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,June 30, 2000
[ ] 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------ ------
4,361,617 shares of common stock were outstanding at MayAugust 15, 2000.
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, 1999 March 31,June 30, 2000
----------------- ---------------------------
Cash and cash equivalents $ 5,086,040 $13,230,600
Accounts receivable 224,283 179,732$ 6,034,266
Investments, at fair value, cost of
$34,457,935 and $36,180,473$36,112,573 in 1999
and 2000 respectively 41,346,302 68,173,27149,425,688
Interest receivable 224,283 238,391
Other assets 68,497 61,36154,225
----------- -----------
$46,725,122 $81,644,964$55,752,570
=========== ===========
Liabilities and Net Assets
Liabilities:
Accounts payable $ 111,708 $ 2,188,410266,262
Accounts payable - affiliate 213,390 1,985,181307,825
Dividends payable 465,718 -0-
----------- -----------
790,816 4,173,591574,087
----------- -----------
Net Assets:
Common stock, $1 par value; 20,000,000
shares authorized; 4,342,9424,561,618 issued,
4,142,942 and 4,142,9424,361,617 outstanding 4,342,942 4,342,9424,561,618
Additional paid-in capital 36,258,896 36,258,89638,799,907
Treasury stock at cost, 200,000 shares at
December 31, 1999 and March 31,at June 30, 2000 (1,665,220) (1,665,220)
Undistributed net investment income 6,997,688 38,534,75513,482,178
----------- -----------
Net assets equivalent to $11.09 and
$18.70 per share on the shares
outstanding on December 31, 1999 and
March 31, 2000, respectively 45,934,306 77,471,37355,178,483
----------- -----------
$46,725,122 $81,644,964$55,752,570
=========== ===========
Net asset value per share $ 11.09 $ 18.7012.65
=========== ===========
See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
Three Months Ended March 31,June 30, Six Months Ended June 30,
1999 2000 ----------- -----------1999 2000
---- ---- ---- ----
Investment Income: Investment Income:
Interest $ 494,545320,943 $ 365,529393,628 $ 815,488 $ 759,158
Dividends 236,164 29,87478,733 31,213 314,897 61,087
Other investment
income (9,328) 76,2509,625 8,625 297 84,875
---------- ------------ ----------- -----------
Total investment
income 721,381 471,653409,301 433,466 1,130,682 905,120
---------- ------------ ----------- -----------
Expenses:
Amortization -0- -0- 83,820 -0-
Bank charges 5,330 8,7345,361 9,446 10,691 18,180
Directors' fees 14,000 14,00019,000 28,000 33,000
Legal and
professional 28,315 63,89322,761 53,016 51,076 116,909
Management fees 210,462 347,506235,390 242,467 445,852 589,973
Taxes -0- (878)27,840 25,763 27,840 24,884
Other 40,389 50,29270,231 76,539 110,620 126,833
---------- ------------ ----------- -----------
Total expenses 382,316 483,547375,583 426,231 757,899 909,779
---------- ------------ ----------- -----------
Net investment
income 339,065 (11,894)33,718 7,235 372,783 (4,659)
Realized gain on
investments 3,824,391 -0- 3,824,391 6,444,540
Unrealized gain (loss)
on investments 6,084,720 25,104,4211,190,168 (18,679,683) 7,274,888 6,424,738
---------- ------------ ----------- -----------
Net increase (decrease)
in net assets resultingresult-
ing from operations $6,423,785 $31,537,067$5,048,277 $(18,672,448) $11,472,062 $12,864,619
========== ============ =========== ===========
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,June 30, Six Months Ended June 30,
1999 2000 ----------- -----------1999 2000
---- ---- ---- ----
Increase (decrease) in
net assets resulting
from operations
Investment income -
net $ 339,06533,718 $ (11,894)7,235 $ 372,783 $ (4,659)
Realized gain on
investmentsinvestment 3,824,391 -0- 3,824,391 6,444,540
Unrealized gain (loss)
on investments 6,084,720 25,104,4211,190,168 (18,679,683) 7,274,888 6,424,738
----------- ----------- ----------- -----------
Net increase
(decrease) in net
assets resulting
from operations 6,423,785 31,537,0675,048,277 (18,672,448) 11,472,062 12,864,619
Proceeds from shares
issued -0- 2,759,688 -0- 2,759,688
Distributions to
shareholders (331,935) -0-(3,065,777) (6,380,130) (3,397,712) (6,380,130)
