<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 December 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 678,150
(as of February 9, 1999).
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
- ---------------------------------
INDEX
- ------------------------------------------------------------------
Page
PART I - FINANCIAL INFORMATION
ITEM 1.
Statements of Assets and Liabilities as of December 31, 1998 and
September 30, 1998------------------------------------------------------------3
Statements of Operations and Changes in Net Assets for the Quarter ended
December 31, 1998 and December 31, 1997---------------------------------------4
Statements of Cash Flows for the Quarters ended
December 31, 1998 and December 31, 1997---------------------------------------5
Schedule of Investments, December 31, 1998------------------------------------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>
DECEMBER 31, 1998 SEPTEMBER 30, 1998
--------------------------- -----------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market value
(cost $1,861,903 and $2,458,725 respectively) $ 2,902,001 $ 2,514,213
Cash and cash equivalents 3,971,424 4,238,260
Income taxes receivable 73,159 183,841
Accrued interest receivable 5,962 5,852
Other assets 35,269 3,917
--------------------------- -----------------------------
Total Assets 6,987,815 6,946,083
LIABILITIES
Accounts payable and accrued expenses 16,351 12,324
--------------------------- -----------------------------
Total liabilities 16,351 12,324
--------------------------- -----------------------------
Net assets $ 6,971,464 $ 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 825,150 shares issued and
760,650 outstanding at 12/31/98) $ 8,252 $ 9,404
Additional paid-in capital 6,961,382 7,690,280
Treasury stock, at cost (115,200 shares at 9/30/98 and
64,500 shares at 12/31/98) (388,781) (730,050)
Accumulated income (losses):
Accumulated net operating loss before security
transactions (865,432) (888,260)
Accumulated net realized gains from sale of investments 495,388 910,961
Net unrealized appreciation of investments 760,655 (58,576)
--------------------------- -----------------------------
390,611 (35,875)
--------------------------- -----------------------------
Net assets $ 6,971,464 $ 6,933,759
=========================== =============================
Net asset value per share of common stock outstanding $ 9.16 $ 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 Ended For the Quarter Ended
December 31, 1998 December 31, 1997
------------------------
------------------------
<S> <C> <C>
Income:
Dividend $ -- $ 830,967
Fee -- 8,954
Interest 47,436 8,053
------------------------ ------------------------
Total income 47,436 847,974
------------------------ ------------------------
Expenses:
Financial advisory 44,744 50,000
Professional 10,193 12,300
Insurance 10,948 11,750
Board of directors 10,000 12,500
Other operating 3,420 3,035
------------------------ ------------------------
Total expenses 79,305 89,585
------------------------ ------------------------
Operating income/(loss) before income tax benefit (31,869) 758,389
Income tax (expense) benefit 54,697 (28,094)
------------------------ ------------------------
Net operating income/(loss) before security transactions 22,828 730,295
------------------------ ------------------------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENTS:
Net realized gains/(losses) from sales of investments (415,573) 27,533
Change in net unrealized appreciation/(depreciation) of
investments 984,610 (608,643)
Income tax expense arising from net realized gains/(losses)
and net unrealized appreciation/(depreciation) of (165,379) (1,731)
investments
------------------------ ------------------------
Net realized and unrealized gains/(losses) on 403,658 (582,841)
investments
------------------------ ------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 426,486 $ 147,454
------------------------ ------------------------
Net assets at beginning of period $ 6,933,759 $ 7,548,957
Net decrease in net assets resulting from treasury stock (388,781) --
purchases
======================== ========================
Net assets at end of period $ 6,971,464 $ 7,696,411
======================== ========================
Per Share Data:
Net operating gain/(loss) before security transactions $ .03 $ .94
Net realized (losses) from sales of investments (.54) (.14)
Net unrealized (depreciation)/appreciation of investments 1.07 (.65)
Net gain on treasury stock transactions .20 --
------------------------ ------------------------
Net increase in net asset value resulting from operations .76 .15
------------------------ ------------------------
Net asset value per common share at beginning of period 8.40 8.03
======================== =======================
Net asset value per common shares at end of period $ 9.16 $ 8.18
======================== =======================
</TABLE>
See notes to financial statements
