UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------------- ----------------
Commission File Number: 333-72667
MapQuest.com, Inc.
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3949110
-------- ----------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
3710 Hempland Road, Mountville, Pennsylvania 17554
--------------------------------------------------
(Address of principal executive offices)
(717) 285-8500
--------------
(Registrant's telephone number, including area code)
N/A
-----
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
ALTHOUGH THE REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PERIOD
THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS, THE REGISTRANT DID NOT
BECOME SUBJECT TO SUCH FILING REQUIREMENTS UNTIL THE REGISTRATION OF CERTAIN
SHARES OF ITS COMMON STOCK PURSUANT TO A REGISTRATION STATEMENT ON FORM S1 (THE
"REGISTRATION STATEMENT") WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION ON MAY 3, 1999.
The number of shares outstanding of the Registrant's classes of common
stock as of September 30, 1999 was 33,572,562.
2
MAPQUEST.COM, INC.
INDEX
PAGE
----
INDEX 3
PART I. FINANCIAL INFORMATION: 4
ITEM 1. Financial Statements: 4
Balance Sheets as of December 31, 1998
and September 30, 1999 (unaudited) 4
Unaudited Statements of Operations for
the three months ended September 30, 1998 and 1999
and the nine months ended September 30, 1998 and 1999 6
Unaudited Statements of Cash Flows
for the nine months ended September 30, 1998 and 1999 7
Notes to Unaudited Interim Financial
Statements 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
ITEM 3. Quantitative and Qualitative Disclosure About
Market Risk 23
PART II. OTHER INFORMATION: 24
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities and Use of Proceeds 24
ITEM 3. Defaults Upon Senior Securities 24
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 5. Other Information 25
ITEM 6. Exhibits and Reports on Form 8K 25
ITEM 7. Signatures 26
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MAPQUEST.COM, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, September 30,
1998 1999
(unaudited)
---------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 564 $ 29,685
Short term investments - 17,940
Accounts receivable, net of allowance for doubtful accounts 6,647 9,840
(1998--$470; 1999-$580)
Accounts receivable - affiliates 128 707
Inventories 1,365 1,126
Contract work in progress 147 231
Prepaid expenses and other current assets 482 1,684
---------------------------------
Total current assets 9,333 61,213
Property and equipment, net of accumulated depreciation 1,844 4,488
(1998--$3,433; 1999--$4,455)
Goodwill, net 178 155
Other assets 95 825
---------------------------------
Total assets $11,450 $66,681
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $1,715 $2,719
Current portion of note payable 48 5
Accrued personnel costs 562 1,231
4
December 31, September 30,
1998 1999
---------------------------------
(unaudited)
Advance billings on contracts 498 686
Deferred revenue 1,208 2,434
Other accrued liabilities 1,001 2,411
---------------------------------
Total current liabilities 5,032 9,486
---------------------------------
Convertible Redeemable Preferred Stock - Series A, voting, $1.00 per
share redemption value, aggregate liquidation preference of $6,550
in 1998:
Issued and outstanding shares, 6,550,000 in 1998 6,550 -
Cumulative Redeemable Preferred Stock - Series B, nonvoting, $6.15 per
share redemption value, aggregate liquidation preference of $8,332
in 1998:
Issued and outstanding shares, 1,354,802 in 1998 8,332 -
Convertible Redeemable Preferred Stock - Series C, voting, $3.51 per
share redemption value, aggregate liquidation preference of
$12,268 in 1998:
Issued and outstanding shares, 3,495,354 in 1998 11,595 -
Notes receivable arising from issuance of preferred stock (291) -
Stockholders' equity (deficit):
Preferred Stock - $.01 par value: - -
Authorized shares 5,000,000 in 1999
Issued and outstanding shares, none in 1999
Common stock - $.001 par value: - 34
Authorized shares - 100,000,000
Issued and outstanding shares, 336,028 in 1998 and 33,572,562
in 1999
Notes receivable for common stock - (224)
Additional paid in capital 140 88,246
Retained deficit (19,908) (30,861)
-------------------------------
Total stockholders' equity (deficit) (19,768) 57,195
-------------------------------
Total liabilities and stockholders' equity (deficit) $11,450 $66,681
===============================
See accompanying notes to the financial statements.
