<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 Commission File Number 0-5613
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REXX ENVIRONMENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
NEW YORK 13-2625545
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(State or other jurisdiction (I.R.S Employer
of incorporation) Identification Number)
350 PARK AVENUE, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 750-7755
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by checkmark 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 14, 1998, the registrant had 2,467,576 shares of common stock
outstanding.
Page 1
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REXX ENVIRONMENTAL CORPORATION
INDEX
PART I - Financial Information PAGE
Unaudited financial statements:
Consolidated balance sheets -
March 31, 1998 and December 31, 1997 3
Consolidated statements of operations -
three months ended March 31, 1998 and 1997 4
Consolidated statements of cash flows -
three months ended March 31, 1998 and 1997 5
Notes to consolidated financial statements 6-7
Management's discussion and analysis of
financial condition and results of operations 8-9
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 660 $ 710
Accounts receivable - net 2,996 2,353
Costs in excess of billings 772 600
Assets held for sale 780 1,350
Other current assets 150 142
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Total current assets 5,358 5,155
Property and equipment, net 719 718
Goodwill 3,072 3,125
Other assets 52 57
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$ 9,201 $ 9,055
======== ========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 590 $ 1,015
Notes payable-bank 230 0
Accounts payable 1,534 1,153
Billings in excess of costs 111 238
Accrued expenses 819 752
Deposit on asset held for sale 0 152
Income taxes payable 381 376
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Total current liabilities 3,665 3,686
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Long-term debt, net of current portion 159 180
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Other long-term liabilities 35 50
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Stockholders' equity:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 5,279,828 shares issued 105 105
Capital in excess of par value 27,925 27,925
Accumulated deficit (5,680) (5,883)
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
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Total stockholders' equity 5,342 5,139
-------- --------
$ 9,201 $ 9,055
======== ========
</TABLE>
See notes to consolidated financial statements.
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three months ended
March 31,
1998 1997
Revenues $ 4,203 $ 13
Cost of services 2,953 0
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Gross profit 1,250 13
General and administrative expenses 1,026 170
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Income (loss) from operations 224 (157)
Other income:
Interest (expense) income, net (8) 55
Other income 9 0
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Income (loss) before provision
for taxes 225 (102)
Provision for taxes 22 5
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Net income (loss) $ 203 ($ 107)
======= =======
Per share data:
Basic $ .08 ($ .05)
Diluted $ .08 ($ .05)
Weighted average shares outstanding:
Basic 2,468 2,058
Diluted 2,533 2,058
See notes to consolidated financial statements.
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows used in operating activities:
Net income (loss) $ 203 ($ 107)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 88 0
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291 (107)
Changes in assets and liabilities ( 507) (1,047)
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Net cash used in operating
activities ( 216) (1,154)
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Cash flows from investing activities:
Capital expenditures (36) 0
Decrease in assets held for sale 570 11
Deposit on asset held for sale (152) 0
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Net cash provided by
investing activities 382 11
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Cash flows from financing activities:
Net short-term borrowings 230 0
Principal payment of long-term debt (446) 0
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Net cash used in financing activities (216) 0
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Net decrease in cash (50) (1,143)
Cash at beginning of period 710 5,314
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Cash at end of period $ 660 $ 4,171
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Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable ($ 643) ($ 16)
Costs in excess of billings (172) 0
Other current assets (8) (13)
Other assets 5 0
Billings in excess of costs (127)
Accounts payable and accrued expenses 448 (665)
Income taxes payable 5 (353)
Other liabilities (15) 0
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($ 507) ($1,047)
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Cash paid - net during the period for:
Interest $ 16 $ 4
Income taxes (including interest thereon) $ 18 $ 557
</TABLE>
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REXX ENVIRONMENTAL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Consolidation and General
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Watkins Contracting, Inc. ("WCI") (since
its acquisition by the Company on October 21, 1997) and Oak Hill Sportswear
Holding Corporation, which was inactive. Certain previously reported amounts
have been reclassified to conform to the 1998 presentation. The accompanying
financial statements have been prepared without audit and do not include all
footnotes and disclosures required under generally accepted accounting
principles. Management believes that the results herein reflect all
adjustments which are, in the opinion of management, necessary to fairly state
the results and current financial condition of the Company for the respective
periods. All such adjustments reflected herein are of a normal, recurring
nature. These financial statements should be read in conjunction with the
Company's financial statements contained in its Annual Report on Form 10-K for
its year ended December 31, 1997.
