<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                              Commission File Number

    December 31, 1998                                         0-5613 
-------------------------                              ---------------------- 

                   REXX ENVIRONMENTAL CORPORATION   
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          New York                                     13-2625545 
-------------------------------              ------------------------------- 
(State or other jurisdiction of              (I.R.S. Employer Identification
 incorporation or organization)              Number)

  350 Park Avenue, New York, New York                 10022    
-------------------------------------------       ---------------
(Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code (212) 750-7755
                                                   --------------

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, par value $.02
--------------------------------------------------------------------------------
                                (Title of Class)

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       
                                                            -------       ------
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in the
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

Based on the closing price on March 9, 1999, the aggregate market value of
voting stock held by nonaffiliates of the registrant (assuming that all the
stock referred to under Item 12 hereof is held by affiliates) was approximately
$2,270,000.

As of March 9, 1999, the registrant had 2,467,576 shares of $.02 par value
common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                   Document                          Part of Form 10-K
                   --------                          -----------------
Portions of definitive proxy statement for           As referred to in
the 1999 Annual Meeting of Shareholders              Part III - Items
which may be filed pursuant to Regulation 14A        10, 11, 12 and 13.
under the Securities Exchange Act
of 1934.

Exhibit index of pages 36 - 38
                             1 OF 40 PAGES

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                         REXX ENVIRONMENTAL CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                        FOR YEAR ENDED DECEMBER 31, 1998

                                     PART I

Item 1. Business:

General - Current

         REXX Environmental Corporation's operating subsidiary, Watkins
Contracting, Inc. ("WCI"), is a leading regional provider of asbestos-abatement
services, demolition and dismantling services and other related specialty
contracting services, including lead paint abatement, to a broad range of
governmental, commercial, industrial and institutional clients located primarily
in California.

         During the course of 1998, WCI performed a higher percentage of
demolition projects relative to prior years, which resulted in lower gross
margins during 1998, particularly in the fourth quarter, when the Company
incurred a substantial net loss, causing a net loss for the year. Unanticipated
difficulties associated with many demolition projects caused losses and lower
than planned gross profits on large projects, especially in the fourth quarter,
due principally to: (a) higher than planned costs to complete jobs, including
additional hauling and disposal fees, as well as for extra labor, especially on
jobs performed outside WCI's primary San Diego County region; (b) an inability
to maximize the utilization of WCI-owned equipment and minimize use of leased
equipment when delays on out of town projects arose; (c) higher labor and living
costs on out of town projects which were not completed on an efficient or timely
schedule; (d) the need to reserve for future projected losses on certain
projects; and (e) the elimination of a large portion of the revenue on a project
that had been completed because the customer notified WCI in January 1999 that
it would not pay for work performed under a verbal (i.e., unsigned) change order
(however, WCI expects to collect most or all of this disputed amount in the
future by utilizing available dispute mechanisms.)

         As a result of the losses incurred in the fourth quarter and fiscal
year ended December 31, 1998, as of year-end the Company and WCI were not in
compliance with the financial covenants of WCI's revolving credit agreement
expiring November 1999 with Wells Fargo Bank, which is guaranteed by the
Company. WCI and the Company have received a waiver of its year-end covenant
non-compliance from Wells Fargo and, as of March 26, 1999, WCI and the Company
are in discussions with Wells Fargo regarding a resetting of the financial
covenants for the future and changes to WCI's borrowing limits and interest
rates payable under the credit agreement.

         As of March 26, 1999, on a preliminary basis, Management anticipates
that the Company will incur a loss in the first quarter ended March 31, 1999,
which is expected to be smaller than the loss incurred in the fourth quarter of
1998. The Company has taken actions to improve its gross margins at WCI going
forward and to reduce expenses both at WCI and the corporate level in an attempt
to achieve profitable results from operations in the second quarter of 1999.

         Because of its working capital constraints and in order to concentrate
more fully on the necessary actions to improve existing operations, the Company
has suspended its activity for external growth of its environmental and
demolition business through acquisitions or the opening of additional regional
offices.

         As of March 26, 1999, the Company is in negotiations to sell WCI. If
WCI is sold, the Company expects to continue the effort begun in the first
quarter of 1999 to identify potential business combinations for the Company. As
the Company is not, and does not anticipate being, in a favorable cash position,
potential new business combinations are expected to rely upon the issuance of
the Company's common stock for the major portion of the consideration required
to complete a transaction. There is no assurance that a business combination
will take place and, if a transaction does occur, that the Company's
shareholders will not incur significant dilution as a result of the Company's
issuance of its common stock as consideration. A sale of WCI and/or a business
combination may require approvals of the Company's shareholders.

                                 2 of 41 Pages
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         In the event the Company does not sell WCI, it will face certain
constraints based upon its working capital requirements and WCI's credit
agreement with Wells Fargo. These constraints will result in continuing with
suspension of the Company's external growth efforts in its environmental and
demolition business, as well as a reevaluation of the projects WCI bids,
contracts for and performs in the future. In order to exercise greater control
over field expenses and projects, particularly those involving demolition,
management anticipates that WCI will seek less work outside of its primary San
Diego County geographic area. In addition, projects which utilize equipment
owned by WCI rather than third party rentals will be more attractive to WCI in
the bidding process. However, even if the Company and WCI are successful in
negotiating a resetting of the financial covenants in the credit agreement and
acceptable borrowing limits and interest rates payable, it is likely that WCI
will not be able to increase its revenues significantly in 1999, and may, in
fact, shrink its revenues, as a result of working capital constraints.

         If the negotiations to well WCI which are underway at March 26, 1999
fail to produce a sale of WCI, the Company may seek additional parties
interested in purchasing WCI. Whether or not it contracts to sell WCI, the
Company may seek additional opportunities to effect a business combination.
There is no assurance that the Company will be successful in finding any
acceptable opportunities for business combinations or that it will find other
potential purchasers for WCI.

General - Historical

         REXX Environmental Corporation (the "Company") was incorporated in New
York in 1967 as Computronic Sciences Inc. The Company changed its name in 1969
to Bio-Medical Sciences, Inc. and, from 1969 to 1979, the Company was primarily
a manufacturer and marketer of disposable thermometers and sterilization
monitors. In 1979, the Company acquired substantially all of the assets of Oak
Hill Sportswear, Inc., and became primarily engaged in the manufacture and
marketing of women's apparel and accessories. In 1983, the Company changed its
name to Oak Hill Sportswear Corporation. In 1984, the Company sold its
disposable medical devices business. From 1984 to 1995, the Company was engaged
exclusively in the importation, manufacture, marketing and distribution of
women's apparel and accessories. As of June 30, 1995, the Company sold its
women's apparel business. Its accessories business was phased out and its
operating assets were sold during 1996 and 1997.

         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. On February 18, 1998, in order to more accurately
reflect its current business operations, the Company changed its name to REXX
Environmental Corporation pursuant to an amendment to its certificate of
incorporation.

                                  3 OF 41 PAGES

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Asbestos-Abatement and Demolition Operations

         WCI provides asbestos-abatement, demolition and dismantling services
and other specialty contracting services from its headquarters office located in
San Diego, California. WCI is licensed to conduct asbestos-abatement services in
California and currently provides such services with non-union labor. WCI is
licensed to conduct demolition and dismantling services in California and
currently provides such services with non-union labor; WCI also often utilizes
subcontractor and temporary labor.

         An asbestos-abatement or demolition program is focused on meeting the
needs of the facility owner or operator to effect the abatement or demolition
and manage properly the financial, regulatory and safety-related risks
associated with a project. WCI's abatement and demolition services require the
coordination of several processes: marketing, estimating, bidding and
contracting, project management, health and safety programs and the actual
asbestos removal or dismantling and demolition. WCI's management maintains
administrative and operational control over all phases of a project, from
estimating and bidding through project completion.

The Bidding and Contract Process

         WCI obtains work and performs services under contract, often on the
basis of plans, specifications or requirements prepared by the client or the
client's agent. While some of its contracts are entered into directly with its
clients without a formal bidding process, WCI receives the majority of its
asbestos-abatement and demolition and dismantling contracts through a bidding
process. The majority of WCI's projects are contracted on a fixed-price basis,
while the remainder are contracted either on a time and materials or a
unit-price basis. Contracting opportunities are identified by management and the
local sales force and are entered into following competitive bidding or direct
negotiations with the customer or its agent. Generally, these contracts
encompass supplying project management, labor, tools, equipment and materials.
In most cases, a significant portion of the total costs incurred by WCI's
asbestos-abatement operations is attributable to labor, while a significant
portion of the total costs of its demolition and dismantling operations is
attributable to equipment costs and hauling and disposal charges. While large
abatement contracts may last more than one year, the majority of WCI's projects
are completed within two months of inception. In accordance with industry
standards, a 10% retention amount is withheld from gross billings by customers
on certain projects until the final completion of such projects.

Project Management

         Each asbestos-abatement or demolition project is coordinated and
supervised by a project manager who selects the requisite equipment, ensures
contract compliance and supervises all personnel. The project manager reviews
the progress of the project, which includes any subsequent change orders. The
day-to-day documentation

                                  4 OF 41 PAGES

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of air testing, lead monitoring and final clearance analysis is an important
part of the process and is generally provided by the client's consultants.

