EACCELERATION CORP, SB-2/A, 2000-07-05

EACCELERATION CORP
SB-2/A, 2000-07-05
BUSINESS SERVICES, NEC

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Registration No. 333-90867
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 2

TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

EACCELERATION CORP.
(Exact name of registrant as specified in its charter)

DELAWARE 7319 91-2006409
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

1223 NW FINN HILL ROAD, POULSBO, WASHINGTON 98730 - (360) 697-9260
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

CLINT BALLARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EACCELERATION CORP.
1223 NW FINN HILL ROAD
POULSBO, WASHINGTON 98730
(360) 697-9260
(Name, address, including zip code, and telephone number, including area code,
of registrant's principal place of business and agent for service)

COPY TO:
NEIL M. KAUFMAN, ESQ.
KAUFMAN & MOOMJIAN, LLC
50 CHARLES LINDBERGH BOULEVARD - SUITE 206
MITCHEL FIELD, NEW YORK 11553
(516) 222-5100

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

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

================================================================================

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 SEC, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.

<PAGE>

The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared 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 APRIL 4, 2000

PRELIMINARY PROSPECTUS

[Logo]

EACCELERATION CORP.

3,000,000 SHARES OF COMMON STOCK

This is an initial public offering of up to 3,000,000 shares of our common
stock.

We will be selling a minimum of 400,000 and a maximum of 3,000,000 of our
shares in a direct participation offering. The shares will be sold by our
officers and directors. Until we have sold at least 400,000 shares, we will not
accept subscriptions for any shares. You must buy shares in increments of 100
shares. All proceeds of this offering will be deposited in an interest-bearing
escrow account. If we are unable to sell at least 400,000 shares before the
offering ends, we will return all funds, with interest, to subscribers promptly
after the ending of this offering. The offering will remain open until all
shares offered are sold or nine months after the date of this prospectus, except
that we will have only 180 days to sell at least the first 400,000 shares. We
may decide to cease selling efforts prior to such date if we determine that it
is no longer beneficial to continue the offering.

Prior to this offering, there has been no public market for the shares. We
estimate that the initial public offering price will be $6.25 per share.

THE SHARES OFFERED IN THIS OFFERING INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANITAL DILUTION WITH THE POSSIBILITY OF THE LOSS OF YOUR ENTIRE INVESTMENT.
YOU SHOULD CAREFULLY READ THE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
THAT YOU SHOULD CONSIDER IN DETERMINING WHETHER TO PURCHASE ANY OF THE SHARES.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

---------------------
<TABLE>
<CAPTION>
Price per share Underwriting discounts Proceeds, before
Number of Shares to public and commissions expenses, to us
<S> <C> <C> <C> <C>
Minimum. . . . . . 400,000 $6.25 - $ 2,500,000
Maximum. . . . . . 3,000,000 $6.25 - $ 18,750,000
</TABLE>
We currently have no arrangements with underwriters or broker-dealers to sell
our shares.

The date of this prospectus is , 2000

<PAGE>

The following is a graphic illustration of our Internet business model. The
model depicts the relationship between us, through our operating websites,
HomepageSales.com, DownloadSales.com, HomePageware.com, ClickSales.com and
SignupSales.com, and our Internet advertising and marketing customers, who pay
us for specified actions by our website visitors. The model also depicts the
relationship between us, through these operating websites, and our website
visitors, who receive free software and other products and services in exchange
for agreeing to use one of our websites as their browser's starting page:

[Graphic representation of the relationship between (a) Online Media Buyers
and Merchants, (b) HomepageSales.com, DownloadSales.com, HomePageware.com,
ClickSales.com and SignupSales.com and (c) Internet Users]

<PAGE>

PROSPECTUS SUMMARY

EACCELERATION

We are a provider of online direct marketing services, advertising
solutions and proprietary software. We combine Internet-based direct marketing
and advertising services with programs that reward consumers with free software
when they use our designated homepage as their Internet browser's starting page.
These online incentive programs are intended to provide flexible,
incentive-marketing solutions for our Internet advertising and marketing
clients. Our payment structure, in which our Internet advertising and marketing
clients are only charged when our website visitors execute specific predefined
actions, provides these clients with a known cost to achieve the desired
response to their advertising campaigns. We intend to leverage our developing
homepage subscriber base and our targeting capabilities to offer our clients
customized, targeted advertising solutions designed to improve advertisement
response rates and reduce their cost of acquiring new customers.

Our principal executive offices are located at 1223 NW Finn Hill Road,
Poulsbo, Washington 98730. Our telephone number is (360) 697-9260 and our fax
number is (360) 598-2450. Our corporate website is www.eAcceleration.com. The
information contained in this website or any of our websites, including
Hompageware.com, HomepageSales.com, DownloadSales.com, ClickSales.com and
SignupSales.com, is not a part of this prospectus.

THE OFFERING

Shares offered . . . . . . . . . . . Common stock, par value $.0001 per share.
Minimum . . . . . . . . . . . . 400,000 shares
Maximum . . . . . . . . . . . . 3,000,000 shares

Price per share. . . . . . . . . . . $6.25

Shares outstanding after this offering
Minimum . . . . . . . . . . . . 34,700,000 shares
Maximum . . . . . . . . . . . 37,300,000 shares

Use of proceeds . . . . . . . . . . We plan to use the net proceeds from this
offering for the following purposes:
- new product development;
- marketing and advertising;
- facilities;
- personnel;
- computer equipment;
- computer software; and
- working capital and general
corporate purposes.

IN THIS PROSPECTUS, WE ARE ASSUMING THE EFFECTIVENESS OF THE MERGER OF OUR
OPERATING SUBSIDIARY, ACCELERATION SOFTWARE INTERNATIONAL CORPORATION, INTO
EACCELERATION CORP., WHICH WILL OCCUR PRIOR TO THE INITIAL CLOSING UNDER THIS
OFFERING. WE HAVE ADJUSTED THE NUMBER OF OUTSTANDING SHARES AND OPTIONS
ACCORDINGLY. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, WE
REFER TO EACCELERATION CORP. AND ACCELERATION SOFTWARE INTERNATIONAL CORPORATION
COLLECTIVELY AS "EACCELERATION", "WE", "US" OR "OUR".

3
<PAGE>

SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>

Year ended December 31,
1998 1999
---- ----

STATEMENTS OF INCOME DATA:
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . . $ 1,919,149 $ 4,759,469
Costs and expenses:
Software development and products . . . . . 919,895 1,053.754
Sales and marketing . . . . . . . . . . . . 369,336 2,395,129
General and administrative. . . . . . . . . 409,071 641,707
Reduction of reserves for claims. . . . . . (28,542) -
------------ -----------
Total expenses $ 1,669,760 $ 4,090,590
============ ===========

Income from operations 249,389 668,879

Other income, net . . . . . . . . . . . . . . . 43,092 4,656
------------ -----------

Net income. . . . . . . . . . . . . . . . . . . $ 292,481 $ 673,535
============ ===========

Basic and diluted earnings
per share. . . . . . . . . . . . . . . . . $ 0.01 $ 0.02
============ ===========

Pro forma financial data:
Pro forma net income . . . . . . . . . . . . $ 193,037 $ 444,533
============ ===========
Pro forma basic and diluted
earnings per share. . . . . . . . . . . . $ 0.01 $ 0.01
============ ===========

</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA:
At December 31, 1999
Actual As adjusted
------ -----------
Minimum Maximum
------- -------
<S> <C> <C> <C>
Current assets. . . . . . . . 1,295,864 3,243,900 19,493,900
Property and equipment. . . . 102,141 102,141 102,141
Total assets. . . . . . . . . 1,864,182 3,812,218 20,062,218
Current liabilities . . . . . 879,833 879,833 879,833
Total stockholders' equity. . 984,349 2,932,385 19,182,385
---------------
</TABLE>

The pro forma financial data reflects income tax expenses of $99,444 and
$229,002, for the periods ended December 31, 1998 and December 31, 1999,
respectively, based on the assumption that we were taxed as a C-Corporation
instead of as a pass-through entity as provided under Subchapter S corporation
status. See the notes to our consolidated financial statements.

For the minimum number of shares under the offering, the as adjusted
balance sheet data at December 31, 1999 assumes net proceeds of $2,000,000, net
of $500,000 in offering expenses. For the maximum number of shares under this
offering, the as adjusted balance sheet of December 31, 1999 assumes net
proceeds of $18,250,000, net of $500,000 in offering expenses.

We plan to make a distribution of accumulated earnings while an
S-corporation to our existing stockholders immediately prior to the first
closing of this offering equal to the amount that our total stockholders' equity
exceeds $578,750 as of the date of such distribution. Accordingly, the as
adjusted balance sheet reflects a cash distribution of $51,964, assuming
this offering was completed on December 31, 1999, although the actual
distribution may differ.

4
<PAGE>

RISK FACTORS

THE SHARES OFFERED IN THIS PROSPECTUS ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. IF YOU PURCHASE SHARES YOU MAY LOSE YOUR ENTIRE INVESTMENT.
PRIOR TO MAKING AN INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER ALL OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FOLLOWING RISK FACTORS.

WE WILL HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING,
AND WE MIGHT USE THEM INEFFECTIVELY.

We will have broad discretion over how we use the net offering proceeds,
and we could spend the proceeds in ways with which you might not agree. We
cannot assure you that we will use these proceeds effectively. We plan to use
the proceeds from this offering for:

- new product development;
- marketing and advertising;
- facilities;
- personnel;
- computer equipment and software; and
- working capital and general corporate purposes.

Our business strategy includes possible growth through acquisitions or
significant investments, and we may use a substantial portion of the offering
proceeds to buy or invest in businesses we have not yet identified.

OUR TWO EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE CONTROL OF OUR COMMON
STOCK AND MAY MAKE DECISIONS THAT ARE NOT IN THE BEST INTEREST OF ALL
STOCKHOLDERS.

At the completion of this offering Clint Ballard, our president and chief
executive officer, and Diana T. Ballard, our chairman of the board, will in the
aggregate beneficially own approximately 92.0% of the outstanding shares of our
common stock in the event the maximum number of shares offered in this offering
are sold, or 98.9% of the outstanding shares of our common stock in the event
the minimum number of shares offered in this offering are sold. Accordingly,
Clint and Diana Ballard will be able to control the election of directors and
all other matters subject to stockholder votes. This concentration of ownership
may have the effect of delaying or preventing a change of control of
eAcceleration, even if this change of control would benefit shareholders.

5
<PAGE>

THE MAJORITY OF OUR CONTRACTS WITHOUT INTERNET ADVERTISING CUSTOMERS HAVE
MONTH-TO-MONTH TERMS, AND THE LOSS OF A SIGNIFICANT NUMBER OF THESE CONTRACTS IN
A SHORT PERIOD OF TIME COULD HARM OUR BUSINESS.

As of December 31, 1999, over 90% of our Internet advertising contracts
could be terminated by either party with several days notice. The loss of a
significant number of these contracts in any period could result in an immediate
and significant decline in our revenues and cause our business to suffer.

WE ARE DEPENDENT ON PURCHASING INTERNET ADVERTISING SPACE CURRENTLY PROVIDED BY
A SMALL NUMBER OF INTERNET ADVERTISING SUPPLIERS, MOST OF WHICH HAVE
MONTH-TO-MONTH AGREEMENTS WITH US, AND THE LOSS OF A SIGNIFICANT NUMBER OF THESE
SUPPLIERS COULD ADVERSELY AFFECT US.

We are dependent on Internet advertising space provided by Internet
advertising suppliers most of which have month-to-month agreements with us. In
1999, four advertising vendors, BURST! Media LLC, Adauction.com, Inc., Adsmart
and Flycast Communication Corporation, accounted for 29% 19%, 19% and 12%,
respectively, of our total Internet advertising purchases. Additionally, many of
our suppliers have reported significant financial losses and may not continue
operations in the long term. The unavailability of adequate Internet advertising
space could adversely affect us.

IF OUR CUSTOMERS REQUEST PRODUCTS AND SERVICES DIRECTLY FROM OUR MARKETER
CLIENTS INSTEAD OF REQUESTING THE PRODUCT OR SERVICE FROM US, OUR BUSINESS COULD
SUFFER.

Our Internet advertiser and marketer clients may offer similar free
products or services on their own websites that we offer on our websites. Our
customers may choose to request products or services directly from our Internet
advertiser and marketer clients instead of requesting the product or service
from us, which would result in lower revenues to us and cause our business to
suffer.

ONLINE SECURITY BREACHES COULD DISRUPT OUR SERVICES, IN WHICH CASE OUR BUSINESS
COULD SUFFER.

Our computer servers may be vulnerable to computer viruses, physical or
electronic break- ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any such breaches. We may be unable to prevent
or remedy all security breaches. If any of these breaches occur, we could
temporarily lose the ability to effectively maintain our web sites and services
and as a result lose Internet advertising and marketing clients and visitors to
our websites.

WE MIGHT ONLY SELL THE MINIMUM NUMBER OF SHARES OR LESS THAN THE MINIMUM NUMBER
OF SHARES.

We can have a closing and accept subscriptions for the sale of shares to
investors if at least 400,000 shares have been sold, which is the minimum number
of shares that may be sold in this offering. In the event such minimum amount,
or any amount which is significantly less that the

<PAGE>

maximum amount of 3,000,000 shares offered in this offering are sold, we
may not be able to develop and market our products and services and increase our
market share in markets in which we compete as aggressively as if more shares
were sold. We would also not be able to take advantage of acquisition or
investment opportunities as aggressively. Additionally, we would not be able to
expand our operations, build a new facility or significantly increase the size
of our work force and infrastructure to the extent we could if we sold more
shares.

We may also be unsuccessful in selling at least 400,000 shares in this
offering, particularly because our officers and directors are selling the shares
in a direct participation offering, without the use of an underwriter. If we
fail to sell at least 400,000 shares in this offering, we will be unable to
accept any subscriptions in the offering. We could also decide, in our
discretion, to not have a closing. Although your funds will be returned to you
promptly by our escrow agent, with interest, you will not have the use of these
funds for other purposes during the time period that your funds were held in
escrow, which could be in excess of nine months.

THE SHARES YOU PURCHASE IN THE OFFERING WILL BE IMMEDIATELY AND SIGNIFICANTLY
DILUTED.

The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. Purchasers of
our common stock in this offering will experience immediate and substantial
dilution. Dilution represents the difference between the price of a share sold
in this offering and the pro forma net tangible book value per share after the
offering. The dilution will be $6.18 per share or 99% of the offering price per
share if the minimum number of 400,000 shares are sold in the offering and $5.75
or 92% of the public offering price if the maximum number of 3,000,000 shares
are sold in the offering.

ISSUANCE OF SUBSTANTIAL AMOUNTS OF ADDITIONAL SHARES UPON THE EXERCISE OF STOCK
OPTIONS WILL DILUTE OUR STOCKHOLDERS.

As of the date of this prospectus, we have an aggregate of 34,300,000 shares
of common stock outstanding. In addition, as of the date of this prospectus, we
have 5,000,000 shares of common stock issuable upon the exercise of stock
options granted or available for grant under our 1999 stock option plan and
27,500 shares of common stock issuable upon exercise of other stock options
previously granted. All of such shares may be issued without any action or
approval by our stockholders. The issuance of these shares would dilute the
percentage ownership of our common stock held by our stockholders.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO OUR GROWING
DEPENDENCE ON INTERNET ADVERTISING AND MARKETING REVENUE.

Our quarterly results of operations have varied in the past and are likely to
continue to vary significantly from quarter to quarter in the future as we
increase our emphasis on Internet advertising and marketing revenue. As a
result, we believe that quarter-to-quarter comparisons of our operating results
may not be meaningful and you should not rely upon them as an indication of

7
<PAGE>

our future performance. Our operating expenses are based on expected future
revenues and are relatively fixed in the short term. If our revenues are lower
than expected, we could be adversely affected. In addition, during some future
periods our operating results likely will fall below the expectations of public
market analysts and investors. In this event, the market price of our common
stock likely would decline.

BECAUSE WE ARE SHIFTING OUR EMPHASIS FROM SOFTWARE DISTRIBUTION TO INTERNET
ADVERTISING AND MARKETING, OUR FUTURE PERFORMANCE IS DIFFICULT TO PREDICT.

Our operating history makes predicting our future performance difficult and
does not necessarily provide investors with a meaningful basis for evaluating an
investment in our common stock. Although we began operations in 1987, we did not
begin generating any significant revenue from Internet advertising and marketing
until 1999. As a result, our performance since January 1999 is not comparable to
prior periods.

WE WILL HAVE TO MAKE SIGNIFICANT SEVERANCE PAYMENTS TO OUR SENIOR MANAGEMENT IF
WE WISH TO TERMINATE THEM UPON A CHANGE OF OUR CONTROL.

Under the terms of our employment agreements with Clint Ballard, our
president and chief executive officer, and Diana T. Ballard, our chairman of the
board, in the event either of them is terminated upon a change of control of
eAcceleration, he or she will receive three times his or her average salary over
the prior five years, less $1.00. This may inhibit our ability to enter into
arrangements with investors or acquirors which would be beneficial to the
stockholders.

WE DO NOT HOLD COLLATERAL TO SECURE PAYMENT FROM OUR SOFTWARE LICENSING
CUSTOMER, AND IF WE FAIL TO RECEIVE PAYMENT FROM THIS CUSTOMER, OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED.

We do not hold collateral to secure payment on our software licensing
agreement with Pointe Control, our Asian distributor. Under this agreement,
Pointe Control is obligated to pay us at least $150,000 per month through May
2000. Therefore, a default in payment on a significant scale could materially
adversely affect our results of operations and financial condition.

A LARGE PERCENTAGE OF OUR REVENUES ARE DERIVED FROM ONLY ONE SOFTWARE
DISTRIBUTION CUSTOMER WHO, AS A RESULT, IS IN A STRONG BARGAINING POSITION, AND
IF WE CANNOT EXTEND OUR AGREEMENT WITH THIS CUSTOMER WITH ADEQUATE TERMS, WE
COULD BE ADVERSELY AFFECTED.

In 1998, two software distribution customers, Pointe Control and Syncronys
Softcorp., accounted for 85% and 14% of our revenues, respectively. In 1999,
Pointe Control has been our only software distribution customer, and it
accounted for 42% of our revenues.

Although the term of our distribution agreement with Pointe Control expires
in October 2000, the agreement only guarantees payments to us through May 2000.
There is no agreement to

8
<PAGE>

extend the term or otherwise amend the agreement as of the date of this
prospectus. The loss of Point Control as a software distribution customer on a
significant decrease in products or services sold to them could adversely affect
our business, operating results and financial condition.

As our sole distributor, Pointe Control is in a strong position to
negotiate favorable terms of sale, including price discounts and product return
policies. Pointe Control and its sales representatives may also give higher
priority to products other than ours, thus reducing their efforts to sell our
products.

A SIGNIFICANT PERCENTAGE OF OUR INTERNET ADVERTISING AND MARKETING REVENUES ARE
DERIVED FROM ONLY A SMALL NUMBER OF INTERNET ADVERTISING AND MARKETING
CUSTOMERS.

During 1999, one Internet advertising and marketing client, MediaRing,
Inc., accounted for 10% of our revenues. By late 1999 and continuing into 2000,
we substantially reduced our volumes with MediaRing, Inc. The loss of any of our
other major Internet advertising or marketing clients, a significant decrease in
products or services sold to them, or an inability to collect receivables from
one or more of them, could adversely affect our business, operating results and
financial condition.

WE LACKED DISINTERESTED INDEPENDENT DIRECTORS TO APPROVE OR RATIFY OUR PAST
MATERIAL TRANSACTIONS, AND AS A RESULT YOU HAVE NO INDEPENDENT ASSURANCE THAT
SUCH TRANSACTIONS ARE FAIR.

Prior to the date of this prospectus, we had no independent directors. As a
result, no independent director has approved or disapproved any of our
related-party transactions, including our employment agreements with Clint
Ballard and Diana T. Ballard, our granting of stock options to Shane H.
Traveller, our former chief financial officer and our subsequent severance,
settlement and general release agreement with Mr. Traveller upon his
resignation.

OUR SHARES COULD BECOME A "PENNY STOCK".

The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks". Penny stocks generally are
equity securities with a price of less than $5.00, other than securities
registered on national securities exchanges or quoted on Nasdaq, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system. Prior to a transaction in a
penny stock, a broker-dealer is required to:

- deliver a standardized risk disclosure document that provides information
about penny stocks and the nature and level of risks in the penny stock
market;

- provide the customer with current bid and offer quotations for the penny
stock;

- explain the compensation of the broker-dealer and its salesperson in the
transaction;

9
<PAGE>

- provide monthly account statements showing the market value of each penny
stock held in the customer's account; and

- make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement
to the transaction.

These requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our shares become subject to the penny stock rules, investors
may find it more difficult to sell their shares.