Note 2 - Acquisition and Consolidated Condensed Pro Forma Financial
Information
On October 21, 1997, the Company completed the acquisition of 100% of the
outstanding shares of WCI, a privately-owned, San Diego-based environmental
remediation contractor. Founded in 1991, WCI provides asbestos abatement,
hazardous materials and soil remediation, and demolition services, primarily
in California, to commercial and governmental clients. The total consideration
consisted of (a) $3,600,000 in cash, using cash on hand, (b) 400,000 shares of
restricted REXX Environmental Corporation common stock and (c) rights
entitling the former owners of WCI to sell up to 50,000 shares per quarter of
the common stock back to the Company starting in April, 1999, at $5.00 per
share if WCI earns in excess of $2,700,000 pretax income during 1998, and to
sell up to an additional 50,000 shares per quarter back to the Company
starting in April, 2000, at $5.00 per share if WCI earns in excess of
$2,700,000 pretax income during 1999. The acquisition was accounted for using
the purchase method of accounting. Acquisition costs in excess of the fair
value of net tangible assets acquired amounted to approximately $3,166,000,
representing goodwill.
The purchase price has been allocated to the assets purchased and
liabilities assumed based upon the fair values on the date of acquisition, as
follows:
Working capital $ 685,000
Property and equipment 1,204,000
Other assets 61,000
Goodwill 3,166,000
Other liabilities ( 683,000)
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Purchase price $4,433,000
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The following condensed unaudited pro forma statement reflects the
results of operations of the Company as if the acquisition had been
consummated at the beginning of 1997. The unaudited pro forma financial
information presented herein does not necessarily reflect the results of
operations and financial position of the Company had the acquisition actually
taken place on these dates.
Consolidated Condensed Pro Forma
Statement of Operations
(unaudited)
Three months ended
March 31, 1997
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Revenues $2,607,000
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Income from operations 307,000
Other income 20,000
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Income before income taxes 327,000
Income taxes 38,000
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Net income $ 289,000
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Pro forma net income per share $0.12
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Note 3 - Net income (loss) per share:
In 1997, The Company adopted Statement of Financial Accounting Standards
No. 128 ("FAS 128"), Earnings per Share. FAS 128 prescribes that companies
present basic and diluted earnings per share amounts, as defined, on the face
of the statement of operations. Net income (loss) per share is based on the
weighted average number of shares outstanding. The number of shares used in
the computations for basic and diluted net income per share for the first
quarter ended March 31, 1998 were 2,467,576 and 2,533,151, respectively, and
for the first quarter of 1997 were 2,057,576 for both computations.
Net income (loss) used in the computation of basic and diluted net income
(loss) per share is not affected by the assumed issuance of stock under the
Company's stock option plan and is therefore the same for both calculations.
Options to purchase 254,000 shares at prices ranging from $2.00 to $5.00
per share were outstanding at March 31, 1998. The dilutive impact of such
options is the addition of 65,575 shares to weighted average diluted shares
outstanding for the first quarter of 1998 and less than $0.01 decrease in
earnings per share. Options to purchase 184,000 shares at prices ranging from
$2.00 to $4.25 per share were outstanding at March 31, 1997, but were not
included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the
common shares in the first quarter of 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and capital resources:
Working capital at March 31, 1998 amounted to $1,693,000 compared to
$1,469,000 at December 31, 1997, an increase of $224,000 primarily due to the
net income for the period.
Net accounts receivable were $2,996,000 at March 31, 1998 as compared to
$2,353,000 at December 31, 1997, an increase of $643,000. The increase was due
to higher revenues in the first quarter of 1998 compared to the fourth quarter
of 1997.
