<PAGE> 1
PROSPECTUS FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION FILE NO.: 333-82619
1,714,668 Shares
[LOGO]
ESOFT, INC.
Common Stock
--------------------------
The 1,714,668 shares of common stock, $.01 par value, offered hereby
are being offered by certain of our stockholders. See "Selling Stockholders."
Our common stock recently became listed and began trading on the Nasdaq
SmallCap Market under the symbol "ESFT." Prior to such listing, our common stock
was listed on the Vancouver Stock Exchange, but there was no trading market for
eSoft common stock in the United States. Although our Common Stock is now listed
for trading in the United States, there can be no assurance that an active
public market will develop, or that if developed, will be sustained. 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. SEE "RISK FACTORS," LOCATED AT PAGES 6 THROUGH 18.
---------------------------
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 September 8, 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>
<S> <C>'
Where You Can Find More Information ......................................... 3
Incorporation of Certain Documents by Reference ............................. 3
Summary ..................................................................... 4
Risk Factors Relating to an Investment in eSoft Common Stock ................ 6
Disclosure Regarding Forward-Looking Statements ............................. 11
Use of Proceeds ............................................................. 11
Selling Stockholders ........................................................ 12
Description of eSoft Common Stock ........................................... 15
Plan of Distribution ........................................................ 16
Validity of Securities ...................................................... 18
Experts ..................................................................... 18
</TABLE>
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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; and
o Current Report on Form 8-K filed June 9, 1999.
o Current Report on Form 8-K filed June 28, 1999
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.
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SUMMARY
THE COMPANY
We develop and market a product line of Internet protocol adapters that are
marketed under the name Team Internet(R) and IPAD. The Team Internet(R) and IPAD
products each 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 a strategic combination with Apexx Technology, Inc.
that resulted in Apexx becoming our wholly owned subsidiary. 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.
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 1,714,668 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>
Shares presently owned by Selling Stockholders: 1,210,350
Shares issuable to five Selling Stockholders, who
have provided us with financial advisory
services, upon the exercise of outstanding
warrants to purchase eSoft common stock at an
exercise price of $4.25 per share: 159,318
Shares issuable to four Selling Stockholders, who
are some of our financial advisors or their affiliates,
upon the exercise of outstanding warrants to purchase
eSoft common stock at exercise prices of $4.60
and $6.98 per share: 110,000
Shares issuable to one Selling Stockholder, who
is one of our consultants, upon the exercise of
outstanding warrants to purchase eSoft common
stock at an exercise price of $5.34 per share: 35,000
Shares issuable to two Selling Stockholders, who
are two of our consultants, upon the exercise of
outstanding warrants to purchase eSoft common
stock at an exercise price of $4.75 per share: 200,000
---------
Total: 1,714,668
</TABLE>
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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
$2,558,001 from the purchase of eSoft common stock pursuant to the warrants.
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RISK FACTORS RELATING TO AN INVESTMENT IN ESOFT COMMON STOCK
In evaluating eSoft and its business, investors should carefully consider
the following risk factors in addition to the other information included or
incorporated by reference in this Prospectus. In addition, certain information
included in this Prospectus is forward-looking. Such forward-looking information
involves significant risks and uncertainties, including those discussed below,
that could cause actual future results to differ significantly from those
expressed in any forward-looking statements made by, or on behalf of, us. See
"Cautionary Statements Concerning Forward Looking Statements."
FAILURE TO ACHIEVE BENEFITS AND RISKS FROM INTEGRATION OF OPERATIONS
We expect that the Apexx merger will create a more competitive company. This
requires the integration of two companies' systems and technologies that
previously operated independently. We have begun to integrate the development,
production and marketing of eSoft's and Apexx's previously separate product
lines, as well as their administrative and financial reporting systems. We will
be required to create a common interface for the overall support of their
products in order to generate efficiencies in technical support of both
platforms. Additionally, we must develop a common hardware platform to gain
efficiencies in production and thus competitive margins for the combined
entities. No assurance can be given that we will be able to integrate the Apexx
operations and market a common product line without encountering difficulties or
experiencing the loss of key employees or customers, or that the synergies
anticipated from such integration will be realized. Because eSoft's and Apexx's
products overlap in functionality and target market, sales of certain products
may diminish as the combined company restructures its product line; this may
result in an initial reduction of sales growth following the merger until
rebranding of each product line can be accomplished.
