ESOFT INC, S-3, 1999-07-09

ESOFT INC
S-3, 1999-07-09
PREPACKAGED SOFTWARE

Previous: KOBRICK INVESTMENT TRUST, 497, 1999-07-09

Next: CABOT INDUSTRIAL TRUST, SC 13G, 1999-07-09

<PAGE> 1

As filed with the Securities and Exchange Commission on July 9, 1999
Registration No. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------------
eSOFT, INC.
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7372 84-0938960
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

295 INTERLOCKEN BOULEVARD, SUITE 500
BROOMFIELD, COLORADO 80021
(303) 444-1600

(Address and Telephone Number of Registrant's Principal Executive Office)

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

JEFFREY FINN
295 INTERLOCKEN BOULEVARD, SUITE 500
BROOMFIELD, COLORADO
(303) 444-1600

(Name, Address and Telephone Number of Agent for Service)

With Copies To:

LESTER R. WOODWARD, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET, SUITE 4700
DENVER, COLORADO 80202
(303) 892-9400
---------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

<PAGE> 2

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
======================================================================================================
Proposed Proposed
Shares maximum maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered registered(1) per share(2) offering price(2) registration fee(2)
- ------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,627,168 $3.88 $ 6,313,412 $ 1,756

======================================================================================================
</TABLE>

(1) Pursuant to Rule 416, this registration statement also covers such
indeterminate number of shares of eSoft, Inc. common stock as may be
issued as a result of stock dividends, stock splits or similar
transactions prior to the termination of this registration statement.

(2) Estimated solely for the purpose of calculating the registration fee
and based upon the average of the high and low sales prices of the
common stock as reported on the Nasdaq SmallCap Market on July 8,
1999.

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE> 3

The information in this prospectus is not complete and may be changed. The
selling stockholders identified in this prospectus may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 9, 1999

PROSPECTUS

1,627,168 SHARES

[GRAPHIC OMITTED]

eSOFT, INC.

Common Stock

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

The 1,627,168 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 5 THROUGH 9.

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

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 , 1999.

<PAGE> 4

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 ............. 5
Disclosure Regarding Forward-Looking Statements .......................... 10
Use of Proceeds .......................................................... 10
Selling Stockholders ..................................................... 11
Description of eSoft Common Stock ........................................ 13
Plan of Distribution ..................................................... 14
Validity of Securities ................................................... 16
Experts .................................................................. 16
</TABLE>

2
<PAGE> 5

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.

3
<PAGE> 6

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

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 1,627,168 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: 1,035,350

Shares issuable to one Selling Stockholder, who
purchased 350,000 shares of eSoft common stock
in a private transaction, upon exercise of
outstanding warrants to purchase eSoft common
stock at a price of $1.15 per share: 87,500

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 one Selling Stockholder, who is
one of our financial advisors, upon the exercise of
outstanding warrants to purchase eSoft common
stock at exercise prices of $4.68 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: 1,627,168
</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
$2,659,000 from the purchase of eSoft common stock pursuant to the warrants.

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

4
<PAGE> 7

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.

5
<PAGE> 8

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 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.

6
<PAGE> 9

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.

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.

7
<PAGE> 10

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.

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.

8
<PAGE> 11

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.

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

9
<PAGE> 12

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.

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
$2,659,427 from the purchase of we common stock pursuant to the warrants. See
"Summary -- The Offering."

10
<PAGE> 13

SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership eSoft common stock as of June 10, 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>
Opus Capital Fund, LLC............. 177,500(2) 1.9% 146,497(2) 31,003 *
1113 Spruce Street
Boulder, CO 80302

Copeland Consulting Group, Inc..... 224,917(3) 2.5% 224,917(3) 0 0%
5373 Lookout Ridge Drive
Boulder, CO 80301

Wayne Farlow....................... 115,100 1.3% 115,100 0 0%
4020 Pinon Drive
Boulder, CO 80303

Robert C. Hartman, Jr.............. 52,222(4) * 29,500 22,722(4) *
3837 S. Olathe Circle
Aurora, CO 80013

Cathy Lea ......................... 41,111(4) * 30,000 11,111(4) *
295 Interlocken Blvd., Suite 500
Broomfield, CO 80021

Chris Blaise...................... 15,556(4) * 10,000 5,556(4) *
295 Interlocken Blvd., Suite 500
Broomfield, CO 80021

