<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-89401
PROSPECTUS
1,249,058 Shares
[eSOFT LOGO]
eSOFT, INC.
Common Stock
--------------------------------------------
The 1,249,058 shares of common stock, $.01 par value, offered hereby
are being offered by certain of our stockholders. See "Selling Stockholders."
Our common stock is listed and traded on the Nasdaq SmallCap Market
under the symbol "ESFT." 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 "Plan of Distribution."
--------------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK.
--------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 26, 1999.
<PAGE> 2
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. NEITHER WE NOR ANY OF THE SELLING
STOCKHOLDERS HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
NEITHER WE NOR ANY OF THE SELLING STOCKHOLDERS IS MAKING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION PROVIDED BY THE PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE OF THE FRONT OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION.......................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................3
SUMMARY...................................................................5
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...........................6
USE OF PROCEEDS...........................................................6
SELLING STOCKHOLDERS......................................................7
DESCRIPTION OF eSOFT COMMON STOCK.........................................8
PLAN OF DISTRIBUTION......................................................9
VALIDITY OF SECURITIES...................................................10
EXPERTS..................................................................11
</TABLE>
-2-
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
eSoft files annual, quarterly and other reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information we file at the Securities and
Exchange Commission's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Securities and Exchange Commission
at 1 (800) SEC- 0330 for further information on the public reference rooms. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov."
We have filed a Registration Statement on Form S-3 to register with the
Securities and Exchange Commission the eSoft common stock offered by this
Prospectus. This Prospectus is part of that Registration Statement. As allowed
by Securities and Exchange Commission rules, this Prospectus does not contain
all the information you can find in the Registration Statement or the exhibits
to the Registration Statement.
You can obtain a complete copy of the Registration Statement, including
exhibits, without charge by submitting a request in writing or by telephone to
us at the following addresses:
Investor Relations
eSOFT, INC.
295 Interlocken Boulevard, Suite 500
Broomfield, Colorado 80021
(303) 444-1600
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" information filed with it, which means that we can disclose important
information to you by referring you directly to those documents. The information
incorporated by reference is considered to be a part of this prospectus. In
addition, information we file with the Commission in the future will
automatically update and supersede information contained in this prospectus and
any accompanying prospectus supplement. We are incorporating by reference the
documents listed below and any future filings made with the Commission under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
all of the shares of common stock described in this prospectus are sold:
o Annual Report on Form 10-KSB/A-1 for the fiscal year ended December
31, 1998;
o Quarterly Report on Form 10-QSB for the fiscal quarter ended March
31, 1999;
o Current Report on Form 8-K filed June 9, 1999;
o Current Report on Form 8-K filed June 28, 1999;
o Quarterly Report on Form 10-QSB filed June 30, 1999;
o Current Report on Form 8-K filed on September 27, 1999;
o Current Report on Form 8-K filed on August 9, 1999; and
o Current Report on Form 8-K/A filed on August 9, 1999.
-3-
<PAGE> 4
You may request a copy of these filings at no cost, by writing us at
295 Interlocken Boulevard, Suite 500, Broomfield, Colorado 80021, Attention:
Director of Investor Relations or telephoning us at (303) 444-1600.
-4-
<PAGE> 5
SUMMARY
THE COMPANY
We develop and market a product line of Internet protocol adapters that
are designed to be a total Internet/Intranet connectivity solution for small and
medium sized businesses, institutions and educational sites that can be easily
and economically installed and managed by existing systems personnel.
We recently concluded strategic combinations with Apexx Technology,
Inc. and Technologic, Inc. that resulted in Apexx and Technologic becoming our
wholly owned subsidiaries. Apexx is an Idaho corporation that provides easy and
affordable computer networking solutions that enhance decision speed and
communication capabilities to growing organizations. Apexx's award-winning TEAM
Internet(R) family of products, targeted to small to medium sized businesses,
provides a turnkey Internet/Intranet solution that gives the customer a
powerful, affordable and easy to manage Internet presence. The key features
include Internet connectivity/routing, firewall protection, an e-mail server,
Web browsing, Web publishing capabilities and Web filtering applications.
Technologic is a leading developer of Internet firewall and all-in-one
connectivity appliances. Technologic's mission is to provide products and
services that make it affordable, easy and safe for companies to conduct
business on the Internet. Technologic's flagship products, Interceptor(TM)
Firewall Appliance and InstaGate(TM) Internet Appliances, have been certified to
meet security standards defined by the ICSA (International Computer Security
Association).
Our principal executive office is located at 295 Interlocken Boulevard,
Suite 500, Broomfield, Colorado 80021, and our telephone number is (303)
444-1600.
THE OFFERING
We are registering an aggregate of 1,249,058 shares of our common stock
to be offered for sale by certain of our stockholders. These shares are held or
issuable as follows:
<TABLE>
<S> <C> <C>
Shares that may be issued to two Selling
Stockholders, who purchased $2,000,000 of 5%
Convertible Subordinated Debentures in a private
transaction, upon payment of interest in shares of
eSoft common stock, upon conversion of such
Debentures at a conversion price of $3.9125 per
share, and upon exercise of outstanding warrants
to purchase eSoft common stock issued to the
Selling Stockholders in the transaction, at an 1,249,058
exercise price of $4.499375 per share ---------
Total: 1,249,058
=========
</TABLE>
We will not receive any of the proceeds from the sale of eSoft common
stock by the Selling Stockholders. If all of the warrants described above are
exercised at their current exercise prices, we will receive approximately
$2,760,000 from the purchase of eSoft common stock pursuant to the warrants.
