<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20514
CORPORATE RENAISSANCE GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3701354
[State or other jurisdiction of (I.R.S. Employer
incorporation or organization] Identification Number)
1185 Avenue of the Americas
18th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 730-2000
-------------------------------------------------------------------------
Former name, former address and fiscal year, if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock is 909,150
(as of March 31, 1998).
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1.
Statements of Assets and Liabilities as of March 31, 1998 and
September 30, 1997 ..................................................... 3
Statements of Operations and Changes in Net Assets for
the Quarters ended March 31, 1998 and March 31, 1997 and
for the Six Months ended March 31, 1998 and March 31, 1997 ............. 4
Statements of Cash Flows for the Six Months ended
March 31, 1998 and March 31, 1997 ...................................... 5
Schedule of Investments, March 31, 1998 ................................ 6
Notes to Financial Statements .......................................... 7-11
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 12
PART II - OTHER INFORMATION
2
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Investments in securities, at market value
(cost $5,031,053 and $6,411,446 respectively) ............. $ 5,882,328 $ 6,639,114
Cash and cash equivalents ...................................... 3,041,463 950,692
Income taxes receivable ........................................ -- 9,755
Accrued interest receivable .................................... 4,178 1,204
Other assets ................................................... 27,497 3,997
--------- ---------
Total Assets ............................................... 8,955,466 7,604,762
LIABILITIES
Deferred Fees .................................................. 11,938 29,845
Accounts payable and accrued expenses .......................... 22,280 25,960
Deferred taxes payable ......................................... 463,026 --
--------- ---------
Total liabilities .......................................... 497,244 55,805
--------- ---------
Net assets ............................................... $ 8,458,222 $ 7,548,957
=========== ===========
COMMITMENTS AND CONTINGENCIES
(NOTE 8)
NET ASSETS
Common stock (par value $.01 per share
20,000,000 shares authorized;
940,350 shares issued and outstanding) ..................... $ 9,404 $ 9,404
Additional paid-in capital ..................................... 7,690,280 7,690,280
Treasury stock, at cost (31,200 shares) ........................ (207,800) --
Accumulated income (losses):
Accumulated net operating loss before security
Transactions .............................................. (769,167) (1,457,085)
Accumulated net realized gains from sale of
Investments ............................................... 1,344,819 1,210,438
Net unrealized appreciation of investments ..................... 390,686 95,920
--------- ---------
966,338 (150,727)
--------- ---------
Net assets ..................................................... $ 8,458,222 $ 7,548,957
=========== ===========
Net asset value per share of common stock outstanding .......... $ 9.30 $ 8.03
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
CORPORATE RENAISSANCE GROUP, INC
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE QUARTER FOR THE QUARTER MONTHS ENDED MONTHS ENDED
ENDED MARCH 31, ENDED MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Dividend ........................................... $ -- $ -- $ 830,967 $ --
Interest ........................................... 38,685 2,957 46,738 8,151
Fee ................................................ 8,954 -- 17,907 --
----------- ----------- ----------- -----------
Total income ................................. 47,639 2,957 895,612 8,151
----------- ----------- ----------- -----------
Expenses:
Financial advisory ................................. 50,000 50,000 100,000 100,000
Investment banking ................................. -- -- -- 8,333
Professional ....................................... 12,300 12,300 24,600 24,600
Insurance .......................................... 11,750 11,750 23,500 25,750
Board of directors ................................. 12,500 12,500 25,000 25,000
Other operating .................................... 3,466 5,674 6,500 9,204
----------- ----------- ----------- -----------
Total expenses ................................. 90,016 92,224 179,600 192,887
----------- ----------- ----------- -----------
Operating gain/(loss) before income tax benefit......... (42,377) (89,267) 716,012 (184,736)
Income tax (expense)/benefit ........................... -- 29,885 (28,094) 63,588
----------- ----------- ----------- -----------
Net operating gain/(loss) before security
transactions ....................................... (42,377) (59,382) 687,918 (121,148)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS/(LOSSES)
FROM INVESTMENTS:
Net realized gains/(losses) from sales of
investments ........................................ 256,764 190,992 284,297 (237,762)
Change in net unrealized
appreciation/(depreciation) of investments ......... 1,232,250 (2,469,245) 623,607 (1,719,960)
Income tax (expense)/benefit arising from
net realized gains/(losses) and net
unrealized appreciation/(depreciation) of
investments ........................................ (477,026) 787,028 (478,757) 673,872
