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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, 2000 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)
445 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
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As of May 15, 2000, the registrant had 2,467,576 shares of common stock
outstanding.
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REXX ENVIRONMENTAL CORPORATION
INDEX
PART I - Financial Information PAGE
Unaudited financial statements:
Consolidated balance sheets -
March 31, 2000 and December 31, 1999 3
Consolidated statements of operations -
three months ended March 31, 2000 and 1999 4
Consolidated statements of cash flows -
three months ended March 31, 2000 and 1999 5
Notes to consolidated financial statements 6
Management's discussion and analysis of
financial condition and results of operations 7-10
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(Unaudited)
March 31, December 31,
2000 1999
Assets
Current assets:
Cash and cash equivalents $ 574 $ 85
Accounts receivable - net 3,399 2,629
Costs in excess of billings 594 831
Assets held for sale 780 780
Other current assets 170 194
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Total current assets 5,517 4,519
Property and equipment, net 1,476 1,378
Goodwill 2,650 2,703
Other assets 36 17
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$ 9,679 $ 8,617
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Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 627 $ 639
Notes payable-bank 1,592 1,030
Accounts payable 1,320 1,749
Billings in excess of costs 809 126
Accrued expenses 851 465
Income taxes payable 88 95
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Total current liabilities 5,287 4,104
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Long-term debt, net of current portion 498 606
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Stockholders' equity:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 5,279,828 shares issued 105 105
Capital in excess of par value 27,925 27,925
Accumulated deficit (7,128) (7,115)
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
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Total stockholders' equity 3,894 3,907
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$ 9,679 $ 8,617
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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,
2000 1999
Revenues $ 4,007 $ 3,500
Cost of services 3,082 3,086
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Gross profit 925 414
General and administrative expenses 841 960
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Income (loss) from operations 84 ( 546)
Other income:
Interest expense, net ( 62) ( 54)
Other expense ( 35) ( 13)
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Loss before provision for taxes ( 13) ( 613)
Provision for taxes 0 3
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Net loss ($ 13) ( 616)
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Per share data:
Basic ($.01) ($.25)
Diluted ($.01) ($.25)
Weighted average shares outstanding:
Basic 2,468 2,468
Diluted 2,468 2,468
See notes to consolidated financial statements.
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
Cash flows provided by operating activities:
Net loss ($ 13) ($ 616)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 134 114
Loss on disposal of assets 35 0
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156 ( 502)
Changes in assets and liabilities 105 836
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Net cash provided by operating
activities 261 334
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Cash flows used in investing activities:
Capital expenditures ( 263) ( 37)
Net proceeds on disposal of assets 49 31
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Net cash used in investing
activities ( 214) ( 6)
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Cash flows from financing activities:
Net short-term borrowings (repayments) 562 ( 100)
Principal payment of long-term debt ( 120) ( 69)
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Net cash provided by (used in)
financing activities 442 ( 169)
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Net increase in cash 489 159
Cash at beginning of period 85 68
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Cash at end of period $ 574 $ 227
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Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable ($ 770) $ 867
Costs in excess of billings 237 ( 272)
Other current assets 24 ( 87)
Other assets ( 19) 5
Billings in excess of costs 683 122
Accounts payable and accrued expenses ( 43) 203
Income taxes payable ( 7) ( 2)
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$ 105 $ 836
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Cash paid - net during the period for:
Interest $ 60 $ 64
Income taxes $ 7 $ 12
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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") and Oak
Hill Sportswear Holding Corporation, which was inactive. 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 and Form 10-K/A for its
year ended December 31, 1999.
Note 2 - 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, 2000 and 1999 were 2,467,576 for both computations.
Net loss used in the computation of basic and diluted net 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 230,000 shares at prices ranging from $2.00 to $5.00
per share were outstanding at March 31, 2000, and options to purchase 304,000
shares at prices ranging from $2.00 to $5.00 per share were outstanding at March
31, 1999, but were not included in the computation of diluted net loss per share
because the effect of their inclusion would have been antidilutive.
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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, 2000 was $230,000 as compared to $415,000 at
December 31, 1999. The decrease of $185,000 was primarily due to capital
expenditures and long-term debt repayment at WCI.
Net accounts receivable were $3,399,000 at March 31, 2000 as compared to
$2,629,000 at December 31, 1999, an increase of $770,000. The increase in
accounts receivable was due to higher revenues in the quarter ended March 31,
2000 as compared to the fourth quarter of 1999.
