<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 0-27580
---------
NETLOJIX COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
---------
DELAWARE 87-0378021
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
501 BATH STREET
SANTA BARBARA, CALIFORNIA 93101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(805) 884-6300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of May 5, 2000, there were 13,399,300 shares of the Registrant's Common
Stock, par value $0.01 per share, issued and outstanding, excluding treasury
stock.
<PAGE>
NETLOJIX COMMUNICATIONS, INC.
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
2000 (Unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations for
the Three Month Periods Ended March 31, 2000 and
1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
Three Month Periods Ended March 31, 2000 and 1999
(Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETLOJIX COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,218,465 1,134,625
Accounts receivable, net 3,120,929 2,471,941
Due from affiliates 522,663 715,457
Other current assets 1,115,089 982,387
------------- ----------
Total current assets 5,977,146 5,304,410
Property and equipment, net 991,378 917,571
Goodwill, net 3,734,969 3,802,307
Other assets, net 1,042,183 932,133
------------- ----------
Total assets $ 11,745,676 10,956,421
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and other accrued expenses $ 3,418,885 2,317,587
Accrued network service costs 424,369 874,830
Sales and excise tax payable 147,327 118,503
Unearned revenue 877,228 990,699
Other current liabilities 349,049 355,609
------------- ----------
Total current liabilities 5,216,858 4,657,228
Long term debt - -
------------- ----------
Total liabilities 5,216,858 4,657,228
============= ==========
STOCKHOLDERS' EQUITY
Preferred stock, authorized 750,000 shares, $0.01 par value - -
Series A convertible preferred stock, authorized 250,000 shares,
$0.01 par value, cumulative as to 8% dividends, 147,700 shares
issued and outstanding. (Liquidation preference of $704,032
including dividends in arrears.) 1,477 1,477
Common stock, authorized 20,000,000 shares, $0.01 par value, issued
13,495,375 and 12,562,741 shares at March 31, 2000 and
December 31, 1999 respectively. 134,953 125,627
Additional paid in capital 26,405,862 23,650,546
Accumulated deficit (20,011,845) (17,476,946)
Treasury stock, $0.01 par value, 162,905 at March 31, 2000 and 151,075
at December 31, 1999. (1,629) (1,511)
------------- ----------
Total stockholders' equity 6,528,818 6,299,193
Commitments and contingencies - -
------------- ----------
Total liabilities and stockholders' equity $ 11,745,676 10,956,421
============= ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
NETLOJIX COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED MARCH 31,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES $ 5,303,876 3,701,420
COST OF REVENUES 3,131,635 2,245,568
--------------- ----------
GROSS MARGIN 2,172,241 1,455,852
Operating expenses
Selling, general and administrative 3,427,945 2,704,576
Litigation settlement costs 998,121 -
Depreciation and amortization 252,959 272,324
--------------- ----------
Total operating expenses 4,679,025 2,976,900
--------------- ----------
OPERATING LOSS (2,506,784) (1,521,048)
Interest expense (1,583) (50,513)
Other income (expense), net (2,899) 7,044
--------------- ----------
Loss from continuing operations
before income taxes (2,511,266) (1,564,517)
Income tax benefit - -
--------------- ----------
Loss from continuing operations (2,511,266) (1,564,517)
Loss from operations of discontinued
residential long-distance business - (1,501,614)
--------------- ----------
Income (loss) from discontinued operations - (1,501,614)
--------------- ----------
NET LOSS $ (2,511,266) (3,066,131)
=============== ==========
Loss from continuing operations
per common share - basic and diluted $ (0.20) (0.15)
Income (loss) from discontinued operations
per common share - basic and diluted - (0.14)
--------------- ----------
Net loss per common share - basic and diluted $ (0.20) (0.29)
=============== ==========
Weighted average number of
common shares - basic and diluted 12,834,129 10,482,416
=============== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
NETLOJIX COMMINICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED MARCH 31,
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FORM OPERATING ACTIVITIES:
Net loss from continuing operations $(2,511,266) (1,564,517)
Adjustments to reconcile net loss from continuing operations
to cash used by continuing operating activities
Depreciation and amortization 252,959 272,324
Issuance of warrants for professional services 215,712 -
Provision for bad debts 34,336 63,178
Stock compensation earned 44,891 81,356
Changes in certain operating assets and liabilities:
Accounts receivable (683,324) (32,185)
Due from affiliates 192,794 604,870
Other current assets (104,668) (112,793)
Accounts payable and accrued liabilities 605,031 (785,347)
Due to affiliate - -
----------- ----------
Cash used by continuing operating activities (1,953,535) (1,473,114)
Cash provided by discontinued operating activities - 165,516
----------- ----------
Cash used by operating activities (1,953,535) (1,307,598)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (177,512) (28,693)
Additions to property and equipment - discontinued operations - (172,894)
Payments received on loans to officers 30,015 -
Cash paid in acquisitions (25,000) -
Proceeds from sale of property and equipment - discontinued operations - 1,050
----------- ----------
Cash used by investing activities (172,497) (200,537)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (45,401) (10,892)
Cash proceeds from exercise of options 860,552 222,071
Sale of common stock 1,471,549 -
Preferred stock dividend payments (23,632) (23,632)
Costs associated with issuance of common stock (15,649)
Borrowings on line of credit - discontinued operations - 9,716,886
Amounts paid on line of credit - discontinued operations - (8,641,318)
Purchase of common stock for treasury (37,547) (77,400)
----------- ----------
Cash provided by financing activities 2,209,872 1,185,715
----------- ----------
Net increase (decrease) in cash and cash equivalents 83,840 (322,420)
Cash and cash equivalent at beginning of period for continuing
and discontinued operations 1,134,625 911,179
----------- ----------
Cash and cash equivalents at end of period for continuing and
discontinued operations (see Note 3) $ 1,218,465 $ 588,759
=========== ===========
Cash paid (received) during the period:
Interest - continuing operations $ 1,583 (50,513)
=========== ===========
Non cash investing and financing activities:
Common stock issued for acquisition $ 195,000 $ -
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
NETLOJIX COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000 and 1999
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of NetLojix
Communications, Inc. and Subsidiaries (the "Company") as of March 31, 2000 and
1999 and for the three month periods then ended have been prepared in accordance
with generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1999. All significant intercompany balances and transactions have been
eliminated in consolidation. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the interim financial information have been included. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the entire year.
