<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 Amendment #1 to
                                   FORM 10-QSB

[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

For Period Ended                September 30, 1999
                ----------------------------------------------------

[ ]   Transition Report Pursuant to Section 13 or 15 (d) of the Securities
      Exchange Act of 1934

For the transition period from                 to
                                ------------------------------------

Commission File Number                      00-23527
                       ---------------------------------------------


                                   eSoft, Inc.
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

             DELAWARE                                    84-0938960
       ------------------------                 ------------------------
       (State of Incorporation)                 (IRS  Employer ID Number)

295 Interlocken Boulevard  #500               Broomfield,  CO            80021
---------------------------------             --------------------------------
(Address of principle executive offices)      (city)     (state)     (zip code)

                                 (303) 444-1600
                -------------------------------------------------
                Registrant's telephone number including area code


     ---------------------------------------------------------------------
     (Former name, former address and former fiscal year, if changed since
                                  last report)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                    YES  X    NO
                                       -----    -----

Transitional Small Business Disclosure format (check one):

                                    YES       NO  X
                                       -----    -----

The number of shares outstanding of the Registrant's $0.01 par value common
stock on October 31, 1999 was 10,963,942.

<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

                         ESOFT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,       SEPTEMBER 30,
                                                                         1998                1999
                                                                     -------------       -------------
                                                                                         (UNAUDITED)
<S>                                                                 <C>                  <C>
                                   ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                      $   732,384           $ 1,965,284
     Investment securities                                            2,174,730                     -
     Accounts receivable:
        Trade, net of allowance for doubtful accounts                 2,830,981             3,001,020
        Other                                                              -                  306,000
     Inventories                                                      1,617,889               834,210
     Prepaid expenses and other                                         259,696               160,160
                                                                    -----------           -----------
           Total current assets                                       7,615,680             6,266,674
                                                                    -----------           -----------

PROPERTY AND EQUIPMENT
     Computer equipment                                                 546,720               652,350
     Furniture and equipment                                            328,333               327,330
     Manufacturing tools and equipment                                   26,423                26,423
     Leasehold Improvements                                             175,915               176,314
                                                                    -----------           -----------
                                                                      1,077,391             1,182,417
     Less accumulated depreciation                                      483,495               575,410
                                                                    -----------           -----------
         Net property and equipment                                     593,896               607,007
                                                                    -----------           -----------

OTHER ASSETS
     Capitalized software costs, net of accumulated
      amortization of $314,453 and $439,932                             867,072               744,243
     Restricted cash and cash equivalents                                85,000                     -
     Deferred financing costs                                               -                 780,891
                                                                            -
     Other assets                                                         7,039                32,984
                                                                    -----------           -----------
           Total other assets                                           959,111             1,558,118
                                                                    -----------           -----------

TOTAL ASSETS                                                        $ 9,168,687           $ 8,431,799
                                                                    ===========           ===========

</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       2
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,       SEPTEMBER 30,
                                                                         1998                1999
                                                                     -------------       -------------
                                                                                         (UNAUDITED)
<S>                                                                 <C>                  <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

     Accounts payable                                               $  1,497,276          $  1,891,542
     Margin loan on investments                                           39,544                     -
     Marketing loan agreement                                            356,060               459,855
     Current portion of long-term debt                                   136,865                28,182
     Deferred revenue                                                    259,307               282,603
     Customer deposits                                                   248,287                     -
     Accrued expenses:
          Payroll and payroll taxes                                      258,184               149,740
          Legal fees                                                      53,400               200,000
          Other                                                          310,666               546,915
                                                                    ------------          ------------

         Total current liabilities                                     3,159,589             3,558,837

LONG TERM LIABILITIES
     Long-term debt, less current portion                                      -             2,949,455
                                                                    ------------          ------------

         Total liabilities                                             3,159,589             6,508,292
                                                                    ------------          ------------