4
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
December 31, 1998 December 31, 1997
------------------------ ------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations $ 426,486 $ 147,454
Adjustments to reconcile net increase/(decrease) in net assets
resulting from operations to net cash (used in)/provided by
operating activities:
Change in net unrealized appreciation of investments (984,610) 608,642
Realized (gains)/losses from sale of investments 415,573 (27,533)
Deferred income tax provision 110,682 --
(Increase) in operating assets:
Income taxes receivable -- (23,377)
Accrued interest receivable (110) (2,344)
Other assets (31,352) (35,250)
Increase (decrease) in operating liabilities:
Deferred liability -- (8,953)
Income taxes payable -- 49,405
Accounts payable and accrued expenses 4,027 11,468
------------------------ ------------------------
Net cash flows provided by operating activities (59,304) 719,512
------------------------ ------------------------
Cash Flows from Investing Activities:
Purchase of securities (36) (741,320)
Proceeds from recapitalized investment -- 2,018,107
Proceeds from sale of securities 181,285 38,319
------------------------ ------------------------
Net cash flows provided by investing activities 181,249 1,315,106
------------------------ ------------------------
Cash Flows from Financing Activities:
Purchase of treasury stock (388,781) --
------------------------ ------------------------
Net cash flows (used in) financing activities (388,781) --
------------------------ ------------------------
Net increase/(decrease) in cash and cash equivalents (266,836) 2,034,618
Cash and Cash Equivalents, at the beginning of the period 4,238,260 950,692
------------------------ ------------------------
Cash and Cash Equivalents, at the end of the period $ 3,971,424 $ 2,985,310
======================== ========================
Supplemental disclosure (cash transactions):
Income taxes paid, net $ -- $ 3,797
======================== ========================
Supplemental disclosure (non-cash transactions):
The company retired 115,200 shares of common stock
previously held as treasury stock with a total cost of $730,050.
</TABLE>
See notes to financial statements
5
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
SCHEDULE OF INVESTMENTS(1)
--------------------------
DECEMBER 31, 1998
-----------------
(Unaudited)
<TABLE>
<CAPTION>
SHARES TYPE OF ISSUE % OF
OR FACE AND ORIGINAL MARKET NET
VALUE NAME OF ISSUER COST VALUE ASSETS
- ------- --------------------------------------------- ----------------- --------------- -------------
Reorganized Companies
---------------------------------------------
Common Stock
---------------------------------------------
<S> <C> <C> <C> <C>
513,310 CVSI Acquisition Co., L.L.C(2) $ 513,310 $ 513,310 7.3%
7,930 Seaman Furniture - Class A(3) 145,732 385,477 5.5%
25,112 Seaman Furniture - Class B(3) 461,492 1,220,694 17.3%
----------------- ---------------
Total Reorganized Companies 1,120,534 2,119,481
----------------- ---------------
<CAPTION>
Other Investments
---------------------------------------------
Common Stock
---------------------------------------------
<S> <C> <C> <C> <C>
1,533,000 Signet Group Plc 741,369 782,520 11.1%
----------------- ---------------
Total Other Investments 741,369 782,520
----------------- ---------------
Total Investments $ 1,861,903 $ 2,902,001
================= ===============
</TABLE>
1 Notes to Schedule of Investments:
-----------------------------------
The above investments are non-income producing. Equity investments that have
not paid dividends within the last twelve months are considered to be
non-income producing, except for 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.
6
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 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 ("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 December 31, 1998,
195,450 shares have been repurchased at an average cost of $6.36 per share, of
which 15,750 were retired in 1997 and 115,200 on October 14, 1998. In addition,
subsequent to December 31, 1998, an additional 82,500 shares were purchased at
an average cost of $7.11 per share.
2. Significant Accounting Policies
a. Valuation of Securities
The Company's securities which are subject to last-sale reporting are
valued by reference to the market price on a national securities exchange or as
reported on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System. Other unlisted securities are valued at representative "bid"
quotations if held long by the Company and representative "asked" quotations if
held short by the Company. The value of securities for which market quotations
are not readily available and securities as to which the Company believes the
method of valuation set forth above does not fairly reflect market value are
determined by one or more independent third parties selected by the Investment
Advisor.
