-----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, C8pfs8XwQsUK8IoZrTB3OB3Q7iLYhdJJO70G5HZ/DkqQg4SD8RrXC8jZxEv/q4P0 pW8TSvxgxGCdppaiA5WSew== 0000919567-99-000031.txt : 19990514 0000919567-99-000031.hdr.sgml : 19990514 ACCESSION NUMBER: 0000919567-99-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: 99620195 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 03/31/1999 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, 1999 [ ] 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 ------- ------- 4,142,942 shares of common stock outstanding at April 30, 1999. The Registrant's Registration Statement on Form N-2 was declared effective by the Securities and Exchange Commission on May 6, 1994. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Assets and Liabilities (Unaudited) Assets December 31, 1998 March 31, 1999 Cash $ 2,573,144 $ 2,148,647 Accounts receivable 361,374 496,572 Investments, at market value, cost of $36,828,731 and $37,028,719 39,251,507 45,536,225 Organizational costs, net of accumulated amortization 83,820 -0- Other assets 52,880 46,357 ----------- ----------- $42,322,725 48,227,801 =========== =========== Liabilities and Net Assets Liabilities: Accounts payable - related parties $ 218,079 $ 231,046 Accounts payable - trade 214,100 101,549 Dividends payable 414,845 331,435 ------------ ------------ 847,024 664,030 ------------ ------------ Net Assets: Common stock, $1 par value; 20,000,000 shares authorized; 4,342,942 issued, 4,143,448 and 4,142,942 outstanding 4,342,942 4,342,942 Additional paid-in capital 36,258,896 36,258,896 Treasury stock at cost, 199,494 shares at December 31, 1998 and 200,000 shares at March 31, 1999 (1,661,439) (1,665,219) Undistributed net investment income 2,535,302 8,627,152 ----------- ----------- Net assets 41,475,701 47,563,771 ----------- ----------- $42,322,725 $48,227,801 =========== =========== Net asset value per share $10.01 $11.48 ====== ====== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Operations (Unaudited) Three Months Ended March 31, 1998 1999 ----------- ----------- Investment Income: Interest $ 612,181 $ 494,545 Dividends -0- 236,164 Other investment income 294,488 (9,328) ----------- ----------- Total investment income 906,669 721,381 ----------- ----------- Expenses: Amortization 30,750 83,820 Bank charges 4,272 5,330 Directors' fees 22,500 14,000 Legal and professional 27,917 28,315 Management fees 162,616 210,462 Taxes 560 -0- Other 39,619 40,389 ----------- ----------- Total expenses 288,234 382,316 ----------- ----------- Net investment income 618,435 339,065 Unrealized gain (loss) on investments 7,328,813 6,084,720 ----------- ----------- Net increase (decrease) in net assets resulting from operations $7,947,248 $6,423,785 ========== ========== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Statement of Changes in Net Assets (Unaudited) Three Months Ended March 31, 1998 1999 ----------- ----------- Increase (decrease) in net assets resulting from operations Investment income - net $ 618,435 $ 339,065 Unrealized gain (loss) on investments 7,328,813 6,084,720 Net increase (decrease) in net assets ----------- ----------- resulting from operations 7,947,248 6,423,785 Distributions to shareholders (381,680) (331,935) Cost of shares repurchased -0- (3,780) ----------- ----------- Total increase (decrease) 7,565,568 6,088,070 Net assets Beginning of period 44,497,360 41,475,701 ----------- ----------- End of period $52,062,928 $47,563,771 =========== =========== See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements March 31, 1999 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 convertible debenture and convertible preferred stock investments of small and medium size companies which are in need of capital and which the Fund 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 an income dividend of $0.08 per share for the quarter ended March 31, 1999, and has also declared a $0.74 capital gain dividend to be paid in the second quarter of this year. 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, 1999 was $83,820. 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 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) March 31, 1999 Assets each quarter. The Fund accrued a liability of $210,462 for such operational management fees performed during the quarter ended March 31, 1999. 