On November 30, 1999 the Company sold its wholly-owned subsidiary, Matrix
Telecom, Inc. Matrix Telecom represented all of the Company's residential long
distance business. As a result of the Company's decision to exit the residential
long distance business, the Company's condensed consolidated financial
statements as of March 31, 1999 and for the three month period then ended have
been restated to reflect the Company's residential long distance business as a
discontinued operation.
On September 15, 1999, the Company changed its name to NetLojix
Communications, Inc. from AvTel Communications, Inc. This name change was
effected by the short-form merger of a wholly-owned subsidiary with and into the
Company.
(2) EARNINGS PER COMMON SHARE
Earnings per common share for the three month periods ended March 31,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Loss on continuing Three Months
operations per share - Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net loss $ (2,511,266) (1,564,517)
Preferred dividends 23,632 11,816
------------ -----------
Loss applicable to common
shareholders $ (2,534,898) (1,576,333)
============ ===========
Denominator:
Weighted average number of common
shares used in basic and diluted
loss per common share
12,834,129 10,482,416
============ ===========
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Basic and diluted loss per common share
$ (0.20) (0.15)
============ ===========
<CAPTION>
Loss from discontinued Three Months
operations per share - Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net loss -- (1,501,614)
------------ ===========
Denominator:
Weighted average number of common
shares used in basic and diluted
loss per common share
-- 10,482,416
------------ ===========
Basic and diluted loss per common
share $ -- (0.14)
------------ ===========
<CAPTION>
Three Months
Net loss per share - Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net loss $ (2,511,266) (3,066,131)
Preferred dividends 23,632 11,816
------------ -----------
Loss applicable to common
shareholders $ (2,534,898) (3,077,947)
============ ===========
Denominator:
Weighted average number of common
shares used in basic and diluted
loss per common share 12,834,129 10,482,416
============ ===========
Basic and diluted loss per common
share $ (0.20) (0.29)
============ ===========
</TABLE>
As of March 31, 2000, there are 2,537,797 potential common shares
excluded from the diluted per common share calculation because the effect is
determined to be antidilutive.
(3) LITIGATION SETTLEMENT
On April 19, 2000, the Company reached an agreement in principle to
settle all outstanding claims under the class action lawsuit pending against
NetLojix and certain of its officers. The agreement is subject to finalization
and execution of a definitive settlement agreement, passage of a class member
notification period and final approval by the court. Under the terms of the
settlement, the Company will issue 232,000 shares of common stock and warrants
to purchase 200,000 shares of the Company's common stock at an exercise price of
$8.00 per share with a term of 2 years. In addition, the Company will be
required to pay $150,000 in administrative costs and other expenses. While the
Company continues to believe it has strong defenses against the lawsuit,
7
<PAGE>
considering the ongoing costs of defending the lawsuit in terms of management
time and legal fees as well as the uncertainty associated with a jury trial, the
Company believes the settlement is fair and equitable. During the three month
period ended March 31, 2000, the Company recorded a charge against earnings of
$998,000 and a liability relating to the expected settlement.
(4) STOCKHOLDERS' EQUITY
COMMON STOCK TRANSACTIONS
On March 3, 2000 the Company raised net proceeds of $1,471,549
through a private placement of 375,000 shares of common stock at $4.00
per share. The purchaser was AMRO International, S.A., an entity
organized under the laws of Panama. In connection with the placement, the
Company also granted AMRO warrants to purchase up to 75,000 shares of
common stock at a price of $5.25 per share. The Company is required to
file a registration statement to register the public resale of these
shares by AMRO by May 28, 2000. The Company is required to use its best
efforts to have the registration declared effective. The Company is
subject to significant monetary penalties if the registration statement
is not declared effective within 90 days after the date it is filed.
During January 2000, the Company purchased 11,830 shares of its
common stock for $37,547 in the open market pursuant to the Company's
2000 GO Plan. The 2000 GO Plan was established to provide the Company's
employees with cash bonuses for up to four years to promote longevity of
employment. For four consecutive years starting in February 2001, the
Company will sell 25% of the shares held under the 2000 GO Plan and
distribute the proceeds as cash bonuses to the employees who were
employed at both the date of the establishment of the 2000 GO Plan and at
the date of distribution.
