SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20514
CORPORATE RENAISSANCE GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3701354
[State or other jurisdiction of (I.R.S. Employer
incorporation or organization] Identification Number)
1185 Avenue of the Americas
18th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 730-2000
Former name, former address and fiscal year, if changed since last report
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 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 _____
The number of shares outstanding of the Registrant's common stock is 940,350 (as
of December 31, 1996).
<PAGE 1>
CORPORATE RENAISSANCE GROUP, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1.
Statements of Assets and Liabilities as of December 31, 1996 and
September 30, 1996 3
Statements of Operations and Changes in Net Assets for the Quarter ended
December 31, 1996 and December 31, 1995 4
Statements of Cash Flows for the Quarters ended
December 31, 1996 and December 31, 1995 5
Schedule of Investments, December 31, 1996 6
Notes to Financial Statements 7
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION 13
<PAGE 2>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
<S> <C> <C>
ASSETS
Investments in securities, at market value
(cost $6,430,222 and $6,663,601 respectively) $9,714,269 $9,217,962
Cash and cash equivalents 12,611 509,257
Income taxes receivable 344,152 345,511
Accrued interest receivable 94 585
Other assets 39,246 6,247
____________ ____________
Total Assets 10,110,372 10,079,562
LIABILITIES
Call options written, at market value (premiums
received $41,827 at September 30, 1996) -- 61,425
Accounts payable and accrued expenses 23,969 31,659
Deferred taxes payable 829,062 749,609
____________ ____________
Total liabilities 853,031 842,693
____________ ____________
Net assets $9,257,341 $9,236,869
____________ ____________
NET ASSETS
Common stock, (par value $.01 per share
20,000,000 shares authorized:
956,100 shares issued and outstanding) $9,561 $9,561
Additional paid-in capital 7,815,260 7,815,260
Treasury stock, at cost (15,750 shares) (125,137) --
Accumulated income (losses):
Accumulated net operating loss before security
transactions (1,354,756) (1,292,990)
Accumulated net realized gains from sale of
investments 772,373 1,049,765
Net unrealized appreciation of investments 2,140,040 1,655,273
____________ ____________
1,557,657 1,412,048
____________ ____________
Net assets $9,257,341 $9,236,869
____________ ____________
Net asset value per share of common stock outstanding $9.84 $9.66
____________ ____________
See notes to financial statements
</TABLE>
<PAGE 3>
CORPORATE RENAISSANCE GROUP, INC
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter For the Quarter
Ended December 31, Ended December 31,
1996 1995
<S> <C> <C> <S>
Income:
Interest Income $5,194 $15,341
_____________ _____________
Total investment income 5,194 15,341
_____________ _____________
Expenses:
Incentive fees -- 224,128
Financial advisory fees 50,000 50,000
Investment banking fees 8,333 25,000
Professional fees 12,300 12,300
Insurance expense 14,000 18,747
Board of directors fees 12,500 12,500
Other operating expenses 3,530 2,949
_____________ _____________
Total expenses 100,663 345,624
_____________ _____________
Operating loss before income tax benefit (95,469) (330,283)
Income tax benefit 33,703 129,723
_____________ _____________
Net operating loss before security transactions (61,766) (200,560)
_____________ _____________
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS:
Net realized losses from sales of investments (428,754) (66,451)
Change in net unrealized appreciation of investments 749,285 1,883,420
Income tax expense arising from net realized gains
and net unrealized appreciation of investments (113,156) (719,890)
_____________ _____________
Net realized and unrealized gains on investments 207,375 1,097,079
_____________ _____________
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $145,609 $896,519
_____________ _____________
Net assets at beginning of period $9,236,869 $11,812,602
Net decrease in net assets resulting from
treasury stock purchases (125,137) --
_____________ _____________
Net assets at end of period $9,257,341 $12,709,121
_____________ _____________
Per Share Data:
Net operating loss before security transactions $(.07)