MERGER-RELATED CHARGES
We estimate that, as a result of the merger, we will incur consolidation and
integration expenses of approximately $100,000. In addition, it is expected that
we will incur merger related expenses of approximately $798,000. We expect to
expense the anticipated $1,048,000 pre-tax charge relating to the merger in the
second quarter of 1999. The foregoing amounts are preliminary and the actual
amounts may be higher or lower. Moreover, we may incur additional unanticipated
expenses in connection with the integration of eSoft's and Apexx's businesses.
COMBINED COMPANY WILL EXPERIENCE INCREASED CAPITAL REQUIREMENTS
During 1999, we intend to continue rapid expansion of sales and marketing
expenditures to develop a North American wholesale distribution network,
resulting in significantly increased selling, general and administrative
expenses and capital expenditures to meet this rapid expansion. We have
accelerated an $800,000 marketing program to market and generate new sales leads
under the name TEAM Internet(R). These increased expenditures are anticipated to
consume substantially all of our working capital. In addition, both eSoft and
Apexx have suffered losses from operations in the past, and we expect to
continue to incur losses in support of our emerging growth. As a result of these
factors, we expect to experience increased capital requirements.
In addition, we are at an early stage of development of our business in an
emerging market; as a result, our business prospects, rate of growth and results
of operations are unpredictable. Neither increases or declines in our net
revenue from quarter to quarter, nor increases in our losses from one fiscal
quarter to the next, can be accurately forecasted in these emerging growth
markets. We are
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expending significant resources to quickly build market penetration and market
share, and the success of these marketing programs cannot be accurately
predicted. Thus additional working capital may be required to attain our overall
growth objectives.
There can be no assurance that cash flow contributions from operations,
coupled with presently available working capital, will be sufficient to fully
fund the planned expansion of sales and marketing activities, other increased
expenditures and losses incurred from this expansion. In addition, there can be
no assurance that we will be able to obtain sufficient capital on acceptable
terms, from internal or external sources, to support losses from operations or
to pursue our growth plans. In the event that cash flow from operations, if any,
together with the proceeds of any future financings, are insufficient to meet
all of these expenses, we will be required to re-evaluate our planned
expenditures and allocate our total resources in such a manner as the board of
directors and management deems to be in our best interest.
LIMITED OPERATING AND SALES HISTORY
We first entered the Internet connectivity marketplace in 1995 with the IPAD
5000, which is focused at Internet service providers. In 1997, we released the
IPAD 2500 and the IPAD 1200 as products to serve the small to medium sized
business market. Through the first quarter of 1999, we have sold less than 1,800
units of these products, so we have not yet gained significant market exposure
or demonstrable market acceptance. Given the absence of a clear market
acceptance with respect to these two newly introduced products, which in turn
are projected to be responsible for approximately 90% of our system sales in
1999, there can be no assurance that we will achieve our targeted market
penetration rates, and associated growth in sales revenues.
ANTICIPATED MARKET GROWTH AND RELIANCE UPON THE INTERNET
Our anticipated future growth in sales revenue is dependent upon the rate of
growth of the market for our systems. Growth of this market in turn is
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, our sales prospects may be adversely
affected. Moreover, there is no assurance that we will be able to capture an
increasing or consistent share of the market for an all-in-one appliance that
permits companies to connect to the Internet.
RECENT LOSSES
We have incurred losses during the fiscal years ended December 31, 1997 and
1998 and during the first quarter of 1999. Our ability to restore profitability
in future reporting periods is uncertain. It is anticipated that, with the
increased expenditures required to build our corporate infrastructure, we will
have higher expenses than gross profits generated by our operations. As a
result, we expect to continue to incur losses during this fiscal year.
TECHNOLOGICAL ADVANCES AND OBSOLESCENCE
We operate within an industry subject to a rapid pace of technological
obsolescence. We will seek to continuously enhance our products with
technological improvements. There can be no assurance as to our ability to
successfully and timely complete any or all of our development projects in order
to establish and maintain a position at the leading edge of technological trends
within our industry.
