<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 JUNE 30, 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 898,150
(as of June 30, 1998).
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1.
Statements of Assets and Liabilities as of June 30, 1998 and
September 30, 1997---------------------------------------------------------2
Statements of Operations and Changes in Net Assets for the
Quarters ended June 30, 1998 and June 30, 1997 and for the
Nine Months ended June 30, 1998 and June 30, 1997--------------------------3
Statements of Cash Flows for the Nine Months ended
June 30, 1998 and June 30, 1997 -------------------------------------------4
Schedule of Investments, June 30, 1998-------------------------------------5
Notes to Financial Statements----------------------------------------------6
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations---------------------------------------11
PART II - OTHER INFORMATION
- ---------------------------
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
- ------
Investments in securities, at market value
(cost $5,090,771 and $6,411,446 respectively) $ 5,631,384 $ 6,639,114
Cash and cash equivalents 2,728,096 950,692
Income taxes receivable -- 9,755
Accrued interest receivable 3,468 1,204
Other assets 15,747 3,997
----------- -----------
Total Assets 8,378,695 7,604,762
LIABILITIES
- -----------
Deferred Fees 2,985 29,845
Accounts payable and accrued expenses 1,585 25,960
Taxes payable 234,657 --
----------- -----------
Total liabilities 239,227 55,805
----------- -----------
Net assets $ 8,139,468 $ 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 (42,200 shares ) (291,300) --
Accumulated income (losses):
Accumulated net operating loss before security
Transactions (835,028) (1,457,085)
Accumulated net realized gains from sale of
Investments 1,344,819 1,210,438
Net unrealized appreciation of investments 221,293 95,920
----------- -----------
731,084 (150,727)
----------- -----------
Net assets $ 8,139,468 $ 7,548,957
=========== ===========
Net asset value per share of common stock outstanding $ 9.06 $ 8.03
=========== ===========
</TABLE>
See Notes to Financial Statements
2
<PAGE>
CORPORATE RENAISSANCE GROUP, INC
--------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
--------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE NINE FOR THE NINE
QUARTER QUARTER MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income:
Dividend $ -- $ -- $ 830,967 $ --
Interest Income 36,882 9,434 83,620 17,585
Fee 8,954 -- 26,861 --
----------- ----------- ----------- -----------
Total investment income 45,836 9,434 941,448 17,585
----------- ----------- ----------- -----------
Expenses:
Financial advisory fees 50,000 50,000 150,000 150,000
Investment banking fees -- -- -- 8,333
Professional fees 12,300 12,300 36,900 36,900
Insurance expense 11,750 11,750 35,250 37,500
Board of directors fees 12,500 12,500 37,500 37,500
Other operating expenses 12,247 8,159 18,747 17,363
----------- ----------- ----------- -----------
Total expenses 98,797 94,709 278,397 287,596
----------- ----------- ----------- -----------
Operating income/(loss) before income tax benefit (52,961) (85,275) 663,051 (270,011)
Income tax (expenses)/benefit (12,900) 28,421 (40,994) 92,009
----------- ----------- ----------- -----------
Net operating income/(loss) before security
transactions (65,861) (56,854) 622,057 (178,002)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS/(LOSSES) FROM
INVESTMENTS:
Net realized gains from sales of investments -- 403,731 284,297 165,969
Change in net unrealized
appreciation/(depreciation) of investments (310,661) (775,980) 312,946 (2,495,940)
Income tax (expense)/benefit arising from net
realized gains /(losses) and net unrealized
appreciation/(depreciation) of investments 141,268 (16,272) (337,489) 657,600
----------- ----------- ----------- -----------
Net realized and unrealized gains/(losses)
on investments (169,393) (388,521) 259,754 (1,672,371)
----------- ----------- ----------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (235,254) $ (445,375) $ 881,811 $(1,850,370)
----------- ----------- ----------- -----------
Net assets at beginning of period 8,458,222 7,706,734 7,548,957 9,236,869
Net decrease in net assets resulting from
treasury stock purchases (83,500) -- (291,300) (125,137)
----------- ----------- ----------- -----------
Net assets at end of period $ 8,139,468 $ 7,261,359 $ 8,139,468 $ 7,261,359
=========== =========== =========== ===========
Per Share Data:
Net operating gain/(loss) before security
transactions $ (.07) $ (.06) $ .68 $ (.19)
Net realized gains/(losses) from sales of
investments -- .28 .14 (.12)
Net unrealized appreciation/(depreciation) of
investments (.18) (.70) .12 (1.90)
Net gain on treasury stock transactions .01 -- .09 .03
----------- ----------- ----------- -----------
Net increase/(decrease) in net asset value
resulting (.24) (.48) 1.03 (1.94)
from operations
Net asset value per common share at beginning
of period 9.30 8.20 8.03 9.66
----------- ----------- ----------- -----------
Net asset value per common share at end of period $ 9.06 $ 7.72 $ 9.06 $ 7.72
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase/(decrease) in net assets resulting from operations $ 881,811 $(1,850,373)
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 (312,945) 2,495,940
Realized gains from sale of investments (284,297) (165,969)