$(.21)
Net realized gains/(losses) from sales of investments (.29)
(.08)
Net unrealized appreciation of investments .51
1.22
Net gain on treasury stock transactions .03 --
_____________ _____________
Net increase in net asset value resulting from operations .18
.93
_____________ _____________
Net asset value per common share at beginning of period 9.66
12.36
_____________ _____________
Net asset value per common shares at end of period $9.84
$13.29
_____________ _____________
See notes to financial statements
</TABLE>
<PAGE 4>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the QuarterEnded For the Quarter Ended
December 31, 1996 December 31, 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations $145,609 $896,519
Adjustments to reconcile net increase in net assets
resulting from operations to net cash (used in) operating activiities:
Change in net unrealized appreciation of investments (749,285) (1,883,420)
Realized (gains) from sale of investments 428,754 66,451
Deferred income tax provision 79,453 712,985
(Increase) decrease in operating assets:
Income taxes receivable 1,359 (113,410)
Accrued interest receivable 491 2,724
Other assets (32,999) (55,254)
Increase (decrease) in operating liabilities:
Accrued incentive fee payable -- (721,687)
Income taxes payable -- (132,008)
Accounts payable and accrued expenses (7,690) (15,088)
_____________ _____________
Net cash flows (used in) operating activities (134,308) (1,242,188)
_____________ _____________
Cash Flows from Investing Activities:
Purchase of securities (237,201) (772,893)
Net cash flows (used in) investing activities (237,201) (772,893)
Cash Flows from Financing Activities:
Purchase of treasury stock (125,137) --
Net cash flows (used in) financing activities (125,137) --
Net (decrease) in cash and cash equivalents (496,646) (2,015,081)
Cash and Cash Equivalents, at the beginning of the period 509,257 2,093,863
Cash and Cash Equivalents, at the end of the period $12,611 $78,782
Supplemental Disclosure:
Income taxes paid, net $(1,359) $122,600
See notes to financial statements
</TABLE>
<PAGE 5>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF INVESTMENTS (1)
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
SHARES TYPE OF ISSUE % OF
OR FACE AND NAME ORIGINAL MARKET NET
VALUE OF ISSUER COST VALUE ASSETS
Other Investments
______________________
Common Stock
______________________
<C> <S> <C> <C> <C>
607,400 Computervision Corp. New $3,177,562 $5,618,450 60.7%
40,176 OrNda Heathcorp (2) 575,969 1,175,148 12.7%
148,824 Seaman Furnture Co., Inc. 2,676,691 2,920,671 31.5%
__________ __________
Total Investments $6,430,222 9,714,269
__________ __________
</TABLE>
Notes to Schedule of Investments:
<F1>
(1) The above investments are non-income producing. Equity investments that
have not paid dividends within the last twelve months are considered to be
non-income producing. See Note 1.
<F2>
(2) Effective January 30, 1997, OrNda Healthcorp merged with Tenet Healthcare
Corp., in which the Company received 1.35 shares of Tenet for each share of
OrNda.
See notes to financial statements
<PAGE 6>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited)
1. Organization and Operation of the Company
Corporate Renaissance Group, Inc. (the "Company") was incorporated under
the laws of the State of Delaware on June 19, 1992. The Company is a non-
diversified, closed-end investment company which has elected to be treated as a
business development company ("BDC") under the Investment Company Act of 1940,
as amended by the Small Business Incentive Act of 1980. The Company's primary
investment objective is to achieve long-term capital appreciation through
investments in companies which the Company believes have viable existing
businesses generating substantial revenues in established markets, and have
recently completed or are in the process of undergoing financial restructuring
("Reorganized Companies") and where, as a result, the Company can ultimately
obtain an equity position at a discount from market value for comparable
companies that are not financially troubled. The Company's investments are
generally not expected to produce meaningful levels of investment income. It is
the Company's objective to select investment opportunities which the Company
believes offer the potential for substantial capital appreciation.
