-----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, FwltiHAY/ext3E/Sdhdx+Dy6ZDymqSqaF938kLmWSbtEMPWMY1aOwqOJT8aiuO9W ZKzzh1J8VeIKYpZyKidJoA== 0000902561-99-000364.txt : 19990817 0000902561-99-000364.hdr.sgml : 19990817 ACCESSION NUMBER: 0000902561-99-000364 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25877 FILM NUMBER: 99690969 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 FORM 10-Q FOR MAPQUEST.COM, INC. 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 June 30, 1999 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 (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 June 30, 1999 was 32,828,576. 2 MAPQUEST.COM, INC. INDEX PAGE ---- INDEX 3 PART I. FINANCIAL INFORMATION: 4 ITEM 1. Financial Statements: 4 Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited) 4 Unaudited Statements of Operations for the three months ended June 30, 1998 and 1999 and the six months ended June 30, 1998 and 1999 7 Unaudited Statements of Cash Flows for the six months ended June 30, 1998 and 1999 8 Notes to Unaudited Interim Financial Statements 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 24 PART II. OTHER INFORMATION: 24 ITEM 1. Legal Proceedings 24 ITEM 2. Changes in Securities and Use of Proceeds 24 ITEM 3. Defaults Upon Senior Securities 25 ITEM 4. Submission of Matters to a Vote of Security Holders 25 ITEM 5. Other Information 26 ITEM 6. Exhibits and Reports on Form 8-K 26 ITEM 7. Signatures 27 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MAPQUEST.COM, INC. BALANCE SHEETS (in thousands, except share and per share amounts) December 31, June 30, 1998 1999 ----------- ----------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 564 $ 49,754 Short term investments - 5,969 Accounts receivable, net of allowance for doubtful accounts (1998--$470; 1999--$580) 6,647 6,682 Accounts receivable - affiliates 128 219 Inventories 1,365 1,023 Contract work in progress 147 306 Prepaid expenses and other current assets 482 1,111 ----------- ----------- Total current assets 9,333 65,064 Property and equipment, net of accumulated depreciation (1998--$3,433; 1999--$4,060) 1,844 2,646 Goodwill, net 178 163 Other assets 95 956 ----------- ----------- Total assets $11,450 $68,829 =========== =========== 4 BALANCE SHEET (cont'd) December 31, June 30, 1998 1999 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (unaudited) Current liabilities: Accounts payable $1,715 $2,515 Current portion of note payable 48 19 Accrued personnel costs 562 774 Advance billings on contracts 498 1,079 Deferred revenue 1,208 1,604 Other accrued liabilities 1,001 1,331 ---------------- ---------------- Total current liabilities 5,032 7,322 ---------------- ---------------- Convertible Redeemable Preferred Stock - Series A, voting, $1.00 per share redemption value, aggregate liquidation preference of $6,550 in 1998: Issued and outstanding shares, 6,550,000 in 1998 6,550 - Cumulative Redeemable Preferred Stock - Series B, nonvoting, $6.15 per share redemption value, aggregate liquidation preference of $8,332 in 1998: Issued and outstanding shares, 1,354,802 in 1998 8,332 - Convertible Redeemable Preferred Stock - Series C, voting, $3.51 per share redemption value, aggregate liquidation preference of $12,268 in 1998: Issued and outstanding shares, 3,495,354 in 1998 11,595 - Notes receivable arising from issuance of preferred stock (291) - 5 BALANCE SHEET (cont'd) December 31, June 30, 1998 1999 ================ ================ Stockholders' equity (deficit): Preferred Stock - $.01 par value: Authorized shares 5,000,000 in 1999 Issued and outstanding shares, none in 1999 - - Common stock - $.001 par value: Authorized shares - 100,000,000 Issued and outstanding shares, 336,028 in 1998 and 32,828,576 in 1999 - 33 Notes receivable for common stock - (224) Additional paid in capital 140 88,493 Retained deficit (19,908) (26,795) ---------------- ---------------- Total stockholders' equity (deficit) (19,768) 61,507 ---------------- ---------------- Total liabilities and stockholders' equity (deficit) $11,450 $68,829 ================ ================ See accompanying notes to the financial statements. 6 MAPQUEST.COM, INC. STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share and per share amounts)
