<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 March 31, 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 March 31, 1997.
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)
<TABLE>
<CAPTION>
Assets
------
December 31, 1996 March 31, 1997
----------------- ------------------
<S> <C> <C>
Cash and cash equivalents $15,841,272 $ 10,200,625
Accounts receivable 327,515 163,411
Temporary investments at cost - 5,000,000
Investments at market value,
cost of $25,708,570 and $12,948,547 34,186,155 27,308,452
Organizational costs,
net of accumulated amortization 333,238 302,487
---------- ----------
$50,688,180 $42,974,975
Liabilities and Net Assets
--------------------------
Liabilities:
Accounts payable - related parties 523,923 331,128
Accounts payable - trade 36,077 38,364
Subscriptions payable - 18,756
Dividends payable 997,860 347,234
---------- ----------
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 1,637,656
---------- ----------
Net Assets $49,130,320 $42,239,493
========== ==========
Net asset value per share $ 11.32 $ 9.73
========== ==========
</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
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
<C> <C>
Income:
Investment Income:
Interest $ 457,898 $ 512,913
Dividends 80,943 75,000
Other investment income 70,000 25,000
--------- ---------
Total investment income 608,841 612,913
--------- ---------
Expenses:
Amortization 30,750 30,750
Bank charges 5,851 5,318
Directors' fees 14,000 18,000
Legal and professional 51,807 63,243
Management fees 177,345 187,137
Taxes - 811
Other 20,681 54,114
--------- ---------
Total Expenses 300,434 359,373
--------- ---------
Net investment income 308,407 253,540
Realized gain on investment 419,905
Unrealized gain (loss) on investments 749,290 (7,256,685)
--------- ---------
Net increase (decrease) in net assets
resulting from operations $1,057,697 ($6,583,240)
========= =========
</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
Ended Ended
March 31, 1996 March 31, 1997
-------------- --------------
<S> <C> <C>
Decrease in net assets
resulting from operations
Investment income - net $ 308,407 $ 253,540
Realized gain on investments - 419,905
Unrealized gain (loss) on investments 749,290 ( 7,256,685)
--------- ---------
Net increase (decrease) in net assets
resulting from operations 1,057,697 ( 6,583,240)
Distributions to shareholders
from net investment income (436,963) ( 347,435)
Capital share transactions 620,673 39,848
---------- ----------
Total increase (decrease) 1,241,407 ( 6,890,827)
Net assets
Beginning of period 40,500,172 49,130,320
---------- ----------
End of period $41,741,579 $42,239,493
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
March 31, 1997
1. ORGANIZATION AND BUSINESS PURPOSE
Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas
Corporation, was incorporated on January 20, 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 March 31, 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> 6
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 1997
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 March
31, 1997 was $30,750.
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 $187,137 for such operational management fees
performed during the quarter ended March 31, 1997.
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 March 31, 1997, there were 20,000,000 shares of $1 par value
capital stock authorized 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
Three months ended March 31, 1997:
Shares issued in lieu of cash
distributions 3,520 39,848
--------- ---------
Balance March 31, 1997 4,342,942 $40,601,837
========= ==========
The Fund received an additional $181,000 from its shareholders during
the current quarter. These funds will be used to purchase Fund shares to be
issued by the Fund or purchased in the open market. The balance of these
funds was $18,756 as of March 31, 1997. All funds were used subsequent to
the balance sheet date.
<PAGE> 7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 1997
6. RELATED PARTY TRANSACTIONS
The Investment Adviser is reimbursed by the Fund for certain
administrative expenses under the Investment Advisory Agreement. Such
reimbursements were $45,700 for the quarter ended March 31, 1997.
7. SHORT-TERM INVESTMENTS
Short-term investments are comprised of U. S. Government and Agency
obligations maturing June 2, 1997. 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 March 31, 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.
<PAGE> 8
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 1997
8. INVESTMENTS (continued)
INVESTMENT VALUATION SUMMARY
<TABLE>
<CAPTION>
CONVERSION FAIR
COST OR FACE VALUE VALUE
<S> <C> <C> <C>
Bentley Pharmaceutical, Inc.
12% Convertible Debenture $ 774,800 $1,184,000 $1,184,000
Contour Medical, Inc.
9% Convertible Debenture 2,500,000 3,750,000 3,475,000
The Dwyer Group, Inc.
Common Stock 2,054,182 1,575,000 1,475,050
Integrated Security Systems, Inc.
9% Convertible Debenture 2,300,000 4,517,857 4,196,786
Interscience Computer Corporation
Series A Cumulative Convertible
Redeemable Preferred Stock 4,000,000 4,000,000 1,400,000
Intile Designs, Inc.
10 Units of $150,000 shs Common Stock 500,000 1,125,000 1,007,500
JAKKS Pacific, Inc.
9% Convertible Debenture 3,000,000 3,000,000 3,000,000
Packaging Research Corp.
9% Convertible Debenture 3,200,000 3,200,000 800,000
Poore Bros., Inc.
9% Convertible Debenture 1,788,571 5,127,784 4,770,117
Topro, Inc.
