<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number: 0-20671
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
__________________________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 75-2533518
__________________________________________________________________________
(State or other jurisdiction (I.R.S. Employer I.D. No.)
of incorporation or organization)
8080 North Central Expressway, Dallas, Texas 75206-1857
__________________________________________________________________________
(Address of principal executive offices) (Zip Code)
214/891-8294
__________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
------
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Cash $3,378,905 $ 7,527,529
Short term investments at quoted market value,
cost of $21,348,889 and $12,572,236 21,550,005 12,615,931
Investments at fair value, cost of $12,948,546 and
$20,676,582 13,445,700 21,385,250
Accounts receivable 3,163,359 369,074
Organizational costs, net of accumulated amortization 457,946 364,671
---------- ----------
41,995,915 42,262,455
Liabilities
-----------
Liabilities:
Accounts payable - related parties 307,607 219,609
Accounts payable - trade - 16,545
Dividends payable 1,188,136 373,781
1,495,743 609,935
---------- ----------
Net Assets:
Common stock, $1 par value;
10,000,000 shares authorized;
4,244,630 and 4,339,353 shares
issued and outstanding 39,776,354 40,561,318
Accumulated undistributed income 723,818 1,091,202
---------- ----------
Net assets $40,500,172 $41,652,520
========== ==========
Net asset value per share $ 9.54 $ 9.60
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine months Nine Months
Ended Ended Ended Ended
Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income:
Investment Income:
Interest $ 605,947 $ 583,839 $1,931,341 $1,697,980
Dividends 67,500 75,000 195,714 231,190
Other investment income 13,500 85,323 81,179 203,823
--------- --------- --------- ---------
Total investment income 686,947 744,162 2,208,234 2,132,993
--------- --------- --------- ---------
Expenses:
Operating expenses 117,334 112,714 405,075 436,080
Management fees 177,135 183,031 523,394 558,605
--------- --------- --------- ---------
Total Expenses 294,469 295,745 928,469 994,685
--------- --------- --------- ---------
Net investment income 392,478 448,417 1,279,765 1,138,308
Gain on sale of investments - 398,400 - 398,400
Unrealized gain (loss) on investments (39,914) (1,352,719) (156,878) 48,722
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 352,564 $ (505,902) $1,122,887 $1,585,430
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
<TABLE>
CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase in net assets
resulting from operations
Investment income - net $ 392,478 $ 448,417 $ 1,279,765 $ 1,138,308
Realized gain on investments - 398,400 - 398,400
Unrealized gain (loss) on investments (39,914) (1,352,719) (156,878) 48,722
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations 352,564 (505,902) 1,122,887 1,585,430
Distributions to shareholders
from net investment income (295,962) (386,402) (797,689) (1,218,046)
Capital share transactions 158,405 - 644,639 784,964
---------- ---------- ---------- ----------
Total increase (decrease) 215,007 (892,304) 969,837 1,152,348
Net assets
Beginning of period 39,937,355 42,544,824 39,182,525 40,500,172
========== ========== ========== ==========
End of period $40,152,362 $41,652,520 $40,152,362 $41,652,520
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
September 30, 1996
1. ORGANIZATION AND BUSINESS PURPOSE
Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a
Texas Corporation, was incorporated on January 20, 1994, and had no
operations prior to June 24, 1994. The Fund seeks to achieve current
income and capital appreciation potential by investing primarily in
unregistered preferred stock investments of small and medium size companies
which are in need of capital and which it believes offer the opportunity
for growth. The Fund has elected to be treated as a business development
company under the Investment Company Act of 1940, as amended ("1940 Act").
2. SIGNIFICANT ACCOUNTING POLICIES
A. Federal Income Taxes - The Fund intends to elect the special
income tax treatment available to "regulated investment companies" under
Subchapter M of the Internal Revenue Code in order to be relieved of
federal income tax on that part of its net investment income and realized
capital gains that it pays out to its shareholders. The Fund's policy is
to comply with the requirements of the Internal Revenue Code that are
applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
B. Distributions to Shareholders - Dividends to shareholders are
recorded on the ex-dividend date. The Fund declared dividends of $390,542
for the quarter ended September 30, 1996.
C. Other - The Fund follows industry practice and records security
transactions on the trade date. Dividend income is recognized on the ex-
dividend date, and interest income is recognized on an accrual basis.
3. ORGANIZATION EXPENSES
In connection with the offering of its shares, the Fund paid
Renaissance Capital Group, Inc. (the "Investment Adviser") organizational
expenses of $623,544. Such expenses are deferred and amortized on a
straight-line basis over a five-year period. Amortization expense for the
quarter ended September 30, 1996 was $31,434.