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COMPETITION; FEW BARRIERS TO ENTRY
The Internet connectivity business is highly competitive. A number of our
competitors are very well established in the marketplace, with larger sales
volumes, broader brand name recognition, and a wider base of technical
resources. Most of our competitors have greater financial resources than we do,
and Intel Corporation has invested in one of our competitors. In addition, IBM
has acquired Whistle, one of our more significant competitors. As the market
expands for products that perform in a manner similar to that of our product
line, we expect that a broader range of both small and large industry
participants will enter the market place with competing products. As competition
increases, profit margins on sales may diminish. There can be no assurance that
we will be able to effectively compete against such competitors given their
strong market presence, or that we will be able to attain and maintain
anticipated gross margins over time.
PROPRIETARY PROTECTION
Certain of our products are not protected by registered trademarks, and we
have not filed any patent or design utility applications in any jurisdiction.
The absence of such proprietary protection may diminish our ability to
distinguish ourselves from other industry competitors. In addition, while we
license our software to purchasers and restrict unauthorized use under our
licensing provisions, this does not protect us from an erosion of potential
revenue due to illicit software use and piracy.
REGULATORY REQUIREMENTS
The industry in which we operate is subject to a variety of regulatory rules
and requirements in the United States, Europe and countries where we hope to
establish markets. In particular, some products require access to
telecommunications carriers and are therefore subject to regulation in the
United States by the Federal Communications Commission and by other governmental
regulatory agencies in foreign countries. While the Internet is largely
unregulated, changes in telecommunication regulations in various countries might
impact the marketing of Internet related products. We have performed product
testing at accredited test facilities and the product has passed the FCC tests.
Our components that make up the finished product utilize UL approved components.
We also have acquired the requisite product approval from the appropriate agency
that permits the marketing of Internet products in the European Union. Our
products may, however, be subject to other regulatory requirements adopted in
various countries. Any such regulatory requirements could adversely affect our
ability to effectively compete in any market where such regulations are adopted.
TELEPHONE CONNECTION COSTS AS IMPEDIMENTS IN FOREIGN COUNTRIES
A significant cost factor for users of our networking products in certain
countries is the cost of maintaining a telephone line committed to access to the
Internet. Deregulation of telephone line access has begun in Europe in the last
several months and telephone line access costs are expected to decline there,
and deregulation in South America is beginning. There can be no assurance as to
when or at what pace any deregulation will have the effect of significantly
reducing the cost of phone service utilization 24 hours per day and 7 days per
week. With costs at their present levels, the demand for Internet access, and
therefore for our products, may mature slowly in some countries, affecting our
ability to penetrate those markets.
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CONCENTRATION OF SALES
During the fiscal year ended December 31, 1998, we had two customers that
represented 46% and 13% of our revenue for the fiscal year ended December 31,
1998. In addition, these two customers represented 87% of our accounts
receivable at December 31, 1998. With such concentration of our sales, we are
exposed to significant declines in revenue in future periods if any large
customer discontinues or substantially reduces its purchases in future periods.
Moreover, our credit risk concentration makes us more vulnerable to a default in
payment. In addition, the larger customers are electronic products distributors
and telecommunication companies in foreign countries that have recently become
distributors of the products and have purchased significant quantities of the
products to establish inventories of the distributors and their affiliated
resellers or dealers or end customers. Unless the products are promptly resold
to end users, future sales to these distributors and telecommunication companies
will likely decline.
CONCENTRATION OF PURCHASES
During the fiscal year ended December 31, 1998, we had two vendors that
accounted for 10% or more of our purchases during that period. These two vendors
represented 60% of our total purchases for the fiscal year ended December 31,
1998. With such concentration of purchases, we are exposed to the risk that
these suppliers of product for our finished goods may be unable to support us in
the future. We have explored alternative suppliers for our major supplier of the
base unit hardware; however we may not be able to quickly execute and have
delivery from these alternative suppliers to meet demand. An inability to source
this product from other suppliers would likely have a material adverse impact on
our ability to attain or maintain profitability.
NEW, UNDEVELOPED PUBLIC MARKET
Our common stock became listed and began trading on the Nasdaq SmallCap
Market on August 6, 1998. Prior to such listing, there was no public market for
the eSoft common stock in the United States. Between March 17, 1998 and
September 9, 1998, our common stock was traded on the Vancouver Stock Exchange.
There can be no assurance that an active public market on the Nasdaq SmallCap
Market will develop or be sustained.
YEAR 2000 ISSUES
The Year 2000 ("Y2K") computer problem refers to the potential for system
and processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
All new products and upgrades that we introduce are or will be Y2K
compliant. We have tested the remainder of the IPAD system and connections of
the IPAD product line to other systems utilizing standard Internet protocols.