Joseph W. Green.................... 57,111(4) * 35,000 22,111(4) *
2182 S. Grant St.
Denver, CO 80210

Marint Limited..................... 100,000 1.1% 100,000 0 0%
c/o 7 Rue du Gabian
MC 98000, Monaco

Welcome Opportunities Ltd.......... 125,000 1.4% 125,000 0 0%
711 - 675 West Hastings Street
Vancouver, B.C. V6B 1N2

Storie Partners, L.P............... 115,794 1.3% 115,794 0 0%
1350 One Bush Street
San Francisco, CA 94104

Marion Jack Rickard Jr............. 156,250 1.7% 156,250 0 0%
1740 Broadway
Denver, CO 80274

Everen Securities ................. 110,000(5) 1.2% 110,000(5) 0 0%
80 South 8th Street
3400 IDS Center
Minneapolis, MN 55402
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

11
<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>
CCRI .............................. 35,000(6) * 35,000(6) 0 0%
3104 East Camelback Road, #539
Phoenix, AZ 85016

Daryl Yurek........................ 152,979(7) 1.6% 152,979(7) 0 0%
1041 Kalmia Avenue
Boulder, CO 80304

Transition Partners Ltd............ 128,550(8) 1.4% 128,550(8) 0 0%
1942 Broadway, Suite 303
Boulder, CO 80302

CM Oliver & Co..................... 51,424(9) * 32,424(9) 19,000 *
Suite 1600-750
W. Pender Street
Vancouver, BC V6C2T8
Canada

Cruttendon Roth, Inc............... 40,394(10) * 40,394(10) 0 0%
809 Presidio Avenue, Suite B
Santa Barbara, CA 93101

Michel Cornis...................... 20,000(11) * 20,000(11) 0 0%
5 Avenue Theodore Flournoy
CH 1207
Geneva, Switzerland

Vail Securities Investment, Inc.... 13,600(12) * 13,600(12) 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

Total 1,738,671 17.8% 1,627,168 111,503 1.1%
</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) Includes warrants to purchase 87,500 shares of eSoft common stock.

(3) Gene R. Copeland controls Copeland Consulting Group, Inc. and he is
therefore the beneficial owner of the shares.

(4) 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.

12
<PAGE> 15
(5) Includes warrants to purchase 110,000 shares of eSoft common stock.

(6) Includes warrants to purchase 35,000 shares of eSoft common stock.

(7) 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.

(8) 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.

(9) Includes warrants to purchase 32,424 shares of eSoft common stock.

(10) Includes warrants to purchase 40,394 shares of eSoft common stock.

(11) Includes warrants to purchase 20,000 shares of eSoft common stock.

(12) 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

13
<PAGE> 16

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

Third Quarter (through July 8, 1999) $ 4.06 $ 3.50

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

14
<PAGE> 17

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;

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.

15
<PAGE> 18

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.

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.

16
<PAGE> 19

PART II

INFORMATION NOT REQUIRED
IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, payable by eSoft in
connection with the sale of Common Stock being registered (all amounts are
estimated except the Commission Registration Fee).

<TABLE>
<S> <C>
Commission Registration Fee..................................................... $ o
Blue Sky Qualification Fees and Expenses (including legal fees) (estimated)..... 6,000
Printing Expenses (estimated)................................................... 1,000
Legal Fees and Expenses (estimated)............................................. 10,000
Accountants' Fees and Expenses (estimated)...................................... 10,000
Miscellaneous Expenses (estimated).............................................. o
=======
Total $ o
</TABLE>

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS

eSoft is incorporated in the state of Delaware. Section 145 of the General
Corporation Law of the State of Delaware contains provisions permitting
corporations organized thereunder to indemnify directors, officers and other
representatives from liabilities in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person was or is a director,
officer, employee or agent of the corporation, against liabilities arising in
any such action, suit or proceeding, expenses incurred in connection therewith,
and against certain other liabilities.

Article 8 of the Certificate of Incorporation of eSoft provides that, to
the furthest extent permitted by applicable law in effect from time to time, no
director of eSoft shall have any personal liability for monetary damages to
eSoft or its stockholders for breach of his fiduciary duty as a director, except
that indemnity is not provided to a director whose conduct involves (i) a breach
of the director's duty of loyalty to eSoft or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) unlawful distributions as defined in Section 174 of
the Delaware General Corporation Law, and (iv) any transaction from which the
director derived an improper personal benefit.