Under the New Best Connections, Inc. Amended and Restated 1997
Option Plan, in 1997 the Company issued stock options to purchase
1,292,000 shares of common stock at $1.50 per share to certain
distributors and agents of Matrix Telecom, Inc. The options were
originally granted to facilitate the marketing of residential long
distance services. Pursuant to the terms of the option grant, the options
became fully vested upon the sale of Matrix Telecom, Inc. in November
1999 and expire on May 22, 2000. The Company recorded commission expense
over the vesting period of the option grant totaling $762,000 prior to
December 31, 1999. As a consequence of the May 22, 2000 expiration date,
485,858 options were exercised during the three month period ended March
31, 2000. The Company realized proceeds from the option exercises of
$728,787. As of March 31, 2000 there are 396,140 vested options that are
unexcercised.
On March 24, 2000, the Company acquired substantially all the
assets of a privately-held Santa Barbara web and internet development and
consulting company. NetLojix issued 30,000 shares of common stock and
paid $25,000 for the assets, including accounts receivables,
work-in-process and customer lists. The fair value of the asset purchase
was approximately $220,000.
ISSUANCE OF COMMON STOCK WARRANTS
In January, 2000, the Company retained a major investment
banking firm to act as the Company's financial advisor and investment
banker. As
8
<PAGE>
compensation for investment banking services the Company has agreed to
pay $25,000 plus 100,000 warrants to purchase common stock of the Company
at an exercise price of $3.28 with a term of five years. Using the
Black-Scholes pricing model, the fair value of the warrants was estimated
to be $215,712 which was recorded as an expense during the three month
period ended March 31, 2000.
PREFERRED STOCK DIVIDENDS
On January 31, 2000 the Company declared and paid in cash
semi-annual dividends of $23,632 to the holders of the Company's Series A
convertible preferred stock.
STOCK OPTION GRANTS
In January 2000, the Company granted an additional 840,500
options at an exercise price of $3.28 pursuant to the NetLojix 1998 Stock
Incentive Plan. Of these options, 380,500 are contingent upon shareholder
approval of an amendment to the plan to increase the number of shares
reserved for issuance under the plan.
(5) AMENDMENT TO SECURED CREDIT FACILITY
In March 2000, the Company reached an agreement in principle to amend
the secured credit facility with Coast Business Credit. Under the amended line
of credit, the Company may borrow up to 75% of eligible receivables (as defined)
up to a total amount of $3,000,000. The percentage may be increased to 80% of
eligible receivables if the Company reaches certain operational targets. In
addition, the line of credit may be used to provide a facility for issuing
letters of credit. Borrowings under the line of credit bear interest, payable
monthly, based upon the prime rate of Bank of America NT & SA plus 2% (11.0% at
March 31, 2000). Borrowings under the credit facility are secured by
substantially all of the Company's assets. Currently, no amount is outstanding
under the credit facility.
(6) DISCONTINUED OPERATIONS
On November 30, 1999 the Company sold its wholly-owned subsidiary,
Matrix Telecom, Inc. Matrix Telecom represented all of the Company's residential
long distance business. As a result of the Company's decision to exit the
residential long distance business, the Company's condensed consolidated
financial statements as of March 31, 1999 and for the three month period then
ended has been restated to reflect the Company's residential long distance
business as a discontinued operation.
9
<PAGE>
Selected financial information for the residential long distance
business discontinued operations are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1999
----
<S> <C>
Sales $ 5,620,994
Expenses (7,122,608)
-----------
Loss before income tax
benefit (1,501,614)
Tax benefit
Loss from discontinued
operations $(1,501,614)
===========
</TABLE>
(7) SEGMENT REPORTING
The Company's primary business segments are network connectivity,
technical support services and application development and hosting. The
segmentation is based on the types of services provided. All of the Company's
services are targeted toward mid-sized businesses.
The network connectivity segment includes services that are wide area
network connections for internet, data or voice traffic. The Company provides
traditional long distance services, calling card, dedicated voice and data
access and numerous Internet service options. Telecommunications product
offerings include dedicated or leased lines, switched long distance, frame
relay, ASM, calling cards, and "1-800" services. Internet product offerings
within the network connectivity segment include dial-up access, DSL, dedicated
access and cable access. This segment includes the Internet connectivity portion
of the Company's Southern California based ISP.
Technical support services encompasses a broad array of technical
support services and solutions including system integration, desktop and network
support, asset management and help desk solutions. Services provided include
flat-fee maintenance contracts, prepaid time block retainers, help desk
management contracts, LAN installations, warranty repairs and a small amount of
hardware sales.
The applications development and web hosting services segment includes
producing, designing, and programming creative multimedia applications that can
be produced as a web application or a stand alone application as well as web
hosting services.
The Company measures its performance based on revenues, gross margin,
net income or loss and earnings before interest, taxes, depreciation and
amortization ("EBITDA"). EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income or cash flows from operations, as a measure of
performance.