WE HAVE NO AGREEMENTS WITH ANY UNDERWRITERS OR BROKER DEALERS, AND WE MAY BE
UNABLE TO ATTRACT MARKET MAKERS.

There is currently no public trading market for the shares. The development
of a public trading market depends upon not only the existence of willing buyers
and sellers, but also on market makers. We may have one or more closings of the
offering. The first closing may not occur until we are able to sell at least
400,000 shares. Each closing represents the time that investors' subscriptions
are accepted and those shares are issued to investors. After that, we could have
additional closings whenever we receive and accept new subscriptions. After the
creation of a public trading market for the shares following the completion of
at least the first closing under this offering, we hope that a number of
broker-dealers may become market makers for the shares. Under these
circumstances, the market bid and asked prices for the shares may be
significantly influenced by decisions of the market makers to buy or sell the
shares for their own account, which may be critical for the establishment and
maintenance of a liquid public market in the shares.

Market makers are not required to maintain a continuous two-sided market
and are free to withdraw firm quotations at any time. Additionally, in order to
become listed on the Nasdaq SmallCap Market or Nasdaq National Market, we need
to have at least three registered and active market makers. We currently have no
market makers. No assurance can be given that any market making activities of
any market makers will commence.

<PAGE>

FORWARD LOOKING STATEMENTS

This prospectus includes "forward-looking statements". These statements
involve known and unknown risks, uncertainties and other factors which could
cause actual results, financial performance, operating performance or
achievements expressed or implied by such forward- looking statements not to
occur or be realized. Such forward-looking statements generally are based upon
our best estimates of future results, performance or achievement, based upon
current conditions, and the most recent results of operations. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "believe," "estimate," "anticipate," "continue," or
similar terms, variations of those terms or the negative of those terms.
Potential uncertainties include among other things, the matters described in the
"Risk Factors" and other sections of this prospectus.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy or completeness of the forward- looking statements after the
date of this prospectus.

<PAGE>

Use of proceeds

The net proceeds to us from the sale of the common stock, after deducting
offering expenses, are expected to be approximately $2,000,000 if the minimum
number of 400,000 shares are sold or $18,250,000 if the maximum number of
3,000,000 shares are sold. These proceeds are intended to be utilized
substantially in the dollar amounts and percentage of total proceeds set forth
below:
<TABLE>
<CAPTION>
Application of proceeds Minimum Maximum
----------------------- ------- -------
<S> <C> <C> <C> <C>
New product development $ 425,000 21.3% $ 4,000,000 21.9%
Marketing and advertising 550,000 27.5% 5,000,000 27.4%
Facilities 325,000 16.3% 3,000,000 16.4%
Personnel 275,000 13.8% 3,000,000 16.4%
Computer equipment 100,000 5.0% 400,000 2.2%
Computer software 50,000 2.5% 200,000 1.1%
Working capital and general
corporate purposes 275,000 13.8% 2,650,000 14.5%
---------- -----------
$2,000,000 $18,250,000
</TABLE>

"New product development" costs includes those associated with developing
and/or acquiring new proprietary software, new technologies and new web
properties. We currently have under development twelve new software products,
seven of which are still in the conceptual stage, and seven new websites, some
of which are still in the conceptual stage. We estimate our development costs
for these new projects could reach approximately four million dollars. We expect
to develop additional new products internally, and we also may license or
acquire new products. If we sell only the minimum number of shares in this
offering, our ability to develop and license new products described above will
be curtailed.

"Marketing and advertising" costs consist primarily of costs associated
with our efforts to increase traffic flow to our web properties. Such efforts
may include any or all of the following:

- Internet advertising, including banner advertisement;
- radio advertising;
- television advertising; and
- print advertisements.

In the event that we sell exactly or close to the maximum number of shares
in this offering, we plan to significantly increase our advertising expenditures
in all of the types of media listed above. If we sell only the minimum number of
shares in this offering, we would expect to increase our advertising
expenditures to a much lesser degree and will continue to concentrate our
advertisements on Internet banner or other types of Internet advertisements.

12
<PAGE>

"Facilities" costs consist of the following:

- leasehold improvements;
- furniture;
- equipment; and
- the development of additional facilities to house our operations.

In the event that we sell exactly or close to the maximum number of shares
in this offering, we plan to acquire property in Kitsap County, Washington or
elsewhere in the Puget Sound area in the State of Washington on which we would
have a state-of-the-art facility built for us that would be large enough to
house our entire business operations for the next several years, and would
accommodate expansion for the foreseeable future through the subsequent building
of additional facilities on such property. Alternatively, we would expect to
lease up to 50,000 square feet of space in the Puget Sound area that could house
our operations for the next several years. If only the minimum number of shares
are sold in the offering, we expect to seek to lease a considerably smaller
facility, or perhaps an additional facility which together with our current
facilities could house our business operations for the next several years.

"Personnel" costs include the costs associated with hiring and training,
and the ongoing salaries and benefits of, personnel necessary to satisfy our
operational and growth needs. In the event that we sell exactly or close to the
maximum number of shares in this offering, we believe that we will significantly
increase our operations. As a result, we would expect that our personnel needs
would increase significantly, including the possible need for additional
executive officers. If we sell the minimum number of shares in this offering, we
will likely increase our operations by a smaller amount and our personnel needs
will grow to a lesser degree.

"Computer equipment" costs consist of additional office computer equipment
and web service-related equipment. In the event we sell exactly or close to the
maximum number of shares in this offering, and we significantly increase our
operations and move our operations into a newly-built facility, we plan to add
or replace computer equipment to meet our growing needs. If we sell the minimum
number of shares is this offering, our needs for additional computer facilities
will diminish.

"Computer software" costs consist of internal-use programs either purchased
or developed in-house to facilitate our operations. In the event we sell exactly
or close to the maximum amount of shares in this offering, we will be able to
develop or purchase software which could increase our efficiency and
productivity, as well as help to coordinate our expanding operations. If we only
sell the minimum number of shares in this offering, such upgrading of our
software will be greatly curtailed.

"Working capital and general corporate purposes" costs include costs
associated with possible acquisitions and the following costs necessary for our
ongoing operations:

<PAGE>

- rents;
- utilities;
- financing account receivables;
- existing employee salaries;
- existing employee benefits, and
- professional and consulting fees.

The amounts set forth above are estimates. While our intentions with regard
to the use of the proceeds of this offering are described above, we do not
guarantee that the proceeds of this offering will be used as described in this
prospectus. The actual amount expended to finance any category of expenses may
be increased or decreased by our board of directors, in its discretion, if a
reapportionment or redirection of funds is deemed to be in our best interests.
As such, our board of directors and management will have broad discretion,
subject to their fiduciary duties, in the use of the proceeds from the sale of
the shares offered in this offering. We expect that the level and timing of
expenditures necessary for each of the intended uses described above will depend
upon numerous factors, including:

- the progress of our product development activities;
- the timing and amount of revenues resulting from our operation;
- changes in competitive, technological or other conditions in
our industry; or
- if our estimates of the cost of our proposed uses of the
proceeds of this offering ultimately turn out to be inaccurate.

As discussed above, if the minimum amount is raised, our expansion plans
will be limited. In the event that an amount between the minimum and maximum
amounts if raised, we intend to allocate such proceeds approximately
proportionately to the above uses, but may, dependent on circumstances, allocate
the use of such proceeds in a different manner.

The expansion plans set forth in this prospectus represent our current
plans for the development and expansion of our business. We reserve the right
when and if the opportunity arises, to acquire other businesses, products and
technologies for the purpose of expanding our business, as described in this
prospectus or otherwise. If a business opportunity arises, we may use a portion
of our working capital for that purpose or for making equity investments in
companies that may use a portion of the proceeds from our investment to retain
our Internet advertising and marketing services to promote their products and
services.

We are not currently involved in any negotiations for purchasing any
material business or group of assets. We have no specific plans, arrangements,
understandings or commitments with respect to any acquisition at the present
time, and it is uncertain as to when or if any acquisition will be made. We
expect that any business that we would acquire would be in the Internet,
software, marketing, advertising or new media businesses; however, no assurance
can be given in this regard. In the event we sell exactly or close to the
maximum number of shares in this offering, we will have a significant degree of
flexibility relating to such acquisition or investment

14
<PAGE>

opportunities, while if we sell the minimum amount of shares in this
offering, our ability to take advantage of business opportunities as they become
available will be more limited.

Additionally, we are preliminarily considering using a portion of our
working capital to form or acquire a broker-dealer subsidiary, following the
completion of this offering, that would assist other companies in raising
capital through direct participation offerings. We have not entered into any
agreements relating to any such enterprise nor do we have current plans to do
so, and we do not know if we will ever do so in the future.

The net proceeds from this offering, together with internally generated
funds, based on historical experience, are expected to be adequate to fund our
working capital needs for at least the next twelve months. Pending use of the
proceeds from this offering as set forth above, we may invest all or a portion
of such proceeds in marketable securities, short-term, interest-bearing
securities, U.S. Government securities, money market investments, equity or debt
securities of other companies or businesses or short-term, interest-bearing
deposits in banks.

<PAGE>

CAPITALIZATION

The following table sets forth our capitalization at December 31, 1999, and
as adjusted, to give effect to the sale of the minimum number of 400,000 shares
of common stock offered and to the sale of the maximum number of 3,000,000
shares of common stock offered in this offering, at an assumed public offering
price of $6.25 per share, net of estimated offering costs of $500,000, and after
the application of the net proceeds of such sale.

December 31, 1999
----------------------------------
Actual As adjusted
------ ----------------------
Minimum Maximum
------- -------

Stockholders' equity:
<S> <C> <C> <C>
Common stock, $.0001 par value per
share; 100,000,000 shares authorized;
34,300,000 shares issued and outstanding;
34,700,000 shares issued and outstanding,
as adjusted assuming the minimum number
of shares are sold; 37,300,000 shares
issued and outstanding, as adjusted assuming
the maximum number of shares are sold. . . . . . . $ 3,430 $ 3,470 $ 3,730

Additional paid-in capital . . . . . . . . . . . . 350,205 2,928,915 19,178,655

Retained earnings . . . . . . . . . . . . . . . . 630,714 - -
--------- ---------- -----------

Total stockholders' equity . . . . . . . . . . . . $ 984,349 $2,932,385 $19,182,385
========= ========== ===========

</TABLE>

We plan to make a distribution of accumulated earnings while an
S-corporation to our existing stockholders immediately prior to the first
closing of this offering equal to the amount that our total stockholders' equity
exceeds $578,750 as of the date of such distribution. Accordingly, the as
adjusted capitalization reflects a cash distribution of $51,964, assuming the
offering was completed on December 31, 1999, although the actual distribution
may differ. Since we will not distribute accumulated earnings to our existing
stockholders equal to $578,750, we have reclassified such amount from retained
earnings to additional paid-in capital.

<PAGE>

DILUTION

Our net tangible book value at December 31, 1999 is $570,587 or $.02 per
share of common stock. Net tangible book value per share represents the amount
of total tangible assets less liabilities, divided by 34,300,000, the pro forma
number of shares of common stock outstanding at December 31, 1999. After giving
effect to the sale of 400,000 shares in the event that the minimum number of
shares offered in this offering are sold or 3,000,000 shares in the event that
the maximum number of shares offered in this offering are sold, the as adjusted
net tangible book value at December 31, 1999 would be $2,518,623, or $.07 per
share in the event that the minimum number of shares offered in this offering
are sold, or $18,768,623, or $.50 per share in the event that the maximum number
of shares offered in this offering are sold.

This represents an immediate increase in net tangible book value of $.05
per share to the existing stockholders in the event the minimum number of shares
are sold or $.48 per share to the existing stockholders in the event the maximum
number of shares are sold, and an immediate dilution of $6.18 per share to new
investors in the event that the minimum number of shares offered in this
offering are sold or $5.75 per share to new investors in the event that the
maximum number of shares offered in this offering are sold. The following table
illustrates this per share dilution:

Minimum Maximum
------- -------
<S> <C> <C>
Assumed public offering price per share of common stock offered
in this offering before deduction of offering expenses. . . . . . . $6.25 $6.25
Net tangible book value per share before offering. . . . . . . . .02 .02
Increase per share attributable to new investors . . . . . . . . .05 .48
----- -----
As adjusted net tangible book value per share after offering. . . . .07 .50
----- -----
Dilution per share to new investors . . . . . . . . . . . . . . . . $6.18 $5.75
===== =====

Percentage that new investors' shares are diluted. 99% 92%

</TABLE>
The following tables summarize the relative investments of investors in
this offering and our current stockholders, assuming a per share offering price
of $6.25, before deduction of offering expenses:
<TABLE>
<CAPTION>

Current Public
Minimum Stockholders Investors Total
------- ------------ --------- -----
<S> <C> <C> <C>
Number of shares of common stock purchased. . . . . 34,300,000 400,000 34,700,000
Percentage of outstanding common stock after
offering . . . . . . . . . . . . . . . . . . . . . 98.9% 1.1% 100%
Gross consideration paid. . . . . . . . . . . . . . $803,634 $2,500,000 $ 3,303,634
Percentage of consideration paid. . . . . . . . . . 24.3% 75.7% 100%
Average consideration per share of common
stock . . . . . . . . . . . . . . . . . . . . . - $6.25 $.10

</TABLE>
<TABLE>
<CAPTION>

Current Public
Maximum Stockholders Investors Total
------- ------------ --------- -----
<S> <C> <C> <C>
Number of shares of common stock purchased. . . . . 34,300,000 3,000,000 37,300,000
Percentage of outstanding common stock after
offering . . . . . . . . . . . . . . . . . . . . . 92.0% 8.0% 100%
Gross consideration paid. . . . . . . . . . . . . . $803,634 $18,750,000 $19,553,634
Percentage of consideration paid. . . . . . . . . . 0.4% 99.6% 100%
Average consideration per share of common
stock. . . . . . . . . . . . . . . . . . . . . . . - $6.25 $.52

</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion should be read with the historical financial
statements, and accompanying notes, included elsewhere in this prospectus.

GENERAL

From 1994 through 1998, our revenues have been primarily derived from sales
and licensing of proprietary software through distributors and retail channels.
In 1998, our revenues were derived primarily from our software development and
licensing contracts with Pointe Control for distribution in Asia. In 1998, we
began offering our software, as well as licensed third party products, to users
for free through a suite of websites in exchange for users' adoption of our
homepage as their Internet browser's starting page. In 1999, we diversified our
revenue stream to include Internet advertising from our websites. We intend to
increase our future revenues by concentrating on increasing our Internet
revenues.

Under the terms of our distribution agreement with Pointe Control, Pointe
Control is granted an unlimited license to sell the software in Japan as
specified under the agreement. This does not materially affect our operations
attributed to offering software free on our websites. Pointe Control's license
only applies to localized, Japanese versions of the software, and not the
english versions which are available for free on our websites. Additionally,
users in Japan cannot generally run the free English-language versions on their
operating systems. we have no assurance that this agreement will be extended or
renewed.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999.

REVENUES

Our revenues increased $2,840,320 or 148% from $1,919,149 in 1998 to
$4,759,469 during 1999, primarily due to the development in 1999 of our Internet
advertising and marketing revenues of $2,744,869. Domestic revenues from
software licensing were not significant during 1998 and 1999. We had one license
agreement that resulted in the recognition of $1,050,000 and $1,964,550 of
revenues during 1998 and 1999, respectively. Revenues derived in Asia during
1998 and 1999 were generated from Pointe Control.

In November 1995, we entered into a master agreement with Pointe Control to
produce various software products. In 1996, we amended the agreement to provide
for the production of additional software products produced on CD ROM. In
February 1998, we amended the terms of the agreement to provide for receipt of
payment based on CD-ROMs sold by Pointe Control. Revenues for these products
were recorded when the products were sold by Pointe Control and the cash was
received, generally within thirty days from the date of sale. On August 14,
1998, we further amended our agreement to provide for the delivery of a master
license for a specified

<PAGE>

product for which we would be paid $375,000 upon delivery and $375,000 over
four months. We delivered the master license in August 1998 and revenues were
recorded upon delivery. At such time we had no significant obligations
remaining, and all payments were guaranteed and collected as defined under the
agreement at the time of shipment.

On January 20, 1999, we further amended the contract to provide for the
production and license of ten specified software products in which a site
license was granted. This amendment specified certain payments to us totaling
$2.2 million beginning February 7, 1999 through December 7, 1999, with a final
payment of $200,000 due January 2000. We actually received $1.875 million during
1999 under an oral agreement between the parties. This amendment, dated January
20, 1999, was further amended on October 14, 1999 to amend the required payments
and provide for additional payments from November 7, 1999 to May 7, 2000 of
$150,000 per month. Total payments under these two amendments are $2.625
million.

Revenues under the January 20, 1999 and October 14, 1999 amendments to
design, produce and deliver these software products are recorded under the
percentage of completion method as discussed in Note 2 to our financial
statements included in this prospectus. In 1999, we recorded revenues of $2.014
million under this amended agreement. The agreement is estimated to be 77%
complete at December 31, 1999. No amounts have been deferred in connection with
this arrangement at December 31, 1999. Unbilled revenues included in accounts
receivable amounted to $149,547 at December 31, 1999. At present, this contract
represents our sole source of revenues from software licensing. This agreement
also provides for bonus payments of $400,000 for several of the Company's
software products if any of such products' sales reach "top product" status
based on sales totals as determined by industry reports listed in the agreement.
The maximum possible bonus is $2,000,000. No bonus amounts have been recognized
as revenues.

We target our Internet advertising expenditures to cost-effectively
generate user traffic to our websites. We intend to continue purchasing
advertising only when we expect it to have a positive margin. We bill our
Internet-based customers on a performance basis, based on agreed upon criteria,
such as downloads, click-throughs, registrations or similar user actions. We
generally provide our advertising on a month-to-month basis, and allow Internet
advertising and marketing clients to cancel their programs within 15 days at no
cost. We provide no guarantees of minimum traffic levels nor do we usually
provide advertising services under long term contracts. We may acquire or make
investments in complementary software or Internet-related businesses, including
equity investments in companies that might use a portion of the proceeds from
our investment to retain our Internet advertising and marketing services to
promote their products and services.

During 1999, we commenced Internet revenue sharing programs with seven
other companies, under which we are to receive a portion of such other
companies' sales originating from our websites ranging from 3% to 50%. Our
revenues derived from revenue sharing programs during 1999 have been
inconsequential.

19
<PAGE>

SOFTWARE DEVELOPMENT AND PRODUCT EXPENSES

Software development and product costs increased $133,859 or 15% from
$919,895 during 1998 to $1,053,754 in 1999, due to our expansion during 1999.
We expect our web development activities to continue to increase significantly
as we increase our emphasis on generating Internet advertising and marketing
revenues.

SALES AND MARKETING EXPENSES

Our sales and marketing expenses increased by $2,025,793 or 548% from
$369,336 during 1998 to $2,395,129 during 1999. Internet advertising expenses
were incurred in 1999 to promote our software products and increase traffic to
our websites. Total advertising expenses incurred in 1998 totaled $28,542 for
retail software sales. Total Internet advertising expenses incurred in 1998 were
$367,796, and increased by $1,545,399 or 420% to $1,913,195 in 1999. These
expenses were incurred in order to support increased advertising revenues.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $232,636 or 57% from $409,071
during 1998 to $641,707 in 1999, largely due to increases in Internet
communications-related expenses and salaries and wages. We believe that legal
and professional fees, salaries and wages, and general office expenses, will
increase significantly to provide for infrastructure necessary to administer a
growing public company.

Between July 1, 1999 and December 31, 1999, we granted stock options to
employees and non-employees which currently have an exercise price of $4.78 per
share in the case of options granted to non-employees and $5.63 per share in the
case of options granted to employees. The board of directors has determined that
the fair value of our common stock was $5.63 per share based on our anticipated
offering price of the shares of $6.25 per share, less a nominal discount of ten
percent for transferability restrictions, for all options granted in 1999. The
stock options granted to employees are intended to be incentive stock options
qualified under Section 422 of the Internal Revenue Code. These options vest
over a period of ten years from the date of grant and have an exercise price of
no less than the fair value of our common stock at the time of grant. The stock
options granted to directors and to all other non-employees are non-qualified
stock options which vest over a period of five years from the date of grant and
have an exercise price of no less than 85% of the fair value at the time of
grant. In no case may we grant any stock options that have an exercise price of
less than 85% of fair value.

We record compensation expense for options granted to employees if the
exercise price is less than the fair value of the underlying common stock.
Because options issued to employees were granted at the estimated fair value, no
compensation relating to these options was charged to operations in 1999.
Options issued to non-employees are valued based on a commonly used valuation
model that considers volatility, among other factors. Accordingly, we recorded
approximately $128,751 of compensation expense during 1999. We will record
future

20
<PAGE>

compensation expense of approximately $1,156,665 related to these stock
options evenly over the remaining average vesting period as of December 31, 1999
of approximately 4.75 years.