Article 9 of the Certificate of Incorporation and the Bylaws of eSoft
provide similar indemnification provisions as that provided by Section 145 of
the General Corporation Law of the state of Delaware. eSoft will also indemnify
any person who is serving or has served eSoft as an officer to the same extent
as a director.

II-1
<PAGE> 20

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
2.1 Amended and Restated Agreement and Plan Merger dated January 25, 1999
between eSoft, Inc., eSoft Acquisition Corporation and Apexx
Technology, Inc. (filed with Registration Statement on Form S-4 on
March 19, 1999 and incorporated herein by reference).
2.2 Form of Stockholders Agreement to be executed by Apexx Technology,
Inc. stockholders in connection with the merger (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
2.3 Form of Escrow Agreement to be executed by eSoft, Inc. Thomas
Loutzenheiser and The Trust Company of The Bank of Montreal (filed
with Registration Statement on Form S-4 on March 19, 1999 and
incorporated herein by reference).
2.4 Employment Agreement by and between eSoft, Inc. and Thomas
Loutzenheiser (filed with Registration Statement on Form S-4 on
March 19, 1999 and incorporated herein by reference).
3.1 Certificate of Incorporation of New eSoft, Inc. (filed with Amendment
No. 1 to Registration Statement on Form 10-SB on February 18, 1998 and
incorporated herein by reference).
3.2 Amendment to Certificate of Incorporation of eSoft, Inc. (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
3.3 Bylaws of eSoft (filed with Registration Statement on Form S-B on
June 7, 1998 and incorporated herein by reference).
4.1 Form of Common Stock Certificate of eSoft (filed with Registration
Statement on Form 10-SB on December 22, 1997 and incorporated herein
by reference).
4.2 Form of 5% Convertible Subordinated Debenture (filed with Current
Report on Form 8-K on June 28, 1999 and incorporated herein by
reference).
5.1* Opinion of Davis, Graham & Stubbs LLP (including consent)
10.1 Severance Agreement and Mutual Release dated December 19, 1997 between
eSoft and Wayne Farlow (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.2 Agency Agreement with C.M. Oliver Capital (filed with Amendment No. 1
to Registration Statement on Form SB-2, filed March 24, 1998 and
incorporated herein by reference).
10.3 Agent's Warrant (filed with Amendment No. 1 to Registration Statement
on Form SB-2, filed March 24, 1998 and incorporated herein by
reference).
10.4 Lease Agreement dated September 18, 1997 between eSoft and Aspen
Industrial Park Partnership (filed with Registration Statement on Form
SB-2 on December 24, 1997 and incorporated herein by reference).
10.5 Voting Agreement dated September 2, 1997 between Philip Becker,
Pantheon Capital Ltd. And Transition Partners, Ltd. (filed with
Registration Statement on Form 10-SB on December 22, 1997 and
incorporated herein by reference).
10.6 Termination Agreement (filed with Amendment No. 1 to Registration
Statement on Form 10-SB on February 18, 1998 and incorporated herein
by reference).
10.7 Registration Rights Agreement dated September 2, 1997 between
Transition Partners, Ltd., Pantheon Capital Ltd. and eSoft (filed with
Registration Statement on Form 10-SB on December 22, 1997 and
incorporated herein by reference).
10.8 Agreement dated May 6, 1997 between Transition Partners, Ltd. and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
</TABLE>