----------- ----------- ----------- -----------
Net realized and unrealized
gains/(losses) on investments ...................... 1,011,988 (1,491,225) 429,147 (1,283,850)
----------- ----------- ----------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... 969,611 (1,550,607) 1,117,065 (1,404,998)
Net assets at beginning of period ...................... 7,696,411 9,527,341 7,548,957 9,236,869
Net increase/(decrease) in net assets
resulting from treasury stock purchases ............ (207,800) -- (207,800) (125,137)
----------- ----------- ----------- -----------
Net assets at end of period ............................ $ 8,458,222 $ 7,706,734 $ 8,458,222 $ 7,706,734
=========== =========== =========== ===========
Per Share Data:
Net operating loss before security
Transactions .................................... $ (.19) $ (.06) $ .75 $ (.13)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE QUARTER FOR THE QUARTER MONTHS ENDED MONTHS ENDED
ENDED MARCH 31, ENDED MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net realized gains/(losses) from sales of
Investments ..................................... .28 .13 .14 (.16)
Net unrealized (depreciation) of
Investments ..................................... .95 (1.71) .30 (1.20)
Net gain on treasury stock transactions .............. .08 -- .08 .03
----------- ----------- ----------- -----------
Net (decrease) in net asset value
resulting from operations ....................... 1.12 (1.64) 1.27 (1.46)
Net asset value per common
share at beginning of period .................... 8.18 9.84 8.03 9.66
----------- ----------- ----------- -----------
Net asset value per common
share at end of period .......................... $ 9.30 $ 8.20 $ 9.30 $ 8.20
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase/(decrease) in net assets resulting from operations .......................... $ 1,117,065 $(1,404,998)
Adjustments to reconcile net increase in net assets resulting
from operations to net cash (used in) operating activities:
Change in net unrealized (appreciation)/depreciation of investments ................ (623,607) 1,719,960
Realized losses from sale of investments ........................................... (284,297) 237,762
Deferred income tax (benefit) ...................................................... -- (737,460)
(Increase)/decrease in operating assets:
Income taxes receivable ............................................................ 9,755 1,359
Accrued interest receivable ........................................................ (2,974) 181
Other assets ....................................................................... (23,500) (21,250)
Increase/(decrease) in operating liabilities:
Deferred liability ................................................................. (17,907) --
Income taxes payable ............................................................... 463,026 --
Accounts payable and accrued expenses .............................................. (3,681) (28,104)
----------- -----------
Net cash flows provided by (used in) operating activities .......................... 633,881 (232,550)
----------- -----------
Cash Flows from Investing Activities:
Purchase of securities ............................................................. (736,843) (237,201)
Proceeds from sale of securities ................................................... 383,426 343,761
Proceeds from recapitalized investment ............................................. 2,018,107 --
----------- -----------
Net cash flows provided by investing activities .................................. 1,664,690 106,560
----------- -----------
Cash Flows from Financing Activities:
Purchase of treasury stock ......................................................... (207,800) (125,137)
----------- -----------
Net cash flows (used in) financing activities .................................... (207,800) (125,137)
----------- -----------
Net increase/(decrease) in cash and cash equivalents ..................................... 2,090,771 (251,127)
Cash and Cash Equivalents, at the beginning of the period ................................ 950,692 509,257
----------- -----------
Cash and Cash Equivalents, at the end of the period ...................................... 3,041,463 258,130
=========== ===========
Supplemental Disclosure:
Income taxes paid/(refunded) ....................................................... $ 30,273 $ (1,359)
=========== ===========
</TABLE>
See notes to financial statements
6
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF INVESTMENTS(1)
MARCH 31, 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>
105,200 Parametric Technology Corporation $ 3,177,528 $ 3,504,475 41.5%
453,620 CVSI Acquisition Co., L.L.C.(2) 453,620 453,620 5.4%
7,930 Seaman Furniture - Class A 158,059 212,524 2.5%
25,112 Seaman Furniture - Class B 500,526 673,002 8.0%
---------------- --------------
Total Reorganized Companies 4,289,733 4,843,621
---------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Other Investments
------------------------------------
Common Stock
------------------------------------
<S> <C> <C> <C> <C>
1,533,000 Signet Group Plc 741,320 1,038,707 12.3%
---------------- --------------
Total Other Investments 741,320 1,038,707
---------------- --------------
Total Investments $ 5,031,053 $ 5,882,328
================ ==============
</TABLE>
- ---------
(1) Notes to Schedule of Investments:
The listed 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 Seamans Furniture described in Note 9. See
Note 1.
