-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U2ShjNzVFzP//e2iP9P1lYa3ZBMNrNKqq22uMbwI2G26pdm7SAv48YYguf9Ud5k0 hv9chaVOtuh3qboEGFng+g== 0000902561-00-000264.txt : 20000516 0000902561-00-000264.hdr.sgml : 20000516 ACCESSION NUMBER: 0000902561-00-000264 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAPQUEST COM INC CENTRAL INDEX KEY: 0001078284 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 363949110 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25877 FILM NUMBER: 635145 BUSINESS ADDRESS: STREET 1: 3710 HEMPLAND ROAD CITY: MOUNTVILLE STATE: PA ZIP: 17554 BUSINESS PHONE: 7172858500 MAIL ADDRESS: STREET 1: 3710 HEMPLAND ROAD CITY: MOUNTVILLE STATE: PA ZIP: 17554 10-Q 1 MAPQUEST.COM, INC. - FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ Commission File Number: 333-72667 MapQuest.com, Inc. ------------------ (Exact name of registrant as specified in its charter) Delaware 36-3949110 -------- ---------- (State or other jurisdiction of (I.R.S. Employer ID No.) incorporation or organization) 3710 Hempland Road, Mountville, Pennsylvania 17554 -------------------------------------------------- (Address of principal executive offices) (717) 285-8500 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No ALTHOUGH THE REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS, THE REGISTRANT DID NOT BECOME SUBJECT TO SUCH FILING REQUIREMENTS UNTIL THE REGISTRATION OF CERTAIN SHARES OF ITS COMMON STOCK PURSUANT TO A REGISTRATION STATEMENT ON FORM S-1 (NO.333-72667) (THE "REGISTRATION STATEMENT") WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999. The number of shares outstanding of the Registrant's classes of common stock as of March 31, 2000 was 36,474,367. -2- MAPQUEST.COM, INC. INDEX PAGE ---- INDEX 3 PART I. FINANCIAL INFORMATION: 4 ITEM 1. Financial Statements: 4 Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 4 Unaudited Statements of Operations for the three months ended March 31, 2000 and 1999 6 Unaudited Statements of Cash Flows for the three months ended March 31, 2000 and 1999 7 Notes to Unaudited Interim Financial Statements 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 18 PART II. OTHER INFORMATION: 19 ITEM 1. Legal Proceedings 19 ITEM 2. Changes in Securities and Use of Proceeds 19 ITEM 3. Defaults Upon Senior Securities 19 ITEM 4. Submission of Matters to a Vote of Security Holders 19 ITEM 5. Other Information 20 ITEM 6. Exhibits and Reports on Form 8-K 20 ITEM 7. Signatures 20 -3- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MAPQUEST.COM, INC. BALANCE SHEETS (in thousands, except share and per share amounts) December 31, March 31, 1999 2000 (unaudited) ------------------------- ASSETS Current assets: Cash and cash equivalents $19,390 $36,933 Short-term investments 23,566 1,996 Accounts receivable, net of allowance for doubtful accounts (1999--$602; 2000--$734) 12,069 13,644 Accounts receivable - affiliates 449 342 Inventories 1,197 1,271 Contract work in progress 429 822 Prepaid expenses and other current assets 2,168 2,859 ------------------------- Total current assets 59,268 57,867 Property and equipment, net of accumulated depreciation (1999--$4,933; 2000--$5,524) 5,011 7,137 Goodwill, net 148 140 Other assets 583 437 ------------------------- Total assets $65,010 $65,581 ========================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,246 $3,343 Accrued personnel costs 2,393 1,045 Advance billings on contracts 1,481 2,896 -4- March 31, December 31, 2000 1999 (unaudited) ------------------------- Deferred revenue 4,081 5,845 Other accrued liabilities 3,952 4,445 ------------------------- Total current liabilities 15,153 17,574 ------------------------- Stockholders' Equity: Common stock - $.001 par value: Authorized shares - 100,000,000 Issued and outstanding shares, 36,014,307 in 1999 and 36,474,367 in 2000 36 36 Notes receivable for common stock (224) (224) Additional paid in capital 88,779 92,121 Retained deficit (38,734) (43,926) ------------------------- Total stockholders' equity 49,857 48,007 ------------------------- Total liabilities and stockholders' equity $65,010 $65,581 ========================= See accompanying notes to the financial statements. -5- MAPQUEST.COM, INC. STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share amounts) Three months ended March 31 ------------------------------ 1999 2000 ------------------------------ Revenues Business $ 2,006 $ 4,928 Consumer 1,022 2,505 ------------------------------ Total business and consumer revenues 3,028 7,433 Digital mapping 3,128 2,958 ------------------------------ Total revenues 6,156 10,391 Cost of revenues Business and consumer 1,925 4,819 Digital mapping 2,540 2,227 ------------------------------ Total cost of revenues 4,465 7,046 ------------------------------ Gross profit 1,691 3,345 Operating expenses Sales and marketing 2,809 6,228 Product development 784 1,254 General and administrative 938 1,665 ------------------------------ Total operating expenses 4,531 9,147 ------------------------------ Operating loss (2,840) (5,802) Interest income and expense, net 2 609 Other income 35 1 ------------------------------ Loss before provision for income taxes (2,803) (5,192) Provision for income