The testing completed on the IPAD product line to date has led us to believe
that the IPAD product will not be affected by a connection to a non-compliant
Y2K system. We have been testing our existing products for use in the Year 2000
and beyond, and all IPAD products produced after November 1, 1997 are Y2K
compliant until 2036. The results of our testing suggest that version 2.03 and
each later version of each of our products are Y2K compliant.
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However, our testing does not cover every possible computing environment.
Accordingly, some customers may have Y2K problems with products that we believe
are Y2K compliant. For instance, our customers may be operating on older
versions of hardware platform utilizing our products software. Early models of
the IPAD 2500 and 4500 products shipped before November 1, 1997 may include a
BIOS in the computer hardware that is not Y2K compliant. The number of IPAD
units affected is estimated to be a small percentage of the installed base. In
February 1999 an IPAD software upgrade was released to correct the specific
issues caused by use of the non-compliant BIOS. In addition, there is a plan to
replace the non-compliant BIOS with a Y2K compliant BIOS if the customer prefers
a hardware fix.
We have tested the discontinued TBBS products that it no longer markets for
Y2K compliance, some of which might still be in use. Our TBBS product had one
deficiency associated with Y2K, which was corrected with a free update released
in October 1998. We expect that any customers that materially rely on such
discontinued products will test them for Y2K compliance and notify us if there
are problems. Our experience in developing Y2K compliant versions of our
existing products suggests that if it is required to correct Y2K problems in
such discontinued products, it could do so without incurring material expenses.
There will be another free update released in the second quarter of 1999 to
correct a similar deficiency in TBBS add-on modules.
We also may be affected by Y2K issues related to non-compliant internal
systems developed by us or by third-party vendors. We have reviewed our internal
systems, including our accounting system, and have found them to be Y2K
compliant. We are not currently aware of any Y2K problem relating to any of our
internal, material systems and we do not believe that we have any material
systems that contain embedded chips that are not Y2K compliant.
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. Management believes that absent a systemic failure outside
our control, such as a prolonged loss of electrical or telephone service, Y2K
problems at such third parties will not have a material impact on us. We have no
contingency plan for systemic failures such as loss of electrical or telephone
services. Our contingency plan in the event of a non-systemic failure is to
establish relationships with alternative suppliers or vendors to replace failed
suppliers or vendors. Other than the previously described testing, and remedying
problems identified by testing or from external sources, we have no other
contingency plans or intention to create other contingency plans.
If we fail to make our products Y2K compliant, we could see a decrease in
sales of our products, an increase in allocation of resources to address Y2K
problems of our customers without additional revenue commensurate with such
dedication of resources, or an increase in litigation costs relating to losses
suffered by our customers due to such year 2000 problems. Failures of our
internal systems could temporarily prevent us from processing orders, issuing
invoices, and developing products, and could require us to devote significant
resources to correcting such problems. But to our knowledge, the internal
accounting systems have been attested by the supplier as Y2K compliant. Due to
the general uncertainty inherent in the year 2000 computer problem, resulting
from the uncertainty of the year 2000 readiness of third-party suppliers and
vendors, we are unable to determine at this time whether the consequences of Y2K
failures will have a material impact on our business, results of operations, and
financial condition.
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NO DIVIDENDS
We have not paid dividends in the past and does not anticipate paying
dividends in the near future. We expect to retain our earnings to finance
further growth and, when appropriate, retire existing debt.
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 their 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
they distribute this Prospectus, even if new information, future events or other
circumstances have made them incorrect or misleading. For those statements, we
claims 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."
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
$2,558,001 from the purchase of we common stock pursuant to the warrants. See
"Summary -- The Offering."