Health and Safety

         WCI's written Safety Program, which is issued to all supervisory
personnel, contains specific outlines for all safety, health and regulatory
requirements associated with an asbestos-abatement project. During the
asbestos-abatement process, WCI engages in daily personal air monitoring and
during the demolition and dismantling process, WCI engages in daily personal air
monitoring as well as lead, heavy metal and other contaminant testing. It is
WCI's policy to comply with all regulatory and safety requirements.

The Abatement and Demolition Process

         WCI's workers remove asbestos in accordance with the regulations of the
Environmental Protection Agency ("EPA"), OSHA and applicable state and local
regulations. Throughout the abatement process, air samples are taken to indicate
the level of airborne fibers both inside and outside the work area to protect
the workers and the building occupants. The environmental consultant, engineer
or industrial hygienist tests air samples from the work area both during and
upon completion of the project to monitor compliance with job specifications.

         A thorough cleaning of the work area is conducted after removal, which
includes high-efficiency particulate air filter vacuuming and wet mopping of all
surfaces. All barriers erected during the

                                  5 OF 41 PAGES

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asbestos-abatement project are dismantled and disposed of in the same manner as
asbestos waste. WCI encapsulates the area from which asbestos was removed by
applying a penetrating encapsulant in an effort to seal off remaining fibers.

         WCI performs commercial and governmental demolition and industrial
dismantling for public and private customers, primarily in California. All work
is done in accordance with the specifications prepared by the owner and in
accordance with all applicable OSHA, EPA, and state and federal governmental
regulations.

         Commercial and governmental demolition involves demolishing high-rise
office buildings, hospitals, apartment complexes and other buildings. WCI's
workers, utilizing specialized equipment, demolish the buildings and remove the
debris off site. Materials generated from demolition activities are either
recycled or disposed of in a licensed landfill.

Markets and Customers

         California is WCI's primary market for its asbestos-abatement,
demolition and dismantling and other specialty contracting services. WCI's
headquarters is located in San Diego, California.

         WCI believes that its primary clients, which include general
contractors, governmental agencies, large industrial processing and
manufacturing corporations, insurance companies, real estate development
companies and owners and tenants of large commercial and governmental
facilities, tend to emphasize quality and safety along with price considerations
in making their decision. WCI typically contracts directly with general
contractors, owners, operators or tenants of properties and works closely with
the environmental consultant of the customer in performing removal services.

         WCI markets its services directly to companies that are in need of
asbestos-abatement or demolition and dismantling services, to general
contractors who oversee large renovation projects, and to asbestos-abatement
consulting firms from which WCI receives asbestos project referrals because of
its reputation and experience. During 1998, one customer accounted for
approximately 13% of the Company's revenues for the year. No other customer
accounted for more than 10% of 1998 revenues. During the short period from the
date of the Company's acquisition of WCI, October 21, 1997, to December 31,
1997, one customer accounted for approximately 28% of the Company's revenues due
to the completion of a large project during the period.

                                  6 OF 41 PAGES

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Seasonality

         WCI's business is subject to variations in revenue and net income for
interim periods and from year to year, and increased revenue may not always
result in a corresponding increase in net income. These conditions are due to a
number of characteristics shared by WCI to varying degrees with most other
members of the industry, including the following: (1) its businesses are
affected by the scheduling of work at commercial properties, fiscal funding of
projects by government entities, outages at utilities and shutdowns at other
industrial facilities; (2) its asbestos business is labor intensive whereas its
demolition business is equipment intensive; (3) its performance on a given
project is often dependent on the performance of other contractors, who are
working on the same job, over which WCI has no control; and (4) costs ultimately
incurred by WCI on a job may be materially affected by such risks as technical
problems, labor shortages and disputes, time extensions, weather, delays caused
by external sources and fluctuations in the prices of materials. Revenue and
operating results of asbestos-abatement activities may also be affected by the
timing of large contracts, especially if all or a substantial part of the
performance of such contracts occurs within one or two quarters. Accordingly,
quarterly results or other interim results should not be considered indicative
of results to be expected for any other quarter or for the full fiscal year.

Competition

         The market for WCI's services is fragmented and highly competitive.
WCI's ability to compete as a provider of asbestos-abatement and demolition and
dismantling services depends upon pricing its services competitively, having the
ability to respond promptly and with adequate amounts of resources, having a
reputation for quality and safety, being able to obtain appropriate bonding and
insurance, and hiring, training and retaining qualified personnel, particularly
in the areas of estimating and project management. While WCI is a significant
participant in the asbestos-abatement and demolition and dismantling services
market in California, it experiences competition from national, regional and
local firms, some of which have greater resources and experience.

Insurance and Bonding

         WCI has established an insurance program that has been tailored to meet
the mutual risk management needs of its customers and WCI. The primary package
begins with commercial general liability, automobile liability and workers'
compensation policies. This plan is written with an A. M. Best Rated A+ XV
carrier. The Company carries an umbrella policy of $9,000,000 which, when added
to the base policy limits of $1,000,000 per occurrence ($2,000,000 aggregate),
extends coverage under general liability, automobile liability and workers'
compensation policies to $10,000,000 per occurrence ($11,000,000 aggregate)
each. Effective as of July 1, 1998, the Company's retained liability per
occurrence under the general liability policy is $0 for defense and $5,000 for
indemnity, the Company's retained liability under the automobile liability
policy is $1,000 per occurrence and liability under the workers' compensation
policy is covered 100%, without retention, up to the policy limits.

                                  7 OF 41 PAGES

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         Public asbestos-abatement and demolition and dismantling projects
require that WCI post surety bonds as guarantees of performance of WCI's
contracts. The bonds are required to protect the interests of the general
public, as public funding is utilized in project financing. Additionally, surety
bonds also guarantee that WCI will pay all of its bills, including suppliers and
subcontractors who are working on projects for WCI. Similarly, many private
projects also require surety bonds to serve as protection and provide guarantees
for private owners.

         The Company has an existing surety relationship with ECS Underwriting,
Inc. (Reliance Insurance Companies).

Employees

         As of December 31, 1998, REXX Environmental Corporation (including WCI)
had approximately 159 employees (including 4 leased employees), of which
approximately 5 were employed as executives, approximately 7 provided project
management, technical or engineering services, approximately 11 were employed in
sales, clerical and data processing activities and approximately 136 were
employed in other capacities, principally hourly labor. During 1998, the number
of hourly-rate employees of the Company ranged from 102 to 140. WCI considers
its relations with its employees to be satisfactory and has not experienced any
work stoppages or slowdowns.

Patents and Service Marks

         The Company and WCI do not own any patents or service marks.

Governmental Regulation

         The asbestos-abatement and demolition and dismantling process is
regulated by the federal government through the EPA, OSHA and the Department of
Transportation ("DOT"). EPA regulations establish standards for the control of
asbestos fiber and airborne lead emissions into the environment during removal
and demolition projects. AHERA mandates that public schools inspect for levels
of asbestos contamination and prepare a specific management plan for appropriate
remedial action. OSHA regulations establish maximum airborne asbestos fiber,
airborne lead and heavy metal exposure levels applicable to asbestos and
demolition employees and set standards for employee protection during the
demolition, removal or encapsulation of asbestos, as well as storage,
transportation and final disposition of asbestos and demolition debris.



                                  8 OF 41 PAGES


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         DOT regulations cover the management of the transportation of asbestos
and demolition debris and establish certain certification labeling and packaging
requirements. In addition, under the Comprehensive Environmental Response,
Compensation and Liability Act, also known as the Superfund Act, companies which
arrange for the transportation and disposal of asbestos waste materials may be
exposed to liability relating to the disposal of such material at sites which
are or may be designated as national priority list sites.

         The states in which WCI currently operates have adopted laws and
regulations governing the conduct of asbestos-abatement contractors. Such laws
and regulations generally require the training and licensing of
asbestos-abatement contractors and their workers and notice before the
commencement of any asbestos-abatement project and specify standards of
performance for the asbestos removal process. In addition, some states authorize
municipalities to adopt more stringent standards.

         Management believes that governmental authorities are likely to adopt
further, similar laws and regulations and that existing laws and regulations are
going to become more restrictive. The regulations concerning asbestos-abatement
are primarily promulgated on the state and local level. In addition, although
subject to change, OSHA has adopted regulations to which WCI's operations are
subject. Many of the regulations are complex and frequently amended and,
therefore, WCI's management is unable to predict what, if any, impact such
regulations will have

                                  9 OF 41 PAGES


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on its revenues, results of operations or financial condition. As a result of
the extensive regulation, WCI is, has been and may in the future be, subject to
audits and investigations by federal, state and local governmental agencies.
Although its management believes that WCI is in substantial compliance with all
regulatory requirements, because of the changing regulatory environment, there
can be no assurance that violations by WCI of federal, state or local laws and
regulations may not have occurred, or will not occur in the future, or that
changes in such laws and regulations would not have an adverse effect on WCI's
business or position. Failure to comply with regulations could result in the
imposition of civil and criminal penalties, any of which could have a material
adverse effect upon WCI's business.

Licensing Requirements

         States in which WCI operates require that WCI obtain asbestos licenses
to provide asbestos-abatement services and contractor licenses to provide
demolition and dismantling services. These licenses are generally subject to
annual renewal. WCI has been able to obtain the renewal of its licenses without
unusual difficulty or delay, and WCI's management believes that it is in
substantial compliance with all current state licensing requirements where WCI
intends to conduct business. In addition, certain states have adopted
regulations which require state-specific training, testing and licensing of
employees engaging in asbestos-abatement or demolition and dismantling
activities.