10
<PAGE>
The results for the three months ended March 31, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------
APPLICATIONS
NETWORK TECHNICAL DEVELOPMENT
CONNECTIVITY SUPPORT AND WEB
SERVICES SERVICE HOSTING TOTAL
-------- ------- ------- -----
<S> <C> <C> <C> <C>
Revenues $ 3,122,718 1,418,691 762,467 5,303,876
Gross margin 1,071,686 581,750 518,805 2,172,241
Selling, general & administration 2,038,347 965,701 423,897 3,427,945
Depreciation & amortization 155,864 88,774 8,321 252,959
Interest expense (1,388) - (195) (1,583)
Other expense (1,520) (972) (407) (2,899)
Loss from continuing operations before corporate
litigation settlement $(1,125,433) (473,697) 85,985 (1,513,145)
=========== ========= =======
Discontinued operations --
Corporate litigation settlement (998,121)
Net loss $ (2,511,266)
===========
EBITDA $ (968,181) (384,923) 94,501
=========== ========= =======
Total assets $ 6,173,677 4,659,433 912,566 11,745,676
=========== ========= ======= ==========
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------
APPLICATIONS
NETWORK TECHNICAL DEVELOPMENT
CONNECTIVITY SUPPORT AND WEB
SERVICES SERVICE HOSTING TOTAL
-------- ------- ------- -----
<S> <C> <C> <C> <C>
Revenues $ 2,202,250 1,208,278 290,892 3,701,420
Gross margin 929,449 373,412 152,991 1,455,852
Selling, general & administration 1,472,295 1,000,040 232,241 2,704,576
Depreciation & amortization 136,996 122,600 12,728 272,324
Interest expense (8,423) (40,812) (1,278) (50,513)
Other income (expense) (6,306) 10,000 3,350 7,044
Loss from continuing operations $ (694,571) (780,040) (89,906) (1,564,517)
=========== ========= =======
Discontinued operations $ (1,501,614)
----------
Net loss $ (3,066,131)
==========
EBITDA $ (549,152) (616,628) (75,900)
=========== ========= ========
Total assets of continuing operations $ 6,831,355 2,833,481 292,033 9,956,869
=========== ========= ======== ==========
Total assets of discontinued operations $ 3,066,721
Total assets $ 13,023,590
==========
</TABLE>
11
<PAGE>
(8) Commitments and Contingencies
On March 15, 2000 the Company entered into an agreement for switching
and transmission facilities. Under the terms of the agreement, the Company is
committed to monthly minimum usage of $250,000 per month commencing April, 2000
through March, 2002 or an aggregate minimum usage of $5,250,000 for the life of
the contract.
In connection with the sale of Matrix Telecom, the amount of the
purchase price received by the Company is subject to reduction based upon a
comparison of Matrix Telecom's adjusted stockholders' equity on August 31,
1999, to adjusted stockholders' equity on May 31, 1999. The purchaser has
indicated that it materially disagrees with NetLojix's calculation of the
reduction. If the parties are unable to resolve the matter, the calculation
will be submitted to an independent firm of accountants chosen by the parties
for final resolution. If the dispute is determined in the purchaser's favor
the amount of the long distance credits would be reduced below the amount
calculated by the Company. If the amount exceeds the total of the unused
amount of long distance credit, then the Company would be required to pay the
purchaser such excess in cash. Such payments, if any, would reduce the amount
of gain from the sale and would be recorded as a charge to earnings when the
settlement is reached.
In January 2000, the Company retained a major investment banking firm
to act as the Company's financial advisor and investment banker. The Company has
agreed to compensate the investment banking firm for any financing transactions
facilitated by them in the form of a placement fee which will be equal to 5% of
the gross proceeds raised from the sale of equity securities plus warrants equal
to 3.5% of the shares sold in the transaction at an exercise price of 120% of
the price per share of the common stock purchased. A merger fee equal to 3% of
the aggregate consideration of the completed transaction will apply if the
Company enters into an acquisition transaction involving the ownership of the
Company whereby the Company's existing shareholders own less than 50% of the
equity of the surviving entity. This relationship is effective until August 31,
2000, automatically renewing for successive months until terminated in writing
by either the Company or the investment banking firm. Either the Company or the
investment banking firm can terminate this relationship on 90 days written
notice.
(9) SUBSEQUENT EVENTS
On April 4, 2000, the Company announced that it had entered into a
letter of intent to acquire Twisted Pair/BT Services Inc., a privately-held
telecommunications interconnect company that provides computer and integrated
PBX network design, integration and service for mid-size businesses in Northern
California (principally in the San Francisco Bay area). Unaudited revenues for
Twisted Pair for the year ended March 31, 2000, were approximately $4 million.
The letter of intent contemplates that NetLojix would acquire all of the
outstanding common stock of Twisted Pair for 450,000 shares of NetLojix common
stock, $200,000 in cash and the assumption of existing obligations. The closing
of the transaction is subject to the execution of a definitive agreement between
the parties, approval by the Board of Directors and by the board and
shareholders of Twisted Pair, the renegotiation of Twisted Pair's obligations to
certain shareholders, the
12
<PAGE>
satisfactory completion of due diligence, and other conditions. The
transaction is expected to close in the second or third quarter of 2000.
On April 19, 2000, the Company announced that it had entered into a
letter of intent to acquire onShore, Inc., a privately-held data services
company that provides system integration, technical support, and web-centric
applications development services for mid-size businesses in the Chicago
metropolitan area. Unaudited revenues for the year ended December 31, 1999 were
approximately $3.8 million. The letter of intent contemplates that NetLojix
would acquire all of the outstanding common stock of onShore in exchange for
1,500,000 shares of NetLojix common stock. The closing of the transaction is
subject to the execution of a definitive agreement between the parties, approval
by the Board of Directors and the board and shareholders of onShore, the
satisfactory completion of due diligence, and other conditions. The transaction
is expected to close late in the second quarter of 2000 or early in the third
quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS DOCUMENT THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. ACTUAL EVENTS AND
OUTCOMES COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE DESCRIBED HEREIN AND
THOSE SET FORTH IN THE RISK FACTORS DESCRIBED IN ITEM 1 OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
The following discussion and analysis should be read in connection with
the unaudited condensed consolidated financial statements for the three month
periods ended March 31, 2000 and 1999 of the Registrant and related notes
included elsewhere in this report and the consolidated financial statements and
related management discussion and analysis included in the Registrant's Annual
Report on Form 10-K, for the year ended December 31, 1999.