4. INVESTMENT ADVISORY AGREEMENT
The Investment Adviser for the Fund is registered as an investment
adviser under the Investment Advisers Act of 1940. Pursuant to an
Investment Advisory Agreement, the Investment Adviser performs certain
services, including certain management, investment advisory and
administrative services necessary for the operation of the Fund. The
Investment Adviser receives a fee equal to .4375% (1.75% annually) of the
Net Assets each quarter.
<PAGE> 6
The Fund accrued a liability of $183,031 for such operational
management fees performed during the quarter ended September 30, 1996.
In addition, the Fund has agreed to pay the Investment Adviser an
incentive fee equal to 20% of any net realized capital gains after
allowance for any unrealized capital loss of the Fund. This management
incentive fee is calculated on an annual basis.
<PAGE> 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1996
5. Capital Share Transactions
As of September 30, 1996, there were 20,000,000 shares of $1 par value
capital stock authorized and capital paid-in aggregated $36,221,965.
Year-to-date transactions in capital stock are as follows:
Shares Amount
------ ------
Balance December 31, 1995 4,244,630 $39,776,354
Shares issued
Nine months ended September 30, 1996:
Shares issued to original shareholder 10,000 -
Shares issued in lieu of cash
distributions 84,723 784,964
--------- --------
Balance September 30, 1996 4,339,353 $40,561,318
========= ==========
The dividend reinvestment program, provided $191,139.97 with
which to purchase shares. The Fund purchased 21,731.036 shares for
an average price of $8.80 per share on the open market. These shares
were purchased before September 24, 1996.
6. RELATED PARTY TRANSACTIONS
The Investment Adviser is reimbursed by the Fund for certain
administrative expenses under the Investment Advisory Agreement. Such
reimbursements were $72,148 for the quarter ended September 30, 1996.
7. SHORT-TERM INVESTMENTS
Short-term investments are comprised of U. S. Government and Agency
obligations maturing between October 25, 1996, and December 31, 1996. Such
investments qualify for investment as permitted in Section 55(a) (1)
through (5) of the 1940 Act.
8. Investments
The Fund invests primarily in convertible preferred stocks of
companies that qualify as Eligible Portfolio Companies as defined in
Section 2(a) (46) of the 1940 Act or in securities that otherwise qualify
for investment as permitted in Section 55(a) (1) through (5). Under the
provisions of the 1940 Act at least 70% of the Fund's assets must be
invested in Eligible Portfolio Companies. These stocks are carried on the
Statement of Assets and Liabilities as of September 30, 1995, at fair
value, as determined in good faith by the Investment Adviser. The stocks
held by the Fund are convertible, generally after five years, into the
common stock of the issuer
<PAGE> 8
at a set conversion price. The common stock acquired upon exercise of the
conversion feature is generally unregistered and is thinly to moderately
traded but is not otherwise restricted. The Fund generally may register
and sell such securities at any time with the Fund paying the costs of
registration. Dividends are generally payable monthly. The stocks
generally have call options, usually commencing three years subsequent to
issuance, at prices specified in the stock agreements.
<PAGE> 9
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1996
INVESTMENT VALUATION SUMMARY
<TABLE>
<CAPTION>
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
Bentley Pharmaceutical
12% Convertible Debenture and Warrants $ 772,400 $1,710,000 $1,710,000
Contour Medical, Inc.
9% Convertible Debenture 2,500,000 2,500,000 2,500,000
Dwyer Group, Inc.
Common Stock 2,054,182 1,750,000 1,644,500
Interscience Computer Corporation
Cumulative Convertible Redeemable Preferred Stock 4,000,000 4,000,000 3,600,000
Packaging Research Corp.
Convertible Debenture 3,200,000 3,200,000 2,700,000
Post Petition Loans 50,000 50,000 50,000
Poore Bros., Inc.
9% Convertible Debenture 2,100,000 2,100,000 2,100,000
Topro, Inc.
9% Convertible Debentures and Warrants 3,500,000 4,862,500 4,580,750
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
--------- --------- ---------
$20,676,582 $22,672,500 $21,385,250
========== ========== ==========
</TABLE>
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(1) Material Changes in Financial Condition
Discuss material changes from end of preceding fiscal year to date of
most recent interim balance sheet provided. If necessary for an
understanding discuss seasonal fluctuations.
The following portfolio transactions are notes for the quarter.