OTHER INCOME AND EXPENSES

Other income and expenses include settlement gains from disputes with a
former customer. We also received interest income on our interest bearing cash
accounts.

FUTURE PROFITABILITY

As we continue to increase our emphasis on Internet advertising and
marketing revenue and focus on significantly increasing the flow of traffic to
our websites, we may experience operating losses as we develop, produce and
distribute additional products and services, de- emphasize other products and
services and continue to develop our business. As a result, we may not be able
to maintain our historical profitability.

LIQUIDITY AND CAPITAL RESOURCES.

During the periods reported, we generated sufficient cash flows from
operations to support our business. During 1998 and 1999, we generated cash
flows from operations of $103,184 and $926,043, respectively. Increases in
accounts receivable required the use of additional operating cash flows in 1998
and 1999.

At December 31, 1999, we had cash and cash equivalents of $329,483 and
working capital of $416,031. We intend to continue to utilize our resources in
2000 for software and website development, marketing and advertising, to finance
the higher level of accounts receivable necessary to support our anticipated
increase in revenues and for capital expenditures, including the purchase of
computer equipment and software. However, our working capital requirements may
change depending upon numerous factors, including, without limitation, the need
to expand our website traffic through free software downloads and Internet
advertising. We believe that our existing cash and cash equivalents and cash
generated from operations, if any, should be sufficient to meet our currently
anticipated liquidity and capital expenditure requirements for at least the next
12 months. There can be no assurance, however, that we will be successful in
attaining our revenue goals, nor that attaining such goals will have the desired
effect on our cash resources. We have no long-term debt; however, we believe
that credit facilities may be available to us.

We may be required to raise additional funds after this offering,
especially if we only sell the minimum number of shares and, as a result, do not
have the proceeds necessary to implement our business plans to the extent we
desire. There can be no assurance that additional financing will be available
when needed or that if available, such financing will include terms favorable to
us or our stockholders. If such financing is not available when required or is
not available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and results of operations.

<PAGE>

FOREIGN CURRENCY TRANSACTIONS

Our revenues from Asia are denominated in U.S. dollars. Accordingly, we do not
incur transaction gains and losses related to foreign currencies.

INCOME TAXES AND S-CORPORATION DISTRIBUTION

During the periods presented, we were not subject to federal and state
income taxes since we elected to be taxed as an S-Corporation. Accordingly, we
reported income on our stockholders' personal income tax return. Immediately
prior to the initial closing of this offering, we will begin to be a taxed as a
separate legal entity. The minimum regular federal income tax rate is currently
34%. At present, the State of Washington does not impose income taxes on
corporations but does impose a business and occupation tax on corporations
conducting business in the State of Washington.

The consolidated statements of operations for the years ended December 31,
1998 and 1999 included in the financial statements included in this prospectus
include pro forma net income, and basic and dilutive earnings per share,
assuming we were taxed as a C-Corporation at the 34% federal income tax rate at
the beginning of such reporting periods. We anticipate that immediately prior to
the first closing of this offering, we will make a distribution of accumulated
earnings to our existing stockholders equal to the amount that our total
stockholders' equity exceed $578,750 on the date of such distribution.

CONSULTING AGREEMENT

As of July 1999, we entered into a consulting agreement with Millennium
Capital Quest relating to services consisting of advise on various alternatives
in raising capital, public relations and marketing, and advice regarding
corporate structuring and management structuring. The terms of the contract
include, among others, payments of up to an aggregate of $187,500 and a grant of
options, that currently has an exercise price of $4.78 per share, to the
consultant to purchase 34,300 shares of our common stock. As of the date of this
prospectus, we have granted the options and have paid $37,500 to the Millennium.
We will be required to pay an additional $50,000 of the $187,500 upon our having
at least $3,000,000 in cash in the bank and the remaining $100,000 upon our
having at least $18,000,000 in the bank. The consulting agreement expires on
July 11, 2000.

SEASONALITY

The computer software and Internet advertising and marketing markets are
characterized by significant seasonal swings in demand, with the strongest
demand for both occurring in the fourth quarter of each year. We expect our net
sales and operating results to continue to be affected by these fluctuations. We
expect that our results of operations from Internet advertising and marketing
operations will be an inverse function of these fluctuations, because we
increase

22
<PAGE>

our advertising expenditures when the advertising rates, in general,
are lower. Our revenues may also experience substantial variations as a result
of a number of factors, such as consumer and business preferences and
introduction of competing products by competitors, as well as limited time
promotional pricing and other offers. There can be no assurance that we will
achieve consistent growth or profitability on a quarterly or annual basis.

INFLATION

We believe that inflation has generally not had a material impact on
our operations.

<PAGE>

BUSINESS

OVERVIEW

We were initially incorporated in 1987 as Ballard Synergy Corporation, a
Nevada corporation, and merged with a Washington corporation in 1995 and changed
our name to Acceleration Software International Corporation in 1996. In November
1999, we formed eAcceleration, a Delaware corporation, which is the parent
company of Acceleration Software. Prior to the first closing under this
offering, we plan to merge Acceleration Software International Corporation into
eAcceleration and remain a Delaware corporation.

We initially provided crisis intervention computer software programing
services in the Silicon Valley region of California. We became a leading
provider of SCSI software services and developed a library of SCSI software
solutions that we sold to the Microelectronics Products Division of NCR
Corporation in 1992. After relocating to Kitsap County, Washington, in the Puget
Sound area, in 1992, we developed d-Time, a software product that accelerated
the performance of CD-ROM drives, which by 1995 became a top 100 software title
in the U.S., according to PC Data Online, and a top 20 software title in Japan.
As the need for CD-ROM performance acceleration declined in light of the rapid
increase in CD-ROM drive speed, we developed Superfassst, a hard drive
performance acceleration product. As the Internet revolution developed, we
developed Webcelerator, a software product which accelerates the performance of
web browsers. We have also developed several additional software products.

In 1996, we also began developing our Internet business model, under which
we provide our software products, as well as third party products, free on our
websites to visitors who agree to use one of our websites, homepageware.com, as
their Internet browser's starting page. This generates significant traffic to
our homepageware websites, allowing us to sell pay-for-performance Internet
advertising to Internet advertising and marketing clients. We allow our Internet
advertising and marketing clients to cancel their Internet advertising programs
within a two-week trial period at no cost. Historically, over 70% of our
Internet advertising and marketing clients renew advertising commitments to us,
and less than 20% of our Internet advertising and marketing clients cancel their
Internet advertising programs within the two-week free trial period.

24
<PAGE>

Since February 1999, our Internet business model has generated profitable
operations while we experienced a significant increase in unique website
visitors. The number of "unique website visitors" in a month is a measure of how
many individuals visit a particular website within the month. If an individual
visits the website more than once during a month, he or she only counts as one
unique visitor during that month. The number of our total domestic and
international unique website visitors and our ranking among all web properties
on the Internet between February 1999 and August 1999, according to PC Data
Online, were as follows:

<TABLE>
<CAPTION>
Month Number of unique visitors Ranking
----- ------------------------- -------
<S> <C> <C>
February 828,000 286

March 1,084,000 210

April 1,970,000 98

May 1,947,000 89

June 2,313,000 63

July 3,416,000 42

August 4,181,000 54
</TABLE>

Comparable information for the months following August 1999 is not available.

INDUSTRY BACKGROUND

GROWTH OF THE INTERNET AND ONLINE COMMERCE

Over the past several years, the Internet has emerged as a powerful and
efficient new medium, enabling people worldwide to exchange information,
communicate and conduct business electronically. The number of people using the
Internet continues to expand rapidly.

Businesses have recognized the online commerce opportunity and are
increasingly using the Internet to sell and distribute products and services. As
online commerce and the number of people using the Internet grow, advertisers
and direct marketers are increasingly using the Internet to locate customers,
advertise products or services and facilitate transactions. The eAdvertising
Report estimates that approximately $1.5 billion was spent by U.S. companies on
Internet advertising worldwide in 1998, and this amount is expected to grow to
approximately $2.6 billion by the end of 1999 and to approximately $8.9 billion
in 2002. According to the eAdvertising Report, Internet advertising spending
will account for approximately 1.2% of the total advertising spending in 1999
and this amount is predicted to grow to 3.4% in 2002.

The usage of the Internet for services such as those we offer will depend
in significant part on continued rapid growth in the number of households and
commercial, educational and government

<PAGE>

institutions with access to the Internet, in the level of usage by
individuals and in the number and quality of products and services designed for
use on the Internet. Because usage of the Internet as a source for information,
products and services is a relatively recent phenomenon, it is difficult to
predict whether the number of users drawn to the Internet will continue to
increase and whether any significant market for usage of the Internet for such
purposes will continue to develop and expand. There can be no assurance that
Internet usage patterns will not decline as the novelty of the medium recedes or
that the quality of products and services offered online will improve
sufficiently to continue to support user interest. Failure of the Internet to
stimulate user interest and be accessible to a broad audience at moderate costs
would jeopardize the markets for our services.

Moreover, issues regarding the stability of the Internet's infrastructure
remain unresolved. The rapid rise in the number of Internet users and increased
transmission of audio, video, graphical and other multimedia content over the
Internet has placed increasing strains on the Internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Internet
and could reduce the usage of the Internet by businesses and individuals.

In addition, to the extent that the Internet continues to experience
significant growth in the number of users and level of use without corresponding
increases and improvements in the Internet infrastructure, there can be no
assurance that the Internet will be able to support the demands placed upon it
by such continued growth. Any failure of the Internet to support such increasing
number of users due to inadequate infrastructure or otherwise would seriously
limit the development of the Internet as a viable source of interactive content
and services, which could materially and adversely affect the acceptance of our
services, which would, in turn, materially and adversely affect our business,
financial condition and results of operations.

DIRECT MARKETING

Advertising expenditures can be broadly categorized as either brand
advertising or direct marketing. Brand advertising is intended to generate brand
name awareness and create a specific image for a particular company, product or
service. Direct marketing involves any direct communication to a consumer
intended to generate a specific response or action, generally the purchase of a
product or service. The Direct Marketing Association estimates total direct
marketing expenditures in the United States at $162.7 billion. By the year 2003,
it expects that this figure will exceed $221 billion.

TRADITIONAL DIRECT MARKETING

Traditional direct marketing media include direct mail, telemarketing and
newspaper, magazine, radio and television advertisements. Although traditional
direct marketing is effective and widely used, it presents a number of
challenges for marketers and consumers alike. Traditional direct marketers
generally lack specific and timely information on a particular consumer's
immediate interests. As a result, marketers spend considerable resources on
communications most consumers don't want or need. Given the costs associated
with traditional direct marketing, which include

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telecommunications, postage, printing, assembly, labor and facilities, we
believe the often low response rates make the process inefficient.

ONLINE DIRECT MARKETING.

Online direct marketing media include banner advertisements, targeted email
solicitations and website sponsorships. We believe online direct marketing is
more attractive than traditional direct marketing because it requires lower
production costs and provides easier and faster customer response features. In
addition, online direct marketing allows marketers to easily:

- develop one-to-one relationships with consumers;

- collect data and feedback on marketing campaigns; and

- customize marketing campaigns to broad audiences or specific groups.

Even with these advantages, direct marketers face challenges in realizing
the full potential of the Internet as a marketing medium. With millions of
websites, only a fraction of which have significant audiences, it is difficult
for marketers to decide where to spend their marketing dollars. Even leading
brand name marketers who build their own websites must find ways to attract a
sizeable audience of visitors. In addition, technological hurdles may impede
conventional direct marketers from successfully extending their activities to
the Internet. In order to participate in most online marketing efforts,
marketers must build and maintain websites as well as incorporate order-taking
capabilities and develop systems to integrate online ordering with their
traditional databases.

We believe marketers desire a solution that benefits from the effectiveness
of direct marketing while overcoming the challenges presented by both
traditional and online marketing methods,

THE EACCELERATION SOLUTION

We act as an intermediary between consumers and marketers, through which
consumers seeking to try new software products are presented with a collection
of free software in exchange for such consumers using our designated homepage as
their Internet browser's starting page. Online marketers seeking an audience of
potential customers advertise on this homepage and on our other websites. We
offer a consumer-directed process in which consumers select only those products
of immediate interest to them. In turn, advertisers pay only for performance in
the form of clickthroughs, downloads, email addresses, signups or other
objectives. We believe that our solution creates a highly effective method of
direct marketing in terms of cost, targeting, efficiency and consumer
satisfaction.

STRATEGY

Our objective is to attain a leading position in the global online direct
marketing and incentives-based advertising market, while maintaining historical
profit margins. Based on the

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estimate of the total revenues in the global online direct marketing and
advertising market of $3.4 billion for 1999, according to the eAdvertising
Report, and our Internet advertising and marketing revenues of approximately
$2.0 million over the six-month period ended December 31, 1999, we believe that
we have achieved a market share of over one tenth of one percent of aggregate
worldwide Internet advertising revenues. Based on industry reports such as the
eAdvertising Report, we believe that the overall total amount of money spent on
Internet advertising will increase in the future.

We intend to use a portion of the proceeds of this offering to establish an
aggressive advertising and marketing program, which we expect to result in an
increase in our Internet advertising market share. Based on our current success
with limited resources, and the anticipated implementation of our intended
marketing plan with significantly increased resources, we hope that our market
share will increase to up to one percent over the next several years; however,
no assurance can be given in this regard and if we fail to successfully
implement our business strategy, our business will suffer.

The Internet has not existed long enough as a marketing medium to
demonstrate its effectiveness relative to traditional marketing methods.
Marketers that have historically relied on traditional marketing methods may be
reluctant or slow to adopt Internet marketing. Many marketers have limited or no
experience using the Internet as a marketing medium. In addition, marketers that
have invested substantial resources in traditional methods of marketing may be
reluctant to reallocate these resources to Internet marketing

We intend to achieve our objective through the following key strategies,
which we expect to implement over the next three to twelve months:

INCREASE SIZE OF SUBSCRIBER BASE

We intend to continue to expand our subscriber base through subscriber
acquisition activities such as co-registration programs, co-marketing programs
and advertising on third-party Internet sites. We also plan to initiate a public
relations campaign, in order to, among other things, attract new subscribers. In
addition, we intend to explore international opportunities, including potential
strategic alliances, in order to continue to expand our subscriber base.

INCREASE NUMBER OF ADVERTISING AND MARKETING CLIENTS

We are seeking to broaden our advertising and marketing client base by
increasing our direct and indirect sales and marketing efforts. We may increase
the size of our direct sales force. In addition, we are seeking to take
advantage of existing distribution channels, such as advertising networks, to
expand the number of advertisers using our homepage marketing system.

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INCREASE TRAFFIC AND TRANSACTIONS

Our strategy of rapidly increasing consumer traffic to our website is
focused on both new and repeat visitors. New visits are expected to be driven
primarily by our online advertising programs, enhanced software offerings, and
word-of-mouth referrals.

EXPAND OFFERS

The number and quality of offers on our site are critical to our ability to
attract visitors and increase revenues from our marketer client base. We believe
we have a significant competitive advantage in attracting additional marketer
clients due to the large number of consumers visiting our websites and our
popular software offerings, including Internet-related software. We expect to
implement content expansion through a combination of internal sales efforts,
partnerships and acquisitions.

CONTINUE TO DEVELOP AND USE TECHNOLOGY TO ENHANCE WEBSITE CAPABILITIES
AND VISITS

We have designed and implemented proprietary systems that enable us to
ensure that users of our free software also use our homepage as their Internet
browser's starting page. We regularly update our websites to encourage consumers
to frequently revisit. As part of our effort to promote repeat visits, we
continue to develop features that will make our visitors' homepage experience
faster, easier and more personalized. We have spent approximately $900,000 and
$1,017,000 on research and development during 1998 and 1999, respectively.

ACQUISITIONS

We intend to explore possible acquisitions of and investments in
complimentary software or Internet-related businesses, including equity
investments in companies that may, in turn, use a portion of the proceeds from
our investment to retain our Internet advertising and marketing services to
promote their products and services. We are not currently involved in any
discussions or negotiations relating to any material acquisition.

As part of our business strategy, we may make acquisitions of, or
significant investments in, complementary companies, products or technologies.
Any such future acquisitions would be accompanied by the risk of ineffectively
assimilating the personnel of the acquired companies with our personnel and the
potential impairment of relationships with our employees and customers as a
result of any integration of new management personnel. Any future acquisitions
could also be accompanied by problems with ineffectively assimilating the
operations of the acquired company with our operations, due in part to the small
size and relative inexperience of our management team in such matters. As a
result, future acquisitions could disrupt our ongoing business and cause our
management team to divert its efforts and our resources from our existing
businesses, sites and technologies. Our management team may also be unable to
maximize our financial and strategic position through the successful
incorporation of the acquired technology into our products and services while
maintaining uniform standards, controls, procedures and policies. Finally, if we

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decide to issue shares of common stock or securties convertible into such
shares in connection with an investment or acquisition, this would dilute the
percentage ownership of our common stock held by our stockholders.

SALES AND MARKETING

Our primary sales strategy is to sell our services directly to advertisers,
direct marketers, advertising agencies and other advertising-supported software
companies. We currently sell our services directly to clients in the United
States utilizing five employees located at our principal office. Our sales force
is dedicated to establishing and maintaining relationships with advertising and
marketing clients. Our sales force uses industry directories, personal contacts,
industry knowledge and Internet search engines to seek likely sales prospects.
We also receive sales leads from advertising agencies that have recommended us
to clients.

ADVERTISING AND MARKETING CLIENT BENEFITS:

- COST-PER-ACTION PAYMENT STRUCTURE. We provide a cost-per-action
incentive marketing solution, in which our clients are only
charged when pre-defined actions specified by our clients are
generated, such as downloads, click-throughs, registrations or
similar user actions. In contrast, with the commonly used
cost-per-thousand impression banner advertising, advertisers
typically pay for a number of impressions on websites, regardless
of whether consumers click on, or take any action in response to, the
banner advertisement. Our cost-per-action solution provides our
clients with a known cost per yield for each advertising and
marketing campaign and a measurable cost of acquiring new customers.

- INTENDED TARGETING CAPABILITY. We intend to leverage our subscriber
base to provide customized, targeted campaigns for our clients.
This targeting capability is expected to enable our clients to
focus on specific demographic segments or groups than exhibit
desirable online behavioral patterns. We believe that by focusing on a
specific target audience, our clients should increase response
rates and reduce their customer acquisition costs.

SUBSCRIBER BENEFITS:

- FREE SOFTWARE. Our subscribers have the opportunity to obtain high
quality software that facilitates faster Internet or hard drive
performance, download management assistance, computer games and
allows the creation and playback of MP3 files, which are audio
"recordings" with high quality sound, small, compressed files, and
low or no price to users.

- SUBSCRIBER CHOICE. Subscribers may choose to respond only to
advertising and marketing that interests them and provides a
reward to induce their participation.

- NEWSLETTERS. Subscribers may elect to receive newsletters relating
to, among other things, finance, sports and other information.

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PRODUCTS AND SERVICES

SOFTWARE PRODUCTS

We currently publish the following software products, among others:

WEBCELERATOR is, based on our tracking, one of the most popular World Wide
Web browser performance acceleration software products, with over two million
copies having been installed. This product enhances the speed of users' browsing
by both remembering where users have browsed and anticipating where they will
browse. It operates on the Windows 95, Windows 98, and Windows NT operating
systems. We have applied for a patent with respect to this product.

SUPERFASSST increases the speed of computers' performance in several
respects, including starting computer applications and accessing folders. It
operates on the Windows 95 and Windows 98 operating systems. We have been issued
two patents and one additional patent with respect to this product has been
allowed but not yet issued.

MP3CREATOR allows users to play and facilitates the creation of MP3 format
files. It operates on the Windows 95, Windows 98, and MacIntosh operating
systems.

INTERNET OPTIMIZER adjusts network message transfer settings to facilitate
optimal network configuration. It operates on the Windows 95 and Windows 98
operating systems.

NET BUTLER manages network downloads and uploads. It operates on the
Windows 95, Windows 98, and Windows NT operating systems.

Z.E.U.S. provides an easy-to-use interface for making and extracting zip
files, and also facilitates the creation of self-extracting archives. It
operates on the Windows 95, Windows 98, and Windows NT operating systems.

D-TIME speeds the performance of CD-ROM drives. First introduced in 1994,
it was our first retail computer software application product. It operates on
the Windows 95, Windows 98, and MacIntosh operating systems.

PHANTOM CD allows users to make a virtual copy of CD-ROMs onto their hard
drive, which enables users to eliminate the need for the CD-ROM and increases
performance speed. It operates on the Windows 95 and Windows 98 operating
systems, and we expect that it will operate on the Windows NT operating system
shortly.