STOCKHOLDERS' EQUITY
     Common stock, par value $.01 per share;                              96,947               109,580
       authorized 50,000,000 shares; 9,694,673
       and 10,957,985 issued and outstanding
       December 31, 1998 and September 30, 1999,
       respectively
       Additional paid-in capital                                     10,215,840            14,234,281
       Notes receivable                                                        -              (152,420)
       Accumulated deficit                                            (4,303,689)          (12,267,934)
                                                                    ------------          ------------
         Total stockholders' equity                                    6,009,098             1,923,507
                                                                    ------------          ------------

TOTAL LIABILITIES AND
    STOCKHOLDERS' EQUITY                                            $  9,168,687          $  8,431,799
                                                                    ============          ============

</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       3
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       FOR THE THREE MONTHS ENDED              FOR THE NINE MONTHS ENDED
                                                              SEPTEMBER 30,                         SEPTEMBER 30,
                                                         1998              1999                 1998               1999
                                                      ----------        -----------          -----------        -----------
<S>                                                   <C>               <C>                  <C>                <C>
REVENUE                                               $2,932,041        $ 2,233,872          $ 7,371,531        $ 6,040,710

COST OF GOODS SOLD                                     1,140,208            859,235            2,949,809          2,761,928
                                                      ----------        -----------          -----------        -----------

GROSS PROFIT                                           1,791,833          1,374,637            4,421,722          3,278,782
                                                      ----------        -----------          -----------        -----------

EXPENSES
  Sales and marketing expense                          1,303,634          1,033,505            2,929,561          4,836,333
  General & administrative expense                     1,069,840          1,515,914            2,581,963          5,006,055
  Engineering expense                                    286,831            332,074              694,301          1,047,163
  Software amortization costs                             54,695             41,826              156,788            125,479
  Research and development                               179,740            137,885              466,591            493,594
                                                      ----------        -----------          -----------        -----------
                                                       2,894,740          3,061,204            6,829,204         11,508,624
                                                      ----------        -----------          -----------        -----------

OTHER INCOME (EXPENSE)
  Other income (expense)                                      64             95,063               (7,032)            10,898
  Realized gain on sale of investments                   194,185               -                 194,185            109,895
  Unrealized gain on sale of investments                  44,692               -                  80,873                -
  Interest income                                         95,062              6,518              114,958             43,161
  Interest expense                                        (6,687)          (223,306)             (18,449)          (283,297)
                                                      ----------        -----------          -----------        -----------
                                                         327,316           (121,725)             364,535           (119,343)
                                                      ----------        -----------          -----------        -----------

NET LOSS                                              $ (775,591)       $(1,808,292)         $(2,042,947)       $(8,349,185)
                                                      ==========        ===========          ===========        ===========

BASIC AND DILUTED LOSS
      PER COMMON SHARE                                $    (0.08)       $     (0.17)         $     (0.26)       $     (0.81)
                                                      ==========        ===========          ===========        ===========

BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING                                            9,590,216         10,751,198            7,972,581         10,302,233
                                                      ==========        ===========          ===========        ===========

</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       4

<PAGE>

                         ESOFT, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                    COMMON STOCK         ADDITIONAL                                    TOTAL
                                               ----------------------     PAID-IN        NOTES       ACCUMULATED    STOCKHOLDERS'
                                                  SHARES      AMOUNT      CAPITAL      RECEIVABLE      DEFICIT         EQUITY
                                               -----------   --------   ------------   ----------   -------------   -------------
<S>                                            <C>           <C>        <C>            <C>          <C>             <C>
BALANCE, January 1, 1999                        9,694,673    $ 96,947   $10,215,840    $        -    ($4,303,689)    $6,009,098

Issuance of options to consultant                       -           -        45,383             -              -         45,383

Issuance of compensatory options                        -           -        40,420             -              -         40,420

Exercise of warrants and options                  879,853       8,798       853,121             -              -        861,919

Issuance of stock pursuant to private
  placement, May 1999                             156,250       1,563       498,437             -              -        500,000

Issuance of common stock for payment of
  accounts payable                                  5,500          55        21,945             -              -         22,000

Issuance of warrants pursuant to private
  placement of debt, June 1999                          -           -     1,478,325             -              -      1,478,325

