<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
( ) 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1185 Avenue of the Americas 10036
18th Floor ----------
New York, New York (Zip Code)
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number: (212) 730-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(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. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
================================================================================
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The number of shares outstanding of the Registrant's Common Stock is
762,650 (as of December 10, 1998).
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is approximately $4,348,759 (as of December 10, 1998).
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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Forward-Looking Statements
This Report contains, in addition to historical information,
forward-looking statements regarding Corporate Renaissance Group, Inc. (the
"Company"), which represent 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 risks 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 (the "SEC").
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
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 ("BDC") under the Investment Company Act
of 1940 (the "1940 Act") 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 ("Portfolio Investments"), 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 (a
"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 SEC.
In addition to Portfolio Investments, the Company may invest in other
securities, including securities of financially distressed companies, where the
Company believes that it can generate capital appreciation by engaging in
portfolio trading ("Other Investments").
The Company has retained the Investment Adviser as the Company's
investment adviser pursuant to a Financial Advisory Agreement (the "Financial
Advisory Agreement") 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 is deemed to have commenced operations on November 1, 1994,
when the Company consummated an initial public offering and a contemporaneous
placement to foreign institutional investors. Since that time, the Company has
made five Portfolio Investments, three of which subsequently were sold. At
September 30, 1998, the Company had two Portfolio Investments: CVSI, Inc.
("CVSI"), a provider of computer hardware and software integration services, and
Seaman Furniture Company, Inc. ("Seamans"), a New York based furniture retailer.
Such Portfolio Investments are held jointly with the Investment Adviser and its
other affiliates. In addition to the foregoing, the Company has also invested,
subject to applicable restrictions under the 1940 Act, in Other Investments of
equity and debt securities of various companies.
In November 1996, the Company's Board of Directors adopted an open
market share repurchase program, pursuant to which the Company was authorized,
from time to time, to purchase up to an aggregate of 175,000 shares of its
Common Stock in open market transactions. In November 1998, the Company's Board
of Directors increased the number of shares authorized for repurchase under the
Company's open market share repurchase program from 175,000 shares
(substantially all of which had been repurchased at that time) to 350,000
shares. As of December 10, 1998, the Company had repurchased 193,450 shares
pursuant to this program.
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The Board of Directors of the Company is actively exploring various
strategic alternatives for enhancing stockholder value including, among others,
acquiring an operating company and withdrawing the Company's BDC election,
adopting a plan of liquidation or restructuring the Company, possibly in
connection with raising additional capital.
The Company was incorporated in Delaware on June 19, 1992. The
Company's executive offices are located at 1185 Avenue of the Americas, 18th
Floor, New York, New York 10036 and its telephone number is (212) 730-2000.
Investment Objectives and Policies
The Company, together with co-investors (as described below) generally
seeks to acquire a controlling (25% or greater) equity interest (either common
or preferred stock) in a Reorganized Company by investing directly in a company
either by acquiring common or preferred stock from existing stockholders (in the
case of a Reorganized Company which has completed a Restructuring) or debt from
existing creditors (in the case of a company which is in the process of
undergoing a Restructuring) which it anticipates will then be converted to
common or preferred stock in the Restructuring.
In selecting Portfolio Investments, the Company targets potential
companies that satisfy the following criteria, among others:
o $50 million in annualized revenues generated by a core business in
an established market;
o operating profitability (earnings before interest and taxes) of the
core business or the potential to achieve operating profitability
within 12 months of the Restructuring;
o a credible Restructuring plan developed or capable of being
developed, which in the opinion of the Investment Adviser, will
result in the Company realizing positive cash flow within a
reasonable period of time following the implementation thereof;
o competent operating management in place or to be retained in
connection with the Restructuring;
o ability of the Company to obtain a controlling position in the
equity securities of a portfolio company at a discount from market
value for comparable companies which are not financially troubled;
and
o potential to develop a liquid market for the securities held by the
Company in the Reorganized Company within 12 months of the
Restructuring.
The Company's investment objectives (other than its election to be
treated as a BDC) may be changed by the Board of Directors without the approval
of holders of a majority of the Company's outstanding voting securities as
defined in the 1940 Act. The withdrawal of the Company's election to be treated
as a BDC would require such stockholder approval.
29
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The Company believes that there are a large number of companies that
have undergone, are undergoing or will undergo a Restructuring in order to
remain viable. Such companies typically undertake Restructurings because of high
levels of debt and/or problems with operating management. Additional capital may
be required by a Reorganized Company to effect a Restructuring or finance
post-Restructuring operations. Further, a Reorganized Company may require
managerial assistance in certain instances to negotiate the terms of a proposed
Restructuring, renegotiate the terms of a completed Restructuring where debt
service requirements continue to adversely affect operating results, retain new
operating management and/or favorably renegotiate existing contractual
commitments. In a Restructuring, creditors are often issued equity securities in
a Reorganized Company (generally common or preferred stock) for which there may
be no or only a limited market. Certain creditors, in particular senior lenders,
may not desire to or may be restricted in their ability to hold such equity
securities for extended periods of time.
The Company believes that it will be able to invest in Reorganized
Companies at discounts from market values for comparable companies which are not
financially troubled, because it may be offering necessary capital to a
Reorganized Company in the case of a direct investment and liquidity to holders
of equity, bank debt, debt securities and/or trade credits in a Reorganized
Company in the case of a purchase from such parties. Although the Company is
focusing its efforts on Reorganized Companies which have completed or are
undergoing a Restructuring, the Company may seek to invest in financially
troubled companies which intend to undergo a Restructuring and where a credible
plan to effect such Restructuring has been, or in the opinion of the Company,
can be developed. The Company only invests in transactions recommended by the
Investment Adviser.
Up to 30% of the Company's total assets may be invested in Other
Investments including securities of Reorganized Companies or other financially
distressed companies, where the Company's objective is not to obtain a
controlling interest, but rather where it believes capital appreciation can be
achieved by engaging in portfolio trading. Income or realized gains from this
portion of the Company's portfolio will be used in part to pay the Company's
operating expenses, including legal and auditing fees, taxes and fees to the
Investment Adviser.
Given the amount of its capital resources (including that which may be
available from co-investors as described below), the Company estimates that it
will be able to make Portfolio Investments in between one and four Reorganized
Companies at any one time and therefore will most likely not be able to
diversify its portfolio. However, in order to provide as much diversification as
possible, the Company will likely make its investments jointly with other
investors including affiliates of the Investment Adviser. 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 SEC.
Following an initial investment, the Company anticipates that it may
provide additional funds to a portfolio company. Follow-on investments may be
made pursuant to rights to acquire additional securities or otherwise in order
to increase the Company's position in a successful or promising portfolio
company. The Company may also be called upon to provide follow-on investments
for a number of other reasons, including providing additional capital to a
company to implement fully its business plans, to develop a new line of business
or to recover from subsequent unexpected business problems. The Company may use
leverage (i.e., borrowed funds or senior securities) to raise all or a portion
of the funds required to make follow-on investments, subject to certain
restrictions. The Company may also borrow to fund general working capital needs
including paying operating expenses. In addition, the Company may issue its
securities to purchase the assets of or a controlling interest in another
company or companies.
30
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Present Portfolio Investments
CVSI. In July 1997, the Investment Adviser and certain of its
affiliates, including the Company (collectively, the "Buyer"), purchased a
majority interest (the "OSS Acquisition") in the Open Service Solutions business
unit ("CVSI") of Computervision Corporation ("Computervision"), through CVSI
Acquisition Co., L.L.C. Computervision was a publicly-held software concern
which was a Portfolio Investment. In January 1998, Computervision was acquired
by Parametric Technology Corporation ("Parametric"), a publicly-held company, in
a stock-for-stock transaction. During the fiscal year ended September 30, 1998,
the Company disposed of substantially all of its interest in Parametric.
CVSI provides computer services to customers of various third party
hardware and software vendors. CVSI's offerings include system hardware and
operating systems services, network design and implementation, systems
integration, and database support and consulting for enterprise-wide systems and
networks. CVSI is a worldwide support organization that is ISO 9000 certified.