5
MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
Three months ended Nine months ended
September 30 September 30
---------------------------- ------------------------------
1998 1999 1998 1999
---------------------------- ------------------------------
Revenues
Business $ 1,834 $ 4,066 $ 4,888 $ 8,538
Consumer 245 1,819 796 4,355
---------------------------- -----------------------------
Total business and consumer revenues 2,079 5,885 5,684 12,893
Digital mapping 3,896 3,942 12,163 10,500
---------------------------- -----------------------------
Total revenues 5,975 9,827 17,847 23,393
Cost of revenues
Business and consumer 1,391 2,659 3,535 6,906
Digital mapping 2,892 3,131 9,020 8,170
-------------------------- -----------------------------
Total cost of revenues 4,283 5,790 12,555 15,076
-------------------------- -----------------------------
Gross profit 1,692 4,037 5,292 8,317
Operating expenses
Sales and marketing 1,163 5,791 3,713 12,965
Product development 728 1,732 2,418 3,836
General and administrative 529 1,393 1,521 3,328
---------------------------- -----------------------------
Total operating expenses 2,420 8,916 7,652 20,129
---------------------------- -----------------------------
Operating loss (728) (4,879) (2,360) (11,812)
Interest income and expense, net 8 720 45 1,039
Other income 117 93 234 186
---------------------------- ----------------------------
Loss before provision for income taxes (603) (4,066) (2,081) (10,587)
Provision for income taxes - - - 1
---------------------------- -----------------------------
Net Loss $ (603) $ (4,066) $ (2,081) $ (10,588)
Less preferred stock dividends and accretion (300) - (629) (378)
---------------------------- -----------------------------
Net loss applicable to common stockholders $ (903) $ (4,066) $ (2,710) $ (10,966)
============================ =============================
Basic and diluted loss per share $ (2.69) $ (0.12) $ (8.75) $ (0.60)
Shares used to compute basic and diluted loss
per share 335,201 33,004,162 309,569 18,195,328
Pro forma basic and diluted loss per share $ (0.02) $ (0.12) (.07) $ (.35)
Shares used to compute pro forma basic and
diluted loss per share 28,013,156 33,004,162 27,987,524 30,673,976
See accompanying notes to the financial statements.
6
MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months ended
September 30
------------------------------
1998 1999
------------------------------
OPERATING ACTIVITIES
Net loss $ (2,081) $ (10,588)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 909 1,022
Amortization 23 92
Provision for doubtful accounts 121 110
Compensation expense recognized 38 -
Equity in earnings of joint venture (60) (73)
(Gain) on disposal of property and equipment (1) -
Changes in operating assets and liabilities:
Accounts receivable (166) (3,303)
Accounts receivable - affiliates (9) (579)
Inventories 354 238
Contract work in progress (290) (84)
Prepaid expenses and other current assets 293 (1,202)
Other assets (71) (726)
Accounts payable (364) 1,004
Advance billings on contracts (54) 188
Deferred revenue 185 1,226
Accrued personnel costs and other liabilities 99 2,079
---------------------------
Net cash used in operating activities (1,074) (10,596)
INVESTING ACTIVITIES
Purchase of short term investments - (17,940)
Property and equipment purchases (869) (3,666)
Proceeds from disposal of property and equipment 3 -
----------------------------
Net cash used in investing activities (866) (21,606)
7
Nine months ended
September 30
------------------------------
1998 1999
------------------------------
FINANCING ACTIVITIES
Principal payments on debt (38) (43)
Principal payments received on notes receivable
arising from issuance of stock - 67
Exercise of common stock options and warrants 7 163
Proceeds from issuance of stock,
net of offering costs - 69,796
Redemption of preferred stock - (8,660)
------------------------------
Net cash provided by (used in) financing
activities (31) 61,323
------------------------------
Net (decrease) increase in cash and cash
equivalents (1,971) 29,121
Cash and cash equivalents, beginning of period 2,482 564
------------------------------
Cash and cash equivalents, end of period $ 511 $ 29,685
==============================
SUPPLEMENTAL CASH FLOW INFORMATION
Stock dividends paid on Preferred Stock
Series B $ 516 $ 328
==============================
See accompanying notes to the financial statements.
8
MAPQUEST.COM, INC.
Notes to Unaudited Interim Financial Statements
September 30, 1999
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1998 included in MapQuest.com, Inc.'s (MapQuest)
Form S-1 Registration Statement, as declared effective on May 3, 1999 with the
Securities and Exchange Commission in connection with an initial public offering
of MapQuest common stock (Registration Statement).
2. Stockholders' Equity
In May 1999, MapQuest completed an initial public offering of 4,600,000 shares
of its common stock at a public offering price of $15 per share, which generated
approximately $62.1 million in net proceeds to MapQuest.
Upon the closing of MapQuest's initial public offering in May 1999, all of the
outstanding shares of MapQuest's Series A and Series C Preferred Stock were
converted into 27,122,455 shares of common stock and all of the outstanding
shares of MapQuest's Series B Preferred Stock were redeemed for approximately
$8.6 million.
During April 1999, the Board of Directors and the stockholders authorized a 2.7
for 1 split of MapQuest's common stock. In addition, the Board of Directors and
the stockholders authorized and approved the amendment and restatement of
MapQuest's Certificate of Incorporation such that MapQuest has the authority to
issue an aggregate of 105,000,000 shares of capital stock, consisting of
100,000,000 shares of common stock, par value $0.001 per share and 5,000,000
shares of preferred stock, par value $0.01 per share. This amended and restated
Certificate of Incorporation became effective upon the effectiveness of
MapQuest's Registration Statement. All references to common shares, per common
share, and par value per common share in the financial statements have been
restated to give effect to the common stock split and change in par value per
common share. Upon the effectiveness of MapQuest's Registration Statement,
MapQuest has adopted the 1999 Stock Plan
9
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 will be made available for sale.