Three months ended Six months ended June 30 June 30 1998 1999 1998 1999 ---------- ---------- ---------- ---------- Revenues Business $ 1,334 $ 2,467 $ 3,054 $ 4,473 Consumer 259 1,513 551 2,535 ---------- ---------- ---------- ---------- Total business and consumer revenues 1,593 3,980 3,605 7,008 Digital mapping 4,729 3,430 8,267 6,558 ---------- ---------- ---------- ---------- Total revenues 6,322 7,410 11,872 13,566 Cost of revenues Business and consumer 1,014 2,322 2,144 4,247 Digital mapping 3,604 2,499 6,128 5,039 ---------- ---------- ---------- ---------- Total cost of revenues 4,618 4,821 8,272 9,286 ---------- ---------- ---------- ---------- Gross profit 1,704 2,589 3,600 4,280 Operating expenses Sales and marketing 1,067 4,364 2,550 7,173 Product development 813 1,320 1,690 2,104 General and administrative 527 998 992 1,936 ---------- ---------- ---------- ---------- Total operating expenses 2,407 6,682 5,232 11,213 ---------- ---------- ---------- ---------- Operating loss (703) (4,093) (1,632) (6,933) Interest income and expense, net 14 317 37 319 Other income 70 58 117 93 ---------- ---------- ---------- ---------- Loss before provision for income taxes (619) (3,718) (1,478) (6,521) Provision for income taxes - - - 1 Net loss $ (619) $ (3,718) $ (1,478) $ (6,522) Less preferred stock dividends and accretion (38) (70) (330) (378) Net loss applicable to common stockholders $ (657) $ (3,788) $ (1,808) $ (6,900) Basic and diluted loss per share $ (2.01) $ (0.18) $ (6.09) $ (0.65) Shares used to compute basic and diluted loss per share 326,129 20,886,590 296,753 10,668,182 Pro forma basic and diluted loss per share $ (0.02) $ (0.12) $ (0.05) $ (0.22) Shares used to compute pro forma basic and diluted loss per share 27,987,584 30,930,910 27,958,208 29,489,617 ========== ========== ========== ==========
See accompanying notes to the financial statements. 7 MAPQUEST.COM, INC. STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six months ended June 30 ------- 1998 1999 ------------ ------------ Operating Activities Net loss $ (1,478) $ (6,522) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 606 627 Amortization 15 15 Provision for doubtful accounts 96 110 Compensation expense recognized 38 - Equity in earnings of joint venture (55) (83) Changes in operating assets and liabilities Accounts receivable (737) (145) Accounts receivable - affiliates 20 (91) Inventories 234 342 Contract work in progress (119) (159) Prepaid expenses 368 (629) Other assets (68) (778) Accounts payable (54) 800 Advance billings on contracts 43 581 Deferred revenue 427 396 Accrued personnel costs and other liabilities (184) 543 ------------ ------------ Net cash used in operating activities (848) (4,993) Investing activities Purchase of short term investments - (5,969) Property and equipment purchases (518) (1,429) ------------ ------------ Net cash used in investing activities (518) (7,398) Financing activities Principal payments on debt (25) (29) Principal payments received on notes receivable arising from issuance of stock - 67 Exercise of common stock options and warrants 5 40 8 STATEMENTS OF CASH FLOWS (cont'd) Six months ended June 30 ------- 1998 1999 ------------ ------------ Proceeds from issuance of stock, net of offering costs - 70,163 Redemption of preferred stock - (8,660) ------------ ------------ Net cash provided by (used in) financing activities (20) 61,581 ------------ ------------ Net (decrease) increase in cash and cash equivalents (1,386) 49,190 Cash and cash equivalents, beginning of period 2,482 564 ------------ ------------ Cash and cash equivalents, end of period $ 1,096 $ 49,754 ============ ============ Supplemental cash flow information Stock dividends paid on Preferred Stock Series B $ 254 $ 328 ============ ============ See accompanying notes to the financial statements. 9 MAPQUEST.COM, INC. Notes to Financial Statements June 30, 1999 (unaudited) 1. 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 and six-month periods ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 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, 1998 included in MapQuest.com, Inc.'s (MapQuest) Form S-1 Registration Statement, as declared effective on May 3, 1999 with the Securities and Exchange Commission in connection with an initial public offering of MapQuest common stock (Registration Statement). 2. Stockholders' Equity 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 $62.1 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 $8.6 million. 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. All references to common shares, per common share, and par value per common share in the financial statements have been restated to give effect to the common stock split and change in par value per common share. Upon the effectiveness of MapQuest's Registration Statement, MapQuest has adopted the 1999 Stock Plan pursuant to which 3,645,000 shares of common stock were reserved for future issuance and established 10 an employee stock purchase plan under which a total of 1,755,000 shares of common stock will be made available for sale. 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 $8.1 million in net proceeds to MapQuest. 3. 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 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 June 30, 1999 were not significant. 