The markets in which CVSI operates are highly competitive and
characterized by rapid advances in technology. To compete successfully, CVSI
must continue to enhance its current products and services and develop new
products and services which can be offered at competitive prices and on a timely
basis.
The Buyer holds 86% of CVSI's Class A Voting Stock (the "Class A
Stock"). Parametric holds 14% of CVSI's Class A Stock. If CVSI does not achieve
certain specified levels of product revenues and operating margins from certain
referrals, CVSI will have the option to purchase, at a nominal price, some or
all of the remaining Class A Stock held by Parametric.
As a stand alone operation, CVSI would have reported $133 million in
total revenues for the fiscal year ended June 30, 1998, down 13.6% from $154
million for the fiscal year ended June 30, 1997. EBITDA (earnings before
interest, taxes, depreciation and amortization) also declined from $16.6 million
for the fiscal year ended June 30, 1997, to $12.8 million for June 30, 1998.
In December, 1998, CVSI hired an investment banker to review its
strategic alternatives.
The foregoing information with respect to CVSI has been derived from
information furnished by CVSI.
Seamans. The Company and certain other affiliates of the Investment
Adviser own approximately 38.3% of the issued and outstanding Common Stock of
Seamans (approximately 3.3% of which is owned by the Company). James B. Rubin,
an executive officer and director of the Company, serves as a director of
Seamans.
Seamans believes that it is one of the largest regional specialty
furniture retailers in the northeastern United States in terms of sales and that
it has the leading market position in the greater New York metropolitan area.
Seamans currently operates a chain of 42 stores. Of these, 28 are in the New
York, New Jersey and Connecticut tri-state area, eight are in Philadelphia
metropolitan area and six are in the Cleveland/Akron, Ohio Metropolitan area.
The Company's stores sell a variety of living room, bedroom, dining room and
other home furniture and accessories in contemporary, traditional, country and
casual styles. All aspects of Seamans' business are highly competitive.
31
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For the six months ended October 31, 1998, revenues increased 12.2% to
$153.9 million from $132.1 million for the six months ended October 31, 1997.
EBITDA for the six months ended October 31, 1998 was $8.3 million, compared to
$6.7 million for the six months ended October 31, 1997.
In December 1997, SFC Merger Company ("Newco"), a Delaware corporation
formed and wholly owned by the Investment Adviser and its affiliates (including
the Company), T. Rowe Price Recovery Fund, L.P. ("Price") and Carl Marks
Management Co., L.P. ("Marks," and collectively with the Investment Adviser and
Price, the "Funds"), acquired through a merger (the "Merger") all of the
outstanding common stock of Seamans (which was then publicly-held) not already
owned by the Funds (the "Public Stock"). Upon consummation of the Merger, Newco
was merged with and into Seamans and each share of Public Stock (other than
dissenting shares) was converted into the right to receive $25.05 in cash and
each existing Seamans stock option was converted into the right to receive
$25.05 in cash per share purchasable thereunder, less the exercise price with
respect thereto, other than certain options of officers of the Company which
were cancelled and reissued as options of equivalent or greater value.
Following the Merger, the Funds received a dividend of approximately
$67.0 million on the shares of Seamans held by them, approximately $2.74 million
of which was received by the Company.
The foregoing information with respect to Seamans has been derived from
Seamans' filings with the SEC and information otherwise furnished by Seamans.
For further information concerning the Company's Portfolio and Other
Investments, including purchase prices and valuation at September 30, 1998, see
the Financial Statements including the Notes thereto set forth in Item 8 of this
Report.
Regulation
The following is a summary description of the 1940 Act as modified by
the Incentive Act as applied to BDCs. The Company elected to be treated as a BDC
on August 3, 1992. The Company may not withdraw its election without first
obtaining the approval of a majority of its outstanding voting securities.
Generally, to be eligible to elect BDC status, a company must be
primarily engaged in the business of furnishing capital and managerial expertise
to companies which do not have ready access to capital through conventional
financial channels and/or are in financial difficulty, which companies are
termed "portfolio companies." More specifically, in order to qualify as a BDC, a
company must (i) be a domestic company; (ii) have registered a class of its
equity securities or have filed a registration statement with the SEC pursuant
to Section 12 of the Securities Exchange Act; (iii) operate for the purpose of
investing in the securities of certain types of portfolio companies, namely,
immature or emerging companies and businesses suffering or just recovering from
financial distress; (iv) extend significant managerial assistance to certain
portfolio companies; (v) have a majority of "disinterested" directors (as
defined in the 1940 Act); and (vi) file (or, under certain circumstances, intend
to file) a proper notice of election with the SEC.
An eligible portfolio company generally is a United States company that
is not an investment company and that (i) does not have a class of securities
registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; (ii) has total assets of $4.0 million or less and
capital and surplus of more than $2.0 million (with respect to which category of
portfolio company no managerial assistance need be offered); (iii) is actively
controlled by a BDC and has an affiliate of a
32
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BDC on its board of directors; or (iv) meets such other criteria as may be
established by the SEC. Control under the 1940 Act is presumed to exist where a
BDC owns 25% of the outstanding voting securities of the portfolio company.
The 1940 Act prohibits or restricts the Company from investing in
certain types of companies, including brokerage firms, insurance companies,
investment banking firms and investment companies. Moreover, while the 1940 Act
contemplates that a BDC will invest in concerns other than "eligible portfolio
companies," the type of assets that the Company may acquire is limited to
"qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the Company's assets consists of qualifying
assets. Qualifying assets include: (1) securities of companies that were
eligible portfolio companies at the time the Company acquired their securities;
(2) certain securities of bankrupt or insolvent companies that are not otherwise
eligible portfolio companies; (3) securities acquired as follow-on investments
in companies that were eligible portfolio companies at the time of the Company's
initial acquisition of their securities but are no longer eligible, provided
that the Company has maintained a substantial portion of its initial investment
in those companies; (4) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (5) cash items, government securities
and high-quality short-term debt. The 1940 Act also places restrictions on the
nature of the transactions in which, and the person from whom, securities can be
purchased in order for the securities to be considered qualifying assets. Such
restrictions include limiting purchases to transactions not involving a public
offering and acquiring securities from either the portfolio company or their
officers, directors or affiliates.
The Company is permitted by the 1940 Act, under specified conditions,
to issue multiple classes of senior debt, a single class of preferred stock and
other senior securities. The Company currently has no policy regarding the
issuance of senior securities.
The Company may sell its securities at a price that is below the
prevailing net asset value per share only upon the approval by the holders of a
majority of its outstanding voting securities, including a majority, of the
voting securities held by non-affiliated persons. As defined in the 1940 Act,
the term majority of the Company's outstanding voting securities means the vote
of (i) 67% or more of the Company's Common Stock present at a meeting, if the
holders of more than 50% of the outstanding Common Stock are present or
represented by proxy, or (ii) more than 50% of the Company's outstanding Common
Stock, whichever is less.
Most of the transactions involving the Company and its affiliates (as
well as affiliates of those affiliates) which were prohibited without the prior
approval of the SEC under the 1940 Act prior to its amendment by the Incentive
Act now require the prior approval of a majority of the Company's independent
directors and a majority of the directors having no financial interest in the
transactions. However, certain transactions involving certain closely affiliated
persons of the Company, including its directors, officers and employees, may
still require the prior approval of the SEC. In general, (i) any person who
owns, controls or holds with power to vote, more than 5% of the Company's
outstanding Common Stock; (ii) any director, officer or general partner of that
person; and (iii) any person who directly or indirectly controls, is controlled
by, or is under common control with, that person, must obtain the prior approval
of a majority of the Company's independent directors and, in some situations,
the prior approval of the SEC, before engaging in certain transactions involving
the Company or any company controlled by the Company. The SEC has granted an
exemptive order which sets forth certain conditions for co-investments with
affiliates of the Company. In accordance with the 1940 Act, a majority of the
members of the Company's Board of Directors are independent. The 1940 Act
generally does not restrict transactions between the Company and portfolio
companies in which the Company invest.