Cost of shares
repurchased -0- -0- (3,780) -0-
----------- ----------- ----------- -----------
Total increase
(decrease) 6,088,070 31,537,0671,982,500 (22,292,890) 8,070,570 9,244,177
Net assets
Beginning of period 47,563,771 77,471,373 41,475,701 45,934,306
----------- ----------- ----------- -----------
End of period $47,563,771 $77,471,373$49,546,271 $55,178,483 $49,546,271 $55,178,483
=========== =========== =========== ===========
See accompanying notes to financial statements.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
March 31,June 30, 2000
1. Organization and Business Purpose
Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas
corporation, was formed on January 20, 1994. The Fund offeredsold shares pursuant
to sell shares
inits initial offering throughout 1994, and the Fund untilfinal closing of the initial
offering occurred on December 31, 1994. The
Prospectus of the Fund required minimum aggregate capital contributions by
shareholders of not less than $2,500,000 and allowed for maximum capital
contributions of $100,000,000. The Fund seeks to achieve current
income and capital appreciation potential by investing primarily in
unregistered equity investments and convertible issues of small and medium
size companies which are in need of capital and which Renaissance Capital
Group, Inc. ("Investment Advisor") believes offers the opportunity for
growth. The Fund is a non-diversified closed-end investment company and 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 has electedintends to elect the special income tax
treatment available to "regulated investment companies" under Subchapter M
of the Internal Revenue Code ("IRC") 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 IRCInternal Revenue Code that are applicable to regulated
investment companies. Such requirements include, but are not limitedcompanies and to certain qualifying income tests, asset diversification tests and
distribution of substantiallydistribute all of the Fund'sits taxable investment income to its
shareholders. It is the intent of management to distribute all of
its taxable investment income and long term capital gains within the
defined period under the IRC to qualify as a regulated investment
company. Therefore, no federal income tax provision is included in the
accompanying financial statements.required.
B. Distributions to Shareholders - Dividends to shareholders are recorded on
the ex-dividend date. The Fund declared no dividends during the quarter
ended March 31, 2000. On April 7, 2000, the Fund declaredpaid a dividend of $1.54 per share payabledividend on June 9,
2000 to holdersshareholders of record at May 26, 2000. The ex-dividend date is May 24, 2000.This dividend resulted
from gains made in the first quarter of 2000 on the sale of a portion of
the Fund's investment in Simtek Corporation.
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 FundInvestment Adviser as to the valuation of
investments that effect the amounts and disclosures in the financial
statements. Actual results could differ significantly from thesethose
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.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
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. These expenses were fully amortized in a
prior period.
4. Investment Advisory Agreement
The Investment AdvisorAdviser for the Fund is registered as an investment advisoradviser
under the Investment AdvisorsAdvisers Act of 1940. Pursuant to an Investment
Advisory Agreement, the Investment AdvisorAdviser performs certain services,
including certain management, investment advisory and administrative services
necessary for the operation of the Fund. The Investment AdvisorAdviser receives a
fee equal to .4375% (1.75% annually) of the Net Assets each quarter. The
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 2000
3. Investment Advisory Agreement
Fund accrued a liability of $347,506$242,467 for such operational management fees
performed during the quarter ended March 31,June 30, 2000.