OVERVIEW
NetLojix Communications, Inc., formerly AvTel Communications, Inc. (the
"Company") is an eBusiness enabler providing advanced Internet, data, and voice
connectivity, technical support and application hosting services to the mid-size
business market. We are a single-source provider of enterprise network solutions
integrating our complete portfolio of broadband connectivity; applications
development and hosting; and system integration and maintenance. Our offices and
support teams provide design, implementation and management of wide area
networks (WANs), local area networks (LANs) and electronic commerce or
"eBusiness" solutions, including frame relay, digital subscriber line (DSL),
Internet -based virtual private networks (iVPN), voice products transported via
the Internet Protocol (VOIP) and Internet access. We offer these services on a
stand-alone basis or bundled as part of a total solution. On September 15, 1999,
the Company changed its name to NetLojix Communications, Inc. from AvTel
Communications, Inc. This name change was effected by the short-form merger of a
wholly-owned subsidiary with and into
13
<PAGE>
the Company.
DESCRIPTION OF REVENUE SEGMENTS
The Company's operations are divided into three segments: network
connectivity, technical support and application development and hosting. The
segmentation of the Company is how we manage the day-to-day operations of our
business and is based on the types of services we provide. All of our services
are targeted toward small to mid-sized businesses.
FINANCIAL INFORMATION PRESENTATION
On December 1, 1997, we acquired Matrix Telecom through a share for
share exchange of common stock. (the "Share Exchange"). For accounting purposes,
the Share Exchange was treated as a reverse acquisition of NetLojix by Matrix
Telecom. Even though we were the legal acquirer, the historical financial
statements are required to be prepared as if Matrix Telecom acquired NetLojix.
Consequently, the following discussion of results of operations reflects the
operations of Matrix Telecom prior to December 1, 1997 and reflects the combined
operations of NetLojix and Matrix Telecom subsequent to December 1, 1997.
References to "the Company" or "our" financial statements and financial
information refer to operations of Matrix Telecom prior to the Share Exchange
and the combined operations of Matrix Telecom and NetLojix subsequent to the
Share Exchange.
In August, 1999 we decided to exit the residential long distance
business and focus exclusively on business customers. As of August 1999, Matrix
Telecom was engaged in the residential long distance telephone business and
represented all of the Company's business in this segment. Consequently,
effective with the execution of a definitive agreement (the measurement date),
the residential long distance operations of Matrix Telecom have been reflected
as a discontinued operation in the consolidated financial statements. All prior
year financial information has been restated to conform to the discontinued
operations presentation.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999.
Revenues
Revenues from continuing operations for the three months ended March
31, 2000 were $5.3 million, an increase of 43.3% or $1.6 million from $3.7
million for the three months ended March 31, 1999.
Network connectivity services revenues, increased $0.9 million to $3.1
million for the three months ended March 31, 2000 from $2.2 million for the
three months ended March 31, 1999. Within the network connectivity services
segment, data and voice services accounted for $0.7 million of the increase with
the balance of the increase attributable to internet services. Data and voice
services increased 47.6% from the comparable quarter in 1999 as the Company
significantly expanded its sales of dedicated connectivity services during 2000.
Billable revenue minutes for switched traffic increased to 19.1 million from
15.3 million, an increase of 24.8%.
14
<PAGE>
Internet connectivity services revenues increased 31.0% to $1.0
million. Demand for Internet connectivity in the central California area
continues to be strong with customer attrition rates running below industry
averages at about 1.5% per month. The increase in revenues is attributable to
dedicated Internet access products which include frame relay, cable, ISDN and
DSL. We believe that demand for broadband Internet access products will continue
to be strong. We have upgraded our product offerings through partnerships and
alliances with major vendors so that we can continue to increase our focus on
broadband products.
Technical support services revenues were $1.4 million for the three
months ended March 31, 2000, an increase of 17.4% over the comparable quarter in
1999. During the current quarter, the company realized increased revenues from
its help desk solution offerings and the cross marketing of technical support
services to network connectivity customers. IT support services include systems
integration, service contract, retainer contracts and help desk outsourcing. The
Company has recently integrated the technical support service offerings into
total enterprise wide solution in each of its operating regions nationally.
Application development and hosting services revenues increased to $0.8
million for the three months ended March 31, 2000 from $0.3 million for the
comparable quarter in 1999, a 162.1% increase. The increase is primarily
attributable to the application development group. During the current quarter,
the Company realized several revenue recognition milestones on two large
application development projects. Subsequent to March 31, 2000, one of the
projects was terminated prior to completion.
Gross Margin
Gross margin on continuing operations as a percentage of revenues
increased to 41.0% for the three months ended March 31, 2000 from 39.3% for the
three months ended March 31, 1999. Gross margin from continuing operations
increased $0.7 million to $2.2 million for the three months ended March 31, 2000
from $1.5 million for the three months ended March 31, 1999.
Network connectivity services gross margin as a percent of revenue
decreased to 34.3% for the three months ended March 31, 2000 from 42.2% for the
three months ended March 31, 1999. Within the network connectivity services
segment, data and voice gross margins averaged 17.7% vs. 21.4% in the comparable
quarter in 1999. The decline in gross margins was primarily due to competitive
price pressures.