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership eSoft common stock as of September 7, 1999 by the Selling Stockholders
in this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
----------------------------------- ----------------------------------
SHARES
PERCENT OFFERED PERCENT
OF IN THIS OF
NAME AND ADDRESS NUMBER OUTSTANDING OFFERING NUMBER OUTSTANDING(1)
- ----------------------------------- -------------- ---------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Copeland Consulting Group, Inc..... 209,917(2) 2.2% 224,917(2) 0 0%
5373 Lookout Ridge Drive
Boulder, CO 80301
Wan Technologies, Inc.............. 15,000 * 15,000 0 *
2316 Mall Park Drive
St. Louis, MO 63043
Wayne Farlow ...................... 115,100 1.2% 115,100 0 0%
4020 Pinon Drive
Boulder, CO 80303
Robert C. Hartman, Jr. ............ 52,222(3) * 29,500 22,722(3) *
3837 S. Olathe Circle
Aurora, CO 80013
Cathy Lea ......................... 41,111(3) * 30,000 11,111(3) *
295 Interlocken Blvd., Suite 500
Broomfield, CO 80021
Chris Blaise...................... 15,556(3) * 10,000 5,556(3) *
295 Interlocken Blvd., Suite 500
Broomfield, CO 80021
Joseph W. Green.................... 57,111(3) * 35,000 22,111(3) *
2182 S. Grant St.
Denver, CO 80210
Marint Limited..................... 100,000 1.0% 100,000 0 0%
c/o 7 Rue du Gabian
MC 98000, Monaco
Welcome Opportunities Ltd.......... 139,595 1.5% 139,595 0 0%
711 - 675 West Hastings Street
Vancouver, B.C. V6B 1N2
Storie Partners, L.P............... 115,794 1.2% 115,794 0 0%
1350 One Bush Street
San Francisco, CA 94104
Marion Jack Rickard Jr. 156,250 1.6% 156,250 0 0%
1740 Broadway
Denver, CO 80274
Everen Securities ................. 20,000(4) 1.1% 20,000(4) 0 0%
80 South 8th Street
3400 IDS Center
Minneapolis, MN 55402
Stuart Mason ...................... 50,000(5) * 50,000(5) 0 *
77 West Wacker, 26th Floor
Chicago, IL 60601
John S. Gallop .................... 27,500(6) * 27,500(6) 0 *
77 West Wacker, 31st Floor
Chicago, IL 60601
Steven G. Shepard ................. 12,500(7) * 12,500(7) 0 *
77 West Wacker, 26th Floor
Chicago, IL 60601
CCRI .............................. 35,000(8) * 35,000(8) 0 0%
3104 East Camelback Road, #539
Phoenix, AZ 85016
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
----------------------------------- ----------------------------------
SHARES
PERCENT OFFERED PERCENT
OF IN THIS OF
NAME AND ADDRESS NUMBER OUTSTANDING OFFERING NUMBER OUTSTANDING(1)
- ----------------------------------- -------------- ---------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Daryl Yurek........................ 172,189(9) 1.8% 172,189(9) 0 0%
1041 Kalmia Avenue
Boulder, CO 80304
Transition Partners Ltd............ 128,550(10) 1.3% 128,550(10) 0 0%
1942 Broadway, Suite 303
Boulder, CO 80302
Investor Company of
c/o TD Securities, Inc........... 32,424(11) * 32,424(11) 0 *
P.O. Box 1
The Toronto Dominion Centre
Toronto, Ontario
Cruttendon Roth, Inc. ............. 40,394(12) * 40,394(12) 0 0%
809 Presidio Avenue, Suite B
Santa Barbara, CA 93101
Michel Cornis ..................... 20,000(13) * 20,000(13) 0 0%
5 Avenue Theodore Flournoy
CH 1207
Geneva, Switzerland
Vail Securities Investment, Inc. .. 13,600(14) * 13,600(14) 0 0%
232 West Meadows
Vail, CO 81657
Brand Solutions ................... 5,500 * 5,500 0 0%
225 105th Avenue SE
Bellevue, WA 98004
Zeitgeist ......................... 663 * 663 0 0%
2505 Walnut, Suite 100
Boulder, CO 80302
Great Ability Company, LTD......... 58,381 * 58,381 0 0%
C-1 - 1500 Hornby
Vancouver, BC V6Z 2R1
CANADA
Beechmont Company ................. 40,867 * 40,867 0 0%
c/o Robert Gellert
122 E. 42nd Street
New York, NY 10168-0127
C. Channing Buckland .............. 14,595 * 14,595 0 0%
800 - 1450 Creekside Drive
Vancouver, BC V6J 5B3
Robert Gutenstein ................. 14,595 * 14,595 0 0%
68 Wildwood Road
Ridgewood, NJ 07450
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OFFERING OWNED AFTER THIS OFFERING
