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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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 __________
MapQuest.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3949110
(State of incorporation) (I.R.S. Employer Identification No.)
3710 Hempland Road, Mountville, Pennsylvania 17554
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 285-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock Nasdaq
Securities registered pursuant to Section 12(g) of the Act: None
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 twelve 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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 23, 2000, the aggregate market value of the voting and
non-voting shares of common stock, par value $.001 per share (the "Common
Stock") held by non-affiliates of the registrant is $219,430,639.
As of March 23, 2000, the registrant had outstanding 36,459,767 shares of
Common Stock.
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PART I
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT MAPQUEST AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
MAPQUEST'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. MAPQUEST UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
ITEM 1. BUSINESS.
Unless otherwise expressly indicated herein, the descriptions of the Company
contained herein are as of March 22, 2000.
MapQuest is a leading online provider of mapping and destination
information. By leveraging its over 30 years of traditional digital mapping
experience, MapQuest's proprietary integration and editing of geographic
databases enable it to provide comprehensive mapping solutions to businesses and
to provide customized maps, destination information and driving directions to
consumers. MapQuest delivers over 150 million maps and driving directions
monthly through its own websites and through third-party websites. According to
Media Metrix, Inc., over 4.4 million unique users visited mapquest.com in
February 2000, making mapquest.com one of the largest travel-related Internet
properties in terms of audience reach and the 47th largest Internet property
overall.
The MapQuest.com Solution
MapQuest's online products and services enable businesses to:
o provide customized maps, destination information and driving directions to
potential customers,
o provide potential customers with proximity information regarding which of a
business' multiple locations is closest to the potential customer,
o expand the functionality of their websites to attract and retain users,
o outsource their map-enabling and destination information needs, thereby
avoiding a significant portion of the expenses normally associated
with establishing and maintaining a map-enabling infrastructure, and
o provide delivery of driving directions to potential customers on wireless
platforms.
MapQuest's online products and services enable customers to:
o receive maps, destination information and driving directions based on
geocentric information provided by the customer on a real-time basis, and
o retrieve accurate and reliable mapping and destination information at any time
and from any place over the Internet.
MapQuest is also a leading United States provider of traditional digital
mapping products and services to the educational, reference, directory, travel
and governmental markets. In addition, companies that incorporate call
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centers, CD-ROMs or stand-alone driving direction kiosks into their information
delivery strategy require non-Internet customized mapping solutions. MapQuest
has developed its map-enabling software to promote the rapid development of
mapping applications in these environments.
MapQuest Products and Services
Internet-related Products and Services for Businesses
Name of Product/Service Host Description
- ------------------------ -------- ------------------------------------
Connect Services Products
MapQuest Connect MapQuest o Allows businesses to display
consumer-requested maps based on
any combination of city, state,
street address and zip code in
the United States.
MapQuest InterConnect MapQuest o Enhances MapQuest Connect.
o Offers proximity searching, which
allows consumers visiting a
business' website to find the
closest locations within a fixed
mile radius of a user-defined
point of origin.
MapQuest Locator MapQuest o Enhances MapQuest InterConnect.
o Allows more advanced proximity
searching by integrating MapQuest
with specific geographic search
parameters contained in its
business customer's database, such
as "find closest gas station with
a car wash."
MapQuest TripConnect MapQuest o Allows businesses to provide
consumers with door-to-door
driving instructions, including
a route-highlighted map, trip
mileage and estimated driving
time.
Enterprise Solutions
MapQuest Enterprise Service MapQuest o Provides mapping, routing and
destination information capability
designed primarily for high volume
websites.
o Allows business customers the
flexibility to fully customize
generated map pages to convey
their corporate images.
MapQuest Enterprise Server Business o Provides mapping, routing and
Customer destination information
capability designed primarily
for users of a business website.
MapQuest Server for Windows Business o Business customer-hosted service
NT Customer designed for MapQuest business
customers with networked
applications who want to customize
their own mapping solutions.
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Internet Consumer
The mapquest.com website offers several menu options for consumers
including the following:
o Maps -- the consumer is able to generate maps either based on detailed
supplied information or a more general location request,
o Driving Directions -- the consumer can find the most direct route from a
point of origin to a destination using a variety of options and formats,
including door-to-door, city-to-city, overview map with text, text only or
turn-by-turn,
o Travel Guide -- the consumer is able to access lodging and dining
information for consumer-supplied destinations,
o Yellow and White Pages -- the consumer is able to access addresses and
phone numbers for businesses and individuals, and
o Real Time Traffic -- the consumer can get real-time traffic reports for a
number of major U.S. cities.
MapQuest's product development strategy is to enhance the technology and
features of its web-based and non-Internet mapping applications and to further
expand its core geographical database assets. To this end, MapQuest has numerous
development projects in process including, but not limited to, Internet
optimization tools and collaboration technologies and geographical database
improvements. MapQuest expects to continue to devote substantial resources to
its product development activities.
Traditional Digital Mapping Products and Services
MapQuest customizes and publishes printed road maps, atlases, maps used in
textbooks, travel guides, hotel and telephone directories, and map-related
reference books and CD-ROMs. In addition, MapQuest's products and services
include software applications to incorporate customized mapping solutions into
call centers, CD-ROMs or information kiosks. MapQuest also provides extensive
cartography, geographic database development, comprehensive map data
maintenance, advance mapping technology and consultation services to a wide
variety of customers on a fee for service basis. MapQuest's traditional digital
mapping customers include National Geographic, Exxon, Best Western, Ameritech,
Southwestern Bell and Cracker Barrel.
Sales and Marketing
MapQuest sells its Internet-related business products and services in the
United States, Canada and Europe through a sales organization of forty-five
employees as of December 31, 1999. The majority of these employees are located
at MapQuest's sales offices across the United States with two employees located
in the United Kingdom and one employee located in Canada. This sales
organization consists of twenty-two direct field salespeople and twenty-three
inside salespeople. In addition, MapQuest indirectly sells its Internet products
and services through value-added resellers such as SABRE BTS, Three-X
Communication, Moore Data and Kingswood Ltd.
Sales of advertisements on mapquest.com have been generated by third-party
advertising sales representatives and by MapQuest's internal advertising sales
force, which consisted of seven persons as of December 31, 1999.
MapQuest sells its traditional digital mapping products and services
through a direct sales force consisting of nineteen field salespersons and
telemarketers as of December 31, 1999.
MapQuest markets its products and services online by placing advertisements
on third-party websites. In addition, MapQuest advertises through traditional
offline media and utilizes public relations campaigns, trade shows and ongoing
customer communications programs.
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Customers
As of December 31, 1999, MapQuest had licensed its products and services to
over 1,000 business customers. No one customer accounts for over 10% of
MapQuest's overall revenues. The following is a representative list of customers
as of December 31, 1999:
<TABLE>
<CAPTION>
Digital Mapping Products
Business Products and Services Consumer Products and Services and Services
- ------------------------------- ------------------------------ ------------------------
<S> <C> <C>
American Automobile Association AIG Insurance Ameritech
Avis Alta Vista Best Western
Bass Hotel and Resorts Ameritrade Choice Hotels
Best Western AutoByTel Cracker Barrel
Budget Rent-A-Car BellSouth Yellow Pages Discovery Communication
Cendant Ecoupons Don Tech
Digital City Ford Motor Exxon
Excite Holiday Inns Harcourt Brace
Federal Express Interstate America Holt, Rinehart & Winston
Galileo NextCard Houghton Mifflin
GM OnStar Pet Planet McGraw-Hill
GTE Travelocity National Geographic
Hertz Toyota Prentice Hall
Infoseek Travelscape R.R. Donnelley
InfoSpace US West Ryder
Lycos YesMail.com Southwestern Bell
Moore Data Trailer Life
Sabre
Thomas Cook
Yahoo!
</TABLE>
Technology and Infrastructure
Geographic Data
MapQuest maintains a worldwide geographic database suitable for high
quality map production. MapQuest has licensed a significant portion of its data
from a number of sources through non-exclusive term contractual arrangements.
MapQuest currently relies on primary geographic data drawn from data supplied to
it under contract by Navigation Technologies Corporation (NavTech), Geographic
Data Technology, Inc. (GDT), Digital Mapping Technologies, Inc. (DMTI) and other
data suppliers. MapQuest obtains Western European street and major road data
from TeleAtlas, NavTech and AND Mapping BV. Major road data for the rest of the
world is obtained from AND Mapping BV. MapQuest's business relationships with
NavTech and other vendors are currently in good standing. However, should
MapQuest lose access to these sources of third-party data or should the terms of
these contractual arrangements materially change, MapQuest would need to
substitute potentially higher-priced alternatives, including expenses associated
with developing substitute data internally, and MapQuest's business, financial
condition and results of operations could be materially and adversely affected.
MapQuest's own proprietary data assets also support its online and
traditional digital mapping products and services. MapQuest has spent
approximately six years developing, and continues to enhance and update, its
USDB, a digital geographic United States database (including adjacent areas of
Canada and Mexico). MapQuest also maintains a graphical image database that
contains over 200,000 archived images, which serves as MapQuest's internal
reference library and is supported by a customized database management system
for image retrieval. In addition, MapQuest has developed a suite of
international city map data which includes over 300 metropolitan maps and over
500 downtown maps of most major international tourist and business destinations.
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MapQuest plans to update its geographic databases periodically. However, in
view of the complexity of updating several different databases, revising
software and the need for third party geocoding, there can be no assurance that
MapQuest will be able to perform such updates on any fixed schedule.
Software and Editing Tools
MapQuest has developed numerous software tools and has customized existing
commercial applications to create and maintain its proprietary digital map
databases and produce its mapping products.
MapQuest's proprietary software development toolkit, GeoLocate, employs
scalable object-oriented technology and comprises the core tools used to perform
high-speed mapping while maintaining high-quality cartographic display. Designed
with an open architecture, GeoLocate offers platform flexibility in converting a
variety of data formats. MapQuest's extensive investment in GeoLocate has been
leveraged for use in the development of MapQuest's Internet technology,
resulting in the creation of a uniquely scalable, high performance platform that
serves millions of routes and maps on a daily basis. Easy-to-use consumer
interface functionality overlays MapQuest's seamless integration of a variety of
data formats and personalization tools which enable consumers to save and
display maps in their preferred styles.
System Architecture
Web pages, maps, and driving directions delivered to MapQuest's customers
and users are generated utilizing a Solaris operating system, Apache web server
software and MapQuest's proprietary mapping applications. Traffic is distributed
and load-balanced across multiple servers via our proprietary software and
equipment provided by F5 Networks which maintain replicated, local storage of
underlying software and data, resulting in minimal interdependencies between
servers. Each server has its own local storage, and all data and software are
replicated across all servers. The system is designed as a flexible, robust
architecture which is dynamically scalable to meet anticipated future demand. In
addition to built-in redundancies, MapQuest operates automated internal
monitoring tools on a continual, full-time basis and independent third-party
monitoring of MapQuest's website is generated at all times from at least thirty
different cities on at least twelve different national and international
Internet backbone providers.
MapQuest's network, hosting facilities, internal architecture and
monitoring have been deployed to provide high availability, efficiency and
redundancy at every level of the infrastructure. MapQuest's Internet map and
route servicing facilities are located in two Denver, Colorado data centers, a
Qwest Communications Cyber Center hosting facility tied to Qwest's nationwide,
dedicated high speed OC-48 IP network and an Inflow, Inc. hosting facility with
UUNet and other major carrier bandwidth provisioned exclusively for MapQuest's
use. MapQuest and its associated websites are tied to Qwest's and Inflow's
backbones via Cisco routers and multiplexors. Qwest and Inflow do not guarantee
that our Internet access will be uninterrupted, secure, or error free and
MapQuest's operations are dependent on Qwest's and Inflow's ability to protect
their and our systems against damage from fire, power loss, water damage,
telecommunications failure, vandalism, and other malicious acts. Any disruption
in the Internet access provided by Qwest or Inflow could have a material adverse
effect on MapQuest's business, financial condition and results of operations.
Corporate History
MapQuest was incorporated in Delaware on March 28, 1994, as GeoSystems
Global Corporation and changed its name to MapQuest.com, Inc. on January 27,
1999. On May 4, 1999, MapQuest completed its initial public offering of common
stock, receiving net proceeds of approximately $61.6 million. MapQuest's service
and product offerings are grouped into three lines of business: Internet-related
Products and Services for Business, Internet Consumer and Traditional Digital
Mapping Products and Services.
On December 21, 1999, MapQuest entered into an Agreement and Plan of Merger
with America Online, Inc. (America Online). Pursuant to the terms of the
Agreement and Plan of Merger, MapQuest.com, Inc. will merge with and into MQ
Acquisition Corp. (MQ Acquisition), a wholly-owned subsidiary of America Online,
with MapQuest surviving the merger and becoming a wholly-owned subsidiary of
America Online. MapQuest intends to consummate
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this merger once it receives all necessary regulatory clearance. America Online
filed a registration statement on Form S-4 with respect to this transaction on
February 11, 2000 and MapQuest filed a preliminary proxy statement on Schedule
14A regarding the transaction on the same date.
Competition
The markets for MapQuest's products and services are highly competitive.
MapQuest competes for business customers and consumers with companies offering
Internet-based map-enabling technology and publishers and distributors of
traditional media (such as televisions, radio and print) that use or license
their content for use on the Internet, commercial publishing companies,
corporate materials and information market companies, and governmental
authorities.
MapQuest expects competition to continue to increase because these markets,
particularly the markets for Internet-related products and services, pose no
substantial barriers to entry. Competition may also increase as a result of
industry consolidation. In addition, MapQuest's licensees may develop products
and services that are equal or superior to MapQuest's or that achieve greater
market acceptance than those of MapQuest. Similarly there can be no assurances
that MapQuest's data suppliers will not develop products and services
competitive with those of MapQuest. Increased competition could result in
reduced markets, loss of market share or less traffic to MapQuest's website, any
of which could have a material adverse effect on MapQuest's business, financial
condition and results of operations.
MapQuest believes that its ability to compete depends upon many factors,
many of which are beyond its control. These factors include MapQuest's ability
to provide depth, quality and accuracy of destination information, to increase
its sales force and to implement its sales and marketing initiatives, the
introduction and acceptance of new and enhanced products and services developed
either by MapQuest or its competitors and the ease of use of products and
services developed either by MapQuest or its competitors.