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As discussed above, the Board of Directors is actively exploring
various strategic alternatives for enhancing stockholder value, including
liquidating the Company or acquiring an operating company and withdrawing the
Company's election to be treated as a BDC. While a BDC may change the nature of
its business so as to cease being a BDC (and in connection therewith withdraw
its election to be treated as a BDC) only if authorized to do so by a majority
of its outstanding voting securities, stockholder approval of changes in other
fundamental investment policies of a BDC is not required (in contrast to the
general 1940 Act requirement of stockholder approval for a change in any
fundamental investment policy). Other than its status as a BDC and its primary
investment objective, none of the Company's objectives or policies are deemed
fundamental.
Competition
Given the size of the Company's assets, the Company's portfolio will
likely not be diversified and the Company will not be able to achieve the same
level of diversification as much larger entities engaged in similar activities.
The Company expects to encounter substantial competition for investments from
other investors, including entities having similar investment objectives,
including other business development companies, investment or so-called
"vulture" funds, investment affiliates of large industrial and financial
companies, small business investment companies and wealthy individuals. Many of
these investors will have greater experience, financial resources and managerial
capabilities than the Company and therefore will be in a better position than
the Company to obtain access to attractive investments.
Employees
The Company has no employees other than its officers and, because of
the Financial Advisory Agreement with the Investment Adviser, is not expected to
have any additional employees.
ITEM 2. PROPERTIES
The Company presently occupies office space in facilities located at
1185 Avenue of the Americas, New York, New York, which space is also occupied by
the Investment Adviser. The cost of all necessary office space is included in
the fees to be paid by the Company to the Investment Adviser under the Financial
Advisory Agreement between the Company and the Investment Adviser.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is listed on the Nasdaq Small Cap Market
under the symbol CREN. The following table sets forth, for the periods
indicated, the range of high and low prices for the Common Stock as reported by
the Nasdaq Stock Market, Inc. These quotations represent prices between dealers,
do not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions:
Common Stock
---------------------------
High Low
---- ---
Calendar 1996
- -------------
First Quarter $ 10-1/8 $ 8-5/8
Second Quarter 9 8-1/8
Third Quarter 8-3/8 7-1/4
Fourth Quarter 8-3/8 7-5/8
Calendar 1997
- -------------
First Quarter 8 6-1/2
Second Quarter 6-1/4 4-1/2
Third Quarter 6 5
Fourth Quarter 6 5
Calendar 1998
- -------------
First Quarter 8 5-3/4
Second Quarter 8-1/8 7-1/4
Third Quarter 7-1/8 5-7/8
(b) Holders
At December 10, 1998, there were approximately 11 holders of record of
the Company's Common Stock. The Company believes the number of beneficial owners
of its Common Stock is in excess of 300.
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(c) Dividends
The Company has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. Any
decision as to future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1994
(COMMENCEMENT OF
YEAR ENDED OR AT YEAR ENDED OR AT YEAR ENDED OR AT OPERATIONS) TO OR AT
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Data:
Net operating loss before security
transactions $568,825 $(164,095) $(471,831) $(821,159)
Net realized gains/(losses) from
portfolio investments --- --- $(1,123,937) $2,593,738
Net realized gains/(losses) from other
investments $(333,756) $248,345 $(101,045) $238,526
Change in net unrealized
appreciation/(depreciation) from
portfolio investments $517,110 $(3,079,438) $(127,394) $127,394
Change in net unrealized
appreciation/(depreciation) from
other investments $(689,290) $772,344 $(1,817,064) $4,351,827
Income tax benefit/(expense) arising
from net realized gains and net
unrealized appreciation in
investments $51,963 $660,069 $1,065,538 $(2,502,545)
Net increase/(decrease) in net assets
resulting from Operations $114,852 $(1,562,775) $(2,575,733) $3,987,781
Per Share Amounts:
Net Asset Value, beginning of period
$8.03 $9.66 $12.36 $10.00
Common Stock offering costs of initial
public offering --- --- --- (1.81)
Net operating loss before security
transactions .69 (.17) (.50) (.86)
Net realized gains/(losses) from sales
of investments (.36) .17 (.85) 1.95
Change in net unrealized
appreciation/(depreciation) of
investments held (.19) (1.66) (1.35) 3.08
</TABLE>
36
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<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1994
(COMMENCEMENT OF
YEAR ENDED OR AT YEAR ENDED OR AT YEAR ENDED OR AT OPERATIONS) TO OR AT
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net gain on treasury stock transactions
.23 .03 --- ---
--------------------------------------------------------------------------------------
Net Asset Value, end of period $8.40 $8.03 $9.66 $12.36
======================================================================================
Balance Sheet Data:
Total Assets $6,946,053 $7,604,762 $10,079,562 $14,542,064
Net Assets $6,933,759 $7,548,957 $9,236,869 $11,812,602
Total Return Based on:
Stock Price 7.789 (29.69%) (16.88%) (3.75%)
Net Asset Value 4.619 (16.87%) (21.85%) 23.60%
</TABLE>
37
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's primary source of working capital is proceeds generated
from investment activities. At September 30, 1998, the Company had cash and cash
equivalents of $4,238,260 as compared to $950,692 at September 30, 1997. The
increase in cash and cash equivalents was a result of the liquidation of certain
investments during the period.
Results of Operations
Year ended September 30, 1998 ("fiscal 1998") as compared to the Year
ended September 30, 1997 ("fiscal 1997")
During fiscal 1998, the Company had interest income of $139,792 as
compared to interest income of $30,317 in fiscal 1997, reflecting interest
generated on the proceeds of investments liquidated during fiscal 1998. In
fiscal 1998, the Company also realized a distribution of $779,606 from its
Portfolio Investment in Seamans and $29,845 in investment banking was related to
its Portfolio Investment in CVSI. Operating expenses during fiscal 1998 were
$368,471 as compared to $379,456 in fiscal 1997. This decrease is attributable
in large part to a decrease in fees payable pursuant to an investment banking
agreement from $8,333 in the fiscal 1997 period to $0 in fiscal 1998. For fiscal
1998 the Company had a pre-tax operating income and a net operating profit of
$580,772 and $568,825, respectively, as compared to a pre-tax loss and net
operating loss for fiscal 1997 of $253,635 and $164,095, respectively. The
pre-tax and net income earned in fiscal 1998 was attributable to the
distribution realized during fiscal 1998 on the Portfolio Investment in Seamans.
Since the Company typically does not purchase securities with the objective of
generating investment income, net operating losses are expected to routinely
occur.
During fiscal 1998, the Company had net realized losses from sale of
investments of $333,756 as opposed to net realized gains from sale of
investments of $248,345 during fiscal 1997. For fiscal 1998, the Company had net
unrealized depreciation of investments of $172,180, as compared to net
unrealized depreciation of investments of $2,307,094 in fiscal 1997. For fiscal
1998, the Company had net realized and unrealized losses on investments of
$453,973, as compared to net realized and unrealized losses on investments of
$1,398,680 for fiscal 1997 and after giving effect to net operating losses, an
increase in net assets resulting from operations of $114,852 in fiscal 1998, as
compared to a decrease in net assets resulting from operations of $1,562,775 in
fiscal 1997.
Year ended September 30, 1997 ("fiscal 1997") as compared to the Year
ended September 30, 1996 ("fiscal 1996")
During fiscal 1997, the Company had interest income of $30,317 as
compared to interest income of $28,901 in fiscal 1996. Operating expenses during
fiscal 1997 were $379,456 as compared to $739,695 in fiscal 1996. This decrease
is attributable in large part to $224,128 in incentive fees payable to the
Investment Adviser accrued during fiscal 1996 as compared to $0 in fiscal 1997
and a decrease in fees payable pursuant to an investment banking agreement from
$100,000 in the fiscal 1996 period to $8,333 in fiscal 1997. For fiscal 1997 the
Company had a pre-tax operating loss and a net operating loss
38
<PAGE>
of $253,635 and $164,095, respectively, as compared to a pre-tax loss and net
operating loss for fiscal 1996 of $710,794 and $471,831, respectively. Since the
Company typically does not purchase securities with the objective of generating
investment income, net operating losses are expected to routinely occur.
