<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, 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 75-2533518
__________________________________________________________________________
(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
4,342,942 shares of common stock outstanding at June 30, 1997.
The Registrant's Registration Statement on Form N-2 was declared effective
by the Securities and Exchange Commission on May 6, 1994.
<PAGE>
<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, 1996 June 30, 1997
----------------- ---------------
<S> <C> <C>
Cash $15,841,272 $10,536,593
Accounts receivable 327,515 187,893
Temporary investments at cost - 4,922,286
Investments at market value, cost of $25,708,570
and $25,789,218 34,186,155 25,329,161
Organizational costs, net of accumulated amortization 333,238 271,396
---------- ----------
50,688,180 41,247,329
Liabilities
-----------
Liabilities:
Accounts payable - related parties 523,923 217,867
Accounts payable - trade 36,077 10,398
Dividends payable 997,860 342,479
---------- ----------
Net Assets:
Common stock, $1 par value;
10,000,000 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 74,748
---------- ----------
Net assets $49,130,320 $40,676,585
========== ==========
Net asset value per share $ 11.32 $ 9.37
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 3
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1997 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income:
Investment Income:
Interest $ 457,898 $ 681,298 $1,114,141 $1,194,212
Dividends 80,943 75,000 156,190 150,000
Other investment income 70,000 26,000 118,500 51,000
--------- --------- --------- ---------
Total investment income 608,841 782,298 1,388,831 1,395,212
--------- --------- --------- ---------
Expenses:
Amortization 30,750 31,092 61,842 61,842
Bank charges 5,851 5,314 5,851 10,632
Directors' fees 14,000 13,500 32,000 31,500
Legal and professional 51,807 18,694 99,150 81,937
Management fees 177,345 180,269 375,575 367,405
Taxes - 6,866 31,965 7,677
Other 20,681 61,079 92,557 115,194
--------- --------- --------- ---------
Total Expenses 300,434 316,814 698,940 676,187
--------- --------- --------- ---------
Net investment income 308,407 465,484 689,891 719,025
Realized gain on investments - - - 419,905
Unrealized gain (loss) on investments 749,290 (1,680,956) 1,401,441 (8,937,641)
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $1,057,697 ($1,215,472) $2,091,332 ($7,798,711)
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
<TABLE>
CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1997 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
resulting from operations
Investment income - net $ 308,407 $ 465,484 $ 689,891 $ 719,025
Realized gain on investments - - - 419,905
Unrealized gain (loss) on investments 749,290 (1,680,956) 1,401,441 (8,937,641)
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations 1,057,697 (1,215,472) 2,091,332 (7,798,711)
Distributions to shareholders
from net investment income (394,682) (347,436) (831,644) (694,872)
Capital share transactions 140,230 - 784,964 39,848
---------- ---------- ---------- ----------
Total increase (decrease) 803,245 (1,562,908) 2,044,652 (8,453,735)
Net assets
Beginning of period 41,741,579 42,239,493 40,500,172 49,130,320
---------- ---------- ---------- ----------
End of period $42,544,824 $40,676,585 $42,544,824 $40,676,585
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE> 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
June 30, 1997
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 $347,436
for the quarter ended June 30, 1997.
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.
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, not 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, 1997 was $31,092.
<PAGE>
<PAGE> 6
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 1997
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 $180,269 for such
operational management fees performed during the quarter ended June 30,
1997.
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 June 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
Six months ended June 30, 1997:
Shares issued in lieu of
cash distributions 3,520 39,848
--------- ----------
Balance September 30, 1996 4,342,942 $40,601,837
========= ==========
6. RELATED PARTY TRANSACTIONS
The Investment Adviser is reimbursed by the Fund for certain
administrative expenses under the Investment Advisory Agreement. Such
reimbursements were $145,941 for the quarter ended June 30, 1997.
7. SHORT-TERM INVESTMENTS
Short-term investments are comprised of U. S. Government and Agency
obligations maturing October 9, 1997. Such investments qualify for
investment as permitted in Section 55(a) (1) through (5) of the 1940 Act.
<PAGE>
<PAGE> 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 1997
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 June 30, 1997, 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 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.
INVESTMENT VALUATION SUMMARY
<TABLE>
<CAPTION>
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
BENTLEY PHARMACEUTICALS, INC.
12% Convertible Debenture $ 744,800 $1,176,000 $1,176,000
CONTOUR MEDICAL, INC.
9% Convertible Debenture,
Conversion price $5.00, maturity 7/1/03 2,500,000 3,843,750 3,843,750
THE DWYER GROUP, INC.
Common Stock 2,054,182 1,312,500 1,312,500
INTEGRATED SECURITY SYSTEMS, INC.
9% Convertible Debenture,
Conversion price $1.05, maturity 12/1/03 2,300,000 3,148,810 2,909,880
<PAGE>
<PAGE> 8
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 1997
INVESTMENT VALUATION SUMMARY (continued)
</TABLE>
<TABLE>
<CAPTION>
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
INTERSCIENCE COMPUTER CORPORATION
Series A Cumulative Convertible
Redeemable Preferred Stock 4,000,000 4,000,000 1,400,000
INTILE DESIGNS, INC.
Common Stock 500,000 1,125,000 1,007,500
JAKKS PACIFIC, INC.
9% Convertible Debenture,
Conversion price $5.75, maturity 12/31/03 3,000,000 3,000,000 3,000,000
PACKAGING RESEARCH CORP.