WCI executed, effective November 10, 1998, a revolving credit agreement with
Wells Fargo Bank, N.A. The credit agreement, as amended, which expires June 9,
2000, calls for interest payable at Wells Fargo's prime rate, as in effect from
time to time, plus 2% and borrowings up to 75% of eligible accounts receivable
subject to a maximum of $2,000,000 (reduced by approximately $100,000 of
equipment loans made to WCI by Wells Fargo). At March 31, 2000, WCI had
$1,212,000 borrowed under the credit agreement, in addition to approximately
$75,000 of equipment loans made by Wells Fargo to WCI. The Company has
guaranteed WCI's borrowings under the credit agreement, which is also secured by
WCI's accounts receivable and all other assets (with the exception of vehicles
and equipment subject to purchase contract lending agreements with third party
lenders.) In addition, the credit agreement provides for certain financial
covenants based upon WCI's financial condition, including its current ratio and
tangible net worth.
In order to meet its working capital needs at the corporate level, the
Company has negotiated a line of credit with HSBC Bank (USA) (formerly Republic
National Bank of New York), which provides for $500,000 in borrowings, secured
by REXX's assets, and interest payable at HSBC's reference rate plus 1%. This
line of credit is evidenced by a demand grid note in the maximum amount of
$500,000. At March 31, 2000, the Company had $380,000 borrowed under the line of
credit. The Company's borrowings under this line of credit have been guaranteed
by its Chairman of the Board, Arthur L. Asch and secured by a certificate of
deposit in the amount of $250,000 deposited by Mr. Asch with the bank. Mr. Asch
is not being compensated by the Company for providing the guarantee and
additional collateral. The Company's management believes that, if the
shareholders approve the WCI sale and the sale closes, this line of credit will
be sufficient to provide the Company with the necessary working capital to meet
its needs through the completion of the WCI sale. However, there is no assurance
that (i) the line of credit will, in fact, be sufficient to provide for the
Company's corporate level working capital needs until the completion of the WCI
sale; (ii) repayment of all or a portion of the Company's borrowings under this
line of credit will not be demanded prior to June 30, 2000; (iii) HSBC Bank will
extend this line of credit beyond June 30, 2000, if requested by the Company; or
(iv) Mr. Asch will continue to provide his guarantee and collateral beyond June
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30, 2000. The discontinuance of this line of credit, by any action of HSBC Bank,
as a result of Mr. Asch's failure to continue his guarantee or collateral beyond
June 30, 2000 or otherwise, could have a material adverse effect on the Company.
On June 15, 1999, the Company announced that it had signed a definitive
agreement to sell WCI to Greg Watkins and Daren Barone (or their permitted
assignees) for $1,300,000 in cash and 125,000 shares of REXX Environmental
Corporation common stock, as well as certain other consideration. Subsequently,
the terms were amended to provide that Messrs. Watkins and Barone could pay the
Company $171,875 in cash in lieu of the 125,000 shares of REXX common stock, at
their option at the time of closing. The sale of WCI is subject to the approval
of the Company's shareholders. Based on preliminary estimates, if the Company's
shareholders approve the sale of WCI and it closes, on closing the Company will
record a loss on the sale of WCI of approximately $2,800,000 which represents
the difference between the net proceeds that the Company will receive and the
combined value of the investment and goodwill that is recorded on the Company's
books. This preliminary estimate is subject to further review and valuations at
the time the proposed sale closes.
On December 9, 1999, the Company announced that it had signed a definitive
agreement for a subsidiary of TWG, Inc. to merge with and into REXX, subject to
the approval of REXX's shareholders and certain other conditions, including the
closing of the sale of WCI. TWG, Inc. would become the publicly traded parent
company. In January 2000, TWG, Inc. changed its name to Newtek Capital, Inc.
("Newtek"). If the Company's shareholders approve the transaction and it closes,
Newtek's current shareholders are expected to own 18,514,285 shares of Newtek
common stock and the Company's shareholders are expected to own 1 share of
Newtek for each share of the Company's common stock they currently own, or a
total of 2,467,576 shares.
Newtek is primarily engaged in the business of developing, incubating and
investing in early-stage high-growth businesses through the structuring,
funding, and development of these companies, principally focused on technology
and the internet. As of March 31, 2000, Newtek has provided business development
services including funding for 16 companies.
Following the Newtek/REXX merger, the business of REXX will consist
exclusively of winding down and liquidating the remaining REXX assets. The
environmental remediation business conducted by REXX prior to the WCI sale will
no longer be owned or operated by REXX. Newtek does not contemplate any new
business activity through REXX although such is possible if an attractive
opportunity is available.
