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, 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)
<PAGE>
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. [ ] Yes [X] 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 May 31, 1999 was 32,166,699.
2
<PAGE>
MAPQUEST.COM, INC.
INDEX
PAGE
INDEX 3
PART I. FINANCIAL INFORMATION: 4
Item 1. Financial Statements: 4
Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 5
Unaudited Statements of Operations for the
three months ended March 31, 1999 and 1998 6
Unaudited Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 7
Notes to Unaudited Interim Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 18
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Report on Form 8-K 19
Item 7. Signatures 20
3
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
MAPQUEST.COM, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31 March 31
1998 1999
------------------- ----------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 564 $ 154
Accounts receivable, net of allowance for
doubtful accounts (1998--$470; 1999--$501) 6,647 5,920
Accounts receivable-affiliates 128 146
Inventories 1,365 1,175
Contract work in progress 147 356
Prepaid expenses and other current assets 482 412
------------------- ----------------------
Total current assets 9,333 8,163
Property and equipment, net of accumulated
depreciation (1998--$3,433; 1999--$3,730) 1,844 2,171
Goodwill, net 178 171
Other assets 95 66
------------------- ----------------------
Total assets $ 11,450 $ 10,571
=================== ======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit $ - $ 900
Accounts payable 1,715 1,196
Current portion of note payable 48 34
Accrued personnel costs 562 614
Advance billings on contracts 498 937
Deferred revenue 1,208 1,205
Other accrued liabilities 1,001 2,070
------------------- ----------------------
Total current liabilities 5,032 6,956
------------------- ----------------------
Convertible Redeemable Preferred Stock-Series A, voting,
$1.00 per share redemption value, aggregate liquidation
preference of $6,550;
Issued and outstanding shares, 1998 and 1999--6,550,000; 6,550 6,550
Cumulative Redeemable Preferred Stock-Series B, nonvoting,
$6.15 per share redemption value, aggregate liquidation
preference of $8,332 in 1998 and $8,603 in 1999:
Issued and outstanding shares, 1,354,802 in 1998
and 1,398,835 in 1999; 8,332 8,603
Convertible Redeemable Preferred Stock-Series C, voting,
$3.51 per share redemption value, aggregate liquidation
preference of $12,268
Issued and outstanding shares, 3,495,354 in 1998
and 1999 11,595 11,633
Notes receivable arising from issuance of preferred stock (291) (291)
Stockholders' deficit:
Common stock-$.001 par value:
Authorized shares-20,000,000
Issued and outstanding shares, 336,028 in 1998 and
336,244 in 1999 - -
Additional paid in capital 140 140
Retained deficit (19,908) (23,020)
------------------- ----------------------
Total stockholders' deficit (19,768) (22,880)
------------------- ----------------------
Total liabilities and stockholders' deficit $ 11,450 $ 10,571
=================== ======================
See accompanying notes to the financial statements.
</TABLE>
5
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MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1999
--------------------------------------
<S> <C> <C>
Revenues
Business $1,720 $2,006
Consumer 292 1,022
--------------------------------------
Total business and consumer revenues 2,012 3,028
Digital mapping 3,538 3,128
--------------------------------------
Total revenues 5,550 6,156
Cost of revenues
Business and consumer 1,130 1,925
Digital mapping 2,524 2,540
Total cost of revenues 3,654 4,465
--------------------------------------
Gross profit 1,896 1,691
Operating expenses
Sales and marketing 1,483 2,809
Product development 877 784
General and administrative 465 938
--------------------------------------
Total operating expenses 2,825 4,531
--------------------------------------
Operating loss (929) (2,840)
Interest income and expense, net 23 2
Other income 47 35
--------------------------------------
Loss before provision for income taxes (859) (2,803)
Provision for income taxes - 1
--------------------------------------
Net loss $(859) $(2,804)
Less preferred stock dividends and accretion (292) (309)
--------------------------------------
Net loss applicable to common stockholders $(1,151) $(3,113)
======================================
Basic and diluted loss per share $(4.30) $(9.26)
======================================
Shares used to compute basic and diluted loss per share 267,375 336,233
======================================
Pro forma basic and diluted loss per share $(0.03) $(0.10)
======================================
Shares used to compute pro forma basic and diluted loss per share 27,927,813 28,032,210
======================================
See accompanying notes to the financial statements.