Government Regulation
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for MapQuest's
service, increase MapQuest's cost of doing business or otherwise have a material
adverse effect on MapQuest's business, financial condition and results of
operations.
Liability for Information Retrieved from mapquest.com and from the Internet
Content may be accessed on mapquest.com or on the websites of MapQuest's
distribution partners, and this content may be downloaded by users and
subsequently transmitted to others over the Internet. This could result in
claims against MapQuest based on a variety of theories, including negligence,
copyright or trademark infringement or other theories based on the nature,
publication and distribution of this content. These types of claims have been
brought, sometimes successfully, against providers of Internet services in the
past. MapQuest could also be exposed to liability with respect to third-party
content that may be posted by users in chat rooms or bulletin boards offered by
certain of MapQuest's distribution partners. It is also possible that if any
information, including information deemed to constitute professional advice such
as legal, medical, financial or investment advice, provided on mapquest.com
contains errors or false or misleading information, third parties could make
claims against MapQuest for losses incurred in reliance on such information. The
mapquest.com website contains over fifty human-filtered annotated links to other
websites. As a result, MapQuest may be subject to claims alleging that, by
directly or indirectly providing links to other websites, MapQuest is liable for
copyright or trademark infringement or the wrongful actions of third parties
through their respective websites. The Communications Decency Act of 1996
provides that, under certain circumstances, a provider of Internet services
shall not be treated as a publisher or speaker of any information provided by a
third-party content provider. This safe harbor has been interpreted to exempt
certain activities of providers of
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Internet services. MapQuest's activities may prevent it from being able to take
advantage of this safe harbor provision. While MapQuest attempts to reduce its
exposure to such potential liability through, among other things, provisions in
guide agreements, user policies and disclaimers, the enforceability and
effectiveness of such measures are uncertain.
MapQuest's general liability may not cover all potential claims to which
MapQuest is exposed and may not be adequate to indemnify MapQuest for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material adverse
effect on MapQuest's business, financial condition and results of operations.
Even to the extent that such claims do not result in liability to MapQuest,
MapQuest could incur significant costs in investigating and defending against
such claims. Potential liability for information disseminated through
mapquest.com could lead MapQuest to implement measures to reduce its exposure to
such liability, which may require the expenditure of substantial resources and
limit the attractiveness of MapQuest's service to users.
Privacy Concerns
The Federal Trade Commission (FTC) is considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing websites. While MapQuest has implemented or
intends to implement programs designed to enhance the protection of the privacy
of its users, including children, there can be no assurance that such programs
will conform with any regulations adopted by the FTC. The FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal information from users, which could have an adverse effect on
MapQuest's ability to provide highly targeted opportunities for advertisers and
e-commerce marketers. Any such developments would have a material adverse effect
on MapQuest's business, financial condition and results of operations.
The European Union (EU) has adopted a directive that imposes restrictions
on the collection and use of personal data. This directive could, among other
things, affect U.S. companies that collect information over the Internet from
individuals in EU member countries, and may impose restrictions that are more
stringent than current Internet privacy standards in the United States. This
directive does not, however, define what standards of privacy are adequate. As a
result, there can be no assurance that this directive will not adversely affect
the activities of entities such as MapQuest that engage in data collection from
users in EU member countries.
Internet Taxation
A number of legislative proposals have been made at the federal, state and
local level, and by certain foreign governments, that would impose additional
taxes on the sale of goods and services over the Internet and certain states
have taken measures to tax Internet-related activities. Such legislation or
other attempts at regulating commerce over the Internet may substantially impair
the growth of commerce on the Internet and, as a result, adversely affect
MapQuest's opportunity to derive financial benefit from such activities.
Domain Names
Domain names are the user's Internet "addresses." The current system for
registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
Although MapQuest has registered "mapquest.com" as a trademark, third parties
may bring claims for infringement against MapQuest for the use of this
trademark. There can be no assurance that MapQuest's domain names will not lose
their value, or that MapQuest will not have to obtain entirely new domain names
in addition to or in lieu of its current domain names if reform efforts result
in a restructuring in the current system.
Jurisdictions
Due to the global nature of the Internet, it is possible that, although
transmissions by MapQuest over the Internet originate primarily in Denver,
Colorado, the governments of other states and foreign countries might attempt to
regulate MapQuest, MapQuest's business activities, MapQuest's transmissions or
prosecute MapQuest for violations of their laws which could have a material
adverse effect on MapQuest's business, financial condition and results of
operations. In addition, as MapQuest's service is available over the Internet in
multiple states and foreign countries,
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such jurisdictions may require MapQuest to qualify to do business as a foreign
corporation in each such state or foreign country, which could subject MapQuest
to taxes and penalties and could result in the inability of MapQuest to enforce
contracts in such jurisdictions.
Intellectual Property
MapQuest regards its copyrights, trademarks, trade secrets and similar
intellectual property as critical to its success. MapQuest relies upon a
combination of trademark and copyright law, trade secret protection and
contractual restrictions with employees, customers, partners and others to
protect its proprietary rights. MapQuest does not currently hold any patents. If
MapQuest fails to adequately protect its proprietary rights, or if it becomes
involved in intellectual property litigation, its business, financial condition
and results of operations could be materially and adversely affected.
Despite MapQuest's efforts to protect its proprietary rights, third parties
may infringe or misappropriate these rights, which could result in a material
adverse effect on MapQuest's business, financial condition and results of
operations. In the ordinary course of business MapQuest has been, and expects to
continue to be, subject to claims, including claims of alleged infringement of
the trademarks and other proprietary rights of third parties. Furthermore, the
validity, enforceability and scope of protection of proprietary rights in
Internet-related industries are uncertain and still evolving. MapQuest expects
that infringement claims in its markets will increase in number as more
participants enter the market. Such claims and any resultant litigation, should
they occur, could subject MapQuest to significant liability for damages and
could result in the invalidation of its proprietary rights. In addition, even if
MapQuest prevails, such litigation could be time-consuming and expensive to
defend, and could result in the diversion of MapQuest's time and attention, any
of which could materially adversely affect its business, financial condition and
results of operations. Any claims from third parties may also result in
limitation on MapQuest's ability to use the trademarks and other intellectual
property subject to such claims unless it enters into agreements with the third
parties responsible for such claims, which may be unavailable on commercially
reasonable terms.
Employees
As of December 31, 1999, MapQuest employed 335 persons, including 57
cartographers, 12 GIS/database analysts, 91 software/systems/Internet engineers,
109 persons in sales, marketing and customer-support, and 66 persons in general
and administrative areas. None of MapQuest's employees is represented by a labor
union and MapQuest believes it has good employee relations.
MapQuest believes that its future success will depend in part on its
continued ability to attract, integrate, retain and motivate highly qualified
sales, technical, and managerial personnel, and upon the continued service of
MapQuest's senior management and key sales and technical personnel. There can be
no assurance that MapQuest will successfully attract, integrate, retain and
motivate a sufficient number of qualified personnel to conduct its business in
the future.
ITEM 2. PROPERTIES
MapQuest's headquarters are located in Mountville, Pennsylvania, where
MapQuest currently leases approximately 62,000 square feet under a ten-year
lease expiring in March 2007. In addition, MapQuest maintains executive offices
in New York, New York, where MapQuest also leases approximately 9,000 square
feet under a nine-year lease expiring in May 2008. MapQuest also leases
approximately 7,200 square feet in Columbia, Maryland under a two-year lease
expiring in June 2000, approximately 19,400 square feet in Denver, Colorado
under a three-year lease expiring in November 2002, approximately 11,520 square
feet in Mount Joy, Pennsylvania under a three-year lease expiring in December
2000 and approximately 3,600 square feet in the Hague, Netherlands under a
sixteen-month lease expiring in December 2000. MapQuest also leases sales office
space in Redwood Shores, California, Wakefield, Massachusetts, Chicago,
Illinois, and Atlanta, Georgia. These offices are approximately 250 to 2,200
square feet with lease terms of one month to five years.
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ITEM 3. LEGAL PROCEEDINGS
Pursuant to an indemnity obligation, MapQuest defended Moore U.S.A., Inc.,
in a legal proceeding filed by Mark Tornetta on December 14, 1998 in the United
States District Court for the Eastern District of Pennsylvania. Mr. Tornetta
alleged that Moore U.S.A., Inc. infringed his patent describing a specific
method for searching real estate properties. This case was dismissed without
prejudice on April 30, 1999.
Rand McNally has written a letter to National Geographic claiming that
National Geographic's laminated maps infringe upon one of its patents. MapQuest
has agreed to take responsibility pursuant to its indemnification obligations.
MapQuest believes that this claim will be settled for approximately $10,000.
MapQuest has also been approached by 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. Unisys has
not filed a lawsuit, although it has suggested the possibility of litigation to
enforce the '302 patent if negotiations are unsuccessful. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
MapQuest common stock is traded on the Nasdaq National Market under the
symbol "MQST."
The following table sets forth, for the calendar quarters indicated, the
high and low prices per share of MapQuest common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
MapQuest
common stock
High Low
---- ---
<S> <C> <C>
1998:
Quarter Ended March 31, 1998...................... $ N/A $ N/A
Quarter Ended June 30, 1998....................... N/A N/A
Quarter Ended September 30, 1998.................. N/A N/A
Quarter Ended December 31, 1998................... N/A N/A
1999:
Quarter Ended March 31, 1999...................... N/A N/A
Quarter Ended June 30, 1999....................... 25.94 13.75
Quarter Ended September 30, 1999.................. 20.63 9.31
Quarter Ended December 31, 1999................... 32.50 12.50
</TABLE>
Holders
On March 22, 2000, the closing price of MapQuest's Common Stock reported by
the Nasdaq National Market was $21.75 per share. As of March 22, 2000 there were
approximately 117 holders of record of the common stock (not including
beneficial holders of stock held in street name).
Recent Sales of Unregistered Securities
For the fiscal year ended December 31, 1999, MapQuest granted an aggregate
of 1,320,590 options to purchase its common stock to its employees, with
exercise prices ranging from $10.44 per share to $28.00 per share. The grant of
a significant portion of these options to purchase shares of common stock was
made in reliance upon Rule 701 promulgated under the Securities Act. Those
grants 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. In addition, 645,570 options granted on December 31, 1998 were
priced in 1999 at the initial public offering price of $15.00 per share.
For the fiscal year ended December 31, 1999, employees and consultants
exercised options to purchase 1,129,947 shares of common stock of MapQuest at
exercise prices ranging from $0.04 per share to $15.00 per share. These shares
of common stock were issued in reliance upon Rule 701 promulgated under the
Securities Act.
For the fiscal year ended December 31, 1999, 2,227,897 shares of common
stock were issued upon exercise of warrants at exercise prices ranging from
$0.01 per share to $1.30 per share in reliance upon Section 4(2) of the
Securities Act.
11
<PAGE>
Use of Proceeds from Initial Public Offering
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
$2,559,000 were $61,611,000. 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 $15.00 per share which generated approximately
$8,300,000 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 MapQuest or to affiliates of MapQuest
except in connection with the redemption of the Series B Preferred Stock.
MapQuest used approximately $8,700,000 of these proceeds to redeem all of its
Series B Preferred Stock. MapQuest has used the remainder of the net proceeds
for business operations and investing in short-term, interest bearing investment
grade obligations with various maturities ranging from one day to one year.
Dividends
MapQuest has never declared or paid any cash dividends on its common stock.
MapQuest intends to retain any future earnings to support operations and to
finance the growth and development of MapQuest's business and does not
anticipate paying cash dividends for the foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data of MapQuest have been derived from the audited
historical consolidated financial statements and notes thereto of MapQuest for
each of the years in the five-year period ended December 31, 1999. This
information is only a summary and you should read it in conjunction with
MapQuest's Management's Discussion and Analysis of Financial Condition and
Results of Operations, which is included in Item 7 of this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................ $ 34,487 $ 24,717 $ 21,416 $ 19,577 $ 14,077
Income (loss) from operations. (20,361) (3,453) (8,002) (1,719) 15
Net income (loss)............. (18,498) (3,155) (7,599) (1,276) 524
Net income (loss) per share-
Basic....................... (0.84) (12.09) (64.43) (8.84) 0.79
Net income (loss) per share-
Diluted..................... (0.84) (12.09) (64.43) (8.84) 0.00
</TABLE>
<TABLE>
<CAPTION> As of December 31,
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $ 19,390 $ 564 $ 2,482 $ 1,904 $ 4,619
Working capital............... 44,115 4,301 7,460 4,085 6,066
Total assets.................. 65,010 11,450 13,221 9,526 9,601
Total debt.................... -- 48 100 -- --
Redeemable preferred stock.... -- 26,186 25,711 7,331 6,877
Stockholders' equity (deficit) 49,857 (19,768) (16,237) (1,553) 213
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with financial
information and the notes thereto included in this Report.
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
registration statement on 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.
13
<PAGE>
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. 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.
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. Otherwise, revenues are recognized
over the term of the related agreement. 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 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. Otherwise, revenues are recognized over the term
of the related agreement. 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.
14
<PAGE>
As a result of MapQuest's relatively recent focus on the Internet and the
emerging nature of the Internet markets in which it competes, MapQuest is
limited in its ability to accurately forecast its revenue. MapQuest's current
and future expense levels are based largely on its estimates of future revenue
and are to a large extent fixed. Accordingly, MapQuest may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and a shortfall in revenue in relation to MapQuest's expectations could have a
material adverse effect on MapQuest's business, financial condition and results
of operations. In addition, MapQuest currently intends to significantly increase
its operating expenses to develop and enhance its technology, to create,
introduce and enhance its service offerings, to acquire and develop content, to
fund increased sales and marketing expenses and to enter into new strategic
agreements. To the extent that such expenses precede or are subsequently
followed by increased revenue, MapQuest's business, financial condition and
results of operations could be materially adversely affected.
