revenues increased 251% over the first quarter of 1997,
while margins declined from 70% to 63% and operating expenses increased 312%
year to year. The loss expanded by $252,000 or 590%. The growth in both revenue
and expenses resulted from concerted expansion of selling, marketing and general
and administrative expenditures beginning in September 1997 after the infusion
of $347,000 in a private financing. Revenue growth from the fourth quarter of
1997 was approximately 65%, while operating expenses increased 42%. The Company
anticipates continuation of both trends throughout much of 1998, as the Company
expands its product distribution networks and the marketing, sales and
administrative management and staff to support the anticipated growth in sales.
For additional information, see Form 10-QSB for the quarter ended March 31,
1998, filed with the Securities Exchange Commission on April 27, 1998.

-32-

<PAGE>

FINANCIAL STATEMENTS

CONTENTS

PAGE

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................F-1

BALANCE SHEET.............................................................F-2

STATEMENTS OF OPERATIONS..................................................F-4

STATEMENTS OF STOCKHOLDERS' EQUITY........................................F-5

STATEMENTS OF CASH FLOWS..................................................F-6

SUMMARY OF ACCOUNTING POLICIES............................................F-7

NOTES TO FINANCIAL STATEMENTS.....................................F-10 - F-15

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
eSoft, Incorporated
Boulder, Colorado

We have audited the accompanying balance sheet of eSoft, Incorporated as of
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1997.
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 financial position of eSoft, Incorporated at December
31, 1997 and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

/s/BDO Seidman, LLP
BDO Seidman, LLP

Denver, Colorado
March 5, 1998

F-1

<PAGE>

BALANCE SHEET

December 31, 1997
- ------------------------------------------------------------------------------

ASSETS

CURRENT:
Cash and cash equivalents $ 102,837
Accounts receivable, less allowance of
$48,000 for possible losses 199,832
Subscriptions receivable 200,000
Inventories 94,607
Prepaid expenses and other 44,799
Deferred income taxes 18,000
- ------------------------------------------------------------------------------

Total current assets 660,075
- ------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT:
Computer equipment 119,544
Furniture and equipment 143,157
- ------------------------------------------------------------------------------

262,701

Less accumulated depreciation 147,881
- ------------------------------------------------------------------------------

Net property and equipment 114,820

OTHER ASSETS:
Capitalized software development costs,
net of accumulated amortization of $152,673 651,470
Deferred offering costs 280,896
Other 17,539
- ------------------------------------------------------------------------------

Total other assets 949,905
- ------------------------------------------------------------------------------

$1,724,800
- ------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to financial
statements.

F-2

<PAGE>

BALANCE SHEET

December 31, 1997
- ------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Note payable - bank $ 75,757
Accounts payable 174,754
Deferred revenue 46,622
Accrued expenses and other 91,949
Notes payable, related party - current 20,000
- ------------------------------------------------------------------------------

Total current liabilities 409,082

DEFERRED TAX LIABILITY - NET 180,000
CONVERTIBLE NOTES PAYABLE -
RELATED PARTIES 355,903
- ------------------------------------------------------------------------------

Total liabilities 944,985
- ------------------------------------------------------------------------------

COMMITMENTS

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000 shares
authorized, 2,433,158 shares issued
and outstanding 24,332
Additional paid in capital 1,135,432
Accumulated deficit (379,949)
- ------------------------------------------------------------------------------

Total stockholders' equity 779,815
- ------------------------------------------------------------------------------

$1,724,800
- ------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to financial
statements.

F-3

<PAGE>

STATEMENTS OF OPERATIONS

Years Ended December 31, 1997 1996
- ------------------------------------------------------------------------------

Revenues $ 1,233,137 $1,405,761
- ------------------------------------------------------------------------------

COSTS AND EXPENSES:
Cost of revenue 412,639 598,736
Research and development 56,671 -
Selling, general and administrative 922,344 631,124
Interest expense 31,012 23,914
Loss on disposal of assets 7,803 27,739
Other (4,080) 4,899

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

Total costs and expenses 1,426,389 1,286,412
- ------------------------------------------------------------------------------

Income (loss) before income taxes (193,252) 119,349
- ------------------------------------------------------------------------------

Income tax expense 162,000 -
- ------------------------------------------------------------------------------

Net income (loss) $ (355,252) $ 119,349
- ------------------------------------------------------------------------------

Basic and diluted income (loss) per common share $ (.23) $ .11
- ------------------------------------------------------------------------------

Weighted-average number of
common shares outstanding 1,536,884 1,102,253
- ------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to financial
statements.

