<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, 1999
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 658,750 (as
of August 12, 1999).
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
INDEX
- ------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
ITEM 1.
Statements of Assets and Liabilities as of June 30, 1999 and
September 30, 1998------------------------------------------------------------3
Statements of Operations and Changes in Net Assets for the
Quarters ended June 30, 1999 and June 30, 1998 and for the
Nine Months ended June 30, 1999 and June 30, 1998-----------------------------4
Statements of Cash Flows for the Nine Months ended June 30,
1999 and June 30, 1998 -------------------------------------------------------5
Schedule of Investments, June 30, 1999----------------------------------------6
Notes to Financial Statements-------------------------------------------------7
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>
JUNE 30, 1999 SEPTEMBER 30, 1998
--------------------------- ---------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value
(cost $1,446,325 and $2,458,725 respectively) $ 5,068,649 $ 2,514,213
Cash 4,041,414 4,238,260
Income taxes receivable -- 183,841
Accrued interest receivable 4,262 5,852
Accrued dividend receivable 6,902 --
Other assets 14,885 3,917
--------------------------- ---------------------------
Total assets 9,136,112 6,946,083
LIABILITIES
Income taxes payable 1,124,613 --
Accounts payable and accrued expenses 11,462 12,324
--------------------------- ---------------------------
Total liabilities 1,136,075 12,324
--------------------------- ---------------------------
Net assets $ 8,000,037 $ 6,933,759
=========================== ===========================
NET ASSETS
Common stock, (par value $.01 per share 20,000,000 shares
authorized: 940,350 shares issued and 825,150 outstanding at
9/30/98, and 658,750 shares issued and outstanding at 6/30/99) $ 6,588 $ 9,404
Additional paid-in capital 5,842,084 7,690,280
Treasury stock, at cost (115,200 shares at 9/30/98) -- (730,050)
Accumulated income (losses):
Accumulated net operating loss before
security transactions (991,656) (888,260)
Accumulated net realized gains from sale of investments 874,621 910,961
Net unrealized appreciation of investments 2,268,400 (58,576)
--------------------------- ---------------------------
2,151,365 (35,875)
--------------------------- ---------------------------
Net assets $ 8,000,037 $ 6,933,759
=========================== ===========================
Net asset value per share of common stock outstanding $ 12.14 $ 8.40
=========================== ===========================
</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 Quarter For the Quarter For the Nine For the Nine
Ended Ended Months Ended Months Ended
June 30, 1999 June 30, 1998 June 30,1999 June 30,1998
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Income:
Dividend $ 6,902 $ -- $ 6,902 $ 830,967
Fee -- 8,954 -- 26,861
Interest 41,407 36,882 124,690 83,620
------------------ ----------------- ----------------- ------------------
Total income 48,309 45,836 131,592 941,448
------------------ ----------------- ----------------- ------------------
Expenses:
Financial advisory 42,500 50,000 129,744 150,000
Investment banking 37,500 -- 37,500 --
Professional 19,500 12,300 59,643 36,900
Insurance 10,262 11,750 31,330 35,250
Board of directors 10,000 12,500 30,000 37,500
Other operating 4,142 12,247 11,087 18,747
------------------ ----------------- ----------------- ------------------
Total expenses 123,904 98,797 299,304 278,397
------------------ ----------------- ----------------- ------------------
Operating income/(loss) before income tax (75,595) (52,961) (167,712) 663,051
benefit
Income tax (expense)/benefit 927 (12,900) 69,032 (40,994)
------------------ ----------------- ----------------- ------------------
Net operating income/(loss) before
security transactions (74,668) (65,861) (98,680) 622,057
------------------ ----------------- ----------------- ------------------
NET REALIZED AND UNREALIZED GAINS FROM
INVESTMENTS:
Net realized gains/(losses) from sales
of investments 379,233 -- (36,340) 284,297
Change in net unrealized
appreciation/(depreciation) of
investments 2,176,484 (310,661) 3,566,835 312,946
Income tax (expense)/benefit arising
from net realized gains/(losses) and
net unrealized appreciation/(depreciation)
of investments (911,684) 141,268 (1,244,575) (337,489)
------------------ ----------------- ----------------- ------------------
Net realized and unrealized
gains/(losses) on investments 1,644,033 (169,393) 2,285,920 259,754
------------------ ----------------- ----------------- ------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,569,365 $ (235,254) $ 2,187,240 $ 881,811
------------------ ----------------- ----------------- ------------------
