SPATIAL TECHNOLOGY INC
8-K, 2000-10-18
PREPACKAGED SOFTWARE
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<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

Date of report (Date of earliest event reported): October 18, 2000
                                                  (July 12, 2000)

                             SPATIAL TECHNOLOGY INC.
                             -----------------------
               (Exact Name of Registrant as Specified in Charter)

        DELAWARE                    0-288-42                      84-1035353
(State of Incorporation)    (Commission File Number)            (IRS Employer
                                                              Identification No)

                           2425 55TH STREET, SUITE 100
                             BOULDER, COLORADO 80301
                                 (303) 544-2900
                     (Address of Principal Executive Offices
                   and telephone number, including area code)



<PAGE>   2


ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

(a) On July 12, 2000 (the "Closing Date"), pursuant to the terms of the Asset
Purchase Agreement (the "Purchase Agreement") by and Between Spatial Technology
Inc, a Delaware corporation (the "Company"), Prescient Technologies, Inc., a
Delaware corporation ("Prescient") and Stone & Webster Incorporated, a Delaware
corporation the Company acquired certain assets and liabilities of Prescient
Technologies, Inc. ("Prescient") for total consideration of approximately $1.2
million, including $100,000 cash and 300,000 shares of common stock (the
"Acquisition"). The purchase price was determined through negotiations between
the Company and Prescient.

         In connection with the Acquisition, the parties to the Purchase
Agreement also executed an Escrow Agreement, pursuant to which an additional
50,000 shares of common stock (the "Escrow Shares") are to be held in escrow
pursuant to the Purchase Agreement, and will be released to Prescient upon the
attainment of certain performance objectives relating to the execution of
certain customer contracts.

         The forward looking statements contained herein involve risks and
uncertainties. Actual results and developments may differ materially from those
described herein, due to a number of factors, including future performance and
additional factors discussed in the Company's most recent Form 10-KSB.

(b)      Not applicable.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) Audited financial statements of Prescient Technologies, Inc. as of December
    31, 1998 and 1999 and for the years then ended and unaudited interim
    financial statements of Prescient Technologies, Inc. as of June 30, 2000 and
    for the six months ended June 30, 1999 and 2000.


                                       2
<PAGE>   3


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Spatial Technology Inc.:

We have audited the accompanying balance sheets of Prescient Technologies, Inc.
as of December 31, 1998 and 1999, and the related statements of operations,
stockholder's deficit and cash flows for the years then ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prescient Technologies, Inc. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

                                         KPMG LLP


Boulder, Colorado
October 6, 2000


                                       3
<PAGE>   4

                          PRESCIENT TECHNOLOGIES, INC.

                                 BALANCE SHEETS

                  (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                          ---------------------   JUNE 30,
                                                             1998        1999       2000
                                                          ---------   --------- -----------
                                                                                (UNAUDITED)

<S>                                                       <C>         <C>       <C>
                                          ASSETS
Current assets:
   Trade accounts receivable, net of allowance
    for doubtful accounts of $59, $25 and $25
    in 1998, 1999 and 2000, respectively ..............   $  1,005       1,016         298
   Prepaid expenses and other .........................        120         280         209
                                                          --------    --------    --------
       Total current assets ...........................      1,125       1,296         507
Property and equipment, net ...........................        599         370         209
Capitalized software development costs, net ...........        555         715         817
                                                          --------    --------    --------
       Total assets ...................................   $  2,279       2,381       1,533
                                                          ========    ========    ========

                           LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
   Bank overdraft .....................................   $     --         130          60
   Trade accounts payable .............................        182         118         181
   Due to affiliate, net ..............................     10,707      15,584      16,946
   Accrued expenses and other liabilities .............        140         322         162
   Deferred revenue ...................................        331         490         636
                                                          --------    --------    --------
       Total liabilities ..............................     11,360      16,644      17,985
                                                          --------    --------    --------
Stockholder's deficit
   Common stock, $.01 par value, 12,000,000 shares
    authorized; 10,000,000 shares issued and
    outstanding in 1998, 1999 and 2000 ................        100         100         100
   Additional paid-in capital .........................          2           2           2
   Accumulated deficit ................................     (9,083)    (14,265)    (16,454)
   Subscription receivable ............................       (100)       (100)       (100)
                                                          --------    --------    --------
       Total stockholder's deficit ....................     (9,081)    (14,263)    (16,452)
                                                          --------    --------    --------
Commitments and contingencies
       Total liabilities and stockholder's deficit ....   $  2,279       2,381       1,533
                                                          ========    ========    ========
</TABLE>

See accompanying notes to financial statements.