Each of the above products is offered as free homepageware, such that all
users are required to adopt our homepage as their Internet browser's starting
page. We also provide third party software, including online games and
entertainment software, as homepageware. This free

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homepageware generates traffic to our websites, enabling us to generate Internet
advertising revenue from our websites. Several of our products are licensed to
Pointe Control, an Asian distributor. We ceased licensing these products
domestically in 1998, and we currently do not plan to license these products
domestically or in any other English-speaking country where our software is
available for free, other than directly to end users.

From time to time we or our competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of our existing software products. Such announcements of currently
planned or other new products may cause a number of customers to defer
purchasing our existing products or deter them from downloading our free s
oftware from our websites.

We expect to introduce new and expanded products and services in order to
generate additional revenues, attract more businesses, advertisers, subscribers
and consumers and respond to competition. We also may in the future offer
expanded services facilitating the purchase of goods by consumers from our
business customers or others. There can be no assurance that we will be able to
offer new products or services in a cost-effective or timely manner, that any
such efforts would be successful or that the mix of such products or services
will be profitable. Furthermore, any new service that we launch that is not
favorably received by consumers could damage our reputation. Expansion of our
services in this manner would also require significant additional expenses and
development and may strain our management, financial and operational resources.
Our inability to generate revenues from such expanded services sufficient to
offset their cost could have a material adverse effect on our business,
financial condition and results of operations

Software products as complex as those that we license or offer for free on
our websites may contain undetected errors or failures when first introduced or
as new versions are released. Despite testing internally or by current or
potential customers, errors may be found in new products after commencement of
commercial delivery or after we have allowed users to download them from our
websites. As a result of such defective products and any delays involved in
correcting the defects, we could experience a loss of or delay in market
acceptance.

WEBSITES

We currently operate numerous websites, the principal ones
including the following:

HOMEPAGEWARE.COM and several mirror websites appear as the starting page
for the Internet browser of users of our homepageware software. We estimate that
over four million total domestic and international unique users visited our
homepageware.com, webcelerator.com and mirror websites in August 1999, according
to data provided by PC Data Online, a web measuring service. Comparable
information is not yet available for months following August 1999.

WEBCELERATOR.COM and several mirror websites provide our homepageware free
to users. We attempt to drive traffic to these websites through Internet
advertising and promotion.

<PAGE>

CLICKSALES.COM, DOWNLOADSALES.COM, and SIGNUPSALES.COM provide information
to online media buyers with respect to our pay-for-performance Internet
advertising programs. These programs typically include a two-week test period
for new customers, who have the right to cancel the program without cost during
such period if they are not satisfied with the program's results.

FREEBRANDING.COM, a newly launched website, provides an affiliate program
to other websites under which we generally share equally the starting pages of
new homepageware users provided by such other websites. We have a patent pending
with respect to technology used in connection with this website.

We sell performance-based advertising on our homepageware.com,
webcelerator.com and mirror websites, which sales we generate from our
clicksales.com, downloadsales.com and signupsales.com websites. We have
historically experienced a relatively high rate of monthly renewals, and a
relatively low rate of cancellations of our Internet advertising programs.

NEWSLETTERS

We currently disseminate by email several free newsletters relating to
topics such as initial public offerings, sports, online shopping and free
software to an aggregate of approximately 300,000 subscribers. One of these
newsletter is the IPO GroundFloor Newsletter, a newsletter that we own and
publish that focuses on providing information to subscribers relating to initial
public offerings in which individual retail investors may be able to purchase
shares. We attempt to generate subscribers for these newsletters, as well as
third party newsletters, by promoting them on our websites. We do not currently
derive any revenues from our newsletters, including the IPO GroundFloor
Newsletter.

POTENTIAL OWNERSHIP OF A BROKER-DEALER

Since the initial distribution of this prospectus, we have received
numerous inquiries about this offering and methods of conducting direct
participation public offerings. We are preliminarily considering forming or
acquiring a broker-dealer subsidiary, following the completion of this offering,
that would assist other companies in raising capital through direct
participation offerings. We could use this broker-dealer as a way to make equity
or other investments in companies whose businesses are complementary to ours, or
who would, in turn, use our Internet marketing services. This could be a way to
supplement our revenues. We believe this would be a logical extension of our
current business strategy because we could use our Internet advertising and
marketing expertise to promote our broker-dealer clients' offerings. We have not
entered into any agreements relating to any such enterprise nor do we have
current plans to do so, and we do not know if we will ever do so in the future.

CUSTOMERS

Our advertising and marketing clients pay us commissions each time a member
takes an action defined by our clients in response to an online advertising or
promotion. We have approximately 75 current Internet advertising and marketing

<PAGE>

clients. Our five largest Internet advertising and marketing clients accounted
for 34% of our Internet advertising and marketing revenues in 1999. In 1998, two
software customers, Pointe Control, a Japanese distributer, and Syncronys
Softcorp, a domestic distributer, accounted for 85% and 14%, respectively, of
our revenue. In 1999, Pointe Control accounted for 42% of our revenue and we did
no business with Syncronys Softcorp.

In 1999, Pointe Control accounted for 42% of our total revenue and
MediaRing, Inc., an Internet advertising and marketing client, accounted for 10%
of our total revenue and 18% of our Internet advertising and marketing revenue.
We believe that MediaRing will account for a significantly lower percentage of
our revenue in 2000. If one or more of our other large customers cease
operations or otherwise abruptly cease or reduce their business with us, our
results of operations, cash flows and financial condition could be adversely
affected.

All of our software products that are distributed in Japan must be
localized, that is, modified to meet the needs of non-English speaking users,
including all of the changes necessary to meet functionality requirements while
becoming more culturally acceptable to the users. As we develop new software or
possibly distribute software to additional regions in the future, the costs
associated with localization could increase. Additionally, we cannot guaranty
that the localization of our software, which is currently effectuated by Pointe
Control for Japanese users, will be acceptable to such users.

FOREIGN OPERATIONS

Currently, substantially all of our foreign revenues are derived from our
agreement with Pointe Control, relating to the distribution by Point Control of
some of our software products in Japan. Under this distribution agreement, which
is designed to be a flexible agreement that allows the parties to adapt to the
evolving software market, Pointe Control is the distributor of those software
products developed by us and "localized" into Japanese versions by Point Control
listed in the most recent amendment to the agreement. Under the terms of the
agreement, so long as Pointe Control complies with minimum performance
requirements set forth in the agreement, it retains exclusive rights to
distribute localized versions of the software during the term in Japan.

The agreement currently provides for monthly payments by Pointe Control of
$150,000 until May 2000, plus potential additional bonus payments of $400,000
for several of our software products if any of such products' sales reach "top
product" status based on sales totals as determined by industry reports listed
in the agreement. The maximum possible bonus is $2,000,000.

Our revenues from non-U.S. Internet advertising and marketing clients have
historically been a very small percentage of our Internet advertising and
marketing revenues. These revenues have been growing in recent months. We
typically demand payment in advance from non-U.S. Internet advertising and
marketing clients.

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SUPPLIERS

We are dependent on products and services provided by a variety of Internet
suppliers most of which have month-to-month agreements with us. For the year
ended December 31, 1999, four advertising vendors, BURST! Media LLC,
Adauction.com, Adsmart and Flycast, accounted for 29%, 19%, 19% and 12%,
respectively, of our total Internet media purchases. Additionally, many of these
suppliers have reported significant financial losses and may not continue
operations in the long term. Accordingly, we have established redundant
relationships with our suppliers in order to mitigate our risk. The
unavailability of adequate supplies could adversely affect us.

TECHNOLOGY AND INFRASTRUCTURE

We have developed an expandable, secure and reliable technology
infrastructure to support our online direct marketing programs. One of the
principal elements of our proprietary technology is our ability to ensure that
our free software customers use our homepage as their Internet browser's
starting page.

EXPANDABILITY AND RELIABILITY

Our technology is designed to support up to approximately 50 million
visitors per month. To date we have demonstrated that our architecture is
capable of rapid expansion as our total amount of domestic and international
visitors-per-month have increased from approximately 2.5 million in February
1999 to over twelve million in February 2000 based on information supplied by PC
Data Online. Comparable information is not available for the months following
August 1999. Although we believe our systems can currently accommodate
approximately 50 million visitors monthly, our websites could encounter a
variety of systems problems, especially if the number of our users-per- month
continues to expand significantly, including failure of one or more of our three
Internet service providers, hardware failures or failure of software
applications. If these problems occurred during a weekend, detection and
correction could be delayed. Such problems could have a material adverse effect
on our business.

Our software system architecture uses industry standard technologies to
maximize reliability. We use Secure Socket Layer for secure transactions, Oracle
databases, the UNIX operating system and the Apache web server within our
infrastructure. All of these platforms have demonstrated a high degree of
reliability. We back up our Oracle databases and other information to long-term
tape storage on a regular basis.

Our network servers are housed separately at three separate geographic
locations. We believe that each data center provides redundant network
connections, redundant connections to power grids, diesel generators for
emergency power, air conditioning and engineering support 24 hours per day,
seven days per week. Our infrastructure is built to maximize reliability through
the use of multiple central processor units and redundant power supplies,
networking and input/output controllers.

<PAGE>

SECURITY

We incorporate a variety of encryption techniques meant to protect the
privacy of consumer information. We also employ a variety of automated fraud
detection procedures to identify patterns of abuse and potential fraudulent use
of the system. Our fraud detection systems can automatically disable accounts in
which fraud is suspected. The data center where our system is located provides
security management 24 hours per day, seven days per week.

Although we do not currently accept credit card information from any third
parties, we may do so in the future. In such event, we could be subject to
litigation and liability if third parties penetrate our network security or
otherwise misappropriate our users' personal or credit card information. This
liability could include claims for unauthorized purchases with credit card
information, impersonation or other similar fraud claims. It could also include
claims for other misuses of personal information, such as for unauthorized
marketing purposes. In addition, the Federal Trade Commission and other federal
and state agencies have been investigating various Internet companies in
connection with their use of personal information. We could be subject to
investigations and enforcement actions by these or other agencies.

The need to transmit confidential information securely has been a
significant barrier to electronic commerce and communications over the Internet.
Any compromise of security could deter people from using the Internet in general
or, specifically, from using the Internet to conduct transactions that involve
transmitting confidential information, such as purchases of goods or services.
Many of our marketing clients seek to offer their products and services on our
websites because they want to encourage people to use the Internet to purchase
their goods or services. Internet privacy concerns could frustrate these
efforts. Also, our relationships with consumers may be adversely affected if the
measures we use to protect their personal information prove to be ineffective.
We cannot predict whether events or developments will result in a compromise or
breach of the technology we use to protect customers' personal information. We
have no insurance coverage for these types of claims.

INSURANCE

Although we carry general liability, product liability and commercial
insurance, there can be no assurance that this insurance will be adequate to
protect us against any general, commercial and/or product liability claims. Any
general, commercial and/or product liability claim which is not covered by such
policy, or is in excess of the limits of liability of such policy, could have a
material adverse effect on our financial condition. There can be no assurance
that we will be able to maintain this insurance on reasonable terms.

<PAGE>

COMPETITION

We believe that competition in our website and software businesses are
based on factors that include the following:

- brand recognition;

- ease and speed of use; and

- quality and reliability.

WEBSITE COMPETITION

We face intense competition from both traditional and online advertising
and direct marketing companies. We also face competition from established online
portals and community websites that engage in direct marketing. If we are
unsuccessful in developing, acquiring and renewing a continuing array of free
promotional offers for our website, traffic on our websites would likely
decrease. The attractiveness of our websites to consumers is based in part on
our ability to provide compelling free software offers of interest to consumers.
In addition, a number of other websites give consumers access to similar offers.
We face competition for free, trial and promotional offers from these websites
as well as a variety of other online and traditional competitors. Without
sufficient variety and quality of offers, our websites will become less
attractive to consumers. Thus, advertising on these websites would become less
attractive to Internet advertisers and marketers, and our ability to generate
revenue from Internet advertising and marketing clients would be adversely
affected.

We compete directly and indirectly for marketers and consumers with
companies in various categories, including:

OTHER FREE-OFFER WEBSITES There are a number of sites, both large and
small, that give consumers access to free software and other offers, including
Freeshop.com, Winfiles.com, Download.com, shareware.com, Volition.com, and
Free2Try.com.

SPECIALTY LEAD-GENERATION WEBSITES. Various websites focus on generating
leads for a specific segment of the direct marketing industry, such as the
catalog, magazine or coupon segments. While these websites typically provide a
depth of offerings within their specific sector, they may not offer promotions
across a broad spectrum of product categories. These sites include eNews,
Cataloglink and Catalogcity. In some instances, we may include their offerings
on our websites.

OTHER WEBSITES. We also compete with a number of "community" sites that
offer content, services or information about a particular topic, as well as
other advertising networks. In addition, we compete with sites featuring loyalty
programs that reward consumers for taking specific actions such as Cybergold,
Inc. and MyPoints.com

The number of websites competing for consumer attention and marketers'
dollars has

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proliferated, and we expect competition from online competitors to increase
significantly because there are no substantial barriers to entry in our
industry. In addition, our competitors may develop new types of products and
services that are more attractive to consumers and Internet advertisers and
marketers than the products or services we offer. Increased competition could
result in price reductions for online advertising space and marketing services,
reduced gross margins and loss of our market share. We also compete with
traditional media such as television, radio and print for a share of marketers'
total marketing budgets.

In addition to the above, we believe that the principal competitive factors
in our website markets are:

- quality and diversity of offers;
- the volume of online visitors;
- duration and frequency of visits;
- the demographic profiles of visitors; and
- performance of advertisements.

SOFTWARE COMPETITION

Competition in the computer software industry is fierce. In addition to the
above, we believe that the principal competitive factors in the software
industry generally include:

- merchandising;

- product features;

- online technology; and

- price.

Based on our current and anticipated future product offerings, we believe
that we compete or will compete effectively in these areas, particularly in the
way of quality, ease of use, product features, online technology and price;
however, no assurance can be given that our products will continue to achieve
market acceptance or that any such market acceptance can be sustained.

We compete primarily with other software publishers. Our competitors vary
in size from very small companies with limited resources to very large
corporations with greater financial, marketing, distribution, technical and
other resources. We believe that the primary competitors for our software
products are Microsoft Corporation, Web 3000, Bonzi Software, Symantec, Network
Associates, Real Networks, Nico Mak Computing, Inc. and Aureate Software, among
others.

Many of our website and software competitors are larger and have greater
financial, technical and marketing resources than us, and no assurance can be
given that we will be able to successfully compete against these competitors.
These advantages may allow them to respond more quickly and

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effectively to new or emerging technologies and changes in customer or
client requirements. It may also allow them to engage in more extensive research
and development, undertake farther-reaching marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, strategic partners and advertisers. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective Internet
advertising and marketing clients.

LITIGATION

We may be subjected to claims for defamation, negligence, copyright or
trademark infringement and various other claims relating to the nature and
content of materials we publish on our websites and in our newsletters. These
types of claims have been brought, sometimes successfully, against online
services in the past. We could also face claims based on the content that is
accessible from our websites through links to other websites. Any litigation
arising from these claims would likely result in substantial costs and diversion
of resources and management attention, and an unsuccessful defense to one or
more such claims could result in material damages. We have no insurance coverage
for these types of claims.

GOVERNMENT REGULATION

Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. The adoption of such laws could create
uncertainty in Internet usage and reduce the demand for all products and
services offered on the Internet. Recently, Congress enacted legislation
regarding children's privacy on the Internet. It is possible that additional
laws and regulations may be proposed or adopted with respect to the Internet,
covering issues such as user privacy, taxation, advertising, intellectual
property rights and information security. Several states have proposed
legislation to limit the use of personal user information gathered online or to
require online services to establish privacy policies. We believe that we are
fully compliant with all state and federal privacy laws.

The Federal Trade Commission recently reported that it has no present
intention of proposing legislation to address online privacy in the near future,
and that it believes self-regulation to be the best course of action, except for
rules enacted to implement the Children's Online Privacy Protection Act, which
governs the collection of personal information from children and the
confidentiality of such information. However, the FTC has initiated action
against at least one online service regarding the manner in which personal
information was collected from users and provided to third parties. We believe
that we are fully compliant will all FTC privacy laws.

Legislation has recently been enacted in several states relating to sending
unsolicited emails, a practice commonly referred to as "spamming." The federal
government and several other states, including New York, are considering, or
have considered, similar legislation. Although the provisions of these current
and contemplated laws vary, generally they limit or prohibit both the
transmission of unsolicited emails and the use of familiar spamming techniques,
such as the use of forged or

39
<PAGE>

fraudulent routing and header information. Some states, including
California, require that unsolicited emails include opt-out instructions and
that senders of such emails honor any opt-out requests. We believe that our
email newsletters will not be affected by legislation directed at unsolicited
emails because we do not send unsolicited messages and because our current
practices are intended to comply with current and proposed legislation. However,
if we are required to change our business practices as a result of new
legislation, our business could suffer.

We do not know how our business may be affected by the application to the
Internet of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. Most of these laws were adopted before
the advent of the Internet and do not contemplate or address the unique issues
of the Internet and related technologies. Changes in laws intended to address
such issues could create uncertainty in the Internet marketplace. That
uncertainty could reduce demand for our service or increase the cost of doing
business as a result of litigation costs or increased service delivery costs.

In addition, because our services are available on the Internet in multiple
states and foreign countries, these states and countries may claim that we are
required to qualify to do business in their jurisdictions. Our failure to
qualify in any jurisdictions where we are required to do so could subject us to
taxes and penalties. It could also restrict our ability to enforce contracts in
those jurisdictions. The application of laws or regulations from jurisdictions
whose laws do not currently apply to our business could have a material adverse
effect on our business, results of operations and financial condition. We are
currently not aware of any violations by us of any laws or regulations of any
states or other countries or of any material failure to qualify in any states or
countries.

The European Union has adopted a privacy directive that went into effect in
1998. Under this directive, business entities domiciled in member states of the
EU are limited with respect to the transactions in which they may engage with
business entities domiciled outside the EU, unless the non-EU entities are
domiciled in jurisdictions with privacy laws comparable to the EU privacy
directive. The United States presently does not have laws that satisfy the EU
privacy directive. Discussions between representatives of the EU and the United
States are ongoing and may lead to a number of safe harbor provisions which, if
adhered to, would allow business entities in the EU and the United States to
continue doing business without limitation. If these negotiations are not
successful and the EU begins enforcing the privacy directive, there could be an
adverse impact on international Internet business. If we do business directly in
the EU in the future, we will be required to comply with the EU privacy
directive.

INTELLECTUAL PROPERTY

We regard our copyrights, service marks, trademarks, trade secrets,
proprietary technology and similar intellectual property as critical to our
success, and we rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees, customers,
independent contractors, partners and others to protect our intellectual
property rights. We own nine patents, including one foreign patent, on our
software products and have ten patent applications pending on our software
products. We have registered several trademarks in the United States and

40
<PAGE>

may apply for registration in the United States for other trademarks and
service marks. However, effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
and services are made available online. We generally rely on common law
copyright protection, and do not generally register our copyrights.

There can be no assurance that the steps we have taken to protect our
proprietary rights will be adequate to prevent third parties from infringing or
misappropriating our patents, copyrights, trademarks, trade dress and similar
proprietary rights without incurring significant costs.

Additionally, we cannot assure you that the steps we have taken to protect
our patents, copyrights, service marks, trademarks, trade dress, trade secrets
and similar intellectual property have been sufficient for us to successfully
defend against any infringement claims, including patent infringement claims, by
any third party. The loss of our ability to use any such intellectual property
right could have a materially adverse effect us. Additionally, any such defense,
whether successful or not, may cause us to incur significant expenses.

We have registered a number of domain names, including eAcceleration.com,
homepageware.com, clicksales.com, downloadsales.com, signupsales.com and
freebranding.com. Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is evolving. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. The relationship between regulations governing domain
names and laws protecting trademarks and similar intellectual property rights is
unclear. Therefore, we could be unable to prevent third parties from acquiring
domain names that infringe on or otherwise decrease the value of our trademarks
and other proprietary rights. Additionally, there may be online companies in
other countries using domain names that potentially infringe on our trademarks.
We may be unable to prevent them from using these domain names, and this use may
decrease the value of our trademarks and our brand names.

We may be required to obtain licenses from others to refine, develop,
market and deliver new services. We may be unable to obtain any such license on
commercially reasonable terms, if at all, or guarantee that rights granted by
any licenses will be valid and enforceable.

We have not historically emphasized and have no current plans to
significantly attempt to strengthen our brand names. As competitive pressures in
the online direct marketing industry increase, brand name strength may become
increasingly important. If we do not strengthen our brand names, we may be
unable to maintain or increase traffic to our websites, which we expect would
lead to decreased revenues from our Internet advertising and marketing clients.
We may in the future devote substantial resources to promote "eAcceleration" or
other brand names, although we do not currently intend to do so. The reputation
of our brand name will depend on our ability to produce high quality innovative
software, and to provide a high-quality online experience for consumers visiting
our websites or receiving our newsletters. Negative experiences of subscribers,
consumers or Internet advertisers and marketers with our websites or software
might result in publicity that could damage our reputation and diminish the
strength of our brand names.