taxes 1 - ------------------------------ Net loss $ (2,804) $ (5,192) Less preferred stock dividends and accretion (309) - ------------------------------ Net loss applicable to common stockholders $ (3,113) $ (5,192) ============================== Basic and diluted loss per share $ (9.26) $ (0.14) Shares used to compute basic and diluted loss per share 336,233 36,135,072 See accompanying notes to the financial statements. -6- MAPQUEST.COM, INC. STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three months ended March 31 --------------------------- 1999 2000 --------------------------- Operating Activities Net loss $ (2,804) $ (5,192) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 295 591 Amortization 8 8 Provision for doubtful accounts 41 246 Equity in earnings of joint venture (31) (19) Changes in operating assets and liabilities: Accounts receivable 746 (1,821) Accounts receivable - affiliates (18) 107 Inventories 189 (74) Contract work in progress (209) (393) Prepaid expenses and other current assets 70 (691) Other assets - 165 Accounts payable (520) 97 Advance billings on contracts 439 1,415 Deferred revenue (3) 1,764 Accrued personnel costs and other liabilities 1,123 (855) --------------------------- Net cash used in operating activities (674) (4,652) -7- Investing activities Sales and maturities of short-term investments - 21,570 Property and equipment purchases (622) (2,717) --------------------------- Net cash provided by (used in) investing activities (622) 18,853 Financing activities Borrowings under line of credit 900 - Principal payments on debt (14) - Exercise of common stock options - 3,342 --------------------------- Net cash provided by financing activities 886 3,342 =========================== Net (decrease) increase in cash and cash equivalents (410) 17,543 Cash and cash equivalents, beginning of period 564 19,390 --------------------------- Cash and cash equivalents, end of period $ 154 $ 36,933 =========================== Supplemental cash flow information Stock dividends paid on Preferred Stock Series B $ 271 $ - =========================== See accompanying notes to the financial statements. -8- MAPQUEST.COM, INC. Notes to Unaudited Interim Financial Statements March 31, 2000 1. Merger with America Online, Inc. On December 22, 1999, the Company announced that it will be acquired by America Online, Inc. in an all-stock transaction pursuant to a merger agreement executed on December 21, 1999. Shareholders of MapQuest will receive 0.31558 shares of America Online common stock for each share of MapQuest common stock. The transaction is expected to close in mid-2000, subject to various conditions including customary regulatory approvals and the approval of MapQuest shareholders. The transaction will be accounted for as a pooling-of-interests by America Online. 2. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 1999 included in MapQuest.com, Inc.'s (MapQuest) Form 10-K for the fiscal year ended December 31, 1999. 3. Stockholders' Equity During April 1999, the Board of Directors and the stockholders authorized a 2.7 for 1 split of MapQuest's common stock. In addition, the Board of Directors and the stockholders authorized and approved the amendment and restatement of MapQuest's Certificate of Incorporation such that MapQuest has the authority to issue an aggregate of 105,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.01 per share. This amended and restated Certificate of Incorporation became effective upon the effectiveness of MapQuest's registration statement for its initial public offering. All references to common shares, per common share, and par value per common share in the financial statements for the periods prior to the initial public offering in May 1999 give retroactive effect to the common stock split and change in par value per common share. Upon the effectiveness of MapQuest's registration statement for its initial public offering, MapQuest adopted the 1999 Stock Plan, pursuant to which 3,645,000 shares of common stock were reserved for future issuance, and established an employee stock purchase plan under which a total of 1,755,000 -9- shares of common stock could be made available for sale. In connection with the merger with America Online, Inc., MapQuest is precluded from implementing the employee stock purchase plan. In May 1999, MapQuest completed an initial public offering of 4,600,000 shares of its common stock at a public offering price of $15 per share, which generated approximately $61.6 million in net proceeds to MapQuest. Upon the closing of MapQuest's initial public offering in May 1999, all of the outstanding shares of MapQuest's Series A and Series C Preferred Stock were converted into 27,122,455 shares of common stock and all of the outstanding shares of MapQuest's Series B Preferred Stock were redeemed for approximately $8.7 million. During June 1999, in connection with MapQuest's initial public offering, the underwriters of the offering exercised an over-allotment option for 597,990 shares of MapQuest's common stock at the initial public offering price of $15 per share, which generated approximately $8.3 million in net proceeds to MapQuest. 