During June 1999, in connection with MapQuest's initial public offering, the
underwriters of the offering exercised an over-allotment option for 597,990
shares of MapQuest's common stock at the initial public offering price of $15
per share, which generated approximately $7.7 million in net proceeds to
MapQuest.
3. Investments
The Company invests certain of its excess cash in debt instruments of the U.S.
Government and its agencies, and of high quality corporate issuers. All highly
liquid instruments with an original maturity of three months or less when
purchased are considered cash equivalents; those with original maturities
greater than three months but less than twelve months when purchased are
considered short term investments. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," MapQuest classifies its investment securities as
available-for-sale. Unrealized holding gains and losses at September 30, 1999
were not significant.
4. Inventories
Inventories are comprised of the following:
December 31, September 30,
1998 1999
------------- --------------
(in thousands)
Materials $ 96 $ 272
Work-in-process 336 245
Finished goods 933 609
---------- -----------
$ 1,365 $ 1,126
========== ===========
10
5. Loss Per Share
The following tables set forth the computation of basic and diluted loss per
share:
Three months ended
September 30
---------------------------------------
1998 1999
------------- -------------
(in thousands, except loss per share)
Numerator:
Net loss................................... (603) $ (4,066)
Preferred stock dividends.................. (262) --
Accretion of redeemable preferred stock.... (38) --
Net loss applicable to common stockholders... $ (903) $ (4,066)
Denominator:
Denominator for basic and diluted loss per
share--weighted average shares........... 335 33,004
Basic and diluted loss per common share.... $ (2.69) $ (0.12)
======== ===========
Nine months ended
September 30
---------------------------------------------------
1998 1999
------------------------ -------------------------
(in thousands, except loss per share)
Numerator:
Net loss............................................................. $ (2,081) $ (10,588)
Preferred stock dividends............................................ (516) (328)
Accretion of redeemable preferred stock.............................. (113) (50)
------------------- --------------------
Net loss applicable to common stockholders........................... $ (2,710) $ (10,966)
=================== ====================
Denominator:
Denominator for basic and diluted loss per share--
weighted average shares..................................... 310 18,195
Basic and diluted loss per common share.............................. $ (8.75) $ (0.60)
=================== ====================
11
The following securities and number of share have been excluded from the diluted
per share computations as they are antidilutive, for the three months periods
ended September 30, 1998 and 1999 and the nine months periods ended September
30, 1998 and 1999:
------------------------
1998 1999
------------------------
(in thousands)
Convertible redeemable preferred stock Series A 6,550 --
Convertible redeemable preferred stock Series C 3,495 --
Stock options 4,851 6,040
Stock warrants 2,315 2,023
The following tables set forth the computation of pro forma basic and diluted
loss per share, giving consideration to MapQuest's initial public offering
discussed in Note 2 and assuming conversion of the shares of Series A Preferred
Stock and Series C Preferred Stock to shares of common stock and the redemption
of the shares of Series B Preferred Stock outstanding at September 30, 1998 and
the redemption date of May 4, 1999, using an initial public offering price of
$15 per share and assuming such conversion and redemption occurred at the
beginning of the respective periods.
Three months ended
September 30
---------------------------------------------------
1998 1999
------------------------ -------------------------
(in thousands, except loss per share)
Numerator:
Net loss applicable to common stockholders........................... $ (903) $ (4,066)
Redeemable preferred stock--Series C accretion....................... 38 --
Preferred stock dividends on cumulative
preferred stock--Series B........................................ 262 --
------------------- --------------------
Numerator for pro forma basic and diluted loss per
share............................................................ $ (603) $ (4,066)
Denominator:
Weighted average number of common shares............................. 335 33,004
Assumed conversion of preferred shares to
common shares.................................................... 27,122 --
Assumed issuance of common shares to redeem Series
B Preferred Stock................................................ 556 --
Denominator for pro forma basic and diluted loss per
share............................................................ 28,013 33,004
Pro forma basic and diluted loss per share........................... $ (0.02) $ (0.12)
=================== ====================
12
Nine months
ended September 30
---------------------------------------------------
1998 1999
------------------------ -------------------------
(in thousands, except loss per share)
Numerator:
Net loss applicable to common stockholders........................... $ (2,710) $ (10,966)
Redeemable preferred stock -- Series C accretion..................... 113 50
Preferred stock dividends on cumulative
preferred stock--Series B........................................ 516 328
Numerator for pro forma basic and diluted loss per
share............................................................ $ (2,081) $ (10,588)
Denominator:
Weighted average number of common shares............................. 310 18,195
Assumed conversion of preferred shares to
common shares(1)................................................. 27,122 12,220
Assumed issuance of common shares to redeem Series
B Preferred Stock(1)............................................. 556 259
Denominator for pro forma basic and diluted loss per
share............................................................ 27,988 30,674
Pro forma basic and diluted loss per share........................... $ (0.07) $ (0.35)
=================== ====================
(1) Shares used for 1999 computations are weighted average amounts considering
the conversion and redemption occurred on May 4, 1999.