II-2
<PAGE> 21

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
10.9 Agreement dated October 14, 1996 between Transition Partners, Ltd. and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
10.10 Amendment to Agreement dated August 22, 1997 between Transition
Partners, Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.11 Second Amendment to Agreement dated November 11, 1997 between
Transition Partners, Ltd. and eSoft (filed with Registration Statement
on Form 10-SB on December 22, 1997 and incorporated herein by
reference).
10.12 Stock Option Agreement dated November 11, 1997 between Transition
Partners, Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.13 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.14 Consulting Agreement dated August 1, 1997 between eSoft and Kent Nuzum
(filed with Registration Statement on Form 10-SB on December 22, 1997
and incorporated herein by reference).
10.15 Consulting Agreement dated August 22, 1997 between Pantheon Capital
Ltd. and eSoft (filed with Registration Statement on Form 10-SB on
December 22, 1997 and incorporated herein by reference).
10.16 Amendment to Consulting Agreement dated August 22, 1997 between
Pantheon Capital Ltd. and eSoft (filed with Registration Statement on
Form 10-SB on December 22, 1997 and incorporated herein by reference).
10.17 Stock Option Agreement dated November 11, 1997 between Pantheon
Capital Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.18 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.19 Stock Option Agreement dated November 11, 1997 between Copeland
Consulting Group, Inc. and eSoft (filed with Registration Statement on
Form 10-SB on December 22, 1997 and incorporated herein by reference).
10.20 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.21 Employment Agreement dated September 2, 1997 between Philip Becker and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
10.22 Form of Employee Confidentiality Agreement (filed with Amendment No. 1
to Registration Statement on Form 10-SB on February 18, 1998 and
incorporated herein by reference).
10.23 Termination Agreement terminating Software Development and Consulting
Agreements (filed with Amendment No. 1 to Registration Statement on
Form 10-SB on February 18, 1998 and incorporated herein by reference).
</TABLE>

II-3
<PAGE> 22

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
10.24 Promissory Note to First National Bank of Arvada, Colorado (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.25 Proposal for financing arrangement from Colorado National Bank (filed
with Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.26 Employment Agreement dated March 6, 1998 between Regis Frank and eSoft
(filed with Amendment No. 1 to Registration Statement on Form SB-2,
filed March 24, 1998 and incorporated herein by reference).
10.27 Employment Agreement dated March 6, 1998 between Robert C. Hartman and
eSoft (filed with Amendment No. 1 to Registration Statement on Form
SB-2, filed March 24, 1998 and incorporated herein by reference).
10.28 Employment Letter dated October 7, 1997 between Jason M. Rollings and
eSoft (filed with Amendment No. 2 to Registration Statement on Form
SB-2, filed April 17, 1998 and incorporated herein by reference).
10.29 Employment Letter dated October 7, 1997 between Jason M. Rollings and
eSoft (filed with Amendment No. 2 to Registration Statement on Form
SB-2, filed April 17, 1998 and incorporated herein by reference).
10.30 Employment Agreement between Thomas R. Tennessen and eSoft (filed with
Amendment No. 2 to Registration Statement on Form SB-2, filed
April 17, 1998 and incorporated herein by reference).
10.31 Employment Agreement between Thomas R. Tennessen and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.32 Employment Agreement between James R. Bell and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.33 Employment Letter between James M. Love and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.34 Consulting Retainer Agreement (filed with Registration Statement on
Form SB-2 on August 19, 1998 and incorporated herein by reference).
10.35 Form of Distributor Agreement (filed with Registration Statement on
Form SB-2 on August 19, 1998 and incorporated herein by reference).
10.36 Employment Agreement between Jeffrey Finn and eSoft (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
10.37 Employment Agreement between Jane Merickel and eSoft (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
10.38 Employment Agreement between Steve Kuzara and eSoft (filed with
Amendment No. 1 to Registration Statement on Form S-4 on April 20,
1999 and incorporated herein by reference).
10.39 Securities Purchase Agreement dated as of June 10, 1999 (filed with
Current Report on Form 8-K on June 28, 1999 and incorporated herein by
reference).
10.40 Registration Rights Agreement dated as of June 10, 1999 (filed with
Current Report on Form 8-K on June 28, 1999 and incorporated herein by
reference).
10.41 Form of Warrant relating to purchase of 5% Convertible Subordinated
Debenture (filed with Current Report on Form 8-K on June 28, 1999 and
incorporated herein by reference).
23.1* Consent of BDO Seidman, LLP
- ----------------
* Filed herewith
</TABLE>

II-4
<PAGE> 23

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes that, for the purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar of securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement,

provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, that are incorporated by reference in the
Registration Statement;

(b) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted

II-5
<PAGE> 24

to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses is
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.

II-6
<PAGE> 25

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Broomfield, Colorado on the 9th day of July, 1999.

eSOFT, INC.