Portfolio companies are referred to as the "Company":
BENTLEY PHARMACEUTICAL. On February 20, 1996, the Registrant invested
$800,000 in 800 units of a 12% Convertible Senior Subordinated Debenture
and 1,000 Class A Redeemable Warrants, each to purchase one share of Common
Stock and one Class B Redeemable Warrant. Bentley manufactures and
distributes pharmaceutical products, primarily in Spain and France. On May
28, 1996, the Company announced that it would permit separate trading of
its publicly traded Units (BNTU) as Debentures and Class A Redeemable
Warrants, however, the units will also continue to trade. The Registrant
elected to separate its units detaching the $800,000 Debenture with a cost
allocation of $931 per $1,000 Debenture, and the 800,000 Class A Redeemable
Warrants with a cost allocation of $69 per 1,000 Warrants.
On September 20, 1996, the Registrant sold 400,000 Warrants at a price
of $1.07 per Warrant with aggregate proceeds of $426,000, and Short-Term
Capital Gains of $398,400. Subsequent to the quarter, On October 2, 1996,
and October 17, 1996, the Registrant sold an aggregate of 8,000 Warrants
with aggregate proceeds of $8,806.25, and Short-Term Capital Gains of
$8,323.25.
CONTOUR MEDICAL, INC. On July 12, 1996, the Registrant invested
$2,500,000 for the purchase of a 9% Convertible Debenture maturing in 7
years and convertible into 1,000,000 shares of Contour Medical, Inc. common
stock. The Company manufactures orthopedic and rehabilitative products as
well as a full line of disposable medical products.
PACKAGING RESEARCH CORP. On September 10, 1996, the Company placed
its Mama Rizzo's, Inc. ("MRI") subsidiary, a manufacturer of pasta sauces,
in Chapter 11 bankruptcy proceedings and has announced its intention of
selling MRI. Expenses have been sharply reduced and MRI is operating at a
positive cash flow. The Company is actively seeking buyers for MRI and has
a goal to complete a sale in the next few months. The Registrant provided
$50,000 Post Petition Financing pursuant to the Agreed Financing Order by
the Court on September 11, 1996.
POORE BROTHERS, INC. Subsequent to the quarter, the Company filed in
October for an initial public offering. The Registrant will sell stock
valued at $1 million as part of the offering which is presently anticipated
to occur in late November or early December. The underwriter has estimated
an offering price of $3.50. The Registrant's Debenture, which totals
$2,100,000 prior to any sale, is convertible at $1.09 per share.
<PAGE> 11
TOPRO, INC. Subsequent to the quarter, on October 29, 1996, the
Registrant and Topro have agreed to reduce the conversion price on its June
17, 1996, investment ($1,000,000 in principal amount of Debenture) to $1.50
from the original $2.25. As a result, the conversion price on the entire
$3,500,000 Convertible Debentures held by the Registrant is now $1.50.
The Registrant's Board of Directors has approved three additional
investments in an aggregate minimum amount of $8,800,000. It is currently
anticipated that, barring unforseen events, these investments will be
completed during the fourth quarter.
The Registrant pursuant to its dividend reinvestment plan that allows
existing shareholders to make additional share purchases, received
$191,139.97 in additional funds for investment. These shares may be
purchased either from the Registrant at the calculated Net Asset Value or
purchased in the open market. The Plan Agent purchased 21,731.036 shares
for $191,139.97 on the open market, These shares were purchased before
September 24, 1996.
(2) Material Changes in Operations
Discuss material changes with respect to the most recent year-to-date
period and corresponding period for prior year, if most recent quarter
included also covers changes for quarterly period.
Pending investment in Portfolio investments, funds are invested in
temporary cash accounts and in government securities and income and
expenses are essentially stable.
The Registrant anticipates an increase in income as investments are
made and an aggressive search for potential investments is ongoing.
BENTLEY PHARMACEUTICAL. On September 20, 1996, the Registrant sold
400,000 Warrants at a price of $1.07 per Warrant with aggregate proceeds of
$426,000, and Short-Term Capital Gains of $398,400. Subsequent to the
quarter, On October 2, 1996, and October 17, 1996, the Registrant sold an
aggregate of 8,000 Warrants with aggregate proceeds of $8,806.25, and
Short-Term Capital Gains of $8,323.25.
The Registrant made dividend distributions of income to the
shareholders in the amount of $394,682 and accrued dividend payable to
shareholders in the amount of $390,542.
<PAGE> 12
PART II - OTHER INFORMATION
1. Legal Proceedings. None.
-----------------
2. Changes in Securities. None.
---------------------
3. Defaults upon Senior Securities. None.
-------------------------------
4. Submission of Matter to a Vote of Security Holders. None.
--------------------------------------------------
5. Other Information. None.
-----------------
6. Exhibits and Reports on Form 8-K
------------------------------
(a) Exhibits None.