Gross margins for Internet services continues to be strong averaging
73.5% during the three months ended March 31, 2000 vs. 81.1% for the comparable
1999 quarter. The decrease from 1999 is primarily attributable to increased
network costs relating to high-speed connectivity. We have increased capacity
for these services and are currently able to increase customers with minimal
additional network costs.
Technical support services gross margins averaged 41.0% during the
quarter ended March 31, 2000 compared to 30.9% for the comparable quarter in
1999. Gross margins in the technical service segment were improved as our
management of technical resource allocation and productivity increased. We were
also able to raise certain retail pricing as demand for IT professional services
increased. However, salary expense for high demand technicians will likely
continue to increase and put downward pressure on margins. While we
15
<PAGE>
may be able to increase retail pricing to offset salary increases,
competitive pressures may require us to absorb some of the additional costs.
Application development and web hosting gross margins were 68.0% during
2000 compared to 52.6% for the comparable quarter in 1999. The increase in gross
margin is due primarily to several high margin contracts reaching revenue
milestones in the quarter. Gross margins for applications development projects
are negotiated on a project-by-project basis and tend to fluctuate for each
project depending on the total dollar amount, deadline commitments and
specialized expertise that may be required for a particular project.
Selling, General, and Administrative Costs
Selling, general, and administrative costs from continuing operations
increased $0.7 million to $3.4 million for the three months ended March 31, 2000
from $2.7 million for the three months ended March 31, 1999. As a percentage of
revenues, selling, general and administrative costs decreased to 64.6% for the
three months ended March 31, 2000 from 73.1% for the three months ended March
31, 1999.
Of the increase in selling, general and administrative expenses, $0.2
million is attributable to the non-cash expense associated with warrants issued
the Company's investment banker for advisory services. Approximately $0.1
million of the increase is attributable to severance costs. In January 2000, the
Company relocated its finance and accounting function to Santa Barbara and paid
severance to employees that declined to relocate. Approximately $0.2 million of
the increase is due to increased professional service fees, primarily due to
legal fees associated with the class action lawsuit and regulatory registration.
The remaining increase in cost was associated with expanded sales force and
related expenses including general office expense, rent, utilities and travel
expenditures.
Settlement Costs
On April 19, 2000, the Company reached an agreement in principle to
settle all outstanding claims under the class action lawsuit pending against
NetLojix and certain of its officers. The agreement is subject to finalization
and execution of a definitive settlement agreement, passage of a class member
notification period and final approval by the court. Under the terms of the
settlement, the Company will issue 232,000 shares of common stock and warrants
to purchase 200,000 shares of the Company's common stock at an exercise price of
$8.00 per share with a term of 2 years. In addition, the Company would be
required to pay $150,000 in administrative costs and other expenses. While the
Company continues to believe it has strong defenses against the lawsuit,
considering the ongoing costs of defending the lawsuit in terms of management
time and legal fees as well as the uncertainty associated with a jury trial, the
Company believes the settlement is fair and equitable. During the three month
period ended March 31, 2000, the Company recorded a charge against earnings of
$998,000 and a liability relating to the expected settlement.
Interest Income (expense)
In January, 2000, the company paid off all indebtedness under the
secured borrowing facility and currently has no borrowings outstanding. During
the three month period ended March 31, 1999 the Company averaged approximately
$0.2 million in outstanding borrowings.
16
<PAGE>
Discontinued operations
The sale of Matrix Telecom, Inc was completed on November 30, 1999
therefore no discontinued operations were recorded in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the company had cash and cash equivalents of $1.2
million and working capital of $0.8 million. The Company has no debt outstanding
as of March 31, 2000 and as of May 10, 2000 there continues to be no outstanding
debt. For the three months ended March 31, 2000, the Company reported a net loss
from continuing operations of $2.5 million and net cash used in operations of
$2.0 million.
In November 1999 we completed the sale of Matrix Telecom. The purchase
price for the Matrix Telecom stock was valued at $6,052,529 which is subject to
adjustment based on finalization of a balance sheet for Matrix Telecom, Inc. as
of August 31, 1999 and agreement by both parties. We completed the balance
sheet, and we have been notified by the purchaser that it materially disagrees
with the closing balance sheet that we prepared. We are currently attempting to
negotiate a settlement of the balance sheet items in disagreement. If we are
unable to resolve the matter, the balance sheet will be submitted to an
independent firm of accountants chosen by the parties for final resolution. Any
material adjustments, as determined by the independent accountants, will effect
the purchase price and the recorded gain. At this time, we believe that the
ultimate resolution of the items in dispute will not materially affect the
recorded gain.
Through March 31, 2000 we used $325,000 of the long distance credit
received in the sale of Matrix Telecom, Inc. In accordance with the sale
agreement, the amount of the long distance credit used may not exceed $100,000
per month. In March, 2000 we discontinued utilizing the long distance credits
pending resolution of our outstanding differences. Effective May 1, 2000 we
began the process of moving our communications traffic from Matrix Telecom to an
alternative carrier.
In March, 2000, we agreed in principle to amend our secured credit
facility with Coast Business Credit. Under the amended line of credit, we may
borrow up to 75% of eligible receivables (as defined) up to a total amount of
$3.0 million. The percentage may be increased to 80% of eligible receivables if
we reach certain operational targets. In addition, the line of credit may be
used to provide a facility for issuing letters of credit. Borrowings under the
line of credit bear interest, payable monthly, based upon the prime rate of Bank
of America NT & SA plus 2% (11.00% at April 25, 2000). Borrowings under the
credit facility are secured by substantially all of our assets. Currently no
amount is outstanding under the credit facility.