6. Segment Information
MapQuest has two reportable segments: MapQuest Business/Consumer and Digital
Mapping Services. The MapQuest Business/Consumer segment provides products and
services to address the web-based destination information needs of both
businesses and consumers. Business and Consumer revenues and costs are combined
for this segment because a significant portion of the costs, primarily
compensation for operations personnel and related operations costs, are common
to both Business and Consumer revenues and are not allocated. The Digital
Mapping Services segment provides non-Internet mapping products and services to
the education, reference, directory, travel and governmental markets as well as
providing customized mapping solutions to various other customers. Revenues are
derived principally from the United States.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies in MapQuest's financial statements
included in the Registration Statement. MapQuest evaluates performance based on
gross profit and does not allocate assets to the reportable segments since
management does not evaluate segment performance based on asset information and
common assets are used in the segments.
13
MapQuest's reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
requires different technology and marketing strategies.
Three months ended Nine months ended
September 30 September 30
1998 1999 1998 1999
------------------------------------- -------------------------------------
(in thousands) (in thousands)
Business segment revenues
MapQuest business/consumer trade........... $ 2,079 $ 5,885 $ 5,684 $ 12,893
Digital mapping services trade............. 3,896 3,942 12,163 10,500
------------------ ------------- ---------------- ---------------
Total 5,975 9,827 17,847 23,393
Business segment profit:
MapQuest business/consumer................. 688 3,226 2,149 5,987
Digital mapping services................... 1,004 811 3,143 2,330
------------------ ------------- ---------------- ---------------
Total segment profit 1,692 4,037 5,292 8,317
Reconciling items:
Operating expenses......................... (2,420) (8,916) (7,652) (20,129)
Provision for income taxes................. -- -- -- (1)
Other and interest income.................. 125 813 279 1,225
------------------ ------------- ---------------- ---------------
Pre-tax loss.................................. $ (603) $ (4,066) $ (2,081) $ (10,588)
================== ============= ================ ===============
7. Contingent Matters
MapQuest periodically receives notices of claims arising out of the normal
course of business. Management is not aware of any notices relating to claims
that would have a material adverse effect on MapQuest's financial position,
results of operations, or liquidity.
14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following information should be read in conjunction with the
historical financial information and the notes thereto included in Item I of
this quarterly report on Form 10-Q (The "Form 10-Q" or the "Report") and
MapQuest's financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in
MapQuest's Registration Statement on Form S-1 (The "Form S-1") as declared
effective by the Securities and Exchange Commission on May 3, 1999.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MAPQUEST CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS AND THE FUTURE PERFORMANCE OF MAPQUEST WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1993, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT
ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER
MATERIALLY FROM WHAT IS EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE SET FORTH IN MAPQUEST'S
FORM S-1, PARTICULARLY UNDER THE SECTION ENTITLED "RISK FACTORS." MAPQUEST
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
Overview
MapQuest is a leading online provider of mapping and destination
information. MapQuest provides comprehensive online mapping solutions to
businesses and provides customized maps, destination information and driving
directions to consumers. MapQuest has three lines of business: Internet business
products and services, Internet consumer products and services and digital
mapping products and services.
Since 1967, MapQuest has provided traditional cartographic products and
services. In 1989, MapQuest began offering digital mapping products and
services. Beginning in 1991, MapQuest introduced map-generating products and
services which evolved into online mapping and routing applications. During the
first quarter of 1996, MapQuest launched mapquest.com and initiated sales and
marketing efforts to build brand awareness and to generate advertising revenues
from its website. In the third quarter of 1996, MapQuest began providing online
mapping and destination information products and services from its website to
companies with an Internet presence and to hightraffic websites offering users a
wide range
15
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 web site and to its other Internet products and services. In 1998,
MapQuest introduced its MapQuest Enterprise Server. MapQuest's Enterprise Server
is designed to provide mapping and routing capability to high volume websites.
MapQuest derives its revenues from three lines of business:
Business Products and Services. MapQuest provides Internet products and
services to companies with an Internet presence and to portal web sites. These
companies typically contract for MapQuest's services on an annual basis in
consideration for a service fee based on usage and an initial set-up fee.
MapQuest recognizes service fees ratably over the period of the service.
Revenues from the set-up fee are recognized upon completion of the related
installation services. Revenues for software and data licenses relating to
MapQuest business products are recognized upon delivery of the product. Further,
under those agreements where MapQuest has a maintenance or upgrade obligation,
MapQuest recognizes revenue for these obligations over the period of the
obligation. Revenues from systems integration contracts, typically longterm
fixed-price contracts, are recognized on the percentage-of-completion method.