During fiscal 1997, the Company had net realized gains from sale of
investments of $248,345 as opposed to net realized losses from sale of
investments of $1,224,982 during fiscal 1996. For fiscal 1997, the Company had
net unrealized depreciation of investments of $2,307,094, as compared to net
unrealized depreciation of investments of $1,944,458 in fiscal 1996. For fiscal
1997, the Company had net realized and unrealized losses on investments of
$1,398,680, as compared to net realized and unrealized losses on investments of
$2,103,902 for fiscal 1996 and after giving effect to net operating losses, a
decrease in net assets resulting from operations of $1,562,775 in fiscal 1997,
as compared to a decrease in net assets resulting from operations of $2,575,733
in fiscal 1996.
Net Asset Value
At September 30, 1998, the Company had a net asset value of $8.40 per
share of Common Stock, an increase of $.37 per share from the net asset value of
$8.03 per share of Common Stock at September 30, 1997. Shares outstanding at
September 30, 1998 were 825,150 as compared to 940,350 at September 30, 1997 as
a result of repurchases of 115,200 shares of Common Stock during fiscal 1998
under the Company's open market share repurchase program.
Year 2000
Like other financial and business organizations, the Company could be
adversely affected if the computer system used by the Investment Adviser and the
Company's other service providers do not properly process and calculate
date-related information and data form and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Investment Adviser and the
Company's other service providers have informed the Company that they are taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use. At this time, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact on the Company as a result of the Year
2000 Problem.
39
<PAGE>
Item 8. Financial Statements and Supplementary Data
CORPORATE RENAISSANCE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report------------------------------------------------------------------------------F-17
Statements of Assets and Liabilities as of September 30, 1998 and September 30, 1997----------------------F-18
Statements of Operations as of September 30, 1998, September 30, 1997
and September 30, 1996------------------------------------------------------------------------------------F-19
Statements of Changes in Net Assets for the Years ended September 30, 1998,
September 30, 1997 and September 30, 1996-----------------------------------------------------------------F-20
Statements of Cash Flows for the Years ended September 30, 1998, September 30, 1997
and September 30, 1996------------------------------------------------------------------------------------F-21
Schedule of Investments as of September 30, 1998----------------------------------------------------------F-22
Notes to Financial Statements-----------------------------------------------------------------------------F-23
</TABLE>
40
<PAGE>
Report of Independent Auditors
Board of Directors
Corporate Renaissance Group, Inc.
We have audited the accompanying statements of assets and liabilities of
Corporate Renaissance Group, Inc., as of September 30, 1998 and 1997, including
the schedule of investments as of September 30, 1998, and the related statement
of operations, changes in net assets and cash flows for the years ended
September 30, 1998, 1997 and 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. Our audit procedures
included confirmation of securities owned at September 30, 1998 by
correspondence with the custodian; where confirmation was not possible, we
satisfied ourselves by other audit procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Corporation Renaissance Group,
Inc. at September 30, 1998 and 1997, and the results of its operations, changes
in net assets and cash flows for the years ended September 30, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
November 2, 1998
41
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- ------ ------------------ ------------------
<S> <C> <C>
Investments in securities, at market value
(cost $2,458,725and $6,411,446 respectively) $ 2,514,213 $ 6,639,114
Cash and cash equivalents 4,238,260 950,692
Income taxes receivable 183,841 9,755
Accrued interest receivable 5,852 1,204
Other assets 3,917 3,997
----------------------- -----------------------
TOTAL ASSETS 6,946,083 7,604,762
LIABILITIES
Deferred fees - 29,845
Accounts payable and accrued expenses 12,324 25,960
----------------------- ---------------------
TOTAL LIABILITIES 12,324 55,805
----------------------- -----------------------
NET ASSETS $ 6,933,759 $ 7,548,957
======================= =======================
NET ASSETS
Common stock (par value $.01 per share, 20,000,000 shares
authorized; 940,350 shares issued and outstanding at
9/30/97, and 940,350 issued and 825,150 outstanding at
9/30/98).
$ 9,404 $ 9,404
Additional paid-in capital 7,690,280 7,690,280
Treasury stock, at cost (115,200 shares), (730,050)
Accumulated income (loss):
Accumulated net operating loss before security
transactions (888,260) (1,457,085)
Accumulated net realized gains from sale of
investments 910,961 1,210,438
Net unrealized appreciation of investments (58,576) 95,920
----------------------- -----------------------
(35,875) (150,727)
----------------------- ------------------------
$ 6,933,759 $ 7,548,957
Net Assets ======================= =======================
$ 8.40 $ 8.03
Net asset value per share of common stock outstanding ======================= =======================
</TABLE>
See notes to financial statements
42
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR ENDED FOR THE YEAR
ENDED SEPTEMBER SEPTEMBER 30, 1997 ENDED SEPTEMBER
30, 1998 30, 1996
------------------ -------------------- ------------------
<S> <C> <C> <C>
Income:
Dividend Income $ 779,606 $ - $ -
Fee Income 29,845 95,504 -
Interest Income 139,792 30,317 28,901
------------------ ------------------- -------------------
Total investment income 949,243 125,821 28,901
------------------ ------------------- -------------------
Expenses:
Incentive fees - - 224,128
Financial advisory fees 200,000 200,000 200,000
Investment banking fees - 8,333 100,000
Professional fees 49,200 49,200 59,800
Insurance expense 47,000 49,250 74,247
Board of directors fees 50,000 50,000 50,000
Other operating expenses 22,271 22,673 31,520
------------------ ------------------- -------------------
Total expenses 368,471 379,456 739,695
------------------ ------------------- -------------------
Operating gain/(loss) before income tax (expense)/benefit 580,772 (253,635) (710,794)
Income tax (expense)/benefit (11,947) 89,540 238,963
------------------ ------------------- -------------------
NET OPERATING INCOME/(LOSS) BEFORE SECURITY TRANSACTIONS
568,825 (164,095) (471,831)
------------------ ------------------- -------------------
NET REALIZED AND UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from sale of investments (333,756) 248,345 (1,224,982)
Change in net unrealized (depreciation) of investments
(172,180) (2,307,094) (1,944,458)
Income tax benefit arising from net realized
gains/(losses) and net unrealized (depreciation) of
investments. 51,963 660,069 1,065,538
------------------ ------------------- -------------------
Net realized and unrealized (losses) on investments (453,973) (1,398,680) (2,103,902)
------------------ ------------------- -------------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 114,852 $ (1,562,775) $ (2,575,733)
================== =================== ===================
Per share net increase/(decrease) in net assets resulting
from operations $ 0.37 $ (1.63) $ (2.70)
================== =================== ===================
See notes to financial statements
</TABLE>
43
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1998 September 30, 1997 September 30, 1996
--------------------- -------------------- --------------------
<S> <C> <C> <C>
CHANGES IN NET ASSETS FROM OPERATIONS:
Net operating gain/(loss) before security
transactions $ 568,825 $ (164,095) $ (471,831)
Net realized gains/(losses) from sale of
investments (299,477) 160,673 (813,154)
Change in net unrealized (depreciation) of
investments (154,496) (1,559,353) (1,290,748)
--------------------- ------------------- --------------------
Net increase/(decrease) in net assets
resulting from operations 114,852 (1,562,775) (2,575,733)
--------------------- -------------------- --------------------
CAPITAL STOCK TRANSACTIONS:
Net (decrease) in net assets resulting from
treasury stock purchases (730,050) (125,137) -
--------------------- -------------------- --------------------
Net (decrease) in net assets resulting from
capital stock transactions (730,050) (125,137) -
--------------------- -------------------- --------------------
NET INCREASE/(DECREASE) IN NET ASSETS
(615,198) (1,687,912) 2,575,733
NET ASSETS
Beginning of period 7,548,957 9,236,869 11,812,602
===================== ==================== ====================
End of period $ 6,933,759 $ 7,548,957 $ 9,236,869
===================== ==================== ====================
</TABLE>
See notes to financial statements
44
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1998 September 30, 1997 September 30, 1996
--------------------- --------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase/(decrease) in net assets resulting from
Operations $ 114,852 $ (1,562,775) $ (2,575,733)
Adjustments to reconcile net increase/(decrease)
in net assets resulting from operations to net cash
provided by (used in) operating activities:
Change in net unrealized appreciation of
investments 172,180 2,307,094 1,944,458
Realized (gains)/losses on sale of 333,756 (248,345) 1,224,982
investments
Deferred income tax (benefit)/provision 57,117 (749,609) (783,591)
(Increase)/decrease in operating assets:
Income taxes receivable (231,203) 335,756 (345,511)
Accrued interest receivable (4,648) (619) 2,315
Other assets 80 2,250 246
Increase/(decrease) in operating liabilities:
Accrued incentive fee payable - - (996,947)
Accounts payable and accrued expenses (13,636) (5,699) (2,523)
Fees (29,845) 29,845 -
Income taxes payable - - (132,008)
--------------------- --------------------- ---------------------
Net cash flows provided by operating
activities 283,801 107,898 (1,664,312)
--------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (796,547) (695,298) (3,025,360)
Proceeds from sale of securities 2,346,044 1,153,972 3,026,288
Proceeds from recapitalized investment 2,069,468 - -
Proceeds from securities sold short, not
yet purchased - - 78,778
--------------------- --------------------- ---------------------
Net cash flows provided by investing
activities 3,618,965 458,674 79,706
--------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (730,050) (125,137) -
--------------------- --------------------- ---------------------
Net cash flows (used in) financing (730,050) (125,137) -
activities
--------------------- --------------------- ---------------------
Net increase/(decrease) in cash and cash
equivalents 3,287,568 441,435 (1,584,606)
CASH AND CASH EQUIVALENTS, at the beginning of the
period 950,692 509,257 2,093,863
===================== ===================== =====================
CASH AND CASH EQUIVALENTS, at the end of the period
$ 4,238,260 $ 950,692 $ 509,257
===================== ===================== =====================
SUPPLEMENTAL DISCLOSURE:
Income Taxes paid / (refunded) $ 134,070 $ (335,756) $ 366,409
===================== ===================== =====================
Interest Paid $ - $ - $ 10,189
===================== ===================== =====================
</TABLE>
See notes to financial statements
45
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
SCHEDULE OF INVESTMENTS/1
-------------------------
SEPTEMBER 30, 1998
------------------
<TABLE>
<CAPTION>
TYPE OF ISSUE % OF
SHARES OR AND ORIGINAL MARKET NET
FACE VALUE NAME OF ISSUER COST VALUE ASSETS
------------- --------------------------------------------- --------------- --------------- -----------
Reorganized Companies
---------------------------------------------
Common Stock
---------------------------------------------
<S> <C> <C> <C> <C>
17,065 Parametric Technology Corporation $ 596,857 $ 171,717 2.5%
513,310 CVSI Acquisition Co., L.L.C/2 513,310 513,310 7.4%
7,930 Seaman Furniture- Class A/3 145,732 279,612 4.0%
25,112 Seaman Furniture- Class B/3 461,492 885,449 12.8%
---------------- ---------------
Total Reorganized Companies 1,717,391 1,850,088
---------------- ---------------
<CAPTION>
Other Investments
---------------------------------------------
Common Stock
---------------------------------------------
<S> <C> <C> <C> <C>
1,533,000 Signet Group Plc 741,334 664,125 9.6%
----------------
---------------
Total Other Investments 741,334 664,125
---------------- ---------------
Total Investments $ 2,458,725 $ 2,514,213
================ ===============
</TABLE>
- --------
/1 Notes to Schedule of Investments:
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, except for Seaman Furniture as described in Note 9. See
Note 1.
/2 Represents a beneficial interest in 513,310 shares of CVSI Inc., which is not
considered to be a readily marketable security.
/3 Not considered to be a readily marketable security.
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 offers
investors the opportunity to participate in 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. On November 3, 1998, the Company's
Board of Directors increased the number of shares authorized for repurchase
under the Company's open market share repurchase program to 350,000 shares. 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 September 30, 1998, 130,950 shares
have been repurchased at an average cost of $6.53 per share, of which 15,750
were retired in 1997. The remaining 115,200 shares were retired on October 14,
1998. In addition, subsequent to September 30, 1998, an additional 62,500 shares
were purchased at an average cost of $6.35 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
47
<PAGE>
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.
48
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 on sales of securities are determined on a first-in, first-out
or specific identification basis.
c. 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 September 30, 1998 for federal income tax
purposes and financial reporting purposes was the same.
d. Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents
consist of cash and short-term interest-bearing deposits.
e. 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 amounts reported in the financial statements and
accompanying notes.
3. Income Taxes
The components of income tax (benefit) on pre-tax income $74,836 in
1998 and pre-tax loss ($2,312,384) in 1997 are as follows:
Federal: 1998 1997
------------ -----------
Current $ (73,217) --
------------ -----------
Deferred 16,929 (792,207)
------------ -----------
State and Local:
Current (23,916) --
------------ -----------
Deferred 40,188 (23,402)
------------ -----------
Allowance for deferred
tax asset 66,000
------------ ------------
Total $ (40,016) (749,609)
============ ============
49
<PAGE>
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.
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
3. Income Taxes (continued)
The Company's effective income tax rate and the U.S. federal statutory
rate are substantially the same. The benefit from the graduated federal tax rate
is offset by the state and local tax liability.
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"). In November 1998, the Company renewed its Financial
Advisory Agreement with the Investment Adviser, pursuant to which the Investment
Adviser will receive a base fee of $170,000 per annum, for furnishing the
Company with administrative services, including necessary executive,
administrative, internal 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 September 30, 1998.
5. Board of Directors Fees
The Company pays each of its five independent directors an annual fee
of $10,000 for the directors' services as such. Effective as of October 1, 1998,
the amount of such fee has been lowered to $8,000 per annum.
6. Investment Transactions
As of September 30, 1998 the accumulated unrealized appreciation on
investments was $55,488, consisting of $557,837 of gross unrealized appreciation
and $502,349 of gross unrealized depreciation.
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.
50
<PAGE>
The Company's activities with off balance sheet risk include the
writing of traded stock market index options. The Company is subject to market
risk associated with changes in the value of the underlying stock index. As a
writer of options, the Company receives a premium at the outset and then bears
the risk of unfavorable changes in the price of the stock index underlying the
option. There were no written options outstanding at September 30, 1998.
51
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
8. Investment in CVSI, Inc.
In July 1997, the Investment Adviser and certain of its affiliates,
including the Company (collectively, the "Buyer"), purchased a majority interest
in the Open Service Solutions business unit ("CVSI") of Computervision
Corporation ("Computervision"), through CVSI Acquisition Co., L.L.C., a newly
formed Delaware limited liability company. In the transaction, the Buyer paid
$7.6 million to Computervision for 76% of CVSI's Class A Voting Stock (the
"Class A Stock"). In addition, CVSI paid Computervision $25.0 million in cash
and issued Computervision a $10.0 million subordinated note (the "Subordinated
Note"). Further, Computervision retained its ownership of 24% of CVSI's Class A
Stock and 100% of CVSI's Class B Non-Voting Stock (the "Class B Stock"). The
Buyer also received options to purchase (i) the Class A Stock held by
Computervision should the Buyer retire the Subordinated Note within one year of
the transaction and (ii) the Class B Stock for $15.0 million. Moreover, if CVSI
does not achieve certain specified levels of product revenues and operating
margins from Computervision-initiated referrals, CVSI will have the option to
purchase, at a nominal price, some or all of the Class A Stock held by
Computervision.
In connection with the acquisition of CVSI, the Company received
$89,535 of investment banking fees and $35,814 of consulting fees. The
consulting fees were being amortized over a one-year period. The Investment
Advisor and certain of its clients and affiliates who acquired shares of CVSI
also received investment banking and consulting fees.
On June 30, 1998 CVSI, Inc., CVSI Acquisition Co. L.L.C.,
Computervision Corporation and Computervision's parent Parametric Technology
signed an agreement in which CVSI Acqusition Co., L.L.C. agreed to exercise its
option to purchase 1 million shares held by Computervision, increasing its
holdings to 86% of CVSI, Inc. Computervision canceled the $10 million
subordinated note and retired its Class B Non-Voting Stock. In addition,
Parametric appointed CVSI, Inc. as a Preferred Systems Integrator/Platform
Technology Service Provider worldwide.