To reclassify the undistributed losses
  of Technologic, Inc. (an S-Corporation
  through the date of merger) to
  additional paid-in capital                             -           -     (384,940)            -        384,940              -

Issuance of common stock to brokers                75,000         750       289,875             -              -        290,625

Issuance of warrants pursuant to private
  placement of debt,  September 1999                    -           -       968,308             -              -        968,308

Issuance of notes receivable for exercise of
  options and warrants, net of collections        146,709       1,467       207,567      (152,420)             -         56,614

Net loss for the nine months ended
  September 30, 1999                                    -           -             -             -     (8,349,185)    (8,349,185)
                                               ----------    --------   -----------     ----------  -------------    ----------

BALANCE, September 30, 1999                    10,957,985    $109,580   $14,234,281     ($152,420)  ($12,267,934)    $1,923,507
                                               ==========    ========   ===========     ==========  =============    ==========
</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       5

<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      FOR THE NINE MONTHS
                                                                      ENDED SEPTEMBER 30,
                                                                     1998               1999
                                                                -------------       -------------
<S>                                                             <C>                 <C>
OPERATING ACTIVITIES
  Net loss from operations                                      $  (2,042,947)      $ (8,349,185)

  Adjustments to reconcile net loss to net cash used in
    operating activities

      Depreciation & software amortization                            268,000            217,394
      Realized gain from sale of trading securities                  (194,185)          (109,445)

      Proceeds from sale of trading securities                        194,185            292,634
      Unrealized (gain) from trading securities                       (80,873)                 -
      Gain on sale of fixed assets                                       (611)              (450)
      Provision for losses on accounts receivable                     174,598            151,639
      Interest income on subscription receivable                            -             (1,009)
      Amortization of discount on investments                               -             (8,459)
      Amortization of debt discounts and financing costs                    -            204,150
      Issuance of compensatory options                                 46,400             40,420
      Issuance of consultant options                                        -             45,383
      Issuance of common stock to brokers                                   -            290,625
      Amortization of warrant valuation granted for
        prepaid consulting                                             51,466            101,767

      Changes in operating assets and liabilites:

        Accounts receivable - trade                                (2,776,327)          (627,678)
        Inventories                                                  (317,405)           783,679
        Other assets                                                    8,932            (25,945)
        Prepaid expenses                                             (408,724)            (2,231)
        Accounts payable                                              903,003            416,266
        Accrued expenses                                              296,003             26,120
        Deferred revenue                                               99,373             23,296
                                                                -------------       ------------
Net cash used in operating activities                              (3,779,112)        (6,531,029)
                                                                -------------       ------------
INVESTING ACTIVITIES
      Proceeds from investments                                             -          2,000,000
      Purchase of equipment                                          (452,337)          (141,873)
      Proceeds from sale of assets                                      4,217             37,296
      Restricted cash                                                       -             85,000
      Capitalized software costs                                      (60,000)            (2,650)
                                                                -------------       ------------
Net cash (used in) provided by investing activities                  (508,120)         1,977,773
                                                                -------------       ------------

</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       6

<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<S>                                                                       <C>                 <C>
CASH FLOW FROM FINANCING ACTIVITIES
      Due to related party                                                      100,000                   -
      Payment on related party borrowings                                       (20,000)                  -
      Proceeds from subscription receivable                                     200,000              56,487
      Payments on short term debt                                              (121,955)           (159,151)
      Proceeds from short term debt                                             365,984             114,719
      Proceeds from issuance of convertible debt                                      -           4,950,000
      Payment of dividends                                                     (249,998)                  -
      Debt offering costs paid                                                        -            (538,953)
      Proceeds from exercise of options and warrants and sale
         of stock                                                             7,779,797           1,363,054
                                                                          -------------        ------------
  Net cash provided by financing activities                                   8,053,828           5,786,156
                                                                          -------------        ------------