7
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 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 September 30, 1998 for federal income tax
purposes and financial reporting purposes was the same.
d. Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents
consist of cash and short-term interest-bearing deposits.
e. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
3. Income Taxes
The components of income tax expense (benefit) on pre-tax income
$537,168 for the quarter ended December 31, 1998, and pre-tax income $177,279
for the quarter ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Federal: 1998 1997
---------------- ----------------
<S> <C> <C> <C>
Current $ - 46,708
Deferred 98,804 (126,975)
---------------- ----------------
98,804 (80,267)
---------------- ----------------
State and Local:
Current - (16,883)
Deferred 11,878 (7,520)
---------------- ----------------
11,878 (24,403)
---------------- ----------------
Allowance for deferred tax asset - 134,495
---------------- ----------------
Total $ 110,682 (29,825)
================ ================
8
</TABLE>
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
(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 quarter, 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 December 31, 1998. As of December
31, 1998 and September 30, 1998, there is a net deferred tax asset of $454 and
$111,136, respectively. A valuation allowance in the amount of $66,725 has been
established to offset a portion of the net deferred tax asset which more likely
than not will not provide a future benefit.
The Company's effective income tax rate and the U.S. federal statutory
rate are substantially the same. The benefit from the graduated federal tax
rate is offset by the state and local tax liability.
4. Financial Advisory and Investment Banking Fees and
--------------------------------------------------
Other Transactions with Affiliates and Related Parties
------------------------------------------------------
The Company has retained M.D. Sass Investors Services, Inc. (the
"Investment Adviser") as the Company's investment adviser. The Investment
Adviser is a registered investment adviser under the Investment Advisers Act of
1940, as amended. The Investment Adviser is part of a group of affiliated
investment advisers and other affiliated entities comprising the M.D. Sass
organization ("M.D. Sass"). In November 1998, the Company renewed its Financial
Advisory Agreement with the Investment Adviser, pursuant to which the
Investment Adviser will receive a base fee of $170,000 per annum, for
furnishing the Company with administrative services, including necessary
executive, administrative, internal accounting and support services. In
addition to the base fee, the Investment Adviser will receive an incentive fee
for its investment advisory services equal to 20% of the increase in net asset
value of the Company's shares, as defined in the Financial Advisory Agreement.
There were no incentive fees earned or payable at December 31, 1998.
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 December 31, 1998 the accumulated unrealized appreciation on
investments was $1,040,098.
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
-----------------------------
DECEMBER 31, 1998
-----------------
(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 December 31, 1998.
8. Investment in CVSI, Inc.
------------------------
In July 1997, the Investment Adviser and certain of its affiliates,
including the Company (collectively, the "Buyer"), purchased a majority
interest in the Open Service Solutions business unit ("CVSI") of Computervision
Corporation ("Computervision"), through CVSI Acquisition Co., L.L.C., a newly
formed Delaware limited liability company. In the transaction, the Buyer paid
$7.6 million to Computervision for 76% of CVSI's Class A Voting Stock (the
"Class A Stock"). In addition, CVSI paid Computervision $25.0 million in cash
and issued Computervision a $10.0 million subordinated note (the "Subordinated
Note"). Further, Computervision retained its ownership of 24% of CVSI's Class A
Stock and 100% of CVSI's Class B Non-Voting Stock (the "Class B Stock"). The
Buyer also received options to purchase (i) the Class A Stock held by
Computervision should the Buyer retire the Subordinated Note within one year of
the transaction and (ii) the Class B Stock for $15.0 million. Moreover, if CVSI
does not achieve certain specified levels of product revenues and operating
margins from Computervision-initiated referrals, CVSI will have the option to
purchase, at a nominal price, some or all of the Class A Stock held by
Computervision.
In connection with the acquisition of CVSI, the Company received
$89,535 of investment banking fees and $35,814 of consulting fees. The
consulting fees were being amortized over a one-year period. The Investment
Advisor and certain of its clients and affiliates who acquired shares of CVSI
also received investment banking and consulting fees.
On June 30, 1998 CVSI, Inc., CVSI Acquisition Co. L.L.C.,
Computervision Corporation and Computervision's parent Parametric Technology
signed an agreement in which CVSI Acqusition Co., L.L.C. agreed to exercise its
option to purchase 1 million shares held by Computervision, increasing its
holdings to 86% of CVSI, Inc. Computervision canceled the $10 million
subordinated note and retired its Class B Non-Voting Stock. In addition,
Parametric appointed CVSI, Inc. as a Preferred Systems Integrator/Platform
Technology Service Provider worldwide.