F-4

<PAGE>

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock Additional Total
Years Ended --------------------------------------- Paid in Accumulated Stockholders'
December 1996 and 1997 Shares Amount Capital Deficit Equity
- ----------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 $ 921,704 $ 9,217 $ 340,833 $ (144,046) $ 206,004

Debt exchange for
common stock 341,454 3,415 127,140 - 130,555

Net income for the year - - - 119,349 119,349
- ----------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1996 1,263,158 12,632 467,973 (24,697) 455,908

Issuance of common stock
pursuant to private place-
ments, net of issuance costs
of $80,841 820,000 8,200 320,959 - 329,159

Common stock subscribed 350,000 3,500 346,500 - 350,000

Net loss for the year - - - (355,252) (355,252)
- ----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997 2,433,158 $ 24,332 $ 1,135,432 $ (379,949) $ 779,815
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-5

<PAGE>

STATEMENTS OF CASH FLOWS

Increase (decrease) in cash and cash equivalent

Years Ended December 31, 1997 1996
- -------------------------------------------------------------------------------

Operating activities:
Net income (loss) $ (355,252) $ 119,349
Adjustments to reconcile net income
(loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization 141,943 79,637
Loss on disposal of capital assets 7,803 27,739
Provision for losses on accounts receivable 48,000 -
Deferred tax expense 162,000 -
Consulting expense incurred for note payable 41,000 -
Changes in operating assets and liabilities:
Accounts receivable (213,167) 12,173
Inventories (35,948) 37,734
Other assets (59,777) 18,949
Accounts payable 145,026 (58,667)
Accrued expenses and other 85,915 (35,122)
Deferred revenue (11,348) 57,970
- ------------------------------------------------------------------------------

Net cash (used in) provided by operating
activities (43,805) 259,762
- ------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Purchase of property and equipment (21,989) (19,041)
Additions to capitalized software (221,139) (440,237)
- ------------------------------------------------------------------------------

Net cash used in investing activities (243,128) (459,278)
- ------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net 479,159 -
Proceeds from borrowings 100,000 -
Payments on debt (24,243) -
Proceeds from related party borrowings 20,000 208,550
Deferred offering costs (205,896) -
Payments on related party notes payable - (36,386)
- ------------------------------------------------------------------------------

Net cash provided by financing activities 369,020 172,164
- ------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 82,087 (27,352)

CASH AND CASH EQUIVALENTS,
beginning of year 20,750 48,102
- ------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS,
end of year $ 102,837 $ 20,750
- ------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to financial
statements.

F-6

<PAGE>

SUMMARY OF ACCOUNTING POLICIES

BUSINESS

eSoft, Incorporated (the "Company" or "eSoft"), a Colorado corporation,
develops and markets internet connectivity solutions. The Company has developed
software, which is integrated with a hardware component, that allows local area
networks to connect with the internet. The software also contains full access
control for its remote access features. The Company also resells related
connectivity accessories. The Company previously had developed and sold software
for the bulletin board market.

The Company was previously a Colorado corporation and was merged into a
newly formed Delaware corporation as of February 17, 1998 of the same name with
the Colorado corporation ceasing to exist. The transaction was accounted for on
a basis similar to a pooling of interest with no change in the historical
financial statements of eSoft. The newly formed corporation had no operations
prior to the merger.

Prior to June 30, 1996, eSoft and Philip L. Becker, Ltd. ("PLB") operated
as a combined entity due to common ownership. eSoft, an S-corporation, acted as
the general partner of PLB, a limited partnership. eSoft, as general partner,
owned 10% of the partnership while the sole stockholder of eSoft owned the other
90% individually. PLB was dissolved on June 30, 1996 and the assets were
contributed to the Company in exchange for common stock.

The contribution of assets was accounted for in a manner similar to a
pooling-of-interests (the assets, liabilities and partnership capital were
contributed at book values) and, accordingly, the Company's financial statements
have been presented to include the results of operations as though the
contribution of assets occurred as of January 1, 1996.

CONCENTRATIONS OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company's cash and cash equivalents are deposited with financial
institutions and are primarily invested in money market accounts. The investment
policy limits the Company's exposure to concentration of credit risk. Such
deposit accounts at times may exceed federally insured limits. The Company has
not experienced any losses in such accounts.