MapQuest has also historically provided business products and services for
non-Internet applications by licensing software and data and by providing
professional services on a time and material basis or a fixed-fee basis.
Consumer Products and Services. Through mapquest.com, MapQuest derives
revenues primarily from the sale of advertising and sponsorships. Advertising
rates vary depending on whether the advertisements are delivered to a general
audience or a targeted audience based on specific geographic location.
Advertising revenues are typically recognized ratably over the period in which
the advertisements are displayed, provided that no significant obligations
remain and the collection of the resulting receivable is likely. MapQuest may
guarantee its advertisers a pre-set level of impressions on mapquest.com.
Impression refers to a delivery of an advertisement to a user. If the guaranteed
impressions are not met, MapQuest defers recognition of the corresponding
revenue until the guaranteed impressions are achieved. Sponsorship contracts may
have longer terms and may allow sponsors to be exclusive sponsors of portions of
mapquest.com or particular advertising categories.
Digital Mapping Products and Services. MapQuest derives revenues from
providing digital mapping services to businesses and from the sale of mapping
products to distributors, retailers, and corporate customers. MapQuest typically
receives fees and payments on a time and material basis or a fixed fee basis.
Revenues from these services are recognized when the 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. Royalty revenue is
recognized upon receipt of payment. With respect to
16
the sale of mapping products, MapQuest is paid negotiated amounts, depending on
volume, from retailers and distributors, subject to minimum sales and return
arrangements.
Results of Operations
Revenues
Revenues were $9.8 million and $23.4 million for the third quarter and
first nine months of 1999, respectively, compared to $6.0 million and $17.8
million for the corresponding periods in 1998. The increases in revenues for the
third quarter and first nine months of 1999 compared to the same periods in 1998
are primarily attributable to increased business and consumer Internet related
revenues. As a result of MapQuest's increased focus on positioning itself as an
Internet company, the number of business customers using MapQuest's Internet
mapping services increased from 313 at September 30, 1998 to 780 at September
30, 1999, an increase of 149%. The consumer segment also experienced dramatic
increases in revenue as a result of increased resources devoted to direct sales
of advertising in addition to MapQuest's third party advertising seller. These
increases reflected in 1999 were partially offset by lower digital mapping
services volume as compared to the same period in 1998. For the three-months
ended September 30, 1999, as a percent of total revenues, business and consumer
related revenues and digital mapping revenues were 60% and 40%, respectively,
compared to 35% and 65% respectively for the three months ended September 30,
1998. MapQuest expects its percentage of business and consumer related revenues
to continue to increase in the future.
Cost of Revenues
Cost of revenues consists primarily of compensation for operations
personnel and related operations costs, including depreciation of operating
assets, third-party data and royalties, print and paper costs for printed
products, and subcontractor costs. Cost of revenues increased to $5.8 million
and $15.1 million for third quarter and first nine months of 1999, respectively,
as compared to $4.3 million and $12.6 million, respectively, for the
corresponding periods in 1998. These increases were primarily due to increased
costs associated with adding staff and related expenses to support the expansion
of our Internet products and services as traffic on the mapquest.com web site
grew and as the number of business clients increased.
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
17
materials. Sales and marketing expenses were $5.8 million, or 58.9% of revenues,
for the quarter ended September 30, 1999. For the nine months ended September
30, 1999, sales and marketing expenses were $13.0 million, or 55.4% of revenues.
In comparison, the third quarter of 1998 sales and marketing expenses were $1.2
million, or 19.5% of revenues, and the nine months ended September 30, 1998
sales and marketing expenses were $3.7 million, or 20.8% of revenues. These
period-to-period increases are primarily attributable to MapQuest's marketing
promotions and advertising efforts as well as an increase to the number of sales
and marketing personnel and related expenses. We believe that sales and
marketing expenses will continue to increase in the future as we expand our
direct sales force and further promote our products and services.
Product Development
Product development expenses consist primarily of the costs of
developing new products and services and modifying existing products and
services, including software and data. These costs consist primarily of salaries
for product development personnel and related expenses, contract labor expense
and consulting fees. Product development expenses were $1.7 million and $3.8
million, respectively, for the three months and nine months ended September 30,
1999, and $0.7 million and $2.4 million, respectively, for the three months and
nine months ended September 30, 1998. As a percentage of revenues, these
expenses were 17.6% and 16.4%, respectively, for the three-month and ninemonth
periods ended September 30, 1999 versus 12.2% and 13.5%, respectively, for the
comparable periods in 1998. These period-to-period increases were primarily
attributable to increased business and consumer product development expenses. We
believe that continued investment in business and consumer product development
expenses is essential to attaining our strategic objectives and as a result, we
anticipate product development expenses to increase in the future.
