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 JuneSeptember 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: 0206710-20671
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.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(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
4,250,6304,247,630 shares of common stock outstanding at JuneSeptember 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
(Unaudited)
Assets
------
December 31, 1997 JuneSeptember 30, 1998
----------------- ------------------
(Unaudited)
Cash $15,972,424 $2,317,393$ 1,478,617
Accounts receivable 180,025 261,449340,920
Receivable from sale of investment 4,200,000 2,154,935-
Prepaid expenses - 20,806
Temporary investments at cost - 4,986,5643,754,173
Investments, at market value,
cost of $24,150,665 at December
31, 1997, and $34,150,153$34,847,030 at
September 30, 1998 27,795,592 42,294,81833,227,878
Organizational costs, net of
accumulated amortization 208,529 146,687115,253
----------- ------------
$ 48,356,570 $52,161,846
========== =========-----------
$48,356,570 $38,937,647
=========== ===========
Liabilities and Net Assets
--------------------------
Liabilities:
Accounts payable - related parties $ 1,440,889 $ 1,020,713181,993
Accounts payable - trade 31,198 14,0759,088
Dividends payable 2,387,123 2,932,935
--------- ---------424,763
----------- -----------
3,859,210 3,967,723
--------- ---------615,844
----------- -----------
Net Assets:
Common stock, $1 par value;
20,000,000 shares authorized;
4,342,942 and 4,250,630 shares issued and
outstanding 40,601,838 39,759,381at 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 8,434,742
---------- ----------(1,413,172)
----------- -----------
Net assets 44,497,360 48,194,123
---------- ----------
$ 48,356,570 $ 52,161,846
========== ==========38,321,803
----------- -----------
$48,356,570 $38,937,647
=========== ===========
Net asset value per share $ 10.25 $ 11.34
========== ==========
9.02
=========== ===========
See accompanying notes to financial statements.
PAGE
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Statement of Operations
(Unaudited)
Three Months Ended June 30, SixNine Months Ended
JuneSeptember 30, September 30,
1997 1998 1997 1998
------ ------ ------ ------
Investment Income:
Investment Income:
Interest $ 681,298353,981 $ 572,596 $ 1,194,212 $ 1,184,777571,179 $1,548,193 $1,755,956
Dividends 75,000 - 150,000 -80 7,994 150,080 7,994
Other investment income 26,000 96,500 51,000 390,988
------- ------- --------- ---------54,585 22,500 105,585 413,488
----------- ----------- ---------- ----------
Total investment income 782,298 669,096 1,395,212 1,575,765
------- ------- --------- ---------408,646 601,673 1,803,858 2,177,438
----------- ----------- ---------- ----------
Expenses:
Amortization 31,092 31,092 61,842 61,84231,433 31,433 93,275 93,275
Bank charges 5,314 5,5020 6,088 10,632 9,77415,862
Directors' fees 13,500 16,000 31,500 38,50018,000 11,500 49,500 50,000
Legal and professional 18,694 29,745 81,937 57,66224,665 13,876 106,602 71,538
Management fees 180,269 295,102 367,405 457,718
Taxes 6,866 7,330 7,677 7,890227,558 170,261 594,963 627,979
Other 61,079 53,246 115,194 92,865
------- ------- ------- -------34,908 27,852 157,779 128,607
----------- ----------- ---------- ----------
Total expenses 316,814 438,017 676,187 726,251
------- ------- ------- -------336,564 261,010 1,012,751 987,261
----------- ----------- ---------- ----------
Net investment income 465,484 231,079 719,025 849,51472,082 340,663 791,107 1,190,177
Realized gain on investments - 2,504,596 419,905 2,504,5963,861,923 0 4,281,828 2,504,583
Unrealized gain (loss) on
investments (1,680,956) (2,829,090) (8,937,641) 4,499,7237,175,190 (9,763,815) (1,762,451) (5,264,079)
----------- ----------- ---------- ----------
Net increase (decrease) in
net assets --------- --------- ---------- ---------
resulting from
operations $(1,215,472) $ (93,415) $(7,798,711) $7,853,833
========= =========$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)
ThreeNine Months Ended June 30, Six Months Ended JuneSeptember 30,
1997 1998
1997 1998
------ ------
Increase (decrease) in net
assets resulting from
operations
Investment
Net investment income - net $ 465,484791,107 $ 231,079 $ 719,025 $ 849,5141,190,177