Net assets at beginning of period $ 6,430,672 $ 8,458,222 $ 6,933,759 $ 7,548,957
Net decrease in net assets resulting from
treasury stock purchases -- (83,500) (1,120,962) (291,300)
================== ----------------- ----------------- ------------------
Net assets at end of period $ 8,000,037 $ 8,139,468 $ 8,000,037 $ 8,139,468
================== ================= ================= ==================
Per Share Data:
Net operating gains/(loss) before
security transactions $ (.11) $ (.07) $ (.15) $ .68
Net realized and unrealized
gains/(losses) on Investments 2.50 (.18) 3.47 .26
Net gain/(loss) on treasury stock
transactions (.01) .01 .42 .09
---------------- ---------------- ------------- ------------------
Net increase in net asset value
resulting from operations 2.38 (.24) 3.74 1.03
---------------- ---------------- ------------- ------------------
Net asset value per common share at
beginning of the period 9.76 9.30 8.40 8.03
---------------- ---------------- ------------- ------------------
Net asset value per common shares at
end of the period $ 12.14 $ 9.06 $ 12.14 $ 9.06
================ ================ ============= ==================
</TABLE>
See notes to financial statements
4
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
June 30, 1999 June 30, 1998
--------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations $ 2,187,240 $ 881,811
Adjustments to reconcile net increase in net assets resulting from
operations to net cash (used in)/provided by operating activities:
Change in net unrealized (appreciation) of investments (3,566,835) (312,945)
Realized (gains)/losses from sale of investments 36,340 (284,297)
Deferred income tax provision 1,169,023 --
(Increase)/decrease in operating assets:
Income taxes receivable 138,533 9,755
Accrued interest receivable 1,590 (2,264)
Accrued dividend receivable (6,902)
Other assets (10,968) (11,750)
Increase/(decrease) in operating liabilities:
Deferred liability -- (26,860)
Income taxes payable 898 234,657
Accounts payable and accrued expenses (862) (24,375)
--------------------- --------------------
Net cash flows (used in)/provided by operating activities (51,943) 463,732
--------------------- --------------------
Cash Flows from Investing Activities:
Purchase of securities (119,624) (796,561)
Proceeds from recapitalized investment -- 2,018,107
Proceeds from sale of securities 1,095,683 383,426
--------------------- --------------------
Net cash flows provided by investing activities 976,059 1,604,972
--------------------- --------------------
Cash Flows from Financing Activities:
Purchase of treasury stock (1,120,962) (291,300)
--------------------- --------------------
Net cash flows (used in) financing activities (1,120,962) (291,300)
--------------------- --------------------
Net increase/(decrease) in cash (196,846) 1,777,404
Cash at the beginning of the period 4,238,260 950,692
--------------------- --------------------
Cash at the end of the period $ 4,041,414 $ 2,728,096
===================== ====================
Supplemental disclosure (cash transactions):
Income taxes paid/(refunded), net $ (132,013) $ 130,273
===================== ====================
</TABLE>
Supplemental disclosure (non-cash transactions):
The company retired 281,600 shares of common stock
previously held as treasury stock having a total
cost of $1,851,012.
See notes to financial statements
5
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
SCHEDULE OF INVESTMENTS(1)
JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES TYPE OF ISSUE FAIR OR % OF
OR FACE AND ORIGINAL MARKET NET
VALUE NAME OF ISSUER COST VALUE ASSETS
----------- --------------------------------------------- ---------------- -------------- -----------
Reorganized Companies
---------------------------------------------
Common Stock & Equity Investments
---------------------------------------------
<S> <C> <C> <C> <C>
632,680 CVSI Acquisition Co., L.L.C(2)(3) $ 632,680 $ 632,680 12.5%
33,042 Seaman Furniture - Class C(3) 607,223 4,076,061 80.4%
---------------- --------------
Total Reorganized Companies 1,239,903 4,708,741
---------------- --------------
Other Investments
---------------------------------------------
Common Stock
---------------------------------------------
426,396 Signet Group Plc 206,422 359,908 7.1%
---------------- --------------
Total Other Investments 206,422 359,908
---------------- --------------
Total Investments $ 1,446,325 $ 5,068,649
================ ==============
</TABLE>
- -------------------
(1) Notes to Schedule of Investments:
The above investments are income producing except for Seaman Furniture. See
note 9.
(2) Represents a beneficial interest in 513,310 shares of CVSI, Inc. and a
line of credit borrowing of $119,370 to CVSI, Inc., which are not considered
to be readily marketable securities. See Note 8.
(3) Not considered to be a readily marketable security.