4. Investments The Company invests certain of its excess cash in debt instruments of the U.S. Government and its agencies, and of high quality corporate issuers. All highly liquid instruments with an original maturity of three months or less when purchased are considered cash equivalents; those with original maturities greater than three months but less than twelve months when purchased are considered short-term investments. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," MapQuest classifies its investment securities as available-for-sale. Unrealized holding gains and losses at December 31, 1999 and March 31, 2000 were not significant. 5. Inventories Inventories are comprised of the following: December 31, March 31, 1999 2000 ----------------------------- (in thousands) Materials $ 52 $ 52 Work-in-process 144 471 Finished goods 1,001 748 --------- --------- $ 1,197 $ 1,271 ========= ========= -10- 6. Loss Per Share The following tables set forth the computation of basic and diluted loss per share: Three months ended March 31 --------------------- 1999 2000 --------------------- (in thousands, except loss per share) Numerator: Net loss....................... $ (2,804) $ (5,192) Preferred stock dividends...... (271) - Accretion of redeemable preferred stock.............. (38) - --------------------------------- Net loss applicable to common stockholders.......... $ (3,113) $ (5,192) Denominator: Denominator for basic and diluted loss per share-weighted average shares............... 336 36,135 --------------------------------- Basic and diluted loss per common share............. $ (9.26) $ (0.14) ============== ============= The following securities and number of shares have been excluded from the diluted per share computations as they are antidilutive for the three month periods ended March 31, 1999 and 2000. 1999 2000 ------------------ (in thousands) Convertible redeemable preferred stock Series A 6,550 - Convertible redeemable preferred stock Series C 3,495 - Stock options 5,907 5,667 Stock warrants 2,315 - On December 21, 1999, MapQuest issued to America Online, Inc. an option and reserved common stock in conjunction with the merger agreement for 3,571,661 shares at an exercise price of $27.00 per share. These options have been excluded from the diluted per share computations as they are antidilutive. 7. Segment Information MapQuest has two reportable segments: MapQuest Business/Consumer and Digital Mapping Services. The MapQuest Business/Consumer segment provides products and services to address the web-based destination information needs of both businesses and consumers. Business and Consumer revenues and costs are combined for this segment because a significant portion of the costs, primarily compensation -11- for operations personnel and related operations costs, are common to both Business and Consumer revenues and are not allocated. The Digital Mapping Services segment provides non-Internet mapping products and services to the education, reference, directory, travel and governmental markets as well as providing customized mapping solutions to various other customers. Revenues are derived principally from the United States. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in MapQuest's financial statements included in MapQuest's 1999 Form 10-K. MapQuest evaluates performance based on gross profit and does not allocate assets to the reportable segments since management does not evaluate segment performance based on asset information and common assets are used in the segments. MapQuest's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Three months ended March 31 1999 2000 ---------------------------- (in thousands) Business segment revenues: MapQuest business/consumer-trade........... $ 3,028 $ 7,433 Digital mapping services-trade............. 3,128 2,958 --------- --------- Total 6,156 10,391 Business segment profit: MapQuest business/consumer ................ 1,103 2,614 Digital mapping services................... 588 731 --------- --------- Total segment profit....................... 1,691 3,345 Reconciling items: Operating expenses......................... (4,531) (9,147) Interest income and other.................. 37 610 --------- --------- Pre-tax loss................................. $ (2,803) $ (5,192) ========= ========= 8. Contingent Matters MapQuest has been approached by Unisys Corporation ("Unisys") concerning a license under U.S. Patent No. 4,558,302, which covers certain data compression technology commonly referred to as the Lempel-Zev-Welch or ALZW@algorithm. Unisys and MapQuest are presently engaged in negotiations concerning a possible settlement. -12- Unisys has not filed a lawsuit, although it has suggested the possibility of litigation to enforce the '302 patent if negotiations are unsuccessful. The Company believes the ultimate resolution of this matter will not have a material adverse effect on the Company's financial position, results of operations, or liquidity. Under the terms of MapQuest's merger agreement with America Online entered into on December 21, 1999, MapQuest may not settle certain claims without America Online's consent. Universal Map Enterprises, Inc. filed a lawsuit against MapQuest and America Online in the United States