Backlog

         The majority of WCI's asbestos-abatement and demolition and dismantling
services are contracted on a fixed-price basis, while the remainder are
contracted either on a time and materials or a unit-price basis. WCI's backlog
at December 31, 1998 was approximately $7,700,000, compared to approximately
$6,400,000 at December 31, 1997. WCI's backlog at December 31, 1998 is expected
to be substantially completed in the current calendar year, however, working
capital constraints and third party schedules could result in a portion of the 
backlog work being completed in the year 2000.




                                 10 OF 41 PAGES


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Item 2.  Properties:

         The Company's executive offices are located at 350 Park Avenue, New
York, New York 10022 in leased premises of 3700 square feet, approximately 2300
of which the Company subleases to unaffiliated parties, under a lease which
expires in July 1999.

         WCI's offices and warehouse are located at 5490 Complex Street, Suite
603, San Diego, California 92123, in leased premises of approximately 6,000
square feet, under a lease which expires in April 1999.

         WCI leases a parcel of land in San Diego, California from two officers
of WCI for use as storage for large machinery.

         The Company owns a warehousing facility in Mississippi which is
approximately 64,000 square feet. At December 31, 1997 and 1998, the property
was carried as an asset held for sale and the Company is currently seeking to
sell the property. Since November 14, 1997, the property has been leased to an
unaffiliated company.

Item 3.  Legal proceedings:

         There are no material pending legal proceedings involving the Company
or WCI.

Item 4. Submission of matter to a vote of security holders:

         No matter was submitted during the fourth quarter of 1998 to a vote of
the Company's shareholders.







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                                     PART II

Item 5.   Market for the registrant's common stock and related security holder
          matters:

         The Company's common stock, trading symbol REX, has been listed on The
American Stock Exchange since May 14, 1998. Prior thereto, the Company's common
stock, trading symbol REXX (since February 19, 1998, prior to which the trading
symbol was OHSC), was traded on The Nasdaq Stock Market and was designated as a
National Market security (NMS). Through the facilities of The American Stock
Exchange and the NASDAQ/NMS reporting system, actual sale prices of the
Company's common stock are available. The table below sets forth the high and
low prices for the common stock.

                                                        Prices

                                                    High       Low
                  1997:
                     1st quarter                   1 5/8      1 1/4
                     2nd quarter                   1 5/8      1 1/4
                     3rd quarter                   1 9/16     1 3/16
                     4th quarter                   5          1 3/8


                  1998:
                     1st quarter                   5 5/16     3 3/4
                     2nd quarter                   5 1/4      3 1/2
                     3rd quarter                   3 3/4      2 1/2
                     4th quarter                   2 13/16    1 3/4

                  1999:
                     1st quarter
                     (to March 9, 1999)            2 1/2      1 3/8

         As of March 9, 1999, there were approximately 380 holders of record and
680 beneficial holders of the Company's common stock.

         The Company has not paid any cash dividends and it does not expect to
in the foreseeable future.





                                 12 OF 41 PAGES


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Item 6.  Selected financial data:

                                     For the years ended December 31,

                              1998      1997      1996      1995      1994

                               (In thousands except per share amounts)

Revenues                    $13,743    $2,298    $   75    $   38      $  0
                            =======    ======    ======    ======      ====

Net loss from
 continuing operations     (    496)  (   167)  (   218)  (    70)    ( 206)

(Loss) income from
 discontinued
 operations                       -         -   (   792)  ( 4,908)      435

Loss on disposal of
 discontinued
 operations                       -         -   (   300)  ( 1,861)        -
                            -------    ------    ------    ------      ----

Net (loss) income          ($   496)  ($  167)  ($1,310)  ($6,839)     $229
                            =======    ======    ======    ======      ====


Per share data, basic and diluted:

  Net loss from
   continuing operations      ($.20)    ($.08)    ($.11)   ($ .03)    ($.10)

  (Loss) income from
   discontinued
   operations                     -         -     ( .38)   ( 2.39)      .21

  Loss on disposal of
   discontinued
   operations                     -         -     ( .15)   (  .90)        -
                               ----      ----      ----     -----      ----

  Net (loss) income           ($.20)    ($.08)    ($.64)   ($3.32)     $.11
                               ====      ====      ====     =====      ====


Weighted average common
 shares and equivalents
 outstanding:
  Basic                       2,468     2,137     2,058     2,058     2,067
  Diluted                     2,468     2,137     2,058     2,058     2,067

Balance sheet:
  Total assets              $10,422    $9,055    $6,880    $9,115   $27,364
  Long-term debt            $   738    $  180    $    0    $    0   $ 1,581


See consolidated financial statements.

                                 13 OF 41 PAGES

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Item 7. Management's discussion and analysis of financial condition and
        results of operations:

Liquidity and capital resources:

     Working capital at December 31, 1998 was $943,000 as compared to $1,469,000
at December 31, 1997. The decrease of $526,000 was primarily due to the net loss
for the period.

     Net accounts receivable were $4,749,000 at December 31, 1998 as compared to
$2,353,000 at December 31, 1997, an increase of $2,396,000. The increase was
principally due to higher revenues in the fourth quarter of 1998 compared to
1997, as well as increased retention receivables (the 10% portion of gross
accounts receivable payable upon completion of certain projects which is
customary in WCI's industry attributable to higher revenues throughout 1998 as
compared to 1997.

         During the course of 1998, WCI performed a higher percentage of
demolition projects relative to prior years, which resulted in lower gross
margins during 1998, particularly in the fourth quarter, when the Company
incurred a substantial net loss, causing a net loss for the year. Unanticipated
difficulties associated with many demolition projects caused losses and lower
than planned gross profits on large projects, especially in the fourth quarter,
due principally to: (a) higher than planned costs to complete jobs, including
additional hauling and disposal fees, as well as for extra labor, especially on
jobs performed outside WCI's primary Southern California region; (b) an
inability to maximize the utilization of WCI-owned equipment and minimize use of
leased equipment when delays on out of town projects arose; (c) higher labor and
living costs on out of town projects which were not completed on an efficient or
timely schedule; (d) the need to reserve for future projected losses on certain
projects; and (e) the elimination of a large portion of the revenue on a project
that had been completed because the customer notified WCI in January 1999 that
it would not pay for work performed under a verbal (i.e., unsigned) change order
(however, WCI expects to collect most or all of this disputed amount in the
future by utilizing available dispute mechanisms.)

         WCI executed, as of November 10, 1998, a revolving credit agreement
with Wells Fargo Bank, N.A. The credit agreement, which expires November 9,
1999, calls for interest payable at Wells Fargo's prime rate, as in effect from
time to time, and borrowing 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 December 31, 1998, WCI had $1,681,000 borrowed
under the credit agreement, in addition to approximately $100,000 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 the
Company's consolidated financial condition, including its current ratio and
tangible net worth. As of December 31, 1998, WCI and the Company were not in
compliance with the covenants in the credit agreement. On March 26, 1999, Wells
Fargo Bank issued a waiver of such year-end noncompliance. As of March 26, 1999,
WCI, the Company and Wells Fargo Bank are negotiating the resetting of the
financial covenants and potential changes to WCI's borrowing limits and interest
rates payable under the credit agreement.

                                 14 OF 41 PAGES
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     As of March 26, 1999, on a preliminary basis, management anticipates that
the Company will incur a loss in the first quarter ended March 31, 1999, which
is expected to be smaller than the loss incurred in the fourth quarter of 1998.
The Company has taken actions to improve its gross margins at WCI going forward
and to reduce expenses both at WCI and the corporate level in an attempt to
achieve profitable results from operations in the second quarter of 1999.

     Because of its working capital constraints and in order to concentrate more
fully on the necessary actions to improve existing operations, the Company has
suspended its activity for external growth of its environmental and demolition
business through acquisitions or the opening of additional regional offices.

     As of March 26, 1999, the Company is in negotiations to sell WCI. If WCI is
sold, the Company expects to continue the effort begun in the first quarter of
1999 to identify potential business combinations for the Company. As the Company
is not, and does not anticipate being, in a favorable cash position, potential
new business combinations are expected to rely upon the issuance of the
Company's common stock for the major portion of the consideration required to
complete a transaction. There is no assurance that a business combination will
take place and, if a transaction does occur, that the Company's shareholders
will not incur significant dilution as a result of the Company's issuance of its
common stock as consideration. A sale of WCI and/or a business combination may
require approvals of the Company's shareholders.

     In the event the Company does not sell WCI, it will face certain
constraints based upon its working capital requirements and WCI's credit
agreement with Wells Fargo. These constraints will result in continuing the
suspension of the Company's external growth efforts in its environmental and
demolition business, as well as a reevaluation of the projects WCI bids,
contracts for and performs in the future. In order to exercise greater control
over field expenses and projects, particularly those involving demolition,
management anticipates that WCI will seek less work outside of its primary San
Diego County geographic area. In addition, projects which utilize equipment
owned by WCI rather than third party rentals will be more attractive to WCI in
the bidding process. However, even if the Company and WCI are successful in
negotiating a resetting of the financial covenants in the credit agreement and
acceptable borrowing limits and interest rates payable, it is likely that WCI
will not be able to increase its revenues significantly in 1999, and may, in
fact, shrink its revenues, as a result of working capital constraints.