INCREASE IN CASH                                                              3,766,596           1,232,900

CASH: BEGINNING OF PERIOD                                                     1,228,143             732,384
                                                                          -------------        ------------
CASH: END OF PERIOD                                                       $   4,994,739       $   1,965,284
                                                                          =============       =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
   Common Stock issued for subscriptions receivable                                   -       $     209,034
   Warrants issued in connection with debt offering                                   -       $   2,466,633
   Issuance of notes receivable for exercise of options and warrants                  -       $      62,049
   Common stock issued for payment of accounts payable                                -       $      22,000

</TABLE>

       The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       7

<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

     1.   Basis of Presentation

         The consolidated interim financial statements include the accounts of
         eSoft, Inc. and its two wholly-owned subsidiaries, Apexx Technology,
         Inc. ("Apexx") and Technologic, Inc. ("Technologic"), (collectively
         eSoft or the "Company") and have been prepared by the Company, without
         audit, pursuant to the rules and regulations of the Securities and
         Exchange Commission. Certain information and footnote disclosures
         normally included in financial statements prepared in accordance with
         generally accepted accounting principles have been condensed or omitted
         pursuant to such rules and regulations, although the Company believes
         that the disclosures are adequate to make the information presented not
         misleading.

         These statements reflect all adjustments, consisting of normal
         recurring adjustments, which in the opinion of management, are
         necessary for fair presentation of the information contained therein.
         It is suggested that these consolidated financial statements be read in
         conjunction with the financial statements and notes thereto included in
         the Company's Annual Report on Form 10-KSB for the year ended December
         31, 1998. The Company follows the same accounting policies in
         preparation of interim reports.

         The consolidated financial statements of the Company for the three and
         nine months ended September 30, 1999 and 1998 have been restated to
         give retroactive effect to the mergers with Apexx on May 25, 1999 and
         Technologic on September 10, 1999, which have been accounted for using
         the pooling of interests method and, as a result, the financial
         position, results of operations and cash flows are presented as if the
         combining companies had been consolidated for all periods presented and
         the consolidated statement of stockholders' equity reflect the accounts
         of eSoft as if the additional common stock issued in connection with
         the mergers had been issued for all periods presented. It is further
         suggested that these consolidated financial statements be read in
         conjunction with the supplemental consolidated financial statements and
         notes thereto included in the Company's Current Report on Form 8-K
         and 8-K/A filed with the Securities & Exchange Commission on
         August 9, 1999 and with an amendment to the Company's Current Report
         on Form 8-K filed with the Securities & Exchange Commission on
         September 27, 1999, which will be filed with the Commission within
         75 days after September 10, 1999.

         Results of operations for the interim periods are not necessarily
         indicative of annual results.

     2.  Business Acquisitions

         Effective May 25, 1999, the Company completed the merger with Apexx
         located in Boise, Idaho which provided for the exchange of all of the
         outstanding stock of Apexx for 1,591,365 shares of eSoft common stock
         and for the conversion of all Apexx stock options into

                                       8
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         eSoft stock options to acquire 1,356,003 shares of eSoft common stock.
         The Merger has been accounted for as a pooling of interests.

         Effective September 10, 1999, the Company completed the merger with
         Technologic located in Norcross, Georgia which provided for the
         exchange of all of the outstanding stock of Technologic for 1,244,436
         shares of eSoft common stock and for the conversion of all Technologic
         stock options into eSoft stock options to acquire 180,565 shares of
         eSoft common stock. This Merger also issued 75,000 shares of the
         Company's common stock to the investment bankers of Technologic in
         connection with the Merger. The Merger has been accounted for as a
         pooling of interests. Merger costs of about $725,000 in relation to
         this merger were expensed during the third quarter, which include
         bankers fees, audit fees, legal fees, and printing fees.

