<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, 1997
[ ] 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 75-2407159
____________________________________________________________________________
(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
4,342,942 shares of common stock outstanding at September 30, 1997.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
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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, 1996 September 30, 1997
<S> <C> <C>
Cash $15,841,272 $ 2,723,343
Accounts receivable 327,515 407,083
Temporary investments at cost -0- 18,728,767
Investments, at market value, cost of
$25,708,570 and $23,300,503 34,186,155 30,015,636
Organizational costs, net
of accumulated amortization 333,238 239,962
$50,688,180 $52,114,791
LIABILITIES
Liabilities:
Accounts payable - related parties 523,923 253,699
Accounts payable - trade 36,077 14,712
Dividends payable 997,860 344,035
Refundable deposits -0- 64,000
1,557,860 676,446
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,339,422 and 4,342,942 shares
issued and outstanding 40,561,989 40,601,837
Accumulated undistributed income
(loss) 8,568,331 10,836,508
Net assets 49,130,320 51,438,345
$50,688,180 $52,114,791
Net asset value per share $ 11.32 $ 11.84
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Investment Income:
Interest $ 583,839 $ 353,981 $ 1,697,980 $ 1,548,193
Dividends 75,000 80 231,190 150,080
Other investment income 85,323 54,585 203,823 105,585
Total investment income 744,162 408,646 2,132,993 1,803,858
Expenses:
Amortization 31,433 31,433 93,275 93,275
Bank charges 11,790 -0- 17,641 10,632
Directors' fees 14,000 18,000 46,000 49,500
Legal and professional 23,016 24,665 122,165 106,602
Management fees 183,031 227,558 558,605 594,963
Other 32,475 34,908 156,999 157,779
Total expenses 295,745 336,564 994,685 1,012,751
Net investment income 448,417 72,082 1,138,308 791,107
Realized gain on investments 398,400 3,861,923 398,400 4,281,828
Unrealized gain (loss)
on investments (1,352,719) 7,175,190 48,722 (1,762,451)
Net increase (decrease) in net
assets resulting from
operations $ (505,902) $11,109,195 $1,585,430 $3,310,484
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
resulting from operations
Investment income - net $ 448,417 $ 72,082 $ 1,138,308 $ 791,107
Realized gain on investments 398,400 3,861,923 398,400 4,281,828
Unrealized gain (loss) on investments (1,352,719) 7,175,190 48,722 (1,762,451)
Net increase (decrease) in net assets
resulting from operations (505,902) 11,109,195 1,585,430 3,310,484
Distributions to shareholders (386,402) (347,435) (1,218,046) (1,042,307)
Capital share transactions -0- -0- 784,964 39,848
Total increase (decrease) (892,304) 10,761,760 1,152,348 2,308,025
Net assets
Beginning of period 42,544,824 40,676,585 40,500,172 49,130,320
End of period $41,652,520 $51,438,345 $41,652,520 $51,438,345
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
September 30, 1997
(Unaudited)
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 $347,435 for
the quarter ended September 30, 1997.
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.
<PAGE>
<PAGE> 6 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1997
3. Organization Expenses
In connection with the offering of its shares, the Fund paid Renaissance
Capital Group, Inc. (the "Investment Advisor") 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, 1997, was $31,433.
4. Investment Advisory Agreement
The Investment Advisor for the Fund is registered as an investment advisor
under the Investment Advisors Act of 1940. Pursuant to an Investment
Advisory Agreement, the Investment Advisor performs certain services,
including certain management, investment advisory and administrative
services necessary for the operation of the Fund. The Investment Advisor
receives a fee equal to .4375% (1.75% annually) of the Net Assets each
quarter. The Fund accrued a liability of $227,558 for such operational
management fees performed during the quarter ended September 30, 1997.
4. Investment Advisory Agreement (continued)
In addition, the Fund has agreed to pay the Investment Advisor 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 September 30, 1997, there were 20,000,000 shares of $1 par value
capital stock authorized, issued and outstanding $4,342,942, and capital
paid-in aggregated $36,258,895.
Year-to-date transactions in capital stock are as follows:
Shares Amount
Balance December 31, 1996 4,339,422 $40,561,989
Shares issued
Nine months ended
September 30, 1996
Shares issued in lieu
of cash distributions 3,520 39,848
Balance September 30, 1997 4,342,942 $40,601,837
6. Related Party Transactions
The Investment Advisor is reimbursed by the Fund for certain
administrative expenses under the Investment Advisory Agreement. Such
reimbursements were $29,640 for the quarter ended September 30, 1997.
