-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GRVxLix0fNYLrjt9Elj2rLpm+U00n2Hb47T3J1+CX6oQpjDyg/SpfmJjUyVVDzXm Jlk2y1aZc/7clPuJU4+tUA== 0000919567-98-000061.txt : 19981119 0000919567-98-000061.hdr.sgml : 19981119 ACCESSION NUMBER: 0000919567-98-000061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENAISSANCE CAPITAL GROWTH & INCOME FUND III INC CENTRAL INDEX KEY: 0000919567 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752533518 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11701 FILM NUMBER: 98754941 BUSINESS ADDRESS: STREET 1: 8080 N CENTRAL EXPRWY STREET 2: STE 210 LB59 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2148918294 MAIL ADDRESS: STREET 1: 8080 N CENTRAL EXPWY., SUITE 210 LB 59 CITY: DALLAS STATE: TX ZIP: 75206 10-Q 1 FORM 10-Q FOR QUARTER ENDED 09/30/1998 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, 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 75-2533518 --------------------------------------------------------- (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 4,247,630 shares of common stock outstanding at September 30, 1998. The Registrant's Registration Statement on Form N-2 was declared effective by the Securities and Exchange Commission on May 6, 1994. PAGE PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Assets and Liabilities Assets ------ December 31, 1997 September 30, 1998 ----------------- ------------------ (Unaudited) Cash $15,972,424 $ 1,478,617 Accounts receivable 180,025 340,920 Receivable from sale of investment 4,200,000 - Prepaid expenses - 20,806 Temporary investments at cost - 3,754,173 Investments, at market value, cost of $24,150,665 at December 31, 1997, and $34,847,030 at September 30, 1998 27,795,592 33,227,878 Organizational costs, net of accumulated amortization 208,529 115,253 ----------- ----------- $48,356,570 $38,937,647 =========== =========== Liabilities and Net Assets -------------------------- Liabilities: Accounts payable - related parties $ 1,440,889 $ 181,993 Accounts payable - trade 31,198 9,088 Dividends payable 2,387,123 424,763 ----------- ----------- 3,859,210 615,844 ----------- ----------- Net Assets: Common stock, $1 par value; 20,000,000 shares authorized; 4,342,942 shares issued and outstanding at December 31, 1997, and 4,247,630 shares issued and outstanding at September 30, 1998 4,342,942 4,247,630 Additional paid-in capital 36,258,896 35,487,345 Accumulated undistributed income (loss) 3,895,522 (1,413,172) ----------- ----------- Net assets 44,497,360 38,321,803 ----------- ----------- $48,356,570 $38,937,647 =========== =========== Net asset value per share $ 10.25 $ 9.02 =========== =========== See accompanying notes to financial statements.
PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1998 1997 1998 ------ ------ ------ ------ Investment Income: Interest $ 353,981 $ 571,179 $1,548,193 $1,755,956 Dividends 80 7,994 150,080 7,994 Other investment income 54,585 22,500 105,585 413,488 ----------- ----------- ---------- ---------- Total investment income 408,646 601,673 1,803,858 2,177,438 ----------- ----------- ---------- ---------- Expenses: Amortization 31,433 31,433 93,275 93,275 Bank charges 0 6,088 10,632 15,862 Directors' fees 18,000 11,500 49,500 50,000 Legal and professional 24,665 13,876 106,602 71,538 Management fees 227,558 170,261 594,963 627,979 Other 34,908 27,852 157,779 128,607 ----------- ----------- ---------- ---------- Total expenses 336,564 261,010 1,012,751 987,261 ----------- ----------- ---------- ---------- Net investment income 72,082 340,663 791,107 1,190,177 Realized gain on investments 3,861,923 0 4,281,828 2,504,583 Unrealized gain (loss) on investments 7,175,190 (9,763,815) (1,762,451) (5,264,079) ----------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations $11,109,195 $(9,423,152) $3,310,484 $(1,569,319) =========== =========== ========== =========== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Changes in Net Assets (Unaudited) Nine Months Ended September 30, 1997 1998 ------ ------ Increase (decrease) in net assets resulting from operations Net investment income $ 791,107 $ 1,190,177 Realized gain on investments 4,281,828 2,504,583 Unrealized gain (loss) on investments (1,762,451) (5,264,079) ----------- ----------- Net increase (decrease) in net assets resulting from operations 3,310,484 (1,569,319) Distributions to shareholders (1,042,307) (3,739,378) Proceeds from shares issued 39,848 0 Cost of shares repurchased 0 (866,860) ----------- ----------- Total increase (decrease) 2,308,025 (6,175,557) Net assets Beginning of period 49,130,320 44,497,360 ----------- ----------- End of period $51,438,345 $38,321,803 =========== =========== See accompanying notes to financial statements.
PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements September 30, 1998 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 $424,763 for the quarter ended September 30, 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. PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1998 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 September 30, 1998 was $31,433. 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 $170,261 for such operational management fees performed during the quarter ended September 30, 1998. 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 a quarterly basis. The Fund had no realized gains for the quarter ended September 30, 1998 5. Capital Share Transactions As of September 30, 1998 there were 20,000,000 shares of $1 par value capital stock authorized, 4,247,630 shares issued and outstanding, and additional paid-in capital aggregating $35,487,345. Year-to-date transactions in capital stock are as follows: Shares Amount -------- -------- Balance December 31, 1997 4,342,942 $40,601,838 Shares repurchased (95,312) (866,863) --------- ----------- Balance September 30, 1998 4,247,630 $39,734,975 --------- ----------- PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1998 6. Related Party Transactions The Investment Adviser is reimbursed by the Fund for certain administrative expenses under the Investment Advisory Agreement. Such reimbursements were $49,307 for the quarter ended September 30, 1998. 7. Short-term Investments Short-term investments are comprised of U. S. Government and Agency obligations maturing no later than November 2, 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, 1998, at fair value, as determined in good faith 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. PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1998 8. Investments (continued) INVESTMENT VALUATION SUMMARY CONVERSION FAIR COST OR FACE VALUE VALUE Bentley Pharmaceuticals, Inc. 12% Convertible Debenture 744,800 808,000 799,920 Display Technologies, Inc. 8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000 Common Stock 500,000 419,560 344,386 Document Authentication Systems 5% Convertible Preferred Stock 1,500,000 1,500,000 1,500,000 The Dwyer Group, Inc. Common Stock 1,966,644 1,139,063 1,127,672 Fortune Natural Resources Corp. 12% Convertible Debenture 350,000 350,000 350,000 Integrated Security Systems, Inc. 9% Convertible Debenture 2,300,000 3,927,596 3,744,619 Warrants 3,750 3,750 3,750 Interscience Computer Corporation Common Stock 4,000,000 875,000 866,250 Warrants 0 0 0 Intile Designs, Inc. Common Stock 500,000 125,000 50,000 JAKKS Pacific, Inc. 9% Convertible Debenture 3,000,000 4,434,783 4,390,435 7% Convertible Preferred Stock 3,000,000 3,000,000 3,000,000 LifeQuest Medical, Inc. 9% Convertible Debenture 1,500,000 1,500,000 1,500,000 8% Convertible Preferred Stock 500,000 500,000 500,000 Common Stock 500,000 179,688 177,891 NewCare Health Corporation 8.5% Convertible Debenture 2,500,000 2,500,000 2,500,000 Options 0 0 0 Optical Security Group, Inc. 8% Convertible Debenture 500,000 500,000 500,000 Play by Play Toys & Novelties, Inc. 8% Convertible Debenture 2,500,000 2,500,000 2,500,000 Poore Brothers, Inc. 9% Convertible Debenture 1,735,448 1,735,448 1,735,448 Simtek Corporation 9% Convertible Debenture 750,000 750,000 750,000 Warrants 0 0 0 TAVA Technologies, Inc. 9% Convertible Debentures 1,000,000 3,041,667 3,011,250 Warrants 0 76,563 75,797 ThermoView Industries, Inc. 10% Convertible Preferred Stock 250,000 393,500 319,890 Voice It Worldwide, Inc. 8% Convertible Debenture 2,450,000 2,450,000 1,470,000 Common Stock 1,046,400 263,200 260,570 Warrants 0 0 0 ----------- ----------- ----------- $34,847,042 $34,722,818 $33,227,878 =========== =========== =========== 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.