(2) Represents a beneficial interest in 453,620 shares of CVSI Inc., which is
not considered to be a readily marketable security.
7
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 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 (including 45,000 shares sold to Union d'Etudes et d'Investissments
("UI")). The net proceeds to the Company of both the Domestic Offering and
Overseas Placement were $7,823,821 after deducting all costs associated with
the registration and offering, resulting in an initial net asset value per
share of $8.18.
On November 25, 1996, the Company's Board of Directors authorized the
implementation of an open market share repurchase program, pursuant to which
the Company, from time to time, may purchase up to an aggregate of 175,000
shares of its common stock in open market transactions. The purpose of the
program is to provide stockholders desiring to sell their shares with enhanced
market liquidity. At the same time, the Company believes that open-market
purchases of its shares at a discount from net asset value will enhance
long-term shareholder value. As of March 31, 1998, 46,950 shares have been
repurchased at an average cost of $7.09 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 System. Other unlisted securities are valued at representative "bid"
quotations if held long by the Company and representative "asked" quotations
if held short by the Company. The value of securities for which market
quotations are not readily available and securities as to which the Company
believes the method of valuation set forth above does not fairly reflect
market value are determined by one or more independent third parties selected
by the Investment Advisor.
8
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 $1,623,915
are as follows:
Federal:
Current $ 148,017
Deferred 311,986
---------------
460,003
---------------
State and Local:
Current 8,765
Deferred 38,082
---------------
46,848
---------------
Total $ 506,851
===============
9
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
3. Income Taxes (continued)
Deferred income taxes arise from temporary differences between the
tax basis of assets and liabilities and their reported amounts in the
financial statements. For example, unrealized gains or losses on investments
are not recognized for tax purposes until realized and therefore create a
temporary difference.
The Company's effective income tax rate is lower than the U.S.
federal statutory rate due to the benefit from the graduated federal tax rate.
4. Financial Advisory Fees
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"). On November 13, 1997, the Company renewed its
Financial Advisory Agreement with the Investment Adviser, pursuant to which
the Investment Adviser receives a base fee of $200,000 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 March 31, 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.
6. Investment Transactions
As of March 31, 1998 the accumulated unrealized appreciation on
investments was $851,275.
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.
10
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
7. Concentration of Credit Risk and Off-Balance Sheet Risk (continued)
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 December 31, 1997.
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 are being amortized over a one-year period. As of March 31,
1998, $23,876 of consulting income has been recognized. The Investment Advisor
and certain of its clients and affiliates who acquired shares of CVSI also
received investment banking and consulting fees.
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.
11
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
9. Investment in Seaman Furniture Company, Inc. (continued)
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, of which
approximately 30% represented a dividend and the balance a distribution in
return of capital. Approximately $2.84 million of this distribution was
received by the Company.
10. Investment in Parametric Technology Corporation
On November 4, 1997, Computervision Corporation ("CVN") and
Parametric Technology Corporation ("PTC") announced a definitive merger
agreement under which PTC will acquire CVN in a stock-for-stock transaction.
Under the terms of the Agreement, each share of CVN common stock was exchanged
for .0866 shares (approximately 52,600 total shares) of PTC common stock. This
transaction closed on January 12, 1998. On February 20, 1998, PTC declared a
"2 for 1" stock split. As a result, effective March 6, 1998 the Company owned
105,200 shares.