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<PAGE> 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
September 30, 1997
7. Short-term Investments
Short-term investments are comprised of U. S. Government and Agency
obligations maturing between October 9, 1997 and May 7, 1998. 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 September 30,
1997, at fair value, as determined in good faith by the Investment
Advisor. 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
<TABLE>
<CAPTION> CONVERSION
COST OR FACE VALUE FAIR VALUE
<S> <C> <C> <C>
Bentley Pharmaceuticals, Inc.
12% Convertible Debenture $ 744,800 $ 1,088,000 $ 1,088,000
Contour Medical, Inc.
9% Convertible Debenture,
Conv. price $5.00, maturity 7/1/03 2,500,000 3,500,000 3,500,000
The Dwyer Group, Inc.
Common Stock 1,966,632 1,181,237 1,181,237
Integrated Security Systems, Inc.
9% Convertible Debenture,
Conv. price $1.05, maturity 12/1/03 2,300,000 4,723,214 4,723,214
<PAGE>
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INVESTMENT VALUATION SUMMARY (CONTINUED)
CONVERSION
COST OR FACE VALUE FAIR VALUE
Interscience Computer Corp.
Series A Cumulative Convertible
Redeemable Preferred Stock 4,000,000 4,000,000 1,400,000
Intile Designs, Inc.
Common Stock 500,000 500,000 250,000
JAKKS Pacific, Inc.
9% Convertible Debenture,
Conv. price $5.75, maturity 12/31/03 3,000,000 4,500,000 4,180,000
Play By Play Toys & Novelties, Inc.
8% Convertible Debenture,
Conv. price $17.00, maturity 6/30/04 2,500,000 3,382,353 3,129,412
Poore Bros., Inc.
9% Convertible Debenture,
Conv. price $1.09, maturity 7/1/02 1,788,571 2,512,614 2,311,857
Topro, Inc.
9% Convertible Debenture,
Conv. price $1.50, maturity 3/1/03 500,500 1,918,583 1,918,583
9% Convertible Debenture,
Conv. price $1.50, maturity 6/1/03 1,000,000 3,833,333 3,833,333
Voice It Worldwide, Inc.
8% Convertible Debenture,
Conv. price $.95, maturity 11/1/02 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
$23,300,503 $33,639,334 $30,015,636
</TABLE>
The fair value of debt securities convertible into common stock is the sum
of (a) the value of such securities without regard to the conversion
feature, and (b) the value, if any, of the conversion feature. The fair
value of debt securities without regard to conversion features is
determined on the basis of the terms of the debt security, the interest
yield and the financial condition of the issuer. The fair value of the
conversion features of a security, if any, are based on fair values as of
this date less an allowance, as appropriate, for costs of registration,
if any, and selling expenses. Publicly traded securities, or
securities that are convertible into publicly traded securities, are
valued at the last sale price, or at the average closing bid and asked
price, as of the valuation date. While these valuations are believed to
represent fair value, these values do not necessarily reflect amounts
which may be ultimately realized upon disposition of such securities.
<PAGE>
<PAGE> 9
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 ended
September 30, 1997 (portfolio companies are herein referred to as the
"Company"):
Dwyer Group, Inc. During the Quarter ended September 30, 1997, the
Fund sold 25,000 shares of common stock for $44,922.47 and recorded a
realized loss of $42,627.53. The shares were sold to reduce the Fund s
holdings below 10% of the total common shares outstanding.
Integrated Security Systems, Inc. Effective October 31, 1997, the Fund
entered into an Intercreditor Agreement with the Company, its subsidiaries,
and an outside lender, pursuant to which the Fund has agreed to subordinate
its first priority security interest in the assets of Tri-Coastal Systems,
Inc., one of the Company s wholly owned subsidiaries. In exchange for the
Fund s agreement to execute the Intercreditor Agreement, the Company agreed
to increase the interest payable on the Fund s Convertible Debentures by 300
basis points for so long as the Intercreditor Agreement is in effect.
Packaging Research Corp. The Fund recorded a realized loss on this
investment of $2,438,421during the quarter.