                                       4
<PAGE>   5

                          PRESCIENT TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                     YEAR ENDED DECEMBER 31,          SIX MONTHS ENDED JUNE 30
                                     -----------------------          ------------------------
                                       1998            1999             1999            2000
                                     -------         -------          -------         -------
                                                                            (UNAUDITED)

<S>                                  <C>             <C>              <C>             <C>
Revenue:
   License fees .................... $ 2,081           1,929              906             281
   Maintenance .....................     819             906              449             450
   Professional services ...........     865             278              179             293
                                     -------         -------          -------         -------
       Total revenue ...............   3,765           3,113            1,534           1,024
                                     -------         -------          -------         -------
Cost of revenue:
   License fees ....................     365             860              258             236
   Maintenance .....................     209             214               71             160
   Professional services ...........     464             105               44             163
                                     -------         -------          -------         -------
       Total costs of revenue ......   1,038           1,179              373             559
                                     -------         -------          -------         -------
       Gross profit ................   2,727           1,934            1,161             465
                                     -------         -------          -------         -------
Operating expenses:
   Sales and marketing .............   4,700           4,279            2,123           1,757
   Research and development ........     938           1,701              713             630
   General and administrative ......   1,376           1,136              623             267
                                     -------         -------          -------         -------
       Total operating expenses ....   7,014           7,116            3,459           2,654
                                     -------         -------          -------         -------
       Net loss .................... $(4,287)         (5,182)          (2,298)         (2,189)
                                     =======         =======          =======         =======
</TABLE>

See accompanying notes to financial statements.


                                       5
<PAGE>   6

                          PRESCIENT TECHNOLOGIES, INC.

                       STATEMENTS OF STOCKHOLDER'S DEFICIT

                  (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                  COMMON STOCK         ADDITIONAL                                   TOTAL
                                             -----------------------    PAID-IN     ACCUMULATED   SUBSCRIPTION  STOCKHOLDER'S
                                               SHARES       AMOUNT      CAPITAL       DEFICIT      RECEIVABLE      DEFICIT
                                             ----------   ----------   ----------   -----------   ------------  -------------

<S>                                          <C>          <C>          <C>          <C>           <C>           <C>
Balances at January 1, 1998 .............        10,000   $       --            2       (4,796)           --         (4,794)
Issuance of common stock to affiliate....     9,990,000          100           --           --          (100)            --
Net loss ................................            --           --           --       (4,287)           --         (4,287)
                                             ----------   ----------   ----------   ----------    ----------     ----------
Balances at December 31, 1998 ...........    10,000,000          100            2       (9,083)         (100)        (9,081)
Net loss ................................            --           --           --       (5,182)           --         (5,182)
                                             ----------   ----------   ----------   ----------    ----------     ----------
Balances at December 31, 1999 ...........    10,000,000          100            2      (14,265)         (100)       (14,263)
Net loss (unaudited) ....................            --           --           --       (2,189)           --         (2,189)
                                             ----------   ----------   ----------   ----------    ----------     ----------
Balances at June 30, 2000 (unaudited)....    10,000,000   $      100            2      (16,454)         (100)       (16,452)
                                             ==========   ==========   ==========   ==========    ==========     ==========
</TABLE>

See accompanying notes to financial statements.


                                       6
<PAGE>   7

                          PRESCIENT TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,          SIX MONTHS ENDED JUNE 30
                                                            -----------------------          ------------------------
                                                              1998            1999             1999             2000
                                                            -------         -------          -------          -------
                                                                                                    (UNAUDITED)

