-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJlTHP9BtCiJzWHCTof6FBZzZOdR38RTpm+5lR0dsXJX1rdV3xB+aR4G8M8Gn3RP kPd6xfq0gdHS1JkYqi6hMw== 0000950116-00-001247.txt : 20000516 0000950116-00-001247.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950116-00-001247 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REXX ENVIRONMENTAL CORP CENTRAL INDEX KEY: 0000012203 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 132625545 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14121 FILM NUMBER: 635820 BUSINESS ADDRESS: STREET 1: 350 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127507755 MAIL ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: OAKHILL SPORTSWEAR CORP /NY/ DATE OF NAME CHANGE: 19940131 FORMER COMPANY: FORMER CONFORMED NAME: BIO MEDICAL SCIENCES INC DATE OF NAME CHANGE: 19830725 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTRONIC SCIENCES INC DATE OF NAME CHANGE: 19690415 10-Q 1 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 -------------- -------- REXX ENVIRONMENTAL CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 13-2625545 - ------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S Employer of incorporation) Identification Number) 445 PARK AVENUE, NEW YORK, NEW YORK 10022 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 750-7755 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (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 15, 2000, the registrant had 2,467,576 shares of common stock outstanding. Page 1 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 Page 2 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 ------- ------- Total current assets 5,517 4,519 Property and equipment, net 1,476 1,378 Goodwill 2,650 2,703 Other assets 36 17 ------- ------- $ 9,679 $ 8,617 ======= ======= 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 ------- ------- Total current liabilities 5,287 4,104 ------- ------- Long-term debt, net of current portion 498 606 ------- ------- 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) ------- ------- Total stockholders' equity 3,894 3,907 ------- ------- $ 9,679 $ 8,617 ======= ======= See notes to consolidated financial statements. Page 3 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 ------- ------- Gross profit 925 414 General and administrative expenses 841 960 ------- ------- Income (loss) from operations 84 ( 546) Other income: Interest expense, net ( 62) ( 54) Other expense ( 35) ( 13) ------- ------- Loss before provision for taxes ( 13) ( 613) Provision for taxes 0 3 ------- ------- Net loss ($ 13) ( 616) ======= ======= 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. Page 4 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 ------ ------ 156 ( 502) Changes in assets and liabilities 105 836 ------ ------ Net cash provided by operating activities 261 334 ------ ------ Cash flows used in investing activities: Capital expenditures ( 263) ( 37) Net proceeds on disposal of assets 49 31 ------ ------ Net cash used in investing activities ( 214) ( 6) ------ ------ Cash flows from financing activities: Net short-term borrowings (repayments) 562 ( 100) Principal payment of long-term debt ( 120) ( 69) ------ ------ Net cash provided by (used in) financing activities 442 ( 169) ------ ------ Net increase in cash 489 159 Cash at beginning of period 85 68 ------ ------ Cash at end of period $ 574 $ 227 ====== ====== 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) ------ ------ $ 105 $ 836 ====== ====== Cash paid - net during the period for: Interest $ 60 $ 64 Income taxes $ 7 $ 12 Page 5 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. Page 6 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 Page 7 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 Page 8 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. Page 9 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. Page 10 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. Page 11 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 ------------------- Arthur L. Asch, Chairman of the Board Date: May 15, 2000 By: /s/ Michael A. Asch ------------------- Michael A. Asch, President and Treasurer Page 12 -----END PRIVACY-ENHANCED MESSAGE-----