General and Administrative
General and administrative expenses consist primarily of salaries and
related expenses for general corporate functions, including executive,
accounting and administrative personnel, and legal expenses. General and
administrative expenses were $1.4 million and $3.3 million, respectively, for
the three months and nine months ended September 30, 1999 compared to $0.5
million and $1.5 million, respectively, for the three months and nine months,
ended September 30, 1998. As a percentage of revenues, these expenses were 14.1%
and 14.2%, respectively, for the three-month and nine-month periods ended
September 30, 1999, compared to 8.9% and 8.5%, respectively, for the three-month
and ninemonth periods ended September 30, 1998. These period-to-period increases
were primarily attributable to increased salaries and related expenses
associated with hiring additional personnel as a result of company growth.
Additional costs related to being a publicly held entity, including additional
personnel, as well as directors' and officers' liability insurance and
professional services fees were also incurred in 1999.
Income Taxes
MapQuest paid no income taxes for the three months and nine months
ended September 30, 1998 and 1999, as MapQuest incurred net operating losses for
those periods. Due to the uncertainty of future profitability, MapQuest has not
recognized any potential future tax benefits of net operating loss
carryforwards.
18
Liquidity and Capital Resources
MapQuest has financed its operations to date primarily through the sale
of common stock, private placement of equity securities, funds from operations
and bank borrowings. As of September 30, 1999, MapQuest had $29.7 million of
cash and cash equivalents and $17.9 million in short-term investments.
Net cash used in operating activities was $1.1 million for the nine
months ended September 30, 1998, and $10.6 million for the nine months ended
September 30, 1999. In both periods cash used by operating activities was
primarily a result of net losses.
Net cash used in investing activities was $0.9 million for the nine
months ended September 30, 1998 and $21.6 million for the nine months ended
September 30, 1999. This increase was due to the purchase of short-term
investments of $17.9 million with a portion of the initial public offering
proceeds and a $2.8 million increase related to property and equipment purchases
over 1998 levels.
Net cash used in financing activities was less than $0.1 million for
the nine months ended September 30, 1998, and net cash provided by financing
activities was $61.3 million for the nine months ended September 30, 1999. In
1999, the net amount of $61.3 million resulted primarily from the sale of common
stock, net of the redemption of preferred stock.
MapQuest's capital commitments for the nine month period ended
September 30, 1998 and the nine month period ended September 30, 1999 consisted
of obligations under facilities and operating leases. Management anticipates
that it will experience an increase in its capital expenditures and lease
commitments consistent with its anticipated growth in operations, infrastructure
and personnel, in addition to committing resources to promoting its brand name
and building marketing and sales forces.
MapQuest has a revolving demand credit facility with First Union Bank,
N.A. in the amount of $5.0 million which bears interest at First Union Bank's
prime rate or fixed rates as offered by First Union Bank or LIBOR plus 1.75%.
Borrowings are secured by MapQuest's accounts receivable and are limited to the
lesser of $5.0 million or 80% of the net eligible accounts receivable which are
within 90 days of invoice. As of September 30, 1999 there were no borrowings
under this facility.
In May 1999, the Company completed an initial public offering of
4,600,000 shares of its common stock at a public offering price of $15 per
share, which generated approximately $62.1 million in net proceeds to MapQuest.
19
Upon the closing of the Company's initial public offering in May 1999,
all of the outstanding shares of MapQuest's Series A and Series C Preferred
Stock were converted into 27,122,455 shares of common stock and all of the
outstanding shares of MapQuest's Series B Preferred Stock were redeemed for
approximately $8.6 million.
During June 1999, the underwriters of MapQuest's initial public
offering exercised an over-allotment option for 597,990 shares of MapQuest's
common stock at the initial public offering price of $15 per share, which
generated approximately $7.7 million in net proceeds to MapQuest.
MapQuest believes its existing cash and cash equivalents, short-term
investments, and available borrowings will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months. Our future capital requirements will depend on many factors,
including the level of investment we make in new technologies and improvements
to existing technologies and the levels of monthly expenses required to launch
new products and services.
Year 2000
The Year 2000 issue is the potential for system and processing failures
of date-related data as a result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time sensitive software may recognize a date coded "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions, send invoices or engage in similar
normal business activities. MapQuest may be affected by Year 2000 issues related
to non-compliant information technology ("IT") systems or non-IT systems
operated by MapQuest or other third parties the Company does business with.
MapQuest's IT systems consist of software and data developed either inhouse or
purchased from third parties, and hardware purchased from vendors.
State of Readiness. MapQuest has assessed all of its information
technology systems, which include but are not limited to, the hardware and
software necessary to provide and deliver mapquest.com. MapQuest has also
assessed all of its non-information technology systems, which include many of
the building and office equipment and systems. The following steps have been
performed by MapQuest in its assessment:
o A Year 2000 Committee, consisting of managers from all relevant functional
areas of the Company, was established in the third quarter of 1998. The
Committee has met monthly to monitor Year 2000 remediation activities and
has made regular progress reports.
o All software and hardware upon which MapQuest is dependent has been
identified and evaluated.
