<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 June 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_______
4,321,947 shares of common stock outstanding at June 30, 1996.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Assets and Liabilities
(Unaudited)
Assets
- ------
December 31, 1995 June 30, 1996
----------------- -------------
Cash $3,378,905 $ 4,460,347
Accounts receivable 3,163,359 262,883
Temporary investments at market value
cost of $21,348,889 and $17,353,780 21,550,005 17,923,571
Investments, at market value, cost of
$12,948,546 and $18,154,182 13,445,700 20,157,292
Organizational costs, net of
accumulated amortization 457,946 396,105
----------- ----------
41,995,915 43,200,198
Liabilities
-----------
Liabilities:
Accounts payable - related parties 307,607 254,579
Accounts payable - trade - 6,474
Subscriptions payable - 394,321
Dividends payable 1,188,136 655,374
--------- ---------
1,495,743 1,310,748
--------- ---------
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,244,630 and 4,385,352 shares
issued and outstanding 39,776,354 40,560,958
Accumulated undistributed income (loss) 723,818 1,983,866
----------- ----------
Net assets $40,500,172 $42,544,824
=========== ===========
Net asset value per share $ 9.54 $ 9.71
=========== ===========
See accompanying notes to financial statements.
<PAGE> 3
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, LTD.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 583,475 $ 656,243 $ 1,325,394 $ 1,114,141
Dividends 60,714 75,247 128,214 156,190
Other income 54,179 48,500 67,679 118,500
----------- --------- --------- ---------
Total investment income 698,368 779,990 1,521,287 1,388,831
----------- -------- --------- ---------
Expenses:
Amortization 31,092 31,092 61,842 61,842
Bank charges 5,751 - 16,548 5,851
Directors' fees 15,000 18,000 25,500 32,000
Legal and professional 48,879 47,343 94,511 99,150
Management fees 175,494 198,230 346,259 375,575
Taxes 5,574 31,965 44,267 31,965
Other 37,788 71,877 45,073 92,559
--------- --------- --------- ---------
Total expenses 319,578 398,507 634,000 698,942
--------- --------- --------- --------
Net investment income 378,790 381,483 887,287 689,889
Net unrealized gain (loss)
on investments 881,581 652,151 (116,964) 1,401,441
---------- ---------- -------- ---------
Net increase in net assets
resulting from operations $1,260,371 $1,033,634 $770,323 $2,091,330
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Decrease in net assets
resulting from operations
Investment income - net $ 378,790 $ 381,483 887,287 689,889
Unrealized gain (loss) on investments 881,581 652,151 (116,964) 1,401,441
---------- ----------- --------- ---------
Net increase in net assets
resulting from operations 1,260,371 1,033,634 770,323 2,091,330
Distributions to shareholders
from net investment income (294,757) (394,321) (501,727) (831,284)
Capital share transactions 110,514 163,931 86,234 784,606
---------- --------- -------- ---------
Total increase 1,076,128 803,244 754,830 2,044,652
Net assets
Beginning of period 38,861,227 41,741,579 39,182,525 40,500,172
---------- ---------- ---------- ----------
End of period $39,937,355 $42,544,823 $39,937,355 $42,544,824
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 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 June 30, 1996.
C. Management Estimates - The financial statements have been prepared in
conformity with generally accepted accounting principles. The preparation of
the accompanying financial statements requires estimates and assumptions made
by management of the Fund that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition and
income and expenses for the period. Actual results could differ
significantly from those estimates.
D. Financial Instruments - In accordance with the reporting requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," the Company calculates the fair value of its
financial instruments and includes this additional information in the notes
to the financial statements when the fair value is different than the
carrying value of those financial instruments. When the fair value
reasonably approximates the carrying value, no additional disclosure is made.
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 June 30,
1996, was $31,092.
<PAGE> 6
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. The
Fund accrued a liability of $189,205 for such operational management fees
performed during the quarter ended June 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.
5. CAPITAL SHARE TRANSACTIONS
As of June 30, 1996 there were 20,000,000 shares of $1 par value capital
stock authorized and capital paid-in aggregated $40,560,958.