9. Investment in Seaman Furniture Company, Inc.
--------------------------------------------
In August 1997, Seaman Furniture Company, Inc. ("Seamans")
entered into an Agreement and Plan of Merger, as amended on September 4, 1997
(the "Merger Agreement") with SFC Merger Company ("Newco"), a Delaware
corporation formed and wholly owned by the Investment Adviser and its
affiliates (including the Company), T. Rowe Price Recovery Fund, L.P. ("Price")
and Carl Marks Management Co., L.P. ("Marks," and collectively with the
Investment Adviser and Price, the "Funds"), pursuant to which the Funds will
acquire through a merger (the "Merger") all of the outstanding common stock of
Seamans not already owned by the Funds (the "Public Stock"). Upon consummation
of the Merger, Newco merged with and into Seamans and each share of Public
Stock (other than dissenting shares) was converted into the right to receive
$25.05 in cash and each
10
<PAGE>
CORPORATE RENAISSANCE GROUP, INC.
---------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
(Unaudited)
9. Investment in Seaman Furniture Company, Inc. (continued)
--------------------------------------------------------
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 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.
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 December 31, 1998, the Company had cash and cash
equivalents of $3,971,424, as compared to cash and cash equivalents of
$4,238,260 at September 30, 1998. The net decrease in cash and cash equivalents
was a result of purchases in treasury stock coupled with proceeds from the sale
of an investment in securities during the quarter.
In November, 1996, the Company's Board of Directors authorized the
implementation of an open market share repurchase program, pursuant to which
the Company and 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 program from 175,000 shares (substantially
all of which had been repurchased at that time) to 350,000 shares. As of
December 31, 1998, the Company had purchased 195,450 shares pursuant to this
program at an average cost of $6.36 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
12
<PAGE>
election; adopting a plan of liquidation; or restructuring the Company,
possibly in connection with raising additional capital.
Results of Operations
Quarter ended December 31, 1998 as compared to Quarter ended
December 31, 1997
During the quarter ended December 31, 1998, the Company had interest
income of $47,436, as compared to interest income of $8,053 in the 1997
quarter. During the 1997 quarter, the Company also realized a distribution of
$830,967 from one Portfolio Investment and $8,954 in investment banking and
consulting fees relating to another Portfolio Investment. Operating expenses
during the 1998 quarter were $79,305, as compared to $89,585 in the 1997
quarter. This decrease is primarily attributable to reductions implemented
during the 1998 quarter in the amount of the base fee paid to the Investment
Adviser and in fees paid to independent directors. For the quarter ended
December 31, 1998, the Company had a pre-tax operating loss and net operating
income of $31,969 and $22,828 respectively, as compared to pre-tax operating
income and net operating income for the 1997 quarter of $758,389 and $730,295,
respectively. The pre-tax and net operating income earned in the 1997 quarter
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.
During the quarter ended December 31, 1998, the Company had net losses
from sale of investments of $403,658, as compared to net realized gains from
sale of investments of $27,583 during the 1997 quarter. For the 1998 quarter,
the Company had net unrealized appreciation of investments of $984,610 as
compared to net unrealized depreciation of investments of $608,643 in the 1997
quarter. For the 1998 quarter, the Company had net realized and unrealized
gains on investments of $403,658, as compared to net realized and unrealized
losses on investments of $582,841 for the 1997 quarter and, after giving effect
to net operating losses, an increase in net assets resulting from operations of
$426,486 in the 1998 quarter, as compared to an increase in net assets
resulting from operations of $147,454 in the 1997 quarter.
Net Asset Value
At December 31, 1998, the Company had a net asset value of $9.16 per
share, an increase of $0.76 per share from net asset value at September 30,
1998 of $8.40 per share. Shares outstanding at December 31, 1998 were 760,650
as compared to 825,150 at September 30, 1998 as a result of repurchases of
64,500 shares of Common Stock during the quarter under the Company's open
market share repurchase program.
Year 2000
Like other financial and business organizations, the Company could be
adversely affected if the computer system used by the Investment Adviser and
the Company's other service providers do not properly process and calculate
date-related information and data form and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Investment Adviser and the
Company's other service providers have informed the Company that they are
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Company as a
result of the Year 2000 Problem.
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 -- none
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: February 12, 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)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,971,424
<SECURITIES> 2,902,001
<RECEIVABLES> 186,118
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,987,815
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,987,815
<CURRENT-LIABILITIES> 16,351
<BONDS> 0
0
0
<COMMON> 8,252
<OTHER-SE> 6,963,212
<TOTAL-LIABILITY-AND-EQUITY> 6,987,815
<SALES> 0
<TOTAL-REVENUES> (616,473)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 79,305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (537,168)
<INCOME-TAX> 110,682
<INCOME-CONTINUING> (426,486)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (426,486)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> 0
</TABLE>