     If the negotiations to sell WCI which are underway at March 26, 1999 fail
to produce a sale of WCI, the Company may seek additional parties interested in
purchasing WCI. Whether or not it contracts to sell WCI, the Company may seek
additional opportunities to effect a business combination. There is no assurance
that the Company will be successful in finding any acceptable opportunities for
business combinations or that it will find other potential purchasers for WCI.

Item 7A. Quantitative and qualitative disclosure about market risk:

     The principal market risk (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on its debt. A one percent change in interest rates on variable rate debt
would impact interest expense by $22,000, based on principal balances at
December 31, 1998.

Year 2000 Compliance:

Internal

     The Company uses a number of computer software programs, operating systems
and equipment with computer processing chips in its internal operations,
including in its financial business systems and administrative functions. To the
extent that the programs, operating systems and equipment contain source code or
computer chips that are unable to interpret appropriately the upcoming calendar
year 2000, some level of modification or replacement will be necessary.

     The Company is in the process of evaluating critical software, operating
systems and equipment for year 2000 compliance. Currently, the Company is in the
inventory/assessment phase of its evaluation, which is expected to continue into
the first half of 1999, with some remediation taking place.

                                 15 OF 41 PAGES


<PAGE>


The Company has been notified by the vendor of its financial and payroll
software that such software is year 2000 compliant. Nevertheless, this software
will be analyzed and tested for compliance.

     From fiscal 1995 through the present, the Company, in its normal course of
business, replaced substantially all of its business systems hardware and
software. To date, expenses associated with year 2000 compliance have been
minimal. The Company believes that periodic, scheduled upgrades of hardware and
software will satisfy its needs for year 2000 compliance and that the related
costs will differ nominally from expenditures which would have been made in its
normal course of business. The costs necessary to modify or replace the items
mentioned above, or the interruption of administrative or service processes
relating from compliance failure, are not expected to have a material adverse
effect on the Company's business and financial condition or its results of
operations.

External

     There can be no assurance that the Company's customers and suppliers are,
or will be, year 2000 compliant. The Company believes the most reasonably likely
result of the failure of key customers to achieve year 2000 compliance would be
the delay of projects and the delay in the collection of accounts receivable
from such customers for an indeterminate period of time. Currently, the Company
is not aware of any customers that are not year 2000 compliant. In order to
address the potential non-compliance with the year 2000 by the Company's
customers and suppliers, the Company is in the process of preparing
questionnaires to be sent to its customers and vendors asking them to respond
with their year 2000 plans. Until this process is substantially complete, the
Company will not be in a position to fully assess its year 2000 risks. The
Company expects to complete this process in the first half of 1999 and is
developing a response program for the possible worst-case scenario, which may
include the possible replacement of non-compliant customers or vendors.

Results of operations:

1998 Compared to 1997 -

     Revenues in 1998 consisted of solely WCI's contract revenues. Revenues in
1997 consisted of WCI's contract revenues (from October 21, 1997, the date of
the Company's acquisition of WCI) and consulting income. Contract revenues in
1998 were $13,743,000 compared to $2,248,000 in 1997. The increase was due to
the inclusion of a full year of WCI's contract revenues in 1998 as opposed to
only the period from October 21 through December 31 in 1997, as well as an
expansion of WCI's demolition-related revenues in 1998. Consulting income, which
arose from the Company's agreement with a purchaser of its former Sportswear
Division, was $50,000 in 1997. The consulting agreement expired on December 31,
1997 and was not renewed.

     Gross profit in 1998 amounted to $3,419,000 as compared to $962,000 in
1997, an increase of $2,457,000. The increase is attributable to the inclusion
of WCI's gross profit for a full year in 1998 versus the period from October 21
through December 31 in 1997. Gross profit margin decreased to 25% in 1998 from
42% in 1997, principally due to lower margins on demolition-related projects in
1998 and the inclusion of very high margin asbestos projects in the fourth
quarter of 1997.

     General administrative expenses rose to $3,859,000 in 1998 from $1,226,000
in 1997, an increase of $2,633,000. Excluding intercompany charges, $2,262,000
of the increase was incurred at WCI and $371,000 of the increase was incurred at
the corporate level, including a $170,000 increase in the amortization of
goodwill. General and administrative expenses rose as a result of four factors:
(1) the inclusion of WCI's general and administrative expenses for a full year
in 1998 compared to the period from October 21 to December 31, 1997; (2)
increased general and

                                 16 OF 41 PAGES


<PAGE>


administrative expenses at WCI in connection with its substantial revenue growth
in 1998 versus 1997; (3) the growth in corporate expenses associated with the
administration of WCI for a full year, the Company's expansion efforts, and the
related financing efforts; and (4) expenses which were no longer allocated to
discontinued operations.

     Interest expense-net was $126,000 in 1998 compared to interest income-net
of $137,000 in 1997, a net expense increase of $263,000. The change was due to
the Company's position as a net borrower in 1998 compared to holding a net cash
balance during 1997. The borrowings in 1998 were used to finance the Company's
increase in accounts receivable, purchases of equipment and the net loss for the
year.

     Amortization of goodwill rose in 1998 compared to 1997 as a result of
recording a full year of amortization in 1998 versus recognizing amortization in
1997 for the period from October 21 through December 31.

     The Company recorded a benefit from income taxes in 1998 of $45,000
compared to a provision for income taxes of $48,000 in 1997. The net decrease of
$93,000 was due to the Company's larger loss in 1998 versus 1997 and the
reversal of an accrual for income taxes payable from prior years.

1997 Compared to 1996 -

     Revenues in 1997 consisted of WCI's contract revenues (from October 21,
1997, the date of the Company's acquisition of WCI) and consulting income.
Revenues in 1996 consisted solely of consulting income. Contract revenues in
1997 were $2,248,000. Consulting income, which arose from the Company's
agreement with a purchaser of its former Sportswear Division, decreased in 1997
as compared to 1996 due to a contractual reduction in the consulting fee from
$75,000 in 1996 to $50,000 in 1997. The consulting agreement expired on December
31, 1997 and was not renewed.

     Gross profit in 1997 amounted to $962,000 as compared to $75,000 in 1996,
an increase of $887,000. The increase is attributable to the addition of WCI's
gross profit from October 21, 1997 to December 31, 1997.

     General and administrative expenses rose in 1997 compared to 1996
principally as a result of three factors: (1) the addition of WCI's general and
administrative expenses for the period from October 21, 1997 to December 31,
1997; (2) the growth in expenses in connection with the Company's acquisition
search, including increased personnel expenses; and (3) expenses which were no
longer allocated to discontinued operations.

     Interest income-net decreased to $137,000 in 1997 from $247,000 in 1996, a
reduction of $110,000. The decrease was due to the Company's lower average cash
balance in 1997, particularly after the acquisition of WCI and the related
reduction of cash of more than $3,600,000, and to interest expense incurred by
WCI.

     Amortization of goodwill and other income did not exist in 1996. In 1997,
they were attributable to the acquisition of WCI, which was accounted for as a
purchase.

     Provision for income taxes grew to $48,000 in 1997 from $9,000 in 1996, an
increase of $39,000. The increase was due to the Company's new status in 1997 as
a taxpayer in California. In both 1997 and 1996, the Company recorded no
provision for federal income taxes as the Company incurred net losses in both
years, and has a net operating loss carryforward to offset non-deductible
expenses. State income taxes for states other than California represents
franchise taxes in both years.

                                 17 OF 41 PAGES


<PAGE>


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. The words or phrases "trend," "expectation," "growing,"
"will be," "will require," "likely result," "expected," "continued,"
"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, the Company's ability to negotiate the
resetting of the financial covenants, future borrowing limits and interest rates
under the credit agreement, WCI and the Company's continued reliance upon
waivers of noncompliance from Wells Fargo, reliability of estimates, of
anticipated first quarter losses, success of actions taken to improve gross
margins and reduce operating expenses, risks associated with the potential sale
of WCI, the Company's potential inability to sell WCI, risks associated with
potential business combinations, the Company's potential inability to complete a
business combination, risk of shareholder dilution, potentionally lower revenues
in 1999, failure of the Company to become fully year 2000 compliant, failure of
key customers to become fully year 2000 compliant and the effect it might have
on the Company's ability to collect its accounts receivable in a timely fashion
or obtain supplies from its vendors, 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 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.




                                 18 OF 41 PAGES


<PAGE>



Item 8.  Financial statements and
          additional financial data



                         REXX ENVIRONMENTAL CORPORATION


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                          FILED WITH THE ANNUAL REPORT
                           OF THE COMPANY ON FORM 10-K


                                                                  Page

Report of independent accountants                                   20

Consolidated balance sheets at December 31, 1998 and 1997           21

Consolidated statements of operations for the years ended
 December 31, 1998, 1997 and 1996                                   22

Consolidated statements of stockholders' equity for the years
 ended December 31, 1998, 1997 and 1996                             23

Consolidated statements of cash flows for the years ended
 December 31, 1998, 1997 and 1996                                24-25

Notes to consolidated financial statements                       26-36



                                 19 OF 41 PAGES


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors
and Stockholders of

REXX Environmental Corporation


    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of REXX
Environmental Corporation (formerly Oak Hill Sportswear Corporation) and its
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.




