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The following is an excerpt from a 10-K SEC Filing, filed by MAPQUEST COM INC on 3/30/2000.
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MAPQUEST COM INC - 10-K - 20000330 - RESULTS_OF_OPERATIONS

Results of Operations

The following table sets forth the results of operations for MapQuest expressed as a percentage of net revenues:

                                                   Year Ended December 31,
                                                  1999       1998     1997
                                                  ----       ----     ----
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%
                                                  ====       ====      ====

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.

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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.

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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.

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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.

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