MapQuest's annual operating results are likely to fluctuate significantly
in the future due to a variety of factors, many of which are outside MapQuest's
control. Factors that will influence MapQuest's operating results include: (i)
MapQuest's ability to retain existing portals and online clients, to attract new
online clients at a steady rate and to maintain business customer and end-user
satisfaction; (ii) the announcement or introduction of new websites, Web stores,
services and products by MapQuest and its competitors; (iii) price competition
and margin erosion; (iv) the rate at which the online market for the purchase of
products and services continues to emerge; (v) MapQuest's ability to upgrade and
develop its systems and infrastructure; (vi) the termination of any account that
represents a significant portion of its sales; (vii) technical difficulties or
system downtime; (viii) MapQuest's ability to attract new personnel in a timely
and effective manner; (ix) MapQuest's ability to increase the proportion of
sales from portals and online clients; (x) the failure of Internet bandwidth to
increase over time and/or an increase in the cost to end users of obtaining or
utilizing Internet bandwidth; and (xi) certain U.S. and foreign government
regulations. MapQuest also may, as inducement to obtain certain strategic
contracts, offer favorable pricing terms to portals, software publishers and
online retailers which would reduce its gross margins. As a result, MapQuest
believes that it will continue to incur operating losses in the future. Due to
the foregoing factors, MapQuest's annual operating results may fall below the
expectations of securities analysts and investors. In such event, the trading
price of the common stock would likely be materially adversely affected.
Merger with America Online, Inc.
On December 21, 1999, MapQuest entered into an Agreement and Plan of Merger
with America Online. Pursuant to the terms of the Agreement and Plan of Merger,
MapQuest will merge with and into MQ Acquisition, with MapQuest surviving the
merger and becoming a wholly-owned subsidiary of America Online. MapQuest
intends to consummate this merger once it receives all necessary regulatory
clearance. America Online filed a registration statement on Form S-4 with
respect to this transaction on February 11, 2000 and MapQuest filed a
preliminary proxy statement on Schedule 14A describing the merger on the same
date.
15
<PAGE>
Results of Operations
The following table sets forth the results of operations for MapQuest
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue
Business................................. 38.0% 26.4% 22.2%
Consumer................................. 19.2% 5.6% 6.0%
---- ---- ----
Total business and consumer.............. 57.2% 32.0% 28.2%
---- ---- ----
Digital mapping.......................... 42.8% 68.0% 71.8%
Total revenues........................... 100.0% 100.0% 100.0%
Cost of revenues
Business and consumer.................... 30.8% 19.5% 21.2%
Digital mapping.......................... 33.0% 51.9% 50.3%
---- ---- ----
Total cost of revenues................... 63.8% 71.4% 71.5%
---- ---- ----
Gross profit.................................. 36.2% 28.6% 28.5%
Operating expenses
Sales and marketing...................... 57.7% 21.2% 33.9%
Product development...................... 17.4% 12.0% 23.6%
General and administrative............... 20.1% 9.4% 8.5%
---- --- ---
Total operating expenses................. 95.2% 42.6% 65.9%
---- ---- ----
Operating loss................................ -59.0% -14.0% -37.4%
Interest income and expense, net.............. 4.9% 0.2% 0.6%
Other income.................................. 0.5% 1.0% 1.2%
--- --- ---
Loss before provision for income taxes........ -53.6% -12.8% -35.5%
Provisions for income taxes................... 0.0% 0.0% 0.0%
---- ---- ----
Net loss ................................... -53.6% -12.8% -35.5%
==== ==== ====
</TABLE>
Year Ended December 31, 1999 as Compared to 1998
Revenues
Total revenues increased by $9.8 million from $24.7 million in 1998 to
$34.5 million in 1999. Revenue from MapQuest's top 10 customers decreased from
27.2% of total revenues in 1998 to 22.3% in 1999.
Business Revenues. Business revenues increased by $6.6 million from $6.5
million in 1998 to $13.1 million in 1999. As a result of MapQuest's increased
focus on positioning the Company as an Internet company and selling its
business-to-business products and services, the number of customers using
MapQuest's Internet mapping services increased from 356 at year end 1998 to
1,014 at year end 1999. As a percent of total revenues, business revenues
increased from 26.4% in 1998 to 38.0% in 1999.
16
<PAGE>
Consumer Revenues. Consumer revenues increased by $5.2 million from $1.4
million in 1998 to $6.6 million in 1999. In 1999, MapQuest increased resources
devoted to direct sales of advertising on its consumer site. These additional
resources, combined with MapQuest's third-party advertising seller, were able to
generate increased revenue. In addition, during 1998 MapQuest changed its
third-party advertising sales representative organization and did not earn
revenues from third-party sales representative organizations during the
transition. As a percent of total revenues, consumer revenues increased from
5.6% in 1998 to 19.2% in 1999.
Digital Mapping Revenues. Digital mapping revenues decreased by $2.0
million from $16.8 million in 1998 to $14.8 million in 1999. This decrease was
due to both decreased sales of printed products of $1.1 million and decreased
mapping services volume of $0.9 million. As a percent of total revenues, digital
mapping revenues decreased from 68.0% in 1998 to 42.8% in 1999.
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 by $4.4 million,
from $17.6 million in 1998 to $22.0 million in 1999. As a percent of revenue,
these expenses were 63.8% for the year ended December 31, 1999 compared to 71.4%
for the same period in 1998. Business and consumer costs increased by $5.8
million, from $4.8 million in 1998 to $10.6 million in 1999. As a percent of
business and consumer revenue, these expenses were 53.9% for the year ended
December 31, 1999 compared to 60.8% for the same period in 1998. The increases
in business and consumer costs were 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 $1.4 million, from $12.8 million in 1998 to $11.4 million in 1999.
As a percent of digital mapping services revenue, these expenses were 77.0% for
the year ended December 31, 1999 compared to 76.4% for the same period in 1998.
The decrease in digital 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 increased by $14.7 million from $5.2 million in 1998 to $19.9 million
in 1999. For the year ended December 31, 1999, sales and marketing expenses were
57.7% of revenues, compared to 21.2% of revenues for the year ended December 31,
1998. The period-to-period increases are 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 increased by $3.0
million from $3.0 million in 1998 to $6.0 million in 1999. As a percentage of
revenues, these expenses were 17.4% for the year ended December 31, 1999 and
12.0% for the comparable period in 1998. These period-to-period increases were
primarily attributable to increased business and consumer product development
expenses. MapQuest plans to continue its investment in the development of
business and consumer products 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. These expenses increased by $4.6 million from $2.3 million in 1998 to
$6.9 million in 1999. As a percentage of revenues, these expenses were 20.1% for
the year ended December 31, 1999, compared to 9.4% for the same period in 1998.
These period-to-period increases were primarily related to increased salaries,
professional service fees and other expenses as a result of company growth and
being a publicly held entity. In addition, the Company recorded $1.7 million of
non-recurring expenses in the fourth quarter of 1999. These consisted of charges
related to transaction costs associated with potential acquisitions that were
not consummated and expenses associated with certain third-party patented
technology used by mapquest.com.
17
<PAGE>
Interest Income and Expense, Net
Interest income was $1.7 million for the year ended December 31, 1999
compared to $0.1 million for the year ended December 31, 1998. This increase was
due to the placement of a large portion of the proceeds from MapQuest's initial
public offering in May of 1999 in cash equivalents and short-term investments.
Income Taxes
MapQuest paid no income taxes in 1998 or 1999. Other than for the fiscal
year ended December 31, 1995, MapQuest has incurred a net loss for each period
since incorporation. As of December 31, 1999, MapQuest had approximately $44.3
million of net operating loss carryforwards for federal income tax purposes,
which expire beginning in 2009. Due to the uncertainty of future profitability,
a valuation allowance equal to the net deferred tax asset has been recorded.
Changes in ownership resulting from transactions among MapQuest's stockholders
and sales of common stock may limit the future annual realization of the tax net
operating loss carryforwards under Section 382 of the Internal Revenue Code of
1986.
Year Ended December 31, 1998 as Compared to 1997
Revenues
Total revenues increased by $3.3 million from $21.4 million in 1997 to
$24.7 million in 1998. Revenue for the top 10 customers of MapQuest as a percent
of total revenue decreased from 44.5% in 1997 to 27.2% in 1998.
Business Revenues. Business revenues increased by $1.7 million from $4.8
million in 1997 to $6.5 million in 1998. This increase was primarily due to an
increase in the number of businesses using MapQuest's products and services and
the introduction of additional products and services. In addition, during 1998,
MapQuest introduced its Enterprise Server products and services. As a percent of
total revenues, business revenues increased from 22.2% in 1997 to 26.4% in 1998.
Consumer Revenues. Consumer revenues increased $0.1 million from $1.3
million in 1997 to $1.4 million in 1998. This increase was due to increased
advertising sales, including advertisements placed on MapQuest's website and
sponsorship advertisements. During 1998, MapQuest changed its third-party
advertising sales representative organization. Consequently, MapQuest did not
earn revenues from third-party advertising sales representative organizations
during this transition. As a percent of total revenues, consumer revenues
decreased from 6.0% in 1997 to 5.6% in 1998.
Digital Mapping Revenues. Digital mapping revenues increased by $1.4
million from $15.4 million in 1997 to $16.8 million in 1998. This increase was
primarily due to increased sales of printed products, including the National
Geographic Road Atlas and the National Geographic American Road Atlas. As a
percent of total revenues, digital mapping revenues decreased from 71.8% in 1997
to 68.0% 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 by $2.3 million
from $15.3 million in 1997 to $17.6 million in 1998. As a percent of revenue,
these expenses were 71.4% for the year ended December 31, 1998 and 71.4% for the
same period in 1997. Digital mapping services costs increased by $2.0 million,
from $10.8 million in 1997 to $12.8 million in 1998. As a percent of digital
mapping services revenue, these expenses were 76.4% for the year ended December
31, 1998 compared to 70.0% for the same period in 1997. The increase in digital
mapping services costs was primarily related to increased print and paper costs
for printed products as a result of higher digital mapping services revenue.
Business and consumer costs increased by $0.3 million, from $4.5 million in 1997
to $4.8 million in 1998. As a percent of business and consumer revenue, these
expenses were 60.8% for the year ended December 31, 1998 compared to 75.1% for
the same period in 1997.
18
<PAGE>
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 decreased by $2.1 million from $7.3 million in 1997 to $5.2 million in
1998. This decrease reflects lower promotional costs and personnel expenses as
MapQuest implemented expense reduction efforts in early 1998. These expense
reductions included a reduction in personnel, decreased travel expenses and
lower spending for sales promotions involving trade shows and public relations.
These expense reductions efforts were undertaken as MapQuest revised its
business strategy.
Product Development. Product development expenses are primarily 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
expenses, and consulting fees. Product development expenses decreased by $2.0
million from $5.0 million in 1997 to $3.0 million in 1998. The decrease from
1997 to 1998 was primarily due to decreases in personnel and related expenses as
MapQuest implemented the expense reduction efforts described in the preceding
paragraph in early 1998.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for MapQuest's executive, accounting
and administrative personnel, professional services and other general corporate
expenses. These expenses increased by $0.5 million from $1.8 million in 1997 to
$2.3 million in 1998. The increase from 1997 to 1998 was primarily due to costs
associated with the hiring of a new Chief Executive Officer and for additional
professional services.
Interest Income and Expense, Net
Interest income was $0.1 million in both 1997 and 1998.
Other Income
Other income decreased $0.1 million from $0.3 million in 1997 to $0.2
million in 1998. This decrease was primarily due to lower equity in the earnings
of a joint venture that serves a number of automobile clubs with trip routing
services.
Income Taxes
MapQuest paid no income taxes in 1997 or 1998. Other than for the fiscal
year ended December 31, 1995, MapQuest has incurred a net loss for each period
since incorporation. As of December 31, 1998, MapQuest had approximately $11.7
million of net operating loss carryforwards for federal income tax purposes,
which expire beginning in 2009. Due to the uncertainty of future profitability,
a valuation allowance equal to the deferred tax asset has been recorded. Changes
in ownership resulting from transactions among MapQuest's stockholders and sales
of common stock may limit the future annual realization of the tax net operating
loss carryforwards under Section 382 of the Internal Revenue Code of 1986.
Liquidity and Capital Resources, Years ended December 31, 1999 and 1998
MapQuest has financed its operations to date primarily through the public
sale of common stock, private placement of equity securities, funds from
operations and bank borrowings. As of December 31, 1999, MapQuest had $19.4
million of cash and cash equivalents and $23.6 million in short-term
investments.
MapQuest's days sales outstanding in accounts receivable, calculated on a
quarterly basis, were 87 days at both December 31, 1998 and 1999. 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.
19
<PAGE>
Net cash used in operating activities was $0.8 million for the fiscal year
1998 and $14.8 million for the fiscal year 1999, an increase of $14.0 million.
In 1999, the cash used in operating activities was primarily a result of the net
loss. In addition, trade receivables increased $6.0 million and prepaid expenses
increased $1.7 million, partially offset by increases in advance billings on
contracts, deferred revenue, and accrued personnel costs and other liabilities
of $1.0 million, $2.9 million, and $4.8 million, respectively. The net cash used
in operating activities in 1998 resulted primarily from the net loss. Other
significant operating activities in 1998 include an increase in trade
receivables of $1.5 million and an increase in deferred revenue of $0.7 million.
Net cash used in investing activities was $1.1 million for the fiscal year
1998 and $28.2 million for the fiscal year 1999. This increase in 1999 is due to
the net purchase of short-term investments of $23.6 million and $4.7 million in
purchases of property and equipment compared to $1.1 million in purchases of
property and equipment during 1998.
Net cash used in financing activities was less than $0.1 million for the
fiscal year 1998, and net cash provided by financing activities was $61.9
million for the fiscal year 1999. The increase in 1999 resulted primarily from
the issuance of common stock, net of the redemption of preferred stock.
MapQuest's capital commitments for the fiscal year 1998 and the fiscal year
1999 consisted of obligations under operating leases. Management anticipates
that it will continue to invest in capital expenditures in order to meet its
anticipated growth in operations.
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 $61.6 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
$8.7 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 $8.3 million in net proceeds to MapQuest.
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.
Liquidity and Capital Resources, Years ended December 31, 1998 and 1997
Prior to the initial public offering, MapQuest financed its operations
primarily through the private placement of equity securities, funds from
operations and bank borrowings. As of December 31, 1998, MapQuest had $0.6
million of cash and cash equivalents.
MapQuest's days sales outstanding in accounts receivable, calculated on a
quarterly basis, were 86 days and 87 days at December 31, 1997 and 1998,
respectively. However, due to revenues fluctuating on a quarter-to-quarter
basis, average 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 $9.5 million in 1997 and $0.8
million in 1998. In 1997, cash used by operating activities was primarily a
result of the net loss and increased working capital. In 1998, cash used by
operating activities was primarily a result of the net loss.
Net cash provided by financing activities was $11.4 million in 1997. In
1997, cash provided by financing activities was primarily attributable to net
proceeds from the issuance of convertible preferred stock.