<PAGE>

EMPLOYEES

As of January 4, 2000, we had a total of 39 employees, all of which work
for us full time. Five employees work in sales and marketing, 28 in technology
and development, and six in operations and administration. None of our employees
are represented by unions, and we consider relations with our employees to be
good.

FACILITIES

We currently occupy approximately 4,500 square feet in a leased facility in
Poulsbo, Washington, with a monthly rental cost of approximately $1,874 per
month. The lease for this facility expires in February, 2004. In December 1999,
we entered into an additional lease agreement for an approximately 10,000 square
foot facility in Poulsbo with a four year term that began in February 2000, to
meet our expansion needs. The lease requires monthly payments of $7,643 for
months one through four and $8,492 for months five through twelve. All remaining
payments are to be increased $.30 per square foot. We have the option to
terminate the lease at the end of the second year.

We plan to expand our facilities further in 2001 to accommodate our
anticipated growth. In the event that we sell exactly or close to the maximum
number of shares in this offering, we plan to either acquire property in Kitsap
County, Washington or elsewhere in the Puget Sound area on which we would have a
state-of-the-art facility built for us that would be large enough to house our
entire business operations for the next several years and would accommodate
expansion for the foreseeable future through the subsequent building of
additional facilities on such property. Alternatively, we would expect to lease
up to 50,000 square feet of space in the Puget Sound area that could house our
operations for the next several years. If only the minimum number of shares are
sold in the offering, we expect to seek to lease a considerably smaller
facility, or perhaps an additional facility which together with our current
facilities could house our business operations for the next several years.

Poulsbo, Washington, where our facilities are presently located, is a rural
area outside of Seattle and Tacoma, Washington. In the past we have experienced
temporary outages in our telephone service and electric power. While such
outages have never materially affected systems that are critical to our
operations, there is no assurance that such outages will not occur in the future
more frequently or with greater magnitude or duration. Such outages could
materially and adversely affect our business, financial condition and results of
operations.

<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following persons are our current executive officers and directors:

Name Age Position

Clint Ballard 37 president, chief executive officer
and director

Diana T. Ballard 42 chairman of the board, secretary and
treasurer

E. Edward Ahrens 52 chief financial officer

Michael J. Clementz 56 director nominee

Edward P. Swain, Jr. 64 director nominee

Set forth below is a brief description of the background of our officers
and directors based on information provided by them to us.

CLINT BALLARD is the president and chief executive officer of
eAcceleration, serving as chief executive officer as well as president or in
other executive capacities since inception. Mr. Ballard received a B.S. in
mathematics from the California Institute of Technology in 1984.

DIANA T. BALLARD is the chairman of the board, secretary and treasurer of
eAcceleration, serving as chairman of the board was well as in other executive
capacities including president since inception. Ms. Ballard is the wife of Clint
Ballard.

E. EDWARD AHRENS was elected in February 2000 as chief financial officer of
eAcceleration. Mr. Ahrens has been self employed as a certified public
accountant from October 1993 through the present, and in this capacity has been
our regular accountant, providing accounting and controller functions to us
since 1995. Mr. Ahrens continues to maintain his accounting practice on a
part-time basis, while devoting a majority of his time to his position as our
chief financial officer. Mr. Ahrens received a bachelor degree in business
administration -- banking and finance, from North Texas University in 1971.

MICHAEL J. CLEMENTZ was nominated in November 1999 to serve as director of
eAcceleration and has served as consultant to us since September 1999. Mr.
Clementz has been chairman and chief executive officer of North Sound Bank,
which was formerly, the Bank of Poulsbo, since 1999, president and chief
executive officer of such company since prior to 1994 and president and chief
executive officer of Liberty Bay Financial Corporation since prior to 1994. Mr.

<PAGE>

Clementz was a bank examiner with the Washington State Division of Banking from
1966 to 1979. Mr. Clementz serves on the board of directors of North Sound Bank
and Liberty Bay Financial Corporation. He is a past president and director of
the Washington Bankers Association and has served the American Bankers
Association as a committee member of the Government Relations Council and
Community Bankers Council. He is a former advisory director of the Conference of
State Bank Supervisors, Washington D. C. He was appointed by the Supreme Court
for the State of Washington, to serve as a lay person on the Washington State
Lawyers Disciplinary Board.

EDWARD P. SWAIN, JR. was nominated in November 199 to serve as director of
eAcceleration and has served as consultant to us since September 1999. Mr. Swain
has served as president of PT Holdings Corporation since December 1997. From
January 1992 through December 1997, Mr. Swain served as president, chief
executive officer and director of Port Townsend Paper Corporation and from
December 1997 to December 1998 he served as chairman of the board of such
company. Mr. Swain has served as a director of FiberMark, Inc. since 1998 and
as director of Interactive Financial Services Group, Inc., the holding company
for a proposed Internet bank, whose national charter has been applied for, since
December 1998. He is also a member of the board of trustees of the Museum of
Flight in Seattle, Washington. Mr. Swain received a B.A. from Williams College
in 1957 and a LLb from Harvard Law School in 1964.

Our future success depends to a significant extent on the efforts and
abilities of our senior management, particularly Clint Ballard, our president
and chief executive officer, Diana T. Ballard, our chairman of the board, and
other key employees, including our technical and sales personnel. The loss of
the services of any of these individuals could harm our business. We may be
unable to attract, motivate and retain other key employees in the future.
Competition for employees in Internet-related businesses is intense, and in the
past we have experienced difficulty in hiring qualified personnel. We are the
beneficiary of a "key person" life insurance policy in the amount of $2,000,000
on the life of Clint Ballard, our president and chief executive officer.

Our board of directors is elected annually by our stockholders. We plan to
elect Michael J. Clementz and Edward P. Swain, Jr. as directors prior to our
registration statement relating to this offering becoming effective. To date,
directors have received no cash compensation for their services to us as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the board of directors. Following the first closing of
this offering, we will pay $4,000 per fiscal quarter to each of our outside
directors. Members of the board of directors are eligible to participate in our
1999 stock option plan.

The audit committee currently consists of Clint Ballard and Diana T.
Ballard. We anticipate that Michael S. Clementz and Edward P. Swain, Jr. will
serve as the audit committee immediately upon their being elected to our board
of directors. The audit committee recommends engagement of our independent
certified public accountants, and is primarilly responsible for reviewing and
approving the scope of the audit and other services performed by our independent
certified public accountants and for reviewing and evaluating our accounting
principles and practices, systems of internal controls, quality of financial
reporting and accounting and financial staff, as well as any reports or
recommendations issued by the independent accountants.

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<PAGE>

The compensation committee currently consists of Clint Ballard and
Diana T. Ballard. We anticipate that Michael J. Clementz and Edward P. Swain,
Jr. will serve as the compensation commmittee immediately upon being elected
to our board of directors. The compensation committee generally reviews and
approves our executive compensation and currently administers our 1999 stock
option plan.

We currently have no nominating committee.

EXECUTIVE COMPENSATION

The following table sets forth the cash and other compensation paid in the
last three years to our chief executive officer and all other executive
officers.
<TABLE>
<CAPTION>
Annual compensation
----------------------------------------------------------

Name and Other annual
principal position Year Salary Bonus compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C>
Clint Ballard 1999 $104,000 $194,929 -
President and chief 1998 104,000 198,325 -
executive officer 1997 208,000 175,000 -

Diana T. Ballard 1999 - $194,929 -
Chairman of the board, 1998 - 198,325 -
secretary and treasurer 1997 - 175,000 -
</TABLE>

Clint Ballard's salaries listed in the annual compensation table reflects
the combined salaries of Clint and Diana Ballard for the periods presented.
Bonuses listed on the table represent S-corporation distributions. In 1997,
Clint Ballard and Diana T. Ballard each materially participated in our
day-to-day operations and are each deemed to have earned salaries of $104,000.
In 1998 and 1999, Ms. Ballard did not provide material participation in our
day-to-day operations. Accordingly, Mr. Ballard earned a salary of $104,000 in
each of 1998 and 1999 and Ms. Ballard did not earn a salary in 1998 and 1999.

The value of all perquisites provided to either of Mr. or Ms. Ballard did
not exceed the lesser of $50,000 or 10% of his or her salary and bonus.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with each of Clint Ballard and
Diana T. Ballard. The employment agreement with Clint Ballard provides for him
to serve as the president, chief executive officer and a director, and provides
for an annual base salary of $104,000 and a bonus of 2.5% of our income before
taxes, depreciation, amortization and extraordinary items with respect to fiscal
years during the term of the agreement. The employment agreement with Diana T.

<PAGE>

Ballard provides for her to serve as the chairman of the board, provides for an
annual base salary of $104,000 and provides for a bonus of 2.5% of our income
before taxes, depreciation, amortization and extraordinary items with respect to
fiscal years during the term of the agreement.

Each of these agreements becomes effective upon the first closing of this
offering, expires on the fifth anniversary of the first closing of this offering
and contains restrictions on the employee engaging in competition with us for
the term of the employment agreement and for one year after the term and
provisions protecting our proprietary rights and information. Each agreement
also provides for the payment to the employee of a lump sum equal to three times
the average of the employee's annual compensation for the prior five years, less
$1.00, upon his or her termination in the event of a "change in control" of
eAcceleration of the employment agreement, which is defined in the agreements to
mean any of the following:

- a change in control as defined in Rule 12b-2 under the
Securities Exchange Act of 1934;

- a person, as such term is defined in Sections 13(d) and
14(d) of the Exchange Act, other than a current director or officer of
eAcceleration becoming the beneficial owner, directly or indirectly,
of 20% of the voting power of our outstanding securities; or

- the members of our board of directors at the beginning of
any two-year period ceasing to constitute at least a majority of the
board of directors unless the election of any new director during such
period has been approved in advance by two-thirds of the directors in
office at the beginning of such two-year period.

SEVERANCE, SETTLEMENT AND GENERAL RELEASE AGREEMENT

In February 2000, Shane H. Traveller resigned as our chief financial
officer, at which time we elected E. Edward Ahrens to that office. Upon his
resignation, Mr. Traveller entered into a severance, settlement and general
release agreement with us. Under this agreement, Mr. Traveller agreed to provide
consulting services to us relating to marketing, financial, accounting and
administration matters and other activities in which he was involved in while he
was our chief financial officer. Under the agreement, Mr. Traveller will receive
his remaining salary for February 2000 plus moving expenses, and will receive
$26,000 upon the earlier of June 30, 2000 or the first closing of this offering
and $17,000 upon our common stock becoming publicly traded. Additionally, of his
options to purchase 150,000 shares of our common stock originally granted to him
in October 1999, he retained options to purchase 10,000 shares which currently
have an exercise price of $4.78 per share which will become fully vested and
exercisable upon our common stock becoming publicly traded. All other options
granted to Mr. Traveller have been canceled.

1999 STOCK OPTION PLAN

We have adopted the 1999 stock option plan in order to motivate our
qualified employees,

46
<PAGE>

officers, directors, consultants and independent contractors, to assist us
in attracting employees and to align the interests of such persons with those of
our stockholders. The 1999 plan provides for the grant of "incentive stock
options" within the meaning of the Section 422 of the Internal Revenue Code of
1986, "non-qualified stock options," restricted stock and other types of awards
to our officers, directors, key employees, consultants, agents, advisors and
independent contractors.

The 1999 plan, which will be administered by the compensation committee of
the board of directors, authorizes the issuance of a maximum of 5,000,000 shares
of common stock, which may be either newly issued shares, treasury shares,
reacquired shares, shares purchased in the open market or any combination of
these types of shares. Incentive stock options may be granted at an exercise
price of not less than the fair market value of shares of common stock on the
date of grant, and non-qualified stock options may be granted at an exercise
price of not less than 85% of such fair market value. If any award under the
1999 plan terminates, expires unexercised, or is cancelled, the shares of common
stock that would otherwise have been issuable under the award will be available
for issuance under the grant of new awards.

As of March 1, 2000, we have options to purchase an aggregate of 806,800
shares of common stock outstanding under the 1999 plan, including options to
purchase 50,000 shares of common stock granted to each of Michael J. Clementz
and Edward P. Swain, Jr., which currently have exercise prices of $4.78 per
share in equal annual installments over five years. We granted E. Edward Ahrens,
our chief financial officer, options to purchase 25,000 shares of common stock
in July 1999, while he was providing accounting and controllership functions to
us, more than six months prior to his election as our chief financial officer,
These options currently have an exercise price of $4.78 per share in equal
installments over five years. No options have been granted to Clint Ballard or
Diana T. Ballard.

PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS

Our certificate of incorporation and bylaws contain provisions which reduce
the potential personal liability of directors for monetary damages regardless of
whether or not directors have breached their fiduciary duty. The certificate of
incorporation also provides for indemnification of directors and other persons.
We are unaware of any pending or threatened litigation against us or our
directors that would result in any liability for which such director would seek
indemnification or similar protection.

Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. We believe that the substantial
increase in the number of lawsuits being threatened or filed against
corporations and their directors has resulted in a growing reluctance on the
part of capable persons to serve as members of boards of directors of companies,
particularly of companies which are or intend to become public companies.

Prior to the initial closing of this offering, we expect that our officers
and directors will be covered by officers' and directors' liability insurance.
We expect that the policy coverage will be

47
<PAGE>

$5,000,000, which will include reimbursement for costs and fees. We have
entered into indemnification agreements with each of our executive officers and
directors. The indemnification agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever including attorneys'
fees and related disbursements, that are actually and reasonably incurred in
connection with either the investigation, defense or appeal of a "proceeding",
as defined in the indemnification agreements, including amounts paid in
settlement by or on behalf of an "indemnitee", as defined such agreements.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, and controlling persons pursuant to
the above provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of December 31, 1999, and as adjusted to reflect the sale of the shares of
common stock offered by this prospectus, of:

- each person known by us to beneficially own 5% or more of the shares
of outstanding common stock;

- each of our executive officers and directors; and

- all of our executive officers and directors as a group.

Except as otherwise indicated, all shares are beneficially owned, and investment
and voting power is held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount and nature of Percentage ownership Percentage ownership
Name and address of common stock of common stock of common stock
beneficial owner beneficially owned before offering after offering
------------------- -------------------- -------------------- --------------------
Minimum Maximum
------- -------
<S> <C> <C> <C> <C>
Clint Ballard 34,300,000 100% 98.9% 92.0%
c/o eAcceleration Corp.
1223 NW Finn Hill Road
Poulsbo, Washington 98370

Diana T. Ballard 34,300,000 100% 98.9% 92.0%
c/o eAcceleration Corp.
1223 NW Finn Hill Road
Poulsbo, Washington 98370

E. Edward Ahrens 0 - - -
c/o eAcceleration Corp.
1223 NW Finn Hill Road
Poulsbo, Washington 98370

Michael J. Clementz 0 - - -
c/o eAcceleration Corp.
1223 NW Finn Hill Road
Poulsbo, Washington, 98270

Edward P. Swain, Jr. 0 - - -
c/o eAcceleration Corp.
1223 NW Finn Hill Road
Poulsbo, Washington, 98270

All officers and directors 34,300,000 100% 98.9% 92.0%
as a group (5 persons)
</TABLE>

The shares beneficially owned by Clint Ballard include 17,150,000 shares
owned by his wife, Diana T. Ballard, and the shares beneficially owned by Diana
T. Ballard include 17,150,000 Shares owned by Clint Ballard.

<PAGE>

RELATED PARTY TRANSACTIONS

In November 1999, we entered into employment agreements with Clint Ballard,
our president and chief executive officer and Diana T. Ballard, our chairman of
the board. The compensation committee of the board of directors, which consists
of Clint and Diana Ballard, has determined that the compensation payable
thereunder reflects the fair value of their services.

In September 1999, we granted options to purchase 50,000 shares of common
stock that currently have an exercise price of $4.78 per share in equal
installments over a five-year period to two consultants and director nominees,
Michael J. Clementz and Edward P. Swain, Jr.

In October 1999, we granted options to Shane H. Traveller, our former chief
financial officer, to purchase 150,000 shares of common stock which as of
January 2000 had an exercise price of $4.50 per share. In February 2000, Shane
H. Traveller resigned as our chief financial officer. Upon his resignation, Mr.
Traveller entered into a severance, settlement and general release agreement
with us. Under this agreement, Mr. Traveller agreed to provide consulting
services to us relating to marketing, financial, accounting and administration
matters and other activities in which he was involved while he was our chief
financial officer.

Mr. Traveller received his remaining salary for February 2000 plus moving
expenses, and will receive $26,000 on the earlier of June 30, 2000 or upon the
first closing of this offering and $17,000 upon our common stock becoming
publicly traded. Additionally, of his options to purchase 150,000 shares of our
common stock originally granted to him in October 1999, he retained options to
purchase 10,000 shares that currently have an exercise price of $4.78 per share
which will become fully vested and exercisable upon our common stock becoming
publicly traded. All other options granted to Mr. Traveller have been canceled.

In 1997, we repurchased all shares of the our common stock issued for
$100,000 to a former director, who is the father of Clint Ballard, for a
repurchase price of $115,000.

All transactions between us and any or our officers, directors or five
percent stockholders will be on terms no less favorable to us than would be
available from unaffiliated third parties.

We lack sufficient disinterested, independent directors to ratify past
material transactions at the time the transactions were initiated. Upon Mr.
Swain and Mr. Clementz becoming independent directors, all future material
related-party transactions and loans, and any forgiveness of loans, will be
approved by a majority of the independent directors who do not have an interest
in the transaction and who have access, at our expense, to our or independent
legal counsel.

50
<PAGE>

PLAN OF DISTRIBUTION

ARBITRARY DETERMINATION OF OFFERING PRICE

We have determined the initial offering price of the shares arbitrarily.
Among the factors we considered were the following:

- the nature and scope of our operations;

- our current financial condition and financial requirements;

- estimates of our business potential and prospects;

- multiples of our trailing and projected revenues and earnings;

- multiples of our competitors' trailing are projected revenues and
earnings;

- the perceived market demand for our products;

- the market capitalization, revenues and profits of comparable
companies with top 150 Internet websites, including particularly
CyberGold, Inc. and FreeShop.com;

- the economics of the information technology, Internet and software
industries; and

- the general condition of the equities market.

LIMITED STATE REGISTRATION

We will qualify or register the sale of the shares in a limited number of
states. We will not accept subscriptions from investors resident in other
states. In order to comply with any applicable state securities laws, the shares
will be offered or sold in through registered or licensed brokers or dealers in
any states where required.

OHIO RESIDENTS. We will only accept a subscription from an investor
residing in the State of Ohio if such investor represents to us in the
subscription agreement that such investor meets at least one of the following
criteria:

- he or she is a natural person whose individual income was at least
$65,000 for the immediately preceding fiscal year, and he or she
has a reasonable expectation of reaching such level in the current
fiscal year;

- he or she is a natural person whose individual net worth or joint net
worth with his or her spouse is at least $250,000 at the time
of the subscription, excluding the value of such

51
<PAGE>

person's home, cars and furnishings; or

- the investor is an "accredited investor" as defined in Regulation D
under the Securities Act of 1933.

TERMS OF SALE OF THE SHARES

We will be selling our shares in a direct participation offering on a
"400,000 share minimum, 3,000,000 share maximum" basis through our officers and
directors, who will be offering our shares and distributing this prospectus
primarily over the Internet. No sales commissions will be paid to any of our
officers or directors. Prospective investors must purchase the shares in
increments of 100 shares. Until we have sold at least 400,000 shares, we will
not accept subscriptions for any shares. All proceeds of this offering will be
deposited in an interest bearing escrow account with American Stock Transfer &
Trust Co. If we are unable to sell at least 400,000 shares before the offering
ends, we will return all funds, with interest, to subscribers promptly after the
ending of this offering. We have the right to completely or partially accept or
reject any subscription for shares offered in this offering, for any reason or
for no reason. The offering will remain open until all shares offered in this
offering are sold or nine months after the date of this prospectus, except that
we will have only 180 days to sell at least 400,000 shares. We may decide to
cease selling efforts at any time prior to such date if our board of directors
determines that there is a better use of funds and management time than the
continuation of this offering, including those resulting from:

- a significant change in our business;

- a significant change in the Internet advertising and marketing or
software industries;

- a lack of further investor interest; or

- the existence of a more beneficial financial opportunity.

If this offering is not oversubscribed, within a reasonable time after
effectiveness, we plan to accept all subscriptions as soon as reasonably
practicable. If this offering is oversubscribed or appears likely to be
oversubscribed within a reasonable time after effectiveness, we plan to allocate
the shares among the subscribers in our discretion. Among the factors that we
plan to consider are:

- whether or not investors consented to receiving copies of our
preliminary prospectus and final prospectus electronically;

- how long subscribers plan to hold the shares;

52
<PAGE>

- the amount of shares subscribers wish to purchase; and

- place of residence of subscribers.