9. Investment in Seaman Furniture Company, Inc.
In August 1997, Seaman Furniture Company, Inc. ("Seamans") entered into
an Agreement and Plan of Merger, as amended on September 4, 1997 (the "Merger
Agreement") with SFC Merger Company ("Newco"), a Delaware corporation formed and
wholly owned by the Investment Adviser and its affiliates (including the
Company), T. Rowe Price Recovery Fund, L.P. ("Price") and Carl Marks Management
Co., L.P. ("Marks," and collectively with the Investment Adviser and Price, the
"Funds"), pursuant to which the Funds will acquire through a merger (the
"Merger") all of the outstanding common stock of Seamans not already owned by
the Funds (the "Public Stock"). Upon consummation of the Merger, Newco merged
with and into Seamans and each share of Public Stock (other than dissenting
shares) was converted into the right to receive $25.05 in cash and each existing
Seamans stock option was converted into the right to receive $25.05 in cash per
share purchasable thereunder, less the exercise price with respect thereto,
other than certain options of officers of the Company which will be cancelled
and reissued as options of equivalent or greater value following the Merger.
Consummation of the Merger took place on December 23, 1997.
52
<PAGE>
Following consummation of the Merger, the Funds own all of the
outstanding shares of Seamans Common Stock of which approximately 47.5% is owned
by the Investment Adviser and its affiliates, including 4.1% by the Company. In
addition, 19.3% of Seamans Common Stock, on a fully diluted basis, was reserved
for issuance to certain officers and employees of Seamans upon the exercise of
options. The Funds have received a distribution of approximately $67.0 million
on the shares of Seamans held by them, approximately 30% capital. Approximately
$2.84 million of this distribution was received by the Company.
53
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
10. Investment in Parametric Technology Corporation
On November 4, 1997, Computervision Corporation ("Computervision") and
Parametric Technology Corporation ("Parametric") announced a definitive merger
agreement under which Parametric will acquire Computervision in a
stock-for-stock transaction. Under the terms of the Agreement, each share of
Computervision common stock was exchanged for 0.0866 shares (approximately
52,600 total shares) of Parametric common stock. The transaction closed on
January 12, 1998. On February 12, 1998, Parametric declared a "2 for 1" stock
split. As a result, effective March 6, 1998 the Company owned 105,200 shares. On
July 1 and July 8, 1998, the Company sold 64,460 and 23,575 shares, respectively
of the 105,200 shares of common stock of Parametric held by the Company for
approximately $1,960,000. Such sales were effected in open market transactions
at an average price of $22.26 per share. On October 15, 1998, the Company sold
the remaining 17,065 shares for approximately $181,000.
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
55
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
Listed below are the name, age and position with the Company of each of
the Company's officers and directors. All directors of the Company are serving a
current term of office which continues until the next annual meeting of
stockholders, and all officers are serving a current term of office which
continues until the next annual meeting of directors.
Name and Age Position with the Company
- ------------ -------------------------
Martin D. Sass (56)* Chairman of the Board, Chief Executive Officer
and Director
Hugh R. Lamle (53)* Executive Vice President and Director
James B. Rubin (44)* Senior Vice President and Director
Martin E. Winter (44)* Secretary-Treasurer
Larry Dinkin (54) Director
Thomas M. Garvin (61) Director
Lawrence W. Leighton (64) Director
Edward Lowenthal (54) Director
Daniel R. Mazziota (61) Director
- -------------------------
*Director who is an "Interested Person" within the meaning of the 1940 Act.
The following is a detailed description of the profession and business
background of each officer and director.
MARTIN D. SASS is an executive officer and principal of the Investment
Adviser and various affiliated registered investment advisers and other entities
which comprise the M.D. Sass organization ("M.D. Sass"), founded by Mr. Sass in
1972. Mr. Sass also serves as a consultant to and a member of the Partnership
Board of Chase & MD Sass Partners ("Chase/MD Sass"), and as Co-Chairman and
Chief Executive Officer of Resurgence Asset Management, L.L.C. ("Resurgence").
Prior to founding M.D. Sass, Mr. Sass was President and principal shareholder of
Neuwirth Management and Research Corp. from 1969 to 1972, where he managed
several portfolios and mutual funds. Mr. Sass was also a security
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analyst at Argus Research Corp. from 1963 to 1969, where he founded and directed
the Special Situations Department. Mr. Sass holds a B.S. degree in Accounting
from Brooklyn College, and has also studied finance in graduate programs in New
York University and City College of New York.
HUGH R. LAMLE is Executive Vice President and a principal of M.D. Sass,
which he joined in 1974. Mr. Lamle is responsible for the formulation of fixed
income and quantitative investment policy and strategy, directing the management
at M.D. Sass of debt securities portfolios and directing the firm's new products
research efforts. Mr. Lamle also serves as the President and Chief Investment
Officer of Chase/MD Sass and President of Resurgence. He also serves as a public
director of the Finex division of the New York Cotton Exchange, and a director
of Interactive Coupon Marketing, an internet distributor of incentive coupons
under the name of Coolsavings.com. Prior to joining M.D. Sass, Mr. Lamle in 1972
founded Lenox Capital Management, the investment management subsidiary of DuPont
Glore Forgan, Inc. Mr. Lamle holds a B.A. degree in Political Science and
Economics from Queens College and an M.B.A. degree in Finance and Investments
from Baruch College.
JAMES B. RUBIN is Co-Chairman and Chief Investment Officer of
Resurgence Asset Management, L.L.C. He has managed the investment portfolios of
the firm since their inception in 1989. He has over 20 years of experience in
investing and advising firms in reorganizations and other special situations.
Mr. Rubin currently serves on the Board of Directors of Seaman Furniture
Company, Inc. and Corporate Renaissance Group, Inc. Representative other board
and creditor committee positions include Computervision Corp., Leaseway
Transportation, Coleco Industries, Texas American Bancshares, Spectradyne and
Envirodyne Industries. From 1986 until 1989 Mr. Rubin was the principal of J.B.
Rubin and Company; from 1985 to 1986, Mr. Rubin was a Senior Financial Analyst
with Smith Vasiliou and its affiliates, including the distressed securities
brokerage firm of R.D. Smith & Company, Inc.; Mr. Rubin maintained a consulting
practice from 1983 to 1985; and from 1975 to 1985 was associated with two
privately-held manufacturing firms. Mr. Rubin is a graduate of Cornell
University, with an undergraduate degree in Industrial Engineering. He also
participated in graduate MBA studies in Finance at Cornell and Pace
Universities.
MARTIN E. WINTER is Senior Vice President-Finance of M.D. Sass, having
joined the firm in 1988. He was previously a principal in the Financial Services
Industry and Mergers and Acquisitions Groups of Arthur Young & Company
(predecessor to Ernst & Young LLP) in New York, and he has 22 years of diverse
financial experience. He is a certified public accountant and obtained his B.S.
in Accounting from the Wharton School of the University of Pennsylvania. Mr.
Winter also has a M.A. in Economics from the University of Pennsylvania.
LARRY DINKIN founded and serves as Chairman of Integrated Environmental
Technologies, L.L.C. ("IET"), a company which has developed systems designed to
convert a variety of wastes into glasslike material, recoverable metals and
electricity. Mr. Dinkin joined IET in 1995. In 1985, Mr. Dinkin founded Marie
Callender Retail Foods, where he was the key individual involved in that
company's growth from a startup in 1987 with $2.0 million of venture capital to
a business with over $160.6 million in sales in 1994. He served as President of
Marie Callender until September 1994, when that company was sold to Conagra for
over $150.0 million. Mr. Dinkin has an extensive background in business startup
and management, and has been the key individual involved in the startup of three
successful companies, including Marie Callender. Mr. Dinkin holds a B.A. degree
in Sociology and Anthropology from the City College of New York.
THOMAS M. GARVIN currently has an industrial partnership with
Ripplewood Holdings L.L.C., an equity investment fund. Through that fund, he has
made direct investments in six leveraged
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acquisitions over the last three years in pursuit of a focused strategy in the
food industry. He is Chairman and Chief Executive Officer of the platform
company, Edwards Fine Foods. Formerly, Mr. Garvin served in various executive
capacities at Keebler Company, the second largest U.S. manufacturer and marketer
of cookies and crackers, from 1969 to 1993, including those of President and
Chief Executive Officer from 1978 to 1993 and Chief Operating Officer from 1976
to 1978. During his tenure at Keebler Company, the company progressed from a
single product biscuit company to its current position of prominence in the
baking and snack industries. Mr. Garvin holds B.S. and M.B.A. degrees from
Loyola University and is a certified public accountant.