District Court in the Western District of New York. In that lawsuit, Universal Map Enterprises alleges claims against MapQuest for breach of contract, conversion and specific performance, and against America Online for tortious interference with business arrangements, in connection with an alleged agreement to sell MapQuest's online electronic commerce website, MapStore.com, to Universal Map. Since the commencement of the action, Universal Map has subsequently agreed to dismiss America Online from the action without prejudice. Universal Map is seeking to recover $1,000,000 in damages and/or specific performance of the alleged agreement, plus costs and fees. MapQuest and Universal Map have entered into a stipulation whereby MapQuest has agreed not to frustrate the ability of Universal Map to enforce a judgment for specific performance against MapQuest if so rendered. On February 18, 2000, Universal Map filed a motion for summary judgment with the court seeking summary disposition of its claims prior to discovery and trial. MapQuest's opposition to that motion is set to be filed with the court. MapQuest denies liability and intends to vigorously contest the motion and defend the action. Management does not expect the claim will have a material adverse effect on MapQuest's financial position, results of operations, or liquidity. On April 6, 2000, Furman Roth, Inc. filed a lawsuit against MapQuest in the Supreme Court of the State of New York, County of New York. In the lawsuit, Furman Roth alleges claims against MapQuest for breach of contract, fraud, quantum meruit and unjust enrichment in connection with alleged services rendered with respect to certain placement of advertising by MapQuest. Furman Roth is seeking to recover $1,575,000 in damages, plus unspecified punitive damages. MapQuest denies liability and intends vigorously to defend against the complaint. Management does not expect the claim will have a material adverse effect on MapQuest's financial position, results of operations, or liquidity. MapQuest periodically receives notices of claims arising out of the normal course of business. Management is not aware of any notices of claims that would have a material adverse effect on MapQuest's financial position, results of operations, or liquidity. 9. New Accounting Pronouncements In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements." SAB 101, as amended, provides additional guidance in applying generally accepted accounting principles for revenue recognition in financial statements. MapQuest plans to adopt any changes it believes to be mandated by the SAB no later than the second quarter of 2000. MapQuest does not expect the SAB to have a material impact on the reported financial position or results of operations of MapQuest. -13- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following information should be read in conjunction with the historical financial information and the notes thereto included in Item I of this quarterly report on Form 10-Q (The "Form 10-Q" or the "Report") and MapQuest's financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in MapQuest's 1999 Form 10-K. THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MAPQUEST CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS AND THE FUTURE PERFORMANCE OF MAPQUEST WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM WHAT IS EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE SET FORTH IN MAPQUEST'S REGISTRATION STATEMENT, PARTICULARLY UNDER THE SECTION ENTITLED "RISK FACTORS." MAPQUEST UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. Overview MapQuest is a leading online provider of mapping and destination information. MapQuest provides comprehensive online mapping solutions to businesses and provides customized maps, destination information and driving directions to consumers. MapQuest has three lines of business: Internet business products and services, Internet consumer products and services and digital mapping products and services. Since 1967, MapQuest has provided traditional cartographic products and services. In 1989, MapQuest began offering digital mapping products and services. Beginning in 1991, MapQuest introduced map-generating products and services which evolved into online mapping and routing applications. During the first quarter of 1996, MapQuest launched mapquest.com and initiated sales and marketing efforts to build brand awareness and to generate advertising revenues from its website. In the third quarter of 1996, MapQuest began providing online mapping and destination information products and services from its website to companies with an Internet presence and to high-traffic websites offering users a wide range of information and services on their websites, which are commonly referred to as portal websites. In 1997, MapQuest increased its focus on its Internet business and consumer lines of business by devoting significant resources to the mapquest.com -14- website and to its other Internet products and services. In 1998, MapQuest introduced its MapQuest Enterprise Server. MapQuest's Enterprise Server is designed to provide mapping and routing capability to high volume websites. In 1999, MapQuest began to focus on