AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

DPEC, INC.

(Exact name of Registrant as specified in its charter)

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

OHIO 7371 31-1015427
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)

851 WEST THIRD AVENUE
COLUMBUS, OHIO 43212
(614) 781-7300

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

CAROL A. CLARK
CHAIRPERSON OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DPEC, INC.
851 WEST THIRD AVENUE
COLUMBUS, OHIO 43212
(614) 781-7300

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

COPIES TO:

SUSAN E. BROWN, ESQ. JEREMY W. DICKENS, ESQ.
Vorys, Sater, Seymour and Pease LLP Weil, Gotshal & Manges LLP
52 East Gay Street 767 Fifth Avenue
Columbus, Ohio 43215 New York, New York 10153-0119
(614) 464-6400 (212) 310-8000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE 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 check the following box. / /

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 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. / /

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

CALCULATION OF REGISTRATION FEE

AMOUNT OF
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE

Common Shares.................................................... $ 57,500,000 $ 15,985

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
--------------------------

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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999

THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

[LOGO]

COMMON SHARES
----------------------------------------------------------------

This is our initial public offering of common shares. We are offering
common shares. No public market currently exists for our shares.

We propose to list the shares on the Nasdaq National Market under the symbol
"DPEC." Anticipated Price Range: $ to $ per share.

INVESTING IN OUR SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 6.

PER SHARE TOTAL
-------------------------- --------------------------

Public Offering Price.......................................... $ $
Underwriting Discount.......................................... $ $
Proceeds to DPEC............................................... $ $

We have granted the underwriters the right to purchase up to additional
common shares on the same terms and conditions as set forth above within 30 days
solely to cover any over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Lehman Brothers expects to deliver the shares on or about , 1999.

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

LEHMAN BROTHERS

WARBURG DILLON READ LLC

J.C. BRADFORD & CO.

, 1999.

[GRAPHIC DEPICTING TECHNOLOGY]

TABLE OF CONTENTS

PAGE
-----

Prospectus Summary............................. 1
Risk Factors................................... 6
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Financial Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 23

PAGE
-----

Management..................................... 33
Certain Transactions........................... 41
Principal Shareholders......................... 43
Description of Capital Stock................... 44
United States Federal Income Tax Consequences
to Non-U.S. Holders.......................... 48
Shares Eligible for Future Sale................ 50
Underwriting................................... 52
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Index to Financial Statements.................. F-1

ABOUT THIS PROSPECTUS

You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, common shares only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of our common shares.

UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:

- A -FOR- SPLIT OF OUR COMMON SHARES ON OR BEFORE COMPLETION OF THIS
OFFERING;

- THE AUTOMATIC CONVERSION OF OUR OUTSTANDING PREFERRED SHARES INTO COMMON
SHARES UPON CLOSING OF THIS OFFERING; AND

- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.

Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "seeks," "should" or "will," or the negative
of these terms or other comparable terminology, are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including those factors discussed under "Risk
Factors."

DPEC was incorporated in Ohio on July 21, 1981. Our principal executive
offices are located at 851 West Third Avenue, Columbus, Ohio 43212. Our
telephone number is (614) 781-7300 and our Internet address is WWW.DPEC.COM.
Information contained on our Website is not intended to be incorporated by
reference in this prospectus and you should not consider that information a part
of this prospectus.

The name "DPEC" is a registered trademark of DPEC, Inc. Each trademark,
trade name or service mark of any other company appearing in this prospectus
belongs to its holder.

Until , 1999, all dealers selling common shares, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.

OUR BUSINESS

DPEC is a leading provider of Web-based training courses and services
designed to meet the needs of businesses, government agencies, non-profit
organizations and individual consumers worldwide. We offer a real-time,
interactive learning experience presented through standard Web browsers
operating over a variety of network platforms, including the Internet, intranets
and local-area and wide-area networks. Our courses enable our users to learn in
a self-paced, easy-to-use and cost-efficient manner at any time, anywhere.

We have an extensive online library of courses in four categories:

- training for information technology professionals covering a broad range
of programming languages, databases, operating systems and information
technology certifications;

- training for users of popular desktop applications, such as Internet
browsers, email, graphics, presentation, spreadsheet and word processing
programs;

- professional development and management training; and

- practical skills training.

All courses incorporate advanced technology to enhance users' learning
experiences. The skills assessment feature of our courses enables users to
create customized learning paths through the course content by testing their
comprehension before, during and after instruction. Our powerful index features
allow users to reference any topic in any licensed course or group of licensed
courses quickly and easily.

We also provide services that complement our courses. We offer on-site
product support, courseware administration, content customization tools and
performance reporting for large organizations. We recently began offering our
large organization customers access to course topic experts who answer questions
through our instructor online service.

We distribute our courses through multiple sales channels, enabling us to
effectively reach the large user market we believe exists for our Web-based
training products:

DIRECT SALES TO LARGE ORGANIZATIONS. We license our courses and provide
services directly to large organizations through our internal sales force.
We currently have over 600 large organization customers, including A.G.
Edwards & Sons, Bank of America, Computer Sciences Corporation, The McGraw
Hill Companies, MCI Worldcom and Southwest Airlines.

INTERNET SERVICE PROVIDER PARTNERS--Our Internet Service Provider partners
offer our courses to their Internet access subscribers and other visitors
to their Websites. We currently have agreements with more than 1,000
Internet Service Provider partners; over 95% of these agreements are for
exclusive three-year terms. Based on information provided by our Internet
Service Provider partners, we believe our courses are currently accessible,
or soon will be accessible upon completion of installation, to over 6.8
million subscribers, including over 700,000 businesses. Our Internet
Service Provider partners include MindSpring Enterprises, Freeserve plc and
RCN.

AFFINITY CHANNEL PARTNERS--We currently have over 50 affinity channel
partners, including technology companies that bundle our courses with their
products and non-business organizations, such as colleges, universities and
trade associations, that make our courses available to their students,
staff and members. Our affinity channel partners include Data General
Corporation, Hand Technologies, Ohio University and BATNET, a consortium
reselling our products to over 30 trade associations.

OUR MARKET OPPORTUNITY

Industry analysts estimate that Web-based training is the fastest growing
market within the U.S. training industry. International Data Corporation
estimates that the total U.S. market for Web-based training will increase from
approximately $550 million in 1998 to approximately $7.1 billion in 2002, a 90%
compound annual growth rate. We believe this anticipated growth will be due, in
large part, to the escalating need for trained information technology
professionals, rapid adoption of the Internet and efficiencies created by the
Web-based training model. Of the technology-based training alternatives,
including CD-ROM, video and satellite, we believe that Web-based learning is the
most attractive training alternative for organizations and individual consumers
due to its flexibility, convenience, cost-effectiveness and real-time
interactivity.

Historically, training products and services have been marketed primarily to
large organizations, given the associated cost-efficiencies. With the rapid
adoption of the Internet and an increasing willingness by individual consumers
to purchase goods and services via the Internet, we believe training products
can now be marketed to small-to-medium organizations and individual consumers in
a cost-efficient manner. Small-to-medium organizations require proficiency in
new technologies to remain competitive. Individual consumers, facing the
technical challenges of their desktop applications, require efficient and
affordable training that they can access over the Internet at any time and
anywhere in the world. Additionally, we believe individual consumers have a
significant interest in obtaining practical and personal skills training.

DPEC COMPETITIVE STRENGTHS

As a leading innovator in Web-based training, we believe we possess the
following key competitive strengths:

BREADTH, DEPTH AND COST-EFFECTIVENESS OF COURSE OFFERINGS. We offer users
more than 300 courses in a broad range of topics, In most subjects, we offer
a number of courses from introductory to advanced, allowing users to select
courses appropriate for their skill levels. For a fixed fee, customers can
subscribe to our entire library of online courses, a smaller group of
related courses or individual courses.

MULTIPLE DISTRIBUTION CHANNELS. Historically, we have derived the vast
majority of our revenues from the direct sale of our courses to large
organizations. At the end of 1997, we launched our indirect distribution
channels to take advantage of the significant opportunity that we believe
exists in the small-to-medium organization and individual consumer markets
worldwide.

SCALEABLE, PROPRIETARY COURSE DEVELOPMENT PROCESS. We use a scaleable,
proprietary course development process that enables us to produce new
courses rapidly while maintaining high-quality course design and content.
Our development process converts third-party content into interactive,
Internet-ready courses.

UNIQUE THIRD-PARTY CONTENT SOURCING. We obtain content for our courses from
third-parties. By using third-party content, we can provide a wide variety
of topics in a timely and cost-effective manner without the expense of
maintaining a large research staff.

EFFICIENT AND FLEXIBLE TECHNOLOGY. We believe we are one of the few
Web-based training providers to present all of our courses through standard
Web browsers without the need to download content. This technology preserves
our clients' valuable hard drive space, while providing users with direct,
immediate access to our courses. Our modular HTML course design optimizes
today's available bandwidth and should enable us to add more features
rapidly as bandwidth increases in the future.

ON-GOING REFERENCE RESOURCE. Our courses provide an ongoing, powerful and
easy-to-use reference resource. Our powerful master index feature allows
users to reference any topic in any licensed course or any group of licensed
courses quickly and easily, thus expanding the usefulness of our courses.

OUR FOCUSED GROWTH STRATEGY

Our goal is to be the leading global provider of high-quality Web-based
training courseware and services. The principal elements of our growth strategy
are to:

- continue to aggressively target large organizations;

- expand rapidly into the small-to-medium organization and individual
consumer markets in the U.S. and abroad;

- broaden course offerings in new and existing topics and categories and
accelerate course development;

- enhance further our technological infrastructure;

- increase brand awareness in our target markets; and

- seek possible strategic acquisitions of or investments in complementary
businesses, products, services or technologies.

SPONSORSHIP

River Cities Capital Fund II Limited Partnership owns 15.81% of our common
shares before this offering. It has made several investments in Internet-related
companies, including High Speed Access Corp. and private companies involved in
e-commerce and Web-based content. Affiliates of Chrysalis Ventures own 3.56% of
our common shares before this offering. Principals of Chrysalis Ventures
co-founded and invested in High Speed Access Corp., Regal Cinemas, Inc. and
Regent Communications, Inc., which was subsequently sold to Jacor
Communications. We intend to capitalize on the experience of these investors as
we accelerate our growth with the proceeds of this offering.

THE OFFERING

Common shares offered by DPEC................ shares
Common shares to be outstanding after this shares
offering...................................
To expand our business and pay our debt. See
"Use of Proceeds."
Use of proceeds..............................
Proposed Nasdaq National Market symbol....... "DPEC"

The common shares to be outstanding after this offering does not include the
issuance of shares on exercise of outstanding stock options. See
"Management--1999 Incentive Stock Plan."

SUMMARY FINANCIAL DATA

The following table summarizes the financial data of our business. The
balance sheet data as of June 30, 1999 and the financial results for the six
months ended June 30, 1998 and 1999 are unaudited. From August 1, 1996 through
September 15, 1998, we elected S-Corporation status and, accordingly, federal
income taxes were the responsibility of the individual shareholders. The pro
forma information for each of the three years in the period ended December 31,
1998 and the six months ended June 30, 1998 have been computed as if we had been
subject to corporate income taxes for all periods presented based on the tax
laws in effect during the period.

The pro forma as adjusted basic and diluted net income (loss) per share for
the years ended December 31, 1998 and the six months ended June 30, 1998 and
1999 give effect to the assumed conversion of our convertible preferred shares
into common shares upon the closing of this offering and the repayment of debt
at the beginning of the period from a portion of the offering proceeds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Courseware sales....................... $ 4,405 $ 6,150 $ 11,000 $ 4,851 $ 6,398
Other revenue.......................... 2,440 1,731 793 558 45
--------- --------- --------- --------- ---------
Total revenue.......................... 6,845 7,881 11,793 5,409 6,443
Gross profit........................... 6,519 7,539 11,070 5,101 5,980
Net income (loss)...................... $ (355) $ 180 $ 1,424 $ 816 $ (76)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share.....
Basic................................ $ (9.87) $ 5.67 $ 42.74 $ 24.81 $ (2.26)
Diluted.............................. $ (9.87) $ 5.67 $ 40.67 $ 24.81 $ (2.26)
Pro forma net income per common share:
Basic................................ $ 11.38 $ 3.64 $ 25.75 $ 15.07
Diluted.............................. $ 11.38 $ 3.64 $ 24.51 $ 15.07
Weighted average shares used in per
share calculation....................
Basic................................ 35,965 31,737 33,315 32,886 33,787
Diluted.............................. 35,965 31,737 34,817 32,886 33,787
Pro forma as adjusted net income (loss)
per common share:
Basic................................
--------- ---------
Diluted..............................
--------- ---------
Weighted average shares used in pro
forma as adjusted per share
calculation..........................
--------- ---------

The following table provides a summary of our balance sheet as of June 30,
1999. The pro forma column reflects the sale of common shares in this
offering at the initial offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses payable by us and

gives effect to the conversion of all outstanding preferred shares into common
shares upon the closing of this offering. See "Use of Proceeds" and
"Capitalization."

AS OF JUNE 30, 1999
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 903 $
Working capital........................................... 638
Total assets.............................................. 3,692
Long-term debt............................................ 927
Mandatorily redeemable convertible preferred shares....... 1,893
Total shareholders' equity (deficiency)................... (1,534)

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE YOU DECIDE TO BUY OUR COMMON SHARES. THESE ARE NOT THE ONLY RISKS AND
UNCERTAINTIES FACING US. ADDITIONAL RISKS AND UNCERTAINTIES WE EITHER ARE NOT
PRESENTLY AWARE OF OR BELIEVE ARE IMMATERIAL ALSO MAY ADVERSELY AFFECT OUR
BUSINESS OPERATIONS. IF ANY OF THESE RISKS ACTUALLY OCCURS, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD SUFFER. AS A RESULT, THE
TRADING PRICE OF OUR COMMON SHARES COULD FALL, AND YOU COULD LOSE ALL OR PART OF
YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

WE HAVE INCURRED LOSSES IN THE PAST AND WE EXPECT TO INCUR SUBSTANTIAL LOSSES
FOR THE NEXT SEVERAL YEARS

We incurred net losses of $372,000 for the twelve months ended July 31,
1995, $416,000 for the five months ended December 31, 1995, $355,000 for the
year ended December 31, 1996, and $76,000 for the six months ended June 30,
1999. We intend to increase significantly expenditures related to marketing
additional courses and services to large organizations, signing more Internet
Service Provider and affinity channel partners, promoting our courses and
services and developing new courses to attract small-to-medium organizations and
individual consumers. We may not realize incremental revenues from these
expenditures for some time, if ever. Accordingly, we expect to continue to
experience net losses and negative cash flow for the next several years. We may
not achieve profitability if our course development and sales and marketing
efforts do not significantly increase our revenues or if they increase revenues
more slowly than we expect. Even if we do achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis. Any
of these eventualities could cause our share price to decline.

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE DO NOT KNOW WHETHER, OR TO WHAT
EXTENT, SMALL-TO-MEDIUM ORGANIZATIONS AND INDIVIDUAL CONSUMERS WILL ACCEPT
WEB-BASED TRAINING

Our future revenues, particularly those derived from sales to
small-to-medium organizations and individual consumers, are subject to a high
degree of uncertainty. In the past, we have derived substantially all of our
revenue from licensing information technology training products to large
organizations. Our business plan contemplates rapidly expanding into the
small-to-medium organization and individual consumer markets. Our experience in
these markets is very limited. Moreover, widespread market acceptance of
Web-based training by small-to-medium organizations and individual consumers is
uncertain. Our business and financial results will be materially and adversely
affected if these markets do not continue to develop or develop more slowly than
we expect.

OUR FUTURE SUCCESS DEPENDS ON OUR PERSONNEL

Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, including Carol A.
Clark, our Chairperson of the Board of Directors, President and Chief Executive
Officer. The loss of the services of Ms. Clark, any of our other senior level
management personnel or other key employees could harm our business.

Our success also depends on our ability to attract, motivate and retain
skilled managerial, sales and marketing, customer service and technology
development personnel. Competition for personnel in our industry is intense. Our
failure to attract and retain these key employees could have a material adverse
effect on our business and financial results.

THE LOSS OF OUR PRIMARY CONTENT PROVIDER OR INABILITY TO ATTRACT ADDITIONAL
CONTENT PROVIDERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS

We currently rely on one book publisher for substantially all of our
content. We cannot assure you that it will continue to provide us access to new
content. Additionally, there are no restrictions on its providing content to our
competitors. We continually seek new content providers; however, we cannot

assure you that we will be able to attract, or maintain relationships with, new
content providers. Loss of our main content provider, particularly if coupled
with a failure to develop new sources of content, could increase course
development costs and delay introduction of new courses, which could have a
material adverse effect on our business and financial results.

WE MAY NOT BE SUCCESSFUL IN RETAINING OUR CURRENT INTERNET SERVICE PROVIDER AND
AFFINITY CHANNEL PARTNERS OR REACHING THE SMALL-TO-MEDIUM ORGANIZATION AND
INDIVIDUAL CONSUMER MARKETS THROUGH THESE INDIRECT DISTRIBUTION CHANNELS

Currently, we have more than 1,000 Internet Service Provider partners and 50
affinity channel partners throughout the world. We depend on these partners to
grow our business by making our courses available to their Internet access
subscribers, customers and members, which are primarily small-to-medium
organizations and individual consumers. We may not succeed in these markets if:

- our Internet Service Provider and affinity channel partners do not
promote our courses to their subscribers, customers and members
effectively or at all;

- acceptance of Web-based training by the subscribers, customers and
members of our partners is lower than we or our partners expect;

- consolidation of or technological changes within the Internet Service
Provider industry occurs, either of which could eliminate a portion of
our revenue stream if our partners are not the survivors; or

- our partners do not renew their agreements with us or refuse to renew
them on acceptable terms.

We may not be successful in addressing these risks, and the failure to do so
could have a material adverse effect on our business and financial results.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY CAUSE OUR
SHARE PRICE TO BE VOLATILE

Due to the emerging nature of the Web-based training market, we may be
unable to forecast our revenues and profitability accurately. We expect our
revenues and operating results to vary significantly from quarter to quarter
depending on:

- our ability to attract and retain corporate customers and indirect
distribution partners;

- the number of courses our corporate customers license and the number of
users who license courses through our Internet Service Provider and
affinity channel partners;

- the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, including costs associated
with our introduction of new or enhanced services and with upgrading and
developing our systems and infrastructure;

- the seasonality of our operating results;

- the future development of the Web-based training market; and

- general economic conditions.

Because many of our costs are fixed and are based on anticipated revenue
levels, variations in the timing of revenue recognition could cause significant
variations in operating results from quarter to quarter. As a result, we believe
that quarter-to-quarter comparisons of our sales and operating results are not
necessarily meaningful and may not be accurate indicators of future performance.
If our future operating results are below the expectations of securities
analysts or investors, the trading price of our shares is likely to fall.

OUR FINANCIAL PERFORMANCE DEPENDS IN PART ON OUR ABILITY TO DEVELOP BRAND
AWARENESS

We believe that developing our brand within our target markets is critical
to achieving widespread acceptance of our courses. We may not succeed in
developing our brand if our large partners require extensive private labeling,
more successful competitors emerge, we are unable or fail to devote sufficent
resources to marketing efforts, or course performance problems cause customer
dissatisfaction. If we are unable to develop the DPEC brand, it could hinder our
financial performance and prospects for attracting customers.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY

Our growth has placed, and any further growth is likely to continue to
place, a significant strain on our managerial, operational, financial and other
resources. We have grown from 68 employees as of December 31, 1995 to 143
employees as of August 31, 1999. Future growth will require us to implement
additional management information systems; develop further our operating,
administrative, financial and accounting systems; and maintain close
coordination among our departments. Our failure to manage our growth effectively
could have a material adverse effect on our business and financial results.

IF OUR INTERNAL COMPUTER NETWORK OR OUR EXTERNAL LINKS TO THE INTERNET FAIL, OUR
BUSINESS MAY BE HARMED

The continuing and uninterrupted performance of our internal network
infrastructure and Internet course servers is critical to our success. Any
system failure that causes interruptions or delays in our ability to provide our
courses and services to our customers could reduce customer satisfaction and, if
sustained or repeated, could reduce the attractiveness of our courses and
services. In addition, we must protect our various computer and network systems
against damage from fire, power loss, telecommunications failures, vandalism and
other malicious acts and similar unexpected adverse events. Despite precautions
we have taken, unanticipated problems affecting our systems have from time to
time in the past caused, and in the future could cause, interruptions or delays
in the delivery of our courses. Any damage or failure that interrupts or delays
our operations could have a material adverse effect on our business and
financial results.

The failure of our telecommunications provider or our network backbone
provider, which provide us with our Internet connection, to provide the data
communications capacity and network infrastructure in the required time frame
could cause service interruptions or slower response times. This too could have
a material adverse effect on our business and financial results.

WE INTEND TO EXPAND INTERNATIONALLY AND AS A RESULT WE COULD BECOME SUBJECT TO
NEW RISKS

We intend to expand our business internationally. In doing so, we could
become subject to new risks, including:

- unexpected changes in regulatory requirements, including the regulation
of Internet access;

- uncertainty regarding liability for information retrieved and replicated
in foreign countries;

- foreign currency fluctuations, which could result in reduced revenues
and increased operating expenses;

- foreign taxes, tariffs and trade barriers;

- potentially longer payment cycles and difficulty in collecting accounts
receivable; and

- burdens of complying with a variety of foreign laws and trade standards.

We could also be subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with our international operations. The

risks associated with any international operations could materially and
adversely affect our business and financial results.

WE MUST PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS AND OUR
INTERNET DOMAIN NAMES

Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. Despite our efforts to protect
these rights, unauthorized parties may attempt to duplicate or copy aspects of
our courses or services or obtain and use information that we regard as
proprietary. Policing unauthorized use of the software underlying our courses
and services is difficult. While we are unable to determine the extent to which
piracy of our courseware exists, piracy in general will likely be a persistent
problem. In addition, the laws of many countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. As a
consequence, effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our courses and
services are made available. Our failure to protect our intellectual property
adequately could have a material adverse effect on our business and financial
results.