Realized gain on investments - 2,504,596 419,905 2,504,5964,281,828 2,504,583
Unrealized gain (loss) on
investments (1,680,956) (2,829,090) (8,937,641) 4,499,723
--------- --------- --------- ---------(1,762,451) (5,264,079)
----------- -----------
Net increase (decrease)
in net assets resulting
from operations (1,215,472) (93,415) (7,798,711) 7,853,8333,310,484 (1,569,319)
Distributions to shareholders (347,436) (2,932,935) (694,872) (3,314,615)(1,042,307) (3,739,378)
Proceeds from shares issued - - 39,848 -0
Cost of shares repurchased - (842,455) - (842,455)
---------- --------- --------- ---------0 (866,860)
----------- -----------
Total increase (decrease) (1,562,908) (3,868,805) (8,453,735) 3,696,7632,308,025 (6,175,557)
Net assets
Beginning of period 42,239,493 52,062,928 49,130,320 44,497,360
----------- ---------- ---------- ---------------------
End of period $40,676,585 $48,194,123 $40,676,585 $48,194,123
========== ========== ========== ==========
$51,438,345 $38,321,803
=========== ===========
See accompanying notes to financial statements.
PAGE
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements
JuneSeptember 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 Sub-
chapterSubchapter 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 $2,932,935$424,763 for the quarter ended JuneSeptember 30,
1998.
C. Management Estimates - The financial statements have been
prepared in conformity with generally accepted accounting
principles. The pre-
parationpreparation 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 instru-
ments.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 JuneSeptember 30, 1998
was $61,842.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (cont'd)
June 30, 1998
(unaudited)$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 Ad-
visoryAdvisory Agreement, the Investment
Adviser performs certain services, in-
cludingincluding certain management,
investment advisory and administrative serv-
icesservices 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 $295,102$170,261 for such
operational management fees performed during the quarter ended
JuneSeptember 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. 5. Capital Gains
The Fund had no realized a capital gain of $3,130,746 ongains for the sale of 333,665
shares of TAVA Technologies, Inc. common stock. The gain is shown on
the accompanying statement of operations net of the $626,149 management
incentive fee payable to the Investment Adviser.
6.quarter ended
September 30, 1998
5. Capital Share Transactions
As of JuneSeptember 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 paid-in aggregated $36,258,896.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 (92,312) (842,457)
--------- -----------
Balance June 30, 1998 4,250,630 $39,759,381
========= ==========
7.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
administra-
tiveadministrative expenses under the Investment Advisory Agreement.
Such reimburse-
mentsreimbursements were $52,075$49,307 for the quarter ended JuneSeptember
30, 1998.
8.7. Short-term Investments
Short-term investments are comprised of U. S. Government and
Agency obli-
gationsobligations maturing no later than August 5,November 2, 1998.
Such 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 (cont'd)
June 30, 1998
9.8. Investments
The Fund invests primarily in convertible securities and equity
invest-
mentsinvestments of companies that qualify as Eligible Portfolio
Companies as de-
fineddefined in Section 2(a) (46) of the 1940 Act or in
securities that other-
wiseotherwise 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 JuneSeptember 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 immed-
iateimmediate sale or disposition. The
investments held by the Fund are convert-
ible,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.
Bentley Pharmaceuticals, Inc.
12% Convertible Debenture 744,800 960,000 950,400808,000 799,920
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 1,966,632 1,560,938 1,560,9381,966,644 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 4,713,115 4,503,5423,927,596 3,744,619
Warrants 3,750 3,750 3,750
Interscience Computer Corporation
Series A and Series B
Cumulative Convertible
Redeemable PreferredCommon Stock 4,000,000 4,000,000 1,400,000875,000 866,250
Warrants 0 0 0
Intile Designs, Inc.