PricewaterhouseCoopers LLP

New York, New York
March 26, 1999




                                 20 OF 41 PAGES


<PAGE>
                         REXX ENVIRONMENTAL CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                             (Dollars in thousands)

                                                         December 31,
                                                        1998      1997
             Assets

Current assets:
  Cash and cash equivalents                           $    68   $   710
  Accounts receivable - net                             4,749     2,353
  Costs in excess of billings                             223       600
  Assets held for sale                                    780     1,350
  Other current assets                                    164       142
                                                      -------   -------

             Total current assets                       5,984     5,155

Property and equipment, net                             1,487       718
Goodwill, net                                           2,914     3,125
Other assets                                               37        57
                                                      -------   -------

                                                      $10,422   $ 9,055
                                                      =======   =======


             Liabilities and stockholders' equity

Current liabilities:
  Current portion of long-term debt                   $   668   $ 1,015
  Notes payable to bank                                 1,681         0
  Accounts payable                                      1,872     1,153
  Billings in excess of costs                             409       238
  Accrued expenses                                        311       752
  Deposit on asset held for sale                            0       152
  Income taxes payable                                    100       376
                                                      -------   -------

               Total current liabilities                5,041     3,686
                                                      -------   -------

Long-term debt, net of current portion                    738       180
                                                      -------   -------
Other long-term liabilities                                 0        50
                                                      -------   -------


Stockholders' equity - see accompanying statement:
    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                                (6,379)   (5,883)
    Common stock held in treasury, at cost
     (2,812,252 shares)                               (17,008)  (17,008)
                                                      -------   -------

               Total stockholders' equity               4,643     5,139
                                                      -------   -------

                                                      $10,422   $ 9,055
                                                      =======   =======

                 See notes to consolidated financial statements.

                                 21 OF 41 PAGES
<PAGE>
                         REXX ENVIRONMENTAL CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                          (Dollars in thousands except
                               per share amounts)

                                             Years ended December 31,

                                           1998        1997       1996

Revenues                                 $13,743     $ 2,298     $   75

Cost of services                          10,324       1,336          0
                                         -------     -------     ------

Gross profit                               3,419         962         75

General and administrative
 expenses                                  3,859       1,226        531
                                         -------     -------     ------

Loss from operations                    (    440)   (    266)   (   456)

Other (income) expense:
 Interest expense                            135          37          0
 Interest (income)                      (      9)   (    174)   (   247)
 Other (income)                         (     25)   (      8)         0
                                         -------     -------     ------

Loss from continuing operations
  before provision for
  taxes                                 (    541)   (    119)   (   209)

(Benefit from) provision for taxes      (     45)         48          9
                                         -------     -------     ------

Loss from continuing
  operations                            (    496)   (    167)   (   218)
                                         -------     -------     ------

Discontinued operations:
  Loss, net                                    0           0    (   792)
  Loss on disposal, net                        0           0    (   300)
                                         -------     -------     ------

                                               0           0    ( 1,092)
                                         -------     -------     ------

  Net loss                              ($   496)   ($   167)   ($1,310)
                                         =======     =======     ======

Per share data (basic and diluted):
    Loss from continuing
    operations                             ($.20)      ($.08)    ($ .11)
                                           -----       -----      -----

  Discontinued operations:
    Loss, net                                .00         .00     (  .38)
    Loss on disposal, net                    .00         .00     (  .15)
                                           -----       -----      -----

                                             .00         .00     (  .53)
                                           -----       -----      -----

    Net loss                               ($.20)      ($.08)    ($ .64)
                                           =====       =====      =====

                 See notes to consolidated financial statements.

                                 22 OF 41 PAGES
<PAGE>
                         REXX ENVIRONMENTAL CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

                                                                  Total
                         Common stock        Capital in  Accumu-  stock-
                    Shares   Par      In     excess of   lated    holders'
                    Issued  Value  treasury  par value   deficit  equity


Balance, December
 31, 1995           4,870   $97   ($17,008)   $27,363   ($4,406)  $ 6,046

Net loss for
 the year ended
 December 31, 1996                                      ( 1,310)  ( 1,310)
                    -----   ---    -------     ------    ------    ------

Balance, December
 31, 1996           4,870    97   ( 17,008)    27,363   ( 5,716)    4,736

Shares issued in
 connection with
 acquisition          400     8                   542                 550

Shares issued
 upon exercise
 of stock options      10     -                    20                  20

Net loss for
 the year ended
 December 31, 1997                                      (   167)  (   167)
                    -----  ----    -------    -------    ------    ------

Balance, December
 31, 1997           5,280   105   ( 17,008)    27,925   ( 5,883)    5,139

Net loss for
 the year ended
 December 31, 1998                                      (   496)  (   496)
                    -----  ----    -------    -------    ------    ------

Balance, December
 31, 1998           5,280  $105   ($17,008)   $27,925   ($6,379)   $4,643
                    =====  ====    =======    =======    ======    ======


                 See notes to consolidated financial statements.


                                 23 OF 41 PAGES
<PAGE>
                         REXX ENVIRONMENTAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                 Years ended December 31,

                                                 1998      1997     1996
Cash flows from operating activities:
  Net loss                                    ($   496) ($  167) ($1,310)
  Adjustments to reconcile net loss
    to net cash used
    by operating activities:
    Loss on disposal of assets and
    discontinued operations                         20        -      300
    Depreciation and amortization                  365      223        -
                                               -------   ------   ------

                                              (    111)      56  ( 1,010)

  Changes in assets and liabilities           (  1,898) ( 1,478)      75
                                               -------   ------   ------

    Net cash used in
     operating activities                     (  2,009) ( 1,422) (   935)
                                               -------   ------   ------

Cash flows from investing activities
  Acquisition of WCI                                 -  ( 3,883)       -
  Capital expenditures                        (  1,013) (   105)       -
  Net proceeds on disposal of assets 
    and discontinued operations                    640      648      926
  Deposit on asset held for sale              (    152)     143        -
                                               -------   ------   ------
  Net cash (used in) provided by
    investing activities                      (    525) ( 3,197)     926
                                               -------   ------   ------

Cash flows from financing activities:
  Exercise of options                                -       20        -
  Net increase in short term borrowings          1,334       17        -
  Net increase (decrease) in
    long-term debt                                 558  (    22) (   500)
                                               -------   ------   ------

Net cash provided by (used in)
  financing activities                           1,892       15  (   500)
                                               -------   ------   ------

Net decrease in cash                          (    642) ( 4,604) (   509)

Cash and cash equivalents
  at beginning of year                             710    5,314    5,823
                                               -------   ------   ------

Cash and cash equivalents
  at end of year                               $    68   $  710   $5,314
                                               =======   ======   ======

                 See Notes to consolidated financial statements.


                                 24 OF 41 PAGES
<PAGE>
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

Supplemental disclosures of cash flow information:

Changes in assets and liabilities:
  Accounts receivable                          ($2,396) ($  609)  $  438
  Costs in excess of billings                      377  (    64)       -
  Other current assets                         (    22)      80       62
  Other assets                                      20        4        -
  Billings in excess of costs                      171       23        -
  Accounts payable and accrued expenses            278  (   526) (   404)
  Accrued income taxes                         (   276) (   386) (    21)
  Other liabilities                            (    50)       -        -
                                                ------   ------   ------

                                               ($1,898) ($1,478)  $   75
                                                ======   ======   ======

Cash paid during the year for:

  Interest                                      $  147   $   38   $   67
  Income taxes (including
    interest thereon)                           $  219   $  633   $   30

Noncash investing activities:

  Capital stock issued for acquisition          $    -   $  550   $    -

Details of acquisition:

  Fair value of assets acquired                 $    -   $6,968   $    -
  Liabilities assumed                                -  ( 2,535)       -
  Stock issued                                       -  (   550)       -
                                                ------   ------   ------

  Cash paid                                          -    3,883        -
  Less cash acquired                                 -  (    27)       -
                                                ------   ------   ------

Net cash paid for acquisition                   $    -   $3,856   $    -
                                                ======   ======   ======

                 See notes to consolidated financial statements.

                                 25 OF 41 PAGES

<PAGE>
                         REXX ENVIRONMENTAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES:

  A. Basis of presentation and principles of consolidation:

     REXX Environmental Corporation's (the "Company") consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. 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.

  B. Cash equivalents:

     Cash equivalents include all highly liquid debt instruments (primarily U.S.
Treasury obligations) purchased with original maturities of less than three
months.

  C. Goodwill:

     Goodwill represents the excess of the cost of the business acquired, WCI,
over the fair value of its net tangible assets. Goodwill is amortized using the
straight line method over a 15 year period. Amortization of goodwill for 1998
and 1997 was $211,000 and $41,000, respectively.

  D. Pension and profit-sharing plans:

     The Company has defined contribution pension and profit-sharing plans
covering eligible employees (which have permanently ceased contributions) and
WCI has a defined contribution 401K plan covering eligible employees. Costs for
these plans are funded as accrued and there are no prior service costs with
respect to these plans.

  E. Net 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 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 1998, 1997 and 1996 were 2,467,576,
2,136,905 and 2,057,576, respectively.