Management believes that the Company's cash and cash equivalents at March
31, 1998, in addition to WCI's working capital line of credit and equipment
line of credit, obtained in February 1998, and the Company's cash flow from
operations, will provide it with all the funds necessary for its working
capital and capital expenditures.
The Company intends to pursue potential acquisitions in its industry. As
of March 31, 1998, no commitments had been made and no material expenditures
had been incurred in connection with any such potential acquisition. There is
no assurance that the Company will complete any such potential acquisition. In
the event the Company completes an acquisition, it may require additional
capital for the consummation of the acquisition and/or the additional working
capital needs of an acquired business.
Results of operations:
Revenues in 1998 consisted principally of WCI's contract revenues.
Revenues in 1997 consisted solely of consulting income. Revenues in the
quarter ended March 31, 1998 were $4,203,000. Consulting income, which arose
from the Company's agreement with a purchaser of its former Sportswear
Division, was $13,000 in the quarter ended March 31, 1997. The consulting
agreement expired on December 31, 1997 and was not renewed.
Gross profit in the first quarter of 1998 amounted to $1,250,000 as
compared to $13,000 in 1997, an increase of $1,237,000. The increase is
attributable to the addition of WCI's gross profit.
General and administrative expenses rose in the quarter ended March 31,
1998 compared to the comparable period of 1997 principally as a result of the
addition of WCI's general and administrative expenses and the growth in
expenses in connection with the Company's administrative and corporate
overhead.
Interest (expense) income - net changed to an expense of $8,000 in the
first quarter of 1998 from income of $55,000 in the first quarter of 1997, a
reduction of $63,000. The decrease was attributable to the Company's net
borrowing position in 1998 due to WCI's working capital and equipment lines of
credit, compared to the Company's net cash position in 1997.
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Amortization of goodwill and other income did not exist in the first
quarter of 1997. In 1998, they were attributable to the acquisition of WCI,
which was accounted for as a purchase.
Provision for income taxes grew to $22,000 in the quarter ended March 31,
1998 from $5,000 in the comparable period of 1997, an increase of $17,000. The
increase was due to the Company's new status as a taxpayer in California. In
both periods, the Company recorded no provision for federal income taxes as
the Company has a net operating loss carryforward. State income taxes for
states other than California represents franchise taxes in both years.
Forward looking information:
The statements contained herein may contain forward looking statements
relating to such matters as anticipated financial performance, business
prospects, acquisition strategy, growth and similar matters. The Private
Securities Reform Act of 1995 provides a safe harbor for forward looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results to
differ materially from the anticipated results expressed in the Company's
forward looking statements such as intensified competition and its impact on
revenues and profit margins, the availability of capital for growth and
potential acquisitions, the availability of suitable acquisitions on terms
management deems acceptable and other items described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
(a) A Special Meeting of the shareholders of the Company was held
on February 17, 1998 for the purpose of considering proposals
to:
(1) change the Company's corporate name to REXX Environmental
Corporation, and
(2) amend the Company's Non-Qualified Stock Option Plan.
(b) At said Special Meeting, the proposals were both approved by
shareholders, with the following number of shares voted for,
against and withheld:
For Against Withheld
--- ------- --------
Proposal #1 2,304,278 9,515 5,693
Proposal #2 1,390,278 182,734 6,955
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated February 24, 1998, in the first
quarter ended March 31, 1998, reporting, under Item 5 thereof, its
name change to REXX Environmental Corporation.
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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.
REXX ENVIRONMENTAL CORPORATION
(Registrant)
Date: May 14, 1998 By: /s/ Arthur L. Asch
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Arthur L. Asch, Chairman of the Board
Date: May 14, 1998 By: /s/ Michael A. Asch
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Michael A. Asch, President and Treasurer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 660
<SECURITIES> 0
<RECEIVABLES> 2,996
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,358
<PP&E> 719
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,201
<CURRENT-LIABILITIES> 3,665
<BONDS> 159
5,342
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,201
<SALES> 4,203
<TOTAL-REVENUES> 4,203
<CGS> 2,953
<TOTAL-COSTS> 3,979
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 225
<INCOME-TAX> 22
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