<TABLE>
<CAPTION>
         Pooling Company            Nature of Operations               Merger Date
         ---------------            --------------------               -----------
<S>                                 <C>                                <C>
         Apexx Technology, Inc.     Internet connectivity solutions    May 25, 1999
         Technologic, Inc.          Internet connectivity solutions    September 10, 1999
</TABLE>

         Revenue, net loss and net loss per common share of eSoft, Apexx and
         Technologic as consolidated for the periods presented are as follows:

<TABLE>
<CAPTION>
            ---------------------------------------------- ---------------- -----------------
            REVENUE:
            Three Months Ended September 30,                    1998              1999
            ---------------------------------------------- ---------------- -----------------
                                                              restated
            ---------------------------------------------- ---------------- -----------------
<S>                                                        <C>              <C>
            ---------------------------------------------- ---------------- -----------------
            eSoft                                               $1,480,199       $ 1,086,657
            ---------------------------------------------- ---------------- -----------------
            Apexx                                                  918,706           442,564
            ---------------------------------------------- ---------------- -----------------
            Technologic                                            533,136           710,147
            ---------------------------------------------- ---------------- -----------------
            Eliminations                                            -                (5,496)
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            eSoft, consolidated                                 $2,932,041        $2,233,872
            ---------------------------------------------- ---------------- -----------------

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

            ---------------------------------------------- ---------------- -----------------
            Nine Months Ended September 30,                     1998              1999
            ---------------------------------------------- ---------------- -----------------
                                                              Restated
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            eSoft                                               $3,335,139        $2,116,145
            ---------------------------------------------- ---------------- -----------------
            Apexx                                                2,624,441         2,598,003
            ---------------------------------------------- ---------------- -----------------
            Technologic                                          1,411,951         1,827,765
            ---------------------------------------------- ---------------- -----------------
            Eliminations                                            -              (501,203)
            ---------------------------------------------- ---------------- -----------------
</TABLE>

                                        9
<PAGE>

<TABLE>
<S>                                                        <C>              <C>
            ---------------------------------------------- ---------------- -----------------
            eSoft, consolidated                                 $7,371,531        $6,040,710
            ---------------------------------------------- ---------------- -----------------

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

            ---------------------------------------------- ---------------- -----------------
            NET LOSS:
            ---------------------------------------------- ---------------- -----------------
            Three Months Ended September 30,                    1998              1999
            ---------------------------------------------- ---------------- -----------------
                                                              restated
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            eSoft                                               $(651,528)      $(2,011,228)
             ---------------------------------------------- ---------------- -----------------
            Apexx                                                (235,988)           310,607
             ---------------------------------------------- ---------------- -----------------
            Technologic                                            111,925         (104,649)
             ---------------------------------------------- ---------------- -----------------
            Eliminations                                            -                (3,022)
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            eSoft, consolidated                                 $(775,591)      $(1,808,292)
            ---------------------------------------------- ---------------- -----------------

             ---------------------------------------------- ---------------- -----------------
            Nine Months Ended September 30,                     1998              1999
            ---------------------------------------------- ---------------- -----------------
                                                              restated
            ---------------------------------------------- ---------------- -----------------

             ---------------------------------------------- ---------------- -----------------
            eSoft                                             $(1,479,448)      $(7,635,798)
            ---------------------------------------------- ---------------- -----------------
            Apexx                                                (485,051)           168,876
            ---------------------------------------------- ---------------- -----------------
            Technologic                                           (78,448)         (601,667)
             ---------------------------------------------- ---------------- -----------------
            Eliminations                                            -              (280,596)
             ---------------------------------------------- ---------------- -----------------

             ---------------------------------------------- ---------------- -----------------
            eSoft, consolidated                               $(2,042,947)      $(8,349,185)
             ---------------------------------------------- ---------------- -----------------

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

             ---------------------------------------------- ---------------- -----------------
            NET LOSS PER COMMON SHARE:
             ---------------------------------------------- ---------------- -----------------
            Three Months Ended September 30,                    1998              1999
            ---------------------------------------------- ---------------- -----------------
                                                              restated
             ---------------------------------------------- ---------------- -----------------

             ---------------------------------------------- ---------------- -----------------
            As previously reported:
             ---------------------------------------------- ---------------- -----------------
               Basic and diluted                                  $ (0.10)               N/A
             ---------------------------------------------- ---------------- -----------------