LAWRENCE W. LEIGHTON is a Senior Advisor at Bentley Associates, an
investment bank specializing in private transactions. Mr. Leighton was a
Managing Director of L.M. Capital, an investment banking and buy-out firm, from
September 1994 to January 1996. From January 1994 to December 1994, he also was
Vice Chairman of 21, Inc., a publicly-held company. From January 1989 to January
1994, Mr. Leighton was President and Chief Executive Officer of UI USA, the
United States merchant bank of Credit Agricole, a large French-based bank. From
1982 until joining UI USA, Mr. Leighton was Managing Director responsible for
the international mergers and acquisitions activity of Chase Investment Bank.
From 1977 until 1982. Mr. Leighton was a limited partner in the mergers and
acquisitions department of Bear, Stearns & Co. and from 1974 until 1977, he was
Director of Strategic Planning of Norton Simon, Inc. Mr. Leighton is a graduate
of Princeton University with a B.S.E. degree in Engineering and holds an M.B.A.
degree from Harvard Business School.
EDWARD LOWENTHAL is a founder, Director and President of Wellsford Real
Properties, Inc. ("WRP"), an American Stock Exchange listed real estate company.
He was President and a Trustee of Wellsford Residential Property Trust until it
was acquired by Equity Residential Property Trust ("EQR") in 1997. Mr. Lowenthal
serves as a director of United American Energy Corporation, a developer, owner
and operator of energy facilities, a director of Omega Healthcare, Inc., a
healthcare real estate investment trust, and Omega Worldwide, Inc.; and as a
trustee of EQR and Great Lakes Reit. Mr. Lowenthal is a member of the Board of
Governors of the National Association of Real Estate Investment Trusts. Mr.
Lowenthal holds a B.A. degree from Case Western Reserve University and a J.D.
degree from Georgetown University Law Center.
DANIEL R. MAZZIOTA is principal of RSA Executive Search ("RSA"), which
was founded in 1978. RSA specializes in recruitment of key executives and
management personnel in the consumer goods and services, healthcare and
pharmaceutical, finance, electronics and telecommunications industries. In 1967,
Mr. Mazziota founded Microwave Power Devices, Inc. ("MPD"), which was sold to
M/A-Com, Inc. in 1981. Mr. Mazziota continued as President of MPD until 1987,
when he became Chairman of RSA. Mr. Mazziota also serves as President of IDM
Consulting, which provides business consulting in the high technology mergers
and acquisitions field. Mr. Mazziota holds Bachelors and Masters degrees in
Electrical Engineering from New York Polytechnic Institute.
Indemnification of Directors and Officers
As permitted by Delaware law, the Company's Certificate of
Incorporation contains an article limiting the personal liability of directors.
The Certificate of Incorporation provides that a director of the Company shall
not be personally liable for monetary damages for a breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, which prohibits the
unlawful payment of dividends or the repurchase or redemption of stock, or (iv)
for any transaction from which the director
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derived an improper personal benefit. The Company's Certificate of Incorporation
also provides that the Company will indemnify all persons (including officers,
directors and employees) whom it is empowered to indemnify pursuant to the
provisions of Section 145 of the Delaware General Corporation Law (or any
similar provision of applicable law at the time in effect) to the full extent
permitted thereby. The foregoing provisions are subject, however, to Section
17(h) of the 1940 Act which provides, in part, that neither the Certificate of
Incorporation nor the by-laws of any BDC shall contain a provision which
protects or purports to protect any officer or director of such BDC against any
liability to such company or its security holders to which he would otherwise be
subject due to his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. The Company
currently maintains $5.0 million of officer and director liability insurance.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and holders of more than ten percent
of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and Nasdaq. Such persons
are required to furnish the Company with copies of all Section 16(a) forms they
file. During fiscal 1998, all filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers and Directors
No cash compensation was paid by the Company to any of its executive
officers during fiscal 1998, fiscal 1997 or fiscal 1996. It is not anticipated
that executive officers will receive direct cash compensation in the foreseeable
future.
During fiscal 1998, each director who was an executive officer of the
Company was compensated for his services at a fee of $10,000 per annum.
Effective as of October 1, 1998, the amount of such fee has been lowered to
$8,000 per annum. Each director is also reimbursed for travel and other
out-of-pocket disbursements actually incurred in the business of the Company.
Executive officers and directors of the Company are permitted to retain
any compensation received for services to other companies, including companies
in which the Company invests and to which it renders managerial assistance.
Financial Advisory Agreement and Fees
The Investment Adviser
The Company has retained M.D. Sass Investors Services, Inc. (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 Investment Adviser is a registered investment adviser under the
Investment Advisers Act of 1940. The Investment Adviser is part of a group of
affiliated investment advisers and other affiliated entities comprising M.D.
Sass. Founded in 1972, M.D. Sass is engaged in investment management for
approximately 100 clients, including pension and profit sharing funds, municipal
employee benefits
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funds, insurance companies, endowment and charitable funds, large corporations
and wealthy individuals. M.D. Sass currently has approximately $14 billion in
assets under management.
The Investment Adviser and certain other M.D. Sass affiliates currently
serve as general partners of M.D. Sass Re/Enterprise Partners, L.P.
("Re/Enterprise "), M.D. Sass Corporate Resurgence Partners, L.P. ("Resurgence
Partners") and M.D. Sass Re/Enterprise-II, L.P. ("Re/Enterprise-II"), private
limited partnerships which have investment objectives similar to that of the
Company, achieving long-term capital appreciation of its assets by investing
primarily in securities of companies that are experiencing significant financial
or business difficulties.
Re/Enterprise, formed in October 1989, had approximately $83 million in
assets as of September 30, 1998. Re/Enterprise-II, formed in February 1996, had
approximately $18 million in assets as of the same date. Resurgence Partners had
committed capital of approximately $312 million as of that date. Re/Enterprise
was a member of a group which acquired a controlling interest in Seamans and
assisted Seamans in a Restructuring. Re/Enterprise also participated in the
Restructurings of other companies, including Memorex Telex Corp., Emerson Radio
Corp., Ranger Industries, Inc. (formerly known as Coleco, Inc.), SPI Holding,
Inc., Leaseway Transportation Corp. and Forstmann & Company, Inc.
In addition to the two Re/Enterprise partnerships, the Investment
Adviser and/or other affiliates of M.D. Sass serve as general partners of a more
aggressive, higher-risk private limited partnership that invests in financially
troubled companies, a fund of funds, a private limited partnership that utilizes
a market-neutral strategy, a private limited partnership that invests in Middle
Eastern securities and the U.S. listed ADR's of such companies, and other
private limited partnerships that invest in municipal and government securities
and distressed real estate that appears to have a potential for recovery. The
Investment Adviser also serves as investment adviser to two private offshore
investment companies pursuing investment strategies similar to the Re/Enterprise
partnerships, Resurgence and the Company, as well as a corporate pension fund of
a Fortune 100 company.
The principals of the Investment Adviser and other affiliates of M.D.
Sass are Martin D. Sass and Hugh R. Lamle, each of whom serves as an officer and
director of the Company. James B. Rubin and Martin E. Winter, officers of the
Investment Adviser and other affiliates of M.D. Sass, serve as officers of the
Company. In addition, Mr. Rubin serves as a director of the Company.
The offices of the Investment Adviser are located at 1185 Avenue of the
Americas, 18th Floor, New York, New York 10036, and its telephone number is
(212) 730-2000.
The Financial Advisory Agreement
The Company is party to a Financial Advisory Agreement with the
Investment Adviser (the "Financial Advisory Agreement"). The Investment
Adviser's duties under the Financial Advisory Agreement include locating,
structuring, acquiring, monitoring and disposing of investments for the Company.
The Company only makes investments recommended by the Investment Adviser. In
addition, the Investment Adviser also provides administrative services to the
Company, including all necessary executive, administrative, internal accounting
and support services and furnishes the Company with necessary office space. The
activities of the Investment Adviser on behalf of the Company are subject to the
supervision of the independent Directors of the Company.