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 September 30, 1998 (portfolio companies are herein referred to as the "Company"): Document Authentication Systems - ------------------------------- Subsequent to September 30,1998, the Fund invested $219,250 in a Promissory Note issued by the Company. The Note bears interest at 10% per annum, and is due and payable on the earlier to occur of August 20, 1999 or the closing of a proposed equity private placement by Document Authentication Systems in an amount greater than $5,000,000 of preferred equity securities, subject to the approval by the Company's Board of Directors and a majority of the holders of the Series A Preferred Stock. In addition to the Promissory Note, Document Authentication Systems issued to the Fund warrants to purchase 659 shares of the Company's common stock at $169.75 per share. In addition to the Fund's investment, Renaissance US Growth & Income Trust, PLC ("RUSGIT") invested $219,250 in a Promissory Note of Document Authentication Systems and also received warrants to purchase 659 shares of common stock of the Company. The investment by RUSGIT was made under the same terms and conditions as the Fund's investment. Integrated Security Systems, Inc. - --------------------------------- Subsequent to September 30, 1998, the Company sold its MPA Systems business to a third party. The MPA Systems business was a unit of the Company's Golston subsidiary, and was part of the collateral securing the Fund's Debentures. In return for allowing the Company to sell a portion of the Fund's collateral security, the Fund received a $75,000 collateral reduction fee, and warrants to purchase 125,000 shares of the Company's common stock at $0.80 per share on or before October 2, 2003. Also subsequent to September 30, 1998, the Fund converted $215,899 of its Convertible Debentures into 393,259 shares of the Company's common stock. RUSGIT also received a $75,000 collateral reduction fee. In addition, RUSGIT converted $215,899 of its Convertible Debentures into 393,258 shares of the Company's common stock subsequent to the end of the third quarter. Also subsequent to the end of the third quarter, the Fund invested $325,000 in three Convertible Promissory Notes, issued by the Company. The first Note is a $150,000 Note dated October 1, 1998, the second Note is a $75,000 Note dated October 26, 1998, and the third Note is a $100,000 Note dated November 6, 1998. All bear interest at 9% payable monthly, are secured by all the assets of the Company and all of its subsidiaries, are convertible into the Company's common stock at $0.549 per share, are guaranteed by all of the Company's subsidiaries, and are due on or before February 1, 1999. As additional consideration for advancing the company $150,000 pursuant to the October 1, 1998 Note, the Fund received warrants to purchase 187,500 shares of the Company's common stock at $0.80 per share on or before October 1, 2003. RUSGIT invested $75,000 in the Convertible Promissory Note of the Company dated October 26, 1998, and invested $100,000 in a Convertible Promissory Note of the Company dated November 6, 1998, which investments were made under the same terms and conditions as the Fund's investments in the October 26, 1998 and November 6, 1998 Promissory Notes. RUSGIT did not take part in the Fund's October 1, 1998 investment. Interscience Computer Corporation - --------------------------------- Effective July 1, 1998, Interscience completed its Chapter XI Plan of Reorganization and emerged from bankruptcy. As a result of the reorganization, the Fund converted all of its shares of Series A and B Preferred Stock into 1,750,000 shares of Interscience common stock, or 40% of the common shares outstanding, and warrants to purchase 500,000 shares of the Company's common stock at $1.00 per share. La-Man Corporation, d/b/a/ Display Technologies, Inc. - ----------------------------------------------------- On October 30, 1998, the Shareholders of La-Man Corporation will vote on a proposal to change the Company name from La-Man Corporation to Display Technologies, Inc., as well as to change the trading symbol for the Company from LAMN to DTEK. Currently, the Company is operating under the name La-Man Corporation, d/b/a Display Technologies, Inc. LifeQuest Medical, Inc. - ----------------------- On August 11, 1998, the Fund invested $500,000 to purchase 500 shares of the Company's Series A Cumulative Convertible Preferred Stock. The Preferred has an 8% cumulative