In addition to the Fund has agreed to paymanagement fee, the Investment AdvisorAdvisory Agreement entitles
the Investment Adviser to 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. InThere were
no incentive fees earned for the first quarter, the Fund realized
capital gains of $8,055,674.79 on the sale of 2,846,154 shares of Simtek
Corporation, and the redemption of the Optical Security Group, Inc.
convertible debenture. The gain is shown on the accompanying statement of
operations net of the $1,611,135 management incentive fee payable to the
Investment Advisor.quarterly period that ended June 30, 2000.
Finally, the Investment AdvisorAdviser is reimbursed for administrative expenses
paid by the Investment AdvisorAdviser on behalf of the Fund. Such reimbursement was
$17,180$46,335 for the quarter ending March 31,June 30, 2000, and is included in general and
administrative expenses in the accompanying statement of operations.
5.4. Capital Share Transactions
As of March 31,June 30, 2000 there were 20,000,000 shares of $1 par value capital
stock authorized, 4,342,9424,561,618 shares issued, 4,142,9424,361,617 shares outstanding, and
additional paid-in capital aggregating $38,936,619. There are no$41,696,306. On June 9, 2000, the
Fund paid a dividend of $1.54 per share. At June 23, 2000, the Fund's stock
was trading at a premium to its $12.62 Net Asset Value ("NAV"), thereby
entitling those shareholders participating in the Dividend Reinvestment Plan
("DRIP") to have new shares issued by the Fund at NAV. As a result, 218,675
new shares were issued pursuant to the DRIP increasing the Fund's total
shares outstanding to 4,361,617.
Year-to-date transactions in capital stock transactions duringare as follows:
Shares Amount
------ ------
Balance December 31, 1999 4,142,942 $38,936,618
Shares repurchased 218,675 2,759,688
--------- -----------
Balance June 30, 2000 4,361,617 $41,696,306
========= ===========
5. Temporary Investments
At June 30, 2000, temporary investments were held in a money market fund made
up of U.S. Treasury obligations. As additional cash is realized from the
current year.liquidation of investments, temporary 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.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31,June 30, 2000
6. 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, as defined
under the 1940 Act, must be invested in Eligible Portfolio Companies. In the
event the Fund has less than 70% of its assets in eligible portfolio
investments, then it will be prohibited from making non-eligible investments
until such time as the percentage of eligible investments again exceeds the
70% threshold.
TheseThe Fund's investments are carried in the statements of assets and
liabilities as of March 31,June 30, 2000 at fair value as determined in good faith by
the Investment Advisor. The convertible debt securities held by the Fund
generally have maturities between five and seven years and are convertible
into the common stock of the issuer at a set conversion price at the
discretion of the Fund. The common stock underlying these securities is
generally unregistered and thinly to moderately traded, but is not otherwise
restricted.traded. The Fund may attempt
to register and sell suchunregistered securities at any time withif the Fund payingpays the
costs of registration.registration, or in the case of securities restricted by Rule 144 of
the Securities Act of 1933 (the "Act"), the Fund may exit from some or all of
a restricted position if certain holding periods, volume requirements, and
other conditions of the Act are met.
Interest on the convertible securities aredebentures is generally payable monthly. The
convertible debt securities generally contain embedded call options giving
the issuer the right to call the underlying issue. In these instances, the
Fund has the right of redemption or conversion. The embedded call option
will generally not vest until certain conditions are achieved by the issuer.
Such conditions may require that minimum thresholds be met relating to
underlying market prices, liquidity, and other factors.
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Bentley Pharmaceuticals, Inc.
Common Stock $ 1,536,029 $ 7,785,9007,353,349 $ 7,708,0407,279,816
Options -0- -0- -0-
CaminoSoft Corp.
Common Stock 4,625,000 8,015,626 7,796,408
Warrants to purchase 500,000 shares -0- 500,000 500,000
CareerEngine Network, Inc.
12% Convertible Debenture 250,000 250,000 250,000
Warrants to purchase 62,500 shares -0- -0- -0-
Warrants to purchase 62,500 shares -0- -0- -0-
CEREUS Technology Partners, Inc.