The Company completed its initial public offering and commenced operations
on November 1, 1994. The Company consummated the initial public offering (the
"Domestic Offering") and an overseas offering (the "Overseas Placement") of
956,000 shares at $10.00 per share. Pursuant to the Domestic Offering, 600,000
shares were sold; 356,000 shares were sold in the Overseas Placement. The net
proceeds to the Company of both the Domestic Offering and Overseas Placement
were $7,823,821 after deducting all costs associated with the registration and
offering, resulting in an initial net asset value per share of $8.18.
On November 25, 1996, the Company's Board of Directors authorized the
implementation of an open market share repurchase program, pursuant to which the
Company, from time to time, may purchase up to an aggregate of 175,000 shares of
its Common Stock in open market transactions. The purpose of the program is to
provide stockholders desiring to sell their shares with enhanced market
liquidity. At the same time, the Company believes that open-market purchases of
its shares at a discount from net asset value will enhance long-term shareholder
value. As of December 31, 1996, 15,750 shares have been repurchased pursuant to
this program at an average cost of $7.93 per share.
2. Significant Accounting Policies
a. Valuation of Securities
The Company's securities which are subject to last-sale reporting are
valued by reference to the market price on a national securities exchange or as
reported on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System. Other unlisted securities are valued at representative "bid"
quotations if held long by the Company and representative "asked" quotations if
held short by the Company. The value of securities for which market quotations
are not readily available and securities as to which the Company believes the
method of valuation set forth above does not fairly reflect market value are
determined by one or more independent third parties selected by the Investment
Advisor.
<PAGE 7>
b. Recognition of Security Transactions and Related Investment
Income
Security transactions are recorded on the date the order to buy or sell is
executed (the trade date). Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis. The net realized
gains and losses in sales of securities are determined on a first in, first out
or specific identification basis.
c. Accounting for Foreign Exchange Gains and Losses
Investments denominated in foreign currencies are translated into U.S.
dollars at the closing foreign exchange rate. Resulting foreign exchange gains
and losses are reflected in the change in net unrealized appreciation of
investments.
d. Income Taxes
The Company is not entitled to the special treatment available to regulated
investment companies and is taxed as a regular corporation for federal and state
income tax purposes. The Company has accounted for income taxes in accordance
with FASB Statement No. 109, "Accounting for Income Taxes." The aggregate cost
of securities at December 31, 1996 for federal income tax purposes and financial
reporting purposes was the same.
e. Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents consist
of cash and short-term interest-bearing deposits.
3. Income Taxes
The components of income tax expense on pre-tax gain of $225,062 are as
follows:
Federal:
Deferred $ 75,011
_________
75,011
State and Local:
Deferred 4,442
_________
4,442
Total $ 79,453
_________
<PAGE 8>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. For example, unrealized gains or losses on investments are not
recognized for tax purposes until realized and therefore create a temporary
difference. The components of the Company's deferred income tax liability are
comprised of the following:
3. Income Taxes (continued)
Deferred tax liability:
Net unrealized appreication on investment $1,159,358
Deferred tax assets:
Net operating loss carryforwards (330,296)
__________
Net deferred tax liability $829,062
__________
The Company's effective income tax rate and the U.S. federal statutory rate
are substantially the same.
4. Financial Advisory and Investment Banking Fees and
Other Transactions with Affiliates and Related Parties
The Company has retained M.D. Sass Investors Services, Inc. (the
"Investment Adviser") as the Company's investment adviser. The Investment
Adviser is a registered investment adviser under the Investment Advisers Act of
1940, as amended. The Investment Adviser is part of a group of affiliated
investment advisers and other affiliated entities comprising the M.D. Sass
organization ("M.D. Sass"). Upon completion of the Company's offering of its
common shares, the Company entered into a two-year Financial Advisory Agreement
with the Investment Adviser, pursuant to which the Investment Adviser receives a
base fee $200,000 per annum for furnishing the Company with administrative
services, including necessary executive, administrative, international
accounting and support services. In addition to the base fee, the Investment
Adviser will receive an incentive fee for its investment advisory services equal
to 20% of the increase in net asset value of the Company's shares, as defined in
the Financial Advisory Agreement. There were no incentive fees earned or
payable at December 31, 1996.