<S>                                                         <C>             <C>              <C>              <C>
Cash flows from operating activities:
   Net loss ..............................................  $(4,287)         (5,182)          (2,298)          (2,189)
   Adjustments to reconcile net loss to net
      cash provided by operating activities:
        Depreciation and amortization ....................      693             754              365              380
        Changes in operating assets and liabilities:
         Trade accounts receivable .......................      930             (11)            (208)             718
         Prepaid expenses and other assets ...............      207            (160)             (43)              71
         Trade accounts payable ..........................      121             (64)             (23)              63
         Due to affiliate ................................    3,203           4,877            2,275            1,362
         Accrued expenses and other liabilities ..........     (174)            182               79             (160)
         Deferred revenue ................................     (150)            159              253              146
                                                            -------         -------          -------          -------
           Net cash provided by operating activities .....      543             555              400              391
                                                            -------         -------          -------          -------
Cash flows from investing activities:
   Acquisition of property and equipment .................     (255)           (162)             (51)             (32)
   Capitalized software development costs ................     (454)           (523)            (349)            (289)
                                                            -------         -------          -------          -------
           Net cash used by investing activities .........     (709)           (685)            (400)            (321)
                                                            -------         -------          -------          -------
Cash flows from financing activities - bank overdraft ....       --             130               --              (70)
                                                            -------         -------          -------          -------
           Net decrease in cash and cash equivalents .....     (166)             --               --               --
Cash and cash equivalents at beginning of period .........      166              --               --               --
                                                            -------         -------          -------          -------
Cash and cash equivalents at end of period ...............  $    --              --               --               --
                                                            =======         =======          =======          =======
</TABLE>

See accompanying notes to financial statements.

                                       7
<PAGE>   8

                          PRESCIENT TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

(1)      Organization and Summary of Significant Accounting Policies

         (a)     Business and Basis of Financial Statement Presentation

                 Prescient Technologies, Inc. (Prescient or the Company) is a
                 wholly-owned subsidiary of Stone & Webster, Incorporated, and
                 was originally incorporated under the laws of the State of
                 Delaware on May 6, 1992 as Stone & Webster Advanced Systems
                 Development Services, Inc. On June 13, 1996 the incorporation
                 was amended, changing the name to Prescient Technologies, Inc.
                 Prescient, is a provider of engineering data quality software
                 solutions for manufacturers. The Company's engineering quality
                 tools are used in aerospace, automotive, electronics and other
                 discrete manufacturing industries for detecting, assessing,
                 correcting and preventing product development problems caused
                 by inaccurate, incomplete or inconsistent design modeling
                 practices.

                 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 revenue and expenses during the reporting
                 period. Actual results could differ from those estimates.

                 The accompanying unaudited financial information as of June 30,
                 2000 and for the six months ended June 30, 1999 and 2000 has
                 been prepared in accordance with generally accepted accounting
                 principles for interim financial information. All significant
                 adjustments, consisting of only normal and recurring
                 adjustments, that, in the opinion of management, are necessary
                 for a fair presentation of the results of operations and cash
                 flows for the six months ended June 30, 1999 and 2000, have
                 been included. Operating results for the six months ended June
                 30, 1999 and 2000 are not necessarily indicative of the results
                 that may be expected for the full year.

         (b)     Property and Equipment

                 Equipment is recorded at cost and depreciated over the useful
                 lives of the assets, which range from two to three years. Costs
                 of maintenance and repairs are charged to operations as
                 incurred. Purchased computer software represents software and
                 enhancements purchased from third parties, and is amortized
                 over its estimated useful life of two years, beginning at
                 purchase, or for enhancements, when the software is
                 incorporated into the Company's products.

         (c)     Capitalized Software Development Costs

                 The Company accounts for software development costs in
                 accordance with Statement of Financial Accounting Standards
                 (SFAS) No. 86, "Accounting for the Costs of Computer Software
                 to Be Sold, Leased or Otherwise Marketed," which provides that
                 capitalization of costs begins when technological feasibility
                 has been established and ceases when the product is available
                 for general release to customers, at which time amortization
                 begins on a product-by-product basis. Capitalized costs are
                 amortized over the estimated useful life of the product or the
                 ratio of the current gross revenues to the total of current and
                 estimated total future gross revenues for the product,
                 whichever is greater. Software development costs capitalized in
                 the years ended December 31, 1999 and 2000 and the six months
                 ended June 30, 1999 and 2000 were $457,000, $523,000, $349,000
                 and $290,000, respectively. Amortization of software
                 development costs for the years ended December 31, 1999 and
                 2000 and the six months ended June 30, 1999 and 2000 was
                 $213,000, $363,000, $165,000 and $187,000, respectively.


                                       8
<PAGE>   9

                          PRESCIENT TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


         (d)     Fair Value of Financial Instruments

                 The Company's financial instruments consist primarily of cash
                 and cash equivalents, trade receivables, accounts payable, and
                 accrued expenses and other liabilities. The carrying values of
                 these financial instruments approximate fair value because of
                 their short-term nature.