We currently hold various registered Internet domain names. Domain names
generally are regulated by government agencies and their designees. It is
possible, however, that third-parties could acquire domain names that are
substantially similar or conceptually similar to our domain names. This could
decrease the value of our domain names and could hurt our business. The
regulation of domain names in the United States and in foreign countries is
subject to change. The relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear. As a
result, we may not acquire or maintain exclusive rights to our domain names in
the United States or in other countries in which we conduct business.

We may from time to time encounter disputes over rights and obligations
concerning intellectual property. Failure to prevail in one or more disputes
could impair our right to market our courses and services, which, in turn, could
have a material adverse effect on our business and financial results.

OUR FAILURE OR THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS

The Year 2000 issue is concerned with whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. We have two
separate Year 2000 compliance test programs currently ongoing: an internal
infrastructure program and a separate DPEC courseware Year 2000 testing program.
We have also conducted testing of third-party software and hardware used by us
to determine its Year 2000 compliance. Failure of our internal infrastructure or
courseware or failure of any third-party equipment or software to operate
properly when the year changes to 2000 could require us to incur significant
unanticipated expenses and could divert management's time and attention, either
of which could have a material adverse effect on our business, operating results
and financial condition.

In addition, the purchasing patterns of our customers and potential
customers may be affected by actual or perceived concerns about Year 2000
issues. Organizations that need to expend significant resources to correct their
current systems for Year 2000 compliance may have fewer funds available to
purchase our courses and services. This too could have a material adverse effect
on our business, operating results and financial condition.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS, OR AT ALL

We expect the proceeds of this offering, together with cash generated from
operations and our current cash and cash equivalents, will be sufficient for us
to meet our working capital and capital

expenditure requirements for at least the next 18 months. After that time, we
may need to obtain additional funds to finance our operations and sustain our
growth. In addition, we intend to pursue acquisition and investing activities
selectively, which could require us to raise more capital. Additional financing
may not be available on terms favorable to us, or at all. If adequate funds are
not available when required, or are not available on acceptable terms, our
business and financial results could suffer.

WE MAY BE SUBJECT TO LEGAL LIABILITY IF THE CONTENT WE DISTRIBUTE IS FACTUALLY
INACCURATE

We obtain the content contained in our courses from third-parties. Although
we routinely review the content for substantive accuracy, we cannot be sure that
information published in our courses will be factually accurate. Additionally,
we may be unable to update our course content on a timely basis to reflect
advances in technology or other changes relating to the subject matter of our
courseware. Our inability to provide factually accurate content could subject us
to legal liability and could have a material adverse effect on our business and
financial results.

ANY ACQUISITIONS OR INVESTMENTS WE MAKE COULD BE DISRUPTIVE TO OUR BUSINESS,
HAVE ADVERSE ACCOUNTING CONSEQUENCES OR BE DILUTIVE TO OUR INVESTORS

Although we have no present agreement or understanding relating to any
material acquisition or investment, from time to time we have had discussions
with companies regarding acquiring or investing in their businesses. If we
acquire a company, we could have difficulty in assimilating its operations or
assimilating and retaining its key personnel. These difficulties could disrupt
our ongoing business and distract our management and employees. Also,
acquisitions may result in a variety of accounting charges, such as amortization
of goodwill and the write off of acquired in-process research and development,
that would increase our reported expenses. Furthermore, we may incur debt or
issue dilutive equity securities to pay for any future acquisitions or
investments. As a result, any future business acquisitions or investments could
have a material adverse effect on our business and financial results.

RISKS RELATED TO OUR INDUSTRY

WE OPERATE IN A RAPIDLY CHANGING, HIGHLY COMPETITIVE MARKET, AND WE MAY NOT HAVE
ADEQUATE RESOURCES TO COMPETE SUCCESSFULLY

The Web-based training market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving industry
standards. To succeed, we must continue to expand our course offerings and
upgrade our technology to retain our position as a leading and innovative course
provider. We may not be able to do so successfully. Any failure by us to
anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in course development or introduction,
could have a material adverse effect on our business and financial results.

The Web-based training market is characterized by significant price
competition. We expect to face increasing price pressures from competitors as
information systems managers demand more value for their training budgets.
Increased competition may result in reduced operating margins, as well as loss
of market share and brand recognition. We may not be able to compete
successfully against current and future competitors. The competitive pressures
we face could have a material adverse effect on our business and financial
results.

Although the Web-based training market is highly fragmented with no single
competitor accounting for a dominant market share, competition is intense. Our
competitors vary in size and in the scope and breadth of the courses and
services they offer. Several of our competitors have longer operating histories
and significantly greater financial, technical and marketing resources. We
anticipate that the lack of significant entry barriers to the Web-based training
market will allow other competitors to enter the market, increasing competition.

OUR BUSINESS COULD BE HARMED BY CONSUMERS' CONCERNS ABOUT THE SECURITY OF
TRANSACTIONS OVER THE INTERNET

We believe that concerns regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevent many
potential customers from engaging in online transactions like that required to
initiate one of our training courses. Our success may depend on our ability to
add sufficient security features to our course subscription procedures and to
instill confidence in those features in our customers. If we fail to do so, our
courses may not gain market acceptance, which could have a material adverse
effect on our business and financial results.

DUE TO OUR USE OF THE INTERNET, INTRANETS, WEB SERVERS AND BROWSERS AS
PRESENTATION VEHICLES FOR OUR COURSES, OUR SUCCESS DEPENDS ON CONTINUED
DEVELOPMENT AND MAINTENANCE OF THESE TECHNOLOGIES BY OTHER COMPANIES

Our success is highly dependent on the continued growth and maintenance of
the Internet, intranets, Web servers and browsers. There can be no guarantee
that the general use of the Internet, intranets, Web servers or browsers will
continue to grow. Several factors over which we have no control, including
concerns related to security, compatibility, cost, ease of use and access, could
limit future growth in Internet, intranet, Web server and browser use, which
could materially and adversely affect our business and financial results.

GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET IN
GENERAL AND TO OUR INDUSTRY IN PARTICULAR COULD ADVERSELY AFFECT OUR BUSINESS

The applicability to the Internet of existing laws is uncertain and
developing with regard to many issues, including sales tax, intellectual
property ownership and infringement, copyright, trademark, trade secret,
obscenity, libel, export of encryption technology and personal privacy.

There are an increasing number of laws and regulations pertaining to
liability for information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and services.
In addition, it is possible that more laws and regulations may be adopted with
respect to the Internet, such as laws or regulations relating to user privacy,
taxation, email, pricing, Internet access, content, copyrights, distribution and
characteristics and quality of products and services. Various state statutes
govern private post-secondary educational institutions. It is uncertain whether
states will attempt to apply these statutes to regulate the offering of courses
over the Internet.

Changes in existing laws and the adoption of additional laws or regulations
may decrease the popularity or expansion of the Internet. A decline in the
growth of the Internet could decrease demand for our courses and services and
increase our cost of doing business.

RISKS RELATED TO THE OFFERING

OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US

We anticipate that our executive officers, our directors and entities
affiliated with them together will beneficially own approximately % of our
outstanding common shares following the completion of this offering. As a
result, these shareholders will be able to exercise substantial influence over
all matters requiring approval by our shareholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control.

FUTURE SALES BY OUR EXISTING SHAREHOLDERS COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON SHARES

There are common shares eligible for resale after this offering
immediately upon the expiration of 180-day lock-up agreements, subject in many
cases to the volume limitations and other restrictions of Rule 144 under the
Securities Act. Lehman Brothers may, in its sole discretion, release all or some
of the shares covered by these lock-up agreements. Sales of these common shares
in the public market following this offering, or the perception that those sales
might occur, could adversely affect the market price of the common shares.

THERE HAS BEEN NO PRIOR MARKET FOR OUR SHARES, AND OUR SHARE PRICE IS LIKELY TO
BE HIGHLY VOLATILE

Prior to this offering, there has been no public market for our common
shares. We cannot predict the extent to which investor interest in us will lead
to the development of an active trading market in our shares or how liquid that
market might become. The initial public offering price for the shares will be
determined through negotiations between our board of directors and the
representatives of the underwriters, and may not be indicative of prices that
will prevail in any future trading market. The stock market has experienced
extreme price and volume fluctuations. The market prices of the securities of
Internet-related companies have been especially volatile. In the past, companies
that have experienced volatility in the market price of their shares have been
the object of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a
diversion of our management's attention and resources.

WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING

Our management will have broad discretion over the application of the net
proceeds from this offering, as well as over the timing of the expenditure of
proceeds. As a result, investors will be relying on management's judgment with
only limited information about its specific intentions for use of the proceeds.

OUR ANTI-TAKEOVER PROVISIONS COULD PREVENT A THIRD-PARTY FROM ACQUIRING YOUR
SHARES AT A PREMIUM TO THE MARKET PRICE

Various provisions of our articles of incorporation, our code of regulations
and Ohio law, together with the concentration of ownership in our executive
officers, our directors and entities affiliated with them, could make it more
difficult for a third-party to acquire us, even if you believe that doing so
would be beneficial to you and our other shareholders.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT

Purchasers of common shares in this offering will incur immediate and
substantial dilution of $ in the pro forma net tangible book value per
common share from the assumed initial public offering price. Net tangible book
value represents the amount of our tangible assets less our total liabilities.
To the extent outstanding stock options to purchase common shares are exercised,
there may be further dilution to investors, because all of our outstanding stock
options have an exercise price below the initial public offering price.

USE OF PROCEEDS

We estimate the net proceeds we will receive from this offering will be
approximately $ ($ if the underwriters exercise their over-allotment
option in full) at an assumed initial public offering price of $ per share,
which is the midpoint of the price range set forth on the front cover page of
this prospectus.

We intend to use the net proceeds from this offering for:

- general corporate purposes, including funding anticipated losses, capital
expenditures, the development of our courses and services and expansion of
our sales and marketing activities;

- repayment of existing indebtedness in the aggregate principal amount of
$903,555 as of August 31, 1999 to two shareholders; and

- potential, currently unidentified acquisitions of or investments in
complementary businesses, products, services or technologies.

Although we have from time to time had discussions with companies regarding
our acquiring or investing in their businesses, we have no present agreement or
understanding and are not currently engaged in negotiations relating to any
material acquisition or investment.

We have not yet determined the amount of net proceeds to be used
specifically for all of the foregoing purposes. Accordingly, management will
have significant flexibility in applying the net proceeds of this offering.
Pending these uses, we intend to invest the net proceeds from this offering in
short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

We do not anticipate paying any cash dividends on our common shares in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the development and growth of our business. Any future determination to
pay cash dividends will be at the discretion of our board of directors and will
depend upon our financial condition, operating results, capital requirements and
other factors our board of directors deems relevant. Loan agreements and
contractual arrangements that we enter into in the future also may restrict our
payment of dividends.

CAPITALIZATION

The following table sets forth our cash and cash equivalents, short-term
debt and capitalization as of June 30, 1999. Our capitalization is presented:

- on an actual basis; and

- on a pro forma basis to reflect our receipt of the estimated net proceeds
from the sale of the common shares to be sold in this offering at an
assumed initial public offering price of $ per share, the mid-point of
the anticipated price range, after deducting the underwriting discount and
estimated offering expenses and to give effect to the automatic conversion
of all outstanding preferred shares into common shares upon the
consummation of this offering.

AS OF JUNE 30, 1999
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)

Cash and cash equivalents.............................................. $ 903 $
--------- -----------
--------- -----------
Short-term debt........................................................ $ 235 $ --
--------- -----------
--------- -----------
Long-term debt, less current portion................................... 692 --
Convertible preferred shares, no par value; 10,000 shares authorized,
5,123 shares issued and outstanding, actual; none authorized, issued
and outstanding, pro forma........................................... 1,893 --
Shareholders' equity (deficiency):
Common shares, no par value; 60,000 shares authorized; 44,550 shares
issued and outstanding, actual; and shares issued and
outstanding, pro forma............................................. 55 --
Treasury shares, at cost............................................. (935)
Additional paid-in capital........................................... -- --
Accumulated deficit.................................................. (654) --
--------- -----------
Total shareholders' equity (deficiency)................................ (1,534) --
--------- -----------
Total capitalization................................................. $ 1,051 $ --
--------- -----------
--------- -----------

In addition to the common shares to be outstanding after this offering, as
of June 30, 1999 we may issue additional common shares pursuant to the following
plans and arrangements:

- 1,189 shares underlying stock options issued under the Amended and
Restated Stock Option Plan outstanding, at a weighted average exercise
price of $76.15 per share, of which 844 are currently exercisable; and

- 2,000 shares issuable under our 1998 Stock Option Plan, consisting of:

- 1,285 shares underlying stock options outstanding, at a weighted
average exercise price of $275 per share, none of which are currently
exercisable; and

- 715 shares available for future grants.

Please read the Capitalization table together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in this prospectus.

DILUTION

As of June 30, 1999, our pro forma net tangible book value was $ , or
approximately $ per share. Pro forma net tangible book value per share
represents the amount of tangible assets less total liabilities, divided by the
number of common shares outstanding on a pro forma basis after giving effect to
the conversion of all outstanding preferred shares into common shares.

Without taking into account any other changes in the net tangible book value
after June 30, 1999, other than the sale of the shares offered hereby at an
assumed offering price of $ per share, our pro forma net tangible book
value as of June 30, 1999, would have been $ , or $ per share. The pro
forma net tangible book value assumes that the proceeds to us, net of offering
expenses and underwriting discount, will be approximately $ . This
represents an immediate increase in net tangible book value to existing
shareholders attributable to new investors of $ per share and the immediate
dilution of $ per share to new investors, a significant disparity between
the price paid by new investors for shares sold in the offering and the pro
forma net tangible book value of the shares.

The following table illustrates this per share dilution:

Assumed initial public offering price per share......... $
---------
Pro forma net tangible book value per share before this
offering.............................................. $
---------
Increase per share attributable to new investors........
---------
Pro forma net tangible book value per share after this
offering..............................................
---------
Dilution per share to new investors..................... $
---------
---------

The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between existing shareholders and the new investors with respect
to the number of common shares purchased from us, the total consideration paid
to us and the average price per share paid by existing shareholders and by the
new investors purchasing common shares in this offering, at an assumed initial
public offering price of $ per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- --------- ----------- ---------

Existing shareholders.................... % $ % $
New investors............................
--------- --- --------- ---
Total.................................... $ % $ %
--------- --- --------- ---
--------- --- --------- ---

Our calculations do not take into account exercise of the underwriters'
over-allotment option or of any outstanding stock options. As of June 30, 1999,
there were stock options outstanding to purchase common shares at a
weighted average exercise price of $ per share and additional
shares were reserved for future grants under our stock option plans. To the
extent that any of these options is exercised, there will be further dilution to
new investors.

In addition to the common shares to be outstanding after this offering, as
of June 30, 1999 we may issue additional common shares pursuant to the following
plans and arrangements:

- 2,000 shares issuable under our 1998 Stock Option Plan, consisting of:

- 1,285 shares underlying stock options outstanding, at a weighted
average exercise price of $275 per share, none of which are currently
exercisable; and

- 715 shares available for future grants.

SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following selected financial data should be read in conjunction with our
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus. We have derived the statement of operations data for the years ended
December 31, 1996, 1997 and 1998, and the balance sheet data as of December 31,
1997 and 1998 from financial statements that Deloitte & Touche LLP, independent
auditors, have audited and that are included elsewhere in this prospectus. We
have derived the information for fiscal years ended July 31, 1994 and 1995, the
five months ended December 31, 1995 and the six months ended June 30, 1998 and
1999, from our unaudited financial statements. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and, in the opinion of management, these financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
those periods. Historical results are not necessarily indicative of results to
be expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year.

Effective December 31, 1996, we changed our fiscal year end from July 31 to
December 31. References to Fiscal 1994 and Fiscal 1995 refer to our fiscal years
ended July 31 for each respective year. References to the five months ended
December 31, 1995 refer to the transition period to a calendar year. References
to Fiscal 1996, Fiscal 1997 and Fiscal 1998 refer to our fiscal years ended
December 31 for each respective year.

From August 1, 1996 through September 15, 1998, we elected S-Corporation
status and, accordingly, federal income taxes were the responsibility of the
individual shareholders. The pro forma information has been computed as if we
had been subject to corporate income taxes for all periods presented based on
the tax laws in effect during the period.

FISCAL YEAR ENDED FIVE MONTHS
ENDED YEAR ENDED DECEMBER
JULY 31, DECEMBER 31, 31,
-------------------- ------------- --------------------
1994 1995 1995 1996 1997
--------- --------- ------------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Courseware sales............................................... $ 2,983 $ 2,826 $ 1,032 $ 4,405 $ 6,150
Other revenue.................................................. 738 1,148 647 2,440 1,731
--------- --------- ------------- --------- ---------
Total revenue.................................................. 3,721 3,974 1,679 6,845 7,881
Cost of sales.................................................. 91 417 69 326 342
--------- --------- ------------- --------- ---------
Gross profit (loss)............................................ 3,630 3,557 1,610 6,519 7,539
Operating expenses............................................. 3,410 4,442 2,055 5,691 7,178
--------- --------- ------------- --------- ---------
Income (loss) from operations.................................. 220 (885) (445) 828 361
Interest expense (income)...................................... (6) 60 33 150 181
--------- --------- ------------- --------- ---------
Income (loss) before income taxes.............................. 226 (945) (478) 678 180
Provision (benefit) for income taxes........................... 170 (259) (62) 1,033 --
--------- --------- ------------- --------- ---------
Net income (loss).............................................. $ 56 $ (686) $ (416) $ (355) $ 180
--------- --------- ------------- --------- ---------
--------- --------- ------------- --------- ---------
Net income (loss) per common share:
Basic........................................................ $ 5.86 $ (8.35) $ (9.34) $ (9.87) $ 5.67
Diluted...................................................... 5.86 (8.35) (9.34) (9.87) 5.67

Pro forma net income........................................... $ 409 $ 116
Pro forma net income (loss) per common share
Basic........................................................ $ 11.38 $ 3.64
Diluted...................................................... 11.38 3.64

Weighted average shares used in per share calculations
Basic........................................................ 44,550 44,550 44,550 35,965 31,737
Diluted...................................................... 44,550 44,550 44,550 35,965 31,737

SIX MONTHS ENDED

JUNE 30,
--------------------
1998 1998 1999
--------- --------- ---------

STATEMENT OF OPERATIONS DATA:
Courseware sales............................................... $ 11,000 $ 4,851 $ 6,398
Other revenue.................................................. 793 558 45
--------- --------- ---------
Total revenue.................................................. 11,793 5,409 6,443
Cost of sales.................................................. 723 308 463
--------- --------- ---------
Gross profit (loss)............................................ 11,070 5,101 5,980
Operating expenses............................................. 9,540 4,193 6,032
--------- --------- ---------
Income (loss) from operations.................................. 1,530 908 (52)
Interest expense (income)...................................... 106 92 24
--------- --------- ---------
Income (loss) before income taxes.............................. 1,424 816 (76)
Provision (benefit) for income taxes........................... -- -- --
--------- --------- ---------
Net income (loss).............................................. $ 1,424 $ 816 $ (76)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common share:
Basic........................................................ $ 42.74 $ 24.81 $ (2.26)
Diluted...................................................... 40.67 24.81 (2.26)
Pro forma net income........................................... $ 858 $ 495
Pro forma net income (loss) per common share
Basic........................................................ $ 25.75 $ 15.07 --
Diluted...................................................... 24.51 15.07 --
Weighted average shares used in per share calculations
Basic........................................................ 33,315 32,886 33,787
Diluted...................................................... 35,008 32,886 33,787

DECEMBER 31,
--------------- JUNE 30,
1997 1998 1999
------- ------ --------

BALANCE SHEET DATA:
Cash and cash equivalents..... $ -- $1,835 $ 903
Working capital
(deficiency)................ (1,348) 1,610 638
Total assets.................. 2,768 4,380 3,692
Total long-term debt
(including current
maturities)................. 2,344 1,095 927
Convertible redeemable
preferred shares............ -- 1,893 1,893
Total shareholders's equity
(deficiency)................ (2,196) (1,193) (1,534)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "RISK
FACTORS" ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

We are a leading provider of Web-based training courses and services
designed to meet the needs of businesses, government agencies, non-profit
organizations and individual consumers. We license our courses and services
directly to large organizations through our direct sales force and indirectly to
small-to-medium organizations and individual customers through agreements with
our Internet Service Provider and affinity channel partners.

REVENUES

We derive our revenues from:

- courseware sales, which represent sales of courses we have developed; and

- other revenues, which represent net royalties from sales of courses
developed by third-parties.

Currently, we derive our revenues primarily from license agreements under
which our customers license our courseware, typically for one, two or three year
periods. Until late 1997, we primarily sold our courses on a per-course basis.
However, to provide additional value to our customers, we now group our courses
into standard curricula and offer them on more favorable pricing terms than our
per-course pricing.

In the past, we recognized a substantial portion of revenue from the sale of
courseware produced by third-parties. In 1997, we began de-emphasizing the sale
of third-party courseware as we increased the development of our own courses. In
August 1998, we made a strategic decision to eliminate third-party courseware,
and by February 1999 we had discontinued the sale of third-party courseware to
new customers. Decreases in other revenues are due to the decision to
de-emphasize, and later to discontinue, the selling of third-party courseware to
new customers.

In connection with our direct sales to large organizations, we typically
receive up front payments for the term of the license. For indirect sales, we
have generally received payments from our Internet Service Provider and affinity
channel partners who have hosted our courses, received payments from customers
and then remitted our share of the payments to us. We believe that in the future
many of our Internet Service Provider and affinity channel partners will seek
arrangements under which we host the courses and are paid directly by
small-to-medium organizations and individual consumers through credit card
charges, and then pay our partners a portion of the payments we receive.

EXPENSES

Our expenses are comprised of the following:

COST OF SALES consists primarily of royalties paid to our content providers,
fulfillment costs and materials, such as CD-ROMs, packaging and
documentation.

SALES AND MARKETING EXPENSES consist primarily of salaries, payroll taxes,
commissions and related employee benefits to sales and marketing personnel,
as well as advertising and promotional expenses. To a lesser degree, sales
and marketing expenses include telemarketing, travel and communication
expenses. We expect that our sales and marketing expenses will increase

significantly as we pursue our efforts to enter into more relationships with
Internet Service Provider and affinity channel partners.