Common Stock 512,500 1,819,375 1,660,212916,094 811,128
Warrants to purchase 4,000102,500 shares -0- 794,375 746,713-0- -0-
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 2000
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Communications World Intl., Inc. 8% Convertible Debenture 250,000 687,500 646,250250,000 250,000
Warrants to purchase 100,000 shares 2,000 352,500 281,35080,625 25,788
Dexterity Surgical, Inc.
9% Convertible Debenture 1,500,000 2,062,500 1,888,7501,500,000 1,500,000
8% Convertible Preferred Stock 1,000,000 1,000,000 1,000,000552,884 552,884
Common Stock 635,000 357,500 336,051186,875 125,662
Display Technologies, Inc.
8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000
5.25% Convertible Preferred Stock 500,000 500,000 500,000
Common Stock 1,049,741 915,798 906,640782,591 774,765
Warrants to purchase 126,000 shares -0- -0- -0-
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31, 2000
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
The Dwyer Group, Inc.
Common Stock 1,966,631 1,940,625 1,921,2191,966,632 1,771,875 1,754,156
eOriginal, Inc.
5% Convertible Preferred Stock Series B-3 107,280 107,280 107,280
5% Convertible Preferred Stock,
Series B-1 392,700 392,700 392,700
5% Convertible Preferred Stock,
Series A 1,500,000 1,500,000 1,500,0001,999,980 1,999,980 1,999,980
Warrants to purchase 659 shares 165 165 165
Fortune Natural Resources Corp.
Common Stock 545,500 909,146 841,094495,898 436,052
Warrants to purchase 200,000 shares -0- -0- -0-
Grand Adventures Tour & Travel
Publishing Corp.
10% Convertible Debenture 350,000 666,667 576,667350,000 350,000
Common Stock 130,089 227,500 225,225142,188 140,766
Integrated Security Systems, Inc.
Promissory Notes 490,000 520,601 496,265265,000 265,000 265,000
Convertible Note 375,000 495,219 465,506
9% Convertible Debenture 2,084,101 2,254,170 2,133,9552,752,228 2,616,499
9% Convertible Preferred Stock 150,000 133,605 133,605150,000 150,000
Common Stock 215,899 233,517 231,182285,113 282,262
Warrants to purchase 814,299 shares 3,750 20,071 19,092
Interscience Computer Corporation
Common Stock 4,625,000 17,156,250 16,744,062
Warrants to purchase 500,000 shares -0- 500,000 500,00067,867 64,020
JAKKS Pacific, Inc.
Common Stock 3,324,126 12,644,670 12,518,2233,324,125 8,663,368 8,576,733
Laserscope
8% Convertible Debenture 1,500,000 2,362,560 2,170,8061,837,500 1,677,250
Medical Action Industries, Inc.
Common Stock 555,392 580,000 574,200560,000 554,400
Play by Play Toys & Novelties, Inc.
8% Convertible Debenture 2,500,000 2,500,000 2,500,000
Poore Brothers, Inc.
9% Convertible Debenture 859,047 1,610,713 1,514,070
Common Stock 1,104,123 2,010,580 1,839,945
Warrants to purchase 85,000 shares -0- 44,375 41,713
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
March 31,June 30, 2000
6. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST OR FACE VALUE VALUE
Poore Brothers, Inc.
9% Convertible Debenture 859,047 1,422,797 1,337,429
Common Stock 1,104,123 1,776,013 1,619,452
Warrants to purchase 85,000 shares -0- 25,781 24,235
Options -0- 3,438 3,232
RailAmerica, Inc.
6% Convertible Debenture 500,000 500,000 500,000
Warrants to purchase 15,000 shares -0- -0- -0-
Simtek Corporation
Common Stock 195,000 2,281,300 2,094,4221,500,000 1,360,000
SiVault, Inc.
Common Stock 350,000 350,000 350,000
ThermoView Industries, Inc.
Common Stock 500,000 131,250 73,375-0- -0-
Voice It Worldwide, Inc.