         (e)     Long-Lived Assets and Assets to Be Disposed Of

                 In accordance with SFAS 121, "Accounting for the Impairment of
                 Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
                 the Company reviews long-lived assets and certain identifiable
                 intangibles for impairment whenever events or changes in
                 circumstances indicate that the carrying amount of an asset may
                 not be recoverable. Recoverability of assets to be held and
                 used in operations is generally measured by a comparison of the
                 carrying amount of an asset to future undiscounted net cash
                 flows expected to be generated by the asset. If such assets are
                 considered to be impaired, the impairment to be recognized is
                 equal to the amount by which the carrying amounts of the assets
                 exceed the fair values. Assets to be disposed of are reported
                 at the lower of the carrying amount or fair value, less costs
                 to sell. No asset impairment was recognized in 1998, 1999 or
                 2000.

         (f)     Revenue Recognition

                 The Company recognizes revenue in accordance with the
                 provisions of Statement of Position 97-2, "Software Revenue
                 Recognition" (SOP 97-2) which requires that revenue for
                 licensing, selling, leasing, or otherwise marketing computer
                 software be recognized when evidence of an arrangement exists,
                 delivery of the product has occurred, collectibility of the
                 related receivable is assured and the vendor's fee is fixed or
                 determinable. In addition, revenue is recognized for the
                 multiple elements of software arrangements based upon the
                 vendor specific objective evidence of fair value for each
                 element. Accordingly, revenue from products or services is
                 recognized based upon shipment of products or performance of
                 services. In December 1998, the American Institute of Certified
                 Public Accountants (AICPA) issued SOP No. 98-9, "Modification
                 of SOP No. 97-2, Software Revenue Recognition, with Respect to
                 Certain Transactions." SOP No. 98-9 clarifies certain
                 provisions of SOP No. 97-2, and effectively defers the required
                 adoption of those provisions until the Company's fiscal year
                 beginning January 1, 2000. Effective January 1, 1999, the
                 Company adopted the provisions of SOP No. 98-9, and the impact
                 on the Company's results of operations, financial position or
                 cash flows was not material. License fee revenue is recognized
                 upon completion of a signed contract and delivery of the
                 software. Revenue from maintenance contracts is deferred and
                 recognized ratably over the period of the agreement. Training
                 and consulting revenue is recognized upon completion of the
                 training or performance of services, respectively.

         (g)     Stock-Based Compensation

                 The Company accounts for its stock-based compensation plan in
                 accordance with the provisions of Accounting Principles Board
                 Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
                 25), and related interpretations. As such, compensation expense
                 is recorded on the date of grant only if the current fair value
                 of the underlying stock exceeds the exercise price. Under SFAS
                 123, "Accounting for Stock-Based Compensation," entities are
                 permitted to recognize as expense the fair value of all
                 stock-based awards on the date of grant over the vesting
                 period. Alternatively, SFAS 123 also allows entities to
                 continue to apply the provisions of APB 25 and provide pro
                 forma net earnings disclosures as if the fair-value-based
                 method defined in SFAS 123 had been applied. The Company has
                 elected to continue to apply the provisions of APB 25 and
                 provide the pro forma disclosures required by SFAS 123.


                                       9
<PAGE>   10


                          PRESCIENT TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED


         (h)     Liquidity

                 The Company incurred net losses in 1998, 1999 and 2000 and has
                 a deficit in stockholder's equity as of June 30, 2000. The net
                 losses have primarily been funded by advances from Stone &
                 Webster, Incorporated. These advances are reflected in the
                 accompanying balance sheet as due to affiliate. Without
                 advances from Stone & Webster, Incorporated, the Company would
                 be required to obtain additional sources of financing. It is
                 uncertain such additional sources of financing would be
                 available to the Company.

         (i)     Income Taxes

                 The Company accounts for income taxes under the provisions of
                 SFAS 109, "Accounting for Income Taxes." SFAS 109 requires the
                 use of the asset and liability method of accounting for income
                 taxes. Under the asset and liability method, deferred income
                 taxes are recognized for the tax consequences of temporary
                 differences by applying enacted statutory rates applicable to
                 differences between the financial statement carrying amounts
                 and the tax bases of existing assets and liabilities.