Play by Play Toys and Novelties, Inc. Effective July 3, 1997, the Fund
invested $2,500,000 for the purchase of an 8% Convertible Debenture maturing
in seven years and convertible into shares of common stock of the Company at
$17.00 per share. The Company designs, develops, markets and distributes
stuffed toys and sculpted toy pillows for the toy industry.
In addition to the Fund s investment, Renaissance US Growth & Income
Trust PLC ( RUSGIT ) invested $2,500,000 in a Convertible Debenture of the
Company. The investment by RUSGIT was made under the same terms and
conditions as the Fund s investment.
Topro, Inc. During the Quarter ended September 30, 1997, the Fund
converted all of its Convertible Debenture No. 1 and $499,500 of its
Convertible Debenture No.2 into 1,000,000 and 333,000 shares of common stock,
respectively. The Fund sold these shares during the quarter for
$7,265,420.79, recording a realized gain of $5,265,920.79.
Also, on July 29, 1997 the Fund exercised two warrants to buy 375,000
shares of common stock of the Company for $2.00 per share. Upon exercising
the warrants, the Fund sold all 375,000 shares of common stock which resulted
in proceeds to the Fund of $1,827,051.59, representing a capital gain of
$1,077,051.59.
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<PAGE> 10
In addition to the Fund s conversion of a portion of its Convertible
Debentures, RUSGIT converted a portion of its Convertible Debentures into
common stock of the Company pursuant to the terms of the RUSGIT debenture,
and the stock was thereafter sold. The RUSGIT conversion and sale of stock
was made on a pari-passu basis with the Fund s conversion and sale of stock.
Effective October 23, 1997, the Company issued to the Fund 25,000
warrants to purchase common stock at a strike price of $2.00 per share. The
warrants were issued in consideration for the Fund s agreement to waive
certain financial ratio requirements.
(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.
Net investment income for the quarter ended September 30, 1997, as
compared to September 30, 1996, reflects a reduction of $376,355. This
reported decline is attributable to a reclassification in the third quarter
of 1997 of $254,295 from interest income to realized gains and the failure to
receive dividends from Interscience Computer Corp. The reclassification
represents the recovery of cost from Packaging Research Corp. as interest in
the second quarter and reclassified in the third quarter of 1997.
During the third quarter, the fund realized $3,861,923 net gains from
the sale of investments and $7,175,190 of unrealized gains resulting from an
increase in fair value of its investments.
Pending investment in portfolio investments, funds are invested in
temporary cash accounts and in government securities. Although income and
expenses are essentially stable, the Registrant anticipates that income will
continue to increase as investments are made. An aggressive search for
potential investments is ongoing.
For the quarter ended September 30, 1997, the Registrant made dividend
distributions of income to shareholders in the amount of $347,345 and accrued
dividends payable to shareholders in the amount of $347,435. In addition,
subsequent to September 30, 1997, the Registrant declared a special dividend
from realized capital gains of $3,126,918.
<PAGE>
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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 7, 1997
___________________________________________________________
Russell Cleveland, President and Chairman
November 7, 1997
___________________________________________________________
Barbe Butschek, Corp. Secretary and Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 42,029,270
<INVESTMENTS-AT-VALUE> 48,744,403
<RECEIVABLES> 407,083
<ASSETS-OTHER> 239,962
<OTHER-ITEMS-ASSETS> 2,723,343
<TOTAL-ASSETS> 52,114,791
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 676,446
<TOTAL-LIABILITIES> 676,446
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,601,837
<SHARES-COMMON-STOCK> 4,342,942
<SHARES-COMMON-PRIOR> 4,339,422
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 160,453
<ACCUMULATED-NET-GAINS> 4,281,828
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,715,133
<NET-ASSETS> 51,438,345
<DIVIDEND-INCOME> 150,080
<INTEREST-INCOME> 1,548,193
<OTHER-INCOME> 105,585
<EXPENSES-NET> 1,012,751
<NET-INVESTMENT-INCOME> 791,107
<REALIZED-GAINS-CURRENT> 4,281,828
<APPREC-INCREASE-CURRENT> (1,762,451)
<NET-CHANGE-FROM-OPS> 3,310,484
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,042,307
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,520
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 108,742
<NET-CHANGE-IN-ASSETS> 1,426,611
<ACCUMULATED-NII-PRIOR> 90,746
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 594,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,012,751
<AVERAGE-NET-ASSETS> 50,284,333
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> .58
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.84
<EXPENSE-RATIO> .02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