Common Stock 500,000 236,350125,000 50,000
JAKKS Pacific, Inc.
9% Convertible Debenture 3,000,000 6,391,304 6,327,3914,434,783 4,390,435
7% Convertible Preferred Stock 3,000,000 4,106,145 3,809,776
La-Man Corporation
8.75% Convertible Debenture 1,750,000 1,750,000 1,750,000
Common Stock 500,000 390,625 317,1883,000,000 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 500,000 296,875 293,906179,688 177,891
NewCare Health Corp.Corporation
8.5% Convertible Debenture 2,500,000 2,500,000 2,500,000
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
Notes to Financial Statements (Continued)
June 30, 1998
9. Investments (continued)
INVESTMENT VALUATION SUMMARY
CONVERSION FAIR
COST FACE VALUE VALUEOptions 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.,Brothers, Inc.
9% Convertible Debenture 1,788,571 2,102,473 2,081,4481,735,448 1,735,448 1,735,448
Simtek Corporation
9% Convertible Debenture 750,000 750,000 750,000
Warrants -0- -0- -0-0 0 0
TAVA Technologies, Inc.
9% Convertible Debentures 1,000,000 6,583,333 6,517,5003,041,667 3,011,250
Warrants -0- 209,375 207,2810 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 2,176,1161,470,000
Common Stock 1,046,400 793,172 745,582263,200 260,570
Warrants -0- -0- -0-
--------- --------- ----------
$34,150,153 $46,147,455 $42,294,818
========== ========== ==========
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 con-
dition of the issuer. The fair value of the conversion features of a secur-
ity, 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 be-
lieved0 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 JuneSeptember 30, 1998 (portfolio companies are herein referred
to as the "Company"):
Document Authentication Systems. On May 11, 1998,Systems
- -------------------------------
Subsequent to September 30,1998, the Fund invested $1
million$219,250 in the 5% Series A Cumulative Convertible Preferred Stock ofa
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
is convertible intoStock. In addition to the Promissory Note, Document Authentication
Systems issued to the Fund warrants to purchase 659 shares of the
Company's common stock of DAS at $250$169.75 per share. DAS is currently private, and owns a patented process covering
paperless transactions.
In addition to the Fund's investment, Renaissance US Growth &
Income Trust, PLC ("RUSGIT") invested $1 million$219,250 in a Promissory Note
of Document Authentication Systems and also received warrants to
purchase 659 shares of common stock of the 5% Series A Cumulative Convertible
Preferred Stock of DAS.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. Subsequent to June 30,Corporation
- ---------------------------------
Effective July 1, 1998, Inter-
science effectuatedInterscience 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 Inter-
scienceInterscience 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.
JAKKS Pacific,La-Man Corporation, d/b/a/ Display Technologies, Inc.
- -----------------------------------------------------
On April 1,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 $3 million for the$500,000 to purchase of 600500
shares of the Company's Series A Cumulative Convertible Pre-
ferredPreferred Stock.
The Preferred has a 7%an 8% cumulative dividend, payable quarterly, and is
convertible into the Company's common stock at a price of $8.95$2.00 per share.
This representsis the Fund's second investment in JAKKS.LifeQuest. On December 31, 1996,19, 1997,
the Fund invested $3 million$1,500,000 in a 9% convertible debentureConvertible Debenture of the
Company.
Optical Security Group,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 June 18,August 21, 1998, the Fund invested $500,000$250,000 in the 8% Senior Subordinated10% Cumulative
Convertible DebenturesPreferred Stock of Optical Security Group,ThermoView Industries, Inc. ("OPSC"). The Debentures arePreferred
is convertible into shares of OPSCthe Company's common stock at $6.50$5.00 per share,
and cumulative dividends are subordinate to all senior indebtednesspaid quarterly beginning September 30, 1998.