4. Inventories Inventories are comprised of the following: December 31, June 30, 1998 1999 --------------- ---------------- (in thousands) Materials $ 96 $ 247 Work-in-process 336 233 Finished goods 933 543 --------------- ---------------- $ 1,365 $ 1,023 =============== ================ 5. Loss Per Share The following tables set forth the computation of basic and diluted loss per share: Three months ended June 30 ------------------------ 1998 1999 ---------- ---------- (in thousands, except loss per share) Numerator: Net loss.................................... $ (619) $ (3,718) Preferred stock dividends................... - (57) Accretion of redeemable preferred stock..... (38) (13) ---------- ---------- Net loss applicable to common stockholders.. $ (657) $ (3,788) ========== ========== 11 Three months ended June 30 ------------------------ 1998 1999 ----------- ----------- (in thousands, except loss per share) Denominator: Denominator for basic and diluted loss per share-- weighted average shares....................... 326 20,887 ----------- ----------- Basic and diluted loss per common share............ $ (2.01) $ (0.18) =========== =========== Six months ended June 30 ------------------------ 1998 1999 ----------- ----------- (in thousands, except loss per share) Numerator: Net loss........................................... $ (1,478) $ (6,522) Preferred stock dividends.......................... (254) (328) Accretion of redeemable preferred stock............ (76) (50) ----------- ----------- Net loss applicable to common stockholders......... $ (1,808) $ (6,900) =========== =========== Denominator: Denominator for basic and diluted loss per share-- weighted average shares....................... 297 10,668 ----------- ----------- Basic and diluted loss per common share............ $ (6.09) $ (0.65) =========== =========== The following securities and number of shares have been excluded from the diluted per share computations as they are antidilutive: Three and Six months ended June 30 ------------------------ 1998 1999 ----------- ----------- (in thousands) Convertible redeemable preferred stock Series A 6,550 - Convertible redeemable preferred stock Series C 3,495 - Stock options 3,271 6,344 Stock warrants 2,273 2,270 The following tables set forth the computation of pro forma basic and diluted loss per share, giving consideration to MapQuest's initial public offering discussed in Note 2 and assuming conversion of the shares of Series A Preferred Stock and Series C Preferred Stock to shares of common stock and the redemption of the shares of Series B Preferred Stock outstanding at June 30, 1998 and the redemption 12 date of May 4, 1999, using an initial public offering price of $15 per share and assuming such conversion and redemption occurred at the beginning of the respective periods. Three months ended June 30 ------------------------ 1998 1999 ----------- ----------- (in thousands, except loss per share) Numerator: Net loss applicable to common stockholders......... $ (657) $ (3,788) Redeemable preferred stock -- Series C accretion... 38 13 Preferred stock dividends on cumulative preferred stock--Series B........................ - 57 ----------- ----------- Numerator for pro forma basic and diluted loss per share......................................... $ (619) (3,718) =========== =========== Denominator: Weighted average number of common shares........... 326 20,887 Assumed conversion of preferred shares to common shares(1)..................................... 27,122 9,835 Assumed issuance of common shares to redeem Series B Preferred Stock(1)................... 539 209 ----------- ----------- Denominator for pro forma basic and diluted loss per share....................... 27,987 30,931 ----------- ----------- Pro forma basic and diluted loss per share......... $ (0.02) $ (0.12) =========== =========== 13 Six months ended June 30 ------------------------ 1998 1999 ----------- ----------- (in thousands, except loss per share) Numerator: Net loss applicable to common stockholders......... $ (1,808) $ (6,900) Redeemable preferred stock -- Series C accretion... 76 50 Preferred stock dividends on cumulative preferred stock -- Series B........... 254 328 ----------- ----------- Numerator for pro forma basic and diluted loss per share ....................... $ (1,478) $ (6,522) =========== =========== Denominator: Weighted average number of common shares........... 297 10,668 Assumed conversion of preferred shares to common shares(1)..................................... 27,122 18,383 Assumed issuance of common shares to redeem Series B Preferred Stock(1)................... 539 439 ----------- ----------- Denominator for pro forma basic and diluted loss per share......................................... 