PRODUCT DEVELOPMENT EXPENSES consist primarily of salaries, payroll taxes,
incentive compensation and related employee benefits to courseware
developers, programmers and technical support staff. We plan to invest
significantly in the development of new courses to complement and expand our
existing library of courses. We expect that our course development expenses
will increase significantly as we hire additional personnel to increase
course production.

GENERAL AND ADMINISTRATIVE EXPENSES consist primarily of salaries, payroll
taxes, incentive compensation and related employee benefits for
administrative, operations and finance personnel as well as expenses for
occupancy and for professional services. We expect to hire additional
support personnel and to incur other expenses associated with being a public
company, including increased legal and accounting fees.

Following this offering, we plan to invest significantly to develop new
courses to complement and expand our existing course library. In addition, we
plan to significantly increase marketing related to our indirect distribution
channels. As a result of planned increases in personnel and marketing costs, we
expect to incur significant operating and net losses for at least the next two
years.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1999 AND 1998

REVENUES

Total revenues increased $1.0 million, or 19.2%, from $5.4 million for the
first six months of 1998 to $6.4 million for the comparable 1999 period. This
increase in total revenues was primarily due to a $1.5 million, or 31.9%,
increase in courseware sales to large organizations, partially offset by a $0.5
million decrease in third-party courseware sales. Revenues related to Internet
Service Provider partners increased from zero for the first six months of 1998
to $0.2 million for the comparable 1999 period. Revenues related to affinity
channel partners increased from zero for the first six months of 1998 to $0.1
million for the comparable 1999 period. The increase in courseware revenues
resulted primarily from the growing acceptance of our curriculum pricing, the
expanded number of available courses, customer contract renewals and increased
marketing and sales distribution efforts.

GROSS PROFIT

Gross profit increased $0.9 million, or 17.2%, from $5.1 million in the
first six months of 1998 to $6.0 million for the comparable 1999 period. The
gross profit margin decreased from 94.4% for the first six months of 1998 to
92.8% for the comparable 1999 period primarily as a result of additional royalty
payments to content providers.

OPERATING EXPENSES

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $0.7
million, or 37.4%, from $2.1 million for the first six months of 1998 to $2.8
million for the comparable 1999 period. As a percentage of revenues, sales and
marketing expenses increased from 38.1% for the first six months of 1998 to
43.9% for the comparable 1999 period. The increase in sales and marketing
expenses was primarily attributable to growth in our sales and marketing staff,
which increased from 33 people at June 30, 1998 to 50 people at June 30, 1999,
as we expanded into indirect distribution channels. To a lesser extent, this
increase also reflected higher telemarketing and direct mail promotional
expenses.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased $0.8
million, or 79.5%, from $1.1 million for the first six months of 1998 to $1.9
million for the comparable 1999 period. As a percentage of revenues, product
development expenses increased from 19.6% for the first six months of

1998 to 29.6% for the comparable 1999 period. The increase in product
development expenses was primarily attributable to an increase in the number of
courseware developers, programmers and technical support staff from a total of
39 at June 30, 1998 to 61 at June 30, 1999. We increased staffing in these areas
so that we could accelerate the development of new courses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.2 million, or 21.2%, from $1.1 million for the first six months of
1998 to $1.3 million for the comparable 1999 period. As a percentage of
revenues, general and administrative expenses increased from 19.9% for the first
six months of 1998 to 20.1% for the comparable 1999 period. The increase in
general and administrative expenses was primarily related to an increase in
occupancy expense and an increase in the number of administrative personnel.

INTEREST EXPENSE, NET. Interest expense, net of interest income, decreased
from $92,000 for the first six months of 1998 to $24,000 for the comparable 1999
period due to a reduction in the principal amount of outstanding debt and an
increase in interest income related to short-term investments. Interest income
increased from zero for the first six months of 1998 to $32,000 for the
comparable 1999 period.

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

REVENUES

Total revenues, including other revenues, increased $1.0 million, or 15.1%,
from $6.8 million in 1996 to $7.8 million in 1997, and increased $4.0 million,
or 49.6%, from $7.8 million in 1997 to $11.8 million in 1998. The increase in
total revenues from 1996 to 1997 was primarily due to a $1.7 million, or 39.6%,
increase in courseware sales to large organizations, partially offset by a $0.7
million decrease in third-party courseware sales. Similarly, the increase in
total revenues from 1997 to 1998 was primarily due to a $4.9 million, or 78.9%,
increase in courseware sales to large organizations, partially offset by a $0.9
million decrease in third-party courseware sales. The increase in courseware
revenues from 1996 to 1997, and from 1997 to 1998, was primarily the result of
an expanded number of courses, the introduction of curriculum plan pricing,
customer contract renewals and increased marketing and sales distribution
efforts. Distributing our courseware through Internet Service Provider and
affinity channel partners commenced in late 1997 and accounted for an aggregate
$0.1 million of our revenue increase from 1997 to 1998.

GROSS PROFIT

Gross profit increased $1.0 million, or 15.6%, from $6.5 million in 1996 to
$7.5 million in 1997, and increased $3.6 million, or 46.8%, from $7.5 million in
1997 to $11.1 million in 1998. The gross profit percentage remained
approximately the same at 95.2% in 1996 to 95.6% in 1997, but then decreased to
93.9% in 1998 primarily as a result of additional royalty payments to content
providers.

OPERATING EXPENSES

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $0.8
million, or 32.0%, from $2.7 million in 1996 to $3.5 million in 1997, and
increased $1.3 million, or 37.4%, from $3.5 million in 1997 to $4.8 million in
1998. Sales and marketing expenses increased as a percentage of revenues from
39.0% in 1996 to 44.7% in 1997 and then decreased to 41.1% in 1998 as a result
of the proportionately larger revenue increase in 1998. The increase in sales
and marketing expenses was primarily attributable to an increase in the size of
the sales and marketing staff, which increased from 32 people at December 31,
1996 to 34 at December 31, 1997 and to 44 at December 31, 1998. Eight of the ten
people added in 1998 were dedicated to the development of indirect distribution
channels.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased $0.5
million, or 38.4%, from $1.5 million in 1996 to $2.0 million in 1997, and
increased $0.4 million, or 16.9%, to $2.4 million

in 1998. Product development expenses increased as a percentage of revenues from
21.5% in 1996 to 25.8% in 1997 and then decreased to 20.2% in 1998 as a result
of the proportionately larger revenue increase in 1998. The increase in product
development expenses was primarily attributable to an increase in the number of
courseware developers, programmers and technical support staff, from a total of
22 at December 31, 1996 to 41 at December 31, 1997 and to 52 at December 31,
1998.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $0.1 million, or 4.3%, from $1.5 million in 1996 to $1.6 million in
1997, and increased $0.7 million, or 43.2%, from $1.6 million in 1997 to $2.3
million in 1998. General and administrative expenses decreased as a percentage
of revenues from 22.6% in 1996 to 20.5% in 1997 and to 19.6% in 1998. The
increase in general and administrative expenses was primarily related to an
increase in occupancy expense and an increase in administrative personnel from
18 people at December 31, 1996 to 22 at December 31, 1997 to 24 at December 31,
1998.

INTEREST EXPENSE, NET. Interest expense, net increased from $150,000 in
1996 to $181,000 in 1997 and then decreased to $106,000 in 1998. The increase in
1997 was related to increased bank borrowings during the year and to shareholder
loans, which were outstanding for only the last seven months in 1996. In 1998,
interest expense decreased when we paid down and subsequently eliminated our
bank debt in July 1998, principally as a result of significantly increased net
income. Interest income for 1996 and 1997 was insignificant and was $33,000 for
1998.

INCOME TAXES. We were treated as an S-Corporation for federal income tax
purposes from August 1, 1996 to September 15, 1998. During that period the
federal and state taxable income and expenses flowed directly to our
shareholders and were not taxed at the corporate level. At December 31, 1998, we
had net operating loss carryforwards for federal and state tax purposes of
approximately $572,000 that will expire at various times through 2018. At
December 31, 1998, we had a net deferred tax asset of $918,000 relating
principally to deferred revenue and our net operating loss carryforwards. Our
ability to realize the value of our deferred tax asset depends on our future
earnings, if any, the timing and amount of which are uncertain. We have recorded
a valuation allowance for the entire net deferred tax asset as a result of those
uncertainties. Accordingly, we did not record any income tax benefit for net
losses incurred from September 16, 1998 through December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased from $0.5 million for
the first six months of 1998 to a use of $0.1 million for the comparable 1999
period. This $0.6 million decrease was primarily due to a decrease in net
income.

Net cash provided by operating activities decreased from $0.2 million in
1996 to $0.1 million in 1997 and increased to $2.0 million in 1998. The decrease
in net cash from operating activities in 1997 was primarily due to the
elimination of our deferred tax assets as a result of our change in income tax
status, and the increase in 1998 was primarily due to the increase in net
income.

Cash and cash equivalents at June 30, 1999 totaled $0.9 million. We had no
cash or cash equivalents as of December 31, 1996 and 1997. Cash and cash
equivalents increased to $1.8 million as of December 31, 1998, due primarily to
net income and the proceeds from the sale of convertible preferred shares in
September 1998. This increase was offset by expenditures for property and
equipment, distributions to S-Corporation shareholders to pay income taxes and
repayment of debt.

On July 28, 1999, we entered into a $3,000,000 line of credit and a $500,000
term note with a bank. The line of credit, which expires on October 31, 2001,
bears interest at the bank's prime rate minus 0.5% (7.5% at inception). The term
note, which matures on July 31, 2004, bears interest at 8.04%. Our other
significant commitments consist of two promissory notes payable to two
shareholders, including Carol A. Clark, our Chairperson of the Board, President
and Chief Executive Officer, in the aggregate principal amount of $903,555 as of
August 31, 1999. We intend to use a portion of the proceeds of this offering to
repay these shareholder notes.

Prior to September 1998, we financed the majority of our operations through
bank borrowings and shareholder loans. Our net income in 1998 and the net
proceeds of $1.9 million from the sale of convertible redeemable preferred
shares in September 1998 allowed us to repay bank debt and increase our cash and
cash equivalents. In addition, we began to implement our expansion strategy and
incur the related personnel and other expenses associated with developing
additional courseware and developing and promoting the Internet Service Provider
and affinity channel partner indirect sales channels.

On August 27, 1999 we issued 2,979 series B convertible redeemable preferred
shares for proceeds of $3,000,121. These shares will convert automatically into
common shares upon completion of this offering.

Our capital requirements depend on numerous factors, including market
acceptance of our courses and services; the resources we allocate to course
development, developing and promoting our Internet Service Provider and affinity
channel partner indirect sales channels and marketing our courses and services;
and other factors. We have experienced substantial increases in our expenditures
during the last two years in order to implement our decisions to develop our own
courses and to distribute them through Internet Service Provider and affinity
channel partners. We anticipate that our expenditures will continue to increase
for the foreseeable future. Additionally, we will continue to evaluate possible
acquisitions of or investments in complementary businesses, technologies,
services or products. We currently believe that our available cash and cash
equivalents combined with the net proceeds from this offering will be sufficient
to meet our anticipated needs for working capital and capital expenditures for
the next 18 months. We may need to obtain additional funds, however, to fund
more rapid expansion, including significant increases in personnel; to develop
new or enhanced courses or products; to add new Internet Service Provider and
affinity channel partners; to respond to competitive pressures; or to acquire or
invest in complementary businesses, technologies, services or products. In
addition, in order to meet our long term liquidity needs, we may need to raise
additional funds, establish an additional credit facility or seek other
financing arrangements. Additional funding may not be available on favorable
terms or at all.

YEAR 2000 CONCERNS

The Year 2000 issue is concerned with whether computer systems will properly
recognize date-sensitive information when the year changes to 2000. The issue
arose because many computer programs were written using two digits rather than
four to represent the applicable year. Any computer programs or hardware that
have date-sensitive software or embedded chips may interpret a date ending in
"00" as the year 1900 instead of the year 2000. In addition, the year 2000 is a
leap year, which may not be recognized accurately. This could result in system
failures or miscalculations causing disruptions of operations for any company
using these computer programs or hardware, including, among other things, an
inability to connect to the Internet, process transactions, send invoices or
engage in normal business activities. As a result, many companies and
individuals must upgrade or replace their computer systems to avoid "Year 2000"
issues.

We have used internal resources to identify, test and, as necessary, correct
or reprogram our products for Year 2000 compliance. We have determined that our
current software platforms are Year 2000 compliant, except for certain older
software platforms that we have discontinued and do not plan to make Year 2000
compliant. We have tested most of the software obtained from third-parties that
we incorporate in our courses, but we also intend to seek assurances from these
third-parties that their software is Year 2000 compliant. Despite our testing or
assurances from third-party software providers, there can be no assurances our
products do not contain undetected errors or defects associated with Year 2000
date functions which may result in delay or loss of revenue, diversion of
development resources, damage to our reputation, costs for third-party damage
claims, or increased service costs, any of which could have a material adverse
effect on our business and financial results.

In addition to our internally developed software, we use software and
hardware developed by third-parties both for our network and internal
information systems. We have conducted testing of

third-party software and hardware to determine Year 2000 compliance. Our testing
has indicated that only a few pieces of software and hardware are not Year 2000
compliant. These are scheduled to be replaced by October 31, 1999 at a total
cost of less than $100,000. In addition, we have completed the process of
obtaining certifications from our vendors to the effect that their hardware and
software is Year 2000 compliant.

We rely on third-party network infrastructure providers to gain access to
the Internet. We also rely on other third-party providers such as utilities who
provide electricity to our physical facilities. If these providers experience
business interruptions as a result of their failure to achieve Year 2000
compliance, our ability to provide Internet connectivity, for example, could be
impaired, which could have a material adverse effect on our business and
financial results.

We expect to fund our Year 2000 readiness plan from operating cash flows and
in the past have not separately accounted for these costs. These costs have
principally been the related payroll costs for personnel in the development and
information systems group. We estimate that these costs incurred have not been
material.

We are currently working on specific contingency plans to deal with the
worst-case scenario that might occur if technologies upon which we depend are
not Year 2000 compliant and they fail to operate effectively. We expect to have
those plans in place by October 31, 1999. If our present efforts to address our
potential Year 2000 compliance issues are not successful, or if our Internet
Service Provider and affinity channel partners, vendors and other third parties
with which we conduct business do not successfully address these issues, our
business and financial results could be materially and adversely affected.

We have also engaged a third-party consultant to perform a Year 2000
assessment study. It has reviewed all of the procedures we employed in our Year
2000 reviews and has found them to be consistent with generally accepted
business practices. The consultant did not identify any threats from Year 2000
issues other than those discussed above, none of which might reasonably be
expected to have a material adverse effect on our business and financial
statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions" which
addresses software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2" to extend the deferral of the application of certain
passages of SOP 97-2 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. See Note 1 of Notes to Financial
Statements. We do not believe that this pronouncement will have a material
effect on our financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

At June 30, 1999, we had no material market risk exposure such as interest
rate risk, foreign currency exchange rate risk or commodity price risk.

BUSINESS

OVERVIEW

We are a leading provider of Web-based training courses and services
designed to meet the needs of businesses, government agencies, non-profit
organizations and individual consumers worldwide. We offer a real-time,
interactive learning experience presented through standard Web browsers
operating over a variety of computing networks, including the Internet,
intranets and local-area and wide-area networks. Our courses enable users to
learn in a self-paced, easy-to-use and cost-effective manner anytime, anywhere.
Our extensive Web-based training library consists of over 300 courses covering a
broad range of topics, including information technology, desktop applications,
professional and managerial skills and practical skills. We distribute our
courses and services directly to large organizations and indirectly through our
Internet Service Provider and affinity channel partners to small-to-medium
organizations and individual consumers.

OUR MARKET OPPORTUNITY

Industry analysts estimate that Web-based training is the fastest growing
segment within the overall U.S. training industry, displacing other traditional
training methods such as instructor-led and text-based learning. The Web-based
training market includes training delivered over the Internet and Web-based
training products, such as authoring and training management software.
International Data Corporation ("IDC") estimates that the total U.S. market for
Web-based training will increase from approximately $550 million in 1998 to
approximately $7.1 billion in 2002, a 90% compound annual growth rate. This
anticipated growth rate is significantly higher than the growth rate in the
overall U.S. information technology training industry, estimated at a compound
annual growth rate of approximately 11% over the same period. IDC also estimates
that U.S. revenues from Web-based training will represent approximately 31% of
total U.S. industry revenues in 2002, up from 5% in 1998.

According to IDC, demand for Web-based information technology training will
exceed $4 billion by 2002. IDC also estimates that demand for Web-based personal
and professional training will exceed $3 billion by 2002. We believe this
significant anticipated growth will be due to the escalating need for trained
information technology professionals, the rapid adoption of the Internet and the
distribution efficiencies and enhanced accessibility created by the Web-based
training model. Because worldwide demand for skilled information technology
professionals far exceeds the existing supply, there has been a heightened focus
on developing technical, professional and managerial skills through the use of
training and education. We believe that increasing time and budgetary
constraints, coupled with an expanding need to train people across a wide number
of geographic regions, are causing organizations to examine innovative,
technology-based training alternatives, such as multi-media, video and Web-based
learning.

We believe that Web-based learning is the most attractive training
alternative for organizations and individual consumers, due to its:

FLEXIBILITY. Courses can be easily and efficiently modified or replaced
electronically, without the need to distribute new materials manually.

CONVENIENCE AND EASE-OF-ACCESS. Users can take courses at any time from
anywhere in the world simply through accessing the Internet.

COST-EFFECTIVENESS. Web-based training providers do not incur the costs
associated with shipping training materials or the expenses associated with
maintaining and operating learning facilities. Users do not incur the travel and
lodging costs often associated with attending seminars or off-site training
centers.

REAL-TIME INTERACTIVITY. Web-based training courses can be offered in an
interactive format that allows users to proceed at their own pace and to easily
test their comprehension.

Additionally, we believe that the rapid adoption of the Internet and growth
in consumer spending on the Internet will fuel the demand for Web-based training
products and services. Industry analysts estimate that the number of consumers
buying goods and services over the Internet was approximately 31 million in
1998, which is expected to increase to approximately 134 million in 2002,
representing a compound annual growth rate of 44%. Furthermore, industry
analysts estimate that annual consumer spending over the Internet was
approximately $50 billion in 1998, which is expected to increase to $734 billion
in 2002, representing a compound annual growth rate of approximately 95%.

Historically, training products and services have been marketed primarily to
large organizations, given the associated cost-efficiencies. With the rapid
adoption of the Internet and individual consumers' increasing willingness to
purchase goods and services via the Internet, we believe that training products
can now be targeted to small-to-medium organizations and individual consumers in
a cost-efficient manner. We believe that significant opportunities exist in
these markets. Small-to-medium organizations need employees with strong
technical, professional and managerial skills in order to remain competitive.
Similarly, individual consumers, facing the technical challenges of their
desktop applications, require efficient and cost-effective training that can be
accessed over the Internet at any time and from anywhere in the world.

COMPETITIVE STRENGTHS

As a leading innovator in Web-based training, we believe the following are
our key competitive strengths:

BREADTH, DEPTH AND COST-EFFECTIVENESS OF COURSE OFFERINGS. Our more than
300 courses offer users a broad range of topics. In most subjects, we offer a
number of courses from introductory to advanced, allowing users to select the
courses appropriate for their skill levels.

Our Web-based courseware is cost-effective. Customers have the option of
subscribing to our entire library of online courses, a smaller group of related
courses or individual courses. For a fixed fee, our large organization customers
receive unlimited access to the courses to which they subscribe for a specified
number of users. Small-to-medium organizations and individual consumers pay an
annual or monthly fee for unlimited course access per user at rates set by our
Internet Service Provider or affinity channel partners.

MULTIPLE DISTRIBUTION CHANNELS. Historically, we have derived the vast
majority of our revenues from the direct sale of our courses to large
organizations. At the end of 1997, we launched our indirect distribution
channels to take advantage of the significant opportunity that we believe exists
in the small-to-medium organization and individual consumer markets. We
currently distribute our courses through the following channels:

DIRECT SALES TO LARGE ORGANIZATIONS. Our 30-person internal sales force
actively markets our courses and services directly to large organizations.
These organizations receive the complete feature set of our courses and the
ability to customize the content of the standard courses to more closely
match their specific training objectives. We currently have over 600 large
organization customers.

INDIRECT SALES TO SMALL-TO-MEDIUM ORGANIZATIONS AND INDIVIDUAL
CONSUMERS. We license our courses indirectly to small-to-medium
organizations and individual consumers through our relationships with
Internet Service Provider and affinity channel partners. When a customer
subscribes to our courses through one of these indirect sales channels, we
share a portion of the subscription revenue with the Internet Service
Provider or affinity channel partner.

INTERNET SERVICE PROVIDER PROGRAM. Internet Service Providers are
companies that provide direct access to the Internet, including cable
television companies, telephone companies and Web TV companies. Our
Internet Service Provider partners make our courses available to their
Internet access subscribers and other visitors to their Websites. We
offer our Internet Service Provider partners an easy and flexible way to
provide training to their customers by installing our courses on their
servers or by linking their Websites directly to our Website. In return,
our Internet Service Provider partners give us access to their customer
base and use their expertise to provide the first level of support to our
users. We currently have agreements with over 1,000 Internet Service
Providers, including MindSpring Enterprises, Freeserve plc and RCN.

AFFINITY CHANNEL PARTNER PROGRAM. Affinity channel partners are
businesses and organizations having an affinity for Web-based training.
They include technology companies who bundle our courses with their
products and non-business organizations such as colleges, universities
and trade associations. Our affinity channel partners make our courses
available to small-to-medium organizations and individual consumers,
enabling them to offer their customers, staff, students and members a
value-added service. We currently have over 50 affinity channel partners,
including Data General Corporation, Hand Technologies, Ohio University
and BATNET, a consortium reselling our courses to over 30 trade
associations.

