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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 June 30, 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 August 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 -
June 30, 2000 and December 31, 1999 3
Consolidated statements of operations -
three months ended June 30, 2000 and 1999 4
Consolidated statements of operations -
six months ended June 30, 2000 and 1999 5
Consolidated statements of cash flows -
six months ended June 30, 2000 and 1999 6
Notes to consolidated financial statements 7
Management's discussion and analysis of
financial condition and results of operations 8-11
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 646 $ 85
Accounts receivable - net 3,376 2,629
Costs in excess of billings 781 831
Assets held for sale 780 780
Other current assets 218 194
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Total current assets 5,801 4,519
Property and equipment, net 1,722 1,378
Goodwill 2,597 2,703
Other assets 35 17
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$ 10,155 $ 8,617
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Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 614 $ 639
Notes payable-bank 965 1,030
Accounts payable 1,814 1,749
Billings in excess of costs 787 126
Accrued expenses 938 465
Income taxes payable 85 95
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Total current liabilities 5,203 4,104
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Long-term debt, net of current portion 382 606
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Stockholders' equity:
Preferred stock, $1.00 par value, authorized
1,000,000 shares; -0- shares issued
Common stock, $.02 par value, authorized
12,000,000 shares; 5,279,828 shares issued 105 105
Capital in excess of par value 27,925 27,925
Accumulated deficit (6,452) (7,115)
Common stock held in treasury, at cost
(2,812,252 shares) (17,008) (17,008)
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Total stockholders' equity 4,570 3,907
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$ 10,155 $ 8,617
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</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)
<TABLE>
<CAPTION>
Three months ended
June 30,
2000 1999
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<S> <C> <C>
Revenues $ 4,931 $ 4,652
Cost of services 3,423 3,453
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Gross profit 1,508 1,199
General and administrative expenses 762 816
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Income from operations 746 383
Other expenses:
Interest expense, net 56 75
Other expense 10 30
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Income before provision for taxes 680 278
Provision for taxes 4 6
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Net income $ 676 $ 272
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Per share data:
Basic $.27 $.11
Diluted $.26 $.11
Weighted average shares outstanding:
Basic 2,468 2,468
Diluted 2,568 2,468
</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)
<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
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<S> <C> <C>
Revenues $ 8,938 $ 8,152
Cost of services 6,505 6,539
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Gross profit 2,433 1,613
General and administrative expenses 1,603 1,776
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Income (loss) from operations 830 ( 163)
Other expenses:
Interest expense, net 118 129
Other expense 45 43
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Income (loss) before provision for taxes 667 ( 335)
Provision for taxes 4 9
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Net income (loss) $ 663 ($ 344)
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Per share data:
Basic $.27 ($.14)
Diluted $.26 ($.14)
Weighted average shares outstanding:
Basic 2,468 2,468
Diluted 2,591 2,468
</TABLE>
See notes to consolidated financial statements.
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REXX ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $ 663 ($ 344)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 266 239
Loss on disposal of assets 35 0
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964 ( 105)
Changes in assets and liabilities 450 312
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Net cash provided by operating
activities 1,414 207
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Cash flows used in investing activities:
Capital expenditures ( 588) ( 156)
Net proceeds on disposal of assets 49 31
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Net cash used in investing
activities ( 539) ( 125)
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Cash flows from financing activities:
Net short-term (repayments) ( 65) ( 100)
Principal payment of long-term debt ( 249) ( 29)
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Net cash (used in)
financing activities ( 314) ( 129)
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Net increase (decrease) in cash 561 ( 47)
Cash at beginning of period 85 68
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Cash at end of period $ 646 $ 21
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Supplemental disclosures of cash flow information:
Changes in assets and liabilities:
Accounts receivable ($ 747) $ 226
Costs in excess of billings 50 ( 12)
Other current assets ( 24) ( 70)
Other assets ( 18) 10
Billings in excess of costs 661 ( 156)
Accounts payable and accrued expenses 538 316
Income taxes payable ( 10) ( 2)
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$ 450 $ 312
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Cash paid - net during the period for:
Interest $ 116 $ 127
Income taxes $ 14 $ 18
</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") 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 net income per share for the second quarter and six
months ended June 30, 2000 was 2,467,576, while the number of shares used in the
computation of diluted net income per share was 2,568,393 for the second quarter
and 2,591,198 for the six months ended June 30, 2000. The number of shares used
in the computations for basic and diluted net income per share for the second
quarter and six months ended June 30, 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 210,000 shares at prices ranging from $2.00
to $5.00 per share were outstanding at June 30, 2000. The dilutive impact of
such options is the addition of 100,817 and 123,622 shares to weighted average
diluted shares outstanding for the second quarter and six months ended June 30,
2000, respectively, and approximately $.01 decrease in earnings per share for
both periods. Options to purchase 304,000 shares at prices ranging from $2.00 to
$5.00 per share were outstanding at June 30, 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 June 30, 2000 was $598,000 as compared to $415,000 at
December 31, 1999. The increase of $183,000 was primarily due to net income
during the period, offset in part by capital expenditures and long-term debt
repayment at WCI.