Deferred income tax (benefit) -- (749,609)
(Increase)/decrease in operating assets:
Income taxes receivable 9,755 335,756
Accrued interest receivable (2,264) (1,096)
Other assets (11,750) (9,500)
Increase/(decrease) in operating liabilities:
Deferred liability (26,860) --
Income taxes payable 234,657 --
Accounts payable and accrued expenses (24,375) (16,182)
----------- -----------
Net cash flows provided by operating activities 463,732 38,967
----------- -----------
Cash Flows from Investing Activities:
Purchase of securities (796,561) (238,729)
Proceeds from sale of securities 383,426 1,030,380
Proceeds from recapitalized investment 2,018,107 --
----------- -----------
Net cash flows provided by investing activities 1,604,972 791,651
----------- -----------
Cash Flows from Financing Activities:
Purchase of treasury stock (291,300) (125,137)
----------- -----------
Net cash flows (used in) financing activities (291,300) (125,137)
----------- -----------
Net increase in cash and cash equivalents 1,777,404 705,481
Cash and Cash Equivalents, at the beginning of the period 950,692 509,257
----------- -----------
Cash and Cash Equivalents, at the end of the period 2,728,096 1,214,738
=========== ===========
Supplemental Disclosure:
Income taxes paid/(refunded) $ 130,273 $ (335,756)
=========== ===========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF INVESTMENTS1
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES
OR TYPE OF ISSUE FAIR OR % OF
FACE AND ORIGINAL MARKET NET
VALUE NAME OF ISSUER COST VALUE ASSETS
- ------------ ---------------------------------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Reorganized Companies
----------------------------------------
Common Stock
----------------------------------------
105,200 Parametric Technology Corporation $ 3,177,528 $ 2,853,550 35.1%
513,310 CVSI Acquisition Co., L.L.C.(2) 513,310 513,310 6.3%
7,930 Seaman Furniture - Class A(3) 158,059 279,612 3.4%
25,112 Seaman Furniture - Class B(3) 500,526 885,449 10.9%
-------------- -------------
Total Reorganized Companies 4,349,423 4,531,921
-------------- -------------
Other Investments
----------------------------------------
Common Stock
----------------------------------------
1,533,000 Signet Group Plc 741,348 1,099,463 13.5%
-------------- -------------
Total Other Investments 741,348 1,099,463
-------------- -------------
Total Investments $ 5,090,771 $ 5,631,384
============== =============
</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 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.
5
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
-------------
(UNAUDITED)
1. ORGANIZATION AND OPERATION OF THE COMPANY
-----------------------------------------
Corporate Renaissance Group, Inc. (the "Company") was incorporated under
the laws of the State of Delaware on June 19, 1992. The Company is a
non-diversified, closed-end investment company which has elected to be treated
as a business development company 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 June 30, 1998, 57,950 shares have been
repurchased at an average cost of $7.18 per share, of which 15,750 were
retired in 1997.
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.
6
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
-------------
(UNAUDITED)
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 June 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 $1,260,294 are
as follows:
Federal:
Current $ 160,195
Deferred 178,616
-----------------
338,811
-----------------
State and Local:
Current (10,092)
Deferred 49,764
-----------------
39,672
-----------------
Total $ 378,483
=================
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.
7
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
-------------
(UNAUDITED)
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 June 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.
6. INVESTMENT TRANSACTIONS
-----------------------
As of June 30, 1998 the accumulated unrealized appreciation on
investments was $540,613, consisting of $864,591 gross unrealized appreciation
and $323,978 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.
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 June 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
8
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
-------------
(UNAUDITED)
8. INVESTMENT IN CVSI, INC. (CONTINUED)
------------------------------------
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 June 30, 1998, $32,830 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.
On January 12, 1998, Computervision was acquired by Parametric Technology
Corporation ("Parametric") (see Note 10). On June 29, 1998, CVSI signed an
agreement with Parametric appointing CVSI as a worldwide Preferred Systems
Integrator/Platform Technology Service Provider. Also on June 29, 1998, the
Company invested an additional $56,690 in CVSI, exercising its option to
purchase shares of CVSI from Computervision at the same purchase price as its
original purchase on July 1997. Additionally, as part of the new agreement
between Parametric and CVSI, Parametric cancelled its $10 million note from
CVSI and surrendered its certificate representing 15 million shares of Class B
Common Stock originally issued to Computervision.
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.
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.