9% Convertible Debenture
Conversion price $1.50, maturity 1/1/03 2,901,665 2,901,665 150,000
POORE BROTHERS, INC.
9% Convertible Debenture
Conversion price $1.09, maturity 7/1/02 1,788,571 3,897,116 3,613,289
TOPRO, INC.
9% Convertible Debenture
Conversion price $1.50, maturity 3/1/03 2,500,000 3,385,417 3,132,292
9% Convertible Debenture
Conversion price $1.50, maturity 6/1/03 1,000,000 1,354,167 1,272,917
Warrants @ $2.00 0 11,737 11,033
VOICE IT WORLDWIDE, INC.
8% Convertible Debenture
Conversion price $.95, maturity 11/1/02 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
--------- --------- ---------
$25,789,218 $31,656,162 $25,329,161
========== ========== ==========
</TABLE>
<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.
For the quarter ending June 30, 1997, the Fund's net asset value was
$40,676,585, or $9.37 per share. In comparison to the first quarter of
this year, net assets declined a total of $1,727,646, or $1.95 per share.
This decline reflects a lower overall valuation for those investments held
in the Fund's portfolio. The fair valuation of the entire portfolio at
June 30, 1997 does not reflect the exercise of warrants, conversion of
Convertible Debenture No. 1 or 2, and subsequent sales of common stock of
Topro, Inc. as those transactions occurred in the third quarter (see
related discussion below).
The following portfolio transactions are noted for the quarter
(portfolio companies are herein referred to as the "Company"):
TOPRO, INC. Subsequent to June 30, 1997, the Fund fully converted its
Convertible Debenture No. 1 into common stock of the Company pursuant to
the terms of Debenture No. 1, and partially converted its Convertible
Debenture No. 2 into common stock of the Company pursuant to the terms of
Debenture No. 2. Debenture No. 1 had a face value of $1,500,000 and was
convertible into 1,000,000 shares of the Company's common stock at a price
of $1.50 per share. After conversion, the Fund sold a total of 819,148
shares resulting in proceeds to the Fund of $3,810,920, representing a
capital gain of $2,582,198. Debenture No. 2 has a face value of $1,000,000
and is convertible into 666,667 shares of the Company's common stock at a
price of $1.50 per share. The Fund converted $499,500 of the debenture
into 333,000 shares, and following the conversion, sold a total of 186,169
shares, resulting in proceeds to the Fund of $1,337,369 and constituting a
capital gain of $1,058,116.
Also subsequent to June 30, 1997, the Fund exercised two warrants to
buy 375,000 shares of common stock of the Company at a cost of $750,000.
Upon exercising the warrants, the Fund sold all 375,000 shares of common
stock which resulted in proceeds to the Fund of $1,827,052, representing a
capital gain of $1,077,052.
In addition to the Fund's conversion of Convertible Debenture No. 1,
Renaissance U.S. Growth & Income Trust PLC ("RUSGIT") converted a portion
of its Convertible Debenture No. 1 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.
<PAGE>
<PAGE> 10
JAKKS PACIFIC, INC. On May 1, 1997, the Company completed the sale of
600,000 shares of common stock through an underwriting at a price of $5.75
per share. In accordance with the anti-dilutive provisions of the Fund's
Convertible Debentures, the price at which the Fund may convert its
debenture into common stock of the Company has been adjusted from $8.50 to
$5.75 per share.
PLAY BY PLAY TOYS & 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, 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.
(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.
During the second quarter, net investment income was $465,484, of
which $254,295 represents costs recovered from Packaging Research Corp. and
is reflected in interest income. Total expenses were down $42,559 to
$316,814 in comparison to the period ended March 31, 1997, primarily as a
result of lower director's fees, legal expenses, and management fees, which
expense declines were partially offset by increased tax and other expense.
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 period ended June 30, 1997, the Registrant made dividend
distributions of income to the shareholders in the amount of $347,435 and
accrued dividend payables to shareholders in the amount of $347,436.
<PAGE>
<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 14, 1997 /s/ Russell Cleveland
---------------------------------------------
Russell Cleveland
President
August 14, 1997 /s/ Barbe Butschek
---------------------------------------------
Barbe Butschek
Corporate Secretary / Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 30,711,504
<INVESTMENTS-AT-VALUE> 30,251,447
<RECEIVABLES> 187,893
<ASSETS-OTHER> 271,396
<OTHER-ITEMS-ASSETS> 10,536,593
<TOTAL-ASSETS> 41,247,329
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 570,744
<TOTAL-LIABILITIES> 570,744
<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> 534,805
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (460,057)
<NET-ASSETS> 40,676,585
<DIVIDEND-INCOME> 150,000
<INTEREST-INCOME> 1,194,212
<OTHER-INCOME> 51,000
<EXPENSES-NET> 676,187
<NET-INVESTMENT-INCOME> 719,025
<REALIZED-GAINS-CURRENT> 419,905
<APPREC-INCREASE-CURRENT> (8,937,641)
<NET-CHANGE-FROM-OPS> (7,798,711)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 274,967
<DISTRIBUTIONS-OF-GAINS> 419,905
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,520
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 86,696
<NET-CHANGE-IN-ASSETS> (8,453,735)
<ACCUMULATED-NII-PRIOR> 338,839
<ACCUMULATED-GAINS-PRIOR> 752,363
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 367,405
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,187
<AVERAGE-NET-ASSETS> 44,903,453
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> (1.96)
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.37
<EXPENSE-RATIO> .015
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