Net accounts receivable were $3,376,000 at June 30, 2000 as compared to
$2,629,000 at December 31, 1999, an increase of $747,000. The increase in
accounts receivable was due to higher revenues in the quarter ended June 30,
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 expired June
9, 2000, and is currently the subject of discussions for an extension to
September 30, 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. At June 30, 2000, WCI
had $500,000 borrowed under the credit agreement. The Company has guaranteed
WCI's borrowings under the credit agreement, which is also collateralized 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 $600,000 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
$600,000. At June 30, 2000, the Company had $465,000 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 collateralized by a certificate
of deposit in the amount of $350,000 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 September 30, 2000; (iii) HSBC Bank
will extend this line of credit beyond September 30, 2000, if requested by the
Company; or (iv) Mr. Asch will continue to provide his guarantee and collateral
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beyond September 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 September 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 $3,750,000 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, funding and
structuring early-stage companies, principally focused on high technology and
the internet.
Newtek has been working to expand its business development activities, and
its goal is to be a premier business partner for its partner companies by
helping them implement their business strategies in a manner consistent with
Newtek's objectives. Newtek is in the early stages of operation as a holding
company for a network of partner companies in a collaborative and coordinated
effort to develop successful businesses in a number of emerging, technical
areas.
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 has filed a
Registration Statement with the Securities and Exchange Commission for
shareholder approval of the WCI sale and the Newtek transaction. These documents
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. These Securities and Exchange Commission filings became effective on
August 14, 2000 and the proxy/prospectus will be mailed shortly to REXX's
shareholders. At a shareholders' meeting scheduled for September 19, 2000 REXX's
shareholders 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 September
2000.
Results of operations:
Revenues, which consisted of WCI's contract revenues, were $4,931,000 and
$8,938,000 in the second quarter and six months ended June 30, 2000,
respectively, compared to $4,652,000 and $8,152,000 in the comparable periods of
1999. The increase in both periods was mainly due to an unusually high revenue
project in the second quarter and six months ended June 30, 2000.
Gross profit in the six months ended June 30, 2000 amounted to $2,433,000
compared to $1,613,000 in the same period of 1999. Gross profit in the second
quarter amounted to $1,508,000 compared to $1,199,000 in the second quarter of
1999. The increase in gross profit in both periods of 2000 as compared to 1999
was principally due to WCI's work on an unusually high revenue, high margin
project during the quarter and six months ended June 30, 2000 as compared to
historical results.
General and administrative expenses declined in the second quarter and six
months ended June 30, 2000 to $762,000 and $1,603,000, respectively, from
$816,000 and $1,776,000, respectively, in the comparable periods in 1999. The
decrease was achieved primarily at the corporate level and WCI as a result of
lower compensation expense.
Interest expense-net decreased to $56,000 and $118,000 in the second
quarter and six months ended June 30, 2000 from $75,000 and $129,000 in the
comparable periods of 1999. The decreases were due to WCI's lower borrowing
levels from its bank and equipment finance companies during the second quarter
and first half of 2000 compared to the comparable periods of 1999, offset in
part by higher borrowings at the corporate level during 2000.
Amortization of goodwill remained constant in the second quarter and first
half of 2000 compared to 1999 as the Company is utilizing straight line
amortization.
Provision for income taxes fell to $4,000 in the second quarter and six
months ended June 30, 2000 from $6,000 and $9,000 in the prior year periods. The
2000 and 1999 provisions represent state and local franchise taxes. In both
periods, the Company recorded no provision for federal or state income taxes as
the Company utilized net operating loss carryforwards in 2000 and recorded an
operating loss in the first half of 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
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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. 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 second quarter ended
June 30, 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: August 15, 2000 By: /s/ Arthur L. Asch
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Arthur L. Asch, Chairman of the Board
Date: August 15, 2000 By: /s/ Michael A. Asch
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Michael A. Asch, President and Treasurer
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