The Company was party to an investment banking agreement with UI USA, Inc.
for a period of one year which ended on October 31, 1996. Pursuant to this
agreement, UI USA furnished investment banking services to the Company for a fee
of $100,000 per annum. Such services consisted of assisting the Company and
Investment Adviser in the evaluation, structuring and negotiation of investment
opportunities. The Company paid $8,333 for such services covering the period
from October 1, 1996, through the date of termination of the agreement.
<PAGE 9>
5. Board of Directors Fees
The Company pays each of its five independent directors an annual fee of
$10,000 for their services.
6. Investment Transactions
As of December 31, 1996, the accumulated unrealized appreciation on
investments was $3,284,047.
7. Concentration of Credit Risk and Off-Balance Sheet Risk
The Company engages in security purchase and sale transactions with
regulated broker-dealers. In connection with these transactions, the Company
may be subject to credit risk in the event the counterparty or the Company's
regulated clearing brokers cannot fulfill their contractual obligations.
The Company's activities with off balance sheet risk include the writing of
traded options. The Company is subject to market risks associated with changes
in the value of the underlying stock index. As a writer of options, the Company
receives a premium at the outset of then bears the risk of unfavorable changes
in the price of the stock index underlying the option.
<PAGE 10>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Report contains, in addition to historical information, forward-
looking statements regarding Corporate Renaissance Group, Inc. (the "Company"),
which represents the Company's expectations or beliefs including, but not
limited to, statements concerning the Company's operations, performance,
financial condition, business strategies and other information. For this
purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. The statements by their nature involve
substantial risk and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including those described in this Report and the Company's
other filings with the Securities and Exchange Commission.
Liquidity and Capital Resources
The Company is a non-diversified, closed-end management investment company
which has elected to be treated as a special type of investment company known as
a business development company under the Investment Company Act of 1940 (the
"1940 Act") as amended by the Small Business Act of 1980. The Company's primary
investment objective is to achieve long-term capital appreciation through
investments in companies ("Portfolio Investment") which the Company believes
have viable existing businesses generating substantial revenues in established
markets, but which have recently completed, are in the process of undergoing or
are likely to undergo a financial restructuring pursuant to bankruptcy or
reorganization proceedings or on a negotiated basis outside of bankruptcy or
reorganization proceedings (a "Reorganized Company") and where, as a result, the
Company can ultimately obtain an equity position (either common or preferred
stock) at a discount from market value for comparable companies that are not
financially troubled. Such investments are not generally available to the
public because they require large financial commitments and, in some cases,
managerial assistance. The Company may make these investments either on its own
or, more likely, jointly with other investors, including investment partnerships
managed or advised by M.D. Sass Investors Services, Inc. (the "Investment
Adviser") and its affiliates. Any investments with affiliates of the company
will be subject to restrictions under the 1940 Act and conditions set forth in
an exemptive order granted by the Securities and Exchange Commission in November
1994. A portion of the Company's portfolio is invested in other securities,
including securities of financially distressed companies, where the Company
believes that it can generate capital appreciation by engaging portfolio
trading.
The Company has retained the Investment Adviser as the Company's investment
adviser to identify, negotiate, manage and liquidate investments for the
Company. The Company invests only in transactions recommended by the Investment
Adviser. The activities of the Investment Adviser on behalf of the Company are
subject to supervision by the independent directors of the Company.