REXX has filed a preliminary proxy statement and Newtek will file a
Registration Statement with the Securities and Exchange Commission for
shareholder approval of the WCI sale and the Newtek transaction. These documents
will include information about each of the companies, their subsidiaries, REXX's
proposed sale of WCI, and the merger of a subsidiary of Newtek with and into
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REXX. As soon as practicable after Securities and Exchange Commission filings
become effective, the proxy/prospectus will be mailed to REXX's shareholders and
they will be asked to vote for the approval of both the sale of WCI and the
merger with Newtek. If REXX shareholders approve both transactions, it is
expected that the sale of WCI and the merger with Newtek will close in June or
July 2000.
Results of operations:
Revenues, which consisted of WCI's contract revenues, were $4,007,000 in
the first quarter ended March 31, 2000 compared to $3,500,000 in the comparable
period of 1999. The increase was mainly due to the inclusion of an unusually
high revenue project in the first quarter of 2000.
Gross profit in the first quarter of 2000 amounted to $925,000 compared to
$414,000 in the same period of 1999. The increase in the 2000 period compared to
the prior year was the result of (i) higher revenues, (ii) a decreased
percentage of revenue from lower margin demolition activities compared to
revenues from abatement activities, and (iii) work on an unusually high revenue,
high margin project.
General and administrative expenses declined in the first quarter ended
March 31, 2000 to $841,000 from $960,000 in the comparable quarter in 1999. The
decrease was achieved at the corporate level and at WCI, principally as a result
of lower compensation expense.
Interest expense-net increased to $62,000 in the quarter ended March 31,
2000 from $54,000 in the comparable period of 1999. The increase was due to
higher interest rates payable in the first quarter ended March 31, 2000 as
compared to the first quarter of 1999, which more than offset lower borrowing
levels from its bank and equipment finance companies during the first quarter of
2000 compared to 1999.
Amortization of goodwill remained constant in the first quarter of 2000
compared to 1999 as the Company is utilizing straight line amortization.
Provision for income taxes fell to $0 in the quarter ended March 31, 2000
from $3,000 in the prior year period. The 1999 provisions represent state and
local franchise taxes. In both periods, the Company recorded no provision for
federal income taxes as the Company recorded an operating loss in the first
quarter of 2000 and 1999.
Forward looking information:
From time to time, the Company or its representatives may have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made by or with the approval of an authorized executive officer, or
in this report or other filings made by the Company with the Securities and
Exchange Commission.
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The words or phrases "trend," "expectation," "plans to," "preparing to," "will
be," 'will consist," "will use," "will allow," "will require," "may," "likely
result," "expected," "anticipated," "estimated," "projected," "potential,"
"opportunity," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the fullest extent
possible the protections of the safe harbor established in the said Act.
Accordingly, such statements are qualified in their entirety by reference to and
are accompanied by the following discussion of certain important factors that
could cause actual results to differ materially from such forward-looking
statements.
Investors should also be aware of factors that could have an impact on the
Company's business or financial position or performance. These include
intensified competition and its impact on revenues and profit margins, changes
in competitors business strategies, availability of qualified labor to meet the
Company's needs, ability to retain current labor, adverse changes in national
and local economic conditions, adjustments in fiscal funding levels for
government entities, timing of large contracts, increasingly stringent
requirements for compliance with government regulations, the availability of
capital under WCI's credit agreement, future borrowing limits and interest rates
under the credit agreement, WCI and the Company's continued reliance upon
waivers of noncompliance from Wells Fargo, risks associated with the potential
sale of WCI, the Company's potential inability to sell WCI due to the non-
approval of the Company's shareholders or other reasons, risks associated with
the proposed business combination with Newtek, the Company's potential inability
to complete a business combination with Newtek, the impact and risk of
shareholder dilution, and other factors detailed from time to time in the
Company's Securities and Exchange Commission filings or other readily available
or generally disseminated writings. The risks identified here are not all
inclusive. Reference is also made to other parts of this report and to the
Company's Form 10-K for its year ended December 31, 1999 that include additional
information concerning factors that could adversely impact the Company's
business or financial position or performance. Moreover, the Company operates in
a changing and very competitive business environment. New risks may emerge from
time to time, and it is not possible for management to predict all risk factors,
nor can it necessarily identify or assess the impact of all such factors on the
Company or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statement. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No report on Form 8-K was filed during the first quarter ended March
31, 2000.
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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 15, 2000 By: /s/ Arthur L. Asch
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Arthur L. Asch, Chairman of the Board
Date: May 15, 2000 By: /s/ Michael A. Asch
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Michael A. Asch, President and Treasurer
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