Year-to-date transactions in capital stock are as follows:
Shares Amount
------ ------
Balance December 31, 1995 4,244,630 $39,776,354
Shares issued
Six months ended June 30, 1996:
Shares issued to original stockholders 10,000 --
Shares issued in lieu of
cash distributions 130,722 784,604
--------- -----------
Balance June 30, 1996 4,385,352 $40,560,958
========= ===========
The Fund received $357,250 from its shareholders during the prior quarter.
This, combined with $231,076 from the dividend reinvestment program, provided
$588,326 with which to purchase shares. The Fund purchased 46,000 shares for
$424,035 on the open market, and 17,403 shares for $164,291 from treasury
stock. These shares were purchased before June 14, 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
$186,371 for the quarter ended June 30, 1996.
7. SHORT-TERM INVESTMENTS
Short-term investments are comprised of U. S. Government and Agency
obligations maturing between April 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 securities and equity investments
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 June 30, 1996 at fair value,
as determined in good faith
<PAGE> 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 1996
8. INVESTMEMTS (continued)
by the Investment Adviser. The securities held by the Fund are unregistered
and their value does not necessarily represent the amounts that may be
realized from their immediate sale or disposition. The investments held by
the Fund are convertible, generally after five years, into the common stock
of the issuer 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 often
have call options, usually commencing three years subsequent to issuance, at
prices specified in the stock agreements.
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Interscience Computer Corporation
Series A Cumulative Convertible $4,000,000 $4,000,000 $4,000,000
Redeemable Preferred Stock
Bentley Pharmaceutical
Convertible Debenture 800,000 2,010,000 2,010,000
and Warrants
Dwyer Group, Inc.
Common Stock 2,054,182 2,187,500 2,068,125
Packaging Research Corp.
Convertible Debenture 3,200,000 3,200,000 3,200,000
Poore Bros., Inc.
Convertible Debenture 2,100,000 2,100,000 2,100,000
Topro, Inc.
Convertible Debentures 2,500,000 3,541,667 3,279,167
Convertible Debenture 1,000,000 1,000,000 1,000,000
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
----------- ----------- -----------
$18,154,182 $20,539,167 $20,157,292
=========== =========== ===========
The Fund has purchased an additional 123,500 shares of Dwyer Group, Inc., for
an additional $309,675. The Fund also purchased 4,000 shares of Interscience
Computer Corporation Series B convertible preferred stock for $400,000.
<PAGE> 8
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 noted for the quarter.
Portfolio companies are referred to as the "Company":
THE DWYER GROUP - During the quarter ended June 30, 1996, the
Registrant has purchased an additional 123,600 shares of common stock of the
Company at an average price of $2.51 for a total aggregate consideration of
$309,924.77. The Registrant now holds 700,000 shares of the Company for an
aggregate cost of $2,054,181.72.
TOPRO, INC. - On June 17, 1996, the Registrant additionally invested
$1,000,000 in a 9% Convertible Debenture with a conversion price of $2.25.
Mandatory principle begins June 1, 1999, and monthly interest installments
begin July 1, 1996. This brings the Registrant's total investment in Topro
to $3,500,000. Topro, Inc. is a provider of control systems integration
services based in Denver, Colorado.
INTERSCIENCE COMPUTER CORPORATION - Subsequent to the end of the
quarter, on April 4, 1996, the Registrant invested $400,000 in 4,000 shares
of Series B Convertible Preferred Stock. This brings the Registrant's total
investment in Interscience's preferred stock to $4,000,000.
CONTOUR MEDICAL, INC. - Subsequent to the quarter 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.
The Registrant, pursuant to its dividend reinvestment plan that allows
existing shareholders to make additional share purchases, received
$231,075.77 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 Registrant received $357,250.00 from its
shareholders during the prior quarter. This, combined with $231,075.77 from
the dividend reinvestment program, provided $588,325.77 with which to
purchase shares. The Plan Agent purchased 46,000 shares for $424,035.00 on
the open market, and 17,403.6832 shares for $164,290.77 from treasury stock.