The Company's primary source of working capital is funds generated from
investment activities. At December 31, 1996, the Company had cash and cash
equivalents of $12,611, as compared to cash and cash equivalents of $509,257 at
September 30, 1996. The decline in cash and cash equivalents was a result of
the use of cash equivalents to make additional investments and pay certain
operating expenses during the period.
<PAGE 11>
Results of Operations
Quarter ended December 31, 1996 as compared to quarter ended December 31,
1995
During the quarter ended December 31, 1996, the Company had interest income
of $5,194 as compared to interest income of $15,341 in the 1995 quarter. The
decline in interest income reflects the increased percentage of the Company's
assets invested in other than cash or cash equivalents. Operating expenses
during the 1996 quarter were $100,603 as compared to $345,624 in the 1995
period. This decrease is attributable to $224,128 in incentive fees payable to
the Investment Adviser accrued during the 1995 quarter as compared to $0 in the
1996 quarter. For the quarter ended December 31, 1996, the Company had a pre-
tax operating loss and a net operating loss of $95,469 and $61,766,
respectively, as compared to a pre-tax loss and net operating loss for the 1995
quarter of $330,283 and $200,560, respectively. Since the Company typically
does not purchase securities with the objective of generating investment income,
net investment losses are expected to routinely occur.
During the quarter ended December 31, 1996, the Company had net realized
losses from sale of investments of $428,754 as opposed to net realized losses
from sale of investments of $66,451 during the 1995 quarter. For the quarter
ended December 31, 1996, the Company had net unrealized appreciation of
investments of $749,285, as compared to net unrealized appreciation of
investments of $1,883,420 in the 1995 quarter. For the 1996 quarter, the
Company had net realized and unrealized gains on investments of $207,375, as
compared to net realized and unrealized gains on investments of $1,097,079 for
the 1995 quarter and, after giving effect to net operating losses, an increase
in net assets resulting from operations of $145,609 in the 1996 quarter, as
compared to a net increase in net assets resulting from operations of $896,519
in the 1995 quarter.
On November 25, 1996, the Company's Board of Directors authorized the
implementation of an open market share repurchase program, pursuant to which the
Company, from time to time, may purchase up to an aggregate of 175,000 shares of
its Common Stock in open market transactions. As of December 31, 1996, the
Company had purchased 15,750 shares pursuant to this program at an average cost
of $7.93 per share.
Net Asset Value
At December 31, 1996, the Company had a net asset value of $9.84 per share
of Common Stock, an increase of $.18 per share from net asset value at September
30, 1996 of $9.66 per share.
<PAGE 12>
PART II - OTHER INFORMATION
1. Legal Proceedings
Not applicable.
2. Changes in Securities
Not applicable.
3. Default Upon Senior Securities
Not applicable.
4. Submission of Matters to a Vote of Security Holders
Not applicable.
5. Other Information
Not applicable.
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule (SEC Use Only).
(b) Reports on Form 8-K - None.
<PAGE 13>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 1996 CORPORATE RENAISSANCE GROUP, INC.
By: /s/Martin D. Sass
_______________________________________
Martin D. Sass, Chairman of the Board and
Chief Executive Officer
By: /s/Martin E. Winter
_______________________________________
Martin E. Winter, Secretary-Treasurer
(Principal Financial and Accounting
Officer)
<PAGE 14>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 12,611
<SECURITIES> 9,714,269
<RECEIVABLES> 383,492
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,110,372
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,110,372
<CURRENT-LIABILITIES> 853,031
<BONDS> 0
0
0
<COMMON> 9,561
<OTHER-SE> 9,247,780
<TOTAL-LIABILITY-AND-EQUITY> 10,110,372
<SALES> 0
<TOTAL-REVENUES> 325,725
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 100,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 225,062
<INCOME-TAX> (79,453)
<INCOME-CONTINUING> 145,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,609
<EPS-PRIMARY> .180
<EPS-DILUTED> 0
</TABLE>