By: /s/ Jeffrey Finn
------------------------------------
Name: Jeffrey Finn
Title: President and Chief
Executive Officer

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

<TABLE>
<CAPTION>
Signatures Title Date

<S> <C> <C>
/s/ Philip Becker Chairman of the Board, Chief Technical Officer July 9, 1999
- ------------------------------
Philip Becker

/s/ Jeffrey Finn Director, President and Chief Executive Officer July 9, 1999
- ------------------------------
Jeffrey Finn (Principal Executive Officer)

/s/ Amy Beth Hansman Principal Accounting Officer July 9, 1999
- ------------------------------
Amy Beth Hansman

Director
- ------------------------------
Roger Akers

/s/ Richard Eyestone Director July 9, 1999
- ------------------------------
Richard Eyestone

Director
- ------------------------------
Tom Loutzenheiser

/s/ Richard Rice Director July 9, 1999
- ------------------------------
Richard Rice
</TABLE>

II-7
<PAGE> 26

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<PAGE> 27

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
10.8 Agreement dated May 6, 1997 between Transition Partners, Ltd. and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
10.9 Agreement dated October 14, 1996 between Transition Partners, Ltd. and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
10.10 Amendment to Agreement dated August 22, 1997 between Transition
Partners, Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.11 Second Amendment to Agreement dated November 11, 1997 between
Transition Partners, Ltd. and eSoft (filed with Registration Statement
on Form 10-SB on December 22, 1997 and incorporated herein by
reference).
10.12 Stock Option Agreement dated November 11, 1997 between Transition
Partners, Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.13 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.14 Consulting Agreement dated August 1, 1997 between eSoft and Kent Nuzum
(filed with Registration Statement on Form 10-SB on December 22, 1997
and incorporated herein by reference).
10.15 Consulting Agreement dated August 22, 1997 between Pantheon Capital
Ltd. and eSoft (filed with Registration Statement on Form 10-SB on
December 22, 1997 and incorporated herein by reference).
10.16 Amendment to Consulting Agreement dated August 22, 1997 between
Pantheon Capital Ltd. and eSoft (filed with Registration Statement on
Form 10-SB on December 22, 1997 and incorporated herein by reference).
10.17 Stock Option Agreement dated November 11, 1997 between Pantheon
Capital Ltd. and eSoft (filed with Registration Statement on Form
10-SB on December 22, 1997 and incorporated herein by reference).
10.18 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.19 Stock Option Agreement dated November 11, 1997 between Copeland
Consulting Group, Inc. and eSoft (filed with Registration Statement on
Form 10-SB on December 22, 1997 and incorporated herein by reference).
10.20 Amended Stock Warrant Agreement dated January 29, 1998 (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.21 Employment Agreement dated September 2, 1997 between Philip Becker and
eSoft (filed with Registration Statement on Form 10-SB on December 22,
1997 and incorporated herein by reference).
10.22 Form of Employee Confidentiality Agreement (filed with Amendment No. 1
to Registration Statement on Form 10-SB on February 18, 1998 and
incorporated herein by reference).
</TABLE>

