10-Q
1
FORM 10-Q FOR QUARTER ENDED MARCH 31, 1996
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, 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 March 31, 1996.
The Registrant's Registration Statement on Form N-2 was declared effective by
the Securities and Exchange Commission on May 6, 1994.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Assets and Liabilities
(Unaudited)
Assets
[CAPTION]
December 31, 1995 March 31, 1996
----------------- --------------
Cash $ 3,378,905 $ 6,666,941
Accounts receivable 3,163,359 192,800
Temporary investments at market value
cost of $21,348,889 and $17,624,892 21,550,005 17,608,600
Investments, at market value, cost of $12,948,546 and $16,444,257 13,445,700 17,908,109
Organizational costs, net of accumulated amortization 457,946 427,196
----------- -----------
41,995,915 42,803,646
Liabilities
Liabilities:
Accounts payable - related parties 307,607 202,867
Accounts payable - trade - 70,116
Subscriptions payable - 357,250
Dividends payable 1,188,136 431,834
----------- -----------
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,244,630 and 4,321,947 shares
issued and outstanding 39,776,354 40,397,027
Accumulated undistributed income (loss) 723,818 1,344,552
----------- -----------
Net assets $40,500,172 $41,741,579
=========== ===========
Net asset value per share $ 9.54 $ 9.66
=========== ===========
See accompanying notes to financial statements.
3
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
[CAPTION]
Three Months ended March 31,
1995 1996
--------- --------
Investment Income:
Interest $ 741,919 $ 457,898
Dividends 67,500 80,943
Other investment income 13,500 70,000
----------- ----------
Total investment income 822,919 608,841
----------- ----------
Expenses:
Amortization 30,750 30,750
Bank charges 10,797 5,851
Directors' fees 10,500 14,000
Legal and professional 45,633 51,807
Management fees 170,765 177,345
Taxes 38,693 -
Other 7,284 20,681
----------- ----------
Total Expenses 314,422 300,434
----------- ----------
Net investment income 508,497 308,407
Unrealized gain (loss) on investments (998,545) 749,290
----------- ----------
Net increase (decrease) in net assets
resulting from operations $ (490,048) $1,057,697
=========== ==========
See accompanying notes to financial statements.
4
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Changes in Net Assets
(Unaudited)
[CAPTION]
Three Months ended March 31,
1995 1996
-------- --------
Decrease in net assets
resulting from operations
Investment income - net $ 508,497 $ 308,407
Unrealized gain (loss) on investments (998,545) 749,290
------------ -----------
Net increase (decrease) in net assets
resulting from operations (490,048) 1,057,697
Distributions to shareholders
from net investment income (206,970) (436,963)
Capital share transactions 375,720 620,673
------------- -----------
Total increase (decrease) (321,298) 1,241,407
Net assets
Beginning of period 39,182,525 40,500,172
------------- -----------
End of period $38,861,227 $41,741,579
============= ===========
See accompanying notes to financial statements.
5
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
March 31, 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
$436,963 for the quarter ended March 31, 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
March 31, 1996, was $30,750.
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 $177,345 for such operational
management fees performed during the quarter ended March 31, 1996.
7
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 1996
4. Investment Advisory Agreement (continued)
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, 1996, there were 20,000,000 shares of $1 par value capital
stock authorized and capital paid-in aggregated $36,075,080.
Year-to-date transactions in capital stock are as follows:
Shares Amount
------ ----------
Balance December 31, 1995 4,244,630 $39,776,354
Shares issued
Quarter ended March 31, 1996
Shares issued to original stockholders 10,000 --
Shares issued in lieu of
cash distributions 67,317 620,673
-------- ----------
Balance March 31, 1996 4,321,947 $40,397,027
========= ===========
The Fund received an additional $357,250 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 by 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 $92,339 for the quarter ended March 31, 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 March 31, 1996,
at fair value, as determined in good faith
8
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 1996
8. Investments (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
[CAPTION]
CONVERSION FAIR
COST OR FACE VALUE VALUE
Interscience Computer Corporation
Series A Cumulative Convertible $3,600,000 $3,600,000 $3,600,000
Redeemable Preferred Stock
Bentley Pharmaceutical
12% Convertible Debenture 800,000 840,000 840,000
and Warrants
Dwyer Group, Inc.