Concentrations of credit risk with respect to trade accounts receivable
are generally limited due to customers dispersed across geographic areas and
generally short payment terms. On-going credit evaluations of customers'
financial condition are performed and, generally no collateral is required. The
Company maintains an allowance for potential losses based on management's
analysis of possible uncollectible accounts

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
disclosures of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Unless otherwise specified, the Company believes the book value of
financial instruments approximates their fair value.

INVENTORIES

Inventories, consisting of purchased goods, are valued at the lower of
cost (first-in, first-out) or market.

F-7

<PAGE>

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
straight-line methods over the estimated useful lives (generally five years) of
the assets.

CAPITALIZED SOFTWARE COSTS

Costs incurred internally in creating software products for resale are
charged to expense until technological feasibility has been established upon
completion of a detail program design. Thereafter, all software development
costs are capitalized until the point that the product is ready for sale and
subsequently reported at the lower of amortized cost or net realizable value.

In accordance with Statement of Financial Accounting Standard No. 86, the
Company recognizes the greater amount of annual amortization of capitalized
software costs under 1) the ratio of current year revenues by product, to the
product's total estimated revenues method or 2) over the products estimated
economic useful life by the straight-line method.

REVENUE RECOGNITION

Revenue from licensing of software products is recognized upon shipment.
Revenue from support and update service agreements is deferred at the time the
agreement is executed and recognized ratably over the contractual period. The
Company recognizes revenues from customer training and consulting services when
such services are provided. All costs associated with licensing of software
products, support and update services, and training and consulting services are
expensed as incurred.

INCOME TAXES

The Company with consent of its stockholder, through September 4, 1997,
elected under the Internal Revenue Code to be an S-corporation. Subsequent to
September 4, 1997, the Company is taxed as a U.S. C-corporation. Philip L.
Becker, Ltd. elected to be taxed as a partnership. In lieu of corporation income
taxes, the stockholder and partners were taxed on their proportional share of
the Company's or partnership's taxable income. Therefore through September 4,
1997, no provision for income taxes has been made in the accompanying financial
statements.

The Company follows the provisions of Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes ("SFAS No. 109"), which requires
use of the "liability method." Accordingly, deferred tax liabilities and assets
are determined based on the temporary differences between the financial
statement and tax bases of assets and liabilities, using the enacted tax rates
in effect for the year in which the differences are expected to reverse. The
provisions of SFAS No. 109 did not have an impact until after September 4, 1997.

CASH EQUIVALENTS

The Company considers cash and all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.

LONG-TERM ASSETS

The Company applies SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets". Under SFAS No. 121, long-lived assets and certain
intangibles are reported at the lower of the carrying amount or their estimated
recoverable amounts.

F-8

<PAGE>

NET INCOME (LOSS) PER SHARE

Through December 31, 1996, the Company followed the provisions of
Accounting Principles Board Opinion (APB) No. 15, "Earnings Per Share".
Effective for the year ended December 31, 1997, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS No. 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. In loss
periods, dilutive common equivalent shares are excluded as the effect would be
anti-dilutive. Basic and diluted earnings per share are the same for all periods
presented.

Options and warrants to purchase 762,100 shares of common stock and convertible
notes payable-related parties into 355,903 shares of common stock were not
included in the computation of diluted EPS because their effect was
anti-dilutive for the year ended December 31, 1997.

Subsequent to December 31, 1997, the Company granted 90,000 shares to certain
employees, sold 290,000 shares of common stock, and accepted subscriptions to
another 100,000 shares of common stock. Additionally, the Company converted
$177,952 of the convertible notes payable - related parties into 177,952 shares
of common stock. The Company also granted options to purchase 528,000 shares of
common stock to employees, directors, and consultants.

STOCK OPTION PLANS

The Company applies Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees," (APB Opinion 25) and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, no compensation
cost has been recognized for stock options granted as the option price equals or
exceeds the market price of the underlying common stock on the date of grant.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), requires the Company to provide pro
forma information regarding net income as if compensation cost for the Company's
stock option plans had been determined in accordance with the fair value based
method prescribed in SFAS No. 123.

DEFERRED OFFERING COSTS

Costs incurred in connection with the Company's anticipated public
offering are deferred and will be charged against stockholders' equity upon the
successful completion of the offering or charged to expense if the offering is
not consummated.

NEW ACCOUNTING PRONOUNCEMENTS

Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No.14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial

F-9

<PAGE>

information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.