6
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
1. Organization and Operation of the Company
Corporate Renaissance Group, Inc. (the "Company") was incorporated
under the laws of the state of Delaware on June 19, 1992. The Company is a
non-diversified, closed-end investment company which has elected to be treated
as a business development company ("BDC") under the Investment Company Act of
1940, as amended by the Small Business Incentive Act of 1980. The Company 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 June 30, 1999, 297,350 shares have
been repurchased at an average cost of $6.65 per share, of which 15,750 were
retired in fiscal 1997 and 281,600 in fiscal 1999. Subsequent to June 30, 1999,
no additional shares were purchased.
In March 1999, the Company received a proposal from a management-led
group to acquire all of the issued and outstanding shares of the Company's
Common Stock not owned by the group for $8.00 per share. In June 1999, the
Company's management group withdrew its offer and recommended the adoption of a
plan of liquidation (the "Plan") in light of ongoing changes in the Company's
portfolio values. On August 3, 1999, the Board of Directors adopted the Plan,
subject to stockholder approval. Under the Plan, if approved by stockholders,
the Company will make a distribution to stockholders of its cash, following the
disposition of its liquid assets, less anticipated operating and liquidation
costs, and then transfer the balance of its assets to a liquidating trust (the
"Trust"). As the Trust disposes the balance of the assets, it will make one or
more liquidating distributions.
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
7
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
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 Adviser.
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, 1999 for federal income tax purposes
and financial reporting purposes was the same.
d. 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 expense (benefit) on pre-tax income
$3,362,783 for the nine months ended June 30, 1999, and pre-tax income
$1,260,294 for the nine months ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Federal: 1999 1998
---------------- ----------------
<S> <C> <C> <C>
Current $ 10,467 160,195
Deferred 1,048,788 178,616
---------------- ----------------
1,059,255 338,811
---------------- ----------------
State and Local:
Current (3,947) (10,092)
Deferred 120,235 49,764
---------------- ----------------
116,288 39,672
---------------- ----------------
Total $ 1,175,543 378,483
================ ================
</TABLE>
8
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
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. In addition, the Company has federal and state net-operating losses
which also create a temporary difference. During the nine months ended June 30,
1999, the Company recorded a deferred tax benefit from operations of
approximately $43,000 to reflect the change in the net operating loss
carryforward for federal and state taxes as of September 30, 1998, and
management's expectation with respect to the realization of this deferred tax
asset at June 30, 1999. As of June 30, 1999 and September 30, 1998, there is a
net deferred tax asset/(payable) of $(1,029,221) and $111,136, respectively. A
valuation allowance in the amount of $95,392 in 1999 and $66,725 in 1998 has
been established to offset a portion of the deferred tax assets which more
likely than not will not provide a future benefit.
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 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 June 30, 1999.
5. Board of Directors Fees
The Company pays each of its five independent directors an annual fee
of $8,000 for the directors' services as such.
6. Investment Transactions
As of June 30, 1999 the accumulated unrealized appreciation on
investments was $3,622,324.
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.
9
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
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 June 30, 1999.
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 addition, CVSI Acquisition Co., L.L.C. provided CVSI with a
five year $2.5 million line of credit facility to support short-term working
capital needs of CVSI. Interest is accrued at a floating rate of LIBOR plus 3%.
As of June 30, 1999, CVSI has borrowed $2,000,000 in connection with this
facility. The Company along with certain of its affiliates contributed capital
to CVSI Acquisition Co., L.L.C. to satisfy this funding. The Company's
proportionate share of the contribution was $119,370.
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, CVSI Acquisition Co., L.L.C., Computervision 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.
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
10
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
9. Investment in Seaman Furniture Company, Inc. (continued)
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 owned all of the
outstanding shares of Seamans Common Stock of which approximately 38.0% on a
fully-diluted basis was owned by the Investment Adviser and its affiliates,
including 3.3% by the Company. The Funds 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.
On June 23, 1999, certain affiliates of the Investment Adviser
purchased approximately 12.1% of Seamans Common Stock, on a fully diluted basis,
which resulted in a majority ownership stake in Seamans by the Investment
Adviser and its affiliates.
11
<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.
The Company's primary source of working capital is funds generated from
investment activities. At June 30, 1999, the Company had cash of $4,041,414, as
compared to cash of $4,238,260 at September 30, 1998. The net decrease in cash
was primarily the result of purchases in treasury stock coupled with proceeds
from the sales of investments in securities during the year.