SCALEABLE, PROPRIETARY COURSE DEVELOPMENT PROCESS. We follow a four-stage
proprietary course development process that enables our in-house development
staff to produce new courses rapidly, while maintaining high-quality course
design and content. Course set-up includes converting third-party content to our
format, updating tools and templates and adding basic courseware elements.
During the unit development stage, we create graphics and add interactive course
elements such as questions and simulations. We incorporate our course navigation
features, topic list, index, glossary and skill assessments in the full-course
development stage. Lastly, we conduct quality assurance testing to ensure that
the course is educationally sound, technically accurate and visually appealing.
Throughout each stage, we use proprietary software tools we created that
automate most of the course development process.

UNIQUE THIRD-PARTY CONTENT SOURCING. We obtain content for our courses from
third-parties. Utilizing content from third-parties enables rapid,
cost-effective course production. By using third-party content, we can create a
large number of courses covering a variety of topics without the expense of
maintaining a large research staff. It also allows us to respond to our clients'
changing needs quickly.

EFFICIENT AND FLEXIBLE TECHNOLOGY. We design our courses in HTML, a Web
document formatting language, specifically for fast presentation through the
Internet and corporate intranets. As a result, our courses are available at any
time, from anywhere in the world. Our modular HTML course design also optimizes
our courses for today's bandwidth and should enable us to add more features
quickly as bandwidth increases in the future.

We believe we are one of the few Web-based training providers to present all
of our courses through standard Web browsers without the need to download
content. This provides users with direct, immediate access to our courses
without the need to use valuable hard drive space to store our courses.

Our highly-interactive courses enable users to learn by experience, offering
frequent opportunities for practice in the form of simulations and exercises. We
also incorporate graphics and animation to gain and maintain users' interest
throughout a course.

We present all our courses in a standard format that enables users to become
familiar with the course interface, enhancing ease of use. Our intelligent
technology keeps track of users' progress throughout a course. This enables
users to stop working at any time while taking a course and later resume,
without losing any information and without having to start over from the
beginning.

ONGOING REFERENCE RESOURCE. Our courses provide an ongoing, powerful and
easy-to-use reference resource. Each course contains an index that allows users
to go directly to the information they want without working through the other
portions of the course. Our powerful master index feature allows users to
reference needed information in any group of licensed courses quickly and
easily. This just-in-time access to course content is highly efficient, reducing
training time by allowing users to focus on those areas where training is
needed.

OUR FOCUSED GROWTH STRATEGY

Our goal is to be the leading global provider of Web-based training
courseware and services to businesses, organizations and individual consumers.
The principal elements of our strategy are to:

CONTINUE TO AGGRESSIVELY TARGET LARGE ORGANIZATIONS. Currently, we have
over 600 large organization customers. With the proceeds of this offering, we
intend to expand our direct sales force and continue to target large
organizations for full scale implementations of Web-based training across
corporate intranets and the Internet. We intend to focus our direct marketing
efforts on organizations that employ a large number of information technology
professionals and utilize desktop applications throughout their operations.

EXPAND RAPIDLY INTO THE SMALL-TO-MEDIUM ORGANIZATION AND INDIVIDUAL CONSUMER
MARKETS IN THE U.S. AND ABROAD. We currently have agreements with more than
1,000 Internet Service Provider partners. Based on information provided by our
Internet Service Provider partners, we believe our courses are currently
accessible, or soon will be accessible upon completion of installation, to over
6.8 million subscribers, including over 700,000 businesses. We also have
agreements with more than 50 affinity channel partners. Over 95% of our
agreements with Internet Service Provider and affinity channel partners are for
exclusive three year terms. We will continue to sign as many Internet Service
Provider and affinity channel partners as possible in order to rapidly expand
our reach into the small-to-medium organization and individual consumer markets
worldwide.

BROADEN COURSE OFFERINGS IN NEW AND EXISTING TOPICS AND CATEGORIES, AND
ACCELERATE COURSE DEVELOPMENT. Our goal is to expand our course offerings by
adding a wide range of categories directed at new markets and rapidly increasing
the number of courses in all of our existing categories. To achieve this goal,
we intend to:

HIRE ADDITIONAL COURSE DEVELOPERS. As of August 31, 1999, our 43 course
developers were producing courses at the rate of 20 to 25 courses every 60
days. We intend to use a portion of the proceeds of this offering to add a
substantial number of qualified developers and significantly increase course
production.

INCREASE NUMBER OF CONTENT PROVIDERS. We are actively pursuing
relationships with additional publishers and with new types of content
providers to develop courses directed toward new markets. For example, we
aim to develop certification, licensing and continuing education courses for
professionals in areas such as insurance, finance, law and accounting.

ENHANCE FURTHER OUR TECHNOLOGY INFRASTRUCTURE. We intend to use part of the
proceeds of this offering to continue our longstanding commitment to investing
in technology. By further enhancing our computer network, hardware and software
applications, we expect to be able to continue providing powerful, flexible
training tools to our customers. We also believe that continued technological
advances, particularly those involving the Internet, should provide new
opportunities to customize our services further.

INCREASE BRAND AWARENESS IN OUR TARGET MARKETS. We intend to solidify our
position as a leading provider of Web-based training courses and services by
increasing our brand name recognition in all of our target markets.
Occasionally, we co-brand our courses and services on our Internet Service
Provider

and affinity channel partners' Websites. We intend to expand our use of
advertising, public relations and other marketing programs to promote our brand
and build loyalty among our organization and individual customers, as well as
attract potential customers to our Website.

SEEK POSSIBLE STRATEGIC ACQUISITIONS OF OR INVESTMENTS IN COMPLEMENTARY
BUSINESSES, PRODUCTS, SERVICES OR TECHNOLOGIES. We may seek acquisitions of or
investments in complementary businesses, products, services or technologies. We
will focus our acquisition and investment efforts on those companies that we
believe would expand the breadth of our courses and services, increase our
market presence in the U.S. and abroad and introduce new technologies that
should better serve our customers. Although we have from time to time had
discussions with companies regarding our acquiring or investing in their
businesses, we have no present agreement or understanding relating to any
material acquisition or investment.

OUR PRODUCTS AND SERVICES

PRODUCTS. Our diverse online library includes courses designed to meet the
training needs of large organizations, small-to-medium organizations and
individual consumers. We offer over 300 courses in four categories:

INFORMATION TECHNOLOGY AND CERTIFICATION TRAINING. Our course library
includes approximately 225 courses on programming languages, databases and
operating systems. As a Microsoft Independent Courseware Vendor, we offer a
complete set of courses to prepare users for the Microsoft Certified Systems
Engineer (MCSE). We also provide A+ certification.

A+ Certification (13 courses)
C (3 courses)
CGI Perl (4 courses)
CICS (5 courses)
Client/Server Technology (1 course)
CMS/XEDIT (2 courses)
COBOL (10 courses)
Data Communication (1 course)
Date Warehousing (1 course)
DB2 (3 courses)
Dynamic HTML (5 courses)
Easytrieve (1 course)
Exchange Server (19 courses)
FOCUS (11 courses)
GUI Design (3 courses)
HTML (7 courses)
ISPF (2 courses)
JAVA (3 courses)
JCL (7 courses)
LANs (3 courses)

Micro Focus COBOL (5 courses)
Networking Essentials (6 courses)
Object-oriented Analysis & Design (2 courses)
OOP Using C++ (3 courses)
Oracle (13 courses)
PowerBuilder (15 courses)
QMF (2 courses)
RDBMS Fundamentals (1 course)
REXX (1 course)
SAA (2 courses)
SAS (7 courses)
SQL Server (12 courses)
Sybase (3 courses)
TCP/IP (10 courses)
TSO/E (1 course)
UNIX (6 courses)
Visual Basic (15 courses)
Visual InterDev (9 courses)
VSAM (1 course)
Windows NT (9 courses)

DESKTOP APPLICATIONS AND CERTIFICATION TRAINING. We license approximately
35 training courses designed to improve users' proficiency with widely-used
desktop applications. Approved by Microsoft as an Independent Courseware
Vendor, we also provide courses to prepare users for the Microsoft Office
User Specialist (MOUS) certification.

Front Page (2 courses)
Internet/Internet Explorer (4 courses)
Internet/Netscape Navigator (4 courses)
Lotus Notes (2 courses)
Microsoft Access (2 courses)
Microsoft Excel (3 courses)

Microsoft Exchange (2 courses)
Microsoft Word (3 courses)
Microsoft Outlook (2 courses)
Microsoft PowerPoint (2 courses)
Microsoft Windows (3 courses)

Microsoft Windows Workstation (2 courses)
Paint Shop (2 courses)
Project 98 (2 courses)
Quicken (2 courses)

PROFESSIONAL AND MANAGERIAL SKILLS DEVELOPMENT. We offer approximately 25
courses to assist professionals in developing their managerial skills.

Business Communication (3 courses)
Business Management (3 courses)
Concepts of Computing (5 courses)

Customer Service (5 courses)
Negotiating (4 courses)
Time Management (4 courses)

PRACTICAL SKILLS DEVELOPMENT. We license approximately 25 high-quality
courses to help individual consumers develop basic skills and improve their
daily lives.

Grammar (4 courses)
Home Business (4 courses)
Investing Fundamentals (6 courses)
Math (6 courses)

Money 98 (2 courses)
Retirement Planning (2 courses)
SAT Preparation (3 courses)

COURSE FEATURES. All of our courses contain:

SKILL ASSESSMENTS. Our courses include a complete set of skill assessment
features designed to maximize our users' learning experience. Users have the
option of taking a preliminary test to assess their knowledge of a
particular course. Users can apply the results of the preliminary test to
create individualized learning paths. If users obtain high scores during the
assessment, they can save time by testing out of a course. Each course also
incorporates scored questions embedded within the courseware, which provide
users with feedback regarding course comprehension. After users finish a
course, they can take a final test to evaluate overall course knowledge.

ONLINE REFERENCE CAPABILITY. Our courses contain an index that enables
users to go directly to the information they want without working through
the other portions of the course. In addition, our powerful master index
feature allows users to access needed information in any group of licensed
courses quickly and easily.

In addition, we offer our large organization customers a broad range of
value-added features that complement our course offerings:

ADMINISTRATION CAPABILITIES. Our courses include comprehensive
administration tools designed to provide meaningful feedback and reduce the
workload of our business customers. DPEC Web Administrator, our Web-based
administration tool, tracks and reports usage of courses presented through
the Internet or intranets. Organizations can assess the effectiveness of
their training program by selecting either summary or detailed reports on
usage and scores broken down by company, site, department or individual. Our
administration tools also manage user registration functions.

CUSTOMIZED INSTRUCTION. Our customization tools enable organizations
presenting courses over an intranet to instruct and test their employees on
information unique to their organizations. Through our D-Note customization
tool, organizations can customize the text within a course or insert links
to information located at other intranets sites. Organizations can also use
our D-Quest tool to add customer-specific questions to our skill
assessments. These questions can be presented in a variety of formats,
including multiple choice, short answer and true/false. This enables
corporate trainers to reinforce crucial skills and to assess knowledge of
customer-specific content. Our customization

tools allow organizations to maximize their training budgets by tailoring
training programs to meet their needs.

ONLINE INSTRUCTOR ASSISTANCE. Our instructor online service answers users'
questions regarding selected courses while they are learning. For an
additional annual fee, large organization customers can submit an unlimited
number of questions to a course topic expert and receive a response via
email within one business day. Users can also employ the service to comment
on a course.

OTHER LARGE BUSINESS SERVICES. We offer our large organization customers
on-site product support, including courseware installation and promotion of
our courses and services within their organizations, at no additional
charge. We offer a variety of licensing options to provide maximum
flexibility for corporate training budgets. Large organization customers may
choose to present our courses through one or more of four presentation
platforms--Internet, intranets, local-area and wide-area networks or
personal computers.

LARGE ORGANIZATION CUSTOMERS

We license our Web-based training courses and services to a broad range of
customers in a wide variety of markets. No single customer accounted for more
than 10% of total revenues in 1996, 1997, 1998 or the six months ended June 30,
1999. The following table sets forth a representative list of our large
organization customers:

FINANCIAL/ACCOUNTING HEALTH CARE/INSURANCE
A.G. Edwards & Sons Capital Blue Cross
Bank of America Fireman's Fund Insurance
First Data Resources Traveler's

CONSULTING GOVERNMENT
Computer Horizons Defense Information Systems Agency
Computer Sciences Corporation Florida Department of Health
IMRglobal Social Security Administration

HARDWARE/SOFTWARE NETWORKING/COMMUNICATIONS
American Management Systems L-3 Communications Corporation
Interactive Business Services Lucent Technologies
Sterling Software MCI Worldcom

MANUFACTURING/OTHER RETAIL
Fort James Corporation QVC
The McGraw Hill Companies Saks Incorporated
Southwest Airlines Walgreens

COMPETITION

The Web-based training market is evolving quickly and is subject to rapid
technological change. Although the market is highly fragmented, with no single
competitor accounting for a dominant market share, competition is intense. We
anticipate that the lack of significant entry barriers to the Web-based training
market will allow new competitors to enter the market, increasing the level of
competition. Additionally, companies with significantly greater financial
resources are acquiring competitors. We expect that this trend will continue. We
believe that the principal competitive factors in our market include:

- the ability to provide an effective training solution meeting the needs of
users;

- breadth, depth and technical quality of course offerings;

- pricing;

- service features such as adaptability and the capacity to receive
meaningful user feedback;

- quality of implementation, course administration and customer service; and

- company reputation.

Our competitors vary in size and in the scope and breadth of the products
and services they offer. We face significant competition from a variety of
sources, including:

- third-party suppliers of instructor-led training;

- internal corporate training departments;

- providers of custom courseware or courseware tool-sets;

- Web-based training vendors offering off-the-shelf courses; and

- other suppliers of training, including several companies that produce
interactive software training.

As organizations increase their dependence on outside suppliers of training, we
expect to face increasing competition from these sources as training managers
compare a variety of cost-effective training products.

TECHNOLOGY AND INFRASTRUCTURE

We have made substantial investments in our technology infrastructure in
order to employ the best available software and hardware on stable and scalable
platforms.

TECHNICAL SPECIFICATIONS OF OUR COURSEWARE. Our courses are presented on
the Internet and corporate intranets through Web servers. We can also present
our courses over local-area and wide-area networks and personal computers. Our
courses run on Windows NT and several versions of UNIX servers as well as
Windows 3.11/95/98/NT on users' personal computers.

TECHNICAL SPECIFICATIONS OF OUR WEB FARM. Our Website is housed by a
cluster of Dell PowerEdge 4300 Web servers and a Dell PowerEdge 6350 database
server. We utilize a Coyote Point Systems Equalizer for load balancing. The load
balancer monitors traffic to each individual server and re-routes network
traffic in the event that a server fails. This technology is scaleable because
we can add servers as the load dictates. The equalizer allows us to monitor and
manage the servers. There is also a secondary equalizer that monitors the
primary equalizer and will take over if the primary equalizer fails, creating a
fault-tolerant load balancing solution.

NETWORK INFRASTRUCTURE. Our network infrastructure consists of widely known
off-the-shelf components designed to create a stable architecture. We use
Microsoft NT 4.0 as the operating system for our servers. We also use Windows
95/98 for our desktop technology, using Microsoft Office 2000 and the latest
releases of other well known application software. Data is backed up daily by a
4-drive tape system. Our email server components, as well as our authentication
systems, are provided by the Microsoft BackOffice System.

We attempt to maintain a safe and secure data storage and email environment
through continual anti-virus scanning that involves automatic updates for
protection against new viruses. Our network gear, servers and phone switch are
connected to APC Uninterruptible Power Supplies. Finally, we maintain firewall
technology manufactured by Cisco to protect against security breaches and
hackers.

Currently, all of our primary servers are running separate data channels for
redundancy using Intel cards. Each of these channels is supported by either a
Hewlett-Packard or Cisco Data Switch. This provides dedicated, responsive and
fast network access.

INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY

We regard our copyrights, service marks, trademarks, trade secrets,
software, domain names, proprietary technology and similar intellectual property
as critical to our success. To protect our proprietary rights we rely generally
on copyright, trademark and trade secret laws, licenses with customers,
independent contractors and other third-parties, and confidentiality agreements
with employees and others. Despite these protections, it may be possible for
third-parties to copy or otherwise obtain and use our courseware or technology
without our permission or to develop similar courseware or technology
independently. Additionally, our agreements with employees, consultants and
others participating in product and service development may be breached. We may
not have adequate remedies for any breach and our trade secrets may become known
or independently developed by competitors.

We pursue the registration of our trademarks and service marks in the United
States and in other countries, although we have not registered all of our marks.
We have obtained trademark registration in the United States for "DPEC" and
"SmartPro." We have also obtained a trademark registration in the United Kingdom
for "DPEC." We have registered with the United States Copyright Office the
copyright in a significant portion of our courseware. The laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws
of the United States and effective copyright, patent, trademark and trade secret
protection may not be available in these jurisdictions.

We license our proprietary rights, such as our courseware, trademarks or
copyrighted material, to third-parties. While we attempt to ensure that the
quality of our brand is maintained by these licensees, they may take actions
that harm the value of our proprietary rights or reputation. To license some of
our products, we rely in part on "shrink-wrap" and "clickwrap" licenses that are
not signed by the end user and, therefore, may be unenforceable under the laws
of certain jurisdictions. As with other software products, our products are
susceptible to unauthorized copying and uses that may go undetected. Policing
unauthorized uses is difficult.

While we attempt to avoid infringing known proprietary rights of
third-parties in our product and service development efforts, other parties may
assert claims of infringement of intellectual property or other proprietary
rights against us. We expect to be subject to legal proceedings and claims from
time to time in the ordinary course of business, including claims of alleged
infringement of the proprietary rights of third-parties by us and our licensees.
These claims, even if without merit, could cause us to expend significant
financial and managerial resources. Further, if these claims are successful, we
may be required to change our trademarks, alter our courseware and pay financial
damages, any of which could have a material adverse effect on our business and
financial results.

We rely on proprietary information that we license from third-parties,
including course content we license from book publishers. We also may be
required to obtain licenses from others to refine, develop, market and deliver
new products and services. These third-party licenses may not continue to be
available to us on commercially reasonable terms. The loss of these licenses
could have a material adverse effect on our business and financial results.
Moreover, rights granted under any licenses may not be valid and enforceable.

EMPLOYEES

As of August 31, 1999, we employed 143 people. None of our employees is
represented by a labor union. We have not experienced any work stoppages and we
consider our relations with our employees to be good.

FACILITIES

Our principal offices currently occupy approximately 30,000 square feet in
Columbus, Ohio, under a sublease that expires on May 10, 2002. The sublease is
renewable at our option for three successive two year periods and one additional
period of 21 months. We believe our existing facilities are adequate for current
requirements and that additional space can be obtained on commercially
reasonable terms to meet future requirements.

LEGAL PROCEEDINGS

We are not a party to any legal proceedings. We may from time to time become
a party to various legal proceedings in the ordinary course of business.

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEEs

Our executive officers, directors and key employees as of September 16, 1999
are as follows:

NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS
Carol A. Clark.................................. 60 Chairperson of the Board of Directors, President
and Chief Executive Officer
Gary W. Qualmann................................ 48 Director, Chief Financial Officer, Secretary,
Treasurer and Vice President-- Finance
H. Neal Ater.................................... 48 Director
Robert J. Massie................................ 50 Director
Murray R. Wilson................................ 37 Director
Paul W. MacCartney.............................. 33 Vice President of Development
Gary L. Carabin................................. 47 Vice President and General Manager of the
Corporate Sales Division
James G. Marriott............................... 40 Senior Director and General Manager of the
Internet Service Provider Division
A. Katrina Ramsey............................... 37 Senior Director and General Manager of the
Affinity Channel Partner Division
Dennis E. Yost.................................. 47 Senior Director of Marketing

KEY EMPLOYEES
James A. Rubino, Ph.D........................... 47 Director of Courseware Design
James T. Talley, Ph.D........................... 43 Director of Systems Architecture
James K. Dietz.................................. 52 Director of Operations

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

CAROL A. CLARK, a co-founder of DPEC, has served as a Director, President
and Chief Executive Officer since our formation in 1981. Ms. Clark has over 37
years of management and consulting experience and an extensive background in
computer programming and teaching. Before founding DPEC, Ms. Clark served as
manager of customer service for Sterling Software. She also implemented and
taught data security, processing and analysis for a number of organizations,
including Carnegie Mellon University, Bank One, University of Minnesota and IBM.

GARY W. QUALMANN has served as a Director, Chief Financial Officer,
Treasurer and Vice President of Finance since joining us in July 1996. Mr.
Qualmann has also served as our Secretary since September 1998. From May 1988 to
July 1995, Mr. Qualmann served as executive vice president and chief financial
officer of Red Roof Inns, a lodging company based in Dublin, Ohio. Prior to
joining Red Roof Inns, he was a partner in the Columbus, Ohio, office of
Deloitte Haskins & Sells (a predecessor of Deloitte & Touche LLP).

H. NEAL ATER has been a director of DPEC since August 1999. Since June 1999,
Mr. Ater has been Vice President Engineering of VERITAS Software. He is
responsible for over 350 engineers in the Data Protection Group, which provides
storage management software for UNIX, Windows NT and Netware. From May 1996 to
June 1999, Mr. Ater was Vice President--Research & Development at Seagate
Software, NSMG Division, which specialized in systems management software for
Windows NT, Netware and UNIX networks, until VERITAS Software acquired Seagate
Software. He was President of OnDemand Software, a privately-held company
specializing in systems management software for Windows NT and Netware networks
for medium to large scale corporations, from 1994 until Seagate Software
acquired OnDemand in 1996. From 1977 to 1993, Mr. Ater was Senior Vice
President-- Research & Development at Goal Systems International, Inc., a
software company specializing in data

center management software and computer based training software, and Legent
Corp., which acquired Goal in 1992.

ROBERT J. MASSIE has been a director of DPEC since September 1999. Mr.
Massie is currently the Director/Chief Executive Officer of Chemical Abstracts
Service, an operating division of the American Chemical Society. CAS develops
and distributes chemical information databases and related software. Based in
Columbus, Ohio, Chemical Abstracts Service serves a global market of research
professionals in academic, industrial and government organizations. Prior to
joining Chemical Abstracts Service as Director in 1992, Mr. Massie was President
and CEO of Gale Research, a library reference publisher and subsidiary of the
Thomson publishing organization. Prior to that, he held a number of senior
executive positions with the Torstar Corporation, owner of the largest newspaper
in Canada, as well as book publishing and other communications holdings. Mr.
Massie is a former consultant with McKinsey and Co. and practiced law with the
Washington D.C. firm of Covington and Burling.