On April 23, 1999, we entered into the equity line agreement with
Cambois Finance. Under the terms of the equity line agreement, we may sell or
17
<PAGE>
put our common stock to Cambois Finance, at our option at any time, subject to
the satisfaction of several conditions. The equity line agreement provides for
Cambois Finance to purchase up to $13,500,000 of our common stock, subject to
our filing and maintaining an effective registration statement, trading price
and volume minimums, and limits on the amount and frequency on sales of common
stock under the line. As of May 10, 2000, we had sold a total of 1,066,725
shares of common stock to Cambois Finance for total proceeds of $2,000,000.
On March 3, 2000 we raised $1.5 million through a private placement of
375,000 shares of common stock at $4.00 per share.
During the three month period ended March 31, 2000, the Company
received proceeds of $0.7 million relating to stock option exercises. The option
exercises were primarily attributable to stock options granted by the Company in
1997 under the New Best Connections, Inc. Amended and Restated 1997 Option Plan.
Under the plan, the Company issued stock options to purchase 1,292,000 shares of
common stock at $1.50 per share to certain distributors and agents of Matrix
Telecom, Inc. The options were originally granted to facilitate the marketing of
residential long distance services. Pursuant to the terms of the option grant,
the options became fully vested upon the sale of Matrix Telecom, Inc. and expire
on May 22, 2000. The Company recorded commission expense over the vesting period
of the option grant totaling $762,000. As a consequence of the May 22, 2000
expiration date, 485,858 options were exercised during the three month period
ended March 31, 2000. As of March 31, 2000 there are 396,140 vested options that
are unexcercised.
Historically, our cash flow from operations, our secured borrowings,
our private placements of both common and preferred stock and our equity line
agreement with Cambois Finance, Inc. have been sufficient to meet working
capital and capital expenditure requirements. We believe that our cash flow from
operations, our equity line agreement and our secured line of credit with Coast
Business Credit are sufficient to meet our working capital requirements from our
current operations into the foreseeable future.
However, our ability to raise capital by putting common stock to
Cambois Finance under the equity line agreement is subject to the satisfaction
of several conditions, as discussed above. Additionally, an important component
of our past growth has been to develop our business through acquisitions. We
intend to continue this strategy. In appropriate circumstances, we may use our
capital stock for acquisitions in addition to debt and equity financing.
On April 4, 2000, the Company announced that it had entered into a
letter of intent to acquire Twisted Pair/BT Services Inc., a privately-held
telecommunications interconnect company that provides computer and integrated
PBX network design, integration and service for mid-size businesses in Northern
California (principally in the San Francisco Bay area). Unaudited revenues for
Twisted Pair for the year ended March 31, 2000, were approximately $4 million.
The letter of intent contemplates that NetLojix would acquire all of the
outstanding common stock of Twisted Pair for 450,000 shares of NetLojix common
stock, $200,000 in cash and the assumption of existing obligations. The closing
of the transaction is subject to the execution of a definitive agreement between
the parties, approval by the Board of Directors and by the board and
shareholders of Twisted Pair, the renegotiation of Twisted Pair's obligations to
certain shareholders, the satisfactory completion of due diligence, and other
conditions. The transaction is expected to close in the second or third quarter
of 2000.
18
<PAGE>
On April 19, 2000, the Company announced that it had entered into a
letter of intent to acquire onShore, Inc., a privately-held data services
company that provides system integration, technical support, and web-centric
applications development services for mid-size businesses in the Chicago
metropolitan area. Unaudited revenues for the year ended December 31, 1999 were
approximately $3.8 million. The letter of intent contemplates that NetLojix
would acquire all of the outstanding common stock of onShore in exchange for
1,500,000 shares of NetLojix common stock. The closing of the transaction is
subject to the execution of a definitive agreement between the parties, approval
by the Board of Directors and the board and shareholders of onShore, the
satisfactory completion of due diligence, and other conditions. The transaction
is expected to close late in the second quarter of 2000 or early in the third
quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to material future earnings or cash flow
fluctuations, from changes in interest rates on its long-term debt at March 31,
2000. A hypothetical increase of 110 basis points in interest rate (ten percent
of the Company's overall borrowing rate) would not result in a material
fluctuation in future earnings or cash flow. The Company had not entered into
any derivative financial instruments to manage interest rate risk or for
speculative purposes and is currently not evaluating the future use of such
financial instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NetLojix is a defendant in a class action under the federal securities
laws (IN RE AVTEL SECURITIES LITIGATION, Case No. 98-9236) currently pending in
the United States District Court for the Central District of California.
This litigation is the consolidation of five separate class action
suits that were filed against NetLojix and certain of its officers, alleging
securities fraud. The plaintiffs are purported investors who purchased shares of
NetLojix common stock on November 12, 1998. On that day, the trading price for
the common stock on The Nasdaq SmallCap Market rose from $2.125 to $31 per
share, with more than 3 million shares trading. The plaintiffs allege that a
press release issued by NetLojix on November 12, 1998, announcing the launch of
its subsidiaries' DSLink Service for high speed Internet access, and an
interview with NetLojix Chief Executive Officer Anthony E. Papa concerning that
service, as reported by Bloomberg News, were misleading and defrauded the market
for NetLojix's publicly-traded securities.