In October 1997, Statement of Position 97-2, Software Revenue Recognition
(SOP 97-2), was issued. The SOP provides guidance on when revenue should be
recognized and in what amounts licensing, selling, leasing, or otherwise
marketing computer software. SOP 97-2 is effective for transactions entered into
in fiscal years after December 15, 1997. Because of the recent issuance of the
SOP, management has been unable to fully evaluate the impact, if any, the SOP
may have on future financial statement disclosure.

In February 1998, the FASB issued SFAS No. 132, "Employers" Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis. SFAS No. 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement will have
no material impact on the Company's financial statements.

RECLASSIFICATIONS

Certain items included in the prior year's financial statements have been
reclassified to conform to the current presentation.

NOTES TO FINANCIAL STATEMENTS

1. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

Prior to January 1, 1996 the Company had entered into an unsecured note
agreement with the initial stockholder in the amount of $125,000 with interest
at 9% per annum, maturing December 31, 1997. The Company also had borrowed an
additional $111,598 from the stockholder under various unsecured demand note
agreements with interest at 7% per annum.

On June 21, 1996, the stockholder converted $130,555 of the above notes
into 341,454 shares of common stock. The remaining amounts outstanding and
additional advances from the stockholder during 1996 were combined into a
$239,903 unsecured demand note payable. The note bears interest at 7% per annum
and requires monthly interest payments of $1,399. In October 1997, the note was
amended which provides the Company the option to convert the note into equity at
the price of the Company's contemplated initial public offering. The note is
payable in full on January 2, 1999.

The Company entered into an agreement with a business consulting firm to
provide services through May 31, 1998 in exchange for convertible notes payable
totalling $116,000. The convertible notes payable bear interest at a rate of 12%
per annum and are payable on January 2, 1999. The notes are convertible into
common stock, at the Company's option, at the price of the Company's
contemplated initial public offering.

Subsequent to December 31, 1997, holders of the convertible notes payable
accepted as partial payment of the principal amounts owed 177,952 shares of the
Company's common stock valued at $1.00 per share.

The Company has borrowed a total of $20,000 from the initial stockholder
in April and June 1997. The 7% unsecured notes payable are due on demand and
require monthly interest payments.

F-10

<PAGE>

2. RESEARCH AND DEVELOPMENT

During the years ended December 31, 1997 and 1996, the Company capitalized
$233,425 and $440,237 of software development costs. Amortization expense of
capitalized software development costs included in depreciation and amortization
for the years ended December 31, 1997 and 1996 amounted to $116,912 and $35,761.
Research and development costs were $56,671 and $0 for the years ended December
31, 1997 and 1996.

Research and development expenditures during the following periods were
comprised as follows:

Years Ended December 31, 1997 1996
- -----------------------------------------------------------------------------

Payroll and related costs $ 131,627 $ 218,545

Officer payroll 50,000 48,300
Internet and telephone expenses 30,056 35,276

Beta testing - 35,534
Occupancy costs 34,860 24,427
Purchased software - 23,800
Other 43,553 54,355

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

290,096 440,237
Less capitalized software costs 233,425 440,237
- ------------------------------------------------------------------------------

$ 56,671 $ -
- ------------------------------------------------------------------------------

3. COMMITMENTS

Leases

The Company leases certain of its facilities and equipment under
noncancellable operating lease agreements which expire at various dates through
2000. Rent expense for the years ended December 31, 1997 and 1996 was $50,625
and $31,160.

Future minimum lease payments under noncancellable operating leases are as
follows:

Year ending December 31,
- ------------------------------------------------------------------------------

1998 $ 71,000
1999 58,000
2000 49,000
- ------------------------------------------------------------------------------

$ 178,000
- ------------------------------------------------------------------------------

Software Development and License Agreements

The Company has entered into several software development and license
agreements related to software utilized in certain of the Company's products.
The agreements require compensation or royalty payments based on percentages

F-11

<PAGE>

(ranging from 2.5% to 33.3%) of applicable gross sales and subject to certain
maximum amounts per license as defined in the agreements.

Subsequent to December 31, 1997, the Company entered into an agreement to
terminate the software development agreements. The termination agreement
requires the Company to pay $30,000 at the agreements inception; $30,000 no
later than 15 days after the Company completes its proposed public offering but
not later than December 31, 1998 if the proposed public offering is not
completed by that date; and the issuance of stock warrants entitling the warrant
holder, for a period of two years from January 29, 1998 to purchase up to 20,000
shares of the Company's common stock at a price of $1.00 per share until one
year after the closing of the public offering and $1.15 per share until the
warrants expire.