These shares were purchased before June 14, 1996.
(2) MATERIAL CHANGES IN OPERAITONS
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.
<PAGE> 9
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.
On April 30, 1996, the Registrant's shares began trading on the NASDAQ
under the symbol "RENN".
The Registrant made dividend distributions of income to the shareholders
in the amount of $436,963 and accrued dividend payables to shareholders in
the amount of $394,321.
<PAGE> 10
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> 11
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.
August 13, 1996 /s/ Russell Cleveland
-----------------------------------------------
Russell Cleveland, President and Chairman
August 13, 1996 /s/ Barbe Butschek
-----------------------------------------------
Barbe Butschek, Corp. Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR 6-MOS 6-MOS 3-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1995 DEC-31-1996
DEC-31-1995
<PERIOD-END> DEC-31-1995 JUN-30-1996 JUN-30-1995 JUN-30-1996
JUN-30-1995
<INVESTMENTS-AT-COST> 34,297,435 35,507,962 0 0
0
<INVESTMENTS-AT-VALUE> 34,995,705 38,080,863 0 0
0
<RECEIVABLES> 3,163,359 262,883 0 0
0
<ASSETS-OTHER> 3,836,851 4,856,452 0 0
0
<OTHER-ITEMS-ASSETS> 0 0 0 0
0
<TOTAL-ASSETS> 41,995,915 43,200,198 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 1,310,748 0 0
0
<TOTAL-LIABILITIES> 1,495,743 1,310,748 0 0
0
<SENIOR-EQUITY> 0 0 0 0
0
<PAID-IN-CAPITAL-COMMON> 39,776,354 40,560,958 0 0
0
<SHARES-COMMON-STOCK> 4,244,630 4,385,352 0 0
0
<SHARES-COMMON-PRIOR> 0 0 0 0
0
<ACCUMULATED-NII-CURRENT> 723,818 1,983,866 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 42,544,824 0 0
0
<DIVIDEND-INCOME> 0 156,190 128,214 75,247
60,714
<INTEREST-INCOME> 0 1,114,141 1,325,394 656,243
583,475
<OTHER-INCOME> 0 118,500 67,679 48,500
54,179
<EXPENSES-NET> 0 698,942 634,000 398,507
319,578
<NET-INVESTMENT-INCOME> 0 689,889 887,287 381,483
378,790
<REALIZED-GAINS-CURRENT> 0 0 0 0
0
<APPREC-INCREASE-CURRENT> 0 1,401,441 (116,964) 652,151
881,581
<NET-CHANGE-FROM-OPS> 0 2,091,330 770,323 1,033,634
1,260,371
<EQUALIZATION> 0 0 0 0
0
<DISTRIBUTIONS-OF-INCOME> 0 (831,284) (501,727) (394,321)
(294,757)
<DISTRIBUTIONS-OF-GAINS> 0 0 0 0
0
<DISTRIBUTIONS-OTHER> 0 784,606 486,234 163,931
110,514
<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 2,044,652 754,830 803,244
1,076,128
<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> 0 375,575 346,259 198,230
175,494
<INTEREST-EXPENSE> 0 0 0 0
0
<GROSS-EXPENSE> 0 698,942 634,000 398,507
319,578
<AVERAGE-NET-ASSETS> 0 0 0 0
0
<PER-SHARE-NAV-BEGIN> 0 9.54 9.42 9.66
9.24
<PER-SHARE-NII> 0 .16 .21 .09
.09
<PER-SHARE-GAIN-APPREC> 0 .32 (.03) .15
.21
<PER-SHARE-DIVIDEND> 0 0 0 0
0
<PER-SHARE-DISTRIBUTIONS> 0 (.19) (.12) (.09)
(.07)
<RETURNS-OF-CAPITAL> 0 (.12) 0 (.10)
.01
<PER-SHARE-NAV-END> 0 9.71 9.48 9.71
9.48
<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>