Investment 3,496,400 2,459,400 750,0003,028,500 3,028,500 282,100
----------- ----------- ----------
$36,180,473 $72,062,593 $68,173,271-----------
$36,112,573 $53,580,974 $49,425,688
Generally, pursuantPursuant to procedures established by the Investment Advisor, the fair value of
each investment will initially be initially based upon its original cost to the Fund.
Costs will be the primary factor used to determine fair value until significant
developments affecting the investee company provide a basis for use in an
appraisal valuation. The fair value of debt securities and preferred 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 preferred securities without regard to conversion features is
determined on the basis of the terms of the preferred security, its dividend,
and its liquidation and redemption rights.rights and absent special circumstances will
typically be equal to the lower of cost or 120% of the value of the underlying
common stock. The fair value of the conversion features of a security, if any,
are based on fair values as of thisthe relevant 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 in the event no closing price
exists 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,June
30, 2000 (portfolio companies are herein referred to as the "Company"):
Bentley Pharmaceuticals,CareerEngine Network, Inc. (BNT) In(CNE) During the firstsecond quarter, ended March 31,
2000,the Fund
advanced the Company called all of its outstanding$250,000 pursuant to a 12% Convertible Senior
Subordinated
DebenturesDebenture due February 13, 2006. Upon notice ofMay 2010. The debenture is subordinated to the call,Company's senior
lenders and is convertible into the Fund had the option to convert its debentures intoCompany's common stock of the Company at a rate of $2.50$2.00
per share. The debenture contains standard anti-dilution provisions and
entitles the Fund to demand and piggyback registration rights. The Company has
the right to redeem the debenture with at least thirty days' notice to the Fund
so long as the reported closing price of the common stock equals or exceeds
2.154 times the conversion price in effect for a period of twenty consecutive
trading days. In addition to the debenture, as consideration for making the
investment the Fund received 125,000 warrants to purchase the Company's common
stock. Half of the warrants are exercisable at $4.00 per share on or to havebefore
May 2003, and the debentures redeemedremaining 62,500 warrants are exercisable at a value equal$6.00 per share
on or before May 2005.
In addition to 105% of par plus accrued interest, which equaled $1,050 per $1,000 worth of
debentures plus accrued interest. The Fund chose to convert all of its
debentures, having a principal amount of $800,000, into 320,000 shares of common
stock, increasing the Fund's total ownership of Bentley common stock to 865,100
shares.investment, Renaissance US Growth and Income
Trust PLC ("RUSGIT") also converted its
remaining debentures in the Company into shares of common stock pursuant to the
redemption provisionspurchased $250,000 worth of the Company's Convertible
Debenture and Loan Agreements.
CEREUS Technology Partners, Inc. (CEUS) In the first quarter of 2000, the
Fund invested $512,500 into 102,500 shares of CEREUS common stockSubordinated Debentures and also received warrants to purchase 102,500 shares of the Company's common stock. The
common stock position is unregistered and restricted from transfer pursuant to
Rule 144 of the Securities Act of 1933. The warrants are exercisable at $10.00
per share on or before February 2003 and are subject to a call provision
allowing the Company to call the warrants at any time following the date of
issuance if the Company's common stock is bid at a 100% premium to the exercised
price of the warrant for twenty consecutive business days. The warrant call
provision will not take effect until after one year from the February 2000
issuance date unless a registration statement covering the shares of common
stock underlying the warrants is then in effect. The Fund does have piggyback
registration rights with regard to both the common stock and the warrants.
Also in the first quarter of 2000, RUSGIT purchased 102,500 shares of CEREUS
common stock and 102,500125,000 warrants to purchase the
Company's common stock underall of which were purchased pursuant to the same terms
and conditions as the Fund's investment.