<PAGE> 28

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
10.23 Termination Agreement terminating Software Development and Consulting
Agreements (filed with Amendment No. 1 to Registration Statement on
Form 10-SB on February 18, 1998 and incorporated herein by reference).
10.24 Promissory Note to First National Bank of Arvada, Colorado (filed with
Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.25 Proposal for financing arrangement from Colorado National Bank (filed
with Amendment No. 1 to Registration Statement on Form 10-SB on
February 18, 1998 and incorporated herein by reference).
10.26 Employment Agreement dated March 6, 1998 between Regis Frank and eSoft
(filed with Amendment No. 1 to Registration Statement on Form SB-2,
filed March 24, 1998 and incorporated herein by reference).
10.27 Employment Agreement dated March 6, 1998 between Robert C. Hartman and
eSoft (filed with Amendment No. 1 to Registration Statement on Form
SB-2, filed March 24, 1998 and incorporated herein by reference).
10.28 Employment Letter dated October 7, 1997 between Jason M. Rollings and
eSoft (filed with Amendment No. 2 to Registration Statement on Form
SB-2, filed April 17, 1998 and incorporated herein by reference).
10.29 Employment Letter dated October 7, 1997 between Jason M. Rollings and
eSoft (filed with Amendment No. 2 to Registration Statement on Form
SB-2, filed April 17, 1998 and incorporated herein by reference).
10.30 Employment Agreement between Thomas R. Tennessen and eSoft (filed with
Amendment No. 2 to Registration Statement on Form SB-2, filed
April 17, 1998 and incorporated herein by reference).
10.31 Employment Agreement between Thomas R. Tennessen and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.32 Employment Agreement between James R. Bell and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.33 Employment Letter between James M. Love and eSoft (filed with
Registration Statement on Form SB-2 on August 19, 1998 and
incorporated herein by reference).
10.34 Consulting Retainer Agreement (filed with Registration Statement on
Form SB-2 on August 19, 1998 and incorporated herein by reference).
10.35 Form of Distributor Agreement (filed with Registration Statement on
Form SB-2 on August 19, 1998 and incorporated herein by reference).
10.36 Employment Agreement between Jeffrey Finn and eSoft (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
10.37 Employment Agreement between Jane Merickel and eSoft (filed with
Registration Statement on Form S-4 on March 19, 1999 and incorporated
herein by reference).
10.38 Employment Agreement between Steve Kuzara and eSoft (filed with
Amendment No. 1 to Registration Statement on Form S-4 on April 20,
1999 and incorporated herein by reference).
10.39 Securities Purchase Agreement dated as of June 10, 1999 (filed with
Current Report on Form 8-K on June 28, 1999 and incorporated herein by
reference).
10.40 Registration Rights Agreement dated as of June 10, 1999 (filed with
Current Report on Form 8-K on June 28, 1999 and incorporated herein by
reference).
</TABLE>

<PAGE> 29

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

<S> <C>
10.41 Form of Warrant relating to purchase of 5% Convertible Subordinated
Debenture (filed with Current Report on Form 8-K on June 28, 1999 and
incorporated herein by reference).
23.1* Consent of BDO Seidman, LLP
- ----------------

* Filed herewith
</TABLE>

<PAGE> 1
Exhibit 5.1

July 9, 1999

eSoft, Inc.
295 Interlocken Boulevard, #500
Broomfield, CO 80021

Re: Form S-3 Relating to 1,627,168 Shares of Common Stock

Ladies and Gentlemen:

We have acted as counsel for eSoft, Inc., a Delaware corporation (the
"Company") in connection with the preparation of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission. The Registration Statement relates to the registration
under the Securities Act of 1933, as amended (the "1933 Act"), of 1,627,168
shares of the Company's common stock, par value $.01 per share (the "Shares")
offered for the account of certain stockholders of the Company.

This opinion is delivered pursuant to the requirements of Item
601(b)(5) of Regulation S-K under the 1933 Act.

We have examined certain documents, corporate records and other
instruments and relied on originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records and other instruments,
have made such inquiries as to questions of fact of officers and representatives
of the Company, and have made such examinations of law as we have deemed
necessary or appropriate for purposes of giving the opinion expressed below. In
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies.

The following opinions are limited solely to the applicable federal law
of the United States of America and the General Corporation Law of the State of
Delaware. While we are not licensed to practice in the State of Delaware, we
have reviewed applicable provisions of the General Corporation Law of Delaware
as we have deemed appropriate in connection with the

<PAGE> 2

eSoft, Inc.
July 9, 1999
Page 2

provisions expressed herein. Except as described, we have neither examined nor
do we express any opinion with respect to Delaware law.

Based upon and subject to the foregoing, we are of the opinion that:

1. The issuance and sale of the Shares, as provided in the Registration
Statement, have been duly and validly authorized by all necessary corporate
action of the Company.

2. The Shares that have been issued as of the date hereof have been
validly issued, fully paid and non-assessable shares of capital stock of the
Company.

3. The Shares that have not been issued as of the date hereof will be,
when and if issued, validly issued, fully paid and non-assessable shares of
capital stock of the Company.

We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Validity of Securities" in the Prospectus included
in the Registration Statement as the counsel who will pass upon the validity of
the securities. In giving this consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules of the Securities and Exchange Commission
thereunder.

Very truly yours,

/s/ Davis, Graham & Stubbs LLP

DAVIS, GRAHAM & STUBBS LLP

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

eSoft, Inc.
Broomfield, Colorado

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated January
29, 1999, relating to the financial statements of eSoft, Inc. appearing in the
Company's Annual Report on Form 10-KSB/A-1 for the year ended December 31, 1998.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

Denver, Colorado
July 9, 1999