9
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1998
-------------
(UNAUDITED)
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 would acquire Computervision in a
stock-for-stock transaction. Under the terms of the Agreement, each share of
Computervision common stock was exchanged for .0866 shares (approximately
52,600 total shares) of Parametric common stock. This transaction closed on
January 12, 1998. On February 20, 1998, Parametric declared a "2 for 1" stock
split. As a result, effective March 6, 1998, the Company owned 105,200 shares
of Parametric common stock.
11. SUBSEQUENT EVENT
----------------
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 Technology
Corporation ("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.
10
<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 ("BDC") 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 ("Parametric") in a stock-for-stock
transaction. In July 1998, the Company disposed of a significant portion of
its equity position in Parametric through open market sales.
11
<PAGE>
The Company's primary source of working capital is funds generated from
investment activities. At June 30, 1998, the Company had cash and cash
equivalents of $2,728,096, 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.
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 June 30, 1998, the Company had purchased 57,950 shares pursuant to this
program at an average cost of $7.17 per share, of which 15,750 shares were
retired in 1997.
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 June 30, 1998 as compared to quarter ended June 30, 1997
During the quarter ended March 31, 1998, the Company had interest income
of $36,882, as compared to interest income of $9,434 in the 1997 quarter.
Operating expenses during the 1998 quarter were $98,797, as compared to
$94,709 in the 1997 quarter. For the quarter ended June 30, 1998, the Company
had a pre-tax loss and net operating loss of $52,961 and $65,861,
respectively, as compared to a pre-tax loss and net operating loss for the
1997 quarter of $85,275 and $56,854, 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 June 30, 1998, the Company had no net realized
gains from sale of investments, as compared to net realized gains from sale of
investments of $403,731 during the 1997 quarter. For the quarter ended June
30, 1998, the Company had net unrealized depreciation of investments of
$310,661, as compared to net unrealized depreciation of investments of
$775,980 in the 1997 quarter. For the 1998 quarter, the Company had net
realized and unrealized losses on investments of $169,393, as compared to net
realized and unrealized losses on investments of $388,521 for the 1997 quarter
and, after giving effect to net operating losses, a decrease in net assets
resulting from operations of $235,254 in the 1998 quarter, as compared to a
decrease in net assets resulting from operations of $445,375 in the 1997
quarter.
Nine months ended June 30, 1998 as compared to nine months ended June 30,
1997
During the nine months ended June 30, 1998, the Company had interest
income of $83,620, as compared to interest income of $17,585 in the 1997
period. During the 1998 period, the Company also realized a distribution of
$830,967 from its Portfolio Investment in Seamans and $26,861 in investment
banking and consulting fees relating to another Portfolio Investment.
Operating expenses during the 1998 period were $278,397, as compared to
$287,596 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 nine
months ended June 30, 1998, the Company had operating pre-tax income and
operating income of $663,051 and $622,057, respectively, as compared to a
pre-tax loss and net operating loss for the 1997 period of $270,011 and
$178,002, 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.
12
<PAGE>
During the nine months ended June 30, 1998, the Company had net realized
gains from sale of investments of $284,297, as compared to net realized gains
from sale of investments of $165,969 during the 1997 period. For the nine
months ended June 30, 1998, the Company had net unrealized appreciation of
investments of $312,946 as compared to net unrealized depreciation of
investments of $2,495,940 in the 1997 period. For the 1998 period, the Company
had net realized and unrealized gains on investments of $259,754, as compared
to net realized and unrealized losses on investments of $1,672,371 for the
1997 period and, after giving effect to net operating losses, an increase in
net assets resulting from operations of $881,811 in the 1998 period, as
compared to a decrease in net assets resulting from operations of $1,850,370
in the 1997 period.
NET ASSET VALUE
At June 30, 1998, the Company had a net asset value of $9.06 per share of
Common Stock, an increase of $1.03 per share from net asset value at September
30, 1997 of $8.03 per share.
13
<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
---------------------------------------------------
Not applicable.
5. Other Information
-----------------
Not applicable.
6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibit 27 - Financial Data Schedule (SEC use only)
b) Reports on Form 8-K
On July 14, 1998, the Company filed a report on Form 8-K to disclose
the open market sale of a significant portion of its equity position
in Parametric Technology Corporation.
14
<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: August 13, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,728,096
<SECURITIES> 5,631,384
<RECEIVABLES> 3,468
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,747
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,378,695
<CURRENT-LIABILITIES> 239,227
<BONDS> 0
0
0
<COMMON> 9,404
<OTHER-SE> 8,130,064
<TOTAL-LIABILITY-AND-EQUITY> 8,139,468
<SALES> 0
<TOTAL-REVENUES> 1,538,691
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 278,397
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,260,294
<INCOME-TAX> 378,483
<INCOME-CONTINUING> 881,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 881,811
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