20
<PAGE>
Net cash used in investing activities was $1.3 million in 1997 and $1.1
million in 1998. Cash used in investing activities in each period was primarily
related to purchases of property and equipment.
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 financial position or results of operations
of MapQuest.
ITEM 7A. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MapQuest.com, Inc.
We have audited the accompanying balance sheets of MapQuest.com, Inc. as of
December 31, 1998 and 1999, and the related statements of operations, changes in
redeemable preferred stock, common stock, and other stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MapQuest.com, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/ S / ERNST & YOUNG LLP
Harrisburg, Pennsylvania
March 10, 2000
22
<PAGE>
<TABLE>
MAPQUEST.COM, INC.
BALANCE SHEETS
<CAPTION>
December 31
1998 1999
------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents--------------------------------------------- $ 564,087 $19,390,117
Short-term investments------------------------------------------------- -- 23,565,837
Accounts receivable, net of allowance for doubtful accounts
(1998---$469,726; 1999---$601,626)--------------------------------- 6,646,882 12,068,695
Accounts receivable --- affiliates------------------------------------ 127,989 449,220
Inventories------------------------------------------------------------ 1,364,608 1,196,602
Contract work in progress---------------------------------------------- 147,317 428,954
Prepaid expenses and other current assets------------------------------ 481,921 2,168,387
----------- -----------
Total current assets----------------------------------------------- 9,332,804 59,267,812
Property and equipment, net of accumulated depreciation (1998--$3,433,368;
1999--$4,932,554)---------------------------------------------- 1,844,324 5,011,439
Goodwill, net of accumulated amortization (1998--$127,295;
1999--$157,846)------------------------------------------------ 178,212 147,661
Other assets 94,901 583,119
----------- -----------
Total assets--------------------------------------------------- $11,450,241 $65,010,031
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable-------------------------------------------------------- $ 1,715,133 $ 3,245,970
Current portion of note payable----------------------------------------- 48,108 --
Accrued personnel costs------------------------------------------------- 561,714 2,393,298
Advance billings on contracts------------------------------------------- 498,108 1,480,703
Deferred revenue-------------------------------------------------------- 1,207,867 4,080,644
Other accrued liabilities----------------------------------------------- 1,000,940 3,952,556
------------ ------------
Total current liabilities------------------------------------------- 5,031,870 15,153,171
Convertible Redeemable Preferred Stock---Series A, voting, $1.00 per share
redemption value, aggregate liquidation preference of $6,550,000 in 1998:
Issued and outstanding shares---6,550,000 in 1998------------------ 6,550,000 --
Cumulative Redeemable Preferred Stock---Series B, nonvoting, $6.15 per share
redemption value, aggregate liquidation preference of $8,332,036 in 1998:
Issued and outstanding shares---1,354,802 in 1998---------------------- 8,332,036 --
Convertible Redeemable Preferred Stock---Series C, voting, $3.51 per share
redemption value, aggregate liquidation preference of $12,268,292 in 1998:
Issued and outstanding shares---3,495,354 in 1998----------------------- 11,595,176 --
Notes receivable arising from issuance of preferred stock-------------------- (290,835) --
Stockholders' equity (deficit):
Common Stock---$.001 par value:
Authorized shares---100,000,000
Issued and outstanding shares---336,028 in 1998 and 36,014,307 in
1999---------------------------------------------------------------- 336 36,014
Notes receivable for common stock--------------------------------------- -- (224,135)
Additional paid-in capital---------------------------------------------- 140,170 88,779,403
Retained deficit-------------------------------------------------------- (19,908,512) (38,734,422)
------------ ------------
Total stockholders' equity (deficit)-------------------------------- (19,768,006) 49,856,860
------------ ------------
Total liabilities and stockholders' equity (deficit)---------------- $ 11,450,241 $ 65,010,031
============ ============
</TABLE>
See accompanying notes.
23
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues
Business .............................................. $ 4,762,627 $ 6,536,153 $ 13,112,876
Consumer .............................................. 1,275,900 1,375,900 6,600,898
------------ ------------ ------------
Total business and consumer revenues .................. 6,038,527 7,912,053 19,713,774
Digital mapping ....................................... 15,377,141 16,805,149 14,773,374
------------ ------------ ------------
Total revenues ...................................... 21,415,668 24,717,202 34,487,148
Cost of revenues
Business and consumer ................................. 4,535,153 4,808,764 10,634,169
Digital mapping ....................................... 10,767,256 12,837,036 11,370,963
------------ ------------ ------------
Total cost of revenues .............................. 15,302,409 17,645,800 22,005,132
------------ ------------ ------------
Gross profit ............................................. 6,113,259 7,071,402 12,482,016
Operating expenses
Sales and marketing ................................... 7,256,519 5,243,377 19,889,205
Product development ................................... 5,047,744 2,954,510 6,007,755
General and administrative ............................ 1,811,391 2,326,191 6,946,207
------------ ------------ ------------
Total operating expenses ............................ 14,115,654 10,524,078 32,843,167
Operating loss ........................................... (8,002,395) (3,452,676) (20,361,151)
Interest income and expense, net ......................... 135,888 53,916 1,680,010
Other income ............................................. 267,384 243,891 183,515
------------ ------------ ------------
Loss before provision for income taxes ................... (7,599,123) (3,154,869) (18,497,626)
Provision for income taxes ............................... -- -- 800
------------ ------------ ------------
Net loss ........................................... (7,599,123) (3,154,869) (18,498,426)
------------
Less preferred stock dividends and accretion ............. (5,833,651) (667,223) (377,490)
------------ ------------ ------------
Net loss applicable to common stockholders ............... $(13,432,774) $ (3,822,092) $(18,875,916)
------------ ------------ ------------
Basic and diluted loss per share ......................... $ (64.43) $ (12.09) $ (0.84)
============ ============ ============
Shares used to compute basic and diluted loss per share .. 208,499 316,202 22,374,292
</TABLE>
See accompanying notes.
24
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
Notes
Convertible Cumulative Convertible Receivable
Redeemable Redeemable Redeemable Arising from
Preferred Preferred Preferred Issuance of Notes
Stock-- Stock-- Stock-- Preferred Receivable for
Series A Series B Series C Stock Common Stock
---------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .................... $ -- $ 7,331,431 $ -- $ (87,832) $ --
Net loss ...................................... -- -- -- -- --
Payment on notes receivable ................... -- -- -- 21,132 --
Dividends ..................................... -- 484,306 -- -- --
Exercise of 10,314 options .................... -- -- -- -- --
Addition of redemption feature to Series A
preferred stock ............................ 6,550,000 -- -- -- --
Issuance of 3,495,354 shares convertible
preferred stock--Series C, net ............. -- -- 11,573,009 (224,135)
Accretion of redeemable preferred stock to
redemption value ........................... -- -- 63,243 -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 .................... 6,550,000 7,815,737 11,636,252 (290,835) --
Net loss ...................................... -- -- -- -- --
Dividends ..................................... -- 516,299 -- -- --
Exercise of 119,610 options ................... -- -- -- -- --
Issuance of 522,234 warrants .................. -- -- (192,000) --
Issuance of 41,266 warrants for Services ...... -- -- -- -- --
Accretion of redeemable preferred stock to
redemption value ........................... -- -- 150,924 -- --
Compensation related to stock options ......... -- -- -- --
------------ ------------ ------------ ------------ -----------
Balance at December 31, 1998 .................... 6,550,000 8,332,036 11,595,176 (290,835) --
Net loss ...................................... -- -- -- -- --
Dividends ..................................... -- 327,484 -- -- --
Issuance of 5,197,990 shares of common stock
in initial public offering ................. -- -- -- -- --
Conversion of Series A preferred Stock ........ (6,550,000) -- -- -- --
Conversion of Series C preferred Stock ........ -- -- (11,645,182) -- --
Conversion of notes receivable arising from
conversion of stock ........................ -- -- -- 290,835 (290,835)
Accretion of redeemable preferred stock to
redemption value ........................... -- -- 50,006 -- --
Redemption of Series B preferred Stock ........ -- (8,659,520) -- -- --
Exercise of 2,227,897 warrants ................ -- -- -- -- --
Exercise of 1,129,947 options ................. -- -- -- -- --
Payment on notes receivable ................... -- -- -- -- 66,700
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 .................... $ -- $ -- $ -- $ -- $ (224,135)
============ ============ ============ ============ ============
Convertible
Preferred Additional
Stock-- Common Paid in Retained
Series A Stock Capital Deficit
----------- ------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 .................... $ 65,500 $ 206 $1,273,340 $ (2,804,570)
Net loss ..................................... -- -- -- (7,599,123)
Payment on notes receivable .................. -- -- -- --
Dividends .................................... -- -- -- (560,025)
Exercise of 10,314 options ................... -- 10 775 --
Addition of redemption feature to Series A
preferred stock ........................... (65,500) -- (1,274,115) (5,210,383)
Issuance of 3,495,354 shares convertible
preferred stock--Series C, net ............ -- -- -- --
Accretion of redeemable preferred stock to
redemption value .......................... -- -- -- (63,243)
--------- -------- ---------- ------------
Balance at December 31, 1997 .................... -- 216 -- (16,237,344)
Net loss ..................................... -- -- -- (3,154,869)
Dividends .................................... -- -- -- (516,299)
Exercise of 119,610 options .................. -- 120 7,444 --
Issuance of 522,234 warrants ................. -- -- 192,000 --
Issuance of 41,266 warrants for Services ..... -- -- 53,650 --
Accretion of redeemable preferred stock to
redemption value .......................... -- -- (150,924) --
Compensation related to stock Options ........ -- -- 38,000 --
--------- -------- ---------- - ----------
Balance at December 31, 1998 .................... -- 336 140,170 (19,908,512)
Net loss ..................................... -- -- -- (18,498,426)
Dividends .................................... -- -- -- (327,484)
Issuance of 5,197,990 shares of common stock
in initial public offering ................ -- 5,198 69,947,893 --
Conversion of Series A preferred Stock ....... -- 17,685 6,532,315 --
Conversion of Series C preferred Stock ....... -- 9,437 11,635,745 --
Conversion of notes receivable arising from
conversion of stock ....................... -- -- -- --
Accretion of redeemable preferred stock to
redemption value .......................... -- -- (50,006) --
Redemption of Series B preferred Stock ....... -- -- -- --
Exercise of 2,227,897 warrants ............... -- 2,228 (1,243) --
Exercise of 1,129,947 options ................ -- 1,130 574,529 --
Payment on notes receivable .................. -- -- -- --
--------- -------- ------------ ------------
Balance at December 31, 1999 .................... $ -- $ 36,014 $ 88,779,403 $(38,734,422)
========= ========= ============ ============
</TABLE>
See accompanying notes.
25
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Year ended December 31
----------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Operating activities
Net loss (7,599,123) $ (3,154,869) $(18,498,426)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation...................................................... 816,369 1,074,875 1,499,186
Amortization...................................................... 30,550 30,551 30,551
Provision for doubtful accounts................................... 262,388 271,598 520,125
Issuance of warrants for services................................. -- 53,650 --
Compensation expense related to options........................... -- 38,000 --
Equity in earnings of joint venture............................... (256,068) (291,558) (241,001)
Dividends received from joint venture............................. 288,556 285,976 245,500
Loss (gain) on disposal of property and equipment................. 59,758 (3,089) (946)
Changes in operating asset and liabilities
Accounts receivable............................................ (1,115,351) (1,449,823) (5,941,938)
Accounts receivable--affiliates................................ 72,400 (70,489) (321,231)
Inventories.................................................... (1,182,649) 321,509 168,007
Contract work in progress...................................... (60,575) 238,461 (281,637)
Prepaid expenses and other current assets...................... (724,940) 597,426 (1,686,466)
Other assets................................................... 14,659 (94,638) (492,717)
Accounts payable............................................... 448,374 382,447 1,530,837
Advanced billings on contracts................................. (688,387) 151,726 982,595
Deferred revenue............................................... 396,807 702,629 2,872,777
Accrued personnel costs and other liabilities.................. (257,500) 99,557 4,783,200
------------ ------------ -----------
Net cash used in operating activities................................ (9,494,732) (816,061) (14,831,584)
Investing activities
Property and equipment purchases..................................... (1,354,690) (1,062,126) (4,666,301)
Proceeds from disposal of property and equipment..................... 32,264 4,340 946
Purchases of investments............................................. -- -- (30,379,644)
Sales and maturities of investments.................................. -- -- 6,813,807
------------ ------------ -----------
Net cash used in investing activities................................ (1,322,426) (1,057,786) (28,231,192)
Financing activities
Proceeds from note payable........................................... 131,468 -- --
Principal payments on debt........................................... (32,499) (51,716) (48,109)
Net proceeds from issuance of common stock........................... -- -- 69,953,091
Redemption of Series B preferred stock............................... -- -- (8,659,520)
Net proceeds from issuance of Series C convertible preferred stock... 11,348,874 -- --
Exercise of common stock options and warrants........................ 785 7,560 576,644
Principal payments received on notes receivable for stock............ 21,132 -- 66,700
Cash dividends paid.................................................. (74,506) -- --
------------ ------------ -----------
Net cash provided by (used in) financing activities.................. 11,395,254 (44,156) 61,888,806
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents................. 578,096 (1,918,003) 18,826,030
Cash and cash equivalents at the beginning of year................... 1,903,994 2,482,090 564,087
------------ ------------ -----------
Cash and cash equivalents at the end of the year..................... $ 2,482,090 $ 564,087 $19,390,117
============ ============ ===========
Supplemental cash flow information
Stock dividends paid on Preferred Stock Series B..................... $ 484,306 $ 516,299 $ 327,484
============ ------------ -----------
Dividends accrued on Preferred Stock Series B........................ $ 19,540 $ -- $ --
============ ============ ===========
Notes receivable received for stock.................................. $ 224,135 $ -- $ --
============ ============ ===========
See accompanying notes.
</TABLE>
26
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Business and Accounting Policies
Business
In January 1999, GeoSystems Global Corporation changed its name to
MapQuest.com, Inc. MapQuest.com, Inc. ("MapQuest" or the "Company") is an online
provider of mapping and destination information through its Website,
mapquest.com. MapQuest's proprietary integration and editing of geographic
databases enable it to provide comprehensive mapping solutions to businesses and
provide customized maps, destination information and driving directions to
consumers. Consumers can also purchase maps and cartography information from
MapQuest's MapStore located on mapquest.com. 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.