    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 304,000, 195,000 and 184,000 shares at prices ranging
from $2.00 to $5.00 per share were outstanding in 1998, 1997 and 1996,
respectively, 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 respective years.

                                 26 OF 41 PAGES


<PAGE>


  F. Method of Income Recognition:

    The percentage-of-completion method of accounting for construction contracts
is used in the financial statements. Under this method, revenues and related
income are recognized as the work on the contract progresses. Generally, such
income represents the percentage of estimated total income that costs incurred
to date bear to estimated total costs. When current estimates of total contract
costs indicate a loss on a contract, provision is made in the financial
statements for the entire estimated amount of the loss. Changes in job
performance, job conditions and estimated profitability, including those arising
from contract penalty provisions, and final contract settlements may result in
revisions to cost and income and are recognized in the period in which the
revisions are determined.

    Contract costs include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor, supplies,
tools and repairs. Selling, general and administrative costs are charged to
expense as incurred.

    Amounts earned on specific projects in excess of billings are treated as a
current asset and billings in excess of earnings are treated as a current
liability.

  G. Property and Equipment:

    Property and equipment is carried at cost and depreciated using the straight
line method over the estimated useful lives of the individual assets, generally
three to ten years for all assets.

  H. Revenues:

     Consulting fees are recognized as earned. Consulting income received from a
buyer of the Company's former Sportswear division for 1998, 1997, and 1996 was
$0, $50,000 and $75,000, respectively.

  I. Fair value of financial instruments:

     The fair value of the Company's financial instruments (cash, receivables,
payables and mortgage note) approximates the carrying value due to the
relatively short-term nature of these assets.

  J. Use of estimates:

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues, costs and expenses during the
reporting period. The principal estimates made with respect to these financial
statements relate to job costs and the percentage completion of each job. Actual
results could differ from those estimates.

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

                                 27 OF 41 PAGES

<PAGE>


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. During 1998, WCI did not meet the earnings
requirement and, therefore, the rights relating to 1998 income expired. The
acquisition was accounted for using the purchase method of accounting. The
purchase price was 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)
                                               ----------

             Purchase price                    $4,433,000
                                               ==========
   
     The following condensed unaudited pro forma statements reflect 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
                            Statements of Operations
                                   (unaudited)

                                                            1997   

Revenues                                                $10,350,000
                                                        -----------
Income from operations                                    1,180,000
Other income                                                 36,000
                                                        -----------
Income before income taxes                                1,216,000
Income taxes                                                151,000
                                                        -----------
Net income                                              $ 1,065,000
                                                        ===========

Pro forma net income per share - basic                          $0.43
                                                              =====

                                 28 OF 41 PAGES

<PAGE>
NOTE 3 - ACCOUNTS RECEIVABLE:

     Accounts receivable at December 31, 1998 and 1997 are as follows:

                                               1998           1997   
                                            ---------      ----------

    Contracts in progress:
       Currently receivable                 $1,779,000     $  902,000
       Unbilled retentions                     388,000        149,000
                                            ----------     ----------
                                             2,167,000      1,051,000
                                            ----------     ----------

    Completed contracts:
       Currently receivable                  1,798,000        949,000
       Retentions receivable                   681,000        361,000
                                            ----------     ----------
                                             2,479,000      1,310,000
                                            ----------     ----------

    Other accounts receivable                  138,000         27,000
                                            ----------     ----------
                                             4,784,000      2,388,000

    Less allowance for
       doubtful accounts                   (    35,000)   (    35,000)
                                            ----------     ----------

                                            $4,749,000     $2,353,000
                                            ==========     ==========
 
    During 1998, one customer accounted for approximately 13% of the Company's
revenues. During the short period from the date of the Company's acquisition of
WCI, October 21, 1997, to December 31, 1997, one customer accounted for
approximately 28% of the Company's revenues due to the completion of a large
project during the period.

NOTE 4 - CONTRACTS IN PROGRESS:

     Contracts in progress at December 31, 1998 and 1997 are as follows:

                                               1998           1997   
                                            ----------     ----------

     Costs incurred on contracts in
       progress                             $4,174,000     $1,325,000
     Estimated earnings on contracts
       in progress                             743,000        704,000
                                            ----------     ----------

     Total costs and estimated earnings      4,917,000      2,029,000
     Less billings to date                 ( 5,103,000)   ( 1,667,000)
                                             ---------      ---------

                                           ($  186,000)    $  362,000
                                            ==========     ==========

     Contracts in progress are included
       in the accompanying balance sheet
       under the following headings

     Costs and estimated earnings in
       excess of billings on contracts
       in progress                          $  223,000     $  600,000

     Billings in excess of costs and
       estimated earnings on contracts     (   409,000)   (   238,000)
                                            ----------     ----------

                                           ($  186,000)    $  362,000
                                            ==========     ==========

                                 29 OF 41 PAGES
<PAGE>

NOTE 5 - ASSETS HELD FOR SALE:

        In connection with the acquisition of WCI, WCI owned certain land for
which WCI had an agreement with Envira Minerals, Inc. ("Envira") whereby Envira
(whose minority stockholders include the former owners of WCI) would purchase
the land from WCI at an agreed-upon price. Until Envira is able to obtain
financing for the acquisition of this land, Envira has agreed to reimburse WCI
for all monthly payments due under a loan from the Small Business
Administration. Pursuant to the stock purchase agreement between the Company and
the former owners of WCI, the former owners of WCI were obligated to purchase
the land from WCI in the event the land was not sold to Envira or any other
party during a specified time period. During December 1997, WCI received a
deposit from the former owners of WCI towards the purchase of the land. During
February 1998, the Small Business Administration loan secured by the land was
repaid by the former owners of WCI. During 1998, WCI transferred title to the
land to the former owners of WCI. WCI and the Company recognized no gain or loss
on the sale of the land.

     The Company owns a warehousing facility in Mississippi, which is
approximately 64,000 square feet. During November 1997, the Company leased the
facility to an unaffiliated company. The Company is currently seeking to sell
the facility.

NOTE 6 - PROPERTY AND EQUIPMENT:

     Property and equipment at December 31, 1998 and 1997 consisted of:

                                               1998            1997  
                                             ----------     ---------

         Machinery and equipment             $1,163,000     $350,000
         Office equipment                       105,000       90,000
         Furniture and fixtures                  29,000        7,000
         Leasehold improvements                  42,000       41,000
         Vehicles                               338,000      252,000
                                             ----------     --------
                                              1,677,000      740,000
         Less accumulated depreciation      (   190,000)     (22,000)
                                             ----------     --------

         Net property and equipment          $1,487,000     $718,000
                                             ==========     ========

     Depreciation expense for the years ended December 31, 1998 and 1997 was
$184,000 and $22,000, respectively.

NOTE 7 - NOTES PAYABLE TO BANK:

     The Company's wholly owned subsidiary, Watkins Contracting, Inc. ("WCI"),
has a revolving credit agreement with Wells Fargo Bank, N.A. The credit
agreement, which expires November 9, 1999, calls for interest payable at Wells
Fargo's prime rate, as in effect from time to time. WCI may borrow up to
$2,000,000 (reduced by approximately $100,000 of equipment loans made to WCI by
Wells Fargo) under the credit agreement, based upon a formula of 75% of eligible
accounts receivable. At December 31, 1998, WCI had $1,681,000 borrowed under the
credit agreement, in addition to approximately $100,000 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 the Company's
consolidated financial condition, including its current ratio and tangible net
worth. As of

                                 30 OF 41 PAGES


<PAGE>

December 31, 1998, WCI and the Company were not in compliance with all of the
covenants in the credit agreement. On March 26, 1999, Wells Fargo Bank issued a
waiver of such noncompliance. As of March 26, 1999, WCI, the Company and Wells
Fargo Bank are negotiating the resetting of the financial covenants and
borrowing limits available under the credit agreement.

NOTE 8 - LONG-TERM DEBT:

     The Company has an outstanding mortgage note, which is secured by land and
a building in Mississippi (and, from December 1996 to April, 1998, by a $500,000
certificate of deposit) which carries an interest rate of 1/2% above the Bank of
Mississippi's Prime Rate (7.75% at December 31, 1998). The principal balance of
the mortgage was $469,000 at December 31, 1998 and $500,000 at December 31,
1997. During 1998, the mortgage was refinanced and $31,000 of the principal
balance of the mortgage was paid. The Company has classified this as a current
liability as it is likely that part or all of such note will be repaid in 1999.

     WCI acquired vehicles and equipment under long-term purchase contracts
which were secured by the related assets. Vehicles and equipment under purchase
contracts had a net book value of $1,076,000 at December 31, 1998 and $313,000
at December 31, 1997.