27,958 29,490 ----------- ----------- Pro forma basic and diluted loss per share......... $ (0.05) $ (0.22) =========== =========== (1) Shares used for 1999 computations are weighted average amounts considering the conversion and redemption occurred on May 4, 1999. 6. 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 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 the Registration Statement. 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. 14 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 Six months ended June 30 June 30 ------------------ ---------------- 1998 1999 1998 1999 ------- ------- ------- ------- (in thousands) (in thousands) Business segment revenues: MapQuest business/consumer trade. $ 1,593 $ 3,980 $ 3,605 $ 7,008 Digital mapping services trade... 4,729 3,430 8,267 6,558 ------- ------- ------- ------- Total 6,322 7,410 11,872 13,566 Business segment profit: MapQuest business/consumer ...... 579 1,658 1,461 2,761 Digital mapping services......... 1,125 931 2,139 1,519 ------- ------- ------- ------- Total segment profit............. 1,704 2,589 3,600 4,280 Reconciling items: Operating expenses............... (2,407) (6,682) (5,232) (11,213) Other and interest income........ 84 375 154 412 ------- ------- ------- ------- Pre-tax loss....................... $ (619) $ (3,718) $ (1,478) $ (6,521) ======= ======= ======= ======= 7. Contingent Matters On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A., Inc. in the United States District Court for the Eastern District of Pennsylvania. MapQuest is defending this matter pursuant to an indemnity provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent describes a specific method for searching real estate properties, which Mr. Tornetta alleges is infringed by Moore U.S.A., Inc.'s online and other real estate services. A motion to dismiss was filed on behalf of Moore, based on failure to join another company as the patent owner and real party in interest. Tornetta did not oppose the motion, and the case was dismissed on April 30, 1999. However, there is a possibility the action may be refiled naming both Moore and MapQuest as defendants. On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States District Court for the District of Colorado against twenty different defendants, including MapQuest. Eight of these defendants are licensees of MapQuest's technology and may have rights to indemnification under their respective agreements or at law. The complaint alleged infringement by MapQuest of two patents, through, for example, the manufacture, use, sale, and offer to sell electronic yellow page services systems and products. On May 3, 1999, MapQuest and Civix entered into a license agreement, dated May 3, 1999, pursuant to which MapQuest acquired a license under the Civix patents. The license agreement also provides certain rights to customers and end users of MapQuest products and services. Pursuant to the license agreement, MapQuest paid a one-time license fee. In connection with the acquisition of the license, MapQuest and Civix agreed to settle the lawsuit and to jointly seek entry in 15 the lawsuit of an agreed-upon order dismissing MapQuest from the lawsuit and dismissing certain claims against MapQuest's co-defendant customers relating to their use and sale of MapQuest products and services. The order was entered by the Court on May 18, 1999. MapQuest periodically receives notices of claims arising out of the normal course of business. In the opinion of management, these matters will not have a material adverse effect on MapQuest's financial position, results of operations, or liquidity. 16 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 contained in MapQuest's Registration Statement on Form S-1 (The "Form S-1") as declared effective by the Securities and Exchange Commission on May 3, 1999. 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 1993, 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 FORM S-1, 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 17 of business by devoting significant resources to the mapquest.com web site 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. 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 web sites. 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. Further, under those agreements where MapQuest has a maintenance or upgrade obligation, MapQuest recognizes revenue for these obligations over the period of the obligation. Revenues from systems integration contracts, typically long-term fixed-price contracts, are recognized on the percentage-of-completion method. 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 services are rendered. 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 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. Royalty revenue is recognized upon receipt of payment. 