MapQuest is also a United States provider of traditional digital mapping
products and services to the educational, reference, directory, travel and
governmental markets. In addition, companies that incorporate call centers,
CD-ROMs or stand-alone driving direction kiosks into their information delivery
strategy require non-Internet customized mapping solutions. MapQuest has
developed its map-enabling software to promote the rapid development of mapping
applications in these environments.
Revenue Recognition
Contracts with businesses for Internet products and services are generally
entered into on an annual basis and consist of a one-time setup fee and annual
service or license fee. The one-time setup fee is based on costs incurred to
initially integrate the website connection and is recognized upon installation
of the connection. The remaining service or license fee is recognized ratably
over the contract period. Revenues recognized under this method are included in
the statements of operations as business revenues.
Royalty revenues are recognized when earned based on the revenues generated
by the sale of a licensed product or based on the minimum royalty provisions in
the related contract. Revenue from the sale of licenses to its customers for the
use of MapQuest's geographic systems or products are generally recognized upon
delivery of the licensed systems or products if no significant obligations
exist. Revenue from maintenance or upgrade obligations are recognized ratably
over the obligation period. MapQuest's license agreements have terms generally
ranging from one to three years. Substantially all revenues recognized under
these methods are included in the statements of operations as business revenues.
Revenues from long-term fixed price contracts for the development of
customized geographic and cartographic data are recognized on the percentage of
completion method, measured by the percentage of labor hours incurred to date to
estimated total labor hours for each contract. Revenues recognized in excess of
amounts billed are classified as contract work in progress. Amounts billed to
clients for contracts in excess of revenues recognized to date are classified as
advance billings on contracts. Revenues recognized under this method are
included in the statements of operations as digital mapping revenues.
Advertising revenue is recognized ratably over the period in which the
advertisements are displayed, provided that no significant obligations remain
and collection of the resulting receivable is probable. The duration of
MapQuest's advertising arrangements may range from one month to one year.
MapQuest may guarantee its advertisers a pre-set level of impressions during the
contract period. To the extent minimum guaranteed impression levels are not met
ratably over the contract period, MapQuest defers recognition of the
corresponding pro-rata portion of the revenues relating to such unfulfilled
obligations until the guaranteed impression levels are achieved. Revenues
recognized under this method are included in the statements of operations as
consumer revenues.
27
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Barter revenues are recognized in connection with agreements in which
MapQuest receives advertising or other goods and services in exchange for
content or advertising on mapquest.com. Barter transactions are recorded at the
lower of estimated fair value of the goods or services received or the estimated
fair value of the content or advertisements given. Barter transactions accounted
for approximately 1%, 2% and 2% of revenues during 1997, 1998 and 1999,
respectively. Revenues recognized under this method are included in the
statements of operations as consumer revenues.
Revenues from all other services provided and products sold or licensed are
recognized when the services are rendered or delivery of the product is made and
no significant MapQuest obligations remain outstanding. Revenues recognized
under this method are included in the statements of operations as digital
mapping or business revenues.
Product Development
Product development expenses in the accompanying statements of operations
include the costs to develop new products and services and to modify 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. Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based upon MapQuest's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by MapQuest
between completion of the working model and the point at which the product is
ready for general release were insignificant in 1997 and 1998. In 1999, MapQuest
capitalized $298,178 of software development costs.
Statements of Cash Flows
For purposes of the statements of cash flows, MapQuest considers all cash
and highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
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 original maturities greater than three months but
less than twelve months when purchased are considered short-term investments. In
accordance with SFAS 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
were not significant.
Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term investments,
notes receivable and notes payable approximate fair value because of the
short-term maturity of these instruments.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment consisting primarily of computer hardware are stated
at historical cost. Depreciation is computed principally using the straight-line
method over the estimated useful life of assets ranging from 3 to 5 years.
28
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Goodwill
Goodwill, principally from the acquisition of Maryland Cartographics, Inc.
in July 1994, represents the excess of cost over fair value of net assets
acquired and is being amortized over 10 years using the straight-line method.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the fair value
method. The Company accounts for its stock-based compensation plans in
accordance with the provisions of APB 25.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for 1997,
1998 and 1999 amounted to approximately $779,000, $742,000 and $4,563,710,
respectively, and include barter advertising costs for 1997, 1998 and 1999 of
$148,000, $538,000 and $777,000, respectively.
Investment in Joint Venture
The Company's 50 percent-owned joint venture, Donnelly Spatial Data LP, is
accounted for by the equity method. The joint venture is engaged in providing,
among other things, highway trip routing products and services. Income from the
joint venture is included as a component of Other Income and was approximately
$256,000 in 1997, $292,000 in 1998 and $241,000 in 1999.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
General and Administrative Expenses
The Company recorded $1.7 million of non-recurring expenses in the fourth
quarter of 1999. These consisted of charges related to transaction costs
associated with potential acquisitions that were not consummated, and expenses
associated with certain third-party patented technology used by mapquest.com.
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 financial position or results of operations
of MapQuest.
29
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
2. Merger with America Online, Inc.
On December 22, 1999, the Company announced that it will be acquired by
America Online 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 the spring of 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.
3. Debt Arrangements
MapQuest had a $5,000,000 secured line of credit with a financial
institution payable on demand. Borrowings under the line of credit were limited
to 80% of MapQuest's qualified accounts receivable that were within 90 days of
invoice. Under the agreement, MapQuest could choose an interest rate based on
the following options: prime rate, a fixed rate as offered by the bank from time
to time for varying periods up to 180 days, or at the LIBOR rate plus 1.75% for
periods of 30, 60, 90 or 180 days. No amount was drawn on the line at December
31, 1998 or 1999. As of December 31, 1999, the line of credit had expired.
MapQuest entered into a promissory note during 1997. Terms of repayment
required thirty consecutive monthly payments of principal and interest. Interest
on the outstanding principal was fixed at a rate of 9%. This note was satisfied
during 1999.
4. Inventories
Inventories are comprised of the following:
December 31
--------------------------
1998 1999
--------------------------
Materials............................. $ 96,006 $ 52,219
Work-in process ........................ 336,123 143,313
Finished goods ......................... 932,479 1,001,070
---------- ----------
$1,364,608 $1,196,602
========== ==========
5. Preferred Stock and Stockholders' Equity
Restated Certificates of Incorporation
On July 17, 1997, MapQuest filed a Restated Certificate of Incorporation
with the State of Delaware in conjunction with the purchase and sale of Series C
Preferred Stock. The Restated Certificate of Incorporation authorized MapQuest
to issue 35,000,000 shares, of which 20,000,000 shares were designated Common
Stock and 15,000,000 shares were designated Preferred Stock. Of the Preferred
Stock, 6,550,000 shares were designated Series A Preferred, 2,000,000 shares
were designated Series B Preferred, 3,800,000 shares were designated Series C
Preferred and 2,650,000 shares were undesignated as to series.
On April 27, 1999, MapQuest filed a Restated Certificate of Incorporation
with the State of Delaware in conjunction with the Company's initial public
offering. The Restated Certificate of Incorporation authorizes MapQuest to issue
105,000,000 shares, of which 100,000,000 shares are designated Common Stock and
5,000,000 shares are undesignated Preferred Stock. This Restated Certificate of
Incorporation became effective upon the effectiveness of MapQuest's registration
statement in connection with its initial public offering.
30
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Initial Public Offering
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 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 shares of common stock could be made available for sale. In
connection with the merger with America Online, Inc. (see Note 2), 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.
Series A Preferred Stock
As of December 31, 1997 and 1998, and through its initial public offering,
MapQuest was authorized to issue 6,550,000 shares of noncumulative, convertible,
voting Series A Preferred Stock. Effective July 17, 1997, a redemption feature
was added and the issued and outstanding shares were reclassified outside of
stockholders' equity. Each share of Series A Preferred Stock automatically
converted into 2.7 shares of Common Stock upon the closing of MapQuest's initial
public offering during May 1999. Each share of Series A Preferred Stock issued
and outstanding had a number of votes equal to the number of shares into which
such share of Series A Preferred Stock were then convertible. The Series A
Preferred Stock was redeemable at the option of the holders under certain
circumstances. No dividends could be paid on the Series A Preferred Stock unless
MapQuest had fulfilled its dividend obligations on the Series B Preferred Stock
and Series C Preferred Stock. The Series A Preferred Stock had an annual cash
dividend rate of $.075 per share when and as declared by the Board of Directors.
Pursuant to the terms of the stock purchase agreement dated October 31,
1994, MapQuest sold 215,000 shares of its Series A Preferred Stock at a purchase
price of $1 per share to MapQuest's then existing management. The aggregate
purchase price of $215,000 was paid $127,500 in cash and $87,500 in notes due
October 31, 1999. The notes bear interest at a rate of 7.5% compounded annually.
Payments are due annually in an amount that is the lesser of one-fifth of the
principal balance or 50% of any bonus to which each employee is entitled. The
notes are secured by the shares purchased, with shares released to the extent
each note is paid. At December 31, 1998 and 1999, outstanding notes receivable
in conjunction with this stock purchase were $35,200 and $0, respectively.
On March 26, 1996, pursuant to the terms of an Employment Agreement dated
October 31, 1994, the Company sold 35,000 shares of its Series A Preferred Stock
at a purchase price of $1 per share to a member of MapQuest's then existing
management. The aggregate purchase price of $35,000 was paid $3,500 in cash and
$31,500 in a note due October 31, 2000. The note bears interest at a rate of
7.5% compounded annually. The repayment terms were modified pursuant to a
severance agreement in 1997. The payment of the note, inclusive of interest, is
due on the
31
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
earlier of September 30, 2000 or the date on which the severed employee
transfers all shares of the employee's Series A Preferred Stock or common stock
into which they are converted. The note is secured by the shares purchased with
shares released to the extent the note is paid. At December 31, 1998 and 1999,
outstanding notes receivable in conjunction with this stock purchase were
$31,500 and $0, respectively.
Series B Preferred Stock
As of December 31, 1997 and 1998, and through its initial public offering,
MapQuest was authorized to issue 2,000,000 shares of cumulative, redeemable,
nonvoting Series B Preferred Stock. Holders of shares of Series B Preferred
Stock were entitled to a cumulative dividend, payable semiannually, at the
annual rate of $.46125 per share with respect to dividends payable on or prior
to December 31, 1997 and $.39975 per share with respect to dividends payable
after December 31, 1997. The dividend could be paid in cash or a combination of
cash and additional shares of Series B Preferred Stock; however, at least 13.33%
of the dividend payable in any period on or prior to December 31, 1997 was
payable in cash. As of December 31, 1998, there were no dividends in arrears.
The Series B Preferred Stock was redeemable at the option of the holders and
MapQuest under certain circumstances.
During 1997, 1998 and 1999 MapQuest recorded dividends totaling $558,812,
$516,299 and $327,484, respectively, on Series B Preferred Stock. These
dividends included cash dividends of $74,506, $0 and $0, and stock dividends of
$484,306, $516,299 and $327,484, during 1997, 1998 and 1999, respectively. The
stock dividends were based on the issuance of additional shares of Series B
Preferred Stock of 78,749, 83,951 and 53,250 shares during 1997, 1998 and 1999,
respectively, using a value of $6.15 per share.
The Series B Preferred Stock was redeemed in connection with MapQuest's
initial public offering during May 1999.
Series C Preferred Stock
As of December 31, 1997 and 1998, and through its initial public offering,
MapQuest was authorized to issue 3,800,000 shares of noncumulative, redeemable,
convertible, voting Series C Preferred Stock. Each share of Series C Preferred
Stock automatically converted into 2.7 shares of Common Stock, upon the closing
of MapQuest's initial public offering during May 1999. Each share of Series C
Preferred Stock issued and outstanding had a number of votes equal to the number
of shares into which such share of Series C Preferred Stock were then
convertible. The Series C Preferred Stock had an annual cash dividend rate of
$.26325 per share when and as declared by the Board of Directors. The Series C
Preferred Stock was redeemable at the option of the holders under certain
circumstances.
Pursuant to the terms of the stock purchase agreement dated July 17, 1997,
MapQuest sold 3,431,498 shares of its Series C Preferred Stock at a purchase
price of $3.51 per share. The aggregate purchase price of $12,044,558 was paid
in cash. The difference between the aggregate purchase price net of the warrants
issued during 1998 was being accreted to the redemption value through 2002.
Accretion totaled $63,243, $150,924 and $50,006 during 1997, 1998 and 1999,
respectively.
On November 1, 1997, MapQuest sold 63,856 shares of its Series C Preferred
Stock at a purchase price of $3.51 per share to members of the Company's then
existing management. The aggregate purchase price of $224,135 was paid by
$224,135 in notes due November 1, 2004. The notes bear interest at a rate of
7.0% compounded annually. Payments are due annually, commencing in the year
2000, in an amount that is the lesser of one-fifth of the principal balance or
50% of any bonus to which each employee is entitled. The note is secured by the
shares purchased with shares released to the extent the note is paid. At
December 31, 1998 and 1999, outstanding notes receivable in connection with this
stock purchase were $224,135.
32
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Employee Stock Purchase Plan
As of December 31, 1999, 1,755,000 shares of MapQuest's Common Stock were
reserved for issuance under the Employee Stock Purchase Plan, under which
eligible employees may purchase Common Stock through payroll deductions, which
may not exceed 10% of an employee's compensation, subject to certain
limitations. In connection with the merger with America Online, Inc. (see Note
2), MapQuest is precluded from implementing the Employee Stock Purchase Plan.
Common Stock
As of December 31, 1999, MapQuest has a total of 14,046,343 shares of
Common Stock reserved for future issuance.
6. Stock Options and Warrants
As of December 31, 1999, 5,074,682 shares of MapQuest's Common Stock were
reserved for issuance under the MapQuest.com, Inc. 1995 Stock Option Plan, under
which the Company may grant stock options to key employees and consultants. Each
option entitles the holder to purchase from MapQuest one share of Common Stock
at an exercise price which shall not be less than the fair market value of one
share of stock on the date of grant. These options vest generally over five
years and expire ten years from the date of grant.
As of December 31, 1999, 3,645,000 shares of MapQuest's Common Stock were
reserved for issuance under the 1999 Stock Plan, under which the Company may
grant any combination of stock options, stock appreciation rights, restricted or
unrestricted share awards, phantom stock and performance awards to employees,
officers and directors of MapQuest and its subsidiaries.