9% Convertible Debentures 3,500,000 3,500,000 3,500,000
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
--------- --------- ---------
$26,087,553 $33,479,641 $27,308,453
========== ========== ==========
</TABLE>
<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 notes for the quarter.
Portfolio companies are referred to as the "Company":
BENTLEY PHARMACEUTICALS, INC. On January 27, 1997, the Fund sold its
remaining warrants to purchase 393,000 shares of the Company's stock for
$447,402, which represents a capital gain of $419,905.
CONTOUR MEDICAL, INC. On February 18, 1997, Sun Healthcare Group, Inc.,
an Albuquerque, New Mexico based operator of Nursing homes, announced it
would acquire all of the outstanding publicly held shares of the Company as
part of its acquisition of the Company's majority owner, Retirement Care
Associates. The announced purchase price of the Company's shares was $8.50
per share, payable in cash or Sun Health Group, Inc. common stock, at the
option of the acquiring company. The Funds Debenture is convertible into
500,000 shares of the Company's common stock at a price of $5.00 per share.
INTERSCIENCE COMPUTER CORPORATION. On March 6, 1997, the Company filed
a voluntary petition for reorganization under Chapter 11 of the Bankruptcy
Code.
INTILE DESIGNS, INC. Intile Designs, Inc. is a direct distributor and
importer of ceramic tile, marble, and related home design products.
On February 27, 1997, the Fund purchased 10 Units at $50,000 per unit, a
total of $500,000, in a private placement of securities of the Company.
Each unit consists of 150,000 shares of the Company's common stock. The
agreement provides that the Company will seek approval of a one-for-three
reverse split of its common stock. The Company has entered into a letter of
intent to sell securities in a public offering. In connection with this
Public Offering the Company is obligated to register the shares offered in
the units. If a registration statement is not declared effective by June 30,
1997, the holders of a majority of the units have the right, on one occasion
only, through two years after the private placement closing date to demand
the Company register the shares. In addition, the holders have piggy-back
registration rights with respect to the shares.
In addition to the Fund's investment, Renaissance US Growth & Income
Trust PLC ("RUSGIT") made an identical investment of $500,000 in the Company.
The investment by RUSGIT was made on a pari-passu basis with the Fund.
JAKKS PACIFIC, INC. Subsequent to March 31, 1997, the Company sold
$600,000 shares of common stock in an underwriting at $5.75 per share. In
accordance with the anti-dilutive provisions of our debentures, the
conversion price will be adjusted from $8.50 to $5.75 per share.
<PAGE> 10
PACKAGING RESEARCH CORPORATION. On March 4, 1997, the Company filled a
voluntary petition under Chapter 11 in the Bankruptcy Court. Mamma Rizzo's
Inc., the Company's wholly owned subsidiary, had previously filed for
Bankruptcy. As of March 31, 1997, $155,080 had been recovered from Mama
Rizzo's from the sale of certain assets, and on May 2, 1997, $500,000 was
recovered from the sale of assets of the Company.
POORE BROTHERS, INC. On January 27, 1997, the Company announced the
appointment of Eric J. Kufel as President and Chief Executive Officer.
The Registrant, pursuant to its dividend reinvestment plan that allows
existing shareholders to make additional share purchases, received $181,000
in additional funds for investment. These shares may be purchased either
from the fund at the calculated Net Asset Value of $11.32 or purchased in the
open market. At the date of this filing, the Plan Agent has employed these
funds.
(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.
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 $998,066 and accrued dividend payables to shareholders in
the amount of $347,435.
<PAGE> 11
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> 12
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.
May 22, 1997 /s/ Russell Cleveland
---------------------------------------------
Russell Cleveland
President
May 22, 1997 /s/ Barbe Butschek
---------------------------------------------
Barbe Butschek
Corporate Secretary / Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 26,087,553
<INVESTMENTS-AT-VALUE> 27,308,452
<RECEIVABLES> 163,411
<ASSETS-OTHER> 302,487
<OTHER-ITEMS-ASSETS> 15,200,625
<TOTAL-ASSETS> 42,974,975
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 735,482
<TOTAL-LIABILITIES> 735,482
<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> 3,148
<ACCUMULATED-NET-GAINS> 419,905
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,220,899
<NET-ASSETS> 42,239,493
<DIVIDEND-INCOME> 75,000
<INTEREST-INCOME> 512,913
<OTHER-INCOME> 25,000
<EXPENSES-NET> 359,373
<NET-INVESTMENT-INCOME> 253,540
<REALIZED-GAINS-CURRENT> 419,905
<APPREC-INCREASE-CURRENT> (7,256,685)
<NET-CHANGE-FROM-OPS> (6,583,240)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 347,435
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,520
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 64,700
<NET-CHANGE-IN-ASSETS> (6,890,827)
<ACCUMULATED-NII-PRIOR> 90,746
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 187,137
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 359,373
<AVERAGE-NET-ASSETS> 45,684,907
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> 0.058
<PER-SHARE-GAIN-APPREC> (1.576)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 0.008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