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. 18 Results of operations Revenues Revenues were $7.4 million and $13.6 million for the second quarter and first half of 1999, respectively, compared to $6.3 million and $11.9 million for the corresponding periods in 1998. The increases in revenues for the second quarter and first half of 1999 compared to the same periods in 1998 are primarily attributable to increased business and consumer Internet related revenues as a result of both an increase in the number of advertisers on mapquest.com and an increase in the number of business clients requiring Internet mapping services. These increases reflected in 1999 were partially offset by lower digital mapping services volume as compared to the same periods in 1998. For the three-months ended June 30, 1999, as a percent of total revenues, business and consumer related revenues and digital mapping revenues were 54% and 46%, respectively, compared to 25% and 75% respectively for the three months ended June 30, 1998. MapQuest expects its business and consumer related revenues to become a greater percentage of its total revenues in the future and expects a corresponding decrease in its digital mapping revenues as a percentage of total revenues 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 to $4.8 million and $9.3 million for second quarter and first half of 1999, respectively, as compared to $4.6 million and $8.3 million, respectively, for the corresponding periods in 1998. These increases were primarily due to increased costs associated with adding staff and related expenses to support the expansion of our Internet products and services as the mapquest.com web site traffic grew and as the number of business clients grew. 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 $4.4 million, or 58.9% of revenues, for the quarter ended June 30, 1999. For the six months ended June 30, 1999, sales and marketing expenses were $7.2 million, or 52.9% of revenues. In comparison, the second quarter of 1998 sales and marketing expenses were $1.1 million, or 16.9% of revenues, and the six months ended June 30, 1998 sales and marketing expenses were $2.6 million, or 21.5% of revenues. These period-to-period increases are primarily attributable to MapQuest's marketing promotions and advertising efforts as well as an increase to the number of sales and marketing personnel and related expenses. We believe that sales and marketing expenses will continue to increase in the future as we expand our direct sales force and further promote our products and services. 19 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 and $2.1 million, respectively, for the three months and six months ended June 30, 1999, and $.8 million and $1.7 million, respectively, for the three months and six months ended June 30, 1998. As a percentage of revenues, these expenses were 17.8% and 15.5%, respectively, for the three-month and six-month periods ended June 30, 1999 versus 12.9% and 14.2%, respectively, for the comparable periods in 1998. These period-to-period increases were primarily attributable to increased business and consumer product development expenses. We believe that continued investment in business and consumer product development expenses is essential to attaining our strategic objectives and as a result, we anticipate product development expenses to increase in the future. 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 $1.0 million and $1.9 million, respectively, for the three months and six months, ended June 30, 1999 compared to $ .5 million and $1.0 million, respectively, for the three months and six months, ended June 30, 1998. As a percentage of revenues, these expenses were 13.5% and 14.3%, respectively, for the three-month and six-month periods ended June 30, 1999, compared to 8.3% and 8.4%, respectively, for the three-month and six-month periods ended June 30, 1998. These period-to-period increases were primarily attributable to increased salaries and related expenses associated with hiring additional personnel as a result of company growth. Additional costs were incurred in 1999, as well, related to being a publicly held entity, including additional personnel, as well as directors' and officers' liability insurance and professional services fees. Income Taxes MapQuest paid no income taxes for the three months and six months ended June 30, 1998 and 1999, 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. 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 June 30, 1999, MapQuest had $49.8 million of cash and cash equivalents and $6.0 million in short-term investments. 