MURRAY R. WILSON has been a director of DPEC since September 1998. He is a
principal of River Cities Capital Funds, a $140 million family of venture
capital funds in Cincinnati, Ohio. He has been at River Cities, where he
oversees investments primarily involving Internet, software, high technology and
healthcare companies, since 1995. Mr. Wilson came to River Cities after serving
for three years as the senior analyst with Cincinnati-based Blue Chip Venture
Company. Prior to joining Blue Chip, he was an investment officer of Neworld
Bank in Boston. Mr. Wilson is a director or observer of several River Cities
portfolio companies, including Fourthchannel, Inc., CMHC Systems, Inc., TRANSMAP
Corp., Productivity Solutions, Inc., High Speed Access Corp. and Darwin
Networks, Inc.

PAUL W. MACCARTNEY, Vice President of Development, joined DPEC in January
1996. While at DPEC, he has directed both courseware development and systems
development. Mr. MacCartney managed the conversion of our courses to a Web-based
format. Before joining us, Mr. MacCartney was Manager of Training and Support at
RH Positive Software. He has over 12 years experience in software development
and training.

GARY L. CARABIN has served as our Vice President and General Manager of
Corporate Sales since 1992. Mr. Carabin is in charge of our sales and support
services for our large organization customers. He joined DPEC in 1990 and served
as Director of Sales from 1990 to 1992. From 1982 to 1990, Mr. Carabin held
various sales and management positions at Goal Systems International, Inc. He
also held sales and management positions at Diacon Systems Corporation from 1979
to 1982 and at Burroughs Corporation from 1974 to 1979.

JAMES G. MARRIOTT has served as the Senior Director and General Manager of
our Internet Service Provider Division since August 1997. He was the Eastern
Regional Sales Director for our Corporate Sales Division from October 1993 to
July 1997. Prior to joining us in March 1992, Mr. Marriott was employed at
Automatic Data Processing for more than seven years, becoming the first sales
manager for the Columbus, Ohio, office in 1989, a position he held until joining
DPEC.

A. KATRINA RAMSEY has served as Senior Director and General Manager of our
Affinity Channel Partner Division since August 1998. From 1991 to July 1998, she
held various positions within DPEC, including Director of Strategic Accounts and
Western Regional Sales Director, both positions within the Corporate Sales
Division. Prior to joining us, she held various sales and management positions
at OBE/ALCO Standard and Time Services.

DENNIS E. YOST has served as Senior Director of Marketing since November
1995, managing our corporate and product marketing efforts. From April 1992
through November 1995, he was employed by Cardinal Business Media, Inc., where
he was publisher and editor-in-chief of two high-technology publications focused
on network integration and database management. He was also responsible for
creating and launching numerous strategic marketing products. From 1986 to 1992,
Mr. Yost was Vice President of Sales and Marketing for BlueLine Software Inc., a
start-up company, where he was

responsible for establishing worldwide marketing and sales activities. From 1978
to 1986, he held various sales and marketing positions with Goal Systems
International, Inc.

JAMES A. RUBINO, PH.D. has served as Director of Courseware Design since
October 1997. From August 1993 through September 1997, Dr. Rubino served DPEC in
a variety of roles, with a focus on courseware feature design and on writing
software to automate our courseware production and quality assurance. From 1987
through 1993, Dr. Rubino worked as a documentation specialist for Goal Systems
International, Inc. and Legent Corp., writing systems documentation for a
computer-based training software system. Dr. Rubino received a Ph.D. in
Philosophy in 1983 and Masters of Fine Arts in 1987 from The Ohio State
University.

JAMES T. TALLEY, PH.D. has served as Director of Systems Architecture since
October 1997. From July 1991 through September 1997, he held a number of
positions at DPEC, including programming, software design, management of
technical support and management of our computer support. From 1985 through
1991, Dr. Talley worked with faculty at The Ohio State University to develop
computer-based training materials as part of the Computer-Based Instruction
Group in the Center for Teaching Excellence. Dr. Talley received a Ph.D. in
Music Theory in 1989 from The Ohio State University.

JAMES K. DIETZ has served as Director of Operations since March 1995. From
May 1984 to February 1995, he held various positions with Information
Dimensions, Inc., a supplier of document database management systems and
text-retrieval software, including Manager of Prototype Operations, Director of
Facilities, National Software Sales Manager, Vice President of Customer Service
and Vice President of Quality. Mr. Dietz has over 25 years in management of
office facilities, software sales, customer service and quality systems.

TERMS OF DIRECTORS AND OFFICERS

We currently have 5 directors. Effective upon the closing of this offering,
our board of directors will be divided into two classes: class I, whose term
will expire at the annual meeting of shareholders to be held in 2000 and class
II, whose terms will expire at the annual meeting of shareholders to be held in
2001. The class I directors will be , and . The
class II directors will be , and . At each annual
meeting of shareholders after a director's initial term expires, the successors
to the directors whose terms have expired will be elected to two year terms.
This classification of our board of directors may have the effect of delaying or
preventing changes in our control or management. See "Description of Capital
Stock--Anti-takeover Effects of Articles of Incorporation, Code of Regulations
and the Ohio General Corporation Law."

Under the terms of the Series B Convertible Preferred Stock Purchase
Agreement, dated August 27, 1999, our preferred shareholders have the right to
designate one director. Additionally, Ms. Clark and the other common
shareholders have the right to designate the remaining directors, one of whom
must be Ms. Clark and two of whom must be independent directors reasonably
acceptable to the preferred shareholders. Pursuant to this agreement, the
preferred shareholders have designated Mr. Wilson, and Ms. Clark and the other
common shareholders have designated Ms. Clark and the remaining directors. Upon
the closing of this offering, the Series B Convertible Preferred Stock Purchase
Agreement will terminate automatically.

Each officer is elected by, and serves at the discretion of, our board of
directors. We have agreed to employ Ms. Clark as Chairperson of the Board of
Directors, President and Chief Executive Officer. See "--Employment Agreement."

BOARD COMMITTEES

The compensation committee consists of Robert J. Massie, Murray R. Wilson
and H. Neal Ater. The compensation committee reviews and evaluates the salaries,
supplemental compensation and

benefits of our officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to the board of directors. The compensation committee also
administers our stock option and employee stock purchase plans. See "--1999
Incentive Stock Plan."

The audit committee consists of Carol A. Clark, Murray R. Wilson and H. Neal
Ater. The audit committee reviews with our independent auditor the scope and
timing of its audit services, the auditor's report on our financial statements
following completion of its audit and our policies and procedures with respect
to internal accounting and financial controls. In addition, the audit committee
will make annual recommendations to the board of directors for the appointment
of independent auditors for the ensuing year.

DIRECTOR COMPENSATION

Directors who are officers, employees or who hold or represent persons who
hold more than 5% of our common shares receive no additional compensation for
their services as members of our board of directors or as members of board
committees. Other directors are paid a fee of $1,000 for each meeting of the
board and $750 for each meeting of a board committee they attend and are
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with their service as directors, including travel expenses. We also grant each
such director an annual stock option to purchase of our common shares.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From September 15, 1998 to September 15, 1999, Carol A. Clark was a member
of the compensation committee. No other member of the compensation committee was
at any time an employee of DPEC. None of our executive officers serves as a
member of the board of directors or compensation committee of any other entity
which has one or more executive officers serving as a member of our board of
directors or compensation committee.

EXECUTIVE COMPENSATION

The following table provides information on all compensation received during
the year ended December 31, 1998, by each of the named executive officers:

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
--------------------
ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION(1)
- --------------------------------------------------- --------- --------- -----------------------

Carol A. Clark,
Chairperson of the Board of Directors, President
and Chief Executive Officer...................... $ 100,000 -- $ 2,632
A. Katrina Ramsey,
Sr. Director and General Manager of the Affinity
Channel Partner Division......................... 182,883 $ 26,374 4,000
Gary L. Carabin,
Vice President and General Manager of the
Corporate Sales Division......................... 144,402 54,660 4,000
Gary W. Qualmann,
Chief Financial Officer, Secretary, Treasurer and
Vice President--Finance.......................... 140,000 56,525 4,000
James G. Marriott,
Sr. Director and General Manger of the Internet
Service Provider Division........................ 97,025 33,169 3,255

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

(1) The amounts shown in this column for each executive officer consist of
DPEC's matching contribution to the DPEC, Inc. 401(k) Plan.

FISCAL YEAR END OPTION VALUES

The following table provides information concerning unexercised options and
the value of unexercised in-the-money options held as of December 31, 1998 by
each executive officer named in the Summary Compensation Table. No options were
exercised during 1998.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ------------- --------------- ------------- ---------------

A. Katrina Ramsey.............................. -- 55 $ -- $
Gary L. Carabin................................ -- 100 --
Gary W. Qualmann............................... 562 282

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

(1) The value of unexercised in-the-money options at fiscal year-end is based on
a price per share of $ , as determined in good faith by our board of
directors, less the exercise price.

EMPLOYMENT AGREEMENT

We have entered into an employment agreement with Carol A. Clark. We have
agreed to employ her as Chairperson of the Board of Directors, President and
Chief Executive Officer. We have also agreed to cause her to be nominated for
re-election as a director for as long as she is employed under the agreement.

The agreement sets a base salary for Ms. Clark of $135,000 that may be
increased, but not decreased, by the compensation committee. In addition to a
base salary, Ms. Clark is eligible for a bonus based on performance goals set by
the compensation committee.

The term of employment under Ms. Clark's employment agreement began August
1, 1998, and will continue indefinitely unless terminated:

- by us because Ms. Clark is convicted of a felony, engages in willful
misconduct or so neglects her duties as to materially damage our business;

- due to the death or disability of Ms. Clark; or

- by Ms. Clark for any reason.

After termination, we will have no continuing obligation to Ms. Clark, except
that we must pay her salary for 18 months if termination was:

- by us for any reason not listed above; or

- by Ms. Clark if:

- we assign her duties inconsistent with her position as President and
Chief Executive Officer;

- we fail to comply with our obligations under the agreement and shall
not have remedied our failure after receiving notice; or

- we require her to relocate outside of the Columbus, Ohio, metropolitan
area.

The agreement contains non-competition provisions during the term of
employment and for the period two years after termination of employment. The
non-competition provisions do not apply after termination, however, in the
situations when we are required to continue paying Ms. Clark's salary. Under
these provisions, Ms. Clark may not:

- take part in any business that competes with us;

- divert, or try to divert, any of our business; or

- solicit any of our employees.

The agreement also contains a confidentiality provision as well as a
provision recognizing that we own all ideas and inventions conceived by Ms.
Clark during the term of the employment agreement.

1999 INCENTIVE STOCK PLAN

We previously established two stock option plans, the DPEC, Inc. Amended and
Restated Incentive Stock Option Plan and the DPEC, Inc. 1998 Stock Option Plan,
to provide our employees an opportunity to own our common shares. Effective
, 1999, our board of directors and shareholders approved and adopted the
DPEC, Inc. 1999 Incentive Stock Plan, which combined the Amended and Restated
Incentive Stock Plan and the 1998 Stock Option Plan into a single plan. The
purpose of the 1999 Incentive Stock Plan is to attract and retain key personnel,
including consultants, advisors and directors, to enhance their interest in our
continued success and to offer all employees the opportunity to own our common
shares.

The 1999 Incentive Stock Plan provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and unrestricted common shares. In addition, the 1999
Incentive Stock Plan permits employees who have satisfied minimum eligibility
requirements to purchase common shares through payroll deductions. No award
under the 1999 Incentive Stock Plan may be granted after . Only
common shares may be issued under the 1999 Incentive Stock Plan, which will be
made available from the authorized but unissued common shares or from common
shares held in treasury. The 1999 Incentive Stock Plan contains customary
provisions for adjustments for stock splits and similar transactions and the
rights of participants upon mergers and other business combinations.

The compensation committee will administer and interpret the 1999 Incentive
Stock Plan. The compensation committee will select the eligible employees who
will receive awards and the terms and conditions applicable to each award. It is
anticipated that the committee's determinations of which eligible individuals
will be granted awards and the terms thereof will be based on each individual's
present and potential contribution to the success of DPEC. The 1999 Incentive
Stock Plan also provides that, on an annual basis, each of our non-employee
directors automatically will receive stock options.

STOCK OPTIONS. The compensation committee may grant non-qualified stock
options to employees, advisors and consultants and may grant incentive stock
options only to employees. The compensation committee has discretion to fix the
exercise price of all stock options, but the exercise price of an incentive
stock option may not be less than the fair market value of the common shares on
the date of grant. In the case of an incentive stock option granted to a 10%
shareholder of DPEC, the exercise price may not be less than 110% of the fair
market value of the common shares at the date of grant. The compensation
committee also has broad discretion as to the terms and conditions under which
options will be exercisable. Incentive stock options will expire not later than
ten years after the grant date (or five years for an incentive stock option
granted to a 10% shareholder). The exercise price of the options may be paid in
cash or, in the discretion of the compensation committee, by exchanging common
shares owned by the participant, or by a combination of either.

DIRECTOR OPTIONS. Each director who is not an employee of DPEC or of a
subsidiary, or who does not hold or represent persons who hold more than 5% of
our common shares, will receive, on the first business day after the effective
date of this offering, a grant of a non-qualified stock option to purchase
common shares at an exercise price equal to the public offering price of
our common shares. Each person who subsequently becomes a director and is not an
employee of DPEC or of a subsidiary, or who does not hold or represent persons
who hold more than 5% of our common shares, will receive, on the first business
day after becoming a director, a grant of a non-qualified option to purchase
common shares at an exercise price equal to the fair market value of the
common shares on the date of grant. In addition, on the first business day after
each succeeding annual meeting of shareholders, each continuing director who is
still eligible to receive a director option will receive a grant of a
non-qualified stock option to purchase common shares at an exercise price
equal to the fair market value of the common shares on the date of grant. A
director option will be exercisable beginning six months after the date of grant
until the tenth anniversary of the date of grant and three months (one year in
the case of a director who becomes disabled or dies) after the date the director
ceases to be a director, whichever occurs first. If a director ceases to be a
director after having been convicted of, or pleading guilty to, a felony, the
director option will be canceled on the date the director ceases to be a
director.

STOCK APPRECIATION RIGHTS. Stock appreciation rights may be awarded either
in tandem with stock options or on a stand-alone basis. The compensation
committee may award tandem stock appreciation rights either at the time the
related option is granted or at any time prior to the exercise, termination or
expiration of the related option. The tandem stock appreciation right will have
the same exercise price as the related option. The compensation committee will
specify at the time of grant the base price of the common shares to be issued
for determining the amount of cash or number of common shares to be distributed
upon the exercise of a nontandem stock appreciate right. The base price of
nontandem stock appreciation rights will not be less than 100% of the fair
market value of our common shares on the date of grant.

Tandem stock appreciation rights are exercisable only to the extent that the
participant may exercise the related option and only for the period determined
by the compensation committee. Upon the exercise of all or a portion of tandem
stock appreciation rights, the related option terminates for an equal number of
our common shares. Similarly, upon exercise of all or a portion of an option,
the related tandem stock appreciation right terminates for an equal number of
our common shares.

When a participant surrenders a tandem stock appreciation right and the
related unexercised option, or surrenders a nontandem stock appreciation right,
the participant will receive common shares with the same economic value as the
stock appreciation right represented. For each common share represented by the
stock appreciation right, this economic value equals the difference between the
fair market value of one common share on the date the participant surrenders the
stock appreciation right and the exercise or base price specified in the stock
appreciation right. The compensation committee may pay cash instead of our
common shares for a surrendered stock appreciation right.

RESTRICTED STOCK AWARDS. An award of restricted stock is an award of our
common shares that is subject to the forfeiture or transfer restrictions imposed
by the compensation committee. The compensation committee may grant awards of
restricted stock for or without consideration. Restrictions on restricted stock
may lapse in installments based on factors determined by the compensation
committee, which may waive or accelerate the lapsing of restrictions in whole or
in part in its sole discretion. Prior to the expiration of the restricted
period, except as the compensation committee may otherwise provide, a
participant will have the rights of a shareholder, including the right to vote
common shares and to receive dividends and other distributions, with respect to
the restricted stock awarded to him. DPEC, or an escrow agent designated by
DPEC, will hold the shares of restricted stock during the restricted period,
which may not be sold, assigned, transferred, pledged or otherwise encumbered
until lapse of these restrictions.

PERFORMANCE SHARE AWARDS. A performance share award is an award of units
giving a participant the right to receive a specified number of common shares or
cash, or both, after specified performance goals are met. The compensation
committee will determine these goals when it makes each performance share award.
The compensation committee has discretion to set the value of each performance
award, to adjust the performance goals as it deems equitable to reflect events
affecting DPEC, changes in law or accounting principles or other factors, and to
determine the form of payment for performance awards.

EMPLOYEE STOCK PURCHASE PLAN. Eligible employees may, from time to time,
have the opportunity to purchase common shares through payroll deductions during
offering periods established by the compensation committee. They will be able to
purchase common shares at a price that is not less than the lesser of 85% of the
fair market values of our common shares on the first or last day of the offering
period. Section 423 of the Internal Revenue Code imposes restrictions on
employee stock purchase plans, including limitations on the maximum value of
common shares an individual employee may purchase in any calendar year. The
first offering period will begin on the effective date of this offering.

UNRESTRICTED SHARES. The 1999 Stock Incentive Plan also permits the
compensation committee to grant unrestricted shares. Unrestricted shares would
entitle a participant to receive common shares without paying DPEC any
consideration for the shares.

The committee has broad discretion as to the specific terms and conditions
of each award and any applicable rules, including the effect, if any, of a
change in control of DPEC. A written instrument delivered to the participant
will evidence the terms of each award. The common shares issued under the 1999
Incentive Stock Plan are subject to applicable tax withholding by us which, to
the extent permitted by Rule 16b-3 under the Exchange Act, may be satisfied by
withholding common shares. A participant may not assign or transfer any awards
except by will or the laws of descent and distribution or under a qualified
domestic relations order.

Our board of directors may amend or terminate the 1999 Incentive Stock Plan
at any time, except that any amendment or termination that adversely affects
rights under any outstanding award would require the consent of the participant.
Our shareholders must approve any amendment the compensation committee
determines is necessary to comply with any tax or regulatory requirement.

CERTAIN TRANSACTIONS

The following are brief descriptions of transactions between us and any of
our directors, executive officers or shareholders known to us to own
beneficially more than 5% of our shares, or any member of the immediate family
of any of those persons, since January 1, 1996, where the amount involved
exceeded $60,000:

PURCHASE OF COMMON SHARES

In May 1996, we purchased 14,850 of our common shares from Frances Papalios,
our co-founder and a former member of our board of directors, for an aggregate
purchase price of $1,250,000. We paid $1,000,000 of the purchase price in cash
and the remaining portion with a promissory note issued to Ms. Papalios in the
original principal amount of $250,000. The promissory note issued to Ms.
Papalios bears interest at the rate of 8% per annum and matures on April 1,
2001. As of August 31, 1999, the outstanding principal on the promissory note
issued to Ms. Papalios was approximately $165,460, and we intend to use a
portion of the proceeds from this offering to repay the balance of the
promissory note issued to Ms. Papalios.

We financed the $1,000,000 cash portion of the purchase price by a
$1,000,000 loan from Ms. Clark. As of August 31, 1999, the outstanding principal
on our loan from Ms. Clark was approximately $738,095, and we intend to use a
portion of the proceeds from this offering to repay the balance of the loan. We
evidenced the loan from Ms. Clark by a promissory note issued to Ms. Clark that
accrues interest at a rate of 1% over prime and matures in November 2004. Ms.
Clark, in turn, financed a portion of her loan to us by a loan from a bank to
her in the original principal amount of $800,000. As a condition of extending
the bank loan to Ms. Clark, we were required by the bank to guarantee Ms.
Clark's obligation under the bank loan. In August 1999, Ms. Clark repaid the
outstanding balance of the bank loan from the proceeds of a loan from another
bank. As part of this refinancing, our guarantee of Ms. Clark's obligations was
released by the first bank and the successor bank did not require our guarantee.

In connection with our purchase of common shares from Ms. Papalios, we
entered into a noncompetition agreement with Ms. Papalios, pursuant to which we
paid Ms. Papalios the aggregate sum of $330,000 in six equal installments. We
pledged 4,950 common shares to Ms. Papalios as security for our payment
obligations under the promissory note and the noncompetition agreement. Ms.
Papalios has released all but 1,805 of the common shares from the pledge. We
have also entered into a shareholders agreement with Ms. Papalios, Ms. Clark and
their respective trusts. The shareholders agreement imposes certain restrictions
on, and grants certain rights to, the parties to the shareholders agreement with
respect to the ownership, sale or other transfer of their common shares. The
shareholders agreement will terminate when we repay the promissory note issued
to Ms. Papalios.

SALE OF PREFERRED SHARES

In August 1999, we sold 1,490 shares of series B convertible preferred stock
to River Cities Capital Fund II Limited Partnership for a cash purchase price of
$1,007.09 per share (an aggregate purchase price of $1,500,564). In September
1998, we sold 5,123 shares of senior convertible preferred stock to River Cities
Capital Group II Limited Partnership for a cash purchase price of $390.40 per
share (an aggregate purchase price of $2,000,000). In February 1999, River
Cities Capital Group II Limited Partnership transferred all of the senior
convertible preferred stock to River Cities Capital Fund II Limited Partnership.
Mr. Wilson, a member of our board of directors, is a principal of River Cities
Capital Fund II Limited Partnership.

REGISTRATION RIGHTS AGREEMENTS

In connection with the sales of our preferred shares, we have entered into a
registration rights agreement that gives the preferred shareholders demand and
piggyback registration rights. Any time after we complete this offering, the
holders of a majority or more of the registrable securities are entitled to
demand that we register their registrable securities under the Securities Act.
Additionally, the holders of the registrable securities are entitled to require
us to include their registrable securities in future registration statements
that we may file.

We also have entered into a registration rights agreement with Carol Clark,
Frances Papalios and Gary Qualmann and their respective trusts that requires us,
upon their request, to include their shares in future registration statements
that we may file. Please see "Description of Capital Stock-- Registration
Rights."