Pursuant to the Financial Advisory Agreement, the Investment Adviser
receives a base fee for furnishing the Company with the administrative services
described above. Through October 1998, such
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base fee was $200,000 per annum. Effective November 1, 1998, the base fee has
been lowered to $170,000 per annum.
In addition to the base fee, the Investment Adviser receives an
incentive fee for its investment advisory services equal to 20% of net new
appreciation, if any, in the net asset value of the shares of Common Stock
outstanding, adjusted for all operating expenses, including accruals for any tax
liabilities on income or realized gains from portfolio transactions. A
calculation has been and will continue to be made at the end of each calendar
quarter, with the Investment Adviser receiving 20% of any net new appreciation
occurring during the preceding four calendar quarters. Thus, the fee is computed
and paid on a "rolling quarter" basis.
At any time the incentive fee is to be calculated, if the net asset
value per share previously has reached a level at which an incentive fee was
paid (a "previous high peak"), an additional incentive fee will be paid only on
the incremental appreciation of the shares of Common Stock over the shares' net
asset value after payment of the previous incentive fee at such peak. In no
event will an incentive fee be paid for recoupment of losses. Thus, if the net
asset value of the shares of Common Stock falls below the initial net asset
value, or the previous high peak at which the incentive fee was paid (less the
incentive fee paid at such level), no incentive fee will be due the Investment
Adviser. The Investment Adviser will only be entitled to a further incentive fee
if the net asset value of the shares increases beyond the initial net asset
value, or its net asset value following payment of the incentive fee at the
previous high peak, as the case may be. Notwithstanding the foregoing, incentive
fees payable to the Investment Adviser under the Financial Advisory Agreement
will not exceed the maximum amount which the Investment Adviser is entitled to
receive under the 1940 Act. During fiscal 1998, the Company paid the Investment
Adviser the base fee of $200,000. No incentive fee was accrued in fiscal 1998
since the Company's net asset value has been below the previous high peak.
The Investment Adviser bears the expense of maintaining the staff
necessary for performing its obligations under the Financial Advisory Agreement
and all other expenses associated with its duties as Investment Adviser. Other
than fees payable under the Financial Advisory Agreement, the Company bears no
operating expenses other than normal operating expenses such as legal and
auditing fees, taxes and all direct expenses related to an investment including
all investment, legal and accounting expenses.
The Financial Advisory Agreement continues from year to year if
approved by a majority of independent directors and unless not less than 30 days
prior written notice is given by a party of its intention not to renew. In
November 1998, the independent directors of the Company approved the renewal of
the Financial Advisory Agreement for a one-year period with a reduction in the
base management fee to $170,000 per annum. The Financial Advisory Agreement is
not assignable and may be terminated by either party upon 60 days prior written
notice given to the other party.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of December 7, 1998, the beneficial
ownership of the shares of Common Stock of the Company of (i) each person known
by the Company to beneficially own more than five percent of the Common Stock,
(ii) each director of the Company, (iii) the Company's Chief Executive Officer
and (iv) all executive officers and directors as a group.
Name and Address Amount and Nature
of Beneficial Stockholder of Beneficial Percentage of
or Identity of Group(1) Ownership Common Stock
- ----------------------- ----------------- -------------
Officers and Directors:
Martin D. Sass 71,300 9.3
Hugh R. Lamle 48,600 6.4
James B. Rubin -0- -0-
Larry Dinkin -0- -0-
Thomas M. Garvin -0- -0-
Lawrence W. Leighton 1,000 *
Edward Lowenthal 3,000 *
Daniel R. Mazziota 200 *
All executive officers and directors
as a group (nine persons) 124,300(2) 16.3
5% or Greater Shareholders:
Walter Kass 118,534(3)(4) 15.5
420 Lexington Avenue
New York, New York
Robert Schneider 52,945(3)(5) 6.9
2 Broadway
New York, New York
- ----------------------
*Less than one percent
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company, 1185 Avenue of the Americas, 18th Floor, New York, NY 10036.
(2) Includes 200 shares of Common Stock held by Martin E. Winter, the Company's
Secretary-Treasurer.
(3) Based on a Schedule 13D filed with the SEC.
(4) Represents 41,634 shares of Common Stock held by Curators Partners, LP. and
76,900 shares of Common Stock held by certain accounts managed by Curators
Capital Management, Inc.
(5) Includes 12,000 shares of Common Stock owned jointly with Mr. Schneider's
spouse. Excludes 18,650 shares of Common Stock owned by Mr. Schneider's
spouse over which Mr. Schneider disclaims beneficial ownership and 31,449
shares owned by RAS Securities Corp., a registered broker-dealer, acquired
in its ordinary course of business and over which Mr. Schneider has voting
and dispositive power.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11. Executive Compensation" with respect to the Financial
Advisory Agreement entered into with the Investment Adviser.
As described in "Item 1. Business," the Company invests from time to
time jointly with affiliates of the Investment Adviser subject to restrictions
under the 1940 Act and conditions set forth in an exemptive order granted by the
SEC.
The Company from time to time also effects securities sales to or
purchases from affiliates of the Investment Adviser pursuant to a plan adopted
in accordance with Rule 17a-7 under the 1940 Act.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Financial Statements of
Corporate Renaissance Group, Inc. included in Part II, Item 8,
of this Report.
(2) Financial Statement Schedules
All schedules for which provision is made in applicable
regulations of the SEC are not required under the related
instructions, are inapplicable or the required information has
been included in the Financial Statements and therefore such
schedules have been omitted.
(3) Exhibits
Exhibit Description of Exhibit
------- ----------------------
1 Form of Amended and Restated Certificate of
Incorporation(1)
2 By-Laws, as amended (1)
4 Form of Common Stock certificate (1)
10.2 Revised Form of Financial Advisory Agreement
between the Company and M.D. Sass Investors
Services, Inc.(1)
27.1 Financial Data Schedule (SEC use only)
- -------------------------
(1) Previously filed as an Exhibit of the same number to the Company's
Registration Statement on Form N-2 (File No. 33-50424), and
incorporated herein by reference.
(b) Reports on Form 8-K
None.
(c) Item 601 Exhibits
The exhibits required by Item 601 of Regulation S-K are set forth in
(a)(3) above.
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K are set
forth in (a)(2) above.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has caused the report or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized.
CORPORATE RENAISSANCE GROUP, INC.
By: /s/ Martin D. Sass
--------------------
Martin D. Sass
Chairman of the Board and
Chief Executive Officer
Dated: December 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Martin D. Sass Chairman of the Board, Chief December 29, 1998
- -------------------------- Executive Officer and Director
Martin D. Sass (Principal Executive Officer)
/s/ Hugh R. Lamle Executive Vice President December 29, 1998
- -------------------------- and Director
Hugh R. Lamle
/s/ James B. Rubin Senior Vice President December 29, 1998
- -------------------------- and Director
James B. Rubin
/s/ Martin E. Winter Secretary-Treasurer (Principal December 29, 1998
- -------------------------- Financial and Accounting Officer)
Martin E. Winter
/s/ Larry Dinkin Director December 29, 1998
- --------------------------
Larry Dinkin
/s/ Thomas M. Garvin Director December 29, 1998
- --------------------------
Thomas M. Garvin
/s/ Lawrence W. Leighton Director December 29, 1998
- --------------------------
Lawrence W. Leighton
/s/ Edward Lowenthal Director December 29, 1998
- --------------------------
Edward Lowenthal
/s/ Daniel R. Mazziota Director December 29, 1998
- --------------------------
Daniel R. Mazziota
</TABLE>
65
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,238,260
<SECURITIES> 2,514,213
<RECEIVABLES> 193,610
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,946,083
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,946,083
<CURRENT-LIABILITIES> 12,324
<BONDS> 0
0
0
<COMMON> 9,404
<OTHER-SE> 6,924,355
<TOTAL-LIABILITY-AND-EQUITY> 6,946,083
<SALES> 0
<TOTAL-REVENUES> (443,307)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 368,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (74,836)
<INCOME-TAX> (40,016)
<INCOME-CONTINUING> (114,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,852)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> 0
</TABLE>