Common Stock 1,744,257 1,513,050 1,404,775
Packaging Research Corp.
Convertible Debenture 3,200,000 3,666,667 3,496,667
Poore Bros., Inc.
9% Convertible Debenture 2,100,000 2,100,000 2,100,000
Topro, Inc.9% Convertible Debentures 2,500,000 4,166,667 3,966,667
Voice It Worldwide, Inc.
8% Convertible Debenture 2,450,000 2,450,000 2,450,000
Warrants 50,000 50,000 50,000
$16,444,257 $18,386,384 $17,908,109
=========== =========== ===========
Subsequent to March 31, 1996, 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.
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 anunderstanding
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 March 31, 1996, the
Registrant has purchased an additional 71,500 shares of common stock of the
Company at an average price of $2.74 for a total aggregate consideration of
$195,711.40. Subsequent to the end of the quarter, the Registrant has
purchased an additional 123,600 shares of common stock of the Company at an
average price of $2.49 for an aggregate consideration of $306,924.77. The
Registrant now holds 700,000 shares of the Company for an aggregate cost of
$2,054,181.72.
BENTLEY PHARMACEUTICAL - On February 20, 1996, the Registrant invested
$800,000 in 800 units of a 12% Convertible Senior Subordinated Debenture and
1,000 Class A Redeemable Warrants. Bentley manufactures and distributes
pharmaceutical products, primarily in Spain and France.
TOPRO, INC. - On February 21, 1996, the Registrant invested $1,500,000in a
9% Convertible Debenture with Warrants. Also on March 5, 1996 the
Registrant invested $1,000,000 in a 9% Convertible Debenture. 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.
The Registrant, pursuant to its dividend reinvestment plan that allows
existing shareholders to make additional share purchases, received
$973,154.82 in additional funds for investment. These shares may be
purchased either from the Fund at the calculated Net Asset Value of $9.44 or
purchased in the open market through June 14, 1996. At the date of this
filing, the Plan Agent has purchased 7,500 shares in the open market for an
average share price of $9.38.
(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
intemporary 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 $1,188,497 and accrued dividend payables to shareholders in
the amount of $436,963.
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.
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.
May 20, 1996 /S/ Russell Cleveland
----------------------------------------------
Russell Cleveland, President and Chairman
May 20, 1996 /S/ Barbe Butschek
----------------------------------------------
Barbe Butschek, Corp. Secretary and Treasurer
EX-27
2
FINANCIAL DATA SCHEDULE
6
12-MOS 3-MOS 3-MOS
DEC-31-1995 DEC-31-1996 DEC-31-1995
DEC-31-1995 MAR-31-1996 MAR-31-1995
34,297,435 34,069,149 0
24,713,364 35,516,709 0
3,163,359 192,800 0
3,836,851 7,094,137 0
0 0 0
41,995,915 42,803,646 0
0 0 0
0 0 0
1,495,743 1,062,067 0
1,495,743 1,062,067 0
0 0 0
39,776,354 40,397,027 0
4,244,630 4,321,947 0
0 0 0
723,818 1,344,552 0
0 0 0
0 0 0
0 0 0
0 0 0
40,500,172 41,741,579 0
0 80,493 67,500
0 457,898 741,919
0 70,000 13,500
0 300,434 314,422
0 308,407 508,497
0 0 0
0 749,290 (988,545)
0 1,057,697 (490,048)
0 (620,673) 375,720
0 (436,963) (206,970)
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 1,241,407 (321,298)
0 0 0
0 0 0
0 0 0
0 0 0
0 177,345 170,765
0 0 0
0 300,434 314,422
0 0 0
0 9.54 9.41
0 .07 .12
0 .17 (.23)
0 (.10) (.05)
0 0 0
0 (.02) (.01)
0 9.66 9.24
0 0 0
0 0 0
0 0 0