developing wireless and voice applications that allow MapQuest users to access driving directions and find information about various points of interest. On December 22, 1999, the Company announced that it will be acquired by America Online, Inc. in an all-stock transaction pursuant to a merger agreement executed on December 21, 1999. Shareholders of MapQuest will receive 0.31558 shares of America Online common stock for each share of MapQuest common stock. The transaction is expected to close in mid-2000, subject to various conditions including customary regulatory approvals and the approval of MapQuest shareholders. The transaction will be accounted for as a pooling-of-interests by America Online. MapQuest derives its revenues from three lines of business: Business Products and Services. MapQuest provides Internet products and services to companies with an Internet presence and to portal websites. These companies typically contract for MapQuest's services on an annual basis in consideration for a service fee based on usage and an initial set-up fee. MapQuest recognizes service fees ratably over the period of the service. Revenues from the set-up fee are recognized upon completion of the related installation services. Revenues for software and data licenses relating to MapQuest business products are recognized upon delivery of the product and if no significant obligations remain outstanding. Further, under those agreements where MapQuest has a maintenance or upgrade obligation, MapQuest recognizes revenue for these obligations over the period of the obligation. MapQuest has also historically provided business products and services for non-Internet applications by licensing software and data and by providing professional services on a time and material basis or a fixed-fee basis. Consumer Products and Services. Through mapquest.com, MapQuest derives revenues primarily from the sale of advertising and sponsorships. Advertising rates vary depending on whether the advertisements are delivered to a general audience or a targeted audience based on specific geographic location. Advertising revenues are typically recognized ratably over the period in which the advertisements are displayed, provided that no significant obligations remain and the collection of the resulting receivable is likely. MapQuest may guarantee its advertisers a pre-set level of impressions on mapquest.com. Impression refers to a delivery of an advertisement to a user. If the guaranteed impressions are not met, MapQuest defers recognition of the corresponding revenue until the guaranteed impressions are achieved. Sponsorship contracts may have longer terms and may allow sponsors to be exclusive sponsors of portions of mapquest.com or particular advertising categories. Digital Mapping Products and Services. MapQuest derives revenues from providing digital mapping services to businesses and from the sale of mapping products to distributors, retailers, and corporate customers. MapQuest typically receives fees and payments on a time and material basis or a fixed fee basis. Revenues from these services are recognized when the projects are completed. In addition, revenues from long-term contracts are recognized on the percentage-of-completion method, measured as the number of hours incurred to date as a percentage of estimated total labor hours for -15- each contract. MapQuest also licenses software and data for a license fee and/or royalties. License fees are recognized upon delivery of the software and data and if no significant obligations remain outstanding. Royalty revenue is recognized upon receipt of payment or evidence royalties have been earned. With respect to the sale of mapping products, MapQuest is paid negotiated amounts, depending on volume, from retailers and distributors, subject to minimum sales and return arrangements. RESULTS OF OPERATIONS Revenues Revenues were $6.2 million and $10.4 million for the three months ended March 31, 1999 and 2000, respectively. The increase in revenues is primarily attributable to increased business and consumer Internet related revenues. As a result of MapQuest's increased focus on positioning itself as an Internet company, the number of business customers using MapQuest's Internet mapping services increased from 456 at March 31, 1999 to 1,301 at March 31, 2000, an increase of 185%. The consumer segment also experienced increases in revenue as a result of increased resources devoted to direct sales of advertising in addition to MapQuest's third party advertising seller. These increases reflected in 2000 were partially offset by lower digital mapping services volume as compared to the same period in 1999. For the three months ended March 31, 2000, business and consumer related revenues and digital mapping revenues were 71.5% and 28.5% percent of total revenues, respectively, compared to 49.2% and 50.8% respectively for the three months ended March 31, 1999. MapQuest expects its percentage of business and consumer related revenues to continue to increase in the future. Cost of Revenues Cost of revenues consists primarily of compensation for operations personnel and related operations costs, including depreciation of operating assets, third-party