(2)      Property and Equipment

         Property and equipment consists of the following (amounts in
         thousands):

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                      -------------------    JUNE 30,
                                                        1998       1999       2000
                                                      --------   --------  -----------
                                                                           (UNAUDITED)

<S>                                                   <C>        <C>       <C>
Computer and office equipment .....................   $ 1,719      1,811      1,811
Purchased computer software .......................       183        253        285
                                                      -------    -------    -------
                                                        1,902      2,064      2,096
Less accumulated depreciation and amortization ....    (1,303)    (1,694)    (1,887)
                                                      -------    -------    -------
                                                      $   599        370        209
                                                      =======    =======    =======
</TABLE>

(3)      Stockholder's Equity

         Stock Options

         In July 1998, the Company adopted an equity incentive plan (the Plan)
         pursuant to which the Company's Board of Directors may issue restricted
         common stock and grant incentive stock options and non-statutory stock
         options to employees, directors and consultants. The Plan authorizes
         issuances and grants of options to purchase up to 1,900,000 shares of
         authorized but unissued common stock. Incentive and non-statutory stock
         options generally vest over four years and expire upon the earlier of
         30 days after termination of employment or ten years from the date of
         grant.


                                       10
<PAGE>   11

                          PRESCIENT TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

         Option activity during the years ended December 31, 1998 and 1999 and
         the six months ended June 30, 2000 consisted of the following:

<TABLE>
<CAPTION>
                                              NUMBER       WEIGHTED
                                            OF OPTIONS     AVERAGE        OPTIONS
                                           OUTSTANDING  EXERCISE PRICE  EXERCISABLE
                                           -----------  --------------  -----------
<S>                                        <C>          <C>             <C>
Balance at January 1, 1998 ..............         --            --
Granted .................................    388,300      $   1.50
Forfeited ...............................    (35,200)         1.50
                                            --------
Balance at December 31, 1998 ............    353,100          1.50             --
Granted .................................    456,000          1.50
Forfeited ...............................   (160,700)         1.50
                                            --------
Balance at December 31, 1999 ............    648,400          1.50         52,600
Granted (unaudited) .....................         --          1.50
Forfeited (unaudited) ...................    (34,500)
                                            --------
Balance at June 30, 2000 (unaudited) ....    613,900          1.50         80,975
                                            ========
</TABLE>

         The weighted average fair value of all options granted during 1998,
         1999 and 2000 was $.81 per share on the date of grant using the
         Black-Scholes option-pricing model with the following assumptions: no
         expected dividends, volatility of 25%, risk-free interest rate of
         approximately 6.4% and an expected life of 10 years. The remaining
         weighted average contractual life of options outstanding at December
         31, 1999 was approximately 3 years.

         If the Company determined compensation expense based on the fair value
         of the options at the grant date under SFAS 123, the Company's net loss
         would have been approximately $4,142,000 and $5,165,000, for the years
         ended December 31, 1998 and 1999, respectively.

         Subscription Receivable

         In July 1998, Stone & Webster, Incorporated increased its investment by
         subscribing to 9,990,000 shares at $.01 per share. The subscription
         receivable is reflected as a reduction of equity.

(4)      Income Taxes

         Income tax benefit relating to losses incurred differs from the amounts
         that would result from applying the federal statutory rate as follows
         (amounts in thousands):

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                            ------------------------
                                                              1998            1999
                                                            --------        --------

<S>                                                         <C>             <C>
Expected tax benefit ....................................   $(1,500)         (1,814)
Change in valuation allowance for deferred tax assets ...     1,424           1,779
Other, net ..............................................        76              35
                                                            -------         -------
Income tax benefit ......................................   $    --              --
                                                            =======         =======
</TABLE>


                                       11
<PAGE>   12

                          PRESCIENT TECHNOLOGIES, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

         Temporary differences that give rise to significant components of
         net deferred tax assets and liabilities are as follows (amounts in
         thousands):

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                                    ------------------------
                                                                      1998            1999
                                                                    --------        --------

<S>                                                                 <C>             <C>
Net operating loss carryforwards ............................       $ 4,629           6,457
Other, net ..................................................            83             201
                                                                    -------         -------
Gross deferred tax assets ...................................         4,712           6,658
Valuation allowance .........................................        (4,476)         (6,255)
                                                                    -------         -------
Net deferred tax assets .....................................       $   236             403
                                                                    =======         =======
Deferred tax liabilities - research and development costs ...       $  (236)           (403)
                                                                    -------         -------
Total deferred tax liabilities ..............................       $  (236)           (403)
                                                                    =======         =======
</TABLE>

         At December 31, 1999 and June 30, 2000, the Company had cumulative net
         operating loss carryforwards for income tax purposes of approximately
         $14,800,000 and $17,000,000, respectively, which will expire in various
         amounts through the year 2020, if not utilized.