Dexterity Surgical, Inc. (DEXT) In the firstsecond quarter, of 2000, the Fund had the conversion
price on its convertible debenture reducedthe Fund's preferred stock investments was lowered from $1.60 per share
to $1.00$1.56 per share and also agreed to take payment of interest owing on the
debentures in common stockconsideration of the Company at a rateFund's allowance of $1.00 per share. The
total shares received for the interest was 135,000 shares, and represents
interestan investment
into the Company is obligated to pay from February 1, 2000 through January
31, 2001.by third party investors.
RUSGIT also had the conversion priceprices on its convertible debenture reducedpreferred stock investments
lowered from $1.60 to $1.00 per share to $1.56 per share in an identical fashion to the
lowering of the Fund's conversion prices.
Grand Adventures Tour and also agreedTravel Publishing Corp. (GATT) Subsequent to
take payment ofJune 30, 2000, the Fund made a follow-on investment in the Company by purchasing
$500,000 in 8% Convertible Debentures. The debentures have a four year term,
accrue interest in
shares ofquarterly, and are convertible into the Company's common stock
underat a rate of $3.10 per share. The debentures may be redeemed by the Company if
the per share bid price of the common stock at the close of trading on each of
the ten business days preceding the delivery date of the notice of redemption
equals or exceeds $8.50 per share and at least thirty days' notice is given to
the Fund of the redemption. As consideration for making the investment, the
Fund received piggyback registration rights for all of its investments.
RUSGIT also made a $500,000 follow-on investment in the 8% Convertible
Debentures of the Company subsequent to June 30, 2000. The investment by RUSGIT
was made pursuant to the same terms and conditions as the Fund's agreement.
eOriginal,investment, and
also entitles RUSGIT to the same registration rights on all RUSGIT investments
as was obtained by the Fund.
Integrated Security Systems, Inc. In the first quarter of(IZZI) On May 5, 2000, the Fund
invested an
additional $107,280advanced the Company $150,000 pursuant to purchase 447 sharesa 9% Promissory Note in which all
accrued unpaid interest and principal on the note is due and payable on demand.
The note is secured by the parent and its four subsidiaries which own all or
substantially all the assets of the Company's Series B-3
Cumulative Convertible PreferredCompany, and is also secured by a Stock
(the "Preferred"). The Preferred
entitlesPledge Agreement between the parent company and the Fund. Also on May 5, 2000,
the Fund renewed and extended its $115,000 Promissory Note and amended its
$375,000 Convertible Promissory Note so that both became secured by all or
substantially all the Company's assets.
RUSGIT also lent the Company $150,000 pursuant to a 5% cumulative dividend as well as voting rights9% Promissory Note on
May 5, 2000, and a
liquidation preference equal to 100%on that date also renewed and extended its $115,000 Promissory
Note and amended its $225,000 Convertible Promissory Note, all of the dollar amount invested by the Fund.
The Preferred also contains anti-dilution provisions, provides for automatic
conversion into the Company's common stock in the event of a qualified initial
public offering, and may be redeemed by the Company at any time after December
31, 2000 in an amount equal to 125% of the Fund's liquidation preference. The
Preferred is convertible into the Company's common stock at $240 per share.
In addition to the Fund's investment in the Preferred, RUSGIT also invested
an additional $107,040 to purchase 446 shares of the Company's Series B-3
Cumulative Convertible Preferred Stock. With the exception of the dollar amount
invested, the investment was madewhich were
done under identical terms and conditions as the Fund's investment.
Fortune Natural Resources Corporation (FPXA) In Februarytransactions.
Poore Brothers, Inc. (SNAK) Effective June 28, 2000, the Fund agreedobtained
options to convert all of its convertible debentures, having a cost basis of
$350,000, into 1,061,728 shares ofpurchase the Company's common stock. As additional
consideration forstock pursuant to the Fund's willingnessCompany's 1995
Stock Option Plan. In total, the Fund received options to convert, it received one year's
worthpurchase 15,000
shares of future interest payments on the debentures paid inPoore Brothers common stock at a price of the
Company at $0.75$3.06 per share, givingwhich
options were granted June 12, 1997, vested June 12, 1998, and must be exercised
on or before June 12, 2002. In addition, the Fund an additional 56,000 shares.