33
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Changes during the years ended December 31, 1997, 1998 and 1999 in options
outstanding were as follows:
<TABLE>
<CAPTION>
Number of Exercise Price
Options Per Option
------- ----------
<S> <C> <C>
Balance at January 1, 1997......... 3,207,014 $0.04-$0.37
Granted during 1997................ 933,678 $ 0.37
Exercised.......................... (3,240) $ 0.04
Exercised.......................... (6,210) $ 0.06
Exercised.......................... (864) $ 0.37
Forfeited.......................... (268,855) $ 0.04
Forfeited.......................... (24,840) $ 0.06
Forfeited.......................... (80,022) $ 0.37
----------- --------
Outstanding at December 31, 1997... 3,756,661 $0.04-$0.37
Granted during 1998................ 2,218,050 $ 0.37
Exercised.......................... (78,570) $ 0.04
Exercised.......................... (33,750) $ 0.06
Exercised.......................... (7,290) $ 0.37
Forfeited.......................... (551,855) $ 0.04
Forfeited.......................... (135,000) $ 0.06
Forfeited.......................... (320,596) $ 0.37
----------- --------
Outstanding at December 31, 1998... 4,847,650 $0.04-$0.37
Granted............................ 1,629,160 $10.44-$15.25
Granted............................ 307,500 $16.19-$19.69
Granted............................ 29,500 $24.63-$28.00
Exercised.......................... (565,699) $ 0.04
Exercised.......................... (16,700) $ 0.06
Exercised.......................... (507,548) $ 0.37
Exercised.......................... (40,000) $10.44-$15.25
Forfeited.......................... (219) $ 0.04
Forfeited.......................... (648) $ 0.37
Forfeited.......................... (92,610) $10.44-$15.25
Forfeited.......................... (25,000) $16.19-$19.69
----------- -------------
Outstanding at December 31, 1999... 5,565,386 $ 0.04-$28.00
=========== =============
</TABLE>
During June 1998, MapQuest accelerated the vesting and extended the
exercise period of options in connection with a severance agreement for the
former President and recorded compensation expense of $38,000.
The consummation of the initial public offering during May 1999 resulted in
the acceleration of the vesting of 1,484,954 options to purchase common stock
and the announcement of the merger with America Online, Inc., on December 22,
1999 resulted in the acceleration of the vesting of 2,273,051 of options to
purchase common stock in accordance with the provisions of the 1995 Stock Option
Plan and option grant agreements.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if MapQuest had accounted for its
employee stock options under the fair value method of that statement. No factor
for volatility has been reflected in the option pricing calculation for grants
made prior to MapQuest's initial public offering. For grants made subsequent to
the initial public offering, MapQuest used a volatility factor of 65.3%. The
fair value of the options was estimated at date of grant using a Black-Scholes
option pricing model with the following additional assumptions:
34
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
1997 1998 1999
---- ---- ----
Average risk free interest rate...... 6.10% 5.24% 5.00%
Dividend yield....................... 0.0% 0.0% 0.0%
Average life......................... 5 years 5 years 5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because MapQuest stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. MapQuest's pro
forma information is as follows:
1997 1998 1999
---- ---- ----
Pro forma net loss applicable
to Common Stockholders .. $(13,432,774) $(3,822,092) $(20,329,351)
Pro forma basic and diluted
loss per share .......... $ (64.43) $ (12.09) $ (0.91)
Additional information with respect to outstanding options as of December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------- ----------
Weighted Average
Number of Remaining Number of
Exercise Prices Options Contractual Life Options
--------------- ------- ---- -------
<S> <C> <C> <C>
$0.04 ..................... 943,965 5.7 943,965
$0.06 ..................... 148,810 6.5 148,810
$0.37 ..................... 2,664,061 7.5 2,664,061
$10.44-$15.25 ............. 1,496,550 9.2 1,261,050
$16.19-$19.69 ............. 282,500 9.5 --
$24.63-$28.00 ............. 29,500 9.9 --
----------- ---------
$0.04--$28.00 ............. 5,565,386 5,017,886
=========== =========
</TABLE>
The weighted average fair value of options granted and priced during 1997,
1998 and 1999 was $0, $0 and $4.54, respectively.
On December 31, 1998, MapQuest granted 645,570 options for which the
exercise price per share was the initial public offering price of $15 per share
determined upon completion of the offering MapQuest made during May 1999.
Accordingly, these options are excluded from the 1998 disclosures in this Note
and are included in the 1999 disclosures as being granted during 1999.
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.
35
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
Warrants
As of December 31, 1998, there were 390,258 warrants outstanding under
which each warrant entitled the holder to purchase one share of MapQuest's
common stock for $.04 per share. These warrants were issued in connection with
the original Series A Preferred Stock Purchase Agreement dated October 31, 1994.
As of December 31, 1998, there were 406,709 warrants outstanding under
which each warrant entitled the holder to purchase one share of MapQuest's
common stock for $1.30 per share. The warrants were issued for $1,000 in
connection with the Purchase and Sale of Series C Preferred Stock Agreement.
As of December 31, 1998, there were 954,147 warrants outstanding under
which each warrant entitled the holder to purchase one share of MapQuest's
common stock for $1.04 per share. The warrants were issued in connection with a
distribution agreement MapQuest executed in 1997. These warrants were valued at
$0 on the date of grant using the "Black Scholes" option pricing model.
As of December 31, 1998, there were 522,231 warrants outstanding under
which each warrant entitled the holder to purchase one share of MapQuest's
common stock for $.004 per share. The warrants were issued during May 1998 to
certain holders of Series C Preferred Stock in connection with the original
issuance of the Series C Preferred Stock.
As of December 31, 1998, there were 41,266 warrants outstanding under which
each warrant entitled the holder to purchase one share of MapQuest's common
stock for $1.30 per share. The warrants were issued for services rendered by an
outside party.
All of the above warrants were exercised during 1999.
7. Loss Per Share
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net loss........................................ $(7,599,123) $(3,154,869) $(18,498,426)
Preferred stock dividends....................... (560,025) (516,299) (327,484)
Accretion of redeemable preferred stock...... (63,243) (150,924) (50,006)
Addition of redemption feature to preferred
stock..................................... (5,210,383) -- --
------------ ----------- ----------
Numerator for loss per share applicable to
common stockholders....................... $(13,432,774) $(3,822,092) $(18,875,916)
============ =========== ============
Denominator:
Denominator for basic and diluted loss per share--
weighted-average shares........................ 208,499 316,202 22,374,292
============ ============== ============
Basic and diluted loss per common share.............. $ (64.43) $ (12.09) $ (0.84)
============ ============ ============
</TABLE>
36
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
The following securities and number of shares have been excluded from the
diluted per share computation as they are antidilutive:
<TABLE>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Convertible redeemable preferred stock Series A .... 6,550,000 6,550,000 --
Convertible redeemable preferred stock Series C .... 3,495,354 3,495,354 --
Stock options ...................................... 3,756,661 4,847,650 5,565,386
Stock warrants ..................................... 1,751,114 2,314,611 --
</TABLE>
8. Income Taxes
No provision for federal income taxes has been recorded as MapQuest has
incurred net operating losses during 1997, 1998 and 1999. A provision of less
than $1,000 has been recorded during 1999 for state income taxes.
The tax effects of temporary differences and net operating loss and credit
carryforwards that give rise to MapQuest's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31
-----------
1998 1999
---- ----
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts........... 146,324 128,662
Other..................................... 496,126 738,146
Non-current deferred tax assets:
Net operating loss and credit
carryforwards........................... 4,746,255 16,359,850
Other..................................... -- 19,504
Valuation allowance for deferred tax assets.. (5,041,399) (16,870,856)
---------- -----------
Total deferred tax assets.................... 347,306 375,306
Non-current deferred tax liabilities:
Depreciation.............................. (347,306) (375,306)
--------- ---------
Net deferred tax assets...................... $ -- $ --
========= ==========
</TABLE>
Due to the uncertainty of the realization of the deferred tax assets, a
valuation allowance has been provided. The valuation allowance was increased by
$2,618,565, $1,374,256 and $11,829,457 for the years ended December 31, 1997,
1998 and 1999, respectively.
Of the total valuation allowance, $6,358,308 was the result of the exercise
of nonqualified stock options during 1999. The tax effect of these transactions
for the Company is a compensation deduction for tax purposes totaling the
difference between the exercise price and the fair value of the shares on the
date of exercise. The exercise of the nonqualified options gave rise to an
additional permanent tax deduction of approximately $17,152,000 for the year
ended December 31, 1999 included as part of the net operating loss carryforward.
In the future, any realized benefit of this amount will be credited to
additional paid-in capital and not the statement of operations.
As of December 31, 1999, MapQuest has net operating loss carryforwards of
approximately $44,324,000, which expire between 2009 and 2019, and research and
development tax credit carryforwards of approximately $768,000, which expire
between 2010 and 2014 for federal tax purposes. The utilization of approximately
$10,300,000 of such net operating loss carryforwards is subject to an annual
limitation of approximately $1,300,000, pursuant to Section 382 of the Internal
Revenue Code.
37
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
9. 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. 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. Accordingly,
depreciation expense is not included in the information set forth below.
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.
<TABLE>
Year ended December 31
----------------------
1997 1998 1999
---- ---- ----
In thousands
<S> <C> <C> <C>
Business segment revenues:
MapQuest business/consumer-trade..... $ 6,038.6 $ 7,912.0 $ 19,713.8
Digital mapping services-trade....... 15,377.1 16,805.1 14,773.3
---------- ---------- ----------
Total............................ $ 21,415.7 $ 24,717.1 $ 34,487.1
========== ========== ==========
Business segment profit:
MapQuest business/consumer........... 1,503.4 3,103.2 9,079.6
Digital mapping services............. 4,609.9 3,968.1 3,402.4
---------- ---------- ----------
Total segment profit.................... 6,113.3 7,071.3 12,482.0
---------- ---------- ----------
Reconciling items:
Operating expenses................... (14,115.7) (10,524.1) (32,843.1)
Interest income and other ........... 403.3 297.9 1,863.5
---------- ---------- ----------
Pre-tax loss............................ $ (7,599.1) $ (3,154.9) $(18,497.6)
========== ========== ==========
</TABLE>
10. Leases
MapQuest leases office space, warehouse space and office equipment under
operating leases. Future lease commitments are as follows:
2000.................................... $1,635,311
2001.................................... 1,445,938
2002.................................... 1,415,663
2003.................................... 1,025,138
2004.................................... 1,051,708
Thereafter.............................. 2,797,850
---------
$9,371,608
==========
Rental expense for the years ended December 31, 1997, 1998 and 1999, was
approximately $1,131,000, $1,033,000 and $1,514,400, respectively.
38
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
11. Retirement Savings Plan
MapQuest sponsors a defined contribution retirement savings plan for
substantially all of its employees. Employees may elect to defer up to 15% of
their salary. MapQuest has the option to match up to 100% of the employees'
contribution up to 3% of their salary. The expense incurred related to this plan
was $209,235, $189,512 and $297,143 during the years ended December 31, 1997,
1998 and 1999, respectively.
12. Related Party Transactions
MapQuest paid a management fee of $75,000 to a stockholder during 1997. In
connection with the Purchase and Sale of Series C Preferred Stock Agreement, the
$75,000 annual management fee arrangement was terminated effective July 17,
1997. MapQuest incurred rent expense of $35,591 and $16,597 related to leases
with one of its stockholders during 1997 and 1998, respectively. MapQuest
received a management fee from an affiliate in the amount of $12,000 during
1997, 1998 and 1999. MapQuest recorded sales to its stockholders of $432,320,
$513,626 and $514,663 during 1997, 1998 and 1999, respectively. Also, MapQuest
recorded sales to other affiliates of $1,290,900, $2,022,000 and $1,998,507
during 1997, 1998 and 1999, respectively. As of December 31, 1999, MapQuest's
accounts receivable-affiliates were $449,220.
13. Concentration of Credit Risk
For the years ended December 31, 1997, 1998 and 1999, sales to MapQuest's
top four customers represented 25%, 18% and 13% of total sales, respectively.
14. Commitments and Contingencies
Minimum Annual Royalties
MapQuest has guaranteed payment of the following minimum annual royalties
under a distribution agreement for each of the following years:
Minimum
Annual
Year ended December 31 Royalty
---------------------- -------
2000.................................... $ 500,000
2001.................................... 500,000
2002.................................... 166,667
==========
MapQuest has a commitment to purchase minimum amounts of advertising
pursuant to an advertising agreement for $3,500,000 and $4,500,000 in 2000 and
2001, respectively.
Contingencies
Pursuant to an indemnity obligation, the Company defended Moore U.S.A.,
Inc., in a legal proceeding filed by Mark Tornetta on December 14, 1998 in the
United States District Court for the Eastern District of Pennsylvania. Mr.
Tornetta alleged that Moore U.S.A., Inc. infringed his patent describing a
specific method for searching real estate properties. This case was dismissed
without prejudice on April 30, 1999.
Rand McNally has written a letter to National Geographic claiming that
National Geographic's laminated maps infringe upon one of its patents. The
Company has agreed to take responsibility pursuant to its indemnification
obligations and believes that this claim will be settled for approximately
$10,000.
39
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1999
The Company has also been approached by 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 the
Company are presently engaged in negotiations concerning a possible settlement.
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 the merger agreement, as described in Note 2, the
Company 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 the
Company 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 the Company'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. The Company and Universal Map have entered into a stipulation whereby the
Company has agreed not to frustrate the ability of Universal Map to enforce a
judgment for specific performance against the Company 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. The
Company 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.
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.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth certain information with respect to the
executive officers, key employees and directors of MapQuest as of the date of
this Report.
Name Age Position(s)
- ---- --- -----------
*Michael Mulligan.......... 49 Chief Executive Officer, Chairman and
Director
*James Thomas.............. 49 Chief Operating Officer, Chief Financial
Officer, Chief Accounting Officer,
Treasurer and Secretary
*William Muenster.......... 47 Senior Vice President of Development and
Production
James Hilliard............. 48 Vice President of Digital Mapping Services
James Killick.............. 37 Vice President of Product Management
Michael Nappi.............. 45 Vice President of Business Solutions
David Ingerman............. 37 Vice President of Marketing
Michael Crosson (1)........ 47 Vice President of Advertising Sales
Robert Binford............. 45 Corporate Controller, Assistant Treasurer
and Assistant Secretary
Robert McCormack (2)....... 60 Director
John Moragne (3)........... 43 Director
Daniel Nova (3)............ 38 Director
Carlo von Schroeter (2).... 36 Director
C. Richard Allen (4)....... 46 Director
- ---------------------------------
* Denotes executive officer.