         Due to the uncertainty regarding the utilization of net operating loss
         carryforwards, no tax benefits for losses have been recorded by the
         Company in any periods, and a valuation allowance has been recorded for
         the entire amount of the deferred tax asset.

(5)      Leases

         The Company is obligated for payments of approximately $90,000 through
         December 31, 2000 for leases related to office space and equipment.
         Rent expense for operating leases, which is recognized using the
         straight-line method over the lease term, for the years ended December
         31, 1998 and 1999 and the six months ended June 30, 1999 and 2000 was
         approximately $437,000, $441,000, $215,000 and $304,000, respectively.

(6)      Employee Benefit Plans

         The Company has a defined contribution 401(k) plan which covers
         substantially all employees and allows employee contributions of up to
         15% of their compensation, subject to the maximum amount allowed under
         the Internal Revenue Code. The Company matches 25% of the first 1% of
         an employee's contribution, and may also provide a discretionary
         contribution each year. The Company's contributions to the Plan totaled
         $27,000 in 1998 and $20,000 in 1999. In addition, the Company's
         employees are eligible to participate in a pension plan sponsored by
         Stone & Webster Incorporated. Costs of the plan charged to the Company
         were $8,000 and $39,000 in 1998 and 1999, respectively.


                                       12
<PAGE>   13

                          PRESCIENT TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS

(7)      Revenue and Significant Customers

         Revenue by geographic area is summarized as follows (amounts in
         thousands):

         <TABLE>
         <CAPTION>
                                YEARS ENDED     SIX MONTHS ENDED
                                DECEMBER 31,        JUNE 30,
                              ---------------   ----------------
                               1998     1999     1999      2000
                              ------   ------   ------    ------
                                                  (UNAUDITED)

         <S>                  <C>      <C>      <C>       <C>
         United States ....   $2,945    2,385    1,220       940
         Europe ...........      615      725      312        66
         Asia .............      205        3        2        18
                              ------   ------   ------    ------
               Total ......   $3,765    3,113    1,534     1,024
                              ======   ======   ======    ======
         </TABLE>

         No individual customers accounted for greater than 10% of total revenue
         during 1998 or 1999.

(8)      Sale of the Company

         On July 12, 2000, substantially all of the net assets of the Company
         were acquired by Spatial Technology Inc. (Spatial) for $100,000 cash
         and 300,000 shares of the common stock of Spatial. An additional 50,000
         shares of Spatial common stock are required to be issued if certain
         performance objectives are attained.


                                       13
<PAGE>   14

(b) Unaudited pro forma condensed combined financial statements as of June 30,
    2000 and for the six months ended June 30, 2000 and the year ended December
    31, 1999.

                             SPATIAL TECHNOLOGY INC.
           UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

         On July 12, 2000, the Company acquired substantially all of the net
assets of Prescient Technologies, Inc. ("Prescient) for total consideration of
$1.2 million, including $100,000 cash and 300,000 shares of common stock. In
addition, the Company may be required to issue an additional 50,000 shares of
common stock if certain performance objectives are met. The additional shares,
if any, will be recorded as additional acquisition consideration at the time of
issuance.

         The unaudited pro forma condensed combined balance sheet presents the
financial position of the Company as of June 30, 2000 giving effect to the
Prescient acquisition as if it had occurred on such date. The unaudited pro
forma condensed combined statements of operations of the Company for the six
months ended June 30, 2000 and the year ended December 31, 1999, assume that the
Prescient acquisition was completed on January 1, 1999.

         The unaudited pro forma condensed combined financial statements have
been derived from the historical financial statements of the Company. The pro
forma adjustments and the assumptions on which they are based are described in
the accompanying notes to the unaudited pro forma condensed combined financial
statements. The unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical financial statements and
the notes thereto of the Company which were previously reported in the Company's
Report on Form 10-KSB for the year ended December 31, 1999 and the Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 2000 and June 30, 2000,
and the audited financial statements and the notes thereto of Prescient as of
December 31, 1998 and 1999 and for the years then ended, and the unaudited
interim financial statements as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000, included elsewhere in this Current Report on Form 8-K.

