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The Preliminary Due Diligence List for a U.S. IPO
— Mark Tanoury of Cooley, Godward, Castro, Huddleson & Tatum

Financial Information
A. Annual and quarterly financial information for the past three years

1. Income statements, balance sheets, cash flows and footnotes
2. Planned versus actual results
3. Management financial report
4. Breakdown of sales and gross profit by
   1. Product type
   2. Channel
   3. Geography
5. Current backlog by customers
6. Accounts receivable aging schedule

B. Financial projections

1. Quarterly financial projections for FY1996, FY1997 and Q1 of Fy1998
   1. revenue by product type, customers and channel
   2. Full income statements, balance sheets, cash flow statements
2. Major growth drivers and prospects
3. Predictability of business
4. Risks attendant to foreign operations (e.g., exchange rate fluctuation, government instability)
5. Industry and company pricing policies
6. Economic assumptions underlying projections (different scenarios based on price and market fluctuations)
7. Explanation of projected capital expenditures, depreciation, and working capital requirements
8. External financing arrangement assumptions

C. Capital Structure

1. Current shares outstanding
2. Schedule of all options, warrants, rights and any other potentially dilative securities with exercise prices and vesting provisions
3. Summary of all debt instruments/bank lines with key terms and conditions
4. Off balance sheet liabilities
5. Capital losses

D. Other financial information

1. Summary of current federal, state and foreign tax positions, including net operating loss carryforwards
2. Discuss general accounting policies (revenue recognition, etc.)
3. Schedule of financing history for equity, warrants and debt (date investors, dollars investment, percentage ownership, implied valuation and current basis for each round)

Products
A. Descriptions of each product within each market segment (include product literature)

1. Major customers and applications
2. Historical and projected growth rates
3. Market share
4. Speed and nature of technological change
5. Timing of new products, product enhancements
6. Cost structure and profitability

Customer Information
A. Representative list of 20 customers by application—contact name, address, phone number, product(s) owned and timing of purchase(s)

B. List of strategic relationship (contact name, phone number, revenue contribution, marketing agreements)

C. Revenue by customer (name, contact and phone number for any customers accounting for 5% or more of revenue)

D. Brief description of any significant relationship severed within the last two years.

Competition
A. Description of the competitive landscape within each market segment including

1. Market position and related strengths and weaknesses as perceived in the marketplace
2. Basis of competition (e.g., price, service, technology, distribution)

Marketing, Sales, and Distribution
A. Strategy and implementation

1. Discussion of domestic and international distribution channels, including any VARs, Systems Integrators and OEMs
2. Positioning of the Company and its products
3. Marketing opportunities/marking risk
4. Description of marketing programs and examples of recent marketing/product/public relations/media information on the Company

B. Major customers

1. Status and trends of relationships
2. Prospects for future growth and development
3. Pipeline analysis

C. Principal avenue for generating new business

D. Sales force productivity model

1. Compensation
2. Quota average
3. Sales cycle
4. Plan for new hires

F. Ability to implement marketing plan within current and projected budget

Research and Development
A. Description of R&D organization

1. Strategy
2. Key personnel
3. Major activities

B. New product pipeline

1. Status and timing
2. Cost of development
3. Critical technology necessary for implementation
4. Risks

C. Patents

1. Dependence on outside licensing and patents
2. Patents currently held by the Company

D. Relationships with third parties

1. Joint R&D efforts
2. Participation in industry associations

E. Ability to implement marketing plan within current and projected budgets

Management and Personnel
A. Organization chart

B. Historical and projected headcount by function and location

C. Summary biographies of senior management, including employment history, age, service with the Company, years in current position

D. Compensation arrangements

1. Copies (or summaries) of key employment agreements
2. Benefit plans

E. Discussion of incentive stock plans

F. Significant employee relations problems, past or present

G. Personnel Turnover

1. Data for last two years
2. Key unfilled vacancies

Legal and Other Matters
A. Pending lawsuits against the Company—detail on claimant, claimed damages, brief history, status, anticipated outcome, and name of the Company’s counsel

B. Pending lawsuits initiated by the Company—detail on defendant, claimed damage, brief history, status, anticipated outcome, and name of the company’s counsel

C. Description of environmental and employee safety issues and liabilities

1. Safety precautions
2. New regulations and their consequences

D. List of material patents, copyrights, licenses and trademarks—issues and pending

E. Summary of insurance coverage/any material exposures

F. Summary of material contracts

G. History of SEC or other regulatory agency problems, if any

Other Company Information
A. Business plan, if available 

B. List of Board members

C. List of all stockholders with shareholding, options, warrants or notes