The plaintiffs filed a consolidated and amended complaint on March 15,
1999. Discovery has begun, with trial scheduled for February 2001. NetLojix
contends that its statements were not misleading.
On April 19, 2000, NetLojix reached an agreement in principle to settle
all outstanding claims under the class action lawsuit with counsel for the
plaintiff class. This agreement is subject to finalization and execution of a
definitive settlement agreement, passage of a class member notification period
and final approval by the court. Under the terms of the settlement, NetLojix
will issue 232,000 shares of common stock and warrants to purchase 200,000
shares of common stock at an exercise price of $8.00 per share. The warrants
19
<PAGE>
will have a term of 2 years. In addition, NetLojix will pay $150,000 in
administrative costs and other expenses. As of March 31, 2000, NetLojix has
incurred in excess of $100,000 in legal costs and other expenses and numerous
hours of senior management time has been diverted away from the day-to-day
operations of NetLojix because of the class action lawsuit. While NetLojix
continues to believe it has defenses against the lawsuit, considering the
ongoing costs of defending the lawsuit in terms of management time and legal
fees as well as the uncertainty associated with a jury trial, NetLojix believes
the settlement is fair and equitable. NetLojix recorded a charge against
earnings in the first quarter of 2000 of $998,000 relating to the expected
settlement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 10, 2000, NetLojix issued 100,000 common stock purchase
warrants to Kaufman Bros., L.P. in partial compensation for financial
advisory services. No underwriters were used in this transaction and none of
such shares were issued publicly. NetLojix relied on the exemptions from
registration provided by Sections 4(2) and 4(6) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder. Kaufman Bros., L.P. is an
investment bank, and is believed by NetLojix to possess the requisite level
of financial sophistication and experience in order to qualify for such
exemptions. NetLojix made available to Kaufman Bros., L.P. all material
information with respect to NetLojix. Kaufman Bros., L.P. signed an agreement
containing appropriate investment representations and covenants.
On March 3, 2000, NetLojix issued 375,000 shares of its common stock
and 75,000 common stock purchase warrants, which were not registered under the
Securities Act, to AMRO International, S.A. No underwriters were used in this
transaction and none of such shares were issued publicly. NetLojix relied on the
exemptions from registration provided by Sections 4(2) and 4(6) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder. AMRO
International, S.A. is believed by NetLojix to possess the requisite level of
financial sophistication and experience in order to qualify for such exemptions.
NetLojix made available to AMRO International, S.A. all material information
with respect to NetLojix. AMRO International, S.A. signed a common stock and
warrants purchase agreement containing appropriate investment representations
and covenants.
On March 24, 2000, NetLojix issued 30,000 shares of its common stock,
which were not registered under the Securities Act, in exchange for
substantially all of the assets of Flash Internet, Inc., a privately-held
California corporation based in Santa Barbara. No underwriters were used in this
transaction and none of such shares were issued publicly. NetLojix relied on the
exemptions from registration provided by Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder. The agreement and plan of
reorganization entered into among NetLojix, Flash Internet and the sole
shareholder of Flash Internet contemplates that Flash Internet will be dissolved
and all such shares will be distributed to its sole shareholder. That person is
believed by NetLojix to possess the requisite level of financial sophistication
and experience in order to qualify for such exemptions. NetLojix made available
to Flash Internet and its shareholder all material information with respect to
NetLojix. Both Flash Internet and its shareholder signed executed the agreement
and plan of reorganization, which contains appropriate investment
representations and covenants.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule - Three Months Ended March 31, 2000
27.2 Restated Financial Data Schedule - Three Months Ended
March 31, 1999
SIGNATURE
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.
NETLOJIX COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ MICHAEL J. USSERY
------------------------------------
Michael J. Ussery
CHIEF FINANCIAL OFFICER
(Duly Authorized Officer and Principal
Financial Officer, and Principal
Accounting Officer)
May 15, 2000
21
<PAGE>
Exhibit Index
Exhibit
Number Exhibit Description
- ------- -------------------
27.1 Financial Data Schedule -Three Months Ended March 31, 2000
27.2 Restated Financial Data Schedule - Three Months Ended
March 31, 1999
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF NETLOJIX COMMUNICATIONS, INC. AND SUBSIDIARIES
AS OF MARCH 31, 2000 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,218
<SECURITIES> 0
<RECEIVABLES> 3,412
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,977
<PP&E> 991
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,746
<CURRENT-LIABILITIES> 5,217
<BONDS> 0
0
1
<COMMON> 135
<OTHER-SE> 6,398
<TOTAL-LIABILITY-AND-EQUITY> 11,746
<SALES> 0
<TOTAL-REVENUES> 5,304
<CGS> 0
<TOTAL-COSTS> 3,132
<OTHER-EXPENSES> 4,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (2,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,511)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF NETLOJIX COMMUNICATIONS, INC. AND SUBSIDIARIES AS
OF MARCH 31, 1999 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 305
<SECURITIES> 0
<RECEIVABLES> 1,264
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,516
<PP&E> 834
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,957
<CURRENT-LIABILITIES> 3,957
<BONDS> 0
0
1
<COMMON> 105
<OTHER-SE> 5,890
<TOTAL-LIABILITY-AND-EQUITY> 9,957
<SALES> 0
<TOTAL-REVENUES> 3,701
<CGS> 0
<TOTAL-COSTS> 2,246
<OTHER-EXPENSES> 2,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (1,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,565)
<DISCONTINUED> (1,502)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,066)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