In November, 1996, the Company implemented 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
12
<PAGE>
program from 175,000 shares (substantially all of which had been repurchased
at that time) to 350,000 shares. As of June 30, 1999, the Company had
purchased 297,350 shares pursuant to this program at an average cost of $6.65
per share. Since mid-1998 the Board of Directors of the Company has been
actively exploring various strategic alternatives for enhancing stockholder
value. In March 1999, the Company received a proposal from a management-led
group to acquire all of the issued and outstanding shares of the Company's
Common Stock not owned by the group for $8.00 per share. In June 1999, the
Company's management group withdrew its offer and recommended the adoption of
a plan of liquidation (the "Plan") in light of ongoing changes in the
Company's portfolio values. On August 3, 1999, the Board of Directors adopted
the Plan, subject to shareholder approval. Under the Plan, if approved by
stockholders, the Company will make a distribution to stockholders of its
cash, following the disposition of its liquid assets, less anticipated
operating and liquidation costs, and then transfer the balance of its assets
to a liquidating trust (the "Trust"). As the Trust disposes the balance of the
assets, it will make one or more liquidating distributions. The Investment
Adviser will continue to serve as adviser to the Trust with respect to
liquidation of the assets.
Results of Operations
Quarter ended June 30, 1999 as compared to Quarter ended June 30, 1998
During the quarter ended June 30, 1999, the Company had interest income
of $41,407, as compared to interest income of $36,882 in the 1998 quarter.
During the 1998 quarter, the Company also realized a distribution of $8,954 in
investment banking and consulting fees relating to a Portfolio Investment.
Operating expenses during the 1999 quarter were $123,904, as compared to $98,797
in the 1998 quarter. For the quarter ended June 30, 1999, the Company had a
pre-tax operating loss and net operating loss of $75,595 and $74,668
respectively, as compared to a pre-tax operating loss and net operating loss of
$52,961 and $65,861 in 1998. 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, 1999, the Company had realized gains
from the sale of investments of $379,233 as compared to no realized gains from
sale of investments during the 1998 quarter. For the 1999 quarter, the Company
had net unrealized appreciation of investments of $2,176,484, as compared to net
unrealized depreciation of investments of $310,661 in the 1998 quarter. For the
1999 quarter, the Company had net realized and unrealized gains on investments
of $1,644,033, as compared to net realized and unrealized loss on investments of
$169,393 for the 1998 quarter and, after giving effect to net operating losses,
an increase in net assets resulting from operations of $1,569,365 in the 1999
quarter, as compared to an decrease in net assets resulting from operations of
$235,254 in the 1998 quarter.
Nine Months ended June 30, 1999 as compared to Nine Months ended June
30, 1998
During the nine months ended June 30, 1999, the Company had interest
income of $124,690, as compared to interest income of $83,620 in the 1998
period. During the 1999 period the Company had dividend income of $6,902 as
compared to dividend income of $830,967 in the 1998 period. During the 1998
period, the Company also realized $26,861 in investment banking and consulting
fees relating to a Portfolio Investment. Operating expenses during the 1999
period were $299,304, as compared to $278,397 in the 1998 period. For the nine
months ended June 30, 1999, the Company had a pre-tax operating loss and net
operating loss of $167,712 and $98,680 respectively, as compared to pre-tax
operating income and net operating income for the 1998 period of $663,051 and
$622,057, respectively. The pre-tax and net operating income earned in the 1998
period was attributable to the distribution realized during the quarter on the
Portfolio Investment. Since the Company typically does not purchase securities
with the objective of generating investment income, net investment losses are
expected to routinely occur.
13
<PAGE>
During the nine months ended June 30, 1999, the Company had net losses
from sale of investments of $36,340, as compared to net realized gains from sale
of investments of $284,297 during the 1998 period. For the 1999 period, the
Company had net unrealized appreciation of investments of $3,566,835 as compared
to net unrealized appreciation of investments of $312,946 in the 1998 period.
For the 1999 period, the Company had net realized and unrealized gains on
investments of $2,285,920, as compared to net realized and unrealized gains on
investments of $259,754 for the 1998 period and, after giving effect to net
operating losses, an increase in net assets resulting from operations of
$2,187,240 in the 1999 period, as compared to an increase in net assets
resulting from operations of $881,811 in the 1998 period.
Net Asset Value
At June 30, 1999, the Company had a net asset value of $12.14 per
share, an increase of $3.74 per share from net asset value at September 30, 1998
of $8.40 per share. Shares outstanding at June 30, 1999 were 658,750 as compared
to 825,150 at September 30, 1998 as a result of repurchases of 166,400 shares of
Common Stock during the year under the Company's open market share repurchase
program.
14
<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 -- none
15
<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, 1999 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)
16
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,041,414
<SECURITIES> 5,068,649
<RECEIVABLES> 11,164
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