data and royalties, print and paper costs for printed products, and subcontractor costs. Cost of revenues increased from $4.5 million to $7.0 million for the three months ended March 31, 1999 and 2000, respectively. This increase was primarily due to increased costs associated with adding staff and related expenses to support the expansion of our Internet products and services as traffic on the mapquest.com web site grew and as the number of business clients increased. Business and consumer costs increased by $2.9 million, from $1.9 million for the three months ended March 31, 1999 to $4.8 million for the three months ended March 31, 2000. As a percent of business and consumer revenue, these expenses were 64.8% for the three months ended March 31, 2000 compared to 63.6% for the same period in 1999. The increase in business and consumer costs was primarily related to increased costs associated with adding staff and related expenses to support the expansion of our Internet products and services as traffic on the mapquest.com web site grew and as the number of business clients increased. Digital mapping services costs decreased by $0.3 million, from $2.5 million to $2.2 million for the three months ended March 31, 1999 and 2000, respectively. As a percent of digital mapping services revenue, these expenses were 75.3% for the three months ended March 31, 2000 compared to 81.2% for the same period in 1999. The decrease in digital -16- mapping services costs was primarily related to decreased print and paper costs for printed products as a result of lower digital mapping services revenue. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, travel-related expenses, sales promotion expenses, public relations expenses and costs of marketing materials. Sales and marketing expenses were $6.2 million, or 59.9% of revenues, for the three months ended March 31, 2000. For the three months ended March 31, 1999, sales and marketing expenses were $2.8 million, or 45.6% of revenues. This period-to-period increase was primarily attributable to MapQuest's marketing promotions and advertising efforts as well as an increase in the number of sales and marketing personnel and related expenses. Product Development. Product development expenses consist primarily of the costs of developing new products and services and modifying existing products and services, including software and data. These costs consist primarily of salaries for product development personnel and related expenses, contract labor expense and consulting fees. Product development expenses were $1.3 million the three months ended March 31, 2000, and $0.8 million for the three months ended March 31, 1999. As a percentage of revenues, these expenses were 12.1% and 12.7%, respectively, for the three months ended March 31, 2000 and 1999. This period-to-period increase in dollar amount was primarily attributable to MapQuest's commitment to continue to invest in the development of business and consumer products. The decrease as a percentage of revenue is a result of higher revenues in the first quarter of 2000 versus the first quarter of 1999. General and Administrative. General and administrative expenses consist primarily of salaries and related expenses for general corporate functions, including executive, accounting and administrative personnel, and legal expenses. General and administrative expenses were $1.7 million and $0.9 million for the three months ended March 31, 2000 and 1999, respectively. As a percentage of revenues, these expenses were 16.0% and 15.2%, respectively, for the three months ended March 31, 2000 and 1999. This period-to-period increase was primarily attributable to increased salaries, professional service fees and other expenses as a result of company growth. Additional costs related to being a publicly held entity, including additional personnel, as well as directors' and officers' liability insurance and professional services fees were also incurred in 2000. Income Taxes MapQuest paid no income taxes for the three months ended March 31, 1999 and 2000, as MapQuest incurred net operating losses for those periods. Due to the uncertainty of future profitability, MapQuest has not recognized any potential future tax benefits of net operating loss carryforwards. -17- Liquidity and Capital Resources MapQuest has financed its operations to date primarily through the sale of common stock, private placement of equity securities, funds from operations and bank borrowings. As of March 31, 2000, MapQuest had $36.9 million of cash and cash equivalents and $2.0 million in short-term investments. MapQuest's days sales outstanding in accounts receivable, calculated on a quarterly basis, were 84 days at March 31, 1999 and 99 days at March 31, 2000. Due to quarter-to-quarter revenue fluctuations, days sales outstanding in accounts receivable may periodically exceed 90 days. The average collection period is a result of the payment practices of some of MapQuest's customers. Net cash used in operating activities was $0.7 million for the three months ended March 31,1999, and $4.7 million for the three months ended March 31, 2000. In both periods cash used by operating activities was primarily a result