20 Net cash used in operating activities was $.8 million for the six months ended June 30,1998, and $5.0 million for the six months ended June 30, 1999. In both periods cash used by operating activities was primarily a result of net losses. Net cash used in investing activities was $.5 million for the six months ended June 30, 1998 and $ 7.4 million for the six months ended June 30, 1999. This increase was due to the purchase of short-term investments of $ 6.0 million with a portion of the initial public offering proceeds and a $.9 million increase related to property and equipment purchases over 1998 levels. Net cash used in financing activities was less than $.1 million for the six months ended June 30,1998, and net cash provided by financing activities was $61.6 million for the six months ended June 30,1999. In 1999, the net amount of $61.6 million resulted primarily from the sale of common stock, net of the redemption of Preferred Stock. MapQuest's capital commitments for the six month period ended June 30, 1998 and the six month period ended June 30, 1999 consisted of obligations under facilities and operating leases. Management anticipates that it will experience an increase in its capital expenditures and lease commitments consistent with its anticipated growth in operations, infrastructure and personnel, in addition to committing resources to promoting its brand name and building marketing and sales forces. MapQuest has a revolving demand credit facility with First Union Bank, N.A. in the amount of $5.0 million which bears interest at First Union Bank's prime rate or fixed rates as offered by First Union Bank or LIBOR plus 1.75%. Borrowings are secured by MapQuest's accounts receivable and are limited to the lesser of $5.0 million or 80% of the net eligible accounts receivable which are within 90 days of invoice. As of June 30, 1999 there were no borrowings under this facility. In May 1999, the Company 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 $62.1 million in net proceeds to MapQuest. Upon the closing of the Company'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 $8.6 million. During June 1999, the underwriters of MapQuest's initial public 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 $8.1 million in net proceeds to MapQuest. MapQuest believes its existing cash and cash equivalents, short-term investments, and available borrowings 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 21 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. Year 2000 The Year 2000 issue is the potential for system and processing failures of date-related data as a result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, an inability to process transactions, send invoices or engage in similar normal business activities. MapQuest may be affected by Year 2000 issues related to non-compliant information technology ("IT") systems or non-IT systems operated by MapQuest or third parties. MapQuest's IT systems consist of software and data developed either in-house or purchased from third parties, and hardware purchased from vendors. State of Readiness. MapQuest has assessed all of its information technology systems, which include but are not limited to, the hardware and software necessary to provide and deliver mapquest.com. MapQuest is continuing to perform assessments of its non-information technology systems, which include many of the building and office equipment and systems. To date, MapQuest's assessment has consisted of the following steps: o establishing a Year 2000 Committee in the third quarter of 1998 consisting of managers from all relevant functional areas of the Company; o identifying and evaluating all software and hardware upon which MapQuest is dependent; o contacting third-party vendors of hardware, software and services, including database providers that MapQuest utilizes; o contacting material non-information technology systems and service providers; o developing procedures to inventory, perform system scans, and conduct research and remediation testing of all computer software and hardware, digital data, facilities related systems, telecommunications, and other date sensitive equipment that is under our control; and o assessing the need for and developing a business contingency plan. o As of the end of the second quarter of 1999, MapQuest has performed the following: o the Committee has reviewed all functional areas of MapQuest and has identified various systems and software programs that needed to be Year 2000 compliant; 22 o MapQuest has performed a Year 2000 simulation on a majority of its proprietary systems, products and services to test system and product readiness; o based on the results of its Year 2000 simulation tests, MapQuest has revised and continues to revise its code as necessary to improve the Year 2000 compliance of its proprietary systems; o MapQuest is