(b) Reports on Form 8-K None.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Partnership has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
November 19, 1995 /s/ Russell Cleveland
---------------------------------------------
Russell Cleveland
President
November 19, 1995 /s/ Barbe Butschek
---------------------------------------------
Barbe Butschek
Corporate Secretary / Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR 9-MOS 9-MOS 3-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1996
DEC-31-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996 SEP-30-1995 SEP-30-1996
SEP-30-1996
<INVESTMENTS-AT-COST> 34,297,435 33,019,698 0 0
0
<INVESTMENTS-AT-VALUE> 34,995,705 34,001,181 0 0
0
<RECEIVABLES> 3,163,359 369,074 0 0
0
<ASSETS-OTHER> 3,836,851 8,110,184 0 0
0
<OTHER-ITEMS-ASSETS> 0 0 0 0
0
<TOTAL-ASSETS> 41,995,915 42,262,455 0 0
0
<PAYABLE-FOR-SECURITIES> 0 0 0 0
0
<SENIOR-LONG-TERM-DEBT> 0 0 0 0
0
<OTHER-ITEMS-LIABILITIES> 1,495,743 609,935 0 0
0
<TOTAL-LIABILITIES> 1,495,743 609,935 0 0
0
<SENIOR-EQUITY> 0 0 0 0
0
<PAID-IN-CAPITAL-COMMON> 39,776,354 37,357,086 0 0
0
<SHARES-COMMON-STOCK> 4,244,630 4,339,353 0 0
0
<SHARES-COMMON-PRIOR> 0 0 0 0
0
<ACCUMULATED-NII-CURRENT> 723,818 4,295,434 0 0
0
<OVERDISTRIBUTION-NII> 0 0 0 0
0
<ACCUMULATED-NET-GAINS> 0 0 0 0
0
<OVERDISTRIBUTION-GAINS> 0 0 0 0
0
<ACCUM-APPREC-OR-DEPREC> 0 0 0 0
0
<NET-ASSETS> 40,500,172 41,652,520 0 0
0
<DIVIDEND-INCOME> 0 256,190 195,714 100,000
67,500
<INTEREST-INCOME> 0 1,667,980 1,931,341 553,839
605,947
<OTHER-INCOME> 0 208,823 81,179 90,323
13,500
<EXPENSES-NET> 0 994,685 928,469 295,745
294,469
<NET-INVESTMENT-INCOME> 0 1,536,708 1,279,765 846,817
392,478
<REALIZED-GAINS-CURRENT> 0 398,400 0 398,400
0
<APPREC-INCREASE-CURRENT> 0 48,722 (156,878) (1,352,719)
(39,914)
<NET-CHANGE-FROM-OPS> 0 1,585,430 1,122,887 (505,902)
352,564
<EQUALIZATION> 0 0 0 0
0
<DISTRIBUTIONS-OF-INCOME> 0 (1,217,687) (767,689) (386,402)
(295,962)
<DISTRIBUTIONS-OF-GAINS> 0 0 0 0
0
<DISTRIBUTIONS-OTHER> 0 158,405 0 644,639
784,605
<NUMBER-OF-SHARES-SOLD> 0 0 0 0
0
<NUMBER-OF-SHARES-REDEEMED> 0 0 0 0
0
<SHARES-REINVESTED> 0 0 0 0
0
<NET-CHANGE-IN-ASSETS> 0 215,007 (892,304) 969,837
1,152,348
<ACCUMULATED-NII-PRIOR> 0 0 0 0
0
<ACCUMULATED-GAINS-PRIOR> 0 0 0 0
0
<OVERDISTRIB-NII-PRIOR> 0 0 0 0
0
<OVERDIST-NET-GAINS-PRIOR> 0 0 0 0
0
<GROSS-ADVISORY-FEES> 0 177,135 183,031 523,394
558,605
<INTEREST-EXPENSE> 0 0 0 0
0
<GROSS-EXPENSE> 0 294,469 295,745 928,469
994,685
<AVERAGE-NET-ASSETS> 0 0 0 0
0
<PER-SHARE-NAV-BEGIN> 0 9.54 9.41 9.71
9.48
<PER-SHARE-NII> 0 .35 .09 .20
.30
<PER-SHARE-GAIN-APPREC> 0 .01 (.01) (.31)
(.04)
<PER-SHARE-DIVIDEND> 0 (.28) (.07) (.09)
(.19)
<PER-SHARE-DISTRIBUTIONS> 0 0 0 0
0
<RETURNS-OF-CAPITAL> 0 (.02) .08 .09
(.05)
<PER-SHARE-NAV-END> 0 9.60 9.50 9.60
9.50
<EXPENSE-RATIO> 0 0 0 0
0
<AVG-DEBT-OUTSTANDING> 0 0 0 0
0
<AVG-DEBT-PER-SHARE> 0 0 0 0
0
</TABLE>