----------------------------------- ----------------------------------
SHARES
PERCENT OFFERED PERCENT
OF IN THIS OF
NAME AND ADDRESS NUMBER OUTSTANDING OFFERING NUMBER OUTSTANDING(1)
- ----------------------------------- -------------- ---------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
James M. Temple ................... 14,595 * 14,595 0 0%
2350 Braodway
Boulder, CO 80304
Herbert S. Amster ................. 11,677 * 11,677 0 0%
2601 Heatherway
Ann Arbor, MI 48104
Murray Gruson...................... 7,298 * 7,298 0 0%
68 Balmoral Avenue
Toronto, Ontario M4V 1J4
CANADA
Ian Wookey ........................ 7,298 * 7,298 0 0%
37A Hazelton Avenue
Toronto, Ontario M5R 2E3
CANADA
Michael Levine .................... 5,838 * 5,838 0 0%
2122 NW 60th Circle
Boca Raton, FL 33496
James Oleynick .................... 5,838 * 5,838 0 0%
1749 McSpadden Avenue
Vancouver, BC V5N 1L3
CANADA
K. Dieter Heidrich ................ 19,210 * 19,210 0 0%
230 Green Rock Drive
Boulder, CO 80302
Total 1,795,168 18.1% 1,714,668 80,500 *%
</TABLE>
- ---------------------------
* Less than 1% of outstanding eSoft common stock
(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) Gene R. Copeland controls Copeland Consulting Group, Inc. and he is
therefore the beneficial owner of the shares.
(3) Includes shares that may be purchased upon exercise of options granted
under our Equity Incentive Plan that are exercisable presently or
within 60 days as follows: Robert C. Hartman, Jr.: 22,722 shares; Cathy
Lea: 11,111 shares; Chris Blaise: 5,556 shares and Joe W. Green: 11,111
shares. The shares purchasable upon exercise of the options are not
offered hereunder, and are expected to be offered pursuant to a
Registration Statement on Form S-8.
(4) Includes warrants to purchase 20,000 shares of eSoft common stock.
(5) Includes warrants to purchase 50,000 shares of eSoft common stock.
(6) Includes warrants to purchase 27,500 shares of eSoft common stock.
(7) Includes warrants to purchase 12,500 shares of eSoft common stock.
(8) Includes warrants to purchase 35,000 shares of eSoft common stock.
(9) Includes warrants to purchase 100,000 shares of eSoft common stock and
warrants to purchase 52,900 shares of eSoft common stock held by
Pantheon Capital, Ltd., a company controlled by Daryl Yurek.
(10) Includes warrants to purchase 100,000 shares of eSoft common stock. W.
Terrance Schreier controls Transition Partners Ltd. and he is therefore
the beneficial owner of the shares held by Transition Partners Ltd.
(11) Includes warrants to purchase 32,424 shares of eSoft common stock.
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<PAGE> 15
(12) Includes warrants to purchase 40,394 shares of eSoft common stock.
(13) Includes warrants to purchase 20,000 shares of eSoft common stock.
(14) Includes warrants to purchase 13,600 shares of eSoft common stock.
RELATIONSHIPS BETWEEN ESOFT AND CERTAIN SELLING STOCKHOLDERS
Copeland Consulting Group, Inc., Daryl Yurek, Transition Partners Ltd. and
CCRI each has served as an eSoft consultant within the last three years, and
each received the shares of eSoft common stock offered by this Prospectus as
partial compensation for such services. Mr. Farlow served as our President from
September to November 1997, and Mr. Hartman currently serves as our
vice-president of engineering. Ms. Lea, Mr. Blaise and Mr. Green are each
employed by us in non-executive positions. Everen Securities has acted as our
financial advisor in a variety of transactions, including our recent merger with
Apexx Technology, Inc. CM Oliver & Co., Cruttendon Roth, Inc., Michel Cornis and
Vail Securities Investment, Inc. each acted as placement agents or subagents in
connection with our June 1998 private placement of eSoft common stock, and
Pantheon Capital, Ltd. was an eSoft consultant in connection with that
offering.
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.