continuing to upgrade and test all other hardware and software used in its operations; o MapQuest's hosting service provider, Qwest, has stated that it has established a dedicated Year 2000 Program Office to address the compliance functions of its affected systems and is actively preparing its systems for the Year 2000; o accounting and sales tracking systems have been implemented which meet Y2K standards and a human resource information system is currently being replaced with Y2K compliant software with implementation by the end of the third quarter; o a comprehensive review has been completed of all the suppliers and vendors critical to MapQuest's operations, facilities, and administration with contact made by mail requesting information regarding their Y2K state of readiness or confirmation of their Y2K compliance; o all facilities have been reviewed and assessed to determine if any building systems (i.e. electronic security systems, telephone switches, voice answering software) are not Y2K compliant. Systems requiring upgraded software have been identified and necessary installations have been made; and o MapQuest continues to assess its non-IT systems. At this point in its assessment, MapQuest is not currently aware of any Year 2000 problems relating to these systems which would have a material effect on its business, financial condition or results of operations, without taking into account its efforts to avoid such problems. MapQuest plans to complete its Year 2000 assessment during the summer of 1999. Cost. To date, MapQuest has not incurred any material costs in connection with identifying and evaluating Year 2000 compliance issues. Most of its expenses have been related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. At this time, MapQuest does not possess the information necessary to estimate the potential costs of the replacement of third party software, hardware or services that are determined not to be Year 2000 compliant. Although MapQuest does not anticipate those amounts will be material, such expenses, if higher than anticipated, could have a material adverse effect on MapQuest's business, financial condition and operating results. 23 Risks. Although MapQuest's assessment may be finalized without identifying any additional material non-compliant IT or systems operated by MapQuest or by third parties, a systemic failure beyond the control of MapQuest, such as a prolonged telecommunications or electrical failure is possible. This type of failure could prevent MapQuest from operating its business, prevent users from accessing its website, or change the behavior of advertising customers or persons accessing its website. MapQuest believes that the primary business risks, in the event of such systemic failure, would include but not be limited to, lost advertising revenues, lost business revenues, increased operating costs, loss of customers or persons accessing its website and servers, or other business interruptions of a material nature, as well as claims of mismanagement, misrepresentation, or breach of contract. Contingency Plan. As discussed above, MapQuest is engaged in a number of Year 2000 activities to attain compliance . The results of MapQuest's further testing and the responses received from third-party vendors, service providers and customers will be taken into account in determining the nature and extent of any contingency plans. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Net proceeds from the initial public offering have been invested in short-term, interest bearing, investment grade obligations with various maturities ranging from one day to one year. Therefore, in the near term, MapQuest's primary exposure to market risk will result from interest rates associated with these investments. PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 7 of the Notes to financial statements. Item 2. Changes in Securities and Use of Proceeds (c) Recent Sales of Unregistered Securities During the three months ended June 30, 1999 MapQuest issued an aggregate of 523,640 options to purchase its common stock to its employees, with exercise prices ranging from $15.00 per share to $19.25 per share. The issuance of a significant portion of these securities was made in reliance upon Rule 701 promulgated under the Securities Act. Those issuances that were not made in reliance upon Rule 701 were exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act. 24 During the three months ended June 30, 1999, employees and consultants exercised options to purchase 19,440 shares of common stock of MapQuest at exercise prices ranging from $.04 to $.37 per share. These shares of common stock were issued in reliance upon Rule 701 promulgated under the Securities Act. During the three months ended June 30, 1999, 44,457 shares of common stock were issued upon exercise of warrants at prices ranging from $.01 to $1.30 per share in reliance upon Section 4(2) of the Securities Act. (d) Use of Proceeds from 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. The managing underwriters for the offering were BancBoston Robertson Stephens, Thomas Weisel Partners, LLC, U.S. Bancorp, Piper Jaffray Inc. and Volpe Brown Whelan & Company, LLC. Net proceeds to MapQuest, after deducting underwriting discounts and commissions of $4,830,000 and offering expenses of approximately $ 2,070,000 were $ 62,100,000. 