(1) Served as Vice President of Advertising Sales during fiscal year 1999 and
resigned his position as of March 6, 2000.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Served as director of MapQuest during fiscal year 1999 and resigned as
director as of December 22, 1999.
Michael Mulligan has served as Chief Executive Officer and Chairman of
MapQuest since August 1998. From May 1995 to June 1998, Mr. Mulligan was Senior
Vice President and General Manager of Corporate Services Interactive at American
Express Travel Related Services, where he was responsible for developing and
implementing American Express' interactive travel strategy. Mr. Mulligan was an
independent consultant to various companies from October 1994 to April 1995.
From September 1993 to October 1994, Mr. Mulligan served as Chief Operating
Officer of Official Airline Guide, an airline information publishing company.
Mr. Mulligan holds a B.A. from Wheeling College and an M.B.A. from Harvard
Business School.
James Thomas has served as Chief Financial Officer of MapQuest since July
1995 and as Chief Operating Officer of MapQuest since June 1997. From September
1994 to June 1995, Mr. Thomas was an independent consultant. From July 1993 to
August 1994, Mr. Thomas was President of the publishing division of Sierra
On-Line, Inc., a multimedia entertainment publisher and developer. Mr. Thomas
holds a B.S. from the Florida Institute of Technology and an M.B.A. from the
University of Virginia.
William Muenster has served as Senior Vice President of Development and
Production of MapQuest since September 1997. From February 1995 to August 1997,
Mr. Muenster served as Unit President of MapQuest's Mapping Products and
Services Group. From November 1993 to February 1995, Mr. Muenster served as
MapQuest's Vice President of Operations. Mr. Muenster holds a B.A. from the
University of Virginia and an M.I.M. from the American Graduate School.
James Hilliard has served as Vice President of Digital Mapping Services of
MapQuest since October 1998. From June 1996 to October 1998, Mr. Hilliard served
as MapQuest's Vice President of Sales and Marketing for
42
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Mapping Products and Services. From July 1993 to June 1996, Mr. Hilliard
served as MapQuest's Director of Publisher Services. Mr. Hilliard holds a
B.B.A. and an M.S. from the University of Wisconsin.
James Killick has served as Vice President of Product Management of
MapQuest since January 1998. From January 1997 to January 1998, Mr. Killick was
MapQuest's Director of Product Management. From January 1996 to January 1997,
Mr. Killick served as MapQuest's Director of Data Products. From January 1995 to
January 1996, Mr. Killick was Director of Product Marketing at Etak, Inc., a
mapping database company. From January 1994 to January 1995, Mr. Killick served
as Director of Map Data Products at Etak, Inc. Mr. Killick holds a B.Sc. from
the University of York, England.
Michael Nappi has served as Vice President of Business Solutions of
MapQuest since October 1997. From September 1995 to October 1997, Mr. Nappi
served as MapQuest's Director of Business Development. Mr. Nappi held various
sales positions with MapQuest from May 1992 to September 1995. Mr. Nappi holds a
B.A. and a B.S. from Kent State University.
David Ingerman has served as Vice President of Marketing of MapQuest since
January 1999. From June 1998 to December 1998, Mr. Ingerman was President of
Internet Marketing Associates Consulting, a consulting firm focusing on applying
direct marketing disciplines to the Internet. From August 1984 to May 1998, Mr.
Ingerman held various marketing positions at American Express. Mr. Ingerman
holds a B.A. from the University of Pennsylvania and an M.B.A. from Columbia
Business School.
Michael Crosson has served as Vice President of Advertising Sales of
MapQuest since January 1999. From March 1998 to January 1999, Mr. Crosson served
as the Managing Director of Eastern Sales for NetRatings, a web audience
measurement company. From January 1993 to March 1998, Mr. Crosson operated his
own consulting business, developing strategic advertising and partnerships for
websites. From April 1992 to August 1996, Mr. Crosson served as Director of
Online Publishing at Scholastic, Inc., a publishing company. Mr. Crosson holds a
B.A. from the University of Arizona. Mr. Crosson resigned from his position with
MapQuest effective as of March 6, 2000.
Robert Binford has served as Corporate Controller of MapQuest since January
1995. From February 1991 to January 1995, Mr. Binford served as a Financial
Manager of MapQuest. Mr. Binford holds a B.S. from the University of Kentucky.
Robert McCormack has served as a director of MapQuest since May 1998 and
previously served as a director of MapQuest from November 1994 to July 1997.
Since 1993, Mr. McCormack has been a managing director of Trident Capital, Inc.,
the general partner of Trident Capital, L.P., a private equity investment firm.
Mr. McCormack serves on the board of directors of Illinois Tool Works, Inc. and
DeVry, Inc. Mr. McCormack holds a B.A. from the University of North Carolina and
an M.B.A. from the University of Chicago.
John Moragne has served as a director of MapQuest since November 1994 and
was Chairman of the board of directors of MapQuest from November 1994 until July
1997. Since 1993, Mr. Moragne has been a managing director of Trident Capital,
Inc., the general partner of Trident Capital, L.P., a private equity investment
firm. Mr. Moragne serves on the board of directors of Daou Systems, Inc. Mr.
Moragne holds a B.A. from Dartmouth College, an M.S. from Stanford University
and an M.B.A. from Stanford Business School.
Daniel Nova has served as a director of MapQuest since July 1997. Since
August 1996, Mr. Nova has served as a general partner of Highland Capital
Partners, a venture capital firm. Previously, he was a general partner of
CMG@Ventures from January 1995 to August 1996 and a Senior Associate at Summit
Partners from June 1991 to January 1995. Mr. Nova is a director of eToys, an
online retailer of toys, Lycos, Inc., an online portal and several private
companies. Mr. Nova received a B.S. in Computer Science and Marketing with
honors from Boston College and an M.B.A. from Harvard Business School.
Carlo von Schroeter has served as a director of MapQuest since July 1997.
Mr. von Schroeter is a General Partner of Weston Presidio Capital, a private
equity partnership with over $900 million under management. Prior to joining
Weston Presidio Capital at its inception in September 1992, Mr. von Schroeter
was a Vice President with
43
<PAGE>
Security Pacific Capital. Mr. von Schroeter serves on the boards of directors of
NOVA Pb, U.S. Netting, Star International Holdings, and The Lion Brewery. Mr.
von Schroeter holds a B.S. from Queen's University, Canada and an M.B.A. from
Harvard Business School.
C. Richard Allen has served as a director of MapQuest since May 1998. Since
December 1997, Mr. Allen has served as the President and Chief Executive Officer
of National Geographic Holdings, Inc. Mr. Allen is also the Chief Executive
Officer of National Geographic Ventures, a position he has held since October
1997. From December 1995 to October 1997, Mr. Allen was a Senior Vice President
of Discovery Communications, Inc., and from February 1993 to December 1995, Mr.
Allen was Deputy Assistant to the President of the United States. Mr. Allen
serves on the boards of directors of National Geographic Ventures, National
Geographic Television, National Geographic Holdings, Inc., National Geographic
Channel and Destination Cinema, Inc. Mr. Allen holds a B.A. from Dartmouth
College and a J.D. from the University of Chicago. Mr. Allen resigned as a
director of MapQuest effective as of December 22, 1999.
Each officer serves at the discretion of MapQuest's board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
MapQuest's directors, executive officers, and persons who own more than 10% of a
registered class of MapQuest's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of shares and other equity securities of MapQuest. Directors, officers
and greater than 10% shareholders are required to furnish MapQuest with copies
of all Section 16(a) forms they file.
To MapQuest's knowledge, based solely on a review of the copies of such
reports furnished to MapQuest, during the fiscal year ended December 31, 1999,
all Section 16(a) filing requirements applicable to its directors, officers and
greater than 10% beneficial owners were complied with except (i) David Ingerman
filed a delinquent Form 4 reporting four transactions; (ii) each of Michael J.
Mulligan, William F. Muenster and James W. Thomas, each an executive officer of
MapQuest, filed a delinquent Form 4 reporting one transaction; (iii) each of
Michael P. Crosson and William F. Muenster failed to file a Form 4, each
reporting one transaction, and each filed a Form 5 on March 16, 2000; (iv)
Trident Capital Partners Fund-1, L.P. and Trident Capital Partners Fund-1, C.V.,
each part of a group that beneficially owns 10% of the shares of MapQuest,
failed to file a Form 4, each reporting four transactions, and each filed a Form
5 on March 28, 2000; (v) Donald Dixon, Robert McCormack, a director of MapQuest,
John Moragne, a director of MapQuest, and Rockwell Schnabel, each part of the
group including Trident Capital Partners Fund-1, L.P. and Trident Capital
Partners Fund-1, C.V. that beneficially owns 10% of the shares of MapQuest,
failed to file a Form 4, each reporting five transactions, and each filed a Form
5 on March 23, 2000; (vi) Highland Capital Partners III Limited Partnership and
Highland Management Partners III Limited Partnership, each part of a group that
beneficially owns 10% of the shares of MapQuest, failed to file a Form 4, each
reporting one transaction, and each filed a Form 5 on March 21, 2000; (vii)
Daniel J. Nova, a director of MapQuest, Robert Higgins, and Paul Maeder, each
part of the group including Highland Capital Partners III Limited Partnership
and Highland Management Partners III Limited Partnership that beneficially owns
10% of the shares of MapQuest, failed to file a Form 4, each reporting two
transactions, and each filed a Form 5 on March 21, 2000; (viii) Wycliffe
Grousbeck, part of the group including Highland Capital Partners III Limited
Partnership and Highland Management Partners III Limited Partnership that
beneficially owns 10% of the shares of MapQuest, failed to file a Form 4,
reporting two transactions, and filed a Form 5 on March 23, 2000; (ix) Weston
Presidio Capital II, L.P. and Weston Presidio Capital Management II, L.P., along
with Michael Cronin, Philip Halperin, Michael Lazarus and James McElwee, each
part of a group that beneficially owns 10% of the shares of MapQuest, failed to
file a Form 4, each reporting one transaction, and each filed a Form 5 on March
22, 2000; (x) Carlo A. von Schroeter, a director of MapQuest, part of a group
that beneficially owns 10% of the shares of MapQuest, failed to file a Form 4,
reporting one transaction, and filed a Form 5 on March 24, 2000 and (xi) C.
Richard Allen, a director of MapQuest during the fiscal year 1999, failed to
file a Form 4, reporting one transaction, and filed a Form 5 on March 17, 2000.
Director Terms and Compensation
The members of the board of directors of MapQuest are divided into three
classes, each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in that class
44
<PAGE>
will be elected for three-year terms at the annual meeting of stockholders in
the the year in which their term expires. Independent, non-institutional
investor directors are paid an annual retainer and will be granted stock options
exercisable for shares of common stock. Directors who are also employees of
MapQuest or who are affiliated with institutional investors do not receive any
additional compensation for serving on the board of directors.
Compensation Committee Interlocks and Insider Participation
MapQuest's compensation committee currently has two members. In the past,
compensation of executive officers of MapQuest has been determined by directors
of MapQuest who were not officers of MapQuest. No interlocking relationship
exists between MapQuest's board of directors and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past.
Limitation of Liability and Indemnification Matters
MapQuest's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Delaware General
Corporation Law provides that the personal liability of a director for monetary
damages for breach of his or her fiduciary duties as a director may be
eliminated, except for liability for:
o any failure to act in good faith in the best interests of the corporation or
its stockholders;
o acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases or redemptions;
or
o any transaction from which the director derives an improper personal benefit.
MapQuest's bylaws provide that MapQuest will indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by Delaware law.
In addition to the indemnification provided for in its certificate of
incorporation and bylaws, MapQuest intends to enter into agreements to indemnify
its directors and officers. Under these agreements, MapQuest will be obligated
to indemnify its directors and officers for expenses, attorneys' fees,
judgments, fines and settlement amounts incurred by any director or officer in
any action or proceeding arising out of the director's or officer's services as
a director or officer of:
o MapQuest;
o any subsidiary of MapQuest; or
o any other company or enterprise to which the person provides services at the
request of MapQuest.
MapQuest believes that these provisions and agreements are necessary to
attract and retain qualified individuals to serve as directors and officers.
45
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation
received for services rendered to MapQuest by its current executive officers for
the year ended December 31, 1999, whose total compensation in 1999 equaled or
exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ Awards
Securities
Salary Bonus Underlying All Other
Name and Principal Position ($) ($) Options Compensation
- ---------------------------------------- --- --- ------- ------------
<S> <C> <C> <C> <C>
Michael Mulligan,
Chief Executive Officer............ $240,000 $145,000 0 $0
James Thomas, Chief Operating Officer and
Chief Financial Officer............ $151,250 $43,301 0 $0
William Muenster, Senior Vice President of
Development and Production......... $145,839 $36,701 50,000 $0
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information as to options granted to the
named executive officers during the year ended December 31, 1999. MapQuest has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Options Stock Price
Securities Granted to Appreciation for
Underlying Employees in Exercise Option Term (1)
Options Fiscal Year Price Per Expiration --------------------
Name Granted Year(2) Share Date 5% 10%
---- ------- ------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Michael Mulligan.. -- -- -- -- -- --
James Thomas...... -- -- -- -- -- --
William Muenster.. 50,000 3.8% $11.25 9/2/09 $353,753 $896,480
</TABLE>
- ---------------------
(1) Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent MapQuest's estimate or projection
of MapQuest's future common stock prices. These amounts represent certain
assumed rates of appreciation in the value of the common stock from the fair
market value on the date of grant. Actual gains, if any, on stock option
exercises are dependent on the future performance of the common stock and
overall stock market conditions. The amounts reflected in the table may not
necessarily be achieved.
(2) Based on options to purchase an aggregate of 1,320,590 shares of common
stock granted to MapQuest employees during the year ended December 31, 1999.
46
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to unexercised
options held by the named executive officers as of December 31, 1999. Michael
Mulligan exercised 250,000 options on December 22, 1999.