4. INCOME TAXES

As stated in the summary of accounting policies, the Company had elected
to be taxed as an S corporation. In lieu of the corporation income taxes, the
stockholders and partners were taxed on their proportional share of the
Company's taxable income. The proforma income (loss) per common share if the
Company was subject to taxes (federal statutory rate of 34%) would be as
follows:

Year ended December 31, 1997 1996
- ------------------------------------------------------------------------------

Income (loss) before
income taxes $ (193,252) $ 119,349
Proforma income tax
benefit (expense) 66,000 (41,000)
- ------------------------------------------------------------------------------

Proforma net income (loss) $ (127,252) $ 78,349
- ------------------------------------------------------------------------------

Proforma income (loss) per share $ (.08) $ .07
- ------------------------------------------------------------------------------

With the change in tax status from an S corporation to a C
corporation on September 4, 1997, the Company recorded an expense to recognize a
deferred tax liability. The deferred tax liability primarily results from the
capitalized software development costs being expensed for income tax purposes in
the period such costs are incurred.

The provision for income taxes consisted of the following:

Year ended December 31, 1997
- ------------------------------------------------------------------------------

Current expense (benefit):
Federal $ (16,000)
State (2,000)

Deferred expense (benefit):
Federal 164,000
State 16,000

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

$ 162,000
- ------------------------------------------------------------------------------

F-12

<PAGE>

A reconciliation of the effective tax rates and the statutory U.S. federal
income tax rates follows:

Year ended December 31, 1997
- ------------------------------------------------------------------------------

U.S. federal tax benefit at statutory rates $ (68,000)
State income tax benefit, net of federal tax amount (7,000)
Other (6,000)
Deferred tax expense for software
243,000
- ------------------------------------------------------------------------------

Income tax expense $ 162,000
- ------------------------------------------------------------------------------

Temporary differences that give rise to a significant portion of the
deferred tax assets and liability are as follows:

December 31, 1997
- ------------------------------------------------------------------------------

Net operating loss carryforward $ 58,000
Provision for allowance for uncollectible accounts 18,000
Software amortization (243,000)
Other 5,000
- ------------------------------------------------------------------------------

Net deferred tax liability $ (162,000)
- ------------------------------------------------------------------------------

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $155,000 with expirations through 2013. The net operating losses
are limited due to issuances of common stock.

5. CAPITAL TRANSACTIONS

On August 27, 1997, the Board of Directors authorized a stock split of
63.1579 to 1. All references to common share and per share amounts in the
accompanying financial statements have been retroactively restated to reflect
the effect of the stock split.

On September 12, 1997, the Company sold 820,000 shares of common stock for
$410,000 in a private placement. In December 1997, the Company sold 350,000
shares of common stock for $350,000 in a private placement. The Company granted
the promoter of the private placement warrants to purchase an additional 87,500
shares of common stock at $1 per share. The warrants expire December 22, 1999.
Of the December 1997 private placement, $200,000 was recorded as a subscription
receivable. Subsequent to December 31, 1997, the Company received the
outstanding balance.
The net proceeds to the Company after stock issuance costs was $679,159.

In January 1998, the Company granted 90,000 shares of common stock to
certain employees.

In February 1998, the Company sold and issued an additional 290,000
shares. The Company accepted subscriptions for an additional 150,000 shares, all
at a price of $1.00 per share in private transactions to officers, directors,
key employees and consultants of the Company. Subscriptions receivable of
$100,000 from the private placement was collected in March 1998.

In September 1997 the Company granted various options and warrants to
purchase an aggregate of 614,600 shares of its common stock to employees and
consultants. Terms of the employee options are 200,000 shares at $1 per share
which expire September 2002. Warrants to purchase 414,600 shares of common stock
have been issued to consultants at $1 per share. The warrants were modified in
January 1998, changing the term of the warrants to one year and fifteen days
after

F-13

<PAGE>

the Company's shares are listed for trading. If the shares are not exercised
within a year, the exercise price increased to $1.15 for fifteen days.

The Company also granted in September 1997, 60,000 options to an employee
at $.50 per share that were exercisable immediately. The options expire in
September 1998. The 60,000 options were exercised in February 1998 under a stock
subscription. The Company received $600 cash and a note receivable for $29,400
to exercise such shares.