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 $8.1 million in net proceeds to MapQuest. None of the expenses incurred in the offering were direct or indirect payments to directors, officers, or general partners of MapQuest or their associates, to persons owning ten percent or more of any class of equity securities of the issuer or to affiliates of MapQuest except in connection with the redemption of the Series B Preferred Stock. MapQuest used approximately $8,600,000 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 one year. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders As of April 12, 1999, in a written consent of the stockholders of MapQuest, a majority of the holders of all outstanding shares of stock of MapQuest (which majority included a majority of the holders of all outstanding shares of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock) approved (a) the adoption of a recapitalization agreement, to be effective upon the effectiveness of the registration statement, in respect of the initial public offering whereby the holders of MapQuest's preferred stock outstanding prior to the initial public offering agreed to the termination of certain rights related to such preferred stock, (b) the 2.7 for 1 stock split, the increase in the authorized share capital of MapQuest to 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 25 shares of preferred stock, par value $0.01 per share, and the amendment of the Certificate of Incorporation to reflect such stock split, (c) the adoption of the Amended and Restated Certificate of Incorporation of MapQuest and the Amended and Restated Bylaws of MapQuest, both to be effective upon the effectiveness of the registration statement in respect of the initial public offering, (d) the adoption of Amendment No. 4 to the 1995 Stock Option Plan, the 1999 Stock Plan, including the reservation of 3,645,000 shares thereunder, and the Employee Stock Purchase Plan, including the reservation of 1,755,000 shares thereunder, and (e) the approval of a form of director's indemnification agreement to be entered into between MapQuest and its directors. 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: 2.1 Computation of Basic and Diluted Net Loss per Share: Refer to Note 5 of the Notes to the Financial Statements. 27.1 Financial Data Schedule 27.2 Financial Data Schedule 27.3 Financial Data Schedule (b) MapQuest did not file any reports on Form 8-K during the three months ended June 30, 1999. 26 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: August 16, 1999 MAPQUEST.COM, INC. By: /s/ James Thomas -------------------------------- Chief Financial Officer (Principal Financial Officer) 27 EX-27 2 FDS -- EXHIBIT 27.1 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.1 Financial Data Schedules
5 This schedule contains restated summary information extracted from the MapQuest balance sheet for December 31, 1998 and Statement of Operations for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 564 0 7,245 470 1,365 9,333 5,278 3,433 11,450 5,032 0 26,186 0 0 (19,768) 11,450 24,717 24,717 17,646 17,646 0 0 0 (3,155) 0 0 0 0 0 (3,155) (12.09) (12.09)
EX-27 3 FDS -- EXHIBIT 27.2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.2 Financial Data Schedules
5 This schedule contains restated summary information extracted from the MapQuest balance sheet (Unaudited) for March 31,1999 and Statement of Operations (Unaudited) for the three months ended March 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 MAR-31-1999 154 0 6,567 501 1,175 8,163 5,901 3,730 10,571 6,956 0 26,495 0 0 (22,880) 10,571 6,156 6,156 4,465 4,465 0 0 0 (2,803) 1 0 0 0 0 (2,804) (9.26) (9.26)
EX-27 4 FDS -- EXHIBIT 27.3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.3
5 This schedule contains summary information extracted from the MapQuest balance sheet (Unaudited) for June 30, 1999 and Statement of Operations (Unaudited) for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1999 JUN-30-1999 49,754 5,969 7,481 580 1,023 65,064 6,706 4,060 68,829 7,322 0 0 0 33 61,474 68,829 13,566 13,566 9,286 9,286 0 0 0 (6,521) 1 0 0 0 0 (6,522) (0.65) (0.65)
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