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at December 31, 1999 at December 31, 1999(1)
-------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Michael Mulligan.... 1,694,000 -- $37,593,417 --
James Thomas........ 515,675 -- 11,553,742 --
William Muenster.... 512,915 50,000 11,491,572 $565,625
- ---------------------
(1) These values have been calculated on the basis of the price per share
reported on the Nasdaq as of December 31, 1999 for the common stock
underlying the options, less the applicable exercise price per share,
multiplied by the number of shares underlying such options.
Employment Agreements
William Muenster Employment Agreement. In October 1994, MapQuest entered
into an employment agreement with Mr. Muenster providing for:
o an initial base salary of $82,500, subject to annual increases at the
discretion of MapQuest's board of directors;
o incentive compensation of an immediately payable bonus of $10,000 and the
right to participate in MapQuest's annual bonus program;
o an annual bonus of 15% of his base salary if MapQuest achieves its annual
budget; and
o an additional bonus of up to 15% of his base salary for any other target
that the board of directors establishes.
If MapQuest terminates Mr. Muenster's employment without cause or if he
voluntarily terminates his employment, he is entitled to receive severance
benefits equal to:
o any salary and bonus earned through the date of his termination;
o base salary the six-month period after the date of his termination; and
o health plan benefits for one year following the date of his termination.
If Mr. Muenster is terminated by MapQuest for cause, he is entitled to
receive:
o his base compensation;
o all earned and unpaid bonus compensation through the termination date of
his employment; and
o health plan benefits for one year following the date of his termination.
In addition, Mr. Muenster has agreed to confidentiality, non-competition and
non-solicitation provisions.
Michael Mulligan Employment Agreement. On August 10, 1998, MapQuest entered
into an employment agreement with Mr. Mulligan providing for:
o an initial base salary of $240,000, subject to annual increases at the
discretion of MapQuest's board of directors; and
o incentive compensation of an immediately payable bonus of $145,000 per
year, based on objectives and according to a plan to be agreed by Mr.
Mulligan and MapQuest's board of directors.
47
<PAGE>
If MapQuest terminates Mr. Mulligan's employment without cause, he is
entitled to receive severance benefits equal to:
o any salary and bonus earned through the date of his termination; and
o health insurance benefits for one year following the date of his
termination.
If Mr. Mulligan is terminated by MapQuest for cause or if he resigns
following the first anniversary of his employment, he is entitled to receive:
o his base salary; and
o all earned and unpaid bonus compensation through his termination date.
In addition, Mr. Mulligan has agreed to confidentiality, non-competition
and non-solicitation provisions.
In addition, MapQuest granted Mr. Mulligan options to purchase 1,944,000
shares of common stock at an exercise price of $0.37 per share. The options
granted under the employment agreement, subject to certain contingencies, vest
over four years as follows: 16.67% on August 10, 1998, 16.67% on the date of the
initial public offering, 16.67% on each of August 10, 1999, August 10, 2000,
August 10, 2001 and August 10, 2002. All of Mr. Mulligan's options vested
immediately upon the announcement of MapQuest's merger with America Online.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information concerning the beneficial
ownership of common stock of MapQuest as of March 23, 2000 for the following:
o each person or entity who is known by MapQuest to own beneficially more
than 5% of the outstanding shares of MapQuest common stock,
o each of MapQuest's current directors,
o the chief executive officer and each of the other most highly compensated
executive officers of MapQuest, and
o all directors and executive officers of MapQuest as a group.
The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rule, beneficial ownership includes
any shares as to which the individual or entity has voting power or investment
power and any shares that the individual has the right to acquire within 60 days
of March 23, 2000 through the exercise of any stock option or other right.
Unless otherwise indicated in the footnotes or table, each person or entity has
sole voting and investment power (or shares such powers with his or her spouse)
with respect to the shares shown as beneficially owned.
The calculation of percentages in the "Percentage of Outstanding
Shares" column in the table below is based upon the number of shares of MapQuest
common stock issued and outstanding on March 23, 2000, plus shares of MapQuest
common stock subject to options held by the respective persons on March 23, 2000
and exercisable within 60 days thereafter.
48
<PAGE>
Unless otherwise indicated below, the address for each person or entity
listed below is:
c/o MapQuest.com, Inc.
3710 Hempland Road
Mountville, PA 17554
<TABLE>
<CAPTION>
Beneficially Owned Securities
-----------------------------
Number of
Shares
Beneficially
Owned
Total Number of Includes
Shares Securities Percentage of
Beneficially Underlying Outstanding
Name (1) Owned (2) Options Shares
-------- --------- ------- ------
<S> <C> <C> <C>
Trident Capital Partners Fund--I, L.P. (4).... 9,684,242 -- 26.6%
Trident Capital Partners Fund--I, C.V. (4).... 1,915,731 -- 5.3%
Robert McCormack (3)(5)................... 11,599,973 -- 31.8%
John Moragne (3)(5)....................... 11,599,973 -- 31.8%
Rockwell Schnabel (5)..................... 11,599,973 -- 31.8%
Donald Dixon (5).......................... 11,599,973 -- 31.8%
Weston Presidio Capital II, L.P. (6).......... 6,844,479 -- 18.8%
Carlo von Schroeter (3)(7)................ 6,844,479 -- 18.8%
Michael Cronin (7)........................ 6,844,479 -- 18.8%
Michael Lazarus (7)....................... 6,844,479 -- 18.8%
James McElwee (7)......................... 6,844,479 -- 18.8%
Philip Halperin (7)....................... 6,844,479 -- 18.8%
Highland Capital Partners III Limited
Partnership (8) .......................... 6,570,665 -- 18.0%
Highland Entrepreneurs' Fund III L.P. (8)..... 273,777 -- 0.8%
Daniel Nova (3)(9)........................ 6,844,442 -- 18.8%
Robert Higgins (9)........................ 6,844,442 -- 18.8%
Paul Maeder (9)........................... 6,844,442 -- 18.8%
Wycliffe Grousbeck (9).................... 6,844,442 -- 18.8%
Michael Mulligan (3).......................... 2,254,542 1,694,000 5.9%
James Thomas.................................. 803,766 515,675 2.2%
William Muenster ............................. 746,390 512,915 2.0%
Directors & Executive Officers as a group
(seven persons)............................ 29,093,592 2,722,590 74.3%
</TABLE>
- ----------------
(1) C. Richard Allen served as a director of MapQuest during fiscal year 1999
and resigned as a director effective as of December 22, 1999. Mr. Allen
is an affiliate of National Geographic Holdings, Inc., a wholly-owned
indirect subsidiary of National Geographic Society. As of March 23, 2000,
National Geographic Holdings, Inc. held 449,018 shares, which represents
1.2% of MapQuest's outstanding shares as of such date. Mr. Allen disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest, if any. The address of National Geographic Holdings, Inc. is
1145 17th Street, N.W., Washington, DC 20036.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 23, 2000 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(3) Director of MapQuest.
49
<PAGE>
(4) The address of each of Trident Capital Partners Fund--I, L.P. and Trident
Capital Partners Fund--I, C.V., as well as Messrs. McCormack, Moragne,
Schnabel and Dixon, is 2480 Sand Hill Road, Suite 100, Menlo Park,
California 94025.
(5) Includes 9,684,242 shares held by Trident Capital Partners Fund--I, L.P.
and 1,915,731 shares held by Trident Capital Partners Fund--I, C.V. Messrs.
McCormack, Moragne, Schnabel and Dixon are officers of Trident Capital,
Inc., the general partner of Trident Capital, L.P., which is the general
partner of Trident Capital Partners Fund--I, L.P. and the investment
general partner of Trident Capital Partners Fund--I, C.V., and therefore
may be considered to share beneficial ownership of the shares held by each
of Trident Capital Partners Fund--I, L.P. and Trident Capital Partners
Fund--I, C.V. Messrs. McCormack, Moragne, Schnabel and Dixon disclaim
beneficial ownership of shares held by Trident Capital, Inc. and its
affiliates, except to the extent of their pecuniary interests, if any.
(6) The address of Weston Presidio Capital II, L.P., as well as Messrs. von
Schroeter, Cronin, Lazarus, McElwee and Halperin, is One Federal Street,
21st Floor, Boston, Massachusetts 02110.
(7) Includes 6,844,479 shares held by Weston Presidio Capital II, L.P. Messrs.
Cronin, Lazarus, McElwee, von Schroeter and Halperin are the general
partners of Weston Presidio Capital Management II, L.P., the general
partner of Weston Presidio Capital II, L.P. and therefore may be considered
to share the beneficial ownership of the shares held by Weston Presidio
Capital II, L.P. Messrs. Cronin, Lazarus, McElwee, von Schroeter and
Halperin disclaim beneficial ownership of these shares, except to the
extent of their pecuniary interests, if any.
(8) The address of each of Highland Capital Partners III, L.P. and Highland
Entrepreneurs' Fund III, L.P., as well as Messrs. Nova, Higgins, Maeder and
Grousbeck, is Two International Place, Boston, Massachusetts 02110.
(9) Includes 6,570,665 shares held by Highland Capital Partners III, Limited
Partnership and 273,777 shares held by Highland Entrepreneurs' Fund III,
L.P. Messrs. Higgins, Maeder, Nova and Grousbeck are the general partners
of Highland Management Partners III, L.P., the general partner of Highland
Capital Partners III Limited Partnership, and the members of HEF III,
L.L.C., the general partner of Highland Entrepreneurs' Fund III, L.P., and
therefore may be considered to share the beneficial ownership of the shares
held by each of Highland Capital Partners III, Limited Partnership and
Highland Entrepreneurs' Fund III, L.P. Messrs. Higgins, Maeder, Nova and
Grousbeck disclaim beneficial ownership of these shares, except to the
extent of their pecuniary interests, if any.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MapQuest recorded sales to R.R. Donnelley & Sons Company of $514,663.
MapQuest also recorded sales to the National Geographic Society of $1,998,507.
50
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report on Form
10-K:
1. The following financial statements of MapQuest.com, Inc.
are included in Item 8:
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - Years ended December 31,
1999, 1998 and 1997
Statements of Changes in Redeemable Preferred Stock,
Common Stock, and Other Stockholders' Equity
(Deficit) - Years ended December 31, 1999, 1998 and
1997
Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997
Notes to Financial Statements - December 31, 1999
2. The following financial statement schedules of
MapQuest.com, Inc. are included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on December 27, 1999, reporting
the announcement by MapQuest and America Online that they have
entered into an Agreement and Plan of Merger.
51
<PAGE>
(c) The following exhibits are filed as part of this report on
Form 10-K:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger, dated as of December 21, 1999,
among America Online, Inc., MQ Acquisition, Inc. and
MapQuest.com, Inc., including the Stockholders Agreement and
the Stock Option Agreement**
3.1 Restated Certificate of Incorporation of MapQuest.com, Inc.*
3.2 Restated By-laws of MapQuest.com, Inc.*
10.1 Cartographic Product Development, Publishing, Marketing and
Distribution Agreement, dated as of April 22, 1997, between
National Geographic Society, National Geographic Holdings,
Inc., and MapQuest.com, Inc.*
10.2 Employment Agreement, dated as of August 10, 1998, between
Michael Mulligan and MapQuest.com, Inc.*
10.3 Employment Agreement, dated as of October 31, 1994, between
William Muenster and MapQuest.com, Inc.*
10.4 MapQuest.com, Inc. 1995 Stock Option Plan*
10.5 Amendment No. 1 to MapQuest.com, Inc. 1995 Stock Option Plan*
10.6 Amendment No. 2 to MapQuest.com, Inc. 1995 Stock Option Plan*
10.7 Amendment No. 3 to MapQuest.com, Inc. 1995 Stock Option Plan*
10.8 Amendment No. 4 to MapQuest.com, Inc. 1995 Stock Option Plan*
10.9 MapQuest 1999 Employee Stock Purchase Plan*
10.10 MapQuest 1999 Stock Plan*
21.1 Subsidiaries of MapQuest
27.1 Financial Data Schedule
* Incorporated by reference to the exhibits filed with the
Registration Statement on Form S-1 of MapQuest.com, Inc. filed
with the Securities and Exchange Commission on May 3, 1999
(Commission File No. 333-72667) and all supplements thereto.
** Incorporated by reference to the exhibits filed with the
Report on Form 8-K of MapQuest.com, Inc. filed with the
Securities and Exchange Commission on December 27, 1999
(Commission File No. 000-25877) and all supplements thereto.
52
<PAGE>
(d)
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
MapQuest.com, Inc.
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
Additions
Balance at ---------
Beginning of Charged to Costs Deductions-- Balance at End
Description Period and Expenses Describe of Period
----------- ------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts............... $ 469,726 $ 520,125 $ 388,225(1) $ 601,626
Year Ended December 31, 1998:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts............... $ 407,136 $ 271,598 $ 209,008(1) $ 469,726
Year Ended December 31, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible
accounts............... $ 433,672 $ 262,388 $ 288,924(1) $ 407,136
</TABLE>
- ----------
(1) Uncollectible accounts written off, net of recoveries.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAPQUEST.COM, INC
By:___________________________
James Thomas
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Date: _____________, 2000 By:
Name
Title:
Date: _____________, 2000 By:
Name
Title:
Date: _____________, 2000 By:
Name
Title:
Date: _____________, 2000 By:
Name
Title:
<PAGE>
Exhibit 21.1
Subsidiaries of MapQuest
MapQuest.com Europe, B.V. - 100% direct wholly-owned subsidiary of MapQuest,
organized in accordance with the laws of The Netherlands.
Donnelley Spatial Data, LP - 50% owned by MapQuest, a joint venture formed by
MapQuest and Spatial Data Sciences, Inc., a limited partnership organized in the
State of Delaware.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the MapQuest balance
sheet for December 31, 1999 and Statement of Operations for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001078284
<NAME> MapQuest.com, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 19,390
<SECURITIES> 23,566
<RECEIVABLES> 13,120
<ALLOWANCES> 602
<INVENTORY> 1,197
<CURRENT-ASSETS> 59,268
<PP&E> 9,944
<DEPRECIATION> 4,933
<TOTAL-ASSETS> 65,010
<CURRENT-LIABILITIES> 15,153
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> 49,821
<TOTAL-LIABILITY-AND-EQUITY> 65,010
<SALES> 34,487
<TOTAL-REVENUES> 34,487
<CGS> 22,005
<TOTAL-COSTS> 22,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,498)
<INCOME-TAX> 1
<INCOME-CONTINUING> (18,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,499)
<EPS-BASIC> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