PRINCIPAL SHAREHOLDERS

The following table provides information regarding beneficial ownership of
our common shares as of , 1999, and as adjusted to reflect the sale
of shares offered hereby, by (1) each of our directors, (2) each executive
officer named in the Summary Compensation Table, (3) each person or group of
affiliated persons known by us to beneficially own more than 5% of our common
shares and (4) all directors and executive officers as a group.

Unless otherwise indicated, each person named in the table has sole voting
power and investment power, or shares voting and investment power with his or
her spouse, for all shares listed as owned by such person. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and includes voting or investment power with respect to the
securities. The number of common shares outstanding for each listed person
includes any shares the individual has the right to acquire within 60 days. For
purposes of calculating each person's or group's percentage ownership, stock
options exercisable within 60 days are included for that person or group but not
for the stock options of any other person or group.

PERCENT OF OWNERSHIP
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
- -------------------------------------------------------------------------------- ----------------- ----------- -----------

Carol A. Clark.................................................................. 22,275(2) 53.24% %
Gary W. Qualmann................................................................ 2,565(3) 6.01
H. Neal Ater.................................................................... 0 * *
Robert J. Massie................................................................ 0 * *
Murray R. Wilson................................................................ 6,613(4) 15.81
Frances Papalios(5)............................................................. 7,425(6) 17.75
A. Katrina Ramsey............................................................... 355(7) * *
Gary L. Carabin................................................................. 1,443(8) 3.44
James G. Marriott............................................................... 219 * *
River Cities Capital Fund II Limited Partnership(9)............................. 6,613(4) 15.81
All directors and executive officers as a group
(10 persons)(2)............................................................... 33,780(10) 78.86

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

* Represents beneficial ownership of less than 1% of outstanding common
shares.

(1) Unless otherwise indicated, the address for each beneficial owner is c/o
DPEC, Inc., 851 West Third Avenue, Columbus, Ohio 43212.

(2) Includes 4,000 shares held by Ms. Clark's spouse as sole trustee of a trust
created by Ms. Clark.

(3) Includes 844 common shares issuable upon the exercise of stock options and
1,100 shares held by Mr. Qualmann's spouse as sole trustee of a trust
created by Mr. Qualmann.

(4) Shares owned of record by River Cities Capital Fund II Limited Partnership,
the general partner of which is Mayson, Inc. Murray R. Wilson, a director of
DPEC, is a principal of River Cities Capital Fund II Limited Partnership and
may be deemed to have a beneficial ownership interest in the common shares
held by it.

(5) 4170 Waddington Road, Columbus, Ohio 43220.

(6) Includes 7,400 common shares held by Ms. Papalios as sole trustee of a trust
created by Ms. Papalios.

(7) Includes 55 common shares issuable upon the exercise of a stock option that
will vest upon the closing of this offering.

(8) Includes 100 common shares issuable upon the exercise of a stock option that
will vest upon the closing of this offering.

(9) 221 East Fourth Street, Cincinnati, Ohio 45202-4147.

(10) Includes 844 common shares issuable upon the exercise of stock options and
155 common shares issuable upon the exercise of stock options that will vest
upon the closing of this offering.

DESCRIPTION OF CAPITAL STOCK

OUR AUTHORIZED CAPITAL STOCK

Prior to the closing of this offering, we will have the following authorized
capital stock:

- common shares, no par value;

- 5,123 shares of senior convertible preferred stock, no par value; and

- 2,979 shares of series B convertible preferred stock, no par value.

Upon the closing of this offering, we will have the following authorized
capital stock:

- common shares, no par value; and

- preferred shares, no par value.

Upon the closing of this offering, we will have common shares
outstanding and no preferred shares outstanding.

COMMON SHARES

Voting:

- one vote for each share held of record on all matters submitted to a vote
of shareholders;

- no cumulative voting rights;

- election of directors by plurality of votes cast; and

- all other matters by majority of the votes cast.

Dividends:

- subject to preferential dividend rights of any outstanding preferred
shares, common shareholders are entitled to receive ratably declared
dividends; and

- the board of directors may only declare dividends out of legally available
funds.

Additional Rights:

- subject to the preferential liquidation rights of any outstanding
preferred shares, common shareholders are entitled to receive ratably net
assets, available after the payment of all debts and liabilities, upon our
liquidation, dissolution or winding up;

- no preemptive rights;

- no subscription rights;

- no redemption rights;

- no sinking fund rights; and

- no conversion rights.

The rights and preferences of common shareholders are subject to the right of
any series of preferred stock we may issue in the future.

PREFERRED STOCK

A total of 8,102 shares of preferred stock is outstanding as of the date of
this prospectus, consisting of 5,123 shares of senior convertible preferred
stock, no par value, and 2,979 shares of series B convertible preferred stock,
no par value. All of these outstanding preferred shares will be

converted automatically into common shares concurrently with the
closing of this offering. As a result, there will then be no preferred shares
outstanding and the preferred shares converted into common shares will be
retired automatically. We presently have no plans to issue any additional
preferred shares.

Effective upon the closing of this offering and the filing of the Second
Amended Articles of Incorporation of DPEC, Inc., we may, by resolution of our
board of directors, and without any further vote or action by our shareholders,
authorize and issue, subject to certain limitations prescribed by law, up to an
aggregate of preferred shares. These preferred shares will consist of
voting preferred shares and nonvoting preferred shares. The
preferred shares may be issued in one or more classes or series of shares of any
class or series. With respect to any classes or series, the board of directors
may determine the designation and the number of shares, preferences, limitations
and special rights, including dividend rights, conversion rights, redemption
rights and liquidation preferences. Because of the rights that may be granted,
the issuance of preferred shares may delay, defer or prevent a change of
control.

ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, CODE OF REGULATIONS AND THE
OHIO GENERAL CORPORATION LAW

There are provisions in our articles of incorporation and code of
regulations, and the Ohio Revised Code that could discourage potential takeover
attempts and make attempts by shareholders to change management more difficult.
These provisions could adversely affect the market price of our shares. In
addition to our preferred shares described above:

STAGGERED BOARD

The board of directors is divided into two classes, with regular two-year
staggered terms and initial terms expiring at the 2000 annual meeting of
shareholders for class I directors and the 2001 annual meeting of shareholders
for class II directors. This classification system increases the difficulty of
replacing a majority of the directors and may tend to discourage a third-party
from making a tender offer or otherwise attempting to gain control of us. It
also may maintain the incumbency of our board of directors.

NO SHAREHOLDER ACTION BY WRITTEN CONSENT

Ohio law generally requires that an action by written consent of the
shareholders in lieu of a meeting be unanimous. One exception is that the code
of regulations may be amended by an action by written consent of holders of
shares entitling them to exercise two-thirds of the voting power unless
otherwise provided in the articles of incorporation or code of regulations. Our
code of regulations provides that no action to amend the code of regulations may
be taken by a written consent of shareholders without a meeting. This provision
may have the effect of delaying, deferring or preventing a tender offer or
takeover attempt that a shareholder might consider in its best interest.

SUPERMAJORITY VOTING PROVISIONS

The following provisions in our code of regulations may not be repealed or
amended without the vote of the holders of not less than 66 2/3% of the total
voting power of DPEC:

- number and classification of directors;

- removal of directors;

- elimination of shareholder action by written consent to amend the code of
regulations;

- indemnification of directors; and

- supermajority voting.

ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS

Shareholders who want to bring business before an annual meeting of
shareholders or nominate candidates for election as directors must provide
advanced notice in writing within the time periods and in the form specified in
our code of regulations. Shareholders who do not fully comply with the
requirements of the code of regulations will be unable to bring matters before
the meeting or nominate candidates for election as directors.

MERGER MORATORIUM STATUTE

On completion of the offering, we will be deemed to be an issuing public
corporation under Ohio law. Chapter 1704 of the Ohio Revised Code governs
transactions between an issuing public corporation and

- an "interested shareholder," which, generally, means someone who becomes a
beneficial owner of 10% or more of the shares of the corporation without
the prior approval of the board of directors of the corporation; and

- persons affiliated or associated with an interested shareholder.

For at least three years after an interested shareholder becomes such, the
following transactions are prohibited if they involve both the issuing public
corporation and either an interested shareholder or anyone affiliated or
associated with an interested shareholder:

- the disposition or acquisition of any interest in assets;

- mergers, consolidations, combinations and majority share acquisitions;

- voluntary dissolutions or liquidations; and

- the issuance or transfer of shares or any rights to acquire shares in
excess of 5% of the outstanding shares

Subsequent to the three-year period, these transactions may take place
provided that either of the following conditions are satisfied:

- the transaction is approved by the holders of shares with at least
two-thirds of the voting power of the corporation, or a different
proportion set forth in the articles of incorporation, including at least
a majority of the outstanding shares after excluding shares controlled by
the interested shareholder; or

- the business combination results in shareholders, other than the
interested shareholder, receiving a fair price, as determined by Section
1704.03(A)(4), for their shares.

If, prior to the acquisition of shares by which a person becomes an
interested shareholder, the board of directors of the corporation approves the
transaction by which the person would become an interested shareholder, then
Chapter 1704's prohibition does not apply. The prohibition imposed by Chapter
1704 continues indefinitely after the initial three-year period unless the
subject transaction is approved by the requisite vote of the shareholders or
satisfies statutory conditions relating to the fairness of consideration
received by shareholders, other than the interested shareholder.

The Merger Moratorium Statute does not apply to a corporation whose articles
of incorporation or code of regulations so provide. We have not opted out of the
application of the Merger Moratorium Statute.

CONTROL SHARE ACQUISITION ACT

Section 1701.831 of the Ohio Revised Code, known as the Control Share
Acquisition Act, provides that certain notice and informational filings and
special shareholder meetings and voting procedures must occur prior to
consummation of a proposed "control share acquisition." "Control share
acquisition" is defined as any acquisition of an issuer's shares that would
entitle the acquirer to exercise or direct the voting power of the issuer in the
election of directors within any of the following ranges:

- one-fifth or more but less than one-third of such voting power;

- one-third or more but less than a majority of such voting power; or

- a majority or more of such voting power.

Assuming compliance with the notice and information filing requirements
prescribed by the statute, the proposed control share acquisition may take place
only if the acquisition is approved by both:

- a majority of the voting power of the issuer represented at a special
shareholders' meeting and

- a majority of the voting power remaining after excluding the combined
voting power of the intended acquirer, directors of the issuer who are
also employees and officers of the issuer, and persons that acquire
specified amounts of shares after the public disclosure of the proposed
control share acquisition.

The Control Share Acquisition Act does not apply to a corporation whose
articles of incorporation or code of regulations so provide. We have not opted
out of the application of the Control Share Acquisition Act.

REGISTRATION RIGHTS

In connection with sales of our preferred shares, we have entered into an
amended and restated registration rights agreement that gives the preferred
shareholders demand and piggyback registration rights. After the completion of
this offering and the automatic conversion of such preferred shares into common
shares, the holders of common shares ("registrable securities") will be
entitled to demand registration of their registrable securities under the
Securities Act. Any time after we complete this offering, the holders of a
majority or more of the registrable securities are entitled to demand that we
register their registrable securities under the Securities Act. In addition, the
holders of registrable securities are entitled to require us to include their
registrable securities in future registration statements that we may file. These
registration rights are subject to various conditions and limitations, including
the right of the underwriters of an offering to limit the number of registrable
securities that may be included in the offering. In addition, holders of all of
these shares are restricted from exercising their demand rights until 180 days
after the date of this prospectus. We are generally required to bear all of the
expenses of these registrations, except underwriting discounts and selling
commissions. Registration of any of the registrable securities held by security
holders with registration rights will result in shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration.

We have also entered into a registration rights agreement with Carol A.
Clark, Frances Papalios, Gary W. Qualmann and their respective trusts. After the
completion of this offering, these shareholders are entitled to require us to
include any of the common shares owned by them in future registration statements
that we may file. These registration rights are subject to various conditions
and limitations, including the right of the underwriters of an offering to limit
the number of registrable securities that may be included in the offering. We
are generally required to bear all of the expenses of these registrations,
except underwriting discounts and selling commissions.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common shares is
.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common shares
applicable to Non-U.S. Holders of common shares who acquire and own such shares
as a capital asset within the meaning of section 1221 of the Internal Revenue
Code. A "Non-U.S. Holder" is any person other than

- a citizen or resident of the United States;

- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any state;

- an estate whose income is includable in gross income for United States
federal income tax purposes regardless of its source; or

- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.

For purposes of the withholding tax on dividends discussed below, a non-resident
fiduciary of an estate or trust will be considered a Non-U.S. Holder. An
individual may, subject to certain exceptions, be deemed to be a resident alien
(as opposed to a non-resident alien) by virtue of being present in the United
States on at least 31 days in the calendar year and for an aggregate of at least
183 days during a three-year period ending in the current calendar year
(counting for these purposes all of the days present in the current year, one
third of the days present in the immediately preceding year, and one-sixth of
the days present in the second preceding year). Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens and, thus, are not Non-U.S.
Holders for purposes of this discussion.

This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position, including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of common shares may be affected by
certain determinations made at the partner level, and does not consider U.S.
state and local or non-U.S. tax consequences. Further, it does not consider
Non-U.S. Holders subject to special tax treatment under the federal income tax
laws, including banks and insurance companies, dealers in securities and holders
of securities held as part of a "straddle," "hedge" or "conversion transaction."
In addition, persons that hold the common shares through "hybrid entities" may
be subject to special rules and may not be entitled to the benefits of a U.S.
income tax treaty. A hybrid entity is treated as a partnership for U.S. tax
purposes and as a corporation for foreign law purposes. The following discussion
is based on provisions of the Internal Revenue Code and administrative and
judicial interpretations as of the date hereof, all of which are subject to
change, possibly on a retroactive basis, any change could affect the continuing
validity of this discussion. THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR
GENERAL INFORMATION. ACCORDINGLY, IF YOU ARE A NON-U.S. HOLDER, WE URGE YOU TO
CONSULT A TAX ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL TAX CONSEQUENCES
OF HOLDING AND DISPOSING OF OUR COMMON SHARES, AS WELL AS ANY TAX CONSEQUENCES
THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR OTHER NON-U.S. TAXING
JURISDICTION.

DIVIDENDS. In general, assuming we have, and to the extent of, tax earnings
and profits at the time of any dividends, dividends paid to a Non-U.S. Holder
will be subject to withholding of U.S. federal income tax at a 30% rate unless
this rate is reduced by an applicable income tax treaty. Dividends that are
effectively connected with the holder's conduct of a trade or business in the
United States, or, if a tax treaty applies, attributable to a permanent
establishment or in the case of an individual a "fixed base," in the United
States ("U.S. trade or business income") are generally subject to U.S. federal
income tax at regular rates and are not generally subject to withholding if the
Non-U.S. Holder files the appropriate U.S. Internal Revenue form with the payor.
Any U.S. trade or business income received by a non U.S. corporation may also,
under certain circumstances, be subject to an additional

"branch profits tax" at a 30% rate, or any lower rate that may be applicable
under an income tax treaty.

Under current law, dividends paid to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above, and under the
current interpretation of U.S. Treasury regulations, for purposes of determining
the applicability of a tax treaty rate. Under final U.S. Treasury regulations,
effective January 1, 2001, however, a Non-U.S. Holder of common shares who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification and other requirements, which would include the
requirements that the Non-U.S. Holder file a Form W-8 BEN which contains the
holder's name and address.

A Non-U.S. Holder of common shares that is eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for a refund
with the U.S. Internal Revenue Service.

DISPOSITION OF COMMON SHARES. Except as described below, a Non-U.S. Holder
generally will not be subject to U.S. federal income tax in respect of gain
recognized on a disposition of common shares provided that

- the gain is not U.S. trade or business income;

- the Non-U.S. Holder is an individual who is not present in the United
States for 183 or more days in the taxable year of the disposition and who
meets certain other requirements;

- the Non-U.S. Holder is not subject to tax pursuant to the provisions of
U.S. tax law applicable to certain United States expatriates; and

- the Company has not been and does not become a "United States real
property holding corporation" for U.S. federal income tax purposes.

The Company believes that it has not been, is not currently, and is not
likely to become, a United States real property holding corporation. However, no
assurance can be given that the Company will not be a United States real
property corporation when a Non-U.S. Holder sells its shares of common shares.

FEDERAL ESTATE TAXES. In general, an individual who is a Non-U.S. Holder
for U.S. estate tax purposes will incur liability for U.S. federal estate tax if
the fair market value of property included in the individual's taxable estate
for U.S. federal estate tax purposes exceeds the statutory threshold amount. For
these purposes, common shares owned or treated as owned, by an individual who is
a Non-U.S. Holder at the time of death will be included in the individual's
gross estate for U.S. federal tax purposes unless an applicable estate tax
treaty provides otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX. We are
required to report annually to the Internal Revenue Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in which the
Non-U.S. Holder resides. Under current regulations, the United States backup
withholding tax, which generally is a withholding tax imposed at the rate of 31%
on certain payments to persons that fail to furnish the information reporting
requirements, will generally not apply to dividends paid on the common shares to
a Non-U.S. Holder at an address outside the United States. Under final Treasury
regulations, effective January 1, 2001, a Non-U.S. Holder generally would not be
subject to backup withholding at a 31% rate if the beneficial owner certifies to
that owner's foreign status on a valid Form W-8 BEN.

Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
common shares effected by a foreign office of a foreign broker provided however
that if the broker is a U.S. person or a "U.S. related person," information
reporting but not backup withholding would apply unless the broker receives a
statement from the owner, signed under penalties of perjury, certifying its
foreign status or otherwise establishing an exemption or the broker has
documentary evidence in its files as to the Non-U.S. Holder's foreign status and
the broker has no actual knowledge to the contrary. For this purpose, a "U.S.
related person" is

- a "controlled foreign corporation" for U.S. federal income tax purposes;

- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment (or for the part of the period that the broker has been in
existence) is derived from activities that are effectively connected with
the conduct of a U.S. trade or business;

- a foreign partnership that is either engaged in a U.S. trade or business
or in which U.S. persons hold more than 50% of the income or capital
interest; or

- certain U.S. branches of foreign banks or insurance companies.

Non-U.S. Holders will be subject to information reporting and backup
withholding at a rate of 31% with respect to the payment of proceeds from the
disposition of common shares effected by to or through the United States office
of a broker, U.S. or foreign, unless the Non-U.S. Holder certifies as to its
foreign status under penalties of perjury or otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder's U.S.
federal income tax, and any amounts withheld in excess of the Non-U.S. Holder's
federal income tax liability will be refunded, provided that the required
information is furnished to the Internal Revenue Service.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
shares, and no prediction can be made as to the effect, if any, that market
sales of common shares or the availability of common shares for sale will have
on the market price of our common shares prevailing from time to time.
Nevertheless, sales of substantial amounts of common shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of our common shares and could impair our future ability to
raise capital through the sale of our equity securities.

Upon the closing of this offering, we will have an aggregate of
common shares outstanding, assuming no exercise of the underwriters'
over- allotment option and no exercise of outstanding stock options, and
common shares will be issuable upon exercise of outstanding stock
options. The shares sold in this offering will be freely tradable, except that
any shares held by our "affiliates" (as that term is defined in Rule 144
promulgated under the Securities Act) may only be sold in compliance with the
limitations described below.

The common shares outstanding after this offering and held by our
affiliates will be deemed "restricted securities" as defined under Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 promulgated under
the Securities Act, which is summarized below. After taking into account the

180-day lock-up agreements described below and the provisions of Rule 144,
additional shares will be available for sale in the public market as follows:

NUMBER OF SHARES DATE
- ---------------------------------------------- ----------------------------------------------

180 days after the date of this prospectus
At various times after 180 days after the date
of this prospectus

Approximately of the shares that will become eligible for resale after
the expiration of the 180-day lock-up agreements are held by affiliates and,
therefore, will remain subject to the volume limitations and other restrictions
of Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:

- 1% of the then outstanding common shares (approximately shares
immediately after this offering); or

- the average weekly trading volume in the common shares during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions.

A person who is not deemed to have been an affiliate at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years would be entitled to sell such shares without regard
to the requirements described above. To the extent that shares were acquired
from an affiliate, the transferee's holding period for the purpose of effecting
a sale under Rule 144 commences on the date of transfer from the affiliate.

All of our directors, officers and shareholders, and our option holders,
have agreed that they will not, without the prior written consent of the
representatives of the underwriters, sell or otherwise dispose of any common
shares or options to acquire common shares during the 180-day period following
the date of this prospectus. See "Underwriting."

We intend to file a Form S-8 registration statement under the Securities Act
on or immediately after the date of this prospectus to register all common
shares issuable under the 1999 Incentive Stock Plan and the 1999 Employee Stock
Purchase Plan. This registration statement will automatically become effective
upon filing. Accordingly, shares covered by this registration statement will
thereupon be eligible for sale in the public markets, unless the options are
subject to vesting restrictions or the contractual restrictions described above.
See "Management--1999 Incentive Stock Plan."

We have agreed not to sell or otherwise dispose of any common shares during
the 180-day period following the date of the prospectus, except we may issue,
and grant options to purchase, common shares and we may offer and sell common
shares under our 1999 Incentive Stock Plan. In addition, we may issue common
shares in connection with any acquisition of another company if the terms of the
issuance provide that the common shares may not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See "Risk
Factors--Future sales by our existing shareholders could adversely affect the
market price of our common shares."

Following this offering, in some circumstances and subject to conditions,
holders of our outstanding common shares will have demand registration rights
(subject to the 180-day lock-up arrangement described above) to require us to
register their common shares under the Securities Act, and they will have rights
to participate in any future registration of securities by us. See "Description
of Capital Stock--Registration Rights."

UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement of which this prospectus is a part, each of the
underwriters named below, for whom Lehman Brothers Inc., Warburg Dillon Read LLC
and J.C. Bradford & Co. are acting as representatives, has agreed to purchase
from us the respective number of common shares shown opposite its name below:

NUMBER OF
UNDERWRITER COMMON SHARES
- ----------------------------------------------------------------------------- ---------------

Lehman Brothers Inc..........................................................
Warburg Dillon Read LLC......................................................
J.C. Bradford & Co...........................................................