FASB Statement 123, "Accounting for Stock-Based Compensation" (SFAS No.
123), requires the Company to provide pro forma information regarding net income
and net income per share as if compensation costs for the Company's stock option
plans and other stock awards had been determined in accordance with fair value
based methods prescribed in SFAS No. 123. The proforma net loss and net loss per
share for the year ended December 31, 1997 would have been $(355,969) and
($.23).

A summary of the Company's outstanding options and warrants as of December
31, 1997 and changes during the year then is presented below:

Range of Weighted Average
Shares Exercise Price
- ------------------------------------------------------------------------------

Outstanding, beginning of year - $ -

Granted 762,000 .96
Cancelled - -
Exercised - -

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

Outstanding, end of year 762,000 $ .96
- ------------------------------------------------------------------------------

Range of Weighted Average
Shares Exercise Price
- ------------------------------------------------------------------------------

Options and warrants exercisable, end of year 60,000 $ .50

Weighted average fair value of options granted
during the year $ .96
- ------------------------------------------------------------------------------

The following table summarizes information about stock options and
warrants outstanding at December 31, 1997:

<TABLE>
<CAPTION>
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
$ .50 60,000 .75 $ .50 60,000 $ .50
1.00 702,100 2.19 1.00 - -
- -------------------------------------------------------------------------------------------------------------------

$ .96 762,100 2.08 $ .96 60,000 $ .50
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

F-14

<PAGE>

In January 1998, the Company granted options to purchase 418,000 shares of
common stock at $1 per share to employees and directors. The shares vest over
various periods from 2 months to 36 months. The options expire through February
2003.

In January and February 1998, the Company granted 90,000 options to
consultants at $1 per share, of which 65,000 options vest at date of grant and
25,000 options vest ratably over a 36 month period. The options expire through
February 2003.

6. NOTE PAYABLE - BANK

The Company borrowed $100,000 from a bank on January 3, 1997. The note
bears interest at 12% per annum and is payable on April 3, 1998. The note is
secured by the assets of the Company.

7. EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with certain members of
management. The agreements expire on August 31, 2000. Future commitments are
1998-$120,000, 1999-$120,000, and 2000-$80,000.

The Company and its former President have entered into a severance
agreement and mutual release pursuant to which the Company will pay its former
president $10,000 per month through March 7, 1998.

8. RELATED PARTY TRANSACTIONS

The Company has entered into various agreements with certain outside
directors to provide services in the year. One director has an agreement to
coordinate the offering process in Vancouver for $3,500 a month. The agreement
became effective August 1, 1997 and expires July 31, 1998.

The Company has also been paying another director and the Promoter $6,000
a month each to provide services with respect to sales, marketing, sales channel
development and related administrative activities in the months of November and
December 1997.

9. PUBLIC OFFERING

The Company has entered into a letter of intent with an underwriter for a
proposed public offering of 1,550,000 shares of common stock on the Vancouver
Stock Exchange.

10. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOW AND NON CASH INVESTING
AND FINANCING ACTIVITIES

Years ended December 31, 1997 1996
- ------------------------------------------------------------------------------

Cash paid for interest $ 31,012 $ 23,914
Convertible notes payableissued for consulting
services and deferred offering costs $ 116,000 $ -
Common stock issued for subscription receivable $ 200,000 $ -
Common stock issued for conversion of debt $ - $ 130,555

F-15

<PAGE>

ESOFT, INC.

PROSPECTUS

NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING AND NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY, ANY SECURITY OTHER THAN THE REGISTERED SECURITIES OFFERED BY THIS
PROSPECTUS OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER THE CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

SUMMARY......................................................................2

RISK FACTORS.................................................................4

USE OF PROCEEDS..............................................................6

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

BUSINESS....................................................................11

DESCRIPTION OF PROPERTY.....................................................19

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................19

EXECUTIVE COMPENSATION......................................................20

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............22

SELLING STOCKHOLDERS........................................................23

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................27

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................28

SALE OF SHARES..............................................................31

LEGAL MATTERS...............................................................31

DESCRIPTION OF SECURITIES...................................................31

EXPERTS.....................................................................31

AVAILABLE INFORMATION.......................................................31

SUPPLEMENT DATED APRIL 28, 1998.............................................32

FINANCIAL STATEMENTS.......................................................F-1

Until July 22, 1998 (90 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
April 23, 1998

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