-5-
<PAGE> 6
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document that are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of our
management and on the information currently available to our management.
Forward-looking statements include information concerning our possible or
assumed future results. These statements may be preceded by, followed by, or
otherwise include the words "believes," "expects," "anticipates," "intends,"
"plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. Our future results and stockholder
values may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Investors are cautioned not to put
undue reliance on any forward-looking statements. Except for our ongoing
obligations to disclose material information as required by the federal
securities law, we do not have any intention or obligation to update
forward-looking statements after we distribute this Prospectus, even if new
information, future events or other circumstances have made them incorrect or
misleading. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to in this
document, could affect our future results and could cause results to differ
materially from those expressed in such forward-looking statements. For a
discussion of certain of these important factors, see "Risk Factors Relating to
an Investment in eSoft Common Stock," contained in the reports we file with the
Securities and Exchange Commission.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of eSoft common
stock by the Selling Stockholders. If all of the warrants described below are
exercised at their current exercise prices, we will receive approximately
$2,760,000 from the purchase of common stock pursuant to the warrants. See
"Summary--The Offering."
-6-
<PAGE> 7
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of eSoft common stock as of September 15, 1999 by the Selling
Stockholders in this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
--------------------------------- -------------------------------
PERCENT OF SHARES OFFERED PERCENT OF
NAME AND ADDRESS NUMBER OUTSTANDING IN THIS OFFERING* NUMBER OUTSTANDING(1)
- ---------------------------------- --------------- --------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Brown Simpson Strategic
Growth Fund, L.P. ............... 733,133(2) 6.2% 187,446(3) 576,358 4.9%
152 West 57th Street, 40th Floor
New York, NY 10019
Brown Simpson Strategic
Growth Fund, Ltd.................. 1,883,337(4) 14.5% 1,061,612(5) 971,246 8.0%
152 West 57th Street, 40th Floor
New York, NY 10019
Total 2,616,470 19.1% 1,249,058 1,547,604 12.2%
</TABLE>
- -----------------------
* Including shares of eSoft Common Stock that may be issuable pursuant to
certain anti-dilution rights.
(1) For purposes of calculating shares beneficially owned after this offering,
it is assumed that all shares offered hereunder that are purchasable upon
the exercise of warrants have been purchased by the Selling Stockholder
upon exercise of its warrants and that such shares have been sold pursuant
to this offering.
(2) Includes up to 17,481 shares of eSoft common stock that may be issued if
eSoft elects to pay interest in shares of eSoft common stock, 357,826
shares of eSoft common stock that may be issued upon the exercise of
warrants and up to 357,826 shares of eSoft common stock that may be issued
upon conversion of convertible debentures.
(3) Includes up to 3,422 shares of eSoft common stock that may be issued if
eSoft elects to pay interest in shares of eSoft common stock, 92,012 shares
of eSoft common stock that may be issued upon the exercise of warrants and
up to 92,012 shares of eSoft common stock that may be issued upon
conversion of convertible debentures.
(4) Includes up to 43,081 shares of eSoft common stock that may be issued if
eSoft elects to pay interest in shares of eSoft common stock, 920,128
shares of eSoft common stock that may be issued upon the exercise of
warrants and up to 920,128 shares of eSoft common stock that may be issued
upon conversion of convertible debentures.
(5) Includes up to 18,800 shares of eSoft common stock that may be issued if
eSoft elects to pay interest in shares of eSoft common stock, 521,406
shares of eSoft common stock that may be issued upon the exercise of
warrants and up to 521,406 shares of eSoft common stock that may be issued
upon conversion of convertible debentures.
-7-
<PAGE> 8
DESCRIPTION OF eSOFT COMMON STOCK
The following is a summary description of our common stock. Investors
are urged to review our certificate of incorporation, as amended to date, which
has been filed as an exhibit to a registration statement filed with the
Securities and Exchange Commission.
GENERAL
We are authorized to issue 50,000,000 shares of common stock and
5,000,000 shares of preferred stock. The holders of eSoft common stock are
entitled to vote at all meetings of stockholders, to receive dividends if, as,
and when declared by the board of directors, and to participate in any
distribution of property or assets on the liquidation, winding up, or other
dissolution of eSoft. eSoft common stock has no preemptive or conversion rights.
CHANGE IN CONTROL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of our Amended and Restated Certificate of
Incorporation and Bylaws may make it difficult to change control of eSoft.
Article 4 of the Amended and Restated Certificate of Incorporation allows our
board of directors to determine or alter the rights, preferences, privileges,
and restrictions to be granted to or imposed upon any wholly unissued series of
preferred stock, to fix the number of shares that constitute any series of
preferred stock, and to determine the designation and series of preferred stock.
