A. Describe Spatial Technology€™s business model in terms of revenues, profits, and cash flows.
B. What intellectual properly, if any, does Spatial Technology possess?
C. Describe the experience and expertise characteristics of the management team.
D. Describe Spatial Technology€™s pricing and marketing strategy.
E. Discuss the competition faced by Spatial Technology in conjunction with 3D modeling technology in general and specifically with its  CIS product.
F. Describe the four successful rounds of venture financing (A through D) achieved by Spatial Technology in terms of sources and mounts. What additional financing sources have been used?
G. Conduct a ratio analysis of Spatial Technology€™s past income statements and balance sheets. Note any performance strengths and weaknesses and discuss any ratio trends.
H. Use the cash flow statements for Spatial Technology, Inc., to determine whether the venture has been building or burning cash, as well as possible trends in building or burning cash.
I. Discuss possible reasons why Spatial Technology€™s plan for an IPO of common stock at the end of 1992 was withdrawn.
J. Describe the IPO market conditions in 1996 and discuss possible reasons why the proposed IPO at a price of about $10 per share planned for October 1996 and involving Dain Bosworth as lead underwriter failed.
K. Evaluate the compound return on investments made at startup, Round A, Round B, Round C, and Round D if the acquired shares eventually sell at $10 and $5. Evaluate the compound return on all investments of each existing investor. Analyze the incentives of each investor and founder for taking the Cruttenden Roth offer to execute a $5 IPO.
L. Using the provided financial statements as a starting point:
1. Prepare and present a discounted cash flow valuation and pro forma financials with five years of explicit forecasts using license fees and royalties growth rates consistent with recent history (e.g., two to three years) at Spatial.
2. Modify your analysis to consider a more successful scenario where Spatial€™s main revenue sources (combined) grow at 50 percent for five years and then flatten to a more sustainable growth rate.
3. Prepare and present discounted cash flow valuations and pro forma financial statements (five-year explicit period) that justify a $10 share price and a $5 share price at the IPO. Make sure the ratios embedded in your projections conform to reasonable operating ratio assumptions.
4. In all cases, be sure to explain your modeling assumptions on revenue and costs and provide a summary comparison of the four scenarios.

M. Discuss the $5 and $10 IPO prices for Spatial within the context of comparable firms and their multiples. (There are some glimpses of multiples in the case materials, but you may wish to use some outside historical reference material. Please state your sources.)
N. Prepare an executive summary discussing the events and decisions (technological and financial) leading to its situation, the options it had, and your recommendations for Spatial€™s future. Would (could) you have done anything differently?
O. Take a position on whether you would recommend the $5 IPO. Take a position on whether, as an investor, you would have purchased shares in the $5 IPO.
P. Discuss what you believe would have been the strategic outlook for Spatial (product lines, licensing, competitors, etc.) at the time and what you believe would have been the financial market€™s view of a publicly traded Spatial Technology. 

It was late afternoon on Thursday, October 10, 1996, when Richard €œDick€ Sowar leaned back in his office chair and tried to organize his thoughts. Only minutes earlier the chief executive officer (CEO) and founder of Spatial Technology had concluded a phone conference with his vice president of finance, his New York venture capitalist, and his Minneapolis-based investment bank. That phone conference had marked the end of what seemed to be the longest thirty-six hours of Sowar€™s life. During this time Spatial€™s investment bankers had tried to solicit a sufficient number of buy orders for the company€™s initial public offering (IPO), which had been scheduled for the following day. Having twice failed to fill the order book, however, the lead investment bank had canceled the IPO. As Spatial€™s CEO assessed his situation, he recalled the company€™s founding ten years earlier. The Origin of Spatial Technology After receiving a BS in mathematics from Marietta College and an MS in operations research, Sowar worked at the Air Force Graduate School in Ohio for several years. He then began doctoral studies in computer science at the University of Colorado while working as a research associate at Bell Laboratories and later joined a startup company. Sowar recalled: My partner Dave Lehman and I were part of starting up a CAD/CAM company called Graftek in 1980 in Boulder. We were using solid modeling technology from Shape Data Co. in England. I was VP of research and development; Dave Lehman was VP of engineering. Graftek was venture funded and ended up having more than thirty investors. When the Venture people wanted to cash out, Cyrus (Cy) Lynch was brought in to sell the company. Graftek was eventually acquired by Burroughs for $23 million in 1984. Subsequently, the entrepreneurial nature of Graftek changed and it became a very slow-moving company.

