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