12
<PAGE>
PART II - OTHER INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Report contains, in addition to historical information,
forward-looking statements regarding Corporate Renaissance Group, Inc. (the
"Company"), which represents the Company's expectations or beliefs including,
but not limited to, statements concerning the Company's operations,
performance, financial condition, business strategies and other information.
For this purpose, any statements contained in this Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. The
statements by their nature involve substantial risk and uncertainties, certain
of which are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors, including those
described in this Report and the Company's other filings with the Securities
and Exchange Commission (the "Commission").
Liquidity and Capital Resources
The Company is a non-diversified, closed-end management investment
company which has elected to be treated as a special type of investment
company known as a business development company under the Investment Company
Act of 1940 (the "1940 Act") as amended by the Small Business Act of 1980. The
Company's primary investment objective is to achieve long-term capital
appreciation through investments in companies ("Portfolio 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
pursuant to bankruptcy or reorganization proceedings or on a negotiated basis
outside of bankruptcy or reorganization proceedings 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 Commission. A portion of the
Company's portfolio is invested in other securities, including securities of
financially distressed companies, where the Company believes that it can
generate capital appreciation by engaging in portfolio trading.
The Company has retained the Investment Adviser as the Company's
investment adviser to identify, negotiate, manage and liquidate investments
for the Company. The Company invests only in transactions recommended by the
Investment Adviser. The activities of the Investment Adviser on behalf of the
Company are subject to supervision by the independent directors of the
Company.
As described in Note 9 to the Financial Statements included in Item 1
of this Report, in December 1997, the Company received a distribution of
approximately $2,840,000 in connection with a "going private" transaction
involving Seaman Furniture Company, Inc. ("Seamans"), one of the Company's
Portfolio Investments. In addition, as described in Note 10 to the Financial
Statements included in Item 1 of this Report, in January 1998, Computervision
Corporation, another of the Company's Portfolio Investments, was acquired by
Parametric Technology Corporation in a stock-for-stock transaction.
The Company's primary source of working capital is funds generated
from investment activities. At March 31, 1998, the Company had cash and cash
equivalents of $3,026,588, as compared to cash and cash equivalents of
$950,692 at September 30, 1997. The increase in cash and cash equivalents was
a result of the distribution received on the Company's Portfolio Investment in
Seamans as described above.
13
<PAGE>
In addition, on November 25, 1996, the Company's Board of Directors
authorized the implementation of an open market share repurchase program,
pursuant to which the Company, from time to time, may purchase up to an
aggregate of 175,000 shares of its Common Stock in open market transactions.
As of March 31, 1998, the Company had purchased 46,950 shares pursuant to this
program at an average cost of $7.09 per share.
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.
Results of Operations
Quarter ended March 31, 1998 as compared to quarter ended March 31,
1997
During the quarter ended March 31, 1998, the Company had interest
income of $36,685, as compared to interest income of $2,957 in the 1997
quarter. Operating expenses during the 1998 quarter were $90,016, as compared
to $92,224 in the 1997 quarter. For the quarter ended March 31, 1998, the
Company had a pre-tax loss and net operating loss of $42,377, as compared to a
pre-tax loss and net operating loss for the 1997 quarter of $89,267 and
$59,382, respectively. Since the Company typically does not purchase
securities with the objective of generating investment income, net investment
losses are expected to routinely occur.
During the quarter ended March 31, 1998, the Company had net realized
gains from sale of investments of $256,764, as compared to net realized gains
from sale of investments of $190,992 during the 1997 quarter. For the quarter
ended March 31, 1998, the Company had net unrealized appreciation of
investments of $1,232,250, as compared to net unrealized depreciation of
investments of $2,469,245 in the 1997 quarter. For the 1998 quarter, the
Company had net realized and unrealized gains on investments of $1,011,988, as
compared to net realized and unrealized losses on investments of $1,491,225
for the 1997 quarter and, after giving effect to net operating losses, an
increase in net assets resulting from operations of $969,611 in the 1998
quarter, as compared to a decrease in net assets resulting from operations of
$1,550,607 in the 1997 quarter.