We anticipate having one or more closings of this offering, the first of which
cannot be held until we are able to sell at least 400,000 shares. After that, we
could have multiple closings whenever we receive and accept new subscriptions.

INVESTMENT PROCEDURES

We keep the most current version of our prospectus, as filed with the SEC,
posted on one of our websites, located on the Internet at
www.eacceleration.com/ipo, for investors to view or download. We will update the
website to replace the online prospectus with the most recently filed version at
any time that we are required to distribute any prospectus amendments to
investors. We have also posted an indication of interest form on this website,
which allows an investor to indicate if he or she is interested in purchasing
shares in this offering. Indicating interest does not obligate an investor in
any way. If an investor expresses interest, we then ask for additional
information such as

- how many shares he or she would consider purchasing,

- how long he or she intends to hold the shares, and

- whether and to what extent the investor is willing to accept
electronic delivery of documents.

If an investor indicates that he or she would like to receive the final
version of this prospectus and any other amendments to this prospectus
electronically, we will e-mail a notice to the investor that informs him or her
that an amendment to this prospectus has been filed with the SEC, which will
include a hyperlink to the website as well as its Internet address.
Additionally, upon request, the investor will receive paper copies of any or all
documents from us.

Prior to effectiveness, no one may purchase any shares in this offering.
Following the effectiveness of this offering, in order to purchase shares in
this offering, an investor must complete, date, execute and deliver to American
Stock Transfer & Trust Co., our escrow agent, either a paper copy of our
subscription agreement, together with either a check in the amount corresponding
to the cost of the shares to be purchased, or a wire transfer of funds for that
amount or alternatively, electronically, by clicking on the "I have read the
final prospectus and I agree to subscribe" button and forwarding the proper
payment to our escrow agent. An investor may not necessarily be able to purchase
all of or any of the shares that he or she has requested, depending on
availability and our discretion. The address and wire transfer instructions for
our escrow agent is indicated in the subscription agreement. Following the
effectiveness of this offering, subscription agreements will be available as
follows:

<PAGE>

- On the website where we have posted our final prospectus;

- Unless an investor has specifically requested electronic
delivery of the final prospectus, we will include the subscription
agreement together with a paper copy of the final prospectus that we
send to such investor; and

- An investor can request a paper copy of the subscription
agreement and prospectus by calling us, writing to us, or e-mailing us
at the number or address listed in this prospectus or on our websites.

We have posted the following "pop-up" screen on our website where we have
posted our prospectus that explains our subscription procedure and the use of
our indication of interest form, substantially in the following question and
answer format:

THANK YOU FOR EXPRESSING INTEREST IN OUR OFFERING. THE FOLLOWING QUESTIONS AND
ANSWERS ARE DESIGNED BETTER HELP YOU UNDERSTAND OUR SUBSCRIPTION PROCESS:

WHAT IS THE INDICATION OF INTEREST FORM?

- When you click on the "Indicate Interest" button below, you
will be asked to complete an indication of interest form, in which we
will request information relating to you and your interest in
purchasing shares in this offering including:

- your email address, name, phone numbers, address and state of
residence;

- the number of shares you are interested in purchasing;

- for what period of time you expect to hold the shares; and

- whether you will consent to delivery of our prospectus and other
documents electronically.

WHY SHOULD I COMPLETE THE INDICATION OF INTEREST FORM?

- It helps us approximate the overall level of interest in our offering
so that we can allocate our resources appropriately,

- It enables you to inform us of your interest in purchasing
shares so that we can ensure that you receive copies of any additional
preliminary prospectuses and our final prospectus, and, once we are
able to start selling our shares, a copy of our subscription
agreement, and

54
<PAGE>

- It puts you on our waiting list in the event that the demand
for our shares is greater than the number of shares available in this
offering.

HOW CAN I RECEIVE COPIES OF YOUR PROSPECTUS ELECTRONICALLY?

- We post a copy of our most recent prospectus on this website. Through
the indication of interest form, you may consent to receive subsequent
preliminary prospectuses and our final prospectus electronically. If you
do consent, when we are required to distribute a copy of any prospectus
to you, we will send you an e-mail notifying you when there is an
updated prospectus available on our website. The e-mail will contain
a hyperlink to the website containing the prospectus as well as the
website address. You may also consent to receive our additional
filings, including proxy statements, annual reports and quarterly
reports, electronically in the same manner. You may also refuse
to consent to receive any or all of our filings electronically, in which
case we will send you paper copies of all documents, if you subscribe an
your subscription is accepted.

CAN I REVOKE MY CONSENT TO RECEIVE ELECTRONIC DELIVERY OF THESE DOCUMENTS?

- Yes. You may notify us that you wish to revoke your consent to
electronic delivery of any or all of our documents at any time by calling
us at (360) 697-9260, writing to us at 1223 NW Finn Hill Road, Poulsbo,
Washington 98370, or e-mailing us at [email protected].

DOES COMPLETING THE INDICATION OF INTEREST FORM OBLIGATE ME TO BUY SHARES?

- No. You are under no obligation to purchase any shares until all of the
following have occurred:

- the offering has been declared effective by the SEC;

- you have received a copy of our final prospectus in paper form or
electronically;

- you have completed, signed and sent the subscription
agreement to the escrow agent or you have electronically agreed to the
terms of the subscription agreement; and

- you sent in a check or wired funds to the escrow agent.

Once those things have occurred, you will be legally bound to buy the
shares for which you have subscribed. We will then decide which subscriptions to
accept and for how many shares, and will promptly notify you. Any payment that
you make for shares which we elect not to sell to you will be refunded to you.
We will keep all amounts paid for accepted subscriptions.

HOW DO I GET A COPY OF THE SUBSCRIPTION AGREEMENT?

- Once the offering has been declared effective by the SEC, our
subscription agreement will be made available to you as follows:

<PAGE>

- it will be located in a printable format on the website where we have
posted our final prospectus;

- it will also be located on such website in a format that allows you to
complete it online and submit it to us electronically;

- unless you have specifically requested electronic delivery
of the final prospectus, we will include the subscription agreement
together with a paper copy of the final prospectus that we send to
you; or

- if you have not previously indicated your interest to us,
you can request a paper copy of the subscription agreement
and prospectus by calling us at (360) 697-9260, writing to
us at 1223 NW Finn Hill Road, Poulsbo, Washington 98370, or
e-mailing us at [email protected].

WHEN WILL I RECEIVE NOTIFICATION OF ACCEPTANCE OF MY SUBSCRIPTION?

- Until we have sold at least 400,000 shares in this offering, we can
not accept any subscriptions. Additionally, we have the right to completely
or partially accept or reject any subscription for shares offered in
this offering, for any reason or for no reason. Among the factors
we will consider may be, but are not limited to, the following:

- whether or not you consented to receiving copies of our preliminary
prospectus and final prospectus electronically;

- the amount of shares you wish to purchase;

- how long you plan to hold the shares; and

- your place of residence.

USE OF A BROKER-DEALER

We currently have no arrangements with any broker-dealers to offer or sell
any of the shares, and we will not enter into any arrangement with any broker
dealers to sell the minimum number of shares in this offering. Once we have sold
at least the minimum number of shares in this offering, we may utilize one or
more broker-dealers who may offer and sell the shares on terms acceptable to us.
If we determine to use a broker-dealer, such broker-dealer must be a member in
good standing of the National Association of Securities Dealers, Inc. and
registered, if required, to conduct sales in those states in which it would sell
the shares. We will not pay in excess of 10% as a sales commission for any sales
of the shares, nor will our sales commission expenses combined with other
offering expenses exceed 20% of the gross proceeds of this offering.

<PAGE>

If a broker-dealer were to sell shares, it is likely that such
broker-dealer would be deemed to be an underwriter of the shares as defined in
Section 2(11) of the Securities Act and we would be required to obtain a
no-objection position from the National Association of Securities Dealers, Inc.
regarding the underwriting and compensation terms entered into between us and
such potential broker-dealer. In addition, we would be required to file a
post-effective amendment to the registration statement of which this prospectus
is a part to disclose the name of such selling broker-dealer and the agreed
underwriting and compensation terms.

We will reimburse our officers and directors for expenses incurred in
connection with the offer and sale of the shares. Our officers and directors are
relying on Rule 3a4-1 of the Exchange Act as a "safe harbor" from registration
as a broker-dealer in connection with the offer and sales of the shares. In
order to rely on such "safe harbor" provisions provided by Rule 3a4-1, an
officer or director must be in compliance with all of the following:

- he or she must not be subject to a statutory disqualification;

- he or she must not be compensated in connection with such
selling participation by payment of commissions or other payments
based either directly or indirectly on such transactions;

- he or she must not be an associated person of a broker-dealer;

- he or she must restrict participation to transactions involving offers
and sale of the shares;

- he or she must perform substantial duties for the issuer
after the close of the offering not connected with transactions
in securities, and not have been associated with a broker or dealer
for the preceding 12 months, and not participate in selling an
offering of securities for any issuer more than once every 12 months;
and

- he or she must restrict participation to written communications or
responses to inquiries of potential purchasers.

Our officers and directors intend to comply with the guidelines enumerated
in Rule 3a4-1. Our officers and directors have no current plans to purchase
shares in the offering, however they may purchase up to an aggregate of 20,000
shares in the offering. We anticipate that Clint Ballard, our president and
chief executive officer and Diana T. Ballard, our chairman of the board will be
the only officers or directors selling shares in reliance on Rule 3a4-1, as
further restricted by the laws of the states in which we have registered our
shares for sale.

<PAGE>

KEY TERMS OF ESCROW AGREEMENT

Under the terms of our escrow agreement with American Stock Transfer:

- proceeds from the sale of the shares will be deposited into
an interest bearing account until the minimum offering amount is sold;

- in the event the proceeds are insufficient to meet the
400,000 share minimum requirement, proceeds will be returned directly
to investors by the escrow agent with interest and without
decuction for expenses, including escrow agent fees;

- the escrowed proceeds are not subject to claims by our
creditors, affiliates, associates or underwriters until the proceeds
have been released to us under the terms of the escrow agreement; and

- the regulatory administrator of any state in which the
offering is registered has the right to inspect and make copies of the
records of the escrow agent relating to the escrowed funds in the
manner described in the escrow agreement.

LOCK-IN AGREEMENT

Clint Ballard and Diana T. Ballard hold all 34,300,000 outstanding shares
of our common stock and are not subject to any contractual restriction on the
sale of any such shares, other than a lock-in agreement with us. Under the
lock-in agreement, beginning on the day the offering is completed, they are
prohibited from transferring or pledging 34,191,059 of their shares of our
common stock, although they retain all of their power to vote these shares.

According to its terms, the lock-in agreement will terminate upon any of
the following occurrences:

- the second anniversary of the completion date of the offering:

- the date all funds have been sent back to investors if the offering
was terminated; or

- the date the shares become covered securities, which
includes becoming listed on the Nasdaq National Market, The American
Stock Exchange or the New York Stock Exchange.

During the term of the lock-in agreement, beginning on the first anniversary of
the date the offering is completed, two and one-half percent of the shares
covered under the agreement shall be released from the lock-in provisions each
quarter.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $.0001 per share, and 2,000,000 shares of serial preferred
stock, par value $.0001 per share.

COMMON STOCK

GENERAL. We have 100,000,000 authorized shares of common stock, par value
$.0001 per share, 34,300,000 of which are issued and outstanding prior to this
offering. All shares of common stock currently outstanding are validly issued,
fully paid and non-assessable, and are all owned beneficially and of record by
two stockholders, Clint Ballard and Diana T. Ballard. All shares which are the
subject of this prospectus, when issued and paid for under this offering, will
be validly issued, fully paid and non-assessable.

VOTING RIGHTS. Each share of our common stock entitles the holder to one
vote, either in person or by proxy, at meetings of stockholders. Our board of
directors is elected annually at each annual meeting of the stockholders. The
holders are not permitted to vote their shares cumulatively. Accordingly, the
holders of more than fifty percent of our voting power can elect all of our
directors.

DIVIDEND POLICY. All shares of common stock are entitled to participate
ratably in dividends when, as and if declared by our board of directors out of
the funds legally available to distribute dividends. Any such dividends may be
paid in cash, property or additional shares of common stock. We have not paid
any dividends since our inception and presently anticipate that all earnings, if
any, will be retained for development of our business. We expect that no
dividends on the shares of common stock will be declared in the foreseeable
future. Any future dividends will be subject to the discretion of our board of
directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, general business
conditions and other pertinent facts. There can be no assurance that any
dividends on the common stock will ever be paid.

MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of common stock have no
preemptive or other subscriptions rights, conversions rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of eAcceleration, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
the equity of eAccleration after satisfaction of all liabilities.

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, we will
have 34,700,000 shares of common stock outstanding if the minimum number of
shares offered in this offering are sold, or 37,300,000 shares of common stock
outstanding if the maximum number of shares offered in this offering are sold.
Of these shares, the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, except for
any shares purchased by an "affiliate" of eAcceleration, which will be subject
to the limitations of Rule 144 adopted under the

<PAGE>

Securities Act. In general, a person who has a control relationship with
eAcceleration is defined as an "affiliate." All of the remaining shares are
deemed to be "restricted securities", as that term is defined in Rule 144 under
the Securities Act.

In general, under Rule 144, commencing 90 days after the date of this
prospectus, a person, including an affiliate or persons whose shares are
aggregated, who has owned restricted shares of common stock beneficially for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one per cent of the total number of
outstanding shares of the same class or the average weekly trading volume of our
common stock on all exchanges and/or reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. A
person who has not been an affiliate of eAcceleration for at least the three
months immediately preceding the sale and who has beneficially owned shares of
common stock for at least two years is entitled to sell such shares under Rule
144 without regard to the limitations described above.

All of the shares of stock presently outstanding have been held at least
two years by Clint Ballard and Diana T. Ballard. Accordingly, commencing
following the completion of the offering, these 34,300,000 shares will be
eligible for resale under Rule 144 at the rates and subject to the conditions
discussed above and the terms of the lock-in agreement described above. No
predictions can be made as to the effect, if any, that sales of shares under
Rule 144 or otherwise or the availability of shares for sale will have on the
market, if any, prevailing from time to time. The sale of any substantial number
of these shares in the public market could reduce the market price of the shares
and the value of your shares.

LACK OF PUBLIC MARKET FOR OUR SHARES. There has not been a public market
for our common stock and the price of our shares may be very volatile. We are
not sure if and when the shares will start trading, and this may not occur until
well after the first closing of this offering. We could decide not to facilitate
the commencement or continuation of a trading market for the common stock for an
extended period. We cannot predict the extent to which investor interest in our
common stock will lead to the development of an active trading market or how
liquid that market might become. Because no underwriter has sold any shares to
their customers or received options, warrants or shares in this offering, there
is currently little incentive for a financial institution to provide aftermarket
support of the shares. Due to this lack of aftermarket support, the price of our
stock following the offering may decrease, and investors may be unable to resell
their shares at or above the initial public offering price.

Additionally, many capital market participants, including investors,
underwriters, market makers and other broker-dealers appear to place significant
value on large operating losses that are generated by Internet companies that
are in the process of capturing market share. Even though we have captured what
we believe is a significant market share in the Internet advertising and
marketing

<PAGE>

industry while maintaining our profitability, there is no assurance that
the investment community will appropriately recognize our value, and this may
negatively affect the price of our common stock.

After closing this offering, we intend to apply for inclusion of the shares
on the Nasdaq SmallCap Market or the Nasdaq National Market, depending on how
much we raise in this offering. Under Nasdaq criteria, an issuer seeking initial
inclusion of its securities on Nasdaq is required to meet threshold levels
established by Nasdaq relating to assets, market capitalization, net income,
market value of public float, minimum bid price and number of market makers,
among others. We currently do not meet all of Nasdaq's requirements, and we are
dependent on the receipt of proceeds of this offering to satisfy some of these
requirements. There is no assurance that the shares will ever be approved for
inclusion on Nasdaq, and if so, when such listing will occur. The inability to
have the shares listed on Nasdaq in a timely manner could materially hinder the
development of a public trading market for the shares.

Nasdaq also imposes maintenance requirements that, like the initial listing
requirements, require us to meet threshold levels established by Nasdaq relating
to assets, market capitalization, net income, market value of public float,
minimum bid price and number of market makers, among others. Although the
required maintenance levels are somewhat less stringent than the initial listing
requirements, there is no assurance that the shares will not become delisted at
a future time if the Nasdaq-imposed maintenance thresholds are not satisfied at
all times. Any delisting could cause a material decline in the market price of
the shares if a market should develop, and adversely affect the liquidity of the
shares.

PREFERRED STOCK

The board of directors is authorized by the our certificate of
incorporation to issue up to an additional 2,000,000 shares of one or more
series of serial preferred stock, par value $.0001 per share. No shares of such
serial preferred stock have been authorized for issuance by our board of
directors, and we have no present plans to issue any such shares. In the event
that the board of directors issues shares of serial preferred stock, it may
exercise its discretion in establishing the terms of such serial preferred
stock; provided, that any issuance of serial preferred stock must be approved by
a majority of our independent directors, who do not have an interest in the
transaction and who have access, at our expense, to our legal counsel or to
independent legal counsel.

Subject to approval by the independent directors, the board of directors
may determine the voting rights, if any, of the series of preferred stock being
issued, which would include the right to vote separately or as a single class
with the common stock and/or other series of preferred stock; to have more or
less voting power per share than that possessed by the common stock or other
series of preferred stock; and to vote on specified matters presented to the
stockholders or on all of such matters or upon the occurrence of any specified
event or condition. On liquidation, dissolution or winding up of eAcceleration,
the holders of preferred stock may be entitled to received preferential cash
distributions fixed by the board of directors when creating the particular
preferred stock series before the holders of the common stock are entitled to
receive anything. Preferred stock authorized

61
<PAGE>

by the board of directors could be redeemable or convertible into shares of any
other class or series of stock of eAcceleration.

The issuance of preferred stock by the board of directors could adversely
affect the rights of holders of the common stock by, among other things,
establishing preferential dividends, liquidation rights or voting powers. The
issuance of preferred stock could be used to discourage or prevent efforts to
acquire control of eAcceleration through the acquisition of shares of common
stock.

ANTI-TAKEOVER PROVISIONS

Our certificate of incorporation contains provisions which may be deemed to
be "anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control of eAcceleration by another entity
or person. In addition to the ability to issue preferred stock, these provisions
include a requirement for a vote of 66-2/3% of the stockholders in order to
approve a number of transactions including mergers and sales or transfers of all
or substantially all of our assets.

The Delaware Corporation Law further contains anti-takeover provisions.
Section 203 of the Delaware Corporation Law provides, with a number of
exceptions, that as a Delaware corporation, we may not engage in any of a broad
range of business combinations with an "interested stockholder", that is, a
person who owns 15% or more of our outstanding voting stock, for a period of
three years from the date that such person became an interested stockholder
unless:

- the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved
by our board of directors before the person becomes
an interested stockholder;

- the interested stockholder acquires 85% or more of our
outstanding voting stock excluding shares owned by persons who
are both our officers and directors, and shares held by employee
stock ownership plans; or

- the business combination is approved by our board of
directors and by the holders of at least 66-2/3% of our outstanding
voting stock at an annual or special meeting, excluding shares
owned by the interested stockholder.

TRANSFER AGENT

The transfer agent for the common stock will be American Stock Transfer &
Trust Co., 40 Wall Street, New York, New York 10005.

62
<PAGE>

EXPERTS

Our financial statements as of December 31, 1999 and for each of the years
in the two-year period ended December 31, 1999, appearing in this prospectus and
registration statement have been audited by McKennon, Wilson & Morgan, LLP,
independent auditors, as set forth in their report on such financial statements,
appearing elsewhere in this prospectus and in this registration statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in accounting and auditing.

LEGAL MATTERS

The validity of the shares offered in this offering will be passed upon
for us by Kaufman & Moomjian, LLC, Mitchel Field, New York.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement on Form SB-2 under the
Securities Act that we filed with the SEC with respect to the shares offered by
this prospectus. We have authorized no one to provide you with any information
other than that provided in the prospectus. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in the prospectus is accurate as of any date other than the
date on the front cover of the document.

This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed with the registration
statement. For further information about us and the shares offered by this
prospectus, reference is made to the registration statement and its exhibits and
schedules. A copy of the registration statement and its exhibits and schedules
may be inspected without charge at the public reference facilities maintained by
the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from such
office upon the payment of the fees prescribed by the SEC and at the SEC
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for
further information about its public reference room.

The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the SEC. The Internet address of the website
is http://www.sec.gov. Our registration statement and the exhibits and schedules
we filed electronically with the SEC are available on this site. An electronic
format of this prospectus is also available on our Internet website, at
http://www.eacceleration.com/ipo. The other information contained on this
website or any other website is not part of this prospectus.

<PAGE>

As of the date of this prospectus, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, and we will
file reports and other information with the SEC. Such reports and other
information can be inspected and/or obtained at the locations and websites set
forth above.