</TABLE>
6
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MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------
1998 1999
---------------------------------
<S> <C> <C>
Operating activities
Net loss $ (859) $ (2,804)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 300 295
Amortization 7 8
Provision for doubtful accounts 92 41
Equity in earnings of joint venture (38) (31)
Changes in operating assets and liabilities:
Accounts receivable (191) 746
Accounts receivable-affiliates 67 (18)
Inventories (528) 189
Contract work in progress (69) (209)
Prepaid expenses 312 70
Other assets (25) -
Accounts payable (272) (520)
Advance billings on contracts (64) 439
Deferred revenue 356 (3)
Accrued personnel costs and other liabilities 5 1,123
---------------------------------
Net cash used in operating activities (907) (674)
Investing activities
Property and equipment purchases (237) (622)
---------------------------------
Net cash used in investing activities (237) (622)
Financing activities
Borrowings under line of credit - 900
Principal payments on debt (12) (14)
Exercise of common stock options 3 -
---------------------------------
Net cash provided by ( used in ) financing activities (9) 886
Net decrease in cash and cash equivalents (1,153) (410)
---------------------------------
Cash and cash equivalents, beginning of period 2,482 564
Cash and cash equivalents, end of period $ 1,329 $ 154
=================================
Supplemental cash flow information
Stock dividends paid on Preferred Stock Series B $ 254 $ 271
=================================
See accompanying notes to the financial statements.
</TABLE>
7
<PAGE>
MAPQUEST.COM, INC.
Notes to the Financial Statements
March 31, 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 period ended March 31, 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"). See note 7
for further discussion of the initial public offering.
2. Inventories
Inventories are comprised of the following:
December 31, March 31,
1998 1999
------------------ ---------------
( in thousands )
Materials $ 96 $ 239
Work-in-process 336 205
Finished goods 933 731
------------------ ---------------
$ 1,365 $ 1,175
================== ===============
3. Comprehensive Income
MapQuest has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. MapQuest's comprehensive net
loss was the same as its net loss for the three months ended March 31, 1998 and
1999.
8
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4. Loss Per Share
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------------------------
1998 1999
---------------------------------------------------------
(in thousands, except loss per share)
<S> <C> <C>
Numerator:
Net loss....................... $ (859) $ (2,804)
Preferred stock dividends...... (254) (271)
Accretion of redeemable
preferred stock............. (38) (38)
-------------- ---------------
Numerator for loss per share
applicable to common
stockholders................... $ (1,151) $ (3,113)
============== ===============
Denominator:
Denominator for basic and
diluted loss per
share--weighted-average
shares...................... 267 336
============== ===============
Basic and diluted loss per common $ (4.30) $ (9.26)
============== ===============
share..........................
The following securities and number of shares have been excluded from the
diluted loss per share computation as they are antidilutive:
Three months ended
March 31,
------------------------------------------------------
1998 1999
-------------------------- ---------------------------
(in thousands)
<S> <C> <C>
Convertible redeemable preferred stock Series A....... 6,550 6,550
Convertible redeemable preferred stock Series C....... 3.495 3,495
Stock options......................................... 3,419 5,907
Stock warrants........................................ 1,751 2,315
</TABLE>
The following table sets forth the computation of pro forma basic and diluted
loss per share, giving consideration to MapQuest's initial public offering
discussed in Note 7 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 March 31, 1999 and
March 31, 1998 using an initial public offering price of $15 per share and
assuming such conversion and redemption occurred at the beginning of the
respective periods.