20
o Third-party vendors of hardware, software and services, including database
providers that MapQuest utilizes, have been contacted and requested to
provide information on their Year 2000 compliance status.
o Material non-information technology systems and service providers have been
contacted and requested to provide information on their Year 2000
compliance status.
o Procedures have been developed to inventory, perform system scans, and
conduct research and remediation testing of all computer software and
hardware, digital data, facilities related systems, telecommunications, and
other date sensitive equipment that is under our control.
o The necessity for a developing a business contingency plan has been
assessed.
Subsequent to the assessment phase, MapQuest has performed the following as of
the end of the third quarter of 1999:
o The Committee has reviewed all functional areas of MapQuest and has
identified various systems and software programs that needed to be Year
2000 compliant.
o MapQuest has performed a Year 2000 simulation on a majority of its
proprietary systems, products and services to test system and product
readiness.
o Based on the results of its Year 2000 simulation tests, MapQuest has
revised its code as necessary in order to establish the Year 2000
compliance of its proprietary systems.
o MapQuest has utilized third-party scanning software in order to identify
hardware and software that is not Year 2000 compliant. As of September 30,
1999 approximately 90% of hardware and 65% software has been scanned. Most
systems have been identified as Year 2000 compliant. The large majority of
systems identified as not fully compliant have been made compliant with the
application of software patches obtained from the hardware or software
vendor. Mapquest has completed a significant majority of scans and software
patches to date. Any systems that cannot be made Year 2000 compliant will
be taken out of service and replaced with compliant systems.
o MapQuest's hosting service provider, Qwest, has stated that it has
established a dedicated Year 2000 Program Office to address the compliance
functions of its affected systems and is actively preparing its systems for
the Year 2000. In August 1999, MapQuest contracted with another co-location
facility to provide a mirror site. This facility has warranted to MapQuest
that its data center services will accurately process date/time data beyond
the end of the year.
o Accounting, sales tracking, and human resources information systems have
been implemented which meet Y2K compliance standards.
o A comprehensive review has been completed of all the suppliers and vendors
critical to MapQuest's operations, facilities, and administration with
contact made by mail requesting information regarding their Y2K state of
readiness or confirmation of their Y2K compliance. All of MapQuest's data
vendors have indicated that they have Year 2000 compliance plans in place.
MapQuest is assessing the responses of other suppliers to determine the
need to identify alternate suppliers for mission-critical needs.
21
o All facilities have been reviewed and assessed to determine if any building
systems (i.e. electronic security systems, telephone switches, voice
answering software) are not Y2K compliant. Systems requiring upgraded
software have been identified and necessary installations have been made.
At this point in its assessment, MapQuest is not currently aware of any
Year 2000 problems relating to these systems which would have a material effect
on its business, financial condition or results of operations, without taking
into account its efforts to avoid such problems. MapQuest plans to complete its
Year 2000 assessment and implementation of needed software and hardware upgrades
by mid-November 1999.
During November of 1999 MapQuest will test the Y2K compliance of all
systems identified by the various department managers as mission-critical
through the use of date-rollover simulations. Because these systems have been
previously scanned and software patches have been applied as needed, no
significant problems are expected to be identified by this testing.
Cost. To date, MapQuest has not incurred any material costs in
connection with identifying and evaluating Year 2000 compliance issues. Most of
its expenses have been related to, and are expected to continue to relate to,
the operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, MapQuest does
not possess the information necessary to estimate the potential costs of the
replacement of third party software, hardware or services that are determined
not to be Year 2000 compliant. Although MapQuest does not anticipate those
amounts will be material, such expenses, if higher than anticipated, could have
a material adverse effect on MapQuest's business, financial condition and
operating results.
Risks. Although MapQuest's assessment may be finalized without
identifying any additional material non-compliant IT or systems operated by
MapQuest or by third parties, a systemic failure beyond the control of MapQuest,
such as a prolonged telecommunications or electrical failure is possible. This
type of failure could prevent MapQuest from operating its business, prevent
users from accessing its website, or change the behavior of advertising
customers or persons accessing its website. MapQuest believes that the primary
business risks, in the event of such systemic failure, would include but not be
limited to, lost advertising revenues, lost business revenues, increased
operating costs, loss of customers or persons accessing its website and servers,
or other business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract.
Contingency Plan. As discussed above, MapQuest is engaged in a number
of Year 2000 activities to attain compliance. MapQuest does not anticipate
experiencing any significant business disruptions resulting from the date
rollover. However, Mapquest has formulated contingency strategies to deal with
unforeseen Year 2000 problems. To be able to respond to potential problems
arising from the date rollover, the Company has made plans which include, but
are not limited to, the following:
22
o Complete back-ups of the company's operating data will occur at or near the
close of business on December 31st;
o MapQuest technical support personnel will be on-call during the New Year's
weekend at the Denver operations location in order to respond to any
difficulties with the website or applications servers.
o Other key Company personnel will be identified and will make themselves
available by pager or cellular telephone so that they may be immediately
contacted and respond to any difficulties that may be encountered.
o Company personnel will report to MapQuest's offices over the New Year's
weekend in order to test the functionality of its systems that are
generally not used outside of normal business hours (e.g. human resources,
sales tracking, and financial information systems).
o Telephone support lines will be available for customers to reach the
Company during the New Year's weekend should they encounter difficulties
related to the MapQuest service.
o Procedures will be in place to allow Company personnel to perform core
accounting, financial, and human resources functions for a short period of
time in the absence of a fully-functional computer information system.