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 March 31, 1999. 5. Capital Share Transactions As of March 31, 1999 there were 20,000,000 shares of $1 par value capital stock authorized, 4,342,942 shares issued, 4,142,942 shares outstanding, and additional paid-in capital aggregating $38,936,619. Year-to-date transactions in capital stock are as follows: Shares Amount --------- ----------- Balance December 31, 1998 4,143,448 $38,940,399 Shares repurchased (506) (3,780) --------- ----------- Balance March 31, 1999 4,142,942 $38,936,619
6. Related Party Transactions The Investment Adviser is reimbursed by the Fund for certain administrative expenses under the Investment Advisory Agreement. Such reimbursements were $21,709 for the quarter ended March 31, 1999. 7. Short-term Investments Short-term investments are currently held in a money market fund made up of U.S. Treasury obligations. As additional cash is realized from the liquidation of investments, short-term investments will also be comprised of U. S. Government and Agency obligations having slightly higher yields and maturity dates of three months or less. These 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 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) March 31, 1999 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, 1999 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 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, although the Fund may be entitled to demand registrations and other registration rights which vary from investment to investment. The preferred stock positions often have call options, usually commencing three years subsequent to issuance, at prices specified in the stock purchase agreements, and typically have a dividend right. INVESTMENT VALUATION SUMMARY CONVERSION FAIR COST OR FACE VALUE VALUE Bentley Pharmaceuticals, Inc. 12% Convertible Debenture 744,800 840,000 831,600 Common Stock 500,000 625,000 618,750 Dexterity Surgical, Inc. 9% Convertible Debenture 1,500,000 1,500,000 1,500,000 8% Convertible Preferred Stock 1,000,000 975,000 965,250 Common Stock 500,000 203,125 201,094 Display Technologies, Inc. 8.75% Convertible Debenture 1,750,000 2,008,435 1,988,351 Common Stock 500,000 630,427 624,123 Warrants to purchase 105,000 shares -0- 112,686 111,559 Document Authentication Systems Bridge Loan 219,250 219,250 219,250 5% Convertible Preferred Stock 1,500,000 1,500,000 1,500,000 Warrants to purchase 659 shares 165 165 165 The Dwyer Group, Inc. Common Stock 1,966,632 1,265,612 1,252,956 Fortune Natural Resources Corp. 12% Convertible Debenture 350,000 350,000 350,000 Integrated Security Systems, Inc. Demand Promissory Notes 575,000 1,047,359 984,517 9% Convertible Debenture 2,084,101 3,796,177 3,627,930 Common Stock 215,899 393,259 389,326 Warrants to purchase 689,299 shares 3,750 230,549 216,941 PAGE RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) March 31, 1999 8. Investments (continued) INVESTMENT VALUATION SUMMARY
CONVERSION FAIR COST OR FACE VALUE VALUE Interscience Computer Corporation Common Stock 4,000,000 765,625 757,969 Warrants 0 0 0 Intile Designs, Inc. Common Stock 500,000 78,150 50,000 JAKKS Pacific, Inc. 9% Convertible Debenture 3,000,000 9,652,174 9,555,652 7% Convertible Preferred Stock 3,000,000 6,201,117 6,139,106 NewCare Health Corporation 8.5% Convertible Debenture 2,500,000 2,500,000 2,300,000 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 1,718,094 1,718,094 1,718,094 Common Stock 154,628 148,901 89,967 Warrants to purchase 25,000 shares -0- -0- -0- Simtek Corporation 9% Convertible Debenture 750,000 750,000 750,000 TAVA Technologies, Inc. Common Stock 1,000,000 3,333,333 3,300,000 Warrants to purchase 25,000 shares -0- 87,500 86,625 ThermoView Industries, Inc. 10% Convertible Preferred Stock 250,000 400,000 376,000 Common Stock 250,000 500,000 420,000 Voice It Worldwide, Inc. 8% Convertible Debenture 2,450,000 2,450,000 1,470,000 Common Stock 1,046,400 282,000 141,000 Warrants -0- -0- -0- ---------- ---------- ---------- 37,028,719 47,563,938 45,536,225 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 March 31, 1999 (portfolio companies are herein referred to as the "Company"): Bentley Pharmaceuticals, Inc. (BNT) Subsequent to the end of the first quarter, the Fund purchased an additional 95,100 shares of the Company's common stock on the open market for $151,411.80, or a cost basis of $1.59 per share. Dexterity Surgical, Inc. (DEXT) In March, 1999, the Company changed its name from LifeQuest Medical, Inc. to Dexterity Surgical, Inc. and also changed its trading symbol from LQMD to DEXT. The Company continues to trade on the NASDAQ Small Cap Market. Subsequent to March 31, 1999, the conversion prices on the Fund's convertible debenture and convertible preferred stock investments were reduced to $1.60 per share according to the automatic reset provisions of the respective investment agreements. In addition to the Fund's conversion price resets, Renaissance U.S. Growth & Income Trust PLC ("RUSGIT") also had the conversion price on its convertible debenture and convertible preferred stock investments reset to $1.60 per share. Display Technologies, Inc. (DTEK) In the first quarter of 1999, the Company registered all of the common stock underlying the Fund's convertible debentures and warrants, as well as the direct common stock holding owned by the Fund. RUSGIT also had its investment positions registered by the Company in the first quarter. Integrated Security Systems, Inc. (IZZI) As of February 22, 1999, the Fund consolidated its four convertible promissory notes due February 1, 1999, into a single $375,000 convertible promissory note. The new convertible note bears interest at 9%, payable monthly, is payable on demand, is convertible into common stock of the Company at $0.549 per share, and is secured by all the assets of the Company and its subsidiaries. On March 8, 1999, the Fund advanced the Company $200,000 pursuant to a 9% secured convertible promissory note due and payable within thirty days after demand by the Fund. The note is secured by all the assets of the Company and its subsidiaries and is convertible into the Company's common stock at $0.549 per share. As additional consideration for the loan, the Fund received warrants to purchase 364,299 shares of the Company's common stock at $0.549 per share on or before March 8, 2004. At March 31, 1999, the Company was in arrears on $80,632.06 in interest payments and advisory fees obligations. In addition to the Fund's investment, RUSGIT advanced $200,000 to the Company in March 1999 under identical terms and for identical consideration as the Fund's $200,000 advance. At March 31, 1999, the Company owed $80,632 to the Fund, of which $60,098 represents overdue and unpaid interest. JAKKS Pacific, Inc. (JAKK) Subsequent to March 31, 1999, the Fund converted its $3,000,000 convertible debenture into 521,740 shares of the Company's common stock. In April, 1999, the Fund sold 260,870 shares for $5,319,591.77, an average price of $20.39 per share, representing a gain to the Fund of $3,819,591.77. The Fund now owns 260,870 shares of common stock as well as $3,000,000 in convertible preferred stock, convertible at $8.95 per share. NewCare Health Corp. (NWCA) In the first quarter of 1999, the Company fell into default on the Fund's convertible debentures by failing to maintain compliance with all of its agreed minimum financial ratios and standards. In addition, at March 31, 1999, the Company was in arrears on interest payments and advisory fees owed to the Fund of $35,244.74. The Manager is working diligently to remedy the situation for the benefit of shareholders. The Fund's Board of Directors has elected to place a $200,000 legal fee reserve on this investment because the Fund may have to exercise default remedies pursuant to its contractual agreements with the Company. Subsequent to March 31, 1999, the Company announced its results for the fiscal year ended December 31, 1998. The Fund is now entitled to a reset of its conversion price on the convertible debentures in the event that the volume- weighted closing bid price for the Company's common stock over a specified period is below the current $3.81 conversion price on the debentures. There is no reset in the event the market price exceeds the Fund's conversion price. The Company's common stock