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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, 1998
[ ] 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 March 31, 1998.
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
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ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
Assets
December 31, 1997 March 31, 1998
<S> <C> <C>
Cash $15,972,424 $11,683,088
Accounts receivable 180,025 245,694
Receivable from sale of investment 4,200,000 -
Investments, at market value, cost
of $24,150,665 and $29,400,653 27,795,592 40,374,405
Organizational costs, net of
accumulated amortization 208,529 177,779
48,356,570 52,480,966
Liabilities and Net Assets
Liabilities:
Accounts payable - related parties 1,440,889 47,387
Accounts payable - trade 31,198 23,215
Dividends payable 2,387,123 347,436
3,859,210 418,038
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,342,942 and 4,342,942 shares
issued and outstanding 40,601,838 40,601,838
Accumulated undistributed income (loss) 3,895,522 11,461,090
Net assets $44,497,360 $52,062,928
$48,356,570 $52,480,966
Net asset value per share $ 10.25 $ 11.99
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
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<TABLE>
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months ended March 31,
1997 1998
<S> <C> <C>
Investment Income:
Interest $ 512,913 $ 612,181
Dividends 75,000 -
Other investment income 25,000 294,488
Total investment income 612,913 906,669
Expenses:
Amortization 30,750 30,750
Bank charges 5,318 4,272
Directors' fees 18,000 22,500
Legal and professional 63,243 27,917
Management fees 187,137 162,616
Taxes 811 560
Other 54,114 39,619
Total Expenses 359,373 288,234
Net investment income 253,540 618,435
Realized gain on investments 419,905 -
Unrealized gain (loss) on investments (7,256,685) 7,328,813
Net increase (decrease) in net assets
resulting from operations $ (6,583,240) $ 7,947,248
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
</TABLE>
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<TABLE>
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
Three Months ended March 31,
1997 1998
<S> <C> <C>
Increase (Decrease) in net assets
resulting from operations
Investment income - net $ 253,540 $ 618,435
Realized gain on investments 419,905 -
Unrealized gain (loss) on investments (7,256,685) 7,328,813
Net increase (decrease) in net assets
resulting from operations (6,583,240) 7,947,248
Distributions to shareholders
from net investment income (347,435) (381,680)
Capital share transactions 39,848 -
Total increase (decrease) (6,890,827) 7,565,568
Net assets
Beginning of period 49,130,320 44,497,360
End of period $ 42,239,493 $52,062,928
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
</TABLE>
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RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
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 $381,680 for the
quarter ended March 31, 1998.
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.
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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 March
31, 1998 was $30,750.
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 $162,616 for such operational management fees
performed during the quarter ended March 31, 1998. 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 realized capital losses and
unrealized depreciation of the Fund. This management incentive fee is
calculated on an annual basis.
5. Capital Share Transactions
As of March 31, 1998 there were 20,000,000 shares of $1 par value capital
stock authorized and capital paid-in aggregated $36,258,896.
Year-to-date transactions in capital stock are as follows:
<TABLE>
Shares Amount
<S> <C> <C>
Balance December 31, 1997 4,342,942 $40,601,838
Balance March 31, 1998 4,342,942 $40,601,838
<FN>
<F1>
The Fund received an additional $61,200 from its shareholders during the
current quarter. These funds were used to purchase Fund shares in the open
market.
</F1>
</TABLE>
6. Related Party Transactions
The Investment Advisor is reimbursed by the Fund for certain administrative
expenses under the Investment Advisory Agreement. The Fund accrued a
liability of $28,236 for such reimbursements during the quarter ended March
31, 1998.
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7. Short-term Investments
Short-term investments are comprised of U. S. Government and Agency
obligations maturing from May 7, 1998 to May 20,1998. 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 March 31, 1998, 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.
<TABLE>
INVESTMENT VALUATION SUMMARY
CONVERSION
COST OR FACE VALUE FAIR VALUE
<S> <C> <C> <C>
Bentley Pharmaceuticals, Inc.
12% Convertible Debenture 744,800 1,180,000 1,069,200
Document Authentication Systems
Preferred Stock 500,000 500,000 500,000
The Dwyer Group, Inc.
Common Stock 1,966,632 1,476,563 1,476,563
Fortune Natural Resources Corp.
12% Convertible Debenture 350,000 350,000 350,000
Integrated Security Systems, Inc.
9% Convertible Debenture 2,300,000 2,487,687 2,359,816
Warrants 3,750 3,750 3,750
Interscience Computer Corporation
Series A Cumulative Convertible 4,000,000 4,000,000 1,400,000
Redeemable Preferred Stock
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</TABLE>
<TABLE>
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
8. Investments (continued)
INVESTMENT VALUATIONSUMMARY
CONVERSION
COST OR FACE VALUE FAIR VALUE
<S> <C> <C> <C>
Intile Designs, Inc.
Common Stock 500,000 125,000 67,500
Jakks Pacific, Inc.
9% Convertible Debenture 3,000,000 4,076,087 4,035,326
La-Man Corporation
8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000
Common Stock 500,000 368,924 296,789
LifeQuest Medical, Inc.
9% Convertible Debenture 1,500,000 1,546,875 1,531,406
Common Stock 500,000 546,875 541,719
NewCare Health Corp.
8.5% Convertible Debenture 2,500,000 2,500,000 2,500,000
Play by Play Toys & Novelties, Inc.
8% Convertible Debenture 2,500,000 2,949,219 2,919,727
Poore Brothers., Inc.
9% Convertible Debenture 1,788,571 1,788,571 1,788,571
TAVA Technologies, Inc.