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------------------
1998 1999
------------------------- ---------------------------
(in thousands, except loss per share)
<S> <C> <C>
Numerator:
Net loss applicable to common shareholders.......... $ (1,151) $ (3,113)
Redeemable preferred stock--Series C accretion....... 38 38
Preferred stock dividends on cumulative preferred
stock--Series B................................... 254 271
------------------------- ---------------------------
Numerator for pro forma basic and diluted loss per
share............................................ $ (859) $ (2,804)
Denominator:
Weighted-average number of common shares............ 267 336
Assumed conversion of preferred shares to common
shares........................................... 27,122 27,122
Assumed issuance of common shares to redeem
Series B Preferred Stock......................... 539 574
------------------------- ---------------------------
Denominator for pro forma basic and diluted loss
per share........................................ 27,928 28,032
Pro forma basic and diluted loss per share.......... $ (0.03) $ (0.10)
</TABLE>
5. 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 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.
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.
10
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------
1998 1999
------------------ -------------------
(in thousands)
<S> <C> <C>
Business segment revenues:
MapQuest consumer/business-trade...................... $ 2,012 $ 3,028
Digital mapping services-trade........................ 3,538 3,128
------------------ -------------------
Total................................................. $ 5,550 $ 6,156
Business segment profit:
MapQuest consumer/business............................ 882 1,103
Digital mapping services.............................. 1,014 588
------------------ -------------------
Total segment profit.................................. 1,896 1,691
Reconciling items:
Operating expenses.................................... (2,825) (4,531)
Other and interest income............................. 70 37
------------------ -------------------
Pre-tax loss.......................................... $ (859) $(2,803)
================== ===================
</TABLE>
6. 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 the 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 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.
11
<PAGE>
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 business, financial condition, results of
operations, or liquidity.
7. Subsequent Events
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 will have 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, except for references to authorized
common shares, 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 adopted the 1999
Stock Plan for 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 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 initial public offering 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.
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 1 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
12
<PAGE>
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 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.
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 set-up fees are recognized upon completion of the related
installation services. Revenues from 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 from 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
13
<PAGE>
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.
Results of operations
Revenues
Revenues increased from $5.6 million for the three months ended March
31, 1998 to $6.2 million for the three months ended March 31, 1999. This
period-to-period growth was primarily attributable to increased 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. This growth was partially offset by lower digital
mapping services volume as compared to the same period in 1998.
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 $4.5 million
for the three months ended March 31, 1999 from $3.7 million for the three months
ended March 31, 1998. This increase was due to increased costs associated with
adding staff and related expenses required to support the expansion of our
Internet products and services as the mapquest.com website 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
$2.8 million for the three months ended March 31, 1999 and $1.5 million for the
three months ended March 31, 1998. As a percentage of revenues, these expenses
were 45.6% for the three-month period ended March 31, 1999 versus 26.7% for the
comparable period in 1998. This period-to-period increase was primarily
attributable to MapQuest's marketing promotions and advertising efforts as well
as increased sales and marketing personnel and related expenses. We believe that
sales and marketing expenses will continue to increase in the future as we
continue to expand our direct sales force and further promote our products and
services.
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 expenses consist primarily of
salaries for product development personnel and related expenses, contract labor
expense and consulting fees. Product development expenses were $.8 million for
the three months ended March 31, 1999 and $.9 million for the three months ended
March 31, 1998. As a percentage of revenues, these expenses were 12.7% for the
three-month period ended March 31, 1999 versus 15.8% for the comparable period
in 1998. This period-to-period decrease was attributable to decreased printed
product development expenses partially offset by increased business and consumer
product development expenses. We believe that continued investment in business
and
14
<PAGE>
consumer product development expenses is essential to attaining our strategic
objectives and as a result, we expect 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 $.9 million for the three months ended March 31,
1999 and $.5 million for the three months ended March 31, 1998. As a percentage
of revenues, these expenses were 15.2% for the three-month period ended March
31, 1999 and 8.4% for the three-month period ended March 31, 1998. This
period-to-period increase was primarily attributable to increased salaries and
related expenses associated with hiring additional personnel as a result of
company growth. We expect that we will incur additional costs due to hiring
additional personnel related to being a publicly held entity, including
directors' and officers' liability insurance and professional service fees.
Income Taxes
MapQuest paid no income taxes for the three months ended March 31, 1998
and paid less than $.1 million in taxes for the three months ended March 31,
1999, as MapQuest has 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 private
placement of equity securities, funds from operations and bank borrowings. As of
March 31, 1999, MapQuest had $.2 million of cash and cash equivalents.