dividend, payable quarterly, and is convertible into the Company's common stock at a price of $2.00 per share. This is the Fund's second investment in LifeQuest. On December 19, 1997, the Fund invested $1,500,000 in a 9% Convertible Debenture of the Company, together with a $500,000 investment in 125,000 shares of the Company's common stock. As additional consideration for the Fund's agreement to invest in the Company's Preferred Stock, the conversion price of the Debentures was adjusted downward to $2.00 per share. Poore Brothers, Inc. - -------------------- In the third quarter, the Company began repayment of its principal obligations under the Fund's 9% Convertible Debenture. In the third quarter, the Company repaid $53,123 in principal owed under the Debenture, reducing the Fund's cost basis from $1,788,571 to $1,735,448. ThermoView Industries, Inc. - --------------------------- On August 21, 1998, the Fund invested $250,000 in the 10% Cumulative Convertible Preferred Stock of ThermoView Industries, Inc. The Preferred is convertible into shares of the Company's common stock at $5.00 per share, and cumulative dividends are paid quarterly beginning September 30, 1998. ThermoView Industries, Inc. is a strategic early-stage consolidator of companies which manufacture, design, market, and install custom vinyl new & replacement windows and doors, primarily for the existing home market. In addition to the Fund's investments, RUSGIT invested $1,500,000 in the 10% Cumulative Convertible Preferred Stock of the Company under the same terms and conditions as the Fund's investment. Voice It Worldwide Inc. - ----------------------- On November 3, 1998, the Company announced that it had voluntarily filed for protection under the reorganization provisions of Chapter 11 of the Bankruptcy Reform Act. The Company will continue operations as a debtor in possession. (2) Material Changes in Operations Net investment income for the quarter ended September 30, 1998, as compared to September 30, 1997, reflects an increase of $268,581. This reported increase is primarily attributable to an increase in interest income from investment activity. During the third quarter, the Fund experienced $9,763,815 of unrealized losses resulting from a decrease 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. Although an aggressive search for potential investments is ongoing, the Fund is nearing full investment, and Registrant expects full investment to be achieved sometime in 1998. During the quarter ended September 30, 1998, the Registrant paid dividend distributions of income and capital gains to shareholders in the amount of $2,932,935, and accrued dividends payable to shareholders in the amount of $424,763. PAGE (3) Year 2000 Many computer software systems in use today connot process date-related information from and after January 1, 2000. The Investment Advisor has taken steps to review and modify its computer systems as necessary and is prepared for the Year 2000. In addition, the Fund has inquired of its major service providers as well as its portfolio companies to determine if they are in the process of reviewing their systems with the same goals. The majority of all providers and portfolio companies have represented that they are either taking the necessary steps to be prepared or are currently prepared for the Year 2000. Should any of the computer systems employed by the major service providers, or companies in which the Fund has an investment, fail to process this type of information properly, that could have a negative impact on the Fund's operations and the services provided to the Fund's stockholders. It is anticipated that the Fund will incur no material expenses related to the Year 2000 issues. 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 18, 1998 /s/ Russell Cleveland -------------------------------------------- Russell Cleveland, President and Chairman November 18, 1998 /s/ Barbe Butschek -------------------------------------------- Barbe Butschek, Corp. Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
6 9-MOS DEC-31-1998 SEP-30-1998 34,847,030 33,227,878 340,920 136,059 5,232,790 38,937,647 0 0 615,844 615,844 0 39,734,975 4,247,630 4,250,630 0 0 205,980 0 (1,619,152) 38,321,803 7,994 1,755,956 413,488 987,261 1,190,177 2,504,583 (5,264,079) (1,569,319) 0 1,190,177 2,549,201 0 0 95,312 0 (6,175,557) 0 250,595 0 0 627,979 0 987,261 41,409,582 10.25 0.28 (0.63) 0.88 0 0 9.02 .024 0 0
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