9% Convertible Debentures 1,500,500 13,129,375 12,998,080
Warrants -0- 290,625 287,719
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 3,546,053 3,283,290
Common Stock 1,046,400 1,292,500 1,214,950
$29,400,653 $43,908,104 $40,374,406
<FN>
<F1>
The fair value of debt securities convertible into common stock is the sum of
</FN>
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[FN]
<F2>
(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.
</FN>
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
The following portfolio transactions are noted for the quarter ended March
31, 1998 (portfolio companies are herein referred to as the "Company"):
INTEGRATED SECURITY SYSTEMS, INC. Effective March 18, 1998, the
conversion price on the Fund's Convertible Debenture was reduced from $1.05
per share to $0.549 per share. The terms of the Debenture allowed
the Fund the one-time adjustment when the Company failed to achieve minimum
net sales and net after tax income benchmarks based on 1997 year end numbers.
As a result of the adjustment, the Fund's Debenture is now convertible into
4,189,435 shares of the Company's common stock, of which 1,998,959 are
considered unregistered, while the remaining 2,190,476 shares are registered
and are freely marketable in the event the Fund converts from debt into
equity.
DOCUMENT AUTHENTICATION SYSTEMS. Effective February 5, 1998, the Fund
invested $500,000 in the 5% Series A Cumulative Convertible Preferred Stock
of Document Authentication Systems, Inc. ("DAS"). The Preferred is
convertible into shares of common stock of DAS at $250.00 per share. DAS is
currently private, and owns a patented process covering paperless
transactions.
In addition to the Fund's Investment, Renaissance US Growth and Income
Trust, PLC ("RUSGIT") invested $500,000 in the 5% Series A Cumulative
Convertible Preferred Stock of DAS. The investment by RUSGIT was made under
the same terms and conditions as the Fund's investment.
LA-MAN CORPORATION. On March 2, 1998, the Fund invested $2,250,000 in
La-Man Corporation ("La-Man"). Of the total investment, the Fund invested
$1,750,000 for the purchase of an 8.75% Convertible Debenture, maturing in
seven years and convertible into La-Man's common stock at $4.75 per share.
In addition, the Fund invested $500,000 in La-Man's common stock at a price
of $4.32 per share. La-Man is a leading competitor in the market for design,
manufacture, and placement of large electronic advertising signs for
businesses, entertainment, and sports venues, as well as signage for schools
and churches.
In addition to the Fund's investment, RUSGIT invested $2,250,000 in
La-Man by purchasing an 8.75% Convertible Debenture for $1,750,000, and by
purchasing $500,000 of La-Man common stock at $4.32 per share. The investment
by RUSGIT was made under the same terms and conditions as the Fund's
investment.
NEWCARE HEALTH CORPORATION. On January 27, 1998, the Fund invested
$2,500,000 for the purchase of an 8.50% Convertible Debenture of NewCare
Health Corporation ("NewCare"). The Debenture matures in seven
years and is convertible into shares of NewCare's common stock at $3.81 per
share. In addition, the Fund has options to purchase 100,000 shares of
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NewCare's common stock at a price of $4.19 per share. NewCare is a fast
growing provider of senior residential care services, including long-term
care, assisted living and independent living services. NewCare also owns and
manages hospitals.
In addition to the Fund's investment, RUSGIT invested $2,500,000 in an
8.50% Convertible Debenture of NewCare, and also received options on 100,000
shares of NewCare's common stock. The investment by RUSGIT was made under
the same terms and conditions as the Fund's investment.
JAKKS PACIFIC INC. Subsequent to March 31, 1998, the Fund invested
$3,000,000 in the Series A Cumulative Convertible Preferred Stock of JAKKS
Pacific, Inc. ("JAKKS"). The Preferred stock calls for a 7% dividend, and is
convertible into common stock of JAKKS at a price of $8.95 per share. This
represents the Fund's second investment in JAKKS. On December 31, 1996, the
Fund invested $3,000,000 in a 9% Convertible Debenture of the Company.
(2) MATERIAL CHANGES IN OPERATIONS
Net investment income for the quarter ended March 31, 1998, as compared
to March 31, 1997, reflects an increase of $346,895. This reported increase
is attributable to an adjustment of prior year expenses resulting in an
increase of income.
During the first quarter, the Fund experienced $7,328,813 of unrealized
gains resulting from an increase in the 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.
During the quarter ended March 31, 1998, the Registrant paid dividend
distributions of income to shareholders in the amount of $2,421,369 and
accrued dividends payable to shareholders in the amount of $381,680.
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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.
May 15, 1998 _______________\S\_______________________
Russell Cleveland, President and Chairman
May 15, 1998 _________________\S\_________________________
Barbe Butschek, Corp. Secretary and Treasrer
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<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 29,400,653
<INVESTMENTS-AT-VALUE> 40,374,405
<RECEIVABLES> 245,694
<ASSETS-OTHER> 177,779
<OTHER-ITEMS-ASSETS> 11,683,088
<TOTAL-ASSETS> 52,480,966
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 418,038
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 418,038
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,601,837
<SHARES-COMMON-STOCK> 4,342,942
<SHARES-COMMON-PRIOR> 4,342,942
<ACCUMULATED-NII-CURRENT> 236,755
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 250,584
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,973,752
<NET-ASSETS> 52,062,928
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 612,181
<OTHER-INCOME> 294,488
<EXPENSES-NET> 288,234
<NET-INVESTMENT-INCOME> 618,435
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 7,328,813
<NET-CHANGE-FROM-OPS> 7,947,248
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 381,680
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,565,568
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 250,595
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 162,616
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288,234
<AVERAGE-NET-ASSETS> 48,280,144
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 1.69
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