Long-term debt at December 31, 1998 and 1997 included:

                                              1998           1997  
                                          ----------     ----------

Debt on assets held for sale              $  469,000     $  918,000
Purchase contracts (at interest
 rates of 6.34% to 9.64% and with
  maturities from 4/99 to 11/03):            937,000        266,000

Capitalized leases:
Total minimum lease payments                       0         12,000
Less amounts representing interest                 0    (     1,000)
                                          ----------     ----------
                                                   0         11,000
Present value of long-term
 debt and capitalized leases               1,406,000      1,195,000

Less current portion of long-term
 debt                                        668,000      1,015,000
                                          ----------     ----------

Long-term debt, net of current
 portion                                  $  738,000     $  180,000
                                          ==========     ==========

Maturities on long-term debt and capitalized leases:


         1999                                   $  668,000
         2000                                      200,000
         2001                                      203,000
         2002                                      208,000
         2003                                      127,000
                                                ----------
         Total maturities                       $1,406,000
                                                ==========
  

                                 31 OF 41 PAGES


<PAGE>



NOTE 9 - STOCK OPTIONS:

     On October 11, 1994, the Board of Directors adopted a Non-Qualified Stock
Option Plan (the "Plan") covering up to 199,250 shares of the Company's Common
Stock. The Plan provides that (1) the option price per share is to be not less
than 50% of the fair market value of the stock on the date of the grant and (2)
options granted shall be for a term of not more than five years and shall become
exercisable in equal installments in each year of the term on a cumulative
basis, other than the first year, or to the extent that the Board of Directors
shall determine. No option may be granted under the Plan after October 11, 2004.
On April 22, 1996, the Board of Directors approved an amendment to the Plan,
which was also approved by a majority of shareholders at the Company's Annual
Meeting held on June 26, 1996. The amendment provides that the Plan is permitted
to grant options to non-employee directors and provides that each director who
is not an employee of the Company shall receive options to purchase 15,000
shares at the then-current market price for the Company's stock upon joining the
Board.

     On December 3, 1997, the Board of Directors approved amendments to the
Plan, which were also approved by a majority of shareholders at a Special
Meeting of Shareholders held on February 17, 1998. The amendments provide for
(1) reserving from the Company's authorized but unissued shares of Common Stock
250,000 shares for issuance on exercise of options which may be granted under
the Plan, (2) increasing the maximum number of shares for which a person may
receive options under the Plan from 100,000 shares to 150,000 shares and (3)
adding the incentive to key employees of any business which the Company acquires
or in which it acquires an interest to continue in its employ, by the grants of
options under the Plan to such employees, as a purpose of the Plan. At December
31, 1998, the Company reserved 439,250 shares of its Common Stock for the
purposes of the Plan. At that date, there were 304,000 options outstanding at
exercise prices of $2.00-$5.00.





                                 32 OF 41 PAGES


<PAGE>




    Additional information concerning stock options under the Plan is summarized
as follows:

                                                              Number of
                                     Weighted    Number of    Options
                          Range of   Average     Options      Available
            Number        Exercise   Exercise    Exercisable  For Future
            of Shares     Prices     Price       At Year End  Grant     
            ---------     --------   --------    -----------  ----------
Options
outstanding
at Jan. 1,
1996          74,000    $4.25         $4.25       18,500      125,250
Granted      110,000     2.00          2.00          -           -
Exercised       -            -          -            -           -
Terminated      -            -          -            -           -   
             -------    -----------   -----       ------      -------

Options
outstanding
at Dec. 31,
1996         184,000    $2.00-$4.25   $2.90       37,000       15,250
Granted       41,000     3.00- 4.00    3.55          -           -
Exercised    (10,000)    2.00          2.00          -           -
Terminated   (20,000)    2.00          2.00          -           -  
             -------    -----------   -----       ------      ------

Options
Outstanding
at Dec. 31,
1997         195,000    $2.00-$4.25   $3.18       82,167         -
Granted      119,000    $2.00-$5.00   $3.74            -         -
Exercised          0              -       -            -         -
Terminated  ( 10,000)   $3.00-$5.00   $4.60            -         -   
             -------    -----------   -----       ------      -------

Options
Outstanding
at Dec. 31,
1998         304,000    $2.00-$5.00   $3.25      139,583      135,250
             =======    ===========   =====      =======      =======

    As of December 31, 1998, 1997 and 1996, the weighted average remaining
contractual life of outstanding options was approximately 3.0 years, 3.8 years
and 3.9 years, respectively.

     As permitted, the Company applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock-based compensation
plan. Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair values at the grant dates for awards under the
Plan, consistent with the alternative method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
Company's 1998 net loss and net loss per share would have been impacted by
$46,907 and $0.02 per share, respectively, and the Company's 1997 net loss and
net loss per share would have been impacted by $14,000 and $0.01 per share,
respectively. These pro forma amounts may not be representative of future
disclosures because the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.

    The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1998, 1997 and 1996, respectively: expected volatility
of 58.9%, 63.3% and 34.2%, risk free interest rate of 5.17%, 5.48% and 6.37%,
expected option term of 5 years for all options issued and no dividend yield or
forfeiture rate for all options granted.

                                 33 OF 41 PAGES
<PAGE>


NOTE 10 - TAXES:

     Provision for taxes consists of the following components:

                                             1998        1997       1996

     Current                               ($45,000)   $48,000    $ 9,000
     Deferred                                     -          -          -
                                            -------    -------    -------

        Total                              ($45,000)   $48,000    $ 9,000
                                            =======    =======    =======

     The provisions for 1997 and 1996 represent state and local taxes. There is
no provision for federal income taxes as the Company had net losses in 1998,
1997 and 1996. In 1998, the Company reversed $65,000 of excess federal income
tax accruals and provided $20,000 for state and local taxes. At December 31,
1998, the Company has available for Federal income tax purposes net operating
loss carryforwards of approximately $11,756,000 that begin to expire in the year
2007.

     A reconciliation of the statutory income tax rate and the effective tax
rates for 1998, 1997 and 1996 follows:
                                              1998       1997       1996
                                              ----       ----       ----

     Statutory rate                           34.0%      34.0%      34.0%
     State and local taxes                   ( 2.4)     (26.6)     (  .5)
     Amortization and other                  
       non-deductible expenses               (13.8)     (16.3)     ( 1.1)
     Reversal of excess federal accrual       12.0          -          -
     Valuation allowance                     (21.4)     (31.4)     (33.1)
                                              ----       ----       ----

     Effective rate                            8.4%     (40.3%)    (  .7%)
                                              =====     =====      =====

     The following summarizes the significant components of deferred tax
(liabilities) assets:

                                       December 31,     December 31,
                                           1998             1997    
                                       ------------     ------------
 
     Accrued expenses                  $   23,000       $   88,000
     Operating loss carryforward        3,997,000        3,955,000
     Capital loss carryforward                  -          121,000
                                        ---------       ----------
     Gross deferred tax assets          4,020,000        4,164,000
                                        ---------       ----------
     Deferred tax asset valuation
      allowance                         4,020,000        4,164,000
                                        ---------       ----------
     Deferred Taxes                     $       0       $        0
                                        =========       ==========

     During 1995, the Internal Revenue Service ("IRS") completed a field audit
of the Company's tax returns for the years 1990 through 1992. As a result of the
field audit, the IRS issued a "30 day letter," assessing a claim of
approximately $1,400,000, including interest. The Company, believing it had
meritorious defenses against such assessment, filed an appeal. In February 1997,
the Company and the IRS reached a settlement which resulted in the payment of
approximately $550,000 in tax and interest. The major issue of dispute in the
audit process was the timing of a particular deduction relating to inventory.
Although the settlement includes a disallowance of a portion of the Company's
inventory deduction in the particular year taken, the Company was entitled to
the deduction in a subsequent tax year.

                                 34 OF 41 PAGES
<PAGE>



NOTE 11 - PROFIT-SHARING AND PENSION PLANS:

     The Company has a non-contributory profit-sharing plan which provided for
annual contributions, at the discretion of the Board of Directors, of between 2%
and 15% of the defined compensation of eligible employees until October 21,
1997, at which point all contributions permanently ceased. Profit-sharing
expense was $0 in 1998, $3,800 in 1997 and $7,500 in 1996.

     The Company also has defined contribution (money purchase) pension plans
that cover employees who meet specified eligibility requirements. The
contributions required under the plans vary; however, the Company principally
contributed 1% of the first $20,000 and 4% above $20,000 (limited to an
additional $130,000) of the defined compensation of eligible employees until
October 21, 1997, at which point all contributions permanently ceased. Pension
expense was $0 in 1998, $6,400 in 1997 and $37,000 in 1996.

     WCI has a 401(k) profit sharing plan ("the 401(k) Plan") in which employees
become eligible to participate in the 401(k) Plan after six months of service
and having reached the age of 21 years. Participation by the employee is at the
employee's option. WCI's match of the employee's contributions equals 25% of
each participant's salary reduction, not to exceed 6% of the participant's
compensation. WCI may also make discretionary contributions to the 401(k) Plan
for the benefit of the employees.

     Employees are 100% vested in their employee contributions and begin vesting
at 20% in WCI's contributions starting with their first year of service. Their
vesting portion increases by 20% per year of service until the fifth year of
service when the employee is 100% vested in the employer contributions. Employer
contributions for 1998 were $6,000 and for the 1997 period from October 21, to
December 31, 1997 were $1,000. Voluntary employee contributions into the plan
for 1998 were $24,000 and for the period from October 21, 1997 to December 31,
1997 were $6,000.