The results of MapQuest's further testing and the responses received from
third-party vendors, service providers and customers will be taken into account
in determining the nature and extent of any additional contingency plans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Net proceeds from the initial public offering have been invested in
short-term, interest bearing, investment grade obligations with various
maturities ranging from one day to less than six months. Therefore, in the near
term, MapQuest's primary exposure to market risk will result from interest rates
associated with these investments.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 of the Notes to financial statements.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
During the three months ended September 30, 1999 MapQuest issued an
aggregate of 204,000 options to purchase its common stock to its employees, with
exercise prices ranging from $10.44 per share to $19.69 per share. These
issuances were exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act.
During the three months ended September 30, 1999, employees exercised
options to purchase 496,980 shares of common stock of MapQuest at exercise
prices ranging from $0.04 to $0.37 per share. These shares of common stock were
issued in reliance upon Rule 701 promulgated under the Securities Act.
During the three months ended September 30, 1999, 247,006 shares of
common stock were issued upon exercise of warrants at exercise prices of $0.01
per share in reliance upon Section 4(2) of the Securities Act.
(d) Use of Proceeds from Registered Securities
On May 3, 1999, the Securities and Exchange Commission declared
MapQuest's Registration Statement on Form S-1 (No. 333-72667) effective. On May
7, 1999, MapQuest completed an initial public offering of an aggregate of
4,600,000 shares of MapQuest Common Stock at an offering price of $15.00 per
share. The managing underwriters for the offering were BancBoston Robertson
Stephens, Thomas Weisel Partners, LLC, U.S. Bancorp, Piper Jaffray Inc. and
Volpe Brown Whelan & Company, LLC. Net proceeds to MapQuest, after deducting
underwriting discounts and commissions of $4,830,000 and offering expenses of
approximately $2,070,000 were $62,100,000. On June 8, 1999, in connection with
the aforementioned initial public offering, the managing underwriters exercised
their over-allotment option for 597,990 shares of MapQuest's Common Stock at the
initial public offering price of $15 per share, which generated approximately
$7.7 million in net proceeds to MapQuest. None of the expenses incurred in the
offering were direct or indirect payments to directors, officers, or general
partners of MapQuest or their associates, to persons owning ten percent or more
of any class of equity securities of the issuer or to affiliates of MapQuest
except in connection with the redemption of the Series B Preferred Stock.
MapQuest used approximately $8,600,000 of these proceeds to redeem all of the
outstanding shares of Series B Preferred Stock. MapQuest has invested the
remainder of the net proceeds in shortterm, interest bearing investment grade
obligations with various maturities ranging from one day to one year.
24
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
As of April 12, 1999, in a written consent of the stockholders of
MapQuest, a majority of the holders of all outstanding shares of stock of
MapQuest (which majority included a majority of the holders of all outstanding
shares of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock) approved (a) the adoption of a recapitalization agreement, to
be effective upon the effectiveness of the registration statement, in respect of
the initial public offering whereby the holders of MapQuest's preferred stock
outstanding prior to the initial public offering agreed to the termination of
certain rights related to such preferred stock, (b) the 2.7 for 1 stock split,
the increase in the authorized share capital of MapQuest to 100,000,000 shares
of common stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share, and the amendment of the Certificate of
Incorporation to reflect such stock split, (c) the adoption of the Amended and
Restated Certificate of Incorporation of MapQuest and the Amended and Restated
Bylaws of MapQuest, both to be effective upon the effectiveness of the
registration statement in respect of the initial public offering, (d) the
adoption of Amendment No. 4 to the 1995 Stock Option Plan, the 1999 Stock Plan,
including the reservation of 3,645,000 shares thereunder, and the Employee Stock
Purchase Plan, including the reservation of 1,755,000 shares thereunder, and (e)
the approval of a form of director's indemnification agreement to be entered
into between MapQuest and its directors.
Item 5. Other Information
None.
Item 6. Exhibits and Report on Form 8-K
(a) The following exhibits are filed as part of this report:
2.2 Computation of Basic and Diluted Net Loss per Share: Refer
to Note 5 of the Notes to the Financial Statements.
27.4 Financial Data Schedule
(b) MapQuest did not file any reports on Form 8K during the three months
ended September 30, 1999.
25
Item 7. Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 5, 1999 MAPQUEST.COM, INC.
By: /s/ James Thomas
------------------------------
Chief Financial Officer
(Principal Financial Officer)
26