<PAGE>

Index to consolidated financial statements

Independent auditors' report . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated financial statements:

Consolidated balance sheet - December 31, 1999. . . . . . . . . . . F-3

Consolidated statements of income for each of the years in the
two-year period ended December 31, 1999 . . . . . . . . . . . . . . F-4

Consolidated statements of stockholders' equity for each of the
years in the two-year period ended December 31, 1999. . . . . . . . F-5

Consolidated statements of cash flows for each of the years in
the two-year period ended December 31, 1999. . . . . . . . . . . . F-6

Notes to consolidated financial statements. . . . . . . . . . . . . F-7

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors
eAcceleration Corp.

We have audited the accompanying consolidated balance sheet of eAcceleration
Corp., and its subsidiary Acceleration Software International Corporation (the
"Company"), as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eAcceleration Corp.,
as of December 31, 1999, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.

/s/ McKennon, Wilson & Morgan LLP

Irvine, California
March 16, 2000

F-2

<PAGE>

EACCELERATION CORP.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
December 31, 1999
-----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 329,483
Accounts receivable, net of allowance for doubtful
accounts of $46,750 717,943
Unbilled receivables 139,547
Other current assets 108,891
----------
Total current assets 1,295,864

Property and equipment, net 102,141
Patents and trademarks, net 80,216
Deferred offering costs 333,546
Long-term receivable 52,415
----------

$1,864,182
==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 745,034
Accrued liabilities 134,799
----------
Total current liabilities 879,833
----------

Commitments and contingencies (Note 7)

Stockholders' equity:
Common stock, par value $.0001; 100,000,000
shares authorized; 34,300,000 shares issued
and outstanding at December 31, 1999 3,430
Additional paid-in capital 350,205
Retained earnings 630,714
----------
Total stockholders' equity 984,349
----------

$1,864,182
==========

See accompanying notes to these consolidated financial statements
</TABLE>

F-3

<PAGE>

EACCELERATION CORP.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,
-----------------------
1998 1999
---- ----
<S> <C> <C>
Revenues:
License $1,919,149 $2,014,600
Internet - 2,744,869
---------- ----------
1,919,149 4,759,469

Cost and expenses:
Software development and products 919,895 1,053,754
Sales and marketing 369,336 2,395,129
General and administrative 409,071 641,707
Reduction in reserves for claims (28,542) -
---------- ----------
1,669,760 4,090,590
---------- ----------

Income from operations 249,389 668,879
---------- ----------

Other income (expense):
Interest income 49,499 5,219
Interest expense (6,557) (563)
Other 150 -
---------- ----------
43,092 4,656
---------- ----------

Net income $ 292,481 $ 673,535
========== ==========

Basic and diluted earnings per common share $ 0.01 $ 0.02
========== ==========

Pro forma financial data (unaudited):

Pro forma net income $ 193,037 $ 444,533
========== ==========
Pro forma basic and dilutive earnings per
common share $ 0.01 $ 0.01
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

EACCELERATION CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Each of the Years in the Two-Year Period Ended Decmeber 31, 1999
<TABLE>
<CAPTION>

Additional
Common Stock Paid-in Treasury Stockholders'
Shares Amount Capital Retained Earnings Stock Equity
------ ------ ------- ----------------- ----- -------------

<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 34,300,000 $ 3,430 $ 113,454 $ 419,939 $(115,000) $421,823

Distributions to stockholders - - - (350,000) - (350,000)

Fair value of officer services - - 104,000 - - 104,000

Net income - - - 292,481 - 292,481
---------- ------ -------- --------- --------- --------

Balances, December 31, 1998 34,300,000 3,430 217,454 362,420 (115,000) 468,304

Value of stock options issued
to non-employees - - 128,751 - - 128,751

Distributions to stockholders - - - (390,241) - (390,241)

Cancellation of treasury stock - - (100,000) (15,000) 115,000 -

Fair value of officer services - - 104,000 - - 104,000

Net income - - - 673,535 - 673,535
---------- ------ -------- --------- --------- --------

Balances, December 31, 1999
34,300,000 $3,430 $350,205 $ 630,714 $ - $984,349
========== ====== ======== ========= ========= ========

</TABLE>

See accompanying notes to these consolidated financial statements

F-5

<PAGE>

EACCELERATION CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 292,481 $ 673,535
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 54,073 52,833
Increase in allowance for doubtful accounts - 46,750
Provision for write down of inventory 13,053 -
Value of stock options issued - 128,751
Fair value of officer services 104,000 104,000
Changes in operating assets and liabilities:
Accounts receivable (241,667) (523,025)
Unbilled receivables - (139,547)
Other current assets (11,012) (108,891)
Long term receivable - (52,415)
Accounts payable (7,507) 695,598
Accrued liabilities (8,691) 62,982
Other current liabilities (91,546) (14,528)
--------- ---------
Net cash provided by operating activities 103,184 926,043
--------- ---------

Cash flows from investing activities:
Purchases of equipment (32,306) (77,211)
Patent and trademark expenditures (35,927) (28,922)
--------- ---------
Net cash used in investing activities (68,233) (106,133)
--------- ---------

Cash flows from financing activities:
Deferred Offering Costs - (333,546)
Payments on capital lease obligations (15,514) (5,833)
Distributions to stockholders (350,000) (390,241)
Repurchase of common stock - -
--------- ---------
Net cash used in financing activities (365,514) (729,620)
--------- ---------

Net increase (decrease) in cash and cash equivalents (330,563) 90,290

Cash and cash equivalents at beginning of year 569,756 239,193
--------- ---------

Cash and cash equivalents at end of year $ 239,193 $ 329,483
========= =========

Supplemental disclosure of cash flow information-
Cash paid during the period for interest $ 6,557 $ 563
========= =========
</TABLE>

See accompanying notes to these consolidated financial statements

F-6
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ORGANIZATION AND HISTORY

ORGANIZATION AND NATURE OF OPERATIONS

eAcceleration Corp., a Delaware corporation, (the "Company"), was incorporated
on November 1, 1999. At such time, the Company acquired 100% of the issued and
outstanding common stock of Acceleration Software International Corporation, a
Washington corporation ("ASIC"). ASIC was formed in June 1995 as Ballard Synergy
Corporation and immediately merged with Ballard Synergy Corporation, a Nevada
corporation ("Ballard"), and changed its name in 1996. Ballard was originally
incorporated in the state of Nevada in 1987. In connection with the Company's
acquisition of ASIC, the Company issued one share for every two shares of ASIC
that was issued and outstanding at such time. This acquisition of ASIC by
eAcceleration was accounted for at historical bases similar to a pooling of
interest since the companies were under common control.

Beginning in late 1998, the Company has provided an integrated suite of websites
which allow Internet users to receive free products in exchange for using the
Company's home page as their start page. The Company sells online advertising
space to online media buyers and merchants who can be assured they will reach a
relatively captive and targeted set of Internet users. The Company is thus able
to sell to such customers no-risk advertising based on quantifiable actions by
Internet users on a per click-through, per download or per sign-up basis. The
Company provides co-branding and marketing services from its websites.

Since inception, the Company has developed software that primarily increases the
speed of processing by computers, computer accessories and software. The
Company's principal products are web browser, CD-ROM and hard disk accelerators.
The Company licenses such software in Asia.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All inter-company accounts have been
eliminated in consolidation.

REVENUE RECOGNITION

The Company has revenue sources from software products, license sales and online
advertising services. Management believes its revenue recognition policies are
in conformity with the American Institute of Certified Public Accountants,
Statements of Position ("SOP)" 97-2, "Software Revenue

F-7
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Recognition," and 98-4, "Deferral of the Effective Date of a Provision of
SOP 97-2, Software Revenue Recognition."

Revenue from license fees and from sales of software products is recognized when
persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant Company obligations with regard to implementation
remain, the fee is fixed or determinable and collectibility is probable.
Payments received from distributors of these products are recorded as deferred
revenues until revenues are recognized as set forth above. Maintenance and
support of software is not significant.

Revenue from software developed for customers which require significant
production, modification or customization of software is recognized in a manner
which approximates SOP 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts." Specifically, the Company uses the
percentage of completion method based on labor costs incurred. At the time a
contract is known to result in a loss at completion, the Company records a
charge to operations. Billings in excess of costs on uncompleted contracts are
reflected as deferred revenues. Costs in excess of billings on uncompleted
contracts are recorded as unbilled revenue included in accounts receivable.

Advertising revenues consist of web banner advertising and anchor positions. A
banner, the most common form of advertisement on the web, directly links a
consumer to the advertiser's website or promotion through a box on the website
which may be transitory. An anchor position, consisting of an advertiser's
position on the Company's website, consists of a link to the advertiser's
website which remains in a designated position until the advertising position is
removed from the website. Banner advertising and anchor position revenues can be
based on impressions, click-throughs, sign-ups, or downloads. Revenues from
contracts based on impressions, click-throughs, sign-ups and downloads are
recognized in the period in which visitors execute these pre-defined actions.
The rates for impressions range up to $5.00 per thousand actions and the rates
for click-throughs range up to $400.00 per thousand actions. Sign-ups are billed
at the rate of up to $22.50 each and downloads are billed at the rate of up to
$5.00 each.

During 1999, the Company commenced Internet revenue sharing programs with seven
companies, under which the Company is to receive a portion of such companies'
sales originating from our websites ranging from 3% to 50%. The Company's
revenues derived from revenue sharing programs during the year ended December
31, 1999 have been inconsequential.

ALLOCATION OF EXPENSES AND RELATED DISCLOSURE

In accordance with Securities and Exchange Commission ("SEC"), Staff Accounting
Bulleting ("SAB") Topic 1:b.1 "Allocation of expenses and related disclosure in
financial statements", the

F-8
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company has reflected in operations the estimated fair value of unpaid and
unearned services by its chairman amounting to $104,000 for the years ended
December 31, 1998 and 1999. Such amounts are reflected as contributed capital
since the estimated fair value of these services will not be paid by the
Company.

ADVERTISING COSTS

Advertising costs are expensed as incurred.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the double
declining method over the estimated useful lives of the related assets, ranging
from three to seven years. Maintenance and repairs are charged to expense as
incurred. Significant renewals and betterments are capitalized. At the time of
retirement or other disposition of property and equipment, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations.

SOFTWARE DEVELOPMENT COSTS

Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," states
that all costs incurred in connection with the development of software
subsequent to technological feasibility should be capitalized until such time
that the software is available to customers. The Company believes its current
process for developing software is essentially completed concurrent with the
establishment of technological feasibility and, as such, no costs have been
capitalized to date.

DEFERRED OFFERING COSTS

Direct costs incurred in connection with the Company's initial public
offering (the "Offering") are capitalized. Advertising costs relating to the
Offering are expensed as incurred. In the event the Offering is unsuccessful,
the Company will charge these costs to operations.

F-9
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PATENTS AND TRADEMARKS

Patents and trademarks are recorded at cost and are amortized using the
straight-line method over the estimated useful lives of the related assets
ranging from three to five years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for impairment of long-lived assets under the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of." This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. At present, the Company reviews for impairment annually.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has financial instruments whereby the fair value of the financial
instruments could be different than that recorded on a historical basis in the
accompanying balance sheet. The Company's financial instruments consist of
cash and cash equivalent accounts and other receivables and accounts payable.
The carrying amounts of the Company's financial instruments generally
approximate their fair values as of December 31, 1999.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all income statements issued after
December 15, 1997, for all entities with complex capital structures. Basic EPS
is computed as net income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock options, warrants and
other convertible securities. The table set forth below reconciles the
components of the basic net income per share calculation to the diluted net
income per share.

F-10
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
---------- ----------
<S> <C> <C>
Weighted average shares outstanding - Basic 34,300,000 34,300,000
Effect of dilutive stock options - 107,088
---------- ----------
Weighted average shares outstanding - Dilutive 34,300,000 34,407,088
========== ==========
</TABLE>

Stock options outstanding in 1998 had no material impact on weighted average
shares outstanding during 1998.

INCOME TAXES

The Company elected to be taxed under Subchapter S of the Internal Revenue Code.
Accordingly, profits and losses are reflected in the individual income tax
returns of the stockholders. Income taxes are not material to the consolidated
financial statements. Upon the first closing of the Offering, the Company's
S-corporation status will be terminated.

PRO FORMA FINANCIAL DATA

Included in the accompanying consolidated statements of income are pro forma
financial data (unaudited) reflecting pro forma net income and earnings per
share assuming the Company was taxed as a C-Corporation for each of the two
years in the two-year period ended December 31, 1999, assuming that the
Company's estimated federal tax rate would be approximately 34%. There are no
material state income taxes incurred by the Company; however, the Company pays a
business tax based on certain revenues, which are not classified as income
taxes. Pro forma income tax expense for the years ended December 31, 1998 and
1999 is $99,444 and $229,002, respectively.

The Company entered into two employment agreements on November 1, 1999 (see Note
7). Each employment agreement provides for the payment of a bonus based on 2.5%
of the Company's pretax income which is defined as income before taxes,
interest, depreciation, amortization and extraordinary items in the immediately
preceding fiscal year. The accompanying pro forma financial data does not
include the effects of these two bonuses because the agreements will not be
effective until the first closing of this offering, and no bonuses will be paid
based on 1999 income. If such bonuses were to be paid under the agreements, the
pro forma bonus expense for the years ended December 31, 1998 and 1999 would
have been $17,656 and $36,347, respectively.

RISKS, UNCERTAINTIES AND CONCENTRATIONS

The Company's operations are subject to new innovations in product design and
function. Significant technological changes can have an adverse effect on
product lives. Design and development of new products are important elements to
achieve profitability in this industry segment.

F-11
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company, at times, maintains cash balances at a certain financial
institution in excess of amounts insured by Federal agencies.

The Company provides credit in the normal course of business to customers
throughout the United States and Asia. The Company has a policy to perform
credit evaluations on all customers with significant orders. The Company does
not obtain collateral with which to secure its accounts receivable. The Company
maintains reserves for potential credit losses based upon the Company's
historical experience related to credit losses. See Note 10 for discussion of
revenue concentrations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.

STOCK COMPENSATION

During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
stock-based compensation. However, SFAS No. 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting method of APB 25 must make pro
forma disclosures of net income and earnings per share, as if the fair value
method of accounting defined in SFAS No. 123 had been applied. The Company has
elected to account for its stock-based compensation to employees under APB 25.

COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income, as well as
certain non-shareholder items that are reported directly within a separate
component of stockholders' equity and bypass net income. The Company has adopted
the provisions of this statement in 1998, with no impact on the accompanying
consolidated financial statements.

F-12
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The provisions of this statement require
disclosures of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
stockholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating
decision-maker in the determination of resource allocation and assessing
performance, and for which discrete financial information is available. The
Company has adopted the provisions of this statement in 1999 with the impact on
the accompanying consolidated financial statements being reflected in Note 10.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes standards for the
accounting and reporting of derivative instruments and hedging activities,
including certain derivative instruments embedded in other contracts. Under SFAS
No. 133, entities are required to carry all derivative instruments at fair value
on their balance sheets. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging activity and the underlying
purpose for it. The Company does not believe that the adoption of SFAS No. 133
will have a significant impact on the Company's consolidated financial
statements or related disclosures.

NOTE 3 - PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING AS OF DECEMBER 31, 1999:
<TABLE>
<CAPTION>

December 31,
1999
------------
<S> <C>
Equipment $ 301,531
Furniture and fixtures 15,886
Vehicles 39,987
---------
357,404

Less accumulated depreciation (255,263)
---------

$ 102,141
=========
</TABLE>

During the years ended December 31, 1998 and 1999, depreciation expense totaled
$49,103 and 39,846 respectively.

F-13

<PAGE>
EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 PATENTS AND TRADEMARKS

Patents and trademarks consist of the following as of December 31, 1999:
<TABLE>
<CAPTION>

December 31,
1999
------------
<S> <C>

Patents $ 108,990
Trademarks 5,973
---------
114,963

Less accumulated amortization (34,747)
---------

$ 80,216
=========
</TABLE>

NOTE 5- DEFERRED OFFERING COSTS

The Company capitalizes its direct Offering costs. At December 31, 1999,
deferred Offering costs consist of the following:
<TABLE>
<CAPTION>

<S> <C>
Legal fees and expenses $ 164,054
Accounting fees and expenses 73,371
Blue Sky fees and expenses 48,466
Printing and engraving 10,470
Other 37,185
---------
Total $ 333,546
=========
</TABLE>

Advertising expenses of $20,000 relating to the Offering incurred in 1999 have
been expensed as incurred. Advertising expenses relating to the Offering are
expected to be approximately $80,000 in 2000 will be expensed as incurred. At
December 31, 1999, amounts due for direct costs incurred in connection with the
Offering were $169,993.

NOTE 6- LONG-TERM RECEIVABLE

During 1999 the Company entered into an agreement with an unrelated party to
provide download and Internet advertising services. The Company earns $5.00 per
download based on advertising and download services, as defined. The Company has
the option to receive payment in cash or common stock at a rate of five dollars
per share commencing March 2001. The contract expires on the earlier of (a) July
1, 2005 or (b) two years from a milestone date if such milestone is not achieved
by the

F-14
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company. In addition, the Company may earn options to purchase up to
110,000 shares of this entity's common stock, if such milestones are achieved.
If this receivable is paid in common stock, the investment will be recorded
under the cost method because the investment does not constitute a material
holding in the investee and the common stock received is not publicly traded.
Management will evaluate the carrying value quarterly to determine if impairment
of such exists.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company currently leases two facilities that hold all of the Company's
operations. One of these leases was extended in February 1999 for an additional
five years. As a result of this extension, the lease expires in the year 2005.
The lease requires monthly payments of $1,874.

In December 1999, the Company entered into a lease agreement with a four-year
term for an additional 10,000 square foot facility. The lease requires monthly
payments of $7,643 for months one through four and $8,492 for months five
through 12. All remaining payments are increased by $0.30 per square-foot
annually. The Company has the option of terminating the lease at the end of the
second year.

The Company's future annual minimum lease payments under all noncancelable
operating leases at December 31, 1999, are as follows:

Year Ending
December 31,
------------
<S> <C>
2000 $ 122,503
2001 127,174
2002 31,236
2003 22,491
2004 22,491
Thereafter 1,874
---------
$ 327,769
=========
</TABLE>

Total rent expense for the years ended December 31, 1998 and 1999, amounted to
$20,628 and $23,539, respectively.

F-15
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LITIGATION

The Company is subject to a limited number of claims and actions which arise in
the ordinary course of business. The litigation process is inherently uncertain,
and it is possible that the resolution of the Company's existing and future
litigation may adversely affect the Company. Management is unaware of any
matters that may have material impact on the Company's financial position,
results of operations or cash flows.

EMPLOYMENT AND CONSULTING CONTACTS

As of July 12, 1999, the Company entered into a consulting agreement with
Millennium Capital Quest relating to services consisting of advice on various
alternatives in raising capital, public relations and marketing, and advice
regarding corporate structuring and management structuring. The terms of the
contract include, among others, payments of up to an aggregate of $187,500 and a
grant of options, at an exercise price of $4.78 per share, as amended, to the
consultant to purchase 34,300 shares of common stock of the Company. The
Agreement expires on July 11, 2000, and the options expire on December 31, 2009.

On November 1, 1999, the Company entered into employment agreements with its two
shareholders. Each of these agreements are for a period of five years and each
provides compensation annually in the amount of $104,000 and a bonus based on
2.5% of earnings before income taxes depreciation, amortization and
extraordinary items of the immediately preceding year. Such agreements become
effective on the date of the first closing of the initial public offering, and
no bonuses will be paid on 1999 income.

NOTE 8 - STOCKHOLDERS' EQUITY

CONTINGENT SHAREHOLDER DISTRIBUTION, AND CONSTRUCTIVE DIVIDEND AND CAPITAL
CONTRIBUTION

Upon the closing of the Offering, the Company will make a distribution of
accumulated earnings in excess of $578,750 to its two stockholders. The
stockholders have elected not to distribute the balance of $578,750 of
accumulated earnings upon the termination of this S-Corporation status (see Note
2). Accordingly, upon the first closing of the Offering, the Company will record
a reduction in retained earnings of $578,750 deemed a constructive dividend, and
will increase additional paid-in capital by this amount as a deemed contribution
of capital.

COMMON STOCK PURCHASE OPTIONS

In 1995, the Board of Directors of ASIC adopted the 1995 Stock Option Plan (the
"1995 Plan") pursuant to which officers, directors and employees of the Company
were eligible to receive options

F-16
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to purchase common stock of the Company. Options to purchase 27,500 shares
were granted at $0.70 per share, vest over four years and expire ten years from
the date of grant. As of December 31, 1998, the Company had 27,500 options
outstanding and exercisable.