ThermoView Industries, Inc. is a strategic early-stage
consolidator of the
Company,companies which is defined to include both securedmanufacture, design, market, and
unsecured obligations of
the Company. In addition, the Debenture providesinstall custom vinyl new & replacement windows and doors, primarily
for the establishment of a
sinking fund whereby the Company will make payments into the Fund to cover the
Debenture obligations beginning on July 1, 2002, with payments to be made every
July 1 thereafter until July 1, 2004.
OPSC utilizes its diffractive coating, holographic, and other proprietary
imaging technologies to provide tamper-evident packaging labels, authenticat-
ing labels, and tags for consumer product protection, and security foils for
protection against counterfeiting of checks, cards and any other documents of
value.existing home market.
In addition to the Fund's investment,investments, RUSGIT invested
$500,000$1,500,000 in the 8% Senior Subordinated10% Cumulative Convertible DebenturesPreferred Stock of OPSC. The investment by
RUSGIT was madethe
Company under the same terms and conditions as the Fund's
investment.
Simtek Corporation.Voice It Worldwide Inc.
- -----------------------
On June 12,November 3, 1998, the Fund invested $750,000 in a 9%
Convertible DebentureCompany announced that it had voluntarily
filed for protection under the reorganization provisions of Simtek Corporation. Simtek designs and markets non-
volatile static random access memory chips in an all-silicon (and non-battery
driven) package, that enables the computer to retain data even after the power
is shut off to the device. The Debentures are convertible into the Company's
common stock at $.35 per share. The Fund's position is secured by all the
assetsChapter 11
of the Company, except that the Fund's security interest in certain of
the collateral is subordinate to previously existing security interests
granted to other lending institutions. In addition to the Debentures, the
Fund received warrants to purchase 400,000 shares of Simtek common stock exer-
cisable at $.40 per share.
In addition to the Fund's investment, RUSGIT invested $750,000 in a 9%
Convertible Debenture of Simtek and also received Warrants to purchase 400,000
shares of the Company's common stock. The investment by RUSGIT was made
under the same terms and conditions as the Fund's investment.
TAVA Technologies, Inc. During the Quarter ended June 30, 1998, the Fund
converted Debenture Nos. 4 - 8, which Debentures had a cost basis of $500,500,
into 333,664 shares of TAVA common stock, and subsequently sold these shares
for $3,631,243.04, recording a realized gain of $3,130,745.54.
Voice-It Worldwide, Inc.Bankruptcy Reform Act. The Company iswill continue operations as a
debtor in arrears on its interest
obligations to the Fund. Accordingly, the Fund's position in the Company's
Convertible Debentures has been marked to the market price of the underlying
common stock.possession.
(2) Material Changes in Operations
Net investment income for the quarter ended JuneSeptember 30,
1998, as compared to JuneSeptember 30, 1997, reflects an increase of
$130,489.$268,581. This reported in-
creaseincrease is primarily attributable to the closing fees generatedan
increase in interest income from this
period's investment activity along with an adjustment from prior years
which generated $187,988 of other income. Additionally, dividend income
decreased by $150,000 due to the bankruptcy of Interscience Computer Corp.activity.
During the secondthird quarter, the Fund experienced $2,289,090$9,763,815 of
unrealized losses resulting from a decrease in fair value of its
investments. The Fund
realized capital gains of $3,130,746 on the sale of 333,665 shares of TAVA
Technologies, Inc. common stock.
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 JuneSeptember 30, 1998, the Registrant
paid dividend distributions of income and capital gains to
shareholders in the amount of $347,435,$2,932,935, and accrued dividends
payable to shareholders in the amount of $2,932,935.$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
August 13, 1998 --------------------------------------------------------------------------------------
Russell Cleveland, President and Chairman
November 18, 1998
/s/ Barbe Butschek
August 13, 1998 --------------------------------------------
Barbe Butschek, Corp. Secretary and Treasurer