-------
Total........................................................................
-------
-------

The underwriting agreement provides that the underwriters' obligations to
purchase common shares are subject to certain conditions, and that if any of the
foregoing common shares are purchased by the underwriters pursuant to an
underwriting agreement, all of the common shares that the underwriters have
agreed to purchase pursuant to the underwriting agreement must be so purchased.

The representatives have advised us that the underwriters propose to offer
the common shares directly to the public at the public offering price set forth
on the cover page of this prospectus, and to certain selected dealers, who may
include the underwriters, at such public offering price less a selling
concession not in excess of $ per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.

The following table summarizes the compensation and estimated expenses we
will pay.

TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------

Underwriting discounts and commissions............. $ $ $

We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .

We have granted to the underwriters an option to purchase up to an aggregate
of common shares, exercisable solely to cover over-allotments, if any,
at the public offering price less the underwriting discounts and commissions
shown on the cover page of this prospectus. Such option may be exercised at any
time, and from time to time, until 30 days after the date of the underwriting
agreement. To the extent that the underwriters exercise this option, each
underwriter will be committed, subject to certain conditions, to purchase a
number of additional common shares proportionate to such underwriter's initial
commitment, as indicated in the preceding table, and we will be obligated, under
such over-allotment option, to sell such common shares to the underwriters.

We and all of our directors, officers shareholders and option holders,
holding an aggregate of common shares, have agreed not to offer to
sell, sell or otherwise dispose of, directly or indirectly, any common shares
during the 180-day period following the date of the prospectus without the prior
written consent of Lehman Brothers Inc., except that we may issue, and grant
options to purchase, common shares under our 1999 Incentive Stock Plan. See
"Risk Factors--You will experience immediate and substantial dilution in the
book value of your investment" and "Shares Eligible for Future Sale."

Prior to the offering, there has been no public market for the common
shares. The initial public offering price was negotiated between the
representatives and us. In determining the initial public offering price of the
common shares, the representatives considered, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earning prospects, an overall
assessment of our management and the consideration of the above factors in
relation to market valuation of companies in related businesses.

Application has been made to have the common shares approved for quotation
on the Nasdaq National Market under the symbol "DPEC."

We have agreed to indemnify the underwriters against liabilities related to
the offering, including liabilities under the Securities Act, and to contribute,
under defined circumstances, to payments that the underwriters may be required
to make in respect thereof.

Until the distribution of the common shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase common shares. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of common shares. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common shares.

If the underwriters create a short position in the common shares in
connection with the offering (i.e., they sell more shares than are set forth on
the cover page of this prospectus), the representatives may reduce that short
position by purchasing common shares in the open market. The representatives
also may elect to reduce any short position by exercising all or part of the
over-allotment option described herein.

The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of common shares
offered by them. The representatives also may impose a penalty bid on
underwriters and selling group members. This means that if the representatives
purchase common shares in the open market to reduce the underwriters' short
position or to stabilize the price of the common shares, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid could have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common shares. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these stabilizing transactions or that these transactions, once
commenced, will not be discontinued without notice.

Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which a
sale is made.

Purchasers of the common shares offered in this prospectus may be required
to pay stamp taxes and other charges under the laws and practices of the country
of purchase, in addition to the offering price listed on the cover of this
prospectus.

At our request, the underwriters have reserved up to % of the common
shares offered hereby for sale to certain of our employees, directors and
friends at the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus and must agree to be
subject to the 180-day lock-up described above. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase such reserved shares.

LEGAL MATTERS

The validity of the common shares offered hereby will be passed upon for
DPEC by Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Weil, Gotshal & Manges LLP, New York, New York.

EXPERTS

The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common shares
offered hereby. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further information
about us and the common shares offered hereby, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.

The registration statement (and all amendments, exhibits and schedules
thereto) may be inspected without charge at the principal office of the
Securities and Exchange Commission in Washington, D.C. and copies of all or any
part thereof may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by mail from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Securities and Exchange Commission maintains a Website
(http//www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission.

We intend to distribute to our shareholders annual reports containing
audited consolidated financial statements.

DPEC, INC.

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report.......................................................... F-2

Balance Sheets........................................................................ F-3

Statements of Operations.............................................................. F-4

Statements of Changes in Shareholder's Equity (Deficiency)............................ F-5

Statements of Cash Flows.............................................................. F-6

Notes to Financial Statements......................................................... F-7

F-1

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
DPEC, Inc.:

We have audited the accompanying balance sheets of DPEC, Inc. as of December
31, 1997 and 1998, and the related statements of operations, changes in
shareholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

/s/ Deloitte & Touche LLP

September 15, 1999

F-2

DPEC, INC.

BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE DATA)

PRO FORMA
SHAREHOLDERS'
EQUITY
DECEMBER 31, JUNE 30,
-------------------- JUNE 30, 1999
1997 1998 1999 (NOTE 9)
--------- --------- --------- -------------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash.............................................................. $ -- $ 1,835 $ 903
Accounts receivable, net.......................................... 2,196 1,966 1,905
Prepaid expenses.................................................. 179 161 189
--------- --------- ---------
Total current assets.......................................... 2,375 3,962 2,997

PROPERTY AND EQUIPMENT:
Office furniture and equipment.................................... 630 859 1,077
Leasehold improvements............................................ -- 72 222
--------- --------- ---------
Total......................................................... 630 931 1,299
Less accumulated depreciation and amortization.................... (360) (534) (626)
--------- --------- ---------
Property and equipment--net................................... 270 397 673

OTHER ASSETS--net................................................... 123 21 22
--------- --------- ---------
TOTAL............................................................... $ 2,768 $ 4,380 $ 3,692
--------- --------- ---------
--------- --------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Accounts payable.................................................. $ 369 $ 417 $ 405
Accrued compensation.............................................. 328 480 657
Other accrued expenses............................................ 176 193 149
Borrowings under line of credit................................... 965 -- --
Current portion of notes payable, related parties................. 275 227 235
Deferred revenue.................................................. 1,610 1,035 913
--------- --------- ---------
Total current liabilities..................................... 3,723 2,352 2,359

NOTES PAYABLE, Related parties--Less current portion................ 1,104 868 692

DEFERRED REVENUE.................................................... 137 460 282

CONVERTIBLE REDEEMABLE PREFERRED STOCK.............................. -- 1,893 1,893 $ --

COMMITMENTS AND CONTINGENCIES (Note 3)

SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 60,000 shares authorized,
44,550 shares issued............................................ 28 55 55 1,948
Treasury stock, at cost........................................... (1,108) (935) (935) (935)
Retained earnings (accumulated deficit)........................... (1,116) (313) (654) (654)
--------- --------- --------- -------------
Total shareholders' equity (deficiency)....................... (2,196) (1,193) (1,534) $ 359
--------- --------- --------- -------------
-------------
TOTAL............................................................... $ 2,768 $ 4,380 $ 3,692
--------- --------- ---------
--------- --------- ---------

See notes to financial statements.

F-3

DPEC, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED
DECEMBER 31, ------------------------
------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)

REVENUES:
Courseware sales................................................ $ 4,405 $ 6,150 $ 11,000 $ 4,851 $ 6,398
Other revenue................................................... 2,440 1,731 793 558 45
--------- --------- --------- ----------- -----------
Total revenue............................................... 6,845 7,881 11,793 5,409 6,443
--------- --------- --------- ----------- -----------
COST OF SALES--Courseware product cost and royalties.............. 326 342 723 308 463
--------- --------- --------- ----------- -----------
GROSS PROFIT...................................................... 6,519 7,539 11,070 5,101 5,980

OPERATING EXPENSES:
Sales and marketing............................................. 2,672 3,527 4,846 2,060 2,829
Product development............................................. 1,471 2,036 2,380 1,060 1,903
General and administrative...................................... 1,548 1,615 2,314 1,073 1,300
--------- --------- --------- ----------- -----------
Total operating expenses.................................... 5,691 7,178 9,540 4,193 6,032
--------- --------- --------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS..................................... 828 361 1,530 908 (52)

INTEREST EXPENSE, Net:
Interest expense, related parties............................... 91 130 106 59 45
Interest expense, other......................................... 64 54 33 33 11
Interest income................................................. (5) (3) (33) -- (32)
--------- --------- --------- ----------- -----------
Total interest expense, net................................. 150 181 106 92 24
--------- --------- --------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................................. 678 180 1,424 816 (76)

PROVISION FOR INCOME TAXES........................................ 1,033 -- -- -- --
--------- --------- --------- ----------- -----------
NET INCOME (LOSS)................................................. $ (355) $ 180 $ 1,424 $ 816 $ (76)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic........................................................... $ (9.87) $ 5.67 $ 42.74 $ 24.81 $ (2.26)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Diluted......................................................... $ (9.87) $ 5.67 $ 40.67 $ 24.81 $ (2.26)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
UNAUDITED PRO FORMA INCOME DATA (NOTE 9):

INCOME BEFORE INCOME TAXES........................................ 678 180 1,424 816

PROVISION FOR INCOME TAXES........................................ 269 64 566 321
--------- --------- --------- -----------
NET INCOME........................................................ $ 409 $ 116 $ 858 $ 495
--------- --------- --------- -----------
--------- --------- --------- -----------
NET INCOME PER SHARE OF COMMON STOCK
Basic........................................................... $ 11.38 $ 3.64 $ 25.75 $ 15.07
--------- --------- --------- -----------
--------- --------- --------- -----------
Diluted......................................................... $ 11.38 $ 3.64 $ 24.51 $ 15.07
--------- --------- --------- -----------
--------- --------- --------- -----------

See notes to financial statements.

F-4

DPEC, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

(IN THOUSANDS)

COMMON STOCK RETAINED
------------------------ TREASURY STOCK EARNINGS
SHARES ---------------------- (ACCUMULATED
ISSUED AMOUNT SHARES AMOUNT DEFICIT)
----------- ----------- ----------- --------- -------------

BALANCE--January 1, 1996.......................... 45 $ .5 -- -- $ (941)
--
----- -------------
Net loss.......................................... -- -- -- -- (355)
Purchase of treasury stock........................ -- -- 15 $ (1,284) --
Sale of treasury stock............................ -- 27.5 (2) 176 --
-- --
----- --------- -------------
BALANCE--December 31, 1996........................ 45 28 13 (1,108) (1,296)
Net income........................................ -- -- -- -- 180
-- --
----- --------- -------------
BALANCE--December 31, 1997........................ 45 28 13 (1,108) (1,116)
Net income........................................ -- -- -- -- 1,424
Distributions to shareholders..................... -- -- -- -- (621)
Sale of treasury stock............................ 27 (2) 173
-- --
----- --------- -------------
BALANCE--December 31, 1998........................ 45 55 11 (935) (313)
Net loss (unaudited).............................. -- -- -- -- (76)
Distributions to shareholders (unaudited)......... -- -- -- -- (265)
-- --
----- --------- -------------
BALANCE--June 30, 1999 (unaudited)................ 45 $ 55 11 $ (935) $ (654)
-- --
-- --
----- --------- -------------
----- --------- -------------

TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIENCY)
-----------------

BALANCE--January 1, 1996.......................... $ (941)

-------
Net loss.......................................... (355)
Purchase of treasury stock........................ (1,284)
Sale of treasury stock............................ 204

-------
BALANCE--December 31, 1996........................ (2,376)
Net income........................................ 180

-------
BALANCE--December 31, 1997........................ (2,196)
Net income........................................ 1,424
Distributions to shareholders..................... (621)
Sale of treasury stock............................ 200

-------
BALANCE--December 31, 1998........................ (1,193)
Net loss (unaudited).............................. (76)
Distributions to shareholders (unaudited)......... (265)

-------
BALANCE--June 30, 1999 (unaudited)................ $ (1,534)

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

See notes to financial statements.

F-5

DPEC, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------
---------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1998 1999
----------- --------- ---------- ----------- ----------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ (355) $ 180 $ 1,424 $ 816 $ (76 )
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 127 235 282 128 108
Deferred income taxes............... 687 -- -- -- --
Loss on sale of property and
equipment......................... 15 -- -- -- --
Decrease (increase) in certain
assets:
Accounts receivable............... (491) (645) 230 (74) 61
Prepaid expenses and other
assets.......................... (20) (60) 13 56 (29 )
Increase (decrease) in certain
liabilities:
Accounts payable.................. 150 (14) 167 (105) (12 )
Accrued expenses.................. 3 218 169 187 133
Deferred revenues................. 110 110 (252) (472) (300 )
----------- --------- ---------- ----------- ----------
Net cash provided by (used in)
operating activities.......... 226 24 2,033 536 (115 )
----------- --------- ---------- ----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES--Purchases of property and
equipment............................. (157) (198) (302) (83) (384 )
----------- --------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under bank note............ -- -- 250 250 --
Borrowings under notes payable........ 1,000 -- -- -- --
Bank overdraft........................ 39 80 (119) -- --
Principal payments on notes payable... (115) (154) (284) (117) (168 )
Principal payments on bank note....... -- -- (250) (13) --
Borrowings under line of credit....... 1,250 5,127 3,571 3,043 515
Repayments under line of credit....... (1,475) (4,887) (4,536) (3,816) (515 )
Distributions to shareholders......... -- -- (621) -- (265 )
Proceeds from issuance of preferred
stock............................... -- -- 1,893 -- --
Purchase of treasury stock............ (1,034) -- -- -- --
Sale of treasury stock................ 204 -- 200 200 --
----------- --------- ---------- ----------- ----------
Net cash provided by (used in)
financing activities.......... (131) 166 104 (453) (433 )
----------- --------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH......... (62) (8) 1,835 -- (932 )
CASH--Beginning of period............... 70 8 -- -- 1,835
----------- --------- ---------- ----------- ----------
CASH--End of period..................... $ 8 $ -- $ 1,835 $ -- $ 903
----------- --------- ---------- ----------- ----------
----------- --------- ---------- ----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH PAID
DURING THE YEAR:
Interest.............................. $ 151 $ 190 $ 138 $ 91 $ 50
----------- --------- ---------- ----------- ----------
----------- --------- ---------- ----------- ----------
Income taxes.......................... $ 254 $ 4 $ -- $ -- $ 10
----------- --------- ---------- ----------- ----------
----------- --------- ---------- ----------- ----------
NONCASH TRANSACTIONS:
Non-competition agreement financed
through note payable................ $ 293
-----------
-----------
Purchase of treasury shares through
note payable........................ $ 250
-----------
-----------

See notes to financial statements.

F-6

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS--DPEC, Inc. (the Company), founded in 1981, is a
leading provider of Web-based training courses and services designed to meet the
needs of businesses, government agencies, non-profit organizations and
individual consumers worldwide.

LONG-LIVED ASSETS--The company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. No such impairment losses have been identified
by the Company.

PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization are provided using the straight-line method over
the following estimated useful lives: Office furniture and equipment, 5 years;
automobiles and computer hardware, 3 years; and leasehold improvements, the
related lease term.

OTHER ASSETS--Other assets includes a non-compete agreement with a former
officer of the Company and deposits. The non-compete agreement is amortized over
30 months, the term of the agreement. The non-compete agreement was fully
amortized in 1998.

The Company recorded amortization expense of approximately $68,000, $117,000
and $108,000 in the years ended December 31, 1996, 1997 and 1998, respectively,
related to the non-compete agreement, which is included in general and
administrative expense. Accumulated amortization is $186,000 at December 31,
1997.

REVENUE RECOGNITION--Beginning in fiscal 1998, the Company adopted Statement
of Position ("SOP") 97-2 "Software Revenue Recognition" as amended by SOP 98-4.
The effect of adoption did not have a material impact on the Company's results
of operations. Courseware revenues from perpetual licenses, annual licenses and
multi-year licenses are recognized upon delivery of the courseware, provided the
fees are fixed or determinable and collections of accounts receivable are
probable. Certain annual and multi-year licenses allow customers to exchange
products over a specified period of time. Revenue related to these licenses is
recognized ratably over the license term. The unamortized portion of the license
revenue is included in deferred revenue. Revenue related to Internet Service
Provider and affinity channel partners is recognized ratably over the
subscription period.

The cost of providing any Post Contract Support ("PCS") is accrued at the
time revenue is recognized, as: 1) PCS fees are included with the initial
license and are for one year or less; 2) the estimated cost of providing PCS
during the license term is insignificant; and 3) unspecified upgrades or
enhancements offered have been and are expected to be minimal and infrequent.

OTHER REVENUE--Prior to February 1999, the Company offered third-party
produced courseware to its customers. The Company recognized a net royalty
related to these sales. As of February 1999 the Company discontinued the
licensing of these products to new customers.

COST OF SALES--Cost of sales includes materials (such as diskettes, compact
discs, packaging and documentation), royalties paid to third parties and
fulfillment costs.

PRODUCT DEVELOPMENT--Product development expenditures are charged to
operations as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", requires capitalization of certain software

F-7

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development costs subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Development costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant.

ADVERTISING COSTS--The Company expenses advertising costs as they are
incurred. Advertising expense was $233,000, $336,000, $272,000 and $341,000 in
1996, 1997, 1998 and the six months ended June 30, 1999, respectively.

NET INCOME (LOSS) PER SHARE OF COMMON STOCK--For purposes of computing net
income (loss) per share of common stock, weighted average shares are computed as
follows:

(UNAUDITED)
----------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE
------------------------------- 30, 30,
1996 1997 1998 1998 1999
--------- --------- --------- ------------- -------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

Denominator:
Denominator for basic net income (loss) per share
of common stock--weighted average shares
outstanding..................................... 35,965 31,737 33,315 32,886 33,787
Effect of dilutive securities:
Convertible preferred stock..................... -- -- 1,502 -- --
Stock options................................... -- -- 191 -- --
--------- --------- --------- ------------- -------------
Denominator for diluted net income (loss) per
share............................................. 35,965 31,737 35,008 32,886 33,787
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------

As the Company had net losses for the six months ended June 30, 1999,
potential dilutive securities related to convertible preferred stock (5,123
shares) and employee stock options (1,333 shares) are excluded from the
computation of diluted per share amounts.

MANAGEMENT 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 disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

IMPACT OF NEW ACCOUNTING STANDARDS--In December 1998, the AICPA issued SOP
98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" which addresses software revenue recognition as it applies
to certain multiple-element arrangements. SOP 98-9 also amends SOP 98-4,
"Deferral of the Effective Date of a Provision of SOP 97-2" to extend the
deferral of the application of certain passages of SOP 97-2 through fiscal years
beginning on or before March 15, 1999. All other provisions are effective for
transactions entered into in fiscal years beginning after March 15, 1999.
Management does not believe that this pronouncement will have a material effect
on its financial statements.

ACCOUNTING FOR INCOME TAXES--The Company accounts for income taxes pursuant
to SFAS No. 109, "Accounting for Income Taxes", which uses the liability method
to calculate deferred income taxes.

FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amount of cash, accounts
receivable, accounts payable and accrued liabilities at December 31, 1997, 1998
and June 30, 1999 approximate the fair

F-8

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value of the financial assets and liabilities due to the short maturity of the
instruments. The carrying amount of borrowings under the line of credit at
December 31, 1997 and the carrying amount of notes payable at December 31, 1997
and 1998 and June 30, 1999 approximate the fair value of the financial
liabilities, due to the instruments having either variable or fixed rates of
interest comparable to the rates currently available to the Company for debt
with similar remaining maturities.

CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to concentration of credit risk consists principally of cash
investments and trade receivables. The Company invests its excess cash in
deposits with major banks. The Company performs periodic evaluations of the
relative credit standing of all the financial institutions dealt with by the
Company, and considers the related credit risk to be minimal. The principal
market for the Company's products comprises major U.S. national and
multi-national organizations. The Company performs ongoing credit evaluations of
its customers. To date credit losses have been minimal. The Company generally
requires no collateral from its customers.

INTERIM FINANCIAL INFORMATION--The interim financial statements as of June
30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited but
contain all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of its results of
operations and cash flows for the periods. The financial and other data
disclosed in these notes to the financial statements for these periods are also
unaudited. Operating results for the six months ended June 30, 1998 and 1999 are
not necessarily indicative of results that may be expected for any future
periods.

2. NOTES PAYABLE AND BANK LOANS

Notes payable as of December 31, 1997 and 1998 and June 30, 1999 consist of
the following:

(UNAUDITED)
1997 1998 JUNE 30, 1999
--------- --------- ---------------
(IN THOUSANDS)

Note payable to officer/shareholder, with interest at prime plus 1% (total of
9.50%, 8.75% and 8.75% at December 31, 1997 and 1998 and June 30, 1999,
respectively) and monthly principal payments of $11,905 commencing November
1997 through November 2004 plus interest through November 2004, unsecured..... $ 976 $ 833 $ 762
Note payable to former officer/shareholder with interest at 8%, interest due
quarterly through December 1998, and quarterly principal and interest payments
of $25,615 commencing October 1998 through April 2001, secured by 1,805 shares
of treasury stock............................................................. 250 209 165
Note payable to former officer/shareholder with interest at 8%, repaid in
1999.......................................................................... 153 53 --
--------- --------- -----
Total....................................................................... 1,379 1,095 927
Less current portion............................................................ 275 227 235
--------- --------- -----
Notes payable--long-term........................................................ $ 1,104 $ 868 $ 692
--------- --------- -----
--------- --------- -----

F-9

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. NOTES PAYABLE AND BANK LOANS (CONTINUED)
Scheduled maturities of notes payable as of June 30, 1999 are as follows (in
thousands):

2000.............................................. $ 235
2001.............................................. 216
2002.............................................. 143
2003.............................................. 143
2004.............................................. 143
Thereafter........................................ 47
---------
Total............................................. $ 927
---------
---------

On February 23, 1998, the Company amended their bank line of credit
agreement. Under the terms of the amended agreement, the Company obtained a
$1,250,000 line of credit ($965,000 outstanding at December 31, 1997 under the
prior agreement), decreasing to $1,000,000 at September 30, 1998 and bearing
interest at prime plus 1/2%. The agreement expired in 1999.