         The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the financial position or operating results that would
have occurred had the acquisition of Prescient been completed at that date, or
at the beginning of the period for which the transaction has been given effect,
nor the financial results of the combined company in the future.


                                       14
<PAGE>   15

                             SPATIAL TECHNOLOGY INC.
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                                  JUNE 30, 2000

(In Thousands)

<TABLE>
<CAPTION>
                                                                         PRO FORMA
                                                                        ADJUSTMENTS
                                          SPATIAL       PRESCIENT      FOR PRESCIENT           TOTAL
                                        ------------   ------------  ------------------     -----------

<S>                                     <C>            <C>           <C>                    <C>
ASSETS
Current Assets:
   Cash and cash equivalents........... $     3,331    $        --   $     (100)(a)         $    3,231
   Accounts receivable, net............       4,475            298           --                  4,773
   Prepaid expenses and other..........         819            209           --                  1,028
                                        -----------    -----------   ----------             ----------
      Total current assets.............       8,625            507         (100)                 9,032
Equipment, net.........................       2,513            209           --                  2,722
Software costs, net....................       2,082            817          (29)(b)              2,870
                                        -----------    -----------   ----------             ----------
                                        $    13,220    $     1,533   $     (129)            $   14,624
                                        ===========    ===========   ==========             ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable.................... $     1,370    $       241   $      (15)(c)         $    1,596
   Due to affiliate....................          --         16,946      (16,946)(d)                 --
   Accrued expenses....................       1,442            162           (2)(e)              1,602
   Deferred revenue....................       2,569            636         (392)(f)              2,813
                                        -----------    -----------   ----------             ----------
      Total current liabilities........       5,381         17,985      (17,355)                 6,011
                                        -----------    -----------   ----------             ----------
Stockholder's Equity
   Common stock........................         115            100          (97)(a) (g)            118
   Additional paid-in capital..........      32,849              2          940 (a) (g)         33,791
   Accumulated deficit.................     (24,986)       (16,454)      16,283 (h)            (25,157)
   Subscription receivable.............          --           (100)         100 (i)                 --
   Other comprehensive loss............        (139)            --           --                   (139)
                                        -----------    -----------   ----------             ----------
      Total stockholders' equity.......       7,839        (16,452)      17,226                  8,613
                                        -----------    -----------   ----------             ----------
                                        $    13,220    $     1,533   $     (129)            $   14,624
                                        ===========    ===========   ==========             ==========
</TABLE>


                                       15
<PAGE>   16

                             SPATIAL TECHNOLOGY INC.
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 2000

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        PRO FORMA
                                                                       ADJUSTMENTS
                                          SPATIAL       PRESCIENT     FOR PRESCIENT        TOTAL
                                        ------------   ------------   -------------     -----------

<S>                                     <C>            <C>            <C>               <C>
Revenue................................ $     7,252    $     1,024     $       --       $    8,276
Cost of revenue........................       1,293            559            131 (j)        1,983
                                        -----------    -----------     ----------       ----------
Gross profit...........................       5,959            465           (131)           6,293
Operating expenses:
Sales and marketing....................       3,782          1,757             --            5,539
Research and development...............       5,398            630             --            6,028
General and administrative.............       1,796            267             --            2,063
                                        -----------    -----------     ----------       ----------
Total operating expenses...............      10,976          2,654             --           13,630
                                        -----------    -----------     ----------       ----------
Loss from operations...................      (5,017)        (2,189)          (131)          (7,337)
Other income (expense).................         105             --             --              105
                                        -----------    -----------     ----------       ----------
Loss before income taxes...............      (4,912)        (2,189)          (131)          (7,232)
Income taxes...........................         138             --             --              138
                                        -----------    -----------     ----------       ----------
Net loss............................... $    (5,050)   $    (2,189)    $     (131)      $   (7,370)
                                        ===========    ===========     ==========       ==========
Loss per common share:
Basic and Diluted...................... $     (0.46)                                    $    (0.66)
Weighted average number of
  shares outstanding
   Basic and Diluted...................      10,914                           300 (a)       11,214
</TABLE>


                                       16
<PAGE>   17

                             SPATIAL TECHNOLOGY INC.
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        PRO FORMA
                                                                       ADJUSTMENTS
                                          SPATIAL       PRESCIENT     FOR PRESCIENT        TOTAL
                                        ------------   ------------   --------------   -----------