Net cash used in operating activities was $.9 million for the three months ended
March 31, 1998 and $.7 million for the three months ended March 31, 1999. In
both periods cash used by operating activities was primarily a result of a net
loss.
Net cash used in investing activities was $.2 million for the three months ended
March 31, 1998 and $.6 million for the three months ended March 31,1999. Cash
used in each period was directly related to property and equipment purchases.
Net cash used in financing activities was insignificant for the three months
ended March 31, 1998 and net cash provided by financing activities was $.9
million for the three months ended March 31,1999. In 1999, the net increase of
$.9 million consists of $.9 million of bank borrowings.
MapQuest's capital commitments for the three months ended March 31, 1998 and the
three months ended March 31, 1999 consisted of obligations under facilities and
equipment operating leases. Management anticipates that MapQuest will experience
an increase in its capital expenditures and lease commitments consistent with
its anticipated growth in operations, infrastructure and personnel and
additional resources devoted to building 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 that are within 90
days of invoice. As of December 31,
15
<PAGE>
1998 there were no borrowings under this credit facility. As of March 31,1999
borrowings under this facility were $.9 million.
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 June 1999, in connection with MapQuest's initial public offering, the
underwriters of the initial public offering 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 believes that the net proceeds of its initial public offering and the
conversion by holders of Redeemable Series A and Series C Preferred stock to
common stock, together with its existing cash and cash equivalents 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. MapQuest
believes that its future capital requirements will depend on many factors,
including the level of investment in new technologies and improvements to
existing technologies and the levels of monthly expenses required to launch new
products and services.
Contingent Matters
Refer to Note 6 of the Notes to the Financial Statements for a
discussion of legal contingencies.
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 completed a preliminary assessment of
its information technology systems, which includes but is 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;
16
<PAGE>
o contacting material non-information technology systems and
service providers;
o developing and formalizing procedures to implement necessary
remedial measures; and
o assessing the need for and developing a business contingency
plan.
As of the end of the first 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 are not
Year 2000 compliant;
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 MapQuest has identified all vendors of material hardware and
software components of its IT systems, and has contacted its
principal vendors of hardware, software, and data providers;
o Management is continuing the process of working with its hardware
and software providers to assure that MapQuest is prepared for
the Year 2000; and
o MapQuest is currently assessing 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.
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
17
<PAGE>
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 an ongoing
Year 2000 assessment. 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.
As of March 31, 1999, MapQuest has no significant exposure to market
risk from financial instruments. 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
Refer to Note 6 of the Notes to the Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
(a) Changes in Securities:
None.
(b) Use of Proceeds
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
$8.3 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 its
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.
18
<PAGE>
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
In the first quarter of 1999, in a written consent of the stockholders
of MapQuest, MapQuest changed its name from GeoSystems Global Corporation to
MapQuest.com, Inc. and amended its Certificate of Incorporation to reflect such
change.
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 90,000,000 shares of
common stock, par value $0.001 per share, and 15,000,000 shares of preferred
stock, par value $0.01 per share, and the amendment of the Certificate of
Incorporation to reflect such stock split and increase to the authorized share
capital (c) the adoption of the Amended and Restated Certificate of
Incorporation of MapQuest giving MapQuest the authority to issue 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, 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, (e) 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, both to
be effective upon the effectiveness of the registration statement in respect of
the initial public offering and (f) 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:
11.1 Computation of Basic and Diluted Net Loss Per Share:
Refer to Note 4 of the Notes to the Financial
Statements.
27.1 Financial Data Schedule (First Quarter 1999)
(b) MapQuest did not file any reports on Form 8-K during the three
months ended March 31, 1999.
19
<PAGE>
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: June 17, 1999 MAPQUEST.COM, INC.
By: /s/ James Thomas
Chief Financial Officer
(Principal Financial Officer)
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<LEGEND>
This schedule contains summary information extracted from the Registrant Company
balance sheet (Unaudited) for March 31, 1999 and Statement of Income (Unaudited)
for the three months ended March 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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