NOTE 12 - ACCRUED EXPENSES:

     Accrued expenses at December 31 consist of:

                                                1998          1997  
                                              --------      --------

         Salaries, wages and
          related expenses                    $151,000      $241,000
         Transaction costs                           0       140,000
         Pension and profit-sharing
          and 401K plans                         7,000        12,000
         Consulting and professional fees       83,000             0
         Accrual related to
          discontinued operations               28,000       305,000
         Other                                  42,000        54,000
                                              --------      --------
                                              $311,000      $752,000
                                              ========      ========

NOTE 13 - CONCENTRATION OF CREDIT RISK:

     The Company's customers, contracts and projects are located primarily in
California. The Company extends credit to its customers, a large percentage of
which are general contractors. The majority of the Company's contracts are
secured or securable by construction liens.

                                 35 OF 41 PAGES
<PAGE>




NOTE 14 - COMMITMENTS AND CONTINGENCIES

    The Company leases office space and equipment under operating leases. Future
minimum lease payments, net of sublease income, under these leases are as
follows:

                 1999                      $204,000
                 2000                       177,000
                 2001                       173,000
                 2002                       135,000
                 Thereafter                 137,000
                                           --------
                                           $826,000
                                           ========
  
     The Company is involved in various legal matters in the ordinary course of
business. In the opinion of management, these matters are not anticipated to
have a material adverse effect on the results of operations, financial position
or liquidity of the Company.

     See Note 2 regarding contingencies related to the acquisition of WCI.

NOTE 15 - DISCONTINUED OPERATIONS:

     At the Company's 1995 Annual Meeting, held on July 24, 1995, shareholders
approved the future sale of the Harmal Division of the Company. The Company's
Board of Directors had authorized management to seek a purchaser for the Harmal
Division. As of December 31, 1996, the Harmal Division was being treated as a
discontinued operation and its assets were being carried as assets held for
sale.

     Harmal's reduced sales level during 1996 was insufficient to cover its
operating expenses, resulting in significant operating losses. These operating
losses prevented the Company from completing a transaction to sell the Harmal
Division. As a result, Management undertook a plan to phase out this business
and sell Harmal's assets on an orderly basis to recoup a portion of the
Company's investment in the Division's operating assets. As of December 31,
1997, the phase out of the Harmal Division's business and the sale of its
operating assets was entirely complete.

     Sales made by the Company's Harmal Division in 1997 and 1996 were $82,000,
and $3,697,000, respectively.




                                 36 OF 41 PAGES


<PAGE>


Item 9.  Disagreements on accounting and financial disclosure:

     None.

                                    PART III

Item 10.  Directors and executive officers of the registrant:

     To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the caption "Certain Information Regarding Directors and Nominees" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within said 120 days.

Item 11.  Executive compensation:

     To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the captions "Executive Compensation", and "Fees Paid to Directors" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within said 120 days.

Item 12.  Security ownership of certain beneficial owners and management:

     To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the captions "Principal Holders of Common Stock" and "Certain Information
Regarding Directors and Nominees" in the Company's definitive proxy statement to
be filed pursuant to Regulation 14A within said 120 days.

Item 13.  Certain relationships and related transactions:

     To be provided by an amendment to this Form 10-K filed within 120 days of
the Company's fiscal year end or incorporated by reference to information under
the captions "Fees Paid to Directors" and "Executive Compensation" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within said 120 days.



                                 37 0F 41 PAGES


<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
<TABLE>
<CAPTION>
<S>                                                                                        <C>    
                                                                                            Filed herewith or
                                                                                            incorporated by
                                                                                            reference to:    
                                                                                            ------------------
(a) Documents filed as part of this Form 10-K:

   1. Consolidated financial statements. The consolidated financial statements
      filed as part of this Form 10-K are listed on the index thereto, on page
      17 hereof.

   2. Financial statement schedules.

      All schedules are omitted because they are not required, are inapplicable
      or the information is otherwise shown in the financial statements or notes
      thereto.

   3. Exhibits filed under Item 601 of Regulation S-K. (Numbers assigned to the
      following exhibits correlate to those used in said Item.)

      (3) Articles of Incorporation and By-Laws.

                      (a)(1) Certificate of                                                 Exhibit 3.1 to the
                             Incorporation, as                                              Company's Form 10-K's
                             amended.                                                       for its years ended
                                                                                            December 31, 1980 and
                                                                                            December 31, 1983, and
                                                                                            Exhibit 6 to its Form
                                                                                            10-Q for its quarter
                                                                                            ended June 30, 1988.

                         (2) Amendment to Certificate                                       Exhibit 3(a)(2) to the
                             of Incorporation filed                                         Company's Form 10-K for
                             February 18, 1998,                                             its year ended December
                             effecting name change to                                       31, 1997.
                             REXX Environmental
                             Corporation

                      (b) By-laws, as amended.                                              Exhibit 3(c) to the
                                                                                            Company's Form 10-K
                                                                                            for its year ended
                                                                                            December 31, 1986,
                                                                                            and Exhibit C-1 to
                                                                                            its proxy statement
                                                                                            dated May 13, 1987.
</TABLE>

                                 38 OF 41 PAGES
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                        <C>    
                                                                                            Filed herewith or
                                                                                            incorporated by
                                                                                            reference to:    
     10. Material Contracts.                                                                -----------------        

         (f)(1) Non-Qualified Stock                                                         Exhibit 10 (iii) to
                Option Plan.                                                                the Company's Form 10-Q
                                                                                            for its quarter ended
                                                                                            September 30, 1994.

            (2) Amendment to Non-Qualified                                                  Exhibit 10(f)(2) to the
                Stock Option Plan, adopted                                                  Company's Form 10-K for
                February 17, 1998.                                                          its year ended December
                                                                                            31, 1997.


         (i)  Relating to the Purchase of
              Watkins Contracting, Inc.:

              (1) Stock Purchase Agreement,                                                 Exhibit 2.1 to the
                  dated October 21, 1997,                                                   Company's Form 8-K
                  between Oak Hill                                                          dated October 30, 1997.
                  Sportswear Corporation,
                  as Buyer, and Greg S.
                  Watkins and Daren J.
                  Barone, as Sellers,
                  together with a list
                  identifying the contents
                  of items in a Disclosure
                  Letter provided for in
                  said Agreement pertaining
                  to certain provisions
                  thereof.

              (2) Rights Agreement, dated                                                   Exhibit 2.2 to said
                  October 21, 1997, between                                                 Form 8-K.
                  Oak Hill Sportswear
                  Corporation and Greg S.
                  Watkins.
</TABLE>

                                 39 OF 41 PAGES
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                         <C>    
                                                                                            Filed herewith or
                                                                                            incorporated by
                                                                                            reference to:    
                                                                                            -----------------

             (3) Rights Agreement, dated                                                    Exhibit 2.3 to said
                 October 21, 1997, between                                                  Form 8-K.
                 Oak Hill Sportswear
                 Corporation and Daren J.
                 Barone.

             (4) Employment Agreement, dated                                                Exhibit 2.4 to said 
                 October 21, 1997, between                                                  Form 8-K.
                 Watkins Contracting, Inc.
                 and Greg S. Watkins.

             (5) Employment Agreement, dated                                                Exhibit 2.5 to said 
                 October 21, 1997, between                                                  Form 8-K.
                 Watkins Contracting, Inc.
                 and Daren J. Barone.

         (j) Relating to the Credit Agreement
             between Watkins Contracting, Inc.
             and Wells Fargo Bank:

             (1) Credit Agreement, dated as                                                 Exhibit 10(j)(1) filed
                 of November 10, 1998, by                                                   herewith.
                 and between Watkins
                 Contracting, Inc. and Wells
                 Fargo Bank, N.A.

             (2) Revolving line of Credit                                                   Exhibit 10(j)(2) filed
                  Note.                                                                     herewith.

             (3) Continuing Guaranty of REXX                                                Exhibit 10(j)(3) filed
                 Environmental Corporation                                                  herewith.
                 granted to Wells Fargo Bank,
                 N.A. in connection with the
                 Credit Agreement.

         (k) Form of Indemnity Agreement dated                                              Exhibit 10(k) filed
             as of January 4, 1998 between the                                              herewith.
             Company and its directors and executive
             officers.

    (24) (i) Consent of                                                                     Exhibit 24(i) filed
             PricewaterhouseCoopers                                                         herewith.

(c) See Item 14(a)(3) above.

(d) See Item 14(a)(2) above.
</TABLE>

                                 40 OF 41 PAGES
<PAGE>

                               S I G N A T U R E S


     Pursuant to the requirements of Section 13 or 15(d) 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.

(Registrant)  REXX ENVIRONMENTAL CORPORATION


By: /s/ Arthur L. Asch 
    ---------------------------------------------------------------------------
    Arthur L. Asch, Chairman of the Board (Principal executive officer)

By: /s/ Michael A. Asch                                                  
    ---------------------------------------------------------------------------
    Michael A. Asch, President and Treasurer (Principal financial officer)

Date: March 31, 1999



     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


/s/ Arthur L. Asch                         /s/ Michael A. Asch 
--------------------------------           ----------------------------------- 
Arthur L. Asch, Director                   Michael A. Asch, Director

Date:  March 31, 1999                      Date:  March 31, 1999


/s/ James L. Hochfelder                    /s/ Joseph Greenberger
--------------------------------           -----------------------------------
James L. Hochfelder, Director              Joseph Greenberger, Director

Date:  March 31, 1999                      Date:  March 31, 1999


/s/ Brian A. Wasserman            
--------------------------------           ----------------------------------- 
Brian A. Wasserman, Director

Date:  March 31, 1999



                                 41 OF 41 PAGES