             ---------------------------------------------- ---------------- -----------------
            Consolidated:
            ---------------------------------------------- ---------------- -----------------
               Basic and diluted                                   $(0.08)          $ (0.17)
            ---------------------------------------------- ---------------- -----------------

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

            ---------------------------------------------- ---------------- -----------------
            Nine  Months Ended September  30,                   1998              1999
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            As previously reported:
            ---------------------------------------------- ---------------- -----------------
               Basic and diluted                                  $ (0.29)               N/A
            ---------------------------------------------- ---------------- -----------------

            ---------------------------------------------- ---------------- -----------------
            Consolidated:
            ---------------------------------------------- ---------------- -----------------
               Basic and diluted                                  $ (0.26)          $ (0.81)
            ---------------------------------------------- ---------------- -----------------
</TABLE>

                                       10
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

3.       Trade Receivables

         The following information summarizes accounts receivable:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,           SEPTEMBER 30,
                                                         1998                    1999
                                                      -----------             -----------
<S>                                                   <C>                    <C>
               Accounts Receivable                    $ 3,144,222             $ 3,465,900
               Allowance for doubtful accounts           (313,241)               (464,880)
                                                      -----------             -----------
                                                      $ 2,830,981             $ 3,001,020
                                                      ===========             ===========
</TABLE>

         The Company did not have any customers which accounted for 10% or
         more of the sales through the nine months ending September 30, 1999.
         One customer represented 48% of total accounts receivable at
         September 30, 1999. The Company has seven distributors which accounted
         for 16% of the Company's sales through the nine months ending
         September 30, 1999.

         The Company with regard to its foreign sales does not take the risk of
         foreign currency fluctuation. All sales are designated as payment in US
         denominated funds at the time of sale.

4.       Subscription Receivable

         The Company issued two promissory notes receivable in the amounts of
         $56,487 and $75,411 on March 10, 1999 and March 24, 1999 resulting from
         the exercise of 49,550 and 66,150 warrants with an exercise price of
         $1.15, by Transition Partners Limited and Copeland Consulting Group,
         Inc., respectively. At the time of exercise, $1,157 was paid in cash.
         The notes are due in March 2000 without interest and at 12% penalty
         interest thereafter and are secured by the shares of common stock being
         issued. At September 30, 1999, $56,487 has been paid on these notes
         receivable and $1,009 of interest receivable has been recognized. The
         Company also issued promissory notes receivable in the amount of
         $76,000 to employees during June 1999. The notes are due in June 2001
         with annual interest at the rate of 5.75% due upon maturity and are
         secured by the shares of common stock being issued. The notes become
         due and payable upon termination of employment.

                                       11
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


5.        Long-term debt

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,          SEPTEMBER 30,
                                                                                    1998                   1999
                                                                                ------------          -------------
<S>                                                                             <C>                   <C>
          Note payable to bank, payable in monthly installments of
          $3,171, including interest at prime plus 1.5% (9.25% at
          December 31, 1998), maturing March 15, 2002, equipment,
          inventory, and accounts receivable are provided as collateral,
          due on demand as a result of the Apexx merger.                           $  104,309            $ 15,160

          Note payable to bank, payable in monthly installments of
          $2,170, including interest at prime plus 2% (9.75% at December
          31, 1998), maturing March 10, 2000, collateralized by
          guarantees from certain shareholders, due on demand as a
          result of the Technologic merger.                                            32,556              13,022
</TABLE>



