Finally, the Fund agreed to convert interest that had accrued on the debentures
in January 2000 into common stock of the Company at a rate of $0.75 per share
giving the Fund an additional 4,666 shares of common stock.
Also in February 2000, the Fund agreed to invest an additional $150,000obtained options to purchase
200,00010,000 shares of the Company's common stock at $0.75$1.31 per share, which options
were granted May 14, 1998, vested May 14, 1999, and must be exercised on or
before May 14, 2003. These options were obtained by assignment from Robert C.
Pearson, Senior Vice President of Renaissance Capital Group, Inc., who earned
the options as additional considerationa member of the Fund received warrantsBoard of Directors of the Company.
RUSGIT did not receive any of the above referenced options to purchase 200,000 shares
of the
Company's common stock on or before February 2003. Warrants on 100,000
shares are exercisable at $1.50 per share while warrants on the second tranche
of shares are exercisable at $2.25 per share. These positions are all
unregistered securities and are restricted from transfer pursuant to Rule 144
of the Securities Act of 1933.because RUSGIT also participated in the debenture conversion and further invested an
additional $150,000 to purchase 200,000 shares of the Company's common stock and
200,000 warrants. The conversion as well as the new investments were made under
identical terms and conditions as the Fund's conversion and investments.
Integrated Security Systems, Inc. (IZZI) In January 2000, the Fund agreed
not to convert or receive scheduled principal repayments on the debenture
obligations due from the Company for the period December 1999 through March
2000.
RUSGIT also agreed not to convert or receive scheduled principal repayments
on the debenture obligations of the Company from December 1999 through March
2000 under identical terms and conditions as the Fund's agreement.
CaminoSoft Corporation (aka Interscience Computer Corp.) (IEIC) In the
first quarter of 2000, the Fund exercised its 250,000 share warrant by paying
the Company $125,000 in exchange for 250,000 shares of common stock. In
February 2000, the Fund participated in a private placement by purchasing an
additional 250,000 shares of the Company's common stock for $500,000. The
shares are unregistered and are restricted from transfer pursuant to Rule 144 of
the Securities Exchange Act of 1933.
At December 31, 1999, RUSGIT did not have an investment in the Company.
Subsequent to the year end, RUSGIT participated in the Company's February 2000
private placement by investing $1,000,000 to purchase 500,000 shares of the
Company's common stock. With the exception of the amount invested, RUSGIT's
investment was made under identical terms and conditions as the Fund's
investment in the private placement.
Laserscope (LSCP) Effective February 11, 2000, the Fund invested $1,000,000
in 8% Convertible Debentures of the Company, maturing February 11, 2007, and
convertible into the Company's common stock at $1.25 per share. The debentures
have mandatory monthly principal repayments beginning February 11, 2002 and
continuing on the first day of each successive month thereafter prior to
maturity, and are secured by substantially all of the assets of the Company.
The debentures may be redeemed by the Company at 101% of par if certain price
and volume thresholds are met, as defined, and other conditions are met relating
to the market for the Company's shares including, but not limited to, a full
registration of the underlying shares. The redemption right is subject to the
Fund's right to convert the debentures into the Company's common stock. The
debentures have standard anti-dilution provisions and also contain a one-time
adjustment to the conversion price if the Company fails to meet its budgeted
pretax income level for the year ending December 31, 2000, and the closing bid
price of the common stock as defined is below the Fund's conversion price in
effect at the time of the automatic reset.
In addition to the Fund'shad no investment in the Company RUSGIT also invested
$1,500,000 intoat the
8% Convertible Debentures oftime the Company, which investment
was made under identical terms and conditions asabove referenced options were granted.
(2) Material Changes in Operations
For the Fund's investment.
Medical Action Industries, Inc. (MDCI) In the first quarter ofended June 30, 2000, the Fund purchased an additional 56,200 shareshad net investment income of
$7,235, a decrease from the Company's common stock on the
open market for $202,268, or $3.60 per share.