has been trading around $1.00 per share. RUSGIT will also be entitled to a reset of the conversion price on its convertible debentures in the event the volume-weighted closing bid price for NewCare shares is below the current conversion price over the relevant period. Play By Play Toys & Novelties, Inc. (PBYP) In the first quarter of 1999, the Company fell into default on the Fund's debentures by failing to maintain compliance with all of its agreed minimum financial ratios and standards. The Company is current, however, on principal and interest obligations. Again, your Manager is working hard to remedy the technical defaults for the benefit of shareholders. Simtek Corporation (SRAM) Subsequent to March 31, 1999, the Fund had the conversion price on its convertible debentures in the Company reset from $0.35 per share to $0.195 per share according to the automatic reset provisions of the Convertible Debenture Agreement. The reset became available when the Company failed to meet its projected target of $700,000 in pretax income excluding extraordinary items and interest on the Fund's debentures for the one year period ended December 31, 1998. RUSGIT also had its convertible debenture conversion price reset to $0.195 according to the automatic reset provisions of its Convertible Debenture Agreement. TAVA Technologies, Inc. (TAVA) In the first quarter, the Fund converted its remaining convertible debentures into 666,667 shares of the Company's common stock. The debentures have a cost basis of $1,000,000, or $1.50 per share. On April 21, 1999, the Company announced that Real Software Group, a Belgian software company, had entered into an agreement to acquire the Company for $190 million, or $8 per share. The Company expects the deal to close later this year. RUSGIT also converted its remaining convertible debentures into common stock in the first quarter. Voice-It Worldwide Inc. (MEMO) As of March 30, 1999, the Fund's Board of Directors placed two reserves on the Fund's position in the Company. The Board authorized a $980,000 reserve on the Fund's $2,450,000 convertible debenture, as well as a reserve limiting the value of the Fund's investment in the Company's common stock to $0.15 per share or $141,000. The reserves have been placed because the Company is in bankruptcy. These asset values may change as the bankruptcy proceeding progresses. (2) Material Changes in Operations Net investment income for the quarter ended March 31, 1999, as compared to March 31, 1998, reflects a decrease of $279,371. This reported decrease is primarily attributable to an adjustment of prior year expenses resulting in a decrease of income. During the first quarter, the Fund experienced $6,084,720 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. At March 31, 1999, all of these funds were held in a money market fund made up of U.S. Treasury obligations. As additional cash is realized from the liquidation of investments, short-term investments will also be comprised of U.S. Government and Agency obligations having slightly higher yields and maturity dates of three months or less. During the quarter ended March 31, 1999, the Registrant paid dividend distributions of income and capital gains to shareholders in the amount of $415,345, and accrued dividends payable to shareholders in the amount of $331,435. (2) Year 2000 Many computer software systems in use today cannot 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 nticipated 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 Fund 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 13, 1999 /S/ --------------------------------------------- Russell Cleveland, President and Chairman May 13, 1999 /S/ --------------------------------------------- Barbe Butschek, Corp. Secretary and Treasurer EX-27 2 FORM 10-Q FOR QUARTER ENDED 03/31/1999
6 3-MOS DEC-31-1999 MAR-31-1999 37,028,719 45,536,225 496,572 46,357 2,148,647 48,227,801 0 0 664,030 664,030 0 38,936,619 4,142,942 4,143,448 119,646 0 0 0 8,507,506 47,563,771 236,164 494,545 (9,328) 382,316 339,065 0 6,084,720 6,423,785 0 331,935 0 0 0 0 0 6,088,070 112,526 2,422,776 0 0 210,462 0 382,316 44,519,736 10.01 0.08 1.47 0.08 0.00 0.00 11.48 0.01 0 0
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