On June 1, 1999, the Board of Directors of ASIC adopted the 1999 Stock Option
Plan (the "1999 Plan"). Under the 1999 Plan, the Company may issue up to
5,000,000 shares of common stock. The 1999 Plan is administered by the
Compensation Committee of the Board of Directors of the Company, which
determines the terms and conditions of the options granted, including exercise
price, number of options granted and the vesting period of such options.
Incentive stock options may only be issued to employees and generally vest
evenly over 10 years from the date of grant and may not, in any case, vest
beyond ten years from the date of grant. Non-qualified stock options vest over a
period of five years from the date of the grant. Forfeitures are returned to the
plan and become available for grant. Incentive stock options have an exercise
price of no less than the estimated fair value of the underlying shares of the
Company's common stock at the date of grant and non-qualified stock options have
an exercise price of not less than 85% of the estimated fair value of the
underlying stock on the date of grant. The Company shall not issue any options
or warrants with an exercise price of less than 85% of fair value of the
underlying shares of its common stock on the date of the grant.

From July 1, 1999 to December 31, 1999, the Company granted employees options,
net of cancellations, to purchase an aggregate of 717,500 shares of common stock
each of which currently have an exercise price of $5.63 per share. The Company
also granted non-employees options to purchase 251,800 shares of common stock,
each of which currently have an exercise price of $4.78 per share.

The Board of Directors has established the estimated fair value of the Company's
common stock as of July 1, 1999, to be $5.63 per share, based on the anticipated
Offering price per share of $6.25, less a nominal discount of 10% for
transferability restrictions. This estimated fair value was used to establish
the exercise prices of its stock options.

With respect to options issued to employees as discussed above, on October 31,
1999, the Company granted to its then chief financial officer options to
purchase 150,000 shares. As a result of his resignation as chief financial
officer (see Note 11) and his agreement to serve as a consultant to the Company,
these options were amended so that he currently has options to purchase 10,000
shares of the Company's common stock at an exercise price of $4.78 per share,
which shall become fully vested and exercisable upon the shares of the Company's
common stock becoming publicly traded.

Options issued to employees were granted at the estimated fair value, and as
such, no compensation was charged to operations in 1999. Options to purchase an
aggregate of 251,800 shares of common stock issued to non-employees were valued
based on a commonly-used valuation model using that considers volatility, among
other factors. Future annual aggregate compensation for non-employee

F-17
<PAGE>

stock options to be charged to future operations as of December 31, 1999 is
as follows:

Year Ending
December 31
-----------

Compensation charges during the year ended December 31, 1999 were $128,751.

Stock option activity under the 1995 Plan and 1999 Plan was as follows:

Range of
Number Exercise
of Shares Prices
--------- --------

<S> <C> <C>
Outstanding, January 1, 1998 27,500 $ 0.70
Options granted - -
--------- ----------
Outstanding, December 31, 1998 27,500 $ 0.70
Options granted 1,069,300 4.78-5.63
Option canceled (100,000) 4.78-5.63
--------- ----------
Outstanding, December 31, 1999 996,800 $0.70-5.63
========= ==========
</TABLE>

The following table summarizes stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>

Option Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------

Average Weighted Number Weighted
Number Remaining Average Exercisable Average
Exercise Price Outstanding at Contractual Life Exercise December Exercise
Prices December 31, 199 (Years) Price 31, 1999 Price
<S> <C> <C> <C> <C> <C>

$ 0.70 27,500 5.71 $ 0.70 27,500 $ 0.70
4.78 251,800 10.00 4.78 - -
5.63 717,500 10.00 5.63 - -
------- ------
996,800 9.79 5.28 27,500 0.70
======= ======
</TABLE>

F-18

<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PRO FORMA DISCLOSURE

Had compensation cost for the Company's employee stock options been determined
consistent with SFAS No. 123 (see Note 2), the Company's reported net income of
$673,535 and net income per share of $0.02 for the year ended December 31, 1999
would have been decreased to $529,932 and $0.02 per share, respectively, on a
pro forma basis. There was no pro forma effect on 1998 net income or basic and
dilutive earnings per share. The fair value of each option granted to employees
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for grants in 1999; no dividend
yield, and expected volatility of 99%, a risk-free interest rate of 6.0%, and an
expected option life of five years.

INITIAL PUBLIC OFFERING

In October 1999, the Board of Directors of the Company, authorized the Company's
management to file a registration statement for an initial public offering (the
"Offering") of the Company's common stock.

See Note 9 for treasury stock transaction with a related party.

NOTE 9 - RELATED PARTY TRANSACTIONS

In fiscal 1997, the Company repurchased all shares of the Company's common stock
issued to a former director for $115,000 originally issued at $100,000. On
August 31, 1999, the Board of Directors of ASIC approved the cancellation of
such shares and, accordingly, the Company charged retained earnings in the
amount of $15,000 for the difference between the original issuance price and the
repurchase price.

NOTE 10 - SEGMENT AND OTHER INFORMATION

Geographical revenue information is based on the origin of the sales. Revenues
by geographic region are as follows for the years ended December 31, 1998 and
1999:

<TABLE>
<CAPTION>
1998 1999

<S> <C> <C>
Asia $1,636,000 $2,014,600
United States 283,149 2,744,869
---------- ----------
Total revenues $1,919,149 $4,759,469
========== ==========
</TABLE>

During the year ended December 31, 1998, revenues from two unaffiliated
customers accounted for

F-19
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

85% and 14% respectively, of total revenues. During the year ended December
31, 1999, revenues from one of these unaffiliated customers accounted for
approximately 42% of the Company's total revenues and all of its software
licensing revenues.

SYNCHRONYS CONTRACT

On February 15, 1997, the Company entered into a distribution agreement for
certain of its pre-packaged software products in the United States. In
connection therewith, the Company generated revenues from sales for which a
significant right of return existed up to 90 days from the date of shipment.
Revenues were recorded to the extent the products were shipped, no right of
return existed and the cash was received. The Company deferred revenues from
billings for products shipped in 1997 totaling approximately $263,481 due to
certain uncertainties with respect to collection of such amount since the
customer disputed the contract and refused payment. In May 1998, the Company
received its final payment in the amount of approximately $301,178, including
interest. No shipments of products were made to this distributor subsequent to
August 31, 1997.

POINTE CONTROL CONTRACT

In November 1995, the Company entered into a master agreement with Pointe
Control, Inc. to produce various software products. In 1996, the Company amended
the agreement to provide for the production of additional software products
produced on CD ROM. In February 1998, the Company amended the terms of the
agreement to provide for receipt of payment based on CDs sold by Pointe Control.
Revenues for these products were recorded when the products were sold by Pointe
Control and the cash was received, generally within thirty days from the date of
sale. On August 14, 1998, the Company further amended its agreement to provide
for the delivery of a master license for a specified product in which the
Company would be paid $375,000 upon delivery and $375,000 over four months. The
master was delivered in August 1998 and revenues were recorded upon delivery. No
significant obligations remained with the Company, and all payments were
guaranteed and collected as defined under the contract at the time of delivery.

On January 20, 1999, the Company further amended the contract to provide for the
production and license of ten (10) specified software products in which a site
license will be granted. This amendment specified certain payments to the
Company totaling $2.2 million beginning February 7, 1999 through December 7,
1999, with a final payment of $200,000 due January 2000. The Company actually
received $1.875 million during 1999 due to a verbal agreement between the
parties. The amendment dated January 20, 1999, was further amended on October
14, 1999 to amend the payments and provide for additional payments from November
7, 1999 to May 7, 2000 of $150,000 per month. Total payments under these two
amendments are $2.625 million. Revenues under the January 20, 1999 and October
14, 1999, amendments to design, produce and deliver these software products are
recorded under the percentage of completion method as discussed in Note 2.
During the

F-20
<PAGE>

EACCELERATION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

year ended December 31, 1999, the Company recorded revenues of $2.014
million under this contract, as amended. The contract is estimated to be 77%
complete at December 31, 1999. No amounts have been deferred in connection with
this arrangement at December 31, 1999. Unbilled revenues included in accounts
receivable amounted to $139,547 at December 31, 1999. At present, this contract
represents the Company's sole source of revenues from software licensing. This
agreement also provides for bonus payments of $400,000 for several of the
Company's software products if any of such products' sales reach "top product"
status based on sales totals as determined by industry reports listed in the
agreement. The maximum possible bonus is $2,000,000.

During the year ended December 31, 1999 another unaffiliated company accounted
for 10% of total revenues.

NOTE 11 - SUBSEQUENT EVENTS

In February 2000, Shane H. Traveller resigned as the Company's chief
financial officer. Upon his resignation, Mr. Traveller entered into a severance,
settlement and general release agreement with the Company. Under this agreement,
Mr. Traveller agreed to provide consulting services to the Company relating to
marketing, financial, accounting and administration matters and other activities
in which he was involved while he was the Company's chief financial officer.
Under the agreement, Mr. Traveller will receive his remaining salary for
February 2000 plus moving expenses, and will receive $26,000 upon the earlier of
June 30, 2000 or the first closing of this offering and $17,000 upon the
Company's common stock becoming publicly traded. Additionally, of his options to
purchase 150,000 shares of the Company's common stock originally granted to him
in October 1999, he retained options to purchase 10,000 shares at an exercise
price of $4.78 per share, as amended, which will become fully vested and
exercisable upon the Company's common stock becoming publicly traded. All other
options issued to Mr. Traveller have been canceled.

In February 2000, the Company filed an amended registration statement in
connection with the Offering of the Company's common stock.

F-21

<PAGE>

================================================================================

Prospective investors may rely only on the information contained in this
prospectus. eAcceleration has not authorized anyone to provide prospective
investors with different or additional information. This prospectus is not an
offer to sell nor is it seeking an offer to buy in any jurisdiction where such
offer, or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of these shares.

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

TABLE OF CONTENTS

Page

Prospectus summary . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Forward looking statements . . . . . . . . . . . . . . . . . . . . . . 11
Use of proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management's discussion and analysis . . . . . . . . . . . . . . . . . 18
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Principal stockholders . . . . . . . . . . . . . . . . . . . . . . . . 49
Related party transactions . . . . . . . . . . . . . . . . . . . . . . 50
Plan of distribution . . . . . . . . . . . . . . . . . . . . . . . . . 51
Description of capital stock . . . . . . . . . . . . . . . . . . . . . 59
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Legal matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Where you can find more information. . . . . . . . . . . . . . . . . . 63
Index to financial statements. . . . . . . . . . . . . . . . . . . . . F-1

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

================================================================================

eAcceleration Corp.

3,000,000 shares

common stock

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

PROSPECTUS

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

Until , 2000 (90 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.

_____________, 2000

================================================================================

<PAGE>

Part II

Information not required in prospectus

Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under the provisions of the Certificate of Incorporation and By-Laws of the
Registrant, each person who is or was a director or officer of Registrant shall
be indemnified by the Registrant as of right to the full extent permitted or
authorized by the General Corporation Law of Delaware. Under such law, to the
extent that such person is successful on the merits of defense of a suit or
proceeding brought against such person by reason of the fact that such person is
a director or officer of the Registrant, such person shall be indemnified
against expenses reasonably incurred in connection with such action, including
attorney's fees. If unsuccessful in defense of a third-party civil suit or a
criminal suit or if such a suit is settled, such a person shall be indemnified
under such law against both (1) expenses, including attorneys' fees, and (2)
judgments, fines and amounts paid in settlement if such person acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and with respect to any criminal
action, had no reasonable cause to believe such person's conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Registrant, or if such suit is settled, such a person shall be indemnified under
such law only against expenses incurred in the defense or settlement of such
suit, including attorneys' fees, if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that if such a person is adjudicated to be
liable in such suit for negligence or misconduct in the performance of such
person's duty to the Registrant, such person cannot be made whole even for
expenses unless the court determines that such person is fairly and reasonably
entitled to be indemnified for such expenses.

Prior to the initial closing of this offering, the Registrant expects that
its officers and directors will be covered by officers' and directors' liability
insurance, with policy coverage will be $2,000,000, which will include
reimbursement for costs and fees. The Registrant has entered into*--
indemnification agreements with each of its executive officers and directors.
The indemnification agreements provide for reimbursement for all direct and
indirect costs of any type or nature whatsoever, including attorneys' fees and
related disbursements, actually and reasonably incurred in connection with
either the investigation, defense or appeal of a Proceeding, as defined,
including amounts paid in settlement by or on behalf of an Indemnitee, as
defined.

Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses of the distribution, all of which are to be borne by
the Registrant, are as follows:
<TABLE>
<CAPTION>

<S> <C>
SEC Registration Fee. . . . . . . . . . . . . . . . $ 5,213
Blue Sky Fees and Expenses. . . . . . . . . . . . . 60,000*
Accounting Fees and Expenses. . . . . . . . . . . . 75,000*
Legal Fees and Expenses . . . . . . . . . . . . . . 220,000*
Advertising . . . . . . . . . . . . . . . . . . . . 100,000*
Printing and Engraving. . . . . . . . . . . . . . . 35,000*
Miscellaneous . . . . . . . . . . . . . . . . . . . 4,787*
---------
Total. . . . . . . . . . . . . . . . . . . . $ 500,000
=========
----------
<FN>
*Estimated
</FN>
</TABLE>

II-1

<PAGE>

Item 26. RECENT SALES OF UNREGISTERED SECURITIES

On July 1, 1999, we granted to six consultants options to purchase an
aggregate of 117,500 shares of common stock, each of which currently has an
exercise price of $4.78 per share. On this date, we also granted to 19 employees
options to purchase an aggregate of 450,000 shares of common stock each of which
currently has an exercise price of $5.63 per share. The issuance of these
options were private transactions exempt from registration under Section 4(2) of
and Rule 701 under the Securities Act.

On July 12, 1999, we granted to a consultant an option to purchase 34,300
shares of the common stock, which currently has an exercise price of $4.78 per
share. The issuance of this option was a private transaction exempt from
registration under Section 4(2) of and Rule 701 under the Securities Act.

On July 21, 1999, we granted to two employees options to purchase an
aggregate of 25,000 shares of common stock, each of which currently has an
exercise price of $5.63 per share. The issuance of these options were private
transactions exempt from registration under Section 4(2) of and Rule 701 under
the Securities Act.

On July 26, 1999, we granted to an employee an option to purchase 12,500
shares of common stock which currently has an exercise price of $5.63 per share.
The issuance of this option was a private transaction exempt from registration
under Section 4(2) of and Rule 701 under the Securities Act.

On August 30, 1999, we granted to five employees options to purchase an
aggregate of 62,500 shares of the common stock, each of which currently has an
exercise price of $5.63 per share. The issuance of these options were private
transactions exempt from registration under Section 4(2) of and Rule 701 under
the Securities Act.

On September 15, 1999, we granted to an employee an option to purchase
5,000 shares of the common stock which currently has an exercise price of $5.63
per share. The issuance of this option was a private transaction exempt from
registration under Section 4(2) of and Rule 701 under the Securities Act.

On September 16, 1999, we granted to a consultant and director nominee,
Edward P. Swain, Jr., an option to purchase 50,000 shares of common stock which
currently has an exercise price of $4.78 per share. The issuance of this option
was a private transaction exempt from registration under Section 4(2) of and
Rule 701 under the Securities Act.

On September 27, 1999, we granted to a consultant and director nominee,
Michael J. Clementz, an option to purchase 50,000 shares of common stock which
currently has an exercise price of $4.78 per share. The issuance of this option
was a private transaction exempt from registration under Section 4(2) of and
Rule 701 under the Securities Act.

II-2
<PAGE>

On October 5, 1999, we granted to an employee an option to purchase 12,500
shares of the common stock which currently has an exercise price of $5.63 per
share. The issuance of this option was a private transaction exempt from
registration under Section 4(2) of and Rule 701 under the Securities Act.

As of October 31, 1999, we granted to our then chief financial officer,
Shane H. Traveller, who is currently a consultant, an option that currently
entitles him to purchase 10,000 shares of the Common Stock, and currently has an
exercise price of $4.78 per share. The issuance of this option was a private
transaction exempt from registration under Section 4(2) and Rule 701 of the
Securities Act.

II-3

<PAGE>

Item 27. EXHIBITS.

Number Description

3.1 Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion and Consent of Kaufman & Moomjian, LLC regarding the legality
of the securities being registered.*
10.1 Amended and Restated 1999 Stock Incentive Compensation Plan.*
10.2 Employment Agreement between the Registrant and Clint Ballard, as
amended.*
10.3 Employment Agreement between the Registrant and Diana T. Ballard, as
amended.*
10.4 Form of Indemnification Agreement between the Registrant and its
executive officers and directors.*
10.5 Form of Subscription Agreement for this offering.
10.6 Form of Escrow Agreement between the Registrant and American Stock
Transfer & Trust Co.
10.7 Distribution Agreement between the Registrant and Pointe Control.*
10.8 Software License and Distribution Agreement between the Registrant
and Syncronys Softcorp.*
10.9 Lease Agreement, as amended, between Registrant and Finn Hill
Partnership.*
10.10 Lease Agreement between the Registrant and Olympic Place II, L.L.C.*
10.11 Consulting Agreement between the Registrant and Millennium Capital
Quest, as amended.
10.12 Severance, Settlement and General Release Agreement between the
Registrant and Shane H. Traveller, as amended and restated.
10.13 Form of Lock-in Agreement among the Registrant, Clint Ballard and
Diana T. Ballard.*
10.14 Stockholders Agreement among the Registrant, Clint Ballard and
Diana T. Ballard.*
10.15 Form of Insertion Order for Media Ring, Inc.
10.16 Form of BURST! Media LLC Advertising Contract.
10.17 Form of Insertion Order for Adauction.com, Inc.
10.18 Form of Campaign Insertion Order for Adsmart.
10.19 Form of Web Advertising Services Agreement between Flycast
Communications Corporation and the Registrant.
23.1 Consent of McKennon, Wilson & Morgan, LLP.
27.1 Financial Data Schedule.
99.1 Consent of Edward P. Swain, Jr.*
99.2 Consent of Michael J. Clementz.*
-------------
* Previously filed.

II-4

<PAGE>

Item 28. UNDERTAKINGS.

The Registrant hereby undertakes that it will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

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

(ii) Reflect in the prospectus any facts of events which, individually
or together, represent a fundamental change in the information in the
registration statement; and

(iii) Include any additional or changed material information on the plan of
distribution.

(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

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

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

II-5

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 2
to this Registration Statement to be signed on its behalf by the undersigned, in
the City of Poulsbo, State of Washington on the 4th day of April 2000.

eAcceleration Corp.
By: /s/ Clint Ballard
-----------------------------------
Clint Ballard
President and Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to this Registration Statement was signed by the following
persons in the capacities indicated on April 4, 2000.

Signatures Title

/s/ Clint Ballard President, Chief Executive Officer and Director
Clint Ballard (Principal Executive Officer)

/s/ Diana T. Ballard Chairman of the Board, Secretary,
Diana T. Ballard Treasurer and Director

/s/ E. Edward Ahrens Chief Financial Officer
E. Edward Ahrens (Principal Financial and Accounting Officer)

II-6

<PAGE>

EXHIBIT INDEX

Number Description

3.1 Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion and Consent of Kaufman & Moomjian, LLC regarding the legality
of the securities being registered.*
10.1 Amended and Restated 1999 Stock Incentive Compensation Plan.*
10.2 Employment Agreement between the Registrant and Clint Ballard, as
amended.*
10.3 Employment Agreement between the Registrant and Diana T. Ballard, as
amended.*
10.4 Form of Indemnification Agreement between the Registrant and its
executive officers and directors.*
10.5 Form of Subscription Agreement for this offering.
10.6 Form of Escrow Agreement between the Registrant and American Stock
Transfer & Trust Co.
10.7 Distribution Agreement between the Registrant and Pointe Control.*
10.8 Software License and Distribution Agreement between the Registrant
and Syncronys Softcorp.*
10.9 Lease Agreement, as amended, between Registrant and Finn Hill
Partnership.*
10.10 Lease Agreement between the Registrant and Olympic Place II, L.L.C.*
10.11 Consulting Agreement between the Registrant and Millennium Capital
Quest, as amended.
10.12 Severance, Settlement and General Release Agreement between the
Registrant and Shane H. Traveller, as amended and restated.
10.13 Form of Lock-in Agreement among the Registrant, Clint Ballard and
Diana T. Ballard.*
10.14 Stockholders Agreement among the Registrant, Clint Ballard and
Diana T. Ballard.*
10.15 Form of Insertion Order for Media Ring, Inc.
10.16 Form of BURST! Media LLC Advertising Contract.
10.17 Form of Insertion Order for Adauction.com, Inc.
10.18 Form of Campaign Insertion Order for Adsmart.
10.19 Form of Web Advertising Services Agreement between Flycast
Communications Corporation and the Registrant
23.1 Consent of McKennon, Wilson & Morgan, LLP.
27.1 Financial Data Schedule.
99.1 Consent of Edward P. Swain, Jr.*
99.2 Consent of Michael J. Clementz.*
-------------
* Previously filed.