Article III of the Bylaws establishes what is known as a "classified board of
directors," with three classes of directors designated as Class I, Class II, and
Class III. Each class is elected to serve for a three year term, with each class
up for election in different years so that in any one year, only one-third of
all directors are up for election. At each annual meeting of stockholders, the
successors to the class of directors whose terms expire at that meeting are
elected to serve as directors for a three year term.
MARKET PRICE OF eSOFT COMMON STOCK
On March 16, 1998, eSoft completed a public offering of its common
stock in Canada on the Vancouver Stock Exchange. On August 6, 1998, eSoft's
stock began trading on the Nasdaq SmallCap Market under the symbol "ESFT." eSoft
delisted from the Vancouver Stock Exchange on September 9, 1998.
The range of high and low bid quotations for eSoft common stock as
quoted (without retail markup or markdown and without commissions) on the Nasdaq
SmallCap Market and the Vancouver Stock Exchange for the past fiscal year and
the first and second quarters of the current fiscal year is provided below. The
figures shown below do not necessarily represent actual transactions:
<TABLE>
<CAPTION>
HIGH LOW
------------ -----------
<S> <C> <C>
1999
Fourth Quarter (through November 26, 1999) $20.31 $3.00
Third Quarter $ 6.13 $2.63
Second Quarter $ 4.75 $2.13
First Quarter $ 6.00 $2.75
1998
Fourth Quarter $ 7.50 $2.13
Third Quarter $ 8.00 $2.88
Second Quarter $ 5.35 $4.25
First Quarter $ 9.00 $4.95
</TABLE>
-8-
<PAGE> 9
There are approximately 150 record holders of eSoft common stock. The
transfer agent for the eSoft common stock is The Trust Company of the Bank of
Montreal with offices at First Bank Tower 6th Floor, 595 Burrard Street,
Vancouver, B.C. V7X1L7.
DIVIDENDS
We intend, for the foreseeable future, to retain all earnings, if any,
for the development of our business opportunities. The payment of future
dividends will be at the discretion of our board of directors and will depend
upon, among other things, future earnings, capital requirements, our financial
condition and general business conditions.
PLAN OF DISTRIBUTION
We are registering an aggregate of 1,249,058 shares of eSoft common
stock (the "Shares") on behalf of the Selling Stockholders. As used herein, the
term Selling Stockholders means the holder of the Shares and includes donees and
pledgees selling Shares received from a named Selling Stockholder after the date
of this Prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by us. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
Shares will be borne by the Selling Stockholders. Sales of Shares may be
effected by Selling Stockholders from time to time in one or more types of
transactions (which may include block transactions) on Nasdaq, in the
over-the-counter market, in negotiated transactions, through put or call options
transactions relating to the Shares, through short sales of Shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers. The Selling Stockholders have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their Shares, nor is there an underwriter
or coordinated broker acting in connection with the proposed sale of Shares by
the Selling Stockholders.
The Selling Stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of the Shares or of securities convertible into or exchangeable for the
Shares in the course of hedging positions they assume with the Selling
Stockholders. The Selling Stockholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealers or other financial institutions of Shares
offered by this Prospectus, which Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as amended or supplemented
to reflect such transaction).
The Selling Stockholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents 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 Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the Shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. We have agreed to indemnify each Selling Stockholder
against certain liabilities, including liabilities arising under the Securities
Act. The Selling Stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the Shares
against certain liabilities, including liabilities arising under the Securities
Act.
-9-
<PAGE> 10
The Selling Stockholders will be subject to the prospectus delivery
requirements of the Securities Act. We have informed the Selling Stockholders
that the anti-manipulative provisions of Regulation M promulgated under the
Exchange Act may apply to their sales in the market.
The Selling Stockholders also may resell all or a portion of the Shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
If a Selling Stockholder notifies us that any material arrangement has
been entered into with a broker-dealer for the sale of Shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, a supplement to this Prospectus will be filed,
if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i)
the name of each such Selling Stockholder and of the participating
broker-dealer(s), (ii) the number of Shares involved, (iii) the initial price at
which such Shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transactions. In addition, if a Selling Stockholder notifies us
that a donee or pledgee intends to sell more than 500 Shares, a supplement to
this Prospectus will be filed.
VALIDITY OF SECURITIES
Davis, Graham & Stubbs LLP, one of our law firms, will issue an
opinion about the legality of the securities offered hereby.
-10-
<PAGE> 11
EXPERTS
The financial statements of eSoft, Inc. as of December 31, 1998 and for
each of the two years in the period ended December 31, 1998 incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report incorporated herein by reference, and are incorporated by reference
herein in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
The financial statements of Appexx Technology, Inc. for the years ended
December 31, 1997 and 1998, have been audited by Balukoff, Lindstrom & Co.,
P.A., Certified Public Accountants, as set forth in its report attached thereto.
The financial statements referred to above are incorporated herein by reference
in reliance upon such authority of such firm as experts in auditing and
accounting.
The financial statements of Technologic, Inc. as of December 31, 1998
and for the one-year period ended December 31, 1998 incorporated by reference in
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated by reference herein in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
-11-