                                       12
<PAGE>

<TABLE>
<S>                                                                             <C>                   <C>
          Term note payable to a small business investment company. Interest is
          at 5% per annum, payable quarterly. Principal is due June 2002. The
          note, in the principal amount of $5,000,000, has been discounted by
          $2,146,270. The discount, which is being amortized through June 2002,
          represents the value assigned to 1,277,955 stock purchase warrants
          which were granted to the lender and a 2.5% discount on the $2,000,000
          note payable. The value of the discount has been calculated using the
          Black-Scholes option pricing model. The stock purchase warrants are
          exercisable through June 2002 to purchase an equal number of common
          shares at a per share price of $4.4994. The unamortized discount at
          September 30, 1999 was $2,050,545. The note is convertible at any time
          at the investor's option into a fixed number of shares of eSoft common
          stock at $3.9125 per share, subject to certain anti-dilution
          provisions and adjustments. The Company has the ability, under certain
          circumstances, to obligate the investor to convert the debentures into
          common stock and to exercise the warrants. The investor has the option
          to purchase an additional $3 million of debentures, together with
          associated warrants, in the final tranche.  The final tranche of $3
          million of debentures would be convertible at the lower of (i) the
          Company's then current market price or (ii) $5.50, but in no event
          less than $3.9125 per share.  This tranche of debentures would be
          accompanied by warrants with an exercise price of 115% of the
          debenture conversion price.  The debentures are manditorily convertible
          if the average per share market value over thirty consecutive trading
          days exceeds 200% of the exercise price of the warrants.                            -          2,949,455
                                                                                       ----------      -----------

          Total long term debt                                                            136,865        2,977,637

                                                                                          136,865           28,182
          Less current portion                                                         ----------      -----------

                                                                                       $      -        $ 2,949,455
          Total long term debt                                                         ==========      ===========
</TABLE>

                                       13
<PAGE>

                          ESOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


6.       Net Loss per Share

         Basic loss per share is calculated by dividing the net loss by the
         weighted average common shares outstanding during the period. For
         purposes of computing diluted earnings per share, dilutive securities
         are not included when the effect is anti-dilutive.

         Options and warrants to purchase 3,132,986 and 4,933,140 shares of
         common stock and notes convertible into 0 and 1,277,955 shares of
         common stock were not included in the computation of diluted earnings
         per share because their effect was anti-dilutive for the period ending
         September 30, 1998 and 1999.


















                                       14
<PAGE>

                           FORWARD-LOOKING STATEMENTS

              Statements made in this Form 10-QSB that are not historical or
         current facts are "forward-looking statements" made pursuant to the
         safe harbor provisions of Section 27A of the Securities Act of 1933
         ("The ACT") and Section 21E of the Securities Exchange Act of 1934.
         These statements often can be identified by the use of terms such as
         "may," "will," "expect," "believes," "anticipate," "estimate,"
         "approximate" or "continue," or the negative thereof. The Company
         intends that such forward-looking statements be subject to the safe
         harbors for such statements. The Company wishes to caution readers not
         to place undue reliance on any such forward-looking statements, which
         speak only as of the date made. Any forward-looking statements
         represent management's best judgment as to what may occur in the
         future. However, forward-looking statements are subject to risks,
         uncertainties and important factors beyond the control of the Company
         that could cause actual results and events to differ materially from
         historical results of operations and events and those presently
         anticipated or projected. These factors include adverse economic
         conditions, entry of new and stronger competitors, inadequate capital,
         unexpected costs, failure to gain product approval in foreign countries
         and failure to capitalize upon access to new markets. Additional risks
         and uncertainties which may affect forward-looking statements about the
         Company's business and prospects include the possibility that a
         competitor will develop a more comprehensive or less expensive
         solution, delays in market awareness of eSoft and its products,
         possible delays in eSoft's marketing strategy, which could have an
         immediate and material adverse effect by placing eSoft behind its
         competitors. The Company disclaims any obligation subsequently to
         revise any forward-looking statements to reflect events or
         circumstances after the date of such statement or to reflect the
         occurrence of anticipated or unanticipated events.



                                       15
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
     the Registrant has duly caused this report to be signed on its behalf by
     the undersigned thereunto duly authorized.

                                                             eSoft, Inc.
                                                             (Registrant)



     Date:  November 15, 1999                     /s/ Jeffrey Finn
            -----------------                    -----------------
                                                 Jeffrey Finn
                                                 President,  Chief  Operating
                                                 Officer


Date:    Date:  November 15, 1999                 /s/ Amy Beth Hansman
                -----------------                ---------------------
                                                 Amy Beth Hansman
                                                 Chief Accounting Officer














                                       16