<S>                                     <C>            <C>            <C>              <C>
Revenue................................ $    14,900    $     3,113    $       --       $   18,013
Cost of revenue........................       1,132          1,179           263 (j)        2,574
                                        -----------    -----------    ----------       ----------
Gross profit...........................      13,768          1,934          (263)          15,439
Operating expenses:
Sales and marketing....................       5,918          4,279            --           10,197
Research and development...............       7,742          1,701            --            9,443
General and administrative.............       2,362          1,136            --            3,498
Acquired in-process research
  and development......................         500             --            --              500
                                        -----------    -----------    ----------       ----------
Total operating expenses...............      16,522          7,116            --           23,638
Loss from operations...................      (2,754)        (5,182)         (263)          (8,199)
Other income (expense).................         139             --            --              139
                                        -----------    -----------    ----------       ----------
Net income (loss) before income taxes..      (2,615)        (5,182)         (263)          (8,060)
Income taxes...........................         246             --            --              246
                                        -----------    -----------    ----------       ----------
Net income (loss)...................... $    (2,861)   $    (5,182)   $     (263)      $   (8,306)
                                        ===========    ===========    ==========       ==========
Loss per common share:
Basic and Diluted...................... $     (0.31)                                   $    (0.86)
Weighted average number of
  shares outstanding
  Basic and Diluted....................       9,345                          300 (a)        9,645
</TABLE>


                                       17
<PAGE>   18


                             SPATIAL TECHNOLOGY INC.

      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

         The Prescient acquisition was accounted for using the purchase method
of accounting. The pro forma adjustments have been prepared on the basis of
assumptions described in the following notes and includes assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
Prescient based on preliminary estimates of their fair values. The actual
allocation of such consideration may differ from that reflected in the pro forma
financial information after valuations and finalization of the purchase
accounting entries, including the allocation to acquired in-process research and
development. In the opinion of the Company's management, all adjustments
necessary to present fairly such pro forma financial information have been made
based on the terms and structure of the Prescient acquisition agreement.

         The pro forma financial statements give effect to the following pro
forma adjustments related to the prescient acquisition:

(a)      To record the consideration of $1.2 million paid by the Company in
         connection with the acquisition of Prescient, including $100,000 cash
         and 300,000 shares of common stock.

(b)      To adjust long-term intangible assets for the excess of the fair value
         of the acquired net assets over the acquisition consideration.

(c)      To adjust accounts payable for amounts not assumed by the Company in
         connection with the acquisition.

(d)      To eliminate amount due to affiliate of Prescient which was forgiven as
         part of the acquisition by the Company.

(e)      To record liabilities incurred by the Company in connection with
         acquisition, including direct legal and accounting expenses totaling
         $136,000, and to record the elimination of accrued liabilities totaling
         $138,000 not assumed by the Company in connection with acquisition.

(f)      To reduce deferred revenue to the fair value of the deferred revenue
         assumed by the Company in connection with the acquisition.

(g)      To eliminate Prescient common stock of $100,000 and additional paid in
         capital of $2,000.

(h)      To eliminate Prescient's accumulated deficit and reflect a $171,000
         charge for acquired in-process research and development pursuant to the
         acquisition of certain assets of Prescient.

(i)      To eliminate Prescient's stock subscription receivable.

(j)      To reflect the additional amortization of intangible assets from the
         Prescient acquisition. The acquisition of certain assets and
         liabilities of Prescient resulted in approximately $788,000 of software
         costs, which are being amortized over their estimated useful lives of
         three years.


                                       18
<PAGE>   19

(c)      Exhibits

         Exhibit           Description
         Number            of Document

         10.37             Asset Purchase Agreement, by and between the
                           Company, Prescient and Stone & Webster, dated as of
                           June 28, 2000.

         23.1              Consent of KPMG LLP.


                                   SIGNATURES

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

                                          SPATIAL TECHNOLOGY INC.

Date:    October 18, 2000                 /s/ Todd S. Londa
                                          ----------------------------------
                                          Todd S. Londa
                                          Vice President, Administration and
                                          Corporate Controller


<PAGE>   20


                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION
-------           -----------

<S>               <C>
 10.37            Asset Purchase Agreement, by and between the Company,
                  Prescient and Stone & Webster, dated as of June 28, 2000.

 23.1             Consent of KPMG LLP.
</TABLE>




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