On July 28, 1999, the Company entered into a $3,000,000 line of credit and a
$500,000 term note with a bank. The line of credit, which expires on October 31,
2001, bears interest at the lenders' prime rate less 1/2% (7.50% at inception),
allows borrowings up to 85% of the Company's accounts receivable (not to exceed
$3,000,000) and is secured by all assets of the Company. The term note, which
matures on July 31, 2004, bears interest at 8.04% and requires monthly principal
and interest payments of $8,333 and is secured by all assets of the Company. The
line of credit and the term note contain restrictive covenants which, among
others, require the Company to maintain a certain level of cash flow, as
defined.

3. OPERATING LEASES

The Company leases office space and certain equipment under non-cancelable
operating leases. The future minimum lease payments applicable to these
operating leases as of June 30, 1999 are as follows (in thousands):

2000................................................. $ 248
2001................................................. 241
2002................................................. 221
---------
Total future minimum lease payments.................. $ 710
---------
---------

Total expense incurred by the Company under operating leases for 1996, 1997,
1998 and the six months ended June 30, 1999 totaled $149,000, $170,000, $257,000
and $152,000, respectively. In 1996, rent expense included $42,000 to a related
party.

4. CONVERTIBLE REDEEMABLE PREFERRED STOCK

On September 15, 1998, the Company issued 5,123 shares of senior convertible
redeemable preferred stock (10,000 shares authorized) for proceeds of
$2,000,000.

F-10

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. CONVERTIBLE REDEEMABLE PREFERRED STOCK (CONTINUED)
The terms of the convertible redeemable preferred shares include, among
other things, the following, which are described in more detail in the
agreement:

- Dividends are payable quarterly in arrears beginning in August 1999 (no
dividends will be paid or accrued prior to September 1999) at 4%,
increasing 2% each year to 10% in 2003 and thereafter. Dividends are
cumulative and dividends not paid currently will accrue and compound
quarterly at a rate of 10% per year.

- The shares are entitled to a per share liquidation preference of $390.40
plus all accrued and unpaid dividends, if any. The amount is payable prior
to and in preference to any distribution to common shareholders.

- Each share is convertible into one common share at any time at the option
of the holder or upon the closing of an initial public offering of common
shares, as defined.

- Each share issued and outstanding has the right to vote, as defined in the
document, the number of shares equal to the number of common shares into
which the shares would be convertible.

- Under certain conditions the amended articles of incorporation grant to
the holders of the preferred shares the right to elect a majority of the
board and to possess a majority of the votes upon matters brought before
the shareholders for their consent.

At any time during the period beginning September 1, 2003 and ending August
31, 2004, as long as there has not occurred a closing of an initial public
offering of common shares, as defined, the holders of a majority of the shares
of preferred shares may demand the Company redeem all, but not less than all, of
the preferred shares and all, or a portion, of the common shares that the
holders have acquired by conversion of preferred shares, at a price equal to the
greater of (i) the original purchase price per share of preferred shares (as
adjusted) or (ii) the fair market value per share at the time of redemption
(taking into consideration the liquidation preference but not considering any
discount for lack of marketability or for minority interest) as determined by a
qualified, independent appraiser.

On August 27, 1999, the Company issued 2,979 shares of series B convertible
redeemable preferred stock (2,979 shares authorized) for proceeds of $3,000,121.
The shares are entitled to a per share liquidation preference of $1,007.09, and
contain similar provisions to the senior shares. Also on August 27, 1999, the
Company authorized an additional 1,898 shares of common stock resulting in a
total of 61,898 shares authorized and reduced the number of authorized senior
convertible redeemable preferred shares by 1,898 shares.

5. STOCK OPTIONS

The Company has an Amended and Restated Incentive Stock Option Plan (the
1994 Plan) for its key employees. The 1994 Plan provides for granting options to
purchase up to 3,000 shares of the Company's common shares for an amount not
less than the fair market value of the shares at the date of grant. Options
granted expire ten years from the date of grant and vest over three years. Under
the terms of the convertible redeemable preferred stock agreement (see note 4),
no additional options may be granted under this plan. No options were granted in
fiscal 1998 or during the six months ended June 30, 1999.

F-11

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. STOCK OPTIONS (CONTINUED)

The Company has outstanding a total of 844 options and 345 option
commitments to purchase the Company's common stock under the 1994 Plan as of
June 30, 1999. The granting of the options under the option commitments is
contingent on a change in control of the Company or the Company becoming a
public entity before January 2005, the expiration date of the commitments. The
exercise price for the options and option commitments was the estimated fair
market value of the common stock at the grant dates, and range from $17.81 to
$100.

In September 1998, the Company adopted a new employee Stock Option Plan (the
1998 Plan). The 1998 Plan provides for granting qualified and non-qualified
options to purchase up to 2,000 shares of the Company's common stock for amounts
determined by the Board of Directors at the date of grant. Options granted
generally expire ten years from the date of grant and will vest over periods
specified at the date of grant. On May 20, 1999 the Company issued 1,285 options
under the 1998 Plan at an option price of $275 per share, the estimated fair
market value of the common shares on that date. The 1,285 options vest one third
each year beginning May 2000.

On August 27, 1999 the Company changed the number of shares available for
all plans to an aggregate of 4,000 common shares.

The following summarizes the stock option and option commitment activity for
the years ended December 31, 1996, 1997 and 1998 and the six months ended June
30, 1999.

WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
------------------- ----------------

Outstanding December 31, 1995............................ 795 $ 20.43
Granted.................................................. 844 100.00
----- -------
Outstanding December 31, 1996............................ 1,639 61.40
Cancelled................................................ (450) 22.43
----- -------
Outstanding December 31, 1997............................ 1,189 76.15
----- -------
Outstanding December 31, 1998............................ 1,189 76.15
Granted (unaudited)...................................... 1,285 275.00
----- -------
Outstanding June 30, 1999 (unaudited).................... 2,474 $ 179.43
----- -------
----- -------

(UNAUDITED)
1996 1997 1998 JUNE 30, 1999
--------- --------- --------- -------------

Exercisable at end of period................... 450 281 563 844
--------- --------- --------- -------------
--------- --------- --------- -------------
Weighted average exercise price of options
exercisable at end of period................. $ 22.43 $ 100.00 $ 100.00 $ 100.00
--------- --------- --------- -------------
--------- --------- --------- -------------
Weighted average fair value of options granted
during period................................ $ 27.37 $ 78.63
--------- -------------
--------- -------------

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing method with the following weighted-average
assumptions used for 1996 and the six-month period ended June 30, 1999: dividend
yield of 0%, risk-free interest rate of 6.5% and 6.85%, respectively, and an
expected life of five years.

F-12

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. STOCK OPTIONS (CONTINUED)
Exercise prices for options totaling 345, 844 and 1,285 shares at June 30,
1999 are $17.81, $100 and $275, respectively, with weighted average contractual
lives of six, seven and ten years, respectively.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards under the plan consistent with the method of SFAS 123 "Accounting for
Stock Based Compensation" the effect on net income would not have been
significant.

6. 401(k) PLAN

The Company has a 401(k) plan for employees who have completed at least six
months of service. Discretionary employer contributions totaling $22,000,
$53,000, $179,000 and $104,000 have been expensed for the years ended December
31, 1996, 1997 and 1998 and the six-month period ended June 30, 1999,
respectively, representing an employer match of 50% on amounts contributed by an
employee, up to 5% of the employee's annual compensation.

7. INCOME TAXES

Effective August 1, 1996, the Company elected "S-Corporation" status for
income tax reporting purposes. As an "S-Corporation", all federal and state
taxable income and expenses flow directly to the shareholders and are not taxed
at the corporate level. At the effective date of the "S-Corporation" election,
all remaining deferred tax assets and liabilities were eliminated from the
balance sheet.

Because of the issuance of convertible preferred stock described in Note 4,
the Company no longer qualifies for "S-Corporation" status effective September
15, 1998. As a result, effective September 15, 1998, this change resulted in the
recognition of a net deferred tax asset and offsetting valuation reserve.

The components of income tax expense consisted of the following for the year
ended December 31, 1996 (in thousands):

1996
---------

Current.............................................................................. $ 346
Deferred............................................................................. 687
---------
Total income tax expense............................................................. $ 1,033
---------
---------

The income tax expense differs from the amount computed by applying the
statutory federal income tax rate of 34% of pretax earnings as follows (in
thousands):

(UNAUDITED)
1996 1998 JUNE 30, 1999
--------- --------- -------------

Income tax (benefit) expense at statutory rate............. $ 231 $ 484 $ (26)
Change in tax status....................................... 769 (1,384) --
Change in valuation reserve................................ 918 35
Other--net................................................. 33 (18) (9)
--------- --------- -------------
Total income tax expense................................... $ 1,033 $ -- $ --
--------- --------- -------------
--------- --------- -------------

F-13

DPEC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are comprised of the following (in
thousands):

(UNAUDITED)
1998 JUNE 30, 1999
--------- -------------

Deferred tax assets:
Deferred revenues................................................... $ 638 $ 511
Net operating loss carry forwards................................... 244 374
Non-compete agreement............................................... 93 88
Accrued vacation.................................................... 24 46
Other............................................................... 37 54
Valuation allowance................................................. (918) (953)
--------- ------
Total assets...................................................... 118 120
--------- ------
Deferred tax liabilities:
Prepaid commissions................................................. 60 51
Deferred state taxes................................................ 45 39
Other............................................................... 13 30
--------- ------
Total liabilities................................................. 118 120
--------- ------
Net deferred tax asset................................................ $ -- $ --
--------- ------
--------- ------

As of June 30, 1999, the Company had tax net operating loss carry forwards
of approximately $876,000 for federal and state income tax purposes. These carry
forwards begin to expire at various times through 2018. A valuation allowance
has been provided to offset the deferred tax assets related to the tax net
operating loss carry forwards due to the uncertainty surrounding the
realizability of such assets.

8. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

On January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 131 "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments. In accordance with SFAS 131, the company operates in one industry
segment, the development and marketing of interactive education and training
software.

9. PRO FORMA INFORMATION (UNAUDITED)

From August 1, 1996 through September 15, 1998, the Company was treated as
an "S Corporation" (see note 7). Accordingly, the Company had not recorded
federal and state income tax expense for that period. The pro forma income data
for the years ended December 31, 1996, 1997 and 1998 reflects a provision for
income taxes at a combined rate of 40% for all periods presented and includes
the effect of SFAS No. 109 "Accounting for Income Taxes".

Effective upon the closing of this offering, the outstanding shares of
senior convertible redeemable preferred shares and Series B convertible
redeemable preferred shares will automatically convert into 8,102 common shares.
The pro forma effects of these transactions are unaudited and have been
reflected in the accompanying pro forma shareholders' equity at June 30, 1999.

* * * * * *

F-14

[LOGO]

COMMON SHARES

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

PROSPECTUS

, 1999

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

LEHMAN BROTHERS

WARBURG DILLON READ LLC

J.C. BRADFORD & CO.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee and the NASDAQ National Market listing fee) fees and
expenses payable by Registrant in the distribution of the Common Shares:

Securities and Exchange Commission registration fee................ $ 15,985
National Association of Securities Dealers, Inc. filing fee........ $ 6,250
NASDAQ National Market listing fee................................. *
Printing and engraving costs....................................... *
Legal fees and expenses............................................ *
Accountants' fees and expenses..................................... *
Blue sky qualification fees and expenses........................... *
Transfer agent fees................................................ *
Miscellaneous...................................................... *
---------
Total.......................................................... $ *
---------
---------

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

* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:

(E)(1) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, member, manager,
or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture, trust
or other enterprise, against expenses, including attorney's fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit, or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, if he had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.

(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the corporation
to procure a judgment in its favor, by reason of the fact that he is or was
a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a

II-1

partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any of the following:

(a) Any claim, issue, or matter as to which such person is adjudged
to be liable for negligence or misconduct in the performance of his duty
to the corporation unless, and only to the extent that, the court of
common pleas or the court in which such action or suit was brought
determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses as the
court of common pleas or such other court shall deem proper;

(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.

(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to in division (E)(1) or (2) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the action, suit, or
proceeding.

(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case, upon a determination that indemnification
of the director, trustee, officer, employee, member, manager, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in division (E)(1) or (2) of this section. Such
determination shall be made as follows:

(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or
threatened by the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;

(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel
other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the
corporation or any person to be indemnified within the past five years;

(d) By the court of common pleas or the court in which the action,
suit, or proceeding referred to in division (E)(1) or (2) of this section
was brought.

Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under
division (E)(2) of this section, and, within ten days after receipt of such
notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review
the reasonableness of such determination.

(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or
(2) of this section, the articles or the regulations of a corporation state,
by specific reference to this division, that the provisions of this division
do not apply to the corporation and unless the only liability asserted
against a director in an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section is pursuant to section 1701.95 of the Revised
Code, expenses, including attorney's fees, incurred by a director in
defending the

II-2

action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or
proceeding, upon receipt of an undertaking by or on behalf of the director
in which he agrees to both of the following:

(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure
to act involved an act or omission undertaken with deliberate intent to
cause injury to the corporation or undertaken with reckless disregard for
the best interests of the corporation;

(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.

(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any
action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, may be paid by the corporation as they are incurred, in advance of
the final disposition of the action, suit, or proceeding, as authorized by
the directors in the specific case, upon receipt of an undertaking by or on
behalf of the director, trustee, officer, employee, member, manager, or
agent to repay such amount, if it ultimately is determined that he is not
entitled to be indemnified by the corporation.

(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations, any agreement,
a vote of shareholders or disinterested directors, or otherwise, both as to
action in their official capacities and as to action in another capacity
while holding their offices or positions, and shall continue as to a person
who has ceased to be a director, trustee, officer, employee, member,
manager, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.

(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit,
or self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.

(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7)
of this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
division (E)(5), (6), or (7).

(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entity, or is or
was serving at the request of such constituent entity as a director,
trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust, or other
enterprise, shall stand in the same position under this section with respect
to the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.

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Article 5 of the Registrant's Second Amended and Restated Code of
Regulations governs indemnification by Registrant and provides, in part, as
follows:

SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action threatened or
instituted by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director,
trustee, officer, employee, member, manager or agent of another corporation
(domestic or foreign, nonprofit or for profit), limited liability company,
partnership, joint venture, trust or other enterprise, against expenses
(including, without limitation, attorneys' fees, filing fees, court
reporters' fees and transcript costs), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. A person claiming
indemnification under this Section 5.01 shall be presumed, in respect of any
act or omission giving rise to such claim for indemnification, to have acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to any criminal
matter, to have had no reasonable cause to believe his conduct was unlawful,
and the termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.

Article Five also substantially incorporates the provisions of Section
1701.13 of the Ohio Revised Code quoted above.

Reference is also made to Section of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying directors and officers of the Company
against certain liabilities.

In addition, the Registrant intends to purchase insurance coverage which
will insure directors and officers against certain liabilities which might be
incurred by them in such capacity.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since September 16, 1996, the Registrant has issued and sold the following
unregistered securities:

(i) In March 1998, the Registrant issued and sold an aggregate of 2,000
common shares to a total of seven employees and one director at a
purchase price of $100.00 per share for an aggregate purchase price of
$200,000.

(ii) On May 20, 1999, the Registrant granted stock options under the
Registrant's 1998 Stock Option Plan to purchase an aggregate of 1,285
common shares at an exercise price of $275.00 per share to a total of
15 employees.

(iii) On September 15, 1998, the Registrant issued and sold an aggregate
5,123 shares of senior convertible preferred stock (convertible into
5,123 common shares) to River Cities Capital Fund II Limited
partnership at a price of $390.40 per share for an aggregate purchase
price of $2,000,000.

(iv) On August 27, 1999, the Registrant issued and sold an aggregate of
2,979 shares of series B convertible preferred stock (convertible into
2,979 common shares) to River Cities Capital Fund II Limited
Partnership, JG Funding, LLC, Saunders Capital Group, LLC and Irving W.
Bailey II at a purchase price of $1,007.09 per share for an aggregate
purchase price of $3,000,121.

II-4

The foregoing sales were deemed to be exempt from registration under the
Securities Act in reliance upon Section 4(2) of the Securities Act and/or Rule
506 of Regulation D promulgated thereunder as transactions by an issuer not
involving a public offering. The recipients of securities in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant or economic buying power, to information about the
Registrant. The purchasers of the common shares and the grantees of the stock
options were all key employees or directors of the Registrant. The purchasers of
the senior convertible preferred stock and the series B convertible preferred
stock were all venture capital companies or their affiliates. No underwriter or
securities broker was involved in any of these transactions and no underwriting
discount or sales commission was paid to any person on account of any of these
transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------

1.1* Form of Underwriting Agreement

3.1.1* Amended and Restated Articles of Incorporation, as amended, of DPEC, Inc.

3.1.2* Proposed form of Second Amended and Restated Articles of Incorporation of DPEC, Inc.

3.2* Amended and Restated Code of Regulations of DPEC, Inc.

3.2.2* Proposed form of Second Amended and Restated Code of Regulations of
DPEC, Inc.

4.1* Form of Stock Certificate for Common Shares of DPEC, Inc.

5.1* Opinion of Vorys, Sater, Seymour and Pease LLP

10.1* DPEC, Inc. 1999 Incentive Stock Plan

10.2* Employment Agreement, dated September 15, 1998, by and between DPEC, Inc. and Carol A.
Clark.

10.3* Software Development and License Agreement, dated January 25, 1999, by and between Ahsoug,
Inc., through its Macmillan Publishing USA division, and DPEC, Inc.

10.4* Stock Purchase Agreement, dated May 10, 1996, by and among Frances Papalios, Carol A. Clark
and DPEC, Inc.

10.5* Senior Convertible Preferred Stock Purchase Agreement, dated September 15, 1998, by and
among River Cities Capital Group II Limited Partnership, DPEC, Inc. and Carol A. Clark.

10.6* Series B Convertible Preferred Stock Purchase Agreement, dated August 27, 1999, by and
among River Cities Capital Fund II Limited Partnership, JG Funding, LLC, Saunders Capital
Group, LLC, Irving W. Bailey II and DPEC, Inc.

10.7* Registration Rights Agreement, dated May 10, 1996, by and among Carol A. Clark, Frances
Papalios, Gary W. Qualmann and DPEC, Inc.

10.8* Amended and Restated Registration Rights Agreement, dated August 27, 1999, by and among
River Cities Capital Fund II Limited Partnership, JG Funding, LLC, Saunders Capital
Group, LLC, Irving W. Bailey II and DPEC, Inc.

II-5

EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------

23.1 Consent of Deloitte & Touche LLP

23.2* Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibit 5.1)

24.1 Powers of Attorney (included on signature page)

27.1 Financial Data Schedule

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

* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES:

None.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

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 Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of 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 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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or
497(h) under the Securities Act, shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Columbus, Ohio, on this
16th day of September, 1999.

DPEC, INC.

By: /s/ CAROL A. CLARK
----------------------------------------
Carol A. Clark
Title: CHAIRPERSON OF THE BOARD OF DIRECTORS,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

We, the undersigned directors and officers of DPEC, Inc. (the "Company") and
each of us, do hereby constitute and appoint Carol A. Clark and Gary W.
Qualmann, or either of them, our true and lawful attorneys and agents, each with
power of substitution, to do any and all acts and things in our names and on our
behalf in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the filing of this Registration Statement on Form
S-1 in connection with the public offering of the Common Shares of the Company,
including specifically but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) to such Registration Statement;
and we do hereby ratify and confirm all that the said attorneys and agents, or
their substitute or substitutes, or either of them, shall do or cause to be done
by virtue hereof.

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

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

Chairperson of the Board
/s/ CAROL A. CLARK of Directors; President
- ------------------------------ and Chief Executive September 16, 1999
Carol A. Clark Officer

Director; Chief Financial
/s/ GARY W. QUALMANN Officer; Secretary;
- ------------------------------ Treasurer and Vice September 16, 1999
Gary W. Qualmann President--Finance

/s/ H. NEAL ATER
- ------------------------------ Director September 16, 1999
H. Neal Ater

/s/ ROBERT J. MASSIE
- ------------------------------ Director September 16, 1999
Robert J. Massie

II-7

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

/s/ MURRARY R. WILSON
- ------------------------------ Director September 16, 1999
Murrary R. Wilson

/s/ ROBERT R. BROWNLEE
- ------------------------------ Chief Accounting Officer September 16, 1999
Robert R. Brownlee

II-8

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------------------------------

1.1* Form of Underwriting Agreement

3.1* Amended and Restated Articles of Incorporation, as amended, of DPEC, Inc.

3.1.2* Proposed form of Second Amended and Restated Articles of Incorporation of DPEC, Inc.

3.2* Amended and Restated Code of Regulations of DPEC, Inc.

3.2.2* Proposed form of Second Amended and Restated Code of Regulations of
DPEC, Inc.

4.1* Form of Stock Certificate for Common Shares of DPEC, Inc.

5.1* Opinion of Vorys, Sater, Seymour and Pease LLP

10.1* DPEC, Inc. 1999 Incentive Stock Plan

10.2* Employment Agreement, dated September 15, 1998, by and between DPEC, Inc. and Carol A. Clark.

10.3* Software Development and License Agreement, dated January 25, 1999, by and between Ahsoug,
Inc., through its Macmillan Publishing USA division, and DPEC, Inc.

10.4* Stock Purchase Agreement, dated May 10, 1996, by and among Frances Papalios, Carol A. Clark
and DPEC, Inc.

10.5* Senior Convertible Preferred Stock Purchase Agreement, dated September 15, 1998, by and among
River Cities Capital Group II Limited Partnership, DPEC, Inc. and Carol A. Clark.

10.6* Series B Convertible Preferred Stock Purchase Agreement, dated August 27, 1999, by and among
River Cities Capital Fund II Limited Partnership, JG Funding, LLC, Saunders Capital Group,
LLC, Irving W. Bailey II and DPEC, Inc.

10.7* Registration Rights Agreement, dated May 10, 1996, by and among Carol A. Clark, Frances
Papalios, Gary W. Qualmann and DPEC, Inc.

10.8* Amended and Restated Registration Rights Agreement, dated August 27, 1999, by and among River
Cities Capital Fund II Limited Partnership, JG Funding, LLC, Saunders Capital Group, LLC,
Irving W. Bailey II and DPEC, Inc.

23.1 Consent of Deloitte & Touche LLP

23.2* Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibit 5.1)

24.1 Powers of Attorney (included on signature page)

27.1 Financial Data Schedule

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

* To be filed by amendment.

II-9