of net losses. Net cash used in investing activities was $0.6 million for the three months ended March 31, 1999. This resulted from the purchases of property and equipment. Net cash provided by investing activities was $18.9 million for the three months ended March 31, 2000. This resulted from net sales and maturities of short-term investments of $21.6 million and property and equipment purchases of $2.7 million, which included capitalization of software development costs of $1.0 million. Net cash provided by financing activities was $0.9 million for the three months ended March 31,1999, and $3.3 million for the three months ended March 31, 2000. In 1999, the amount resulted primarily from borrowings under the MapQuest line of credit and in 2000 the amount resulted from the exercise of 460,060 stock options. MapQuest believes its existing cash and cash equivalents, and short-term investments, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next twelve months. Our future capital requirements will depend on many factors, including the level of investment we make in new technologies and improvements to existing technologies and the levels of monthly expenses required to launch new products and services. Item 3. Quantitative and Qualitative Disclosures About Market Risk. MapQuest does not hold derivative financial instruments or derivative equity securities in its investment portfolio. The Company's policy is to invest excess cash in debt instruments of the U.S. government and its agencies, and of high quality corporate issuers with maturities ranging primarily from one day to less than six months. These securities are subject to interest-rate risk and will decrease in value if interest rates increase. Due to the short-term nature of these investments, MapQuest believes that the risk associated with interest-rate fluctuations does not pose a material risk to the Company. The Company's operations are conducted primarily in the United States and as such are not subject to material foreign currency exchange rate risk. -18- PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 8 of the Notes to financial statements. Item 2. Changes in Securities and Use of Proceeds (a) Recent Sales of Unregistered Securities During the three months ended March 31, 2000 MapQuest issued an aggregate of 581,600 options to purchase its common stock to its employees, with exercise prices ranging from $17.42 per share to $20.75 per share. These issuances were exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act. During the three months ended March 31, 2000, employees exercised options to purchase 460,060 shares of common stock of MapQuest at exercise prices ranging from $0.04 to $15.00 per share. These shares of common stock were issued in reliance upon Rule 701 promulgated under the Securities Act. (b) Use of Proceeds from Sales of Registered Securities On May 3, 1999, the Securities and Exchange Commission declared MapQuest's Registration Statement on Form S-1 (No. 333-72667) effective. On May 7, 1999, MapQuest completed an initial public offering of an aggregate of 4,600,000 shares of MapQuest Common Stock at an offering price of $15.00 per share. Net proceeds to MapQuest, after deducting underwriting discounts and commissions of $4,830,000 and offering expenses of approximately $2,570,000 were $61,600,000. On June 8, 1999, in connection with the aforementioned initial public offering, the managing underwriters exercised their over-allotment option for 597,990 shares of MapQuest's Common Stock at the initial public offering price of $15 per share, which generated approximately $8.3 million in net proceeds to MapQuest. MapQuest used approximately $8,700,000 of these proceeds to redeem all of the outstanding shares of Series B Preferred Stock. MapQuest has invested the remainder of the net proceeds in short-term, interest bearing investment grade obligations with various maturities ranging from one day to twelve months. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders None. -19- Item 5. Other Information None. Item 6. Exhibits and Report on Form 8-K (a) The following exhibits are filed as part of this report: 2.2 Computation of Basic and Diluted Net Loss per Share: Refer to Note 6 of the Notes to the Financial Statements. 27.4 Financial Data Schedule. (b) MapQuest did not file any reports on Form 8-K during the three months ended March 31, 2000. Item 7. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2000 MAPQUEST.COM, INC. By: /s/ James Thomas ----------------------------- Chief Financial Officer and Duly Authorized Officer (Principal Financial Officer) -20- EX-27.4 2 FDS -- MAPQUEST
5 This schedule contains summary information extracted from the MapQuest balance sheet (Unaudited) for March 31, 2000 and Statement of Operations (Unaudited) for the three months ended March 31, 2000 and is qualified in its entirety by reference to such financial statements. 0001078284 MapQuest.com, Inc. 1,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 36,933 1,996 14,720 734 1,271 57,867 12,661 5,524 65,581 17,574 0 0 0 36 47,971 65,581 10,391 10,391 7,046 7,046 0 0 0 (5,192) 0 (5,192) 0 0 0 (5,192) (0.14) (0.14)
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