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ROUND B WARRANTED STARTUP VENTURE ROUND A SEPT. 86 VENTURE ROUND B SHARES $3.75 VENTURE ROUND C JULY 1986 JUNE 89 EXERCISE APRIL 91 PRICE SHARE PRICE: $0.01 SHARE PRICE: $1.00 SHARE PRICE: $3.75 SHARE PRICE: $3.84 $ NEW % SHARES CAPITAL % (CUMULATIVE) CAPITAL % $ NEW $ NEW $ NEW CAPITAL SHARES SHARES SHARES % (CUMULATIVE) (CUMULATIVE) SHARES (F) CAPITAL 3.408,665 7,300,000 Total 1,000,000 100,0 100.0 440,000 4,400 100.0 1,440,000 100.0 4,165,956 3,100,000 R. Sowar (Founder) 45,5 200.000 2,000 13.9 200,000 5.9 200,000 4.8 200.000 D. Lehman (Founder) 200,000 150,000 (E) 45,5 200,000 2,000 13.9 200,000 5.9 3.6 C. Lynch (Founder) 62,000 (A) 9.1 40,000 400 2.8 40,000 1.8 1.5 62,000 Nazem & Company 1,000,000 2,200,000 (B) 69.4 1,000,000 46.5 1,586,666 44.3 1,847,083 1,000,000 Benefit Capi tal 2,000,000 (B) 832,812 1,150,000 (B) 15.6 533,333 20.0 30,000 (L) New York Life 5.9 200,000 750,000 9.5 395,312 750,000 (B) Allied Signal 5.9 200,000 750,000 6.1 252,083 200,000 Hewlett-Packard 1,600,000 (B) 12.5 426,666 10.2 426,666 Management & Directors 3,100,000 Total 100.0 440,000 7,300,000 30,000 4,400 100.0 1,440,000 1,000,000 100.0 3,408,665 100.0 4,165,956 All numbers based on common stock (A) Cyrus Lynch received 10,000 and 12,000 shares as payment for consulting. (B) Minimal rounding differences (adjustment for stock-splits). (C) These warants were never exercised. (D) Fully exercised. (E) Dave Lehman had sold 50,000 shares back to the company when he left (at the original price). (F) No net revenue was collected for the issue of these warrants/options. (G) Fully exercised in April 1996. (H) Not exercised as of October 1996. (1) 15,000 shares (at $3.84 per share) issued to Cy Lynch on 10/08/96 as settlement. (J) Additional granted warrants exercised by Nazem & Company: 100,000 shares at $0.99 per share, 16,666 at $0.99 per share. 16,667 shares bought directly from John Rowley at $5.25 in August 1993. (K) 66,666 warranted shares (exercise price $8.22 per share) from series D outstanding and options for 15,000 shares (exercise price $5.00 per share) for Fred Nazem. (L) Fully exercised in the beginning of October 1996. (M) Two granted warrants for a total of 43,333 shares (exercise price $8.22 per share). (N) Options that are exercisable within 60 days of an IPO, granted to the directors and executives of the company through a stock-option plan (various exercise prices), e.g., Dick Sowar: 130,000 shares exercisable at $5.00 and 19,995 shares exercisable at $1.50. (continued on next page) STATUS OCTOBER 10, 1996 (ACCORDING TO PLANNED IPO PROSPECTUS) ROUND C ROUND D ADDITIONAL ADDITIONAL WARRANTED WARRANTED STOCK ISSUES (BETWEEN WARRANT FULLY DILUTED SHARE SHARES SHARES ISSUES NUMBERS – ASSUMING ALL WARRANTS/OPTIONS $3.84 $0.03 VENTURE ROUND D FEB. 93 SHARE PRICE: $8.22 (BETWEEN 03/93 AND 10/96) EXERCISE EXERCISE 03/93 PRICE PRICE AND 10/96) HAVE BEEN EXERCISED $ NEW CAPITAL SHARES SHARES SHARES (F) % (CUMULATIVE) SHARES (F) SHARES SHARES (CUMULATIVE) Total 141,245 100.0 4,499,599 2,742,557 42,915 100.0 5,502,404 R. Sowar (Founder) 4.4 200,000 149,995 (N) 6.4 349,995 D. Lehman (Founder) C. Lynch (Founder) Nazem & Company 3.3 150,000 2.7 150,000 1.4 62,000 15,000 (1) 1.4 77,000 83,645 (G) 41.8 1,878,891 261,462 4,091 (D) 133,333 (J) 81,666 (K) 39.6 2,181,624 Benefit Capital 28,103 (C) 21.9 986,285 1,261,551 19,741 (D) 18.3 1,006,026 New York Life 18,345 (G) 11.5 516,966 1,000,001 15,648 (H) 43,333 (M) 11.3 624,291 Allied Signal 11,152 (C) 5.6 252,083 4.6 252,083 Hewlett-Packard 10.1 453,374 219,543 3,435 (D) 8.3 456,809 Management & Directors 404,576 (N) 7.4 404,576 Total 141,245 100.0 4.499.599 2,742,557 42,915 148,333 679,570 100.0 5.502.404 (fully diluted) Total per principal & selling stockholder table (fully diluted) 5,502,404 Less: Options and warrants included -749,054 consisting of: Sowar (N) 149,999 (B) Add: Other stockholders (employees-not listed) 434,819 Nazem (K) 81,666 Outstanding stock before planned IPO 5,188,169 Nazem (D) 4,091 Benefit (D) 19,741 N.Y.L (M) 58,981 N.Y.L (L) 30,000 Others (N) 404,576 749,054