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<PAGE> 16
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
Third Quarter (through September 6, 1999) $4.63 $2.63
Second Quarter $4.75 $2.13
First Quarter $5.94 $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>
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 these shares of eSoft common stock on behalf of the
Selling Stockholders. The eSoft common stock covered by this Prospectus may be
offered and sold by the Selling Stockholders, or by purchasers, transferees,
donees, pledgees or other successors in interest, directly or through brokers,
dealers, agents or underwriters who may receive compensation in the form of
discounts, commissions or similar selling expenses paid by a Selling Stockholder
or by a purchaser of these shares on whose behalf such broker-dealer may act as
agent. Sales and transfers of these shares may be effected from time to time in
one or more transactions, in private or public transactions, on the Nasdaq, in
the over-the-counter market, in negotiated transactions or otherwise, at a fixed
price or prices that may be changed, at market prices prevailing at the time of
sale, at negotiated prices, without consideration or by any other legally
available means. Any or all of these shares may be sold from time to time by
means of:
o a block trade, in which a broker or dealer attempts to sell these
shares as agent but may position and resell a portion of these shares
as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and the subsequent sale
by such broker or dealer for its account pursuant to this Prospectus;
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<PAGE> 17
o ordinary brokerage transactions (which may include long or short sales)
and transactions in which the broker solicits purchasers;
o the writing (sale) of put or call options on these shares;
o the pledging of shares as collateral to secure loans, credit or other
financing arrangements and, upon any subsequent foreclosure, the
disposition of shares by the lender thereunder; and
o any other legally available means.
To the extent required with respect to a particular offer or sale of these
shares, a prospectus supplement will be filed and will accompany this
Prospectus, to disclose (a) the number of shares to be sold, (b) the purchase
price, (c) the name of any broker, dealer or agent effecting the sale or
transfer and the amount of any applicable discounts, commissions or similar
selling expenses, and (d) any other relevant information.
The Selling Stockholders may transfer these shares by means of gifts,
donations and contributions. This Prospectus may be used by the recipients of
such gifts, donations and contributions to offer and sell the shares received by
them, directly or through brokers, dealers or agents and in private or public
transactions; however, if sales pursuant to this prospectus by any such
recipient could exceed 500 shares, a prospectus supplement would be required to
be filed to identify the recipient as a Selling Stockholder and disclose any
other relevant information. Such prospectus supplement would be required to be
delivered, together with this Prospectus, to any purchaser of such shares.
In connection with distributions of these shares or otherwise, the Selling
Stockholders may enter into hedging transactions with brokers, dealers or other
financial institutions. In connection with such transactions, brokers, dealers
or other financial institutions may engage in short sales of eSoft common stock
in the course of hedging the positions they assume with Selling Stockholders. To
the extent permitted by applicable law, the Selling Stockholders also may sell
these shares short and redeliver the shares to close out such short positions.
The Selling Stockholders and any broker-dealers who participate in the
distribution of the shares may be deemed to be "underwriters" under the
Securities Act of 1933 and any discounts, commissions or similar selling
expenses they receive and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts. The Selling
Stockholders may agree to indemnify any broker, dealer or agent that
participates in transactions involving the sale of these shares against certain
liabilities, including liabilities arising under the Securities Act of 1933. The
aggregate net proceeds to the Selling Stockholders from the sale of these shares
will be the purchase price of the shares less any discounts, concessions or
commissions.
Each of the Selling Stockholders is acting independently of us in making
decisions with respect to the timing, price, manner and size of each sale. We
have not engaged any broker, dealer or agent in connection with the distribution
of these shares. There is no assurance, therefore, that the Selling Stockholders
will sell any or all of the shares. In connection with the offer and sale of the
shares, we have agreed to make available to the Selling Stockholders copies of
this prospectus and any applicable prospectus supplement and have informed the
Selling Stockholders of the need to deliver copies of this Prospectus and any
applicable prospectus supplement to purchasers at or prior to the time of any
sale of the shares covered by this Prospectus.
The shares covered by this Prospectus may qualify for sale pursuant to
Section 4(1) of the Securities Act of 1933 or Rule 144 promulgated thereunder,
and may be sold pursuant to such provisions rather than pursuant to this
Prospectus.
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<PAGE> 18
We have agreed to pay all of the expenses incident to the registration of the
shares, other than discounts and selling concessions or commissions, if any. We
have agreed to indemnify certain of the Selling Stockholders against certain
liabilities, including liabilities arising under the Securities Act of 1933.
VALIDITY OF SECURITIES
Davis, Graham & Stubbs LLP, one of our law firms, will issue an opinion
about the legality of the securities offered hereby.
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.
18