Six months ended March 31, 1998 as compared to six months ended March
31, 1997
During the six months ended March 31, 1998, the Company had interest
income of $46,738, as compared to interest income of $8,151 in the 1997
period. During the 1998 period, the Company also realized a distribution of
$830,967 from its Portfolio Investment in Seamans and $17,907 in investment
banking and consulting fees relating to another Portfolio Investment.
Operating expenses during the 1998 period were $179,600, as compared to
$192,887 in the 1997 period. This decrease is primarily attributable to fees
payable to an investment banking firm accrued during the 1997 period pursuant
to an Investment Banking Agreement which expired in October 1996. For the six
months ended March 31, 1998, the Company had operating pre-tax income and
operating income after a $28,094 income tax expense of $716,012 and $687,918,
respectively, as compared to a pre-tax loss and net operating loss for the
1997 period of $184,736 and $121,148, respectively. The pre-tax and net income
earned in the 1998 period was attributable to the distribution realized during
the period on the Portfolio Investment in Seamans. Since the Company typically
does not purchase securities with the objective of generating investment
income, net investment losses are expected to routinely occur.
During the six months ended March 31, 1998, the Company had net
realized gains from sale of investments of $284,297, as compared to net
realized losses from sale of investments of $237,762 during the 1997 period.
For the six months ended March 31, 1998, the Company had net unrealized
appreciation of investments of $623,607, as compared to net unrealized
depreciation of investments of $1,719,960 in the 1997 period. For the 1998
period, the Company had net realized and unrealized gains on investments of
$429,147, as compared to net realized and unrealized losses on investments of
$1,283,850 for the 1997 period and, after giving effect to net operating
losses, an increase in net assets resulting from operations of $1,117,065 in
the 1998 period, as compared to a decrease in net assets resulting from
operations of $1,404,998 in the 1997 period.
Net Asset Value
14
<PAGE>
At March 31, 1998, the Company had a net asset value of $9.30 per
share of Common Stock, an increase of $1.27 per share from net asset value at
September 30, 1997 of $8.03 per share.
15
<PAGE>
PART II - OTHER INFORMATION
1. Legal Proceedings
Not applicable.
2. Changes in Securities
Not applicable.
3. Default Upon Senior Securities
Not applicable.
4. Submission of Matters to a Vote of Security Holders
(a) On February 9, 1998, the Company held its Annual Meeting of
Stockholders (the "Meeting").
(b) Not applicable.
(c) At the Meeting, the following matters were voted upon:
(i) Election of Directors.
The following table sets forth the name of each nominee and the
voting with respect to each nominee for director.
Withhold
Name For Authority
---- --- ---------
Martin D. Sass 617,810 66,884
Hugh R. Lamle 617,810 66,884
James B. Rubin 615,060 69,634
Thomas M. Garvin 615,060 69,634
Lawrence W. Leighton 617,810 66,884
Edward Lowenthal 617,810 66,884
Daniel E. Mazziota 617,310 67,384
Larry Dinkin 615,060 69,634
(ii) Ratification of the appointment of Ernst & Young
LLP as the Company's independent public accountants
for the year ending September 30, 1998.
With respect to the foregoing matter, 621,260
shares voted in favor, 63,234 shares against and
200 shares abstained. There were no broker
non-votes.
5. Other Information
Not applicable.
6. Exhibits and Reports on Form 8-K
16
<PAGE>
(a) Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K - None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 11, 1998 CORPORATE RENAISSANCE GROUP, INC.
By:/s/ Martin D. Sass
-------------------------------------
Martin D. Sass, Chairman of the Board
and Chief Executive Officer
By:/s/ Martin E. Winter
-------------------------------------
Martin E. Winter, Secretary-Treasurer
(Principal Financial and Accounting Officer)
18
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,041,463
<SECURITIES> 5,882,328
<RECEIVABLES> 4,178
<ALLOWANCES> 0
<INVENTORY> 0
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<CURRENT-LIABILITIES> 497,244
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0
0
<COMMON> 9,404
<OTHER-SE> 8,448,818
<TOTAL-LIABILITY-AND-EQUITY> 8,458,222
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<TOTAL-REVENUES> 1,803,516
<CGS> 0
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<OTHER-EXPENSES> 179,600
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