RUSGIT also purchased an additional 56,200 shares of the Company's common
stock on the open market$33,718 in net investment income realized in the
firstsecond quarter of 2000 for $202,268, or $3.60 per
share.
Simtek Corporation (SRAM) In the first quarter1999. The decrease was primarily a result of 2000, the Fund converted
its entire $750,000 debenture position into 3,846,154 shares of the Company's
common stock. Alsoincreased legal
and professional fees, and increased management fees which resulted from an
increase in the first quarter, the Fund sold 2,846,154 shares of the
Company's common stock pursuant to Rule 144 of the Securities Act of 1933 and
realized proceeds of $8,565,675, representing a gain to the Fund before
incentive fees of $8,010,675.
RUSGIT also converted its entire debenture position into 3,846,154 shares of
the Company's common stock in the first quarter of 2000, and also sold 2,846,154
shares in the open market realizing identical proceeds and gains as the Fund.
Voice-It Worldwide Inc. (Liquidating) Effective January 19, 2000, the
Bankruptcy Court approved a joint liquidation plan for the Company, which
liquidation is proceeding. We cannot say when the liquidation and dissolution
will be complete, but we expect it to occur sometime this year. We are also
unable to quantify the amount of recovery to the Fund at this time, but we are
following the matter closely and at this time we estimate the recovery to be at
least $750,000, the fair value of the Voice It investments on the Fund's
portfolio at March 31, 2000. We will continue to closely monitor the situation
and reassess the value of the Fund's position as events warrant.
(2) Material Changes in Operations
Net investment income decreased $350,959 forportfolio. For the quarter,
ended March 31,
2000operating expenses increased 13.5% in comparison to the threesame quarter of last
year, which increase outweighed the 5.9% increase in investment income in the
period, which increase was attributable to higher interest earned on porfolio
assets.
For the six months ended March 31,June 30, 2000, the Fund had a net investment loss
of $(4,659) versus net investment income of $372,783 for the comparable period
of 1999. This reportedThe decrease is primarily attributable to a conversion19.9% decrease in investment income
which resulted from lower interest and dividend income to the Fund as a result
of converting debt investments toand preferred stock instruments into non-income generating
common stock, resulting intogether with a decrease of current income, along with an20% increase in operating expenses resulting from appreciation in portfolio assets. Duringfor the first quarter, the Fund experienced $25,104,421 of unrealized gainsperiod,
due to increased legal and professional fees and higher management fees
resulting from an increase in the fair value of the Fund's investment portfolio.
During the second quarter, the Fund experienced $18,679,683 of unrealized
losses as a result of lower market prices for securities held in the investment
portfolio. For the year to date, however, the Fund has experienced $6,424,738
in unrealized gains on its investments.
Pending investment in portfolio investments, funds are invested in
temporary cash accounts and in government securities. At March 31,June 30, 2000, all of
these funds were held either in a money market fund made up of U.S. Treasury
obligations. As additional cash is realized from the liquidation of
investments, temporary 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
triple-A rated obligations backed by the full faith and creditSection 55(a) (1) through (5) of the U.S. Government.
During the quarter ended March 31,1940 Act.
On June 9, 2000, the Registrant paid a dividend
distributions to shareholders in the
amount of $497,307. On April 7, 2000, the
Fund declared a dividend of$6,380,130 or $1.54 per share, payable June 9, 2000bringing total distributions made over
the life of the Fund to holders of
record at May 26, 2000. The ex-dividend date is May 24, 2000.
(3) Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $3,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.$7.02.
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.
MayAugust 15, 2000 /S/
--------------------------------------------------_________________________________________________
Russell Cleveland, Chairman and President
and Chairman
May(Principal Executive Officer)
August 15, 2000 /S/
--------------------------------------------------_________________________________________________
Barbe Butschek, Corp. Secretary and TreasurerChief Financial Officer
(Principal Financial Officer)